M. V. 1863.
Queen's Bench

SHAW

บ.

GALT.

H. H. Joy, Hugh Law, and W. Andrews, in support of the con

ditional order.

The principle of law is that, where one man is interested by an arrangement between himself and others, in a fund to which the creditors of those others have a right to look for payment of their debts, that man is, quoad the creditors, a partner of their debtors. Another test of partnership is, whether it can be gathered from the deed that each party to it had a right to have an account taken, in order to ascertain the sum to which he is entitled? An application of both these tests will show that the Messrs. Wallace and the defendant were, by the arrangement between them, made partners, with respect to the rest of the world; and that, as against them, there is nothing to disentitle the plaintiff to be recouped any loss incurred by him in his dealings with them. The cases cited for the defendant relate to the principles which make people partners inter se they relate moreover to gross profits, not "free profits ❞— an expression which means net profits, as distinguished from gross profits; but net profits cannot be ascertained until an account has been taken. It has not been shown that the Messrs. Wallace and the defendant did not act on the footing of a partnership.[FITZGERALD, J. The question of fact on that point would have been, whether there was a partnership in Scotland between them? I asked to see one of the bills of exchange on which this action has been brought, in order that I might see whether the contract was a Scotch one, or an Irish one. ]—The bills were drawn in Ireland, and accepted in Scotland. The Messrs. Wallace had an establishment in Belfast, where the defendant was their agent. But the plaintiff does not rely at all upon the Scotch law. There is in this case a circumstance which distinguishes it from all others on the subject, namely, that each of the three persons who entered into the contract was to receive a fixed annual salary in remuneration of his individual services; so that they were all in the same position.[O'BRIEN, J. The three indviduals were not placed by the deed in the same position; because the defendant was to be paid £500 a-year, in the first instance, and then each of the Messrs. Wallace

say,

was to get £500 a-year.]—No doubt that difference existed. But,
besides his specified salary, the defendant was to receive a sum
equivalent to one-third part of the free profits; so that in that respect
he was put in the same position as the Messrs. Wallace. The words
of the deed are, that the defendant "shall be entitled to," that is to
"shall be entitled to take a sum equivalent to one-third part of
the free profits;" showing that he was not to be paid as a servant ;
and that he was to be paid out of the very fund on which the credi-
tors of the firm relied for payment of their debts. But a man who
has a specific interest in such a fund is, as to creditors, a partner:
Cheap v. Cramond (a); Bloxham v. Fourdrinier, cited in the
argument in Grace v. Smith (b). Liability to loss is not essentially
necessary to make a man a partner, as to third persons: Gilpin
v. Enderbey (c); Greenham v. Gray (d); Heyhoe v. Burge (e);
Again, the free profits were to be ascertained by the Messrs.
Wallace by balance-sheets, "prepared on the principle "-which
must have been the principle of partnership-" hitherto adopted by
them in taking their balances." Lord Eldon's judgment in Col-
becks case (f) is of more weight than his dictum in Ex parte
Hamper (g), which is controverted in Montague on Partnerships,
p. 2. Waugh v. Carver (h) and Ex parte Chuck (i) also show
that the defendant was a partner. Wheatcroft v. Hickman (k)
only decided that the creditors had not intended to make themselves
partners by the deed.-[O'BRIEN, J. They were more than cre-
ditors: they were trustees.]-At all events they were not entitled
to profits indefinitely pro rata, but only to the exact amount of
their debts. The descriptive words, "presently in their employ-
ment," show that the Messrs. Wallace and the defendant meant
to alter the relation which had existed between them.-[FITZ-
GERALD, J.
There is this difference between the positions of those
parties :-under the deed of agreement the Messrs. Wallace would

(a) 4 B. & Ald. 670.

(c) 5 B. & Ald. 954.

(e) 9 C. B. 431.

(g) 17 Ves. 403.

(i) 8 Bing. 470.

(b) 2 Sir W. Bl. 999.

(d) 4 Ir. Com. Law Rep. 501.

(f) Buck's Bankty. Cas. 48.

(h) 2 H. Bl. 235.

(k) 9 C. B., N. S. 47.

M. V. 1863.
Queen's Bench

SHAW

v.

GALT.

SHAW

v.

GALT.

M. V. 1863. have been entitled to a lien upon the partnership property, and Queen's Bench on the profits, for their salaries; whereas the defendant was only entitled to a personal remedy against them.—O'BRIEN, J. Do you contend that the deed created a partnership inter se between the defendant and the Messrs. Wallace?]-The case of Greenham v. Gray (a) goes a long way towards establishing that proposition, for which, however, it is not necessary for the plaintiff to contend. Persons entitled to profits as such are partners, with respect to third parties: 1 Lind Part., props. ii, viii; Broom's Com. Com. Law, 2nd ed., p. 536; 3rd ed., p. 545; and the phrases, "a sum equivalent to one-third part of the free profits," and "one-third part of the free profits," are just the same. The phrase "free profits" means "clear gain;" but the expression "gross profits" takes no account whether the business was carried on at a loss or at a gain-[FITZGERALD, J. "Gross profits" may mean the difference between the selling price and first cost.]-In Ex parte Hamper (b), Lord Eldon must have meant "gross returns," because he alludes to cases theretofore decided; and up to that time only four cases had been decided, and they all relate to "gross returns:" Dixon v. Cooper (c); Benjamin v. Porteous (d); Wilkinson v. Frasier (e); and Dry v. Boswell (f). There is a case of The Queen v. Macdonald (g), but it only related to a partnership

inter se.

Counsel also cited 1 Story Cont., ss. 206-208, and Quintilian's Inst., bk. iii, c. 26.

Harrison, in reply.

It does not appear that Lord Eldon, when deciding Ex parte Hamper, had present to his mind the four antecedent cases which have been cited. In substance his decision was, that a man who received for his services a remuneration proportioned to the profits, was not therefore a partner.

He used almost the same

expression in Ex parte Rowlandson (a). Ex parte Watson (b) is
to the same effect; so that what he said in Ex parte Hamper was not
a mere dictum. In Harrington v. Churchward (c) the party was
held not to be a partner; and yet the deed contained words almost
identical with those in the deed now before the Court; that is
to say, it was "further agreed that in return, and by way of
"remuneration for his services aforesaid, the said C. J. More should
"pay unto the said T. Harrington the yearly sum of £450, by
"equal quarterly payments, and, in addition thereto, a sum
"equivalent to £10 per cent. on the net profits and earnings, if
"any," &c. In Stocker v. Brockelbank, Lord Truro said :-" In
"this case if there be a partnership, it can only result from the
"interest which the contract gives to the plaintiff. Then what
"is this interest? He is to contribute no capital and sustain no
"loss, his credit is not to be pledged, he is to manage the trade
"according to the direction of the defendants, and he has no uncon-
"trolable discretion; the only incident to the contract that can
"present any ground for the conclusion of partnership is, that his
"remuneration depends upon the contingency of profits being
"made"-and then held that the party was not a partner. In both
these cases net profits was the test which settled the amount of
remuneration; and yet it was not argued that any distinction
existed on account of the difference between gross returns and
net profits. It has been contended in this case that the deed of
agreement put the defendant in the same position as the Messrs.
Wallace. That is not so: the firm was liable to the defendant for
the entire salary of £500 a-year, even though they never received
their own fixed salaries. Moreover, the defendant was to be paid
the equivalent for one-third of the free profits, not as profits, but
as a debt: the difference between his rights and those of the other
creditors of the firm being, that he was not to be paid until the end
of the three years, and not even then unless all the other creditors
had first been paid. Therefore the very bills of exchange now
sued upon must have been paid before the defendant could have got
(a) 1 Rose's Bank. Cas. 89.

(c) 29 Law Jour., N. S., Chan. 521.

(b) 19 Ves. 459.

(d) 4 Ir. Com. Law Rep. 501.

M. V. 1863.
Queen's Bench

SHAW

v.

GALT.

SHAW v.

GALT.

66

M. V. 1863. one penny of the free profits. Greenham v. Gray (a) did not resemble Queen's Bench this case, because there the naked profits were to be shared. In that case (p. 512), Richards, B., said:"True it is, that persons may act so as to constitute themselves partners, and become liable "to third persons, while they are not partners, nor liable inter se ; "but that has reference to cases where the partnership is worked out "and attempted to be established by matter in pais, and is totally "inapplicable here, where the question is the construction of a "document; and there cannot be one construction on this instru"ment in the case of persons who are partners quoad third persons only, and another in the case of persons who are partners inter "se." Now if this deed gave the defendant his equivalent to onethird part of the free profits, not as a debt, but as profits, there would be no meaning in the words "a sum equivalent to." The plaintiff must contend that there is no difference between the deed as actually framed, and as it would be framed if those words had been omitted, and the payments to the defendant had not been postponed. The deed cannot be read as if those words had been left out: Smith's Merc. Law, p. 22. Counsel also cited Ex parte Beater (b), Davis v. Harris (c), and Berthold v. Goldsmith (d). Cur. adv. vult.

H. T. 1864.

66

O'BRIEN, J. (after referring to some of the facts of the case). The conditional order obtained by plaintiff to have a verdict entered for him pursuant to the leave reserved by Baron Fitzgerald at the trial, was on the ground "that the agreement of September "1856 constituted defendant a partner in the firm of J. and W. "Wallace." This is different from the terms of the reservation as stated in the learned Judge's report-namely, that the verdict should be entered for plaintiff if this Court were of opinion "that "said agreement gave defendant a right of participation in the "profits, as such, of said firm." It appears to us, however, that as the case stands, the difference is not material; the questions for our (b) 8 Jur., N. S. 629,

(a) 4 Ir. Com. Law Rep. 501.

(c) 9 Jur.,N. S. 859; S. C., 32 Law Jour. N. S., Bank. Cas. 68.

(d) 24 Howard's Rep. (Supreme Court of America), 536.