Cox Vs.

Hickman

Facts of the case:

1. Benjamin smith and jossiah smith were partners and were engaged in the
business of “iron masters and corn merchants”. They subsequently failed
to pay off their debts and owed a lot of money to the creditors.
2. In a meeting that took place between them and creditors, they assigned all
of their property to their five creditors amongst whom were Cox and
Wheatcroft ,as trustees, upon trust to carry on the business.
3. A deed of arrangement was executed by more than six- sevenths in
number and value of the creditors. The lease was fixed for 21 years.
4. They were allowed to carry on the business under the name of “the
Stanton iron company”.
5. The deed also had a covenant by the parties executing it, stating that the
creditors cannot sue smith for the existing debts. Cox never acted as
trustee and wheatcroft resigned after six weeks after which no trustee was
appointed.
6. The goods for the business were supplied by Hickman. He drew three
bills of exchange for the goods supplied by him. These bills were
accepted on behalf of the Stanton iron company by one of the three
remaining creditors.
7. Hickman sued Cox and Wheatcroft on the basis of those three bills and
alleged that they were liable upon them as partners in the business of the
Stanton iron company because they were two of the five creditors who
were original partners to the deed.

Issue:
Whether there is a partnership between the traders who were in essence
creditors of the firm.
Whether the defendants were liable to the creditors by executing the deed.

Judgement: The decision of the Court of Common Pleas was reversed and the
defendant’s were not held liable.
Reason for judgement:

The deed provided creditors with special powers. 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 of theirs, they did not
make themselves partners of the trade. Further,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.