Case Summary
| Citation | Miles v. Clarke[1953] 1 All ER 779 |
| Keywords | lease, partnership, studio, photography business, |
| Facts | The defendant started a photography business. For this reason, he signed a 7-year lease for £400 per year on a property in Shepherd’s Market, which served as the location for carrying on business. The defendant also owned the furniture and studio equipment. He hired others to work for him because he lacked the necessary skills. The defendant asked the plaintiff to join him in business in January 1950. At the time, the plaintiff was a well-known commercial photographer who worked as a freelancer. He initially worked part-time in the defendant’s studio before beginning to do so regularly in April 1950. He significantly improved the company’s reputation and connections. Both introduced various drawbacks. There were just two stipulations of the partnership that had been agreed upon: *Profits were to be distributed equitably to all. *The plaintiff will receive £125 each month as his profit-sharing payment. The plaintiff and the defendants were partners in a partnership at will and conducted the business of fashion and commercial photographers.There was no additional agreement between the parties, but they discussed operating the business as a limited corporation. |
| Issues | Whether there was a partnership? If there was a partnership, what were the assets of the partnership? |
| Contentions | |
| Law Points | The studio name, or the goodwill that has been attached to it (although I should have thought it was probably small), and the images insofar as they collected throughout the two years the partnership was in existence are the only partnership assets that are still in existence, in my opinion. The plaintiff will undoubtedly lose his own connection and his own clientele now that the parties have broken up, while the defendant is likely to keep his. It could be advantageous for him to be allowed to keep the leasehold property, but since he already owned them and did not agree to assign them or sublet them, that is the unavoidable outcome of the parties’ inability to reach a more suitable agreement. The judge observed that nothing except the negatives brought by both parties had gone into the partnership as assets and if they wish to, both the parties can take away their own negatives. The judge on the topic of the negatives stated that the negatives of photographs that had been used up in the course of the partnership are an asset belonging to the partnership. It is claimed that no further agreement between the parties is required; all that is required is to assert that everything that belonged to one of them at the start of the partnership remained his or her property at the end, and that the law will not create any fictitious agreement between the parties since it has been established as a fact that there was none. |
| Judgement | The court held that the lease, equipment and furniture were brought in by the defendant, and was thus his personal property. The judge noted that only the negatives provided by both parties had been added to the partnership’s assets, and either party may remove their own negatives if they so choose. |
| Ratio Decidendi & Case Authority |
Full Case Details
HARMAN, J. – This is a partnership action in which the issues on the writ, at the hearing of
a motion, and on the pleadings when the matter came to be dealt with in this court were two:
First, was there a partnership at all? Secondly, if there was a partnership, what were the assets
of the partnership? The defendant was advised, and I think obviously rightly advised, that to
contest the issue whether in law there was a partnership was to contest the incontestable, and
that, therefore, at the outset he would be wise to concede that a partnership had existed, and
that a partnership at will had begun on April 1, 1950, and had expired at the issue of the writ
in the action. This advice he rightly took. The expiry of the partnership may conveniently be
taken to have occurred on May 29, 1952. That left to be decided the question: What were the
partnership assets? Though it was pleaded in the defence that none of the assets used in the
business belonged to anyone but the defendant, yet the statement of claim, as it stood, did not
conveniently raise that matter. It seemed to me and to counsel who represented the parties
that the right course to take was to treat the hearing as deciding that a partnership existed and
make an order on that footing, and then order the ordinary partnership accounts with an
addition in a special form in order to raise the matters which remained in controversy between
the parties. Consequently, on Feb. 19, 1953, I made an order declaring that there was a
partnership between the plaintiff and the defendant, and that it began on April 1, 1950, and
was dissolved on May 29, 1952. I ordered, first, the following inquiry:
Any inquiry whether any and if so which of the following items as at April 1, 1950,
formed part of the partnership property or whether any and if so which of them remained
the separate property of the plaintiff or the defendant as the case may be….
and then follows the list: (i) the lease of the property at Shepherd’s Market where the business
was carried on; (ii) the furniture and fittings in the studio; (iii) and, perhaps, most important,
the equipment of the studio; (iv) the plaintiff’s and the defendant’s photographic negatives
and prints which were brought in by each of them at the outset; (v) the defendant’s goodwill
or reputation; and (vi) the plaintiff’s goodwill or reputation. That order was followed by an
order (in para. 2 and para. 3) for the taking of the usual account and inquiry in a partnership,
in common form. In para. 4 I ordered an inquiry whether either the plaintiff or the defendant
was entitled to be credited in the partnership accounts with any sum on account of any of the
items referred to. I then treated the summons to proceed as having been issued and having
come before the master and the inquiries ordered in para. 1 and para. 4 of the order as having
been adjourned into court. This judgment will be a judgment to assist the master in answering
the inquiry ordered in paras. 1 and 4 when the matter is sent back to him.
The defendant, who was a gentleman of some means, was minded to start a business in
commercial and fashion photography. After looking about for some time, he found the
premises which subsequently became the place of business of the partnership and in June
1948, he entered into a lease whereby the property, which consisted of two squash racquets
courts, dressing-rooms, and so forth, was demised to him for a period of seven years from
midsummer, 1948, at a rent of £400 a year, which was, I am told, an advantageous lease,
bearing in mind the neighbourhood and the fact that squash racquets courts are easily
adaptable as photographic studios, having a good overhead light. One court was left open as a
large studio, the other was divided by partitions and a floor put in, part of it being used as
dark rooms, part as offices, and part as a smaller studio. There the defendant started to carry
on a photographic art or craft, but he employed persons to carry out the photographic work for
him. At the beginning he made a very considerable loss. In January, 1950, after some earlier
approaches which were ineffective, he applied to the plaintiff to see whether he would come
into business as a partner. The plaintiff has been taking photographs all his life, and he is,
apparently, well-known and has a good connection in this particular work. He was at that
time working for others, using their studio partly for his own purposes and partly on their
behalf, and he was making a very considerable income as what he called a free-lance
photographer. He, it seems, was not very anxious to come in, and during the first month or so
of 1950 he came down occasionally to the defendant’s studio and took photographs, but from
about the beginning of April he attended there as a full-time occupation and brought with him
his own considerable connection. He took photographs of such subjects and such models as
the defendant on his side should provide. The upshot of it was a very successful business.
The plaintiff’s faithful clients followed him, and brought their work to him. The business is
now in the hands of a receiver, after the partnership quarrel, in a flourishing condition.
These two people, having, as it were, thrown in their lot together in this way, were too
busy to think about the terms on which they should carry on business. They agreed that the
profits, if there should be any, should be shared equally, and I take it the losses also, though,
of course, they did not contemplate losses, and they did not have to face any. There also
appears to have been an agreement reached that the plaintiff should draw £125 a month on
account of his share of the profits, but that arrangement did not always continue, because the
plaintiff appears to be a rather improvident person who is almost incapable of managing his
own life. The only two matters that were agreed were that there should be an equal sharing of
the profits and that the plaintiff should have these monthly drawings on account. They both
contemplated a regular legal connection, and the plaintiff employed as his solicitors Messrs.
Blacket Gill & Topham, who, as early as January 1950, can be found writing to the defendant
setting out what the plaintiff understood. At that time the plaintiff, by the advice, no doubt, of
his solicitors, contemplated that there would be a limited company and not a partnership to
carry on the business. Whether the matter was carried on in one guise or the other really
made no difference in substance to the parties. Miss Blacket Gill, the senior partner in that
firm of solicitors, who conducted all the negotiations on the part of the plaintiff, wrote on
January 31, 1950, in these terms:
We understand from (the plaintiff) that you and he are desirous of forming a limited
company to carry on business as photographers. The business will be carried on at 5,
Shepherd Street and the assets of the company will consist of Mr. Miles’s goodwill, your
goodwill and a lease and you will each hold shares in accordance with the value of the
assets you put into the company. We understand that very little detail has been arranged
between you except that you both agree that you wish to proceed on these lines.
The defendant employed an accountant who treated as an item on the debit side of the
business a bank overdraft of £1,000 or so, which was, in fact, the defendant’s private bank
overdraft which neither party had contemplated for one moment as being a liability of the
business. As the so-called accounts start from that monstrous unreality, it seems to me
impossible to place any reliance on what should be put on the other side. On the other side, in
fact, certain assets, including the lease and the stock-in-trade, are set down as assets of the
business, but when one knows that the chief liability shown is not a business liability I do not
think one is entitled to assume that that which appears as an asset is in truth an asset of the
business. It is obvious that these parties and their advisers, so far as they thought about it at
all, always contemplated that the lease, the equipment and the studio furniture, and the stockin-trade and so forth should all be brought into the common pool, but the fact is that nothing
was ever finally agreed about it, and they just drifted on.
On what terms were these people partners? The only answer one can give is that they
were partners on the terms that they shared the profits between them. What more? It is said,
and I think rightly, that, even though there was no further agreement, one must assume that
the stock-in-trade, such as stocks of film, was put into the pool and cannot be taken out again,
but must become part of the partnership assets. That is not denied. There remain, however,
more important items. The first is the lease and the second is the plaint which may be worth
£2,000. It is said with force by counsel for the plaintiff that those two classes of assets were
put forward throughout as being brought in as part of the assets of the intended association,
and, the plaintiff having come into the business on that footing, it would be inequitable now
to deny him a right to share in those assets. It is said on the other side that it is not necessary
to assume any further agreement between the parties, but one need only say that everything
that belonged to one of them at the beginning of the partnership still belonged to that one at
the end, and that the law will not make any imaginary agreement between the parties, it being
ascertained as a fact that there was no agreement. In my judgment, no more agreement
between the parties should be supposed than is absolutely necessary to give business efficacy
to that which has happened, and that, I think, is the only safe way to proceed.
It is absolutely necessary to assume that things quae ipso usu consumuntur, the stock-intrade, must be treated as having been brought into the partnership and their value must be
ascertained by inquiry. They were all brought in by the defendant. I do not see the necessity
of assuming that anything else went into the partnership. It seems to me that, as the parties
failed to agree, it is not for me to say that the defendant must be assumed to have thrown the
lease and the plant into the pool. The partnership could get on quite well if he gave his
partner a licence to go on the leasehold property for the purposes of the business and to use
the cameras to make the joint profile. Therefore, in my judgment, nothing changed hands
except those things which were actually used and used up in the course of the carrying on of
the business. The stock of negatives which each of these partners brought in was for the use
of the business so long as it was going on. As I understand there is no great difficulty in
separating them again now, and, indeed, being ex necessitate negatives or photographs taken
before 1950, so far as they are fashion negative I cannot think that, except historically, they
have any great value. However, if desired, the parties can each take away their negatives. Of
course, the stock of negatives of photographs taken during the course of the partnership must
be a partnership asset. Everything that changed its existence during the currency of the
partnership must be.
It was said that, apart from those matters, each party brought in a connection, and that the
plaintiff brought in something of value in the shape of his good will or connection which must
in some way be quantified or valued and treated as an asset of his. Some such scheme was,
undoubtedly, envisaged, but it was never agreed on, and it seems to me it would be idle to
suggest that, as the parties had not agreed anything of that sort, it ought to be treated as having
happened. The plaintiff came there because, having the connection he did, if he had the
studio and the equipment to his hand, he could make a good profit and presumably it would
be worth his while to take half that profit in return for the benefit of the use of the studio and
the equipment. I see no reason to suppose that, though his connection and skill were very
useful to make profits, one ought to treat them in some way as capital assets. Therefore,
neither his connection, nor the defendant’s connection, if it was of any value (which I doubt),
should be treated in any way as being a partnership asset.
The only partnership assets remaining are, I think, the studio name, or the goodwill, such
a it is, which has been attaching to it (and should have thought that was probably little), and
the photographs in so far as they accumulated during the two years when the partnership was
subsisting. Now that the parties have separated, the plaintiff will take away his own
connection, no doubt, and his own clients, just as he brought them, and the defendant will
presumably keep his own. It may be that it will be to his advantage that he will be able to
keep the leasehold premises, but, as they were his before and he did not agree to assign them
or to sub-let them, that is the inevitable result of the failure of the parties to make a more
reasonable bargain.
Therefore, I propose to answer the inquiries by declaring that the lease, furniture and
fittings, and the equipment of the studio did not form part of the partnership property, but
remained the separate property of the defendant; that the plaintiff’s and defendant’s
photographic negatives and prints brought into the business on April 1, 1950, remain the
property of the person bringing them in; and, further, that neither the defendant’s nor the
plaintiff’s goodwill or reputation form part of or should be treated as assets of the partnership.
I will make a general declaration on the contrary that the stock-in-trade and consumable
chattels ought to be treated as partnership property brought in by the defendant, and, in
default of an agreement, I will direct a further inquiry, namely, as to what value ought to be
attributed to those things in taking the partnership account. Lastly, it is suggested that, if the
property remains that of the defendant, it is not right, in taking the accounts, to treat any
depreciation as a charge against the profits, which would mean that the plaintiff would pay
half of it. In my judgment, that is right. It would not be right to assume that the defendant
leased or licensed either the leasehold property or the plant in the partnership at any price at
all, because he did not, and, therefore, in my judgment, the result of no agreement works in
the plaintiff’s favour, and is that he does not have to contribute to wear and tear on those
assets. That being so, in taking the accounts no sum ought to be charged against profit by
way of depreciation. It is also said that certain partnership profits have been devoted to
making improvements. For all I know that may be true or there may be nothing in it. The
accounts are not sufficient to show. If it turns out that there is nothing in it the parties need
not proceed with that inquiry.
