Scottish Court of Session Decisions

On the 15th July 1881 Henry Nelmes & Co., billiard-table manufacturers, Wellington Street, Glasgow, brought an action in the Sheriff Court of Lanarkshire at Glasgow against James Montgomery, designed as billiard-saloon-keeper, Loudon Street, Glasgow, for recovery of the balance of an account for two billiard-tables supplied to the defender in the end of the year 1879. The defence was that the defender never ordered or received the goods, but that he had been until September 1880 manager of billiard-rooms belonging to a person named Cockburn, from whom he had acquired the business, with the tables and furnishings, in that month. He pleaded that “Never having ordered or received from the pursuer the goods sued for,” he was entitled to decree of absolvitor.

After proof the Sheriff-Substitute (Spens) found that the defender had ordered the billiard-tables, and that he was liable for the unpaid balance of the price, a part of which had been paid by Cockburn. In a note to this judgment the Sheriff-Substitute explained that although Cockburn was connected with the purchase of the tables, it was only as security for Montgomery, and that £70 he had paid to Nelmes & Co. was really on behalf of Montgomery. Montgomery appealed to the Sheriff, who on 27th January 1882 dismissed the appeal. Upon the extracted decree pronounced in this action Montgomery was charged to make payment of the sums for which he had been found liable, but he failed to do so. On expiry of the days of charge Nelmes & Co. presented a petition for cessio against him under the Debtors (Scotland) Act 1880, and the Bankruptcy and Cessio (Scotland) Act 1881, stating that he was due to them the sum of £80, 18s., the balance of the price of the billiard-tables and certain

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work that had been done upon them. At an adjourned examination of Montgomery in this process of cessio he stated that on 24th November 1881, after the Sheriif-Substitute had decided against him, and he had appealed to the Sheriff, he had sold his stock, including the billiard-tables and fittings of the saloon in Loudon Street, to John Coltart for the sum of £145, that with this money he paid off all his debts except that owing to the pursuers, and also paid £15 to a person named Gavin Loudon, whom he alleged to have become his partner in 1880, and to have so continued till he sold the shop and business to Coltart. Nelmes & Co., on these facts being disclosed, were allowed further proof in the cessio to the effect that the alleged sale to Coltart was not bona fide, but was a fraudulent device to defeat their claim. In the course of this proof Gavin Loudon, who was a teller in the Bank of Scotland Office, Canning Street, deponed that he had advanced £90 to Montgomery at the end of September 1880 for the purpose of buying the table from Cockburn (whom he deponed to be the real proprietor), and that that money had been paid to Cockburn. This money was used to meet a bill which Cockburn had had discounted at the bank in which Loudon was teller. It also transpired from Loudon's evidence that he had entered into a contract of copartnery with Montgomery, which was dated 13th December 1880. This contract set forth that “the copartnery is hereby declared to have begun on the day of last, and shall subsist for five years from that date.” The books were to be balanced monthly, the first balance being at 31st October last (1880). The capital was to be £158, of which Loudon was to contribute £90, and Montgomery £68. There was no express provision as to taking over the assets and liabilities of the business which Montgomery had carried on. Loudon also deponed that he had seen the £145 paid by Coltart to Montgomery.

In consequence of what had thus been disclosed, Nelmes & Co. now raised this action against James Montgomery & Co., and James Montgomery and Gavin Loudon, partners thereof, and against Loudon as an individual, for £80 18s., being the sum sued for in the previous action, and for £24, 13s., the expense of the previous action. No decree was asked against Montgomery as an individual, except for expenses in the event of his opposing the action, since the pursuers had already obtained such a decree in the previous action.

The pursuers, after detailing the purchase of the billiard-tables in December 1879, and the payment of a sum to account of the price by Cockburn on behalf of Montgomery, averred—“The pursuers believe and aver that the partnership was entered into by the defenders on or prior to 29th December 1879, and that the purchases from the pursuers by Montgomery on that date were made by the authority and for behoof of James Montgomery & Co. for the purpose of beginning said business.” … Their averment then proceeded—“At entering into partnership with Montgomery, the defender Loudon was aware that the purchases from the pursuers, which formed the principal partnership stock-in-trade, had not been paid for, and that Montgomery was unable to pay for the same, and the pursuers believe and aver that the cash with which Cockburn made the partial payments condescended on was provided and handed to him by the defender Loudon, or otherwise from the joint copartnership funds.” They set forth the transaction with Coltart already referred to, averring that it was simulate and collusive, and that the pretended price had really been supplied by Loudon.” At all events, and whether the price was thus supplied or not, the sum received for the said goods was applied in rem versum of James Montgomery & Co., and the pursuers believe and aver that the same was used for the purpose of paying off the debts then due by the firm with the exception of that due to the pursuers.”

They pleaded—“That having sold the goods and performed the work condescended on,” they were entitled to decree as craved; or otherwise “(2) The defenders having taken over the liabilities incurred by the defender Montgomery in instituting the business transferred to the copartnery, the pursuers are entitled to decree as craved.” “(5) In any case, the defenders having received the said furnishings supplied by the pursuers, used them in their business, and afterwards disposed of them for their own behoof, the pursuers are entitled to decree in terms of the prayer of the petition.”

Defences were lodged for “Montgomery & Co. and Gavin Loudon,” and also for “Montgomery & Co. and James Montgomery.” Both defenders pleaded that not having ordered or received the tables they were not liable in the cost thereof. At a proof led in the action the pursuer Nelmes deponed that he had regarded Montgomery as purchaser, and that Cockburn, who had said that he would pay him or see him paid, was only guaranteeing the payment. Montgomery and Cockburn (who had become bankrupt) both deponed that Cockburn was the person who ordered the tables from Nelmes, and was the real purchaser from him. Loudon deponed that he had advanced £90 to Montgomery to buy the tables from Cockburn, and had become a partner with him in 1880 in order to get some security for that money.

The Sheriff-Substitute (Spens) pronounced this interlocutor—“Finds that the billiard tables in question were supplied in December 1879: Finds at that date the defender Loudon was not a partner or joint adventurer with the defender Montgomery, but only entered into the contract of copartnery conform to copy contract produced on 13th December 1880: Finds it did not emerge to the pursuers that the defender Loudon was a copartner or joint adventurer until April 1882, in proceedings in the petition for cessio at the instance of the pursuers against the defender Montgomery: Finds, in these circumstances, as matter of law, that the defender Loudon is not liable for the price of the billiard tables in question: Finds, as regards the defenders other than Loudon, that as the only alleged partner of the said James Montgomery is the defender Loudon, no decree can be pronounced against the said alleged firm; and as regards the defender James Montgomery, decree has already been pronounced against him in this Court: Therefore sustains the defences and assoilzies the defenders from the prayer of the petition: Finds pursuers liable in expenses.

“ Note.—… The only question, however, really in this case is as to Loudon's liability. The tables were supplied in December 1879 on the order

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of Montgomery, and without any disclosure with reference to Loudon being in any way connected with Montgomery. The contract of copartnership is dated 13th December 1880, but in gremio of it it contemplates partnership dating from an earlier date. The first clause begins thus:—‘The copartnery is hereby declared to have begun on the day of last, and shall subsist for 5 years from that date;’ then in the 9th article there is a provision as to books being kept and brought to a balance on the 31st of each month. The deed then goes on, ‘The first balance shall take place as on 31st October last for the period preceding, and the next balance as on the 30th day of November last, and so forth monthly thereafter during the currency of this contract.’ This seems to furnish room for argument that the partnership dated as from 30th September; but, at all events, I think it is not open to argument that at the date when the billiard tables were sold and delivered to Montgomery the defender Loudon was a partner of Montgomery. In these circumstances I am of opinion that Loudon cannot be held liable. Reference may be made to Lindley on Partnership, 4th ed., pp. 388 to 390 inclusive, and cases there referred to. Thus he says, p. 389, ‘As the firm is not liable for what is done by its members before the partnership between them commences, so, upon the very same principle, a person who is admitted as a partner into an existing firm does not by his entry become liable to the creditors of the firm for anything done before he became a partner.’ That I take to be the law of Scotland as well as that of England. Reference may also be made to the case of Lockharts v. Moodie & Coy., June 8, 1877, 4 Ret. 859. This was a different case altogether from the present, but the opinions of the Judges go clearly to show that in the present case Loudon could not be held liable for the order of Montgomery, who was not at its date, and when the goods were supplied, a partner of Montgomery's.

“As Loudon is or was the only partner of Montgomery, no decree can be granted against Montgomery & Co., and as there is a subsisting decree against James Montgomery, no second decree can be pronounced against him: Therefore I think that all the defenders must be assoilzied from the cravings of this petition. It is with some reluctance, looking to the way pursuers have been treated, that I give expenses against them, but there is no logical reason for deviating from the ordinary rule that expenses fall to be awarded to the successful party.”

On appeal the Sheriff ( Clark) adhered for the reasons assigned by the Sheriff-Substitute.

The pursuers appealed.

Argued for them—When a man becomes a partner with a trader in a going concern, without information being given to the creditors, it necessarily follows that in taking over the stock-in-trade and business of the firm the incoming partner becomes liable for the trade debts then due.— Ridgeway v. Brock, 6th Dec. 1831, 10 S. 105; M'Keand v. Reid, 30th March 1860, 23 D. 846. No doubt that Montgomery purchased these tables, but the contract here disclosed an existing business to be conducted by the defenders for their behoof. It was clear from the dicta in Miller v. Thorburn that Loudon having entered into partnership with Montgomery, was bound, in questions both with his partner and the public, to accept liability for trade debts.— Miller v. Thorburn, 22d Jan. 1861, 23 D. 359; Whyte v. M'Intyre, 12th Jan. 1841, 3 D. 334; The British Linen Co. v. Alexander, 14th Jan. 1853, 15 D. 277.

Argued for the respondents—This copartnership between Montgomery and Loudon was not entered into until September 1880 at the earliest, and the tables had been bought in December 1879. Loudon had no liability for them when they were purchased, and the mere fact that he had entered into a partnership with Montgomery did not make him liable for that person's previous debts. It had been held that if a person is not a partner at the time of ordering the goods, the only way by which he can become responsible is by his assuming liability, and the acquiescence of the creditor. That was not the case here, and therefore Loudon was not liable. — British Linen Co. Bank v. Alexander, 14th Jan. 1853, 15 D. 277; Lockharts v. Moodie & Co., 8th June 1877, 4 R. 859.

At advising—