Cox v. Hickman(1860) 8 H.L.C. 268

हिंदी में पढ़ने के लिए

Case Summary

Full Case Details

Smith and Smith carried on business under the name of B. Smith & Son. They got into
difficulties and called a meeting of their creditors. Later they executed a deed of
arrangement in favour of their creditors. The parties to the deed being S. and S. of the
first part, five of the creditors (including Cox and Wheatcroft) of the second part, and the
general body of creditors of the third part, and the deed provided that the five creditors of
the second part were to carry on the business of S. and S. as trustees for the creditors
under the name of “The Stanton Iron Company,” and to divide the net income of the
business, after paying the expenses, among the general creditors of S. and S., such net
income to be deemed to be of the creditors to be held, and that at any such meeting a
majority in value of the creditors present was to have power to make rules as to the mode
of conducting the business, or to order its discontinuance, and that when all the debts had
been paid the trustees were to hold the property assigned under the deed in trust for S.
and S. themselves. The deed also contained a covenant by the parties who executed it,
not to sue S. and S. for their debts. Cox never in fact acted as a trustee, and Wheatcroft
resigned six weeks after the deed, and before the goods for which bills now sued were
given had been supplied, and no new trustees were appointed in place of Cox and
Wheatcroft. The remaining three of the five creditors who were the parties to the deed,
of the second part, carried on the business under the provisions of the deed, and goods
were supplied to the business by Hickman. Hickman drew three bills of exchange for the
goods supplied by him, those bills were accepted on behalf of the Stanton Iron Company
by one of the above-mentioned three creditors. Hickman sued Cox and Wheatcroft on
those three bills, and alleged that they were liable upon them as partners in the business
of the Stanton Iron Company because they were two of the five creditors who were the
original parties to the deed of the second part and had executed the deed accordingly.
THE LORD CHANCELLOR (LORD CAMPBELL) – The only question in these cases is
whether the defendants by executing the deed of 13th November, 1849, as creditors of Messrs.
Smith & Co., rendered themselves liable to the creditors who should afterwards deal with the
trustees appointed by this deed to carry on the concern of Messrs. Smith & Co., under the new
firm of “The Stanton Iron Company.” The Plaintiff alleges that although the Defendants never
acted or held themselves out as partners in this new firm, and the creditors of the new firm are
entitled to sue the creditors of the old firm as partners in the new firm.
It is quite clear that the creditors of the old firm, by executing the deed, never intended to
incur such a liability, and I think that the creditors of the new firm cannot be supposed to have

dealt with this firm in the belief that they could have a remedy against all or any of the creditors
of the old firm.
Is there such a participation in the profits of the new firm by the creditors of the old firm, as
to make them partners in the new firm? They certainly are not partners inter se, as was properly
held by the Master of the Rolls and they could derive no profits from the new business, beyond the
payment of the debts due to them from the old firm. There was a formal release of these debts;
but we must look at the real nature of the transaction, according to the understanding of all who
were parties to it. The business of Messrs. Smith & Co. was to be carried on by the trustees till
the debts of that firm were paid, and then the business was to be transferred back to Messrs.
Smith & Co.
I am of opinion that the creditors of the old firm cannot be considered, by executing the deed,
as having authorised the trustees as their agents either to purchase the goods or to accept the
bills….
I must, therefore, advise your Lordships to reverse the judgment of the Court of Common
Pleas, and to adjudge that the Defendants below are not liable, as acceptors of the bills of
exchange, on which the action is brought.
LORD CRANWORTH – In the first place let me say, that I concur with those of the learned
Judges who are of opinion that no solid distinction exists between the liability of either defendant
in an action on the bills, and in an action for goods sold and delivered. If he would have been
liable in an action for goods sold and delivered, it must be because those who were in fact
carrying on the business of the Stanton Iron Company, were carrying it on as his partners or
agents, and, as the bills were accepted, according to the usual course of business for ore supplied
by the plaintiff, I cannot doubt that if the trade was carried on by those who managed it as
partners or agents of the defendant, he must be just as liable on the bills as he would have been in
an action for the price of the goods supplied. His partners or agents would have the same
authority to accept bills in the ordinary course of trade, as to purchase goods on credit.
The liability of one partner for the acts of his co-partner is in truth the liability of a principal
for the acts of his agent. Where two or more persons are engaged as partners in an ordinary trade,
each of them has an implied authority from the others to bind them all by contract entered into
according to the usual course of business in that trade. Every partner in trade is for the ordinary
purposes of the trade, the agent of his co-partners, and all are therefore liable for the ordinary
trade contracts of the others. Partners may stipulate among themselves that some one of them
only shall enter into particular contracts, or into any contracts, or that as to certain of their
contracts none shall be liable except those by whom they are actually made; but with such private
arrangements third persons, dealing with the firm without notice, have no concern. The public
have a right to assume that every partner has authority from his co-partners to bind the whole firm
in contracts made according to ordinary usages of trade. This principle applies not only to
persons acting openly and avowedly as partners, but to others who, though not so acting, are by

secret or private agreement, partners with those who appear ostensibly to the world as the persons
carrying on the business.
In the case now before the House, the Court of Common Pleas decided in favour of the
respondent that the appellant, by his execution of the deed of arrangement, became, together with
the other creditors who executed it, a partner with those who conducted the business of the
Stanton Iron Company. The Judges in the Court of Exchequer Chamber were equally divided so
that the judgment of the Court of Common Pleas was affirmed. The sole question for
adjudication by your Lordships is, whether this judgment thus affirmed was right.
In the first place there is an assignment by Messrs. Smith to certain trustees of the mines and
all the engines and machinery used for working them, together with all the stock in trade, and in
fact, all their property, upon trust to carry on the business, and after paying its expenses, to divide
the net income rateably amongst the creditors of Messrs. Smith, as often there shall be funds in
hand sufficient to pay one shiling in the pound; and after all the creditors are satisfied, then in
trust for Messrs. Smith.
Upto this point the creditors, though they executed the deed are merely passive, and the first
question is, what would have been the consequence to them of their executing the deed if the
trusts had ended there? Would they have become partners in the concern carried on by the
trustees merely because they passively assented to its being carried on upon the terms that the net
profits should be applied in discharge of their demands. I think not; it was argued that as they
would be interested in the profits, therefore they would be partners. But this is a fallacy. It is
often said that the test, or one of the tests, whether a person not ostensibly a partner, is
nevertheless, in contemplation of law, a partner, is whether he is entitled to participate in profits.
This, no doubt is in general, a sufficiently accurate test; for a right to participate in profits affords
cogent, often conclusive evidence that the trade in which the profits have been made, was carried
on in partnership for or on behalf of the person setting up such a claim. But the real ground of the
liability is that the trade has been carried on by persons acting on his behalf. When that is the
case he is liable to the trade obligations, and entitled to its profits, or to a share of them. It is not
strictly correct to say that his right to share in the profits, makes him liable to the debts of the
trade. The correct mode of stating the proposition is to say that the same thing which entitles him
to the one makes him liable to the other, namely, the fact that the trade has been carried on his
behalf, i.e., that he stood in the relation of principal towards the persons acting ostensibly as the
traders by whom the liabilities have been incurred and under whose management the profits have
been made.
Taking this to be the ground of liability as a partner, it seems to me to follow that the mere
concurrence of creditors in an arrangement under which they permit their debtor, or trustees for
their debtor, to continue his trade, applying the profits in discharge of their demands, does not
make them partners with their debtor, or the trustee. The debtor is still the person solely
interested in the profits, save only that he has mortgaged them to his creditors. He receives the

benefit of the profits as they accrue, though he has precluded himself from applying them to any
other purpose than the discharge of his debts. The trade is not carried on by or on account of the
creditors; though their consent is necessary in such a case, for without it all the property might be
seized by them in execution. But the trade still remains the trade of the debtor or his trustees; the
debtor or the trustees are the persons by or on behalf of whom it is carried on.
I have hitherto considered the case as it would have stood if the creditors had been merely
passively assenting parties to the carrying on the trade, on the terms that the profits should be
applied in liquidation of their demands. But I am aware that in this deed special powers are given
to the creditors, which, it was said, showed that they had become partners, even if that had not
been the consequence of their concurrence in the previous trust. The powers may be described
briefly as, first, a power of determining by a majority in value of their body, that the trade should
be discontinued, or, if not discontinued, then, secondly, a power of making rules and orders as to
its conduct and management.
These powers do not appear to me to alter the case. The creditors might, by process of law,
have obtained possession of the whole of the property. By the earlier provisions of the deed, they
consented to abandon that right, and to allow the trade to be carried on by the trustees. The effect
of these powers is only to qualify their consent. They stipulate for a right to withdraw it
altogether; or, if not, then to impose terms as to the mode in which the trustees to which they had
agreed should be executed; I do not think that this alters the legal condition of the creditors. The
trade did not become a trade carried on for them as principals, because they might have insisted
on taking possession of the stock, and so compelling the abandonment of the trade, or because
they might have prescribed terms on which alone it should be continued. Any trustee might have
refused to act if he considered the terms prescribed by the creditors to be objectionable. Suppose
the deed had stipulated, not that the creditors might order the discontinuance of the trade, or
impose terms as to its management, but that some third person might do so, if, on inspecting the
accounts, he should deem it advisable. It could not be contended that this would make the
creditors partners, if they were not so already; and I can see no difference between stipulating for
such a power to be reserved to a third person, and reserving it to themselves.
I have on these grounds, come to the conclusion that the creditors did not, by executing this
deed, make themselves partners in the Stanton Iron Company, and I must add that a contrary
decision would be much to be deprecated. Deeds of arrangement like that now before us, are, I
believe, of frequent occurrence; and it is impossible to imagine that creditors who execute them,
have any notion that by so doing they are making themselves liable as partners. This would be no
reason for holding them not to be liable, if, on strict principles of mercantile law, they are so; but
the very fact that such deeds are so common, and that no such liability is supposed to attach to
them, affords some argument in favour of the appellant. The deed now before us was executed
by above a hundred joint creditors; a mere glance at their names is sufficient to show that there
was not intention on their part of doing anything which should involve them in the obligations of
a partnership. I do not rely on this; but, at least, it shows the general opinion of the mercantile

world on the subject. I may remarks that one of the creditors I see is the Midland Railway
Company, which is a creditor for a sum of £ 39, and to suppose that the directors could imagine
that they were making themselves partners is absurd.
LORD WENSLEYDALE – The question is whether either of the defendants, Cox or
Wheatcroft, was liable as acceptor of certain bills of exchange… drawn by the plaintiff below on
the Stanton Iron Company, and accepted by one James Haywood as “per Pro” that Company.
And the simple question will be this, whether Haywood was authorised by either of the
defendants, as partner in that Company, to bind him by those acceptances. Haywood must be
taken to have been authorised to accept for them by those who actually carried on business under
that firm. Were the appellants partners in it? The case will depend entirely on the construction of
the deed… There is no other evidence affecting either of them. And the question is whether the
subscription of both, as creditors of the Smiths, made them partners in the business carried on by
the trustees in the name of the Stanton Iron Company. Wheatcroft could not be liable in the
character of trustee, for he had ceased as such before the bills were drawn, and the plaintiff knew
it.
One of the provisions in the deed was this: that it gave authority to the trustees to execute all
contracts and instruments in carrying on the business, which would certainly authorise the making
or accepting bills of exchange. The question then is, whether this deed makes the creditors who
sign in partners with the trustees, or what is really the same thing, agents, to bind them by
acceptances on account of the business.
The law as to partnership is undoubtedly a branch of the principal and agent; and it would
lend to simplify and make more easy of solution, the questions which arise on this subject, if this
true principle were more constantly kept in view. Mr. Justice Story lays it down in the first
section of his work on Partnership. He says, “Every partner is an agent of the partnership, and his
rights, powers, duties, and obligations, are in many respects governed by the same rules and
principles as those of an agent; a partner virtually embraces the character of both a principal and
agent.”
A man who allows another to carry on trade, whether in his own name or not, to buy and sell
and to pay over all the profits to him, is undoubtedly the principal, and the person so employed is
the agent, and the principal is liable for the agent’s contracts in the course of his employment. So
if two or more agree that they should carry on a trade, and share the profits of it, each is a
principal, and each is an agent for the other, and each is bound by the other’s contract in carrying
on the trade, as much as a single principal would be by the act of an agent, who was to give the
whole of the profits to his employer. Hence it becomes a test of the liability of one for the
contract of another, that he is to receive the whole or a part of the profits arising from the contract
by virtue of the agreement made at the time of the employment. I believe this is the true principle
of partnership liability. Perhaps the maxim that he who partakes the advantage ought to bear the

loss, often stated in the earlier cases on this subject is only the consequence, not relation of
principal, agent, and partner.
Can we then collect from the trust deed that each of the subscribing creditors is a partner with
the trustee and by the mere signature of the deed constitutes them his agents for carrying on the
business on the account of himself and the rest of the creditors? I think not. It is not true that by
this deed the creditors will gain an advantage by the trustees carrying on the trade; for if it is
profitable, they may get their debts paid, but this is not that sharing of profits which constitutes
the relation of principal, agent and partner.
If a creditor were to agree with his debtor to give the latter time to pay his debt till he got
money enough out of his trade to pay it, I think no one could reasonably contend that he thereby
made him his agent to contract debts in the way of his trade; nor do I think that it would make any
difference that he stipulated that the debtor should pay the debt out of the profits of the trade.
The deed in this case is merely an arrangement by the Smiths to pay their debts, partly out of
the existing funds and partly out of the expected profits of their trade; and all their effects are
placed in the hands of the trustees, as middlemen between them and their creditors, to effect the
object of the deed, the payment of their debts. These effects are placed in the hands of the
trustees as the property of the Smiths, to be employed as the deed directs, and to be returned to
them when the trusts are satisfied. I think it is impossible to say that the agreement to receive this
debt, so secured, partly out of the existing assets, partly out of the trade, is such a participation of
profits as to constitute the relation of principal and agent between the creditors and trustees. The
trustees are certainly liable, because they actually contract by their undoubted agent; but the
creditors are not, because the trustees are not their agents. I, therefore, advise your Lordships to
reverse the judgment. Judgment reversed.