KARMALI ABDULLA ALLARAKHIA vs VORA KARIMJI JIWANJI

Headnote Court Copy Facts Arguments Court observation Judicial Analysis Case Map Category Hierarchy Table of Content

1914 Supreme(SC) 72

PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD DUNEDIN, LORD SHAW OF DUNFERMLINE, SIR JOHN EDGE, AND MR. AMEER ALI.
KARMALI ABDULLA ALLARAKHIA - Appellant
Versus
VORA KARIMJI JIWANJI - Respondents
On Appeal from the High Court of Bombay.
Decided On : Oct. 20, 21; Nov. 18, 1914.

Important Points

Partners are jointly liable for debts incurred by any partner if the transaction is truly and substantially a dealing of the joint adventure, even if the debt instrument is signed only by one partner.

Subject

Commercial Law - Partnership Law

Act Referred

CONTRACT ACT: S.252, S.239, S.249

Headnote

(A) Indian Contract Act, 1872 - Partnership - Liability of partners for debts incurred for the joint adventure - Where goods are purchased or money raised for a joint adventure, and the dealing, though ostensibly by an individual, is truly and substantially a dealing of the joint adventure, the adventurers are liable as partners - No such responsibility exists for goods purchased on the credit of an individual adventurer prior to the contract, though afterwards brought into stock as a contribution.

(B) Partnership - Nature of liability - In a partnership of a limited character, liability enforced against a partner, where no document of debt binds him on its face, is justified if the action was within the operations natural to the partnership and for the partnership.

Facts of the case:
Two merchants entered into a stamped agreement to act in partnership for the purpose of trading a specific commodity. The agreement provided that purchases were to be made jointly after consultation, with the quantity and subsequent profits or losses to be divided equally. To fund these purchases, bills of exchange were drawn and accepted by a third party. One partner became insolvent and failed to meet the bills drawn by him, which the acceptor had to discharge. The acceptor sued both partners for the balance. The solvent partner contended he was not liable for bills to which he was not a party.

Findings of Court:
The agreement explicitly established a partnership. The purchase of the commodity became a purchase for the partnership from the moment of purchase, as the parties agreed to share the resulting profits and losses. The use of separate shipment and consignment documents was for commercial secrecy and did not negate the partnership nature of the transaction. The third party, being aware of the partnership terms, provided credit to the partnership.

Issues: Whether a solvent partner is liable for bills of exchange drawn by another partner when the funds were used to purchase goods for a joint partnership venture.

Ratio Decidendi: The court held that if a transaction is truly and substantially a dealing of the joint adventure, the partners are liable as partners. Since the goods were purchased for the partnership and the credit was used for that purpose, the solvent partner is liable for the debts incurred by the other partner for the venture, despite not being a party to the specific bills of exchange.

Result: Appeal allowed.

Legal Category Hierarchy

Advocates:
Solicitors for appellants:T. L. Wilson & Co. Solicitor for first respondent: Douglas Grant.

Judgement

Appeal from a decree of the High Court (January 17, 1910) reversing a decree of Russell J. (April 13, 1909).

The suit was brought by the appellant in the High Court against the three respondents to recover Rs. 111 1,819 for money lent and advanced by the appellant to the first two respondents by means of acceptances by the appellant of hundis, or bills of exchange, drawn upon him by them. The second respondent was an insolvent, and the third was joined as official assignee.

The facts are fully stated in the judgment of their Lordships. Shortly stated they were as follows. The first and second respondents had entered into an agreement dated July 25, 1906, therein described as being for the purpose of doing business in J partnership in brown sugar from Mauritius to Hong Kong. Under this agreement each partner, after consultation, was to j buy sugar in his own name, giving to the other a delivery order ‘for half the quantity. When sufficient sugar

had been purchased it was to be shipped to Hong Kong, separate invoices for half the quantity being made out to the respondents respective Bombay houses, who were to carry through the sales at Hong Kong. Separate accounts of sales were to be kept, but the profit or loss on the entire transaction was to be divided equally. Under the agreement the respondents were each to draw bills for the sugar purchased, which under certain circumstances were to be accepted by the appellant.

Under this agreement the first respondent bought 36,000 bags and the second respondent 4000 bags of sugar, and in each case bills in respect of the price were drawn by the individual purchaser upon and accepted by the appellant, to whom the sugar was consigned. When the bills became due the first respondent retired those which he had drawn, but the second respondent, having become insolvent, failed to meet those drawn by him, and they were discharged by the appellant as acceptor. There was a loss upon the whole transaction, and in the result the balance sued for was due to the appellant. The first respondent denied his liability on the grounds that he had met all the bills drawn by him and that he was not liable for any moneys raised upon bills to which he was not a party. The second and third respondents did not defend the suit.

The suit was tried by Russell J., who held that there was a partnership between the first and second respondents and that the money advanced by the plaintiff had been advanced for the partnership. He gave judgment for the plaintiff.

The High Court (Scott C.J. and Batchelor J.) reversed this decision. The learned judges were of opinion that the purpose and effect of the agreement were to keep the interest of the respondents separate and distinct until the close of the transaction, except in so far as a combination was desirable for securing joint shipments and sales, In concluding their judgment they said "Treating the question as purely a question of liability between the parties to the bills of exchange it is manifest that the plaintiff cannot succeed in charging the first defendant with liability on bills of the second defendant, and, having regard to what appears to us to be the correct construction of the agree ment between the parties, we cannot hold that there is any collateral agreement by which the shipper agreed to be liable for the default of the other in not taking up bills of exchange drawn by him on the plaintiff."

De Gruyther, K.C., and OHagan, for the appellant. Under the agreement the first and second respondents were joint adven turers and partners for that purpose Indian Contract Act, 1872, ss. 239, 249, 252. The law of partnership in India depends entirely upon the Act above referred to. In construing a code the plain language of the statute must be given effect to Norendra Nath Sircar v. Kamalbasini Dasi (( 1895) L. R. 23 Ind. Ap. 18, at p. 26.), citing Bank of England v. Vagliano Brothers . ([ 1891] A. C. 167, at p. 145.) A reference to English authorities c