Ex Parte Delhasse; Re Megavand

(1877) 7 Ch.D. 511

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(Decision by: Bacon VC (5 November 1877), James LJ, Baggallay LJ, Thesiger LJ)

Ex Parte: Delhasse
Re: Megavand

Court:

Judges:
Bacon VC (5 November 1877)
James LJ
Baggallay LJ
Thesiger LJ

Subject References:
PARTNERSHIP
Loan
Participation in Profit and Loss

Legislative References:
Partnership Law Amendment Act (Bovill's Act, 28 & 29 Vict. c. 86) - s. 1

Hearing date: 17 January 1878
Judgment date: 24 January 1878

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Decision by:
Bacon VC (5 November 1877)
James LJ
Baggallay LJ
Thesiger LJ

Though an agreement is expressed to be an agreement for a loan to a partnership under sect. 1 of Bovill's Act, and contains a declaration that the lender shall not be a partner, he will nevertheless be a partner if the result of the agreement, fairly construed as a whole, independently of the reference to the Act and the declaration, is to give him the rights and impose on him the obligations of a partner.

The Act applies only to a loan made upon the personal responsibility of the trader or traders to whom it is made, and not to a loan made on the security of the business.

This was an appeal from a decision of the Chief Judge in Bankruptcy.

Prior and up to the 30th of June, 1869, Felix Delhasse carried on business at Manchester and at Bradford in partnership with J. G. Schlapffer, H. Notz, and F. Megevand, as merchants, under the firm of H. D'Hauregard & Co. This partnership was dissolved as from the 30th of June, 1869, and the dissolution was gazetted and all proper notices given.

On the 11th of June, 1869, written articles of agreement were entered into between Megevand of the first part, J. J. Schoeppi of the second part, and Delhasse of the third part. These articles contained the following recitals:

"Whereas the said F. Megevand and J. J. Schoeppi have agreed to become partners together in the business of H. D'Hauregard & Co., Bradford, upon the terms, and subject to the stipulations, conditions, and agreements with each other, and with the said F. Delhasse, hereinafter contained;"

a recital of the 1st section of the Act 28 & 29 Vict. c. 86;

"And whereas, in order to form and carry on the said partnership business, F. Megevand and J. J. Schoeppi have requested the said F. Delhasse to lend them the sum of £10,000 for the purpose of investing the same in the said business, which the said F. Delhasse has agreed to do upon the terms, and subject to the provisions, stipulations, and agreements in that behalf hereinafter contained."

And it was thereby agreed by and between all the parties thereto as follows:-

1.

"The said F. Megevand and J. J. Schoeppi shall be and continue partners together from the 1st of July, 1869, to the 30th of June, 1872.

2.

"The partnership shall be carried on under the style and firm of H. D'Hauregard & Co. of Bradford aforesaid.

3.

"The capital of the partnership shall consist of the said sum of £10,000, and of such further sum or sums as may at any time during the continuance of the said partnership be advanced by any of the parties hereto, and which £10,000 and sums respectively shall bear interest at the rate of £5 per cent. per annum.

4.

"The said sum of £10,000 is advanced by the said F. Delhasse to the said F. Megevand and J. J. Schoeppi, by way of loan under the 1st section of the said Act of Parliament hereinbefore recited, and such advance does not and shall not be considered to render the said F. Delhasse a partner in the said business. The said sum of £10,000 is to be paid exclusively from the property belonging to the said F. Delhasse and invested in the firm of Henry D'Hauregard & Co., Manchester. The two firms in Manchester and in Bradford shall have to agree between themselves upon the mode of payment of the aforesaid amount, without any interference on the part of Mr. Delhasse.

5.

"The name of the firm shall be signed only by the said F. Megevand or J. J. Schoeppi.

6.

"The expenses arising from the business will include interest on capital, warehouse rent, salaries, and other miscellaneous expenditure.

7.

"The books shall be kept by double entry, and an account current to the 30th day of June in each year shall be remitted within three months after that date to each partner, and duly signed. Similar account current to be remitted to Mr. F. Delhasse, who shall receive statement of account every three months, and who shall have the privilege to examine the books of the firm at any time.

8.

"On the 30th of June in each year an inventory shall be made, and, after having deducted the expenses above mentioned, the profit or loss shall be divided in the following proportions, viz., 25 per cent. to Mr. Delhasse; 371/2 per cent. to Mr. Megevand; 371/2 per cent. to Mr. Schoeppi.

9.

"That neither of the partners shall be allowed to overdraw his private expenditure account more than £500 per annum, for which he shall be debited in account current.

10.

"In case of death of any of the partners, an inventory shall be made six months after such a death, and the executors or administrators of such deceased partner shall be paid his share of the capital and interest due to him in account current, and according to the said last inventory; such reimbursement shall not be due until the expiration of the present contract, and only then in case the business be continued, otherwise it shall not be due until the business is liquidated. In the case last aforesaid the surviving partner shall continue the business until the expiration of the present contract, and divide between himself and Mr. Delhasse, and pro rata, the share which the deceased has had in the business.

11.

"In the case of the death of any of the partners the partnership to be dissolved if Mr. Delhasse demands it, and in such a case the liquidation of the business, if he shall require it, shall fall to the latter, who may, according to his option, substitute the surviving partner for a consideration to be agreed for.

12.

"The partnership shall be dissolved, if Mr. Delhasse demands it, in case his original capital of £10,000 shall be reduced by losses to one-half of its amount.

13.

"Mr. Delhasse shall have the option to substitute any other person into his rights and obligations, and Messrs. Megevand and Schoeppi on their part shall have the same option to substitute Mr. Delhasse, by reimbursing him his capital and interest.

14.

"In case of death of Mr. Delhasse, his heirs, executors, or administrators shall not be allowed to withdraw his or any part of his capital invested in the business of Henry D'Hauregard & Co. in Bradford until the expiration of the present contract.

15.

"If the present contract is not renewed six months before its expiration on the 30th of June, 1872, the partnership shall be dissolved on that date."

This agreement was twice renewed by all the parties to it, first, for a term of three years, terminating on the 30th of June, 1875, and then for a term of two years, ending on the 30th of June, 1877.

In addition to the £10,000 originally advanced by Delhasse, he from time to time advanced further sums for the purposes of the business, amounting to £6000, for which he held acceptances of the firm as security.

On the 7th of September, 1876, Megevand & Schoeppi filed a liquidation petition, describing themselves as merchants, trading as "H. D'Hauregard & Co." Their creditors passed resolutions for liquidation by arrangement, and appointed Henry Dickin trustee. Delhasse carried in a proof upon the acceptances for £6717 11s. 5d., being the £6000 with interest. The trustee rejected the proof on the ground that upon the true construction of the agreement Delhasse was a partner with Megevand & Schoeppi, and as such could not prove in competition with the creditors of the firm.

On the 15th of May, 1877, an application to the County Court by Delhasse that the trustee might be ordered to admit his proof was dismissed with costs.

Delhasse appealed to the Chief Judge. The appeal was heard on the 5th of November, 1877.

De Gex, Q.C., and Smyly, for the Appellant, cited Cox v. Hickman; ^[F1] Waugh v. Carver; ^[F2] Mollwo, March, & Co. v. Court of Wards; ^[F3] Ex parte Mills; ^[F4] Pooley v. Driver; ^[F5] Ex parte Tennant. ^[F6]

Winslow, Q.C., Ince, Q.C., and West, for the trustee, were not called upon.

BACON, C.J.:-

No doubt at one time it might have been said that the law on the subject had been questioned, but the criticisms which have been passed on the case of Waugh v. Carver have thrown such light upon it that it is not worth while to go back to the case of participation in profits as the test of partnership, because the case of Cox v. Hickman ^[F7] has completely settled the law, and the judgment in that case goes principally on the ground that the relation of principal and agent must be established before the dormant partner, or the person lending his money, can be held to be liable for the debts contracted in the business. The Act of Parliament which is called Lord Chief Justice Bovill's Act was passed probably with a view to the then state of the law. But the provisions of that statute are very plain, and are stated in the agreement out of which this contest arises.

[His Lordship read sect. 1 of the Act.]

Beyond that the statute does not proceed otherwise than to inflict upon the lender a penalty by postponing the payment of his debt to the debts due to creditors of the other partners. In this case it appears that a partnership existed at Manchester and at Bradford, in which Mr. Delhasse was a partner. That partnership was dissolved, and a new partnership was constituted at Bradford between the present bankrupts, Megevand & Schoeppi, and then, in order to enable them to carry on their business, Mr. Delhasse agreed to lend them £10,000, and he proposed to protect himself by the stipulations of this agreement and by reference to the statute, which he considered would prevent his being a partner in the concern.

Accordingly in the bankruptcy which has happened he does not seek to prove for that £10,000, but he says that after the agreement was executed and the business commenced he lent them other moneys, that is to say, he became liable to pay, and did pay, for them other sums of money which were used for the purpose of carrying on the business of the partnership. It is not by mere reference to the statute, and by expressing an intention that a lender shall have the benefit of the statute, that the application of the general law can be excluded. If so it would only be necessary for a man to contract in writing to lend £5 and then afterwards to lend other sums of money, and bring them in and say, If bankruptcy happens I shall not forfeit the £10,000, as in this case, or any other sum, but I only forfeit or have postponed the £5 or other sum which I lent in the first instance, because I said I lent it under the Act of Parliament. In this case, as in all others, the intention of the parties must be collected from the instrument to which they are parties, and all the surrounding circumstances must be considered.

As I read this agreement it is, in my view of the case, a very plain contract for a partnership by participation in profits between the three persons who are parties to it. The large share of prospective profits is the inducement to Mr. Delhasse to lend his money and join those persons, the persons to whom he lent it undertaking that he shall have a large share of the profits of the business they were carrying on by means of the money which he lends them. It was in the course of things that more money might be required, and that that money should become part of the capital of the concern. The agreement is that the borrowers request Delhasse to lend them £10,000 for the purpose of investing the same in the business, which he has agreed to do upon the terms and subject to the provisions afterwards therein contained.

A great part of the argument was founded upon considerations drawn from the case of Pooley v. Driver, ^[F8] and that case is sought to be distinguished from the present, on the ground that there the lender had some specific right to some part of the property of the business, and might have applied for an injunction to prevent the misappropriation of any part of the capital which he had so lent. That is so in this case. The contract is that the £10,000 shall be invested in the business, not lent to the partners, for the purpose of carrying it on, and it is in fact the capital of the business, and yet it is said that no injunction could in the present case be granted, even if the partners had taken that £10,000 and invested it in shipping or other transactions foreign to the business. I cannot follow that argument. The advance is made, according to the recitals in the agreement, for the express purpose of carrying on the business of the partnership, and is to be subject to all the stipulations in the agreement.

[His Lordship, after referring to the second and third articles of the agreement, stated:-]

Then the agreement goes on to provide that if at any time during the continuance of the partnership money should be advanced beyond the £10,000, it should be equally applicable to the business. As a matter of fact, Mr. Delhasse did advance £6717 in addition. It became by the very terms of this agreement a part of the capital of the business, and can it be said that Delhasse would not have had the right, if he found either that his £10,000 originally invested, or any sum added to it since by way of loan, was being applied for other purposes than those contemplated by the agreement, to restrain them? I have no hesitation in saying that if that money had been appropriated to anything else but the carrying on of the business, Mr. Delhasse would have had a right to apply to the Court to restrain the partners from so misapplying it. Then the stipulation in the 7th clause is that Mr. Delhasse shall receive a statement of accounts every three months shewing the way in which every sum has been used and dealt with.

That was evidently for the purpose of enabling him to exercise an option, and to say whether he was or was not satisfied with the mode in which his £10,000 was being dealt with. In my opinion, no plainer stipulation constituting him a partner as between himself and the other two gentlemen could have been devised. The agreement further provides that annually an inventory shall be made, and that the profit or loss shall be divided, and that the profit having been ascertained, Mr. Delhasse is to have 25 per cent., not only on his £10,000, but upon the whole profits made by the firm. An inventory is also to be made on the death of any of the partners within six months after their decease, and the executor is to be paid the deceased partner's share of the capital and interest in the concern, according to the statement shewn in the inventory; it being provided that in the last event the surviving partner shall continue in the business until the completion of the contract, and that then an account shall be taken, and the proceeds of the business shall be divided between Mr. Delhasse and the surviving partner.

How they can contend that that is not a stipulation for a partnership all the time that the business is carried on, and for a partnership share in the division of the property when the business comes to an end, I am at a loss to conceive. But the agreement goes even further, because it gives to Mr. Delhasse the power, in the event of the death of one of the partners, or in the event of the original capital of £10,000 being reduced by losses to one-half, to dissolve the partnership and to liquidate its affairs; and yet the gentleman to whom that right is reserved is said not to be a partner, because he says under the Partnership Amendment Act he has lent the £10,000 to the firm. If that was enough the Act of Parliament would be a cobweb, to be broken through by the most clumsy contrivances, or by such a device as is here resorted to.

Without going into the cases that have been referred to, all of which were elaborately considered by the Master of the Rolls in Pooley v. Driver, I am of opinion that the agreement in that case and the present are for all practical purposes substantially identical. The object in each of them was, by means of Lord Chief Justice Bovill's Act, to secure all the benefits which a partner could derive from the business to be carried on, and at the same time to evade the liabilities which the law casts upon persons who participate in the profits of a partnership, whether dormant partners or active. The only exception that that Act made in favour of persons who made such advances to a partnership on the condition of participation in the profits by way of interest, and at the same time declared that the money they advanced was a mere loan to the partnership, was that they could prove for it, but only after every one of the other creditors had been paid. In my opinion the case is identical with Pooley v. Driver, in which the Master of the Rolls, speaking of the advance, says: ^[F9]

"Therefore, although they call it a 'loan,' and although I agree that, standing alone, the fact of the duration of the loan being the duration of the partnership might not of itself be conclusive, it all tends in the same way to shew that this was really intended as an advance of capital to the partnership business, made for the purpose of carrying it on, and not as an ordinary loan."

The concluding observations of the Master of the Rolls are these. Having examined the articles of partnership, he says,

"These are the documents on which I am called upon to decide, and I must say that I have come to a clear conclusion that this is not a transaction of loan within the meaning of the Act of Parliament, that the true relation of the parties towards one another was that of dormant and active partners, and not of mere creditors and debtors; that in this case I need not rely on one provision, or on two provisions, but on the whole character of the transaction from beginning to end.

It is an elaborate device, an ingenious contrivance for giving these contributors the whole of the advantages of the partnership without subjecting them, as they thought, to any of the liabilities. I think the device fails, and that, looking at the law as it stands, I must hold that they are partners and liable to the consequences of being partners, and to the whole of the engagements of the partnership, and consequently liable for the whole of its debts."

It is not necessary for me in this case to go that length. The earlier part of the judgment of the Master of the Rolls, this being a question of proof in bankruptcy, I adopt entirely. Although I am not bound by the decision of the Master of the Rolls, I feel myself bound to adopt the reasons and principles which are there enunciated. I think the principle is plain. In this case there is a plain contract that with the £10,000 which Mr. Delhasse gave the traders first, and with such sums as he has given them since, they should carry on a trade for his benefit, out of which he should, at all events, have 25 per cent. in addition to the ordinary rate of 5 per cent. upon the sums which he had from time to time advanced. In my opinion Mr. Delhasse was a partner dormant, if not active, and not a mere creditor. Therefore the judgment of the learned Judge of the County Court is entirely applicable to the case, and this appeal must be dismissed with costs.

From this decision Delhasse appealed. The appeal was heard on the 17th and 24th of January, 1878.

De Gex, Q.C., Herschell, Q.C., and McKeand, for the Appellant:-

According to the true construction of the agreement the Appellant was not a partner, and therefore he is entitled to prove in competition with the creditors for the advances he made beyond the £10,000, those advances having been made, as we say, dehors the agreement: Ex parte Mills. ^[F10]

The main question, therefore, is whether the Appellant was a partner. Independently of the Act 28 & 29 Vict. c. 86, s. 1, ^[F11] when two persons entered into an agreement and said expressly we are not partners, could any creditor have a right to say, "You are nevertheless partners"? The Appellant was never held out as a partner, and no creditor of the firm knew anything about him. Waugh v. Carver ^[F12] and cases of that class, have been superseded by the decision of the House of Lords in Cox v. Hickman. ^[F13] Of course if the ostensible trader was the agent of the real secret trader, there would be a repugnancy in the agreement, and the latter could be sued as a partner. But that is not the present case. The principle of Waugh v. Carver, that he who takes the benefit must also take the burden, is now exploded. The law is settled by Cox v. Hickman. It was said there that it must be shewn that the ostensible trader was acting as the agent of a principal who was the real trader. This would have been quite clear but for some of the observations of Jessel, M.R., in Pooley v. Driver. ^[F14]

From an agreement to share in the profits it may be inferred that the one was the agent of the other, unless there is something in the contract to control this, something to shew that this was not the real intention. This is clearly expressed in the judgment of Bramwell, B., in Bullen v. Sharp. ^[F15] The Appellant had no control over the expenditure of the £10,000; the other parties could spend it in any way they pleased; he could not have obtained an injunction or a receiver. His only right was to see the books. Pooley v. Driver was quite a different case; there was a provision there that the money should remain in the business during its continuance. There is no such provision in the present case, it is a simple loan. Sharing the losses is not of itself sufficient to make a man a partner any more than sharing the profits. In Mollwo, March, & Co. v. Court of Wards ^[F16] the Rajah had full control over the business, and yet it was held that he was not a partner. The real test of partnership is agency: Re English and Irish, & c., Assurance Society. ^[F17] The judgment of Lord Justice James in Ex parte Tennant ^[F18] lays down the law somewhat differently from that of the Master of the Rolls in Pooley v. Driver.

The Respondent says that a partnership ought to be inferred, because the agreement contains provisions such as would be found in a partnership deed. The parties, however, have said, We do not intend to be partners. No doubt, in spite of this, they would be partners if the Court could see there was a mere device to obtain the benefit while avoiding, the responsibility of a partnership. But the deed ought to be construed so as to carry out as far as possible the intention of the parties, and it lies on the Respondent to shew that, ex necessitate rei, a partnership was constituted. There is no question about holding out.

[BAGGALLAY, L.J.:- Is there anything in the present case to negative the notion of a partnership, except the recitals of the Act and the declaration that there is no intention to constitute a partnership?]

There is more than that. If the view of the Master of the Rolls in Pooley v. Driver ^[F19] is right, the Act puts a man who lends money to a trader on condition of receiving a share of the profits in a worse position than he was before, because the Master of the Rolls says that the Act does not apply until you have shewn that there is no partnership. When a man expressly says, I don't intend to be a partner, are the ordinary rights of a partner to be implied in his favour? For the case must be decided just as it would be if the Appellant was claiming the rights of a partner.

The test which the Master of the Rolls puts in Pooley v. Driver, ^[F20] of a dormant partner, is fallacious, for a dormant partner is liable to the creditors, because he has agreed to be a partner. He has deprived himself of certain rights which prima facie he would have as a partner; whereas, in a case like the present, it is sought to give a man rights which prima facie he has not. In Bullen v. Sharp ^[F21] losses were to be shared as well as profits, but it was held that there was not a partnership. Sharing profits and losses would, no doubt, if it stood alone, constitute a partnership; that would be the legal inference. The inference may, however, be rebutted, and there is enough to rebut it in the present case. There is nothing unfair in endeavouring to obtain the benefit of a partnership while escaping its liabilities, if it can be done consisently with the law. Clause 13 of the agreement shews that the Appellant could have been paid off at any time.

[JAMES, L.J.:- The essence of the judgment in Pooley v. Driver ^[F22] seems to be that if the party, who is said not to be a partner, intended to exercise a control over the application of the money which he advanced, and could have brought an action in respect of its application, then it was intended that he should be a partner.]

No such control is reserved in the present case. The intention clearly was that the Appellant should not be a partner, and there is nothing in the agreement necessarily inconsistent with that.

Winslow, Q.C., Ince, Q.C., and West, for the trustee:-

The argument comes to this, that the Court is to look only at the declaration in the agreement that the parties are not to be partners, and is to disregard all the other provisions, and to give the Appellant the protection of the Act.

[JAMES, L.J.:- It is said that, independently of the Act, there would not be a partnership.]

If the legal result of the agreement is a partnership, it does not signify what the parties call themselves. They cannot evade their legal liability by saying they are not partners. What is a partnership? A number of definitions have been given. Vice v. Lady Anson ^[F23] and Green v. Beesley ^[F24] are illustrations of the principle. Mr. Justice Lindley says: ^[F25]

"The writer is not aware of any case in which persons who have agreed to share profit and loss have been held not to be partners."

Each partner becomes by law the agent of the others for all the purposes of the business. Mr. Justice Lindley adds: ^[F26]

"The inference that where there is community of profit there is a partnership, is so strong, that, even if community of loss be expressly stipulated against, partnership may nevertheless subsist."

Cox v. Hickman ^[F27] is not inconsistent with this view. The question, as Lord Cranworth said, ^[F28] is whether the trade has been carried on on behalf of the alleged partner.

[JAMES, L.J.:- Could Delhasse have pledged the credit of the firm?]

There might be a partnership, even lf the agreement was that one partner should carry on the business as he in his uncontrolled discretion thought fit, and that the other should have no power to interfere. But here, with the exception of the reference to Bovill's Act, and the declaration that there is not to be a partnership, all the provisions of the agreement point to a partnership. On the dissolution of the old firm, Delhasse, who was known to be the partner who had the capital, withdrew, leaving all his capital in it on the terms of this agreement; it was clearly a device to evade the responsibility of a partner. In Ex parte Tennant ^[F29] the father's liability for losses was simply as a security for the son, as Lord Justice Cotton points out, ^[F30] whereas here the liability for losses arises out of the contract between the parties. And Lord Justice Cotton says, ^[F31]

"The way in which the profit is to be participated in is really the essence of the whole matter. If the business is carried on by one man as agent for another as principal, the mere fact that he carries it on for another gives that other whose agent he is the right, from his position of principal, either to the whole or to a share of the profits."

The effect of the agreement in this case is to make the other two agents for Delhasse. The right to a share in the profits is given to him, not qua debt, as in Ex parte Tennant, but qua profits. Whether it is a case under Bovill's Act or not, it is essential to the notion of a loan that the lender should be able at some time or other to sue the borrower. There is no such right here. Delhasse could never have brought an action against the other two for his £10,000. His only right would have been to have the partnership accounts taken, to have the business wound up and the debts paid, and then to have his £10,000 paid out of the remaining assets. Megevand and Schoeppi were under no personal liability to repay it. The agreement is really that the business shall be carried on by the two on behalf of the three. Syers v. Syers ^[F32] is another illustration of the principles applicable, and Mollwo, March, & Co. v. Court of Wards ^[F33] assists our argument. There, in delivering judgment, the Court said, ^[F34]

"Whenever the agreement between parties creates a relation which is in substance a partnership, no mere words or declarations to the contrary will prevent, as regards third persons, the consequences flowing from the real contract."

In Ex parte Mills, ^[F35] Lord Justice Mellish expressed an opinion that if an advance was made under the Act, with an agreement for a share of profits, and further sums were advanced without any such agreement, with an intention to elude the Act, the lender would be a partner. The agreement in the present case is an attempt to evade the law. In Stocker v. Brocklebank ^[F36] there are dicta in our favour. The agreement to share profit and loss makes it clear that there was a partnership, whatever the parties have said.

Herschell, in reply:-

Sharing profit and loss does not necessarily constitute a partnership. There is no such rigid rule contrary to the intention of the parties. The rule formerly was that sharing in profits constituted a partnership, but that is exploded since Cox v. Hickman. ^[F37] A lender of money to a firm may make stipulations for his own protection without becoming liable as a partner.

[THESIGER, L.J.:- Does not an advance by way of loan imply a personal liability to repay?]

A father might advance money to a son engaged in business as a gift, without becoming a partner. It is not enough to shew that the provisions of the agreement are consistent with the existence of a partnership; it must be shewn that they cannot be carried out without a partnership. Some of the stipulations in the agreement would be very unusual in the case of a partnership, e.g., the power given to Delhasse to make a stranger a partner without consulting his co-partners. The case must be viewed just as it would be if Delhasse were now insisting that he was a partner. He may have agreed to surrender some of the ordinary rights of a lender, but that does not make him a partner. It would be extra-ordinary if the partner who found all the money could be turned out as soon as the business became profitable.

JAMES, L.J.:-

I am of opinion that the decision of the Chief Judge, affirming the decision of the County Court Judge, ought to be affirmed by this Court.

No doubt the question is, what is the true intent and meaning of the contract between the parties, and what is the true legal effect of the leal transaction between them, which must be gathered from the whole instrument and not from a few words in it which may have been inserted for some purpose or other. Every word ought to have its weight and ought to be well considered.

Now, in construing this contract, I will consider it first as it would have stood, omitting those two or three clauses upon which the principal reliance has been placed by the counsel for the Appellant. [His Lordship read the whole of the agreement, except the recitals of the 1st section of the Act, and of the agreement for the loan of the £10,000, and clause 4, and continued:-]

Now, if that had been the agreement, could there be any doubt whatever what the relation between the parties was, namely, that Megevand and Schoeppi were active partners, each of them having the power of signing the name of the firm, and that Delhasse was the dormant moneyed partner who was to have all the rights which a dormant moneyed partner would have in respect of the capital of the business? He would have had no right to interfere in the ordinary management of the business, but so far as regards keeping the capital in the firm and preventing its being applied to any other purpose, and preventing the name of the firm from being pledged in any other than its legitimate business, Delhasse would have had every power that the other partners had. He would have had the power of preventing them from contracting debts except for the firm, and he would have been entitled to have the capital in his hands in case of the death of either of the ostensible partners. The property would have been the property of the firm, and Delhasse would have had the power of seeing that the assets were properly applied in discharge of the liabilities, and the right to take possession of the whole thing and to apply the assets in payment of the debts of the firm, and he would have been entitled to share in the interest of the deceased partner if he was minded to continue the business. He takes a share of the profits, and he is to bear his share of the losses. If ever there was a case of partnership this is it. There is every element of partnership in it. There is the right to control the property, the right to receive profits, and the liability to share in losses.

But it is said that there are other provisions in the contract which prevent its having this operation, and which shew clearly that the parties meant the relation of lender and borrower, and not the relation of partners, to subsist between them. And for that purpose reliance is placed on the recital of sect. 1 of the Act - the recital of the agreement for a loan - and the declaration in clause 4, that

"the £10,000 is advanced by Delhasse to the other two by way of loan under that section, and such advance does not and shall not be considered to render Delhasse a partner in the business."

Can those words really control the rest of the agreement? Do they really shew that the intention was not in truth that which it appears to be by all the other stipulations? To my mind it is quite clear that they do not. When you come to look at all the other stipulations, they are utterly inconsistent with the notion of a loan by the one to the two, so as to make the two personally liable in respect of it in any event or under any circumstances whatever. The loan is said to be made to the two, but, when you read the whole of the agreement together, it is impossible not to see that it was not a loan to the two upon their personal responsibility by the person who is said to be the lender, but that it was a loan to the business which was to be carried on by the two for the benefit of themselves and him, and was to be repaid out of the business, and out of the business only, except in the case of loss, when the loss would have to be borne by the three in the proportions mentioned in the agreement. The use of the word "lend," and the reference to the Act, are, in my opinion, a mere sham - a mere contrivance to evade the law of partnership.

The loan is a mere pretence, the object being to enable the so-called lender to be, not only a dormant partner, but the real and substantial owner of the business, for whom and on whose behalf it is to be carried on, and yet to provide that he shall not be liable for the loss, in case loss shall be incurred. In my view, it is the same thing as if B. were to set up a business to be carried on by A., he being nothing but a manager, B. being the real principal, although A. was buying and selling everything, and then, when the public found out who the principal was, when the thing came to an end, he could say, A. is the man you trusted. I was the real principal, but I am not liable to you, although the whole thing was mine from beginning to end. The law of England does not allow this to be done, and it appears to me that it equally does not allow a man to escape liability, who, though he is not the entire owner, yet is the substantial owner of a business, but takes in two persons as nominal partners to carry on the business, while in truth it is his business during the whole time.

In my opinion this business was really Delhasse's business. No doubt the other two were receiving a large share of the profits, but they were receiving that share merely for the purpose of paying them for their management of the business, he being the person whose capital was to produce the profits. He was the person who was to bring in further capital if he thought fit to do so, as he in fact did, for although he did it by putting his name to bills of exchange, yet the money obtained by the discount of those bills of exchange went into the assets of the firm, and formed part of the capital out of which the profits would have been made, if the business had been a profitable one.

In my opinion, the mere insertion of the provisions, that the £10,000 shall be a loan under the statute, a loan by the one to the other two, and that there shall not be a partnership, cannot alter the real nature of the transaction, which had not the characteristics of a loan by the one to the other two. It was a loan to the business, and that business was carried on at the risk and for the benefit of Delhasse, as well as of the others, and I am of opinion that the agreement was in truth and in substance an agreement for a real partnership between all the parties.

BAGGALLAY, L.J.:-

I am of the same opinion.

As regards the effect of the agreement, I so entirely concur in the observations which were made by the Judge of the County Court upon the original hearing, that I do not propose to travel through the various clauses.

It appears to nne beyond all question that Delhasse was constituted a partner by the agreement, unless the reference to Bovill's Act and the provisions of clause 4 make any difference. I think that that reference and those provisions are not sufficient to exclude a partnership if, upon the true construction of the agreement apart from them, a partnership would be established.

Now, in the first place, however much the parties may have intended it, I cannot consider that this was a loan within the provisions of the Act, and for this reason: the Act expressly provides only for a case in which the loan is made "to a person engaged or about to engage in any trade or undertaking." And, according to my view of the agreement in this case, this was not a loan made to the two ostensible partners, but a loan made to the business. It was made by Delhasse to himself as well as to the two partners, and this imposed on him, as on them, an equal obligation of bearing any loss in respect of it.

I asked Mr. Herschell in the course of the argument whether, in the event of one half of the £10,000 having been lost in the course of the business, and of Mr. Delhasse then availing himself of the option to dissolve the partnership, it could be considered a loan of £5000 or £10,000 due to him from the other two partners, or as a loan due to him from the business, and he could not sustain a claim for the whole £10,000 against the other two. It is perfectly clear that Delhasse would have had no light to more than that portion of the £10,000 which had not been lost in the carrying on of the business, and I think this view is confirmed by the 3rd clause of the agreement. The £10,000 is there treated, not as a loan to the two partners, but as a portion of the capital of the business, the risk of losing which, as well as the chance of profit, Delhasse was to bear as well as the other two partners.

I quite assent to the proposition of Mr. Herschell, that one fair way of trying this question would have been this - to see whether, if Delhasse had chosen to assert the rights of a partner, he could have been prevented from so doing by either of the other parties. It appears to nne clear that he is not deprived of any of the rights of a partner, except that of signing the name of the firm, and that he would be perfectly entitled to assert those rights against the other two.

THESIGER, L.J.:-

I am of the same opinion.

In arriving at a conclusion in this case, which is one of importance, I have endeavoured to look first at the position of the parties apart from any consideration of the Act of 1865, and then to see whether there is anything in that Act which makes any difference in their position.

Now, apart from the Act, the law applicable to the case has been laid down in tolerably distinct terms by the House of Lords in Cox v. Hickman, ^[F38] and it is perfectly true that the House of Lords in that case laid it down that the proposition that a participation in profits constitutes an invariable test of partnership is not one which can be maintained. Lord Cranworth ^[F39] gives as the test that which, no doubt, must now be taken as the proper test to be applied in all these cases, namely, that the real ground of liability as a partner is that the trade has been carried on by persons acting on behalf of the person whom it is attempted to make liable as a partner. But, in the very same page in which those words occur, Lord Cranworth also says that the participation in profits is in general a sufficiently accurate test, and that the right of participation in profits affords cogent, often conclusive, evidence of a partnership. If that be so, it follows as a logical consequence that if, in addition to participation in profits, the arrangement provides for a participation in losses, and also contains stipulations tantamount to the ordinary stipulations which one would expect to find in the case of a dormant partner, it is an à fortiori reasoning in such a case in favour of a partnership, and Lord Cranworth's words "cogent and often conclusive" must be changed into the words "still more cogent and often more conclusive evidence of such a partnership."

Now, is not that the real state of things under this agreement? The £10,000 is put into the business. I use the expression advisedly, because the £10,000 is treated under clause 3 not merely as a sum in respect of which interest at the rate of £5 per cent. is to be paid to the person who brings it in, but as the capital of the partnership which, equally with other capital which may be brought into the partnership from time to time, is to bear interest in the ordinary way of capital brought by partners into a business.

Then we find a variety of stipulations as to the mode in which the expenses are to be treated in order to arrive at the profits, the books which are to be kept, and the accounts which are to be furnished to Delhasse as well as to the two ostensible partners, all being stipulations such as are ordinarily found in arrangements between ostensible and dormant partners.

Then comes clause 8, which, it must be observed, provides, not merely for a payment to the person who is said to have made an advance of money by way of loan of a share of the profits up to some limited extent, which might be supposed to be a fair remuneration for his risk, but for a payment of an indefinite share of the profits. And I observe that Mr. Justice Lindley, in his book on Partnership, in speaking of the different propositions which may be deduced from the decision in Cox v. Hickman, says, among other things, ^[F40]

"that prima facie the relation of principal and agent is constituted by an agreement entitling one person to share the profits made by another to an indefinite extent."

That appears to me to be an accurate expression of the law as evolved from Cox v. Hickman. ^[F41] But in this case the agreement does not even rest there, because we find that it goes on to stipulate that Delhasse shall have rights even greater than those which an ordinary dormant partner would have, for, in the event of the death of one of the ostensible partners, the surviving ostensible partner is not to have the control of the liquidation of the business; Delhasse is to have the control of the liquidation, and he and he alone is to decide whether the business is to be continued. And, finally, instead of any personal liability attaching to the partners in respect of the payment of the sum which is supposed to be advanced by Delhasse, there is only a stipulation that, in the event of the contract not being renewed, i.e., the contract between the three, then the partnership is to be dissolved. The assets would then be got in, the accounts would be taken, and the whole of the £10,000, or, if a portion of it had been lost, only that portion which remained would be paid to Delhasse.

It therefore seems to me that, apart from Bovill's Act, it is impossible that words could have been used more strongly importing a partnership, or more clearly creating all the rights and obligations which attach to the relation of ostensible and dormant partners. There is only one clause which seems in any way to tend against that conclusion, namely, clause 13, under which the ostensible partners have a right "to substitute Delhasse by reimbursing him his capital and interest." I quite agree that to some extent that does tell against the notion of a partnership, and of Delhasse having the chief control of the business, but, on the other hand, it is consistent with a partnership, and is, in my opinion, insufficient to override all the other stipulations to which I have referred.

Then the question arises, is there any distinction, so far as this case is concerned, between the position of the parties under the Act and that which they would have held apart from the Act? Now it certainly appears to me a little difficult to discover what is the exact benefit which the Act proposed to give to persons advancing their money to partnerships. At the same time I think one can see that, to a certain extent, there might be some benefit obtained from the Act, for apart from it, as is stated by Mr. Justice Lindley in the passage to which I have just referred, the sharing of profits to an indefinite extent might per se constitute a partnership, for I take that to be the meaning of "prima facie constituting the relation of principal and agent." Under the Act that would not be so, because it provides that "the advance of money by way of loan to a person engaged or about to engage in any trade or undertaking, upon a contract in writing with such person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from the carrying on of such trade or undertaking, shall not of itself constitute the lender a partner;" and by the use of the term "a share of the profits," must be intended a share to indefinite extent. But, on the other hand, the overriding words are "the advance of money," and not merely the advance of money, but "the advance of money by way of loan;" and I suggested to Mr. Herschell during the argument whether those words must not be taken to import a personal liability, and I did not understand him to dispute that they must. The only answer that he gave was this, that, although that might be the case, yet a gift of money by a father to a son for the purpose of his carrying on a business, and upon a contract to the effect of that referred to in the Act, would not necessarily constitute a partnership. That is perfectly true, but it is equally true that such a gift would not come within the terms of the Act at all, because it only provides for the advances of money by way of loan, and leaves any question of gift to the general law.

It seems to me, stopping at this point, almost impossible to say that this case is within the Act at all, and, if so, the observations which I have made upon the position of the parties, apart from the Act, apply.

But I think that even if the words "by way of loan" were struck out, still, looking, at all the provisions of the agreement, by virtue of which there is a participation not only in the profits but also in the losses, and where there are all the stipulations which are ordinarily found in co-partnerships having dormant and ostensible partners, it would be impossible to hold that a case like this was intended to be brought within the provisions of Bovill's Act. That being so, and the provisions of the agreement between the parties being, such, a mere statement of intention such as we find in different parts of the instrument cannot take the case out of the general law, which is, that, if in body and substance an agreement is one of partnership, a partnership is constituted with all the ordinary duties and liabilities flowing from it.

JAMES, L.J.:-

The appeal will be dismissed with costs.

Herschell, Q.C., asked for leave to appeal to the House of Lords. He stated that an action had been commenced against Delhasse by one of the creditors of the firm for £9000, and was pending before the Master of the Rolls. In that action there would be a right of appeal to the House of Lords without any leave.

Winslow, Q.C.:- The trustee ought to be protected against costs. If the decision should be reversed, he might be personally liable for costs.

JAMES, L.J.:-

I do not think the House of Lords is very likely, under the circumstances, to make the trustee personally pay the costs. Leave to appeal will be given.