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John H. Arseculeratne v. J.B.M. Perera
Concise Analytic Summary of the Legal Opinion
Factual and Procedural Background
By a written agreement dated 21 December 1915 the appellant and the respondent agreed to prospect for plumbago at the Pattagoda Mines under the name "Pattagoda Mining Company." The respondent agreed to "give over" his interest in a lease of the mine (which still had eight years to run) to the proposed company; the appellant was to manage the mine and receive a commission of 2% on all transactions; partners were to contribute equally to expenses and share profits and losses equally. The agreement was signed by both parties but was not attested by a notary or witnesses. The mine was worked under the appellant's management until January 1918 when working stopped by mutual arrangement.
On 25 January 1923 the appellant sued the respondent, alleging that he had paid or borrowed Rs. 72,857 for the business and was entitled to Rs. 1,504 in commission, and claiming a dissolution of the partnership and payment by the defendant of one-half of those sums or such sum as might be found due on taking an account.
The respondent admitted many of the factual allegations—including that the business was carried on and that profits and losses were to be divided equally—but pleaded that the 21 December 1915 agreement was invalid in law (because it had not been notarially executed and attested as required by Ordinance No. 7 of 1840). Issues were framed for trial, including the validity of the document under the Ordinance and questions concerning authority to borrow and liability for borrowed sums and interest.
The District Judge held on issue 1 that the agreement was void for want of the attestation required by Clause 2 of Ordinance No. 7 of 1840 and, without deciding other issues, dismissed the action with costs. The Supreme Court of Ceylon affirmed that judgment. The present appeal to their Lordships (the Board) challenges the Supreme Court's affirmance.
Legal Issues Presented
- Whether the document containing the agreement of 21 December 1915 is invalid in law because it was not notarially executed and duly stamped in the manner directed by Clause 2 of Ordinance No. 7 of 1840 (Issue 1).
- Whether the plaintiff (appellant) had authority to borrow money for the working of the partnership (Issue 5).
- Whether the defendant (respondent) is liable to pay one-half of any moneys borrowed by the plaintiff or of the interest due on such loans (Issue 6).
- What sum, if any, is due by defendant to plaintiff or by plaintiff to defendant (Issue 8).
Arguments of the Parties
Appellant's Arguments
- The appellant pleaded the written agreement of 21 December 1915, the carrying on of the business under that agreement, and that he had paid or borrowed Rs. 72,857 in respect of the business and was entitled to a further Rs. 1,504 as commission.
- He claimed dissolution of the partnership and an account, seeking payment by the defendant of one-half of the sums advanced or such sum as might be found due on an account.
Respondent's Arguments
- The respondent admitted the working of the business under the Pattagoda Mining Company and many of the stated terms (including a 2% commission and equal division of profits and losses), but pleaded that the written agreement of 21 December 1915 was invalid in law because it had not been attested by a notary and two witnesses in the manner required by Clause 2 of Ordinance No. 7 of 1840.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Forster v. Hale [1800] 3 Ves. 696 : 3 Ves. 303 | Principle relied on historically (and tied to S.4 of the English Statute of Frauds) concerning relief by part performance or principles that may remedy certain formal defects in agreements affecting land. | The court examined this case and concluded that the principle laid down in Forster v. Hale does not cure the defect arising from non-compliance with Clause 2 of Ordinance No. 7 of 1840; the case (and its principle) has reference to S.4 of the English Statute of Frauds and is not applicable to the more stringent provisions of Clause 2. |
| Dale v. Hamilton [1846] 5 Hare 369 : 16 L.J. Ch. 126 : 11 Jur. 163 | Another authority touching the doctrine (and limits) of part performance and the remedying of formal defects under the English Statute of Frauds. | The court considered Dale v. Hamilton alongside Forster v. Hale and held that, similarly, its principle did not cure the defect under Clause 2 of the Ordinance; it could not be applied to avoid the operation of Clause 2. |
| Pate v. Pate [1915] A.C. 1100 : 84 L.J. P.C. 234 : 31 T. L.R. 590 | Holding that no suit could be maintained in Ceylon on an agreement for a partnership which was not in writing and signed as required by the relevant provision (Clause 21 of the Ordinance), even where the partnership had been carried on and dissolved and only an account was sought. | The Board relied on Pate v. Pate to support the proposition that Clause 21 requires a written signed instrument for partnership agreements where capital exceeds 100, and that that requirement prohibits suits founded on unsigned partnership agreements; the Board held that the same principle applies to agreements affecting land that are not executed and attested under Clause 2. |
Court's Reasoning and Analysis
The Board's reasoning unfolded in two main stages: first addressing the effect of the Ordinance's formal requirements, and second determining whether a partnership nevertheless existed and could be enforced as to non–land aspects.
1) Clause 2 and Clause 21 of Ordinance No. 7 of 1840:
- The Board agreed with the Supreme Court that Clause 21 of the Ordinance and the prior decision in Pate v. Pate establish that a partnership agreement where the capital exceeds Rs. 100 must be in writing and signed as required, and that a court in Ceylon will not entertain a suit founded on a partnership agreement that fails to meet those formal requirements.
- Clause 2 imposes a stricter attestation requirement for instruments affecting land or immovable property: such instruments must be executed in the presence of a licensed notary public and two witnesses and duly attested. The Board held that the remedies or doctrines developed under Section 4 of the English Statute of Frauds (including the cases of Forster v. Hale and Dale v. Hamilton, and the equitable doctrine of part performance) are not applicable to Clause 2's more stringent requirements. In short, the defect of non-attestation under Clause 2 is not cured by those authorities or the doctrine of part performance.
2) Whether a partnership was nevertheless established and enforceable as to non-land obligations:
- Although the agreement's provision purporting to transfer the lease was ineffective under Clause 2, the Board examined whether the written agreement could still be relied upon to establish the other terms of a partnership. The respondent had pleaded and thereby admitted the existence of a partnership in his written statement; however the Board found it unsatisfactory to rest decision solely on that admission because the terms pleaded by the respondent differed in some respects from those in the plaint.
- The Board interpreted Clause 22 — which provides that nothing in Clause 21 shall be construed to exempt deeds affecting land from the attestation requirements of Clause 2 — as implying that an instrument not duly attested under Clause 2 may nevertheless be referred to "for the purpose" of establishing other terms of a contract (i.e., the non-land terms of a partnership agreement). Thus the written agreement of December 1915, although ineffective to pass an interest in the lease, complied with Clause 21's requirement for writing and signature and could be used to establish the other terms of the partnership.
- The Board noted that the transfer of the lease was an important term but observed that no claim had been made in the suit to compel the defendant to effect the transfer during the lease's currency. The partnership had in practice been carried on by the license of the respondent, who had not revoked that license while the partnership operated. Given that the partnership ran its course and what was sought was an account and payment of what might be due, the Board held it would be inequitable to leave the appellant bearing the whole loss if he had borne the whole expenses.
- Accordingly, the Board concluded that the agreement could be declared valid for the limited purpose of establishing the partnership and that the appellant was entitled to an account on that footing.
Holding and Implications
Core Ruling: Their Lordships allowed the appeal. They set aside the judgment of the Supreme Court and declared that the agreement of 21 December 1915 is valid for the purpose of establishing a partnership between the parties, but not valid for the purpose of affecting the ownership of the Pattagoda mine (i.e., the purported transfer of the lease was ineffective for want of attestation under Clause 2 of Ordinance No. 7 of 1840).
Direct consequences and procedural disposition:
- The case is remitted to the District Court to be dealt with on the footing that the written agreement establishes the partnership (but does not affect the ownership of the mine).
- The respondent was ordered to pay the costs of the appeal to the Supreme Court and to the Board. The costs of the underlying suit were reserved for determination by the District Judge.
- Final outcome: Appeal allowed.
Broader legal implications recorded by the court (as stated in the opinion): the Board distinguished the strict attestation requirement of Clause 2 from the remedies available under Section 4 of the English Statute of Frauds, holding that authorities and the doctrine of part performance tied to that English statute do not cure defects under Clause 2. The Board also interpreted Clause 22 as permitting a document which fails the formalities required to affect land to be referred to for the purpose of establishing other non-land terms (such as partnership terms) where the document otherwise satisfies Clause 21.
Lord Chancellor -
This is an appeal from a decree of the Supreme Court of Ceylon affirming a decree of the District Court of Colombo in an action in which the appellant was plaintiff and the respondent was defendant.
By an agreement in writing dated 21st December 1915, the respondent and the appellant agreed to prospect for plumbago at the Pattagoda Mines under the name of the Pattagoda Mining Company. The agreement provided that the respondent " would thereby give over " his interest in the lease which he had taken from the owners of the mine (which had still eight years to run) to the Company ; that the appellant should manage the mine and receive a commission of 2 per cent, on all transactions ; that the partners should contribute equally to the expenses to be incurred on the pit or pits ; and that they should be entitled to the profits and liable for the losses in equal shares. The agreement was signed by both parties, but the signatures were not attested by a notary or witnesses. The mine was duly worked under the management of the appellant from the date of the agreement until the month of January 1918, when the working was stopped by mutual arrangement.
On 25th January 1923 the appellant brought this action against the respondent pleading the above facts and alleging that he (the appellant) had paid or borrowed money in respect of the business amounting to Rs. 72,857 and was entitled to commission amounting to a further Rs. 1,504 ; and the plaintiff claimed a dissolution of the partnership and payment by the defendant of one-half of those sums or of such sum as might be found due upon an account being taken. The respondent by his written statement admitted that he had agreed to work the Pattagoda plumbago pits under the name of the Pattagoda Mining Company, that the profits and losses were to be divided equally, that the plaintiff was to manage the business for a commission of 2 per cent., and that the business had been carried on as alleged ; but he pleaded that the agreement of 21st December 1915, on which the plaintiff's action was based, was invalid in law. Issues were framed, which included the following :
1. Is the document containing the agreement between plaintiff and defendant invalid in law inasmuch as it has not been notarially executed and has not been duly stamped ?
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5. Had plaintiff authority to borrow money for the working of the partnership ?
6. Is defendant liable to pay half-share of any of the moneys borrowed by the plaintiff or of the interest due on such loans.
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8. What sum, if any, is due by defendant to plaintiff or by plaintiff to defendant ?
On the trial of the action the District Judge held on issue 1 that the agreement of 2lst December 1915, not having been attested by a notary and two witnesses in manner directed by Cl. 2, Ordinance No. 7 of 1840, was void in law, and without dealing with the other issues dismissed the action with costs. On an appeal by the plaintiff to the Supreme Court of Ceylon, that Court affirmed the judgment of the District Judge, and it is against that decision that the present appeal is brought.
The material provisions of Ordinance No. 7 of 1840 are as follows :
2. No sale, purchase, transfer or mortgage of land or other immovable property and no promise, bargain, contract or agreement far effecting any such, object or for establishing any security, interest or incumbrance affecting land or other immovable property (other than a lease at will or for any period not exceeding one month) nor any contract or agreement for the future sale or purchase of any land or other immovable property shall be of force or avail in law unless the same shall be in writing and signed by the party making the same or by some person lawfully authorized by him or her in the presence of a licensed notary public and two or more witnesses present at the same time, and unless the execution of such writing deed or instrument be duly attested by such notary and witnesses.
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21. No promise, contract, bargain or agreement, unless it be in writing and signed by the party making the same or by some person thereto lawfully authorized by him or her, shall be of force or avail in law for any of the following purposes :
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4. For establishing a partnership where the capital exceeds 100 ; provided that this shall not be construed to prevent third parties from suing partners or parsons acting as such and offering in evidence circumstances to prove a partnership existing between such persons or to exclude parol testimony concerning transactions by or the settlement of any account between partners.
22. Provided always that nothing in the preceding clause shall be construed to exempt any deed or instrument in any manner affecting land or other immovable property from being required for that purpose to be executed and attested in manner declared by the second clause of this ordinance.
Applying these provisions, the Supreme Court held that the agreement of 21st December 1918, not having been executed and attested in manner required by the second clause of the ordinance, was void so far as it purported to affect the lease of the Pattagoda mines vested in the respondent ; and after a careful examination of the cases of Forster v. Hale [1800] 3 Ves. 696 : 3 Ves. 303 and Dale v. Hamilton [1846] 5 Hare 369 : 16 L.J. Ch. 126 : 11 Jur. 163, they decided that the defect in the agreement was not cured, either by the principle laid down in those cases, or by the equitable doctrine of part performance. They further held that the agreement was one and indivisible, and that the stipulation as to the transfer of the mine to the Pattagoda Company being ineffective, the whole agreement was void and of no effect ; and accordingly that the action was rightly dismissed.
Upon the first of the two points so decided by the Supreme Court their Lordships are wholly in agreement with the opinion of that Court. The effect of Cl. 21 of the Ordinance was considered by this Board in the case of Pate v. Pate [1915] A.C. 1100 : 84 L.J. P.C. 234 : 31 T. L.R. 590 where it was held that no suit could be maintained in Ceylon upon an agreement for a partnership which was not in writing, signed by the parties as required by that section, even though the partnership business had been carried on for a time and had then been dissolved, and although the plaintiff was only claiming an account of the transactions of the dissolved partnership and payment of what might be found due. Doubtless the decision applies with equal force to an agreement affecting land which has not been executed and attested in manner required by Cl. 2 of the ordinance ; and their Lordships agree with the opinion of the learned Judges of the Supreme Court that in the case of such an agreement the operation of the ordinance cannot be avoided either by an application of the principle of the decision in Forster v. Hale [1800] 3 Ves. 696 : 3 Ves. 303, or under the equitable doctrine of part performance. Both the cases last cited and the doctrine of part performance have reference to S. 4, English Statute of Frauds, and they have no application to the more stringent provisions of Cl. 2 of the Ordinance by which an agreement as to land not duly attested by a notary and two witnesses is rendered of no "force or avail in law."
But this does not conclude the matter. Assuming that the agreement by the respondent to "give over'' the lease of the mine to the proposed company was void for want of proper attestation under Cl. 2 of the ordinance, the question remains whether a partnership between the parties is established. In this connexion it is to be remembered that the respondent by his pleading admits the existence of a partnership, an admission which would appear to entitle the appellant to an order for an account. But it would not be satisfactory to decide the case on that ground alone, as the terms of the partnership as admitted by the respondent differ in some respects from those alleged in the plaint ; and it is necessary to consider whether the agreement of December 1915, although ineffective to pass any interest in the land, may yet be referred to as showing the other terms of the partnership. In their Lordships' opinion it may be so referred to. Cl. 21 of the Ordinance requires that an agreement for a partnership where the capital exceeds 100 shall be in writing signed by or on behalf of the parties ; and the agreement of December 1915 complies with that requirement. Cl. 22 adds the proviso that an instrument affecting land shall "for that purpose" be executed and attested as required by Cl. 2, an expression which leads to the inference that the instrument, although not notarially executed and attested, may yet be referred to for the purpose of establishing the other terms of the contract. It is true that in the present case the agreement to transfer the mine was an important term of the contract ; and it may well be that if, during the currency of the lease, the plaintiff had sought to compel the defendant to put the mine at the disposal of the company and the defendant had refused so to do, the substratum of the partnership would have disappeared and the partnership must have been dissolved. But no such claim was ever made or is now made in this suit. It is possible, as Lord Rosslyn pointed out in Forster v Hale [1800] 3 Ves. 696 : 3 Ves. 303 for a mining business to be carried on in land in which no estate is given to those who share in the working ; and in the present case it must be inferred that throughout the duration of the partnership the mine was worked by the license of the respondent, which he did not choose to revoke. The partnership has now run its course, without the necessity for calling for a transfer of the lease, and all that is claimed is an account of the partnership transactions and payment of what may be found due. The partnership, apart from any claim to the land, is established by the written agreement and the admissions in the pleadings. If the venture had proved successful, and substantial profits had come to the plaintiff's hands, he would assuredly have been bound to account for them ; and there is no reason why, now that the business has resulted in a loss, the plaintiff, who is alleged to have borne the whole expenses of the mining operations, should be left to bear that loss alone. He is entitled to an account on the footing of the agreement and to payment by the defendant of what may be found due on the taking of such account.
For these reasons their Lordships are of opinion that the judgment of the Supreme Court should be set aside, and that upon the first issue it. should be declared that the agreement of 21st December 1915 is valid for the purpose of establishing a partnership between the parties, but not for the purpose of affecting the ownership of the mine, and the case should be remitted to the District Court to be dealt with upon the above footing, and their Lordships will humbly advise His Majesty accordingly. The respondent will pay the costs of the appeal to the Supreme Court and to this Board, the costs of the suit being reserved to be dealt with by the District Judge.
Appeal allowed.
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