MOLLWO, MARCH & CO. V. THE COURT OF WARDS (1872) L.R. 4 P.C. 419
FACTS
The Plaintiffs/Appellants, London merchants, sued Rajah Pertab Chunder Singh (now represented by the Court of Wards) to recover nearly three lacs of rupees owed by W.N. Watson & Co. of Calcutta.
W.N. Watson and T.O. Watson started business in 1862. The Rajah provided substantial financial support to the Watsons, who lacked capital.
In 1863, an agreement was made between the Rajah and "Messrs. W.N. Watson & Co.," giving the Rajah control over various aspects of the business in return for financial support.
In 1864 and 1865, the firm faced difficulties, leading to an arrangement where the Rajah received a formal mortgage on the tea plantations in exchange for releasing certain rights and claims.
The Rajah, despite arrangements granting control over the business, never took possession of firm properties or received commissions, indicating minimal exercise of the powers by Rajah granted by the agreement.
ISSUE
Whether the agreement between Rajah and W.N. Watson & Co. held Rajah liable as partner for plaintiff’s claim ?
JUDGEMENT
Their Lordships held that Rajah was not liable for the debts of the firm of W.N. Watson & Co.,and they will, therefore, humbly advise Her Majesty to dismiss this appeal with costs
LEGAL ANALYSIS
The agreement constitutes an arrangement between the Rajah, acting as a creditor, and the firm comprising the two Watsons as debtors. Its primary purpose was to secure the Rajah's past advances by granting him supervisory powers and a 20% commission on profits in exchange for forbearance and support for future advances to the Watsons.
The Rajah had no direct claim to the profits themselves, as he lacked specific ownership or interest in them. He was entitled solely to a commission or a payment equivalent to one-fifth of the profits amount.
Profit of trade is a strong test of partnership but whether that relation exists or not must depend on the real intention and contract of the parties.
The Rajah had no initiative power; he could not direct what shipments should be made or consignments ordered, or what should be the course of trade. He had powers of control only.
Their Lordships are of the opinion that by these agreements the parties did not intend to create a partnership, and that their true relation to each other under the agreement was that of creditor and debtors.
If there was no partnership, the implied agency which flows from that relation cannot arise.
Trade was not agreed to be carried on for the common benefit of the Watsons and the Rajah so as to create a partnership; and there is no sufficient ground for holding that it was carried on for the Rajah as principal, in any other character.
The agreement in terms and, as their Lordships think, in substance, is founded on the relation of creditor and debtors, and establishes no other.
COMMENTARIES RATIO
In determining whether a person is or is not a partner in a firm, the court must have regard to the real relation between the parties. Whether the relation of the parties does or does not exist must depend ‘on the real intention and contract of the parties