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1927 Supreme(SC) 82
Privy Council
Warrington Of Clyffe, Darling, Carson, Buckmaster, Justice The Lord Chancellor, JJ.
John Lachlan McGillivray Watson -Appellant
Versus
Bertha Elinor Lilian Haggitt and others -Resopndent
Privy Council Appeal No.100 of 1927
Decided On : 17-11-1927
Hartley and Blyth, Dutton, Blyth, C. J. Wray
A term in a legal document does not necessarily maintain the same meaning in every context. "Net profits" for calculating payments to a deceased partner's estate after dissolution cannot include a deduction for the surviving partner's salary unless expressly provided.
Headnote:(A) Partnership Law - Construction of Partnership Articles - Interpretation of "net profits" - Payment to executors of a deceased partner based on a share of net annual profits for a specified period following dissolution - Whether "net profits" in a clause providing for payments to executors allows for the deduction of a salary payable to the surviving partner as provided in other clauses of the articles - No general rule of construction requires an expression to have the same meaning in every part of a document - Such a rule is only applicable to resolve ambiguity or difficulty.
(B) Partnership Law - Salary of Surviving Partner - Salaries payable during the continuance of a partnership term cease upon dissolution - Payment to the estate of a deceased partner constitutes purchase money for the interest in the business assets - In the absence of an express provision, a salary for the surviving partner cannot be deducted from the net profits used to calculate payments to the deceased partner's representatives.
Facts of the case:
A partnership of legal practitioners was formed under articles for a fixed term, after which it continued as a partnership-at-will. Upon the death of one partner, the partnership was dissolved. The articles provided that the surviving partner should pay the executors of the deceased partner a one-third share of the net annual profits of the business for five years. The surviving partner contended that he was entitled to deduct his own annual salary from the gross receipts before calculating the net profits, arguing that the term "net profits" should be interpreted consistently with clauses relating to the active partnership term where salaries were deducted first.
Findings of Court:
The court found that the expression "net profits" in the clause relating to payments after death had a different application than in the clauses relating to the operation of the partnership. The salaries mentioned in the articles were only payable during the continuance of the partnership term and ceased upon dissolution.
Issues: Whether the term "net profits" used in a clause for payments to a deceased partner's executors must be interpreted identically to "net profits" used in clauses regarding partner salaries during the partnership's active term, and whether the surviving partner's salary could be deducted for this calculation.
Ratio Decidendi: There is no universal rule that a term must have the same meaning throughout a document; this approach is only for resolving ambiguities. Since the partnership was dissolved and the payment to executors was essentially purchase money for the deceased's interest, the surviving partner cannot deduct a salary unless expressly permitted, as the salary provisions applied only to the period of the partnership's continuance.
Result: Appeal dismissed.
Legal Category Hierarchy
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civil law
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partnership law
- dissolution of partnership
- construction of partnership agreements
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partnership law
Lord Warrington of Clyffe. -
This appeal raises a question of construction upon articles of partnership between the appellant John Lachlan McGillivray Watson and Arthur Bryan Haggitt. The business of the partnership was that of barristers and solicitors.
The articles were dated 18th May 1905, and the term of the partnership was 15 years from that date. The term expired on 18th May 1920, but the partners continued the business as partners-at-will without fresh articles, and, therefore, upon the old terms so far as they were applicable to a partnership-at-will.
Mr. Haggitt died on 5th January 1926, and the partnership was thereby dissolved. The respondents are his executors.
The articles contained the following Cl. (No. 21) :
If at any time during the term of the said partnership either of the said partners shall die or become permanently incapacitated for work or shall become insane or of unsound mind to such an extent as to render him unable or unfit to carry on the business of the partnership then and in any such case the surviving or remaining partner shall during the period of five years from the occurrence or happening of such event or contingency pay to the executors and administrators of such partner so dying as aforesaid or as the case may be to the committee or representatives of such partner so incapacitated as aforesaid a sum equivalent to a one-third part or share of the net annual profits of the said partnership business for each year of the said term of five years.
Taken by itself that clause presents no difficulty of construction. The net annual profits, by which the amount of the sum to be paid by the surviving : partner in each of the five years is to be measured, would be ascertained by deducting from the receipts and earnings of the business such outgoings and expenses as were under the articles or by the use and wont of the partners so deducted during the partnership, the business being for this purpose treated as a continuation of the partnership business : ex-parte Harper [1857] 1 De. G. J. 180 : 5 W. R. 537 : 3 Jur. (N. S.) 724 : 20 L. J. B. K. 74, A payment, however, which under the articles ceased with the dissolution of the partnership, would not be properly deducted.
The appellant, however, contends - and his contention was upheld by the Judge, of first instance and by one of the four, Judges in the Court of appeal - that he is entitled to deduct, in addition to the ordinary business expenses and outgoings, an annual sum payable to him by way of "salary" during the partnership. Whether this contention is correct is the question for decision.
The clause of the articles providing for payment of "salaries" to the partners is Cl. 3, which is in the following terms :
The said Arthur Bryan Haggitt shall receive a salary of £600 for the first year of the said partnership term, a salary of £750 for the second year of the partnership term and the said John Lachlan McGillivray Watson shall draw all the net profits of the said business during the first two years aforesaid. During each of the third, fourth and fifth years of the said partnership term the said J. L. M. Watson shall draw a salary of £1,500 per annum and also one-half of the net profits for each such year and the said A. B. Haggitt shall draw a salary of £750 per annum for each of the said third ; fourth and fifth years and also one-half of the net profits for each such year. Thereafter and during the continuance of the said partnership term the said J. L. M. Watson, shall draw a salary of £1,500 per annum and one-half of the net profits each year and the said A. B. Haggit a salary of £1000 per annum and one-half of the net profits for each year during the term of the said partnerahip, and the said partners shall be allowed to draw the aforesaid amounts by monthly instalments in anticipation of their respective shares or profits in the said partnership business.
Clause 5 is a common form of provision for the payment of expenses, outgoing and losses out of
