1. The facts material for the determination of the questions raised in these two appeals, which have been heard one after the other, lie in a brief compass and may be shortly narrated.
2. On the 11th June, 1914, Pugh and Bowden formed a syndicate to work a deposit of China clay in the district of Bhagalpur upon the terms that Pugh should provide the finance and have a ten annas share, while Bowden should work the property and have a six annas share, all properties acquired by Bowden in the district to be on syndicate account. Subsequent to the date of this agreement, Bowden acquired a two-fifths interest in leases of certain property in the locality mentioned, and a certain amount of China clay was extracted though the progress of the prospecting and developing scheme was by no means satisfactory. The position thus was that though Pugh provided the influence required, and Bowden the expert knowledge necessary a financier was needed as a complement, if the business was to be a commercial success. Pugh and Bowden were accordingly joined by Rae, and on the 1st September, 1917, two documents were executed each among these three gentlemen; the first was an agreement, the second a deed of declaration of trust. The Articles of Agreement were in the following terms:
Articles of Agreement made and entered into this first day of September, 1917, between Lewis Pugh Evans Pugh of Patna in the Province of Behar and Orissa, Barrister-at-Law of the first part, George William Bowden of 43, Dhurrumtolla Street, Calcutta Engineer of the second part, and William Rowe Rae of No. 7, Church Lane in Calcutta merchant of the third part. Whereas in terms of an agreement made between the said Lewis Pugh Evans Pugh and the said George William Bowden and dated the 11th Say of June 1914, the said George William Bowden has prospected for minerals in the District of Bhagalpur and with the help of monies partly obtained from the said Lewis Pugh Evans Pugh and partly of his own has discovered clay and minerals in the lands set out in the Schedule hereto and has obtained or is about to obtain leases of the said lands in his own name but for and on behalf of and for the benefit of the parties to these presents in equal shares. And whereas there has been expended by the said Lewis Pugh Evans Pugh and the said George William Bowden respectively the sum of Es.10,000 and Es.5,000 in the prospecting operations aforesaid and in negotiating for and for obtaining leases of the said lands. And whereas it has been agreed between the parties hereto that they the said parties (hereinafter called the Syndicate) should form a Syndicate for the purpose of floating a Company to acquire a portion of the said land, viz. the land known as Pathargatta lakheraj, and mine for China clay in the said lands on the terms hereinafter contained. Now these presents witness that it is hereby mutually agreed between the parties hereto in manner following that is to say:
First. - That the said agreement between the said Lewis Pugh Evans Pugh and George William Bowden dated the eleventh day of June, 1914, shall be and is hereby determined in all respects and these presents are entered into in supersession of the said agreement in all its particulars.
Second. - Within two months or as soon thereafter as possible from the date on which the leases so obtained and to be obtained by the said George William Bowden in the schedule mentioned are registered the said William Rowe Rae shall duly form and register under the Indian Companies Act, 1913 a Company limited by shares to be called the Colgong China Clay Company, Limited, with a capital of Rs. 2,50,000 divided into twenty-five thousand shares of Rs. 10 each for the purpose of acquiring from the Syndicate on lease for nine hundred and ninety-nine years the underground rights in all the China clay in Patharghatta lakheraj land and working China clay in the said lands and such surface rights as may be necessary for the purpose of erecting works and buildings and working the said clay at a rental of Rs. 1,200 per annum.
Third : The said William Rowe Rae shall advance without interest all sums still necessary up to a limit of Rs. 10,000 for the purpose of obtaining and registering proper leases of the said lands and for the formation and registration of the said company.
Fourth. - The Syndicate shall grant lease in the second paragraph of this agreement mentioned to the Company when formed for the sum of Rs. 50,000 and such further sums as are in the next paragraph hereof mentioned to be paid and satisfied as to Rs. 50,000 aforesaid by the allotment of shares to the following persons in the following numbers:
To the said Lewis Pugh Evans Pugh one thousand six hundred and sixty-six shares of Rs. 10 each.
To the said George William Bowden one thousand and five hundred shares of Rs. 10 each.
To the said William Rowe Rae one thousand and five hundred shares of Rs. 10 each.
To Peter Rae a brother of the said William Rowe Rae three hundred and thirty-four shares of Rs. 10 each.
Fifth. - The Company when formed shall as part of the consideration for the lease of the said rights and in addition to the payments mentioned in the last preceding paragraph pay without interest and in cash to the said Lewis Pugh Evans Pugh the aforesaid sum of Rs. 10,000, to the said George William Bowden the aforesaid sum of Rs. 5,000 and to the said William Rowe Rae all sums that may be advanced by him in terms of the second paragraph of these presents.
Sixth. - The firm of Rae and Company (at present consisting of the said William Rowe Rae and Peter Rae) as it is now or may hereafter be constituted shall be the Managing Agents of the Company for a period of at least ten years from its incorporation upon such terms as may be agreed upon hereafter.
Seventh. - Provided always that, should the said William Rowe Rae fail to float the proposed Company within six months from the signing of the last of the said leases, this agreement shall be void and he shall be entitled to receive back any monies expended by him in terms of these presents, but nothing over and above the sum HO expended and the said agreement between the said Lewis Pugh Evans Pugh and George William Bowden hereinbefore shall be revived and come into force again.
3. The Deed of Trust was in the following terms:
This Indenture made this first day of September 1917 between George William Bowden of No. 43 Dhurrumtolla Street in Calcutta, Engineer of the first part, Lewis Pugh Evans Pugh of Patna in the Province of Bihar and Orissa Barrister-at-law of the second part, and William Rowe Rae of No. 7, Church Lane in Calcutta aforesaid merchant of the third part. Whereas the said George William Bowden has obtained or is about to obtain certain leases in respect of the lands specified in the Schedule hereunder written for the considerations mentioned therein respectively and for the several terms of years or periods therein mentioned respectively with the mining and other rights therein mentioned and subject to the covenants in the said leases to be contained, and whereas the said lands and rights therein have been and will be acquired in terms of the said leases by the said George William Bowden on behalf of himself and the said Lewis Pugh Evans Pugh and William Rowe Rae in equal shares. And whereas the parties hereto have agreed to execute these presents for the purpose of defining their respective beneficial interests in the premises and to enter into and become bound by the stipulations on their respective parts hereinafter contained. Now this indenture witnesseth as follows:
First. - In consideration of the premises the said George William Bowden hereby declares that as from the respective dates of the said leases he has held and now holds and will hold the lands therein mentioned in terms of the said leases and subject to the rents, covenants and conditions therein respectively reserved and contained as to one undivided third part or share thereof upon trust for the said Lewis Pugh Evans Pugh and as to one other undivided third part or share thereof upon trust for the said William Rowe Rae and as to the remaining one undivided third part or share thereof for his own absolute use and benefit.
Second. - Each of the parties hereto; hereby covenants with the others and other of them as follows:
(a) To pay or contribute his due proportion of the rents reserved and to be reserved by the said leases respectively and of the expenses incurred or to be incurred in performing and observing and covenants on the part of the lessee and the conditions therein contained.
(b) Not to do or omit to do anything in relation to the premises in contravention of the covenants and conditions in the said leases contained.
(c) To keep indemnified every other party hereto from all actions! claims and demands incurred or to be incurred by such last-mentioned party by any default on the part of the covenanting party in performing his obligations under these presents.
Provided always that, should the said William Rowe Rae fail to incorporate and float the company mentioned in an agreement of even date herewith between the parties in terms thereof, this indenture shall be cancelled so far as it purports to affect the said William Rowe Rae and it shall thereafter be read as if made between the said Lewis Pugh Evans Pugh and George William Bowden only, and the shares of them respectively in the said properties shall be ten-sixteenths and six-sixteenths after repayment to the said Lewis Pugh Evans Pugh of the monies advanced by him in terms of the agreement of the eleventh day of June 1914 between the said last-named parties.
4. The venture proved too ambitious, and it became impossible to float the projected company, as no more than two of the necessary leases could be secured. Thereupon,, Pugh and Bowden decided to sell their right, title and interest in the property, and, at the instance of the purchasers, Rae was made a party to the documents of transfer which were completed on or about the 12th April, 1920. Rae forthwith set up a claim to share in the net sale proceeds which amounted approximately, to Rs. 60,000. On the 26th July, 1920, Rae instituted the first suit against Pugh and Bowden for declaration that he was entitled to one-third share in the partnership business and the assets thereof, for declaration that the partnership had been dissolved as and from the 15th April, 1920, and for incidental reliefs. On the 16th May, 1922, Pugh instituted the second suit against Rae and Bowden for declaration that he was entitled to a five-eighth share in the sale-proceeds of the property and assets thereof, and for recovery of Rs. 15,128 or such other sum as might be found due, with interest thereon. Mr. Justice Buckland has dismissed the first suit and decreed the second suit. As regards the suit by Rae, he has held that upon a true construction of the articles of agreement dated 1st September, 1920, no partnership could be deemed to have been created among Rae, Pugh and Bowden. As regards second Suit, Mr. Justice Buckland has held that as Rae, the defendent therein, had agreed that the result should follow that of the first suit save the precise amount, Pugh was entitled to a decree as a matter of course against him. Mr. Justice Buckland I gather, has further held that on a true construction of the Deed of Trust dated 1st September, 1920, Rae had not, on the merits, a good answer against the claim put forward by Pugh. Rae, thus defeated in each of the two suits, has appealed to this court. I shall deal with the two appeals, one after the other.
Appeal No. 130 of 1922.
5. A decision of the appeal in the suit instituted by Rae against Pugh and Bowden, depends upon the true construction of the articles of agreement dated the 1st September, 1920. The introductory paragraph recites the agreement between Pugh and Bowden dated 11th June, 1914 and states that Pugh and Bowden had spent Rs. 10,000 and Rs. 5,000 respectively in prospecting operations and in negotiating for leases. The object of the agreement is then stated to be that Pugh, Bowden and Rae should form a syndicate for the purpose of floating a company to acquire the Patharghatta lakhraj and to mine for China clay therein on specified terms. The first clause provides that the previous agreement between Pugh and Bowden should stand superseded. The second class provides that within two months, or as soon thereafter as possible, from the date of registration of the leases obtained or to be obtained by Bowden, Rae shall form and register under the Indian Companies Act, 1913, a Limited Company, to be called the Colgong China Clay Co. with a capital of two and a half lakhs divided into 25,000 shares of Rs. 10 each for the purpose of acquiring from the syndicate on lease for 999 years the underground rights in the China clay and working therein. The third clause requires Rae to advance money up to a limit of Rs. 10,000 for the acquisition of the leases and for the formation and registration of the company. The fourth clause describes how, on the formation of the company, shares would be allotted among the members of the syndicate and a brother Rae, The fifth clause provides for recoupment, after formation of the company, of Rs. 10,000 by Pugh of Rs. 5,000 by Bowden and of all sums advanced by Rae in terms of the third clause. The sixth clause provides for the appointment of Rae & Co. as managing agents of the contemplated company for ten years from the date of its incorporation. Finally, the seventh clause contains a provision for defeasance. If Rae should fail to float the proposed company within six months from the signing of the last of the leases, the agreement would become void, Rae would become entitled to be reimbursed all the moneys spent by him, and the agreement dated 11th June, 1914, between Pughand Bowden would stand revived. The question arises, whether this agreement creates a partnership among Pugh, Bowden and Rae, within the meaning of Section 239 of the Indian Contract Act which defines a partnership as follows:
Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits thereof between them.
6. The requisite elements of a partnership are consequently as follows:
(1) Partnership is a relation between two or more persons;
(2) the relation arises out of an agreement;
(3) the agreement is that
(a) they will combine their property, labour or skill,
(b) in some business, and that
(c) they will share the profits there of between them.
7. The analysis of the agreement set out above shows that there was no partnership created among the members of what was described as the syndicate; they were in essence company promoters who intended to form a company with reference to the given project and to take the necessary stops in that behalf. There was no intention, before the company was formed, to carry on business and to share the profits thereof. I am reluctant to refer to judicial decisions in this connection in view of the emphatic warning of Lord Herschell in Bank of England v. Vagliano Bros. (1891) A.C. 107, against ascertaining the law, not by interpreting the language of the statute, but by roaming over a vast number of authorities, in order to discover what the law was, extracting it by a minute critical examination of prior decisions. But we may usefully recall the fact that the attempt to include company promoters in the category of partners is by no means novel. The decisions in Walstab v. Spottiswoode (1816) 15 M. & W. 501 and Reynell v. Lewis (1845) 15 M. & W. 517 show that similar endeavours have previously been made without success, notwithstanding the dicta in Holmes v. Higgins (1822) 1 B. & C. 74; Lucas v. Beach (1840) 1 M. & G. 417 and Barnett v. Lambert (1846) 15 M. & W. 489. Persons who are working together to form a company, although they may intend to become members of the company after its formation, are not partners, if this be the only relation between them. They are, it is true, engaged in a common object, and that object is ultimately to acquire profit, but their immediate object is the formation of the company. To call persons associated for such a purpose, partners, is to ignore the difference between a contract of partnership and an agreement to enter into such a contract, to confound an agreement with its result. This was distinctly stated by Lord Cranworth, V.C. in Exp. Capper (1851) 1 Sim. N.S. 178 and has been repeatedly recognized : Forrester v. Bell (1847) 10 Ir. L.R. 555; Norris v. Cottle (1850) 2 H.L.C. 647; Hutton v. Thompson (1851) 3 H.L.C. 161; Bright v. Hutton (1851) 2 H.L.C. 341. It need not be disputed that promoters may become in fact partners, by actually carrying on, as incidental to the work of forming a corporation, a business enterprise; in such an event, it is the carrying on of such business, not the combination to effect an incorporation, that makes them partners. It may further be conceded that promoters may become partners in the business of promoting; that is, if they engage in creating successive corporations as an occupation, putting their profits in a common fund, it may well be held that they have made promotion and incorporation a business and are partners in that business. There is no such exceptional feature in the present case, and Mr. Justice Buckland has correctly held that the agreement of 1st September, 1910, did not create a partnership. The appeal in the suit instituted by Rae must consequently be dismissed with costs.
Appeal No. 131 of 1922.
8. The decision of the appeal in the suit instituted by Pugh against Rae and Bowden depends upon entirely different considerations, though the subject-matter of the two litigations is in essence identical. The course which the trial took before Mr. Justice Buckland is abundantly clear from the record as also from the affidavits of Pugh and of Leslie, the solicitors for Rae. On the 24th July, 1922, the solicitors for Rae wrote as follows to the solicitors for Pugh:
We propose to apply to the court, to allow these two suits to be placed on the board, one after the other, and to appoint an early day for the hearing. Our client expects to leave India for good before the court reopens after the long vacation, Please let us know if you will consent to our application.
9. The following reply was sent the next day by the solicitors for Pugh:
Your letter of yesterday's date.
We will consent to the first suit being taken up immediately. As regards the second suit, it will follow the result of the first and there is no need to incur unnecessary expense.
10. On the 31st July, the solicitors for Rae sent the following reply:
Your favour of the 25th instant. Our - client agrees the result of the second suit shall follow that of the first suit, save the precise amount he would have to pay in the event of the first being decided against him will still have to be determined.
We will make the necessary application for an early date to be fixed for the hearing of the first suit to court next week. It will be necessary to have both suits on the board in order to have a decree in the second suit.
If you will waive service of the summons we could mention the matter by consent on an early date before Mr. Justice Buckland.
Please let us hear from you.
11. To this the following reply was sent on the 2nd August, 1922, by the solicitors for Pugh:
Your letter of the 31st ultimo.
We will waive service of the summons and will instruct counsel to be present in the court of Mr. Justice Buckland, at 11 A.M. tomorrow when this case may be mentioned.
12. The matter was mentioned to court on 3rd August, 1922, and 10th August, 1922, was fixed for the hearing. On the 10th August, 1922, both suits were in the list, one after the other. Pugh was present in court when the cases were called on. Mr. B.L. Mitter appeared for Rae, the plaintiff in the first case; Mr. W. Gregory and Mr. B. Boss appeared for Pugh and Mr. Westmacott appeared for the defendant Bowden.
13. Mr. Westmacott also stated at the time that he appeared for the defendants in the second suit and that he was instructed to mention that it had been agreed that the second suit would abide the result of the first suit subject to the question of amount which the defendant Rae might be called upon to pay.
14. Mr. Westmacott initiated the matter by stating he was instructed to consent and counsel for Pugh assented.
15. Thereafter Mr. Justice Buckland delivered judgment in the first suit. He held, as already stated, that the only material issue in that suit was the first, which had been framed in the following terms:
On the construction of the agreement of the 1st September, 1917, was any partnership constituted between the plaintiff and the defendant
16. This was answered against Rae and the suit was dismissed. The second suit was next taken up for disposal. Counsel for Rae, at that stage, attempted, it is alleged, to resile from the agreement that 'the result of the second suit shall follow that of the first suit, save the precise amount he (Rae) would have to pay in the event of the first being decided against him will still have to be determined.' In my opinion, the attempt was futile and rightly failed. The agreement was unconditional, and if the legal advisers of Rae intended that the agreement should be conditional upon the decision of every issue framed in the first suit, they should have made their position clear before the agreement was made, or at any rate, before the first suit was tried out and the judgment therein delivered. The affidavit of Mr. Leslie leaves no room for doubt that when the attempt at settlement failed, Mr. Justice Buckland explicitly stated that there was but one issue for trial in the first suit, namely, whether the plaintiff Rae was or was not a partner of the other defendants in terms of the agreement of the 1st September, 1917. Counsel for Rae consented to this, and after the addresses had been heard, Mr. Justice Buckland proceeded to give judgment. There was, consequently, not only an agreement in the correspondence, but a consent order made in court on the 10th August, 1922. It is now said that counsel for Rae did not realise the true position. I am unable to accede to the suggestion that this is an objection which may be entertained in appeal. The facts material for investigation of the question, whether there was or was not a mistake on the part of counsel, have not been investigated, much less has the point been considered whether a unilateral mistake not caused or actively assisted by the act of the other party, will invalidate the consent order : Reily v. Rajkumari A.I.R. 1922 Cal. 493. It must further be remembered that if there has been a mistake on the part of counsel, it occurred during the trial of the first suit, and Rae cannot obtain relief, unless both the suits are re-opened. Whether in view of the decision of the Judicial Committee in Chhaju Ram v. Neki A.I.R. 1922 P.C. 112 as to the limited scope of an application for review the matter might be investigated on such an application, or whether a more : formal proceeding by way of suit would be appropriate as indicated in Gulab Koer v. Badshah Bahadur (1909) 10 C.L.J. 420 may itself be a matter for serious controversy. Nor would it serve any useful purpose, before the facts have been fully explored, to discuss how far a consent order is binding on a litigant, when the consent relates to matters incidental to the conduct of the trial, is given under a misunderstanding by counsel, and fails to carry into effect his intentions. The decisions in Furnival v. Bogle (1872) 4 Russell 142, Lewis v. Lewis (1890) 45 Ch. D. 281; Elsa v. Williams (1885) 52 L.T. 39; Swinfen v. Lord Chelmsford (1860) 5 H. & N. 890; Hatch v. Lewis (1861) 2 F. & F. 407; Chambers v. Mason (1858) 5 C.B.N.S. 59; Strauss v. Francis (1866) L.R. 1 Q.B. 379; Mathews v. Munster (1887) 20 Q.B.D. 141; Prestwich v. Foley (1865) 18 C.B.N.S. 806, Chown v. Parrot (1863) 14 C.B.N.S. 74; Shepherd v. Robinson (1919) 1 K.B. 474; Gethings v. Cloney (1913) 48 Ir. L.T.R. 55; amply indicate that there may be wide scope for refined argument. On the proceedings as they stand, the appellant has not convinced me that this court, as a court of appeal, can justly vacate the decrees in both suits and direct a retrial. On this ground, I must hold that the decree made by Mr. Justice Buckland in favour of Pugh cannot be successfully impeached by Rae.
17. I may add that if the merits were open for consideration at the trial of the second suit, I would have hesitated to adopt the view taken by Mr. Justice Buckland. Before that conclusion could be affirmed, it would be essential to consider the relation between the articles of agreement and the deed of trust, and to determine whether the events that had happened had brought the ease within the strict letter of the defeasance clauses, In this connection, the applicability of the doctrine of impossibility of performance with all its recent ramifications cannot be avoided. The mutter is by no means free from difficulty, because as rightly stated by McCardie, J., in Blackburn Bobbin Co. v. Allen & Sons (1918) 1 K.B. 540, the law on the subject is undoubtedly in a process of evolution. On the one hand, we have the original rule that where a party by his own contract creates a duty or charge upon himself, he is bound to make it good, notwithstanding any accident by inevitable necessity, because he might have provided against it by his contract. We have, on the other hand, the modern view evolved by the pressure of 'commercial frustration,' that
where a contract is made with reference to certain anticipated circumstances and where without any default of either party, it becomes wholly inapplicable to or impossible of application to any such circumstances, it ceases to have any application, it cannot be applied to other circumstances which could not have been in the contemplation of the parties when the contract was made.
18. The topic had received considerable attention in recent years, arid specially in cases brought about by the outbreak of the War : Elliot v. Crutchley (1906) A.C. 7; Horlock v. Beale (1916) 1 A.C. 486; Tamplin St. Co. v. Anglo Mexican Co. (1916) 2 A.C. 397; Watts v. Mitsui & Co. (1917) A.C. 227; Tenants v. Wilson (1917) A.C. 495; Metropolitan Water Board v. Dick Kerr & Co. (1918) A.C. 119; Newzealand Shipping Co. v. Society Des Ateliers (1919) A.C. 1; Bank Line v. Capel & Co. (1919) A.C. 435; Eisen v. Me Cabe 56 Scot. L.R. 534 H.L. and it is now generally regarded as a question of some nicety, how far the rule in such cases as Bailey v. De Crespigny (1869) 4 Q.B. 180; Krell v. Henry (1903) 2 K.B. 740; Berne Bay Co. v. Hutton (1903) 2 K.B. 683; Chandler v. Webster (1904) 1 K.B. 493; has been affected by subsequent, decisions; Scottish Navigation Co. v. Souter (1917) 1 K.B. 222; Comptoir Commercial Anversois & Power Son & Co. in re (1920) 1 K.B. 868. Apart from this it might be necessary to consider whether any useful analogy could be derived from another class of cases, where the court has refused to assist a person who insisted upon a deed as representing a transaction which in fact it did not; see Rochefoucauld v. Boustead (1897) 1 Ch. 196 and Marlborough Duke in re, Davis v. Whitehead (1894) 2 Ch. 133, where reference is made to earlier decisions, such as Cripps v. Fee (1793) 4 Brown Ch. Cases 472; Leman v. Whitley (1882) 4 Russ. 423 and Haigh v. Kaye (1872) 7 Ch. 469. No real assistance in the solution of the problem before us is, however, likely to be derived from the class of cases where settlements made in contemplation of marriage have been rendered inoperative by rescission : Macdonnell v. Hesilrige (1852) 16 Beav. 346; Essery v. Cowlord (1884) 26 Ch. D. 191; Bond v. Walford (1886) 32 Ch. D. 238, Re Garnett (1905) 93 L.T. 117. I mention these points merely to indicate that the determination of the rights of the parties is by no means so simple as appears to have been assumed. But in view of the course the trial has taken, these matters do not require adjudication here. I hold that the appeal in the second suit, like that in the first, fails and musb be dismissed with costs.
19. In these appeals the contesting parties are a Mr. Rae who carries on business in Calcutta as a member of the firm of Rae & Co., and a Mr. Lewis Pugh an advocate of this court.
20. In the first suit Mr. Rae is the plaintiff and he sues Mr. Pugh together with the non-contesting defendant, Mr. Bowden, for a declaration that there was a partnership business wherein these three gentlemen were all partners each, having a one-third interest. He asks for a declaration that he has a right to a one-third share, for a declaration that the partnership has been dissolved and for an order for the taking of necessary accounts and winding up the business.
21. The second suit was brought by Mr. Pugh in April 1922 almost two years after the first suit had been instituted, and in it Mr. Pugh asks for judgment on the footing that in the net proceeds of certain property Mr. Rae is not entitled to any share. Both suits refer to the same subject matter. Having regard to the fact that certain allegations as to an express oral agreement were not persisted in at the trial of the first suit, the history of the matter may be somewhat shortened.
22. At sometime prior to 1914 Mr. Pugh had succeeded with the assistance of Mr. Bowden who is an Engineer, in obtaining the leases of certain properties in the province of Behar. Among these properties was one called Patharghatta and in this one, at all events, there were deposits of China clay. The leases, however, had only been obtained in respect of a 2-5ths interest in the land. By an agreement dated 11th June, 1914, Pugh and Bowden constituted themselves a syndicate to prospect, develop, and work the mines in the area for which rights had been acquired. Pugh was to have 10 annas interest and Bowden 6 annas interest in the syndicate. The agreement contemplated that Bowden should be in charge of the operations and Pugh should act as capitalist, the preparation and sale of China clay was to be undertaken and Pugh was to be entitled at any time to stop operations.
23. The present controversy has reference to what happened three years later. By that time a certain amount of China clay had been dug and there were certain simple and primitive arrangements for washing it and thus producing pure white clay capable of being sold to potteries. To what extent any sales had been effected during the three years is not quite clear, hut it is clear enough that the work done was such work as was necessary to bring into existence a property of which it could be said that it was actually producing China clay. According to the plaintiff's evidence there had been little working. Bowden and Pugh had developed the property a little and there was a little plant and machinery. There were apparently 4 vats or receptacles. There was a contrivance for directing or diverting water and there were doubtless certain tools and accessories, but these were of small value. These primitive and preliminary arrangements were by August 1917 in danger of coming to an end so far as actual operations were concerned. As Mr. Rae puts it 'the whole thing was collapsing' and Mr. Bowden approached Mr. Rae with a view to save it from bursting up. When one comes to the written agreement between the three parties entered into in September 1917, it is necessary to bear in mind the foregoing facts. The parties were Lot dealing with a going concern, which was winning, preparing and selling China clay in the regular course of a living business. They were dealing with a property, the capacity of which for producing China clay had been tested, but in which the difficulty of establishing and working the business had also been discovered. From the documents dated the 1st September, 1917, one has to collect by construction the intention of the parties. It is quite clear that in some sense of the word Rae was to be the financier, but the exact position in which he as a monied man came into this matter has to be determined not by general descriptions or labels, but, by examination of the tenor of the documents to the provisions of which all three parties advisedly committed themselves.
24. It seems plain enough that the two documents of 1st September, 1917, should be read together. The scheme disclosed therein is as follows:
Bowden in whose name the leases stood and in whose name further leases were intended to be taken, declared himself to be trustee thereof on behalf of all three parties in equal shares, Rae as well as the other two covenanted to be responsible for his share of the outgoings of the property, that is, for his proportion of the rents and of the cost of complying with lessee's covenants.
25. It was arranged that Pugh and Bowden should be taken as having hitherto expended Rs. 10,000 and Rs. 5,000 respectively upon the property. The three parties were declared to form a syndicate for the purpose of floating a company to acquire not all the lands comprised in the documents, but that part only known as Patarghatta, the intention being that the company would mine for China clay therein. The recital states that Bowden has obtained or is about to obtain a lease of the said lands; in point of fact the leases not acquired but intended to be acquired were leases of the outstanding 3-5ths interest in the land. It was agreed that within two months or as soon thereafter as possible from the date on which the leases obtained and to be by Bowden should be registered, Rae should form a company with a capital of Rs. 2,50,000, for the purpose of acquiring from the Syndicate on lease for 999 years the rights in all the China clay in Patarghatta and for the purpose of working China clay therein and erecting works and buildings in that behalf. The rent which the company was to pay to the Syndicate was to be Rs. 1,200 per annum; the company was also to pay in cash to Pugb and Bowden the sums of Rs. 10,000 and Rs. 5,000 already mentioned. Pending the formation of the company Rae agreed to advance without interest all sums as were necessary up to a limit of Rs. 10,000 for the purpose of obtaining proper leases and for the formation and registration of the proposed company. These monies, that is to say, whatever sums Rae might have advanced in this way, were to be repaid to him in cash by the company when it acquired the property. The scheme was that the three members of the Syndicate would get vendor's share to the aggregate nominal amount of Rs. 50,000. This amount was divided not quite equally, because Bowden and Rae agreed that Rae's brother Peter Rae should be given 334 shares, and accordingly the number of shares to go to Pugh is somewhat in excess of the number actually reserved for each of the other two members. It was provided that the firm of Rae & Co. should be managing agents of the company when formed for at least 10 years. In both of the documents there is incorporated a defeasance clause to the effect that if Rae should fail to float the proposed company within 6 months from the signing of the leases of the said lands, the whole arrangement should come to an end; that he should get his advances back, but without interest, and that Pugh and Bowden should occupy again the position they held under the agreement of 11th June, 1914.
26. The actings of the parties after September 1917 are shown best by the account got out by Mr. Rae in respect of his advances. It appears that in September Rae proceeded to find money for the purpose of keeping China clay operations going and even for improving the plant upon the site; he is found expending money for pumps, advancing money constantly to. Bowden, purchasing gunny bags for despatching the China clay, paying for coal, for blasting powder, for cement and for various other requisites. For a long time, indeed for about two years, this expenditure, much of which was capital expenditure, exceeded any returns obtained by the sale of China clay. In December 1917 about Rs. 500 worth of China clay had been sold and paid for. By March of 1918 some Rs. 850 more had been received in this way. Rs. 331 was farther received in July. By December 1918 further Rs. 3,000 worth had been sold; in March 1919 there is a receipt of over Rs. 4,000 and by the spring of 1919 satisfactory sales were taking place, although by this time and for some time after wards the outgoings including the capital expenditure still exceeded receipts. Throughout the reminder of 1919 quite substantial sales were taking place and by the end of that year the balance of the expenditure over the receipts had apparently shrunk to some Rs. 5,000. In the first months of 1920 Rs. 9,10,000 was realised by sales, and this brings us to a period when it was manifest that the outstanding 3-5ths interest in the lands would not in the end be obtained. It was found that other purchasers had secured for themselves shares in the lands, and that it would be impossible, at least commercially impossible, to induce them to sell. Hence it was arranged in April 1920 with the consent of Pugb, Rae and Bowden, that their 2-5ths interest should be sold by them to the new owners of the 3-5ths interest and that the project of forming and floating a company should be abandoned. The stock of China clay existing at the site and undisposed of together with the plant and machinery, much of which had been procured by means of Mr. Rae's advances since September, 1917, were included in the sale. Thereupon Mr. Rae received the purchase money and wound up the matter. He recouped himself his advances with interest and in the result according to his account there was a sum just short of Rs. 60,000 available for division subject to certain minor adjustments, Mr. Rae says that that fund is divisible into thirds; 1-3rd to himself, 1-3rd to Pugh and 1-3rd to Bowden. Mr. Pugh maintains that it is divisible into two shares, 5-8ths to himself and 3-8ths to Bowden and Mr. Rae having got back his advances with interest is entitled to nothing more. It is unnecessary to go more accurately into figures as the question is no longer one of amount. It may be noted, however, that the operations between September 1917 and April 1920 show a trading profit although his profit was really represented by certain quantities of China clay which bad been manufactured but which were unsold till April 1920. No actual profit and loss account has so far been got out.
27. At the trial before Buckland, J. in August 1922 of Mr. Rae's suit to have it established that he was a partner and that as such he was entitled to a 1-3rd share of the net assets, Mr. Rae and Mr. Pugh each gave evidence on his own behalf. Bowden in December 1921 had been examined de bene essse on behalf of himself and his deposition was put in evidence. Sometime before the trial, namely in December 1921, 6 issues had been settled in Mr. Rae's suit. At this time the second suit by Mr. Pugh had not been instituted. The first issue was whether on the construction of the agreement of the 1st September any partnership was subsisting between the plaintiff and defendant. The second issue raised questions as to whether there was an express oral agreement for partnership in September 1917, and whether there was an implied agreement for partnership by reason of the advances made by the plaintiff, subsequently to the agreement of the 1st September, 1919, and the conduct of the parties in relation thereto. The 3rd, 4th and 5th issues are not important now, but the 6th issue was as follows : - Did the plaintiff become under the agreement entitled to anything beyond refund of his advances in respect of the formation of the company. The meaning of this issue seems clear enough. The defendant Pugh was contending that if contrary to his case the agreement of the 1st September or any other alleged agreement on a true construction thereof constituted the three parties partners, even so, the arrangement was entirely dependent upon the formation of the company, and that in the events that happened, the alleged agreement for partnership did not take effect. This contention may be right or wrong. The important thing to notice is that the 6th issue was directed entirely to that. The second suit had not been instituted. The sole question in the first suit was as to the existence of a partnership and unless some agreement of September was held to be a partnership agreement the 6th issue did not arise.
28. In July 1922 by correspondence between the solicitors for the parties, dated 24th, 25th and 31st July, it was agreed that the first suit, that is to say, Rae's suit should be taken up for hearing immediately and that the result of the second suit, Mr. Pugh's suit, should follow that of the first, though the precise amount which Mr. Rae would have to pay in the event of the first suit being decided against him was left over to be settled later. This correspondence is particularly clear and constitutes a contract with which it will be necessary to deal with somewhat fully later. The first suit came on for trial on the 10th August, 1922, and Mr. Rae gave evidence about early bargainings between the parties as having taken place prior to the written documents of September, He alleged that prior to these documents and independently thereof be bad oral agreement that he was to be a partner, and find money for the working of the China clay on behalf of the partnership. His case was in effect that under this oral agreement he had made his advances and not under the written instrument of the 1st September by the terms of which his advances were to be for procuring leases and for the formation of a company. The oral arrangement he deposed to was an arrangement apparently made about the same time as the written documents. He also deposed that there was an agreement from the very beginning that he should be partner, and he concluded his evidence by saying that he could not refer to any particular agreement, verbal or otherwise. Mr. Pugh gave evidence entirely denying the oral agreement alleged by Mr. Rae and giving his version or understanding of the arrangement between the parties. On the 11th August being the second day of hearing, learned Judge suggested to counsel that the only real question necessary for the decision of the case was a question of the construction of the agreement of the 1st September. There can be no doubt that this suggestion was accepted by learned Counsel on both sides, and this involves that the plaintiff's counsel elected to abandon all hope of succeeding upon the hazy evidence of Mr. Rae as to the verbal agreement, and to jettison the whole of the second issue.
29. Upon the footing that both sides took the view that the only question was the question of construction of the written agreement of the 1st September, 1917, the learned Judge applied his mind to that, and he held that the document does not as a matter of construction constitute the three parties to it, partners. That opinion of the learned Judge appears to me to be right. No doubt both documents of 1st September should be considered. The question for consideration is whether the documents disclose the parties as agreed in the language of the Contract Act
to combine their property, labour or skill in some business and to share the profits thereof between them.
30. Co-ownership is not partnership and just as there may be a joint adventure which is outside the definition of partnership in the English Partnership Act, so it is possible that in India partnership and co-ownership do not exhaust the possibilities. It is to be observed that there is nowhere in the documents of the 1st September any reference to a business, to the working of that business pending the for mation of a company, or to the sharing of the profits so, to be made in the interim. There is no reference to the sale of a goodwill to the company; the parties are to form a syndicate for the purpose of floating a company; the company is to acquire a portion only of the lands and it is the company which is to mine for China clay. It does not appear that at the time there was anything carried on upon the land which deserved to be described as a business. It appears from the plaintiff's own evidence that, if the operations that had previously taken place had ever deserved this description, they had come to an end, and that a company was thought necessary to provide for their resuscitation. At the time of the agreement it was not contemplated that the acquisition of the remaining 3-5ths interest in the lands would take any substantial time. Moreover the agreement provided that, should Mr. Rae fail to form a company, his interest should cease and he should get back any advances expended by him in terms of the agreement, that is to say, for the purpose of obtaining proper leases and so on. Mr. Rae himself says that his advances were not made under the documents, Unless, therefore, persons who enter into a joint arrangement for the floatation of a company to acquire for them certain property on lease, are entering into a relationship of partners, it seems to me that a partnership was not constituted merely by the terms of the agreements of September; The decision of the learned Judge as to this point is in my judgment right and should be upheld. It makes no difference whatever whether the 6th issue to which I have referred is answered. No amendment of the plaint was at any time sought for the purpose of alleging a relationship other than that of partners, and if the written agreement of September do not constitute a partnership the question whether they ceased to have any effect when the formation of the company became impossible, does not arise at all. In view of the fact that for 2 years money was advanced by Mr. Rae to the knowledge of the other parties for the purpose of developing the property, improving the plant and maintaining operations at the site by effecting sales when possible; it is by no means evident to me that the subsequent conduct of the parties after September did not constitute them partners. No doubt the question of profit and the sharing of profit was a minor and for some time a dubious matter. The operations were continued in order to have something worth selling to the company, - not in order to make a trading profit by the sale of China clay, though doubtless no profit would be unwelcome. I think that by the end of 1919 there was a business within the meaning of the statute and I am further of opinion that whether there was a partnership within the definition of Section 239 of the Contract Act, the question is of no importance to anybody, as no matter has arisen wherein the rights defined as the rights of partners by the Contract Act, differ from those given in the case of any joint venture or co-ownership by the ordinary rules of equity. But second issue was plainly abandoned by the plaintiff and at the time the learned Judge gave judgment no question, other than that of partnership, had been mooted.
31. This brings me to Appeal No. 131 of 1922, from the judgment in Suit No. 1655 of 1922 being the suit brought by Mr. Pugh against Mr. Rae. The parties having come to the agreement that the first suit should be tried, that the second suit should not be tried, but that the result thereof should follow that of the first suit, that it should be put on the cause list for the day in order to be decreed accordingly, Mr. Justice Buckland on deciding the first suit naturally supposed that the agreement would take effect. It is to be observed that the attorney's letters of July, 1922, are as different as possible from an arrangement that the two suits should be tried together or that the evidence in the first suit should be evidence in the second. They contain an agreement that except possibly on the question of amount the second suit should not be tried at all. They certainly do not contain an agreement after making which either party would be entitled to have issues relevant in the second suit only, litigated in the first. When in the first suit counsel on both sides agreed that the suit turned solely on the question of construction they were quite right to act upon that view. Having expressed their consent and the case having been argued on that footing the learned Judge gave judgment dismissing the suit. Thereupon and not until then, the learned Judge appears to have been informed that learned Counsel Mr. B.L. Mitter who had not been briefed in the second suit, was instructed by his attorneys Messrs. Leslie and Hinds to represent to the learned Judge that there had been a misunderstanding, and that upon the strength of this he proposed to contest the second suit. The allegations of the parties were in this appeal put on affidavit, and it is now contended that the agreement made prior to the trial and mentioned to the learned Judge is one which does not bind Mr. Rae. The contention seems to me to be entirely misconceived. I think it unfortunate both that the written agreement was not drawn to the attention of the learned Judge more pointedly, and that he did not deal with the position according to the rights of the parties. His view was that the arrangements represented by the documents of September fell to the ground in April 1920 when the project for floating a company was abandoned. In this view he decreed the second, suit on the merits though ho has stated that he did not appreciate what the misunderstanding was. He says, that be accepts Mr. Matter's statement as to the misunderstanding, and refers to this not by way of holding the parties to the agreement but as indicative of want of bond fides in the matter. I confess I do not follow. In my judgment the learned Judge had no right and no jurisdiction to say whether the agreement of the parties lawfully made should be abandoned or enforced. If there was in the first suit any consent given, or any misunderstanding as to anything, which mattered, it was open to the plaintiff then and there to ask the learned Judge to recall his judgment or by a more formal proceeding in which facts as to misunderstanding could be properly investigated, to prefer an application for review, but in no conceivable view could it be right to dismiss the first suit and then entertain argument upon the second. The contentions of Mr. Rae's advisers are, 1 think, vitiated by the failure to observe this distinction. It is I think quite idle to suggest on the correspondence between the attorneys of July, that the agreement made was subject to reservations as to all the issues being disposed of whether the parties thought them necessary or unnecessary for the determination of the first suit. It is quite plain that the result of the first suit was to govern the second and that the merits of the second suit were not to be investigated. At that time Mr. Rae's advisers were not in sight of any way in which Mr. Rae could resist liability in the second suit independently of his claim to be a partner. The client at that time was alleging oral as well as written agreements amounting to a partnership find anything different was inconsistent with his case and with his evidence as there after given, The idea now is not that on the question of partnership or no partnership, learned Counsel mishandled or misunderstood his client's ease. The idea appears to be that if he had been briefed in the second case he might have attempted upon some of the other issues in the first case - Issue 6 in particular - to raise matters which though useless in the first, might be useful if the second were under investigation. In my opinion there is no question at all to be entertained by this Court except the question whether the decision of the first case should be set aside in order to give the plaintiff therein an opportunity upon terms of litigating that again. The learned Judge observed at the beginning of his Judgment that it had been agreed that the evidence given in the first case should be treated as evidence in the second. This appears to be an inaccurate reference to something that was said at the commencement of the first suit, and to be explained by the fact that the correspondence between the attorneys was not in his mind. I find no trace of any consent on the part of counsel appearing for Mr. Pugh to abandon his bargain and relitigate the second suit on the basis of the evidence in the first after the first had been, won. Mr. B.L. Mitter was doing no more and no less than his duty to the plaintiff in having regard to the frame and scope of the first suit only when considering whether or not he had any hopes of success in the first suit apart from the construction of the agreements of the 1st September. Upon that view I see no allegation of misunderstanding as to any relevant matter.
32. The source of Mr. Rae's misfortune is plainly seen if one attends to the argument of his senior counsel Sir Binod Mitter upon these appeals which were heard together. His view is that logically in the first suit the question of partnership matters nothing. If Mr. Rae is a co-owner he can defeat the second suit and retain the money which is the sole subject of the consent. If his case had been present to the mind of Mr. Rae's attorneys their letters of 3lst July could not have been written. Each of two gentlemen having brought unfounded suit against the other Mr. Rae was so unfortunate as to agree that if he lost' his own suit he should be held liable in Mr. Pugh's. In these circumstances it is hardly reasonable to seek for an explanation of his ill success in the way his counsel handled the first case. This line of escape will not serve. However unfortunate and unsatisfactory the result may be I do not think that it is open to the court to rescue Mr. Rae from the results of a bargain which never would have been made had he not persisted in his allegations about oral agreements. To convert the first suit after trial into a different kind of suit and to remand it with leave to amend in order to evade the bargain cannot be right.
33. It remains only to state shortly that I am not prepared to hold with the learned Judge in the second suit that Mr. Rae's interest under the deed of trust failed to take effect or ceased to have effect because the project of a company had to be abandoned. The reasoning is that the deed of trust was ancillary to the agreement : The object of the agreement was the floatation of a company, hence when this object failed the deed of trust failed. On this part of the case no authorities were cited in this Court or apparently in the court below.
34. There is no question here of a document being executed purporting to give an interest which in reality was not intended so that, for example, when the company came to be formed the prospectus might look better or the conveyancing might be more simple. The case therefore is not on the lines of Lemon v. Whitley (1828) 4 Russ. 423; Haigh v. Kaye (1872) 7 Ch. 469; De Duke of Marlborough (1894) 2 Ch. 133.
35. Nor is the case at all analogous to that of a settlement made in contemplation of a marriage which is never celebrated : Essary v. Cowlard (1884) 26 Ch. D. 191; Bond v. Walford (1886) 32 Ch. D. 238; Re Garnett (1905) 93 L.T. 117.
36. That the 3-5ths interest would be obtained is a matter upon which I do not doubt that the parties felt every confidence. But it was never a matter of certainty. It is not such a thing that the parties cannot reasonably be supposed to have entertained the possibility of failure : Cf. Baily v. De Crespigny (1869) 4 Q.B. 180. The principle upon which a condition is implied in contracts Tamplin SS. Co. (1916) 2 A.C. 397 though no one form of statement will apply in all oases, Blackburn Bobbin case (1918) 1 K.B. 540 must I think in such a case as this be subject to the test stated by A.T. Lawrence, J., in Scottish Navigation Co. v. Soutter & Co. (1919) A.C. 435 and approved by Lord Sumner in Bank Line v. Capel & Co. (1919) A.C. 435 : - 'No such condition should be implied when it is possible to hold that reasonable men could have contemplated the circumstances as they exist and yet have entered into the bargain expressed in the document' : See Comptoir Commercial Auversois v. Power Son & Co. (1920) 1 K.B. 868. The events which happened in the present case are not within the defeasance clause which cannot be extended by a hair's breadth. I read the documents of 1st September, 1917, as meaning that in consideration of the several promises by Mr. Rae therein contained - e.g. to bear his share of the rents and covenants, in certain events to advance monies, in certain events to form a company - he was given at once one-third interest in all the lands; defeasible in the events of his failure to do what he promised in the matter of forming the company; and a bargain was struck as to the terms of the company's purchase and lease of one of the several items of land and also as to the division of the proceeds of that item. I fail to see that if the ultimate failure of Bowden to get in the outstanding leases had been mentioned, the parties as reasonable men must have agreed that Mr. Rae's interest should be cancelled ex post facto or taken as never having accrued and that the other parties should become liable to him for his advances as upon a restitutio ad integrum.
37. However in my view this question need not now be decided and both appeals should be dismissed with costs.