This article is written by Shaily Garg, a Fourth year B.Com. LLB (Hons.) Student of University Institute of Legal Studies, Panjab University, Chandigarh.
When the goods are purchased for re-sale, it is a business transaction. One of the main objectives of every partnership must be carrying on a business and sharing its profits. But if several persons join together to make a bulk purchase of certain goods and divide the very goods amongst themselves to have the benefit of bulk purchase, such persons cannot be called partners although each one of them stands to gain something because purchasing goods without any idea of selling them is not carrying on business and hence, no partnership is formed between the persons. The present case deals with the same principle of the law of Partnership.
Facts of the Case
Eyre and Co. is a registered company under the eyes of the law. There was an agreement between Eyre and Co. and three other persons namely Pugh, Hattersley, and Stephens, that Eyre & Co. would purchase some oil from the third party and distribute the same between itself and the other three persons and others would then pay for the oil to Eyre and Co. at the purchase price. The purchase was made only in the name of Eyre & Co. without any notification to the other three persons (plaintiffs) that any other persons had any concern in it. After the purchase, Eyre & Co. became bankrupt and the seller of oil sued the other three persons, who had shared to recover the price of oil.
Issue of the Case
Whether the plaintiffs are liable to pay the price of oil purchased by Eyre & Co.?
Observations of the Court
Heath, J. observed that Eyre & Co. are the only purchasers known to the plaintiffs and the entire credit was given to them alone. The plaintiffs can be liable only in the event of a concealed partnership, on this principle, “that the act of one partner binds all his co-partners, on account of communication of profit and loss”. However, in reality, the plaintiffs were not partners, since they were only interested in the purchase of the commodity, and not in the subsequent disposition of it.
The oil, in this case, was not meant for re-sale and, therefore, there was no business being carried on by Eyre & Co. and others and hence there was no partnership between them. Since Eyre & Co. had purchased the oil on its account and not as agent or partner of the other three persons, the other three persons could not be made liable for the same.
One of the main objectives of every partnership is that it must be carrying on a business and sharing its profits. It may be any business that is not unlawful. The Indian partnership act, 1932, defines business as including ‘every trade, occupation or profession’. This definition is not exhaustive in nature and is capable of including any kind of commercial activity aimed at earning profits. The business, for instance, may be of working as tailors, engaging in the legal profession, rendering medical services, producing a film, running a banking business, or purchasing and selling goods. If several persons agree to purchase cotton jointly on a joint account, and therefore resell the same and then share the profits or losses as may arise from the same, this amounts to carrying on of a business, and a partnership is created between such persons. However, purchasing goods for personal consumption does not constitute a partnership.