Holme v. Hammond ((1872) L.R. 7 Ex. 218)

Facts of the Case

The case concerns the liability of a deceased partner's executors who continued to receive a share of the firm's profits as per the partnership deed.

• Original Partnership: Thomas Fisher, William Henry Fisher, and George Henry Smith were partners in an auctioneering business.

• Partnership Deed Stipulation: The deed provided that upon Thomas Fisher's death, the surviving partners would continue the business and pay Thomas Fisher's share of profits to his executors (the Defendants).

• Events:

  • Thomas Fisher died in August 1869.

  • The business continued with the surviving partners, W.H. Fisher and Smith.

  • In May 1870, Fisher and Smith sold the plaintiff's mill and machinery and received the proceeds.

• Plaintiff's Claim: The plaintiff sued W.H. Fisher and the executors of Thomas Fisher. The plaintiff argued that by receiving a share of the profits from the ongoing business, the executors had effectively become partners with Fisher and Smith and were therefore liable for the money owed to the plaintiff.

Issue

Whether the Defendants (Thomas Fisher's executors) were partners of the surviving partners (W.H. Fisher and Smith) at the time the debt was incurred, thereby making them liable for the firm's obligation to the plaintiff.

Judgment

The Court held that there was no evidence to establish a contract of partnership on the part of the defendants. The executors were not liable as partners.

Legal Analysis

1. The Partnership Test: Contract and Agency

The Court applied the principle established in Cox v. Hickman, emphasizing that mere receipt of profits does not automatically create a partnership.

• Essential Element: To be a partner, there must be a contract (express or implied) to enter into a partnership and the existence of a relationship where each person is a principal and an agent for the others (Mutual Agency).

• Absence of Contract/Agency: The Court found:

  • The executors received the profits under the terms of the deceased's will and the original partnership deed, fulfilling their duties as executors, not entering into a new partnership contract.

  • The executors did not leave any capital in the business.

  • The executors did not interfere with the firm's operations.

2. Executorial Duty vs. Partnership

The Court drew a clear distinction between:

• Partnership Liability (Agency): Liability arises from the power to bind co-partners by acts done on behalf of the firm (the agency principle, which governs Section 19 of the Indian Partnership Act).

• Contractual Right to Share Profits: The executors had a contractual right (derived from the original partnership deed) to a share of the earnings, which was simply a method of distributing the deceased partner's interest.

The receipt of profits under these circumstances was consistent with their duty as executors and did not amount to them carrying on the business as principals or agents of the continuing firm. Consequently, they did not incur any personal liability for the firm's debts.

Commentary: Non-Liability of Executors

Holme v. Hammond provides a crucial safeguard for the estates of deceased partners.

The case establishes that executors, who are compelled by a partnership agreement or a will to accept a share of the profits from the continuing business in lieu of a capital payout, will not be deemed partners simply by virtue of receiving those profits.

This is a direct application of the Mutual Agency Test (now foundational to partnership law globally, including Section 4 of the Indian Partnership Act), which demands active participation or the power to bind the firm. The executors' passive receipt of funds under a pre-existing contractual obligation does not satisfy the requirements of a principal-agent relationship necessary for partner status and liability.