Cox v. Hickman
Benjamin Smith and Josiah Timmis Smith carried on business as iron workers and corn merchants under the name of B Smith & Son. They owed a lot of money to the creditors and a meeting took place, amongst whom were Cox and Wheatcroft. A deed of arrangement was executed by more than six-sevenths in number and value of the creditors. The trusts were enumerated and the lease was fixed at 21 years. They were to carry on business under the name of “The Stanton Iron Company”. The deed also contained a clause which prevented them from suing the Smiths for existing debts. Cox never acted as trustee, and Wheatcroft resigned after six weeks after which no trustee was appointed.
The goods for the business were provided by Hickman who drew 3 bills of exchange, which the business accepted but did not honour.
The suit was first tried in front of Lord Jervis who ruled in favour of the defendants. The action was then taken to the Exchequer Chamber wherein three judges wanted to uphold the judgement and the other three were for reversing it.
Whether there is a partnership between the traders who were in essence the creditors of the firm.
The counsel for Wheatcroft contended that:
- There was no action against the appellant, as if Hickman had heard that Cox and Wheatcroft were the trustees, he would have realized that Cox had never been a trustee and Wheatcroft had resigned.
- The ownership of the partnership never changed and was still owned by the Smiths.
- A qualified benefit derived from a trade does not make a person a partner in it. Here, unless the profits are taken, there exists no partnership.
The counsel for Cox contended that:
- The defendant can be held liable only if:
1.1 He put his name on the bill
1.2 Authorised someone else to put their name on the bill
1.3 Held himself to have given the authority
- As to the first and third points he is not liable. As far as the second is concerned, the defendant cannot be held liable unless an agency is proved.
- It is up to the defendant to show that the plaintiff is a partner.
The counsel for Hickman contended that:
- There was a contract of partnership under which business was to be carried out for the benefit of creditors
- The scheduled creditors are allowed to participate in the profits of the firm thereby making them partners
- Any one of the partners may bind all the others by the acceptance of the bills in the regular course of business
The deed gave special powers to the creditors. They were given the choice by majority regarding whether or not the trade should be continued and making rules and regulations as to the carrying out of that trade, which are the powers that partners have.
The creditors, however, did not carry out the business of the trade when they could have but let the trustees do the same. By this act f theirs, they did not make themselves partners of the trade. If they had carried out they business they could have made sure none of the trustees accepted the bill of exchange as they would be the principals.
The deed in this case is merely an arrangement between the creditors and the Smiths, to repay the creditors out of existing and future profits. This relationship between the creditors and debtors is not enough to constitute a relationship between a principal and agent. Trustees are liable as they are the agent by the contract but the creditors are not the principals of the trustees.
The decision of the Court of Common Pleas was reversed and the defendant’s were not held liable.