New Mining and Exploring Syndicate, Ltd, v Chalmers & Hunter
| Jurisdiction | Scotland |
| Judgment Date | 18 November 1911 |
| Date | 18 November 1911 |
| Docket Number | No. 22. |
| Court | Court of Session |
Lord Skerrington, Lord Mackenzie, Lord Kinnear, Lord Dundas.
Partnership—Liabilities of partners—Partner of firm of law-agents acting as secretary of Company—Misapplication of Company's funds—Liability of firm—Money received ‘in the course of its business’—Partnership Act, 1890 Hunter. (53 and 54 Vict. cap. 39), sec. 11 (b).
The Partnership Act, 1890, enacts, sec. 11 (b), ‘Where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm; the firm is liable to make good the loss’.
C., a law-agent, was appointed salaried secretary to a mining and exploring company in May 1907. On 1st August 1907 he and H., another law-agent, entered into an agreement ‘to become partners as law-agents and conveyancers’ on certain conditions, including, inter alia, that the partners should devote their whole time to the business, and that ‘all fees, including directors' fees, salaries, and other emoluments payable to either party individually’ should be credited to the firm. C. remained secretary of the Company until 17th December of that year, when his firm of C. & H. were appointed secretaries in his place. In February 1908 C. absconded, and it was discovered that during the whole period of his connection with the Company he had been embezzling their funds. H., who was completely ignorant of C.'s dishonesty, admitted that the firm and he were liable for the sums embezzled after 17th December.
In an action at the instance of the Company against the firm and H. for repayment, inter alia, of sums embezzled between 1st August and 17th December it was proved that during this period the clerical work connected with the Company's business was done by the firm's staff; that entries connected with the Company's business were made in the firm's books; and that C. paid into the current bank account of the firm sums which he received from the public in payment for shares in the Company amounting to £925, of which only £175 was ever applied for behoof of the Company. It was also proved that at the date of the first of these payments by C., the firm's current bank account was overdrawn by £2601; that during the remainder of the period the overdraft always exceeded that amount; and that during this period C. was indebted to the firm for upwards of £1000, and drew £1840 from the firm's bank account for his own purposes.
The Court assoilzied the defenders, holding (1) that they were not liable under the Partnership Act, 1890, sec. 11 (b), in respect that the monies had not been received by the firm ‘in the course of its business’; and (2) that they were not liable at common law in respect that they had discharged the onus which lay on them of proving that the firm had not been gratuitously benefited by the payments into its bank account.
(Reportedante, on a question of caution, 1909 S. C. 1390.)
The New Mining and Exploring Syndicate, Limited, brought an action against the dissolved firm of Chalmers & Hunter, Writers to the Signet, Edinburgh, and against Hugh B. Hunter, W.S., Edinburgh, as a partner of the firm and as an individual, and R. M. Maclay, C.A., Glasgow, trustee on the sequestrated estate of R. S Chalmers, the only other partner of the firm. The conclusions of the action were for payment of a sum representing the amount of monies belonging to the pursuers, which they alleged had been embezzled by Chalmers while he, and his firm in succession to him, were acting as secretaries of the pursuers' Company. It was admitted that the sums had been embezzled without the knowledge of the defender Hunter, who was entirely ignorant of his partner's dishonesty.
The action was defended by Hunter as an individual and on behalf of the dissolved firm, but no defences were lodged by Chalmers' trustee.
A proof was led before the Lord Ordinary (Skerrington) on 13th December 1910, when the following facts (which will be found more fully set forth in the opinions of the Lord Ordinary and Lord Mackenzie) were established:—
The pursuers were a mining Company registered in Scotland, the board of directors including in their number Robert Scott Chalmers, S.S.C., Edinburgh. At the first meeting of directors, held on 21st May 1907, Chalmers was appointed secretary of the Company, and also law-agent.
On 1st August 1907 Chalmers entered into a partnership with the defender Hunter, a Writer to the Signet, the agreement of copartnership providing, inter alia, ‘the parties agree to become partners as law-agents and conveyancers, and to carry on the business at present carried on by the said Robert Scott Chalmers as law-agent and conveyancer, on the following terms and conditions, namely … (7) Both partners shall devote their whole time and attention to the business.… (10) Neither partner shall be entitled to sign the firm name to any cheque, bill, or other negotiable instrument for other than copartnership purposes. (11) All fees, including directors' fees, salaries, and other emoluments payable to either partner individually shall be credited to the firm unless by special agreement between the partners to the contrary.…’
On 17th December 1907 Chalmers resigned the secretaryship, and the firm of Chalmers & Hunter were formally appointed secretaries in his place. In February 1908 Chalmers, having become involved in financial difficulties, left the country, and it was discovered that, between May 1907, when he was appointed secretary, and the date of his leaving the country, he had embezzled large sums of money belonging to the Company. As secretary of the Company he was in the habit of receiving from applicants for shares the price of shares allotted to them, and the monies so received he appropriated to his private purposes.
The pursuers did not ultimately contend that the compearing defenders were liable for sums embezzled by Chalmers prior to 1st August 1907, the date of the partnership, and, on the other hand, the defenders admitted liability for the sums embezzled by Chalmers after 17th December 1907, the date when the firm were appointed secretaries. Therefore the only question that remained in the case was the defenders' liability for sums embezzled between 1st August and 17th December.
During that period Chalmers paid into the current bank account of the firm sums which he had received on behalf of the pursuers amounting in all to £925, and of that amount only £175 was ever paid out for behoof of the pursuers.
At the date when the first of these payments was made into the current account the account was overdrawn to the extent of some £2601. During the remainder of the period in question the overdraft was always in excess of that amount.* During the whole
period in question Chalmers was indebted to the firm for upwards of £1000, and drew out of the firm's bank account, for other than firm purposes, sums amounting to £1840.
The clerical work connected with Chalmers' individual appointments, including his secretaryship to the pursuers' Company, was done by the firm's staff, and in Chalmers' absence Hunter superintended the work. A letter, dated 27th August 1907, relating to the pursuers' business, was signed, in the handwriting of Hunter, ‘Chalmers & Hunter, Secretaries’. The cash-book of the firm included payments and receipts on behalf of the pursuers, and the firm ledger included an account in the pursuers' name. There was evidence which tended to show that a considerable proportion of the firm's income was derived from emoluments payable to Chalmers in respect of appointments held by him as an individual.
The pursuers pleaded, inter alia;—(2) The sum sued for having been embezzled or misapplied by the said Robert Scott Chalmers while a partner of the defenders Chalmers & Hunter, and in the course of the said firm's business, as condescended on, decree should be pronounced in terms of the conclusions of the summons. (4) The sums sued for received since 1st August 1907 having been received by the firm of Chalmers & Hunter in the course of its business, and having been misapplied by the partners, or one of them, while in the custody of the firm, the pursuers are entitled to decree as craved. (6) The defenders having in their custody or possession the sums belonging to the pursuers sued for, or at any rate a portion thereof, as condescended on, decree should be granted therefor as craved. (7) The firm of Chalmers & Hunter by their course of dealing having made the whole transactions had with the pursuers part of the ordinary business of the firm, the pursuers are entitled to decree as craved.
The compearing defenders pleaded, inter alia;—(2) The pursuers' averments are irrelevant and insufficient to support the conclusions of the summons so far as directed against these defenders, and the action as against them should be dismissed. (3) (a) These defenders not being responsible to the pursuers for any of the sums embezzled by R. S. Chalmers prior to 17th December 1907, as condescended on, and (b) these defenders having, prior to the raising of the action, admitted liability and offered to pay all sums embezzled by R. S. Chalmers during the firm's tenure of the secretaryship, these defenders are entitled to be assoilzied from the conclusions of the action.
On 23rd December 1910 the Lord Ordinary (Skerrington) pronounced an interlocutor in which he, inter alia, sustained the third plea in law for the defenders, and assoilzied them from the conclusions of the action.*
The pursuers reclaimed, and the case was heard before the Extra Division (consisting of Lord Kinnear, Lord Dundas, and Lord Mackenzie) on 9th and 10th November 1911.
Argued for the reclaimers;—The defenders were bound to repay to the pursuers the money embezzled by Chalmers either in respect of sec. 11 (b) of the Partnership Act,1890,1 or in...
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