Thomson & Balfour v Boag & Son. Walkingshaw & Company v Boag & Son. Lawrie Brothers v Boag & Son
| Jurisdiction | Scotland |
| Judgment Date | 11 October 1935 |
| Date | 11 October 1935 |
| Docket Number | No. 2. |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Lord Wark.
PartnershipObligations in relation to creditorsChange of firmLiability of new firm for old firm's debtsPartnership taking over as going concern business formerly belonging to one partnerNew partner contributing to capitalPartnership agreement providing for old partner discharging old firm's debtsOmission in conduct of new firm's business to distinguish old firm's liabilitiesWhether assumption by new firm of old firm's liabilities.
A joiner, carrying on business by himself under a firm name, entered into an agreement, as first party, with his foreman, as second party, under which, in respect of a sum of 340 paid by the second party to the first, they agreed to form, as from that date, a partnership to carry on the first party's business under the existing firm name. The parties also agreed that the partnership capital should be ascertained on a balance-sheet of the first party's business to be immediately prepared; that each party was ultimately to share equally in the business; that the 340 was to be treated as part of the second party's capital; and that the first party should realise the debts due to him and pay the debts due by him in connexion with his own business, and free and relieve the second party of all liability in connexion therewith.
The partnership thereafter took over the old firm's premises and stock-in-trade. The change of firm was never advertised. No balance-sheet was prepared as provided for. The 340 contributed by the second party was used by the first party to pay creditors of the old business, and the second party contributed a further 50 to meet current wages. The first party took charge of the book-keeping and financial side of the new business, the second party attending to the practical side. Despite protests by the second party, no new bank account was opened for several months. Although new books were opened for the new firm, they were kept imperfectly. In the rendering of accounts, no distinction was made between work done by the old business and work done by the new business, and no allocation was made of moneys collected as between the old and the new firm.
In an action at the instance of creditors of the old firm against the partnership for payment of debts incurred by the old firm,
Held (1) that, as the second party, when joining the partnership, had made a substantial contribution to capital, the presumption was that neither he nor the partnership had, in taking over the first party's business, assumed its liabilities along with its assets; and, further, (2) (rev. judgment of Lord Wark) that, although the agreement between the parties had not been wholly carried out, yet there was nothing in the way in which the business had subsequently been conducted to warrant the inference that the second party or the partnership had assumed liability for the old firm's debts.
Heddle's Executrix v. Marwick & Hourston's TrusteeUNK, (1888) 15 R. 698, distinguished.
On 18th May 1934 Thomson & Balfour, timber merchants, Bo'ness, brought an action against Thomas Boag & Son, joiners, Bathgate, and William Roberts Boag and David Bruce, the individual partners thereof, as such partners and as individuals, concluding for payment of the sum of 368, 17s. 9d. Defences were lodged on behalf of Thomas Boag & Son and David Bruce. The defender Boag lodged a minute disclaiming responsibility for these defences, and lodged no defences on his own behalf. On 22nd June 1934 a judicial factor was appointed upon the partnership estate of Thomas Boag & Son, and, on 17th July 1934, counsel for the judicial factor intimated to the Court that the judicial factor did not intend to sist himself as a party to the action.
The facts of the case are fully set forth in the opinions of the First Division judges. The following summary of them is taken from the opinion of the Lord Ordinary:"This is an action for payment of the price of goods supplied by the pursuers. It is brought against the firm of Thomas Boag & Son, joiners, Bathgate, and William R. Boag and David Bruce, the partners of that firm. Mr Bruce has lodged defences on behalf of the firm and of himself as an individual partner thereof. Mr Boag has disclaimed these defences. The defenders' firm was constituted on 13th September 1933 under an agreement of that date. This deed, a copy of which is produced in process, narrates that, in respect of the sum of 340 paid by Mr Bruce to Mr Boag, the parties agree (First) to form as from its date a partnership under the firm name of Thomas Boag & Son, carrying on business as joiners and funeral undertakers in Bathgate: (Second) that the capital of the partnership is to be ascertained on a balance-sheet to be immediately prepared of the present business carried on by Mr Boag, the capital to be contributed at such time or times as the parties may find convenient, the basis of the partnership to be ultimately on an equal basis, the 340 being treated as part of the capital of Mr Bruce: (Fourth) The said William Boag will realise the debts due to him and pay or otherwise settle the debts due by him in connexion with his present business and undertake to free and relieve the said David Bruce of all liability in connexion therewith; the said David Bruce agreeing to have no claim on such book debts due to the said William Boag': (Sixth) the parties agree to enter into a formal written agreement of partnership when the after-mentioned balance-sheet has been prepared and the capital ascertained.
"The firm of Thomas Boag & Son had originally consisted of Thomas Boag, the father of the defender William Boag, and the defender. After the death of Mr Thomas Boag in February 1930, Mr William Boag continued to carry on business under the same firm name. The goods in the account sued on (with the exception of a small quantity of value 6, 15s. 9d., for which liability is admitted by the defenders) were all supplied to the defender William Boag trading as Thomas Boag & Son, and, so far as appears from the evidence, were all used by him in connexion with contracts completed or current at the date of the constitution of the new firm. The pursuers, however, maintain that the new firm and its partners are liable for that account.
"The following facts were, in my opinion, proved with reference to the new firm:The firm took over the stock-in-trade of Mr William Boag. No valuation of that stock was made, but its value is estimated by Mr Boag at 350 and by Mr Bruce at 150. Certain plant of small value was also taken over. No balance-sheet was drawn up as provided for in the agreement. The firm occupied the premises formerly occupied by Mr Boag. No intimation was made, by advertisement or otherwise, of the new partnership. Mr Bruce made payment of the 340, and it was used by Mr Boag in paying creditors of the old business. On 7th October 1933 he made a further contribution to capital of 50, which was used to pay wages to the firm's employees. The book-keeping and financial side of the business and the correspondence were conducted by Mr Boag. Mr Bruce, who had been Mr Boag's foreman, looked after the practical side of the business. No new banking account was opened, notwithstanding protests by Mr Bruce, until 7th February 1934. New books were opened for the new firm, but they were very imperfectly kept. There was no general cash book kept. Accordingly, it is not now possible fully to trace what moneys paid into the bank account prior to February 1934 came from debtors of the old firm and what amount from debtors of the new firm. In rendering accounts the new firm made no distinction between work done prior to 13th September 1933 and work done after that date; and no allocation was made of accounts collected as between the old and the new firm...
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