.3 THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW 3 ELEMENTS OF THE LAW OF PARTNERSHIP BV FLOYD R. MECHEM, LL. D. Author of Mechem on Agency, Mcchem on Public Officers, Mechem on Sales. ec. Formerly Tappan Professor of Law in (be University of Michigan, Professor of Law in the University of Chicago. SECOND EDITION CHICAGO CALLAGHAN AND COMPANY 1920 COPYRIGHT, 1896 BT FLOYD R. MECHEM COPYRIGHT, 1920 BT FLOYD B. MECHEM \no PREFACE TO THE SECOND EDITION The considerable growth of the law of Partnership in the last twenty-four years and especially the advent of the Uniform Partnership Act have been thought to justify a new edition of this little book. Several new sections have been added, the Uniform Partnership Act has been incorporated, and the range of citation of cases has been somewhat extended; otherwise its scope and purpose have not been changed. It has seemed de- sirable to renumber the sections. FLOYD R. MECHEM. UNIVERSITY OF CHICAGO, May 1, 1920. PREFACE TO FIRST EDITION Several years ago the writer printed for the use of his class a brief course of lectures on Partnership. A wider demand for them having sprung up, they have been revised and reprinted in the hope that they may be useful to students elsewhere. They pretend to be nothing more than the mere elements of the sub- ject, and the endeavor has been to keep them in small compass. The citation of authorities has been purposely limited to the leading and most readily accessible cases, and those cited have been selected rather as illustrations of the text than as authori- ties for it. Much statement of cases in the text has been avoided, because the lectures were designed to be used and were in fact used in connection with a volume of selected cases upon the subject. It is assumed that the study of Agency will precede that of Partnership, and some knowledge of the former subject has been constantly taken for granted. If the style at times seems to be didactic, the circumstances of the original composition will serve as an explanation. FLOYD R. MECHEM. UNIVERSITY OP MICHIGAN, Ann Arbor, May 1, 1896. iii GGV852 TABLE OF CONTENTS [REl-ERENCES ARE TO SECTION'S] CHAPTER I. DEFINITIONS AND DISTINCTIONS. Partnership defined 1 The characteristic elements 2 Partnership a commercial association 3 Is a contractual relation 4 Is a voluntary relation. The delectus personarwn 5 Is a partnership a distinct entity ? 6 The commercial conception of partnership 7 How a partnership differs from a corporation 8 Intermediate associations 9 Clubs, societies, etc 10 Joint-tenancy and co-ownership 11, 12 Joint purchasers of goods, etc., for division, use, etc 13 Joint purchasers of goods, etc., for resale 14 Workmen dividing product or proceeds 15 Joint ventures Syndicates 16 Members of defectively organized corporations . 17- 19 Causes of failure to incorporate , 20- 23 Effect of estoppel 24, 25 The doctrine of contractual limitation 26 The doctrine 'that no one but the State may raise the question 27 Eights as partners in such cases 28 Promoters of companies 29 Contemplated partnerships 30, 31 Classification of partnerships 32, 33 Peculiar forms of partnership Joint stock companies Part- nership associations Mining partnerships Limited partner- ships Sub-partnerships 34- 39 Trust or partnership 40 Classification of partners 41 TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] CHAPTER II. FOE WHAT PUEPOSE A PAETNERSHIP MAY BE CREATED. For any lawful business 42 Series of acts, continuous business, single adventure 43 Not for purposes unlawful or opposed to public policy 44 Purposes illegal in part 45 Effect of illegality 46 CHAPTER III. WHO MAY BE PAETNEES. In general, any person competent to contract 47 Aliens as partners 48 Infants as partners 49, 50 Insane persons as partners 51 Married women as partners 52 Corporations as partners 53 Firms as partners 54 Agent, etc., as partner 55 How many partners there may be 56 Of the delectus personarum 57 Of ' ' sub-partnerships ' ' so-called 58 CHAPTER IV. OF THE CONTRACT OF PAETNEESHIP AND THE EVIDENCE THEEEOF. No particular formalities required 59 How affected by the statute of frauds Contracts not to be per- formed within one year 60 - Partnerships in lands 61 Partnership in chattels 61a Consideration for the contract 62 When the contract takes effect 63 Question of the existence of a partnership one of mixed law and fact 64 Means of proof 65 Burden of proof 66 vi TABLE OP CONTENTS [REFERENCES ARE TO SECTIONS] CHAPTER V. WHAT ACTS AND CONTRACTS CREATE A PARTNERSHIP. How question arises 67 Partnership inter sese and as to third persons 68 I. OF TRUE PARTNERSHIPS. True partnerships, how classified 69 Of partnerships expressly intended 70 Of agreements held to create partnerships inter aese when that was not intended 71 Legal intention of parties controls 72, 73 Tests of intention to form partnership 74 Agreements to share both profits and losses 75 77 Agreements to share profits, nothing being said about losses . . 78- 80 Agreements to share profits with express stipulation against losses 81 Partnership in profits only 82 Agreements to share gross returns 83 Agreements to share losses only 84 II. Or SO-CALLED QUASI-PARTNERSHIPS. Of partnerships as to third persons 85 1. Of Sharing Profits. Sharing profits was formerly a ground of liability to third persons as a partner 86, 87 Of the case of Cox v. Hickman 88- 90 Effect of Cox v. Hickman on English law 91 Effect of Cox v. Hickman in the United States 92 Beecher v. Bush : 93 Harvey v. Childs . 94, 95 Meehan v. Valentine 96- 98 2. Of Holding Out as a Partner. Person may become liable as a partner by holding himself out as one 99-101 What facts must exist 102 Who may enforce liability? 103, 104 Holding out to the world 105 Methods of holding out 106 Evidence admissible 107 The effect 108-111 vii TABLE OP CONTENTS [REFERENCES ARE TO SECTIONS] CHAPTER VI. OF SOME INCIDENTS OF PARTNERSHIPS PARTNERSHIP ARTICLES, FIRM NAME, GOOD WILL, PARTNERSHIP PROPERTY. In general 112 I. Or ARTICLES OF PARTNERSHIP. Of the necessity of articles 113 Of the scope of articles 114 Of the construction of articles 115 Of waiving or enlarging express conditions by conduct 116 Of continuing partnership under former articles 117 Of the usual clauses in partnership articles 118 Of the enforcement of the provisions Arbitration Specific per- formance 119 II. OF THE FIRM NAME. Of the need of a firm name 120 What name may be adopted 121 Use of different name .122 What may be done in the firm name Executing contracts, bonds, deeds Actions at law 123 Of the firm name as property 124 Of the right to the firm name upon dissolution 125, 126 III. OF THE GOOD-WILL. What is meant by the good-will 127 Good-will as an asset 128 Disposition of good-will on dissolution 129 Effect of sale Right to use firm name 130 Limitations resulting from sale of good-will upon right to carry on competing business 131, 132 IV. OF THE CAPITAL or THE FIRM. What constitutes capital 133 Fixing amount and interests 134 Certificates or other evidence of interest 135 What may be received as contributions to capital 136 Enforcing contribution of capital 137 viii TABLE OF CONTENTS [REFERENCES ABE TO SECTIONS] V. Or THE PROPERTY OF THE FIRM. 1. Of Firm Property in General. What may be partnership property 138 What constitutes partnership property 139 Property bought by partner in his own name 146 Property used by the firm 141 Partners ' ' ' lien ' ' on property 142 Nature of each partner's interest in the firm property 143,144 Extent of each partner 'a interest 145 The transfer of shares 146, 147 Seizure of partner 's share by his individual creditor 148, 149 2. Of the Title to Personal Property. May be held in firm name 150 May be held in name of one partner for the firm 151 Title is in partners collectively 152 3. Of the Title to Seal Estate. Older rule Legal title to real property cannot ordinarily be taken in firm name 153 But the equitable title is in the firm 154 Modern rule more liberal Uniform Partnership Act 155 When land is partnership property 156 Land acquired during the partnership 157-159 Land acquired prior to the partnership 160, 161 Nature of partner's interest in partnership realty 162 Partnership realty, when deemed personal estate 163, 164 Dower in partnership land 165, 166 Bona fide purchaser from partner having legal title 167 Notice from possession by the firm 168 Interest of surviving partner in firm realty 169 CHAPTER VII. THE EIGHTS AND DUTIES OF PAETNEES TOWARDS EACH OTHEB. Duty to exercise good faith 170 Duty to devote himself to advancement of firm 's interests 171 Duty not to carry on other business to prejudice of firm 172 Duty to exercise care and skill 173 Duty to conform to partnership agreements 174 Duty of partners to keep accounts Eight of inspection 175 ix TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] Duty to consult with each other 176 Eight of each partner to share in management, knowledge and con- trol of the business 177 Eight of partner to extra compensation 178 May be agreement to pay it 179 Liability of partner for not performing agreed service 180 Partner 's right to return of advances 181 Eight of partner to interest on money advanced On capital 182, 183 Eight of partners to have partnership property applied to partner- ship debts 184 Partner may not apply partnership property to his own uses. . 185 Claims of partnership creditors based on rights of partners. . 186 Partner's right to contribution from co-partners 187 On illegal transactions 188 Upon what basis determined 189 How enforced 190 Eight of other partners to indemnity for losses caused by a part- ner's misconduct > 191 CHAPTER VIII. OF DEALINGS BETWEEN PABTNEES AND WITH THE FIBM. In general 192 Dealings between partners 193 Dealings between firm and partner 194, 195 Dealings between firms having a common partner 196 CHAPTER IX. OF ACTIONS BETWEEN PAETNEES. Of actions between partners in general 197 I. ACTIONS AT LAW. In what cases the question arises 198 1. Partner Against Firm. One partner cannot sue the firm at law 199, 200 2. Firm Against Partner. Firm cannot sue one partner at law 201, 202 3. Partner Against Partner. One partner cannot sue another at law on claims involving part- nership transactions 203 TABLE OF CONTENTS t REFERENCES AEE TO SECTIONS] Beason for the rule 204 When rule does not apply Single completed transaction.... 205 When relation was not a partnership Joint ventures 206 One partner may sue another at law upon claim connected with but not constituting partnership transactions 207 As for not forming partnerships as agreed 208 Or for dissolving contrary to agreement 209 Or for not furnishing capital as agreed 210 Or for not reimbursing for capital advanced 211 Or for not indemnifying as agreed 212 Or for not paying debts assumed 213 One partner may sue another for breach of partnership agreement 214 One partner may sue another for wrongful practices resulting in 215 loss 215 One partner may sue another for fraud in inducing or in settling the partnership, etc 216 One partner may sue upon a partnership transaction by agreement transformed into individual one 217 On matters distinct from partnership one partner may sue another 218 4. Firm against Firm having Common Partners. One firm cannot sue another at law if there is a common partner. . 219 Assignee Code 220 II. OF ACTION IN EQUITY. Equity the proper tribunal in partnership matters 221 1. Specific Performance. In what cases granted 222-225 2. Of Injunctions. In what cases granted 226 3. Of Accounting and Dissolution. In what cases granted Accounting without a dissolution 227, 228 Nature of remedy by accounting What included .- . . . 229 Who may demand accounting 230 4. Of Receivers. When will be appointed 231 Powers and duties of receiver 232 5. Action by One Partnership Against Another Having Common Partners. Jurisdiction of equity 233 xi TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] CHAPTER X. OF THE AUTHOEITY OF PARTNERS. In general 234 I. AUTHORITY AS BETWEEN THE PARTNERS THEMSELVES As between themselves, partners may fix authority by agreement. . 235 If no authority agreed upon, usual authority implied 236 II. AUTHORITY AS BETWEEN THE FIRM AND THIRD PERSONS. Of what matters third persons must take notice 237 Continued existence of partnership relation 238 Evidence of an adverse interest 239 Nature and extent of business to be observed 240 Distinction between trading and non-trading firms 241 The power of a partner to impose restrictions by dissent. . . . 242,243 Of .the partner as agent of the partnership 244, 245 Partner has no implied authority outside of scope of business. . . . 246 What meant by scope 247 Extending original scope by subsequent conduct 248 Consideration of particular authorities 249 Admissions, representations and declarations 250 Agents Appointment of 251 Arbitration 252 Assignment for creditors 253 Attorneys Employment of 254 Bills and notes 255, 257 Borrowing money 258 Buying 259 Collecting and receiving payment 260 Compromising debts 261 Confessing judgment 262 Deeds, bonds and other instruments under seal 263, 264 Hiring or leasing property 265 Insurance 266 Mortgages and pledges 267-269 Notice 270,271 Paying debts 272, 273 Sales 274, 275 Suits at law 276 Suretyship and guaranty 277 Of the authority of a managing partner 278, 279 Several managers Directors 280 xii TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] Of the powers of a majority 281, 282 [Ratification of unauthorized acts 283 CHAPTER XI. WHO ARE BOUND BY THE ACTS OF A PARTNER. k In general 284 I. IN CONTRACT. All partners bound by authorized contracts 285, 286 Dormant, secret and nominal partners bound also 287 Liability of the firm upon contracts made by one partner in his own name 288 Known partnership Simple contracts in name of one partner 289, 290 'Note of one partner -. . . 291 Unknown partnership 292 Contracts under seal 293 Judgment against one partner 294 Contracts made in individual names of all the partners 295 Contracts where firm does business in name of one partner 296 Particular contract made by firm in name of one partner 297 Contracts where there are two firms of same name with common partner 298 Contracts where same persons constitute different firms with dif- ferent names 299 Liability of partner who exceeds his authority 300 II. IN TORT. Firm liable for torts of one partner committed in course of business 301 Liability of firm for partner's malicious or criminal act 302 Uniform Partnership Act 303 Liability of firm for partner 's breach of trust 304, 305 CHAPTER XII. THE LIABILITY OF THE FIRM FOR THE ACTS OF ITS AGENTS AND SERVANTS. Firm liable like other principals for acts of its servants and agents 306 CHAPTER XIII. OF THE NATURE AND EXTENT OF THE LIABILITY OF PARTNERS. In general 307 xiii TABLE OP CONTENTS [REFERENCES ARE TO SECTIONS] f. OP THE NATURE OP PARTNERSHIP OBLIGATIONS Partnership obligations when arising on contract are joint 308 Judgment against one partner releases others 309, 310 Release of one releases all 311 Partnership obligations arising from tort are joint and several... 312 II. OF THE EXTENT OF PARTNERSHIP LIABILITY. Each partner liable in solido for partnership obligations 313 Individual property of partner may be taken to satisfy partnership debt 314 Partner paying debt may have contribution 315 Exemptions from execution on partnership property 316 III. OF THE BEGINNING AND ENDING OP LIABILITY. In general 317 Of an incoming partner under the common law 318, 319 Under the Uniform Partnership Act 320 Of an outgoing partner 321, 322 CHAPTER XIV. OP ACTIONS BY AND AGAINST THE PARTNERSHIP. In general 323 I. PARTIES TO ACTIONS BY THE PARTNERSHIP. Who should sue in actions by the firm 324 1. In Contract. a. Contracts made in firm name 325, 326 6. Contracts made in name of one partner for the firm 327 Actions cannot usually be brought in firm name 328 One suing for all where partners are very numerous 329 2. In Tort. All partners must sue for torts affecting firm 330 3. Effect of Personal Disability. Effect of disability of one partner Recovering property wrong- fully disposed of by him 331 II. PARTIES TO ACTIONS AGAINST THE PARTNERSHIP. Who should be sued in actions against the firm 332 xiv TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] 1. In Contract. All actual and ostensible partners should be joined 333 How when contract made in name of one partner 334 Dormant and secret partners proper but not necessary parties.... 335 Nominal partners 336 Firm as such not to be sued except by statute 337 2. In Tort. Actions of tort may be brought against all or any of the partners. 338 No action against firm except by statute 339 III. SET OFF IN ACTIONS BY AND AGAINST THE PARTNERSHIP. Set off of individual and partnership claims 340 Under statutes 341 In equity 342 CHAPTER XV. OF THE DISSOLUTION OF THE PARTNERSHIP. Purpose of this chapter 343 Of the methods of dissolution in general 344 I. DISSOLUTION BY ACT OF THE PARTIES. 1. Dissolution ~by Original Agreement. What methods included 345 Dissolution by lapse of time 346 Dissolution by accomplishment of object 347 Dissolution upon a prescribed event of condition. '. 348 2. Dissolution by Subsequent Act of Parties. In general 349 Dissolution by act of all Mutual consent 350 Dissolution by act of one partner Partnerships at will 351 Dissolution by act of one partner Partnership on condition 352 Dissolution by one partner when for definite period Dissolution in contravention of partnership agreement 353, 354 Can there be an indissoluble partnership? 355-358 Method of dissolving by act of partner 359 II. DISSOLUTION BY HAPPENING OF EVENTS. What here included 360 Death of a partner 361 XV TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] Bankruptcy of a partner 362 Assignment or seizure of partner 's interest 303 Voluntary sale of interest by one partner 364 Insanity of a partner 365 Marriage of partner 366 Guardianship of a partner 367 Expulsion of a partner 368 War 369 Illegality 370 Happening of a stipulated event 371 Reorganization Incorporation 372 III. DISSOLUTION BY JUDICIAL DECREE. Declaring void , 373 Dissolving in equity 374 Causes for dissolution Fraud 375 Insanity or incapacity of partner 376 Misconduct of a partner 377 Must not be misconduct of partner seeking dissolution 378 Irreconcilable discord 379 Impossibility of success 380 Under Uniform Partnership Act 381 Receivership in these cases 382 CHAPTER XVI. OF THE NOTICE OF THE DISSOLUTION. In general 383 I. NOTICE TO PARTNERS. On dissolution by act of a partner 384 On dissolution by happening of events 385 Under Uniform Partnership Act , . . . 386 II. NOTICE TO THIRD PERSONS. The necessity of notice to them 387 In what cases notice is required Not on dissolution by mere opera- tion of law. 388 Required on dissolution by or through act of parties 389 To whom notice required 399 How notice given 1. To those who have had dealings with the firm 391, 392 How notice given 2. To those who have not had dealings with the firm " 393,394 Knowledge Constructive notice 395 xvi [REFERENCES ARE TO SECTIONS] Who should give notice Actual and ostensible partners 396 Dormant and secret partners , 397 Effect of not giving notice 398 CHAPTER XVII. OF THE EFFECT OF DISSOLUTION UPON THE EIGHTS AND AUTHORITY OF PAETNERS. In general 399 1. Dissolution by Death. Effect on rights and liabilities of the firm , 400 Effect on authority of firm as agent of third persons 401 Eights, powers and liabilities of the surviving partner 402, 403 Where there are several survivors 404 Statutory changes in some states 405 Uniform Partnership Act , 406 Continuing business under provisions of will 407 Continuing in pursuance of partnership articles 408 Continuing in pursuance of personal agreements 409 Provisions that survivor shall acquire interest of deceased 410 Liability of estate of deceased partner for existing debts 411 2. Dissolution by Bankruptcy, Insolvency, Assignment, Etc. In general 412 Bankruptcy, insolvency, or assignment of entire firm 413 Bankruptcy of one partner Solvent partner may administer .... 414 Insolvency, assignment, selling out of one partner 415, 416 Eights of assignee of such partner 's interest 417 Other causes 418 3. Dissolution by Judicial Decree. Receivership usually results 419 4. Dissolution by Other Causes. Eights and liabilities of partners after dissolution In general . . . 420 Authority of firm, as agent for third persons, after dissolution. . . . 421 Eights of partners after dissolution under Uniform Partnership Act Effect of wrongful dissolution 422 Authority of partners after dissolution Authority continues for the purpose of closing up the business , 423, 424 No authority to create new obligations 425 Authority of settling or liquidating partner 426 xvii TABLE OP CONTENTS [BEFERENCES AKE TO SECTIONS] CHAPTER XVIII. OF SPECIAL AGEEEMENTS BETWEEN THE PAETNERS AT DISSOLUTION. Agreements as to distribution of property or payment of debts.. 427 Creating relation of principal and surety 428 Creditor 's assent to arrangement 429 CHAPTER XIX. OF THE SO-CALLED LIEN OF PAETNEES. In general 430 Nature of the right 431 When it becomes important 432 To what the lien attaches 433 Against whom lien exists 434 What the lien secures 435 How lien is lost 436 No lien if partnership illegal 437 CHAPTER XX. OF THE APPLICATION OF THE PAETNEESHIP AND INDIVIDUAL ASSETS TO THE CLAIMS OF CEEDITOES. In general . , 438 What principles control 439 I. Application of the assets of a partnership by the partnership creditors 440 II. Application of the assets of a partnership by the partners themselves 441 Bight to pay joint but not partnership debts out of partner- ship assets 442 Eight to pay individual debts of all the partners 443 Eight to assume or pay individual debt of one partner 444 Eight of partner to apply individual assets to firm debts .... 445 Eight of partners to convert firm property into individual property 446-448 III. Application of assets when distributed by court Firm cred- itors first paid out of firm assets 449 Joint but not partnership creditors not preferred 450 Partner cannot compete with firm creditors 451 One partner's share cannot be reached by his creditors until partners' claims against firm are satisfied 452 xviii TABLE OF CONTENTS [REFERENCES ARE TO SECTIONS] Individual creditors usually given priority in individual assets of a partner 453 Contrary views 454 How where there are individual but no partnership assets... 455 Firm cannot compete with individual creditors 456 Partner competing with partnership creditors in individual assets 457 Obtaining claims against both estates by contract 458 Application of assets when there was no ostensible partnership When there was merely an ostensible but not an actual part- nership 459, 460 Application of assets of firms having one or more partners in com- mon 461 Application of assets where there are successive firms 462 Equitable rules do not defeat legal priorities 463 CHAPTER XXI. OF THE FINAL ACCOUNTING. Necessity of accounting 464 Basis of the accounting 465 Right of general creditors to present their demands 466, 467 Partnership debts to be first paid 468 Manner of accounting 469, 470 Uniform Partnership Act 471 Loss of capital, how borne 472, 473 Opening and restating accounts 474 CHAPTER XXII. OF LIMITED PAETNERSHIPS. Of the nature of such partnerships 475 Must be authorized by statute 476 The usual statutory requirements 477 Necessity for complying with requirements 478 Who may form them 479 For what business 480 Conduct of business 481 Withdrawal of capital 482 Special partner as a creditor 483 Renewal 484 Dissolution and notice 485 xix TABLE OF CONTENTS APPENDIX A. PAGE PARTNERSHIP STATUTES 417 APPENDIX B. PARTNERSHIP FORMS 443 INTRODUCTION In general. In a rather general way, what we call the law may be said to consist of the rules which prescribe and deter- mine the legal form and effect of human relationships and ac- tivities. Inasmuch as, in a general way, one may frequently act either alone or in conjunction with others, a rather obvious though somewhat loose classification may be made into (1) the law of individual activity, and (2) the law of associated activity. The latter body of law, which may be called the law of associa- tions, could be divided into two fields, namely, (1) The law of incorporated associations (meaning by "incorporated" that they have received some special charter or franchise from the State to exist or act as an associated body), and (2) The law of unincorporated associations (sometimes though erroneously called "voluntary" associations). Of each there would be many classes, but one classification would be into those which were created to carry on a business, as distinguished from those whose purpose was social, political, religious, educational^ or the like. "We might thus have unincorporated associations organized for the purpose of carrying on a business with a view to pe- cuniary profit. When we have reached that point we have ar- rived, as will be more fully seen from the discussion which will follow, pretty nearly if not quite at the modern law of Part- nership. Historical. Partnership is of ancient origin. It was known to the Romans and rather highly developed. It was adopted xxi INTRODUCTION and regulated by statutes in the commercial cities of Europe, and was thence engrafted upon the. English common law. Since its incorporation into the latter system it has lost many of its former characteristics and has acquired others which were en- tirely unknown to it in its origin. The following comparison of the English and the Roman Law of Partnership will be of interest : "The English Law of Partnership," says Mr. Scrutton,! "is derived from three sources, the Common Law, the Lex Mercatoria, and the Koman Law. Of the Lex Mercatoria we need only say here that it appears in itself to have been at least partly based on Roman law. Mr. Justice Story has made an elaborate and detailed investigation of the relations of the Common to the Roman Law, and finds great similarity between them. Both laws recog- nize the difference between a partnership and a community of interest, and provide that no new partner can be introduced without the concurrence of the original partners. But the Common law has refused to follow the Roman law in holding invalid an agreement that the personal representa- tive of a partner should succeed him in the partnership. Both laws require a partnership to be in good faith and for a lawful purpose; and that all partners must contribute something, whether property or skill, to the com- mon stock. Both require community in profits among the partners and, to a more limited extent, community in losses. In the absence of express agreement both laws require an equal division of profits. The Common law formerly went beyond the Roman law in making persons who share the profits of a trade liable by operation of law to third persons as partners, but this rule was overthrown in Cox v. Hickman.2 Both laws recognize a division into universal, general, and special partnerships, though the chief Common law division is into public and private partnerships.3 Both regu- late the duration of the partnership by the consent of the partners, but the Roman law went further than the English, and prohibited partnerships extending beyond the life of the parties. No particular forms for the con- stitution of a partnership were required by either law. By 1 the Roman law, the mere partnership relation conferred less extensive powers of disposition of the partnership property than are given by the Common law. A Roman partner could not bind the firm by debts, nor alienate more than his share 1 The Influence of the Roman Law merchant, ' ' see 1, of Professor on the Law 6f England, by Thomas Melville M. Bigelow 's book on Bills, Edward Scrutton, Select Essays in Notes and Cheques, (2d ed.) Anglo-American Legal History, vol. 2 See post, 88-90. 1, p. 220. 8 But see as to this classification, For a further account of the ' ' law post, 3. xxii INTRODUCTION of the partnership property. But in the absence of express stipulation, and with some limitations, each partner of an English partnership may be taken, by outsiders, as having an equal and complete power of administra- tion over the whole of the partnership affairs. Both laws admit a discharge of a debt to or by one partner to be good for or against the whole firm. In the Common law, within the scope of the partnership, the majority have a right to govern, but in the Roman law the express or implied assent of all the partners is required. Both laws make partners liable to each other for negligence or fraud, and require a withdrawal from the partnership to be in good faith. Both laws consider a partnership for no certain period as dissoluble at the will of any partner; but the Eoman law went further than the Common law in requiring that the dissolution should not take place at an unseasonable time. Both laws allow the court to dissolve the partnership in case of positive or meditated abuse of it by a partner, or when its objects are no longer attainable, as in the case of a partner's insanity. By both laws, the assignment of his interest by one partner, contrary to the will of the others, dissolves the partnership. Both laws dissolve the partnership by death; and many of the provisions in both laws for taking an account and winding up a partnership are similar, though the English sale is more convenient than the Roman division. Whilst English partners are liable to third parties in solido, by the Roman law they were only liable pro parte. "This enumeration shows a sufficient agreement between the two systems to justify the assertion that while the method of the introduction of so much Roman law in early times is not clear, in later times most of its lead- ing principles have become incorporated into the Common law of Partner- ship." Perhaps one further quotation may be justified : "During the Middle Ages," says Mr. Mitchell,* "contracts of partner- ship were common, and at their close companies with freely alienable shares had come into existence. In the early centuries the most common form of partnership was the 'commenda.' This was a partnership in which one of the parties supplied the capital, either in the shape of money or goods, without personally taking an active part in the operations of the society, while the other party supplied none or only a smaller fraction or the capital and conducted the actual trade of the association. This form of partner- ship was especially used in maritime trade and was often confined to single ventures. Its popularity was due to the fact that it enabled the capitalist to turn his money to good account, without violating the canonical laws 4 Early Forms of Partnership, by Anglo-American Legal History, vol. William Mitchell, Select Essays in 3, p. 183. xxiii INTRODUCTION against usury, and enabled the small merchant or shipper to secure credit and to transfer the risk of the venture to the capitalist. * * * "But side by side with the commenda there existed throughout the Middle Ages a closer kind of partnership in which the partners were nor- mally coordinate members of the association with the same privileges and responsibilities. The usual expression for this type of society was ' com- pagnia' or 'sooietas,' and the firm was generally designated by the name of one of ite members with the addition of the phrase ' et socti, ' or the like. It became an essential feature of this form of partnership that the partners were all of them responsible individually for the debts of the firm. At no time in Italy was the power of partners to bind by contract their fellow partners in practice denied. * * * But though a single partner could thus represent the firm, originally it was, as a rule, only in virtue of special procuration that he was privileged so to do. In the medieval contracts of partnership the partners often gave one another by procuration the right to represent and bind the firm. In the absence of such clauses in the contract, creditors of the firm for a debt contracted by an individual partner could in some places only make good their claim against the firm as a whole, if the debt had been recognized as a debt of the firm, as by entry in the firm's book, or employment of the money or goods for the common purposes of the firm. Simply in his capacity as partner a merchant had not everywhere in the early centuries of the Middle Ages a right to bind his copartners. * * * "A third type of partnership, that of joint stock companies with the capital in the shape of freely alienable shares, with a liability limited to the amount of capital represented by the share, and with an administrative governing body composed of shareholders in which the majority decided, was in process of formation during the Middle Ages. * '* * It was in Genoa that the first joint stock companies arose. * * * It would seem that joint-stock companies took their rise owing to colonial expansion in Italy at the close of the Middle Ages, and had spread to Holland, France and England by the 17th century." Bibliographical. Partnership has been treated by many writers among English writers by Archbold, Bisset, Collyer, Dixon, Fo*x, Gow, Lindley, Pollock, Stark, and Watson; and among American writers by Bates, Parsons (Theophilus), Par- sons (James), Rowley, and Story. There have been several American editions of Lindley. Of books primarily for students, there are those of Professor Burdick, Professor Gilmore, Mr. Shumaker, and others. Of cases for the use of students, there are, among several, collections xxiv INTRODUCTION by Professors Ames, Burdick, Gilmore, and Mechem, respectively References to these collections will be found in the notes in this book. (The references to Mechem 's cases are to the third edition.) The subject of Limited Partnership has also been treated by Mr. Bates, in a separate volume. Codification. In England, since 1890, and in several of our States the law of partnership has been, to a greater or less ex- tent, reduced to the form of a statute. Thus there are the Field Code in California and some other western states; the Georgia Code; and the Louisiana Code. The most important of all American statutes upon the subject, however, is now the Uni- form Partnership Act, drafted by Professor William Draper Lewis of the University of Pennsylvania, under the auspices of the National Conference of Commissioners on Uniform State Laws, and by them recommended to the several States for adop- tion. After long deliberation, in the course of which Professor James Barr Ames prepared a draft upon the so-called "entity theory, ' ' the Commissioners decided to proceed upon the opposite or so-called common law or aggregate theory. The Act as drafted does not purport to be a complete body of Partnership law, but leaves many points untouched and, hence, as they were at common law. 5 It has already been adopted in a number of states. While, of course, it has no legal force except where it is so adopted, it is important and interesting everywhere as an approved statement of the law. A Uniform Limited Part- nership Act has also been prepared in the same way. These Uniform Acts will be found in the Appendix, and the provisions of the Uniform Partnership Act are constantly referred to in 5 Sec. 4, provides: " (1) the rule general purpose to make uniform the that statutes in derogation of the law of those states which enact it. common law are to be strictly con- (5) [Shall not affect existing con- strued, shall have no application to tracts, rights or actions]." this act; (2) The law of estoppel "Sec. 5. In any case not pro- shall apply under this act; (3) The vided for in this act the rules of law of agency shall apply under this law and equity, including the law act; (4) This act shall be so inter- merchant, shall govern." preted and construed as to effect its XXV INTRODUCTION the text which follows. Eeferences to some of the current com- ments on the Act will be found in the foot note. 6 8 There are explanatory articles by Professor Lewis, in 24 Yale Law Journal, 617; by Professor Willis- ton, in 63 University of Pennsyl- vania Law Eeview, 196; by Mr. James B. Lichtenberger, id., 639; by Professor Moore, in 18 Columbia Law Eeview, 582, (this gives a very complete history of the preparation of the act) ; criticisms by Mr. Jud- son A. Crane, in 28 Harvard Law Review, 762; a reply by Professor Lewis, in 29 Harvard Law Eeview, 158, 291; a rejoinder by Mr. Crane, id., 838; an historical review of the entity theory by Professor Drake, in 15 Michigan Law Eeview, 609; and a discussion of the general advisabil- ity of a Partnership Act by Pro- fessor Lewis, in 60 University of Pennsylvania Law Eeview, 93. Pro- fessor Lewis has also appended to the printed copies of the act elabo- rate notes as to the purpose and effect of the several sections. XXVI THE LAW OF PARTNERSHIP CHAPTER I. DEFINITIONS AND DISTINCTIONS. : 1. Partnership defined. 2. The characteristic ele- ments. 3. Partnership a commercial as- sociation. 4. Is a contractual relation. 5. Is a voluntary relation The delectus personarum. 6. Is a partnership a distinct entity? 7. The commercial concep- tion of partnership. 8. How a partnership differs from a corporation. 9. Intermediate associations. 10. Clubs, societies, etc. 11, 12. Joint-tenancy and co-own- ership. 13. Joint purchasers of goods, etc., for division, use, etc. 14. Joint purchasers of goods, etc., for resale. 15. Workmen dividing product or proceeds. 16. Joint ventures Syndicates. 17-19. Members of defectively or- ganized corporations. 20-23. Causes of failure to incorporate. 24, 25. Effect of estoppel. 26. The doctrine of contract- ual limitation. 27. The doctrine that no one but the State may raise the question. 28. Eights as partners in such cases. 29. Promoters of companies. 30. 31. Contemplated partnerships. 32, 33. Classification of partner- ships. 34-39. Peculiar forms of partnership Joint stock companies Partnership as- sociations Mining partner- ships Limited partnerships Sub-partnerships. 40. Trust or partnership. 41. Classification of partners. 1. Partnership defined. Partnership may be tentatively defined as a legal relation, based upon the express or implied agreement of two or more competent persons whereby they unite their property, labor or skill in carrying on some lawful busi- ness as principals for their joint profit. The English Partner- Mech. Part. 1 \ 1] LAW OF PARTNERSHIP ship Act declares that ''Partnership is the relation which sub- sists between persons carrying on a business in common with a view of profit." The American Uniform Partnership Act pro- vides that "A partnership is an association of two or more persons to carry on as co-owners a business for profit." The persons so united are called partners. The term copartnership is sometimes used to designate the relation, and the term co- partners to designate the parties. The partners collectively are often called the firm, 1 though in the older cases especially the word firm is used to designate the name under which the busi- ness is conducted. 2 An attempt to frame a satisfactory definition of partnership is probably a somewhat hazardous undertaking. This is partly owing to the difficulty inhering in any attempt at definition, but it is chiefly attributable to the fact that the legal concep- tion of partnership has not always been, nor is it wholly yet, clear and definite, and that the legal test for determining the existence of the relation has varied from time to time. Mr. Justice Lindley, in his admirable treatise upon the subject, 3 declines to attempt a definition, saying that to frame one ' l which l"The word 'firm' is a short, 14 Ch. D. 122, 126, C. A.) In Scot- collective name for the individuals land a firm is a legal person distinct who constitute the partners, and the from the partners of which it is name under which they trade is composed. Partnership Act, 1890, their firm name. (Partnership Act, sec. 4 (2)." Halsbury, Laws of 1890. Sec. 4; the firm name is a England, 22, p. 5. It is in this sense mere expression, not a legal entity, that the word firm is used in this Sadler v. Whiteman [1910], 1 K. B. book. 868, per Farwell, L. J., at p. 889, The partnership is also frequently cited with approval. E. v. Holden called the "house," or the "con- [1912], 1 K. B. 483, C. C. A.) It is cern." not the name of a corporation ; it is 2 According to the dictionaries a short name for X, Y and Z carry- this is an entirely proper use of the ing on business in partnership. (Be word firm, t. e., as synonymous wi,th Smith, Fleming & Co. (1879), 12 Ch. name or style. See, also, McCosker Div. 557, 567, C. A.) In English v. Banks (1896), 84 Md. 292, 35 Atl. law, a firm is not a persona. (Re 935; In re Klein's Estate (1907), Saweru (1879), 12 Ch. Div. 522, C. 35 Mont. 185, 88 Pac. 798; People v. A., per James, L. J., at p. 533; Ee Strauss (1901), 97 111. App. 47, 55. Vagliano Collieries (1910), 79 L. J. 8 Lindley on Partnership (Ewell's Ch. 769; compare Ee Shand (1880), ed.), vol. I, p. 1. DEFINITIONS AND DISTINCTIONS [2 shall be both positively and negatively accurate is possible only to those who, having legislative authority, can adapt the law to their own definition." He collects, however, no fewer than nineteen definitions which have been given by other writers; and some of the most important of these are reproduced in the foot-note. 4 2. Same subject The characteristic elements. These sev- eral definitions vary in minor particulars, but from them all at least the characteristic elements of partnership may be gath- ered. Thus 1. It is an unincorporated association or legal relation. 2. It is created not by law but by the agreement of the parties. 3. It requires two or more competent parties. 4. It involves ordinarily the contribution by the members of money, property, skill, labor, credit, or the like, to constitute 4 " A partnership is the contract relation subsisting between persons who have combined their property, labor or skill in an enterprise or business as principals for the pur- pose of joint profit." Bates. "Partnership, as between the parties themselves, is a voluntary contract between two or more per- sons for joining together their money, goods, labor and skill, or any or all of them, under an under- standing that there shall be a com- munion of profit between them, and for the purpose of carrying on a legal trade, business or adventure." Collyer. "Partnership, often called copart- nership, is usually defined to be a voluntary contract between two or more competent persons to place their money, effects, labor and skill, or some or all of them, in lawful commerce or business, with the understanding that there shall be a communion of the profits thereof between them." Story. "We define partnership as the combination by two or more persons of capital, or labor, or skill, for the purpose of business for their com- mon benefit. ' ' Parsons. The latest editor of Mr. Parsons' book, Professor Beale, substitutes the following: "Partnership is a legal entity formed by the associa- tion of two or more persons for the purpose of carrying on business to- gether and dividing its profits be- tween them." See, also, the remarks of Sir George Jessel, M. E., in Pooley v. Driver (1876), Law Eeports, 5 Ch. Div. 458, Ames* Cases 87; and the case of Queen v. Eobson (1885), 16 Q. B. Div. 137, Mechem's Cases 1; Gilmore's Cases 85. In popular parlance the word partner, or the colloquial "pard- ner, " is frequently very loosely used. 3] LAW OP PARTNERSHIP the capital, stock, or foundation of the business. In the case of commercial partnership the contributions will usually be in property, money or credit; in industrial partnerships labor or service will usually be the contribution; .while in professional partnership professional skill, standing or reputation may be the chief ingredient. As will be seen hereafter, 8 the several con- tributions need not all be of the same kind nor of the same amount or value. Though usual and often said to be essential, it seems not to be indispensable that every partner shall make a contribution. 6 5. It contemplates the transaction of some lawful business, trade or occupation, in which the parties are to be co-owners and which they are to carry on as principals. 6. The purpose of the union is the pecuniary gain of the members. In several of the definitions, partnership is spoken of as a contract. It is, however, rather the result of the contract than the contract itself; it is the relation or association which the contract creates. 3. Partnership a commercial association. Partnership in our modern English law is distinctively a business relation, and its object is the pecuniary gain of the members. This fact sharply differentiates it from a large class of associations or- ganized for social, charitable, educational, religious or other similar purposes, such as social clubs, committees, lodges, fra- ternal societies, Christian associations, granges, and the like, of which something more will be said in a later section. 7 6 See post, 136. relative of some former partner, who 6 Thus it is said by Jessel, M. R., contributes nothing at all, neither in Pooley v. Driver (1876), 5 Ch. name, nor skill, nor anything else. Div. 458, Ames' Gas. 87, "You can Therefore it is not quite accurate, have, undoubtedly, according to Eng- as Chancellor Kent puts it, that they lish law, a dormant partner who puts must contribute labor, skill or nothing in, neither capital, nor money, or some or all of them." skill, nor anything else. In fact, 7 An association organized, not those who are familiar with partner- for gain, but for the accomplishment ships know it is by no means uncom- of some social or religious purpose, mon to give a share to the widow or as, for example, a Young Men's DEFINITIONS AND DISTINCTIONS In continental law the term partnership has often been ap- plied more widely, including various forms of communal asso- Christian Association, is not a part- nership. Queen v. Kobson (1885), 16 Q. B. Div. 137, Mechem's Part- nership Cases, 1, Gilmore's Partn. Gas. 85. See, also, 10, post. Neither is a temporary mutual protective association: Burt v. La- throp (1883), 52 Mich. 106, 17 N. W. 716, Mechem's Partn. Cas. 4; Gilmore's Partn. Cas. 57; nor a Masonic lodge: Ash v. Guie (1881), 97 Pa. 493, 39 Am. Eep. 818, Mechem's Partn. Cas. 721; Burdick's Partn. Cas. 30; or an as- sociation of "Knights of Labor": Brown v. Stoerkel (1889), 74 Mich. 269, 41 N. W. 921, 3 L. R. A. 430; nor a "provisional committee" organized to promote the formation of a railway company: Batard v. Hawes (1852), 2 El. & Bl. 287, Bur- dick's Partn. Cas. 33; nor a "grange": Edgerly v. Gardner (1879), 9 Neb. 130, 1 N. W. 1004; nor a rural telephone association: Meinhart v. Draper (1908), 133 Mo. App. 50, 112 S. W. 709; nor a relig- ious communistic society, Teed v. Parsons (1903), 202 111. 455, 66 N. E. 1044. An association of pilots who prescribe rules regulating the order in which pilots shall serve, and who pool and divide the fees earned by each, is not a partnership. Guy v. Donald (1906), 203 U. S. 399, 51 L. ed. 245, 27 S. Ct. 63. An athletic association organized merely to pro- mote athletic exercises by its mem- bers would not be a partnership, but if organized to give athletic or sport- ing exercises or games as a business for the profit of its members, it would be: Bennett v. Lathrop (1889), 71 Conn. 613, 42 AtL 634, 71 Am. St. JR. 222, Mechem's Partn. Cas. * 723. So may be an associa- tion of fruit growers organized to market the products of its members and engaged in the business of sell- ing fruit, Briere v. Taylor (1905), 126 Wis. 347, 105 N. W. 817. For similar reasons a defectively organized corporation will not be treated as a partnership if it was not organized for the purpose of carrying on a business for profit. Johnson v. Corser (1885), 34 Minn. 355, 25 N. W. 799. An association merely to adjust, prevent or distribute the losses of a business would not be a partnership. Aigen v. Boston, etc., B. B. Co. (1882), 132 Mass. 423; Irvin v. Nashville, etc., R. Co. (1879), 92 111. 103, 34 Am. Rep. 116. Mutual housekeeping arrangement not a partnership. Austin v. Thom- son (1863), 45 N. H. 113. Co-operative Business or Trading Associations. On the other hand, a co-operative association organized to carry on business for gain, would be a partnership often a large one. If it were organized merely to save money, e. g., to buy goods at whole- sale and divide them among the members, it would not be a part- nership. See 13. But if organ- ized to buy and sell goods for the profit of the members, it would be a partnership, even though lower prices were given to members than to non-members. Such partnerships are often organized with officers or managers to conduct the business, much like corporations. See Laney 4] LAW OF PARTNERSHIP elation which would not be deemed partnerships with us. 8 Thus, a classification into civil and commercial partnerships is not in- frequently found. Judge Story, writing in 1841, and following Watson and Collyer, though with less precision, says that at common law partnerships are sometimes divided into two classes: (1) Pri- vate partnerships and (2) Public companies, 9 the latter of which are divided into incorporated and unincorporated, and are made to include several forms of association which would not now be regarded as partnerships at all. 4. Is a contractual relation. Partnership is a contractual relation and not a status. 10 It is created, limited, regulated and terminated, as between the parties themselves, by their contract or agreement. The law does not create partnership, or arbi- trarily presume its existence. 11 As has been seen in the study of agency, 12 authority in one person to bind another as his agent v. Fickel (1899), 83 Mo. App. 60, Mechem's Gas. 83; Atkins v. Hunt (1843), 14 N. H. 205, Mechem's Cas. 79; McFadden v. Leeka (1891), 48 Ohio St. 513, 28 N. E. 874, Mechem's Cas. 280; Carter v. Mc- Clure (1896), 98 Tenn. 109, 38 S. W. 585, 60 Am. St. B. 842, 36 L. B. A. 282, Burd. Cas. 37, Gilm. Cas. 108; Davison v. Holden (1887), 55 Conn. 103, 10 Atl. 515, 3 Am. St. R, 40; Farnum v. Patch (1880), 60 N. H. 294, 49 Am. Rep. 313; Hodg- son v. Baldwin (1872), 65 111. 532; Schumacher v. Sumner Telephone Co. (1913), 161 Iowa 326, 142 N. W. 1034. Compare McDonald v. Flem- ing (1913), 178 Mich. 206, 144 N. W. 519. See also Joint Stock Com- panies, post, 35. 8 See, for example, Maine 'a Vil- lage Communities. 9 Story on Partnership, 76. 10 Bates on Partnership, vol. I, 2. Mr. James Parsons, in his work on the Principles of Partnership (Boston, 1889), 101, does indeed declare the contrary, distinguishing in this respect agency and partner- ship. Agency, he asserts, is not a status but a contractual relation, while partnership is the reverse. This is quoted, apparently with ap- proval, in Haggett v. Hurley (1898), 91 Me. 542, 40 Atl. 561, 41 L. E. A. 362. It is believed, however, that the two relations are alike contrac- tual. See Holland's Jurisprudence, (10th ed.), 136. 11 Phillips v. Phillips (1863), 49 111. 437, Gilm. Cas. 113; Be Gibbs' Estate (1893), 157 Pa. 59, 27 Atl. 383, 22 L. E. A. 276, Gilm. Cas. 91; Wilson v. Cobb (1877), 28 N. J. Eq. 177 (29 N. J. Eq. 361). Compare Phillips v. Phillips, supra, with Rat- zer v. Ratzer (1877), 28 N. J. Eq. 136. 12Mechem on Agency (2d ed.), 29. DEFINITIONS AND DISTINCTIONS [ 5 is sometimes said to be created by law or by necessity ; but this is not true in the law of partnership. One individual may, it is true, be held liable, by estoppel, to particular persons as though he were a partner, but this liability, as will be seen hereafter, 13 is limited to those only in whose favor the estoppel operates, and does not make such individual an actual partner, nor amount to the general creation of a partnership between him and those with whom he was reputed to be associated. As a general rule there can be no partnership where the parties have not by their agreement created one. A present partnership may be formed by the immediate act of the^ parties without any preliminary contract to do so. There may also be a present contract to form a partnership at some future time. Contracts to enter into partnership rest upon the same foun- dations, such as consideration, 14 competency of parties, and the like, as other contracts. Contracts of partnership need not be express: they may be implied from words or conduct as in other cases. 15 5. Is a voluntary relation The delectus personarum. It is necessary also to emphasize the voluntary character of the relation. The law does not choose partners for people. So intimate and confidential is the relation, so important and dan- gerous, if abused, are the powers of one partner to subject the others to liability, that the law leaves the choice of partners to the parties themselves, and does not attempt to force a part- ner upon another without the latter 's consent. This right to choose one's own partner the delectus personarum, as it is often called is properly regarded as one of the most important char- acteristics of partnership. 16 103. 15 See Davis v. Davis [1894], 1 14 There must be consideration. Oh. 393, Burdick's Partn. Gas. 12. Mitchell v. O'Neale (1869), 4 Nev. 16 See post, 57. 504; though the mutual promises of the parties will suffice as in other cases. 6] LAW OF PARTNERSHIP 6. Is a partnership a distinct entity? A partnership is sometimes said to be a distinct entity or legal person separate and distinct from the persons composing it as in the case of the corporation, but from a legal standpoint this can be true only in a limited sense. 17 For most purposes the common law 17 This is partly a question of definition. The word entity is used in more than one sense. In the sense that a partnership is a distinct group of persons, whose legal rights, powers, duties, liabilities and dis- abilities are affected by the fact that they stand in that relation, a part- nership is an entity. But in the sense that the partnership is a sepa- rate legal person having rights and liabilities of its own, distinct from those of all or any of the partners, a partnership is not, according to the generally prevailing view of English law, a distinct legal entity. "The law of England," says Sir Fred- erick Pollock, "knows nothing of the firm as a body or artificial per- son distinct from the members com- posing it, though the firm is so treat- ed by the universal practice of mer- chants and by the law of Scotland. In England the firm name may be used in legal instruments both by the partners themselves and by other persons as a collective description of the persons who are partners in the firm at the time to which the descrip- tion refers, and under the rules of the supreme court actions may now be brought by and against partners in the name of their firm. An ac- tion between a partner and the firm, or between two firms having a com- mon member, was impossible at common law, and until 1891 it re- mained open to doubt whether such actions were possible since the judi- cature acts; but they are now ex- pressly authorized by the rules of court. Nevertheless, the general doctrine that 'there is no such thing as a firm known to the law' remains in force." Digest of Law of Partnership (8th ed.), p. 23. In Drucker v. Wellhouse (1888), 82 Ga. 129, 8 S. E. 40, 2 L. E. A. 328, it is said that, while a partner- ship is not a person it is an entity. Persons are commonly classified as either natural, i. e. human beings, or artificial. " 'Artificial', 'con- ventional', or 'juristic' persons," says Mr. Holland (Jurisprudence, 9th ed., p. 91), "are such groups of human beings or masses of property as are in the eye of the law capable of rights and liabilities, in other words to which the law gives a status. Such groups are treated as being persons, or as sustaining the mask of personality. They are of two kinds: (1) ' Universitates per- sonarum', such as the state itself; departments or parishes; collegia; churches. (2) ' Universitates ftono- rum', such as funds left to 'pious uses' without a trustee. * * * So the estate of an intestate before administration; the estate of a bankrupt. "Such juristic or artificial per- sons come into! being when (1) there exists a group of persons, or mass of property, as the case may be, and (2) the law gives to the group or mass in question the char- 8 DEFINITIONS AND DISTINCTIONS [6 regards only the individuals who occupy the relation ; though by statute in many states the partnership itself is regarded by acter of a person. * * * This may occur by means of either (a) a general rule, applicable wherever its conditions are satisfied, e. g. 'the Companies Act, 1862', (6) a spe- cial act of sovereign power, e. g. an incorporating statute or charter." Professor Terry, Anglo-American Law, 31, distinguishes between perfect artificial persons and imper- fect ones. It is perfect when it is always treated as a person. "A true corporation, for example, is either a person or nothing. An im- perfect artificial person is an entity that in law may be taken in its total- ity and in its relations to the ex- ternal world in matters which might fall within the scope of its person- ality as a person for some purposes but not for all. Thus, by statute, a partnership may in most places sue and be sued by its partnership name, and the execution in a judg- ment obtained against it in such a suit must be levied on the partner- ship property only. But a partner- ship for most purposes is not a per- son. ' ' Partnership, in English law and generally in our American law, is the natural persons who compose the group, and the group is not an arti- ficial or juristic person made up from those natural persons. See Brown v. Hartford F. , Ins. Co. (1875), 117 Mass. 479, Gilm. Cas. 151; Haskins v. D'Este (1882), 133 Mass. 356, Gilm. Cas. 154. In a number of foreign jurisdic- tions, partnership is declared by the Code, or otherwise hejd, to be a juristic person. Considerable advocacy of this view is also to be found in the United States. See, e. g., "The Firm as a Legal Person", Cowles, 57 Central L. Jour. 343; "The Partnership as a Legal Entity", Brannan, 17 Har- vard L. Eeview, 207; '''The Uniform Partnership Act", Crane, 28 Har- vard L. Eeview, 762; "The Uni- form Partnership Act and Legal Persons", Crane, 29 Harvard L. Ee- view, 838. The draft for the Uni- form Partnership Act submitted by Professor Ames (though not finally adopted) was prepared upon this theory. (But compare the article by Pro- fessor Drake, in 15 Michigan Law Eeview 609). There are many cases containing dicta to the same effect. See, e. g. Eoop v. Herron (1883), 15 Neb. 73, 17 N. W. 353; Eosenbaum v. Hay- den (1888), 22 Neb. 744, 36 N. W. 147; Curtis v. Hollingshead (1834), 14 N. J. L. 402; Greenwood v. Mar- vin (1888), 111 N. Y. 423, 19 N. E. 228; Good v. Bed Eiver Valley Co. (1904), 12 N. Mex. 245, 78 Pac. 46; Allen v. Davids (1904), 70 S. Car. 260, 49 S. E. 846; Pierce v. Trigg (1839), 37 Va. (10 Leigh) 423; Jackson Bank v. Durfey (1895), 72 Miss. 971, 18 So. 456, 31 L. E. A. 470, 48 Am. St. Eep. 596, Meehem's Gas. 619 ("in equity"); Succession of Pilcher (1887), 39 La. Ann. 362, 1 So. 929, Gilm. Cas. 148. In Iowa the partnership is said to be a distinct entity. See Fitzgerald v. Grimmell, supra; Lansing v. Bever Land Co. (1913), 158 Iowa 693, 138 6J LAW OF PARTNERSHIP the law as a distinct entity for a few special purposes, as in the case of taxing acts, acts providing for the filing of chattel mort- gages, and, occasionally, acts permitting process to run against the partnership as such. 18 In most other cases, when the part- nership is spoken of as a separate, legal entity, having its own property, creditors and the like, little more is meant as a legal proposition than that the partners as such have special rights and liabilities which are worked out through their partnership relation. 19 N. W. 833, citing many other Iowa cases. So, in Louisiana: Newman v. Eldridge (1901), 107 La. 315, 31 So. 688. Contra. "Has never been recog- nized" in Illinois: Abbott v. An- derson (1914), 265 III 285, 106 N. E. 782, Ann. Cas. 1916 A. 741, L. E. A. 1915 F, 668; "It is not a per- son, either natural or artificial": Adams v. Church (1902), 42 Oreg. 270, 70 Pac. 1037, 59 L. E. A. 782, 95 Am. St. E. 740 ; "A partnership is not like a corporation. It has no independent existence." Matter of Peck (1912), 206 N. Y. 55, 99 N. E. 258, 31 Ann. Gas. 798, 41 L. E. A. (N. S.) 1223. "The inaccuracy and impropriety of such nomenclature was so clearly and repeatedly demonstrated as to lead to its sub- stantial abandonment": Loomis v. Wallblom (1905), 94 Minn. 392, 102 N. W. 1114, 69 L. E. A. 771, Gilm. Cas. 584. 18 See Bicker v. American L. & T. Co. (1885), 140 Mass. 346, 5 N. E. 284; Faulkner v. Hyman (1886), 142 Mass. 53, 6 N. E. 846; Hub- bardston Lumber Co. v. Covert (1877), 35 Mich. 254, Gilm. Cas. 148; Williams v. Hurley (1902), 135 Ala. 319, 33 So. 159; Eobertson v. Corsett (1878), 39 Mich. 777; Fitz- gerald v. Grimmell (1884), 64 Iowa 261, 20 N. W. 179; Walker v. Wait (1878), 50 Vt. 668. Compare West v. Valley Bank (1856), 6 Ohio St. 169. 19 In Meehan v. Valentine (1891), 145 II. S. 611, 12 S. Ct. 972, 36 L. ed. 835; Mechem's Cas. 135, Gilm. 45, the court, referring to the case of Pooley v. Driver (1876), L. E. 5 Ch. Div. 458, Ames' Cas. 87, says: "In the case last above cited Sir George Jessel said: 'You cannot grasp the notion of agency, properly speaking, unless you grasp the no- tion of the existence of the firm as a separate entity from the existence of the partners; a notion which was well grasped by the old Eoman law- yers, and which was partly under- stood in the courts of equity.' And in a very recent case the court of appeals of New York, than which no court has more steadfastly ad- hered to the old form of stating the rule, has held that a partnership, though not strictly a legal entity as distinct from the persons composing it, yet being commonly so regarded by men of business, might be so treated in interpreting a commercial contract. Bank of Buffalo v. Thompson, 121 N. Y. 280," 24 N. E. 473, Burd. Cas. 286, Gilm. Cas. 152. 10 DEFINITIONS AND DISTINCTIONS [ 7 It is true that there are points in the law of partnership at which the adoption of the entity theory, or the rule of corpora- tion law, would simplify the problem, and it is this fact which has made that theory so attractive. The general adoption of that theory, however, would amount practically to the abolition of partnerships and the substitution of a more or less crude type of corporations. The English Partnership Act does not adopt it, and the American Uniform Partnership Act has wisely been framed upon the common law theory. In general, it is true in our law that natural persons can- not transform themselves into, or create from themselves, a juristic or legal person by their own act alone and without the declared authority or consent of the state. The United States Bankruptcy Act of 1898 does undoubtedly to a limited extent treat the partnership as an entity, but the somewhat extreme views, as to the effect of this statute, an- nounced by some of the circuit and district courts have been dis- approved by the United States Supreme Court. 20 7. Same subject The commercial conception of partner- ship. The ordinary commercial conception of a partnership is undoubtedly different from that of the common law. "Com- mercial men and accountants," says Mr. Justice Lindley, "are apt to look upon a firm in the light in which lawyers look upon a corporation, i. e., as a body distinct from the members com- posing it, and having rights and obligations distinct from those of its members. Hence, in keeping partnership accounts, the firm is made debtor to each partner for what he brings into the But see People v. Coleman (1892), L. ed. 1029 (aff 'g 108 C. C. A. 459, 133 N. Y. 279, 31 N. E. 96, 16 L. E. 186 Fed. 481), expressing the pref- A. 183; Matter of Peck (1912), erence of that court for the views of 206 N. Y. 55, 99 N. E. 258, 31 Ann. Vaccaro v. Security Bank of Mem- Gas. 798, 41 L. E. A. (N. S.) 1223; phis (1900), 43 C. C. A. 279, 103 Jones v. Blun (1895), 145 N. Y. 333, Fed. 436, over those of In re Berten- 39 N. E. 954, Gilm. Gas. 150. shaw (1907), 85 C. C. A. 61, 157 See also Professor Drake's article Fed. 363, 17 L. E. A. (N. S.) 886, in 15 Michigan Law Eeview, 609, as 13 Ann. Gas. 986, where the major- to this dictum of Sir George Jessel. ity of the court emphasized the en- 20 See Francis v. McNeal (1913), tity theory. 228 U. S. 695, 33 Sup. Ct. 701, 57 11 7] LAW OF PARTNERSHIP common stock, and each partner is made debtor to the firm for all that he takes out of that stock. In the mercantile view, partners are never indebted to each other in respect of part- nership transactions, but are always either debtors to or creditors of the firm. * * * The partners are the agents and sureties of the firm: its agents for the transaction of its business; its sureties for the liquidation of its liabilities so far as the assets of the firm are insufficient to meet them. The liabilities of the firm are regarded as the liabilities of the partners only in case they cannot be met by the firm and discharged out of its assets. But this is not the legal notion of a firm. The firm is not recog- nized by lawyers as distinct from the members composing it." 81 Though the legal and the mercantile views are thus distinct, there is in many quarters a tendency to incorporate the mer- cantile conception in the legal theory as largely as the inherent nature of the partnership will permit. When not carried be- 21 Lindley on Partnership (Ew- ell's 2d Am. ed.), voL I, p. 110. But there is great practical diffi- culty in completely adopting the mercantile theory. Thus in Ex parte Beauchamp (1894), 1 Q. B. 1, where a receiving order in bank- ruptcy had been made against a firm composed of an adult and an infant, Kay, L. J., said: "The receiving order is made against the firm, and the case has been argued as though the firm had a separate existence as distinguished from the individual members of the firm; in other words, as if it were a cor- poration having a separate exist- ence from the individuals which compose it. It is no such thing, and the rules (permitting proceed- ings in the firm name) do not mean anything of the kind. Under the rules, facilities have been given for proceeding against a firm in the firm name, for this simple reason that it is not always easy to find out who are the partners in a firm. ' ' (See, also, Ex parte Corbett (1880), 14 Ch. D. 122; Drucker v. Well- house (1888), 82 Ga. 129, 8 S. E. 40, 2 L. E. A. 328; Harris v. Vis- scher (1876), 57 Ga. 229; Cham- bers v. Sloan (1855), 19 Ga. 84; Adams v. Church (1902), 42 Oreg. 270, 70 Pae. 1037, 95 Am. St. E. 740, 59 L. E. A. 782; Wiggins v. Blackshear (1894), 86 Tex. 665, 26 S. W. 939.) So in a late case in New York Jones v. Blun (1895), 145 N. Y. 333, 39 N. E. 954 the court, notwithstanding what was said in Bank of Buffalo v. Thomp- son, supra, points out that it is only for certain purposes that the partnership may be regarded as an entity. See, also, Matter of Peck (1912), 206 N. Y. 55, 99 N. E. 258, 41 L. B. A. (N. S.) 1223, and the remarks of Holmes, J., at the end of his opinion in Hallowell v. Blackstone Bank (1891), 154 Mass. 359, 28 N. E. 281, 13 L. E. A. 315. 12 DEFINITIONS AND DISTINCTIONS [ 8 yond the bookkeeping aspect the tendency is harmless enough, and though the practical consequences of the changed concep- tion are usually not pronounced, it often aids in a clearer con- ception of the relative rights and powers of the partners col- lectively and the partners as individuals. So in a recent case before the Supreme Court of the United States, 22 it was said by Justice Holmes: "Since Cory on Ac- counts was made more famous by Lindley on Partnership the notion that the firm is an entity distinct from its members has grown in popularity, and the notion has been confirmed by re- cent speculations as to the nature of corporations, and the one- ness of any somewhat permanently combined group without the aid of law. But the fact remains as true as ever that partner- ship debts are debts of the members of the firm, and that the individual liability of the members is not collateral like that of a surety, but primary and direct, whatever priorities there may be in the marshalling of assets. The nature of the liability is determined by the common law." 8. How a partnership differs from a corporation. A part- nership differs in material respects from a corporation. A partnership is a voluntary, unincorporated association of individuals whose legal relation is based upon their agreement, and needs no special statutory authority to give it force and effect. They continue to act in this relation as individuals. In the absence of a statute, they sue and are sued only in their individual names. The death of one operates usually to ter- minate the relation. The transfer of the interest of one has usually the same effect, and operates, not to introduce the trans- feree into the relation, as a party to it, but merely to give him such share as his transferrer would have upon a dissolution. Each partner is, in general, personally and directly responsible for all the debts of the partnership, notwithstanding that he has fully paid in his agreed contribution. A corporation, on the other hand, is a distinct legal entity, 92 Francis v. McNeal (1913), 228 TT. S. 695, 33 Sup. Ct. 701, 57 L. ed. 1029. 13 9, 10] LAW OF PAETNERSHIP created by some express legislative authority, either special to the particular case or general in like cases. It acts in its cor- porate capacity only, without regard to the individuals who compose it. It may sue and be sued in its own name. The death of one or more corporators does not dissolve it. One corporator may transfer his share without affecting the corporate existence, and his transferee may take his place in the corporation, which proceeds without regard to changes in the personnel of the cor- porators. One corporator, having paid his subscription, is not usually subject to any further personal responsibility for the debts of the concern unless some statute imposes such a respon- sibility. In these characteristics of limited liability, facility of transfer, and immunity from dissolution by death, are found the leading inducements to the formation of corporations. 9. Intermediate associations. In many of the states, stat- utes have provided for the organization of associations partak- ing more or less of the characteristics of both partnerships and corporations. Thus, there are joint-stock companies, which us- ually are simply partnerships with transferable shares ; 23 part- nership associations, limited, which are usually but a crude form of corporation ; and limited partnerships, which are partnerships having one or more general members subject to the usual lia- bilities of partners, and also one or more special partners whose liability is limited to the amount contributed. The legal pe- culiarities of these several types will be more fully considered in later chapters. In a considerable number of States there are constitutional provisions that associations having any of the characteristics of corporations not possessed by ordinary part- nerships shall, for many purposes, be deemed to be corporations. 10. Clubs, societies, etc In addition to these are other bodies, not statutory, and not organized for the purpose of pecuniary profit, which it is sometimes sought to hold liable as partnerships, but which are not such in fact. Of these the unin- 23 While joint stock companies are may be created by the contract of usually provided for by statute, a the members. See Phillips v. Blatch- partnership with transferable shares ford (1884), 137 Mass. 510, 14 DEFINITIONS AND DISTINCTIONS [11 corporated social clubs, committees, lodges, fraternal societies, Christian associations, granges and many co-operative associa- tions, are common examples. Such bodies are not engaged in business, are not organized for pecuniary profit, and are there- fore ordinarily not partnerships, nor is the liability of a member to be determined by the law of partnership, but by that of prin- cipal and agent those, and those only, being liable as principals who have expressly or impliedly authorized acts to be done in their behalf, or who have subsequently ratified them. 24 Of course, if such a body were actually engaged in carrying on a business with a view to profit, it would ordinarily be deemed to be a partnership. 11. Joint-tenancy and co-ownership. Joint-tenants and tenants in common are not thereby partners. 86 While they have some similarities, 26 they differ in many particulars, of which the following are the most important : 24Flemyng v. Hector (1836), 2 Mees. & Wels. 172; Todd v. Emly (1841), 7 id. 427; S. C., 8 id. 505; Lafond v. Deems (1880), 81 N. Y. 507; Eichbaum v. Irons (1843), 6 Watts & Serg. (Pa.) 68, 40 Am. Dec. 540; Ash v. Guie (1881), 97 Pa. 493, 39 Am. Eep. 818, Mechem's Gas. on Partn. 721, Burd. Gas. 30; Davison v. Holden (1887), 55 Conn. 103, 10 Atl. 515, S Am. St. E. 40; Burt v. Lathrop (1883), 52 Mich. 106, Mechem's Gas. on Partn. 4. See many other cases cited, ante, 3. 25 See 1 Lindley on Partn. (Ew- ell's 2d Am. ed.), p. 52; Dunham v. Loverock (1893), 158 Pa. 197, 27 Atl. 990, 38 Am. St. E. 838, Mechem's Partn. Gas. 6; French v. Styring (1857), 2 Com. B, N. S. 357, Mechem's Partn. Gas. 765, Ames Gas. 41, Burd. Gas. 22; Goell v. Morse (1879), 126 Mass. 480, Meehem's Partn. Gas. 767, Burd. Gas. 23; Quackenbush v. Sawyer (1880), 54 Gal. 439, Mechem's Partn. Gas. 768, Burd. Gas. 25, Gilm. Gas. 66; Oliver v. Gray (1842), 4 Ark. 425, Burd. Gas. 16; Logan v. Oklahoma Mill Co. (1904), 14 Okla. 402, 79 Pac. 103, Gilm. Gas. 61; Sikes v. Work (1856), 6 Gray (Mass.) 433. Com- pare Fleming v. Fleming (1919), Iowa , 174 N. W. 946. Many other cases are cited, post, 83. 26 Partnership and joint tenancy have each a form of survivorship, but while that of joint tenancy is absolute, that of partnership is qualified and, in a sense, fiduciary. See post, 402-3. Tenancy in com- mon bears a closer resemblance, and the two relations, especially in the case of property in land, are often quite closely assimilated. 15 12] LAW OP PARTNERSHIP 1. Co-ownership is not necessarily the result of an agreement to create it, 27 while partnership is. 28 2. Co-ownership does not necessarily involve community of profit or loss, 29 while partnership does. 30 3. One co-owner may, without the consent of the others, as- sign his interest in such a way that his assignee will assume his relations to the other co-owners, 31 but one partner cannot do this. 32 4. One co-owner is not as such the agent of the others, 33 while a partner is. 34 5. One co-owner has no lien on the common property for expenses or outlays, or for what may be due from the others as their share of a common debt, 36 while a partner has such a lien. 88 Other distinctions exist, but these are sufficient to illustrate the differences. 12. But while the legal distinction between partner- ship and co-ownership as such is thus clearly defined, it is possible that the co-owners may so deal with their common property as to assume very nearly, if not entirely, the attitude of partners. Thus, when they employ it in business with a view to profit, and divide such profits between them, partnership may result. 37 Even the division of the gross proceeds of the employment of their common property was formerly deemed sufficient to render them liable as partners, though this view is now generally aban- doned, as will be seen in a later section. 88 Until, however, it appears that they have changed their position to that of part- ners, their relation as co-owners will be presumed to continue; and he who asserts that the change has taken place has the They differ, nevertheless, in many 34 See post, 244. important respects as will be seen 35 Lindley, supra; Goell v. Morse, in the text. See, also, post, 163. supra. 87 Lindley on Partnership, supra. 36 See post, 431. 88 See ante, 4; post, 72. 37 See post, 83; Butler Savings 89 Lindley, ubi supra. Bank v. Osborne (1893), 159 Pa. 30 See post, 75-77. 10, 28 Atl. 163, 39 Am. St. R. 665, 81 Lindley, ubi supra. Gilm. Gas. 58; Noyes v. Cushman 32 See post, 57. (1853), 25 Vt. 390, Gilm. Gas. 65. 33 Lindley, supra. 88 See post, 86, 87. 16 DEFINITIONS AND DISTINCTIONS ^ 13, 14 burden of proving it, and he can not do it merely by evidence of facts which are as consistent with the continuance of the old relation as with the formation of a new one. 89 The Uniform Partnership Act recognizes the distinction be- tween co-ownership and partnership. It provides that "joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of it- self establish a partnership, whether such co-owners do or do not share any profits made by the use of the property." 40 13. Joint purchasers of goods, etc., for division, use, etc. Persons who unite to purchase goods or other property for the purpose of dividing the property specifically between themselves are not thereby rendered partners. 41 Neither are they where they merely purchase the property for use, 42 unless, indeed, the use constitutes their business, 43 or it is purchased for use in a business which is carried on in partnership. 44 14. Joint purchasers of goods, etc., for resale. If several persons jointly purchase goods or other property in a particu- lar instance for resale, with a view to divide the profits arising from the transaction, a partnership may thereby be created, 48 though it is not necessarily so. Even though they purchase for the purpose of resale, their agreement may show that no general 39 Dunham v. Loverock, supra; 21, Gilm. Gas. 84; Eocky Mt. Stud Butler Savings Bank v. Osborne, Farm Co. v. Lunt (1915), 46 Utah supra. 299, 151 Pac. 521 (farmers uniting 40 See. 7, subdiv. 2. to buy horse for use in breeding). See Coope v. Eyre (1788), 1 43 See Noyes v. Oushman (1853), H. Black. 37, Mechem's Gas. 96; 25 Vt. 390, Gilm. Gas. 65; State Hoare v. Dawes (1780), 1 Doug. National Bank v. Butler (1894), 371, Ames Gas. 4, Burd. Gas. 1, 149 111. 575, 36 N. E. 1000. Gilm. Gas. 1; Gibson v. Lupton 44 See Davis v. Davis, [1894] 1 (1832), 9 Bing. 297; Logan v. Ch. 393. Oklahoma Mill Co. (1904), 14 Okla. 45 Reid v. Hollinshead (1825), 4 402, 79 Pac. 103, Gilm. Gas. 61; Barn. & Cr. 867, Ames' Gas. 29; Morse v. Pacific Ry. Co. (1901), 191 Jones v. Davies (1899), 60 Kan. 111. 356, 61 N. E. 104. 309, 56 Pac. 484, 72 Am. St. R. 42 See Halme v. Smith (1831), 7 354; Moore v. Thompson (1919), Bing. 709, Ames Cas. 35, Burd. Gas. Kan. , 184 Pac. 980. Mech. Part. 2 17 15] LAW OP PARTNERSHIP or commercial partnership was intended, 46 as where they ex- pressly deny to each the ordinary attributes of partnership, such as the power of either to sell or incur indebtedness without the concurrence of the other; 47 and a single, isolated, casual purchase of land or chattels, by persons not otherwise partners, with a view, not to deal in the property as a business, but merely to hold it until it can be sold at an advance, can rarely be deemed to create a partnership. 48 And this is true even though it is agreed that there may be partnership in a single adven- ture. 49 The nature of the contract, the situation and attitude of the parties, and the circumstances of the purchase must deter- mine the question. Many of the cases are confessedly difficult to distinguish. It is to this class of transactions that the term "joint venture," referred to in a following section, 60 is fre- quently applied. 15. Workmen dividing product or proceeds. For reasons similar to those referred to in the preceding sections, the fact common and not partners. Com- pare French v. Styring (1857), 2 Com. B. (N. S.) 357, Mechem's Cas. 765, Ames' Cas. 41, Burd. Cas. 22; Quackenbush v. Sawyer (1880), 54 Cal. 439, Mechem's Cas. 768, Burd. Cas. 25, Gilm. Cas. 66. 48 See Clark v. Sidway (1891), 142 IT. S. 682, 35 L. ed. 1157; 12 S. Ct. 327; Bruce v. Hastings (1867), 41 Vt. 380, 98 Am. Dec. 592; Farrand v. Gleason (1884), 56 Vt. 633, Burd. Cas. 2; Jones v. Gould (1913), 209 N. Y. 419, 103 N. E. 720; Sutton v. Mo., etc., Ey. Co. (1919), 104 Kan. 282, 178 Pac. 418; Jackson v. Hooper (1909), 76 N. J. Eq. 185, 74 Atl. 130 (but see case reversed and held on different theory, 76 N. J. Eq. 592, 75 Atl. 568, 27 L. R. A. (N. S.) 658 and many other cases cited, post, 16. 49 Post, 43. 50 Post, 16. 46 Thus it is said in Williams v. Gillies (1878), 75 N. Y. 197, "Con- ceding a community of interest, and in some sense a partnership, it does not follow that all the inci- dents and liabilities of a commer- cial partnership attach. The trans- action must be construed with ref- erence to the character of the prop- erty and the legal rules applicable to it." See, also, Jones v. Gould (1913), 209 N. Y. 419, 103 N. E. 720. Goell v. Morse (1879), 126 Mass. 480, Mechem's Cas. 767, Burd. Cas. 23. Here two men bought a horse for the purpose of resale at a profit, but it was agreed that either one who should have possession of the horse should feed him at his own expense, and though each was to endeavor to find a purchaser, neither was to sell with- out the concurrence of the other. They were held to be tenants in 18 DEFINITIONS AND DISTINCTIONS [ 16 that two or more workmen, who are not otherwise partners, unite, in a particular instance, to do a piece of work and to divide the thing made, or to sell the product and divide the proceeds, does not of itself constitute them partners. 51 It is not done as a business with a view to profit. Thus if two men go fishing together and divide the catch ; 52 if one man furnishes a farm and another furnishes the seed and labor to raise a crop which they divide between them ; 53 if a wheelwright and a black- smith unite to make and iron a wagon, and then sell it and divide the price, they are not thereby constituted partners either in the particular adventure or in such ventures generally. Many fur- ther illustrations will be given in a later section. 54 16. Joint ventures Syndicates. Other cases of particular and peculiar contracts for associated enterprise occasionally present themselves, usually in connection with the purchase, for ultimate sale or division, of a particular piece of property. 55 In several modern cases a tendency to distinguish them by the name of "joint ventures" has been manifested, 56 though this 51 Two lawyers, not partners, who 83, 43 Am. Eep. 732; Putnam v. take a particular case together and Wise (1841), I Hill (N. Y.) 234, agree to divide the fees, do not 37 Am. Dec. 309 ; Donnell v. Harshe thereby become partners: Willis v. (1877), 67 Mo. 170, Gilm. Cas. 63; Crawford (1901), 38 Oreg. 522, 64 Blue v. Leathers (1853), 15 HI. 31; Pac. 866, 53 L. E. A. 904. Logan v. Oklahoma Mill,Co. (1904), See cases of men jointly doing a 14 Okla. 402, 79 Pac. 103; Cherry job of lumbering: Dwinel v. Stone v. Strong (1895), 96 Ga. 183, 22 (1849), 30 Me. 384, Burd. Cas. S. E. 707, Burd. Cas. 28; Kelly 17; McAlpine v. Millen (1908), v. Eummerfield (1903), 117 Wis. 104 Minn. 289, 116 N. W. 583; 620, 94 N. W. 649, 98 Am. St. E. Butcher v. Buck (1893), 96 Mich. 951; Wagner v. Buttles (1913), 151 160, 55 N. W. 676, 20 L. E. A. Wis. 668, 139 N. W. 425, Ann. 776, Mechem's Cas. 749. Cas. 1914 B, 144; Cedarberg v. 52 See Hurley v. Walton (1872), Guernsey (1899), 12 S. Dak. 77, 63 111. 260; Baxter v. Rodman 80 N. W. 159; Williams v. Rogers (1826), 20 Mass. (3 Pick.) 435; (1896), 110 Mich. 418, 68 N. W. Cambra v. Santos (1919), Mass. 240. , 123 N. E. 503. 54 See post, 83. 53 See Eeynolds v. Pool (1881), 65 See ante, 14. 84 N. Car. 37, 37 Am. Eep. 607; 56 See Jones v. Gould (1913), 209 Day v. Stevens (1883), 88 N. C. N. Y. 419, 103 N. E. 720; Boss v. 19 16] LAW OF PARTNERSHIP name is not particularly illuminating. They are also sometimes called "syndicates," but this name is not more distinguishing than the other. They frequently have some of the character- istics of partnership, but they are usually not partnerships, at least of the commercial or trading class, 67 and the rights and liabilities of the parties, where there are no elements of estoppel, are to be worked out by a consideration of the terms of the con- tract and of the powers and authorities in fact conferred. 88 The implied authority of the associates to bind each other by con- tracts is usually very limited. 69 Persons so situated who have acquired property which they are to hold until they unite in disposing of it do not usually contemplate or require any acts of agency by one; there are ordinarily no incidental contracts Burrage (1919), Mass. , 124 N. E. 267. The term "joint adventure" seems to be also used, as in Butler v. Union Trust "Co. (1918), 178 Cal. 195, 172 Pac. 601; Jackson v. Hooper (1909), 76 N. J. Eq. 185, 74 Atl. 130 (reversed and put on different theory, 76 N. J. Eq. 592, 75 Atl. 568, 27 L. E. A. (N. S.) 658); Keyes v. Nims (1919), Cal. , 184 Pac. 695; McCarney v. Lightner (1920), Iowa , 175 N. W. 751; Thimsen v. Beigard (1920), Oreg. , 186 Pac. 559. 67 Thus in Butler v. Union Trust Co., supra, the court says: "It is sometimes a close question whether a transaction constitutes a partner- ship or a joint adventure." 58 That no partnership resulted, in the particular case, see Butler v. Union Trust Co., supra; Jackson v. Hooper, supra; Jones v. Gould, supra; Clark v. Sidway (1891), 142 U. S. 682, 35 L. ed. 1157, 12 8. Ct. 327; Farrand v. Gleason (1884), 56 Vt. 633, Burd. Gas. 27; Central Trust Co. v. Creel (1919), 184 Ky. 114, 211 S. W. 421; Bruce v. Hastings (1868), 41 Vt. 380, 98 Am. Dec. 592, Gilm. Cas. 71; Gottschalk v. Smith (1895), 156 111. 377, 40 N. E. 937; Wade v. Horna- day (1914), 92 Kan. 293, 140 Pac. 870; Coward v. Clanton (1898), 122 Cal. 451, 55 Pac. 147. Calling the associates partners, see Kayser v. Maugham (1885), 8 Colo. 232, 6 Pac. 803; Jones v. Davies (1899), 60 Kan. 309, 56 Pac. 484, 72 Am. St. E. 354; Spen- cer v. Jones (1899), 92 Tex. 516, 50 S. W. 118, 71 Am. St. B. 870; Yeoman v. Lasley (1883), 40 Ohio St. 190; Hulett v. Fairbanks (1883), 40 Ohio St. 233; Mitchell v. Tonkin (1905), 109 N. Y. App. Div. 165, 95 N. Y. S. 669; Canada v. Barksdale (1881), 76 Va. 899; Torbert v. Jeffrey (1900), 161 Mo. 645, 61 S. W. 823 ; Phillips v. Eeyn- olds (1908), 236 111. 119, 86 N. E. 194. Calling the arrangement a ' ' pool, ' ' see Green v. Higham (1900), 161 Mo. 333, 61 S. W. 79$. 89 See Jones v. Gould, supra; Keyes v. Nims, supra. 20 DEFINITIONS AND DISTINCTIONS [17 to be made; the parties intend to act unitedly when they act at all; and consequently there is no ground for implying any general authority in one to act for all. Only the consent of all, or the rare case of overpowering necessity, would create an authority. In most other respects their relation is governed by the or- dinary rules of partnership, 60 though there is unfortunately much apparent conflict in the cases. 17. Members of defectively-organized corporations. Whether persons are to be held liable as partners who have engaged in business in pursuance of an unsuccessful attempt to organize a corporation is a question which presents many difficulties and upon which the authorities are in conflict. It is contended, on the one hand, that where the association has done business and entered into contracts as a corporation, the individuals composing it cannot, in case it appears that no cor- 60 Thus in Butler v. Union Trust Co., supra, the court said: "A joint adventure is similar to a part- nership, and, being of a similar nature, the right to an accounting of profits in accordance with the agreement therefor, and the obli- gations growing out of such agree- ment between the parties are gov- erned by the same rules of law, Petrie v. Torrent, 88 Mich. 43, 49 N. W. 1076; Causten v. Barnette, 49 Wash. 659, 96 Pac. 225; Claflin v. Gross, 50 C. C. A. 300, 112 Fed. 386, whether the parties were tech- nically partners or not, an account- ing was necessary to determine their respective rights, Garr v. Bed- man, 6 Cal. 574." Same in sub- stance: Marston v. Gould (1877), 69 N. Y. 220. (But in Clark v. Sidway, supra, it is held that one associate can sue another at law A>r reimbursement for advances, and is not obliged to resort to equity.) That the same rules of good faith and loyalty apply here as in part- nership: Jackson v. Hooper, supra; Thimsen v. Eeigard, supra. See, also, Hulett v. Fairbanks, supra; Stem v. Warren (1919), 185 N. Y. App. Div. 823, 174 N. Y. Supp. 30. See also Central Trust Co. v. Creel (1919), 184 Ky. 114, 211 S. W. 421; Selwyn v. Waller (1914), 212 N. Y. 507, 106 N. E. 321. In National Surety Co. v. Win- slow (1919), Minn. , 173 N. W. 181, it is said : "In the absence of express limitations in that re- spect each party to such adventure is subject to all losses and liabili- ties, and entitled to share equally in the profits of the undertaking. The relationship is substantially that of a copartnership." As to contribution to losses among themselves, see Stettauer v. Carney (1878), 20 Kan. 474. See discussion in 33 Harvard I* Review, 852. 21 18] LAW OP PARTNERSHIP poration really existed, be personally liable, because they have never contracted as individuals or intended to be bound as such. To hold them liable as partners would be to hold them upon a contract which they never made or intended to make. On the other hand, it is contended that the parties must have intended to become liable in some way, and inasmuch as they have failed to bind themselves as a corporation, it must be assumed that they are liable as partners that it is only through the fact that they are corporators and not partners that they escape personal liability; and hence if the corporate shield fails, the individual liability necessarily arises. The matter, however, can not be so shortly disposed of, and a further investigation of the considerations involved is indis- pensable. 18. As has already been seen, a corporation is, with us, the creature of statute, and without such a statute the cor- poration can not ordinarily exist. The statutes providing for the organization of corporations usually prescribe a variety of acts to be done by the proposed incorporators with a view to regularity, safety and publicity. If all of these requirements are properly complied with a valid and unimpeachable incor- poration will ordinarily result, what is often described as a corporation de jure. Not all of the requirements of such a statute, however, will necessarily be rated as of the same value or importance. Some of the provisions may be merely directory rather than man- datory. Certain of them may look merely to order and regular- ity, rather than to the protection of the substantial interests of the parties or the public. The state, of course, may insist upon a compliance with all of them ; but it does not follow that private individuals may do the same where no substantial interest of their own is affected by the non-compliance. Public interest may require that corporate bodies, existing in fact, in pursuance of a genuine attempt to comply with the state's requirements, shall be recognized by private individuals as corporations until the state sees fit to interfere, even though such attempt at com- pliance be not in all respects complete and perfect. Such a body may be called a corporation de facto. It may be compared to 22 DEFINITIONS AND DISTINCTIONS [ 19,20 the officer de facto, whose acts, so far as private individuals are concerned, are regarded as official, even though his title to the office may not be perfect, if he be, nevertheless, permitted to exercise the functions of the office with public acquiescence or approval. 61 19. The corporation de facto is a legal institution, like the officer de facto. It arises from the policy of the law, and, though elements of estoppel are usually to be found in the cases in which it is recognized, it seems to be established that it is not dependent for its existence upon the application of that doc- trine. 62 The essentials of a corporation de facto are ordinarily said to be three : 1. The existence of a valid statute under which such a cor- poration as the one in question might lawfully be created. In some states, an apparently valid statute, i. e., one not yet de- clared unconstitutional, answers this requirement. 2. An attempt at compliance with it, often characterized as "actual and bona fide," but which should be colorable or appar- ent and bona fide. 3. A user or exercise of the corporate powers and functions which the statute contemplates. 63 20. Same subject Causes of failure to incorporate. The reasons why it is alleged that no valid incorporation has been effected may be numerous; but they commonly arrange them- selves under one of three general heads: 1. The entire absence of an enabling statute. 2. The uneonstitutionality of the stat- ute relied upon. 3. The failure to comply with the require- ments of a valid statute. 61 See Meehem on Public Officers, nesota, etc., E. Co. (1895), 157 111. 318, 319. 641, 42 N. E. 153; Methodist Church 62 See Society Perun v. Cleveland v. Pickett (1859) 19 N. Y. 482), (1885), 43 Ohio St. 481, 3 N. E. and sometimes (1) a statute and 357, 360. (2) an attempt at compliance. That 63 Many statements of the con- three conditions exist, see In re ditions of a de facto corporation Gibbs' Estate (1893), 157 Pa. 59, name but two. These are sometimes 27 Atl. 383, 22 L. E. A. 276, Gilm. (1) a statute and (2) user. (e. g. Gas. 91. American Loan & Trust Co. v. Min- 23 21, 22] LAW OP PARTNERSHIP 21. 1. Where there was no statute at all. Cases of this sort are not very numerous, but they may arise where tHe parties mistakenly believe that a particular statute is in force within their jurisdiction, or where they mistakenly believe that an unquestioned statute is broad enough to cover the purpose for which they seek incorporation. In such a case, there can, of course, be no corporation de jure; neither, according to the generally accepted definition, can there be one de facto, since the first element, that of a valid statute, is lacking. Unless some estoppel or other bar can be raised, tne members, notwithstand- ing all attempts at compliance and entire good faith, must be liable as partners. 64 Occasionally, though rarely, there will be found a naked assumption of corporate form without reference to any statute. 22. 2. Where a statute, apparently valid, was uncon- stitutional. It not infrequently happens that parties comply in all respects with a statute, apparently valid, but which is subsequently held to be unconstitutional. In such a case, there can clearly be no corporation de jure. Whether there can be one de facto is in dispute. It is said, on the one hand, that an unconstitutional statute is no statute, it never was a statute, it was void from the beginning, and therefore the first essential for a corporation de facto, namely, a statute, is lacking. Accord- ing to this view, the members must be liable as partners, unless some estoppel or other bar can save them. On the other hand, it is urged that, since every one is entitled if not bound to be- lieve that the legislature has not exceeded its constitutional 64 See Davis v. Stevens (1900), 34 S. W. 841, 54 Am. St. E. 685 104 Fed. 235, Mechem 's Gas. 724 (law had expired) ; Sturges v. Van- (no law); American L. & T. Co. v. derbilt (1878), 73 N. Y. 384 (same). Minnesota, etc., E. Co. (1895), 157 In Empire Mills v. Alston Grocery HI. 641, 42 N. E. 153 (no law); Co. (1891), 4 Willson (Tex. Civ. Mandeville v. Courtright (1906), 73 App.) 221, 15 S. W. 200, 12 L. E. A. C. C. A. 321, 142 Fed. 97, 6 L. E. A. 366, it was said that where a cor- (N. S.) 1003 (statute did not cover poration was organized in one state purpose contemplated) ; Vredenburg to do all its business in another, its v. Behan (1881), 33 La. Ann. 627 shareholders in the latter state would (same). Cf. Bradley v. Eeppell be liable as partners; sed quere. (1895), 133 Mo. 545, 32 S. W. 645, 24 DEFINITIONS AND DISTINCTIONS [23 powers, persons who in good faith rely upon an apparently valid statute, which they find upon the statute book, not yet declared unconstitutional, should be protected as against all attacks, except a direct attack by the state itself. Although the weight of authority seems to be with the former view, 66 the latter is not without substantial support. 66 23. 3. Where a valid statute is defectively complied with. Where there is a valid statute, and the only defect complained of is in the manner of complying with it, a different question is presented. The non-compliance may run through all degrees from a practically complete compliance to a practical failure or omission to comply at all. A perfect compliance, of course, will make a corporation de jure. So will a substantial compliance with all of the requirements. 67 Even the state will 65 See Eaton v. Walker (1889), 76 Mich. 579, 43 N. W. 638, 6 L. E. A. 102, Mechem's Gas. 8; Branden- stein v. Hoke (1894), 101 Cal. 131, 35 Pac. 562; Clark v. American Can- nel Coal Co. (1905), 165 Ind. 213, 73 N. E. 1083, 112 Am. St. E. 217; Huber v. Martin (1906), 127 Wis. 412, 105 N. W. 1031, 3 L. E. A. (N. S.) 653, 115 Am. St. E. 1023. 66 See Eichards v. Minnesota Sav- ings Bank (1899), 75 Minn. 196, 77 N. W. 822; Gardner v. Minneapolis, etc., Ey. Co. (1898), 73 Minn. 517, 76 N. W. 282; Catholic Church v. Tobbein (1884), 82 Mo. 418; Coxe v. State (1895), 144 N. Y. 396, 39 N. E. 400; Mayor v. Manhattan Ey. Co. (1894), 143 N. Y. 1, 37 N. E. 494; Winget v. Building Ass'n (1889), 128 111. 67, 21 N. E. 12. 67 Certain of the cases declare that there must be a "substantial" compliance with the formalities, or a compliance in all "material re- spects. ' ' Kaiser v. Lawrence Sav- ings Bank (1881), 56 Iowa 104, 8 N. W. 772, 41 Am. Eep. 85, Mechem's Gas. 16; Mokelumne Hill Mining Co. v. Woodbury (1859), 14 Cal. 424, 73 Am. Dec. 658; Hurt v. Salisbury (1874), 55 Mo. 310; Bige- low v. Gregory (1874), 73 111. 197, Gilm. Gas. 104. But, as is pointed out in Ee Gibbs' Estate (1893), 157 Pa. 59, 27 Atl. 383, 22 L. E. A. 276, "where there has been a substantial compliance with the law, the corpo- ration is, of course, de jure." So, in Finnegan v. Noerenberg (1893), 52 Minn. 239, 53 N. W. 1150, 38 Am. St. E. 552, 18 L. E. A. 778, Mechem 's Cas. 13, the court say : "A substantial compliance will make a corporation de jure. But there must be an apparent attempt to perfect an organization under the law. There being such an apparent attempt to perfect an organization, the failure as to some substantial requirement will prevent the body from being a corporation de jure; but, if there be user pursuant to such attempted organization, it will 25 23] LAW OP PARTNERSHIP not insist upon more than that. Less than that high degree of compliance which constitutes the corporation de^ jure, is that which will constitute a corporation de facto, the members of which are not liable as partners. Just what degree of compli- ance is necessary to create a corporation de facto, is not easy to state. Some courts have been exceedingly strict in their requirements. 68 Others have been more liberal. 69 Many state- ments of the rule have been attempted. It is often said that "an actual an bona fide attempt" will suffice. What is req- uisite, however, is a colorable or apparent attempt something in pursuance of the scheme of the statute tending to give pub- licity or openness to the claim of corporate character. They must also go so far in organizing as to secure to the corporation the substance of assets, subscriptions, etc., which it would have had if regular. Perfect articles of association kept in the pocket are less potent in creating a corporation de facto than much less perfect ones duly filed or recorded as the statute requires. not prevent it being a corporation ae facto." The statute may, how- ever, make strict compliance with some or all of the requirements a condition precedent to the acquisi- tion of any corporate power, and in such cases there cannot be even a de facto corporation without compli- ance. Jones v. Aspen Hardware Co. (1895), 21 Colo. 263, 40 Pac. 457, 29 L. B. A. 143, 52 Am. St. E. 220. And in many of the cases, such as those first cited in this note, express prohibitions existed against com- mencing business as a corporation until certain requirements, like the filing of the articles, were complied with. 68 See, for example, Kaiser v. Lawrence Savings Bank, supra. In the judgment of the present writer, the decision in this case is indefen- sible. There was a valid statute, there was an open, "bona fide, at- tempt at compliance, and there was user. The defects pointed out by the court were formal merely and the association should have been held to be at least a de facto corpo- ration. See also Bigelow v. Greg- ory, supra; Central Nat. Bank v. Sheldon (1912), 86 Kan. 460, 121 Pac. 340. In Duke v. Taylor (1896), 37 Fla. 64, 19 So. 172, 53 Am. St. E. 232, 31 L. E. A. 484, the failure to organize within the State which granted the charter was held fatal. See also Miller v. Ewer (1847), 27 Me. 509, 46 Am. Dec. 619. 69 See Owensboro Wagon Co. v. Bliss (1901), 132 Ala. 253, 31 So. 81, 90 Am. St. E. 907, Mechem's Cas. 22; Staver & Abbott Mfg. Co. v. Blake (1896), 111 Mich. 282, 69 N. W. 508, 38 L. E. A. 798, Me- chem's Cas. 28, Burd. Cas. 649; Eutherford v. Hill (1892), 22 Oreg. 218, 29 Pac. 546, 29 Am. St. E. 596, 17 L. E. A. 549, Gilm. Cas. 106. 26 DEFINITIONS AND DISTINCTIONS [23 The one defect which more than all others has been regarded as fatal is that of a failure to comply with the statutory scheme of publicity. 70 The analogy of the officer de facto^ who must hold by some color of right, 71 affords assistance here. It is, of course, possible that the statute may, in express terms or by necessary intendment, make other acts indispensable to the existence of any kind of corporate character, and in such a case these acts also must be done. If a corporation de facto cannot be established, then, unless some estoppel or other bar can be set up, the members of the defective corporation, engaged in a business which a partner- ship might conduct, will usually be held liable as partners for the debts of the concern, 72 and their claims between them- 70 See Garnett v. Richardson (1879), 35 Ark. 144; Abbott v. Omaha Smelting Co. (1876), 4 Neb. 416; Richardson v. Pitts (1879), 71 Mo. 128; Guckert v. Hacke (1893), 159 Pa. 303, 28 Atl. 249, Mechem's Partn. Gas. 20; New York Nat. Bank v. Crowell (1896), 177 Pa. 313, 35 Atl. 613; Tonge v. Item Pub. Co. (1914), 244 Pa. 417, 91 Atl. 229; McLennan v. Hopkins (1895), 2 Kan. App. 260, 41 Pac. 1061, Burd. Gas. 41; Harrill v. Davis (1909), 94 C. C. A. 47, 168 Fed. 187, 22 L. R. A. (N. S.) 1153. Where the statute required the papers to be "filed, but instead of that they were recorded and re- turned, held, no de facto corpora- tion. Bergeron v. Hobbs (1897), 96 Wis. 641, 71 N. W. 1056. Where the papers have been filed with the Secretary of State, but not recorded with the County Recorder as required, the corporation may still be one de facto; Newcomb- Endicott Co. v. Fee (1911), 167 Mich. 574, 133 N. W. 540. Same in substance, Doty v. Patterson (1900), 155 Ind. 60, 56 N. E. 668; Bushnell v. Ice Co. (1891), 138 111. 67, 27 N. E. 596; Tarbell v. Page (1860), 24 111. 46; Vanneman v. Young (1890), 52 N. J. L. 403, 20 Atl. 53. Same, where certified copy instead of a duplicate was filed: Williamson v. Kokomo B. & L. Ass'n (1883), 89 Ind. 389. The associates, not at fault, will not usually be held responsible for the failure of the recorder to prop- erly file or record. Compare Owens- boro Wagon Co. v % Bliss (1901), 132 Ala. 253, 31 So. 81, 90 Am. St. R. 907; Mechem's Partn. Gas. 22; Henkel v. Heyman (1878), 91 111. 96, Mechem's Partn. Gas. 709; Man- hattan Co. v. Laimbeer (1888), 108 N. Y. 578, 15 N. E. 712, Gilm. Gas. 615. 71 See Mechem on Public Officers, 319. 72 See, for examples, Kaiser v. Lawrence Savings Bank, supra; Guekert v. Hacke, supra; Harrill v. Davis, supra; Bergeron v. Hobbs, supra; Abbott v. Omaha Smelting Co., supra. So, where, though articles were filed, nothing further was done in 27 24] LAW OP PARTNERSHIP selves will, usually at least, be settled on the same basis. 73 It remains to consider under what circumstances, if any, an estoppel or other bar can be set up. 24. Same subject The effect of estoppel. It is said in a great variety of cases that a person who has dealt with a pre- tended corporation as such will later be estopped to deny that it is one in fact. 74 This statement is often made without suffi- cient foundation in point of facts. Estoppel is a principle of law whereby one person who has made representations of fact to another in order to induce his action will not later be per- mitted, after the latter has acted upon the representation, to deny it, to the prejudice of the one who has so been induced to change his position. The person to be estopped in these cases is the one who now seeks to hold the associates liable as part- the way of organization, the incor- porators were held personally liable as partners: Central Nat. Bank v. Sheldon (1912% 86 Kan. 460, 121 Pac. 340. Same in substance: Mc- Vicker v. Cone (1891), 21 Oreg. 353, 28 Pac. 76. So, where the debts were incurred before anything had been 3one to- ward incorporation : Harrill v. Davis, supra; Queen City Furniture Co. v. Crawford (1894), 127 Mo. 356, 30 S. W. 163; Haslett v. Wotherspoon (1845), 2 Rich. Eq. (S. Car.) 395, or before the ar- ticles were filed or published: Bigelow v. -Gregory (1874), 73 111. 197, Gilm. Cas. 104 (but held not liable in such a case where the con- tract was expressly made on ac- count of the corporation and was adopted by it as soon as the organi- zation was completed, Whitney v. Wyman (1879), 101 U. S. 392, 25 L. Ed. 1050). So where the associates did not purport to organize under any statute: Pettis v. Atkins (1871), 60 111. 454; Forbes v. Whittemore (1896), 62 Ark. 229, 35 S. W. 223. 73 See, e. g. Flagg v. Stowe (1877), 85 111. 164; Rainwater v. Childress (1915), 121 Ark. 541, 182 S. W. 280. Compare Doty v. Patterson (1900), 155 Ind. 60, 56 N. E. 668. 74 See, for example, Greenville v. Greenville Co. (1899), 125 Ala. 625, 27 So. 764; Plummer v. Struby Co. (1896), 23 Colo. IPO, 47 Pac. 294; Booske v. Ice Co. (1888), 24 Fla. 550, 5 So. 247; Petty v. Brunswick Ry. Co. (1899), 109 Ga. 666, 35 S. E. 82; Winget v. Quincy Bldg. Ass'n (1889), 128 111. 67, 21 N. E. 12; Stoutimore v. Clark (1879), 70 Mo. 471; Nashua Co. v. Moore (1874), 55 N. H. 48; Commercial Bank v. Pfeiffer (1888), 108 N. Y. 242, 15 N. E. 311; Building & L. Ass'n v. Chamberlain (1893), 4 S. Dak. 271, 56 N. W. 897. But com- pare Loverin v. McLaughlin (1896), 161 111. 417, 44 N. E. 99. 28 DEFINITIONS AND DISTINCTIONS [25,26 ners. What representation of fact has he made to them? Does he represent to them that they are a corporation, 76 or are they ordinarily the ones who make the representation to him? It may be said that his representation to them is merely that he is dealing with them on a corporate basis, and that he may be estopped to deny that fact. This is doubtless what is ordinarily meant. Even so, it is essential that he shall have known that they pretended to be a corporation and were purporting to deal with him on that basis only. 76 Where the representation, more- over, is not one of fact but of law like the validity of the stat- ute estoppel will not ordinarily arise. 77 25. The difficulty with the free application of the doc- trine of estoppel is that, by means of it, the state may be filled with alleged corporate bodies which no statute has authorized, but which, so far as the persons dealing with them are con- cerned, the courts must deal with as though they had a valid existence. Of course, this estoppel would not operate against the state if it saw fit to question their right to do business ; but state officials are notoriously slow to act in such cases unless somebody strenuously insists upon it. If there is to be any estoppel as to the fact of corporate ex- istence in these cases, it ought, as a matter of policy, to be con- fined to those in which there might be at least a corporation de facto, i. e., to those in which there is a valid statute or at least a statute not yet declared unconstitutional. If the estoppel be merely as- to the basis of liability, a statute would not be indis- pensable if the dealings otherwise showed what was to be the nature and extent of the liability. 26. Same subject The doctrine of contractual limitation. It is sometimes said that, instead of estoppel, there is an im- plied contract between the parties that their dealings are upon the basis of a liability limited to the associate funds and exclud- 75 See Cottentin v. Meyer (1910), 77 See Ewart on Estoppel, 72 et 80 N. J. L. 52, 76 Atl. 341. seq. 76 See, for example, Eaton v. Walker, and Guckert v. Hacke, cited in 22, 23 supra. 29 27,28] LAW OP PARTNERSHIP ing any personal liability. That contracts of this sort may be expressly made is not to be denied; and an implied contract may undoubtedly also exist. 78 The difficulty here, in many cases, is to find the foundation of facts from which such a con- tract may be implied. Neither an express nor an implied contract could be upheld, if to do so would violate the policy of the state. 27. Same subject The doctrine that no one but the State may raise the question. Finally, it is frequently asserted that the question of the legal existence of a body purporting to be a corporation and doing business as such, is one which may be raised by the state alone, and will not be tried collaterally in suits between private parties. Where the body in question amounts to a de facto corporation, the authorities which declare this rule are very numerous. 79 It is, in such cases, merely a reflex of the de facto doctrine. It will be found most frequently coupled with the question of estoppel, though, as has been seen, the de facto corporation does not depend upon estoppel. It will be found applied in some cases in which there was a statute and user but no colorable or ostensible attempt to comply with the statute by filing or recording the required articles. Such a rule, however, could have little or no application to a case in which, for the lack of a statute, there could not be a de facto corporation, i. e., to a case of the naked assumption of corporate privileges. 28. Same subject Rights as partners in such cases. Al- though the question usually presents itself as a matter of the 78 See Staver & Abbott Mfg. Co. (1890), 91 Ala. 224, 8 So. 658, 11 L. v. Blake (1896), 111 Mich. 282, 69 E. A. 515, 24 Am. St. E. 887; Van- N. W. 508, 38 L. E. A. 798; Me- neman v. Young (1890), 52 N. J. L. chem's Gas. 28, Burd. Cas. 649; 403, 20 Atl. 53; Higbie v. Aetna Frost v. Thompson (1913), 219 B. & L. Ass'n (1910), 26 Okla. 327, Mass. 360, 106 N. E. 1009. 109 Pae. 236, Ann. Cas. 1912 B, 79 See Imperial Building Co. v. 223; Brown v. Webb (1912), 60 Board of Trade (1909), 238 111. Oreg. 526, 120 Pac. 387, Ann. Cas. 100, 87 N. E. 167; Marshall v. 1914 A, 148; Calor Oil Co. v. Fran- Keach (1907), 227 111. 35, 81 N. E. zell (1908), 128 Ky. 715, 109 S. W. 29, 118 Am. St. E. 247, 10 Ann. 328, 36 L. E. A. (N. S.) 456, 33 Cas. 164; Sniders' Sons Co. v. Troy Ky. Law Eep. 98. 30 DEFINITIONS AND DISTINCTIONS [29 liability of the associates as partners, the correlative question of their rights as such in similar cases may also arise. In a case, often cited, in which the associates sued as a corporation for the recovery of certain property, and were met with the defence that their organization as a corporation was too defective to permit the action to be maintained, the court, while acceding to this view, nevertheless held that the action could be sustained as one by a partnership doing business under the same name. As a partnership with the same name it could have taken title to the property in question; the associates would have been liable as partners; and the court held that they were entitled to the advantages which would be accorded to a similar partner- ship. 80 29. Promoters of companies. Promoters of corporations are not, as such, partners. Though engaged in endeavoring to secure the organization of a company to carry on business for pecuniary profit, their immediate object is not the transaction of business for mutual gain, and they do not fall within the definition or the purposes of partnership. 81 Nevertheless, if they carry on a business as incident to the organization, or if they launch and conduct the business before the corporation is organized, or if they conduct the business without ever bringing even a de facto corporation into existence, they will usually be liable as partners. 82 80 Bee Jones v. Aspen Hardware 81 See Eeynell v. Lewis (1846), 15 Co. (1895), 21 Colo. 263, 40 Pac. Mees. & Welsby, 517; Capper's Case 457, 52 Am. St. E. 220, 29 L. E. A. (1851), 1 Sim. (N. S.) 178; Batard 143. See also Smith v. Texas, etc. v. Hawes (1852), 2 Ellis & B. 287, E. Co. (1908), 101 Tex. 405, 108 Burd. Gas. 33; Eingolsky v. Min- S. W. 819; New Haven Wire Co. ing Co. (1914), 262 Mo. 241, 171 Cases (1889), 57 Conn. 352, 394; S. W. 56; Long v. Citizens Bank 18 Atl. 266, 5 L. E. A. 300. Cf. (1892), 8 Utah 104, 29 Pac. 878; African M. E. Church v. New Or- United States Wood Preserv. Co. v. leans (1860), 15 La. Ann. 441; Lawrence (1915), 89 Conn. 633, 95 Maugham v. Sharpe (1864), 17 C. Atl. 8. B. (N. S.) 443; National Shutter 82 See Loverin v. McLaughlin Bar Co. v. Zimmerman (1909), 110 (1896), 161 111. 417, 44 N. E. 99; Md. 313, 73 Atl. 19; Byam v. Biek- Nicholls v. Buell (1909), 157 Mich, ford (1885), 140 Mass. 31, 2 N. E. 609, 122 N. W. 217; Eidenour v. 687. Mayo (1883), 40 Ohio St. 9; Bar- 31 30] LAW OP PARTNERSHIP 30. Contemplated partnerships. A mere intention to form a partnership does not constitute one. Persons, therefore, who are merely contemplating a future partnership, or who have simply entered into an agreement to thereafter become partners, cannot be held liable as partners, nor have they the rights of partners as between themselves. 83 Before this result can ensue the executory agreement must have been executed. As declared in one case, 84 "A marked distinction exists in law between an agreement to enter into the copartnership relation at a future day and a copartnership actually consummated. It is an ele- mentary principle that a partnership in fact cannot be predi- cated upon an agreement to enter into a copartnership at a future day unless it be shown that such agreement was actually consummated. In the language of the text-books, the partner- ship must be 'launched.' To constitute the relation, therefore, the agreement between the parties must be an executed agree- ment. So long as it remains executory the partnership is in- choate, not having been called into being by the concerted action necessary under the partnership agreement. It is undoubtedly true that a partnership in prcesenti may be constituted by an agreement if it appears that such was the intention of the par- ties. But where it expressly appears that the arrangement is contingent, or is to take effect at a future day, it is well settled nett v. Lambert (1846), 15 Mees. 117 Va. 616, 85 S. E. 492; Sabel & Wels. 489; Wechselberg v. Nat. v. Savannah Bail & Equip. Co. Bank (1894), 12 C. C. A. 56, 64 (1903), 135 Ala. 380, 33 So. 663, Fed. 90, 26 L. E. A. 470. Gilm. Gas. 116. 83 See Atkins v. Hunt (1843), 14 If, in such a case, one of the pro- N. H. 205, Mechem's Cas. 79 (cit- posed partners dies before the part- ing Bourne v. Freeth, 9 Barn. & Or. nership is launched, it will not come 632; Dickinson v. Valpy, 10 id. 128; into effect, and provisions in the Fox v. Clifton, 6 Bing. 776; Howell articles as to the effect of the death v. Brodie, 6 Bing. N. C. 44) ; Dow of one partner will not apply to v. State Bank (1903), 88 Minn. this case. Dow v. State Bank, supra. 355, 93 N. W. 121, Gilm. Cas. 87; 84Keed v. Meagher (1890), 14 Martin v. Baird (1896), 175 Pa. Colo. 335, 24 Pac. 681, 9 L. E. A. 540, 34 Atl. 809, Mechem's Cas. 455. See, also, Buzard v. McAnulty 744, Burd. Cas. 34; National Bank (1890), 77 Tex. 438, 14 S. W. 138; v. Cringan (1895), 91 Va. 347, 21 Sabel v. Savannah Bail & Equip. S. E. 820; Shield v. Adkins (1915), Co., supra. 32 DEFINITIONS AND DISTINCTIONS [ 31, 32 that the relation of partners does not exist, and that, if one or more of them refuse to perform the agreement, there is no rem- edy between the parties except a suit in equity for specific per- formance, or an action at law for the recovery of damages, should any be sustained." So long as essential terms remain undetermined, there can rarely be a present partnership. 85 31. Same subject. The mere time of executing the articles is not conclusive, for persons may become partners at once, if such is the intention, even though partnership articles are there- after to be executed. The test is the intention. If it is the intention that the parties are not to become partners until the terms have been agreed upon and articles executed, the partner- ship will not come into existence until that time, unless the condition is waived; but if the terms have been agreed upon, the execution of the articles, or the performance of other con- ditions, may be postponed or waived, and such a waiver will often be presumed where the parties actually begin business as partners before the conditions have been performed. 86 Such a waiver is much more likely to be inferred where the rights of creditors, who have reasonably relied upon appearances of an actual partnership, are concerned, than in controversies between the parties themselves. 87 In the latter case, it may often be shown that what was done was provisional, tentative or conditional only and not final. 88 32. Classification of partnerships. Partnerships are some- times classified as ordinary partnerships, limited partnerships, 85 See Sabel v. Savannah Eail & 20 N. W. 888, Meehem's Gas. 87; Equip. Co., supra; Latta v. Kil- First Nat. Bank v. Cody (1893), bourn (1893), 150 U. S. 524, 37 93 Ga. 127, 19 S. E. 831; Bopp v. L. Ed. 1169, 14 S. Ct. 201, Mechem's Fox (1872), 63 111. 540. Gas. 260, Burd. Gas. 503, Gilm. Gas. 87 See Cain Lumber Co. v. Stand- 425. ard Dry Kiln Co. (1895), 108 Ala. 86 Cook v. Carpenter (1861), 34 346, 18 So. 882. Vt. 121, 80 Am. Dec. 670; Hart- 88 One of the most striking cases man v. Woehr (1867), 18 N. J. Eq. of this sort is Martin v. Baird 383; Atkins v. Hunt (1843), 14 N. (1896), 175 Pa. 540, 34 Atl. 809, H. 205, Mechem's Gas. 79; Kerrick Mechem's Gas. 744, Burd. Gas. 34. v. Stevens (1884), 55 Mich. 167, Mech. Part. 3 33 33,34] LAW OF PARTNERSHIP and joint-stock companies. The peculiarities of the latter are separately considered. Ordinary partnerships may be divided, according to their scope, into (1) universal, (2) general, and (3) special or particular partnerships, a classification cor- responding to that of agency, and based upon substantially the same distinctions. An universal partnership is one in which all the property and services of the parties are united, and all profits, however made, are for their joint benefit. A general partnership is one created for the general and continuing con- duct of some kind of business, or of a number of kinds of busi- ness. A special or particular partnership is one created for a single transaction or adventure. It has been thought that an universal partnership could ex- ist only in theory, but several cases have occurred in this country of partnerships which were practically universal. In any event, however, the evidence must be clear to establish such an unusual relation. 89 33. Ordinary partnerships may also be divided, ac- cording to the nature of their business, into trading and non- trading partnerships. This distinction, which is made quite important in many states, is not a very definite or satisfactory one. The common basis of distinction is whether the partner- ship is organized to buy and sell as a business. If it is, it is a trading partnership ; otherwise a non-trading partnership. The chief consequence of the distinction is found in the implied authority of the partners. The subject will be more fully con- sidered in a later section. 90 34. Same subject Peculiar forms of partnership. In ad- dition to the ordinary and typical form of partnership, there are several others, more or less anomalous, which have been already mentioned but whose peculiarities must be more fully pointed out. Thus, there are 89 See United States Bank v. Bin- (1852), 14 How. (U. S.) 589; Gray ney (1828), 5 Mason (U. S. C. C.), v. Palmer (1858), 9 Gal. 616; Ham- 183; Lyman v. Lyman (1829), 2 ilton v. Halpin (1890), 68 Miss. 99, Paine (U. S. C. C.), 11; Rice v. 8 So. 739; Gasely v. Society (1862), Barnard (1848), 20 Vt. 479, 50 13 Ohio St. 144. Am. Dec. 54 ; Goesele v. Bimeler 90 See post, 241. 34 DEFINITIONS AND DISTINCTIONS [35 35. 1. Joint stock companies. Joint stock companies, so called, as has already been seen, are usually ordinary partner- ships except that, by the original contract of the members, the delectus personarum is more or less completely waived, and it is agreed that any member may transfer his share, with or without conditions as may be stipulated in the articles, and that his transferee shall accordingly be received into the partnership. The number of members is likely to be greater in these than in ordinary partnerships, they frequently adopt an impersonal or association name or title, and the conduct of affairs is more likely to be delegated by all the partners to some of them or to designated agents. Aside from these peculiarities, the ordi- nary rules of partnership usually apply. 91 The liability of an outgoing partner to creditors for existing debts is not usually affected by the agreements for transferring shares ; they operate between the parties only, unless the creditors have assented to them. 92 The liability of an incoming partner to existing cred- itors in these partnerships is usually the same as in ordinary partnerships. 93 They may exist without statutory authority, 94 though in a number of states they have been regulated or pro- vided for by statute, and the right to sue in the firm name or in the name of one of the officers is often conferred. 95 Many concerns in some states, and several of the great express com- panies, have been organized as joint stock companies. 96 91 See Tappan v. Bailey (1842), (N. S.) 665; People v. Coleman 4 Mete. (Mass.) 529; Tyrrell v. (1892), 133 N. Y. 279, 31 N. E. 96, Washburn (1863), 6 Allen (Mass.) 16 L. R. A. 183; Great Southern 466; Phillips v. Blatchford (1884), Hotel Co. v. Jones (1899), 177 IT. 137 Mass. 510; Farnum v. Patch S. 449, 20 Sup. Ct. 690, 44 L. ed. (1880), 60 N. H. 294, 49 Am. Eep. 482. 313; Hodgson v. Baldwin (1872), 92 See. Tyrrell v. Washburn, 65 111. 532; Beaman v. Whitney supra. (1841), 20 Me. 413; Manning v. 93 See Powell Co. v. Finn (1902), Gasharie (1866), 27 Ind. 399; Car- 198 111. 567, 64 N. E. 1036. ter v. McClure (1897), 98 Tenn. 94 See Phillips v. Blatchford, 109, 38 S. W. 585, 60 Am. St. E. supra. 842, 36 L. E. A. 282, Burd. Gas. 37, 95 See references to the statute Gilm. Gas. 108; Moore v. May in New York, in People v. Coleman, (1903), 117 Wis. 192, 94 N. W. 45; supra. Spotswood v. Morris (1906), 12 96 See United States v. Adams Idaho 360, 85 Pac. 1094, 6 L. E. A. Express Co. (1912), 229 TJ. S. 381 r 35 i36,37] LAW OF PARTNERSHIP 36. 2. Partnership associations. In a few states, stat- utes have provided for what are called partnership associations, or partnership associations, limited. They have limited liability, transferable shares, and sue and deal in the associate name. They are more like corporations than partnerships, and some of the courts have held them to be corporations. 97 Not all the courts, however, have concurred in this view, 98 and the supreme court of the United States has denied their right to sue as cor- porations in the federal courts. 99 37. -3. Mining 1 partnerships. In some of the mining states, though not in all, a peculiar form of partnership has been developed in mining enterprises. They are non-statutory, and presumptively arise, without express agreement to that effect, where tenants in common of a mining property proceed to de- velop and operate it without any other agreement. Shares are presumptively transferable, there is no delectus personarum, and the implied authority of each partner is limited as in non- trading partnerships. 1 The recognition of these peculiar mining 57 L. ed. 1237, 33 S. Ct. 878; Hibbs v. Brown (1907), 190 N. Y. 167, 82 N. E. 1108. 97 See Bouse, Hazard & Co. v. Detroit Cycle Co. (1896), 111 Mich. 251, 69 N. W. 511, 38 L. E. A. 794; Staver & Abbott Mfg. Co. v. Blake (1896), 111 Mich. 282, 69 N. W. 508, 38 L. E. A. 798, Mechem's Gas. 28, Burd. Cas. 649. 98 See Edwards v. Warren Lino- line Works (1897), 168 Mass. 564, 47 N. E. 502, 38 L. E. A. 791 ; Car- ter v. Producers' Oil Co. (1897), 182 Pa. 551, 38 Atl. 571, 39 L. E. A. 100. 99 See Great Southern Hotel Co. v. Jones, supra. I Mining partnerships have been recognized in California, Colorado, Idaho, Kansas, Montana, Virginia, West Virginia, Wyoming, but not in Pennsylvania. See Skillman v. Lachman (1863), 23 Cal. 198, 83 Am. Dec. 96 and note: Kahn v. Smelting Co. (1880), 102 TJ. S. 641, 26 L. ed. 266; Read v. Meagher (1890), 14 Colo. 335, 24 Pac. 681, 9 L. E. A. 455; Haskins v. Curran (1895), 4 Idaho 573, 43 Pac. 559; Patrick v. Weston (1895), 22 Colo. 45, 43 Pac. 446; Huston v. Cox (1918), 103 Kan. 73, 172 Pae. 992; Congdon v. Olds (1896), 18 Mont. 487, 46 Pac. 261; Childers v. Neely (1899), 47 W. Va. 70, 34 S. E. 828, 49 L. E. A. 468, 81 Am. St. E. 777, Mechem's Cas. 34; Lamar v. Hale (1884), 79 Va. 147; Hartney v. Gosling (1902), 10 Wyo. 346, 68 Pac. 1118, 98 Am. St. E. 1005. See also Judge v. Braswell (1877), 76 (13 Bush) Ky. 67, 26 Am. E. 185; Hotchkiss v. Quarry Co. (1889), 58 Conn. 120, 19 Atl. 521. 36 DEFINITIONS AND DISTINCTIONS [ 38-40 partnerships, of course, does not preclude the organization of an ordinary partnership to carry on mining operations if the par- ties so agree. 2 38. 4. Limited partnerships. These are purely statu- tory creations, having some partners whose powers and liabilities are general as in ordinary partnerships, and some partners who take no part in the management and whose liability is limited to the amount they agree to contribute to the capital. Limited partnerships are separately considered in a later chapter. 8 39. 5. Sub-partnerships. What is sometimes called a sub-partnership may arise where one partner in an ordinary firm unites by separate agreement to share his interest in the firm with a third person who is not a partner in the firm. This arrangement, also, is separately considered in a later section. 4 40. Trust or partnership. The question whether the bene- ficiaries of the modern "business trust" can be deemed to be partners has arisen in a number of cases. In one of the most recent, 6 it is said: "A declaration of trust or other instrument providing for the holding of property by trustees for the benefit of the owners of assignable certificates representing the bene- ficial interest in the property may create a trust or it may create a partnership. Whether it is the one or the other depends upon the way in which the trustees are to conduct the affairs com- mitted to their charge. If they are to act as principals and are free from the control of the certificate holders, a trust is created ; but if they are subject to the control of the certificate holders, it is a partnership." The differences between the partnership and the trust are 2 See Decker v. Howell (1872), gan (1919), 233 Mass. 381, 124 N. 42 Cal. 636. E. 32. Compare Eice v. Kockefeller 3 See post, Ch. XXII. (1892), 134 N. Y. 174, 31 N. E. 4 See post, 58. 907, 30 Am. St. E. 658, 17 L. E. A. 5 See Frost v. Thompson (1913), 237. 219 Mass. 360, 106 N. E. 1009; The personal liability referred to Sleeper v. Park (1919), 232 Mass. in this section is that at law rather 292, 122 N. E. 315; Horgan v. Mor- than in equity. 37 41] LAW OF PARTNERSHIP numerous. The most important, perhaps, is the one of the per- sonal liability of the members for the contracts and acts of those who conduct the business. They would not usually be so liable to the creditor if it were a trust, while they would usually be so liable if it were a partnership. There are also differences in the manner of conducting the business; in the revocability of the arrangements creating the relation ; and in other matters. 41. Classification of partners. In limited partnerships the partners are either (1) general, or (2) special, the former standing in the attitude of an ordinary partner, and the latter occupying a peculiar position, prescribed by statute, with a liability limited to his contribution. 6 In ordinary partnerships, partners may be classified as (1) active and ostensible; (2) secret or dormant, and (3) nominal. An ostensible partner, sometimes called a public partner, is one who is held out and known as a partner. An active partner is one who actually participates in the conduct of the business. He is usually an ostensible one, but is not necessarily so. A partner may be unknown or concealed and yet active in the management of the business; or he may be both concealed and passive as to the conduct of the business. In the former case he is said to be a secret partner, and in the latter case he is called a silent or dormant partner. A nominal partner is a per- son apparently a partner but not really so. A person who leaves an existing firm is often called a retiring partner, while one who enters such a firm is called an incoming partner. All actual partners are liable for the debts of the firm incurred while they were members of it, whether they were disclosed as partners or not ; but a really dormant partner who retires from the firm is not required, like other partners, to give notice of that fact, in order to escape liability for subsequent indebted- ness. 7 6 See post, Chapter XXII. 7 See post, 397. 38 CHAPTER II. FOR WHAT PURPOSES A PARTNERSHIP MAY BE CREATED. 42. For any lawful business. 45. Purposes illegal in part. 43. Series of acts, continuous 46. Effect of illegality. business, single adventure. 44. Not for purposes unlawful or opposed to public policy. 42. For any lawful business. It is the general rule, analogous to that of agency, that a partnership may be created for the purpose of carrying on any lawful business, and that whatever business the individual partners might lawfully carry on if acting separately and in their own behalf, they may law- fully conduct in partnership. Thus, there may be a partner- ship for carrying on not only every lawful kind of trade or com- merce, but also for farming, mining, lumbering, manufacturing, transportation, and the like. Professional occupations like that of the lawyer, physician, dentist and architect may also be car- ried on in partnership, and there may be a partnership for buy- ing and selling land. 1 1 Chester v. Dickerson (1873), 54 To carry on farming operations: N. Y. 1, 13 Am. Rep. 550, Mechem's Wilson v. Todhunter (1918) Ark. Cas. 38, Gilm. Gas. 136; Flower v. , 207 S. W. 221. Barnekoff (1890), 20 Oreg. 137, 25 "The business of breeding, train- Pac. 370, 11 L. R. A. 149; Bates ing, and racing horses for purses is v. Babcock (1892), 95 Gal. 479, 30 legal", and a partnership may law- Pac. 605, 29 Am. St. R. 133, 16 L. fully be created for that purpose. R. A. 745. Central Trust Co. v. Respass (1902), To buy and sell oil leases, options, 112 Ky. 606, 66 S. W. 421, 23 Ky. etc.: Ewers v. Montgomery (1910), L. R. 1905, 99 Am. St. R. 317, 56 68 W. Va. 453, 69 S. E. 907; Bird L. R. A. 479, Mechem's Cas. 728, v. Wilcox (1919), 104 Kan. 799, Gilm. Cas. 139; but not for betting 180 Pac. 774. on horse races or "book making." So, of coal options: McKinley Id. v. Lynch (1905), 58 W. Va. 44, 51 S. E. 4. 39 43] LAW OF PARTNERSHIP 43. Same subject Series of acts Continuous business Single adventure. Partnerships are undoubtedly usually or- ganized for the purpose of carrying on a more or less permanent and continuing trade or business; but it is well settled that there may be a partnership for a single piece of business or for a particular venture. 2 The early forms of partnership were frequently such. It must, however, be undertaken as a business, to distinguish it from the case, for example, referred to in a previous section, 8 wherein two persons, not otherwise partners and not intending to embark upon the business of buying and selling land, unite to buy a particular parcel of land to hold for an advance in price. Thus, for example, an association to pur- chase a tract of land to be held and disposed of as a unit in one transaction might not constitute a partnership, while an 2 See Kayser v. Maugham (1885), 8 Colo. 232, 6 Pac. 803 (contract to unite to sell a particular mine at a profit, called a partnership) ; Shackelford v. Williams (1913), 182 Ala. 87, 62 So. 54 (same in sub- stance); Yeoman v. Lasley (1883), 40 Ohio St. 190 (contract to buy a particular farm supposed to contain coal, to be resold at a profit, called a partnership) ; Hulett v. Fairbanks (1883), 40 Ohio St. 233 (same in substance); Jones v. Davies (1899), 60 Kan. 309, 56 Pac. 484, 72 Am. St. E. 354 (same in substance) ; Spencer v. Jones (1899), 92 Tex. 516, 50 S. W. 118, 71 Am. St. E. 870 (same as last) ; Canada v. Barksdale (1881), 76 Va. 899 (same as last) ; Mitchell v. Tonkin (1905), 109 N. Y. App. Div. 165, 95 N. Y. S. 669 (called a partnership) ; Wil- liamson v. Nigh (1906), 58 W. Va. 629, 53 S. E. 124; Bates v. Babeock, supra; Flower v. Barnekoff, supra. But see Jones v. Gould (1913), 209 N. Y. 419, 103 N. E. 720 (simi- lar contract, said not to be part- nership but joint venture) ; Clark v. Sidway (1891), 142 U. S. 682, 12 S. Ct. 327, 35 L. ed. 1157 (said to be tenancy in common, not part- nership) ; Gottschalk v. Smith (1895), 156 111. 377, 40 N. E. 937 (not a partnership) ; Hurley v. Walton (1872), 63 111. 260 (single fishing venture, not a partnership) ; Williams v. Gillies (1878), 75 N. Y. 197 (purchase of land on specu- lation not a commercial partner- ship). Cases of limited interests in particular transactions held not partnerships: Butler v. Union Trust Co. (1918), 178 Cal. 195, 192 Pac. 601; Jackson v. Hooper (1909), 76 N. J. Eq. 185, 74 Atl. 130; Causten v. Barnette (1908), 49 Wash. 659, 96 Pac. 225; Stundon v. Dahlenberg (1914), 184 Mo. App. 381, 171 S. W. 37; Sutton v. Mis- souri, etc., Ey. Co. (1919), 104 Kan. 282, 178 Pae. 418. Co-tenants rather than partners: Magee v. Magee (1919), Mass. , 123 N. E. 673. 3 See ante, 14. 40 FOR WHAT PURPOSES CREATED [ 44 association to buy such a tract, subdivide it into many lots, employ surveyors, engineers and brokers, and enter upon the more or less protracted business of selling out the various lots at retail, might easily be held to be a partnership. 4 44. Not for purposes unlawful or opposed to public policy. But, as in the case of agency, there are many purposes for which the relation cannot lawfully be created. Thus, a trust personal to one individual cannot be executed by a partnership ; public offices cannot be held in partnership ; and a partnership cannot lawfully be created for the doing of anything which is in itself, or which directly and immediately tends to promote acts which are, illegal, immoral or opposed to public policy. Partnerships, therefore, for the purpose of gambling or of carrying on a gambling establishment; to speculate in "fu- tures"; to ''corner" the market, or to stifle or prevent com- petition ; to carry on a forbidden occupation ; to hinder or delay creditors; to carry on trade with belligerents in time of war; to carry on trade in violation of the navigation laws ; to secure contracts from government or public officials by improper means ; to corrupt public or private agents ; to carry on business without a license where that is necessary; and the like, are il- legal. 5 4 So held in Winstanley v. Drake (1879), 14 Nev. 175, 33 Am. Gleyre (1893), 146 111. 27, 34 N. E. Eep. 548; Davis v. Gelhaus (1886), 628. 44 Ohio St. 69, 4 N. E. 593; Hun- 6 See Woodworth v. Bennett ter v. Pfeiffer (1886), 108 Ind. (1870), 43 N. Y. 273, 3 Am. Eep. 197, 9 N. E. 124; Watson v. 706, Mechem's Cas. 43; Craft v. Fletcher (1850), 7 Gratt. (Va.) 1; McConoughy (1875), 79 111. 346, Watson v. Murray (1872), 23 N. J. 22 Am. Eep. 171, Mechem's Cas. Eq. 257; King v. Winants (1874), 48; Central Trust Co. v. Eespass 71 N. C. 469, 17 Am. Eep. 11; (1902), 112 Ky. 606, 66 S. W. 421, Citizen's Bank v. Mitchell (1909), 23 Ky. L. E. 1905, 99 Am. St. E. 24 Okla. 488, 103 Pac. 720, 20 Ann. 317, 56 L. E. A. 479, Mechem's Cas. 371; Kennedy v. Lonabaugh Cas. 728, Gilm. Cas. 139; Smith v. (1911), 19 Wyo. 352, 117 Pac. 1079; Eichmond (1902), 114 Ky. 303, 70 Jackson v. Akron Brick Asa'n S. W. 846, 102 Am. St. E. 283, 24 (1895), 53 Ohio St. 303, 41 N. E. Ky. L. E, 1117; McMullen v. Hoff- 257, 53 Am. St. E. 638, 35 L. E. A. man (1898), 174 U. S. 639, 19 Sup. 287; Patty- Joiner Co. v. City Bank Ct. 839, 43 L. ed. 1117; Gaston v. (1897), 15 Tex. Civ. App. 475, 41 41 45, 46] LAW OF PARTNERSHIP 45. Purposes illegal in part. A partnership may be or- ganized for two or more purposes, part of which are lawful and part of which are unlawful, or it may be created for a law- ful purpose, and yet one or more of its undertakings may be illegal, or it may seek to accomplish lawful ends by unlawful means. In such cases the lawful part, if it can be separated from the residue, will not be affected by the illegality; if it cannot be separated, the whole must be regarded as unlawful. 6 If the partnership be legal, but a certain transaction is illegal, and the latter can be segregated, it alone will be affected; and the rights of partners who were not implicated will not be de- stroyed. 7 46. Effect of illegality. Courts will not enforce contracts having for their purpose, or tending directly to promote, illegal objects. The members of an illegal partnership cannot sue to enforce any contract tainted by the illegality, but actions may be brought against the members of such a partnership by a person who did not participate in the illegality. , As between themselves, the law usually leaves the members of an illegal partnership where it finds them, refusing to aid either party. Courts will not, therefore, enforce contribution or compel an accounting of their illegal affairs ; 8 though if the unlawful trans- action is completely ended and there remains in the hands of S. W. 173, Burd. Gas. 484; Wright the claim was not only illegal, but v. Cudahy (1897), 168 111. 86, 48 the illegality was such that it must N. E. 39; Willson v. Morse (1902), or ought to have been known, to the 117 Iowa 581, 91 N. W. 823. partner seeking contribution, to have 6 See Dunham v. Presby (1876), been illegal when it was com- 120 Mass. 285; Anderson v. Powell mitted." See 188, post; Thwaites (1876), 44 Iowa, 20; Foyer v. Har- v. Coulthwaite [1896], 1 Ch. 496; ken (1909), 142, Iowa 708, 121 Keen v. Price [1914], 2 Ch. 98. N. W. 526, 23 L. E, A. (N. S.) 8 See Central Trust Co. v. Ees- 477; Wishek v. Hammond (1900), pass (1902), 112 Ky. 606, 66 S. 10 N. Dak. 72, 84 N. W. 587. ' W. 421, 23 Ky. L. B. 1905, 99 7 In Estate of Eyan (1914), 157 Am. St. E. 317, 56 L. E. A. 479, Wis. 576, 147 N. W. 993, the court Mechem's Cas. 728; McMullen v. says that, as between the partners, Hoffman (1898), 174 U. S. 639, "a claim for contribution will not 19 Sup. Ct. 839, 43 L. ed. 1117; be rejected unless the partnership Hunter v. Pfeiffer (1886), 108 Ind. is an illegal partnership, or unless 197, 9 N. E. 124; Gould v. Ken- the act relied on as the basis of dall (1884), 15 Neb. 549, 19 N. 42 FOR WHAT PURPOSES CREATED [46 one of them property or money which, but for the past illegal- ity, would belong to both of them, or if they have themselves wound up the affairs and agreed upon the account, it is held in some cases that the courts will then compel the partner having the property or funds in his possession to pay over to his part- ner the latter 's share, even though such property or funds were acquired in unlawful dealings. 9 The weight of authority, how- ever, denies relief in these cases as. well as in the others. 10 The true test seems to be whether to maintain the action requires the court to enforce or carry out the illegal contract. If it will so require, the court will decline to interfere, not because of any consideration for^the defendant, but because the court will not lend its ajd or be a party to the illegal transaction. 11 The taint of illegality, however, does not follow property or money forever, and where even ill-gotten gains have been in- vested in a new and lawful enterprise the proceeds of it may be recovered. 12 The illegality of the transaction need not be pleaded: courts will take notice of it wherever it appears. W. 483; Woodworth v. Bennett (1870), 43 N. Y. 273, 3 Am. Rep. 706, Mechem's Partn. Cas. 43; Read v. Smith (1883), 60 Tex. 379; Wiggins v. Bisso (1898), 92 Tex. 219, 47 S. W. 637, 71 Am. St. R. 837; Emery v. Candle Co. (1890), 47 Ohio St. 320, 24 N. E. 660, 21 Am. St. R. 819; Morrison v. Ben- nett (1898), 20 Mont. 560, 52 Pac. 553, 40 L. R. A. 158; Craft v. Me- Conoughy (1875), 79 111. 346, 22 Am. Rep. 171, Mechem's Cas. 48; Wright v. Cudahy (1897), 168 111. 86, 48 N. E. 39; and other cases cited in the notes to 44, ante. ^9 See Brooks v. Martin (1864), 2 Wall. (U. S.) 70, 17 L. ed. 732; Crescent Ins. Co. v. Bear (1887), 23 Fla. 50, 1 So. 318, 11 Am. St. R. 331; De Leon v. Trevino (1878), 49 Tex. 88, 30 Am. Rep. 101; Patty-Joiner" Co. v. City Bank (1897), 15 Tex. Civ. App. 475, 41 S. W. 173, Burd. Cas. 484; Andrews v. Brewing Association (1896), 74 Miss. 362, 20 So. 837, 60 Am. St. R. 509. 10 See Central Trust Co. v. Res- pass, supra; McMullen v. Hoffman, supra; Sykes .v. Beadon (1879), 11 Ch. Div. 170; Snell v. Dwight (1876), 120 Mass. 9; Jackson v. McLean (1889), 100 Mo. 130, 13 S. W. 393; Woodworth v. Bennett, supra; Hunter v. Pfeiffer, supra; Craft v. McConoughy, supra. 11 See MeMullen v. Hoffman, su- pra; Central Trust Co. v. Respass, supra; Woodworth v. Bennett, su- pra. 12 See Armstrong v. American Exch. Nat. Bank (1890), 133 U. S. 433, 10 Sup. Ct. 450, 33 L. ed. 747; King v. Winants, supra; Mitchell v. Fish (1911), 97 Ark. 444, 134 S. W. 940, 36 L. R. A. (N. S.) 838. 43 CHAPTER III. WHO MAY BE PARTNERS. 47. In general, any person com- 54. Firms as partners. petent to contract. 55. Agent, etc., as partner. 48. Aliens as partners. 56. How many partners there may 49, 50. Infants as partners. be. 51. Insane persons as partners. 57. Of the delectus personarum. 52. Married women as partners. 58. Of ' ' sub-partnerships ' ' so- 53. Corporations as 'partners.- called. , ' 47. In general, any person competent to contract. As a general rule, any person may be a partner who is capable of entering into contractual relations. If he has the legal ability in his own right and in his individual capacity to transact the business contemplated, he may usually unite with another per- son to carry on that business in partnership. This being the general rule, it is unnecessary to pursue it further in respect of normal persons, but in regard to those who labor under some general disability, more particular mention is desirable. Thus 48. Aliens as partners. Aliens who are subjects of nations which are at peace with each other may enter into partnership, but not alien enemies. Upon the breaking out of war between their respective countries, however, their capacity to act as part- ners is ordinarily terminated, and their partnership, as will be seen, is usually suspended if not dissolved. 1 49. Infants as partners. An infant may be a partner. 2 His contract of partnership and his contracts as a partner are 1 See post, 369. Md. 53 > 8 Atl. 664, 1 Am. St. R. 379, 2 Bush v. Linthicum (1882), 59 Mechem's Gas. 51; Dunton v. Brown Md. 344, Mechem's Gas. 55, Burd. (1875), 31 Mich. 182; Osburn v. Gas. 154; Adams v. Beall (1887), 67 Farr (1879), 42 Mich. 134, 3 N. W. 44 WHO MAY BE PARTNERS [49 not void, but they are voidable at his option, and he may inter- pose his infancy as a defense against personal liability as a part- ner. During the continuance of the relation, however, he has all of the rights and powers of a partner. Thus, he has equal right, with his copartner, to the possession of the assets of the firm ; he may collect and pay debts ; and may make contracts in the firm name, which, though he may repudiate liability, will be binding upon his adult copartners and upon the partnership assets. 8 He is entitled to an accounting and to his share of the profits like other partners. He may disaffirm his contract of partnership and avoid per- sonal liability as a partner either to his copartner* or third persons ; 6 but, notwithstanding such disaffirmance, it is held that his interest in the partnership property remains liable to 299. He may be the general part- ner in a limited partnership: Con- tinental National Bank v. Strauss (1893), 137 N. Y. 148, 553, 32 N. E. B. 1066; or the ostensible partner in a nominal partnership: Codville Co. v. Smart (1907), 15 Ont. L. Eep. 357. Latrobe v. Dietrich (1910), 114 Md. 8, 78 Atl. 983; Conary v. Saw- yer (1899), 92 Me. 463, 43 Atl. 27, 69 Am. St. B. 525; Moley v. Brine (1876), 120 Mass. 324; Page v. Morse (1878), 128 Mass. 99; Pelle- tier v. Couture (1899), 148 Mass. 269, 19 N. E. 400, 1 L. E. A. 863; Yates v. Lyon (1875), 61 N. Y. 344. That a partnership actually ex- isted between a mother and her young children who carried on a business after the death of the father, was denied in Tuite v. Tuite (1907), 72 N. J. Eq. 740, 66 Atl. 1090. 3 See Bush v. Linthicum, supra, and other cases cited in this sec- tion. 4 Thus his infancy is a good de- fense to his copartner's action for contribution. Neal v. Berry (1893), 86 Me. 193, 29 Atl. 987. Whether the infant may disaffirm a partner- ship obligation to a third person without also repudiating the part- nership relation itself seems to be disputed. It is held that he may do so, in Mehlhop v. Eae (1894), 90 Iowa 30, 57 N. W. 650. Miller v. Sims (1834), 2 Hill (S. C.), 479, is contra. 5 Bush v. Linthicum, supra ; Folds v. Allardt (1886), 35 Minn. 488, 26 N. W. 201; Mehlhop v. Eae (1894). 90 Iowa, 30, 57 N. W. 650; Foot v. Goldman (1891), 68 Miss. 529, 10 So. 62; Bixler v. Kresge (1895), 169 Pa. 405, 32 Atl. 414, 47 Am. St. E, 920, Burd. Gas. 115. Although there seems to be some difference of opinion, the weight of authority is to the effect that the infant may disaffirm personal contracts and con- tracts respecting personal property before as well as after he arrives at maturity. See Adams v. Beall; Folds v. Allardt; Dunton v. Brown, supra, and Shirk v. Shultz, post. 45 50] LAW OF PARTNERSHIP the partnership debts, thus creating a sort of non-statutory lim- ited partnership, with the infant as the limited partner. 6 So if he has paid money for the privilege of being admitted into the business, he cannot, it is held, after continuing in the busi- ness for a period, voluntarily withdraw and recover back what he has paid, unless it was procured from him by fraud. 7 Bank- ruptcy proceedings may be maintained against the firm and its assets, though no decree can be made against the infant part- ner personally. 8 The adult partner cannot repudiate firm con- tracts made by the infant on the ground of the latter 's incapac- ity, but if he has been induced to enter into the partnership by the infant's fraudulent representation that he is of age, he may dissolve the partnership for that reason. 50. After he becomes of age, the infant partner may ratify the partnership transactions and thus become liable for ob- ligations incurred during his minority. His ratification need not be express unless a statute so requires, but may be inferred from his acts and conduct, as from his dealing with the subject-matter of the contract after attaining majority. Whether his continu- ing to act as a partner after becoming of age is of itself enough to constitute ratification has been doubted. 9 In actions by and against the partnership, the infant partner should usually be made a party, though the English and many of the American courts have held it improper to make an infant partner a de- fendant in an action against the firm. 10 BLovell v. Beauchamp [1894], v. Keim (1880), 83 N. Y. 245, Me- Ap. Gas. 607, Burd. Gas. 155; Bush chem's Gas. 737. v. Linthicum, supra; Shirk v. 8 See In re Dunnigan (1899), 95 Shultz (1887), 113 Ind. 571, Gilm. Fed. 428; In re Duguid (1900), 100 Gas. 125; Yates v. Lyon (1874), 61 Fed. 274. N. Y. 344 ; Pelletier v. Couture 9 Upon the question of ratifica- (1889), 148 Mass. 269, 19 N. E. tion, see Salinas v. Bennett (1890), 400, 1 L. E. A. 863; Conary v. Saw- 33 S. Car. 285, 11 S. E. 968; Dana yer (1899), 92 Me. 463, 43 Atl. 27, v. Stearns (1849), 3 Gush. (Mass.) 69 Am. St.. E. 525; Hill v. Bell 372. (1892), lll*Mo. 35, 19 S. W. 959; 10 See 1 Chitty on Pleading, pp. Gay v. Johnson (1855), 32 N. H. 14 and 50, notes; 1 Lindley on 167. Partn. (2d Am. ed., Ewell), 74 and 1 Adams v. Beall (1887), 67 Md. notes; Osburn v. Farr (1879), 42 53, 8 Atl. 864, 1 Am. St. E. 379, Me- Mich. 134, 3 N. W. 299. chem's Gas. 51. But see Sparman 46 WHO MAY BE PARTNERS [51,52 51. Insane persons as partners. The effect of insanity upon capacity to become a partner is not easy to state briefly. Mental unsoundness is of many forms, arising from many causes, and existing in many degrees. It may be obvious or it may be occult. It may have been judicially passed upon, or it may still be in the legally debatable stage. All that can be briefly said about it is that the partnership contract of an insane person, not yet judicially determined to be incompetent, is, like his other contracts, usually voidable only and not void; and if the other party was ignorant of the insanity, and the contract has been executed and appears to be fair, the contract of an insane person will not be set aside unless the parties can be restored to their original condition. 11 After an adjudication of insanity, his subsequent contracts are usually held void. An adjudication of insanity before he entered into the partnership may well have a different effect from one made subsequently. 52. Married women as partners. At common law, a mar- ried woman was incapable of making contracts, except where she had a separate estate or except where her husband was a convicted felon, or was an alien enemy and abroad, or had abandoned her, or when husband and wife were judicially sep- arated. Her capacity to enter into partnership was subject to the same limitations. In most of the states her incapacity to make contracts has been more or less removed by statute, and she may enter into partnership with persons other than her 11 See Behrens v. McKenzie Am. Dec. 592, 2 Am. Eep. 202; (1867), 23 Iowa 333, 92 Am. Dec. Carter v. Beckwith (1891), 128 N. 428; Fay v. Burditt (1882), 81 Tnd. Y. 312, 28 N. E. 582; Blinn v. 433, 42 Am. Eep. 142; Jordan v. Schwarz (1904), 177 N. Y. 252, 69 Kirkpatrick (1911), 251 111. 116, 95 N. E. 542, 101 Am. St. E. 806; N. E. 1099; Burnham v. Kidwell Beams v. Taylor (1906), 31 Utah (1885), 113 111. 425; Gribben v. 288, 87 Pac. 1089, 120 Am. St. E. Maxwell (1885), 34 Kan. 8, 7 Pac. 930, 11 Ann. Gas. 51, 8 L. E. A. (N. 584, 55 Am. Eep. 233; Gillet v. S.) 436; McLaughlin v. Daily Tele- Shaw (1912), 117 Md. 508, 83 Atl. graph Co. (1904), 1 Austral. Com. 394, 42 L. E. A. (N. S.) 87; Mer- L. E. 243. As to the effect of sub- chant's Nat. Bank v. Coyle (1919), sequently occurring insanity upon Minn. , 174 N. W. 309; Young the partnership, see post, 365. v. Stevens (1868), 48 N. H. 133, 97 47 52] LAW OP PARTNERSHIP husband under substantially the same conditions which now apply to any other of her contracts. 12 She could not, at common law, be a partner with her husband ; and, even under the modern statutes, the same disability still continues in many states. 13 This conclusion is based sometimes upon the insufficiency of the statutes to justify it, and sometimes upon reasons of public policy which are thought to forbid such business relations be- tween husband and wife. A number of states, on the other hand, deny any such reasons of policy, and find, in the broad terms of statutes giving the married woman power to own and control property and to make contracts generally as though she were unmarried, ample capacity to enter into partnership rela- tions even with her own husband. 14 12 Vail v. Winterstein (1892), 94 Mich. 230, 53 N. W. 932, 34 Am. St. E. 334, 18 L. E. A. 515, Mechem's Cas. 739. Contra, in South Caro- lina, Vannerson v. Cheatham (1894), 41 S. Car. 327, 19 S. E. 614. The question of her husband's consent may be material. It is required by statute in Illinois. See, also, San- ders v. Schilling (1909), 123 La. 1009, 49 So. 689. 13 See Artman v. Ferguson (1888), 73 Mich. 146, 40 N. W. 907, 16 Am. St. B. 572, 2 L. E. A. 343; Mechem's Cas. 61; Gilkerson-Sloss Com. Co. v. Salinger (1892), 56 Ark. 294, 19 S. W. 747, 16 L. E. A. 526, 35 Am. St. E. 105; Seattle Board of Trade v. Hayden (1892), 4 Wash. 263, 30 Pac. 87, 16 L. E. A. 530, 31 Am. St. E. 919; Fuller v. McHenry (1892), 83 Wis. 573, 53 N. W. 896, 18 L. E. A. 512; Bowker v. Brad- ford (1885), 140 Mass. 521, 5 N. E. 480; Payne v. Thompson (1886), 44 Ohio St. 192, 5 N. E. 654; Scarlett v. Snodgrass (1883), 92 Ind. 262; Carey v. Burruss (1882), 20 W. Va. 571, 43 Am. Eep. 790; Mayer v. Soyster (1868), 30 Md. 402; Bar- low v. Parsons (1901), 73 Conn. 696, 49 Atl. 205; Brown v. Chancellor (1884), 61 Tex. 437. 14 See Suau v. Gaffe (1890), 122 N. Y. 308, 25 N. E. 488, 9 L. E. A. 593, Mechem's Cas. 64; Louisville E. Co. v. Alexander (1894), 16 Ky. L. E. 306, 27 S. W. 981; Belser v. Tuscumbia Banking Co. (1895), 105 Ala. 514, 17 So. 40; Dressel v. Lonsdale (1892), 46 111. App. 454; Heyman v. Heyman (1904), 210 111. 524, 71 N. E. 591; Lane v. Bishop (1893), 65 Vt. 575, 27 Atl. 499. In Tennessee, see Theus v. Dugger (1893), 93 Tenn. 41, 23 S. W. 135. In Maine, see Bird Co. v. Hurley (1895), 87 Me. 579, 33 Atl. 164; Stewart v. Todd (1919), Iowa , 173 N. W. 619; Hoaglin v. Hen- derson (1903), 119 Iowa 720, 94 N. W. 247, 97 Am. St. E. 335, 61 L. E. A. 756, Gilm. Cas. 121; Morrison v. Dickey (1905), 122 Ga. 353, 50 S. E. 175, 69 L. E. A. 87; Burney v. Grocery Co. (1896), 98 Ga. 711, 25 S. E. 915, 58 Am. St. B. 342, Burd. Cas. 11. 48 WHO MAY BE PARTNERS [53,54 Where she may be a partner, her rights and liabilities are sub- stantially the same as in the case of any other partner. 15 53. Corporations as partners. A corporation has, as such, under the ordinary statute which confides its management to its own officers and directors, no implied power to enter into partnership either with an individual, a firm, or another cor- poration. 16 Authority for this purpose must be expressly con- ferred. 17 But, within its corporate power, a corporation and an individual may so contract as to incur a joint liability with- out actually entering into partnership. 18 54. Firms as partners. With the consent of their mem- bers, two or more firms may enter into partnership, and a firm 16 See Burney v. Grocery Co. supra, and other cases supra. 16 See Whittenton Mills v. Upton (1858), 10 Gray (Mass.), 582, 71 Am. Dec. 681, Mechem's Gas. 68; People v. Sugar Eefining Co. (1890), 121 N. Y. 582, 24 N. E. 834, 18 Am. St. R. 843, 9 L. R. A. 33; Gunn v. Railroad Co. (1885), 74 Ga. 509; Hackett v. Multnomah Ry. (1885), 12 Oreg. 124, 6 Pac. 659, 53 Am. Rep. 327; Mallory v. Oil Works (1888), 86 Tenn. 598, 8 S. W. 396; Morris Run Coal Co. v. Barclay Coal Co. (1871), 68 Pa. St. 173, 8 Am. Rep. 159; White Star Line v. Star Line (1905), 141 Mich. 604, 105 N. W. 135, 113 Am. St. R. 551; Geur- inck v. Alcott (1902), 66 Ohio St. 94, 63 N. E. 714; Wilson v. Carter Oil Co. (1899), 46 W. Va. 469, 33 S. E. 249. Same, ' as to national banks: See Merchants' Nat. Bank v. Wehrmann (1906), 202 TJ. S. 295, 26 S. Ct. 613, 50 L. ed. 1036; Cali- fornia Bank v. Kennedy (1896), 167 U. S. 362, 17 Sup. Ct. 831, 42 L. ed. 198; Merchants' Nat. Bank v. Wehrmann (1903), 69 Ohio St. 160, 68 N. E. 1004, Gilm. Gas. 131. Mech. Part. 4 17 Butler v. American Toy Co. (1878), 46 Conn. 136. Many chart- ers now expressly permit it. 18 In Cleveland Paper Co. v. Cour- ier Co. (1887), 67 Mich. 152, 34 N. W. 556, the court say: "A cor- poration may, in furtherance of the object of its creation, contract with an individual, though the effect of the contract may be to impose upon the company the liability of a part- ner. " See, also, Boyd v. Amer. Carbon Black Co. (1897), 182 Pa. 206, 37 Atl. 937; Sabine Tram Co. v. Bancroft (1897), 16 Tex. Civ. App. 170, 40 S. W. 837; Bates v. Coronado Beach Co. (1895), 109 Cal. 160, 41 Pac. 855; Wallerstein v. Ervin (1901), 50 C. C. A. 129, 112 Fed. 124; Lehigh Val. R. Co. v. Dupont (1904), 64 C. C. A. 478, 128 Fed. 840; Catskill Bank v. Gray (1851), 14 Barb. (N. Y.) 471, Mechem's Gas. 73. See, also, as to the right of a partnership de facto to recover on obligations due it: French v. Donohue (1882), 29 Minn. Ill, 12 N. W. 354; Wilson v. Carter Oil Co., supra. 49 55] LAW OP PARTNERSHIP may also enter into partnership with one or more individuals. The associating firms may or may not continue to carry on their original and separate businesses. As respects creditors of the joint firm, the associating firms ordinarily lose their separate identity, and each member of each firm is liable as a partner in the joint firm; but as between themselves, for the purposes of accounting and the division of profits or losses, the respective firms may be regarded as the partners. 19 Where, however, one of the associations or constituent firms carries on a separate business, it will be so far regarded as an entity as that creditors of the joint firm, in seeking to reach the assets of the constituent firm, will be postponed until the cred- itors of the constituent firm are satisfied. 20 Where contracts made for the joint firm are within the scope of the business of the associating firms, the contract of one part- ner in an associating firm made in the firm name will bind all of the partners in that firm, even though he would have had no authority to bind such copartners as individuals in their in- dividual names. 21 55. Agent, etc., as partner. An agent, trustee, adminis- trator, and the like, may be a partner. Unless he excluded per- sonal liability by the terms of the contract, he would usually be individually liable for the partnership debts, though he would ordinarily have a remedy for reimbursement or indemnity against the parties by whose authority and on whose account he acted as partner. 22 In accordance with familiar rules, the dis- 19 In re Hamilton (1880), 1 Fed. recognized in bankruptcy: In re 800; Simonton v. McLain (1885), Knowlton (1912), 196 Fed. 837. In 37 La. Ann. 663; Bullock v. Hub- Fordyce v. Shriver (1886), 115 111. bard (1863), 23 Cal. 495, 83 Am. 530, 5 N. E. 87, the firm was made Dec. 130; Meyer v. Krohn (1885), up of several groups or parties who 114 111. 574, 2 N. E. 495; Meador v. were not already partners. The Hughes (1879), 14 Bush (Ky.) members of one group are not liable 652; Raymond v. Putnam (1862), to the other groups for the neglig- 44 N. H. 160; McLaughlin v. Mul- ence of one of that group, loy (1897), 14 Utah 490, 47 Pac. 20 See In re Gilbert, supra. 1031, Burd. Gas. 301 ; In re Gilbert 21 See McLaughlin v. Mulloy, (1896), 94 Wis. 108, 68 N. W. 863. supra. Identity of a constituent firm 22 See Leckie v. Rothenbarger 50 WHO MAY BE PARTNERS [56,57 closed principal of an agent partner would usually, on the grounds of election, not be liable directly to creditors of the firm, but an undisclosed principal would ordinarily be so liable. 56. How many partners there may be. In the absence of a statute fixing the limit, the partnership may be composed of any number of partners, though there must, of course, be more than one. 23 In the case of joint stock companies and other partnerships with transferable shares, the partners are often very numerous. 57. Of the delectus personanim. Partnership being founded on the agreement of the parties, and being a relation demanding mutual confidence and trust, it is clear that a per- son cannot become a member of a firm without the consent of the other members. Hence, one partner cannot introduce a third person into the firm without the consent of the others, 24 nor upon the death of one partner can his personal represen- tative, merely by virtue of any provisions of the will or the con- sent or desire of the heirs or next of kin, become a partner with the survivors, except with their consent. 26 A sale of one part- ner's interest does not, therefore, make his transferee a part- ner, but ordinarily dissolves the firm. 26 Consent to the admission of new partners or, in case of death, of the personal representative, may be given in advance, as by being stipulated for in the partnership articles. 27 To the rule requiring this choice of persons (delectus per- sonarum) there are two exceptions one usually statutory, and the other customary, viz., joint-stock companies and mining partnerships. In these a transfer of one partner's share or (1899), 82 Mo. App. 615: Morri- 72 N. E. 1109, 104 Am. St. E. 225. son v. Dickey (1905), 122 Ga. 353, 25 See post, 361; Wild v. Daven- 50 S. E. 175, 69 L. K. A. 87. port (1886), 48 N. J. L. 129, 7 Atl. 23 Stirling v. Heintzman (1880), 295, 57 Am. Eep. 552. 42 Mich. 449, 4 N. W. 165. 26 See post, 359. 24 Love v. Payne (1880), 73 Ind. 27 See Wild v. Davenport, supra: SO, 38 Am. Eep. Ill; Morrison v. McGrath v. Cowen (1898), 57 Ohio Austin Bank (1905), 213 111. 472, St. 385, 49 N. E. 338. 51 58] LAW OF PARTNERSHIP his death does not in fact operate as a dissolution, but his trans- feree or representative may be received as a partner. 28 58. Of "sub-partnerships," so-called. One or more of the partners of a firm may agree with a third person to share with him the interest of such partner or partners in the firm. Such a relationship is frequently called a sub-partnership, and the third person so associating with the partner is often called a sub-partner. "A sub-partnership," says Mr. Justice Lindley, 29 "is, as it were, a partnership within a partnership; it presup- poses the existence of a partnership to which it is itself sub- ordinate." The term "sub-partnership," however, is a mis- nomer. The sub-partnership carries on no business; the sub- partner has none of the authority of a partner ; he does not thereby become a partner in the original firm, 30 he is not liable as such to creditors of the original firm, 31 and he has no right of accounting, as a partner against the original firm, but only against such members of it as united with him to form the sub- partnership. 32 28Kahn v. Smelting Co. (1880), 102 U. S. 641 ; Skillman v. Lachman (1863), 23 Cal. 198, 83 Am. Dec. 96, and note; Harris v. Lloyd (1891), 11 Mont. 590, 28 Pae. 736, 28 Am. St. E. 475. 29 Lindley on Partnership (Ew- ell's 2d Am. ed.), vol. I, p. 48. SOSetzer v. Beale (1882), 19 W. Va. 274; Meyer v. Krohn (1885), 114 111. 574, 2 N. E. 495. See Miller v. Eapp (1893), 135 Ind. 614, 35 N. E. 963. 31 Burnett v. Snyder (1880), 81 N. Y. 550, 37 Am. Eep. 527, Me- chem's Gas. 157, Ames' Gas. 128, Gilm. Gas. 117; Eiedeburg v. Schmitt (1888), 71 Wis. 644, 34 N. W. 336; Setzer v. Beale (1882), 19 W. Va. 274; Morrison v. Dickey (1905), 122 Ga. 353, 50 S. E. 175, 69 L. E. A. 87. Contra, Fitch v. Harrington (1859), 13 Gray (Mass.), 468, 74 Am. Dec. 641. 32 The sub-partner may, however, acquire such a vested interest in the assets as to give him the right to an accounting upon dissolution. Nird- linger v. Bernheimer (1892), 133 N. Y. 45, 30 N. E. 561. "A sub-part- nership does not in fact exist where one party furnishes all the capital, receives all the profits, and owns all the assets. Such an arrangement lacks all the essential elements of a partnership. The ostensible partner, in such case ; may be held liable to third parties on the ground that he has held himself out as a partner, and they have treated him as such; but he has no interest which will entitle him to an accounting, or to any action at law or in equity against the other party. ' ' Webb v. Johnson (1893), 95 Mich. 325, 54 N. W. 947. 52 CHAPTER IV. OF THE CONTKACT OF PARTNERSHIP AND THE EVIDENCE THEREOF. 59. No particular formalities re- 63. When the contract takes ef- quired. 60. How affected by the statute of frauds Contracts not to be performed within one year. 61. Partnership in lands. 61a. Partnership in chattels. 62. Consideration for the contract. feet. 64. Question of the existence of a partnership one of mixed law and fact. 65. Means of proof. 66. Burden of proof. 59. No particular formalities required. No particular formalities are required in entering into the contract of part- nership. By the common law, no official act or ceremony is necessary; sealed instruments are not required, and, except in those cases within the operation of the statute of frauds, a writ- ten contract, though desirable, is not essential. Express agreement is not necessary, neither is it essential that the parties shall have had a conscious intention to become partners. The relation may grow out of transactions and deal- ings in which the word "partnership" was never uttered; if the acts or contracts of the parties in law create partnership, that relation will ensue, even though the parties did not have that result consciously in mind, or though it was consciously in their intention to avoid partnership. 1 The fact that they de- ISee Jacobs v. Shorey (1868), 48 N. H. 100, 97 Am. Dee. 586, Mechem's Gas. 164; Duryea v. Whitcomb (1858), 31 Vt. 395, Me- chem's Cas. 89; Townley v. Cricken- berger (1908), 64 W. Va. 379, 63 S. E. 320; Wade v. Hornaday (1914), 92 Kan. 293, 140 Pac. 870; Johnson v. Carter (1903), 120 Iowa 355, 94 N. W. 850, Gilm. Cas. 54. No express agreement is essential: Davis v. Davis [1894] 1 Ch. 393, Burd. Cas. 12. No specific intent is essential: Duryea v. Whitcomb, supra; Green v. Beesley (1835), 2 Bing. N. C. 108, Ames Cas. 38, Burd. Cas. 20. 53 60] LAW OP PARTNERSHIP clare that their relationship shall not be a partnership will not prevent one if they have in fact created such a relation. 2 Sim- ilarly, on the other hand, the fact that the parties call their rela- tion a partnership will not create one if they have omitted the essential ingredients of partnership, 3 though it may be strong evidence of their intention. 4 Nevertheless, courts are reluctant to "surprise parties into a partnership." As is said in one case, 6 " Every doubtful case must be solved in favor of their intent; otherwise we should 'carry the doctrine of constructive partnership so far as to render it a trap to the unwary.' ' As has already been pointed out, greater effect may be given to the intention of the parties where they alone are involved, than where creditors are claiming against them after reasonably relying on the appearances of partnership. 6 60. How affected by the statute of frauds Contracts not to be performed within one year. Under the fourth section of the statute of frauds, an agreement to form a partnership in the future, which by its terms is not to be performed within one year, or an agreement for a present partnership to con- tinue for more than a year from its commencement, is void if not in writing; though, in either case, if the parties have acted upon the agreement and become partners, their relation will be treated as a partnership at will. 7 2 See Adam v. Newbigging man (1909), 225 Pa. 200, 74 Atl. (1888), 13 App. Cas. 308; McDon- 54. aid v. Campbell (1905), 96 Minn. 4 See Huggins v. Huggins (1902), 87, 104 N. W. 760; Bestor v. Barker 117 Ga. 151, 43 S. E. 759. (1894), 106 Ala. 240, 17 So. 389. 5 Beecher v. Bush (1881), 45 3 See Sailors v. Nixon-Jones Print- Mich. 188, 7 N. W. 785, 40 Am. ing Co. (1886), 20 111. App. 509, Eep. 465, Mechem's Cas. 118, Gilm. Meehem's Cas. 85. Compare Presi- Cas. 49, per Cooley, J., quoting from dent, etc., of Adams Bank v. Eice Kent, C. J., in Post v. Kimberly (1861), 2 Allen (Mass.) 480, with (1812), 9 Johns. (N. Y.) 470, 504. Zuber v. Eoberts (1906), 147 Ala. 6 See Townley v. Crickenberger, 512, 40 So. 319, Gilm. Cas. 7; Brad- supra. ley v. Ely (1900), 24 Ind. App. 7 See Wahl v. Barnum (1889), 2, 56 N. E. 44, 79 Am. St. E. 251, 116 N. Y. 87, 22 N. E. 280, 5 L. E. Gilm. Cas. 10; Eosenblatt v. Wein- A. 623; Sanger v. French (1898), 54 CONTRACT OF PARTNERSHIP EVIDENCE [61 61. Partnership in lands. "With respect of partner- ships in lands, there is some conflict as to the application of the statute. The statute requires that contracts for the sale of lands, and contracts creating interests or estates in land, shall, subject to the exceptions named therein, be evidenced by writ- ing. As to the mere creation of partnerships to deal in land in the future, while a few cases deem writing necessary, the great weight of authority is to the effect that they may be created without writing. 8 Such contracts are neither contracts for the sale of any land nor do they create interests or estates in any particular lands. That question will only arise when land is thereafter acquired. If a valid partnership has been created, and thereafter partnership funds are used to purchase land, the title to which is taken in one partner, 9 or if a partner in such a partnership purchase for himself land which it was his duty to purchase for the partnership, a trust may be established upon 157 N. Y. 213, 51 N. E. 979; Mor- ris v. Peckham (1883), 51 Conn. 128. (But see Shropshire v. Adams (1905), 40 Tex. Civ. App. 339, 89 S. W. 448.) Such a partnership exists until something is done to dissolve it: Sanger v. French, supra, and rights created by acting under it will be enforced, Hammel v. Feigh (1919), - Minn. , 173 N. W. 570. 8 See Bates v. Babcock (1892), 95 Cal. 479, 30 Pac. 605, 29 Am. St. E. 133, 16 L. E. A. 745; Chester v. Dickerson (1873), 54 N. Y. 1, 13 Am. Bep. 550, Meehem's Gas. 38, Gilm. Gas. 136; Eichards v. Grinnell (1884), 63 Iowa 44, 18 N. W. 668, 50 Am. Eep. 727; Penny- backer v. Leary (1884), 65 Iowa 220, 21 N. W. 575, Gilm. Cas. 214; Holmes v. McCray (1875), 51 Ind. 358, 19 Am. Eep. 735; Flower v. Barnekoff (1890), 20 Ore. 132 ; 25 Pac. 370, 11 L. E. A. 149; Garth v. Davis (1905), 120 Ky. 106, 85 S. W. 692, 27 Ky. L. E. 505, 117 Am. St. E. 571; Stitt v. Lumber Co. (1906), 98 Minn. 52, 107 N. W. 824; Morgart v. Smouse (1906), 103 Md. 463, 63 Atl. 1070, 115 Am. St. E. 367, 7 Ann. Cas. 1140; Ham- mel v. Feigh, supra; Thompson v. McKee (1914), 43 Okla. 243, 142 Pac. 755, L. E. A. 1915 A, 521; Howell v. Kelly (1892), 149 Pa. 473, 24 Atl. 224; Beebe v. Olen- tine (1911), 97 Ark. 390, 134 S. W. 936; Marsh v. Davis (1885), 33 Kan. 326, 6 Pac. 612, Gilm. Cas. 133; Bird v. Wileox (1919), 104 Kan. 799, 180 Pac. 774 (partner- ship to deal in oil leases). Contra: See Huntington v,, Burdeau (1912), 149 Wis. 263, 135 N. W. 845, cit- ing Wisconsin and other cases. 9 See Fairchild v. Fairchild (1876), 64 N. Y. 471; Tenney v. Simpson (1887), 37 Kan. 353, 15 Pac. 187. 55 61a, 62] LAW OP PARTNERSHIP a showing of the facts by parol evidence notwithstanding the statute. 10 On the other hand, if D, with respect of land which he al- ready owns, agrees without writing to admit P to a partnership interest in it, that agreement would be within the statute. 11 So an agreement by D, there being no existing partnership or partnership funds, to purchase land with his own funds and when bought to admit P to a partnership therein, is equally within the statute. 12 61a. Partnership in chattels. Somewhat similar ques- tions may arise with respect of chattels, though much less fre- quently. A contract to admit another to partnership in respect of chattels already owned, or to acquire chattels and convey an interest in them to another, may fall within the seventeenth section of the statute as a contract for the sale of goods, wares or merchandise. 13 62. Consideration for the contract. As has been already seen, the contract of partnership, like other contracts, requires to be founded upon some consideration in order to be binding. 14 Any contribution in the shape of capital or labor, or any act 10 See Traphagen v. Burt (1876), 75 Neb. 566, 110 N. W. 669, 121 67 N. Y. 30; Moritz v. Lavelle Am. St. E. 822, 7 L. B, A. (N. S.) (1888), 77 Cal. 10, 18 Pac. 803, 945; Wiley v. Wiley (1911), 115 11 Am. St. B. 229; Miller v. Fer- Md. 646, 81 Atl. 180, Ann. Gas. guson (1907), 107 Va. 249, 57 S. E. 1913 A, 789; Bailey v. Hemenway 649, 122 Am. St. B. 840, 13 Ann. (1888), 147 Mass. 326, 17 N. E. Cas. 138; Floyd v. Duffy (1910), 645; Dunphy v. Eyan (1885), 116 68 W. Va. 339, 69 S. E. 993, 33 U. S. 491, 29 L. ed. 703, 6 S. Ct. L. E. A. (N. S.) 883. 486; Bobbins v. Kimball (1892), 11 See Goldstein v. Nathan (1895), 55 Ark. 414, 18 S. W. 457, 29 Am. 158 111. 641, 42 N. E. 72, Burd. St. B. 45; Brosnan v. McKee Cas. 9; Burgwyn v. Jones (1912), (1886), 63 Mich. 454, 30 N. W. 107. 113 Va. 511, 75 S. E. 188, Ann. 13 See Lewin v. Stewart (1858), Cas. 1913 E, 564, 41 L. E. A. 17 How. Pr. (N. Y.) 5.' Compare (N. S.) 120; McCormick's Appeal Coleman v. Eyre (1871), 45 N. Y. (1868), 57 Pa. 54, 98 Am. Dec. 38, Gilm. Cas. 137. 191; Miller v. Miller (1913), 156 14 See Mitchell v. O'Neale Ky. 267, 160 S. W. 923. (1869), 4 Nev. 504. 12 See Norton v. Brink (1906), 56 CONTRACT OF PARTNERSHIP EVIDENCE [63 which may result in liability to third persons, is sufficient for the purpose. 16 The mutual covenants and contributions of the parties are the usual consideration. Their contributions need not, of course, be equal, for the members must be their own judges of the adequacy of the consideration. Neither is it nec- essary, as between the parties themselves, that the losses shall be shared equally or at all ; for, as will be seen, 16 one partner may lawfully agree to indemnify the other against loss by the enterprise. 63. When the contract takes effect. As has been already seen, 17 a mere intention to form a partnership does not create one; that intention must in some way be given legal operation. It is not, of course, essential that formal instruments shall be executed, and it may be found to have been the intention of the parties to launch the partnership at once, notwithstanding the fact that regular partnership articles are afterwards to be prepared. 18 Well-drawn partnership articles will name the day upon which the, partnership is to begin ; but in the absence of such a stipula- tion, or of any articles whatever, recourse must be had to other evidence. Presumptively in such cases the date of the com- mencement will be the day on which the agreement is fully and definitely consummated ; 19 but the express stipulation of the parties, or the circumstances attending the case, may show either that the partnership is to have a retroactive operation, or that it is not to be deemed to be in force until some event has hap- pened or some precedent condition has been complied with. 20 ISLindley on Partnership (2d S. 524, 37 L. ed. 1169, 14 Sup. Ct. Am. ed., Ewell), 63. 201, Mechem's Gas. 260, Burd. Gas. 16 See post, 81. 503, Gilm. Gas. 425; Sabel v. 17 See ante, 30, 31. Savannah Rail & Equip. Co. (1903), 18 See ante, 31. 135 Ala. 380, 33 So. 663, Gilm. Gas. 19 See Guiee v. Thornton (1884), 116; Queen City Furniture Co. v. 76 Ala. 466. Crawford (1895), 127 Mo. 356, 30 20 See Eeed v. Meagher (1890), S. W. 163. 14 Colo. 335, 24 Pac. 681, 9 L. E. Where there was no element of A. 455; National Bank v. Cringan estoppel, plaintiff was not respon- (1895), 91 Va. 347, 21 S. E. 820; sible for the acts of an alleged Latta v. Kilbourn (1893), 150 U. partner, where the latter was a per- 57 64] LAW OF PARTNERSHIP Conditions of the latter sort, however, may be waived, and, as to third persons especially, will usually be held to be so where the partnership is actually launched before the contemplated time arrives. 21 So, also, where the arrangement contemplates action at once and continuously, a present partnership may exist, though some incidents remain to be agreed upon later. 22 64. Question of the existence of a partnership usually one of mixed law and fact. The question whether a partnership exists in a given case is one of mixed law and fact. What con- stitutes a partnership is a question of law ; whether in the given case such facts exist as in law constitute a partnership is a ques- tion of fact. If the facts are not admitted, or if more than one inference may reasonably be drawn from them, the case will go to the jury ; if the facts are admitted, and only one inference may reasonably be drawn from them, the court will decide the question. 23 Whether a written instrument produced creates a partnership is a question of construction for the court. 24 son who was to have a share in plaintiff's venture upon paying for it, and who had given a check for it, not accepted as payment, which proved to be worthless: Stundon v. Dahlenberg (1914), 184 Mo. App. 381, 171 S. W. 37. 21 See First National Bank v. Cody (1893), 93 Ga. 127, 19 S. E. 831. For a striking case in which, as between the parties, no partner- ship was deemed to have been cre- ated, though many preliminary steps had been taken, see Martin v. Baird (1896), 175 Pa. 540, 34 Atl. 809, Mechem's Gas. 744. For an interesting case as to whether certain parties ever signed the articles or not, see Moore v. May (1903), 117 Wis. 192, 94 N. W. 45. 22 See Kerrick v. Stevens (1884), 55 Mich. 167, 20 N. W. 888, Me- chem's Gas. 87. A provision in a contract, other- wise of present partnership, that if the venture is not a success one party may declare the agreement of no effect, does not prevent a present partnership from arising: Illinois Malleable Iron Co. v. Eeed (1897), 102 Iowa 538, 71 N. W. 423. 23 See Morgan v. Farrel (1889), 58 Conn. 413, 20 Atl. 614, 18 Am. St. E. 282, Mechem's Partn. Gas. 171; Everitt v. Chapman (1827), 6 Conn. 347, Gilm. Gas. 68; Wag- goner v. First Nat. Bank (1894), 43 Neb. 84, 61 N. W. 112; Kings- bury v. Tharp (1886), 61 Mich. 216, 28 N. W. 94; Stundon v. Dahl- enberg (1914), 184 Mo. App. 381, 171 S. W. 37. 24 See Boston Smelting Co. v. 58 CONTRACT OF PARTNERSHIP EVIDENCE [ 65 In the ordinary disputed case, the course of procedure will be for the court to instruct the jury as to the considerations which determine partnership and the facts which they must find in order to establish one, and then to leave the whole ques- tion of the existence of a partnership and the resulting liability to their determination. 65. Means of proof. As between the alleged partners themselves, the existence of the partnership may be proved by the partnership articles, if any; if not, by informal writings, letters, the partnership books, the conduct and admissions of the parties, or by any other matters tending to prove the fact in controversy, and brought home to the party to be charged. 26 As to third persons, the existence of the partnership and the persons who compose it may be proved by conduct, admissions or other kinds of parol evidence, even though there were part- nership articles. 26 The testimony of the parties themselves as to the facts is, under modern rules, admissible either to prove or disprove the alleged partnership. 27 It may also be proved by the conduct or admissions of the parties sought to be charged ; 28 but the acts or admissions of Smith (1880), 13 E. I. 27, 43 Am. ell's 2d Am. ed.), 87; 2 Greenleaf, Eep. 3 ; Klosterman v. Hayes 479. (1889), 17 Oreg. 325, 20 Pac. 426; 27 First National Bank v. Conway Webster v. Clark (1894), 34 Fla. (1886), 67 Wis. 210, 30 N. W. 215. 637, 16 So. 601, 43 Am. St. E. 217, Their testimony as to the facts 27 L. E. A. 126; Eider v. Ham- is competent but their conclusions mell (1901), 63 Kan. 733, 66 Pac. as to whether there was a partner- 1026; Bradley v. Ely (1900), 24 ship are not conclusive. Wilson v. Ind. App. 2, 56 N. E. 44, 79 Am. Todhunter (1918), Ark. , 207 St. E. 251, Gilm. Gas. 10;McAlpine S. W. 221. v. Millen (1908), 104 Minn. 289, 28Eeed v. Cremer (1886), 111 116 N. W. 583. Pa. 482, 5 Atl. 237, 56 Am. Eep. 25 See 2 Greenleaf on Evidence, 295, where it is said that the part- 477 et seq.; Lindley on Partner- nership may be established by the ship (Ewell's 2d Am. ed.), vol. I, several admissions o'f all those who p. 80 et seq.; McMullan v. Macken- were alleged to compose it, or by zie (1849), 2 Greene (Iowa), 368. the admissions of one and the acts 26 1 Lindley on Partnership (Ew- and declarations of the others. But 59 66] LAW OP PARTNERSHIP one person are not admissible to prove another to be a part- ner, unless the latter is in some way shown to be responsible for them or to have acquiesced in them. 29 The existence of the partnership, or who were the persons composing it, cannot be proved by general reputation, rumor or hearsay. 30 In seeking to establish partnership from acts and conduct, a wide range of evidence is allowed to put before the jury all the facts and circumstances relating to the connection of the alleged partner with the affair, and the method of transacting the business. 66. Burden of proof. The burden ,of proving the existence of the partnership and who were the partners composing it rests usually upon the party alleging it. 81 Where, however, its existence is shown or admitted, a presumption of its continu- ance ordinarily arises which casts upon the party alleging its termination the burden of showing that fact, including the giv- ing of proper notice where that is necessary. 32 the facts relied upon must be those which the party sought to be held caused or permitted to appear. Morgan v. Farrel (1890), 58 Conn. 413, 20 Atl. 614, 18 Am. St. E. 282, Mechem's Gas. 171. See, also, Boosalis v. Stevenson (1895), 62 Minn. 193, 64 N. W. 380; McDon- ald v. Campbell (1905), 96 Minn. 87, 104 N. W. 760. 29 The declarations or admissions of one person that another is his partner are not admissible to prove that fact against the latter person, unless he has in some way author- ized or assented to such declara- tions. Vanderhurst v. De Witt (1892), 95 Cal. 57, 30 Pac. 94, 20 L. E. A. 595; Button v. Woodman (1852), 9 Gush. (Mass.) 255, 57 Am. Dec. 46; Graf ton Bank v. Moore (1842), 13 N. H. 99, 38 Am. Dec. 478; Franklin v. Hoadley (1911), 145 N. Y. App. Div. 228, 130 N. Y. Supp. 47. 30 Brown v. Crandall (1835), 11 Conn. 92; Bowen v. Eutherford (1871), 60 111. 41, 14 Am. Eep. 25; Cook v. Slate Co. (1880), 36 Ohio St. 135, 38 Am. Eep. 568; Potter v. Greene (1858), 9 Gray (Mass.), 309, 69 Am. Dec. 290. 31 See Lieb v. Craddock (1888), 87 Ky. 525, 9 S. W. 838; Dunham v. Loverock (1893), 158 Pa. 197, 27 Atl. 990, 38 Am. St. E. 838, Mechem's Gas. 6; In re Gibbs' Estate (1893), 157 Pa. 59, 27 Atl. 383, 22 L. E. A. 276, Gilm. Gas. 91; Smith v. Moynihan (1872), 44 Cal. 53. 38 See post, 393. 60 CHAPTER V. WHAT ACTS AND CONTEACTS CREATE A PARTNERSHIP. 67. How question arises. 68. Partnerships inter sese and as to third persons. I. OF TRUE PARTNERSHIPS. 69. True partnerships, how clas- sified. 70. Of partnerships express- ly intended. 71. Of agreements held to create partnerships inter sese when that was not in- tended. 72. 73. Legal intention of par- ties controls. 74. Tests of intention to form partnership. 75-77. Agreements to share both profits and losses. 78-80. Agreements to share profits, nothing being said about losses. 81. Agreements to share profits with express stipu- lation against losses. 82. 83. 84. Partnership only. Agreements gross returns. Agreements losses only. profits to share to share II. OP SO-CALLED QUASI-PARTNER- SHIPS. 85. Of partnerships as to third persons. 1. Of Sharing Profits. 86, 87. Sharing profits was for- merly a ground of liability to third persons as a part- ner. 88-90. Of the case of Cox v. Hickman. 91. Effect of Cox v. Hickman on English law. 92. E,ffect of Cox v. Hickman in the United States. 93. Beecher v. Bush. 94. 95. Harvey v. Childs. 96-98. Meehan v. Valentine. 2. Of Holding Out as a Partner. 99-101. Person may become lia- ble as a partner by hold- ing himself out as one. 102. What facts must exist? 103, 104. : Who may enforce liability? 105. Holding out to the world. 106. Methods of holding out. 107. Evidence admissible. 108-111. The effect. 67. How question arises. The question as to the existence of a partnership between given individuals may arise in two classes of cases: 61 68, 69] LAW OP PARTNERSHIP 1. Where the parties themselves allege that they intended partnership. 2. Where the parties or some of them allege that they did not intend partnership, and third persons, usually creditors, are seeking to establish it against them. The latter is, by far, the more common case. 68. Partnerships inter sese and as to third persons. It is, in general, true, as has been seen, 1 that as between the parties to the alleged relation there can be no partnership if they did not intend one, and that as to third persons there can be no partnership if there was none as between the alleged partners themselves. Notwithstanding this general rule, it is equally true, as will be hereafter seen, that there are two apparent ex- ceptions to it.: 1. Persons may be held, notwithstanding a contrary inten- tion, to haVe made a contract which in law constitutes them partners as between themselves ; and 2. A person who is not actually a partner may be held liable to third persons as though he were a partner where he has so conducted himself as to reasonably induce such third persons to rely upon the assumption that he was a partner. It will be obvious that these two cases are very different ; in the first all the parties are held to be partners as between them- selves, while in the second a person may be held liable as though he were a partner when in fact, between him and the persons with whom he is thus assumed to be a partner, no actual part- nership existed. The first form, or the partnership inter sese, is therefore the only true partnership. This has sometimes led to a classification into, 1, true partnerships, and 2, quasi-part- nerships, though the latter are not partnerships at all. The proper classification is into, 1, true partnerships with their re- sulting liabilities, and, 2, liability as a partner where no actual partnership exists. I. OF TRUE PARTNERSHIPS. 69. True partnerships, how classified. It will be evident that true partnerships also may be divided into two classes : ]. 1 See ante, 59. 62 WHAT ACTS CREATE A PARTNERSHIP [ 70 Where a partnership was expressly intended; and 2. Where the parties did not expressly intend to become partners, but the law holds that the contract which they intentionally made does create a partnership between them, and their relation thus becomes, indirectly, in law an intentional partnership, because it is said that the law always presumes that parties intended the legal result of their intentional acts. These two classes will be separately considered. 70. I. Of partnerships expressly intended. Cases of this nature can ordinarily occasion but little difficulty. If it be admitted that the parties intended to be partners, their inten- tion can rarely fail of effect. Cases, however, are occasionally found in which the parties, intending to create a partnership and expressly naming their relation such, have still been held not to have created one, because they had failed to attach to their relation the necessary incidents of partnership; as, for example, where their contract leaves them without any com- munity of interest in the business or profits. 2 It may also be that an instrument designed to constitute partnership articles is so defectively drawn as to create some other relation, as a co-ownership or a corporation; but unless some other distinct relation is thus expressly created, or some indispensable element is omitted, persons who have intended to be partners, and who have acted as such, will be deemed to be partners notwithstanding defective instruments. 2 Thus, in Sailors v. Nixon-Jones tract as to leave them without any Printing Co. (1886), 20 111. App. community of interest in the busi- 509, Mechem's Gas. 85, it is said: ness or profits, fLoy are not part- "The fact that the parties to such ners in fact or in law. Parsons on relation themselves call it a part- Partnership, 91. A partnership nership will not make it so. Where inter se must result from the in- the question of partnership is to tention of the parties as expressed be determined from a contract be- in the contract, and they cannot tween the parties to it, the relation be made to assume toward each must be found from the terms and other a relation which they have provisions of the contract, and even expressly contracted not to assume, though parties intend to become The terms of the agreement, where partners, yet, if they so frame the there is one, fixes the real status terms and provisions of their con- of the parties toward each other." 63 71, 72] LAW OF PARTNERSHIP 71. II. Of agreements held to create partnership inter sese when that was not intended. The question whether a partner- ship has in fact been created between two or more persons, part or all of whom deny it, may arise in a great variety of cases. It is constantly arising as between the alleged partners and third persons who are seeking to hold them liable as such, and this phase of the question presents the most difficulty and gives rise to the greatest amount of litigation. The question, however, may and often does arise as between the alleged partners themselves. As between these parties, the question usually arises in one of two classes of cases : 1. Where an affair in which they have been in some way concerned has proven to be profitable, and one or more, alleging partnership, seek to compel an accounting, as partners, from the others, who deny it ; and 2. "Where such an enterprise has proved disastrous, and one or more alleging partnership seek to enforce contribu- tion as partners from the others, who deny that any such re- lation existed. 3 Other cases may, of course, arise where one or more claim other rights or powers as partners against the others, but the two classes of cases stated are the most common. 72. Legal intention of parties controls. Partnership, as has been seen, is the result of the express or implied agreement of the parties, and there can be no partnership either as be- tween the parties themselves or as to third persons where the parties have not by their acts or contracts created one. "When, therefore, the parties themselves, or some of them, deny that they intended to form a partnership, it becomes necessary to determine what is the legal effect of their acts and contracts. In dealing with this question, it must be borne in mind that it is the legal intention of the parties rather than their expressed or declared intention which controls. The law, it is said, pre- sumes that the parties intend the legal consequences of their voluntary acts and contracts. If, therefore, they intend the acts or contracts, they intend also, in contemplation of law, the legal effect of those acts and contracts. 4 Whether, then, the 3 See McDonald v. Fleming 4 Thus in Duryea v. Whitcomb (1913), 178 Mich. 206, 144 N. W. (1858), 31 Vt. 393, Mechem's Cas. 519. 89, Gilm. Cas. 13, the court says: 64 WHAT ACTS CREATE A PARTNERSHIP [ 73 question arises between the parties themselves, or between the parties and third persons, if the legal effect of their acts and contracts is the creation of a partnership, the parties will be deemed partners, notwithstanding their denial of an intention to become such. The law gathers their intention from their acts and contracts at the time, rather than from their contempo- raneous or subsequent assertions. Greater effect may, however, be given to the expressed intentions of the parties when the question arises between themselves only, than where third per- sons are concerned. 5 The latter cannot be presumed to know of the declared intention, and must therefore be left to judge by the legal intention which the outward acts and contracts of the parties manifest. In doubtful cases, however, of either sort, the expressed intention may be of consequence, and may even turn the scale in accordance with it. 73. Same subject. Keeping these distinctions in view, it is then true, as the rule is frequently declared, that whether a partnership has been created depends upon the real intention of the parties. If their agreement is in writing, its true con- struction must be ascertained. If it is not in writing, then the "If their contract was for a part- other circumstances to show the nership by necessary legal construe- contrary, that they intended to cre- tion (which we have found that ate the relation which the contract it was), and they intended to make expresses." See, also, Chapman v. the contract (and this appears from Hughes (1894), 104 Gal. 302, 37 the report), the .legal effect of their Pac. 1048; Spaulding v. Stubbings contract could not be varied by (1893), 86 Wis. 255, 56 N. W. 469, their not supposing it to be what 39 Am. St. E. 888, Mechem's Gas. it was. The further statement in 149; Magovern v. Eobertson (1889), the report that they did not intend 116 N. Y. 61, 22 N. E. 398, 5 L. to form a partnership seems incon- E. A. 589, Mechem's Gas. 154; sistent with the other facts. * * * Bradley v. Ely (1900), 24 Ind. App. Probably the fair construction of 2, 56 N. E. 44, 79 Am. St. E. 251, the report is that the parties were Gilm. Gas. 10; Wade v. Hornaday not aware of the legal extent and (1914), 92 Kan. 293, 140 Pae. 870; obligation of the contract into Illinois Malleable Iron Co. v. Eeed which they entered. As the con- (1897), 102 Iowa 538, 71 N. W. tract imports a partnership, we 423. must hold, in the absence of any 5 See McDonald v. Fleming, sit- express stipulation and of any pro; Fechteler v. Palm Bros. Mech. Part. 5 65 74] intention of the parties must be gathered from their words and conduct. What the parties have called themselves is not con- clusive, for if they have stipulated for what is a partnership in fact, then even their express agreement that they should not be partners would not prevent the legal operation of their stipu- lations. 6 If, on the other hand, their acts and contracts do not in law create a partnership, the fact that they have expressly called it such will not make it one. 7 74. Tests of intention to form partnership. While the in- tention of the parties is thus, in general, the controlling inquiry, there are a number of methods by which the courts have en- deavored to ascertain what that intention was. Keeping in mind the definition that the partnership relation is based upon the agreement of the parties to unite their property, labor, capital or skill in carrying on business as co-owners or principals for their joint profit, each being at the same time both principal of and agent for the other, 8 several of the tests which are com- (1904), 66 C. C. A. 336, 133 Fed. 462; HitcMngs v. Ellis (1859), 12 Gray (78 Mass.) 449. 6 Thus in Beecher v. Bush (1881), 45 Mich. 188, 7 N. W. 785, 40 Am. Eep. 465, Mechem's Gas. 118, Gilm. Gas. 49, after calling attention to the fact that in that case the par- ties manifestly had no purpose to become partners, it is said by Cooley, J.: "In general this should be conclusive. If parties intend no partnership the courts should give effect to their intent, unless some- body has been deceived by their acting or assuming to act as part- ners; and any such case must stand upon its peculiar facts and upon special equities. It is, nevertheless, possible for parties to intend no partnership and yet to form one. If they agree upon an arrangement which is a partnership in fact, it is >f no importance that they call it something else, or that they even expressly declare that they are not to be partners. The law must de- clare what is the legal import of their agreements, and names go for nothing when the substance of the arrangement shows them to be inap- plicable. But every doubtful case must be solved in favor of their intent, otherwise we should carry the doctrine of constructive part- nership so far as to render it a trap to the unwary. Kent, C. J., in Post v. Kimberly, 9 Johns. (N. Y.) 470, 504." 7 Sailors v. Nixon- Jones Co. (1886), 20 111. App. 509, Mechem's Gas. 85; Oliver v. Gray (1842), 4 Ark. 425, Burd. Gas. 16. 8 ' ' As said in McDonald v. Camp- bell (1905), 96 Minn. 87, 104 N. W. 760, there is no arbitrary test by which to determine when a partner- ship exists. It depends upon the in- 66 WHAT ACTS CREATE A PARTNERSHIP [75, 76 monly applied to aid in determining when such an agreement exists may be noticed. Among these are 75. I. Agreements to share both profits and losses. An agreement between two or more persons to unite their property, labor, skill, or capital to establish and carry on a business, in which business they are to have a community of interest which they are to own in common, in which each is to be a principal owner or proprietor as distinguished from a mere agent, clerk or creditor and the profits and losses of which they are to share because they are such owners, principals or proprietors, is the typical form of partnership. Such an agreement creates a part- nership between the parties as a matter of law. 76. Same subject. Agreements, however, which present all of these characteristics occasion no difficulty, and the ques- tion of partnership is easily and certainly solved. The difficulty arises in those cases which unfortunately but naturally con- stitute the great majority of those submitted to lawyers or courts for determination in which some of these elements only are discernible, while others are not apparent at all or are to be extracted from a mass of more or less conflicting facts and cir- cumstances. In such cases, the elements which do appear are not necessarily conclusive, and it is both unwise and dangerous to seize upon them as sufficient; they are evidence merely, and, as such, are more or less convincing according as they fit in with the remaining elements discovered. Of this nature is the mere element of sharing profits and tention of the parties, and this in- business as principals and agents? tention must be ascertained from If there is a joint business, it natur- the evidence and all the eircum- ally follows that the parties were to stances of the case. If the evidence share the profits in some proportion, shows that the parties intended to and hence an agreement to share combine their property, labor and profit is strong evidence that the skill as principals for the purpose enterprise was to be conducted as a of enjoying the profits, it establishes joint undertaking." McAlpine v. a partnership. The question always Millen (1908), 104 Minn. 289, 116 is, was there a joint business, or N. W. 583. were the parties carrying on the 67 77] LAW OP PARTNERSHIP losses. It certainly furnishes strong evidence that the parties have united as principals for their joint profit, if any, and in the absence of anything to show that the profits and losses were to be shared on some other basis than that of principals in the business, it would usually be deemed conclusive. 9 But it may still be shown that they were to share the profits and losses in some other capacity, and the evidence of partnership is thereby weakened if not dispelled. Where both parties contribute goods, or money to buy goods, for a common stock, in which they thus acquire a joint interest, then an agreement for a division of the profit and loss furnishes the strongest evidence of a partnership ; and the same is true where each is to contribute services. 77. Same subject. The evidence is also strong where one furnishes money or property and the other furnishes services, though it is less strong in this case than in the others, because the parties have not necessarily a joint interest in the property, and the sharing in profits and loss may be but one means of compensating the second party for his services. Still less strong is the evidence where, though the parties are to share profits and losses in the sale of goods, each one retains the individual title or control of his contribution. To constitute a partnership, therefore, there must be added to the evidence of this one element of sharing profits and losses, the further evidence that the parties who so shared in such profits and losses were also principal proprietors in the business from which such profits or losses ensued, and that such sharing was because they stood in the relation of such principal proprietors and not in some other relation. 10 9 Such an arrangement, it is fre- Palm (1904), 66 C. C. A. 336, 133 quently said, raises a prima facie Fed. 462, Gilm. Gas. 76; Spaulding case of partnership. See, e. g., Tor- v. Stubbings (1893), 86 Wis. 255, bert v. Jeffrey (1901), 161 Mo. 645, 56 N. W. 469, 39 Am. St. E. 888, 61 S. W. 823; Illinois Malleable Mechem's Gas. 149; Culley v. Ed- Iron Co. v. Eeed (1897), 102 Iowa wards (1884), 44 Ark. 423, 51 Am. 538, 71 N. W. 423. Rep. 614; Boston Smelting Co. v. 10 See Canton Bridge Co. v. City Smith (1880), 13 E. I. 27, 43 Am. of Eaton Eapids (1895), 107 Mich. Eep. 3; Clifton v. Howard (1886), 613, 65 N. W. 761, Mechem g Gas. 89 Mo. 192, 1 S. W. 26, 58 Am. Eep. 758, Burd. Gas. 90; Fechteler v. 97, Burd. Gas. 88; Torbert v. Jeffrey 68 WHAT ACTS CREATE A PARTNERSHIP [78, 79 78. II. Agreements to share profits, nothing being said about losses. It not infrequently happens that, while the element of profit sharing is clearly evident, the question of shar- ing losses appears to have been ignored. The failure or omission to provide for the losses may have been accidental or intentional. If it was accidental merely, it is ordinarily of little consequence, because the law will supply the omission if the other elements are present, by assuming that the losses, like the profits, were to be shared equally. 11 But if the omission was intentional, it challenges inquiry, though it may not be conclusive. Ordinarily one who shares the profits of the business because he is a prin- cipal therein, must, for the same reason, share the losses also if loss results. But it is possible that one may share the profits of a business without being a proprietor therein. The facts must therefore be investigated further, and it must be ascer- tained why and in what relation the profits are to be received. 79. Same subject. Pursuing the investigation, if it be found that the parties have contributed to form a joint stock (1901), 161 Mo. 645, 61 S. W. 823; Hughes v. Ewing (1901), 162 Mo. 261, 62 S. W. 465; Howze v. Patter son. (1875), 53 Ala. 205, 25 Am. Eep. 607; Gulf City Co. v. Boyles (1900), 129 Ala. 192, 29 So. 800; Thillman v. Benton (1895), 82 Md. 64, 33 Atl. 485. In a leading case in Oregon (Flower v. Barnekoff (1890), 20 Ore. 137, 25 Pac. 370, 11 L. B. A. 149) , it is said : ' ' Partner- ship and community of interest inde- pendently considered are not always the same thing, nor is a mere com- munity of interest sufficient; but there must be an agreement to share the profits and loss, and such profits must be shared as the result of the adventure or enterprise, in which both are interested, and not simply as a measure of compensation (Cogs- well v. Wilson, 11 Ore. 372, 21 Pac. 388) ; " and "where it appears that there is community of interest in the capital stock, and also a community of interest in the profits and loss, there it is clear an actual partner- ship exists between the parties. Ber- thold v. Goldsmith, 24 How. (IT. S.) 541." One who loans money to a part- ner to put into the business, and takes security upon -his interest in the business, has not thereby such a community of interest in the busi- ness as makes him a partner with the others. Fish v. Thompson (1895), 68 Vt. 273, 35 Atl. 174, Burd. Cas. 3. 11 See Sawyer v. Worthington (1856), 28 Vt. 733; Quinn v. Quinn (1889), 81 Cal. 14, 22 Pac. 264; Wipperman v. Stacy (1891), 80 Wis. 345, 50 N. W. 336, Mechem's Cas. 376; McAlpine v. Millen (1908), 104 Minn. 289, 116 N. W. 583. 69 79J LAW OF PAETNERSIIIP or capital of property or skill or labor, and have in the busi- ness a community of interest, then an agreement to share profits furnishes very strong evidence of partnership. But if one party only is to supply the stock or capital, the case is not so clear, though it is not conclusive. If, notwithstanding the fact that one is to furnish all the capital in the first instance, it still ap- pears that the parties are to own the business in common, or are to have a common interest in or power of control over it, there is then the community of interest which ordinarily con- stitutes partnership ; 12 but if there is to be no co-ownership of 12 This distinction is illustrated in such cases as Magovern v. Bobert- son (1889), 116 N. Y. 61, 22 N. E. 398, 5 L. E. A. 589, Mechem's Gas. 154, where the parties held liable as partners had not only a right to share in the profits but had also, by the express terms of the contract, an interest in the stock and business to the extent of their loans and in- dorsements. "Persons," said the court, "having a proprietary inter- est in a business and in its profits are liable as partners to creditors-" To like effect, because the alleged clerk was not only to have a share of the profits as compensation, but was also to have an interest in the stock and business itself: Sawyer v. First National Bank (1894), 114 N. C. 13, 18 S. E. 949; Hackett v. Stanley (1889), 115 N. Y. 625, 22 N. E. 745, Burd. Gas. 57, Gilm. Gas. 27; and because the alleged leaner of money was also to have an in- terest in and control over the busi- ness: Spaulding v. Stubbings (1893), 86 Wis. 255, 56 N. W. 469, 39 Am. St. E. 888, Mechem's Gas. 149. Care must therefore be taken to discriminate between the cases of alleged loans with a share of the profits by way of interest, and a real partnership disguised as a loan; for if it appears that the transaction is a mere device to obtain the advan- tages of a partnership without the responsibilities, it will be held to be a partnership whatever the par- ties may have called it. The test is usually to be found, according to the later cases, in the powers of con- trol of the alleged lender. Has he any voice or part in controlling the management of the business as a nrineical therein? Has he, by vir- tue of the arrangement, such an in- terest in the business that he can be regarded both as principal and agent for the others? See Bosen- field v. Haight (1881), 53 Wis. 260, 10 N. W. 378, 40 Am. Eep. 770;; Eichardson v. Hughitt (1879), 76 N. Y. 55, 32 Am. Eep. 267; Leggett v. Hyde (1874), 58 N. Y. 272, 17 Am. Eep. 244, Burd. Gas. 50, Gilm. Gas. 22; Hackett v. Stanley, supra; and especially, Waverly Nat. Bank v. Hall (1892), 150 Pa. St. 466, 24 Atl. 665, 30 Am. St. Eep. 823, Me- chem's Gas. 145, and Magovern v. Eobertson, supra. In Ex parte Briggs (1833), 3 Deac. & Ch. 367, Burd. Gas. 3, Gilm. Gas. 4, a dis- tinction was made between the case 70 [79 the business and one is to receive his share of the profits in some other capacity than as a principal proprietor, as, for example, if he is to receive it as compensation for his services, there is no partnership. Plainly, also, one who has a share of the profits in another's business by way of commission merely, or in lieu of salary, or as rent, or as interest on loans, and the like, is not a partner with the owner of that business. 13 To make the parties in which the stipulation for a share in the profits was made at the time of the loan, and the case where it was made afterwards. It is less likely to be a partnership in the latter case. So care must be taken to discriminate between a real lease of premises and a partnership dis- guised under the form of a lease; for if the characteristics of a part- nership are present, it will be held to be such regardless of what the parties may have called it. Webster v. Clark (1894), 34 Fla. 637, 16 So. 601, 43 Am. St. E. 217, 27 L. E. A. 126 Merrall v. Dobbins (1895), 169 Pa. 480, 32 Atl. 578, Burd. Gas. 86; Leavitt v. Windsor Land Co. (1882), 4 C. C. A. 425, 54 Fed. 439. 13 See Shepard v. Pratt (1876), 16 Kan. 209; Sodiker v. Applegate (1884), 24 W. Va. 411, 49 Am. Eep. 252, Gilm. Cas. 5; Beecher v. Bush (1881), 45 Mich. 188, 7 N. W. 785, 40 Am. Eep. 465, Mechem's Cas. 118, Gilm. Cas. 49 ; Drilling v. Arm- strong (1910), 94 Ark. 505, 127 S. W. 725; McDonnell v. Battle House Co. (1880), 67 Ala. 90, 42 Am. Eep. 99; Harvey v. Childs (1876), 28 Ohio St. 319, 22 Am. Eep. 387, Me- chem's Cas. 129; Thayer v. Augus- tine (1884), 55 Mich. 187, 20 N. W. 898, 54 Am. Eep. 361; Morgan v. Farrel (1890), 58 Conn. 414, 20 Atl. 614, 18 Am. St. E. 282, Mechem's Cas. 171; Waverly Nat. Bank v. Hall (1892), 150 Pa. St. 466, 24 Atl. 665, 30 Am. St. E. 823, Mechem's Cas. 145; Boston Smelting Co. v. Smith (1880), 13 E. I. 27, 43 Am. Eep. 3; Estabrook v. Woods (1906), 192 Mass. 499, 78 N. E. 538; Par- chen v. Anderson (1885), 5 Mont. 438, 5 Pac. 588, 51 Am. Eep. 65; Culley v. Edwards (1884), 44 Ark. 423, 51 Am. Eep. 614; Waggoner v. First Nat. Bank (1894), 43 Neb. 84, 61 N. W. 112; Jeter v. Burgwyn (1893), 113 N. Car. 157, 18 S. E. 113. One who loans money to a man engaged in manufacturing and sell- ing a patent medicine, with the understanding that the sum loaned should be used to buy ingredients which should be made up into the medicine, and the latter sold by the proprietor in the usual way; and that the lender should have one- fourth of the profits, is not thereby made a partner with the proprietor: Salter v. Ham (1865), 31 N. Y. 321. In respect of sharing profits by. way of compensation for services, it was said in Sodiker v. Applegate, supra: "In all cases there must be a participation as principals. If the persons merely occupy the relation of principal and agent, employer and employee or factor, no partner- ship can be predicated upon the fact that such agent, employee or factor receives a part or share of the profits for his service or other benefits 71 80] partners, there must be here, as in the former case, a community of interest in the business itself as principals or co-owners each one being at once principal of and agent for the others. A mere economic interest in the business is not enough: a lender or landlord or employee who realizes that he is not likely to get his money unless the business succeeds, may have that, there must be a proprietary interest. 80. Same subject. The Uniform Partnership Act declares the same rule. 14 "The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise, (Z>) As wages of an employee or rent to a landlord, (c) As an annuity to a widow or representative of a deceased partner, (d) As interest on a loan, though the amount of payment vary with the profits of the business, (e) As the consideration for the sale of the good-will of a business or other property by installments or otherwise. ' ' conferred. This proposition is illus- (1906), 147 Ala. 512, 40 So. 319, trated by numerous cases, among Gilm. Gas. 7; Buzard v. Bank of which are the following: Berthold Greenville (1886), 67 Tex. 83, 2 S. v. Goldsmith, 24 How. (U. S.) 542; W. 54, 60 Am. Eep. 7; Eoss v. Bur- Burckle v. Eckhart, 1 Denio (N. rage (1919), Mass. , 124 N. Y.) 341; Bowyer v. Anderson, 2 E. 267, reaffirming Denny v. Cabot Leigh (Va.) 550; Chapline v. Con- (1843), 6 Mete. (47 Mass.) 82; ant, 3 W. Va. 507, 100 Am. Dec. Price v. Alexander (1850), 2 Greene 766; Dils v. Bridge, 23 W. Va. 20-; (Iowa) 427, 52 Am. Dec. 526. Even Hanna v. Flint, 14 Cal. 73; Mor- if a person could be held to be a gan v. Stearns, 41 Vt. 397." One partner as to a particular transae- who manages a business for another tion by reason of having furnished on the understanding that he is "to money for it in consideration of a have a living out of the business," share of its profits, this would not and, if it proves profitable, a half of make him a partner as to other the profits, is not thereby made a transactions. Jeter v. Burgwyn, partner. Whitney v. Bank (1897), supra. 50 Neb. 438, 69 N. W. 933, Burd. 14 Sec. 7, subd. 4. Cas. 7. See, also, Zuber v. Eoberts 72 WHAT ACTS CREATE A PARTNERSHIP [ 81,82 81. III. Agreements to share profits with express stipula- tion against losses. Agreements are sometimes made by which, though all are to share in the profits, some of the parties are expressly to be protected against loss. Such an agreement may constitute a partnership if the other elements are present. It is lawful for the partners, as between themselves, to stipulate that one or more of them shall be indemnified against loss, though such a stipulation cannot affect the liability of the partners so indemnified to third persons. 16 It is true that cases are sometimes found which declare that liability for losses, as well as participation in the profits, is in- dispensable to partnership ; 16 but the proposition that the part- ners may, so far as they themselves are concerned, agree that the partnership liability of one shall be borne by the other, is sustained by the weight of authority. 82. IV. Partnership in profits only. It is not indispensable that there shall be a common stock or fund of goods, land or other tangible property. The contributions of one or both of the partners may be simply skill or experience or capacity to labor. Even if tangible property is necessary to the transac- tion of the business, it is not essential that it shall be owned by all or any of the partners. It may be hired from a stranger, or one partner may supply its use to the firm, retaining the title in himself. It may be also that the contract contemplates a division only in case there are profits made, and that, if there 15 See Brown v. Tapscott (1840), solidated Bank v. State, supra, de- 6 Mees. & Welsby, 119, Ames' Gas. clared that this would not be true 468; Clift v. Barrow (1888), 108 where the agreement was based N. Y. 187, 15 N. E. 327, Burd. Gas. upon a good consideration. Com- 93; Pollard v. Stanton (1845), 7 pare, however, In re Mitchell-Borne Ala. 761; Consolidated Bank v. Const. Co. (1919), 145 La. , 82 So. State (1850), 5 La. Ann. 44; Baxter 377. v. Hart (1894), 104 Cal. 344; 37 16 See Winter v. Pipher (1895), Pac. 941; Eobbins v. Laswell 96 Iowa 17, 64 N. W. 663; John- (1862), 27 111. 365. son v. Carter (1903), 120 Iowa 355, Art. 2814 of Louisiana Civil Code 94 N. W. 850, Gilm. Gas. 54; Me- (see Appendix), declares such a Carney v. Lightner (1920), stipulation void even as between the Iowa , 175 N. W. 751. partners only; but the court in Con- 73 83] LAW OF PARTNERSHIP are no profits, the expenses or losses are to be borne by one only or by both in their individual capacity. Each of these cases, and others of like kind which are legally possible, con- template co-ownership only in the results of the enterprise rather than in the enterprise itself or the means of conducting it, and they are frequently, though perhaps not very appro- priately, spoken of as partnerships in the profits only. Such a partnership differs from others in degree only and not in kind. To the extent of the community of interest whether it be in profits only or more there is a partnership with its incident rights and liabilities. 17 83. V. Agreements to share gross returns. Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contributions, but who severally retain the title to their respective contributions, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself from which the proceeds are derived. Thus, co-owners who divide the earnings of a chattel are not thereby necessarily made partners; nor are sailors who divide the products of a voyage; or persons farming land on shares; or two or more owners of connecting coach-lines, who establish a through traffic over their respective lines, and pay their own expenses, but divide the gross receipts of the through business in some agreed proportion; or two or more railroad companies who unite to form a continuous line of carriage, each paying its own expenses but dividing the receipts in proportion to the length of their respective lines; or the lessee and the manager of a theater who share the gross receipts ; or workmen who build a chattel together for sale and divide the proceeds; or persons one of whom furnishes a farm or a mill or a brick-yard and the other supplies the labor and materials to operate it and who divide the product; or persons who casually and not as a busi- ness unite to buy land or chattels to be sold when the price ad- 17 See Robbins v. Laswell (1862), (1860), 24 111. 483; Voorhees v. 27 111. 365; Stevens v. Faucet Jones (1861), 29 N. J. L. 270. 74 WHAT ACTS CREATE A PARTNERSHIP [83 vances and agree to divide the proceeds ; or persons one of whom furnishes a plant or outfit while the other runs it, the proceeds being divided. Neither is a person a partner who leases prop- erty for a share in the gross receipts, as where one lets a hotel or a vessel or machinery, receiving a share of the returns as rent. 18 18 See French v. Styring (1857), 2 Com. B. (N. S.) 357, Mechem's Cases on Partn. 1069, Ames Gas. 41, Burd. Cas. 22; (dividing the earnings of a race-horse) ; Mair v. Glennie (1815), 4 Maule & Sel. 240 (sailors) ; Champion v. Bostwick (1837), 18 Wend. (N. Y.) 175, 31 Am. Dec. 376, Ames Cas. 110; East- man v. Clark (1873), 53 N. H. 276, 16 Am. Eep. 192; Pattison v. Blanchard (1851), 5 N. Y. 187 (coach-owners) ; Irvin v. Railroad Co. (1879), 92 III. 103, 34 Am. Rep. 116 (railroad companies) ; Lyon v. Knowles (1863), 3 Best & Sm. 556 (theater) ; Hawkins v. Mclntyre (1873), 45 Vt. 496 (work- men) ; Nelms v. McGraw (1890), 93 Ala. 245, 9 So. 719; Robinson v. Bullock (1877), 58 Ala. 618 (mill); Lament v. Fullam (1882), 133 Mass. 583 (brick -yard) ; Bruce v. Hast- ings (1868), 41 Vt. 380; Munson v. Sears (1861), 12 Iowa 172 (land cases) : [But there may be a part- nership in buying land to sell again. See Flower v. Barnekoff (1890), 20 Ore. 132, 25 Pac. 370, 11 L. R. A. 149; Bates v. Babcock (1892), 95 Cal. 479, 30 Pac. 605, 16 L. R. A. 745, 29 Am. St. R. 133.] Goell v. Morse (1879), 126 Mass. 480, Me- chem's Cas. 767, Burd. Cas. 23 (chattel to be resold) ; Quacken- bush v. Sawyer (1880), 54 Cal. 439, Mechem's Cas. 768, Burd. Cas. 25 (circus run by one and income di- vided); Beeeher v. Bush (1881), 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 465, Mechem's Cas. 118, Gilm. Cas. 49; O'Donnell v. Battle House Co. (1880), 67 Ala. 90, 42 Am. Rep. 99; Miles Co. v. Gordon (1894), 8 Wash. 442, 36 Pac. 265 (hotel cases) ; Cutler v. Winsor (1828), 6 Pick. (Mass.) 335, 17 Am. Dec. 385 (vessel) ; Day v. Stevens (1883), 88 N. C. 83, 43 Am. Rep. 732; Putnam v. Wise (1841), 1 Hill (N. Y.) 234, 37 Am. Dec. 309; Donnell v. Harshe (1877), 67 Mo. 170, Burd. Cas. 30n, Gilm. Cas. 63; Reynolds v. Pool (1881), 84 N. C. 37, 37 Am. Rep. 607, Burd. Cas. 30n; Blue v. Leath- ers (1853), 15 111. 32; Logan v. Mill Co. (1904), 14 Okla. 402, 79 Pac. 103; Wagner v. Buttles (1913), 151 Wis. 668, 139 N. W. 425, Ann. Cas. 1914 B, 144; Cedar- berg v. Guernsey (1899), 12 S. Dak. 77, 80 N. W. 159; Williams v. Rog- ers (1898), 110 Mich. .418, 68 N. W. 240; Bradley v. Ely (1900), 24 Ind. App. 2, 56 N. E. 44, 79 Am. St. R. 251, Gilm. Cas. 10 (farming on shares) ; Hagenbeck v. Arena Co. (1893), 59 Fed. 14; Pulliam v. Schimpf (1893), 100 Ala. 362, 14 So. 488; McDonough v. Bullock (1874), 2 Pears. (Pa.) 191 (land- owner who furnishes site, and show or shooting-gallery proprietor who furnishes means of amusement, and divide proceeds) ; Dutcher v. Buck 75 84,85] LAW OF PARTNERSHIP 84. VI. Agreements to share losses only. An agreement to share losses or expenses only does not usually constitute a partnership. Thus, an agreement between two railroad com- panies that any injury to persons or goods on the line of either shall be borne by the company on whose road it occurs, and that when the place of injury cannot be determined the loss shall be borne by both in the proportions in which they share the through rates for carriage, does not make the companies partners. 19 II. OF SO-CALLED QUASI-PARTNERSHIPS, OR, MORE PROPERLY, OF LIABILITY AS A PARTNER WHEN No PARTNERSHIP ACTUALLY EXISTS. 85. Of partnerships as to third persons. Whenever there is a partnership as between the parties, and this, as has been seen, is the only true partnership, there is also necessarily a partnership as to third persons, with its incidental rights and liabilities. It is, however, entirely settled that a given individual may be made subject to the liabilities of a partner when in fact, as between himself and the persons with whom he was supposed to be a partner, no partnership existed or was intended. This presumed relation is sometimes, though inaccurately, spoken of as a partnership as to third persons to distinguish it from the 'partnership between the parties. It is, however, strictly not a partnership at all, for it does not follow because one person is held liable to another as a partner that the same conclusion involves a finding that, as between himself and his alleged part- ners, a partnership existed with its consequent rights and obli- gations. Two distinct grounds of liability as a partner to third persons have at times been insisted upon and require consideration. One, now practically obsolete, was that of sharing profits; the other, (1893), 96 Mich. 160, 55 N. W. 19 See Aigen v. Eailroad Co. 676, 20 L. E. A. 776, Mechem's (1882), 132 Mass. 423; Irvin v. Gas. 749; McAlpine v. Millen Railroad Co. (1879), 92 111. 103, 34 (1908), 104 Minn. 289, 116 N. W. Am. Rep. 116. 583 (lumbering contracts). 76 WHAT ACTS CREATE A PARTNERSHIP [ 86 as important now as ever, is that of holding oneself out as a partner. 1. Of Sharing Profits. 86. Sharing profits was formerly a ground of liability to third persons as a partner. It was laid down at an early period in England, in two cases, Grace v. Smith, 20 and Waugh v. Carver, 81 which have since become famous in the law of part- nership, that all persons who shared the profits of a business were liable as partners therein, although as between themselves no partnership existed or was contemplated. The rule and the reason given for it are well illustrated in the second of these cases. It appeared that one Carver and his son, who were established in business at Gosport, had entered into an agreement with one Giesler, who was in the same busi- ness at Plymouth, in pursuance of which he was to remove and establish himself in the same line of business. at Cowes. Each concern was to send business to the other when possible. In consideration of the Carvers' recommendation and support, Giesler agreed to pay them one-half of his receipts on certain lines of business. Similarly, the Carvers were to pay him a portion of their receipts on certain lines of business. It was expressly stipulated that neither concern was to be liable for the losses of the other, and that each was to be separate and distinct from the other, but once in each year the parties were to get together and divide the proceeds of the business in ac- cordance with the agreed rates. There was no common firm name and no holding out by one of the other as a partner. Giesler incurred indebtedness in his own name, to the plaintiff, who knew nothing of the arrangement, and for this it was sought to make the Carvers responsible as partners. Lord Chief Jus- tice Eyre, who delivered the opinion of the court, admitted that it was "plain upon the construction of the agreement, if it be construed only between the Carvers and Giesler, that they were 20 Grace v. Smith (1775), 2 Wm. 21 Waugh v. Carver (1793), 2 H. Blackstone 998, Mechem's Gas. 93, Blackstone 235, 2 Smith 's Lead. Cas. Ames' Cas. 1; Burd. Cas. 46, Gilm. 1316, Mechem's Cas. 99, Ames' Cas. Cas. 17. 6, Burd. Cas. 47, Gilm. Cas. 19. 77 86] LAW OF PARTNERSHIP not, nor ever meant to be, partners." "They meant each house to carry on trade without risk of each other, and to be at their own loss. Though there was a certain degree . of control at one house, it was without an idea that either was to be involved in the consequences of the failure of the other, and without under- standing themselves responsible for any circumstances that might happen to the loss of either. That was the agreement be- tween themselves. But the question is whether they have not, by parts of their agreement, constituted themselves partners in respect to other persons. The case, therefore, is reduced to the single point, whether the Carvers did not entitle themselves and did not mean to take a moiety of the profits of Giesler's house, generally and indefinitely as they should arise, at certain times agreed upon for the settlement of their accounts. That they have so done is clear upon the face of the agreement; and upon the authority of Grace v. Smith, 22 he who takes a moiety of all 22 In Grace v. Smith, the facts were that Grace had sued Smith alone as a secret partner with one Eobinson, for goods delivered to the latter, who became bankrupt in 1770. It appeared that on March 30, 1767, Smith and Robinson had formed a partnership for seven years, but in the following Novem- ber it was dissolved and due notice was given. On the dissolution it was agreed that all the stock in trade and debts due the firm should be transferred to Eobinson; that Smith was to have back 4,200 which he brought into the busi- ness and 1,000 for profits up to that time; that Smith was to per- mit 4,000 of this money to remain as a loan to Eobinson for seven years at five per cent, and an annu- ity of 300 per annum, for all which Eobinson gave bond to Smith. Smith afterwards made further ad- vances until the whole indebtedness amounted to 7,000, for which a new bond was given. The plaintiff contended that this arrangement made Smith a secret partner, but he was held not to be so liable. Said De Grey, C. J.: "The only question is, What constitutes a se- cret partner? Every man who has a share of the profits of a trade ought also to bear his share of the loss. And if any one takes part of the profit he takes a part of that fund on which the creditor of the trader relies for his payment. If any one advances or lends money to a trader it is only lent on his general personal security. It is no specific lien upon the profits of the trade, and yet the lender is gener- ally interested in those profits; he relies on them for repayment. And there is no difference whether that money be lent de novo or left be- hind in trade by one of the part- ners who retires. And whether the terms of that loan be kind or harsh makes also no manner of difference. 78 WHAT ACTS CREATE A PARTNERSHIP [ 87 the profits indefinitely shall, by operation of law, be made liable to losses, if losses arise, upon the principle that, by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts. That was the foundation of the decision in Grace v. Smith, and I think it stands upon the fair ground of reason. ' ' The Carvers were therefore held liable. 87. Same subject. It does not seem to have occurred to the court that the profits are not the fund, that is, the only or chief fund to which the creditors may resort, because, as will be seen, whether there are profits or not, the creditors may re- sort to all of the assets of the firm for payment, as well as to the individual responsibility of the partners. Neither was it observed that the very statement of the rule involved an in- consistency. Profits are what is left after the creditors are paid and not before; and therefore to take account of profits as such while the creditors yet remain unpaid was an inconsistency. Neither was it observed that the rule often resulted in com- pelling one creditor, though for a small amount, to stand liable as a partner to the other creditors, even in an indefinite amount. Whatever were the inconsistencies, however, as they have often since been pointed out, this was declared to be the rule, and it remained the rule in England for many years, and was adopted I think the true criterion is to in- to consider whether the profit or quire whether Smith agreed to share premium is certain and defined, or the profits of the trade with Bob- casual, indefinite, and depending on inson, or whether he only relied on the accidents of trade. In the for- those profits as a fund of payment; mer case it is a loan (whether usu- a distinction not more nice than rious or not is not material to the usually occurs in questions of trade present question), in the latter a or usury. The jury have said that partnership. The hazard of loss this is not payable out of the and profit is not equal and recipro- profits, and I think there is no cal, if the lender can receive only foundation for granting a new a limited sum for the profits of his trial." Gould, J., of same opinion. loan, and yet is made liable to all Blackstone, J. : "Same opinion. I the losses, all the debts contracted think the true criterion (when in the trade, to any amount." money is advanced to a trader) is Nares, J., of same opinion. 79 88] LAW OF PARTNERSHIP thence into the United States, and has been reiterated and affirmed in many American cases. 23 Under this rule it mattered little what was the name or nature of the arrangement under which the parties were related, or however strongly they asserted their intention not to be part- ners, or to what devices they had recourse to avoid such a con- clusion ; if they shared profits as profits, as the expression was, they were declared to be partners as to third persons and liable as such. 88. Of the case of Cox v. Hickman. In 1860 a case arose in the English courts which required a re-examination of the ground of liability by sharing profits. This was the case of Cox v. Hickman, 24 decided in the English House of Lords. The parties sought to be charged as partners were not partners inter sese and never intended to be, but they were entitled to share in the net income of a business as creditors until their claims were paid. The facts were that the firm of Smith & Son, becoming finan- cially embarrassed, turned their property over to trustees ap- pointed by their creditors. The trustees were to carry on the business under the name of "The Stanton Iron Company," and divide the net income, which was always to be considered the property of Smith & Son, among the creditors until their claims were paid, and then the property was to be restored to Smith & Son. Hickman sold goods to the trustees in the name adopted by them for the business, and drew bills on them which were accepted in that name- by one of the managing trustees. These bills not being paid, the action was brought to charge the cred- itors as partners. 23 See Dob v. Halsey (1819), 16 Stoekt. Ch. (N. J.) 469, 64 Am. Johns. (N. Y.) 34, 8 Am. Dec. 293; Dec. 464; Pratt v. Langdon (1867), Bromley v. Elliot (1859), 38 N. H. 97 Mass. 97, 93 Am. Dec. 61; Polk 287, 75 Am. Dec. 182; Miller v. v. Buchanan (1857), 5 Sneed Hughes (1818), 1 A. K. Marsh. (Tenn.) 721, Burd. Gas. 62. (Ky.) 181, 10 Am. Dec. 719; Simp- 84 Cox v. Hickman (1860), 8 son v. Feltz (1826), 1 McCord Ch. House of Lords Cases 268, Me- (S. C.) 213, 16 Am. Dec. 602; chem's Gas. 102, Ames Gas. 47, Sheridan v. Medara (1855), 2 Burd. Gas. 65, Gilm. Gas. 31. 80 WHAT ACTS CREATE A PARTNERSHIP [ 89,90 The case went through all of the courts to the House of Lords. It was urged that as they were to share the profits of a busi- ness which was being carried on under their control, the cred- itors thereby became liable as partners, and half of the judges were of this opinion; but the Lords united in repudiating the old and arbitrary rule, and placed the liability upon the ground which has since been maintained in England that of mutual agency. 89. Same subject. In the leading opinion of Lord Cran- worth it was said: "It was argued that as they would be in- terested in the profits, therefore they would be partners. But this is a fallacy. It is often said that the test, or one of the tests, whether a person not ostensibly a partner is nevertheless in contemplation of law a partner, is whether he is entitled to participate in the profits. This no doubt is in general a suffi- ciently accurate test ; for a right to participate in profits affords cogent, often conclusive, evidence that the trade in which the profits have been made was carried on in part for or on behalf of the person setting up such a claim. But the real ground of the liability is that the trade had been carried on by per- sons acting on his behalf. When that is the case, he is liable to the trade obligations, and entitled to its profits, or to a share of them. It is not strictly correct to say that his right to share in the profits makes him liable to the debts of the trade. The correct mode of stating the proposition is to say that the same thing which entitles him to the one makes him liable to the other, namely, the fact that the trade has been carried on on his be- half, i. e., that he stood in the relation of principal towards the persons acting ostensibly as the traders, by whom the liabilities have been incurred, and under whose management the profits have been made. ' ' 90. Same subject. "Taking this to be the ground of lia- bility as a partner," continued Lord Cranworth, "it seems to me to follow that the mere concurrence of creditors in an ar- rangement under which they permit their debtor, or trustees for their debtor, to continue his trade, applying the profits in discharge of their demands, does not make them partners with Mech. Part. 6 81 91] LAW OF PARTNERSHIP their debtor or the trustees. The debtor is still the person solely interested in the profits, save only that he has mortgaged them to his creditors. He receives the benefit of the profits as they accrue, though he has precluded himself from applying them to any other purpose than the discharge of his debts. The trade is not carried on by or on account of the creditors, though their consent is necessary in such a case, for without it all the prop- erty might be seized by them in execution. But the trade still remains the trade of the debtor or his trustees; the debtor or the trustees are the persons by or on behalf of whom it is car- ried on. ' ' The defendants were therefore held not liable. 91. Effect of Cox v. Hickman on English law. In a case arising not long afterwards it became essential to determine, in the language of Blackburn, J., "what really was the effect of the decision of the House of Lords in Cox v. Hickman," and he said: "Prior to that decision, the dictum of De Grey, C. J., in Grace v. Smith, 'that every man who has a share of the profits of a trade ought also to bear a share of the loss, ' had been adopted as the ground of judgment in Waugh v. Carver, where it was laid down 'that he who takes a moiety of all profits indefinitely shall, by operation of law, be made liable to losses if losses arise, upon the principle that, by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts. ' This decision has never been overruled. The reasoning on which it proceeds seems to have been generally acquiesced in at the time; and when, more recently, it was disputed, it was a common opinion (in which I for one participated) that the doctrine had become so inveterately part of the law of England that it would re- quire legislation to reverse it. In Cox v. Hickman the creditors of a trade had agreed that their debtor's trade should be car- ried on for the purpose of paying them their debts out of the profits, and the composition deed to which they were parties secured to them a property in the profits. The rule laid down in Waugh v. Carver, if logically followed out, led to the con- clusion that all the creditors who assented to this deed, and by so doing agreed to take the profits, were individually liable as partners; but when it was sought to apply the rule to such an 82 [92 extreme case, it was questioned whether the rule itself was really established. There was a very great difference of opinion amongst the judges who decided the case in its various stages below, and also amongst those consulted in the House of Lords. In the result, the House of Lords consisting of Lord Campbell, C., and Lords Brougham, Cranworth, "Wensleydale and Chelms- ford unanimously decided that the creditors were not part- ners. The judgments of Lord Cranworth and of Lord Wensley- dale bear internal evidence of having been written. Lord Camp- bell, C., and Lords Brougham and Chelmsford said a few words expressing their concurrence. It is therefore in the written judgments, and more especially in the elaborate judgment of Lord Cranworth, that we must look for the ratio decidendi. "I think that the ratio decidendi is, that the proposition laid down in "Waugh v. Carver viz., that a participation in the profits of a business does of itself, by operation of law, con- stitute a partnership is not a correct statement of the law of England ; but that the true question is, as stated by Lord Cran- worth, whether the trade is carried on on behalf of the person sought to be charged as a partner, the participation in the profits being a most important element in determining that question, but not being in itself decisive ; the test being, in the language of Lord Wensleydale, whether it is such a participation of profits as to constitute the relation of principal and agent between the person taking the profits and those actually carrying on the business." 25 92. Effect of Cox v. Hickman in the United States. In the United States the case of Cox v. Hickman has been quite gen- erally followed. 26 In many of the states earlier decisions fol- 25 Bullen v. Sharp (1865), L. E. 1 ling v. Gaskill [1897], App. Gas. Com. PI. 86, Ames' Cas. 67, Burd. 575. Cas. 71, Gilm. Cas. 36. See, also, 26 See, for example, Beecher v. Mollwo v. Court of Wards (1872), Bush (1881), 45 Mich. 188, 7 N, W. L. E. 4 Pr. Coun. App. 419, Ames' 785, 40 Am. Rep. 465, Meehem's Cases 79; Pooley v. Driver (1876), Cas. 118, Gilm. Cas. 49; Butcher v. 5 Ch. Div. 458, Ames' Cases 87. Buck (1893), 96 Mich. 160, 55 N. See, also, now the English Partner- W. 676, 20 L. R. A. 776, Meehem's ship Act, 2, Appendix, post; Gos- Cas. 749; McDonald v. Campbell 83 93] LAW OP PARTNERSHIP lowing the old English cases have been overruled, though in others, and notably in New York 27 and Pennsylvania, 28 the courts have held the former rule to be too deeply rooted in their jurisprudence to be overthrown, except by legislative action. The Uniform Partnership Act, as has been seen, 29 adopts the result of Cox v. Hickman by providing that no inference of partnership shall be drawn merely from the fact that a person receives a share of the profits of a business in payment of a debt by installments or otherwise, or in payment of wages or rent or of an annuity to the widow or representative of a de- ceased partner, or in payment of interest on a loan, though the amount varies with the profits, or in consideration of the sale of the good-will of a business or other property, whether the payment be made in installments or otherwise. 93. Same subject Beecher v. Bush. In a case in Michi- gan so in which the question arose, the court, speaking through (1905), 96 Minn. 87, 104 N. W. 760, Gilm. Gas. 81; Jackson v. Hooper (1909), 76 N. J. Eq. 185, 74 Atl. 130; Wade v. Hornaday (1914), 92 Kan. 293, 140 Pac. 870. 27 See Leggett v. Hyde (1874), 58 N. Y. 272, 17 Am. Kep. 244, Burd. Gas. 50, Gilm. Gas. 22; Hack- ett v. Stanley (1889), 115 N. Y. 625, 22 N. E. 745, Burd. Gas. 57, Gilm. Gas. 27. 28 See Wessels v. Weiss (1895), 166 Pa. 490, 31 Atl. 247, Burd. Gas. 55. In North Carolina, see South- ern Fertilizer Co. v. Beams (1890), 105 N. C. 283, 11 S. E. 467; Cos- sack v. Burgwyn (1893), 112 N. C. 304, 16 S. E. 900. In Georgia, see Brandon v. Conner (1903), 117 Ga. 759, 45 S. E. 371, 63 L. E. A. 260. In Connecticut, see Parker v. Can- field (1870), 37 Conn. 250, 9 Am. Rep. 317. In Texas, see Cothran v. Marmaduke (1883), 60 Tex. 370. 29 Sec. 7, subd. 4, given in full ante, 80. Compare Furnace Eun Co. v. Heller (1911), 84 Ohio St. 201, 95 N. E. 771; Purvis v. But- ler (1891), 87 Mich. 248, 49 N. W. 564; Webb v. Hicks (1898), 123 N. Car. 244, 31 S. E. 479, in all of which partnership liability was im- posed on the creditors. 30 Beecher v. Bush (1881), 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 465, Mechem's Gas. 118, Gilm. Gas. 49. In this case it appeared that Beecher owned a hotel. One Wil- liams proposed to "hire the use" of it and pay Beecher therefor, from day to day, a sum "equal to one- third of the gross receipts and gross earnings." Beecher accepted and the arrangement went into effect. Williams bought goods of Bush which he did not pay for, and this action was to hold Beecher liable for them as a partner with Williams by force of the arrangement. Held, not liable. 84 WHAT ACTS CREATE A PARTNERSHIP [94 Mr. Justice Cooley, after reviewing many of the decisions botL prior and subsequent to Cox v. Hickman, says : ' ' It is needless to cite other cases. They cannot all be reconciled, but enough are cited to show that, in so far as the notion ever took hold of the judicial mind that the question of partnership or no part- nership was to be settled by arbitrary tests, it was erroneous and mischievous, and the proper corrective has been applied. Except when one allows the public or individual dealers to be deceived by the appearances of partnership where none exists, he is never to be charged as a partner, unless by contract and with intent he has formed a relation in which the elements of partnership are to be found. And what are these? At the very least the following: Community of interest in some law- ful commerce or business, for the conduct of which the parties are mutually principals of and agents for each other, with gen- eral powers within the scope of the business, which powers, however, by agreement between the parties themselves, may be restricted at option, to the extent even of making one the sole agent of the others and of the business. ' ' No better statement of the modern rule has been found than this one. 94. Same subject Harvey v. Childs. In another case 81 upon the subject which arose in Ohio it is said: "What shall The Uniform Partnership Act ment of the theatre. Upon a dis- adopts the result of Beecher v. Bush. agreement between the parties, B Sec. 7, subd. 4. Compare Leavitt v. ejected L and took possession of the Windsor Land & Inv. Co. (1893), 4 premises. L filed a bill in equity for C. C. A. 425, 54 Fed. 439. In this restoration to possession, and it was case, B owned a theatre building, held that there was equitable juris- which, by an instrument describing diction, the contract between the the parties thereto as "lessor" and parties being in legal effect a con- " lessee", was "rented" to L for tract of partnership, five years. For "rental", L agreed 31 Harvey v. Childs (1876), 28 to pay B a fixed sum per year, an Ohio St. 319, 22 Am. Kep. 387, Me- additional sum for heating and light- chem 's Cas. 129. In this case one ing, and one-half the net annual Potter was buying hogs for ship- profits as "additional rent." The merit. He had not money enough, parties agreed to share the losses and tried to get Childs to supply it equally. L was given full manage- and take an interest in the venture, 85 95] LAW OF PARTNERSHIP be regarded, as to third persons, as a test of partnership between parties who did not consider themselves to be partners and who have done nothing to estop them from denying that they are such, has been much discussed by courts and elementary writers, and the problem seems to be one of difficult solution. It is need- less to review here the numerous cases on the subject; a state- ment of results is sufficient. "No little difficulty has been experienced in determining the meaning and limits of phrases that have been recognized as tests of a partnership in such cases, and in their application to the varying cases that arise. The effort has been to draw a distinct line between cases where one has a community of in- terest in the profits of a business, as distinguished from those where one is entitled to receive a sum of money out of the profits as a creditor, or a sum proportioned to a quantum of profits, or a share of the profits as a compensation for services or labor. "Although a partnership may be said to rest upon the idea of a communion of profits, nevertheless the foundation of the liability of one partner for the acts of another is the relation they sustain to each other, as being each 'principal and agent. That relation, it would seem, then, constitutes the true test of a partnership liability, and rests upon the just foundation that the joint liability was incurred on the express or implied au- thority of the party sought to be charged." 95. Same subject. "But if the relation of principal and agent be regarded as the test of a partnership and consequent but Childs refused. It was then formed part of the lot which Childs agreed that Childs should let Potter sold in pursuance of his arrangement have money to complete his pur- with Potter. There were no profits, chases, and Childs was to take pos- but a loss, and Potter made it good session of the hogs as security, sell to Childs. Potter did not pay Har- them, reimburse himself and have vey, and Harvey sued Childs to hold half of the net profits; but that in him liable as a partner with Potter any event Potter should pay back in the purchase. Held, that he was all of Childs' advances. Without not liable. See, also, Clifton v. the knowledge of Childs, Potter Howard (1886), 89 Mo. 192, 1 S. bought on his own credit a lot of W. 26, 58 Am. Rep. 97; Button v. hogs of Harvey, the plaintiff, but Railway Co. (1919), 104 Kan. 282, did not pay for them. These hogs 178 Pac. 418. 86 WHAT ACTS CREATE A PARTNERSHIP [ 96 joint liability, ' ' continued the court, ' ' the question still remains : What shall be deemed sufficient evidence of that relation, or to raise the implication of authority to incur the liability in question? To this end numerous tests have been supposed to exist; but the best considered and least objectionable is that of a community of interest in the profits of a business or trans- action as a principal or proprietor. But this test is valuable as a rule chiefly because it evinces a relation between the parties, where each may reasonably be presumed to act for himself and as agent for the others, and to that extent establishes the fact that the liability was incurred on the authority of all so par- ticipating in the profits. Participation in the profits of a busi- ness, however, cannot be regarded as a rule so universal and unrelenting as to be unjustly applied to a case where a debt is incurred by one who cannot be said to be acting, in the par- ticular transaction, as the agent or on behalf of the party sought to be charged. Therefore, on principle, the true test of a part- nership, at last, is left to be that of the relation of the parties as principal and agent, to be proved by any competent evidence ; for where they sustained that relation, a joint liability may be said to have been incurred by the authority or on behalf of each of the parties so related. The tendency of the more modern authorities, both English and American, is to this conclusion." 96. Same subject Meehan v. Valentine. The test of mu- tual agency has not, however, proven entirely satisfactory to all of the courts. It is said, and not without reason, that this is to invert the logical order of events and turn the result into the cause that mutual agency is the result of partnership rather than that partnership is the result of mutual agency. Thus it is said in a leading case 32 in the supreme court of the United 32 Meehan v. Valentine (1891), loaned C. & Co. $10,000 on the agree- 145 IT. S. 611, 12 Sup. Ct. 972, 36 ment that he was to have, in addi- L. ed. 835, Mechem 's Gas. 135, Burd. tion to the interest, one-tenth of the Gas. 80, Gilm. Gas. 45. This was an net profits over a given sum. The action brought to charge the estate arrangement was annually renewed of one P., deceased, of which V. was for four years. Six per cent, was executor, on the ground that P. was the legal rate of interest in Mary- a partner in the firm of C. & Co. P. land at the time. In one of the 87 97] LAW OP PARTNERSHIP States: "As has been pointed out in later English cases, the reference to agency as a test of partnership was unfortunate and inconclusive, inasmuch as agency results from partnership rather than partnership from agency. Such a test seems to give a synonym rather than a definition ; another name for the con- clusion rather than a statement of the premises from which the conclusion is to be drawn. To say that a person is liable as a partner, who stands in the relation of principal to those by whom the business is actually carried on, adds nothing by way of precision, for the very idea of partnership includes the rela- tion of principal and agent." 97. Same subject. In this case the court further say: "In the present state of the law upon this subject, it may per- haps be doubted whether any more precise general rule can be laid down than that those persons are partners who contribute either property or money to carry on a joint business for their common benefit, and who own and share the profits thereof in years, he was guaranteed ten per cent, interest, or, if the profits ex- ceeded $10,000, he was to have, in lieu of interest, ten per cent, of the profits. P. received, under this agreement, about $1,500 the first year; but afterwards, as it was diffi- cult to determine the exact profits, it was agreed that he should have $1,000 each year on account, leaving the exact amount to be determined on the final settlement of the whole business. This arrangement was continued for four years, when C. & Co. failed, owing large amounts to the plaintiff and others. The court held that this was a loan; that P. was a creditor and not a partner, and consequently that the action could not be maintained. As has been already seen, (ante, 80), the Uniform Partnership Act (Sec. 7, subd. 4), provides that no inference of partnership shall be drawn merely from the fact that a person receives a share of the profits of a business ' ' as interest on a loan, though the amount of payment vary with the profits of the business." See, also, Johnson v. Carter (1903), 120 Iowa 355, 94 N. W. 850. It is said in some of the older cases, where the amount of com- pensation exceeds the legal rate of interest, that it must be either part- nership or usury, and that, as the courts will not hear parties assert that they intended usury, the result must be partnership. But this view no longer prevails; the rate may be usurious, with its consequent penal- ties, but the agreement does not, foi that reason alone, create partner- ship. Compare Bloxham v. Pell (1775), 2 Wm. Bl. 999; Arnold v. Angell (1875), 62 N. Y. 508; Aus- tin v. Neil (1898), 62 N. J. L. 462, 41 Atl. 834. 88 WHAT ACTS CREATE A PARTNERSHIP [98 certain proportions. If they do this, the incidents or conse- quences follow, that the acts of one in conducting the partner- ship business are the acts of all ; that each is agent for the firm and for the other partners ; that each receives part of the profits as profits, and takes part of the fund to which the creditors of the partnership have a right to look for the payment of their debts; that all are liable as partners upon contracts made by any of them within the scope of the partnership business; and that even an express stipulation between them that one shall not be so liable, though good between themselves, is ineffectual as against third persons. And participating in profits is pre- sumptive, but not conclusive, evidence of partnership." 98. Same subject. Notwithstanding these differences of opinion as to the test of mutual agency, it is entirely clear that the old rule that sharing profits as profits made one a partner is overthrown. It seems also to be true that the real test is that suggested by the definition given in the first section, namely, that there must be a community of interest a co-ownership a joining as principals, in carrying on a business for their joint profit. This community of interest as principals in the trans- action necessarily excludes mere servants or agents who are to share profits by way of contingent compensation; lenders who are to share in the profits merely by way of contingent interest ; landlords who are to take a share of the profits merely by way of rent; and any other class of creditors whose interest is not in the business itself, who have no common ownership of the business, its capital or its stock in trade, who do not own the profits, if there are any, who have no voice or part in controlling the management of the business, but who are simply entitled to be paid out of the profits, if there are any, some claim or demand which they have against the real principals in the business. 83 33 See, also, Parchen v. Anderson First Nat. Bank (1894), 43 Neb. (1885), 5 Mont. 438, 5 Pac. 588, 51 84, 61 N. W. 112; Boston Smelting Am. Rep. 65; Vinson v. Beveridge Co. v. Smith (1880), 13 R. I. 27, 43 (1879), 3 MacArth. (D. C.) 597, 36 Am. Rep. 3; Culley v. Edwards Am. Rep. 113; Sodiker v. Applegate (1884), 44 Ark. 423, 51 Am. Rep. (1884), 24 W. Va. 411, 49 Am. Rep. 614; Jeter v. Burgwyn (1893), 113 252, Gilm. Gas. 5; Waggoner v. N. Car. 157, 18 S. E. 113; Shepard 89 99, 100] LAW OF PARTNERSHIP As has been seen, 34 the Uniform Partnership Act is entirely in accord upon this point. 86 It is apparent that the subdivision now 'under consideration is not properly to be deemed a ground for the creation of a gwewi-partnership. It remains, therefore, to consider the other, already mentioned, namely 2. Of Holding Out as a Partner Nominal Partner Estoppel. 99. Person may become liable as a partner by holding him- self out as one. A person who is not actually a partner may render himself liable as though he were one, by so conducting himself as to reasonably induce third persons to believe that he is a partner and to act upon that belief. This rule is based upon the same principle as that which has been discovered in the law of Agency, that a person may become liable for the acts of another who was not really his agent, if he has so conducted himself as to lead others reasonably to believe that such person was his agent. It is a case in which the principle of estoppel applies. Estoppel is that which stops, bars, or prevents. More specifically, for our purposes, it is that principle of the law which operates to prevent a man, who, by some express or im- plied representation, has led another reasonably and in good faith to rely upon the existence of a certain state of facts, from afterwards denying, to the prejudice of such other, that such a state of facts did exist. In the law of partnership it is com- monly spoken of as a liability incurred by holding oneself out or permitting oneself to be held out as a partner. 100. It involves some express or implied representa- tion by the person in question that he is a partner, in reason- able and bona fide reliance upon which the person now seeking to hold him liable as such has extended a credit, or otherwise changed his position, in such a manner that he will now be pre- judiced if the representation be denied. T. Pratt (1876), 16 Kan. 209; Beard v. Hornaday (1914), 92 Kan. 293, v. Rowland (1905), 71 Kan. 873, 81 140 Pac. 870. Pae. 188; Weiland v. Sell (1910), 34 See ante, 80. 83 Kan. 229, 109 Pac. 771; Wade 35 Sec. 7 (4). 90 WHAT ACTS CREATE A PARTNERSHIP [ 101, 102 The representation must ordinarily be one, not of matters of law or of opinion merely, but of fact, in this case, the assumed fact that the person sought to be held was a partner as he was represented to be. The representation may be either that the person in question is a partner in an actually existing firm, or that he is a partner with one or more persons where no partnership between any of them actually exists. 101. Same subject. The Uniform Partnership Act declares the rule as follows: "When a person, by words spoken or writ- ten, or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing part- nership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public man- ner he is liable to such person, whether the representation has or has not been made or communicated to such person as giving credit by or with the knowledge of the apparent partner mak- ing the representation or consenting to its being made. ' ' 36 102. Same subject What facts must exist? In order to the existence of this liability, two main facts must be found : 1. The condition or thing relied upon as evidence of the hold- ing out must have been caused either by the party to be charged as partner, in person, or by another with his knowledge and consent ; 87 and 2. The party seeking to hold him liable as a partner must, in the exercise of reasonable prudence and good faith, have re- lied upon such condition or thing and been misled by it. 38 36 Sec. 16. Subd. 1. that he held himself out as a part- 37 See Lott v. Young (1901) 48 ner, unless he did so before the con- C. C. A. 654, 109 Fed. 798. tract -was entered into. It also fol- 38 In Lindley on Partnership (vol. lows that no person can be fixed with I, p. 43) it is said: "It follows liability on the ground that he has * * * that a person cannot be been held out as a partner, unless liable on a contract, on the ground two things concur, viz.: first, the 91 102] LAW OF PARTNERSHIP The condition or thing relied upon may be an act or a rep- resentation or a mere failure to act. No particular form or ceremony is necessary. The appearance or condition relied upon need not have been caused by the party in person, but may have been caused by others with his knowledge and consent. It may consist in a mere omission to act under such circumstances as to reasonably lead the person who relied to believe that the per- son sought to be held assented to the representation. 39 alleged act of holding out must have been done either by him or by his consent, and secondly, it must have been known to the person seek- ing to avail himself of it. In the absence of the first of these requi- sites, whatever may have been done cannot be imputed to the person sought to be made liable; and in the absence of the second, the person seeking to make him liable has not in any way been misled. ' ' See, also, Hahlo v. Mayer (1890), 102 Mo. 93, 13 S. W. 804, 22 Am. St. E. 753, Mechem's Gas. 179; Fletcher v. Pullen (1889), 70 Md. 205, 16 Atl. 887, 14 Am. St. E. 355, Mechem's Gas. 166, Gilm. Gas. 100; Morgan v. Farrel (1890), 58 Conn. 413, 20 Atl. 614, 18 Am. St. E. 282, Me- ehem's Gas. 171; Van Kleeck v. Hammell (1891), 87 Mich. 599, 49 N. W. 872, 24 Am. St. E. 182; Thompson v. First National Bank (1883), 111 U. S. 529, 4 Sup. Ct. 689, 23 L. ed. 507, Mechem's Gas. 771, Burd. Gas. 96, Gilm. Gas. 96; Lincoln v. Craig (1889), 16 E. I. 564, 18 Atl. 175; Cornhauser v. Eoberts (1890), 75 Wis. 554, 44 N. W. 744; United States Wood Preserv. Co. v. Lawrence (1915), 89 Conn. 633, 95 Atl. 8. 39 Thus in Fletcher v. Pullen, supra, there was evidence that the defendant, to his knowledge, had been advertised in the newspapers as a partner with another person. Said the court: "Having knowledge of these advertisements, it was his duty to deny the partnership if he wished to escape liability. But what was he to do and how much? We do not say that he was under a legal obliga- tion to publish a repudiation of the partnership in the same newspapers, or in any other, though this would seem to be a very obvious and the most efficient mode of proclaiming such denial, and the fact that he failed to do so was a circumstance to go to the jury. But we take it that the rule upon this subject stated by a very eminent jurist is reasonable and just: 'If one is held out as a partner, and he knows it, he is chargeable as one, unless he does all that a reasonable and hon- est man should do, under similar cir- cumstances, to assert and manifest his refusal, and thereby prevent in- nocent parties from being misled.' Parsons on Partnership, 134. ' ' [The difficulty in Fletcher v. Pul- len, is to find the connection between the acts which the plaintiff relied upon, but which the defendant did not know of, and the acts which the defendant knew of, but which the plaintiff neither knew of nor relied upon.] On the other hand, in Munton v. 92 WHAT ACTS CREATE A PARTNERSHIP [103 103. Same subject Who may enforce liability. It is not necessary that the condition or appearance shall have been known to persons generally; it is enough, but also essential, that it was known to the party deceived by it. 40 The representation Eutherford (1899), 121 Mich. 418, '80 N. W. 112, where it was con- tended that Mrs. Rutherford had been advertised in a newspaper as a partner with a Mr. Beckwith, and the trial court had instructed the jury that it was her duty, if not a partner, to see that this advertise- ment was promptly and unmis- takably denied, and that failing in this she would be estopped to deny the partnership, the supreme court said: "The instruction was errone- ous. Mrs. Eutherford was under no legal or moral obligation to pub- lish a denial of this newspaper story. Any one who saw fit to deal with Mr. Beckwith, relying on this item, did so at his peril. If she had been shown the article, had assented to it, and credit had been given on the strength of such assent, the rule of estoppel would have applied. There being no evidence that she author- ized or assented to it, there is no room for the application of the rule." So where a wife's name was, without her authority, included in the list of partners on the letter- heads of the firm in which her hus- band was a partner, and she com- plained to the partners about it and requested that it be discontinued and they promised her that it would be, it was held that no inference of her consent could be drawn where the partners continued the use of her name without her knowledge or consent and in violation of their promise. Eittenhouse v. Leigh (1880), 57 Miss. 697. Compare Anfenson v. Banks (1917), 180 Iowa 1066, 163 N. W. 608, L. E. A. 1918 D, 482. Diligence in ascertaining and denying a report that one is a part- ner cannot be insisted upon where there is no evidence that he knew anything about such a report. Campbell v. Hastings (1874), 29 Ark. 512. It surely cannot be true that a person is bound to heed or deny every idle and baseless statement or rumor that is circulated concerning him. The test must be whether, under all the circumstances, con- sidering the time, place and person making the statement, the failure to deny it may fairly and reasonably be deemed to be evidence of an ac- quiescence in it. 40 Clearly the party cannot be held liable as a partner by estoppel except to those who knew of the holding out and relied upon it. Thompson v. First Nat. Bank (1884), 111 U. S. 529, 4 Sup. Ct. 689, 28 L. ed. 507, Mechem's Gas. 771, Burd. Gas. 96, Gilm. Gas. 96; Hahlo v. Mayer (1890), 102 Mo. 93, 13 S. W. 804, 22 Am. St. E. 753, Me- chem's Gas. 179; Fletcher v. Pullen, supra; Webster v. Clark (1894), 34 Fla. 637, 16 So. 601, 43 Am. St. E. 217, 27 L. E. A. 126; Dubos v. Jones (1894), 34 Fla. 539, 16 So. 392; Knard v. Hill (1893), 102 Ala. 570, 15 So. 345; Wood v. Pennell 93 104] LAW OF PARTNERSHIP need not have been made to the particular person alone who re- lied upon it. It may have been made to each of a group of persons of which he was one, and he may have been the only one who acted upon it. It need not have been made directly to the person deceived: if it came to him by natural, direct and rea- sonably to be expected channels and he reasonably relied upon it, it is enough. It need not have been the only thing which influenced his action; it is enough if he relied upon it in his acting, even though other things may also have contributed to influence him. The person who made the representation need not, of course, have actually intended to influence any body's action ; if what he did was naturally and directly calculated to influence action and in fact did so, it is enough. But the party seeking to enforce the liability must have exercised reasonable prudence, must have acted in good faith, and must have been actually deceived by the condition or appearance. If he knew, or ought to have known, the true state of facts, or if he did not rely upon the appearance or condition, or if he did not know of it at the time he acted, he has no cause of complaint. 41 104. In a leading case 42 it is said : ' ' The law on this subject, well established by authority, may be stated thus : The ground of liability of a person as partner who is not so in fact is that he has held himself out to the world as such, or has per- mitted others to do so, and by reason thereof is estopped from denying that he is one as against those who have in good faith dealt with the firm or with him as a member of it. But it must appear that the person dealing with the firm believed, and had a reasonable right to believe, that the party he seeks to hold as a partner was a member of the firm, and that the credit was, to some extent, induced by this belief. It must also ap- pear that the holding out was by the party sought to be charged, (1863), 51 Me. 52; Sheldon v. Bige- brought to Ms notice as would be low (1902), 118 Iowa 586, 92 N. W. certain to excite inquiry in the mind 701. of any prudent man, and the means 41 In Morgan v. Farrcl, supra, the of ascertaining the truth were read- court held that the party seeking ily accessible but not used, the party to enforce the liability must show could not recover, that he exercised good faith and due See also Anfenson v. Banks, supra, diligence to know the truth ; and 42 Fletcher v. Pullen, supra. that if such circumstances are 94 WHAT ACTS CREATE A PARTNERSHIP [ 105, 106 or by his authority, or with his knowledge or assent. This, where it is not the direct act of the party, may be inferred from circumstances, such as advertisements, shop bills, signs or cards, and from various other acts from which it is reasonable to infer that the holding out was with his authority, knowledge or assent." 105. Same subject Holding out to the world. It -vas at one time thought that there might be "a holding out to the world," so that any one who had given credit might recover, even though he knew nothing of the holding out at the time he extended the credit ; ** but this notion has long since been exploded. 44 An actual partner, like an undisclosed principal, may be held, although the person who gave the credit was igno- rant of his existence ; but a person who was not actually a part- ner can be held only by those who were in fact deceived by his appearing as a partner. It is, of course, true that there may be such general, wide- spread and unqualified representation of partnership as to jus- tify a jury in finding an actual partnership, against one who denies that he was a partner, and who may, in fact, never have intended to become one; but that is not the matter now under consideration. 106. Same subject Methods of holding out. The methods by which one may be held out as a partner are, of course, too numerous for complete enumeration. Among the most common are knowingly permitting one's name to appear in the firm name, or on signs, letter-heads, advertisements, or in the list of partners, and the like, or knowingly permitting oneself to be referred to as a partner, and the like. 46 43 See Poillcra v. Secor (1875), 61 96; Hahlo v. Mayer (1890), 102 Mo. N. Y. 456; Smith v. Hill (1872), 45 93, 13 S. W. 804, 22 Am. St. E. 753, Vt. 90, 12 Am. E. 13; Eizer v. Mechem 's Gas. 179. James (1881), 26 Kan. 221. 45 See Thompson v. First Nat. 44 See Thompson v. First Nat. Bank (1884), 111 U. S. 529, 28 L. Bank (1884), 111 U. S. 529, 28 L. ed. 507, 4 Sup. Ct. 689, Mechem's ed. 507, 4 Sup. Ct. 689, Mechem 'a Gas. 771, Burd. Gas. 96, Gilm. Gas. Cas. 771, Burd. Gas. 96, Gilm. Gas. 96; Fletcher v. Pullen (1889), 70 95 107, 108] LAW OF PARTNERSHIP For a known partner to retire from a firm and give no notice of that fact to those who have known of the existence of the firm, has the same effect, as will be seen hereafter. 46 107. Same subject Evidence admissible. The burden of proving the liability as a partner is upon him who asserts it. This proof may be made by any kind of evidence having a legitimate tendency to that end. Thus it may be established not only by direct evidence, but by the admissions, acts or declara- tions of the party sought to be charged known to and reasonably relied upon by the plaintiff. It cannot, however, be established by showing a general reputation that the party was a partner, unless he can be shown to be responsible for such reputation. Whether the party charged has held himself out as a part- ner, or has permitted it to be done, is a question of fact ordi- narily to be determined by the jury ; * 7 but where the facts are not disputed and only one inference can be fairly drawn from them the court will decide it. 108. Same subject The effect. A person may thus become liable as though he were a partner by "holding out," usually in contract but also in tort where the tort is one, which, like deceit, acting upon invitation, and the like, may naturally and directly result from the holding out ; 48 but he is not thereby Md. 205, 16 Atl. 887, 14 Am. St. E. Speer v. Bishop (1874), 24 Ohio St. 355, Mechem's Gas. 166, Gilm. Gas. 598. Compare Ihmsen v. Lathrop 100; Hahlo v. Mayer (1890), 102 (1883), 104 Pa. 365. Mo. 93, 13 S. W. 804, 22 Am. St. E. 46 See ^post, Chap. XVI. 753, Meehem's Gas. 179; In re 47 Fletcher v. Pullen (1889), 70 Krueger (1871), 2 Low. 66, Me- Md. 205, .16 Atl. 887, 14 Am. St. E. chem's Gas. 183; Evens & Howard 355, Mechem's Gas. 166, Gilm. Gas. Fire Brick Co. v. Hadfield (1896), 100; Seabury v. Crowell (1890), 51 93 Wis. 665, 68 N. W. 468, Me- N. J. L. 103, 52 id. 413, 16 Atl. 84, chem's Gas. 783, Burd. Gas. 110; 11 L. E. A. 136. Thayer v. G-oss (1895), 91 Wis. 90, 48 See Jewison v. Dieudonne 64 N. W. 312, Mechem's Gas. 492, (1914), 127 Minn. 163, 149 N. W. Burd. Gas. 102; In re Fraser 20; Sherrod v. Langdon (1866), 21 [1892], 2 Q. B. 633, Mechem's Gas. Iowa 518, Burd. Gas. 112, but not 781, Burd. Gas. 108. such torts, e. g., negligent injuries, See, also, Tanner Engine Co. v. and the like, which are not the re- Hall (1888), 86 Ala. 305, 5 So. 584; suit of the plaintiff's reliance upon 96 WHAT ACTS CREATE A PARTNERSHIP [ 109 made a partner as to other persons than those relying upon the condition or appearance for which he is thus held respon- sible, nor does he acquire the rights or obligations of a partner as between himself and his alleged copartners. Whether he is to be held liable alone or in connection with his reputed partner must depend upon the acts of both. If the person with whom he was held out as a partner was ignorant of it and did not concur in it, he could not be held liable. If, on the other hand, he concurred or co-operated in the holding out of the other, both may be held liable. 49 It must also be borne in mind that though a partnership ac- tually exists with certain bounds or limits, one or more partners may become liable to third persons beyond those bounds or limits, if they hold themselves out as partners in a more en- larged capacity than that fixed as between the partners them- selves. 109. The Uniform Partnership Act provides that " (a) When a partnership liability results, [that is, where he has been held out as a partner in an actually existing firm], he is liable as though he were an actual member of the partnership. " (&) When no partnership liability results, he is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. ' ' 50 With respect of his power to bind his reported partners, that Act provides: "'When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such rep- resentation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. Where all the mem- bers of the existing partnership consent to the representation, a partnership act or obligation results ; but in all other cases it is the holding out. Stables v. Eley 271, 104 Fed. 449, 52 L. E. A. 675. (1825), 1 Car. & P. 614, Ames' Gas. 49 See Scarf v. Jardine (1882), L. 142, is therefore unsound, as has E. 7 App. Gas. 345, Mechem's Gas. been often pointed out. See Smith 484, Burd. Gas. 101. v. Bailey [1891], 2 Q. B. 403; Shap- 60 Sec. 16, subd. 1. ard v. Hynes (1900), 45 C. C. A. Mech. Part. 7 97 110, 111] LAW OP PARTNERSHIP the joint act or obligation of the person acting and the persons consenting to the representation. ' ' 61 110. Whether the effect of the estoppel is anything more than a means to personal liability, e. g., whether the prop- erty of the ostensible partners is primarily liable to the creditors of the ostensible partnership, is a question considered in a later section. 62 It will there be seen that while some cases confine the effect to personal liability, others hold that the property is implicated also. The effect of appearances of partnership where none exists upon the defences or set-offs which may be made in legal actions, will be considered in later sections. 63 It must be kept in mind, however, as already stated, that estoppel is usually merely a method of imposing a liability -as though the parties were partners: it does not make them part- ners in fact, or give them generally the rights of partners among themselves, or affect them generally with the disabilities under which, as actual partners, they might be placed. Thus, the mere fact that two persons, not in fact partners, so hold themselves out as partners in the brokerage business that they could be con- sidered such by their creditors, is not a bar to an action brought by one of them only to recover commissions, merely because if they had been partners both must have joined in the action. 64 111. Under the national bankruptcy act, it has been said that the Act applies only to actual partnerships and not to those resting only on estoppel; certainly not, where the es- toppel affects part only or affects the creditors in a different way. 85 51 Sec. 16, subd. 2. 55 See In re Pinson (1910), 180 52 See post, 459, 460. Fed. 787; In re'Kenney (1899), 97 63 See post, 327; 340 et seq.; Fed. 554; Lott v. Young (1901), 48 Willey v. Bank (1904), 141 Cal. 508, C. C. A. 654, 109 Fed. 798; Buffalo 75 Pac. 106. Milling Co. v. Lewisburg Dairy Co. M See Wneelock v. Zevitas (1918), (1908), 159 Fed. 319. 229 Mass. 167, 118 N. E. 279; Bishop v. Hall (1857), 9 Gray (Mass.) 430. 98 CHAPTER VI OF SOME INCIDENTS OF PARTNERSHIP PARTNERSHIP ARTICLES, FIRM NAME, GOOD WILL, PART- NERSHIP PROPERTY. 112. In general. I. OF ARTICLES OF PARTNERSHIP. 113. Of the necessity of articles. 114. Of the scope of articles. 115. Of the construction of ar- ticles. 116. Of waiving or enlarging ex- press conditions by con- duct. 117. Of continuing partnership under former articles. 118. Of the usual clauses in part- nership articles. 119. Of the enforcement of the provisions Arbitration Specific performance. II. OF THE FIRM NAME. 120. Of the need of a firm name. 121. What name may be adopted. 122. Use of different name. 123. What may be done in the firm name Executing con- tracts, bonds, deeds Ac- tions at law. 124. Of the firm, name as prop- erty. 125. 126. Of the right to the firm name upon dissolution. III. OF THE GOOD-WILL. 127. What is meant by the good- will. 128. Good-will as an asset. 129. Disposition of good-will on dissolution. 130. Effect of sale Right to use firm name. 131, 132. Limitations resulting from sale of good-will upon right to carry on competing business. IV. OF THE CAPITAL OF THE FIRM. 133. What constitutes capital. 134. Fixing amount and interests. 135. Certificates or other evidence of interest. 136. What may be received as con- tributions to capital. 137. Enforcing contribution of capital. V. OF THE PROPERTY OF THE FIRM. 1. Of Firm Property in General. 138. What may be partnership property. 139. What constitutes partnership property. 140. Property bought by partner in his own name. 141. Property used by the firm. 142. Partners' "lien" on prop- erty. 143. 144. Nature of each partner 's interest in the firm prop- erty. 99 112, 113] LAW OF PARTNERSHIP 145. Extent of each partner's in- terest. 146, 147. The transfer of shares. 148, 149. Seizure of partner's share by his individual creditor. 2. Of the Title to Personal Property. 150. May be held in firm name. 151. May be held in name of one partner for the firm. 152. Title is in partners collec- tively. 3. Of the Title to Seal Estate. 153. Older rule Legal title to real property cannot ordi- narily be taken in firm name. 154. But the equitable title is in the firm. 155. Modern rule more liberal Uniform Partnership Act. 156. When land is partnership property. 157-159. Land acquired dur- ing the partnership. 160, 161. Land acquired prior to the partnership. 162. Nature of partner's interest in partnership realty. 163, 164. Partnership realty, when deemed personal estate. 165, 166. Dower in partnership land. 167. Bona fide purchaser from partner having legal title. 168. Notice from possession by the firm. 169. Interest of surviving partner in firm realty. 112. In general. A partnership having been formed, a number of subjects incident to its existence become important, and though they may not all be similar in their character they may appropriately be grouped together in one chapter for con- sideration. I. OP ARTICLES OF PARTNERSHIP. 113. Of the necessity of articles. As has been stated, it is desirable, but not usually indispensable, to have written evidence of the agreement between the parties as to the creation, continu- ance, terms and conditions of their partnership. The formal written instruments prepared in such cases are spoken of as the partnership articles. As between themselves, it is, in general, possible for the parties to fix their rights, duties and liabilities, as well as the circumstances of the commencement, continuance and termination of the partnership, by their agreement; and though, in the absence of such an agreement, the law will usually determine these matters for them, it is not by any means cer- tain that the legal conclusions will be the same that the parties 100 SOME INCIDENTS OF PARTNERSHIP [ 114 contemplated, and it- is in any event desirable that the oppor- tunity for controversy be removed by express stipulation. 114. Of the scope of articles. It is not, however, usually feasible, by even the most carefully-drawn articles, to provide beforehand for every possible contingency, or to define all the rights, duties or liabilities of the partners. Much must of ne- cessity be understood ; custom or usage may be tacitly recognized ; and conduct or practice may add to or modify that which is expressed. It may thus happen that, in a given case, the body of law or rules which are to govern the relations of the partners as between themselves is to be gathered from a variety of sources. As was said in one case : l ' ' The duties and obligations arising from the relation between the parties are regulated by the ex- press contract between them so far as the express contract ex- tends and continues in force; but if the express contract, or so much of it as continues in force, does not reach to all those duties and obligations, they are implied and enforced by the law; and it is often matter to be collected and inferred from the conduct and practice of the parties whether they have held themselves, or ought or ought not to be held, bound by the par- ticular provisions contained in their express agreement. ' ' In another case, 2 in which the question was whether the de- fendant was entitled to draw a salary in half years when there were no net profits, the court said: "This question is open to doubt if the partnership articles alone are looked at, but its determination does not depend merely upon the construction which would be given to the partnership articles, taken by them- selves alone. It is a general rule for the construction of written instruments, including statutes, deeds and contracts, that when the language is open to doubt, and parties whose interests are diverse have from the outset adopted and acted upon a par- ticular construction, such construction will be of great weight with the court, and will usually be adopted by it. 3 This rule 1 Smith v. Jeyes (1841), 4 Beav- 3 Citing Stone v. Clark, 1 Mete, an (Eng. Ch.) 505. 378; Stevenson v. Erskine, 99 Mass. 2 Winchester v. Glazier (1890), 367; Love joy v. Lovett, 124 Mass. 152 Mass. 316, 25 N. E. 728, 9 L. E. 270, 274; Chicago v. Sheldon, 9 A. 424. Wall. 50, 54. 101 115, 116] LAW OP PARTNERSHIP has full force in the construction of partnership articles, and a practical construction given for several years by the partners themselves to language which would otherwise be open to doubt will usually be accepted by the court as conclusive. ' ' 115. Of the construction of articles. In endeavoring to determine what the parties intended by their express provisions, certain rules of construction have been laid down by the courts. Among these, the most important is that which gives promi- nence to the general purpose and object of the partnership. If certain of the provisions of the articles are capable of two con- structions, one of which would promote while the other would retard or defeat that general purpose or object, the former con- struction is to be preferred; so if powers claimed would, by their exercise, advance the general object, their existence will be more readily inferred than if they are obstructive to it. In the same line are the other rules of construction, that a power conferred is to be deemed to have been so conferred with a view to the benefit of all concerned, and hence that an exercise of it for the benefit of one to the detriment of the others was not really intended, though the words used might, upon their face, bear such a construction; and that any provision, however worded, is, if possible, to be so construed as to prevent one part- ner from defrauding another in reliance upon its letter, but in violation of its spirit. 4 116. Of waiving or enlarging express provisions by con- duct. Any written stipulation, however express, is capable of being modified, superseded or abandoned by the consent of all of the partners; and this consent may be shown not only by express words, but by conduct or the established practice of the parties. 6 But the unanimous consent of all is necessary, for a portion cannot alter, modify or enlarge the contract of all. In an English case 6 it was said by Lord Eldon: "In ordi- 4 See Blissett v. Daniel (1853), 10 5 See McCall v. Moss (1885), 112 Hare (Eng. Ch.) 493; Pettyt v. 111.493. Janeson (1819), 6 Haddock (Eng. 6 Const v. Harris (1824), 1 Tur. & Ch.) 146. Rus. 496. So in England v. Curling 102 SOME INCIDENTS OF PARTNERSHIP [ 117 nary partnerships nothing is more clear than this : that, although partners enter into a written agreement, stating the terms upon which the joint concern is to be carried on, yet if there be a long course of dealing, or a course of dealing not long, but still so long as to demonstrate that they have all agreed to change the terms of the original written agreement, they may be held to have changed those terms by conduct. For instance, if in a common partnership the parties agree that no one of them shall draw or accept bills of exchange in his own name without the concurrence of the others, yet, if they afterwards slide into a habit of permitting one of them to draw or accept bills without the concurrence of the others, this court will hold that they have varied the terms of the original agreement in that respect." 117. Of continuing partnership under former articles. When a partnership has existed under articles providing for a definite term, there may be an oral agreement to extend it ; 7 bui, if, upon the expiration of that term, the partnership is con- tinued without any new agreement, the original articles will in general continue to regulate the rights and obligations of (1844), 8 Beavan 129, it was said pose of having some addition or by Lord Langdale: "With respect alteration in the terms on which they to a partnership agreement, it is to carry on business, provided those be observed that, all parties being additions or alterations be made competent to act as they please, they with the unanimous concurrence of may put an end to or vary it at any all the partners." See, also, Board- moment; a partnership agreement man v. Adams (1857), 5 Iowa 224, is therefore open to variation from Mechem's Gas. 339; Scudder v. day to day, and the terms of such Ames (1886), 89 Mo, 496, 14 S. W. variations may not only be evi- 525; Gammon v. Huse (1881), 100 denced by writing, but also by the 111. 234; Gage v. Parmlee (1877), 87 conduct of the parties in relation to 111. 329; Thrall v. Seward (1865), the agreement and to their mode of 37 Vt. 573; Gregg v. Hord (1889), conducting their business: when, 129 111. 613, 22 N. E. 528; McCall v. therefore, there is a variation and Moss (1885), 112 111. 493; Thomas alteration of the terms of a partner- v. Lines (1880), 83 N. Car. 191. ship, it does not follow that there Compare Eady v. Newton Coal Co. was not a binding agreement at first. (1905), 123 Ga. 557, 51 S. E. 661, 1 Partners, if they please, may, in the L. E. A. (N. S.) 650. course of the partnership, daily come 1 See Dickinson v. Bold (1816), 3 to a new arrangement for the pur- Desaus. Eq. (S. Car.) 501. 103 118] LAW OF PARTNERSHIP the partners; though the continuing partnership will usually be deemed to be at will merely and not renewed for a similar term, and therefore only such of the old articles will be deemed to be in force as are consistent with such a partnership. 8 The original articles may also survive changes in the persons com- prising the firm, and be continued by their adoption by the new firm. The Uniform Partnership Act contains similar provisions. 9 It declares, " (1) "When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. " (2) A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. ' ' 118. Of the usual clauses in partnership articles. The sub- jects most commonly covered by the partnership articles are: (1) the nature, name and place of the business; (2) the com- 8 See Metcalf e v. Bradshaw of the partnership, may apply to the (1893), 145 111. 124, 33 N. E. 1116, partnership at will as well as to the 36 Am. St. E. 478, Mechem's Gas. original one: Daw v. Herring 875; United States Bank v. Binney [1892], 1 Ch. 284. See, also, Woods (1828), 5 Mason (U. S. C. C.) 176; v. Lamb (1866), 35 L. J. Ch. 309; Sangston v. Hack (1879), 52 Md. Hogg v. Hogg (1877), 35 L. T. Eep. 173; Bradley v. Chamberlin (1844), N. S. 792. 16 Vt. 613; Mifflin v. Smith (1827), The continuing partnership, it is 17 Serg. & E. (Pa.) 165; Stephens said in Jurgens v. Ittmann (1895), v. Orman (1862), 10 Fla. 9. 47 La. Ann. 367, 16 So. 952, is "one Thus, a provision for doing cer- not resting on consent from day to tain acts within a named period be- day, and by force of such daily re- fore the termination of the partner- iterated consent, but a continuing ship, and which therefore contem- partnership subject to termination plate a known date for the termina- only after notice and under the rules tion, will usually be inapplicable to of law relating to the dissolution of the subsequent partnership at will. partnerships. Until formally or Neilson v. Mossend Iron Co. (1886), legally dissolved it continues as a 11 App. Gas. 298; but a provision partnership." lespecting acts to be done within a 8 Section 23. certain time after the termination 104 SOME INCIDENTS OP PARTNERSHIP [ 119, 120 mencement and duration of the partnership; (3) the capital and property of the firm and how and by whom contributed; (4) the share of each in the profits and losses; (5) the conduct and powers of the partners; and (6) the dissolution and winding up of the firm. Many other subjects are introduced in special cases. A form of articles which may prove to be suggestive is printed in an appendix. 119. Of the enforcement of the provisions Arbitration Specific performance. It is customary to include provisions for arbitration in case of disputes, and for fixing the value of shares by that method in case of the retirement of a partner. Provisions are also frequently inserted for making offers to buy or sell in case of dissolution ; for giving indemnity against debts to the retiring partner; for taking in new partners-; for per- mitting the representatives of a deceased partner to be admitted ; for expelling a partner ; and the like. Many of these provisions can have only a negative effect, for, as will be more fully seen hereafter, 10 it is well settled that agreements to become part- ners, agreements to continue a partnership for a definite time, agreements to submit disputed matters to arbitration, and agree- ments to admit new partners, will not ordinarily be specifically enforced by the courts, but the parties will be left to such rem- edy as they may find, if any, in an action for the breach of the agreement. The execution of formal instruments clearly pro- vided for may sometimes be specifically enforced, including even the execution of partnership articles, where that is necessary to confer upon one party a right to which he is entitled, even though the partnership thereby created may be immediately dissolved. 11 II. OP THE FIRM NAME. 120. Of the need of a firm name. In the absence of a stat- ute requiring it, a firm name is a customary but not a necessary 222. erby v. Buntin (1875), 118 Mass. 11 See England v. Curling (1844), 279, 19 Am. Eep. 459, Meehem's 8 Beavan (Eng. Ch.) 129; Buck v. Gas. 326; Tobey v. Bristol County, Smith (1874), 29 Mich. 166, 18 Am. 3 Story (U. S. C. Ct.) 819. Eep. 84, Meehem's Cas. 322; Som- 105 121] LAW OP PARTNERSHIP incident of a partnership. As has been seen, the partnership is not, in legal contemplation, a distinct and separate entity, but merely a collection of individuals with whom, for most pur- poses, the law deals as such. A firm name, therefore, is not indispensable, 12 but it is a matter of convenience in identifying and ascertaining the individuals interested; and when a firm name has been adopted, it ought regularly to be used in the partnership transactions. Nevertheless, as will be seen, the partners may acquire rights and incur liabilities even though the firm name was not used. 18 121. What name may be adopted. In some states, as, for example, in New York, statutes have been enacted forbidding the use of the name of a person not actually interested in the firm, or the use of the term "& Co." unless it represents an actual partner. 14 Other statutes forbid the use of assumed or fictitious names unless some prescribed notice is given or public record is made showing who are the persons represented by the name. 15 But where no statute prevents, the partners 12 See Meriden Nat. Bank v. Gal- laudet (1890), 120 N. Y. 298, 24 N. E. 994; Wright v. Hooker (1854), 10 N. Y. 51; Getchell v. Foster (1870), 106 Mass. 42; Haskins v. D'Este (1882), 133 Mass. 356, Burd. Gas. 135, Gilm. Gas. 154. 13 See post, 121; 296, et seq. 14 As to the use of the term "& Co.," when forbidden by statute, see Gay v. Seibold (1884), 97 N. Y. 472, 49 Am. Rep. 533; Sparrow v. Kohn (1885), 109 Pa. St. 359, 58 Am. Rep. 726; Wood v. Railroad Co. (1878), 72 N. Y. 196, 28 Am. Rep. 125; Zimmerman v. Erhard (1880), 83 N. Y. 74, 38 Am. Rep. 396; Wolfe v. Joubert (1893), 45 La. Ann. 1100, 13 So. 806, 21 L. R. A. 772; National Bank v. Cringan (1895), 91 Va. 347, 21 S. E. 820. Where no such statute exists, the use of "& Co." raises no necessary presumption that it represents a partner. Robinson v. Magarity (1862), 28 111. 423; Brennan v. Pardridge (1887), 67 Mich. 449, 35 N. W. 85. As to whether the firm name is such as to import a partner- ship or a corporation, see Birming- ham Loan Co. v. First Nat. Bank (1893), 100 Ala. 249, 46 Am. St. Rep. 45; Clark v. Jones (1888), 87 Ala. 474, 6 So. 362; Seymour v. Harrow Co. (1886), 81 Ala. 250, 1 So. 45. 15 As to such statutes and their effect, see Castle v. Graham (1903), 87 N. Y. App. Div. 97, 84 N. Y. 120, aff 'd 180 N. Y. 553, 73 N. E. 1120; Pendleton v. Cline (1890), 85 Gal. 142, 24 Pac. 659; Walker v. Stim- mel (1906), 15 N. Dak. 484, 107 N. W. 1081; Guiterman v. Wishon (1898), 21 Mont. 458, 54 Pac. 566; Czatt v. Case (1899), 61 Ohio St. 106 SOME INCIDENTS OF PARTNERSHIP [122 may adopt any firm name they choose, so long as it does not interfere with the rights of others. They may thus use the name of a stranger, of a single partner or of a portion of the partners, or they may adopt a wholly fictitious name. They may have one name for one branch of their business and a dif- ferent one for another branch; or one name for the business at one place and a different one for the business at another place. 16 They may also acquire a name by usage, even though they have another fixed by the agreement of the partners. 122. Use of different name. And though they may have a regular firm name, they may be bound by the use, in a single transaction, of some other name. 17 They may change or add to 392, 55 N. E. 1004; Cashin v. Filter Nat. Bank (1896), 164 III 83, 45 N. (1912), 168 Mich. 386, 134 N. W. 482, Ann. Caa. 1913 C, 697; Bolen v. Ligett (1916), 49 Okla. 788, 154 Pac. 547, L. E. A. 1916 D, 352; Elgin Jewelry Co. v. Wilson (1908), 42 Colo. 270, 93 Pae. 1107; Garland v. Heckler (1916), 147 C. C. A. 390, 233 Fed. 504; Missaukee Farm Co. v. Ferris (1916), 193 Mich. 286, 159 N. W. 490. For a somewhat similar statute, see National Bank v. Cring- an, supra; Yale v. Taylor Mfg. Co. (1886), 63 Miss. 598. 16 See West v. Valley Bank (1856), 6 Ohio St. 168, Burd. Gas. 132; Messner v. Lewis (1857), 20 Tex. 221, Burd. Gas. 133. 17 An obligation under seal exe- cuted by all the members of a firm, in and for its business and for its benefit, binds the firm although tho firm name is not mentioned, and al- though it appears upon its face to be simply the obligation of the part- ners contracted in their individual names. Berkshire Woolen Co. v. Juillard (1879), 75 N. Y. 535, 31 Am. Eep. 489, Mechem's Gas. 389. To same effect: Dreyfus v. Union E. 408, Burd. Gas. 139; Bouse v. Wallace (1897), 10 Colo. App. 93, 50 Pac. 366. A firm is bound by an acceptance in an agent 's name which it has adopted as a firm name by an agreement of the partners to do business under the name of such agent, where it does not appear that the agent was doing business also on his own account; but if that fact appears, it must be shown that he accepted the bill on account of the partnership in order to bind it. Bank of Rochester v. Monteath (1845), 1 Denio (N. Y.) 402, 43 Am. Dec. 681. See, also, Le Eoy v. Johnson (1829), 2 Peters (U. S.) 186; Eipley v. Colby (1851), 23 N. H. 438; Getchell v. Foster (1870), 106 Mass. 42; Uhler v. Browning (1859), 28 N. J. L. 79; Barcroft v. Haworth (1870), 29 Iowa 462. See, also, post, 296-298. A sealed note made to partners in their individual names may be en- dorsed by them in the firm name. Mick v. Howard (1848), 1 Ind. 250, Burd. Gas. 131. The firm property may be trans- 107 123] LAW OP PARTNERSHIP the firm name at any time. They may acquire rights in the firm name and transfer them in the individual names of the partners, and vice versa. Whatever the name used, it may be shown by parol evidence who the persons were who were rep- resented by it. 123. What may be done in the firm name Executing con- tracts, bonds, deeds Actions at law. As a general rule, all simple contracts, written or unwritten, negotiable or non-negoti- able, whether creating rights or imposing obligations, may be made or taken in the firm name ; 18 and, as will be seen, 19 one partner has usually implied authority to bind the firm by con- tracts made in the firm name for partnership purposes. But, as will also be seen, 20 one partner has ordinarily no implied au- thority to bind the firm by executing in the firm name bonds, deeds or other instruments under seal; and, in general, deeds of conveyance of real estate cannot, by the older authorities, at least, be made either by or to the firm in the firm name. Such conveyances will, however, usually operate to convey an equi- table interest which may be enforced in a court of chancery; and where a conveyance of real estate is made to a firm in the name of the firm which contains the full name of one or more of the partners, a legal title will generally be- held to vest in those partners whose names appear, and equity will charge them as trustees for all. 21 The tendency of the later cases, as will f erred, though each partner makes a Adam (1894), 101 Cal. 438, 35 Pac. separate bill of sale of all his in- 1016, Mechem's Gas. 799, Burd. Gas. terest in his own name, where all 163; Gille v. Hunt (1886), 35 Minn, these bills of sale are then delivered 357, 29 N. W. 2, Gilm. Gas. 190. together to the grantee. Twin City 19 See post, 244. Brief Printing Co. v. Eeview Pub. 20 See post, 263,264. Co. (1918), 139 Minn. 358, 166 N. 21 A deed to John Smith & Co. op- W. 413, L. E. A. 1918 D, 154. erates to vest the entire legal title 18 A chattel mortgage may be in John Smith alone. Winter v. taken in the firm name. Hendren Stock (1866), 29 Cal. 407, 89 Am. v. Wing (1895), 60 Ark. 561, 31 S. Dec. 57; Moreau v. Saffarans W. 149, 46 Am. St. B. 218, Me- (1856), 3 Sneed (35 Tenn.) 595, 67 chem's Gas. 797, Burd. Gas. 161, Am. Dec. 582. A mortgage of real Gilm. Gas. 189. As to real estate estate given to "Farnham & Love- mortgage, see Woodward v. Me- joy, of the county of Hennepin, 108 SOME INCIDENTS OF PARTNERSHIP [$124 be seen, is much more liberal with respect of conveyances to the firm in the firm name. 28 The Uniform Partnership Act permits conveyances both by and to the firm in the firm name. 23 Unless authorized by statute, actions cannot be maintained either by or against the partnership in the firm name, but must be brought in the individual names of the partners. 84 124. Of the firm name as property. ' ' The name by which a firm is known," says Mr. Justice Lindley, 25 "is not of itself the property of the firm, and, speaking generally, there is noth- ing at common law to prevent persons from carrying on business in partnership under any name they please." Notwithstanding this, however, it is clear that the firm name is a thing of value, which may be made the subject of sale or assignment. It is also a thing which the law will protect. Thus Mr. Justice Lindley continues: ''One firm is not at liberty to mislead the public by using a name similar to the name of another firm so as to pass off themselves or their goods for that other or for the goods state of Minnesota," is legally suffi- cient as a mortgage to S. W. Farn- ham and J. A. Love joy, shown to have been the members of a firm en- gaged in business in that county under that name. Menage v. Burke (1890), 43 Minn. 211, 45 N. W. 155, 19 Am. St. R. 235. See, also, Town- shend v. Goodfellow (1889), 40 Minn. 312, 41 N. W. 1056, 3 L. B. A. 739, 12 Am. St. B. 736; Kelley v. Bourne (1887), 15 Ore. 476, 16 Pac. 40. To same effect in ease of deed: Sherry v. Gilmore (1883), 58 Wis. 324, 17 N. W. 252; Cole v. Mette (1898), 65 Ark. 503, 47 S. W. 407, 67 Am. St. E. 945, Mechem's Gas. 801. Many other cases will be found cited, post, 153. 22 See post, 155. 23 See sec. 10. 24 Statutes in many states permit actions in the firm name under vari- ous circumstances: sometimes gener- ally; sometimes where the partner- ship is non-resident; sometimes where the names of the several part- ners are not known. See Adams Ex- press Co. v. State (1903), 161 Ind. 328, 67 N. E. 1033 ; Byers v. Schulpe (1894), 51 Ohio St. 300, 38 N. E. 117, 25 L. E. A. 649; Schweppe v. Wellauer (1890), 76 Wis. 19, 45 N. W. 17; O'Brien v. Foglesong (1883), 3 Wyo. 57, 31 Pac. 1047. In the absence of such a statute, the action must be in the individual names of the partners. See John- son v. First Nat. Bank (1906), 145 Ala. 378, 40 So. 78 ; Pollock v. Dun- ning (1876), 54 Ind. 115; Smith v. Canfield (1860), 8 Mich. 493; Heath v. Morgan (1895), 117 N. Car. 504, 23 S. E. 489. 25 Lindley on Partnership (Ew- ell's 2d Am. ed.), p. 114, 7th ed., p. 132. 109 125] LAW OF PARTNERSHIP of that other. Moreover, an established firm can prevent a company (corporation) from registering under the name of the firm." But the rule that one firm may not adopt the same name as another firm is subject to the qualification that a person or a number of persons, who have not limited their right by con- tract, cannot be prevented from using his or their own name, even though it be that of a former firm in the same business, and even though its use may cause some incidental inconvenience or damage to the former firm, 26 provided it is done in good faith and with no attempt to mislead the public as to the iden- tity. 27 On the other hand, it is equally well settled that one will not be permitted, merely under the pretext of using his own name, to practically and purposely appropriate the busi- ness or good-will of another. 28 Ordinary family names may not be exclusively appropriated as trade marks. 29 125. Of the right to the firm name upon dissolution. The firm name, as has been seen, may be one of two kinds, it may be a purely impersonal or fictitious name, like "The Chicago Hardware Co.," or it may be a personal one, made up in whole or in part of the individual names of the partners, like ' ' Smith & Jones" or "John W. Smith & Co.," and some difference in legal consequences follows the distinction: 26 See Williams v. Farrand 103 Tenn. 40, 52 S. W. 880; Stuart (1891), 88 Mich. 473, 50 N. W. 446, v. Stewart Co. (1899), 33 C. C. A. 14 L. B. A. 161, Mechem's Gas. 222, 480, 91 Fed. 243; Higgins Co. v. Burd. Gas. 588, Gilm. Cas. 177; Higgins Soap Co. (1895), 144 N. Y. Eussia Cement Co. v. Le Page 462, 39 N. E. 490, 43 Am. St. B. (1888), 147 Mass. 206, 17 N. E. 304, 769, 27 L. E. A. 42; Lamb Knit- 9 Am. St. B. 685; Meneely v. Me- Goods Co. v. Lamb Glove & Mitten neely (1875), 62 N. Y. 427, 20 Am. Co. (1899), 120 Mich. 159, 78 N. W. E. 489; Eogers v. Eogers (1885), 53 1072, 44 L. E. A. 841; Pillsbury v. Conn. 121, 55 Am. E. 78; Howe Pillsbury-Washburn Co. (1894), 12 Scale Co. v. Wyckoff, Seamans & C. C. A. 432, 64 Fed. 841; Singer Benedict (1904), 198 U. S. 118, 25 Mfg. Co. v. June Mfg. Co. (1895), 8. Ct. 609, 49 L. ed. 972. 163 U. S. 169, 16 S. Ct. 1002, 41 L. 27 Where such an attempt ap- ed. 118. pears, the use may be enjoined. Bin- 29 See Howe Scale Co. v. Wyckoff, inger v. Clark (1870), 60 Barb. (N. Seamans & Benedict (1904), 198 U. Y.) 113. S. 118, 25 S. Ct. 609, 49 L- ed. 972. 28 See Eobinson v. Storm (1899), 110 SOME INCIDENTS OF PARTNERSHIP [ 126 1. Upon the dissolution of the partnership by act of parties or by mere lapse of time, neither partner buying out the other, either would have the right to go into business for himself and either one might usually adopt the old firm name if it were an impersonal one which could be used without leading the public to believe that the old firm still continued; but neither would have the right to use the old firm name including the individual name of any partner who did not continue with him where to do so would involve the latter in liability. 30 Neither would he have the right, where his former partner also continued in busi- ness, to announce himself as the "successor to" the old firm, though either might designate himself as "formerly of" the old firm; but he must do nothing to deceive the public, such as putting his own name and the "formerly of" in very small letters, and the old firm name in very large letters. 31 The Uni- form Partnership Act has a provision which will be found in the notes. 32 126. 2. Upon the termination of a partnership by death, it has been held that the survivor has the right to con- tinue the use of the old name, whether personal or impersonal; 33 but the true rule seems to be that the name, if impersonal and 30 Apparently in such a ease not 543; Peterson v. Humphrey (1857), only may either one use the old 4 Abb. Pr. (N. Y.) 394; Holbrook name if he is the only one who con- v. Nesbitt (1895), 163 Mass. 120, 39 tinues business; but, if more than N. E. 794. one of the former partners continue 32 Sec. 38, (2) (b) "When dis- business, each may use it. Neither solution is caused in contravention one has the exclusive right to appro- of the partnership agreement priate that which belongs to one as * * * the partners who have not much as to the other. See Burchell caused the dissolution wrongfully, if v. Wilde [1900], 1 Ch. 551; Town- they desire to continue in the same send v. Jarman [1900], 2 Ch. 698; name, either by themselves alone or Dyer v. Shove (1897), 20 E. I. 259, jointly with others, may do so dur- 38 Atl. 498, Burd. Gas. 605. ing the agreed term for the partner- 31 See Hookham v. Pottage ship, ' ' upon giving a bond of in- (1872), L. B. 8 Ch. App. 91; Smith demnity, etc. v. Cooper (1877), 5 Abb. New Gas. 33 See .Lewis v. Langdon (1835), (N. Y.) 274; Morgan v. Schuyler 7 Simons (Bug. Gh.) 421. (1880), 79 N. Y. 490, 35 Am. Rep. Ill 126] LAW OP PARTNERSHIP of value, is a partnership asset, and must be dealt with as such, 34 subject, of course, to the right of the surviving partner to start a new business in his own name. 3. If one partner buys out the other for the purpose of con- tinuing the business, but nothing is expressly agreed upon in reference to the name, the sale by one of all his interest in the business, and a fortiori if the good-will be expressly included, gives to the continuing partner the exclusive right to continue the use of the old firm name if it be a fictitious one, but not if it be a purely personal one containing the name of the retiring partner, except to the extent that the personal name has been made a trade name or a trade-mark of the business. 35 The re- tiring partner in such a case may go into business in his own name, but he must not use even his own name in such a manner as to mislead the public into believing that he is the old firm. 36 34 See Fenn v. Bolles (1858), 7 Abb. Pr. (N. Y.) 202. Under a statute providing for the recording of firm names and dis- closing who are the partners under a given name, a surviving partner runs no risk of liability where a pur- chaser of the old firm name con- tinues the business in that name, even though it includes the name of the surviving partner. Slater v. Slater (1903), 175 N. Y. 143, 67 N. E. 224, 96 Am. St. E. 605, 61 L. E. A. 796, Mechem's Gas. 857. Other- wise that risk might make improper a sale of a personal firm name whose use might involve him. The heirs or the estate of the deceased partner on the other hand, cannot ordinarily be made liable merely by the continu- ance of the business in the old name, even though it includes the name of the deceased partner. The construc- tive notice of the death prevents that. See Webster v. Webster (1791), 3 Swanst. 492, 36 Eng. Ee- print 949; Price v. Mathews (1859), 14 La. Ann. 11; Maryland Nat. Bank v. Hollingsworth (1904), 135 N. Car. 556, 47 S. E. 618; Uniform Partnership Act, Sec. 41, subd. 10. 35 See Thynne v. Shove (1890), 45 Ch. Div. 577; Levy v. Walker (1879), 10 Ch. Div. 436. 36 See Williams v. Farrand (1891), 88 Mich. 473, 50 N. W. 446, 14 L. E. A. 161, Mechem's Gas. 222, Burd. Gas. 588, Gilm. Gas. 177; Von- derbank v. Schmidt (1892), 44 La. Ann. 264, 10 So. 616, 32 Am. St. E. 836, 15 L. E. A. 462 and note; Brass and Iron Works Co. v. Payne (1893), 50 Ohio St. 115, 33 N. E. 88, 19 L. E. A. 82; Myers v. Kala- mazoo Buggy Co. (1884), 54 Mich. 215, 19 N. W. 961, 20 id. 545, 52 Am. Eep. 811; Snyder Manufactur- ing Co. v. Snyder (1896), 54 Ohio SI. 86, 43 N. E. 325, Mechem 's Gas. 240; Eowell v. Eowell (1904), 122 Wis. 1, 99 N. W. 473. As to the use of individual names as trademarks, see Fish Bros. Wagon Co. v. Fish (1892), 82 Wis. 546, 52 N. W. 545, 112 SOME INCIDENTS OP PARTNERSHIP [ 127 4. The retiring partner may, however, by express agreement invest the continuing partner with the right to continue the former firm name, even though it is a purely personal one; and the retiring partner may, in the same manner, limit his own right to resume business or to use or permit to be used his own name in connection with a new business to compete with the old. 87 5. Where the firm business and good-will are sold to a third person, whether voluntarily or as the result of some legal pro- ceeding , the purchaser will, in the case of manufacturing and trading partnerships at least, acquire the right to such use of impersonal firm names as can be made without involving the former partners in personal liability for the debts of the new business. 88 There is less risk of such a liability where the sale is made on legal process involving publicity of the fact than where it is the result of private negotiation. The effect of the sale of the good- will upon the right to use the name is considered more fully in a later section. 89 III. OP THE GOOD-WILL. 127. What is meant by the good-will. What is known as -the " good- will" of the business may properly be considered 33 Am. St. B. 72, 16 L. E. A. 453; 37 See Grow v. Seligman (1882), Marshall v. Pinkham (1881), 52 47 Mich. 607, 41 Am. Rep. 737; Wis. 585, 9 N. W. 615, 38 Am. Eep. Frazer v. Frazer Lubricator Co. 756; Eussia Cement Co. v. Le Page (1887), 121 111. 147, 13 N. E. 639, (1888), 147 Mass. 206, 17 N. E. 2 Am. St. E. 73; Symonds v. Jones 304, 9 Am. St. E. 685; Shaver v. (1890), 82 Me. 302, 19 Atl. 820, 17 Shave* (1880), 54 Iowa 208, 37 Am. Am. St. E. 485, 8 L. E. A. 570; Le Eep. 194, 6 N. W. 188. Page Co. v. Eussia Cement Co. "The defendant is not deprived (1892), 51 Fed. 941, 17 L. E. A. of the right to use his own name in 354, 5 U. 8. App. 112. connection with conduct of his busi- 38 See Snyder Mfg. Co. v. Snyder ness simply from the fact that his (1896), 54 Ohio St. 86, 43 N. E. surname is a portion of the trade- 325, 31 L. E. A. 657, Mechem's Gas. mark used by the copartnership of 240 ; Twin City Brief Printing Co. v. which he was formerly a member, Eeview- Pub. Co. (1918), 139 Minn, aiid whose business has been con- 358, 166 N. W. 413, L. E. A. 1918 D, tinued by plaintiff." White v. 154. Trowbridge (1906), 216 Pa. 11, 64 39 See post, 130. Atl. 862. Mech. Part. 8 113 127] LAW OF PARTNERSHIP in connection with the name. The good-will is regarded as a valuable incident of the business, and may be sold or trans- ferred as such. Precisely what it is the courts have found it difficult to define. ' ' The term good- will, ' ' says Mr. Justice Lind- ley, 40 "can hardly be said to have any precise signification. It is generally used to denote the benefit arising from connection and reputation ; and its value is what can be got for the chance of being able to keep that connection and improve it." Mr. Justice Story 41 describes it as the benefit or advantage "which is acquired by an establishment beyond the mere value of the capital, stock, funds or property employed therein, in conse- quence of the general public patronage and encouragement which it receives from constant or habitual customers on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circum- stances or necessities, or even from ancient partialities or prej- udices. ' ' Lord Eldon ** declared that ' ' the good-will of a trade is nothing more than the probability that the old customers will resort to the old place ; ' ' and this is approved by Mr. Par- sons, 43 who says: "It is a hope or expectation, which may be reasonable and strong, and may rest upon a state of things that has grown up through a long period and been promoted by large expenditures of money. And it may be worth all the money it has cost, and a great deal more; but it is, after all, nothing more than a hope, grounded upon a probability. ' ' The term ' ' good-will, ' ' however, as is pointed out in a case 44 in Nebraska, is often used in three different senses: 1. That 401 Lindley on Partnership (Ew- 733; Cowan v. Fairbrother (1896), ell's 2d Am. ed.), 439. 118 N. Car. 406, 24 S. E. 212, 54 41 Story on Partnership, 99. Am. St. B. 733, 32 L. E. A. 829; 42 In Cruttwell v. Lye (1810), 17 Bloom v. Ins. Agency (1909), 91 Ves. 335, 346. Many later cases, Ark. 367, 121 S. W. 293; Maxwell however, regard this definition as v. Sherman (1911), 172 Ala. 626, 55 too narrow. See Trego v. Hunt So. 520. [1896], App. Gas. 7, Mechem's Gas. 43 Parsons on Partnership (4th 247, Burd. Gas. 602. ed.), 181. See, also, Macfadden v. Jenkins 44 Lobeek v. Hardware Co. (1893), (1918), N. Dak. , 169 N. W. 37 Neb. 158, 55 N. W. 650, 23 L. E. 151; French v. Parker (1888), 16 A. 795. B. I. 219, 14 Atl. 870, 27 Am. St. E. 114 SOME INCIDENTS OP PARTNERSHIP [128 above indicated; 2. Where it is connected with or includes a trade-mark or trade-name ; * 6 and 3. Where it is coupled with an express agreement not to compete with the business with which it is connected. The first is the true use, and it is in that sense that the term is here used. The real and substantial essence of good-will the thing which leads people to buy it and pay money for it is the hope or expectation that the buyer will thereby acquire an established business or source of business instead of being compelled to de- vote time and money to developing a business de novo. 128. Good-will as an asset. The good-will is a partnership asset. As a rule, it inheres in the business and not in the locality, though in the case of hotels, theaters and similar places the rule may be otherwise.* 6 It does not attach to the stock in trade, and does not necessarily pass with a sale of the stock. It does pass, however, with a sale of the business, or of all interest in or assets of the business. 47 45 As an illustration of this form, the court cited Smith v. Walker (1885), 57 Mich. 456, 22 N. W. 267, 24 id. 830, 26 id. 783. See, also, as to the effect of the sale of business and good-will where the firm name has been made a trade-mark, Horton Mfg. Co. v. Horton Mfg. Co. (1883), 18 Fed. 816; Snyder Mfg. Co. v. Snyder (1896), 54 Ohio St. 86, 43 N. E. 325, 31 L. E. A. 657, Me- chem's Gas. 240. In the former case the court said: "If one has made of his own name a trade-mark, and then transfers to another his busi- ness, in which his name has been so used, the right to continue such use of the name will doubtless follow the business as often as it may be trans- ferred. ' ' 46 See as to good will relating to hotels, theaters, stores, etc.: Chit- tenden v. Witbeck (1883), 50 Mich. 401, 15 N. W. 526 ; Booth v. Jarrett (1876), 52 How. Pr. (N. Y.) 169; Woodward v. Lazar (1863), 21 Cal. 448, 82 Am. Dec. 75; Armstrong v. Kleinhaus (1884), 82 Ky. 303, 56 Am. Rep. 894; Vonderbank v. Schmidt (1892), 44 La. Ann. 264, 10 So. 616, 32 Am. St. E. 336, 15 L. E. A. 462. Dental office: Slack v. Suddoth (1899), 102 Tenn. 375, 52 S. W. 180, 73 Am. St. E. 881, 45 L. E. A. 589; Morgan v. Schuyler (1880), 79 N. Y. 491, 35 Am. Eep. 543. Newspaper: Metropolitan Bank v. St. Louis Dispatch Co. (1892), 149 TJ. S. 436, 13 S. Ct. 944, 37 L. ed. 799. 47Hoxie v. Chaney (1887), 143 Mass. 592, 10 N. E. 713, 58 Am. Eep. 149; Merry v. Hoopes (1888), 111 N. Y. 415, 18 N. E. 714; Williams v. Farrand (1891), 88 Mich. 473, 50 N. W. 446, 14 L. E. A. 16L Me- chem 's Gas. 222, Burd. Gas. 588. 115 i 129, 130] LAW OF PARTNERSHIP 129. Disposition of good-will on dissolution. Upon the dis- solution of the partnership, the good-will of a manufacturing or trading partnership at least, 48 is a firm asset and must be sold for the benefit of the partners, if either partner desires such sale. 48 If no effort is made to bring about such a sale, the good-will as a firm asset will usually lapse. Either partner may start in business again (in the absence of any agreement to the contrary), and get such incidental benefit from his former connection with the partnership business as ke is able. 60 Upon a termination by death, the good-will does not go to the survivor alone, but is still a firm asset which he must deal with like other assets, 61 and for whose value he must account if he appropriates it to himself. 52 130. Effect of sale Right to use firm name. The sale of the good-will by one partner to another does not, of itself, carry 48 See Read v. Mackay (1905), 47 N. Y. Misc. 435; Masters v. Brooks (1909), 132 N. Y. App. Div. 874, 117 N. Y. Supp. 585. In Slack v. Suddoth r supra, it is said that there can be no forced sale of such good will as is "based upon professional reputation and standing such as arises from the skill of physicians, dentists, attorneys, etc., whatever may be done as to such good will as arises out of location." See, also, Macfadden v. Jenkins (1918), N. Dak. , 169 N. W. 151. 49 See Sheppard v. Boggs (1879), 9 Neb. 257; Snyder Mfg. Co. v. Snyder (1896), 54 Ohio St. 86, 43 N. E. 325, 31 L. E. A. 657, Me- chem 'a Gas. 240. 50 See Eice v. Angell (1889), 73 Tex 350, 11 S. W. 338; Slack v. Suddoth, supra. 51 See Hutchinson v. Nay (1903), 183 Mass. 355, 67 N. E. 601, Me- chem's Gas. 838; Hutchinson v. Nay (1905), 187 Mass. 262, 72 N. E. 974, 68 L. E. A. 186, 105 Am. St. R. 390, Mechem 's Gas. 842 ; Tennant v. Dun- lop (1899), 97 Va. 234, 33 S. E. 620. Compare Didlake v. Grocery Co. (1909), 160 Ala. 484, 49 So. 384, 22 L. E. A. (N. S.) 907; Mus- selman's Appeal (1869), 62 Pa. St. 81, 1 Am. Rep. 382; Dyer v. Shove (1897), 20 R, I. 259, 38 Atl. 498, Burd. Gas. 605. 52 See Smith v. Everett (1859), 27 Beav. (Eng. Ch.) 446; Hill v. Fearis [1905], 1 Ch. 466; Rammels- berg v. Mitchell (1876), 29 Ohio St. 22; Rowell v. Rowell (1904), 122 Wis. 1, 99 N. W. 473; Hutchins v. Page (1910), 204 Mass. 284, 90 N. E. 565, 134 Am. St. R. 656 ; Frear v. Lewis (1915), 166 N. Y. App. Div. 210, 151 N. Y. S. 486; Costa v. Costa (1915), 222 Mass. 280, 110 N. E. 309; Moore v. Rawson (1905), 185 Mass. 264, 70 N. E. 64, Me- chem 's Gas. 1089; s. c., 199 Mass. 493, 85 N. E. 586. 116 SOME INCIDENTS OP PARTNERSHIP [130 the right to the firm name, if it be a personal one including the name of the retiring partner in such a form that its con- tinued use would subject him to liability for the debts of the new business. Unless more was stipulated for, his name could only be used to the extent that it had become or been made a trade-name or trade-mark. 68 The buyer's right to use imper- sonal names would usually be conceded. The same consequences would also ordinarily follow where the sale was by the firm or its representative to a third person, 64 that is to say, impersonal names, in the case of manufacturing and trading partnerships at least, and trade-names would pass, but not personal ones or those based upon personal qualities or attributes, such as those of professional or, it is said, private banking partnerships. 66 53 See Knoedler v. Glaenzer (1893), 55 Fed. 895, 5 C. C. A. 305, 14 U. S. App. 336, 20 L. R. A. 733 ; Vonderbank v. Schmidt (1892), 44 La. Ann. 264, 10 So. 616, 32 Am. St. R. 336, 15 L. R. A. 462; Williams v. Farrand (1891), 88 Mich. 473, 50 N. W. 446, 14 L. R. A. 161, Me- chem's Gas. 222, Burd. Gas. 588, Gilm. Gas. 177. 54 See ante, 125. 55 In Read v. Maekay (1905), 47 N. Y. Misc. 435, 95 N. Y. Supp. 935, it is said: "From what has been said it follows that while a firm name may in some cases be deemed a part of the good will of business, it is not of itself, and necessarily, a part of the good will, and that, while in trade it may under some circumstances be such, it can not be- come a part of the good will in cases of business which depend upon the personal attributes of the partners engaged therein, such as profes- sional partnerships. In such cases it has been ruled that the good will of business does not include the firm name (Morgan v. Schuyler, 79 N. Y. 490, 35 Am. Rep. 543), and that the court will not order a compulsory sale. Slack v. Suddoth, 102 Tenn. 375, 52 S. W. 180, 45 L. R. A. 589, 73 Am. St. R. 881. It is quite clear, therefore, that the firm name, while in every case a valuable adjunct to the good will, is not necessarily a part of the good will, simply by rea- son of the fact that it is an estab- lished firm name, and in my opinion there is no basis for a distinction between a partnership name of a banking business and a professional partnership for the purposes of the present question. Each is equally distinguishable from a manufactur- ing or trading partnership, so far as the inclusion or exclusion of the firm name in or from the good will is made to depend upon the personal qualities of the members of the firm. The banker, as such, while, of course, essential to trade and a means of it, is not a trader or tradesman." See, also, Masters v. Brooks (1909), 132 N. Y. App. Div. 874, 117 N. Y. Supp. 585. 117 131] LAW OP PARTNERSHIP 131. Limitations resulting from sale of good- will upon right to carry on competing business. What limitations, if any, a mere sale of the good-will, without any restrictive cove- nants, will impose upon the seller with reference to his right to subsequently carry on a competing, business, is a matter not everywhere agreed upon. The rule might conceivably be that no limitation would be implied; or that there should be a com- plete disability; or, adopting a middle view, that it might be done under some circumstances or by certain methods but not otherwise. A distinction may also be made depending upon whether the sale of the good-will is voluntary or forced. The English courts have drawn the line in the case of a voluntary sale at personal solicitation of former customers. The voluntary' seller of the good-will may embark in a similar business, in the same town next door, if he will : he may advertise publicly as any one else might do who was starting a new business, but he may not endeavor to get back the trade of the old customers which is what he has sold by taking advantage of his knowledge of who they are to personally and privately solicit them to con- tinue to deal with him. 56 If they come to him as the result of the same sort of public advertising which a new dealer would resort to, he is not obliged to refuse to deal with them. Any other new dealer might properly have reached them in the same way. This seems to be the rule sustained by the weight of au- thority. 57 The Massachusetts court, on the other hand, has held that one who has made a voluntary sale of the good-will may not start the new business at such a time or place as will sub- stantially result in his encroachment upon the business he has sold. He may not derogate from his own grant. 68 Some other 56 See Trego v. Hunt [1896], A. (N. S.) 293; Wentzel v. Barbin App. Gas. 7, Mechem's Gas. 247, (1899), 189 Pa. 502, 42 Atl. 44; Burd. Gas. 602. Zanturjian v. Boornazian (1903), 25 57 See Eanft v. Keimers (1902), E. I. 151, 55 Atl. 199. Contra: Cot- 200 111. 386, 65 N. E. 720, 60 L. E. trell v. Babcoek Printing Press Co. A. 291, Mechem's Gas. 852; Williams (1886), 54 Conn. 122, 6 Atl. 791. v. Farrand (1891), 88 Mich. 473, 50 58 See Angier v. Webber (1867), N. W. 446, 14 L. E. A. 161, Me- 14 Allen (96 Mass.) 211, 92 Am. chem's Gas. 222, Burd. Gas. 588; Dec. 748; Dwight v. Hamilton Von Bremen v. MacMonnies (1910), (1873), 113 Mass. 175; Munsey v. 200 N. Y. 41, 93 N. E. 186, 32 L. E. Butterfield (1882), 133 Mass. 492; 118 SOME INCIDENTS OF PARTNERSHIP [132,133 courts have taken the same view; and some have made distinc- tions in this respect between professional, and mercantile or trading, partnerships. 69 132. Where the sale of good-will is not a voluntary one but is forced by legal process or the necessity of winding up, as, for example, a sale by an assignee in bankruptcy, a re- ceiver, a surviving partner, or the partners themselves at the ordinary termination of the partnership, a different rule ap- plies. England permits personal solicitation where the sale was forced, 60 and the Massachusetts rule permits him to start a new business though it may incidentally encroach upon the busi- ness sold. 61 IV. OP THE CAPITAL OF THE FIRM. 133. What constitutes capital. The capital of the firm, strictly speaking, is the aggregate of the sums which the part- ners have agreed to contribute for the transaction of the part- nership business. It differs from the property of the firm, inas- much as the capital is a fixed sum, while the amount of prop- erty possessed by the firm may vary from time to time, and be more or less than the capital. It differs also from advances made by the partners to the firm, for the latter are ordinarily in the nature of loans to the firm, and not contributions to its fixed capital. 62 In a loose or popular sense, the term capital is often used to indicate the aggregate of property or assets which the firm Toss v. Eoby (1907), 195 Mass. 292, 60 See Walker v. Moitram (1881), 81 N. E. 199, 10 L. E. A. (N. S.) 19 Ch. Div. 355; Trego v. Hunt, 1200, 11 Ann. Gas. 571; Old Corner supra. Bookstore v. Upham (1907), 194 61 See Hutchinson v. Nay (187 Mass. 101, 80 N. E. 228, 120 Am. St. Mass. 262), supra; Batchelder & Co. E. 532; Gordon v. Knott (1908), v. Batchelder (1914), 220 Mass. 42, 199 Mass. 173, 85 N. E. 184, 19 L. 107 N. E. 455; Von Bremen v. Mac- E. A. (N. S.") 762. Compare Bassett Monnies, supra. v. Percival (1862), 5 Allen (87 62 1 Lindley on Partnership (Ew- Mass.) 345. ell's 2d ed.) ; 320. 59 See Brown v. Benzinger (1912), 118 Md. 29, 84 Atl. 79, Ann. Cas. 1914 B, 582. 119 134, 135] LAW OF PARTNERSHIP may have, in the same way that we sometimes speak of the capital of a single individual. Undivided profits which are. allowed to accumulate do not thereby become capital, though they are, of course, part of the firm assets. 63 Some agreement on the part of the persons inter- ested to capitalize them, would be necessary in order to have that effect. 134. Fixing amount and interests. In the final distribu- tion of assets upon the winding up of the partnership business, capital is usually to be distributed among the partners in pro- portion to the capital contributed, and it is therefore desirable to have the amount of the capital and the shares of each part- ner definitely fixed, though, where nothing appears to the con- trary, it will be presumed that their shares are equal. The amount of the capital as originally determined cannot subsequently be increased or diminished without the consent of all of the partners. 64 135. Certificates or other evidence of interest. It is not the common practice, in ordinary partnerships, to issue certifi- cates of " stock" or other similar evidence of a partner's in- terest; though there is no legal objection to it and it is occa- sionally done. 65 Such interests are, of course, in their nature not transferable like shares of stock in a corporation. In the case of the large partnerships with transferable shares, usually called joint-stock companies, such certificates of ownership are more common. 63 See Dean v. Dean (1882), 54 65 See e. g. Harper v. Raymond Wis. 23, 11 N. W. 239, Gilm. Gas. (1858), 3 Bosw. (16 N. Y. Super.) 164. 29. 7 Abbott Pr. 142. The partnership agreement may, In Power Grocery Co. v. Hintoii of course, provide that undivided (1920), Ky. , 218 S. W. 1013, profits shall, or may at the option of certificates of stock issued by a cor- the partner, become part of the poration to which the partnership capital. Molineaux v. Eaynolds succeeded were, by agreement, (1896), 54 N. J. Eq. 559, 35 Atl. treated and transferred as certifi- 536, Gilm. Gas. 215. pates of interest in the partnership. 64Natusch v. Irving (1824), Gow on Partn. 398. 120 SOME INCIDENTS OP PARTNERSHIP [ 136,137 136. What may be received as contributions to capital. The contributions to the capital need not be in money, but may be made in real or personal property, labor, skill, or whatever the parties may agree to receive as such. Neither is it neces- sary that each partner shall contribute the same kind of thing, for one may contribute money and another property and an- other skill, and the like. The use only of property may also be contributed, the partner retaining to himself as an individual the title to it. 66 It is not necessary that the several contribu- tions shall be equal in amount or value ; for one may contribute much while another contributes little. 67 It does not follow, however, where one contributes money, and the other skill, experience or labor, that upon a termina- tion of the partnership they will share it in common; for, as will be seen, upon such a termination each partner is to be re- paid his contributions to capital before the profits are divided. 68 137. Enforcing contribution of capital. The firm not being generally regarded as a legal entity, separate and distinct from the partners, no action at law can be maintained by the firm to compel a partner to pay in his agreed contribution to capital. 66 See Heran v. Hall (1840), 1 by making further contributions B. Mon. (Ky.) 159, 35 Am. Dec. without calling upon his copartner 178; Meadows v. Mocquot (1901), for equal ones or giving him an op- 110 Ky. 220, 61 S. W. 28, 22 Ky. L. portunity to make them, to swell his R. 1646; Nichols v. Murphy (1891), own share of the capital and profits 136 111. 380, 26 N. E. 509; Humes at the expense of his copartner. The v. Higman (1906), 145 Ala. 215, 40 court will permit the other partner So. 128; Gordon v. Gordon (1882), to fill up his capital and share in 49 Mich. 501, 13 N. W. 834; Davis the profits accordingly. Fulmer's v. Davis [1894], 1 Ch. 393; Murphy Appeal (1879), 90 Pa. St. 143. v. Warren (1885), 55 Neb. 215, 75 68 See Shea v. Donahue (1885), N. W. 573; Stumph v. Bauer 15 Lea (Tenn.) 160, 54 Am. Eep. (1881), 76 Ind. 157, Gilm. Gas. 175. 407, Mechem's Gas. 692, Gilm. Gas. 67 Where the contract contem- 168; Whitcomb v. Converse (1875), plates equal contributions to capital, 119 Mass. 38, 20 Am. Rep. 311, Me- to be made in instalments as the chem's Gas. 695, Burd. Gas. 575, business may require, and one part- Gilm. 488; Hayes v. Hayes (1889), ner in fact has chief charge of the 66 N. H. 134, 19 Atl. 571. Compare business which proves to be very Meadows v. Mocquot, supra. profitable, he will not be permitted, 121 138, 139] LAW OF PARTNERSHIP Such an action would require the partner in question to be at the same time one of the plaintiffs as well as the defendant. 69 Where, however, one person agrees with another to become a partner and contribute a certain amount of capital, and then refuses to perform the contract, the other may maintain an action at law against him to recover damages for the breach of the agree- ment. 70 Payment of promised contributions to capital could, indeed, be enforced for the benefit of creditors, as in the case of subscrip- tions to the capital of a corporation, but since normally each partner is individually liable to creditors for all of the partner- ship debts, there would ordinarily be no reason for their attempt to enforce a more limited liability. In adjusting the relations of the partners among themselves, however, such agreements would be important. V. OF THE PROPERTY OF THE FIRM. 1. Of Firm Property in General. 138. What may be partnership property. The property of the firm may be that originally contributed by the partners to form the partnership capital, or it may be that subsequently acquired in partnership dealings. It may be either* real 'or per- sonal. Unless provided otherwise by the articles or by statute, there is no limit to the kind or amount of the property which the firm may possess. Somewhat different rules apply when the property is real estate, and these will be made the subject of separate mention. 139. What constitutes partnership property. What prop- erty is partnership property, or when it becomes such, is not always easy to determine. "Not only all the goods and mer- chandise properly so called," says Mr. Parsons, 71 "but all chat- tels bought by the partnership, or otherwise coming to them, 69 See post, 201, et seq. 517, 60 Am. E. 858; Bagley v. 70 See Hill v. Palmer (1882), 56 Smith (1853), 10 N. Y. 489, 19 Wis. 123, 14 N. W. 20, 43 Am. Eep. How. Prac. 1, 61 Am. Dec. 756. 703, Mechem's Gas. 303; Treat v. 71 Parsons on Partnership, 177. Hiles (1887), 68 Wis. 344, 32 N. W. 122 SOME INCIDENTS OP PARTNERSHIP [ 140 as their furniture, books, etc., are partnership property; and so also all bills of exchange and notes, or other evidence of debts, and all debts or accounts or balances, or other claims; and all shares in companies, or scrip bought with partnership funds, or otherwise assigned to the partnership and not transferred to the individual partners and charged in their accounts, would be regarded as partnership property." The Uniform Partnership Act in general terms declares : "(1) All property originally brought into the partnership stock or subsequently acquired by purchase or otherwise on account of the partnership, is partnership property. "(2) Unless the contrary intention appears, property ac- quired with partnership funds is partnership property." 72 140. Same subject Property bought by partner in his own name. "Whether property bought by one partner in his own name is partnership property depends upon the circum- stances and the intention. One partner may, of course, buy property for himself; but where he takes title in his own name to property bought with partnership funds, there is a strong presumption that it is partnership property, though he may show that, by arrangement with his partners, it was really to be his own ; as, for example, that the funds were loaned to him with which to buy the property on his own account. If, how- ever, he takes title in himself when it was his duty to take it for the firm, the other partners may require him to secure to them their interests in it ; and, though he buys in his own name, if he was really buying for the firm, the firm is liable to the seller. It is simply the application of the rules of agency, the partners collectively being the principal, and the partner the agent. 73 72 Sec. 8. funds to buy railroad stock but took 73 See Traphagen v. Burt (1876), a certificate in the firm name, but 67 N. Y. 30; Davis v. Davis (1882), it was not a partnership transaction, 60 Miss. 615; Krusehke v. Stefan the stock is not partnership prop- (1892), 83 Wis. 373, 53 N. W. 679. erty: Morse v. Pacific Ey. Co. Where two partners in the gro- (1901), 191 111. 356, 61 N. B. 104. eery business contributed outside 123 141, 142] LAW OF PARTNERSHIP 141. Same subject Property used by the firm. Not all property used by the firm is firm property; for, as has been seen, the partners ' contribution to the firm capital may be simply the use of property and not its title; and, during the continu- ance of the relation, the firm may acquire, by lease or other- wise, the right to use or employ the individual property of a partner as well as of a stranger. Where persons, who were not then partners and were not acting for the firm either actually or potentially, buy property in their own names, on their own account, and with their own funds, the mere fact that they afterward become partners and use the property in their partnership business is not enough to convert it into partnership property. 7 * Some actual conveyance, or some enforceable agreement to convey or to hold in trust, is requisite. 142. Partner's "lien" on property. In considering the question of the partnership property, regard must be had to what is usually called the lien of the partners thereon. As will be seen in a later chapter, 75 there is deemed to arise from the very fact of the partnership, where nothing to the contrary is agreed upon, a very important right in each partner which materially affects the nature and extent of each partner's in- terest in the partnership property. Lord Lindley in his book on Partnership has stated it as follows: "In order to discharge himself from the liabilities to which a person may be subject as a partner, every partner has a right to have the property of the partnership applied in payment of the debts and liabilities of the firm. And in order to secure a proper division of the surplus assets, he has a right to have whatever may be due to the firm from his co-partners, as members thereof, deducted from what would otherwise be payable to them in respect of their shares in the partnership. In other words, each partner may be said to have an equitable lien on the partnership prop- 74 See Robinson Bank v. Miller (1911), 160 Gal. 774, 118 Pac. 253; (1894), 153 111. 244, 38 N. E. 1078, Taber-Prang Art Co. v. Durant 46 Am. St. E. 883, 27 L. E. A. 449, (1905), 189 Mass. 173, 75 N. E. 221 Mechem 'a Gas. 195, Burd. Gas. 165, 75 Post, Ch. XIX. (jlilm. Gas. 171; Grant v. Bannister 124 SOME INCIDENTS OP PARTNERSHIP [ 143 erty for the purpose of having it applied in discharge of the debts of the firm ; and to have a similar lien on the surplus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deducting what may be due from them, as partners, to the firm. ' ' Translating this into terms of tenancy in common, it might be said of two equal partners that each was the owner of an undivided one-half of all the partnership property subject to a lien thereon in favor of his co-partner to secure the applica- tion of the property to partnership purposes. Reciprocally, the partner whose share was thus subject to this lien would have a similar lien for a similar purpose on his co-partner's share. So long as this lien continued any sale or transfer of a part- ner's interest must usually and necessarily be made subject to it. Notwithstanding this use of the word lien, however, the actual situation, as will be seen, cannot adequately be expressed in mere terms of lien. 143. Nature of each partner's interest in the firm property. In the absence of any special agreement prescribing a differ- ent rule, all the members of the firm are interested in the whole of the partnership property. They are, however, strictly speak- ing, neither mere joint tenants nor mere tenants in common though they are often spoken of as such, and though their rela- tion has some of the characteristics of each of those tenancies. It has a form of survivorship, but, unlike ordinary joint ten- ancies, the surviving partner has not a complete beneficial owner- ship. It is somewhat like tenancy in common, but, unlike that relation, one partner has no such freedom in transfering his interest and putting the transferee into his place, that a tenant in common has. The rights of the firm creditors, and the right of each partner, often called a lien, to have firm property used to pay firm debts, materially affect the nature of each partner's interest in the firm property. The result is that the partners hold by a peculiar tenure, and are the possessors of a peculiar interest. That interest regarded as transferable property rather than a m^re right to share in current profits and par- ticipate in the conduct of the business, and assuming the part- 125 144, 145] LAW OF PARTNERSHIP ners' liens to be still in force is simply each partner's share in whatever surplus may remain after the debts and obligations of the firm are paid. 76 It is a right, not to partition or distribu- tion of the property in kind, but to have the assets sold and the proceeds divided after the payment of partnership debts and obligations. The partners may, indeed, by agreement, divide the surplus of the property after the payment of the debts, in kind, if they see fit to do so, but neither can claim such a division as a matter of right; and if the estate is settled in court the property will be sold and the surplus divided in money. 77 The rule is the same whether the property is real or personal. 144. Although the interest of each partner in the part- nership property cannot be completely assimilated to that of a joint tenant or tenant in common, many courts have been slow to recognize that fact, or to realize that a distinct form of tenure, namely, a tenancy in partnership had in reality been developed. Some courts, however, have recognized it, 78 and the Uniform Partnership Act frankly declares that "A partner is co-owner with his partners of specific property holding as a tenant in partnership. ' ' 79 It also declares that "A partner's interest in the partnership is his share of the profits and surplus, and the same is personal property." 80 145. Extent of each, partner's interest. This share or in- terest of each partner is obviously made up of two kinds of items : 1. That, if anything, which is due to be returned to him 76 See Sindelare v. Walker (1891), an, 504, Ames' Gas. 173, Burd. Gas. 137 111. 43, 27 N. E. 59, 31 Am. St. 166. B. 353, Mechem's Cas. 194; Menagh Under Uniform Partnership Act, v. Whitwell (1873), 52 N. Y. 146, sec. 38, each partner has a right to 11 Am. Ecp. 683, Meehem 's Cas. distribution * ' in cash. ' ' 567, Ames ' Cas. 229, Burd. Cas. 222, 78 See Preston v. Fitch (1893), Oilm. Cas. 251; Staats v. Bristow 137 N. Y. 41, 33 N. E. 77; Murrell (1878), 73 N. Y. 264, Mechem's Cas. v. Mandlebaum (1892), 85 Tex. 22, 192, Gilm. Cas. 211; Nichol v. Stew- 19 S. W. 880, 34 Am. St. R. 777. art (1880), 36 Ark. 612. 79 Sec. 25. 77 Wild v. Milne (1859), 26 Beav- 80 Sec. 26. 126 SOME INCIDENTS OF PARTNERSHIP [ 146 on account of his advances and his contributions to capital. 81 2. That, if anything, which is due to him on account of profits. 82 No final distribution of profits, of course, can take place until the contributions to capital have been restored or provided for. The ratio of distribution of the two funds capital and profits may be the same, but it is not necessarily so. It will be the same where the parties have agreed that profits or losses are to be divided in the same proportions as the contributions to capital; but, where nothing is shown respecting such an agree- ment, it will be presumed that the profits and losses are to be shared equally. This will be the presumption even though it appears that the contributions to capital were unequal. 83 Speak- ing of shares in this sense, that is, of shares in the profits and losses as distinct from contributions to capital, Mr. Justice Lind- ley says: "Whether partners have contributed money equally or unequally, whether they are or are not on a par as regards skill, connection or character, whether they have or have not labored equally for the benefit of the firm, their shares will be considered as equal unless some agreement to the contrary can be shown to have been entered into. ' ' 84 146. The transfer of shares. Such being the nature as- cribed to a partner's share or interest, it is clear that he has no individual title to any specific article or portion of the part- si See post, 468. contrary is found in the cases, espe- 82 See post, 466-468. cially where one definite sum of 83 1 Lindley on Partnership (Ew- money as capital is contrasted with ell's 2d Am. ed.) 348, 349; Eobinson another, as in Pirtle v. Penn (1835), v. Anderson (1855), 20 Bevan, 98; 3 Dana (Ky.) 247, 28 Am. Dec. 70, Peacock v. Peacock (1809), 16 Ves. Mechem's Gas. 313. See also per 49; Taft v. Schwamb (1875), 80 111. Hoffman, J., in Hasbrouck v. Childs 289; Ligare v. Peacock (1884), 109 (1858), 3 Bosw. 16 N. Y. Super. 111. 94; Whitcomb v. Converse 105; Eaymond v. Putnam (1862), (1875), 119 Mass. 38, 20 Am. Eep. 44 N. H. 160, Gilmore's Gas. 490, 311; Mechem's Gas. 692, Burd. Gas. was a case where the parties had 575; Woelfel v. Thompson (1899), expressly agreed to share profits and 173 Mass. 301, 53 N. E. 819; Huger losses equally although their contri- v. Cunningham (1906), 126 Ga. 684, butions to capital were unequal. 56 S. E. 64; Frazer v. Linton 841 Lindley on Partnership (Ew- (1897), 183 Pa. 186, 38 Atl. 589. ell's 2d Am. ed.) 349. An occasional statement to the 127 146] LAW OP PARTNERSHIP nership property, and hence can neither assign, sell nor mort- gage any particular portion of it as his own. The utmost that he alone can do is to transfer his share or interest in the whole assets, subject to the other partner's lien, and the value of such share or interest can only be conclusively determined upon an accounting of the partnership affairs. 85 Of this nature only, therefore, is the right which is transferred by a partner's sale or assignment of his interest, or which passes to his representa- tive upon his death, or which can be reached by his separate creditor, 86 or which can be claimed by the legatee under his will, or which devolves upon his assignee in bankruptcy or in- solvency. The Uniform Partnership Act denies the right of a partner alone to assign his interest in specific partnership property. 87 A partner may, indeed, transfer such interest as he has, 88 and 85 Collins' Appeal (1883), 107 Pa. 590, 52 Am. Eep. 479; Whigham's Appeal (1869), 63 Pa. 194; Sinde- lare v. Walker (1891), 137 111. 43, 27 N. E. 59, 31 Am. St. E. 353, Me- chem 's Gas. 194, Burd. Gas. 304; Me- nagh v. Whitwell (1873), 52 N. Y. 146, 11 Am. Eep. 683, Mechem 's Gas. 567, Ames Gas. 239, Burd. Gas. 222, Gilm. Gas. 251; Sloan v. Wilson (1897), 117 Ala. 583, 23 So. 145; Pratt v. McGuinness (1899), 173 Mass. 170, 53 N. E. 380, Gilm. Gas. 212; McKee v. Covalt (1905), 71 Kan. 772, 81 Pae. 475, Gilm. Gas. 213. 86 See following section; Walter v. Herman (1901), 110 Ky. 800, 62 S. W. 857, Gilm. Gas. 575. Successive seizures of all partners ' sJtares Theoretically and by the weight of authority the partnership title would not be divested, even though the share of every partner were seized or acquired by his sepa- rate creditor. See Menagh v. Whit- well (1873), 52 N. Y. 146, 11 Am. Eep. 683, Mechem 's Gas. 567, Ames' Gas. 229, Burd. Gas. 222, Gilm. Gas. 251; Johnson v. Shirley (1898), 152 Ind. 453, 53 N. E. 459; Osborn v. McBride (1876), 3 Sawy. (U. S. C. C.) 590. Contra: See Doner v. Stauffer (1829), 1 Pen. & W. (Pa.) 198, 21 Am. Dec. 370, Ames' Gas. 302, Burd. Gas. 218, Gilm. Gas. 247; Stahl v. Osmers (1897), 31 Oreg. 199, 49 Pac. 958, Mechem 's Gas. 579, Burd, Gas. 237. 87 "A partner's right in specific partnership property is not assigna- ble except in connection with the as- signment of the rights of all the partners in the same property." Sec. 25, subd. 2(&). 88 See Patterson v. Atkinson (1897), 20 R. I. 102, 37 Atl. 532, Burd. Gas. 241; State Bank v. Kelley (1896), 47 Neb. 678, 66 N. W. 619, Burd. Gas. 243. 128 SOME INCIDENTS OF PARTNERSHIP [ 147, 14S this limited interest will often be held to pass under a convey- ance by which he has attempted to transfer a greater right. 89 147. The transfer of his interest, however, does not operate to introduce the grantee into the firm, but, if complete and final, it is ordinarily said to dissolve the partnership, 90 leaving to the grantee the right to the value of the share ac- quired as determined by the final accounting. An exception to this rule of dissolution exists in joint-stock companies, mining partnerships, and others in which, by statute or agreement, the shares of the members are transferable. The Uniform Partnership Act declares that an assignment by a partner of his interest in the partnership does not per se dis- solve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee to interfere in man- agement or administration, or to require information or inspect the books, but merely gives him the right to receive the assign- ing partner 's share of the profits. If dissolution does ensue, the assignee may then receive his assignor's share, and may require an account since the date of the last accounting agreed to by all of the partners. 91 148. Seizure of partner's share by his individual creditor. Notwithstanding this rather intangible nature ascribed to the partner's interest in the partnership property, it is in most States still regarded by the law courts as so far tangible that it may be seized and sold upon a common law writ of execution at the suit of his individual creditor, 92 a thing not permitted, 89 See Carrie v. Cloverdale Co. (1888), 115 Ind. 45, 17 N. E. 262, (1891), 90 Cal. 84, 27 Pa. 58. 7 Am. St. E. 403; Nixon v. Nash 90 See post, 363, 364. (1861), 12 Ohio St. 647, 80 Am. 91 Sec. 27, Appendix. Dec. 390; Morrison v. Blodgett 92 See, in general, Newhall v. (1836), 8 N. H. 238, 29 Am. Buckingham (1853), 14 111. 405, Me- Dec. 653; Hutchinson v. Dubois chem's Gas. 788; Hershfield v. Claf- (1881), 45 Mich. 143, 7 N. W. 714; lin (1881), 25 Kan. 166, 37 Am. Whigham's Appeal (1869.), 63 Pa. Bep. 237, Mechem's Gas. 792; John- St. 194; Moody v. Payne (1817), 2 son v. Wingfield (1897), 42 S. W. Johns. Ch. (N. Y) 548, Ames' Gas. 203 (Tenn. Ch.), Gilm. Cas. 515, 296; Johnson v. Evans (1844), 7 Burd. Cas. 406; Williams v. Lewis Man. & G. 240, Ames' Cas. 286; Mech. Part. 9 129 148] LAW OP PARTNERSHIP in the absence of a statute, in the somewhat similar case of the interest of a corporator in a corporation. Though the right to do so in some way is thus generally recognized, the greatest conflict exists as to the method of making the right available, while complete uncertainty usually exists as to the extent and value of the interest so seized and offered for sale. In a few States, the levy is only upon the general interest of the part- ner, and tangible property is not disturbed. 93 In a few States, the creditor may levy upon and sell the partner's interest in specific items of partnership property ; M but usually where any actual seizure is permitted, while the creditor may seize the whole property for the sake of reaching the partner's interest therein, he may not levy upon and sell specific portions of the property. 95 In view of the uncertainty of the interest sold, and Filley v. Phelps (1847), 18 Conn. 294. In a few States the creditor, hav- ing made a levy, may have the aid of equity to ascertain the extent of the interest. See Place v. Sweetzer (1847), 16 Ohio 142, Gilm. Gas. 511. One partner may buy his copart- ner's interest at such a sale: Baird v. Baird (1837), 21 N. Car. (1 Dev. & Bat. Eq.) 524, 31 Am. Dec. 399; but not if there was any unfairness: Perens v. Johnson (1857), 3 Smale & Gif. 419. Of course, a levy upon the part- nership property to reach a single partner's interest must give way before a later levy at the suit of a partnership creditor if there is not enough for both, Eighth Nat. Bank v. Fitch (1872), 49 N. Y. 539, Burd. Cas. 403; Walter v. Herman (1901), 110 Ky. 800, 62 S. W. 857, Gilm. Cas. 575; although, as will be seen, post, 463, a prior levy by a partnership creditor upon individual property does not give way to a later levy by an individual creditor: See Meech v. Allen (1858), 17 N. Y. 300, 72 Am. Dec. 465, Mechem's Cas. 677, Ames' Cas. 326, Gilm. Cas. 499; In re Sandusky (1878), 17 Nat. Bank. Eeg. 452, Burd. Cas. 421. 93 See Hutchinson v. Dubois, su- pra; Blumenfeld v. Seward (1893), 71 Miss. 342, 14 So. 442 (by stat- ute) ; Sanborn v. Eoyce (1882), 132 Mass. 594, Gilm. Cas. 510; Daniel v. Owens (1881), 70 Ala. 297; Eichard v. Allen (1887), 117 Pa. 199, 11 Atl. 552, 2 Am. St. E. 652. It will be observed that if the partner's interest was merely that of a cotenant subject to a lien, the property could be seized, subject to that lien. 94 See Fogg v. Lawry (1878), 68 Me. 78, 28 Am. Eep. 19; Eandall v. Johnson (1881), 13 E. I. 338, Gilm. Cas. 508; Trafford v. Hubbard (1886), 15 E. I. 326, 4 Atl. 762, 8 Atl. 690; Johnson v. Wingfield, supra; Hershfield v. Claflin, supra (dictum;. 95 See Gerard v. Bates (1888), 124 130 SOME INCIDENTS OF PARTNERSHIP [149 the hardship to the other partners which must inevitably re- sult from seizing the firm property in order to reach an interest which may ultimately prove of little value to the purchaser, it is a case pre-eminently calling for legislation providing a more appropriate method, 96 and a few States have statutes regulating it. 97 149. The Uniform Partnership Act provides that a partner's interest in specific partnership property is not sub- ject to attachment or execution, except on a claim against the partnership, 98 but it provides that a judgment creditor of a partner may have an order of court charging the partner's in- terest with the payment of the judgment and that a receiver 111. 150, 16 N. E. 258, 7 Am. St. R. 350; Branch v. Wiseman (1875), 51 Ind. 1. 96 See the remarks, on this subject, in Sanborn v. Eoyce, supra. 97 Thus, for example, see Iowa Code, 1897, 3977; Aultman v. Ful- ler (1880), 53 Iowa 60, 4 N. W. 809, Gilm. Cas. 526 In Kentucky, see Holmes v. Mil- ler (1897), 41 S. W. 432, 19 Ky. L. R. 660, Burd. Cas. 417. In Georgia, by special statute (Code, 1911, 3190), the partner's interest may be reached by garnish- ment of the partnership. See Willis v. Henderson (1871), 43 Ga. 325, Ames' Cas. 311, Burd. Cas. 418. The individual creditor of one partner cannot reach his interest by garnishment of the partnership, un- der the ordinary statute. Neither can such a creditor reach by garnishment the interest of one partner in the debts due to the partnership. Peoples Bank v. Shry- ock (1877), 48 Md. 427, 30 Am. Rep. 476, Gilm. Cas. 513; Johnson T. King (1845), 6 Humph. (Tenn.) 233, Ames* Cas. 306; Hoaglin v. Henderson (1903), 119 Iowa 720, 94 N. W. 247, 97 Am. St. R. 335, 61 L. R. A. 756. The partnership cannot be sub- jected to bankruptcy procedure on the bankruptcy of one partner only. Sec. 5ft. Same rule ordinarily ap- plies under State insolvency pro- ceedings. See Dearborn v. Keith (1849), 5 Gush. (Mass.) 224; Han- son v. Paige (1855), 3 Gray (Mass.) 239. An action in equity, e. g., a cred- itor 's bill would not ordinarily be an appropriate method of reaching one partner's interest in the part- nership as there is this legal rem- edy; but where it was alleged that there was collusion between the debtor and his partner to transfer and cover up his interest a creditor 's bill to set aside the transfer and subject the interest to the claim of the creditor was sustained. Hen- derson v. Farley Nat. Bank (1898)j 123 Ala. 547, 26 So. 226, 82 Am. St. R. 140. 98 See See. 25, Subd. C, Appendix. 131 150, 151] LAW OF PARTNERSHIP of such interest may be appointed through whom the order may be made effectual." That Act also provides that "the interest charged may be redeemed at any time before foreclosure, or, in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (a) With separate property, by any one or more of the part- ners, or (&) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold." 1 It is obvious that these provisions raise some new and inter- esting questions, not yet settled by the authorities. 2. Of the Title to Personal Property. 150. May be held in firm name. As has been already stated, the title to personal property may be acquired, held and disposed of by the partnership in the firm name, whether the name be a personal or a purely artificial one, and this is the proper and appropriate jnanner in which the title to such prop- erty should be taken, held and transferred. Bills of sale and chattel mortgages may therefore be made to or by the part- nership in the firm name, 2 subject to the disabilities, hereafter to be noticed, attaching to the execution of instruments under seal. Choses in actiqn, as well as choses in possession, may be acquired or transferred in the name of the firm 151. May be held in the name of one partner for the firm. But personal property may be partnership property although the title is taken or held in the name of one partner only. It may have been so taken and held with the consent of all of the 9 See. 28, Appendix. Compare Wing (1895), 60 Ark. 561, 31 S. Brown v. Hutchinsori [1895], 2 Q. W. 149, 46 Am. St. R. 218, Me- B. 126, Burd. Cas. 419 under Eng- chem's Cas. 797, Burd. Cas. 161; lish Act. Chicago Lumber Co. v. Ashworth ISec. 28 (2), Appendix. (1881), 26 Kan. 212; Kellogg v. 8 Henderson v. Gates (1889), 52 Olsen (1885), 34 Minn. 103, 24 N. Ark. 371, 12 S. W. 780; Hendren v. W. 364. 132 SOME INCIDENTS OF PARTNERSHIP [152,153 partners, in which case their rights to it, as between themselves, are clear; but it may also have been so taken or held by one partner in violation of his duty to the firm, but in this case also, as has been seen, equity regards it as partnership property and will protect the rights of the other partners in it. 152. Title is in partners collectively. Whether, however, the title taken be in the firm name or in that of one partner for the firm, the beneficial ownership of the property is not in the partners as so many separate individuals, but in the part- ners collectively and as such. The partners are, as has been seen, neither mere joint tenants nor tenants in common, but tenants in partnership, while each partner is merely the possessor of that peculiar interest already described, known as the part- ner's share. One partner, therefore, as has been already noted, acting merely in his individual capacity, can, while the part- nership purposes remain unsatisfied, neither sell, assign nor mortgage any specific chattel, but simply all or part of his resi- duary interest in the whole assets. 8 It will be observed that the authority of one partner to sell partnership property, as a partnership act, is not here in ques- tion. 3. Of the Title to Real Estate. 153. Older rule Legal title to real property cannot ordi- narily be taken in firm name. Partnership real estate Stands upon peculiar footing. It was the common law conception that title to real estate could vest only in some person, either natural or artificial (like a corporation), which could be identified by a particular name. A partnership was not a person, but merely a group of individuals, each having his individual name. The group or partnership, not being a distinct legal person, could have no distinctive group name. While, therefore, a partner- ship might have the beneficial ownership of land or might deal in land, it could not take title to land by a conveyance to it merely in the firm name. An attempted conveyance to the firm 3 See ante, 146, 147. 133 153] LAW OF PARTNERSHIP by the firm name would therefore usually be a nullity as a con- veyance (though it might often operate as a contract to con- vey). 4 This was especially true where the firm name was a purely artificial one; though where the firm name contained the individual name of one or more of the partners the courts were quite ready to seize upon that fact in order to save the conveyance, and would hold that the legal title vested in the partner or partners whose names so appeared, and such part- ner or partners would then hold the legal title in trust for the firm. 6 4 Compare Tidd v. Eines (1879), 26 Minn. 201, where a deed to "Todd, Gorton & Co." was held to convey no legal title, with Byam v. Bickford (1885), 140 Mass. 31, 2 N. E. 687, which went to the other extreme and held a deed to ''South Chelmsford Hall Association," an unincorporated association, was suf- ficient to vest legal title in the mem- bers as tenants in common. See also Percifull v. Platt (1880), 36 Ark. 456; Burns v. McCabe (1872), 72 Pa. 309; Silverman v. Kristufek (1896), 162 111. 222, 44 N. E. 430 (where it is said that "a deed to 'Nevins, Townsend & Co.' passes nothing at law"); Spaulding Mfg. Co. v. Oodbold (1909), 92 Ark. 63, 121 S. W. 1063, 135 Am. St. E. 168, 19 Ann. Cas. 947, 29 L. E. A. (N. S.) 282 (where conveyance to ' ' Spaulding Manufacturing Co. ' ' was said not to be good at law but good in equity). In Trexlar v. Af- rica (1910), 42 Pa. Super. 542, a conveyance to "American Stave & Lumber Co." which was contended to be the name, not of a firm, but of a single individual, was held not good. & See ante, 123, and note. See Percifull v. Platt, supra, (where it was said that a deed to "George F. Lovejoy & Co." would pass the legal litle to Lovejoy) ; Moreau v. Saffarans (1856), 3 Sneed (35 Tenn.) 595, 67 Am. Dec. 582 (where the same holding was made under a deed running to "John L. Saffarans & Co."); Winter v. Stock (1866), 29 Cal. 407, 89 Am. Dee. 57 (to same ef- fect) ; Arthur v. Weston (1856), 22 Mo. 378 (deed to "W.W. Phelps 6 Co." vests title in Phelps only); Beaman v. Whitney (1841), 20 Me. 413 (where it was said that a deed to "Whitney, Watson & Co." would vest title in Whitney and Watson at least) ; Holmes v. Jarrett (1872), 7 Heisk. (Tenn.) 506 (to same ef- fect) ; Sherry v. Gilmore (1883), 58 Wis. 324, 17 N. W. 252 (tax deed to "Gilmore & Ware" not void); Cole v.. Mette (1898),. 65 Ark. 503, 47 S. W. 407, 67 Am. St. E. 945, Mechem's Cas. 801 (deed to Mette & Kanne, good) ; LaFayette Land Co. v. Caswell (1910), 59 Fla. 544, 52 So. 140, 138 Am. St. E. 166 (same) ; Dwyer Pine Land Co. v. Whiteman (1904), 92 Minn. 55, 99 N. W. 362 (same). Compare Dunlap v. Green (1894), 60 Fed. 242, 8 C. C. A. 600. 134 SOME INCIDENTS OF PARTNERSHIP [154,155 154. But the equitable title is in the firm. But though, according to the earlier view, the firm as such cannot, in the firm name, hold the legal title to real estate, the equi- table title to firm realty is in the firm, and equity will ordinarily regard and protect the land as partnership property. For this purpose, the person or persons holding the legal title, whether one partner or all, will be regarded as holding in trust for the firm. 6 As will be seen in a later section, however, this will not be true as against l)ona, fide purchasers for value who, without notice of the trust, have purchased from the record owner of the legal title; and in a few States, notably in Pennsylvania, 7 the rights of creditors of the one appearing upon the public records as the owner will not be subordinated to the rights of firm creditors. 155. Modern rule more liberal Uniform Partnership Act. Since names are in any case only labels by which to identify the persons whom they represent, and since,, even in the case of natural persons, the name may not always sufficiently identify the person and parol evidence is necessary to complete the identi- fication as where a deed of land is made in the name of a grantee whose name is the same as that of other persons in the same community it would be only the application of the same theory perhaps slightly extended to hold that a deed of lands might be made to a partnership in the firm name,. and that parol evidence might be resorted to, when necessary, to identify the persons represented by the name and in whom the title would 6 See Eiddle v. Whitehill (1889), trust for the firm although the legal 135 U. S. 621, 10 Sup. Ct. 924, 34 title is vested in all of the partners L. ed. 282; Paige v. Paige (1887), in the same manner and proportion 71 Iowa, 318, 32 N. W. 360, 60 Am. as though they were tenants in com- B. 799; Harris v. Harris (1891), mon. 153 Mass. 439, 26 N. E. 1117; 7 See Kepler v. Erie Dime Savings Hatchett v. Blanton (1882), 72 Ala. Co. (1882), 101 Pa. 602. See, also, 423; Shanks v. Klein (1881), 104 in Maryland, National Union Bank U. S. 18, Mechem's Gas. 211, Gilm. vs. National Mechanics' Bank Cas. 269. (1894), 80 Md. 371, 30 Atl. 9/13, In Paige v. Paige, supra, it is 45 Am. St. E. 350, 27 L. B. A. field that the title may be held in 476, Mechem's Cas. 204. 135 155] LAW OF PARTNERSHIP vest. This is, of course, constantly done already in the case of ordinary partnership contracts, bills, notes, warehouse receipts, bills of lading, and the like. As has already been stated, this doctrine has also been applied in the case not only of chattel mortgages 8 but of mortgages upon land as well. 9 There is also a growing body of authority that it may be done in the case of deeds of land to a partnership by the firm name; and it is believed that no court, not constrained by its own earlier de- cisions, would now hold such a deed to be void as a conveyance even though the name did not contain the personal name of any one of the partners. 10 The Uniform Partnership Act adopts this view fully, and provides that "Any estate in real property may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. ' ' n Further, ' ' A conveyance to a part- nership in the partnership name, though without words of inher- itance, passes the entire estate of the grantor unless a contrary intent appears. ' ' 12 8 See Hendren v. Wing (1895), 60 Ark. 561, 31 S. W. 149, 46 Am. St. B. 218, Mechem's Gas. 797, Burd. Gas. 161. 9 See Menage v. Burke (1890), 43 Minn. 211, 45 N. W. 155, 19 Am. St. E. 235; Woodward v. McAdam (1894), 101 Gal. 438, 35 Pac. 1016, Mechem's Gas. 799, Burd. Gas. 163; Morse v. Carpenter (1847), 19 Vt. 613. 10 See Byam v. Bickford (1885), 140 Mass. 31, 2 N. E. 687 (deed to unincorporated association by arti- ficial name good) ; same, arguendo. Kelley v. Bourne (1887), 15 Oreg. 476, 16 Pac. 40; Maugham v. Sharpe (1864), 17 Com. Bench (N. S.) 443, Burd Gas. 160. In Wray v. Wray [1905], 2 Ch. 349, following Maugham v. Sharp, a deed to "William Wray" which was the firm name of four partners, was held to vest title in the part- ners. More numerous are the cases in which the firm name included some of the individual names of the part- ners. See Walker v. Miller (1905), 139 N. Car. 448, 52 S. E. 125, 1 L. E. A. (N. S.) 157, 4 Ann. Gas. 601, 111 Am. St. E. 805 (where all of the partners whose names ap- peared in the firm name were dead but the family continued the busi- ness) ; Murray v. Blaekledge (1874), 71 N. Car. 492; Blanchard v. Floyd (1890), 93 Ala. 53, 9 So. 418; Kentucky Block Coal Co. v. Sewell (1918), C. C. A. , 249 Fed. 840. 11 Sec. 8(3). 12 Sec. 8(4). 136 SOME INCIDENTS OF PARTNERSHIP [ 156, 157 156. When land is partnership property. Granting that the form of the conveyance is such that the land might be part- nership property, the question whether land actually held in the name of one partner or of all is partnership property or not, where there is no unequivocal evidence of the intention, is one of much importance and frequently of great difficulty. The question may be raised either by the partners themselves, or by the heirs or widow of a. deceased partner, or by the separate creditors of the partner in whose name the legal title may be vested, claiming priority over the firm creditors. In dealing with this question a number of considerations are important, but perhaps the most important initial consideration is the inquiry whether the land was acquired before or after the formation of the partnership. 157. Same subject Land acquired during 1 the partnership. If the land was acquired after the formation of the partner- ship the question of whose funds were used in its purchase will become material. If the land was bought with the private and not partnership funds of the partners, this would ordinarily seem to suggest that the land was to be the private and not partnership property of the partners, 13 unless there was some- thing to indicate that the amount of the purchase money was to be regarded as a loan or advance by the partners to the firm, 14 or that its capital was to be thereby increased, or the scope of its business extended, and the like. A purchase on individual account would be consistent with an intention or agreement to thereafter sell or lease the land to the partnership or to permit it to use the land upon terms which had been or might be mu- tually agreed upon. If the land was purchased with partnership funds, this would ordinarily seem to point to ownership by the firm ; 15 but it might 13 See Wilhite v. Boulware (1889), land but the legal title is taken in 88 Ky. 169, 11 Ky. L. E. 59, 10 S. the name of another, a trust will or- "W. 629. dinarily arise in behalf of him who 14 See Jones v. Beckman (1900), paid the price. 47 Atl. 71 (N. J.). This rule has in some States been IB This is commonly put upon the changed by statute, e. g. in Michi- ground that where one man pays for gan; nevertheless substantially aim- 137 158] LAW OF PARTNERSHIP nevertheless appear that firm funds had been appropriated to individual uses with intent to make a purchase or investment on individual account. 16 Such an appropriation of firm funds might be in a sense wrongful, as where it depleted the fund to which firm creditors had a right to look for the satisfaction of their claims; or it might be entirely unobjectionable, as where the firm had undivided profits to which the partners were then entitled and which by agreement they distributed in this way without the formality of first paying them over to the several partners who would then use them to make an individual pur- chase. 17 The form and purport of the conveyance may throw some light upon the question. Does the deed state whether the land is to be firm or individual property? Are the proportions in which the title vests the same as or different from those which the ratio of the partners' interests would suggest for a partnership pur- pose? and the like. 158. The chief criterion by which the question is to be determined, it was declared in a leading case, is the intention of the partners. "That intention," said the court, 18 "may be expressed in the deed conveying the land, or in the articles of partnership ; but when it is not so expressed, the circumstances usually relied upon to determine the question are the ownership ilar results are there arrived at. See vent firm to buy each of the two Way v. Stebbins (1882), 47 Mich. partners a home); Chandler v. Jes- 296, 11 N. W. 166. sup (1892), 132 Ind. 351, 31 N. It need not actually be used in E. 1109 (where money was with- the firm 'a business to be firm prop- drawn from the firm 's assets by mu- erty when bought with firm funds. tual consent to make individual pur- It may be a firm investment: Fos- chase); City of Providence v. Bul- ter v. Sargent (1903), 72 N. H. lock (1884), 14 E. I. 353 (where 170, 55 Atl. 423. land, though purchased with part- The Uniform Partnership Act pro- nership funds, was treated and car- vides that "unless the contrary in- ried as individual property), tention appears, property acquired 17 See cases cited in preceding with partnership funds is partner- note, ship property." See. 8(2). ISEobinson Bank v. Miller 16 See Frey v. Eisenhardt (1898), (1894), 153 111. 244, 38 N. E. 1078, 116 Mich. 160, 74 N. W. 501 (where 46 Am. St. R. 883, 27 L. E. A. 449, money was withdrawn from a sol- Mechem's Gas. 195, Burd. Cas. 165. 138 SOME INCIDENTS OF PARTNERSHIP [159 of the funds paid for the land, the uses to which it is put, and the manner in which it is entered upon the books of the firm. 19 Where real estate is bought with partnership funds for partner- ship purposes, and is applied to partnership uses, or entered and carried in the accounts of the firm as a partnership asset, it is deemed to be firm property ; and, in such case, it makes no difference, in a court of equity, whether the title is vested in all the partners as tenants in common, or in one of them, or in a stranger. 20 If the real estate is purchased with partnership funds, the party holding the legal title will be regarded as hold- ing it subject to a resulting trust in favor of the firm furnishing the money. In such case no agreement is necessary, and the statute of frauds has no application." 21 159. For the purposes of the present question, land purchased upon partnership credit would be deemed to be pur- chased with partnership funds; and money paid on account of 19 Citing here, 1 Bates on Part- nership, 280 ; 2 Lindley on Part- nership, marg. p. 649; 17 Am. & Eng. Ency. of Law, 945. In Lind- say v. Eace (1894), 103 Mich. 28, 61 N. W. 271, it is said: "Whether lands held in the name of one part- ner or of both are to be deemed copartnership property is generally a question of intent, to be gathered from the manner in which the mem- bers of the firm have dealt with them. While the fact that the funds of the copartnership have been used in paying for the lands, when origi- nally purchased or subsequently, is not conclusive of this intent, yet it is persuasive evidence, and when, as in this case, it is accompanied by the entry of the transaction OH the firm books as a copartnership transaction, under circumstances which import a daily declaration that it was so regarded, it is con- vincing. ' ' 20 Citing here, Parsons on Part- nership (4th ed.), 265; 1 Bates on Partn., 281 ; Johnson v. Clark (1877), 18 Kan. 157. To same ef- fect: Page v. Thomas (1885), 43 Ohio St. 38, 1 N. E. 79, 54 Am. E. 788; Collner v. Greig (1890), 137 Pa. 606, 20 Atl. 938, 21 Am. St. E. 899; Pepper v. Thomas (1887), 85 Ky. 539, 4 S. W. 297, 9 Ky. L. B. 122; Boss v. Henderson (1877), 77 N. C. 170; Eoberts v. Eldred (1887), 73 Cal. 394, 15 Pac. 16. 21 Citing here, Parker v. Bowles, 57 N. H. 491; Bates on Partn., su- pra. To same effect: Eiddle v. Whitehall (1889), 135 TJ. S. 621, 10 Sup. Ct. 924, 34 L. ed. 282; Way v. Stebbins (1882), 47 Mich. 296, 11 N. W. 166; Paige v. Paige (1887), 71 Iowa 318, 32 N. W. 360, 60 Am. E. 799, Mechem's Gas. 217; Gal- braith v. Tracy (1894), 153 111. 54, 38 N. E. 937, 28 L. E. A. 129, 46 Am. St. E. 867, Burd. Gas. 257. 139 160] LAW OP PARTNERSHIP the firm, as a loan or advancement to it, or as an increase of its capital, would be deemed partnership funds, although for con- venience sake it was paid directly for the land and was not passed through the partnership treasury. So, also, land acquired by part or all of the partners before the partnership was actually organized but practically contem- poraneously and in contemplation of it, and for firm purposes, may be found to be a firm purchase and to constitute firm prop- erty, though the title was taken in individual names and paid for with individual funds, if those funds were really contribu- tions to firm capital or assets and were paid directly to the seller of the land instead of being first turned into firm funds and then used in the purchase. 22 160. Same subject Land acquired prior to the partner- ship. Where the land was purchased or acquired in their individual capacity by persons who thereafter became partners or some of them, the question whether it has been converted into partnership land is one of greater difficulty, and the au- thorities cannot be reconciled. In the case 2S quoted from in the preceding section it is said: "The theory of some of the cases is that real estate bought with separate, and not partner- ship, funds cannot be converted into firm property by a verbal agreement between the partners, because no trust can be created in lands unless by writing, in view of the statute of frauds, except such as results by implication of law. 24 There are cases which hold that, even though the land 'was originally bought by the several partners with their individual funds, and deeded to them as tenants in common, yet it will be regarded in equity as firm property where it is improved out of partnership funds for firm purposes, and actually used for such purposes, or where the firm puts valuable and permanent improvements upon it for firm purposes, and which are essential to the firm. In some in- 22 This is well illustrated in Bopp (1894), 153 111. 244, 38 N. E. 1078, v. Fox (1872), 63 111. 540; Ames 46 Am. St. E. 883, 27 L. E. A. 449, v. Ames (1888), 37 Fed. 30. Mechem's Gas. 195, Burd. Cas. 165, See, also, Collins v. Decker (1879), Gilm. Cas. 171. 70 Me. 23. 24 Citing here, Parker v. Bowles 28Bobinson Bank v. Miller (1876), 57 N. H. 491. 140 SOME INCIDENTS OF PARTNERSHIP [ 161 stances the land is held to be the property of the partners, and the improvements to be the property of the firm. 25 "The use of the property is not conclusive of its character as real estate or personalty, but is only evidence of the inten- tion of the parties. When the intention of the partners to con- vert the land into firm property is inferred from circumstances, the circumstances must be such as do not admit of any other equally reasonable and satisfactory explanation. 26 And where it is sought to show a conversion of the land into personalty by agreement of the partners, such agreement must be clear and explicit. ' ' m 161. The difficulty which arises here is, of course, one chiefly resulting from the requirements of the statute of frauds. The title, by the hypothesis, being in the individuals or some of them, and having been so acquired before the partnership be- gan, it can only be vested in the firm by either (1) some actual conveyance, or (2) by some agreement to convey or hold in trust which is capable of being specifically enforced. Under this second head the statute of frauds must either be complied with or avoided in some way. In order to comply with the statute, there must be either a written contract or declaration of trust, 25 Citing 1 Bates on Partnership, to convert the property into firm 281, 282, 285. See also, Deveney property as against individual cred-' v. Mahoney (1872), 23 N. J. Eq. itors. Compare Goldthwaite v. Jan- 247. ney (1894), 102 Ala. 431, 15 So. 26 Citing Parsons on Partnership, 560, 28 L. R. A. 16, Mechem's Gas. 267. 804, Burd. Cas. 176; Alkire v. Kahle 27 Citing 17 Am. & Eng. Ency. (1888), 123 111. 496, 17 N. E. 693, of Law, 954. 5 Am. St. R. 540. In National Union Bank v. Na- In Goepper v. Kinsinger (1883), tional Mechanics' Bank (1895), 80 39 Ohio St. 429, the land was bought Md. 371, 30 Atl. 913, 27 L. E. A. and improved by a father. Later 449, 45 Am. St. E. 350, Mechem's he formed a partnership with his Cas. 204, it is said that where the sons and they carried on business land was originally owned by the on this property. There was no partners as individuals, and so evidence of any agreement, contract stands upon the public records, or conveyance to make the property something more than the mere in- firm property. Held that it remained tent of the partners or the entries individual property, upon their own books is necessary 141 161] LAW OP PARTNERSHIP or an oral contract or declaration of which some note or memo- randum in writing, signed by the parties to be charged, can be produced. In order to avoid the effect of the statute, there must be such part performance of an oral contract to convey to the partnership as will enable a court of equity to decree specific performance even though there be no note or memoran- dum. If the title is in part of those only who subsequently be- come the partners, there must of course be found some valid conveyance, agreement to convey or declaration of trust in favor of all, in order to make the land firm property. If the title is in all of those who subsequently become the partners, stiH, since the rights of partners are different from those of mere tenants in common, there must here also be some agreement or situation of trust which equity can enforce. Since, by the hypothesis, there was no partnership and hence no partnership funds in existence at the time the title was ac- quired, there can here be no such resulting or constructive trust, arising from the payment of firm funds, as is referred to in the preceding sections. The agreement which equity may enforce in these cases need not be express or formal; quite informal agreements or under- standings, if sufficiently established, have often sufficed. 28 The note or memorandum which will satisfy the statute of frauds may often be found in entries or memoranda in the part- nership books, if they are sufficiently signed, etc., 29 while the part performance which may save the contract may often be found in the fact that the firm has taken possession and made valuable improvements upon the land. 30 Where the title is in 28 See Johnson v. Hogan (1909), the statute of frauds," then the 158 Mich. 635, 123 N. W. 891, 37 firm creditors might be given prior- L. R. A. (N. S.) 889. ity over the separate creditors. 29 Thus in National Union Bank 30 See Eoberts v. McCarty (1857), v. National Mechanics Bank (su- 9 Ind. 16, 68 Am. Dec. 604. pro) the court said that if the prop- On the other hand, the improve- erty in dispute had been so used as ments may have been made merely to indicate a purpose to put it into as compensation for the use of the the business as capital and had been land which was to remain indi- " entered on the books of the firm vidual property, or with the inten- ts such a way as to comply with tion that the firm would acquire an 142 SOME INCIDENTS OF PARTNERSHIP [ 162 all of those who become the partners, something persuasive of a change from their prior relation of tenants in common (who are possessing and improving their own property as such) to that of partners is essential. 31 As pointed out in the preceding sections, mere use of the property by the firm is not enough, since that is quite as consistent with a tenancy or license as with a partnership tenure. As is also pointed out in a previous section, the purchase of land, although made before the firm was actually organized, may be so practically contemporaneous with it, and in contemplation of it, as to be fairly regarded, so far as the present questions are concerned, as a purchase made during the partnership and with its funds. 32 162. Nature of partner's interest in partnership realty. The interest of each partner in the partnership real estate, not now speaking merely of the legal title and how it may be held like his interest in the partnership personal property, is not a title to any specific parcel or to any specific portion, but simply an interest in the residue after the partnership debts have been paid and its affairs are wound up. 33 Until that pur- pose is accomplished, therefore, he can sell, assign or mortgage no greater interest in his own right, nor can more be taken upon process against him at the suit of his individual creditors. interest in the improvements only. sively show an intention to treat See Frink v. Branch (1844), 16 them as such," citing Grubb's Ap- Conn. 260. peal (1870), 66 Pa. 117; Kobin- 31 Thus in Taber-Prang Art Co. v. son Bank v. Miller, supra; Frink Durant (1905), 189 Mass. 173, 75 v. Branch (1844), 16 Conn. 260; N. E. 221, where this question was Ware v. Owens (1868), 42 Ala. 212, involved the court said: " There is 94 Am. Dec. 672. See also, Blakes- nothing to show that there was any lee v. Blakeslee (1914), 265 111. conveyance of the land and build- 48, 106 N. E. 470; Grant v. Ban- ings by them 'to themselves as a nister (1911), 160 Cal. 774, 118 Pac. firm or that it was agreed or un- 253. derstood that the land and buildings 32 See Collins v. Decker (1879), should be regarded as partnership 70 Me. 23. property, and they were not so en- 33 See Du Bree v. Albert (1882), tered on the books. It is plain that 100 Pa. 483 ; Henry v. Anderson the use of them for partnership pur- (1881), 77 Ind. 361; Kruschke v. poses did not of itself convert them Stefan (1892), 83 Wis. 373, 53 N. into partnership assets or conclu- W. 679, Burd. Gas. 167. 143 163] LAW OF PARTNERSHIP 163. Partnership realty, when deemed personal estate. For the purpose of facilitating the administration and applica- tion of partnership realty to partnership purposes, the fiction of an equitable conversion into that form, to wit, personalty, into which it must ultimately be converted in order to be so applied, has been established. This conversion is deemed to result from the devotion of the land to the uses of the partnership, though there is not entire agreement as to the extent to which it will be carried. The English rule is that of "out and out" or com- plete conversion, and regards partnership realty as partnership capital and as having in all respects the character of personal property ; 34 but the American rule is otherwise. 35 In this coun- try, unless there is something to indicate a more complete con- version, as there may be, 86 the partnership realty retains its 34 See Darby v. Darby (1856), 3 Drew. 495, Ames' Cas. 177, Gilm. Cas. 193. 35 See Buchan v. Sumner (1847), 2 Barb. Ch. (N. Y.) 165, 47 Am. Dec. 305; Collumb v. Bead (1862), 24 N. Y. 505; Fan-child v. Fair- child (1876), 64 N. Y. 471; Darrow v. Calkins (1897), 154 N. Y. 503, 49 N. E. 61, 61 Am. St. R, 637, 48 L. B. A. 299, Mechem's Cas. 813, Gilm. Cas. 203; Martin v. Morris (1885), 62 Wis. 418, 22 N. W. 525; Brewer v. Browne (1880), 68 Ala. 230; Molineaux v. Raynolds (1896), 54 N. J. Eq. 559, 35 Atl. 536, Burd. Cas. 169, Gilm. Cas. 215; Huston v. Neil (1873), 41 Ind. 504, Gilm. Cas. 200. 36 Thus, it is sometimes said that an agreement to deal in land as the partnership business, of itself works an out and out conversion in equity. See Rovelsky v. Brown (1891), 92 Ala. 522, 9 So. 182, 25 Am. St. E. 83, Mechem's Cas. 832; Nichols v. Burcham (1913), 177 Mich. 601, 143 N. W. 647; Frost v. Wolf (1890), 77 Tex. 455, 14 S. W. 440, 19 Am. St. E. 761 ; Ludlow v. Coop- er (1854), 4 Ohio St. 1; Buckley v. Doig (1907), 188 N. Y. 238, 80 N. E. 913. Contra: Carter v. Flexner (1891), 92 Ky. 400, 17 S. W. 851, 13 Ky. L. E. 608. So there is held to be a conver- sion where the contract between partners dealing in real estate pro- vided that the title should be taken, held and conveyed by a trustee: Mallory v. Eussell (1887), 71 Iowa 63, 32 N. W. 102, 60 Am. Ep. 776. See also Greenwood v. Marvin (1888), 111 N. Y. 423, 19 N. E. 228. Where one of two partners owning firm real estate made a conveyance to his copartner of all his interest in the land in trust to manage the same as partnership property and upon termination of the partnership and closing up of its affairs to pay over to the grantor whatever should be coming to him, this was held to constitute an out and out conversion into personalty as between the partners and their representatives. Darrow v. Calkina 144 SOME INCIDENTS OF PARTNERSHIP [164 character as such for most purposes, though the firm may deal with it, and equity will regard it, as personalty for the purpose of paying the debts and settling the partnership affairs, to the exclusion of the heirs, widows or creditors of the individual partners. 37 As soon as that purpose is accomplished, however, the remaining realty, it is. said, resumes its character as such. 88 It therefore descends to the heir of a deceased partner, and the widow of a deceased, partner, as will be seen, is usually held to be entitled to dower in it. 39 164. It must be borne in mind that this theory of con- version is only a fiction, and it, of course, applies to equitable transfers alone. At law, partnership realty is regarded as land, and the legal title to the land devolves and can be conveyed (1897), 154 N. Y. 503, 49 N. E. 61, 61 Am. St. K. 637, 48 L. B. A. 299, Mechem's Gas. 813, Gilm. Gas. 203. See also, Davis v. Smith (1887), 82 Ala. 198, 2 So. 897, Mechem's Gas. 821, Burd. Gas. 182. 37 Thus, in Woodward-Holmes Co. v. Nudd (1894), 58 Minn. 236, 59 N. W. 1010, 27 L. E. A. 340, Me- chem's Gas. 810, Burd. Gas. 179, it is said: "During the continuance of the partnership the partners can convey or mortgage it, in the course of their business, whenever they see fit, without their wives joining in the conveyance or mortgage, and the wives would have no dower or other interest in it. This is one of the very objects of treating partner- ship real estate as personal prop- erty; for otherwise the business of the firm might be stopped, and the partners unable to realize on the assets of the firm, by reason of the wife of one of them refusing to join in the conveyance or mortgage. They hare the same power of dispo- sition over it for the purposes of a \ dissolution of the partnership, the Mech. Part, 10 payment of -its debts, and the dis- tribution or division of the capital among themselves; for until that is done the property has not fulfilled its function as personalty, or ceased to be partnership property." So in Eovelsky v. Brown (1891), 92 Ala. 522, 9 So. 182, 25 Am. St. B. 83, Mechem's Gas. 832, it is held that one member of a firm, engaged in the business of buying and selling real estate, can bind the firm by a contract in the firm name for the sale of partnership land, and that such contract will be specifically en- forced against all the partners. As to the effect of a decree of a court of one State upon lands situ- ated in another State, entered in an action to settle the partnership af- fairs, see Dunlap v. Byers (1896), 110 Mich. 109, 67 N. W. 1067. 38 See Brewer v. Browne (1880), 68 Ala. 210; Strong v. Lord (1883), 107 111. 25; Shearer v. Shearer (1867), 98 Mass. 107, Ames' Gas. 185. 39 See post, 165, 166. 145 165] LAW OP PARTNERSHIP only in the manner and by the methods appropriate to such property. 40 This legal title, however, will be held in subordina- tion to the rights properly acquired in the dealings with the land as personalty. So, upon the death of a partner in whom a legal title. IQ_ firm realty was vested, the legal title descends to his heirs, though the heirs hold it in trust for partnership purposes, and can be compelled to transfer the legal title to those who have properly acquired the equitable title.* 1 165. Dower in partnership land. The question whether the widow of a partner is entitled to dower in lands belonging to the partnership at the time of his death, has been a prolific source of difficulty. Where the land was owned by her husband, and she had acquired an inchoate right of dower in it, before the formation of the partnership, her right is, of course, ordi- narily unquestionable unless it has been legally barred when the land was afterwards conveyed to the partnership. 42 But where the land was acquired as partnership land during the partnership, other considerations apply. If when the land was so acquired, the title was taken in the name of the other partner only or of a third person, so that no legal title to it ever vested in her husband, she would not be entitled to dower, 43 unless, 40 ' ' Every such conversion, wheth- in whose name a legal title stands er express or implied, complete or may properly describe himself as a partial, is equitable only, and the "freeholder" or land owner: Tat- property can only be conveyed as tersall v. Nevels (1906), 77 Neb. real estate": Davis v. Christian 843, 110 N. W. 708. (1859), 15 Oratt. (Va.) 11, 36. 41 See Shanks v. Klein (1881), Same: Espy v. Comer (1884), 76 104 U. S. 18, 26 L. Ed. 635, Me- Ala. 501; Duncan v. Duncan (1892), chem's Gas. 211; Hanway v. Bob- 93 Ky. 37, 18 S. W. 1022, 13 Ky. ertshaw (1874), 49 Miss. 758. L. E. 917, 40 Am. St. E. 159. 42 See Grissom v. Moore (1885), "They [the partners] must observe 106 Ind. 296, 6 N. E. 629, 55 Am. all the solemnities and convey in the Eep. 742; Eatcliffe v.- Mason (1891), mode recognized by law for the trans- 92 Ky. 190, 17 S. W. 438, 13 Ky. fer or conveyance of real estate": L. B. 551; Chase v. Angell (1906), Euffner v. McConnel (1855), 17 111. 148 Mich. 1, 108 N. W. 1105, 118 212, 63 Am. Dec. 362, Mechem's Am. St. E. 568. Cas. 829. 43 See Mallory v. Eussell (1887), In a collateral matter, a partner 71 Iowa 63, 32 *N. W. 102, 60 Am. 146 SOME INCIDENTS OF PARTNERSHIP [ 165 under the law of the State, she was dowable in equitable estates. 44 If a legal title were vested in her husband, it was, by the hypoth- esis, acquired as partnership land for partnership purposes. The demands of such purposes constitute a charge upon the land which is prior to any interest therein which the individual part- ner or anyone claiming through him can assert. In its effect upon dower, such a charge is somewhat like a mortgage existing upon land when it was acquired and subject to which the title was taken ; such a mortgage would take precedence of any dower right asserted by the widow of the purchaser, and the part- nership demands are entitled to a similar priority. 45 When, however, such partnership purposes are satisfied, any land re- maining would be a proper subject of dower, 46 unless there had been an "out and out" conversion into personalty. What are the partnership purposes which are thus paramount? They in- clude, in the case of a partnership to deal in land, the sale of the land in the ordinary course of the business, and, in any case, the sale, mortgaging or otherwise disposing of the land to pay the debts of the firm to third persons or to satisfy the claims of the individual partners against the firm arising in the course of the firm 's business. As against such claims, there is no right of dower and the wives of the partners need not join in a convey- ance of the land. 47 Sep. 776 (no dower in lands held partnership and each conveys to the by trustees for the firm). other an undivided one-half of his 44 See Davis v. Green (1890), 102 land, his wife joining in the con- Mo. 170, 14 S. W. 876, 11 L. E. A. veyance, in order to vest the title 90. in the parties as partners, the wife 45 See Paige v. Paige (1887), 71 of each is entitled to dower after the Iowa 318, 32 N. W. 360, 60 Am. firm purposes are satisfied: Free v. Eep. 799, Mechem's Gas. 217; Beatley (1893), 95 Mich. 426, 54 Woodward-Holmes Co. v. Nudd N. W. 910. (1894), 58 Minn. 236, 59 N. W. 47 See Woodward-Holmes Co. v. 1010, 49 Am. St. E. 503, 27 L. E. Nudd, supra. See, also, Andrews v. A. 340, Mechem's Cas. 810, Burd. Brown (1852), 21 Ala. 437, 56 Am. Cas. 179. Dec. 252, Gilm. Cas. 267; Huston v. 46 See Bennett v. Bennett (1910), Neil (1873), 41 Ind. 504, Gilm. Cas. 137 Ky. 17, 121 S. W. 495, 22 Am. 200; Dyer v. Clark (1843), 5 Mete. & Eng. Ann. Cas. 407, and note. (Mass.) 562, 39 Am. Dec. 697, Gilm. Where two land owners enter into Cas. 196. 147 166] LAW OP PARTNERSHIP 166. Whether such partnership purposes, in the United States, include the restoration of the partnership capital and profits in cash, seems to be more or less in dispute. Where the partnership was one to deal in land and therefore resulting in an " out and out ' ' conversion, such a restoration is a partner- ship purpose. But in other cases than those of "out and out" conversion, the prevailing rule seems to be to regard what is left, after debts and equities are adjusted, as land, and then, even if it became necessary to sell all the land in order to get out enough to satisfy those charges, the proceeds of the residue would be regarded as land, in which the widow might have dower, 48 though there would be no dower in such a case as against the purchaser. Usually the widow will be found to be contending that a sur- plus is land in order that she may get dower in it as such ; but occasionally, where her distributive share in personalty under the statutes would exceed the value of her dower, she will be found insisting that the surplus is personalty. The same con- ditions which would support her claim in the former case would defeat it in the latter, and vice versa* 9 The Uniform Partnership Act excludes dower. It provides that "a partner's right in specific partnership property is not subject to dower, courtesy, or allowances to widows, heirs or next of kin." 60 48 See Buchan v. Sumner (1847), inchoate rights of dower were here 2 Barb. (N. Y.) Ch. 165, 47 Am. involved, as no partner had died. Dec. 305; Foster's Appeal (1873), In Leaf s Appeal (1884), 105 Pa. 74 Pa. 391, 15 Am. Rep. 553; 505, although one partner had died Shearer v. Shearer (1867), 98 Mass. the partnership was not dissolved 107, Ames' Gas. 185; Lenow v. but was going on with all accounts Tones (1886), 48 Ark. 557, 4 S. W. and equities yet unsettled. 56; Carter v. Flexner (1891), 92 The Uniform Partnership Act, Ky. 400, 17 S. W. 851, 13 Ky. L. B. sec. 38, provides for a final distri- 608. bution "in cash," unless other- In Woodward-Holmes Co. v. Nudd wise agreed. (1894), 58 Minn. 236, 59 N. W. 49 See Shearer v. Shearer (1867), 1010, 49 Am. St. R. 503, 27 L. R. A. 98 Mass. 107, Ames' Gas. 185; Le- 340, Meehem's Gas. 810, Burd. Gas. now v. Fones (1886), 48 Ark. 557, ]79, the court speaks of the restora- 4 S. W. 56; Hughes v. Allen (1894), tion and division of the capital as 66 Vt. 95, 28 Atl. 882. one of the purposes which will pre- 50 Sec. 25, subd. e. cede re-conversion to realty. Only 148 SOME INCIDENTS OF PARTNERSHIP [ 167, 168 167. Bona fide purchaser from partner having legal title. Partnership lands, therefore, when found to be such, may be sub- jected to the claims of the partnership creditors, and the latter take precedence over the creditors of an individual partner in whose name the legal title stands, and over a transfer by such partner of the legal title to any one not a bona fide purchaser. But a bona fide purchaser or mortgagee of partnership lands, in ignorance that they were such, from the partner having the legal title of record, will be protected as against both the other part- ners and creditors. 61 168. Notice from possession by the firm. Whether, in such a case, the fact that the firm is in possession of the land is notice of its rights, is a question upon which there seems to be some difference in opinion. Where the possession does not appear to be in accord with the state of the title, e. g., where the title seems to be in a third person or in less than the entire number of partners, there the possession seems to give notice. Where, however, the possession and the title appear to be in accord, as where all of the partners have the title apparently as tenants in common, it has been held in some cases that there is no notice. 52 On the other hand, it is said in an English case that even in such a case the possession of the firm as such, as where the land is the seat of the firm's business, is notice of some arrangement with the apparent owners and therefore is notice of whatever kind of an arrangement it may turn out to be, as, for example, that the land is held as partnership prop- erty. 63 51 See Norwalk Nat. Bank v. Mechem's Gas. 204; Goldthwaite Sawyer (1882), 38 Ohio St. 339; v. Janney (1894), 102 Ala. 431, 15 McNeil v. Congregational Society So. 560, 28 L. K. A. 161, Mechem's (1884), 66 Gal. 105; Seeley v. Mi- Gas. 804, Burd. Gas. 176. chell (1887), 85 Ky. 508, 4 S. W. 52 See Hammond v. Paxton 190, 9 Ky. L. E. 86; Tarbell v. West (1885), 58 Mich. 393, 25 N. W. 321; (1881), 86 N. Y. 280; Kepler v. Kobinson Bank v. Miller (1894), Savings & Loan Co. (1882), 101 Pa. 153 111. 244, 38 N. E. 1078, 46 Am. 602. See, also, National Union St. E. 883, 27 L. E. A. 449, Me- Bank v. National Mechanics' Bank chem's Gas. 195, Burd. Gas. 165. (1895), 80 Md. 371, 30 Atl. 913, 53 See Cavender v. Balteel (1873), 27 E. E. A. 449, 45 Am. St. E. 350, L. E. 9 Ch. App. 79. To same ef- 149 169] LAW OF PARTNERSHIP 169. Interest of surviving partner in firm realty. Upon the dissolution of the partnership by death, the entire legal title to all the partnership personalty vests, as will be seen here- after, 64 in the survivor. With respect of the partnership realty, however, a somewhat different rule prevails. The real estate, though treated as personalty in the United States for many pur- poses, retains its character as realty so far as the exigencies of the partnership affairs will permit. The legal title to it unless it had been vested for the firm in the name of one part- ner only who chances to be the survivor descends, as has been seen, 55 to the heirs but subject to the partnership needs; the lien of the survivor still exists, and an equitable title vests in the surviving partner for the purpose of paying the firm debts and settling up the partnership affairs in substantially the same manner that the legal title to the personal assets vests in him. As such survivor he may, therefore, convey, when necessary, the equitable title to part or all of the partnership realty, and the court will then require the heirs or other holders of the legal title to convey that legal title to the person who has purchased the equitable title from the surviving partner. 56 If he happens to be vested with the entire legal title, as for example where the land was originally conveyed to him alone for the firm, or where during the partnership the partner since deceased con- veyed the legal title to the one who now survives in trust, 57 he may convey the entire legal title. He may do so also where by the provisions of the deceased partner's will a testamentary feet: Bergeron v. Eichardott (1882), 1076, 7 L. E. A. 481; Tillinghast v. 55 Wis. 129, 12 N. W. 384; Duryea Champlin (1856), 4 B. I. 173, 67 v. Burt (1865), 28 Gal. 569; Chur- Am. Dee. 510; Buffum v. Buffum dull v. Proctor (1883), 31 Minn. (1861), 49 Me. 108, 77 Am. Dec. 129, 16 N. W. 694. 249; Delmonieo v. Guillaume (1845), 54 See post, 402, 403. 2 Sand. Ch. (N. Y.) 366, Burd. Gas. 55 See ante, 163. 161; Hartnett v. Stilwell (1904), 56 See Shanks v. Klein (1881), 121 Ga. 386, 49 S. E. 276, 104 Am. 104 U. S. 18, 26 L. Ed. 635, Me- St. E. 151. chem's Gas. 211; Dyer v. Clark 57 See Darrow v. Calkins (1897), (1843), 5 Mete. (Mass.) 562, 39 Am. 154 N. Y. 503, 49 N. E. 61, 61 Dec. 697, Ames' Gas. 251, Gilm. Gas. Am. St. E. 637, 48 L. E. A. 299, 196; Walling v. Burgess (1889), 122 Mechem's Gas. 813, Gilm. Gas. 203. Ind. 299, 22 N. E. 419, 23 N. E. 150 SOME INCIDENTS OF PARTNERSHIP [ 169 power of sale has been vested in him ; 58 and also, of course, where after the death the heirs of the deceased partner give him a power of attorney to convey the legal title vested in them. 69 58 See Davis v. Smith (1887), 82 69 See Southern Cotton Oil Co. v. Ala. 198, 2 So. 897, Mechem's Cas. Henshaw (1889), 89 Ala. 448, 7 So. 821, Burd. Cas. 182. 760. 151 CHAPTER VII. OF THE EIGHTS AND DUTIES OF PAETNEBS TOWAEDS EACH OTHEE. i 170. Duty to exercise good faith. 171. Duty to devote himself to advancement of firm's in- terests. 172. Duty not to carry on other business to prejudice of firm. 173. Duty to exercise care and skill. 174. Duty to conform to partner- ship agreements. 175. Duty of partners to keep ac- counts Eight of inspec- tion. 176. Duty to consult with each other. 177. Eight of each partner to share in management, knowledge and eentrol of the business. 178. Eight of partner to extra compensation. 179. May be agreement to pay it. 180. Liability of partner for not performing agreed service. 181. Partner's right to return of advances. 182,183. Eight of partner to in- terest on money advanced On capital. 184. Eight of partners to have partnership property ap- plied to partnership debts. 185. Partner may not apply partnership property to his own uses. 186. Claims of partnership creditors based on rights of partners. 187. Partner's right to contribu- tion from co-partners. 188. On illegal transactions. 189. Upon what basis deter- mined. 190. How enforced. 191. Eight of other partners to indemnity for losses caused by a partner's misconduct. 170. Duty to exercise good faith. The relation of partners to each other is one of great confidence and trust, and the law demands from them the exercise of the highest integrity and good faith toward each other. Each one is bound to use the partnership property and exercise his partnership powers for the benefit of the firm and not for himself alone. Profits made in the course of the partnership belong to the firm, and one partner will not be permitted to make gain for himself at the expense of the firm. Secret commissions made by one partner 152 RIGHTS AND DUTIES OF PARTNERS [170 upon partnership dealings must be accounted for to the firm, and if one partner takes advantage of his position to acquire for himself that which it was his duty to acquire for the firm, he will be required to transfer it to the firm. So one partner will not be permitted, either directly or indirectly, to buy of or for himself or to sell to or for himself on the partnership account, without the knowledge and consent of the other partners ; and in their dealings with each other, in relation to partnership matters, each is required to make a full disclosure of all facts within his knowledge affecting the transaction. This duty of good faith is intensified when one partner is conducting the business alone as managing partner. 1 ISee Brooks v. Martin (1863), 2 Wall. (U. S.) 70, and Kimberley v. Arms (1888), 129 U. S. 512, 9 S. Ct. 355, 32 L. Ed. 764, as to the duties of a managing partner. See, also, Trego v. Hunt (1896), App. Gas. 7, Mechem's Gas. 247, Burd. Gas. 602. See Hodge v. Twitchell (1885), 33 Minn. 389, 23 N. W. 547, Mechem's Gas. 862, and Newell v. Cochran (1889), 41 Minn. 374, 43 N. W. 84; Bloom v. Lofgren (1896), 64 Minn. 1, 65 N. W. 960, Burd. Gas. 501, as to secret commissions made by one partner; Caldwell v. Davis (1887), 10 Colo. 481, 15 Pac. 696, 3 Am. St. E. 599; Barnes v. Clark (1918), S. Dak. , 169 N. W. 527; Butler v. Prentiss (1899), 158 N. Y. 49, 52 N. E. 652; Harlow v. La Brum (1897), 151 N. Y. 278, 45 N. E. 859, Burd. Gas. 502, as to the duty to make full disclosure in dealings with each other; John- son's Appeal (1886), 115 Pa. St. 129, 2 Am. St. B. 539, and Mitch- ell v. Eeed (1874), 61 N. Y. 123, 19 Am. Sep. 252, Mechem's Gas. 864, Gilm. Gas. 419, that if one partner takes a renewal in his own name of an existing lease to the firm, it inures to the benefit of the firm. This seems to be true even though there is to be a dissolution of the firm, because the chance of renewal is a firm asset. See also Knapp v. Eeed (1911), 88 Neb. 754, 130 N. W. 430, 32 L. E. A. (N.- S.) 869; Johnson's Appeal (1886), 115 Pa. 129, 8 Atl. 36, 2 Am. St. E. 539; Deutschman v. Dwyer (1916), 223 Mass. 261, 111 N. E. 877. Benewal of contract: Williamson v. Monroe (1900), 101 Fed. 322 ; National Wire Bound Box Co. v. Healy (1911), 110 C. C. A. 613, 189 Ted. 49. Same principle: Pike's Peak Co. v. Pfuntner (1909), 158 Mich. 412, 123 N. W. 19. See, also, to the effect that one partner who buys up a claim against the firm at a discount must give the firm the benefit: Easton v. Strother (1881), 57 Iowa 506; that one who buys in property belonging to the firm, as upon a sale on execution, must hold for the firm: Eailsback v. Lovejoy (1886), 116 111. 442, 6 N. E. 504; Eoby v. Colehour (1890), 135 111. 300, 25 N. E. 777; that purchase of firm property through a confederate will be set aside: 153 171] LAW OF PARTNERSHIP 171. Duty to devote himself to advancement of firm's in- terests. In a recent case wherein there was, in fact, an ex- press agreement that each should reasonably devote his time and attention to the partnership affairs, the court said that this fact did not materially alter the situation, ' ' for undoubtedly in the absence of express agreement to the contrary a partner is impliedly bound thus reasonably to devote himself to the ad- vancement of the co-partnership of which he has become a mem- ber." 2 Persistent failure to do so would usually constitute a good reason for dissolving the partnership; it would usually furnish a ground for the recovery of damages; but, as will be seen in the following section, it would furnish no ground to claim an accounting for the profits which the recreant partner made in outside ventures while he was neglecting the partner- ship business, unless those ventures were such as ought to have been undertaken for the partnership because they were within the scope of its business. Winstanley v. Gleyre (1893), 146 111. 27, 34 N. E. 628; that insurance of firm property, taken in the name of one partner, inures to the firm: Tebbetts v. Dearborn (1883), 74 Me. 392, Mechem's Gas. 871; that one partner may not apply firm property to his own uses: Morrison v. Blodgett (1836), 8 N. H. 238, 29 Am. Dec. 653; that one partner may not through a third person se- cretly purchase firm assets sold on dissolution: Jones v. Dexter (1881), 130 Mass. 380, 39 Am. Eep. 459, Mechem's Gas. 873, and note; whether one partner may avail him- self of information acquired as a partner to aid him in carrying on another business in competition with the firm: Aas v. Benham (1891), 2 Ch. 244; Latta v. Kilbourn (1893), 150 U. S. 524, 14 S. Ct. 201, 37 L. ed. 1169, Mechem's Gas. 260, Burd. Cas. 503, Gilm. Gas. 425. Products of partnership activity inure to the partnership: Whitney v. Dewey (1907), 86 C. C. A. 21, 158 Fed. 385; Jennings v. Eickard (1887), 10 Colo. 395, 15 Pac. 677, Gilm. Cas. 421; Hurst v. Brennen (1913), 239 Pa. 216, 86 Atl. 778, 34 Ann. Cas. 428; Burton v. Wookey (1822), 6 Madd. 367, Gilm. Cas. 418. But defendant was not charged as a trustee where, after the termina- tion of the partnership, he bought for himself the property which the partnership had been created to sell to others at a profit: Kayser v. Maugham (1885), 8 Colo. 232, 6 Pac. 803. 2 Barclay v. Barrie (1913), 209 N. Y. 40, 102 N. E. 602, 47 L. B. A. (N. S.) 839, 29 Ann. Cas. 1143. 154 RIGHTS AND DUTIES OF PARTNERS [ 172 172. Duty not to carry on other business to prejudice of firm. Express stipulations in the partnership articles respect- ing the right of all or any of the partners to engage in ottyer business are common and often desirable. The partners may agree that a certain partner shall not, or that no partner shall, engage or be interested in any other business. Equally, they may agree in their articles or otherwise that one or more partners may carry on other business, or be relieved in whole or in part from giving their time and efforts to the firm business ; but in the absence of such an agreement, a partner has no right to. give his time, skill or efforts to another business or firm to the prejudice of his partners. If without such consent he carries on the same business as that of the firm and in competition with it, and thus makes profits which ought to have enured to the firm, he may be compelled to account to the firm for the profits which he makes, 3 but he will not be compelled to account for the profits if the business is a different and non-competing one. 4 In the latter case, an action for damages would ordinarily be the legal remedy. 5 The violation of express covenants may also be enjoined. 6 3 See Goldsmith v. Eiehold (1891), more (1883), 134 Mass. 330, Burd. 94 Ala. 116, 10 So. 80, 33 Am. St. Cas. 515; National Wire Bound Box E. 97; Todd v. Eafferty (1878), 30 Co. v. Healy (1911), 110 C. C. A. N. J. Eq. 254; Holmes v. Darling 613, 189 Fed. 49. (1913), 213 Mass. 303, 100 N. E. 5 Thus in Dean v. MacDowell 611; Hurst v. Brennen (1913), 239 (1877), 8 Ch. Div. 345, where there- Pa. 216, 86 Atl. 778, 34 Ann. Cas. was an express agreement that 428; Wiggins v. Markham (1906), neither partner would engage in 131 Iowa 102, 108 N. W. 113. other business, and one partner did 4 See Aas v. Benham (1891), 2 engage in other business of a differ- Ch. 244; Lat'ta v. Kilbourn (1893), ent and non-competing sort, it was 150 U. S. 524, 14 S. Ct. 201, 37 L. said that for this breach of contract ed. 1169, Meehem's Cas. 260, Burd. there might be a dissolution or in Cas. 503, Gilm. Cas. 425; Metcalfe some cases an injunction or an ac- v. Bradshaw (1893), 145 111. 124, tion for damages, but not a bill in 33 N. E. 1116, 36 Am. St. E. 478, equity to compel an accounting of Meehem's Cas. 875. the profits made in the other busi- As to the right of the partnership ness. It was conceded that no ac- to claim the benefit of inventions tual damages could be proved, made by one partner during the 6 See Levine v. Michel (1883), partnership, see Belcher v. Whitte- 35 La. Ann. 1121. 155 173] LAW OF PARTNERSHIP "If a member enter into a transaction in his own behalf, which is within the scope of the partnership business, ' ' said the court in one case, "his copartner may insist that it is a fraud upon him and claim the benefit resulting from it; yet this is a right which the partner can alone assert, and it is not avail- able to third persons for the purpose of fixing a liability upon the partnership when such claim has not been asserted. ' ' 7 Clearly, however, the fact that a partner makes profits in outside transactions is, of itself, a matter of no concern to his copartners if, in doing so, he violated no duty to the firm or contravened no partnership agreement. 8 Equally, also, is it no breach of duty, in a partner who has not agreed to do so, not to admit his copartners into, or furnish them funds to join, his legitimate outside ventures. 173. Duty to exercise care and skill. It is the duty of each partner to his copartners and he impliedly if not expressly agrees, to transact the business of the firm with reasonable care, skill, diligence and economy'; and if the firm sustains injury by reason of his failure to do so, he must bear the loss, 9 though in matters of "judgment he will not be liable for a loss caused by honest mistake or error of judgment not amounting to wan- tonness or fraud. 10 The fact that he is the managing partner increases the scope of his duty but does not change the measure of his responsibility. 11 Obviously, however, one partner has no just ground for put- 7 Lock-wood v. Beckwith (1858), Atl. 753; Carlin v. Donegan 6 Mich. 168, 72 Am. Dec. 69. (1875), 15 Kans. 495; Bohrer v. 8 See Latta v. Kilbourn, supra; Drake (1885), 33 Minn. 408, 23 N. Shrader v. Downing (1914), 79 W. 840. Wash. 476, 140 Pac. 558, 52 L. E. A. 10 See Charlton v. Sloan (1888), (N. S.) 389; Dennis v. Gordon 76 Iowa 288, 41 N. W. 303. (1912), 163 Gal. 427, 125 Pae. 1063; 11 Exchange Bank v. Gardner Wheeler v. Sage (1863), 1 Wall. (1897), 104 Iowa 176, 73 N. W. (68 U. S.) 518, 17 L. ed. 646. But 591; Hall v. Sannoner (1884), 44 compare Kyle v. Griffin (1915), 76 Ark. 34; Poole v. Koons (1911), 252 W. Va. 213, 85 S. E. 559. 111. 49, 96 N. E. 556; Northen v. 9 See Yetzer v. Applegate (1891), Tatum (1909), 164 Ala. 368, 51 83 Iowa 726, 50 N. W. 66; Gordon So. 17. v. Moore (1890), 134 Pa. 486, 19 156 RIGHTS AND DUTIES OF PARTNERS [ 174 ting a loss upon his copartner where the former was as much at fault as the latter, 12 nor may he properly complain that his copartner did not do some act or take some precaution which the complaining partner was under equal duty and had equal power to do or take. 13 Equally obviously, also, would the latter rule be modified where the partner complained of had the matter exclusively in his charge or was the managing partner, and the other had no knowledge or opportunity which would enable him to protect himself. The measure of responsibility which the firm owes to third persons for a partner's acts or omissions in not necessarily the one which is to govern that partner's responsibility to his co- partners; for it is entirely obvious that the firm may assume to third persons a responsibility which it was not the intention, as between themselves, that the partner in question should as- sume. 174. Duty to conform to partnership agreements. It is also the duty of each partner to conform to all of the agreements, regulations and restrictions imposed by the partnership articles, and to confine his acts within the scope and limits fixed for the partnership business. If, "by reason of his breach of duty in these respects, a loss happens to his partners, he must in- demnify them. 14 Thus, where the partners expressly agreed that no one of them should sign, accept or indorse negotiable paper except for 12 See Insley v. Shire (1895), 54 Mechem's Gas. 275, Gilm. Gas. 438; Kan. 793, 39 Pac. 713, 45 Am. St. McCoy v. Crossfield (1909), 54 Ore. E. 308, Meehem's Gas. 270. 591, 104 Pac. 423; Looney v. Gill- 13 See Lyons v. Lyons (1903), 207 enwaters (1872), 58 Tenn. (11 Pa. 7, 56 Atl. 54, 99 Am. St. E. 779, Heisk) 133; Haller v. Willamowicz Meehem's Gas. 880; Chalmers v. (1861), 23 Ark. 566 (here the agree- Chalmers (1889), 81 Gal. 81, 22 Pac. ment was that one partner should 395 (Cases wherein the partner who not take part in the business, and complained that the other had not caused loss by doing so), collected debts, had equal opportu- Violation may be waived: Weeks nity to collect them himself). v. MeClintock (1887), 50 Ark. 193, 14 See Murphy v. Crafts (1858), 6 S. W. 734. 13 La. Ann. 519, 71 Am. Dec. 519, 157 175] LAW OF PARTNERSHIP their own legitimate purposes, and one of them used the firm name for the accommodation of the third person in ;such a way that the firm was held liable, the offending partner was com- pelled to make good the loss to his partners. 16 The same ruling was made where the partners had expressly agreed not to give firm credit to relatives, and one of them did so to the loss of the firm. 16 And where one partner who had stipulated to render certain services for the firm refused without reasonable cause to do so, it was held that he was answerable to his partners for the value of the services. 17 175. Duty of partners to keep accounts Right of inspec- tion. It is the right of every partner to have true and proper accounts kept of the partnership transactions, and to have these accounts, at all reasonable times, open to his inspection at the place of business. The general duty of keeping the formal books of accounts may, by the articles or other agreement, be devolved upon one partner, or upon a clerk; but even in such a case, as well as when there is no agreement, it is the duty of each part- ner to make and keep, or furnish to the proper person to keep, correct accounts of such partner's own transactions for the firm. Where a partner fails in his duty in this regard, every reason- able presumption will be made against him upon the final ac- counting. 18 15 Murphy v. Crafts, supra. 99; Clarke v. Clarke (1919), Va. 16 McCoy v. Crossfield, supra. , 99 S. E. 664. 17 Marsh's Appeal (1871), 69 Pa. It occasionally happens that the St. 30, 8 Am. Kep. 206. parties have been so negligent in 18 See Kelly v. Greenleaf (1843), the keeping of accounts that no just 3 Story (U. S. C. C.) 105; Webb v. and reasonable conclusion can be Fordyce (1880), 55 Iowa 11, Me- reached by the court. In such a chem's Gas. 276; Holden v. Thur- case the court will dismiss the bill, ber (1909), 72 Atl. (E. I.) 720; It "will not grope its way in utter Hall v. Clagett (1877), 48 Md. 223; darkness, and undertake to create Pierce v. Scott (1861), 37 Ark. 308; and establish a claim upon mere Pomeroy v. Benton (1882), 77 Mo. contingencies or the preponderance 64; Diamond v. Henderson (1879), of mere possibilities or probabili* 47 Wis. 172; Knapp v. Edwards ties." Eyman v. Ryman (1901), (1883), 57 Wis. 191, 15 N. W. 140; 100 Va. 20, 40 S. E. 96. Chandler v. Sherman (1877), 16 Fla. 158 RIGHTS AND DUTIES OP PARTNERS [ 176 Here, of course, as in other cases, one partner could not prop- erly complain where the failure to keep the account was as much his own fault as that of his copartner. 19 Equally, also, would the duty of one partner be increased where he was the managing partner. 20 Formal and expert bookkeeping is not ordinarily expected of a partner, but an honest, full and intelligible account of his trans- actions is not too much to expect. Upon the general subject the Uniform Partnership Act pro- vides: "The partnership books shall be kept, subject to any agreement between the partners, at the principal place of busi- ness of the partnership, and every partner shall at all times have access to- and may inspect and copy any of them. ' ' 21 176. Duty to consult with each other. As will be seen in the following section, every partner has presumptively an equal right and an equal voice in the conduct of the partnership 'affairs. This does not mean, of course, that all of the partners must participate in every transaction, or even that all must con- sult together before any one of them may do any act in the usual and ordinary conduct of the business. The very creation of the partnership results in a general agency in each partner for the ordinary course of the business and until revoked. But with reference to unusual and unexpected matters that can not fairly be regarded as covered by the original or general agree- ments, the case is different. Trifling and insignificant acts, though unusual, may be easily disposed of, but in every impor- tant exigency in the partnership affairs, where one partner is about to act, he should consult with his partners unless the cir- cumstances are such as to prevent or excuse him from so doing. So, also, should he, in any case in which it may reasonably be supposed that the other partner had special information which should be taken into account before the act was done. Thus, 19 Where a bookkeeper is em- . 20 See McAlpine v. Millen (1908), ployed by the firm, his errors are 104 Minn. 289, 116 N, W. 583; Gay not to be charged to one partner v. Householder (1912), 71 W. Va. unless he was in some way respon- 277, 76 S. E. 450, Ann. Cas. 1914 C, sible for them. Folsom v. Marietta 297; Benedetto v. DiBacco (1919), (1897), 23 Nev. 459, 49 Pac. 39, W. Va. , 99 S. E. 170. Burd. Cas. 570. 21 Sec. 19. 159 177, 178] LAW OF PARTNERSHIP where one partner, without consulting his copartner whose knowledge of the subject because he had originally handled the transaction would have rendered the purchase unnecessary bought in for a large sum an apparent but really unfounded claim against the firm real estate, it was held that his act was gross negligence and that he could not require his copartner to contribute to the expense of the purchase. 22 177. Right of each partner to share in management, knowl- edge and control of the business. Unless they have agreed otherwise, it is the right of each partner to take an equal part in the transaction of the firm 's business. Each has an equal right to information about its business and projects, to have free access to its books and accounts, and to participate generally in the conduct of its affairs. 23 ' ' Although one may have an interest only in the profits and not in the capital, ' ' said the court in one case, 24 his right to participation is the same because "his rights are involved in the proper conduct of the affairs of the firm, so that profits may be made." Upon these subjects, the Uniform Partnership Act provides: "Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability." 26 "All partners have equal rights in the management and con- duct of the partnership business. ' ' 26 The right of a partner to a voice in the management of the business does not usually take the form of a right to vote, but it is that in substance, and, in the case of large partnerships managed by elected agents, it would usually take that form. 178. Right of partner to extra compensation. In the ab- sence of special agreement, a partner is not entitled to com- 22Yorks v. Tozer (1894), 59. ris (1901), 132 Ala. 208, 31 So. 355; Minn. 78, 60 N. W. 846, 28 L. E. Einstein v. Schnebly (1898), 89' A. 86, 50 Am. St. E. 395, Mechem's Fed. 540; Hartman v. Woehr Cas. 278, Gilm. Cas. 440. (1867), 18 N. J. Eq. 383. 23 Katz v. Brewington (1889), 71 24Katz v. Brewington, supra, Md. 79, 20 Atl. 139, Mechem 's Cas. 25 Sec. 20. 929, Gilm. Cas. 433 ; Harris v. Har- 26 Sec. 18, subd. e, 160 RIGHTS AND DUTIES OF PARTNERS [i pensation for his services for the partnership, but must be con- tent with his share of the profits, if any. 27 It makes no differ- ence that his services are more valuable than those of any other partner, or that he performs a greater portion of the duties than any other. 28 Nor does the fact that one partner is disabled by sicknesss from rendering any service give another partner, who performs it all, a claim for compensation, for such sickness is one of the risks incident to the relation. 29 Even where one partner, after dissolution by death or otherwise, winds up the business of the firm, he is not ordinarily entitled to extra com- pensation out of the proceeds ; 30 though he has, under various circumstances, been held to be entitled to it where, after dis- solution by death, he carries on the business successfully with the consent of those interested, until it could be wound up. 11 27Lindsey v. Stranahan (1889), 129 Pa. 635, 18 Atl. 524, Mechem's Gas. 279, Gilm. Gas. 435; Ma- jor v. Todd (1890), 84 Mich. 85, 47 N. W. 841; Godfrey v. White (1880), 43 Mich. 171, 5 N. W. 243; Hyre v. Lambert (1892), 37 W. Va. 26, 16 S. E. 446; Ligare v. Pea- cock (1884), 109 111. 94; Eedfield v. Gleason (1888), 61 Vt. 220, 17 Atl. 1075, 15 Am. St. R. 889; Cam- eron v. Francisco (1875), 26 Ohio St. 190; Buggies v. Buckley (1910), 99 C. C. A. 73, 175 Fed. 57, 27 L. E. A. (N. S.) 541, 20 Ann. Gas. 1057; Wisner v. Field (1902), 11 N. Dak. 257, 91 N. W. 67; Caldwell v. Leiber (1839), 7 Paige (N. Y.) Ch. 483; Consaul v. Cummings (1911), 222 U. S. 262, 32 Sup. Ct. 83. But see Mattingly v. Stone (1896), 35 S. W. (Ky.) 921, 18 Ky. L. R. 187, Burd. Gas. 516. Where there was a promise to pay it, an action at law may be main- tained for its recovery: Paine v. Thacher (1841), 25 Wend. (N. Y.) 450. Mech. Part. 11 161 28 See Burgess v. Badger (1888), 124 111. 288, 14 N. E. 850 ; Williams v. Pederson (1907), 47 Wash. 472, 92 Pac. 287, 17 L. R. A. (N. S.) 384 and Note. 29 See Heath v. Waters (1879), 40 Mich. 457. 30 See Barry v. Jones (1872), 58 Tenn. (11 Heisk.) 206, 27 Am. Rep. 742 (surviving partner) ; Maynard v. Richards (1897), 166 111. 466, 46 N. E. 1138, 57 Am. St. R. 145 (surviving partner) ; Smith v. Knight (1893), 88 Iowa 257, 55 N. W. 189 (surviving partner) ; Con- saul v. Cummings (1911), 222 U. S. 262, 32 Sup. Ct. 83 (surviving partner) ; In re Aldridge [1894], 2 Ch. 97 (surviving partner who had made no profits). 31 See Robinson v. Simmons (1888), 146 Mass. 167, 15 N. E. 558, 4 Am. St. R. 299 ; Zell 's Appeal (1889), 126 Pa. 329, 17 Atl. 647; Condon v. Callahan (1905), 115 Tenn. 285, 89 S. W. 400, 112 Am. St. R. 833, 1 L. R. A. (N. S~.) 643; Maynard v. Richards (1897), 166 179] LAW OP PARTNERSHIP If one partner is thus ordinarily not entitled to extra com- pensation for his services, it is all the more clear that he will not be so entitled where he has wrongfully excluded his partner from participation in the business. 32 The Uniform Partnership Act reaffirms the general rule, though, contrary to what is believed to be the weight of au- thority, it gives compensation to the surviving partner. 33 179. Same subject May be agreement to pay it. But there may be an agreement to pay a partner for his services as such, and this agreement may be express or implied. "Where it can be fairly and justly implied, ' ' said the court in one case, 34 "from the course of dealing between the partners, or from cir- cumstances of equivalent force, that one partner is to be com- pensated for his services, his claim will be sustained." It has been so implied, for example, where one partner gave his whole time to strangers for a salary which he retained, or devoted his entire time and energy to his own separate business, leaving the claimant partner to manage the firm business alone. 35 It 111. 466, 46 N. E. 1138, 57 Am. St. 711, 147 N. W. 148; Maynard v. R. 145; Cameron v. Francisco Maynard (1917), 147 Ga. 178, 93 (1875), 26 Ohio St. 190; Thayer v. S. E. 289; Rains v. Weiler (1917), Badger (1898), 171 Mass. 279, 50 101 Kan. 294, 166 Pac. 235, L. R. A. N. E. 541, Gilm. Cas. 435. 1917 F, 571. See, also, Askew v. 32Hannaman v. Karrick (1893), Springer (1884), 111 111. 662; 9 Utah 236, 33 Pac. 1039. Weeks v. MeClintock (1887), 50 33 Sec. 18, subd. /. "No partnei Ark. 193, 6 S. W. 734; Lassiter v. is entitled to remuneration for act- Jackman (1882), 88 Ind. 118. ing in the partnership business, ex- In Mondamin Bank v. Burke, cept that a surviving partner is en- supra, the court, while recognizing titled to reasonable compensation the general rule, said "where one for his services in winding up the partner has had full charge of the partnership affairs." partnership business, attending to 34 Emerson v. Durand (1885), 64 practically all its affairs while the Wis. Ill, 24 N. W. 129, 54 Am. other partners have tacitly or ex- Rep. 593. pressly acquiesced therein and de- 85 Emerson v. Durand, supra; voted their own time and energies Morris v. Griffin (1891), 83 Iowa wholly to their personal affairs, an 327, 49 N. W. 846; Levi v. Karrick agreement to compensate the active (1862), 13 Iowa 344; Mondamin partner will be much more readily Bank v. Burke (1914), 165 Iowa implied than where all the partners 162 RIGHTS AND DUTIES OF PARTNERS [ 180 has been implied from the acquiescence and course of dealing of the partners. 36 "Unusual conditions" or "exceptional cir- cumstances," it is said, may justify it. 37 Where one partner is expressly to be paid in consideration of extra services, he will not be entitled to pay if such services are not rendered, even though he was disabled by illness. 38 Where one partner carries on the business under such cir- cumstances that he would not otherwise be entitled to extra compensation, it has been held that he cannot establish a right to it, by acquiescence, by crediting it to himself on the firm books, if the other partner knew nothing of that fact and for that reason did not object. 39 180. Liability of partner for not performing agreed service. Even though, as has just been seen, one partner may not be entitled to extra compensation where he performs more than his pro rata share of the work, still if a partner undertakes to perform some particular service or line of service for the firm and without justification fails to do so, making it necessary to employ some other person to perform the agreed service or other- wise causing direct loss to the firm, the amount of such expense or loss may properly be chargeable against the defaulting part- ner on a partnership accounting. 40 Whether an action at law are also giving some degree of ac- 37 See Hoag v. Alderman (1903), tive attention to the promotion of 184 Mass. 217, 68 N. E. 199; May- the common interest." nard v. Maynard (1917), 147 Ga. But in Lindsey v. Stranahan 178, 93 S. E. 289. (1889), 129 Pa. 635, 18 Atl. 524, 38 See Kinney v. Maher (1892), Mechem's Gas. 279, extra eompen- 156 Mass. 252, 30 N. E. 818. eation was denied to one partner 39 Lindsey v. Stranahan, supra. who did all the work. 40 See Marsh's Appeal (1871), 69 36 Winchester v. Glazier (1890), Pa. 30, 8 Am. E. 206; Hart v. My- 152 Mass. 316, 25 N. E. 728, 9 L. ers (1891), 59 Hun (N. Y.) 420, 13 E. A. 424; Eains v. Weiler, supra. N. Y. S. 388; Stegman v. Berry hill As to validity of subsequent promise (1880), 72 Mo. 307; Miller v. Free- to pay in consideration of past ex- man (1900), 111 Ga. 654, 36 S. E. tra services, see Gray v. Hamil 961, 51 L. E. A. 504, Mechem's (1889), 82 Ga. 375, 10 S. E. 205, 6 Cas. 894; Lay v. Emery (1899), 8 L. E. A. 72 (applying the Georgia N. Dak. 515, 79 N. W. 1053. Code). Inability from sickness to render 181, 182] LAW OP PARTNERSHIP for damages may be maintained by the other partner will de- pend upon considerations discussed in a later section. 41 181. Partner's right to return of advances. A partner has the right to have returned to him the amount of his ad- vances, loans and proper disbursements made to or on account of the firm, which were not made as part of or additions to his contributions to the permanent capital of the firm, 42 and which were not rendered necessary by the partner's own default or made in violation of the partnership agreement. 43 / Such ad- vances, as will be seen hereafter, take priority in the order of payment out of the firm's assets over contributions to capital, though they are, of course, subordinate to the payment of the firm debts to non-partners. 44 The time at which the partner would be entitled to demand the return or repayment of such advances would depend largely upon the agreement or circumstances under which they were made. His remedy to compel repayment would be affected by several considerations. He could not ordinarily sue for them at law, though, if they were represented by the firm 's negotiable paper at least, he could often transfer them to a third person who could sue at law. 46 His remedy in equity for an accounting before a final accounting would in many cases be doubtful. 46 182. Right of partner to interest on money advanced On capital. By the earlier authorities, at least, a partner who purely personal services would doubt- to: McFadden v. Leeka (1891), 48 less cause an exception, as in other Ohio St. 513, 28 N. E. 874, Me- similar cases. chem's Gas. 280. 41 See post, 214. 44 See post, 469, 42 See Lindley on Partnership 45 See Carpenter v. Greenop (7th ed.), p. 419; Folsom v. Mar- (1889), 74 Mich. 664, 42 N. W. 276, ktte (1897), 23 Nev. 459, 49 Pac. 16 Am. St. R. 662, 4 L. R. A. 241, 39; Whiteomb v. Converse (1875), Mechem's Gas. 296; Knaus v. Giv- 119 Mass. 38, 20 Am. R. 311, Me- ens (1892), 110 Mo. 58, 19 S. W. chem's Gas. 692; Baker v. Mayo 535; Jennings v. Pratt (1899), 19 (1880), 129 Mass. 517. Utah 129, 56 Pac. 951. 43 Partner may not charge co- 46 See Lord v. Hull (1904), 178 partners with loans or advances N. Y. 9, 70 N. E. 69, 102 Am. St. made in violation of the partnership R. 484, Mechem's Gas. 920. articles and not otherwise assented 164 EIGHTS AND DUTIES OP PARTNERS [182 advances money for partnership purposes is usually held to be not entitled 'to interest upon it, in advance of a partnership accounting, and a balance thereby found to be due, unless there has been an agreement express or implied to pay interest, though by some authorities it is allowed. 47 Mercantile usage, however, and the course of dealing between the partners may be sufficient to sustain an implication of a promise to pay interest. 48 ' ' Slight circumstances," said the court in one case, 49 "may be sufficient to show such an undertaking. ' ' By the modern authorities, on the other hand, interest is more readily allowed, and sums, distinct from capital, which may fairly be regarded as loans to the firm, are often held to draw interest wherever a similar loan to a third person would do so. 50 47 See Prentice v. Elliott (1883), 72 Ga. 154; Clark v. Warden (1880), 10 Neb. 87; Dexter v. Ar- nold (1823), 3 Mason (U. S. C. C.) 284; Oilman v. Vaughan (1878), 44 Wis. 646. More modern cases such as Lamt> v. Eowan (1903), 83 Miss. 45, 35 So. 427, and Ice v. Kilworth (1911), 84 Kan. 458, 114 Pac. 857, 35 L, R. A. (N. S.) 220 (with Note), also adopt this view of no interest. 48 See per Knight Bruce, L. J., in Ex parte Chippendale (1853), 4 DeG. M. & G. 19. 49 Winchester v. Glazier (1890), 152 Mass. 316, 25 N. E. 728, 9 L. R. A. 424. . 50 See Rodgers v. Clement (1900), 162 N. Y. 422, 56 N. E. 901, 76 Am. St. R. 342; Baker v. Mayo (1880), 129 Mass. 517; Mack v. Engel (1911), 165 Mich. 540, 131 N. W. 92; Coldren v. Clark (1895), 93 Iowa 352, 61 N. W. 1045; Matthews v. Adams (1896), 84 Md. 143, 35 Atl. 60. A share of profits apportioned to a partner, but left unwithdrawn by him, but subject to withdrawal at his pleasure at any time, would 'or- dinarily, in the absence of some special circumstances or an agree- ment of the parties, have slight claim to rank as an advance or loan to the firm so as to be entitled to. interest and still less to be regarded as a fresh contribution to capital so as to draw interest under an agreement to pay interest on capital. See Dinham v. Bradford (1869), L. R. 5 Ch. App. 519; Tutt v. Land (1873), 50 Ga. 339. One partner who loans money to another partner personally, even though to enable the latter to make his contributions to firm expenses, is entitled to interest from the borrowing partner: Bartlett v. Boyles (1909), 66 W. Va. 327, 66 S. E. 474. Liability to interest on sums with- drawn One partner who has over- drawn, etc., held not liable to the firm for interest, in the absence of express or implied agreement to pay or of fraud or concealment in the matter: Atherton v. Whitcomb (1894), 66 Vt. 447, 29 Atl. 674; Gilman v. Vaughan (1878), 44 Wis. 165 183] LAW OP PARTNERSHIP 183. Contributions to capital, on the other hand, do not draw interest in the absence of an agreement to pay it. 61 Eacih partner's right to share in the profits is supposed to com- pensate him for the use of his capital. It is immaterial, in this respect, that the contribution to capital of the partner who claims the interest is greater than that of his co-partner. 62 Agree- ments to pay interest upon capital are not infrequently made. 53 The Uniform Partnership Act, 54 provides that '''A partner, who in aid of the partnership, makes any payment or advance beyond the amount of capital which he agreed to contribute, shall be paid interest from the date of the payment or advance. ' ' "A partner shall receive interest on the capital contributed by, him only from the date when repayment should be made." 646; Kemxnerer v. Kemmerer (1892), 85 Iowa 193, 52 N. W. 194; Wendling v. Jennisch (1892), 85 Iowa 392, 52 N. W. 341; Swee- ney v. Neeley (1884), 53 Mich. 421, 19 N. W. 127; Brenner v. Car- ter (1902), 203 Pa. 75, 52 Atl. 178, especially where one had overdrawn about as much as the other: Ather- ton v. Whitcomb, supra; Harris v. Carter (1888), 147 Mass. 313, 17 N. E. 649 (no implication of agree- ment to pay under such circum- stances). But, contra, see Forsyth v. But- ler (1907), 152 Cal. 396, 93 Pac. 90. Where firm is borrowing money and paying interest to operate upon, obligation of partner to pay inter- est on his overdrafts is more readily found. Forsyth v. Butler, supra. If a partner is allowed interest on advances, he should be charged in- terest on his withdrawal: Boreing v. Wilson (1908), 128 Ky. 570, 108 S. W. 914. Where there is an agreement to allow interest on capital sums and charge interest on withdrawals, but no date is agreed upon, it must be computed to end of partnership: McCall v. Moss (1885), 112 111. 493. 51 See Eodgers v. Clement (1900), 162 N. Y. 422, 56 N. E. 901, 76 Am. St. E, 342; Moore v. West- brook (1911), 156 N. Car. 482, 72 S. E. 842, Ann. Cas. 1913 A, 168; St. Paul Trust Co. v. Finch (1893), 52 Minn. 342, 54 N. W. 190. One partner not liable for interest on unpaid capital: Wilson v. Mc- Carty (1877), 25 Grant's Ch. (U. Can.) 152. Where there was an agreement to pay interest: Whitcomb v. Converse (1875), 119 Mass. 38, 20 Am. Sep. 311, Mechem's Cas. 692; Winches- ter v. Glazier (1890), 152 Mass. 316, 25 N. E. 728, 9 L. E. A. 424; Juilliard v. Orem (1889), 70 Md. 465, 17 Atl. 333. 52 See Desha v. Smith (1852), 20 Ala. 747; Harris v. Carter (1888), 147 Mass. 313, 17 N. E. 649. 53 See, e. g., Whitcomb v. Con- verse, Winchester v. Glazier, supra. 54 Sec. 18 (c) and ( 218. On matters distinct from ( partnership one partner may sue another, f 4. Firm against Firm having Common Partners. 219. One firm cannot sue another at law if there is a common partner. 220. Assignee Code. II, OF ACTIONS IN EQUITY. 221. Equity the proper tribunal in partnership matters. 1. Specific Performance. 222-225. In what cases granted. 180 ACTIONS BETWEEN PARTNERS [197,198 2. Of Injunctions. 4. Of Receivers. 226. In what cases granted. 23 l. When will be appointed. 3. Of Accounting and Dissolution. 232 ' p wers and duties of re- CGlVGr 227, 228. In what cases granted Accounting without a dis- , .. 5. Actwn by One Partnership solution. , T , , , Against Another Having Com- 229. Nature of remedy by ac- , . ,, , . , , , mon Partners. counting What included. 230. Who may demand ac- 233. Jurisdiction of equity. counting. 197. Of actions between partners in general. The question of the remedies which partners may have between themselves involves several considerations of interest and importance. Cer- tain of the rules applicable result from the peculiar relations between the parties, and others from the peculiar nature of the interests involved. As has been already seen, while the law for some purposes regards the firm as a distinct entity, for most purposes the partners must be regarded as individuals. This is usually the rule as respects actions at law. If, therefore, one partner would maintain an action against the partnership, he must sue himself as a partner with the others. If he should recover judgment against the firm, he might be called upon as a member of the firm to pay or satisfy his own judgment. If he bases an action upon his interest in the partnership, it will usually require an accounting and settlement to determine what his interest is. The same difficulties would usually exist if the firm were to sue one partner. These, and other like considera- tions, have led to the establishment of certain rules respecting the remedies of partners as between themselves which require examination. "I. ACTIONS AT LAW. 198. In what cases the question arises. The question of the right to maintain an action at law respecting partnership transactions may arise in four classes of cases: 1. Where the claim is by one partner against the partnership; 2. Where the claim is by the partnership against a partner; 3. Where the claim is by one partner against one or more of his fellow-part- (' 181 199] LAW OF PARTNERSHIP ners; and 4. "Where the claim is between firms which have one or more partners in common. 1. Partner Against Firm. 199. One partner cannot sue the firm at law. 1. One part- ner cannot maintain an action at law against the partnership of which he is a member to recover upon any claim which he may have against the partnership as such. The objections are of two sorts, First, there is the difficulty as to parties. The claimant is himself a member of the partnership against which he makes the claim, and if he should sue the partnership he must sue himself as one member of it. To be thus both plaintiff and defendant involves an inconsistency which the common law procedure does not permit. Secondly, there is the difficulty as to the nature of the claim. The claimant contends that the firm owes him. It is, however, ordinarily impossible for him to show, without a final settlement of its accounts, whether the firm really owes him or not. There may be counterclaims of such extent that a final balance would prove him to be the debtor ; and to reach this final balance the remedies of the common law are usually not adequate. He may not sue his partners only (not joining* himself as a defendant), for they alone do not owe the debt to him. He may not sue them only, for a pro rata part, for that would involve an accounting of that transaction alone, without reference to other transactions which might affect the result. One partner, therefore, may not sue his partnership at law to recover for his services where there is an agreement to pay; or to recover for advances or loans which he has made to the firm, or for money which he has paid out on its account, or for goods which he has sold to the firm, or for the rent of premises which he has leased to the firm. 1 In all these and like cases, ISee King v. Moore (1904), 72 O'Brien v. Smith (1889), 42 Kan. Ark. 469, 82 S. W. 494; Newby v. 49, 21 Pac. 784; Remington v. Al- Harrell (1888), 99 N. C. 149, 6 len (1871), 109 Mass. 47; Mickle Am. St. R. 503, 5 S. E. 284; Duff v. Peet (1875), 43 Conn. 65; Pico v. Maguire (1868), 99 Mass. 300; v. Cuyas (1873), 47 Gal. 174. 182 ACTIONS BETWEEN PARTNERS [ 200 the remedy of the partner, as will be seen, is to go into a court of equity, praying for an accounting and, usually, for a dis- solution. 200. Of the two difficulties which thus lie in the way of the action at law the first, that is, the difficulty as to parties, is a constant one as long as the partner himself is the plaintiff. The second difficulty, i. e., the difficulty as to the nature of the claim., however, is not a constant one. It may be that in a par- ticular case* the claim is a single and simple one which could be easily proved without involving a partnership account- ing, or it may be that the firm has so far segregated this claim from the other partnership affairs that it could be shown with- out reference to the state of the final accounting. This latter fact, however, would not save the case, so long as the objection as to parties remains. The objection as to parties only might often be avoided by assigning the claim to a non-partner who might then sue all of the partners. Whether, however, the assignment would avoid the second difficulty as to the nature of the claim, would de- pend upon the circumstances. If the claim were either of the single and simple or of the segregated sort so that no investiga- tion of a complicated partnership account would be necessary, and the jurisdiction were one permitting an assignee to sue in his own name, the assignee of the partner might usually sue at law. 2 If, on the other hand, these latter things were not so, 2 See Frank v. Anderson (1884), Knaus v. Givens (1892), 110 Mo. 81 Tenn. 695. Where a partner 58, 19 S. W. 535; Buchanan v. Me- loans money to the firm and takes chanies Inst. (1896), 84 Md. 430, the firm's note, the note is valid, 35 Atl. 1099); though this would though the partner himself cannot not be the result if the transfer "were sue upon it, and if he indorses to a merely colorable to enable the trans- holder for value, the latter may re- feree to sue (Wintermute v. Tarrant cover of the firm (Carpenter v. (1890), 83 Mich. 555, 47 N. W. 358; Greenop (1889), 74 Mich. 664, 42 Cutting v. Daigneau (1890), 151 N. W. 276, 16 Am. St. E. 666, 4 L. Mass. 297, 23 N. E. 839) ; or if the E. A. 241, Mechem's Cas. 296, Gilm. note were so transferred that the ac- Cas. 467; Walker v. Wait (1878), tion must be brought in the name 50 Vt. 668; Jennings v. Pratt of the assignor. Davis v. Merrill '.1899), 19 Utah 129, 56 Pac. 951; (1883), 51 Mich. 480, 16 N. W. 864. 183 201, 202] LAW OF PARTNERSHIP the assignee would stand in no better situation than the partner himself and he usually could not sue at law. 8 2. Firm Against Partner. 201. Firm cannot sue one partner at law. 2. For similar reasons, the partners as such cannot sue one partner at law to recover upon a claim made against him by the firm. The same difficulty of parties, and the same uncertain character of the claim, exist as where the situation is reversed, as 'seen in the preceding section.* Thus, the partners as such cannot maintain an action at law against one partner to recover for goods sold to him by the firm, or for the recovery of money due from him to the firm upon his note or otherwise, though a bona fide indorsee of the note might sue. 5 The same general considerations respecting an assignment of the claim by the firm to a nonpartner and the right of the latter to sue, would apply as in the preceding case of the partner against the firm. 6 202. The difficulty as to parties, however, in these cases, has been held to be confined to the state of the parties upon the record. Thus where a partner gave his note to an- other partner, but the latter was really trustee for the part- nership, it was held that the payee might maintain an action at law against the maker, although the recovery was for the benefit of the partnership and if all the partners had been nec- essary parties plaintiff the action could not have been main- tained. 7 On the other hand, statutory or other requirements that all 3 See Bullard v. Kinney (1858), 8 N. H. 233, 29 Am. Dec. 650, Gilm. 10 Gal. 60, Mechem's Cas. 288. Cas. 454; Ivy v. Walker (1880), 58 Compare Simrall v. 'Bannons Miss. 253 ; Summerson v. Donovan (1847), 46 Ky. (7 B. Mon.) 608. (1910), 110 Va. 657, 66 S. E. 822, 4 See Woodman v. Boothby 19 Ann. Cas. 253. (1876), 66 Me. 389. 6 See Woodman v. Boothby, supra. 6 See Parker v. Macomber (1836), 7 See Van Ness v. Forrest (1814), 18 Pick. (Mass.) 505; Bank v. Del- 12 U. S. (8 Cranch) 30, 3 L. ed. afield (1891), 126 N. Y. 410, 27 N. 478. E. 797; Burley v. Harris (1836), 184 ACTIONS BETWEEN PARTNERS [ 203 actions shall be prosecuted in the names of the real parties in interest, might destroy the force of the position referred to in the preceding paragraph. 3. Partner Against Partner. 203. One partner cannot sue another at law on claim in- volving partnership transactions. 3. In this case the difficulty as to parties does not arise. By the hypothesis, the firm is not involved as a party on either side. It is simply one partner against another. The difficulty, if any, arises solely from the nature of the claim which the partner is seeking to enforce against his copartner. That claim may arise: (a) Out of part- nership transactions; (&) Out of matters relating to the partner- ship, but not constituting partnership transactions; (c) Upon matters which were originally partnership transactions but which have been separated and segregated by special agreement; and (d) Upon matters having no connection with the partnership. a. In the first of these cases the claim will usually be that the plaintiff has performed labor for the partnership, or has sold goods or loaned money or rented property to the partner- ship, or has advanced or paid out money for the partnership, as the result of which the defendant has become indebted to him; or that the defendant has received something due or belonging to the partnership, for a part of which he should account to the plaintiff; and the like. As to this, it is the general rule that one partner cannot sue another partner at law upon a claim against that partner arising out of and involving partnership transactions, unless (1) that claim has, by the agreement of the parties, been in some way segregated and taken out of the domain of the partnership accounts; 8 or (2) unless the part- 8 See post, 217 ; Douthit v. or promise) ; Beede v. Fraser Douthit (1892), 133 Ind. 26, 32 N. (1894), 66 Vt. 114, 28 Atl. 880, 44 E. 715 (where the court says, Am. St. B. 824, Mechem's Gas. 300 "Where there is an agreement ad- (where the court says, "When the justing partnership affairs, and that parties by an express agreement sep- agreement awards to one partner a arate a distinct matter from the specific sum, or creates a specific partnership dealing, and one ex- duty in his favor, he may maintain pressly agrees to pay the other a an action upon a breach of the duty specified sum for that matter, as- 185 204] LAW OF PARTNERSHIP nership accounts, at least so far as that claim is concerned, have been fully settled, and a final balance has been arrived at in his favor, or, as it is frequently expressed, unless there has been an account stated between them. 9 If such a balance has been reached in his favor, then, if there is no express promise, the law will usually imply a promise by the other partner to pay it, and the claim becomes, by the accounting and promise, so far transformed from a partnership liability into a personal and private one, that the partner entitled may sue the partner obligated in an action at law. 10 Some courts, however, require an express promise to pay the amount found due and do not raise an implied promise. 204, Reason for the rule. The reason for the general rule denying the right to sue at law is that it is ordinarily im- possible to determine whether the defendant partner is really indebted to the plaintiff partner or not, until the partnership accounts are settled and the true standing of the parties as- certained ; they have not, by implication, agreed to account other- wise; until that is done no debt arises; and the process and remedies afforded by a court of law are not usually adequate or appropriate to the investigation of claims requiring such an accounting. 11 Where, however, the parties themselves have made sumpsit will lie on the agreement, was compelled to pay, "held to make though the matter arose from the no difference. Sadler v. Nixon, partnership dealing"). supra. 9 See Sadler v. Nixon (1834), 5 10 See Wycoff v. Purnell (1860), B. & Ad. 936, Ames Gas. 453, Gilm. 10 Iowa 332, Mechem's Gas. 286; Cas. 451; Eemington v. Allen Pope v. Eandolph (1848), 13 Ala. (1871), 109 Mass. 47; Holyoke v. 214; Spear v. Newell (1841), 13 Mayo (1862), 50 Me. 385; Harris v. Vt. 288, Mechem's Cas. 311; Holy- Harris (1859), 39 N. H. 45; John- oke v. Mayo (1862), 50 Me. 385; son v. Wilson (1870), 54 111. 419; Douthit v. Douthit, supra; Burns v. Towle v. Meserve (1859), 38 N. H. Nottingham (1871), 60 111. 531, 9; Cobb v. Martin (1912), 32 Okla. Gilm. Cas. 459 (must be a final bal- 588, 123 Pac. 422; Simpson v. Mil- anee). ler (1908), 51 Oreg. 232, 94 Pac. 11 In Spear v. Newell, supra, the 567. court in going over the list of corn- Fact that partner suing at law mon law actions to see if there was for contribution to a debt paid by one applicable, said that the com- him did not pay it voluntarily, but mon law action of account would not 186 ACTIONS BETWEEN PARTNERS [205,206 an investigation and have stated the result showing a balance due to one of the partners, the chief objection to a suit at law is obviated and it may therefore be maintained. The codes of procedure have not in general changed the rule, 12 nor is it dealt with by the Uniform Partnership Act. 205. When rule does not apply Single completed transaction. The general rule, moreover, has been held not to apply where the partnership was a special one, for a single and finished transaction only, or where all of the partnership affairs have been settled except a single transaction. 13 206. When relation was not a partnership Joint ven- tures. So, finally, if the relation in question was not that of partnership, any rule applicable to that situation only would obviously not operate. Thus with regard to those situations which, as has been seen, 14 are sometimes said to be "joint ven- tures" rather than partnerships, it has been held in a number of cases that actions at law could be maintained by one asso- ciate against another, arid that the rule applicable to partner- lie since (in this case) the defend- Gilm. Gas. 458; Crittenden v. Cobb ant had received nothing; covenant (1906), 156 Fed. 535; Dorwart v. would not lie because there was no Ball (1904), 71 Neb. 173, 98 N. W. agreement under seal; assumpsit 652; Mills v. Gray (1917), 50 Utah would not lie because there was no 224, 167 Pac. 358; Feurt v. Brown liquidated or settled balance. (1886), 23 Mo. App. 332; Reiser v. The common law action of account Johnston (1917), Okla. , 166 render is now generally obsolete Pac. 723, L. R. A. 191S A. 924; though it seems to be retained, in Ledford v. Emerson (1905), 140 N. a modified form at least, in a few Car. 288, 52 S. E. 641, 4 L. R. A. states. (N. S.) 130, Gilm. Gas. 456; Mason 12 See Emery v. Pease (1859), 20 v. Sieglitz (1896), 22 Colo. 320, N. Y. 62. 44 Pac. 588, Burd. Gas. 537. 13 See Fry v. Potter (1880), 12 R. Court of equity will not, it is said, I. 542, Meehem's Gas. 882; Kutz v. take jurisdiction where accounts are Dreibelbis (1880), 126 Pa. 335, 17 simple and may therefore be settled Atl. 609; Welch v. Miller (1904), at law: Lesley v. Rosson (1860), 39 210 Pa. 204, 59 Atl. 1065 ; Wheeler Miss. 368, 77 Am. D. 679, but it is v. Arnold (1874), 30 Mich. 304; doubtful if this was a case of a Clarke v. Mills (1887), 36 Kan.. 393, partnership at all. 13 Pac. 569, Meehem's Gas. 884, 14 See ante, 16, 43. 187 207-209] LAW OF PARTNERSHIP ship did not prevent. 16 A number of cases, however, have held actions in equity permissible in such cases. 16 207. One partner may sue another at law upon claim con- nected with but not constituting partnership transactions. &. But there is a large class of cases involving matters which, though they may in some way be connected with the partner- ship, do not constitute partnership transactions, but are indi- vidual transactions between particular partners, and as to these an action at law may often .be maintained. It is the character- istic of these cases that the injury is to the partner as an individ- ual and not to the firm as such. Thus 208. -As for not forming partnership as agreed. A breach of an agreement to enter into partnership, or to permit a person to become partner, may furnish the basis of an action at law, because here, though a partnership was contemplated, it was never created, and there can consequently be no partner- ship transactions involved, and no necessity for an accounting. 17 209. -Or for dissolving contrary to agreement. For like reasons, an action at law may be maintained by one partner to recover damages against another who has dissolved the part- nership in violation of his agreement that it should continue for a definite term. 18 IB See Clark v. Sidway (1891), performed under an agreement to 142 TJ. S. 682, 12 S. Ct. 327, 35 L. launch a partnership: Lawson v. ed. 1157; Bruce v. Hastings (1868), Glass (1881), 6 Colo. 134. 41 Vt. 380, 98 Am. Dec. 592; Jor- 18 See Farwell v. Wilcox (1918), dan v. Soule (1887), 79 Me. 590, 12 Okla. , 175 Pac. 936, 4 A. L. E. Atl. 786, Haven v. Mchlgarten 156, and note; McCollum v. Carlucci (1857), 19 111. 91. (1903), 206 Pa. 312, 55 Atl. 979, 98 16 See ante, 16, 43, note. Am. St. R. 780; Bagley v. Smith 17 See Hill v. Palmer (1882), 56 (1853), 10 N. Y. 489, 61 Am. Dec. Wis. 123, 14 N. W. 20, 43 Am. Rep. 756, Mechem's Gas. 305; Greenham 703, Mechem's Gas. 303; Treat v. v. Gray (1855), 4 Ir. Com. L. 501. Hiles (1887), 68 Wis. 344, 32 N. See, also, Ramsay v. Meade, supra. W. 517, 60 Am. R. 858. Compare Ryder v. Wilcox (1869), See also Ramsay v. Meade (1906), 103 Mass. 24. 37 Colo. 465, 86 Pac. 1018. See also Uniform Partnership For similar reasons an action at Act, sec. 38(2) (b). law will lie to recover for services 188 ACTIONS BETWEEN PARTNERS { 210 Such an action does not necessarily involve an investigation of the partnership accounts. It might be maintained although no accounts had been agreed upon. Damages for the breach of the contract, and not the recovery of a balance due upon an account, might be what was sought. The Uniform Partnership Act has a special provision for se- curing the payment of these damages. 210. Or for not furnishing capital as agreed. An ac- tion at law may be maintained by one partner against another to recover damages for the loss sustained by him not the firm because of the latter 's breach of his agreement with the former to contribute capital or furnish goods or do any other act to start or launch the partnership. 19 "An agreement to pay money or to furnish stock," said the court in a leading case, 20 "for the purpose of launching the partnership, is an individual engage- ment of each partner to the other, and the defaulting partner may be sued in an action at law upon his agreement. It is entirely separate and distinct from the partnership accounts, and this forms the true test in determining whether an action at law will lie by one partner against his copartner." By the hypothesis here the agreement is an individual one with the plaintiff, not with the firm; it is usually made before the partnership is formed, and the damages to be recovered are those to which the plaintiff alone is entitled. If the con- tract is to be deemed one with the firm and for its benefit, other considerations apply which are dealt with in a following sec- tion. 21 Moreover, if the damages sought to be recovered by the plaintiff partner are to be measured by the profits which the firm did or might be expected to make, questions as to their 19 See Crater v. Bininger (1871), 20 Cook v. Canny (1893), 96 Mich. 45 N. Y. 545; Collamer v. Foster 398, 55 N. W. 987, Mechem's Gas. (1854), 26 Vt. 754; Morgan v. 904, Gilm. Gas. 462. To like effect: Nunes (1877), 54 Miss. 308; Terrill Brown v. Tapscott (1840), 6 Mees. v. Kichards (1817), 1 Nott & McC. & Wels. 119, Ames' Cases 468. (S. Car.) 20 ; Owen v. Meroney 21 See post, 214. (1904), 136 N. Car. 475, 48 S. E. 821, 103 Am. St. R. 952, Gilm. Cas. 461. 189 211-213] LAW OF PARTNERSHIP speculative character until made and determined by an account- ing, will have to be taken into consideration. 211. Or for not reimbursing for capital advanced. If one partner advances money, or pays for goods, or furnishes any other thing, at the request of the other to enable the latter td supply his portion of the agreed capital, an action at law will lie for reimbursement. 22 Such contracts are purely personal, and, although they relate to the partnership, they in no way involve any necessity for investigating the partnership accounts. 212. Or for not indemnifying as agreed. If one part- ner agrees with another to pay a firm debt out of his private funds or to hold the other harmless from liability , by reason of any partnership transaction, an action at law may be main- tained for a breach of the agreement. 23 Such an agreement has ordinarily the effect of removing the subject matter of the agreement from the field of partnership affairs, and therefore the common impediment to the action is itself removed. Stipulations of this sort are, perhaps, most frequently made upon dissolution of the firm, but they may be made at any time even though dissolution is not then im- minent or contemplated. 213. Or for not paying debts assumed. For similar reasons, if one partner upon dissolution agrees to pay the debts of the firm, or to collect the debts and pay over a share of the 22 Bates v. Lane (1886), 62 Mich. Curran (1895), 4 Idaho 573, 43 Pac. 132, 28 N. W. 753; Bull v. Coe 559, Burd. Gas. 534. Jones v. Kose (1888), 77 Cal. 54, 18 Pac. 808, 11 (1917), 81 W. Va. 177, 94 S. E. 41, Am. St. R. 235, Meehem 's Gas. 905 ; seems more or less opposed. Smith v. Kemp (1892), 92 Mich. 23 See Coffee v. Brian (1825), 3 357, 52 N. W. 639; Scott v. Camp- Bing. 54; Miller v. Bailey (1890), bell (1857), 30 Ala. 728; Sprout v. 19 Oreg. 539, 25 Pac. 27; Edwards Crowley (1872), 30 Wis. 187; Cur- v. Eemington (1881), 51 Wis. 336, rier v. Eowe (1865), 46 N. H. 72; 8 N. W. 193, Meehem 's Gas. 907; Newman v. Ruby (1903), 54 W. Va. Kellogg v. Moore (1881), 97 111. 381, 46 S. E. 172; Elgie v. Webster 282. (1839), 5 M. & W. 518; Haskins v. 190 ACTIONS BETWEEN PARTNERS [ 214 collection, an action at law may be maintained if the agree- ment is broken. 24 214. One partner may sue another for breach of partner- ship agreements. Actions at law may also be maintained by one partner against another to recover damages for a loss sus- tained by him not by the firm from a breach of such stipula- tions or agreements in the partnership articles as were designed for the protection of the partner complaining, as upon a breach of an agreement not to sign the firm name as an accommodation indorser, 25 or of the agreement of one of several partners to per- sonally pay a portion of certain moneys to be advanced for firm use by the plaintiff partner, 26 or of an agreement by one partner with another to see that the latter 's contribution to the capital is returned in case he desires to withdraw, 27 and the like. 28 It is sometimes very difficult to determine whether the cove- nant or agreement in question is one designed for the benefit of the firm or only of the plaintiff partner individually. It is only where the latter is the case where the promise is to him, where the damages if recovered would belong to the plaintiff partner personally and not to the firm that this action will ordinarily lie. 29 Even in the former case, however, if the transaction in ques- tion is not complicated and there are no equities arising out 24 See Thropp v. Eichardson 27 See Guccione v. Scott (1897), (1890), 132 Pa. 399, 19 Atl. 218; 21 N. Y. Misc. 410, 47 N. Y. S. 475. Ferguson v. Baker (1889), 116 N. 28 See Glover v. Tuck (1840), 24 Y. 257, 22 N. E. 400. Wend. (N. Y.) 153. Compare Shattuck v. Lawson 29 See Miller v. Freeman (1900), (1858), 76 Mass. (10 Gray) 405. Ill Ga. 654, 36 S. E. 961, 51 L. R. 25 See Stone v. Wendover (1876), A. 504, Mechem's Gas. 894; Ryder 2 Mo. App. 247; Vance v. Blair v. Wilcox (1869), 103 Mass. 24, (1849), 18 Ohio 532, 51 Am. Dec. Ames' Gas. 455, Burd. Gas. 525;. 467. Capen v. Barrows (1854), 1 Gray 26 See Wills v. Simmonds (1876), (Mass.) 376; Buckmaster v. Gowen 8 Hun (N. Y.) 189; also Madge v. (1876), 81 111. 153. Puig (1877), 12 Hun 15 (reversed on other grounds, 71 N. Y. 608). 191 215] LAW OF PARTNERSHIP of the partnership accounts, no sound reason is apparent why the rights of the parties should not be adjusted at law. 30 215. One partner may sue another for wrongful practices resulting in loss. And the same rule would apply where one partner, by fraudulent practices, or by any wrongful act, in violation of his duty as a partner, should impose loss upon his partner, not upon the firm, as by putting on him a personal loss or liability by giving the firm note without authority for his private debt, 31 or by ousting his partner from the business, 32 or by injuring the individual property of his partner used in the business, 33 and the like. 34 It must be kept in mind, in these cases, that if one partner is suing his copartner or a stranger for acts injuring the plain- tiff's interest in the partnership property, he may fail, not be- cause of the fact that his action is at law but because the value and extent of his interest may not be capable of proof until it has been determined by an accounting. 35 The same distinction is to be made also where the loss is primarily to the firm and not merely to one partner. Thus if one partner wrongfully dis- poses of the firm property, an action at law against him by his copartner to recover damages may be hampered not only by the fact that they are co-owners but also by the fact that the extent of the plaintiff's loss may not be capable of ascertainment until there has been an accounting. 36 30 For this reason, the writer 33 See Newby v. Harrell (1888), ventures to question the soundness 99 N. Car. 149, 5 S. E. 284, 6 Am. of Miller v. Freeman, supra. St. R. 503. 31 See Calkins v. Smith (1872), 34 See Boughner v. Black (1886), 48 N.'T. 614, 8 Am. Eep. 575; Ful- 83 Ky. 521, 7 Ky. L. R. 562, 4 Am. ler v. Percival (1879), 126 Mass. St. R. 174, Mechem 's Cas. 916. 381. 35 See Sindelare v. Walker (1891), In Calkins v. Smith, supra, Earl, 137 111. 43, 27 N. E. 59, 31 Am. St. J., holds that such a fraud is not a R. 353, Mechem 's Cas. 194; Reed v. fraud upon the firm; the guilty Gould (1895), 105 Mich. 368, 63 N. partner does not defraud himself, W. 415, 55 Am. St. R. 453. but only his copartner and therefore 36 See Wells v. Mitchell (1841), the action is an individual and not a 23 N. Car. (1 Ired.) 484, 35 Am. firm action. Dec. 757. 32 See Newsom v. Pitman (1892), These considerations have fre- 98 Ala. 526, 12 So. 412. quently been applied in deciding 192 ACTIONS BETWEEN PARTNERS [216,217 216. One partner may sue another for fraud in inducing or in settling the partnership, etc. So an action at law will lie to recover damages for misrepresentations or deceit by one part- ner in inducing another to become a partner, 37 or, upon dis- solution, to take as his share of the partnership assets certain accounts purporting to be firm credits, but which had been deceitfully kept or created by the other partner. 88 217. One partner may sue upon a partnership transaction by agreement transformed into individual one. c. And even though a given transaction may originally have been a partner- ship one, it is, in general, true that the partners may, by special agreement, isolate, segregate and transform a partnership trans- action into the individual one of one of the partners, and ujDon matters thus separated from the partnership affairs an action at law may be maintained. 39 Such special agreement need not be express in the sense that it can only be made by formal words. It may be deduced as the natural and reasonable inference from what they do. Thus whether one partner may maintain Mass. 444; Kice v. Culver (1880), an action at law against another for 32 N. J. Eq. 601 ; Morse v. Hutch- a conversion of partnership prop- ins (1869), 102 Mass. 439. erty. It is held in a number of 38 See Crockett v. Burleson cases that he may not, unless there (1906), 60 W. Va. 252, 54 S. E. 341, has already been some accounting or 6 L. E. A. (N. S.) 263, Gilm. Gas. adjustment determining his interest. 464. Compare McAuley v. Cooley See Dukes v. Kellogg (1900), 127 (1895), 45 Neb. 582, 63 N. W. 871, Cal. 563, 60 Pac. 44; Couilliard v. Burd. Cas. 535. Eaton (1885), 139 Mass. 105, 28 N. 39 See Eyder v. Wilcox (1869), E. 579; Kiddell v. Ramsey (1904), 103 Mass. 24, Ames' Cas. 455, Burd. 31 Mont. 386, 78 Pac. 597. Cas. 525; Purvines v. Champion Some cases, on the other hand, (1873), 67 111. 459; Neil v. Green- have permitted such actions, espe- leaf (1875), 26 Ohio St. 567; Emery cially where the partnership was v. Wilson (1879), 79 N. Y. 78; ended, the transactions few, and the Howard v. France (1871), 43 N. Y. adjustment not complicated. See 593, 3 Alb. Law J. 305; Paine v. Frith v. Thompson (1918), 103 Kan. Thatcher (1841), 25 Wend. (N. Y.) 395, 173 Pac. 915, L. E. A. 1918 F 450; Jackson v. Stopherd (1834), 2 1123; Eeis v. Hellman (1874), 25 Cr. & M. 361, Ames' Cas. 462, Gilm. Ohio St. 180. Cas. 452. 37 See Hale v. Wilson (1873), 112 Mech. Part. 13 193 218] LAW OF PARTNERSHIP where the parties specially agree upon terms whose natural and reasonable result is to segregate a particular transaction, they need not also declare in words that this is their intent. 40 One of the most common of these cases is that wherein some or all of the partners execute and deliver to one partner a nego- tiable note payable at a date prior to any probable termination of the partnership. Its earlier maturity tends to show that it was not designed to await a final accounting of partnership affairs, and its negotiable character tends to show that it was to be payable absolutely, without regard to the state of the part- nership accounts. 41 Even though the payee might not be able to sue at law upon a note so given to him in the firm name (on account of the difficulty as to parties), his transferee might sue. 218. On matters distinct from partnership one partner may sue another. d. As to matters entirely distinct from the part- nership affairs, one partner may, of course, sue another as freely as though in respect to other matters they did not sustain the Telation of partner. 42 40 Thus the making of a promis- sory note by some of the partners in favor of another is said to be an ac- knowledgment of the separation of that sum from the partnership ac- count. Bonnafee v. Fenner (1846), 6 Smedes & M. (Miss.) 212, 45 Am. Dec. 278. See, also, Fox v. Firth (1842), 10 M. &_W. 131; Wilson v. Wilson (1894), ~26 Oreg. 251, 38 Pae. 185, Burd. Gas. 538. So, where upon closing up the business, it was agreed that one should take a certain lot of property and pay the other a certain sum for his interest in it: Jackson v. Stop- herd, supra. So, where on dissolu- tion, one partner bought the assets. He may later recover from his former partner money collected by him on a debt due the firm. Glade v. White (1894), 42 Neb. 336, 60 N. W. 556, Burd. Gas. 541. 41 See Carpenter v. Greenop (1889), 74 Mich. 664, 42 N. W. 276, 4 L. B. A. 241, 16 Am. St. E. 662, Mechem's Gas. 296, Gilm. Gas. 467; Wilson v. Wilson (1894), 26 Oreg. 251, 38 Pac. 185, Burd. Gas. 538; Burnes v. Scott (1885), 117 U. S. 582, 6 Sup. Ct. 865, 29 L. ed. 991. Compare Martin v. Stubbings (1886), 20 111. App. 381 [s. 0. 126 111. 387, 18 N. E. 657, 9 Am. St. E. 620]; Sewell v. Cooper (1869), 21 La. Ann. 582. See, also, Conway v. Zender (1913), 154 Wis. 479, 143 N. W. 162. 42 See Elder v. Hood (1865), 38 111. 533; Newsom v. Pitman (1892), 98 Ala. 526, 12 So. 412; Paine v. Moore (1844), 6 Ala. 129. 194 ACTIONS BETWEEN PARTNERS [ 219 4. Firm Against Firm Having Common Partners. 219. One firm cannot sue another at law if there is a com- mon partner. 4. In the absence of a statute regulating it, one firm cannot maintain an action at law against another firm if there is a partner common to both firms, since such common partner would have to be both a plaintiff and a defendant. 43 The death of the common partner will not remove the impedi- ment as to matters arising before the death, nor will the dis- solution of the firm. 44 The nature of the claim is immaterial, if it is an obligation in favor of one firm and against the other as such. The forum for actions in such cases is the court of equity. 45 It is not permitted, it is said in one case, 46 "that one of the parties should thus appear both as a plaintiff and defendant, in effect prosecuting an action against himself, in which, if a re- covery were to be allowed, it would be in his favor and at the same time against himself. Nor, at law, would the contract or agreement between the two firms having a common member be recognized as creating a legal obligation or cause of action. The transaction would be treated as an attempt by a party to enter into a contract with himself. 47 The remedial system of the common law was too inflexible and restricted to enable it to adjust the complex rights and obligations of the parties under such circumstances. But in equity the agreements of the mem- bers of firms so related to each other were treated as obligatory, and the fact that one of the parties to the joint contract stood in the position of both an obligor and obligee did not stand in 43 See Beede v. Eraser (1894), 66 44 See Bosanquet v. Wray (1815), Vt. 114, 28 Atl. 880, 44 Am. St. E. 6 Taunt. 597, Ames' Gas. 442; In re 824, Mechem's Gas. 300; Green v. Buchhause (1874), 2 Lowell 331, Chapman (1855), 27 Vt. 236; Denny Gilm. Gas. 572. v. Metcalf (1848), 28 Me. 389; Hall 45 See cases cited in first note, v. Kimball (1895), 77 III 161; 46 Crosby v. Timolat, supra. Crosby v. Timolat (1892), 50 Minn. 47 Citing Bosanquet v. Wray, 6 171, 52 N. W. 526, Gilm. Gas. 469; Taunt. 597; De Tastet v. Shaw, 1 Noyes v. Ostrom (1910), 113 Minn. Barn. & Aid. 664, 669; Leake, Cont. Ill, 129 N. W. 142; Beacannon v. 439, 440; McFadden v. Hunt, 5 Liebe (1884), 11 Oreg. 443, 5 Pac. Watts & S. 468; Price V. Spencer, 7 273. Phila. 179. 195 220-222] LAW OF PARTNERSHIP the way of affording such relief or remedy as might be found to be appropriate and necessary to the ends of justice. ' ' 48 220. Assignee Code. This objection might in many cases be obviated by assignment where the assignee could sue in his own name, and be free from the disabilities affecting the assignor! 49 And in New York it has been held that the code of procedure, in abolishing the distinctions between actions at law and suits in equity, had made it possible to maintain a "civil action" in such cases. 60 II. OF ACTIONS IN EQUITY. 221. Equity the proper tribunal in partnership matters. The court of equity is the chief and appropriate tribunal for the settlement of all controversies growing out of partnership transactions as such. Its principal function is in winding up the partnership affairs and arriving at the respective interests therein of the partners and creditors, but its aid may often be sought in other matters. Thus 1. Specific Performance. 222. In what cases granted. Something of the power of courts of equity to enforce specific performance of partnership agreements has been already considered in a previous section, 51 and, as there noticed, the jurisdiction is, in most cases, greatly limited by the nature of the case. 62 But such stipulations as 48 Citing 1 Story, Eq. Jur., 679, 290. See, also, Gibson v. Ohio 680; Haven v. Wakefield, 39 111. Farina Co. (1859), 2 Disney (Ohio) 509; Chapman v. Evans, 44 Miss. 499, 13 Ohio Dec. 306. 113; Calvit's Ex'rs v. Markham, 3 51 See ante, 119. How. (Miss.) 343; Hayes v. Bement, 58 See Scott v. Eayment (1868), 3 Sandf. 394. L. E. 7 Eq. 112; Morris v. Peckham 49 See Beacannon v. Liebe, supra. (1883), 51 Conn. 128; Clark v. Not in Virginia: Aylett v. Walker Truitt (1899), 183 111. 239, 55 N. E. (1896), 92 Va. 540, 24 S. E. 226. 683; Buck v. Smith (1874), 29 60 See Cole v. Eeynolds (1858), 18 Mich. 166, 18 Am. E. 84, Mechem's N. Y. 74, Mechem's Cas. 292; Man- Cas. 322; Hercy v. Birch (1804), 9 gels v. Shaen (1897), 21 App. Div. Ves. 357; Karrick v. Hannaman 507, 48 N. Y. S. 526, Mechem's Cas. (1897), 168 U. S. 328, 18 Sup. Ct. 196 ACTIONS BETWEEN PARTNERS [223 are capable of specific performance may be enforced, either directly, 63 or negatively by an injunction against their breach. 64 The chief objections which arise to the exercise of the power to grant specific performance in partnership cases are those which inhere in the peculiar nature of the subject. The cases which involve the question fall usually into one or the other of two classes : First, those where specific performance is sought of an agreement to become or remain partners; and Second, those which involve some incidental right or liability growing out of an established relation, such as agreements to buy or sell, take shares on a valuation, and the like. The cases in the former class are the more difficult. Thus, where the purpose is to compel parties to enter into partnership as agreed, if no time was stipu- lated for its continuance, of what avail is it to enforce the crea- tion of a partnership which the parties may immediately dis- solve ? if a term of continuance was agreed upon, can the court assume the task of constantly watching the parties to observe whether they are performing their duties as partners ? 223. Same subject. In one case 65 in which the question arose, the court, in denying the application, said: "It is ex- tremely plain that the court cannot assume to enforce the per- formance of daily prospective duties, or supervise or direct in advance the course or conduct of one who is to control and manage in the interest of a firm in which he is to stand as a member, and where, too, the stipulated arrangement as plainly set forth contemplates that his personal skill and judgment shall E. 135, 42 L. ed. 484; Hyer v. Rich- 53 Bee cases cited in second and mond Traction Co. (1897), 168 U. third sections following. S. 471, 18 Sup. Ct. 114, 42 L. ed. 64 See Leavitt v. Windsor Land & 547; Marble Co. v. Eipley (1870), Inv. Co. (1893), 4 C. C. A. 425, 54 10 Wall. (U. S.) 339, 19 L. ed. 955. Fed. 439. Compare England v. Curling (1844), 55 Buck v. Smith (1874), 29 Mich. 8 Beav. 129; Somerby v. Buntin 166, 18 Am. Eep. 84, Mechem's Gas. (1875), 118 Mass. 279, 19 Am. E. 322, Gilm. Gas. 479. The court in 459, Mechem's Gas.- 326; Byrne v. this case also urged, as a ground for Eeid [1902], 2 Ch. 735, Mechem's refusing the relief, that, under the Gas. 930 ; Birchett v. Boiling contract there involved, it could not (1817), 5 Munf. (Va.) 442; Wads- make its relief mutual, worth v. Manning (1853), 4 Md. 59. 197 224] LAW OF PARTNERSHIP be applied and govern according to the shifting needs of prop- erty and business. No court is competent to execute such an arrangement." In another case, 66 involving the same question, the court said : "It is a rule in equity that the court will not decree a specific performance where it has no power to enforce the decree. Hence partnership articles will not be enforced, especially where no time is fixed for its continuance, as either party may dissolve it at pleasure. And even where a time is fixed it is difficult to see how the decree can be enforced. Take this case as an illustra- tion : Is the court to keep its hand on the parties for seventeen years and compel them to carry on this business ? ' ' 224. Same subject. There may, however, be cases in which the court will enforce specific performance of an agreement to form a partnership, by requiring the execution of the agreed ar- ticles or other similar act, notwithstanding that it may be im- mediately dissolved. This may be done, for example, where it will secure to a partner the interests in property to which by the partnership agreement he is entitled. 57 The execution of such deeds, etc., as might be necessary to give full effect to the agreement would fall within the same rule. The act required here is a certain, definite and agreed one, which may be of importance to the protection of the party's interests and which may in some cases be of value even though the en- forcement of the remainder of the agreement, i. e., to carry on the partnership so formed for the agreed period may be thought to be beyond the power of the court. 68 56 Morris v. Peckham (1883), 51 ment "was held to be within the Conn. 128. Same: Clark v. Truitt power of the court. This case, how- (1899), 183 111. 239, 55 N. E. 683. ever, was in fact attended by a cer- 67 Somerby v. Buntin (1875), 118 tain consent order which may have Mass. 279, 19 Am. E. 459, Mechem 's affected the question, though at Gas. 326; Satterthwait v. Marshall least one judge intimated that he (1872), 4 Del. Ch. 337; Karrick v. would have been of the same opin- Hannaman, supra. ion without that fact). [See com- 68 See Byrne v. Reid [1902], 2 ments 3 Columbia Law Keview Ch. 735, Mechem 's Gas. 930 (where 108]; England v. Curling (1844), 8 the execution of such deeds as were Beav. 129. necessary to give effect to the agree- 198 ACTIONS BETWEEN PARTNERS 225 225. Same subject. Aside from agreements to become or remain partners, there are some cases relating to partnership in which specific performance may be had. The most common of these are those involving agreements to buy or sell shares upon death or other dissolution, 69 but there are others. 60 Agreements to submit disputed claims to arbitration are more difficult of specific enforcement, but not usually for reasons which are pe- culiar to partnership. 61 59 See Haddock v. Astbury (1880), 32 N. J. Eq. 181, Mechem's Gas. 936, and cases in following note. Compare Cox v. Willoughby (1879), 13 Ch. Div. 863; Neilson v. Iron Co. (1886), 11 App. Gas. 298. 60 In Lindley on Partnership (7th ed.), 520, 521, it is said: "The court has enforced the following agreements entered into upon or with a view to a dissolution, name- ly: Agreements not to carry on business within a certain distance or for a certain space of time (Whittaker v. Howe, 3 Beavan, 383; Turner v. Major, 3 Giffard, 442) ; agreements by one partner to with- draw from a firm and assign his share to his copartners (Gray v. Smith, 43 Ch. D. 208) ; agreements as to the custody of partnership books and the furnishing of copies thereof (Lingen v. Simpson, 1 Simons & Stuart, 600) ; agreements that a third party, and he only, shall get in debts (Davis v. Amer, 3 Drew. 64; Turner v. Major, 3 Giff. 442) ; agreements that the value of the share of an outgoing or a deceased partner shall be as- certained in a specified way and taken accordingly (Morris v. Kears- ley, 2 Y. & C. Ex. 139; Essex v. Essex, 20 Beav. 442; King v. Chuck, 17 Beav. 325) ; agreements that an outgoing partner shall offer his share to his copartners before sell- ing it to other persons (Homfray v. Fothergill, 1 Eq. 567) ; agree- ments to grant an annuity to a retiring partner and his widow (Aubin v. Holt, 2 K. & J. 66; Page v. Cox, 10 Hare, 163) ; agreements not to divulge or make use of a trade secret (Morison v. Moat, 9 Hare, 241.)" 61 Agreements to submit to arbi- tration are not usually specifically enforced: Caldwell v. Caldwell (1908), 157 Ala. 119, 47 So. 268; Kennedy v.. Monarch Mfg. Co. (1904), 123 Iowa 344, 98 N. W. 796; Wood v. Humphrey (1873), 114 Mass. 185; Miles v. Schmidt (1897), 168 Mass. 339, 47 N. E. 115; Woodruff v. Woodruff (1888), 44 N. J. Eq. 349, 16 Atl. 4, 1 L. R. A. 380; or to take shares at a valua- tion, where the parties refuse to ap- point the valuers or the valuers re- fuse to act: Vickers v. Vickers (1867), L. E. 4 Eq. 529; Dinham v. Bradford (1869), L. B. 5 Ch. App. 519; Milnes v. Gery (1807), 14 Ves. 400, and the court will not attempt to fix the value otherwise unless valuation by the particular person appears not to have been of the essence of the agreement: Dinham v. Bradford, supra. 199 226] LAW OF PARTNERSHIP 2. Of Injunctions. 226. In what cases granted. Injunctions are frequently granted upon the application of one partner against his copart- ner, either before or pending or after a dissolution. 1. Before dissolution, and for the very purpose often of ob- viating the necessity for a dissolution, injunctions may be granted to prevent the commission by partners of acts inconsistent with the terms of their agreement or violating the rights of their copartners. Thus, one partner may be enjoined from obstruct- ing or impeding the business; excluding another partner from his rightful share in the management of the business; interfer- ing with the servants of the firm ; removing the books or papers of the firm or excluding his copartner from access to them; using partnership property for individual purposes; engaging in a rival business; extending the partnership transactions be- yond the limits agreed upon; publishing a notice of dissolution before the stipulated term has expired, and the like. 62 2. Pending an application for a dissolution or for an account- ing, injunction may be issued to restrain one partner from wrongfully interfering with, secreting or disposing of the prop- erty, creating new liabilities, and the like. 63 3. After dissolution, one partner may be enjoined from wast- ing, injuring, disposing of or wrongfully dealing with the assets ; from holding out the complainant as being still a partner ; from continuing business in violation of his agreement; from using the old firm name in such a way as to render former partners liable, and the like. 64 62 See Marble Co. v. Eipley Levine v. Michael (1883), 35 La. (1870), 10 Wall. (U. S.) 339; Ann. 1121. Leavitt v. Windsor Land & Inv. Co. 63 See Wilson v. Fitchter (1885), (1893), 4 C. C. A. 425, 54 Fed. 11 N. J. Eq. 71; New v. Wright, 439; Pirtle v. Penn (1835), 3 Dana supra. (Ky.) 247, 28 Am. Dec. 70, Me- 64 See McGowan Co. v. McGowan chem's Gas. 313, Gilm. Gas. 480; (1872), 22 Ohio St. 370; Wilkinson New v. Wright (1870), 44 Miss. v. Tilden (1881), 9 Fed. 683; Eob- 202, Meehem's Gas. 319; Katz v. erts v. McKee (1859), 29 Ga. 161; Brewington (1889), 71 Md. 79, 20 Shannon v. Wright (1883), 60 Md. Atl. 139, Meehem's Gas. 929, Gilm. 520, Mechem's Gas. 317, Gilm. Gas. Gas. 433; Van Keuren v. Trenton 481; Fletcher v. Vandusen (1879), Mfg. Co. (1861), 13 N. J. Eq. 302; 52 Iowa 448. 200 ACTIONS BETWEEN PARTNERS [ 227 3. Of Accounting and Dissolution. 227. In what cases granted Accounting without a disso- lution. The most common ground for appealing to a court of equity is to secure an accounting to determine the interests of partners and creditors, to adjust mutual claims and demands, and to obtain a decree for payment and distribution. In such ' cases, as has been seen, the remedy at law is usually inadequate. The jurisdiction of a court of equity for these purposes is ample and its power to enforce its decrees complete. 65 Its aid, how- ever, must be sought before the claim has become stale, and the complainant's laches may bar relief. 66 A demand for an accounting is usually coupled with a demand for dissolution, and because it not only encourages dissension and discontent among the partners to order frequent account- ing, but also because it is ordinarily futile to order an accounting of a going business whose daily fluctuations may unsettle the account before it is concluded, it was formerly the rule that an accounting would not be granted where it would not be com- plete and final or unless it was coupled with a dissolution. 67 The modern authorities have relaxed this rule to some extent, and there are cases in which an accounting alone may be granted. The most important of these, according to Mr. Justice Lindley, 68 are three: 1. Where one partner has sought to withhold from his copartner the profit arising from some secret transaction. 2. Where the partnership is for a term of years still unexpired, and one partner has sought to exclude or expel his copartner or to drive him to a dissolution. 69 3. Where the partnership has 65 See Bracken v. Kennedy Morrill v. Weeks (1899), 70 N. H. (1842), 4 111. 558, Gilm. Cas. 470; 178, 46 Atl. 32, where the court Clark v. Gridley (1871), 41 Cal. said that delay for a period less 119; Denver v. Rbane (1878), 99 than that fixed by a statute of lim- TJ. S. 355, 25 L. ed. 476; Bruns v. itations would not bar relief. Heise (1905), 101 Md. 163, 60 Atl. 67 See the elaborate discussion in 604. Lord v. Hull (1904), 178 N. Y. 9, 66 See Bell v. Hudson (1887), 73 70 N. E. 69, 102 Am. St. E. 484, Cal. 285, 14 Pac. 791, 2 Am. St. Mechem's Cas. 920, Gilm. Cas. 472. R. 791, and note (here the action 68 Lindley on Partnership (7th was not brought until 25 years after ed.) 537. the partner's death). Compare 69 See Fairthorne v. Weston 201 228, 229] LAW OF PARTNERSHIP proved a failure, and the partners are too numerous to be made parties to the action, and a limited account will result in justice to them all. To these may be added (1) under some circum- stances doubtless, the case where the partnership agreements provide for periodical accountings, and (2) the case of account- ings as to distinct transactions. 70 228. In these cases, however, an accounting will not, except in pursuance of partnership agreements, be granted of an isolated portion of what has been dealt with as a- complete and general whole. 71 Moreover, ' ' a court of equity will not take cognizance of an action for an accounting as a mere incident to the settlement of a solitary matter in dispute between part- ners, when it is not vital to either party or to the business, and a dissolution is not sought. ' ' 72 The effect of the illegality of the transaction in an action for accounting has already been referred to. 73 The Uniform Partnership Act 74 gives the right to a "formal account" to any partner where he is wrongfully excluded from the partnership business or property by his copartners; where the right exists under the terms of any agreement; where his copartner may be charged as a trustee of profits or property; and "whenever other circumstances render it just and rea- sonable. ' ' 229. Nature of remedy by accounting- What in- cluded. It is important to observe that this equitable action for an accounting, is not merely a process for calling ene part- ner to account for something which he has received or had, or (1844), 3 Hare 387, which is the 71 See Davis v. Davis (1882), 60 case upon which this proposition of Miss. 615. Justice Lindley was based. See, 72 Lord v. Hull, supra. also, cases of accounting at the 73 See ante, 46. See, also, suit of excluded partners: McCabe Pfeuffer v. Maltby (1881), 54 Tex. v. Sinclair (1904), 66 N. J. Eq. 454, 38 Am. Rep. 631; Pennington 24, 58 Atl. 412; Sanger v. French v. Todd (1890), 47 N. J. Eq. 569, (1898), 157 N. Y. 213, 51 N. E. 21 Atl. E. 297, 24 Am. St. K. 419. 979; Beilly v. Woblbert (1916), 74 Sec. 22. 196 Ala. 191, 72 So. 10. 70 See Patterson v. Ware (1846), 10 Ala. 444. 202 ACTIONS BETWEEN PARTNERS [ 229 to render an account ; it is an action for adjustment, for contribu- tion to losses, for settlement of affairs, and the like, and may result in a decree against a partner to pay something even though he had never received anything on account of the part- nership. 75 Its use to compel an accounting by a partner for money or property received by him, on alleged partnership account, is, however, doubtless the most common. Familiar instances are demands for secret profits, 76 for the profits of competing under- takings, 77 to compel the recognition of a partnership interest in property bought or acquired, 78 to compel an adjustment for partnership property, money or credits taken or disposed of by a partner, 79 and the like. So, a partner wrongly excluded by his copartner before or on dissolution, may avail himself of this remedy to secure a recognition of his rights and com- pensation for what has been appropriated. 80 It is also, as has been seen, 81 usually the remedy available against a partner for breaches of duty and violations of partnership agreements, from which the partnership, as distinct from a particular partner, is the sufferer. 82 75 See Spear v. Newell (1841), 79 See Folsom v. Marlette (1897), 13 Vt. 288, Mechem's Gas. 311. 23 Nev. 459, 49 Pac. 39, Gilm. Gas. 76 See Hodge v. Twitchell (1885), 486. 33 Minn. 389, 23 N-. W. 547, Me- 80 See Pirtle v. Penn (1835), 3 chem's Gas. 862; Mitchell v. Eeed Dana (Ky.) 247, 28 Am. Dec. 70, (1874), 61 N. Y. 123, 19 Am. Eep. Meehem's Gas. 313, Gilm. Gas. 480; 252, Mechem's Gas. 864; Tebbetts Moore v. Eawson (1904), 185 Mass, v. Dearborn (1883), 74 Me. 392, 264, 70 N. E. 64, Mechem's Gas. Mechem's Gas. 871; Jones v. Dex- 1089, 199 Mass. 493, 85 N. E. 586; ter (1881), 130 Mass. 380, 30 Am. Karrick v. Hannaman (1897), 168 Rep. 459, Mechem's Gas. 873; U. S. 328, 42 L. ed. 484, 18 Sup. Ct. Bloom v. Lofgren (1896), 64 Minn. 135; Pearce v. Ham (1885), 113 TJ. 1, 65 N. W. 960, Burd. Gas. 501. S. 585, 28 L. ed. 1067, 5 Sup. Ct. 77 See Latta v. Kilbourn (1893), 676. 150 U. S. 524, 37 L. ed. 1169, Me- 81 See ante, 214. chem's Gas. 260, Burd. Gas. 503. 82 See Miller v. Freeman (1900), 78 See Metcalfe v. Bradshaw 111 Ga. 654, 36 S. E. 961, 51 L. E. (1893), 145 111. 124, 33 N. E. 1116, A. 504, Mechem's Gas. 894; Childers 36 Am. St. E. 478, Mechem's Gas. v. Neely (1899), 47 W. Va. 70, 34 875. S. E. 828, 49 L. E. A. 468. 203 230, 231] LAW OP PARTNERSHIP 230. Who may demand accounting. The application for the accounting may be made by a partner or one who stands in the right of a partner (actions between partners being the only subject involved in this chapter) ; by the personal rep- resentative of a deceased partner; by the assignee or purchaser of the interest of a partner; iby the purchaser of a partner's share upon a sale on execution ; but not usually by a general creditor. 83 4. Of Receivers. 231. When will be appointed. Receivers are frequently appointed in the settlement of partnership affairs, though the appointment is not a matter of course and will not be made unless good grounds exist for it. Since a receivership usually ousts the partners of their possession, involves additional ex- pense, and commits the management to a stranger, courts feel a reluctance to appoint one. A receiver will not usually be appointed except upon dissolution; but the appointment may be made before, if a dissolution is inevitable, or if the partner- ship is insolvent and the assets are being wasted or improperly applied; but mere dispute or ill-feeling among the partners is not a sufficient ground. 84 It may be made also where one part- ner is insolvent and is wasting the assets or breaking up the business. 85 So, "wilful acts of fraud by the defendant, such as misappropriation of firm funds, making false and improper entries upon the firm books, depriving complainant of access to the books, and concealing from him the true condition of the business, afford sufficient ground for appointing a receiver." 86 83 See Bentley v. Harris (1873), Am. Dec. 198; Heflebower v. Buck 10 K. I. 434, 14 Am. Eep. 695; Free- (1885), 64 Md. 15. man v. Freeman (1884), 136 Mass. 85 See Shannon v. Wright (1883), 260; Gerard v. Bates (1888), 124 60 Md. 520, Mechem's Gas. 317, 111. 150, 7 Am. St. Kep. 350, 16 N. Gilm. Gas. 481; Phillips v. Treze- E. 258; Channon v. Stewart (1882), vant (1872), 67 N. Car. 370; Sutro 103 111. 541. v. Wagner (1873), 23 N. J. Eq. 388, Under the Uniform Partnership Gilm. Gas. 483; Barnes v. Jones Act, see 22 and 27. (1883), 91 Ind. 161. 84 See New v. Wright (1870), 44 86 High on Keceivers (3d ed.), Miss. 202, Mechem's Gas. 319; Allen 483. v. Hawley (1855), 6 Fla. 142, 63 204 ACTIONS BETWEEN PARTNERS [ 232 A receiver may be appointed to supersede a surviving partner or a sole managing partner if he is acting wrongfully or misusing or misapplying the assets. 87 One of the partners may be ap- pointed receiver if he is otherwise a suitable person. The occasion for the appointment of a receiver usually arises in actions between the partners themselves or their representa- tives. The mere general creditors of the partnership or of a partner have rarely any standing to apply for a receivership over the partnership property, unless a statute provides for it. 232. Powers and duties of receiver. The receiver is an officer of the court and acts under its direction. He may be authorized to continue the business long enough to permit its being wound up without sacrifice. He has not, ordinarily, in the absence of a statute or an assignment, the title to the prop- erty, 88 but he has the right of possession and disposition, and should be given control of all of the assets of the firm. By the weight of authority, probably, the receiver has no inherent au- thority to sue in his own name to collect the debts or recover the property of the firm 89 and he cannot usually be sued upon the firm debts without the consent of the court, nor can creditors of the firm levy upon the property in his possession. 90 "The appointment of the receiver does not absolve the co- 87 See Word v. Word (1889), 90 45 Atl. 752, 76 Am. St. B. 779. Ala. 81, 7 So. 412. Some courts, however, regard him as 88 The ordinary receiver of part- in effect an assignee. See Wilkin- nership property, appointed by son v. Eutherford (1887), 49 N. J. courts of equity, has ordinarily no L. 241, 8 Atl. 507. title to the property, unless there 89 Garver v. Kent (1880), 70 Ind. has been an assignment of it made 428; Wilson v. Welch (1892), 157 to him or unless there is some valid Mass. 77, 31 N. E. 712; Battle v. statute so providing. (The case of Davis (1872), 66 N. Car. 252; insolvent corporations is usually Yeager v. Wallace (1863), 44 Pa. different.) See Heffron v. Gage 294. But compare Wilkinson v. (1894), 149 111. 182, 36 N. E. 569; Eutherford supra; Baker v. Cooper Harrison v. Warren Co. (1903), 183 (1869), 57 Me. 388; Henning v. Mass. 123, 66 N. E. 589; Stokes v. Eaymond (1886), 35 Minn. 303, 29 Hoffman House (J901), 167 N. Y. N. W. 132. 554, 60 N. E. 667, 53 L. E. A. 870; 90 See Jackson v. Lahee (1886), Singerly v. Fox (1874), 75 Pa. 112; 114 111. 287, 2 N. E. 172. Murtey v. Allen (1899), 71 Vt. 377, 205 233] LAW OF PARTNERSHIP partners from their partnership debts, nor stay or prevent actions against the members of the copartnership for the recov- ery of such debts. Judgments so obtained cannot, however, be enforced by execution levied on the assets in the hands of the receiver, for they are in custodia, legis, but may share in the assets upon a proper application to the court. ' ' 91 5. Action "by One Partnership Against Another Having Com- mon Partners. 233. Jurisdiction of equity. As has been seen in an earlier section, 92 it is commonly held that no action at law can be main- tained by one partnership against another where the two have one or more partners in common. The forum for such eases is said to be in equity. This is because of the difficulty as to the common partner being both plaintiff and defendant at law a difficulty which equity is able to avoid. As has also been seen, 93 it has been held in some of the States having the so-called ' ' code ' ' procedure that this result can be reached in such States under the "civil action." It has been denied that even equity would entertain the action, unless there was to be an accounting be- tween the partners in the respective partnerships as well as the adjudication of the claim of the one partnership against the other. 94 This would not be necessary if the two firms had al- ready settled an account between themselves. 96 Some courts have held that the action in equity can be maintained without an accounting between the partners, at least unless some show- ing is made that it would be inequitable to do so. 96 Judge 91Bogert v. Turner (1909), 135 116 Mieh. 32, 74 N. W. 296; Be N. Y. App. Div. 530, 120 N. Y. S. Buckhouse (1874), 2 Low. 331, 420. Ames' Gas. 446. See, also, Haven 92 Ante, 219. v. Wakefield (1866), 39 111. 509; 93 Ante, 220. Crosby v. Timolat (1892), 50 Minn. 94 See 5 American Law Review 171, 52 N. W. 526, Gilm. Cas. 469 ; 47; Dixon, Partn. 268; Rogers v. Noyes v. Ostrom (1910), 113 Minn. Rogers (1847), 40 N. Car. 31. Ill, 129 N. W. 142; Gibson v. Ohio 95 See Calvit v. Markham (1839), Farina Co. (1859), 2 Disney (Ohio) 4 Miss. (3 How.) 343. 499, 13 Ohio Dec. 306. 96 See Burrows v. Leech (1898), 206 ACTIONS BETWEEN PARTNERS [ 233 Story said, many years ago, 97 that ' ' Courts of equity in all such cases look behind the form of the transactions to their substance, and treat the different firms for the purposes of substantial jus- tice exactly as if they were composed of strangers, or were in fact corporate companies." 97 Story's Eq. Jur. (13th ed.), 680; (14th ed.), 93, 207 CHAPTER X. OP THE AUTHORITY OF PARTNERS. 234. In general. I. AUTHORITY AS BETWEEN THE PARTNERS THEMSELVES. 235. As between themselves, part- ners may fix authority by agreement. 236. If no authority agreed upon, usual authority implied. II. AUTHORITY AS BETWEEN THE FIRM AND THIRD PERSONS. 237. Of what matters third persons must take notice. 238. Continued existence of partnership relation. 239. Evidence of an adverse interest. 240. Nature and extent of busi- ness to be observed. 241. Distinction between trading and non-trading firms. 242,243. The power of a partner to impose restric- tions by dissent. 244,245. Of the partner as agent of the partnership. 246. Partner has no implied au- thority outside of scope of business. 247. What meant by scope. 248. Extending original scope by subsequent conduct. 249. Consideration of particular authorities. 250. Admissions, representa- tions and declarations. 251. Agents Appointment of. ' 252. Arbitration. 253. Assignments for cred- itors. 254. Attorneys Employment of. 255-257. Bills and notes. 258. Borrowing money. 259. Buying. 260. Collecting and receiving payment. 261. Compromising debts. 262. Confessing judgment. 263, 264. Deeds, bonds and other instruments under seal. 265. Hiring or leasing prop- erty. 266. Insurance. 267-269. Mortgages and pledges. 270,271. Notice. 272, 273. Paying debts. 274, 275. Sales. 276. Suits at law. 277. Suretyship and guaranty. 278,279. Of the authority of a managing partner. 280. Several managers Di- rectors. 281,'282. Of the powers of a' ma- jority. 283. Ratification of unauthorized acts. 208 AUTHORITY OP PARTNERS [234,235 234. In general. The creation of partnership, as has been seen, creates a relation of agency between the partners, each partner being at once principal of and agent for the others. Those who adopt the separate entity theory of the partnership regard each partner as agent for the firm, as such an entity, rather than as principal for himself and a-gent for the others. Many of those who do not regard the partnership as a distinct entity constantly think of all of the partners collectively as be- ing the principals of each partner as an agent. The results, however, are not materially different, and it is sufficient for the present purpose to say that the authority of each partner to bind his partners as well as himself or to bind the firm rests substantially upon the general principles of agency. It will be evident that the authority of the partner-agent to bind his principal, i. e., his partners or the firm, presents the same two aspects that have been discovered in the law of agency, namely : (1) The authority as between the partners themselves, and (2) The authority as between the firm and third persons. I. AUTHORITY AS BETWEEN THE PA'RTNERS THEMSELVES. 235. As between themselves, partners may fix authority by agreement. It has been seen that, between the agent and the principal, the authority of the agent may be fixed by their agree- ment, and that, as between these parties, the agreement so made is usually conclusive, even though, as between the principal and third persons, the principal may be held liable for the agent's exercise of a more extended authority. The same rule applies here. The partners may by their own agreement determine the authority which shall be exercised by each partner, and be- tween themselves this agreement, unless expanded or waived, will be conclusive. It will also ordinarily be conclusive as re- spects third persons who have notice of the agreement ; 1 but 1 Third persons bound by limita- Knox v. Buffington (1879), 50 Iowa tions upon a partner's authority im- 320; Sladen v. Lance (1909), 151 N. posed by the partnership agreement, Car. 492, 66 S. E. 449. Information when brought to their notice: Ead- sufficient to put a reasonably pru- cliffe v. Varner (1875), 55 Ga. 427; dent and cautious man upon an in- Mech. Part. 14 209 236] LAW OF PARTNERSHIP secret limitations upon the usual powers of a partner can be no more conclusive upon third persons who have no notice of them than are secret limitations upon the usual authority of an agent. 2 The result may be, therefore, as in the case of agency, that a partner may, by exceeding secret limitations but acting within the usual authority, bind the firm to third persons, and, at the same time, make himself liable to his partners for the loss they may sustain by reason of his act. 3 236. If no authority agreed upon, usual authority implied. If, however, the partners have not expressly agreed upon the authority that shall be exercised by each, then they must be taken as having impliedly agreed that the usual and ordinary powers of partners in similar cases may be exercised. In this event, the question as between the partners will be substantially the same as between the firm and third persons, and the ques- tion then arises, What are the usual or the implied powers of a partner? As this question is, therefore, in the ordinary case to be answered in substantially the same way between whatever parties it may arise, we will consider it, for both purposes, under the head of the implied authority of partners as respects third persons. It is, of course, true that as between the partners themselves estoppels may operate as well as in the case of third persons, but that question need not now be considered. quiry which would have disclosed ship to persons having knowledge of the facts, is held enough : Baxter v. the restriction. ' ' Rollins (1894), 90 Iowa 217, 57 N. 8 See Rice v. Jackson (1895), 171 W. 838, 48 Am. St. R. 432; Bromley Pa. 89, 32 Atl. 1036; Moore v. May v. Elliot (1859), 38 N. H. 287, 75 (1903), 117 Wis. 192, 94 N. W. 45; Am. Dec. 182. This is usually a Winship v. Bank of U. S. (1831), 5 question of fact under all the cir- Pet. (U V S.) 552, 8 L. ed. 216, Gilm. cumstances: International Trust Gas. 356. Co. v. Wilson (1894), 101 Mass. 80, 3 See Leavitt v. Peck (1819), 3 36 N. E. 589, Burd. Cas. 361. So, Conn. 125, 8 Am. Dec. 157, Me- also, the Uniform Partnership Act, chem's Cas. 375; Stone v. Wend- Sec. 9: " (4) No act of a partner over (1876), 2 Mo. App. 247; Vance in contravention of a restriction on v. Blair (1849), 18 Ohio 532, 51 Am. his authority shall bind the partner- Dec. 467. 210 AUTHORITY OF PARTNERS [ 237-239 II. AUTHORITY AS BETWEEN THE FIRM AND THIRD PERSONS. 237. Of what matters third persons must take notice. It was found in the law of Agency that third persons would not be justified in proceeding blindly upon the assumption that an agent really possessed every authority which he might under- take to exercise; but that they must investigate his authority and act in good faith and with reasonable prudence. The same principle applies here. Persons dealing with a partner as such are bound to determine the existence of the partnership and to take heed of all limitations of which the nature and extent of the business may giv.e notice, as well as of those restrictions which are actually brought to their notice or knowledge. 238. Continued existence of partnership relation. Many important questions may arise here as to the continued existence of the partnership relation, either generally or in re- spect of this alleged partner only. 4 Has the partnership been dissolved by events which so operate, and without the necessity of formal notice? Has it been otherwise dissolved, and has proper notice been given? Has this particular partner alone retired, or been expelled, or has his interest been seized or as- signed? If the partnership has been dissolved, is what the partner in question proposes to do an act that he may properly do in closing up the business, or is he attempting to continue it? These and similar questions are more fully considered in later chapters on Dissolution and Notice. 5 239. Evidence of an adverse interest. All persons dealing with a partner are, moreover, charged with notice of the principle applicable to all cases of delegated authority, name- 4 As will be seen, actual dissolu- have a veiy different effect, upon tion of the partnership usually his present authority, from a mere works an important change in the mortgage of it which has not yet authority of a partner. A single been foreclosed. See Monroe v. partner's relation may be complete- Hamilton (1877), 60 Ala. 226, Burd. ly changed or it may be in the Cas. 306. process of change. A completed sale 5 See post, Chapters XV, XVI. of his interest, for example, may 211 240] - LAW OF PARTNERSHIP ly, that the authority presumptively is to be exercised for the benefit of the principal and not of the agent himself; and per- sons who deal with a partner with notice that he is abusing his authority or is using the property, credit or responsibility of the partnership for his own private purposes, as, for example, to pay his own individual debts, can not hold against the other partners unless they can show the consent of the other partners to such dealing, or can estop such other partners from assert- ing their rights. 6 The same result would follow where, though the partner acting was not personally to gain by the transaction, his act would be an obvious fraud upon his copartner, as where, for example, he proposes to give away the partnership property or use its credit where it had no interest and could receive no benefit. 240. Nature and extent of business to be observed. The nature and scope of the business are constantly to be regarded. It may be limited to a single venture or transaction, and in such a case limitations similar to those imposed by a special agency must be observed. It may be confined to a single line of busi- 6 This requirement demands more lumbia Nat. Bank v. Bice (1896), than mere good faith or payment of 48 Neb. 428, 67 N. W. 165, Burd. consideration, on the part of the Gas. 309. See more fully post, transferee. One who buys property, 274, 275. not negotiable, from another can And even where the partner trans- ordinarily acquire no better title fers a negotiable thing, like the than his transferor was actually firm 's own note or a note held by it, authorized to transfer, notwith- the first transferee often cannot fail standing possession, good faith, or to see that the partner is apparently the payment of value, unless he can abusing his authority, e. g., where he raise an estoppel, unless he can is using obviously partnership cred- show that he was fairly led to part its to pay his individual debts, and with his money in reliance upon such transferee cannot hold or re- some conduct of the true owner cover, though he may have the which was reasonably calculated to power, in many cases, under the law make him believe that the transfer of negotiable instruments, to trans- was authorized. Compare Brickett fer to a bona fide purchaser who can v. Downs (1895), 163 Mass. 70, 39 hold or recover. See Nichols v. N. E. 776, Burd. Gas. 215, with Thomas (1915), 51 Okla. 212, 151 Locke v. Lewis (1878), 124 Mass. Pac. 847, L. E. A. 1916 B 908. 1, 26 Am. Rep. 631. See, also, Co- 212 AUTHORITY OP PARTNERS [ 241 ness, and in such a case the implied authority must be limited by the usages of that business, unless the partners have, by their words or conduct, given it a wider scope. It may be a business of a particular kind, as in the case of a professional partnership, in respect of which the law recognizes but limited powers. Of all such facts third persons must take notice, and must be bound by the legal conclusions to be drawn from them. 7 Provisions in the partnership articles, however, which would limit the usual and ordinary authority of a partner in such a partnership or in this one as actually and openly carried on, would not ordinarily affect a third person who was ignorant of them. 8 241. Same subject Distinction between trading and non- trading firms. Perhaps the most important distinction to be observed as to the nature of the partnership business is that drawn between trading and non-trading partnerships, or, as it is sometimes put, between commercial and non-commercial part- nerships. "The test of the character of the partnership," it is said in one case, "is buying and selling. If it buys and sells, it is commercial or trading. If it does not buy or sell, it is one of employment or occupation." 9 By this is meant, of course, 7 Where a partnership is limited of common prudence to make inquiry to a particular trade or business, about them. Bromley v. Elliot one partner cannot bind his co- (1859), 38 N. H. 287, 75 Am. Dec. partner by any contract not relat- 182. To same effect: Baxter v. ing to such trade or business, and Eollins (1894), 90 Iowa 217, 57 N. third persons will be presumed to W. 838. See, also, Wilson v. Eich- have knowledge of the limited na- ards (1881), 28 Minn. 337, 9 N. W. ture of the partnership from cir- 872; Cargill v. Corby (1852), 15 cumstances connected with the busi- Mo. 425; Peterson v. Armstrong ness of the firm. Livingston v. (1901), 24 Utah 96, 66 Pae. 767; Boosevelt (1809), 4 Johns. (N. Y.) Iroquois Eubber Co. v. Griffin 251, 4 Am. Dec. 273, 1 Am. Lead. (1919), 226 N. Y. 297, 123 N. E. Cas., p. 507 and note. Persons deal- 369. ing with partners are bound by the 8 See Winship v. Bank of U. S. agreement between the partners (1831), 5 Pet. (U. S.) 529, 8 L. ed. themselves if such persons, at the 216, Gilm. Cas. 356. time of the dealing, knew the nature 9 See Lee v. First National Bank of such agreement, or had knowl- (1890), 45 Kan. 8, 25 Pac. 196, 11 edge of such facts and circumstances L. E. A. 238 ; Winship v. Bank of relating thereto as would lead a man United States (1831), 5 Peters (U. 213 241] LAW OF PARTNERSHIP buying and selling as a business, and not as a mere incident to some other business or occupation. 10 While it must be confessed that this test does not always seem to be a very happy one, or one easy of application, the distinction itself is usually an im- portant one. As can readily be seen, and as will be more fully observed hereafter, much greater powers, of a commercial char- acter at least, may properly be regarded as incident to a com- mercial or trading business than to one for the exercise of a profession or occupation merely. Of this distinction and its legal consequences third persons are bound to take notice. In dealing with this question in another case, 11 the court, S.) 529, Gilm. Gas. 356; Bowling v. Exchange Bank (1892), 145 U. S. 512, 12 Sup. Ct. 928, 36 L. ed. 795, Mechem's Cas. 356; Pease v. Cole (1885), 53 Conn. 32, 22 Atl. 681, 55 Am. Rep. 53, Meehem's Cas. 344, Burd. Cas. 314, Gilm. Cas. 372; Smith v. Sloan (1875), 37 Wis. 285, 19 Am. Rep. 757; Phillips v. Stan- zell (1895), 28 S. W. (Tex.) 900, Mechem's Cas. 944, Burd. Cas. 323; Randall v. Merideth (1890), 76 Tex. 669, 13 S. W. 576; Marsh v. Wheeler (1904), 77 Conn. 449, 59 Atl. 410, 107 Am. St. R. 40; Vetsch v. Neiss (1896), 66 Minn. 459, 69 N. W. 315, Burd. Cas. 328, Gilm. Cas. 379; Hig- gins v. Beauchamp [1914], 3 K. B. 1192; Schumacher v. Sumner Tele- phone Co. (1913), 161 Iowa 326, 142 N. W. 1034, Ann. Cas. 1916 A 201; First Nat. Bank v. Farson (1919), 226 N. Y. 218, 123 N. E. 490. The so-called mining-partnership, recognized in several states, is a non-trading partnership: Childers v. Neely (1899), 47 W. Va. 70, 34 S. E. 828, 49 L. R. A. 468, 81 Am. St. R. 777, Mechem's Cas. 34; Congdon v. Olds (1896), 18 Mont. 487, 46 Pac. 261, Burd. Cas. 331. For other illustrations see post, 255-257. 10 Thus in Randall v. Merideth, supra, the court quotes with ap- proval the definition of Bates, Partn. 327, which emphasises this point: "If the partnership contemplates the periodical or continuous or fre- quent purchasing, not as incidental to an occupation, but for the pur- pose of selling again the thing pur- chased, either in its original or manufactured state, it is a trading partnership; otherwise it is not." Marsh v. Wheeler, supra, to some ex- tent seems contrary to this. It is there said that those partnerships are trading "whose conduct so in- volves buying and selling, whether incidentally or otherwise, that it naturally comprehends the employ- ment of capital, credit, and the usual instrumentalities of trade, and frequent contact with the commer- cial world in dealings which in their character and incidents are like those of traders generally. ' ' Part- nerships for a single enterprise, often called "joint ventures," (ante, 16, 43), would usually be non-trading. 11 Woodruff v. Scaife (1887),. 83 Ala. 152, 3 So. 311. 214 AUTHORITY OF PARTNERS [ 242 speaking of a farming partnership, said: "The partnership in this case is not a trading or commercial one, which is generally governed as to its scope of authority by the rules of the law- merchant, of which the courts take judicial cognizance. The principle governing a non-trading partnership is well settled. There are three classes of cases where each partner connected with such associations may lawfully bind the firm; the burden, in each case, being on the plaintiff to prove the facts by which such authority is established, or from which it may be implied: (1) Where he has express authority to do so; (2) where the contract made, or thing done, is necessary in order to carry on the business of the partnership; and (3) where it is usually or customarily incident to other partnerships of like nature." The Uniform Partnership Act is silent as to this distinction. 242. Same subject The power of a partner to impose re- strictions by dissent. The limitations upon the implied au- thority of one partner may also be increased in certain cases by his copartner's refusal to be bound by his contemplated acts. One partner cannot by secret dissent impose limitations upon his partner 's authority to . bind the firm to third persons ; 12 neither can one partner by an open and communicated dissent, without a dissolution, deprive his partner of those powers which the partnership articles confer upon him, 13 or of those whose exercise is essential to the continuance -of the business, 14 or, with or without a dissolution, of those essential to the protection of the partner against the debts, 15 nor can he by such dissent im- 12 This is, of course, in accord- named by the other partner. The ance with the rule requiring notice latter gave personal and public no- of revocation of authority, and the tices forbidding ' ' all and every- like. one" from selling to his partner 13 One may revoke an authority ' ' anything of any kind or nature. ' ' or dissolve a partnership in many Was this effectual; was it in sub- cases, but one party alone can not stance a dissolution; or was it revoke a contract. merely a futile and inconsistent at- 14 Thus in "Wipperman v. Stacy tempt to strip the partnership of (1891), 80 Wis. 345, 50 N. W. 336, all of its significance without dis- Mechem's Gas. 376, one partner had, solving it? The court held it to be by the contract, the power to make the latter. all the purchases but of parties 15 Partnership, as to the authority 215 243] LAW OF PARTNERSHIP pose upon third persons whose rights are already fixed addi- tional burdens or responsibilities, as, for example, to take away a debtor 's right to pay to either partner ; 16 but as to the future exercise of the ordinary incidental and implied powers affect- ing only the manner in which the business is to be carried on, the making of this or that new contract, the incurring of this or that new obligation, one of two partners may, it is held, by giv- ing notice to third persons, escape being bound by the contem- plated act of his partner. 17 243. If this rule be sound, it must, it is thought, be upon the theory that where there are but two partners and therefore no majority is possible and where there is no ex- press agreement about the matter, it is the implied understand- ing that all of the ordinary incidental details of the business within its general scope shall be from time to time decided, if question arises, by both, since one can ordinarily have no more authority than the other. If then both do not agree, i. e., if one dissents, that act shall not be done. If there are more than two partners and therefore a majority view is possible, it may equally be thought that such matters necessary for a partner's protec- 105 Ky. 624, 49 S. W. 465, 88 Am. tion, e. g., the power to apply the St. E. 320, 20 Ky. Law E. 1436, assets to the payment of debts, Mechem's Cas. 380; Bank v. Mason etc., exhibits one of that kind of (1917), 139 Tenn. 659, 202 S. W. authorities sometimes called a 931; Johnson v. Bernheim (1877), "power coupled with an interest," 76 N. C. 139; Johnston v. Button or a "power given by way of se- (1855), 27 Ala. 245; Ellis v. Allen curity." (1886), 80 Ala. 515, 2 So. 676; Compare Fidelity Banking & Yeager v. Wallace (1868), 57 Pa. Trust Co. v. Kangara Co. (1894), 365; Carr v. Hertz (1895), 54 N. 95 Ga. 172, 22 S. E. 50. J. Eq. 127, 33 Atl. 194, Burd. Cas. 16 See Noyes v. New Haven, etc., 356; Wipperman v. Stacy (1891), E. Co. (1861), 30 Conn. 1. 80 Wis. 345, 50 N. W. 336, Me- 17 See Leavitt v. Peck (1819), 3 chem's Cas. 376; McCord v. Call- Conn. 125, 8 Am. Dec. 157, Me- away (1899), 109 Ga. 796, 35 S. E. chem's Cas. 375; Monroe v. Con- 171; Gallway v. Mathew (1808), ner (1838), 15 Me. 178, 32 Am. 10 East 264. Compare First Nat. Dec. 148, Gilm. Cas. 393; Noyes v. Bank v. Larson (1911), 146 Wis. New Haven E. E. Co. (1861), 30 653, 132 N. W.. 610, 12 Columbia Conn. 1; Dawson v. Elrod (1899), Law Eeview 85. 216 AUTHORITY OP PARTNERS [244 of detail as are not expressly provided for have also been left to be decided as they arise, but here (in accordance with a com- mon tradition applicable to the determination of details by a group agreed upon a general plan), by a majority. This point, however, will be more fully considered in a later section. 18 244. Of the partner as the agent of the partnership. Ap- plying these considerations, the general rule may be said to be that each partner is an agent and, so far as such a distinction is material, a general rather than a special agent with implied authority to bind the partners in all matters falling within the general and usual scope of the business as actually con- ducted; and that third persons dealing with one partner as such agent will be protected if they act in good faith, with reasonable prudence, and with no notice of any other limitations than those which the nature of the business as ostensibly car- ried on may afford. The Uniform Partnership Act is to the same effect. 19 Greater authority may, of course, be conferred by the express or implied consent of the partners previously given, or by their subsequent ratification; but the rule stated refers to the au- thority to be implied from the nature of the business and the method of transacting it. Special arrangements between the partners may also diminish the normal authority of a particular partner or partners, even to the point of extinction; but such arrangements, as has been 18 See post, 281. matter, and the person with whom 19 Sec. 9. "(1) Every partner he is dealing has knowledge of the is an agent of the partnership for fact that he has no such authority." the purpose of its business, and the In Pohlman v. Taylor (1874), 75 act of every partner, including the 111. 629, it is said: "Every partner execution in the partnership name possesses full and absolute author- of any instrument, for apparently ity to bind all the partners by his carrying on in the usual way the acts or contracts, in relation to the business of the partnership of which business of the firm, in the same he is a member binds the partner- manner and to the same extent as ship, unless the partner so acting if he held full powers of attorney has in fact no authority to act for from all the members." the partnership in the particular 217 245] LAW OF PARTNERSHIP seen, would not ordinarily be binding upon third persons having no notice or knowledge of them. 20 245. The Koman Law, as has been seen, did not recog- nize this agency of one partner to bind the others contractually by reason of the relationship. 21 In the case of the so-called "joint venture," as distinguished from the commercial partnership, the authority of one associate to bind the others contractually as the mere result of the re- lation (as distinguished from the actual agreement, practice or appearance) is more doubtful. 22 The merely nominal partner, not being an actual partner, would usually not be an agent at all. He may bind himself, of course. If he alone has held himself out as partner with others, he may not bind them. If they have assented to such holding out or if they have held him out as their partner, he may then bind them. 23 20 gee Rice v. Jackson (1895), 171 Pa. 89, 32 Atl. 1036, ante, 235. 21 See ante, p. xxii, Introduction. In Hunter's Roman Law (3d ed.), p. 521, it is said: "The con- tract of partnership in Roman law dealt solely with the rights of part- ners as between themselves; and one of the partners had no implied pow- er to bind the others, even in mat- ters strictly within the business of the partnership. One of the part- ners might, indeed, to a qualified extent, be an agent for the others, but only in the same way as a stranger to the partnership. This peculiarity is to be attributed to the slow and imperfect development of agency in the creation of con- tracts." See, also, Roby, Roman Private Law, II, p. 248 et seq.; 132, et seq. 22 In Jones v. Gould (1913), 209 N. Y. 419, 103 N. E. 720, the court said: "This was not strictly a partnership, though it had many of the features of such a relation. Williams v. Gillies, 75 N. Y, 197. It was what is now generally known as a joint venture rather than a commercial partnership. The auth- orities in some of the states hold that in the prosecution of the ven- ture each party has the same full power to bind his associates in any contract in regard to the venture that an ordinary commercial partner would have. We are not now in- clined to hold that doctrine in its full integrity, but such a ruling is not necessary to the disposition of the case." 23 The Uniform Partnership Act, sec. 16, works this out with con- siderable fulness. See ante, 244, also Appendix. The nominal part- ner or partner by estoppel is per- sonally liable or liable jointly with those who consent to his represen- tations. As an agent "he is an agent of the persons consenting to 218 AUTHORITY OF PARTNERS [246,247 246. Partner has no implied authority outside of scope of business. The first and most obvious limitation imposed by this rule is, that one partner can have no implied authority to bind the partnership to third persons in any matter outside of the scope of the business as ostensibly carried on. 24 Thus, as a few of many similar illustrations, it is not within the scope of the business of a firm of lumber manufacturers to subscribe for stock in a plank-road company; nor of a firm of millers, or planters and farmers, to carry on a grocery store; nor of an iron furnace partnership to buy a distillery; nor of a print- ing firm to undertake to sell pianos ; nor of a firm of millers and grain dealers to speculate in futures; nor of a trading partner- ship to collect accounts for others, or buy land for speculation ; 25 nor of a firm of lawyers to undertake to collect debts or foreclose mortgages without pay. Other illustrations will be given under special heads. 247. What meant by scope. What is meant by the scope of the business is not capable of exact definition, but, in general, it means the limits commonly and usually fixed to a similar business at that time and place, and reasonably and such representation to bind them 25 See Barnard v. Plank-road Co. to the same extent and in the same (1859), 6 Mich. 274, Mechem's Gas. manner as though he were a part- 334; Banner Tobacco Co. v. Jeni- ner in fact, with respect to persons son (1882), 48 Mich. 459, 12 N. who rely upon the representation. W. 655, Mechem's Gas. 336; Irwin Where all the members of the ex- v. Williar (1883), 110 U. S. 499, isting partnership consent to the 4 Sup. Ct. 160, 28 L. ed. 225, Gilm. representation, a partnership act or Gas. 363; Boardman v. Adams obligation results; but in all other (1857), 5 Iowa 224, Mechem's cases it is the joint act of the per- Partn. Gas. 339; Davis v. Dodson son acting and the persons consent- (1905), 95 Ga. 718, 22 S. E. 645, ing to the representation. ' ' 51 Am. St. E. 108, 29 L. E. A. 496, 24 Thus, also, the Uniform Part- Mechem 's Gas. 942, Burd. Gas. 338 ; nership Act, sec. 9: "(2) An act Humes v. O 'Bryan (1883), 74 Ala. of a partner which is not appar- 64; Waller v. Keyes (1834), 6 Vt. ently for the carrying on of the 257; Pickels v. McPherson (1881), business of the partnership in the 59 Miss. 216; Brooks v. Hamilton usual way does not bind the part- (1821), 10 Mart. (La.) 283, 13 Am. nership unless authorized by the Dec. 328. other partners." 219 248] LAW OF PARTNERSHIP generally necessary to enable that business to be carried on. The usages of those engaged in the same business at the same time and place are therefore material to be observed as indi- cating not only what the partners themselves but third persons must have contemplated as falling properly within its purpose. The previous practice and conduct of the particular firm may also be of weight as indicating what the partners have deter- mined to be authorized. " Necessity " alone in a given case is not enough, nor is the fact that benefit may have resulted from the act; it must fall within the general and established usages of such a business, or at least within the usages of the particular business. "Scope" is ordinarily a question of fact to be determined under proper instructions from the court, by the jury (or other triers of the facts) in view of the circumstances of the particular case ; 26 but questions originally of fact may have become crys- talized into rules of law, admitted or undisputed facts may demand a legal inference, or written agreements may require legal interpretation, and in such cases the court will decide. Mere questions of fact may also be decided by the court (by a directed verdict) where only one inference may reasonably be drawn from the evidence in the case. 27 248. Extending original scope by subsequent conduct. The scope originally fixed by the partners for the conduct of their business may be subsequently enlarged with their consent. This consent may be given consciously and expressly, or it may be given, perhaps unconsciously, by acquiescence or implication. As the scope of the business is extended, the range of the im- plied authority of the partners extends accordingly. 23 As was 26 See London Savings Society v. (1882), 48 Mich. 459, 12 N. W. 655. Sayings Bank (1860), 36 Pa. St. 28 See Boardman v. Adams 498, 78 Am. Dee. 390. (1857), 5 Iowa 224, Mechem's Gas. 27 See Everitt v. Chapman (1827), 339; Woodward v. Winsliip (1832), 6 Conn. 347; Morgan v. Farrel 12 Pick. (Mass.) 429. (1890), 58 Conn. 413, 20 Atl. 614, In Eady v. Newton Coal & Lum- 18 Am. St. E. 282, Mechem's Cas. ber Co. (1905), 123 Ga. 557, 51 171; Stundon v. Dahlenberg (1914), S. E. 661, 1 L. R. A. (N. S.) 650, 184 Mo. App. 381, 171 S. W. 37: with note, it is held that the origi- Banner Tobacco Co. v. Jcnison nal agreements may be extended by 220 AUTHORITY OP PARTNERS [249,250 said in one ease 29 in which a firm of printers had gradually added piano selling to their business, "Where a partnership firm, embarked in a particular business to which their engage- ments are confined, and to which alone their partnership con- tracts extend, by mutual agreement enlarge the sphere of their operations and include another branch of business, the power of each partner to bind the firm by his contracts is co-extensive with the whole business of the partnership ; and the acts of each member are as binding on the firm in the new branch of busi- ness in which they are engaged as they are in the former regular and ordinary business." 249. Consideration of particular authorities. It is ob- viously impossible to enumerate all of the powers which may or may not fall within the scope of a particular partnership; but the question of the existence of several has so frequently arisen that they may be grouped together as further illustra- tions of the subject. For convenience sake, the various subjects may be arranged in something of an alphabetical order. Thus 250. Admissions, representations and declarations. In accordance with the ordinary rules of agency, the statements, representations and admissions of one partner are not ad- missible against another, unless he has in some way assented to them, either to prove the fact of the partnership, or to prove that a given transaction apparently beyond its scope was in fact a partnership transaction ; 30 but if the existence of the part- implication based upon the general 30 See Strong v. Smith (1892), usage of the firm acquiesced in by 62 Conn. 39, 25 Atl. 395; Taft v. all of the partners; but before one Church (1895), 162 Mass. 527, 39 partner who has not expressly N. E. 283; Heffron v. Hanaford agreed to the custom can be held to (1879), 40 Mich. 305; Columbia have acquiesced, it must appear that Nat. Bank v. Bice (1896), 48 Neb. he knew of it and his acquiescence 428, 67 N. W. 165; First Nat. Bank must indicate his consent to it as v. Conway (1886), 67 Wis. 210, 30 the regular course of dealing rather N. W. 215. But where the act is than as a departure from the estab- one which he might apparently do lished course in a special and iso- either for the partnership or for lated instance. himself or some third person, his 2> Boardman v. Adams, supra. statements or representations as to 221 250] LAW OP PARTNERSHIP nership has first been shown by other evidence, then the ad- missions, representations or declarations of one partner made during the continuance of the partnership, while engaged in the transaction of the partnership business and in reference to partnership affairs, are admissible against the others. 31 Such in substance is the rule of the Uniform Partnership Act. 32 One partner cannot, however, by his own self-serving admissions or declarations alone not acquiesced in by his copartners, deprive his partners of their interests in the firm property. 33 Where it is desired to prove by one partner either the ex- istence of the partnership or who were the partners composing it, he should be called as a witness. While his extrajudicial admissions are not admissible, his testimony on the trial is competent. 34 Upon the termination of the partnership, the authority of each partner as an agent to carry on the business ordinarily ceases, and with it the authority to make statements, represen- tations or admissions so far as that authority springs from the original authority to carry on the business ; but, as will be seen hereafter, 35 a partner may, after dissolution, have an authority to act in closing up its affairs, and out of that fact, while he is so acting and with reference to such acts, an authority to make statements, representations or admissions may arise suit- able to the occasion and limited by it. 36 the one for whom he then purported 32 See. 11. "An admission or rep- to act would be competent. See resentation made by any partner Smith v. Collins (1874), 115 Mass. concerning partnership affairs with- 388; Benningcr v. Hess (1884), 41 in the scope of his authority as Ohio St. 64; Clark v. Taylor (1880), conferred by this act is evidence 68 Ala. 453. against the partnership." 31 See Drumright v. Philpot 33 Williams v. Lewis (1888), 115 (1854), 16 Ga. 424, 60 Am. Dec. Ind. 45, 17 N. E. 262, 7 Am. St. E. 738; Burgan v. Lyell (1851), 2 403. Mich. 102, 55 Am. Dec. 53, Burd. 34 See First Nat. Bank v. Conway, Cas. 312, Gilm. Cas. 338* Griswold supra. v. Haven (1862), 25 N. Y. 595, 82 35 See post, 423-426. Am. Dec. 380; Eapp v. Latham 36 See Pennoyer v. David (1860), (1819), 2 B. & Aid. 795, Ames' 8 Mich. 407, Mechem's Cas. 543; Cas. 610, Burd. Cas. 341; Brundage Feigley v. Whitaker (1872), 22 v. Melton (1895), 5 N. Dak. 72, 63 Ohio St. 606, 10 Am. Eep. 778, N. W. 209, Burd. Cas. 348. Mechem's Cas. 550. Compare Mil- AUTHORITY OP PARTNERS [ 251, 232 251. Agents Appointment of. Each partner has im- plied authority to employ on account of the firm such agents and servants as the proper transaction of the partnership busi- ness may require. 87 This is not a case of the delegation by one partner of his authority, but an employment in behalf of all the partners by the acting partner as the agent of all. The firm may act as agent. It may be organized to act as agent; it may undertake the agency in question as a part of its regular business, or undertake it with the consent of all as a departure from or an addition to its regular business. "Where the partners are appointed as individuals, all must ordinarily unite in executing the authority; but where the firm is the agent, any partner has ordinarily as much implied power to transact that business alone as he would have to transact alone any other piece of business in which the firm is engaged. 88 252. Arbitration. By the weight of authority one partner has ordinarily no implied power to submit controverted partnership matters to arbitration. 89 The reason is that this is not the usual and ordinary method by which such affairs are adjusted. Proceedings in the regularly established courts is the ordinary method. This is the prevailing rule whether the agree- ment to submit is under seal or not, though in a few states an ler v. Neimerick (1857), 19 111. 172, 38 See Deakin v. Underwood where it does not appear that the (1887), 37 Minn. 101, 33 N. W. admission was made as part of any 318, 5 Am. St. E. 827; Frost v. act of settlement on which the part- Erath Cattle Co. (1891), 81 Tex. ner was engaged. 505, 17 S. W. 52, 26 Am. St. E. 37 See Burgan v. Lyell (1851), 831. 2 Mich. 102, 55 Am. Dec. 53, Burd. 39 See Fancher v. Furnace Co. Gas. 312, Gilm. Cas. 358; Mead v. (1886), 80 Ala. 481, 2 So. 268; Shepard (1867), 54 Barb. (N. Y.) Walker v. Bean (1886), 34 Minn. 474; Sweeney v. Neely (1884), 53 427, 26 N. W. 232; Gay v. Walt- Mich. 421; Harvey v. McAdams man (1879), 89 Pa. St. 453; Davis (1875), 32 Mich. 472; Carley v. v. Berger (1884), 54 Mich. 652, 20 Jenkins (1874), 46 Vt. 721; Eeir- N. W. 629; Hoffman v. Westlecraft den v. Stephenson (1914), 87 Vt. (1914), 85 N. J. L. 484, 89 Atl. 430, 89 Atl. 465, Ann. Cas. 1916 C 1006; Tillinghast v. Gilmore (1871), 109; Bartlett v. Powell (1878), 90 17 E. I. 413, 22 AtL 942, 111. 331. 253] LAW OP PARTNERSHIP unsealed agreement by one partner has been held binding. The power may, of course, be conferred by the consent of the other partners, and would perhaps exist if the others have abandoned the business to his sole management and discretion. The Uniform Partnership Act so provides. 40 253. Assignments for creditors. Since such a pro- ceeding ordinarily results in closing up the business rather than in carrying it on, and is an unusual and extraordinary act, it is settled by the weight of authority, as a general rule, that one partner has no implied power to make a general assignment of the partnership property for the benefit of partnership cred- itors; though it will be valid if the other partners previously consent, either expressly or impliedly, or subsequently ratify it. To this general rule one exception is usually made: that if the other partners have absconded or are absent so that they cannot be consulted, or are otherwise incapable of assenting or dissenting, then the remaining partner may make such an assignment without their consent, if there is a situation which seems fairly to render such a proceeding imperative or desirable and he acts in good faith in view of such an emergency. 41 40 Sec. 9. Subd. 3 (e) "Unless hart (1895), 91 Wis. 513, 65 N. W. authorized by the other partners or 60 (where other partner had unless they have abandoned the absconded) ; Stein v. La Dow business, one or more but less than (1868), 13 Minn. 412; Williams v. all the partners have no authority Frost (1880), 27 Minn. 255, 6 N. to * * * submit a partnership W. 793; Hill v. Postley (1893), 90 claim or liability to arbitration or Va. 200, 17 S. E. 946; Mayer v. references." Bernstein (1891), 69 Miss. 17, 12 41 See Loeb v. Pierpoint (1882), So, 257; Deckard v. Case (1836), 58 Iowa 469, 12 N. W. 544, 43 Am. 5 Watts (Pa.) 22, 30 Am. Dec. Eep. 122; Shattuck v. Chandler 287, Gilm. Cas. 233 (other partner (1889), 40 Kan. 516, 20 Pac. 225, had absconded); Fox v. Curtis 10 Am. St. E. 227, Mechem's Cas. (1896), 176 Pa. 52, 34 Atl. 952; 363, Gilm. Cas. 236; Sullivan v. Clafflin v. Evans (1896), 55 Ohio Smith (1884), 15 Neb. 476, 19 N. St. 183, 45 N. E. 3, 60 Am. St. W. 620, 48 Am. Rep. 354; Eumery E. 686, Burd. Cas. 216; Steinhart v. McCulloch (1882), 54 Wis. 565, v. Fykrie (1885), 5 Mont. 463, 6 12 N. W. 65; Coleman v. Darling Pac. 367; Johnson v. Eobinson (1886), 66 Wis. 155, 28 N. W. 367, (1887), 68 Tex. 399, 4 S. W. 625; 57 Am. Eep. 253; Voshmik v. Urqu- Bowen v. Clark (1856), 1 Biss. 224 AUTHO&ITY OF PARTNERS [ 254 I The Uniform Partnership Act provides that "unless author- ized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to assign the partnership property in trust for cred- itors or on the assignee's promise to pay the debts of the part- nership." 42 Unless the phrase "have abandoned the business" is liberally construed, it doubtless limits the rule generally agreed upon, as above stated, in a number of situations. An unauthorized assignment might be subsequently ratified by the other partners, but not, it is held, so as to cut off inter- vening rights. 43 254. Attorneys Employment of. Inasmuch as prose- cuting and defending ordinary actions at law arising in the course of the business, obtaining necessary legal advice in ref- erence to the conduct of the partnership affairs, and procuring proper legal assistance in the preparation of partnership con- tracts, leases, and the like, are common and familiar incidents of partnership business, the implied authority of one partner to em- ploy, on account of the partnership, attorneys to perform such necessary and proper services cannot be doubted, so far as liability for such employment and its ordinary incidents is concerned. 44 As will be seen hereafter, however, one partner has usually no implied authority, either in person or through attorneys em- ployed by him alone, to subject his copartners, not personally served with process or personally appearing, to the jurisdic- tion of a court in such wise as to enable a personal judgment or decree to be rendered against such copartners. 45 (U. S. D. C.) 128 (other partner 44 See Bennett v. Stiekney (1845), within reach by telegraph); Hook 17 Vt. 531; Wheatley v. Tutt v. Stone (1864), 34 Mo. 329 (deny- (1867), 4 Kan. 240; Charles v. ing authority though other partner Eshleman (1879), 5 Col. 107 (not absent); Wilcox v. Jackson (1884), in the case of a mining partner - 7 Colo. 521, 4 Pae. 966; Carrie v. ship). Cloverdale Co. (1891), 90 Cal. 84, 45 See post, 262, 276. One 27 Pae. 58 (temporary absence not partner has no implied authority to abandonment). enter an appearance in a suit, ex- ', 42 Sec. 9, subd. 3 (a). cept for the partnership, and his 43 See Coleman v. Darling, supra. appearance will therefore not per- Mech. Part. 15 225 255,256] LAW OF PARTNERSHIP 255. Bills and notes. Authority to execute negotiable instruments is one so capable of easy and costly abuse that it is reluctantly implied in the case of all agents and represen- tatives. Usually there must be express authority, great necessity, or an established usage in that or similar enterprises. In the case of partnerships the implied authority of one partner to bind the firm upon negotiable paper is usually made to depend largely upon the trading or non-trading character of the firm. This is one of the cases in which the ordinary usages of com- mercial firms have become crystalized into a rule of law. There come also into operation the peculiar rules respecting the rights of the bona fide purchaser of negotiable paper. 256. 1. In the case of a trading firm, each partner has implied authority to bind the partnership by making, ac- cepting or indorsing, in its name, and in the course of its busi- ness, a bill or note for partnership purposes; and negotiable paper executed in the firm name by one partner in a trading firm will, prima facie, be presumed to bind the firm. But if the bill or note was not for partnership purposes, but was really in fraud of the firm as if it were given, without the other partners' consent, for the individual debt or purposes of one partner, it would not bind the firm in the hands of the orig- inal payee or of any other person who had notice of this fact, or who did not pay value for it. In the hands of a bona fide holder for value without notice, however, it would be binding upon the partners, and the latter would have recourse against the partner giving it. The original payee of paper given for the individual debt of the partner (who of course practically always has notice of that fact), or any other holder having notice of that fact, can only recover of the firm by showing affirmatively that the other partners previously authorized or subsequently ratified its execution. 46 sonally bind another partner not authority to cause the appearance within the jurisdiction and not of another partner to be entered served with process: Phelps v. in an action against the firm: Hall Brewer (1852), 9 Gush. (Mass.) v. Lanning (1875), 91 U. S. 160. 390, 57 Am. Dec. 56. After disso- 23 L. ed. 271. lution one partner has no implied 46 See Redlon v. Churchill (1882), 226 AUTHORITY OP PARTNERS [257 257. 2. In the case of a non-trading firm, however, one partner has, by the weight of authority, no implied au- thority to bind the partnership by making, accepting or indors- ing negotiable paper, even though, in fact, done in the course of partnership business and for its benefit. In such partnerships the authority to make negotiable paper can only exist by virtue of the consent of the partners, the necessity of the case, or usage in that or similar firms. 47 Paper not so made is there- 73 Me. 146, 40 Am. Eep. 345; Me- chanics' Ins. Co. v. Bichardson (1881), 33 La. Ann. 1308, 39 Am. Eep. 290; Sherwood v. Snow (1877), 46 Iowa 481, 26 Am. Eep. 155; Howze v. Patterson (1875), 53 Ala. 205, 25 Am. Eep. 607; Walsh v. Lennon (1881), 98 111. 27, 38 Am. Eep. 75; Feurt v. Brown (1886), 23 Mo. App. 332; Buettner v. Stein- brecher (1895), 91 Iowa 588, 60 N. W. 177, Burd. Gas. 326; Noyes v. Crandall (1895), 6 S. Dak. 460, 61 N. W. 806, Burd. Gas. 335. Of the trading or commercial sort, in this connection, the following part- nerships have been held to be: stock-brokerage, including buying and selling of stocks, Nemeth v. Tracy (1913), 158 N. Y. App. Div. 497, 144 N. Y. Sup. 901; banking, including buying, selling, discount- ing and re-discounting commercial paper, McNeal v. Gossard (1897), 6 Okla. 363, 50 Pae. 159; First Nat. Bank v. Farson (1919), 226 N. Y. 218, 123 N. E. 490; manufacturing and selling goods, implements, ma- chinery, etc., Winship v. Bank of United States (1831), 5 Peters (30 U. S.) 29, 8 L. ed. 216; Holt v. Simmons (1884), 16 Mo. App. 97; Hoskinson v. Eliot (1869), 62 Pa. 393; Phipps v. Little (1913), 213 Mass. 414, 100 N. E. 615 ; plumbing contracting, involving large pur- chases of plumbing fixtures and fit- tings to be installed in the work contracted for, Marsh v. Wheeler (1904), 77 Conn. 449, 59 Atl. 410, 107 Am. St. E. 40; and of course, those engaged in buying and sell- ing merchandise, lumber, cattle, seeds, etc., Walsh v. Lennon, supra; Smith v. Collins (1874), 115 Mass. 388; Dow v. Moore (1867), 47 N. H. 419; Wagner v. Simmons (1878), 61 Ala. 143; First Nat. Bank v. Webster (1915), 130 Minn. 277, 153 N. W. 736; Cotton Plant Oil Mill Co. v. Buckeye Cotton Oil Co. (1909), 92 Ark. 271, 122 S. W. 658; drug-store, Lindh v. Crowley (1883), 29 Kan. 756; saloon, Phil- lips v. Stanzell (1895), 28 S. W. (Tex.) 900, Meehem's Gas. 944, Burd. Gas. 323. 47 See Pease v. Cole (1885), 53 Conn. 53, 55 Am. Eep. 53, 22 Atl. 681, Mechem's Partn. Gas. 344, Burd. Gas. 314, Gilm. Gas. 372; Phillips v. Stanzell (Tex. 1895), 28 S. W. 900, Mechem's Gas. 944; Burd. Gas. 323; Dowling v. Ex- change Bank (1892), 145 U. S. 512, 12 Sup. Ct. 928, 36 L. ed. 795, Meehem's Gas. 356; Smith v. Sloan (1875), 37 Wis. 285, 19 Am. Eep. 757; Pooley v. Whitmore (1873), 10 Heisk. (Tenn.) 629, 27 Am. Eep. 733, Gilm. Gas. 360; Judge v. Bras- well (1875), 13 Bush (Ky.), 67, 227 257] LAW OP PARTNERSHIP fore unenforceable not only in the hands of the original payee, but also of a bona fide holder for value, because the nature of the business is notice to every one of the limited powers of the partners. A fortiori could neither the original payee nor a 26 Am. Eep. 185; Lee v. First Na- tional Bank (1890), 45 Kan. 8, 25 Pae. 196, 11 L. E. A. 238; Levi v. Latham (1884), 15 Neb. 509, 48 Am. Eep. 361; Friend v. Duryee (1879), 17 Fla. Ill, 35 Am. Eep. 89; Harris v. Baltimore (1890), 73 Md. 22, 20 Atl. Ill, 25 Am. St. Eep. 565, 8 L. E. A. 677. This rule has been applied to partnerships carrying on the real estate, loan and insurance business, on commission, Lee v. First Na- tional Bank, supra; Deardorf v. Thacher (1883), 78 Mo. 128, 47 Am. Eep. 95; Schele v. Wagner (1904), 163 Ind. 20, 71 N. E. 127 (but otherwise it was held where the firm bought and sold land on its own account, Adams v. Long (1904), 114 111. App. 277); milling, Lanier v. McCabe (1848), 2 Fla. 32, 48 Am. Dec. 173; water-works, Broughton v. Manchester Water- works (1819), 3 Barn. & Aid. 1; gas works, Bramah v. Eoberts (1837), 3 Bing. N. Gas. 963; print- ing and publishing, Pooley v. Whit- more, supra; Bays v. Conner (1885), 105 Ind. 415, 5 N. E. 18; planting, Prince v. Crawford (1874), 50 Miss. 344; farming, Greenslade v. Dower (1828), 7 Barn. & Cr. 635; Walker v. Walker (1894), 66 Vt. 285, 29 Atl. Eep. 146; keeping a tavern, Cocke v. Branch Bank (1841), 3 Ala. 175; carrying on a theater, Pease v. Cole, supra; operating a threshing machine, Horn v. City Bank (1884), 32 Kan. 518, 4 Pac. 1022; keeping livery-stable, Levi v. Latham, su- pra; carrying on a laundry, Neale v. Turton (1827), 4 Bing. 149; dig- ging tunnels, Gray v. Ward (1856), 18 111. 32; practicing law, Friend v. Duryee, supra; or medicine, Cros- thwait v. Boss (1839), 1 Humph. (Tenn.) 23, 34 Am. Dec. 613; saw- ing lumber, Dowling v. National Bank (1891), 145 TJ. S. 512, 36 L. ed. 795, 12 Sup. Ct. 928, Meehem's Gas. 356; building, Sniveley v. Matheson (1895), 12 Wash. 88, 40 Pae. 628, 50 Am. St. E. 877; paving, Harris v. Baltimore, supra; well-boring or digging, Vetseh v. Neiss (1896), 66 Minn. 459, 69 N. W. 315, Burd. Gas. 328, Gilm. Gas. 379; operating moving-pictures, Higgins v. Beauchamp [1914], 3 K. B. 1192; buying land and cut- ting and selling lumber therefrom, National State Bank v. Noyes (1882), 62 N. H. 35; mining, Chil- ders v. Neely (1899), 47 W. Va. 70, 34 S. E. 828, 49 L. E. A. 468, 81 Am. St. E. 777, Mechem'sCas. 34; Cong- don v. Olds ,( 1896 )> 18 Mont. 487, 46 Pac. 261, Burd. Gas. 331; con- structing and operating a rural tele- phone system, Schumacher v. Sum- ner Telephone Co. (1913), 161 Iowa 321, 142 N. W. 1034, Ann. Gas. 1916 A 201. Partnership for a single venture only (see ante, 16) would usually be non-trad- ing: Gray v. Ward (1856), 18 111. 32; Bentley v. White (1842), 42 Ky. (3 B. Mon.) 263, 38 Am. Dec. 186. 228 AUTHORITY OF PARTNERS [258,259 ~bona fide holder recover if the paper were given for the in- dividual debt of a partner. To enable any person to recover, therefore, upon negotiable paper given by a partner in a non- trading firm, the plaintiff must be prepared to show either such consent of the other partners, such necessity, or such usage as will take the case out of the general rule. 48 258. Borrowing money. The authority to borrow money rests upon substantially the same considerations as the authority to execute negotiable paper, and is usually exercised with it. In a trading firm the authority impliedly exists for partnership purposes, 49 but not, it is said, in a non-trading firm. 60 In the latter case it can be justified only by prior authorization, custom, necessity, or subsequent ratification. If the borrowing was actually or ostensibly authorized, the firm will be bound though the partner misappropriates the money. 51 So if the borrowing was ostensibly authorized a ~bona fide lender may recover even though the partner borrowing was actually ob- taining the money for himself. 82 259. Buying. The distinction between trading and non-trading firms is material, but not conclusive as to the im- plied authority to buy. In the case of the trading firm, whose business it is, in whole or in part, to buy goo4s for use or sale, the authority of each partner to buy such goods must clearly 48 See Eumsey v. Briggs (1893), (1891), 88 Mich. 549, 50 N. W. 658; 139 N. Y. 323, 34 N. E. 929. Prince v. Crawford (1874), 50 Miss. 49 See Bothwell v. Humphreys 344; Salt Lake Brewing Co. v. (1795), 1 Esp. 406, Ames' Cas. 535, Hawke (1901), 24 Utah 199, 66 Pac. Burd. Cas. 313, Gilm. Cas. 366; 1058. Howze v. Patterson (1875), 53 Ala. 50 See Harris v. Baltimore, supra. 205, 25 Am. Eep. 607; Walsh v. But see Hoskinson v. Eliot '(1869), Lennon (1881), 98 111. 27, 38 Am. 62 Pa. St. 393; Leffler v. Rice Eep. 75; Sherwood v. Snow (1877), (1873), 44 Ind. 103, Gilm. Cas. 368, 46 Iowa 481, 26 Am. Eep. 155; though these were probably both Harris v. Baltimore (1890), 73 Md. trading partnerships. 22, 17 Atl. 1046, 20 Atl. Ill, 985, 25 51 See National State Bank v. Am. St. Eep. 565, 8 L. E. A. 677; Noyes (1882), 62 N. H. 35. Gilchrist v. Brande (1883), 58 Wis. 52 See Hayward v. French (1859), 184, 15 N. W. 817; Coller v. Porter 12 Gray (78 Mass.) 453. 229 260] LAW OP PARTNERSHIP be implied. It must also be implied in the case of a non-trading firm if the purchase is within the scope of the business as actually conducted. 58 The purchase may be on credit, and may be of either real or personal property within the limits stated. If the authority actually or ostensibly exists, the firm is none the less bound because the partner buying subsequently mis- applied the goods. 64 An unauthorized purchase may, of course, be ratified by the other partners. 56 260. Collecting and receiving payment. Every part- ner in a firm, whether trading or non-trading, has, unless there has been an agreement to the contrary, implied authority to 53 See Bond v. Gibson (1808), 1 Camp. 185, Mechem's Gas. 938, Amos' Gas. 537, Burd. Gas. 311, Gilm. Gas. 366; Alley v. Bowen- Merrill Co. (1905), 76 Ark. 4, 88 S. W. 838, 113 Am. St. E. 73, Me- chnm's Partn. Gas. 939; Hoffmaster v. Hodges (1908), 154 Mich. 641, 118 N. W. 484; Lynch v. Thompson (1883), 61 Miss. 354; Stillman v. Harvey (1879), 47 Conn. 27; John- ston v. Trask (1889), 116 N. Y. 136, 22 N. E. 377, 15 Am. St. E. 394, 5 L. E. A. 630; Ketcham Bank v. Hagen (1900), 164 N. Y. 446, 58 N. E. 523; Davis v. Cook (1879), 14 Nev. 265; Kenney v. Altvater (1874), 77 Pa. St. 34. Where sev- eral persons put up a building as partners and one of them buys brick for the purpose without any express understanding that it was an indi- vidual purchase, and the brick are used in the building, the partners are liable for the price: Stecker v. Smith (1881), 46 Mich. 14, 8 N. W. 583, Gilm. Gas. 367. Agreement to buy or take back goods previously sold: Johnston v. Trask, supra.; Other partner not bound to seller who knew purchase to be unauthor- ized: Sutton v. Weber (1904), 127 Iowa 361, 101 N. W. 775; Sladen v. Lance (1909), 151 N. Car. 492, 66 S. E. 449; or where this was appar- ent from the nature of the firm's business, Sargent v. Henderson (1887), 79 Ga. 268, 5 S. E. 122. A partner in a firm engaged in selling goods on commission has no appar- ent authority to buy goods on credit. Alabama Fertilizer Co. v. Eeynolds (1887), 85 Ala. 19, 4 So. 639.* See also Iroquois Eubber Co. v. Griffin (1919), 226 N. Y. 297, 123 N. E. 369. 54 Bond v. Gibson, supra; Kenney v. Altvater, supra; Hoffmaster v. Hodges, supra; nor does the fact that the buying partner had planned to cheat his partner defeat a recov- ery if the seller was innocent : Clark v. Johnson (1879), 90 La. 442. 55 Porter v. Curry (1869), 50 111. 319, 99 Am. Dec. 520, Mechem's Gas. 343, Gilm. Cas. 368; Hoff- master v. Hodges, supra. 230 AUTHORITY OP PARTNERS [ 261 receive payment of debts and other obligations due to the firm, and to give receipts or discharges therefor. 68 In this respect he stands, not as a mere special agent to collect or receive pay- ment, but as a general agent with powers co-extensive with the scope of the business. He may settle an account with a debtor and take a bill or note in payment, 67 though he may not ordinarily take goods unless that is customary, 68 and, of course, he has no implied authority to accept his own outstand- ing note in payment, or offset the firm debt against one of his own, or accept goods for himself in payment of the debt due to the firm. 69 Here, as in other cases of course, if the payment to the part- ner was justified, the fact that such partner afterwards mis- appropriated the money would not affect the creditor if he was not a party to the partner's default. 60 261. Compromising debts. A partner's authority to bind the firm by the compromise of a debt due to it is frequently laid down in general terms, and there can be no doubt that one partner has authority, in the ordinary course of the busi- ness, to adjust, settle or compromise the claims which the part- nership has or makes against third persons. Such an adjust- ment of differences is not only common but frequently necessary. Nevertheless this authority is certainly not without limitation, and must be exercised without fraud or collusion, in good faith and with reasonable prudence. 61 56 Allen v. Farrington (1855), 2 (1905), 123 Ga. 557, 51 S. E. 661, 1 Sneed (Tenn.), 526; Noyes v. New L. B. A. (N. S.) 650; Gregg v. Haven, etc., B. Co. (1861), 30 Conn. James (1825), Breese (111.), 143, . 1; Major v. Hawkes (1850), 12 111. -12 Am. Dec. 151; Warder v. Newdi- 298; Prentice v. Elliott (1883), 72 gate (1851), 11 B. Mon. (Ky.) 174, Ga. 154; Salmon v. Davis (1812), 4 52 Am. Dec. 566; Brickett v. Downs Binn. (Pa.) 375, 5 Am. Dec. 410; (1895), 163 Mass. 70, 39 N. E. 776; Moist 's Appeal (1873), 74 Pa. 166; Farwell v. St. Paul Trust Co. Huffman Farm Co. v. Rush (1896), (1891), 45 Minn. 495, 48 N. W. 326, 173 Pa. 264, 33 Atl. 1013. 22 Am. St. E. 742; Viles v. Bangs 57Heartt v. Walsh (1874), 75 111. (1874), 36 Wis. 131; Cotzhausen v. 200. Judd (1877), 43 Wis. 213. 58 Lee v. Hamilton (1854), 12 60 See Huffman Farm Co. v. Bush, Tex. 413. supra. 59 See Eady v. Newton Coal Co. 61 See Lindley on Partnership, 231 262] LAW OF PARTNERSHIP 262. Confessing judgment. One partner has no im- plied authority to confess judgment or to give a warrant of attorney to confess judgment against the firm upon a debt due by it, though the judgment may often be valid against the con- fessing partner as an individual. 62 The Uniform Partnership Act is to the same effect as respects the implied authority. 63 The reason for the rule as here given is found in the belief that the act of one partner in undertaking to confess a judg- ment against his copartner and thereby cutting the latter off from his opportunity to appear and be heard, is an unusual act, not within the ordinary scope of the business, and there- fore not within the range of a partner's implied authority. In practice the question is often complicated by the fact that the power of attorney given by one partner to confess the judgment was under seal, 64 for the execution of which the partner's au- thority was ,inadequate, as will be seen in the following section. Although the authority is thus not implied, previous assent or subsequent ratification may make the act good. 66 (7th ed.) 161; Pierson v. Hooker (1808), 3 Johns. (N. Y.) 68, 3 Am. Dec. 467; Noyes v. Railroad Co. (1861), 30 Conn. 1; Hawn v. Land Co. (1887), 74 Cal. 418, 16 Pac. 196; Dyer v. Sutherland (1874), 75 111. 583; Webber v. Webber (1906), 146 Mich. 31, 109 N. W. 50; Allen v. Cheever (1881), 61 N. H. 32; Stout v. Ennis Nat. Bank (1887), 69 Tex. 384, 8 S. W. 808. 62 See Hier v. Kaufman (1890), 134 111. 215, 25 N. E. 217; Daven- port-Mills Co. v. Chambers (1896), 146 Ind. 156, 44 N. E. 1109; North v. Mudge (1862), 13 Iowa 496, 81 Am. Dec. 441; Morgan v. Richard- son (1852), 16 Mo. 409, 57 Am. Dec. 235, Mechem's Gas. 361, Gilm. Gas. 370; Soper v. Fry (1877), 37 Mich. 236. In Pennsylvania, see Boyd v. Thompson (1893), 153 Pa. 78, 25 Atl. 769, 34 Am. St. Rep. 685; Adams v. Leeds (1900), 195 Pa. 70, 45 Atl. 666; 62 Un. of Pa. L. Rev. 621. In Virginia, see Alexander v. Alexander (1888), 85 Va. 353, 7 S. E. 335, 1 L. R. A. 125; and in Louis- iana, see Wilmot v. The Ouachita Belle (1880), 32 La. Ann. 607. As to how the question may be raised, see Farwell v. Huston (1894), 151 111. 239, 37 N. E. 864, 42 Am. St. R. 237; Alexander v. Alexander, supra. 63 See. 9. (3)d. "Unless author- ized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to * * * confess a judgment." 64 As to this, see Alexander v. Alexander, supra, 65 See Bivingsville Mfg. Co. v. Bobo (1858), 11 Rich. (S. Car.) L. 386; Overton v. Tozer (1838), 7 Watts (Pa.) 331. 232 AUTHORITY OF PARTNERS [263 263. Deeds, bonds and other instruments under seal. It is the general rule that one partner has no implied authority to bind his copartners by a deed, bond, mortgage or other in- strument in the firm name or in the partners' names under seal ; 66 though the partner executing it may thereby bind him- self in many cases, either upon the instrument itself or upon an implied warranty of authority. 67 There is, in many cases, the very substantial reason that the act involving the execution of the sealed instrument, like selling or mortgaging land, or giving many kinds of bonds, was not within the range of the implied authority of a partner ; but the case is usually put upon the generally well settled though highly technical rule of the common law that authority for the execution of instruments requiring a seal can be conferred only by an instrument under seal, and that ratification of such an act can be effected only in the same manner. It is not enough to satisfy this rule that the articles of partnership were under seal, unless they also in fact gave the authority. 68 Execution in the presence and by the request or with the consent of the other partners is not within the rule requiring authority under seal. 69 To sustain such instruments against the other partners therefore, when executed by a single partner, the previous authorization or subsequent ratification- by the other partners must usually be shown. 70 In accordance with the rule referred to, this authorization or ratifi- 66 See Van Deusen v. Blum Ames' Gas. 485, Burd. Gas. 343, (1836), 18 Pick. (Mass.) 229, 29 Gilm. Cas. 382. Am. Dec. 582 ; Sehmertz v. Shreeve 69 See Merchants Bank v. John- (1869), 62 Pa. 457, 1 Am. Rep. 439; ston (1908), 130 Ga. 661, 61 S. E. McDonald v. Eggleston (1853), 26 543, 14 Ann. Cas. 546, 17 L. B. A. Vt. 154, 60 Am. Dec. 303; Fox v. (N. S.) 969. Norton (1861), 9 Mich. 207, Me- 70 McDonald v. Eggleston (1853), chem's Cas. 362; Kock v. Endriss 26 Vt. 154, 60 Am. Dee. 303, Gilm. (1893), 97 Mich. 444, 56 N. W. 847; Cas. 383; Russell v. Annable (1871), Moore v. Stevens (1883), 60 Miss. 109 Mass. 72, 12 Am. Rep. 665; Hull 809. v. Young (1889), 30 S. C. 121, 8 S. 67 See Van Deusen v. Blum, E. 695, 3 L. R. A. 521. As to the supra; Weeks v. Mascoma Rake Co. necessity of knowledge that a sealed (1877), 58 N. H. 101. instrument was to be ratified, see 68 See Harrison v. Jackson Hull v. Young, supra. (1797), 7 T. R. (Durnf. & E.) 207, 233 264] LAW OF PARTNERSHIP cation must be under seal, and the English and some American cases 71 so "hold. But so far as the requirement of the seal is concerned, there has been a great relaxation in the partnership cases in many of the States, and it is doubtless the weight of modern American authority that this authorization or ratifica- tion may be effected by parol. 72 264. A release of a firm obligation is an exception to this rule forbidding the execution of sealed instruments; and an act unnecessarily done under seal may, if otherwise valid, be sustained in many States by the rejection of the seal as sur- plusage, 73 or recovery may be had on the original consideration, if any, which preceded the giving of the sealed instrument. 74 ( 71 See Gordon v. Funkhouser (1902), 100 Va. 675, 42 S. E. 677. 72Tisehler v. Kurtz (1895), 35 Fla. 323, 17 So. 661; Peine v. Weber (1868), 47 111. 41; Fox v. Norton, supra; Cady v. Shepherd (1831), 11 Pick. (Mass.) 400, 22 Am. Dec. 379; -Golding v. Brennan (1903), 183 Mass. 286, 67 N. E. 239; Sterling v. Bock (1889), 40 Minn. 11, 41 N. W. 236; Smith v. Kerr (1849), 3 N. Y. 144. In Me- Gahan v. Bank of Eondout (1894), 156 U. S. 218, 39 L. ed. 403, 15 Sup. Ct. 347, it is said: "The settled rule in this country is that where a deed is executed on behalf of a firm by one partner the other partner will be bound if there be either a previous parol authority or a subse- quent parol adoption of the act; and that ratification may be inferred from the presence of the other part- ner at the execution and delivery, or from his acting under it or taking the benefits of it with knowledge." 73 See Edwards v. Dillon (1893), 147 111. 14, 35 N. E. 135, 37 Am. St. B. 199, Gilm. Gas. 387; Price v. Alexander (1850), 2 Greene (Iowa) 427, 52 Am. Dec. 526; Cook v. Gray (1882), 133 Mass. 106; Sterling v. Bock, supra; Cowan v. Cunningham (1907), 146 N. Car. 453, 59 S. E. 992; Schneider v. Schmidt (1913), 82 N. J. Eq. 81, 88 Atl. 179; Boyd v. Thompson, supra; Hocking v. Hamilton (1893), 158 Pa. 107, 27 Atl. 836; Skinner v. Dayton (1822), 19 Johns. (N. Y.) 513, 10 Am. Dec. 286. Thus if a partner in selling or transferring property for the firm unnecessarily does so by a sealed instrument, the validity of the transaction is not impaired: Everit v. Strong (1843), 5 Hill (N. Y.) 163, 7 Hill 585; McCullough v. Sommerville (1836), 8 Leigh (Va.) 415; Dubois' Appeal (1861), 38 Pa. 231, 80 Am. Dec. 478. 74.See Purviance v. Sutherland (1853), 2 Ohio St. 478; Walsh v. Lennon (1881), 98 111. 27, 38 Am. Eep. 75. In such cases the instru- ment, while not binding the part- nership, may be evidence that the partner was acting for the firm and creating a firm obligation. The creditor who seeks to recover on the original claim must usually 234 AUTHORITY OF PARTNERS [265,266 Occasional cases have gone further and upheld the execution of such sealed instruments as are usually given in the ordinary execution of the partnership business, without regard to any special authority. 76 The Uniform Partnership Act also adopts this view. 76 265. Hiring or leasing property. One partner has im- plied authority to bind the firm by contracts for the hiring of such property as the usual prosecution of the firm business re- quires. Thus, for example, one partner may bind the firm by a contract for the leasing of premises on which to carry on the business of the firm, 77 or for the hiring of horses necessary for the conduct of the partnership affairs. 78 If the hiring was ap- parently within that partner's authority the other partners would be bound, even though such partner subsequently wrong- fully diverted or misapplied the property hired. 79 ' 266. Insurance. One partner has implied authority to bind the firm by contracts for the insurance of the partner- ship property. 80 In case of loss, his authority extends to making surrender the sealed note, etc., for and accepted by it, though made in cancellation. the name of one partner only: Penn 75 For example, a charter party, v. Kearny (1869), 21 La. Ann. 21; by a partner in a partnership en- Marks v. Ghumos (1910), 82 Kan. gaged in shipping. Straffin v. 562, 109 Pae. 397. Newell (1808), Charl. (Ga.) 163, 4 As a matter of pleading, held that Am. Dec. 705, Burd. Gas. 344. a declaration on a lease made by 76 Sec. 9(1) in " including the exe- one partner in a non-trading firm cution in the partnership name of should state facts which showed that any instrument," etc., makes no dis- he was acting for the partnership tinction as to sealed instruments. and within the scope of its business. See, also, Sec. 10. Alsop v. Central Trust Co. (1897), 77Woolsey v. Henke (1905), 125 100 Ky. 375, 38 S. W. 510, 18 Ky. Wis. 134, 103 N. W. 267; Seaman v. Law E. 830, Burd. Gas. 340. Ascherman (1883), 57 Wis. 547, 15 78 Sweet v. Wood (1893), 18 E. I. N. W. 788 ; Stillman v. Harvey 386, 28 Atl. 335, Mechem 's Gas. 332. (1879), 47 Conn. 26; Smith v. Cis- 79 Sweet v. Wood, supra. son (1867), 1 Colo. 29. As will be 80 Hooper v. Lusby (1814), 4 seen in a later section, the firm may Camp. 66; Peoria Ins. Co. v. Hall be bound upon a lease made for it (1864), 12 Mich. 202. 235 267] proofs of loss 81 and to the settlement of the loss with the in- surance company. 82 He may also bind the firm by consenting to the cancellation or surrender of a policy. 83 267. Mortgages and pledges. The implied authority of one partner, in borrowing money for the partnership, to give the usual form of security, including pledge or mortgage of the personal property of the firm to secure the money borrowed, seems to be co-extensive with the authority to borrow. 8 * In respect of mortgages and pledges to secure partnership indebted- ness, previously contracted, the authorities are not in harmony, but the prevailing rule is that one partner has the implied au- thority to mortgage, certainly part, and usually all, of the prop- erty of the firm kept for sale, 85 to secure the payment of the firm debts. 86 As to that not kept for sale, the authority of a 81 Myers v. Council Bluffs Ins. Co. (1887), 72 Iowa 176, 33 N. W. 453. 82 Brown v. Hartford Ins. Co. (1875), 117 Mass. 479. 83 Hillock v. Traders' Ins. Co. (1884), 54 Mich. 531, 20 N. W. 571. 84 See ante, 258. Since a partner in a non-trading firm has usually no implied author- ity to borrow money, he would have no implied authority to pledge firm property for money borrowed. Harris v. Baltimore (1890), 73 Md. 22, 17 Atl. 1046, 25 Am. St. E. 565, 8 L. R. A. 677, 20 Atl. Ill, 985. 85 Since the ordinary implied authority of the partner is to carry on the business rather than to wind it up or cripple it, a distinction be- tween mortgaging or pledging a part only rather than all, or that kept for sale rather than that whose possession is essential to continue the business, seems in many cases to be an important and natural one. (See the Uniform Partnership Act, Sec. 9, (3) c.) So, in many cases, the distinction is important between ordinary situations when the busi- ness is going on normally, and those wherein an emergency exists which may justify unusual measures. 86 See Tapley v. Butterfield (1840), 1 Mete. (Mass.) 515, 35 Am. Dec. 375, Burd. Gas. 211; Don- ald v. Hewitt (1859), 33 Ala. 534, 73 Am. Dec. 431 ; Eobards v. Water- man (1893), 96 Mich. 233, 55 N. W. 662; Hage v. Campbell (1891), 78 Wis. 572, 47 N. W. 179, 23 Am. St. R. 422, Mechem's Gas. 609; Citi- zens' Nat. Bank v. Johnson (1890), 79 Iowa 290, 44 N. W. 551; Mc- Carthy v. Seisler (1891), 130 Ind. 63, 29 N. E. 407; Phillips v. Furni- ture Co. (1890), 86 Ga. 699, 13 S. E. 19; Horton v. Bloedorn (1893), 37 Neb. 666, 56 N. W. 321; Letts- Fletcher Co. v. McMaster (1891), 83 Iowa 449, 49 N. W. 1035; Union Bank v. Kansas City Bank (1890), 136 U. S. 223, 10 Sup. Ct. 1013, 34 L. ed. 341; Keck v. Fisher (1875), 58 Mo. 532. 236 AUTHORITY OF PARTNERS [268 single partner to mortgage it all would seem to be subject to substantially the same limitations as the authority to assign for the benefit of creditors, 87 i. e., the existence of some exigency and the inability to consult with the others. But one partner has, of course, no implied authority to pledge or mortgage the partnership property to secure his own private debts, and of this the party taking it presumptively has knowl- edge. 88 The latter can only hold, as a rule, where he can work an estoppel against the claims of the other partners. 89 268. With respect of partnership real estate, the case is less simple. If it were land kept or held for sale, 90 as dis- tinguished from basic, essential property or plant, the authority of one partner to use it for the purpose of securing the payment of firm debts would usually be implied; though, because of the technical rules relating to the execution of deeds and similar conveyances by one partner, 91 he could ordinarily pass equitable titles only rather than legal, 92 unless the legal title happened to stand in his name. 93 8V One partner alone, without con- currence of others who were acces- sible, held not to have implied au- thority to practically terminate the business by mortgaging all the tangible property of the firm. Mc- Grath v. Cowen (1898), 57 Ohio 385, 49 N. E. 338 (citing Sloan v. Moore (1860), 37 Pa. 217; Osborne v. Barge (1887), 29 Fed. 725). See, also, Carr v. Hertz (1895), 54 N. J. Eq. 127, 33 AtL 194; Ellis v. Allen (1886), 80 Ala. 515, 2 So. 676; Eock v. Collins (1898), 99 Wis. 630, 75 N. W. 426. 88 See Livingston v. Roosevelt (1809), 4 Johns. (N. Y.) 251, 4 Am. Dec. 273; Stockdale v. Ullery (1860), 37 Pa. 486, 78 Am. Dee. 440; Deeter v. Sellers (1885), 102 Ind. 458, 1 N. E. 854; Oliphant v. Markham (1891), 79 Tex. 543, 15 S. W. 569, 23 Am. St. Eep. 363. Such a mortgage might, however, often be made effective upon the interest of the partner making it, i. e., subject to the settlement of proper partner- ship claims. Patterson v. Atkinson (1897), 20 E. I. 102, 37 AtL 532. 89 Compare Brickett v. Downs (1895), 163 Mass. 70, 39 N. E. 776; Todd v. Lorah (1874), 75 Pa. 155; Locke v. Lewis (1878), 124 Mass. 1, 26 Am. Eep. 631. 90 See Eovelsky v. Brown (1891), 92 Ala. 522, 9 So. 182, 25 Am. St. E. 83, Mechem 's Cas. 832. 91 See ante, 263, 264. 92 See Long v. Slade (1898), 121 Ala. 267, 26 So. 31, which relies upon the theory (see ante, 163) that partnership land is in equity regarded for partnership purposes as personalty. 93 See Chittenden v. German- American Bank (1880), 27 Minn. 143, 6 N. W. 773. 237 269, 270] LAW OF PARTNERSHIP 269. A sole managing partner, 94 or a solvent partner whose partner has become a bankrupt, 95 or a partner left to bear the brunt by one who has absconded, 96 may easily be found to have an enlarged authority; and, as will be seen hereafter, 97 a surviving partner is usually in the situation of a general ad- ministrator of the partnership estate. 270. Notice. Notice to or knowledge of one partner in relation to partnership matters is, in general, notice to or knowledge of the partnership. 98 Although not all of the ques- tions have arisen in partnership cases, the rules applicable in agency would doubtless apply, i. e., that the notice or knowl- edge will be imputed if, and only if, acquired in relation to the partnership business and either during the partnership or, ac- cording to what is probably the weight of authority, before its formation if still remembered, or so soon before its creation that the partner must be presumed to have remembered it. 99 The exceptions to the general rule would also doubtless apply here if there was a duty not to disclose or if the partner were really acting adversely or were colluding with the party claim- ing the benefit of the notice, to defraud the partnership. 1 The Uniform Partnership Act also imputes notice to or knowl- edge of another partner than the one acting where the partner who had it "reasonably could and should have communicated it to the acting partner." 2 94 See O'Neal v. Judsonia Bank vira v. Silvey (1918), Cal. App. (1914), 111 Ark. 589, 164 S. W. , 176 Pac. 371. 295. 99 See Mechem on Agency (2d 95 See Ogden v. Arnot (1883), 29 ed ->, 1802-1842. Hun (N. Y.) 146, Mechem 's Cas. See remarka of Jewel, M. R., in 996, Burd. Cas. 461. Williamson v. Barbour (1877), 9 Ch. 96 See Hamill v. Hamill (1867), D> 529 ' 535 ' 27 Md. 679; Sullivan v. Smith Notice not imputed unless partner (1884), 15 Neb. 476, 19 N. W. 620, 8 act "\ as agent _ f " the ^^ 48 Am T? * Car 3 9Q g ^ K Ba]d 97 See post, 402, 403. ^ y> Leonafd (lg67) ^ ^ 98 See Tucker v. Cole (1882), 54 94 Am Dec 324> Wis. 539; Holton v. McPike (1881), i See Bignold v. Waterhouse 27 Kan. 286; Herbert v. Odlin (1813), 1 Maule & Sel. 255; Ex (1860), 40 N. H. 267; Rowland v. pa rte Heaton (1819), Buck, 386. Davis (1879), 40 Mich. 546; Fere- 2 Sec. 12. "Notice to any part- 238 AUTHORITY OF PARTNERS [271 271. Within the operation of this rule of notice fall a great variety of cases formal or informal notice to one part- ner of adverse or outstanding liens, mortgages or other inter- ests, 3 formal notice to perform or receive performance of con- tracts, 4 notices of dishonor, 6 notices to quit, 6 and the like. Not within the rule would be cases in which the partner was not, at the time, acting for the partnership, as where he wrong- fully appropriates trust funds in his possession to the payment of his agreed contribution to the partnership capital, of which fact the other partners were ignorant, and the like. 7 Clearly also this rule does not apply to ordinary legal process, that must be personally served upon every partner against whom a personal judgment is sought, 8 although less than per- sonal service on each may at times by statute sustain a judg- ment good against firm property, as well as against the part- ners actually served. 9 To this extent the partnership is often regarded as a distinct entity. ner of any matter relating to part- nership affairs, and the knowledge of the partner acting in the particu- lar matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting part- ner, operate as notice to or knowl- edge of the partnership, except in the case of a fraud on the partner- ship committed by or with the con- sent of that partner." 3 See Tucker v. Cole (1882), 54 Wis. 539, 11 N. W. 703; Adams v. Ashman (1902), 203 Pa. 536, 53 Atl. 375; Dresser v. Wood (1895), 15 Kan. 344. 4 See MeFarland v. Crary (1828), 8 Cow. (N. Y.) 253; Eenfro v. Adams (1878), 62 Ala. 302; Nott v. Downing (1834), 6 La. 680, 26 Am. Dec. 491. 5 See Gates v. Beecher (1875), 60 N. Y. 518, 19 Am. Eep. 207, Me- chem's Gas. 1020. 6 Where the firm is the tenant. See Walker v. Sharpe (1869), 103 Mass. 154. 7 See Englar v. Offutt (1889), 70 Md. 78, 16 Atl. 497, 14 Am. St. R. 332, Meehem's Cas. 398; Gilruth v. Decell (1894), 72 Miss. 232, 16 So. 250; Penn v. Folger (1899), 182 111. 76, 55 N. E. 192; Bienenstok v. Ammidown (1898), 155 N. Y. 47, 49 N. E. 321. 8 Pee Wood v. Watkinson (1846), 17 Conn. 500, 44 Am. Dec. 562; Mc- Doel v. Cook (1848), 2 N. Y. 110; Allen v. Chadsey (1849), 1 Ind. 399, 1 Smith 200; Swift v. Green (1858), 20 111. 173; Hall v. Lanning (1875), 91 U. S. 160, 23 L. ed. 271 ; Mitchell v. Greenwald (1870), 43 Miss. 167; Mason v. Eldred (1867), 6 Wall. (TJ. S.) 231, 18 L. ed. 783, Me- ehem's Cas. 433. 9 See Barnes v. Colorado, etc., E. Co. (1908), 42 Colo. 461, 94 Pac. 570; Heaton v. Schaeffer (1912), 34 Okla. 631, 126 Pac. 797, 43 L. E. A. 239 272] LAW OP PARTNERSHIP 272. Paying 1 debts. Unless the contrary has been agreed upon, each partner has implied authority to pay the firm debts out of the firm funds; and he may sell or transfer the firm property in payment of firm debts under the same condi- tions at least that he might pledge or mortgage it for the pur- pose of securing their payment, 10 and many cases state the rule still more positively. 11 He has no implied authority, of course, to pay his private debt with partnership funds, and cannot law- fully transfer partnership property in satisfaction of such a debt, 12 though he might transfer his residuary interest therein for such a purpose. Property or credits actually belonging to the partnership but caused or permitted by the other partners to appear to belong to one partner only, would be subject to a different rule for the protection of a bona fide transferee. 13 As will be seen hereafter, 14 each partner for his .own protec- (N. S.) 540; Goldstein v. Fox (1912), 22 N. Dak. 636, 135 N. W. 180, 40 L. R. "A. (N. S.) 566; Brumwell v. Stebbins (1891), 83 Iowa 425, 49 N. W. 1020; Rickman v. Rickman (1914), 180 Mich. 224, 252, 146 N. W. 609, Ann. Gas. 1915 C 1237; Richard v. Allen (1887), 117 Pa. 199, 11 Atl. 552, 2 Am. St. R. 652; First Nat. Bank v. Greig (1901), 43 Fla. 412, 31 So. 239. 10 See "Oilman v. Myrick (1890), 93 Ala. 532, 8 So. 410; Hanchett v. Gardner (1891), 138 111. 571, 28 N. E. 788; Russell v. Leland (1866), 12 Allen (Mass.) 349; Waite v. Vin- son (1894), 14 Mont. 405, 36 Pac. 828; Mabbett v. White (1855), 12 N. Y. 442; Graser v. Stellwagen (1862), 25 N. Y. 315. 11 Thus in Graser v. Stellwagen, supra, it is said to be settled in New York that a single partner has the power, in the absence of fraud, notwithstanding thd dissent of his copartner, to transfer all the prop- erty of the partnership in payment of one or more debts of such part- nership. In Mabbett v. White, supra, it is held that the fact that the firm is insolvent, and that a preference is given to one creditor, does not alter the rule. 12 See Cannon v. Lindsey (1887), 85 Ala. 198, 3 So. 676, 7 Am. St. R. 38; Janney v. Springer (1889), 78 Iowa 617, 43 N. W. 461, 16 Am. St. R. 460, Gilm. Cas. 243; Brickett v. Downs (1895), 163 Mass. 70, 39 N. E. 776; Todd v. Lorah (1874), 75 Pa. 155; Hartley v. White (1880), 94 Pa. 31, Gilm. Cas. 245; Rogers v. Betterton (1894), 93 Tenn. 630, 27 S. W. 1017. But see Warren v. Martin (1888), 24 Neb. 273, 38 N. W. 849. 13 See Locke v. Lewis (1878), 124 Mass. 1, 26 Am. Rep. 631; Reid v. Hollinshead (1825), 4 B. & Cr. 867, 7 Dow. & Ry. 444. Money and ne- gotiable instruments are governed by special rules. 14 See post, Ch. XIX. 240 AUTHORITY OP PARTNERS [273 tion has ordinarily a right, commonly spoken of as a lien, which enables him to secure the application of the partnership assets to the payment of the partnership debts, and of this right he can- not be deprived without his own consent. His authority, al- ready stated, to himself apply the partnership property to the satisfaction of the partnership debts, is in the nature of a power coupled with an interest or a power given by way of security, and cannot be absolutely revoked by his copartner, 15 even though it should be conceded that there might be effective dissent as to its exercise in a particular case. 273. While he is not obliged to do so, one partner may advance his own money to pay a partnership debt (the claims of his individual creditors not being involved), and be allowed the amount in a partnership accounting. Firm funds paid generally by a partner to a firm creditor to whom such partner is also individually indebted, must be applied by the creditor upon the partnership debt and not upon the individual one unless the other partners consent, 16 and even with such consent such an application might often be impeached by firm creditors. 17 The application of individual funds to part- nership claims 18 may involve corresponding difficulties, 19 15 See Mabbett v. White, supra; the partner who seeks to pay them Graser v. Stellwagen, supra; Blod- may otherwise be held personally gett v. American National Bank liable, and which he desires to pay (1881), 49 Conn. 9, 24. with property partly belonging to It is true that the contrary is as- him and contributed to the partner- serted in Hanchett v. Gardner, ship for that very purpose. supra, but it is believed that the 16 See Cornells v. Stanhope rule, so broadly stated, is unsound, (1883), 14 R. I. 97; Flarsheim v. and it is not sustained by the cases Brestrup (1890), 43 Minn. 298, 45 there cited in its support. In Hal- N. W. 438; Farris v. Morrison stead v. Shepard (1853), 23 Ala. (1899), 66 Ark. 318, 50 S. W. 693; 558, cited by the court, the debt to Nichols v. Thomas (1915), 51 Okla. be paid was not a firm debt but the 212, 151 Pac. 847, L. E. A. 1916 B private debt of one partner. There 908 (transferee charged with is a marked distinction between re- notice), voking authority of a partner for 17 See post, 444. new purchases, borrowings, and the 18 See Miles v. Ogden (188?.) 54 like, and revoking authority to pay Wis. 573, 12 N. W. 81 debts already incurred, for which 19 See post, 445. Mech. Part. 16 241 274] LAW OP PARTNERSHIP 274. Sales. Each partner has ordinarily implied au- thority, resulting from the very nature of the case, to sell, assign or dispose of, in the regular course of business, so much of the partnership personalty as is kept for sale. This is most strongly exemplified, of course, in the case of the trading partnership whose regular business it is to buy and sell ; but it would also be true pro tanto in other partnerships which had property held or kept for sale. There seems to be no limit upon the amount of such property which he may thus sell, even though it be the whole property of the firm, and he may pass the entire title to it. 20 He may also sell or transfer, in the course of the business, choses in action and other intangible property of the firm, such as its accounts and bills receivable, patent-rights, and the like. 21 And upon the sale he may give such warranties of title or quality, or may make such incidental contracts in relation thereto, as are usually made in like cases. The implied authority of one partner, arising merely from the fact of the partnership, to sell the entire property of the firm is, by the weight of authority, limited to that kept for sale, and does not include the authority to sell that kept for the purposes of carrying on the business, and the sale of which would defeat or prevent the further prosecution of the busi- ness. 22 The necessity of paying debts or some exigency requiring 20 See Ellis v. Allen (1886), 80 598, 69 N. J. L. 452, 55 Atl. 1133; Ala. 512, 2 So. 676 (what was said Clarke v. Hogeman (1878), 13 W. in this case about one partner's dis- Va. 718; First Nat. Bank v. Free- sent was pure dictum} ; Crites v. man (1882), 47 Mich. 408, 11 N. W. Wilkinson (1884), 65 Gal. 559, 4 219; Mills v. Barber (1810), 4 Day Pac. 567; Mabbett v. White (1855), (Conn.) 428. 12 N. Y. 442, Burd. Gas. 212; Graser 22 See Lowman v. Sheets (1890), v. Stillwagen (1862), 25 N. Y. 315; 124 Ind. 417, 24 N. E. 351, 7 L. E. Schneider v. Sansom (1884), 62 Tex. A. 784, Mechem's Gas. 367; Sloan 201; Boswell v. Green (1856), 25 N. v. Moore (1860), 37 Pa. 217, Gilm. J. L. 390; Clark v. Eives (1863), 33 Cas. 231; Carrie v. Cloverdale Co. Mo. 579. (1891), 90 Cal. 84, 27 Pac. 58; Cay- 21 See Gerli v. Poidebard Silk ton v. Hardy (1858), 27 Mo. 536; Mfg. Co. (1894), 57 N. J. L. 432, Blaker v. Sands (1883), 29 Kan. 31 Atl. 401, 51 Am. St. B. 611, 30 551; McGrath v. Cowen (1878), 57 L. E. A. 61 ; Sullivan v. Visconti Ohio 385, 49 N. E. 338 ; Eutherf ord (1902), 68 N. J. L. 543, 53 Atl. v. McDonnell (1899), 66 Ark. 448, 242 AUTHORITY OF PARTNERS [274 action when the other partners cannot be consulted may extend the authority even to the latter class of property. The authority to sell is, of course, limited to sales apparently on the partnership account only and not for the benefit of the selling partner alone ; 23 though where the other partners cause or permit the selling partner to appear as the individual owner bona fide purchasers from him are usually protected. 24 51 S. W. 1060; Drake v. Thyng (1881), 37 Ark. 228. See elaborate Note in L. E. A. 1918 A 927. Under the code in Oklahoma, a single partner has no implied au- thority ''to dispose of the whole of the partnership property at once, unless it consists entirely of mer- chandise, " or * ' to do any act which would make it impossible to carry on the ordinary business of the partner- ship. " This would make invalid a sale by a single partner of the toofe, building, business, etc., as well as the stock. Phillips v. Thorp (19,03), 12 Okla. 617, 73 Pac. 268. CaL, Mont., N. Dak. and S. Dak. have similar statutes. 23 As has several times already been pointed out, one partner has ordinarily no implied authority to sell, assign, mortgage or transfer the partnership property in payment or security of his own private debt. That it is his own private debt, the creditor, of course, can usually not fail to know. If he knew that the property which was transferred to him in payment or security really belonged to the partnership, and that the other partners had not au- thorized the transfer, he, of course, would have ordinarily no pretense of right to hold it; but even if he did not know it, and took it in good faith, he nevertheless could ordinar- ily not hold it (money and negoti- able instruments not now being con- sidered), since usually no one can convey a better title to chattels than he himself has, even though he con- veys to a bona fide purchaser for value. The latter, to be protected, must usually be able to show fur- ther that he was misled into taking the property by relying upon some conduct of the true owner which fairly justified him in believing that the transfer was authorized. See Cannon v. Lindsey (1887), 85 Ala. 198, 3 So. 676, 7 Am. St. E. 38; Farris v. Morrison (1899), 66 Ark. 318, 50 S. W. 693; Janney v. Springer (1889), 78 Iowa 617, 43 N. W. 461, 16 Am. St. E. 460; Brickettv. Downs (1895), 163 Mass. 70, 39 N. E. 776; Todd v. Lorah (1874), 75 Pa. 155; Eogers v. Bet- terton (1894), 93 Tenn. 630, 27 S. W. 1017; Nichols v. Thomas (1 91 5), 51 Okla. 212, 151 Pac. 847, L. E. A. 1916 B 908; Warren v. Martin (1888), 24 Neb. 273, 38 N. W. 849 carries the protection of the trans- feree very far. What the remedy is, where the partnership property is thus wrong- fully disposed of, is discussed in a later section. See 331. 24 See Locke v. Lewis (1878), 124 Mass. 1, 26 Am. Eep. 631; Eeid v. Hollinshead (1825), 4 B. & Cress. 867, 7 Dow. & By. 444; Willey v. Bank (1904), 141 Cal. 508, 75 Pac. 106. 243 275,276] LAW OP PARTNERSHIP 275. With respect of the partnership real estate, other rules apply in many cases. Not only may the land not be held for sale, but the technical difficulties, already noted, 25 respect- ing the execution of deeds by one partner, may prevent a com- pleted transfer. If the partnership, on the other hand, is one organized to deal in land, it would be ordinarily within the implied authority of each partner to make contracts at least for the sale of such land, which equity would enforce against the partnership, 26 even if he would not be deemed authorized to make the complete conveyance. Under the Uniform Partnership Act, where title to real prop- erty is in the partnership name any partner may convey title to such property by a conveyance executed in the partnership name, wherever the conveyance is within the actual or ostensible authority of the partner; while a conveyance of it in his own name, under the same circumstances, passes the equitable title to the land. 27 276. Suits at law. Many cases arise in the ordinary conduct of the business, as for example in the collection of debts due to the partnership or in defending actions brought against it, in which the authority of any partner to institute, conduct or authorize legal actions involving the partnership affairs would be undoubted. Without such an authority a part- ner at times might be unable either to enforce his own rights or make his own defence. "A partner may sue in the name of himself and copartners without their consent," says Mr. Justice Lindley, 28 ''but if he sues against their consent he must indemnify them against the costs. So one partner may defend 25 See ante 263, 264. In Kuhn v. Weil, supra, the court, 26 See Rovelsky v. Brown (1891), after stating the general rule as to 92 Ala. 522, 9 So. 182, 25 Am. St. the authority of each partner as R. 83, Mechem's Gas. 832, Gilm. Gas. agent for the partnership, said "Un- 239. der this general authority the right 27 Sec. 10 (1), (2). See this sec- of one partner in a mercantile firm, tion in full in the Appendix. without consulting his copartners, to 28 1 Lindley on Partnership (Ew- sue in the name of all the copartners ell's 2d Am. ed.), 271, (7th ed.) for a debt due the firm, either in 307. See, also Kuhn v. Weil an ordinary action or one in attach- (1880), 73 Mo. 213; Ward v. Bar- ment, cannot be questioned." ber, 1 E. D. Smith (N. Y.), 423. 244 AUTHORITY OP PARTNERS [ 277 an action brought against the firm, indemnifying the firm against the consequences of so doing if he acts against the will of the other partners. ' ' If the firm as such is sued, as it may be under some statutes, 29 one partner may employ an attorney who may enter the appearance of the firm as such, though one partner has ordinarily no implied authority to appear for, or authorize the appearance of the other partners as individuals so as to subject them to personal judgment where they were not served with process and did not personally appear. 30 For trespasses and other similar acts committed by one part- ner in attempting to enforce partnership demands by legal process, the firm will ordinarily be liable. 31 Even for the ma- licious acts of one partner, the others may be liable if they co-operate in them or subsequently ratify them ; and while .it has been held that one partner is not liable for a malicious prosecution carried on by his partner if he did not know of it or consent to it, and no benefit resulted to the firm, 32 there seems to be no good reason why a partner should not be liable for a malicious prosecution by his copartner in any case in which any other principal would be liable for the act of his general agent. 33 277. Suretyship and guaranty. The business of the partnership, presumptively, is to be carried on, its powers ex- 29 See post, 337. 32 Rosenkrans v. Barker (1885), 30 See Phelps v. B^wer (1852), 115 111. 331, 3 N. E. 93, 56 Am. 9 Cush. (63 Mass.) 390, 57 Am. Rep. 169, Meehem's Gas. 405. See Dec. 56; Haslet v. Street (1823), also accord, Bernheimer v. Becker 2 McCord (S. C.), 310, 13 Am. Dec. ( 1905 )> 102 Md. 250, 62 Atl. 526, 724, and note; Hall v. Lanning 1U Am " St - E ' 356 > 3 L ' E - A ' < N ' (1875), 91 U. S. 160, 23 L. ed. 271; S '> 22l > Kirk v " Garrett < 1896 >> 84 is or*- i /io-i^ -.T -IT* Md - 383 > 35 Atl - 1089 J Marks v. Bennett v. Stickney (1845), 17 Vt. TT ,. ,, ono . Hastings (1892), 101 Ala. 165, 13 5dl- So. 297. Compare Tomlinson v. Broadsmith Compare MarMey y> gnQW (M04) ? [1896] 1 Q. B. 386 as to the author- 20? Pa 44?j 56 AtL 9Q9j 64 L> R A ity of a managing partner. ggg^ 31 See Harvey v. Adams (1875), 8 3 See Mcllroy v. Adams (1877), 32 Mich. 472; Rolfe v. Dudley 32 Ark. 315; Haney Mfg. Co. v. (1885), 58 Mich. 208, 24 N. W. 657; Perkins (1889), 78 Mich. 1, 43 N. Kuhn v. Weil, supra. W. 1073. 245 277] ercised, its credit extended for the benefit of the partnership and not merely for the benefit or accommodation of third per- sons or of a single partner. One partner therefore may bind the firm upon a contract of suretyship, indemnity or guaranty for the partnership purposes and within the scope of its busi- ness ; 34 but he has no implied authority to bind the firm by contracts of guaranty, indemnity or suretyship either for him- self individually or for strangers to the firm. 38 The mere fact that the firm would derive an incidental or collateral benefit from the act, is not enough to change the rule ; 36 though there un- doubtedly may be cases in which the benefit would be so sub- stantial, direct and immediate as to justify treating it as a 34 Thus a partner in a firm of live stock dealers may agree that the firm will protect a bank which dis- counts their buying agent's drafts to pay for cattle purchased. First National Bank v. Rowley (1894), 92 Iowa 530, 61 N. W. 195; a partner in a firm of cattle dealers which has a large quantity of cattle which it is anxious to dispose of in some way, may bind his firm by agreeing that if a farmer will take them the firm will either buy them back later or guarantee him a profit, Jordan v. Miller (1881), 75 Va. 442; a part- ner in a mercantile firm may bind his firm by agreeing to indemnify a third person who accepts for the ac- commodation of the firm drafts by the firm upon such person, Wilkins v. Pearce (1848), 5 Denio (N. Y.) 541; a partner in a commercial firm may bind the firm by guaranteeing paper held by the firm upon a sale or discount thereof for firm pur- poses, McNeal v. Gossard (1897), 6 Okla. 363, 50 Pac. 159; a partner is a firm of bond and security dealers may bind the firm by guaranteeing payment by the maker of bonds sold by the firm: First Nat. Bank v. Farson (1919), 226 N. Y. 218, 123 N. E. 490. 35 See Clarke v. Wallace (1891), 1 N. D. 404, 48 N. W. 339, 26 Am. St. Eep. 636, Mechem's Cas. 368; Andrews v. Planters' Bank (1846), 7 Smedes & Mar. (Miss.) 192, 45 Am. Dec. 300; Persons v. Oldfield (1912), 101 Miss. 110, 57 So. 417; New York, etc., Ins. Co. v. Bennett (1825), 5 Conn. 574, 13 Am. Dec. 109, and note; Avery v. RowelL (1883), 59 Wis. 82, 17 N. W. 875; Seeberger v. Wyman (1899), 108 Iowa 527, 79 N. W. 290 (one of a firm of lawyers undertaking to in- demnify a surety upon a bond given in a suit) ; Osborne v. Thompson (1886), 35 Minn. 229, 28 N. W. 260; First National Bank v. Carpen- ter (1875), 41 Iowa 518. Long acquiescence may preclude raising the objection, Bank of Mo- nongahela v. Weston (1899), 159 N. Y. 201, 54 N. E. 40, 45 L. E. A. 547. 36 See Clarke v. Wallace, supra, (where in order to secure a firm debt of $1,300 the partner endorsed, in the firm name, the debtor's note for $5,000); Moore v. Stevens (1883), 60 Miss. 809. 246 AUTHORITY OP PARTNERS [ 278 partnership act. Beyond that, there must be actual authority, a course of dealing, or subsequent ratification, to hold the other partners liable. Where, the indorsement of the firm name appears as such upon what is clearly the individual note of the partner, it is warning of itself that the firm name was used for his accommo- dation, and the firm cannot be held unless it authorized it ; 87 but where the instrument does not fairly disclose that it is the individual obligation of one partner, as where the note of the partner is made to the firm and indorsed in its name by that partner, though for his own benefit, a holder for value igno- rant of the fraud may recover. 38 278. Of the authority of a managing partner. It is en- tirely competent, and not at all uncommon, especially where the number of partners is large or other reasons of convenience or interest suggest it, for all of the partners to agree that one of them only shall undertake or be charged with the management and conduct of the business to- the relief or exclusion of the others. (They might equally appoint a non-partner as a gen- eral managing agent, and with much the same purpose and result. ) This agreement may be and often is express and formal, being frequently a term in the partnership articles; 39 it may 37 See Tanner v. Hall (1845), 1 48 Pa. 514, 88 Am. Dec. 475; Kollins Pa. St. 417; Brown v. Pettit (1896), v. Stevens (1850), 31 Me. 454, Oilm. 178 Pa. 17, 35 Atl. 865; Smith v. Gas. 370. Compare Eeed v. Bacon Weston (1899), 159 N. Y. 194, 54 (1900), 175 Mass. 407, 56 N. E. 716. N. B. 38, 34 L. E. A. 723, 56 Am. 39 As, e. g., in Kennedy v. Porter St. E. 742. (1888), 109 N. Y. 526, 17 N. E. One who sees that he is getting a 426; Patterson v. Lily (1884), 90 firm acceptance as an accommoda- N. Car. 82; Brooks v. Martin tion to a third person, must be able (1863), 69 U. S. (2 Wall.) 70, 17 to prove that all the partners assent L. ed. 732; Kimbefly v. Arms to it, Bloom v. Helm (1876), 53 (18S8), 129 U. S. 512, 9 Sup. Ct. Miss. 21. 355, 32 L. ed. 764; Callahan v. 38 See Eedlon v. Churchill (1882), Heinz (1898), 20 Ind. App. 359, 49 73 Me. 146, 40 Am. Eep. 345; Sher- N. E. 1073; Winship v. Bank of U. wood v. Snow (1877), 46 Iowa 481, S. (1831), 30 U. S. (5 Pet.) 529, 26 Am. Eep. 155; Atlas Nat. Bank 8 L. ed. 216; Tate v. Clements v. Savery (1879), 127 Mass. 75; (1878), 16 Fla. 339, 2G Am. Eep. Miller v. Consolidated Bank (1865), 709; Baxter v. Eollins (1894), 90 247 279] LAW OF PARTNERSHIP also be informal and tacit, as where the others permit or en- courage one partner more and more to assume the management to the degree of becoming in fact the managing partner. 40 "Where the arrangement is express and third persons have notice of it, the authority of such a manager may be as general or as restricted as the parties see fit to make it ; but secret limitations, while operative between the partners, can not affect the right of third persons to rely upon the ostensible arrangements and the usages in similar cases. 41 279. A general managing partner becomes, therefore, practically the possessor and exerciser of all the powers which any partner might otherwise have properly exercised in the conduct of the business. 42 His authority is coextensive with, but limited by, the nature and character of the business. If it is a non-trading partnership, that fact affects the range of the managing partner's authority. In such a partnership, he would therefore have ordinarily no implied authority to borrow money 43 or bind the partnership by negotiable instruments. 44 Iowa 217, 57 N. W. 838, 48 Am. St. B. 432; by mutual consent: Fordyce v. Shriver (1886), 115 111. 530, 5 N. E. 87. 40 As, e. g., in Salt Lake Brewing Co. v. Hawke (1901), 24 Utah 199, 66 Pac. 1058; Fulmer's Appeal (1879), 90 Pa. 143. 41 See Winship v. Bank of U. S., supra; Tate v. Clements, supra. 42 See Anderson v. Clayton (1911), 39 Utah 343, 117 Pac. 41 (contract by managing partner in real estate business to sell partner- ship land) ; Salt Lake Brewing Co. v. Hawke, supra, (borrowing money by partner in trading firm) ; Morse v. Richmond (1881), 97 111. 303, (giving note for money to pay for land bought in land-dealing firm) ; Waltham Piano Co. v. Pierson (1920), Neb. , 176 N. W. 364 (purchasing goods). 43 Managing partner in a trading partnership may borrow money on the credit of the partnership: Lindh v. Crowley (1883), 29 Kan. 756 (drug store) ; Salt Lake Brewing Co. v. Hawke, supra, (saloon-keep- ers); but not in a non-trading one: Davis v. Eichardson (1871), 45 Miss. 499, 7 Am. Eep. 732; Prince v. Crawford (1874), 50 Miss. 344 (planting or farming). 44 Managing partner in trading firm may bind the partnership by promissory note: First Nat. Bank v. Grignon (1901), 7 Idaho 646, 65 Pac. 365; Citizens Commercial Bank v. Platt (1903), 135 Mich. 267, 97 N. W. 694 (renewing notes), but not in a non-trading one: Davis v. Eich- ardson, supra; Prince v. Crawford, supra. 248 AUTHORITY OP PARTNERS [ 280 He may collect and pay debts, make and perform all proper partnership contracts, and the like ; but he would have no more authority than any other partner to apply partnership property or credits to his own uses, and his authority to assign all the property for the benefit of creditors would be limited like that of any other partner. 46 Express or tacit consent, or subsequent ratification^ may, of course, extend the range of the managing partner's authority, 46 even beyond the scope originally fixed for the partnership. 280. Same subject Several managers Directors. Instead of confiding the management of the partnership affairs to a single partner, as discussed in the preceding section, it may be confided to two or more. In the case of large partnerships, especially those, like joint stock companies, with transferable shares, the articles frequently provide for management by a board of managers or directors elected by the other partners, very much as in the case of a corporation. These boards of directors or managers are also not infre- quently provided with regular officers, such as president, sec- retary, and the like. They then assume much more closely the external appearance of corporations; but there is nothing in these provisions inconsistent with the law of partnership, and in some States such partnerships are not uncommon. 47 The form of organization of these partnerships is ordinarily not such 45 May assign, if, and only if, it is 47 See People v. Coleman (1892), necessary and other partners are 133 N. Y. 279, 31 N. E. 96, 16 L. E. absent where they can not be con- A. 183; Willis v. Chapman (1896), suited: Williams v. Gillespie (1888), 68 Vt. 459, 35 Atl. 459; Great 30 W. Va, 586, 5 S. E. 210; Claflin Southern Hotel Co. v. Jones (1899), v. Evans (1896), 55 Ohio 183, 45 N. 177 U. S. 449, 20 Sup. Ct. 690, 44 L. E. 3, 60 Am. St. E. 686; Callahan v. ed. 482; Warner v. Beers (1840), 23 Heinz (1898), 20 Ind. App. 359, 49 Wend. (N. Y.) 103; Spotswood v. N. E. 1073; Forbes v. Scannell Morris (1906), 12 Idaho 360, 85 (1859), 13 Cal. 242. Pac. 1094, 6 L. E. A. (N. S.) 665; 46 As to ratification of unauthor- Pettis v. Atkins (1871), 60 111. 454; ized act by taking benefits, see John- Moore v. May (1903), 117 Wis. 192, ston v. Bernheim (1882), 86 N. Car. 94 N. W. 45. 339. 249 281, 282] LAW OP PARTNERSHIP as to mislead persons dealing with them into the belief that the individual shareholders are authorized to act as agents for all. 281. Of the powers of a majority. The extent to which a majority of the partners may control the partnership affairs is perhaps not entirely settled by the authorities. It is clear, how- ever, that no majority however large can, against the dissent of the minority, change the essential nature or extent of the partner- ship business as originally agreed upon, as, for example, to alter or amend the articles, reduce or increase the capital, embark upon a new business, change its agreed location, alter the share of a partner, admit a new member, and the like. If they attempt to do so, the dissenting partners will not be bound. 48 Neither can any majority deprive the minority of any rights given by the partnership agreement, or inherent in the nature of the partnership. 282. But as to matters pertaining merely to the manner of conducting the business, and all questions concern- ing what are sometimes called the internal affairs of the part- nership, it is equally clear that, if the articles do not determine them, the partners themselves must decide, and here in accord- ance with a well settled principle applicable to such cases to which, by implication, all have agreed, the majority will pre- vail. While one of two partners cannot, therefore, prevail against the expressed dissent of his partner, inasmuch as each has an equal voice, 49 it is held that a majority, where there are more than two, can prevail as to these incidental matters, even against the dissent of the minority, if they act fairly and in good faith. 60 A majority, however, will not, simply because it 48 See Natusch v. Irving (1824), fairly and in pursuance of the con- 2 Coop. temp. Cot. 358; Const v. tract. Blisset v. Daniel (1853), 10 Harris (1824), Turn. & R. 517; Ab- Hare 493, 19 Eng. Bui. Gas. 517. bott v. Johnson (1855), 32 N. H. 9; 49 See ante, 242. Zabriskie v. Railroad Co. (1867), 18 60 See Johnston v. Button (1855), N. J. Eq. 178, 90 Am. Dec. 617. 27 Ala, 245, Mechem >s Gas. 371, Majority cannot expel a member Gilm. Gas. 391; Cotton Plant Oil unless by virtue of some provision in Co. v. Buckeye Oil Co. (1909), 92 the articles, and then only if it acts Ark. 271, 122 S. W. 658; Staples v. 250 [283 is a majority, be permitted to oppress the minority or despoil them of their rights. 51 The Uniform Partnership Act provides that "any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners." 62 Serious violation of the rule may doubtless be prevented by injunction, 63 and pertinacious disregard of it, at least, would doubtless be good ground for a dissolution. 54 283. Ratification of unauthorized acts. The acts of one partner which may bind the partnership may be not only those which have been previously and expressly authorized, or which are implied from the existence of the relation, and the like, but may also be those which, though unauthorized when done, have subsequently been ratified by the other partners, either expressly or by implication. Liability may thus be imposed either in con- tract or in tort. 55 The occasions and conditions of ratification Sprague (1883), 75 Me. 458; Pea- 52 Sec. 18(h). cocks v. Cummings (1863), 46 Pa. 434, Burd. Gas. 353; Clarke v. Bail- road Co. (1890), 136 Pa. St. 408, 20 Atl. 562, 10 L. E. A. 238; Markle v. Wilbur (1901), 200 Pa. 457, 50 Atl. 204; Beirden v. Stephenson (1913), 87 Vt. 430, 89 Atl. 465, Ann. Gas. 1916 C 109; Eeiser v. Johnston (1917), Okla. , 166 Pac. 723, L. E. A. 1918 A 924. 51 See Chicago Hansom Cab Co. v. Yerkes (1892), 141 111. 320, 30 N. E. 667, 33 Am. St. E. 315; Farmers' L. & T. Co. v. New York, etc., E. Co. (1896), 150 N. Y. 410, 44 N. E. 1043, 55 Am. St. E, 689, 34 L. R. A. 76 (corporation cases, but the prin- ciple is the same). As to the proper attitude of the majority, see Wall v. London Assexs Corp. [1898], 2 Ch. 469. 53 See ante, 226. 64 See post, 377. 55 See Porter v. Curry (1869), 50 111. 319, 99 A. Dec. 520, Mechem's Cas. 343; Maclean v. Dunn (1828), 4 Bing. 722; Holbrook v. Chamber- lin (1874), 116 Mass. 155, 17 Am. Eep. 146; Davis v. Bichardson (1871), 45 Miss. 499, 7 Am. Eep. 732; Enterprise Oil & Gas. Co. v. Transit Co. (1896), 172 Pa. 421, 33 Atl. 687, 51 Am. St. E. 746; Eock v. Collins (1898), 99 Wis. 630, 75 N. W. 426, 67 Am. St. B. 885; Clark v. Hyman (1880), 55 Iowa 14, 7 N. W. 386, 39 Am. Eep. 160; Mc- Gahan v. Eondout Bank (1894), 156 IT. S. 218, 15 Sup. Ct. 347, 39 L. ed. 403; Hull v. Young (1888), 30 S. Car. 121, 8 S. E. 695, 3 L. E. A. 521 (ratification of execution of note 251 283] LAW OP PARTNERSHIP in these cases are the same as in any other case of agency the firm or the other partners being principal, and the partner atcting being agent, and as the reader is assumed to be famil- iar with this subject from his previous study of agency, no extended discussion of it will be attempted here. 56 It is worth while, however, to recall that in order that there may be ratification the act in question must have been done by the partner as agent for the partnership ; that the partners al- leged to have ratified must have had full knowledge of all of the material facts concerning the act to be ratified; and that where ratification is sought to be predicated upon the receipt or acceptance of the alleged benefits of the act, such acceptance must have taken place under circumstances fairly manifesting a consenting and approving mind. The mere fact that benefits may have resulted to the partnership is not, occasional state- ments to the contrary notwithstanding, of itself enough to estab- lish ratification, 57 however much it might at times justify a re- covery in quasi contract. As in other cases, a subsequent ratification could not cut off intervening rights. 58 under seal); Hurt v. Clarke (1876), 56 Ala. 19, 28 Am. Kep. 751; Levi v. Latham (1884:), 15 Neb. 509, 19 N. W. 460, 48 Am. Rep. 361 ; Fillans v. Greenfield (1917), 39 S. Dak. 226, 164 N. W. 63. 56 See 1 Mechem on Agency, 376 et seq. 57 See Dawson v. Elrod (1899), 105 Ky. 624, 49 S. W. 465, 20 Ky. Law E, 1436, 88 Am. St. B. 320, Mechem 's Gas. 380. 68 See Coleman v.. Darling (1886), 66 Wis. 155, 28 N. W. 367, 57 Am. Eep. 253. 252 CHAPTER XI. WHO ABE BOUND BY THE ACTS OF A PARTNEE. 284. In general. I. IN CONTRACT. 285,286. All partners bound by authorized contracts. 287. Dormant, secret and nominal partners bound also. 288. Liability of the firm upon contracts made by one part- ner in his own name. 289,290. Known partner- ship Simple contracts in name of one partner. 291. Note of one partner. 292. Unknown partnership. '293. Contracts under seal. 294. Judgment against one partner. 295. Contracts made in individual names of all the partners. 296. Contracts where firm does business in name of one partner. i 297. Particular contract made by firm in name of one part- ner. 298. Contracts where there are two firms of same name with common partner. 299. Contracts where same per- sons constitute different firms with different names. 300. Liability of partner who ex- ceeds his authority. II. IN TORT. 301. Firm liable for torts of one partner committed in course of business. 302. Liability of firm for partner's malicious or criminal act. 303. Uniform Partnership Act. 304,305. Liability of firm for partner's breach of trust. 284. In general. The question, who are bound by the acts of a partner, presents several different aspects. It is the ques- tion of the rights and remedies of third persons based upon the act of one or more partners. It may arise under varying cir- cumstances, as, for example, where one partner has assumed to bind the firm, but it is claimed that his act was unauthorized; where he apparently acts for himself alone, but it is claimed that the firm was the real party; where certain persons were ostensibly the only partners, but it is claimed that others were also actually in the firm ; where the act was the making of a con- tract ; where it was the commission of a tort, and the like. The 253 285, 286] LAW OF PARTNERSHIP most appropriate classification of the subject for our purpose is probably that used in Agency, namely, the liability 1. In con- tract. 2. In tort. I. IN CONTRACT. 285. All partners bound by authorized contracts. It has been seen in an earlier chapter that each partner is ordinarily the agent of the partnership with authority conferred, either express- ly or impliedly, to bind the partners as their agent. It follows, therefore, that whenever a partner makes a contract for the partnership and in the partnership name, within the limit of his express or implied authority as a partner, he binds all the members of the partnership upon it. It is immaterial, in this connection, whether the other partners knew of the act or not; or, in the case of implied powers, whether they had previously consciously consented to it or not ; or, if it was within the scope of the business, whether it was, or was not, a violation of their private agreement between themselves. The only question, so far as the liability of the partners to a third person, ignorant of their private agreements, is concerned, is whether the con- tract was, in contemplation of law, within the authority of the partner; if it was, then every partner is bound by it. 1 286. But while each partner is thus bound to answer, and out of his individual estate if necessary, for the non-per- formance of the partnership contracts, it does not follow that, in becoming a party to a partnership contract, he, at the same time, enters into a separate individual contract in identical terms. A partnership contract to employ a particular person does not result in a separate contract by each partner indi- vidually to employ that person ; and a contract by which a part- nership, upon a sale of its business, agrees not to resume busi- ness within a certain period, has been held not to bind an indi- vidual partner to refrain from doing so, 2 though it would be ISee Sweet v. Wood (1893), 18 2 See Streichen v. Fehleisen E. I. 386, 28 Atl. 335, Mechem's (1900), 112 Iowa 612, 84 N. W. 715, Cas. 332; Farmers' Ins. Co. v. Ma- 51 L. E. A. 412. A similar holding lone (1895), 45 Neb. 302, 63 N. W. has been made in corporations: 802. Hall's Safe Co. v. Herring-Hall- 254 WHO BOUND BY ACTS OF PARTNER [ 287 otherwise if the contract in terms covered both the partnership and the several members thereof. 3 It is for the partnership obligation only that each partner usually assumes liability. 287. Dormant, secret and nominal partners bound also. This liability involves every one who was, at the time of the contract, either actually or nominally a partner in the firm. A nominal partner is, of course, liable to those who relied upon him, having been held out as a partner ; * and if one were then actually a partner he is likewise liable though the other party did not then know of it, or though such partner has since re- tired from the firm. A secret or dormant partner is therefore liable, when discovered, upon partnership contracts, to the same extent as though he had been an ostensible partner. The fact that the other party dealt with the ostensible partner or part- ners, and gave credit to them in ignorance of the existence of the secret or dormant partner, is not an election to hold the ostensible partners only, when the dormant or secret partners are afterwards discovered. And the dormant or secret partners are bound not only by those acts which were actually author- ized, but also, like other partners, by those acts which were ap- parently authorized, or were within the scope of the business as actually carried on. 5 Marvin Safe Co. (1906), 76 C. C. A. (Va.) 248, 56 Am. Dee. 142, and 495, 146 Fed. 37, 14 L. E. A. (N. S.) note, Gilm. Gas. 318; Bichardson v. 1182. Farmer (1865), 36 Mo. 35, 88 Am. 3 See Pittsburg V. F. & C. Co. v. Dec. 129, Gilm. Gas. 322; Gavin v. Klingelhofer (1904), 210 Pa. 513, Walker (1885), 82 Tenn. (14 Lea) 60 Atl. 161, where the agreement 643; Callender v. Eobinson (1880), was "The said parties further agree 96 Pa. 454; Mohawk Nat. Bank v. that they will not, nor shall any Van Slyck (1883), 29 Hun (N. Y.) member of said parties concerned, 188, Burd. Cas. 396; Grosvenor v. engage in a similar business to that Lloyd (1840), 1 Mete. (Mass.) 19, now carried on by said parties," etc. Gilm. Cas. 348; Elmira Iron Boiling 4 As to the liability of the nomi- Mill Co. v. Harris (1891), 124 N. Y. nal partner, or liability by estoppel, 280, 26 N. E. 541, Mechem's Cas. see ante, 99 et seq. 987, Burd. Cas. 398, Gilm. Cas. 349 ; 6 See Winship v. United States Pitkin v. Benfer (1892), 50 Kan. Bank (1831), 5 Peters (U. S.) 529, 108, 31 Pac. 695, 34 Am. St. E. 110, 8 L. ed. 216, Gilm. Cas. 356 ; Brooke Mechem 's Cas. 383 ; Bromley v. v. Washington (1852), 8 Gratt. Elliott (1859), 38 N. H. 287, 75 Am. 255 288] LAW OF PARTNERSHIP Dormant and secret partners will also be bound by the acts of the ostensible partners, even in those cases wherein the con- sent of all partners is necessary, if the other party was ignorant of their existence and acted in good faith. Interests in and claims upon the common property, fairly acquired in good faith upon the basis that it was the sole property of the ostensible partner or partners, will ordinarily be effective 'against the dor- mant partners also, sinc.e they have caused or permitted it to so appear. 6 288. Liability of the firm upon contracts made by one part- ner in his own name. As has been seen, when a firm name has been adopted, it ought always to be used in partnership transactions; but, through inadvertence or error, contracts may be made in the individual name of one partner which were de- signed by one or both parties to be the contracts of the firm. The question, therefore, arises, when may a contract in the name of one partner be shown to be the contract of the firm? The solution of this question is affected both by the nature of the transaction and by the intention o^ the parties. Thus : 1. The contract may be, (a) a simple contract not negotiable, (&) a negotiable instrument, or (c) a contract under seal. 2. The existence of the partnership may, at the time of mak- ing the contract, have been (a) known, or (b) unknown by the other party. 3. The parties, or one of them, may have intended to bind Dec. 182; Swan v. Steele (1806), 7 v. Hollinshead (1825), 4 B. & Cress. East 210, Ames' Cas. 500; Robinson 867, 7 Dow. & Ry. 444, Ames' Gas. v. Wilkinson (1817), 3 Price 538, 29 (pledge by the ostensible part- Burd. Cas. 396; Bisel v. Hobbs ner) ; Willey v. Bank (1904), 141 (1843), 6 Blackf. (Ind.) 479, Oilm. Cal. 508, 75 Pac. 106 (set-off of Cas. 321. Not so, where the dor- firm claim against claim of ostensi- mant partner had withdrawn and ble partner) ; Callender v. Robinson the partnership had been dissolved (1880), 96 Pa. 454 (execution levy before the contract in question was by creditor who relied in giving the made. Pitkin v. Benfer, supra. credit on apparent ownership of 6 See Locke v. Lewis (1878), 124 ostensible partner). See, also, War- Mass. 1, 26 Am. Rep. 631, Ames' ren v. Martin (1888), 24 Neb. 273, Cas. 584 (sale by ostensible partner 38 N, W. 849. in payment of his own debt) ; Reid 256 BOUND BY ACTS OF I>AUTNKi: [_) $ 289, 2i)() (a) the individual partner, or (b) the firm. The two latter groups are subsidiary, and may be considered under the first. 289. Same subject Known partnership Simple contracts in name of one partner. Where a person is known to be acting as partner for a known partnership, the presumption is that he intended to bind the partnership and not himself only, and where such was the intention the partners and not the single partner will be bound. This presumption, however, may be re- butted, and if it appears that the other party has knowingly dealt with the partner as an. individual, and that the latter has pledged his individual credit, the partner alone will be bound and not the firm. And if the transaction were really an indi- vidual one, the firm does not become liable because it afterwards received the benefit of the transaction. Thus, if money were loaned or goods sold to one partner as an individual, the firm does not become liable to the lender or the seller simply because the money or the goods came to the use of the firm. The liability of the firm is to the partner upon whose credit the money or goods were obtained, and that partner must answer to those from whom they were obtained. Whether the credit was ex- tended to the partnership as such, or to the partner individually, is a question to be determined in view of all of the facts and circumstances of the case. 7 290. Where the contract was originally made with one partner only, there might later be an express or implied nova- 1 See Tyler v. Waddingham peal (1863), 45 Pa. 181, 84 Am. (1890), 58 Conn. 375, 20 Atl. 335, Dee. 487. The firm is not liable 8 L. R. A. 657; Peterson v. Roach upon a note given by one partner for (1877), 32 Ohio St. 374, 30 Am. his share of the capital. National Rep. 607, Gilm. Gas. 314; Adams v. Bank v. Cringan, supra. Same ef- Hardware Co. (1887), 78 Ga. 485, feet: Bannister v. Miller (1895), 54 3 S. E. 430; Thornton v. Lambeth N. J. Eq. 121, 701, 32 Atl. 1066, 37 (1889), 103 N. C. 86, 9 S. E. 432; Atl. 1117; McLinden v. Wentworth National Bank v. Cringan (1895), (1881), 51 Wis. 170, 8 N. W. 118, 91 Va. 347, 21 S. E. 820; Brown v. 192. So where one partner borrows Fresno Raisin Co. (1894), 101 Cal. money on his own note to reimburse 222, 35 Pae. 639; Hubenthal v. Ken- another partner for money ad- nedy (1888), 76 Iowa 707, 39 N. W. vanced to the firm, the firm is not 694; Goodenow v. Jones (1874), 75 liable. Redenbaugh v. Kelton 111. 48; North Penn. Coal Co.'s Ap- (1895), 130 Mo. 558, 32 S. W. 67. Mech. Part. 17 257 291] LAW OF PARTNERSHIP tion, or what is sometimes loosely called ' ' adoption ' ' of it, which would substitute the liability of the partnership for that of the single partner who made it. 8 So, if the contract, though in writing, (not under seal or negotiable) was originally made for and by the authority of the partnership, the partnership, by the weight of authority, could still be held upon it, the fact that it was made in the name of one partner only not being conclu- sive evidence of an intention to bind him alone. 9 291. Note of one partner. Similar questions arise where a creditor takes the note or other similar obligation of one partner for a partnership debt. If, at the time the debt is contracted, the note or other obliga- tion of one partner is taken, and credit given exclusively to him, the firm will not be bound ; 10 but if credit were given to the firm, the note or other obligation (if not given as the note of the partnership n ) will be deemed to have been taken as col- lateral security or otherwise, and the firm may still be held, not upon the note 12 but upon the original claim. To whom the credit was given is here, as in the preceding section, a question of fact to be determined in view of all the circumstances. 13 8 See the discussion of a somewhat 9 See 2 Mechem on Agency (2d similar question under corporations ed.), 1712-1716. not yet organized, in 1 Mechem on 10 See Holmes v. Burton (1837), Agency (2d ed.), 382. In part- 9 Vt. 252, 31 Am. Dec. 621, Gilm. nership, see Eeynolds v. Swain Cas. 312. (1839), 13 La. 193; Penn v. Kearny 11 See post, 296. (1869), 21 La. Ann. 21; Marks v. 12 See Farmers Bank v. Bayless Chumos (1910), 82 Kan. 562, 109 (1865), 35 Mo. 428. Pac. 397 (which goes on theory that 13 See Hoeflinger v. Wells (1879), partner in whose name a lease was 47 Wis. 628, 3 N. W. 589; Maffet v. taken would be a trustee for the Leuckel (1880), 93 Pa. 468, Gilm. partnership and the other partner Cas. 317; Smith v. Collins (1874), would be liable upon it); Bodey v. 115 Mass. 388; Mills v. Eiggle Cooper (1896), 82 Md. 625, 34 Atl. (1911), 83 Kan. 703, 112 Pac. 617, 362 (which goes upon ground that Ann. Cas. 1912 A 616; Beckwith v. assent of other partner would bind Mace (1905), 140 Mich. 157, 103 him for rent under a lease under N. W. 559. In Hoeflinger v. Wells, seal made by one partner only but supra, where the question waa in firm name). whether plaintiff could recover of 258 WHO BOUND BY ACTS OF PARTNER [292 If the obligation of one partner, e. g., his promissory note, be taken for a previously created partnership debt, the effect de- pends upon the intention. Such a note may be taken as pay- ment of the firm debt, and if it is so taken the firm debt is gone ; but in order to discharge the firm, according to the prevailing rule, the evidence must be clear that it was so taken in satis- faction, for this will not be presumed from the mere fact of the taking, and in the absence of such evidence the firm will still be bound upon the debt. 14 292. Same subject Unknown partnership. In those cases already considered in which it is held that the creditor has re- course against one partner only, it is because it is determined that the creditor has elected to give credit to such partner alone. But an election involves the opportunity of choice of choosing between the credit of the firm and that of the individual part- the firm of Stafford & Wells for money loaned upon Stafford's note, the court says: "If upon the trial the plaintiff can show that the money was borrowed for the firm, that he was at the time advised that it was for the firm, and that he loaned it to the firm and upon its credit, then the mere taking of the individual note of the one partner for the money so loaned will not de- feat the action. The taking of such note may be evidence tending to show that the money was not loaned to the firm, and that the sole credit was given to Stafford; but it is not conclusive of that fact; and if the jury or the court should find as a fact that the money was borrowed by and loaned to the firm and upon its credit, then the taking of the in- dividual note of one member of the firm would not be a payment of such firm debt, unless it was affirmatively shown that such note was taken in payment of the same." In North Penn. Coal Co. 's Appeal (1863), 45 Pa. 181, 84 Am. Dec. 487, the obligation given by the partner was a bond, apparently under seal, to which class of instru- ments this rule ordinarily does not apply. See post, 293. liBurdett v. Greer (1908), 63 W. Va. 515, 60 S. E. 497, 129 Am. St. E. 1014, 15 Ann. Gas. 935, 15 L. R. A. (N. S.) 1019, with elaborate note; Craswell v. Cattle Co. (1910), 148 Iowa 9, 126 N. W. 908; Eey- burn v. Mitchell (1891), 106 Mo. 365, 16 S. W. 592, 27 Am. St. E. 350. Compare Crooker v. Crooker (1863), 52 Me. 267, 83 Am. Dec. 509. The note of one would be a good con- sideration for a promise to release the others: Luddington v. Bell (1879), 77 N. Y. 138, 33 Am. Eep. 601; Stephens v. Thompson (1855), 28 Vt. 77. 259 293] LAW OF PARTNERSHIP ner, and this opportunity of choice can only exist where the creditor knew that there was a partnership at the time that he gave credit. If he did not then know of the existence of the partnership, it is obvious that a different question is presented, but it is, at the same time, a question already considered in Agency. It is another phase of the liability of an undisclosed principal the partnership for the acts and contracts of his agent the partner. As to this, it has been seen that an undis- closed principal when discovered is, in general, bound by the simple contracts of his agent, although at the time the other party gave credit to the agent alone, supposing him to be the principal. Two exceptions to this rule were found to prevail: 1. That the principal cannot be held where he had been previous- ly led by the creditor's conduct to settle with the agent upon the assumption that the agent had paid such creditor; and 2. That the principal cannot be held where, after his discovery, the creditor has elected to give credit to the agent alone. 15 This rule applies in the case of partnerships, and subject to the ex- ceptions named, the undisclosed partners are liable, when dis- . covered, upon the simple contracts made really in behalf of the firm though ostensibly by one partner only. 16 This rule that the creditor may hold the undisclosed or dormant partners liable confers a right but does not impose a duty ; that is, the creditor has usually his option to sue all or only the one with whom he dealt he may sue all, but is not obliged to do so. 17 293. Same subject Contracts under seal. In case the con- tract or obligation executed by the single partner was a bond, deed or other instrument under seal, different rules apply for technical reasons. In such a case, where the common-law inci- dents of a seal still exist, all previous obligations if any are usually deemed to be merged in the bond or deed, and only 15 See 2 Mechem on Agency, Buffmn (1850), 22 Vt. 181, 54 Am. 1729-1772. Dec. 64, Meehem's Gas. 385. 16 Bee Beckham v. Drake (1841), 17 Cleveland v. Woodward (1843), 9 Mees. & Wels. 79; Eeynolds v. 15 Vt. 302, 40 Am. Dec. 682, Me- Cleveland (1825), 4 Cowen (N. Y.) chem's Gas. 388. 282, 15 Am. Dee. 369; Griffith v. 260 WHO BOUND BY ACTS OF PARTNER [ 294 those persons who are named as parties to it can sue or be sued ; hence if one partner gives his own sealed obligation, or enters into a contract under seal, the other partners cannot be held at law, either upon the instrument itself or upon the consideration, by showing the contract was really made in behalf of the firm or that it received the benefit of it, 18 except where the seal can be regarded as surplusage. 19 But if there was originally a part- nership obligation, which at law was deemed to be merged in the specialty executed by one partner, equity may at times, on the insolvency of that partner, allow relief against the others who, but for such merger, would be liable. 20 294. Same subject Judgment against one partner. A judgment against one partner alone for a partnership debt, by the common law, discharges the other partners whether osten- sible or secret. The judgment is a higher security which ordi- narily merges the lower; and, besides, the liability of the part- ners is a joint one, upon which they cannot usually be separ- ately sued. 21 This effect of a judgment as a merger has been altered in several States by statute, 22 and statutes in several States make 18 See Tom v. Goodrich (1807), 2 19 See as to this, ante, 263. Johns. (N. Y.) 213; United States 20 As to a liability in equity, see v. Astley (1819), 3 Wash. (U. S. C. Alexander v. Alexander (1888), 85 C.) 508 (but see U. S. v. Lyman Va, 353, 7 S. E. 335, 1 L. R. A. 125; (1818), 1 Mason U. S. C. C. 482, Niday v. Harvey (1852), 9 Gratt. 506); North Penn. Coal Coal Co.'s (Va.) 454. Appeal (1863), 45 Pa. St. 181, 84 21 See Mason v. Eldred (1867), 73 Am. Dee. 487; Williams v. Gillies U. S. (6 Wall.) 231, 18 L. ed. 783, (1878), 75 N. Y. 197, Burd. Gas. Mechem's Cas. 433, Burd. Gas. 388, 290. Gilm. Cas. 281; Candee v. Clark In Paris v. Cook (1901), 110 Ky. (1851), 2 Mich. 255; Ward v. John- 867, 62 S. W. 1043, 63 S. W. 600, 23 son (1816), 13 Mass. 148; Smith v. Ky. L. R. 328, it was held that the Black (1822), 9 Serg. & R. (Pa.) other partners could be held upon a 142, 11 Am. Dec. 686; Wann v. Mc- bond signed by one only upon proof Nulty (1845), 7 111. 355, 43 Am. that its execution in that form was Dec. 58; Suydam v. Barber (1858), by the authority of the others and 18 N. Y. 468, 75 Am. Dee. 254. See, on their account. It was, for the also, post, 210, 211. time being, making that partner's 22 See Mason v. Eldred, supra: name the firm name. Tibbetts v. Shapleigh (1881), 60 N. 261 295] LAW OP PARTNERSHIP partnership obligations joint and several. 23 The Uniform Part- nership Act does not make this change. 24 Moreover, it has been held in a number of States, even in the absence of a statute, that where the debtors, at the time of the action, reside in different States, so that no one court by its process can acquire jurisdiction over all of them, a judgment against part in a court having jurisdiction over them, will, if unsatisfied, be no bar to a later judgment against the others in a court having jurisdiction over them. 25 295. Contracts made in individual names of all the part- ners. "Where a firm name has been adopted, it should be used in partnership transactions, and, as a rule, the partnership can- not be bound as such by any other name. But this rule is not inflexible, and between themselves partners may adopt such names as they please. They may also do this as to creditors if the transaction is really a partnership transaction and for its benefit. Thus, though an obligation signed, not in the firm name, but in the individual names of all of the partners, is prima facie an individual transaction and not a partnership one, it may be shown to be a partnership transaction not only between the partners themselves, but also in favor of the obligee and against other creditors of the firm. 26 Parol evidence is admissible for H. 487; Odom v. Denny (1860), 82 v. Little (1838), 9 N. H. 259, 32 Mass. (16 Gray) 114; Campbell v. Am. Dee. 357; Cox v. Maddux Steele (1849), 11 Pa. St. 394; Bone- (1880), 72 Ind. 206; Merriman v. steel v. Todd (1861), 9 Mich. 371, Barker (18S9), 121 Ind. 74, 22 N. 80 Am. Dec. 90; Wood v. Watkin- E. 992; Brown v. Birdsall (1859), son (1846), 17 Conn. 500, 44 Am. 29 Barb. (N. Y.) 549; Hitchcock v. Dee. 562. Frackelton (1898), 116 Mich. 487, 23 In some of the states, the gen- 74 N. W. 720 ; even though note was eral statutes making the liability on made in a state where the judgment joint contracts joint and several, would be a bar: Wiley v. Holmes have been held not to apply to part- (1859), 28 Mo. 286, 75 Am. Dec. nership debts; in others, contra. See 126. Foreign judgment no bar: post, 308. Eastern Townships Bank v. Beebe 24 See. 15. (1880), 53 Vt. 177, 38 Am. Rep. 25 See Band v. Nutter (1868), 56 665. Me. 339; Yoho v. McGovern (1884), 26 See Berkshire Woolen Co. v. 42 Ohio St. 11; Tibbetts v. Shap- Juillard (1879), 75 N. Y. 535, 31 leigh (1881), 60 N. H. 487; Olcott Am. Eep. 488, Mechem's Gas. 389, 262 WHO BOUND BY ACTS OP PARTNER [ 296 this purpose : it does not contradict the writing, nor violate the rule that no one but a party to it can be held upon a negotiable instrument. 27 296. Contracts where firm does business in name of one partner. It is not uncommon, as has been seen, for a partner- ship to do business in the name of a single partner, and con- tracts made in that name for the partnership will bind all mem- bers. 28 If that partner carries on no individual business sep- arate from that of the firm, contracts made in such name will be presumed to bind the partnership ; if he does carry on a sep- arate business, no such presumption arises, and the person who would charge the partnership upon a contract made in the name of such partner must show that it was intended to bind the part- nership. 29 Gilm. Cas. 156; Mix v. Shattuek (1878), 50 Vt. 421, 28 Am. Eep. 511; Freeman v. Campbell (1880), 55 Cal. 197; Iddings v. Pierson (1884), 100 Ind. 418; Warriner v. Mitchell (1889), 128 Pa. St. 153, 18 Atl. 337; Carson v. Byers (1885), 67 Iowa 606, 25 N. W. 826; Drey- fus v. Union Bank (1896), 164 I1L 83, 45 N. E. 408, Burd. Cas. 139; Howell v. Moores (1889), 127 111. 67, 19 N. E. 863; Rouse v. Wallace (1897), 10 Colo. App. 93, 50 Pac. 366; Davis v. Turner (1903), 56 C. C. A. 669, 120 Fed. 605; In re Kuhn (1917), 241 Fed. 935; Purvis v. Butler (1891), 87 Mich. 248, 49 N. W. 564. So although the firm name is "C. W. Rollins," a note made in the course of the business but signed "C. W. Eollins & Co.," may bind the partnership. Baxter v. Rollins (1894), 90 Iowa 217, 57 N. W. 838, 48 Am. St. R. 432. In Colwell v. Weybossit Bank (1888), 16 R. I. 288, 15 Atl. 80, 17 Atl. 913, it was shown that it was the custom of the partners to borrow money on notes signed by one part- ner and endorsed by the other. Held, to be partnership obligations. But if the note was not in fact the obligation of the partnership the fact that all the partners signed it as individuals will not make it such. Lill v. Egan (1878), 89 111. 609. 27 See Dreyfus v. Union Bank, supra. 28 See Rumsey v. Briggs (1893), 139 N. Y. 323, 34 N. E. 929 ; Gavin v. Walker (1885), 82 Tenn. (14 Lea) 643; Pitkin v. Benfer (1892), 50 Kan. 108, 31 Pac. 695, 34 Am. St. R. 110, Mechem 's Cas. 383 ; Bax- ter v. Rollins (1894), 90 Iowa 217, 57 N. W. 838, 48 Am. St. R. 432. 29 See United States Bank v. Bin- ney (1828), 5 Mason (U. S. C. C.), 189 ; Yorkshire Banking Co. v. Beat- son (1880), L. R. 5 C. P. Div. 109, Burd. Cas. 141, Gilm. Cas. 157, 317; Bank of Rochester v. Monteath (1845),' 1 Denio (N. Y.) 402, 43 Am. Dec. 681. 297,298] LAW OP PARTNERSHIP 297. Particular contract made by firm in name of one part- ner. It is also possible tbat while the name of one partner was not regularly used as the firm name, it was so used upon a particular occasion with the authority and consent of all the partners. It may thus become pro hac vice the firm name, and all the partners will be charged by its use. 30 It may also be the fact that the firm had no regular name at all, but used the name of one or the other of the partners as the occasion might suggest or convenience require. 81 Parol evidence is competent to show such a fact. 298. Contracts where there are two firms of same name with common partner. Cases occur, though they are com- paratively rare, where two firms are doing business under the same name in the same locality, and having one or more but not all of their members in common. It was thought at one time that where a contract was made in such firm name by the common partner, and the other party did not know for which of the firms he assumed to act, either firm could be held at the option of the other party, but that Iboth could not be held. The true rule seems to be, however, that such cases stand upon no peculiar ground, but that that partnership only is to be held which by the facts and circumstances is pointed out as the one for which the partner acted. 32 The partners may, by their con- so See Jacks v. Greenhaw (1912), (1870), 29 Iowa 462; Seekell v. 105 Ark. 615, 152 S. W. 160; Na- Fletcher (1880), 53 Iowa 330, 5 N. tional Exch. Bank v. Wilgus (1894), W. 200; Dockery v. Faulkner 95 Ky. 309, 25 S. W. 2, 15 Ky. L. K. (1907), 101 S. W. 501 (Tex. Civ. 763; Carter v. Mitchell (1893), 94 App.). Ky. 261, 22 S. W. 83, 15 Ky. L. E. 32 See Hastings National Bank v. 53; Thomas v. Hardsocg (1908), Hibbard (1882), 48 Mich. 452, 12 N. 137 Iowa 597, 115 N. W. 210 (note W. 651, Mechem's Gas. 392; Fos- made in name of managing partner), dick v. VanHorn (1884), 40 Ohio There is nothing in Farmers Bank St. 459; Swan v. Steele (1806), 7 v. Bayless (1865), 35 Mo. 428, con- East 210. In Hastings National trary to this. The court pointed out Bank v. Hibbard, supra, it appeared that there was no claim or proof on that a firm of three partners, en- this point. gaged in operating a particular 31 See Barcroft v. Haworth flouring mill, temporarily arranged 264 WHO BOUND BY ACTS OF PARTNER [ 299,300 duet, lead him to believe that he is dealing with one of the firms rather than the other, and where they do so their personal re- sponsibility may be determined accordingly. 83 299. Contracts where same persons constitute different firms with different names. The same persons may compose different partnerships with different names. They are all, of course, liable for the debts of each partnership, but their rights and liabilities among themselves may differ in the several part- nerships, and the distribution of the assets of the several firms may be governed by different considerations. 34 300. Liability of partner who exceeds his authority. A partner, like other agents, may incur individual liability by as- suming to act without sufficient authority. In such cases he to take in another partner and run an additional mill as another firm. Both firms, however, had the same name and used the same letterheads, upon which the names of all four partners were printed, but the busi- ness of the two mills was kept dis- tinct. The second mill kept no bank account, but borrowed from the first when necessary, and kept its account with it. One of the original partners made a note in the firm name and discounted it at the plain- tiff 's bank. In an action by the bank the jury found that the bank relied exclusively upon the credit of the original partners. It was not claimed that the money was bor- rowed or used for the benefit of the later firm. It was therefore held that tEe additional partner could not be held liable. 33 See Adams v. Brown (1865), 16 Ohio St. 75. Where there are two firms with a common partner and much of the time doing business under the same name, the creditor may recover from that firm with which, in the exercise of ordinary prudence, he was justified in believ- ing he was dealing: Baker v. Nap- pier (1856), 19 Ga. 520. A partner, not in the firm actually concerned, but in the other, cannot be held un- less the plaintiff, exercising ordi- nary prudence, has reasonably been led to believe that he was dealing with the other. Gushing v. Smith (1875), 43 Tex. 261. Where a firm carries on business in one town, and one of the partners has a separate business in another town, the firm cannot be held for goods supplied to the single partner at the latter place, if they were not in fact pur- chased for the firm and the seller had no reason to think they were ex- cept that they were ordered in the firm name. Samstag v. Ottenheimer (1916), 90 Conn. 475, 97 Atl. 865. 34 See post, 461. See also Second Nat. Bank v. Burt (1883), 93 N. Y. 233. 265 301] LAW OP PARTNERSHIP may make express representations as to his authority, and he may likewise make an implied representation by assuming to act as a partner. For a breach of either of these representa- tions he may be held liable to third persons who are injured by reason of his undertaking to bind the firm when he had no authority so to do. Whether he can be held upon the very con- tract which he has made without authority, depends upon whether the contract contains apt words to charge him person- ally. His liability in these cases is ordinarily made to depend upon the familiar rules which make an agent liable who has ex- ceeded his authority or who has assumed to act for a principal having no legal existence. 35 There is, however, less occasion to resort to these rules in partnership eases, because a partner normally expects to bind himself as one of the contracting parties on every obligation he incurs for the partnership, while the ordinary agent normally does not intend to bind himself at all but only his principal. If it be assumed that the firm name is always the name of the partner who uses it, for the purposes of that transaction, 86 then he would always be bound (unless the contrary were stipu- lated) even though, for lack of authority, he did not bind his copartner also by the same name. II. IN TORT. 301. Firm liable for torts of one partner committed in course of business. The liability of the partnership for the torts of one partner rests upon the same foundation as the lia- bility of a principal for the torts of his agent, which has been 35 See Mechem on Agency (2d instrument executed without ade- ed.), 1363, 1383; Taft v. Church quate authority); Bitzer v. Shunk (1895), 162 Mass. 527, 39 N. E. (1841), 1 W. & S. (Pa.) 340, 37 283; North Star Co. v. Stebbins Am. Dee. 469 (confession of judg- (1893), 3 So. Dak. 540, 54 N. W. ment without adequate authority). 593; Silvers v. Foster (1872), 9 36 See Haskins v. D 'Este (1882), Kan. 56; Gunderson v. Hasterlick 133 Mass. 356; Bonneau v. Strauss (1902), 100 111. App. 429; Hubbard (1919), Okla, , 179 Pac. 10, 4 v. Matthews (1873), 54 N. Y. 43, A. L. B. 255 and -note (liable on the 13 Am. Eep. 562; Weeks v. Bake contract). Co. (1877), 58 N. H. 101 (on sealed 266 WHO BOUND BY ACTS OF PARTNER [301 already considered. '* Thus, the partners are liable in a civil action for the negligence of one partner, committed in the trans- action of partnership business; as, for example, where one of a firm of lawyers or physicians causes loss to a client or a patient by a want of professional skill or a failure to use due care or diligence. 87 This liability of the partners is not, however, confined to actions based upon a partner's negligence; they are liable also for his trespass, fraud, deceit, misrepresentation or malice, if committed in the course of the partnership business and in fur- therance of its interests; as, for example, where one partner in the prosecution of the partnership business wrongfully seizes the property of a third person, or institutes malicious prosecu- tions, or is guilty of a libel. 38 A greater liability still may also 37 See Hess v. Lowrey (1889), 122 Ind. 225, 23 N. E. 156, 17 Am. St. E. 355, Mechem's Gas. 400; Hyrne v. Erwin (1885), 23 S. C. 226, 55 Am. Eep. 15; Collier v. Me- Call (1887), 84 Ala. 190, 4 So. 367; Haley v. Case (1886), 142 Mass. 316, 7 N. E. 877; Bucki v. Cone (1889), 25 Fla. 1, 6 So. 160; Whit- taker v. Collins (1885), 34 Minn. 299, 25 N. W. 632, 57 Am. Eep. 55; Linton v. Hurley (1859), 80 Mass. (14 Gray) 191; Hobbs v. Chicago Packing Co. (1896), 98 Ga. 576, 25 S. E. 584, 58 Am. St. E. 320, Burd. Cas. 349 (conversion) ; Monmouth College v. Dockery (1911), 241 Mo. 522, 145 S. W. 785. 38 See Strang v. Bradner (1884), 114 U. S. 555, 29 L. ed. 248, Me- chem's Cas. 413; Stanhope v. Swaf- ford (1890), 80 Iowa 45, 45 N. W. 403; Myers v. Lewis (1917), 121 Va. 50, 92 S. E. 988; Wolf v. Mills (1870), 56 111. 360, Gilm. Cas. 397; Morehouse v. Northrop (1866), 33 Conn. 380, 89 Am. Dee. 211; Locke v. Stearns (1840), 1 Mete. (Mass.) 560, 35 Am. Dec. 382, Mechem's Cas. 422; Chester v. Dickerson (1873), 54 N. Y. 1, 13 Am. Eep. 550, Mechem's Cas. 38; Jacobs v. Shorey (1868), 48 N. H. 100, 97 Am. Dec. 586, Meehem's Cas. 164; Brundage v. Mellon (1895), 5 N. Dak. 72, 63 N. W. 209, Burd. Cas. 348; Haney Mfg. Co. v. Perkins (1889), 78 Mich. 1, 43 N. W. 1073, Gilm. Cas. 396; Lathrop v. Adams (1882), 133 Mass. 471, 43 Am. Eep. 528, Mechem's Cas. 425. The individual property of an in- nocent partner is not liable to at- tachment for a firm debt fraudulent- ly contracted by a copartner. Jaf- frey v. Jennings (1894), 101 Mich. 515, 60 N. W. 52, 25 L. E. A. 645, Mechem's Cas. 416. No attachment on the ground of non-residence if one of the partners resides in the state. Blair v. Eussell (1919), Miss. , 81 So. 785. Not liable under Georgia Code: Hendrieks v. Middlebrooks (1903), 118 Ga. 131, 44 S. E. 835 (slander). 267 302,303] LAW OP PARTNERSHIP be incurred by a previous authorization or a subsequent rati- fication. 302. Liability of firm for partner's malicious or criminal act. But the partners would not be liable, unless previously authorized or subsequently ratified, for similar acts committed by the partner outside the course of the partnership business and for his own purposes or from his own private malice or ill- will. 89 Neither can one partner, not personally in fault, ordinarily be held liable in a criminal or penal action for' the acts of his partner. 40 303. Uniform Partnership Act. "Where, by any wrong- ful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his copartners, loss or injury is caused to any person, not being a 39 See Eosenkrans y. Barker (1885), 115 111. 331, 56' Am. Eep. 169, Mechem's Gas. 405 (lays down a doubtful rule) : Bernheimer v. Becker (1905), 102 Md. 250, 62 Atl. 526, 111 Am. St. E. 356, 3 L. E. A. (N. S.) 221; Marks v. Hastings (1892), 101 Ala. 165, 13 So. 297 (all cases of false imprisonment or wrongful arrest). Compare Mcllroy v. Adams (1877), 32 Ark. 315; Haney Mfg. Co. v. Perkins (1889), 78 Mich. 1, 43 N. W. 1073 ; Staples v. Sehmid (1893), 18 E. I. 224, 26 Atl. 193, 19 L. E. A. 824; Eobinson v. Goings (1886), 63 Miss. 500; Peckham Iron Co. v. Harper (1884), 41 Ohio St. 100. In Gwynn v. Duffield (1885), 66 Iowa 708, 24 N. W. 523, 55 Am. Rep. 286, firm held not liable for negligence of one partner in a drug firm in giving away medicine, that act not being in course of business. In Davis v. Dodson (1905), 95 Ga. 718, 22 S. E. 645, 51 Am. St. E. 108, 29 L. E. A. 496, Mechem 's Cas. 942, firm held not liable for misconduct of partner who had agreed, for in- ducement moving to himself only, to collect a debt without charge. Firm not liable for slander unless words spoken in course of business: Du- quesne Distributing Co. v. Green- baum (1909), 135 Ky. 182, 121 S. W. 1026, 21 Ann. Cas. 481, 24 L. E. A. (N. S.) 955. 40 See Watson v. Hinchman (1879), 42 Mich. 27, 3 N. W. 236; McNeely v. Haynes (1877), 76 N. C. 122 (arrest for fraud under fraudulent debtors' act). Partner not liable to statutory penalty for "willfully and knowingly" cutting timber, where he was entirely inno- cent, and the cutting had been done by his copartner, Williams v. Hcn- dricks (1897), 115 Ala. 277, 22 So. 439, 67 Am. St. E, 32, 41 L. E. A. 650, Meehem's Cas. 948. 268 WHO BOUND BY ACTS OF PARTNER [ 304, 305 partner in the partnership, or any penalty is incurred, the part- nership is liable therefor to the same extent as the partner so acting or omitting to act. ' ' 41 304. Liability of firm for partner's breach, of trust. Breaches of trust or misappropriation by one partner in respect of funds or property which come into the possession of the part- nership in the course of its business will make the partners re- sponsible ; 42 but they will not be responsible, as for breach of trust, because one partner wrongfully employs in the partner- ship business funds of which he alone was trustee, if his part- ners were ignorant of the source of the money or of his want of title to it, 43 though they would be so liable if they had such knowledge. 44 The question of following and recovering the fund as a trust fund, if still extant and traceable, involves different considera- tions ; * 5 as does the question whether the other partner who had in good faith put in his capital against the first partner's con- tribution out of the trust fund, would be considered a purchaser for value. 46 305. The Uniform Partnership Act provides that "The partnership is bound to make good the loss: 41 Sec. 13. Englar v. Offutt, supra. The knowl- 42 See Todd v. Jackson (1881), 75 edge of the guilty partner is not im- Ind. 272; Momnouth College v. puted to his partners: Gilruth v. Dockery (1911), 241 Mo. 522, 145 Deeell, supra; Bienenstrk v. Ammi- S. W. 785; Harman v. Johnson down (1898), 155 N.-Y. 47, 49 N. E. (1853), 2 El. & Bl. 61, Gilm. Gas. 321; Palmer v. Scott (1880), 68 399. Ala. 380 holds firm responsible with- 43 See Englar v. Offutt (1889), 70 out knowledge. Md. 78, 16 Atl. 497, 14 Am. St. Eep. 44 See Guillou v. Peterson (1879), 332, Mechem's Gas. 398; Gilruth v. 89 Pa. 163; Penn v. Folger (1899), Deeell (1894), 72 Miss. 232, 16 So. 182 111. 76, 55 N. E. 192; Carter v. 250, Burd. Gas. 351, Gilm. Gas. 401; Lipsey (1883), 70 Ga. 417; Hutch- Shaffer v. Martin (1898), 25 N. Y. inson v. Smith (1837), 7 Paige (N. App. Div. 501, 49 N. Y. S. 853; Y.) 26. Jaques v. Marquand (1826), 6 Cow. 45 See Englar v. Offutt, supra. (N. Y.) 497; Payne v. Dexter 46 See Hollenback v. More (1878), (1912), 211 Mass. 1, 97 N. E. 77. 44 N. Y. Super. 107. Neither are they liable as debtors: 269 305] LAW OF PARTNERSHIP (a) Where one partner acting within the scope of his appar- ent authority receives money or property of a third person and misapplies it; and (b) Where the partnership in the course of its business re- ceives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. ' ' 47 47 Sec. 14. 270 CHAPTER XII. OF THE LIABILITY OF THE FIEM FOR THE ACTS OF ITS; AGENTS AND SERVANTS. 306. Firm liable like other princi- pals for acts of its servants and agents. 306. Firm liable like other principals for the acts of its servants and agents. It seems desirable to call attention not for the purpose of discussion but that it may not be over- looked to the liability of the firm for the acts of its ordinary servants and agents. The discussion of the preceding chapter was devoted to the acts of the partner as agent of the firm, but the firm may, as has been seen, employ all the agents and serv- ants, who are not partners, that the business may demand. For the acts of these agents and servants, whether in contract or in tort, the firm is liable in the same cases and upon the same con- ditions as any other principal or master. The discussion of this liability belongs, therefore, to treatises upon the law of agency and master and servant; with the for- mer of which, at least, it is assumed that the student is already familiar. 271 CHAPTER XIII. OF THE NATURE AND EXTENT OF THE LIABILITY OF PARTNERS. 314. Individual property of part- ner may be taken to satisfy partnership debt. 315. Partner paying debt may have contribution. 316. Exemptions from execution on partnership property. III. OF THE BEGINNING AND ENDING OF LIABILITY. 317. In general. 318, 319. Of an incoming partner under the common law. 320. Under the Uniform Partnership Act. 321, 322. Of an outgoing partner. 307. In general. I. OF THE NATURE OF PARTNERSHIP OBLIGATIONS. 308. Partnership obligations when arising on contract are joint. 309, 310. Judgment against one partner releases others. 311. Release of one releases all. 312. Partnership obligations aris- ing from tort are joint and several. II. OF THE EXTENT OF PARTNER- SHIP LIABILITY. 313. Each partner liable in solido for partnership obligations. 307. In general. The question of the liability of partners involves both the nature of x that liability and its extent. These subjects, therefore, will be separately considered. I. OP THE NATURE OF PARTNERSHIP OBLIGATIONS. 308. Partnership obligations when arising on contract are joint. The obligation of those contracts which are binding upon the partnership is, at common law, the joint obligation of all the partners and not the several obligation of any of them. 1 1 See Haralson v. Campbell (1879), 63 Ala. 278, Mechem's Gas. 430. Taking judgment against each partner separately, for substantially the same amount, instead of' taking a joint judgment against all of them, is only an irregularity. Judd 272 NATURE AND EXTENT OF LIABILITY [ 308 One partner may, as has been seen, bind himself only; but if he binds the partnership, he binds all members of it jointly and not severally. It is sometimes said that, while partnership contracts are thus joint at law, they are joint and several in equity; but this seems to be true as respects the remedy only. 2 This doctrine that the contractual obligations of partners are joint has several important consequences. It affects the ques- tion of parties to actions ; 3 it results in the rule that a judg- ment against part, or a release to part, ordinarily releases the others; 4 and it materially affects the remedies of the creditor after the death of one of the partners. 5 In some States, statutes have expressly changed the rule in partnership cases. 6 In several States, statutes have, in general terms, attempted to make all joint obligations joint and several. In some of the States, these general statutes have been inter- preted as applying to partnership cases as well as others ; 7 in other States, they have been held not to apply to partnership debts. 8 The Uniform Partnership Act enacts substantially the com- mon law rule. 9 Oil Co. v. Hubbell (1879), 76 N. Y. (1867), 22 Iowa 480; Gates v. Wat- 543, Mechem's Gas. 431, Gilm. Gas. son (1874), 54 Mo. 585; Williams v. 311. Kogers (1879), 77 Ky. (14 Bush) 2 See post, 411. And see the 776. opinions in Kendall v. Hamilton 8 See Sherburne v. Hyde (1900), (1879), 4 App. Gas. 504, Gilm. Gas. 185 111. 580, 57 N. E. 776; Thomp- 293. See Article by Professor Bur- son v. White (1898), 25 Colo. 226, dick, 11 Columbia Law Review 101. 54 Pac. 718. 3 See post, 324. 9 Thus see. 15, declares: "All 4 See post, 309-311. partners are liable (a) jointly and 5 See post, 411. severally for everything chargeable 6E. g., in Alabama, Arkansas, to the partnership under sections 13 District of Columbia, Iowa, Kansas, and 14 [wrongful acts and breaches Maryland, Minnesota, Mississippi, of trust], (b) Jointly for all other Missouri, New Mexico, North Caro- debts and obligations of the part- lina, West Virgina. In some of nership; but any partner may enter these it is "for purposes of suit." into a separate obligation to per- 7 See Hamilton v. Buxton (1845), form a partnership contract," 6 Ark. 24; Eyerson v. Hendrie Mech. Part. 18 273 309] LAW OF PARTNERSHIP 309. Same subject Judgment against one partner releases others. The obligation of firm, contracts being joint, if the creditor proceeds to judgment against one or part of them alone, where no statute has changed the rule, he releases the others. 10 In a leading case n in the Supreme Court of the United States, where a creditor who had taken judgment against one partner upon a firm note in one state sought to recover against another partner in another state, the court, through Mr. Justice Field, said: "It is true that each copartner is bound for the entire amount due on copartnership contracts; and that this obliga- tion is so far several that if he is sued alone, and does not plead the non- joinder of his copartners, a recovery may be had against him for the whole amount due upon the contract, and a joint judgment against the copartners may be enforced against the property of each. But this is a different thing from the liability which arises from a joint and several contract. There the contract contains distinct engagements that of each con- tractor individually, and that of all jointly, and different remedies may be pursued upon each. The contractors may be sued separately on their several engagements or together on their joint undertaking. But in copartnerships there is no such several liability of the copartners. The copartnerships are formed for joint purposes. The members undertake joint en- terprises, they assume joint risks, and they incur in all cases joint liabilities. In all copartnership transactions this common risk and liability exist. Therefore it is that in suits upon these transactions all the copartners must be brought in, except where there is some ground of personal release from liability, as in- fancy, or a discharge in bankruptcy; and if not brought in, the omission may be pleaded in abatement. The plea in abatement avers that the alleged promises, upon which the action is brought, 10 See Kendall v. Hamilton 82 Oreg. 357, 159 Pae. 1033; Blythe (1879), L. E. 4 App. Gas. 504, Gilm. v. Cordingly (1905), 20 Colo. App. Cas. 293; McMaster v. City Nat. 508, 80 Pae. 495; Thompson v. Em- Bank (1909), 23 Okla. 550, 101 Pae. inert (1854), 15 111. 415. 1103, 138 Am. St. E. 831; Eyckman 11 Mason v. Eldred (1867), 73 U. v. Manerud (1913), 68 Oreg. 350, S. (6 Wall.) 231, 18 L. ed. 783, Me- 136 Pae. 826, Ann. Cas. 1915 C 522 ; ehein 's Cas. 433, Burd. Cas. 388, Anderson v. Stayton Bank (1916), Gilm. Cas. 281. 274 NATURE AND EXTENT OF LIABILITY [ 310,311 were made jointly with another and not with the defendant alone a plea which would be without meaning if the copart- nership contract was the several contract of ea^h copartner. ' ' 310. Same subject. "The general doctrine maintained in England and the United States," continued the same learned judge, "may be briefly stated. A judgment against one, upon a joint contract of several persons, bars an action against the others, though the latter were dormant partners of the defend- ant in the original action and the fact was unknown to the plain- tiff when that action was commenced. When the contract is joint, and not joint and several, the entire cause of action is merged in the judgment. The joint liability of the parties not sued with those against whom the judgment is recovered being extinguished, their entire liability is gone. They cannot be sued separately, for they have incurred no several obligation; they cannot be sued jointly with the others, because judgment has been already recovered against the latter, who would otherwise be subjected to two suits for the same cause." This rule, however, may be changed by a statute altering the effect of the judgment as to the defendants who were not per- sonally served with process, 12 and has been so changed in sev- eral States. 311. Same subject Release of one releases all. Another consequence of the joint character of partnership obligations is the rule that a release of one of the partners releases all. 13 12 Mason v. Eldred, supra. See, ISLindley on Partnership (7th also, Brooks v. Mclntyre (1856), 4 ed.),267; Harbeck v. Pupin (1895), Mich. 316; Sugg v. Thornton 145 N. Y. 70, 39 N. E. 722; Merritt (1889), 132 U. S. 524, 10 Sup. Ct. v. Bucknam (1897), 90 Me. 146, 163, 33 L. ed. 447; Barker v. Brink 37 Atl. 885; Clark v. Mallory (1854), 24 N. J. L. 333; Patten v. (1900)', 185 111. 227, 56 N. E. 1099; Cunningham (1885), 63 Tex. 666; note, 138 Am. St. E. 834. Thus a Hall v. Lanning (1875), 91 U. S. receipt under seal, given to one of 160, 23 L. ed. 271; Wood v. Watkin- two or more joint debtors, "in full son (1846), 17 Conn. 500, 44 Am. satisfaction for his liability" upon Dec. 562, and note; Nathanson v. the obligation, imports a technical Spitz (1895), 19 E. I. 70, 31 Atl. release, and therefore releases all. 690, Burd. Gas. 393. Hale v. Spaulding (1888), 145 Mass. 275 312] LAW OP PARTNERSHIP This rule applies, however, only to the case of a technical re- lease under seal, and does not extend to a mere covenant not to sue one partner, or to any other instrument reserving the cred- itor's rights against the other partners, which, though in the form of a release, may be treated as a covenant not to sue rather than as an absolute release. 14 In the case of the release, however, there is one material dis- tinction as compared with the taking of a judgment. If the ob- ligation be joint, the release of one releases all and it is imma- terial that the obligation was also several. In other words, the rule applies whether the obligation be simply joint or joint and several. 15 Statutes in a number of States now permit a creditor to settle with one of several joint debtors without losing his claim against the others for their proportion. 16 312. Partnership obligations arising from tort are joint and several. The liability, however, of partners for torts committed by one partner or by the servant of the firm is joint and several, and the action may be brought against one or all 482, 14 N. E. 534, 1 Am. St. E. 475, treated as a release, it is not so in Meehem 's Gas. 440. the case of a covenant not to sue one Not so, where one released was an of several debtors. Here the cred- infant who claimed exemption on itor may sue all (even though he that ground. Kirby v. Cannon thereby breaks his covenant not to (1857), 9 Ind. 371; Young v. Cur- sue one of them and must pay him rier (1885), 63 N. H. 419. damages therefor, which usually are 14Lindley, ubi supra; Hale v. nominal), and the covenant not to Spaulding, supra; Benjamin v. Me- sue that one can not be treated as a Connell (1847), 4 Gilm. (9 111.) 536, release. 46 Am. Dec. 474; Berry v. Gillis 15 See Tuckerman v. Newhall (1845), 17 N. H. 9, 43 Am. Dec. (1822), ' 17 Mass. 581; Benjamin v. 584; Goodnow v. Smith (1836), 18 McConnell, supra; Goodnow v. Pick. (Mass.) 414, 29 Am. Dec. 600, Smith, supra; Heckman v. Manning Meehem 's Gas. 441; Haney v. (1879), 4 Colo. 543; Crawford v. Creamery Co. (1899), 108 Iowa 313, Roberts (1880), 8 Oreg. 324. 79 N. W. 79. 16 See Hall v. Lanning (1875), 91 While a covenant not to sue, in TJ. S. 160, 23 L. ed. 271 ; Northern the case of a single debtor, is fre- Ins. Co. v. Potter (1883), 63 Cal. quently, to avoid circuity of action, 157, Gilm. Gas. 286. 276 NATURE AND EXTENT OF LIABILITY [ 313 or an intermediate number. 17 The Uniform Partnership Act is to the same effect. 18 ''To this general rule," says Mr. Justice Lindley, 19 "an ex- ception occurs where an action ex delicto is brought against sev- eral persons in respect of their ownership in land, for then they are liable jointly, and not jointly and severally." But this ex- ception has, as to partners, been modified by the English Part- nership Act. A release of one of several joint wrong doers or- dinarily releases all. 80 II. OF THE EXTENT OF PARTNERSHIP LIABILITY. 313. Each partner liable in solido for partnership obliga- tions. Although the obligation of partnership liabilities may be in nature joint, it does not follow that the liability when once judicially established must, by the creditor, be jointly or ratably enforced against the partners. The liability may be joint, but it is also entire. Each partner, therefore, is person- ally and individually liable for the entire amount of all such obligations, whether arising from contract or tort, as are bind- ing upon the firm. His liability, in ordinary partnerships, is not limited by the amount of his contribution to the partner- ship capital, but extends to his entire property; and it makes no difference what may be his share or interest in the partner- ship business, or whether he is an active or a secret partner, or whether the other partners are pecuniarily responsible or not; he is liable in solido for the partnership obligations. 21 17 See White v. Smith (1860), 12 v. Barnes (1904), 117 Ky. 860, 79 Rich. (S. C.) L. 595, Gilm. Gas. 306; S. W. 261, 111 Am. St. R. 273, and Howe v. Snaw (1868), 56 Me. 291; note, 25 Ky. Law. R. 2036, 64 L. R. Roberts v. Johnson (1874), 58 N. Y. A. 574. 613. 21 See Hallowell v. Blackstone 18 Sec. 15 quoted ante, 308. Nat. Bank (1891), 154 Mass. 359, 19 Lindley on Partnership (7th 28 N. E. 281, 13 L. R. A. 315, Burd. ed.), 320, citing 1 Wms. Saunds. Cas. 288, Gilm. Gas. 309, where 291, / and g. under "claims against him," it was 20 See Abb v. Northern Pac. Ry. held that firm acceptances were to Co. (1902), 28 Wash. 428, 68 Pac. be included. 954, 92 Am. St. R. 864, and note, In tort, see Loomis v. Barker 58 L. R. A. 293; Louisville, etc., Co. (1873), 69 111. 360, Gilm. Cas. 308. 277 314] LAW OF PARTNERSHIP 314. Individual property of partner may be taken to satisfy partnership debt. Moreover, if judgment be obtained against the partners upon an obligation existing against the partner- ship, the execution, though in form against all, may, unless otherwise provided by statute, be levied directly upon the indi- vidual property of any one or more of the partners without re- garding or exhausting the firm property. The creditor, further, is under no obligation to levy against all the partners ratably, but may select any one or more and levy execution against him or them until the judgment is satisfied, leaving all questions of contribution to be settled afterwards between the partners them- selves. 22 In case any partner is not served with process, no per- sonal judgment can ordinarily be rendered against him, nor can his individual property usually be taken, though the firm property may be seized. 23 Where, as in some States, an action may be brought against the firm as an entity, and is so brought, a similar result would usually follow. 24 If conflict arises between the firm creditors and the individual creditors of the partner, as to the application of the individual property of a partner, special rules apply which will be> here- after considered when the general subject of the application of assets to the claims of creditors is discussed. 25 22 See Stevens v. Perry (1873), Lead (1834), 14 N. J. L. 402, Burd. 113 Mass. 380, Mechem Gas. 961, Gas. 285. Ames' Gas. 330, Burd. Gas. 377; 23 See Sugg v. Thornton (1889), Randolph v. Daly (1863), 16 N. J. 132 U. S. 524, 10 Sup. Ct. 163, 33 Eq. 313; Clayton v. May (1881), L. ed. 447; Hall v. Lanning (1875), 68 Ga. 27; Stout v. Baker (1884), 91 U. S. 160, 23 L. ed. 271; Brooks 32 Kan. 113, 4 Pac. 141; Haralson v. Mclntyre (1856), 4 Mich. 316; v. Campbell (1879), 63 Ala. 278, Yerkes v. McFadden (1894), 141 Mechem 's Gas. 430. But in Jaffray N. Y. 136, 36 N. E. 7, 344, Burd. v. Jennings (1894), 101 Mich. 515, Gas. 382. 60 N. W. 52, 25 L. E. A. 645, See, also, People's Nat. Bank v. Mechem 's Gas. 416, Burd. Gas. 378, Hall (1904), 76 Vt. 280, 56 Atl. Gilm. Cas. 503, it is held that the 1012. individual property of an innocent 24 So held, for example, in Iowa, partner is not liable to attachment See Lansing v. Bever Land Co. for a firm debt fraudulently con- (1913), 158 Iowa 693, 138 N. W. tracted by another member of the 833 citing other Iowa case, firm. See also, Curtis v. Hollings- 25 See post, Ch. XX. 278 NATURE AND EXTENT OF LIABILITY [ 315,316 315. Partner paying debt may have contribution. Where one partner is thus compelled to pay or satisfy the whole of a partnership debt, he has a remedy, usually upon an accounting in equity, 26 to require the other partners to contribute their pro rata shares. For though each partner as to third persons is liable for all the partnership debts, yet as between themselves each partner is liable only for his own share. And even as to third persons, though each is liable for all the debts of the firm, yet his liability is sometimes said to be as a principal debtor for his own share, and as a surety for the other partners for the remainder. 316. Exemptions from execution on partnership property. The present seems an appropriate place to mention the ques- tion of the right of the firm or of one partner to claim the or- dinary statutory exemptions of certain amounts from execution, provided for debtors generally, when an execution is levied upon the partnership property. The authorities are very much in conflict, but the clear weight of authority is to the effect that, during the continuance of the partnership, neither the firm nor the partner can claim such exemptions. 27 That is to say, the firm as an entity can not claim it, and the individual partners 26 See ante, 190. (1896), 8 N. Mex. 622, 45 Pac. 1122, 27 See Jensen v. Wiersma (1919), 34 L. E. A. 604; Green v. Taylor - Iowa , 170 N. W. 780, 4 A. L. (1895), 98 Ky. 330, 17 Ky. Law E. 298, with elaborate note; Cowan E. 897, 32 S. W. 945, 56 Am. St. v. Creditors (1888), 77 Gal. 403, 19 B. 375, Burd Gas. 113; Aultman v. Pae. 755, 11 Am. St. Eep. 294, and Wilson (1896), 55 'Ohio St. 138, cases cited; Thurlow v. Warren 44 N. E. 1092, 60 Am. St, E. 677, (1889), 82 Me. 164, 19 Atl. 158, Burd. Cas. 448; Hart v. Hiatt 17 Am. St. Eep. 472; Aiken v. (1899), 2 Indian Ter. 245, 48 S. Steiner (1892), 98 Ala. 355, 13 So. W. 1038, Gilm. Cas. 567; Porch v. 510, 39 Am. St. Eep. 58; Pond v; Arkansas Milling Co. (1898), 65 Kimball (1869), 101 Mass. 105, Ark. 40, 45 S. W. 51, 67 Am. St. Burd. Cas. 186; Prosser v. Hartley E. 895; Eichardson v. Eedd (1896), (1886), 35 Minn. 340, 29 N.W. 156; 118 N. Car. 677, 24 S. E. 420; Goudy v. Werbe (1888), 117 Ind. Miller v. Waite (1899), 59 Neb. 319, 154, 19 N. E. 764, 3 L. E. A. 114; 80 N. W. 907, affd. 60 Neb. 431, 83 Peaslee v. Sanborn (1895), 68 N. N. W. 355 ; First Nat. Bank v. Frost H. 262, 44 AtL 384; In re Spitz (1884), 61 Wis. 335, 21 N. W. 280. 279 316] LAW OF PARTNERSHIP collectively or singly can not claim it in the partnership prop- erty. Since every partner has a right to have all of the part- nership property applied first to the payment of the partner- ship debts, no single partner, without his copartners' consent at least, could claim any personal exemption in the partnership property which would interfere with such application. 28 After the partnership's affairs are wound up and each partner's re- siduary interest is segregated, there could be no objection to his claiming individual exemptions in that as against his individual creditors. 29 In Michigan, Georgia, North Carolina and New York and perhaps some other States somewhat different rules have been laid down. 80 The Uniform Partnership Act is non-committal upon the subject of the partner's individual exemption, 31 but it express- ly declares that "when partnership property is attached for a partnership debt the partners or any of them or the representa- tives of a deceased partner cannot claim any right under the homestead or exemption laws. ' ' 32 2* See Richardson v. Ecdd, supra. May with consent of all, O 'Gorman v. Fink (1884), 57 Wis. 649, 15 N. W. 771, 46 Am. Eep. 58; Lee v. Bradley (1902), 44 Fla. 787, 33 So. 456. Bed quaere, see Wills v. Downs (1890), 38 111. App. 269. 29 See Aiken v. Steiner, supra. Farmer's Union Co. v. Seitz (1910), 93 Ark. 329, 124 S. W. 780; South- ern Coal Co. v. Smith (1899), 105 Ky. 769, 49 S. W. 807, 20 Ky. Law R. 1594; Moyer v. Drummond (1889), 32 S. Car. 165, 10 S. E. 952, 17 Am. St. R. 850, 7 L. R. A. 747; Goudy v. Werbe, supra; Dennis v. Kass, (1895), 11 Wash. 353, 39 Pac. 656, 48 Am. St. R. 880. 30 See McCoy v. Brennan (1886), 61 Mich. 362, 28 N. W. 129, 1 Am. St. Rep. 589 (each partner may claim it as against a firm creditor) ; Blanchard v. Pascal (1881), 68 Ga. 32, 45 Am. Rep. 474 (same effect) ; Evans v. Bryan (1886), 95 N. C. 174, 59 Am. Rep. 233 (allowed to partner individually when pursued by his partner as an individual creditor) ; Stewart v. Brown (1867), 37 N. Y. 350, 93 k Am. Dec. 578 (partners may claim it where it would have been allowed to an indi- vidual debtor) ; St. Louis, etc., Co. v. International, etc., Co. (1889), 74 Tex. 651, 12 S. W. 842, 15 Am. St. R. 870. 31 Sec. 28, (3) provides, "Nothing in this act shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership." From its location, this provision seems to have in mind granting him his ex- emption when his separate interest is pursued by his individual creditor. 32 Sec. 25 (c). 280 NATURE AND EXTENT OF LIABILITY [ 317,318 III. OP THE BEGINNING AND ENDING OF LIABILITY. 317. In general. The liability of the partner is based upon the theory that he was a principal in the business in which the obligation was incurred. It often becomes material, therefore, to determine when he became or ceased to be a partner, and whether he was such at the time the disputed liability arose. He may contend that the obligation was incurred before he be- came a partner ; or that it arose after he had ceased to be such. Where the question is whether any partnership at all had then been organized, the question will be governed by principles al- ready referred to. If the question is whether all partnership relations have ceased, considerations hereafter to be mentioned will control. But a person may be admitted as a partner to a firm already existing, or he may retire from a firm which there- after continues business, and his liability in either case requires some special consideration. 318. Of an incoming partner Under the common law. A person who enters a previously existing firm is often called an incoming partner. The admission of a new partner really constitutes in law a dissolution of the old and the creation of a new partnership, 33 though in actual practice it is often not so regarded, the firm by consent being treated as continuing, not- withstanding the change in membership. An incoming partner is not, by the common law, liable for the previously contracted obligations of the firm to which he is thus admitted, unless by special agreement he has assumed such a liability, or has so conducted himself as to raise a presump- tion of such an agreement. 34 He acquires also no greater in- 33 See Hatehett v. Blanton (1882), Ark. 457, 5 S. W. 787; Frazer v. 72 Ala. 423; Freeman v. Huttig Co. Howe (1883), 106 111. 563 (where (1913), 105 Tex. 560, 153 S. W. widow took deceased husband's 122, Ann. Cas. 1916 E, 446. place in firm) ; Lucas v. Coulter Can only be introduced with the (1885), 104 Ind. 81, 3 N. E. 622. consent of all; one partner alone Where new partner is added to an cannot take in a new partner; Love existing firm, it is really the crea- v. Payne (1880), 73 Ind. 80, 38 Am. tion of a new partnership and the Eep. 111. new partner requires no interest in 24 See Ringo v. Wing (1887), 49 the assets of the former partner- 281 319] LAW OF PARTNERSHIP terest in the property of the former partnership than the agree- ment which provides for his admission may confer upon him. The same agreement will also, ordinarily, prescribe the propor- tion of the existing obligations which he is to assume. 85 This proportion will usually be the same as that of the interest ac- quired, but it is not necessarily the same. His rights of action on existing obligations due to the firm into which he enters would usually be those of a mere assignee. 86 319 No rule of partnership or of agency, of course, can alone make an incoming partner liable for the obligations incurred before he became actually or ostensibly a member of the firm. He must in some form assume the liability, if he is to be liable at all. 37 His agreement to make himself responsible must have a consideration, 38 and it must be one available to the ship and assumes no liability for its debts unless there is an agreement to that effect: Hatchett v. Blanton, supra. Not liable unless he agreed to.be; Babcock v. Stewart (1868), 58 Pa. 179. No presumption of such an agreement; it must be shown: Kountz v. Holthouse (1877), 85 Pa. 235; Bracken v. Dillon (1879), 64 Ga. 243, 37 Am. Kep. 70; Peyser v. Myers (1892), 135 N. Y. 599, 32 N. E. 699; Peters v. McWilliams (1884), 78 Va. 567; Wolff v. Madden (1893), 6 Wash. 514, 33 Pac. 975, Gilm. Cas. 325; that a particular debt was among those assumed may appear from conduct and circumstances: Flour City Bank v. Widener (1900), 163 N. Y. 276, 57 N. E. 471; Peyser v. Myers, supra. If certain enumerated debts are assumed, he is not liable for others; McGilvery v. McGilvery (1912), 23 Idaho 116, 128 Pac. 978. 35 See Serviss v. McDonnell (1887), 107 N. Y. 260, 14 N. E. 314. 36 See post 325. 37 Courts sometimes infer an as- sumption from rather slight evi- dence. See Wood v, Macafee (1918), 172 N. Y. Supp. 703, citing many eases. Especially where the new firm takes the old firm's prop- erty; Shaw v. McGregory (1870), 105 Mass. 96. In Cross v. National Bank (1876), 17 Kan. 336, Gilm. Cas. 326, the court says: "While an incoming partner does not by the mere fact of joining the firm be- come liable for its prior debts, yet he may assume such liability, and it is a question in fact whether he did so. And very slight testimony, the books say, will be sufficient to show he did," citing Ex parte Jackson (1790), 1 Ves. 131; Updike v. Doyle (1863), 7 E. I. 446, and other cases. 38 Must be consideration; Bracken v. Dillon, supra; Rohlfing v. Carper (1894), 53 Kan. 251, 36 Pac. 336. The interest acquired in the prop- erty-may be a sufficient considera- tion; Eohlfing v. Carper, supra. New partner bound by note given by new firm in consummation of 282 NATURE AND EXTENT OF LIABILITY [319 party who seeks to enforce it. It may be an agreement with the other partners only and which they only can enforce, 38 or it may be an agreement which, if not actually made with the creditors, or to which they become parties by an express or an implied novation, 40 is yet one so far made for the benefit of the creditors that they may enforce it in those jurisdictions which permit the beneficiary to sue at law. 41 The consideration may move from the creditors: in the ordinary case, however, it does not, and the creditors are merely the beneficiaries of the agree- ment between the old partners and the new one. As will be seen, the fact that a new firm or a new partner assumes the debts of the old one does not of itself release the liability of the old one to the creditor unless he consents to the change. Where, at the same time that a new partner comes in a previ- ous one also retires, there are additional questions, some of which dealings with old, though creditor did not know of the new partner: Kearney v. Snodgrass (1885), 12 Ore. 311, 7 Pae. 309. As to whether such undertaking is a promise to pay the debt of another within the Statute of Frauds, see Bracken v. Dillon, supra; Spann v. Cochran (1885), 63 Tex. 240; Townsend v. Long (1874), 77 Pa. 143, 18 Am. Eep. 438. 39 In New York, notwithstanding Lawrence v. Fox, it is held that an incoming partner who agrees that the new firm shall pay the debts of the old, is liable to the old firm only and not the creditors of that firm: Wheat v. Eice (1884), 97 N. Y. 296; Serviss v. McDonnell (1887), 107 N. Y. 260, 14 N. E. 314; see also Ayers v. Gallup (1880), 44 Mich. 13, 5 N. W. 1072; Hicks v. Wyatt (1861), 23 Ark. 56, Gilm. Cas. 328. 40 If the creditor is informed and expressly or by implication consents there may be found to be a nova- tion, post, 429. 41 That the creditor may sue on the agreement to assume and pay, see Maxfield v. Schwartz (1890), 43 Minn. 221, 45 N. W. 429; Dodge v. Cutrer (1911), 100 Miss. 647, 56 So. 455; Poole v. Hintrager (1882), 60 Iowa 180, 14 N. W. 223; Han- nigan v. Allen (1891), 127 N. Y. 639, 27 N. E. 402; Arnold v. Nichols (1876), 64 N. Y. 117, Gilm. Cas. 328; Ellis v. Harrison (1891), 104 Mo. 270, 16 S. W. 198; Shamp v. Meyer (1886), 20 Neb. 223, 29 N. W. 379; Merriman v. Mfg. Co. (1878), 12 E. I. 175; Blake v. At- lantic Bank (1913), 33 E. I. 464, 82 Atl. 225, 39 L. E. A. (N. S.) 874; Spana v. Cochran (1885), 63 Tex. 240; Townsend v. Long (1874), 77 Pa. 143, 18 Am. Eep. 438; White v. Thielens (1884), 106 Pa. 173; Adams v. Kuehn (1888), 119 Pa. 76, 13 Atl. 184. Contra: Morgan v. Eandolph (1900), 73 Conn. 396, 47 Atl. 658, 51 L. E. A. 653 ; Ayres v. Gallup (1880), 44 Mich. 13, 5 IT. W. 1072. 283 320, 321] LAW OB' PARTNERSHIP are touched in the following sections dealing with an outgoing partner. 320. Under the Uniform Partnership Act, The Uni- form Partnership Act proposes a radical change in the existing law. It provides that "A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership before his admission as though he had been a part- ner when such obligations were incurred, except that this liabil- ity shall be satisfied only out of partnership property." 42 It will be observed that this does not, like the contractual assump- tion, impose upon the incoming partner a general and individual liability which could be satisfied out of his separate estate. It presumptively does not preclude a contractual assumption with its ordinary consequences. The purpose of the provision is to enable the creditors of the first firm more effectually to secure payment out of its assets notwithstanding their transfer to the succeeding firm. 43 321. Of an outgoing partner. A person who retires from a firm wlych thereafter continues is said to be an outgoing or re- tiring partner. His withdrawal is, of course, in law ordinarily a dissolution of the firm, though in practice the firm is fre- quently spoken of as continuing, and his liability for future acts is governed by the general rules governing dissolution. He is, as will be seen, 44 in general liable for acts done until he has not only withdrawn from the firm but has also given due notice of his withdrawal. 46 His liability to creditors for the existing debts and obliga- tions of the partnership is, of course, not terminated by his withdrawal, but continues with all of the ordinary incidents, such as liability to action, joinder as a party, and the like, until he has in some way been discharged. No arrangement made between the continuing partners and himself can, of itself, re- 42 Sec. 17. The same provision is 43 See post, 462. repeated, in slightly different Ian- 44 See post, 398. guage, in section 41 of the act. 45 See post, 387-397, 234 NATURE AND EXTENT OP LIABILITY [322 lease him from his liability to the existing creditors unless the latter in some way assent to it, although, as will be seen, such arrangements are sometimes held to create a relation of prin- cipal and surety between the continuing and the retiring part- ners, which, when brought to the attention of the creditor, he may not ignore. 46 The creditor may also, as will be seen, ex- pressly or tacitly so assent to the arrangement as to work a no- vation and the consequent release of the outgoing partner. 47 322. The outgoing partner whom the continuing part- ners have undertaken to protect has his remedy against them according to the nature of their undertaking. 48 If their agree- ment was to pay the debts when due, there will be a breach of that agreement if they fail to do so, even though the outgoing partner has not paid or been compelled to pay the debts him- self. That fact affects only the measure of damages, not the 46 See post, 428. 47 See post, 429. 48 See Meyer v. Parsons (1900), 129 Cal. 653, 62 Pac. 216; Alex- ander v. McPeck (1904), 189 Mass. 34, 75 N. E. 88; Eobinson v. Eoos (1891), 138 111. 550, 28 N. E. 821; Griffin v. Oman (1860), 9 Fla. 22; Berridge v. Slawson (1893), 94 Mich. 484, 54 N. W. 278; Button v. Dunn (1866), 54 Me. 152; Ed- wards v. Kemington (1881), 51 Wis. 336, 8 N. W. 193, Mechem's Gas. 907. Where one partner sells out to a third person, who agrees to assume his share of the debts, and the pur- chaser and the other partner form a new partnership and continue the business, there is held to be an im- plied undertaking on the part of the continuing partner to save the re- tiring partner harmless to the extent of the assets only and not absolute- ly: Peyton v. Lewis (1851), 51 Ky. (12 B. Mon.) 356, Mechem's Gas. 1028. Compare La Montagne v. Bank of N. Y. (1905), 183 N. Y. 173, 76 N. E. 33; Sheppard v. Bridges (1911), 137 Ga. 615, 74 S. E. 245. Retired partners held not liable to contribute to the members of the continuing partnership who have paid the existing debts; Savage v. Putnam (1865), 32 N. Y. 501. In a joint stock company or part- nership with transferable shares, members who retire leaving the as- sets and business to the others and their successors are held entitled to be indemnified by the latter against the existing debts: Tyrell v. Wash- burn (1863), 88 Mass. (6 Allen) 466. Where partner sells out to his co- partners who continue the business, held knplied agreement on their part to indemnify him against existing debts: Gobb v. Benedict (1900), 27 Colo. 342, 62 Pac. 222, Mechem's Gas. 557. 285 322] DAW OP PARTNERSHIP breach. If the agreement were to indemnify him against loss, he ordinarily could not complain until he had paid or been compelled to pay the debts or any of them. He would have an action at law for damages, or, in many cases, in equity to com- pel performance of the agreement to indemnify. 288 CHAPTER XIV. OF ACTIONS BY AND AGAINST THE PARTNERSHIP. 323. In general. I. PARTIES TO ACTIONS BY THE PARTNEESHIP. 324. Who should sue in actions by the firm. 1. In Contract. 325, 326. a. Contracts made in firm name. 327. 6. Contracts made in name of one partner for the firm. 328. Actions cannot usually be brought in firm name. 329. One suing for all where part- ners are very numerous. 2. In Tort. 330. All partners must sue for torts affecting firm. 3. Effect of Personal Disability. 331. Effect of disability of one partner Recovering prop- erty wrongfully disposed of by him. II. PARTIES TO ACTIONS AGAINST THE PARTNERSHIP. 332. Who should be sued in actions against the firm. 323. In general. The general subject of actions by and against the partnership obviously suggests a great variety of questions, such as process, parties, pleading, evidence, defences, and the like, many of which are too extensive or technical for consideration in such a book as this. The question, however, of 287 1. In Contract. 333. All actual and ostensible partners should be joined. 334. How when contract made in name of one partner. 335. Dormant and secret partners proper but not necessary parties. 336. Nominal partners. 337.' Firm as such not to be sued except by statute. 2. In Tort. 338. Actions of tort may be brought against all or any of the partners. 339. No action against firm except by statute. III. SET OFF IN ACTIONS BY AND AGAINST THE PARTNERSHIP. 340. Set off of individual and partnership claims. 341. Under statutes. 342. In equity. 324, 325] LAW OF PARTNERSHIP who are the proper parties to such actions is one of rather funda- mental interest, and so are some matters of defense like set-off, and to these subjects this chapter will be chiefly confined. The question of who should be the parties to actions by the partner- ship involves somewhat different considerations from those raised when the action is against the partnership. Each sub- ject will therefore be separately considered. What is here said has reference to actions brought during the continuance of the partnership. The rules applicable where the partnership is dis- solved by death or otherwise will be considered later when deal- ing with the effect of dissolution. 1 I. PARTIES TO ACTIONS BY THE PARTNERSHIP. 324. Who should sue in actions by the firm. The question who should join as parties plaintiff may arise when the action is (1) in contract, or (2) in tort. In the former case the con- tract may have been made (a) in the name of the firm, or (&) in the name of one partner for the benefit of the firm. 1. In Contract. 325. a. Contracts made in firm name. In actions upon con- tracts made in the name of the firm, the action should be brought in the individual names of all the persons who were the actual and ostensible partners at the time the debt or contract sued upon was made or incurred. If some of those partners have since retired from the firm, the action must still be in the names of those who were the partners at the time, and cannot be main- tained in the names of the present partners, except in those cases in which the outgoing partners have assigned their inter- ests to the remaining partners, and the statutes permit such as- signees to sue in their own names, or in which there has been a promise to pay to the new firm. If one has been admitted as a partner who was not such at the time the contract was made, he cannot join in the action, although it were agreed as between the partners themselves that he should become equally interested with the others in all the 1 See post, 402 et $eq, 288 [326 existing property and rights of the firm, unless he may sue as an assignee, or unless, after the accession of the incoming part- ner, there has been a new and binding promise to pay the firm as newly constituted. 2 Dormant partners are admissible but not indispensable parties. 8 Nominal partners need not be joined unless they have been expressly named in the contract, 4 but it is not improper to join them. 6 These rules seem not to be changed by the codes of procedure. 326. Same subject. The mere fact that the partnership has since been dissolved does not ordinarily change the rule re- quiring joinder. 6 If the partnership was dissolved by the death of a partner, then, as will be seen, the surviving partner or partners will sue "as survivors of" themselves and the deceased partner. 7 If dissolved by the assignment of one partner's in- 2 See Fireman's Ins. Co. v. Floss (1887), 67 Md. 403, 10 Atl. 139, I Am. St. Eep. 398. 3 See Wood v. O 'Kelly (1851), 8 Cush. (Mass.) 406; Hilliker v. Loop (1833), 5 Vt. 116, 26 Am. Dec. 286; Waite v. Dodge (1861), 34 Vt. 181; Monroe v. Ezzel (1847), II Ala. 603; Seymour v. Eailroad Co. (1882), 106 U. S. 320. Where K alone carries on business in name of K. & Son, he may sue alone to recover for services render- ed: Kell v. Nainby (1829), 10 B. & C. 20, 5 M. & R. 76; Lasher v. Colton (1907), 225 111. 234, 80 N. E. 122, 8 A. & E. Ann. Gas. 367; Bishop v. Hall (1857), 75 Mass. (9 Gray) 430. If the dormant partner joins, defendant will not thereby be de- prived of defenses which he had ac- quired against the ostensible part- ners only before he knew of the others: Hilliken v. Loop, supra. 4 See Guidon v. Robson (1809), 2 Camp. 302; Enix v. Hays (1878), Mech. Part. 19 289 48 Iowa 86. (Here J, who was really the sole owner, sues alone to recover the price of cattle sold by him to defendant: defendant cannot insist upon the joinder of P, alleged by him to be a nominal partner with J; nor can he set off against J, a claim really against P only, even though when he acquired it he er- roneously thought it was against J and P.) G'See Jones v. Howard (1876), 53 Miss. 707; Waite v. Dodge (1861), 34 Vt. 181. Where three persons were doing business as partners but two of them were nominal only, in an action by the three on a note, payable to them in their firm name, defendant not permitted to set off a claim which he holds against the third (and real owner) only: Jones v Howard, supra. 6 See Fish v. Gates (1882), 133 Mass. 441; Hyde v. Moxie Co. (1894), 160 Mass. 559, 36 N. E. 585. 7 See post, 402, 403. 327] LAW OP PARTNERSHIP terest, the action will be in the names of the remaining partner and the assignor for the benefit of the assignee, except in juris- dictions where an assignee may sue in his own .name ; 8 if dis- solved by bankruptcy of one partner, the solvent partner and the assignee would sue under former Acts, 9 though under the entity theory of the present Act the rule may be different as to the assignee. 10 On partnership claims assigned by an outgoing partner to the others the latter could not, at common law, sue in their own names alone (except where the claim was a nego- tiable instrument) but must sue in the name of all for the bene- fit of the assignees. 11 Under some statutes and the codes of pro- cedure, the assignee may sue in his own name. 12 In actions upon contract, at common law, a mis-joinder or non- joinder of necessary parties as plaintiffs, where the defect ap- peared upon the face of the pleadings, could be taken advantage of by demurrer, motion in arrest of judgment, or writ of error ; if not so apparent, by plea in abatement or motion for a non- suit. Under the codes of procedure, the objection must usually be raised by pleading. 18 327. &. Contracts made in name of one partner for the firm. Where the contract was made in the name of one part- ner but for and on account of the partnership, the action should usually be brought, on simple contracts, in the name of all the partners who constituted the partnership at the time the con- tract was made ; 14 on a simple contract in writing made in the 8 See Pugh v. Holliday (1854), 3 79; Mosgrove v. Golden (1882), 101 Ohio St. 285. Pa. 605. 9 See Murray v. Murray (1821), 12 See Viles v. Bangs (1874), 36 5 Johns. (N. Y.) Ch. 60; Browning Wis. 131; Walker v. Steel (1886). v. Marvin (1880), 22 Hun (N. Y.) 9 Colo. 388, 12 Pac. 423; West v. 547; Pugh v. Holliday (1854), 3 Citizens Ins. Co. (1873), 27 Ohio Ohio St. 285. St. 1, 22 Am. Rep. 294. 10 See In re Meyer (1899), 39 13 See Williams v. Southern Pac. C. C. A. 368, 98 Fed. 976; 414. R. Co. (1895), 110 Cal. 457, 42 11 See Howell v. Reynolds (1847), Pac. 974; Dodge v. Ship Co. (1869), 12 Ala. 128; Molen v. Orr (1884), 37 How. Pr. (N. Y.) 524, 31 N. Y. 44 Ark. 486; Lunt v. Stephens Super. Ct. 453, 6 Abb. Pr. (N. S.) (1845), 24 Me. 534; Tate v. Ins. 451; Molen v. Orr, supra. Co. (1859), 79 Mass. (13 Gray) 14 Ordinary informal dealings with 290 ACTIONS BY AND AGAINST PARTNERSHIP [327 name of one partner, either the partners or the one in whose name it was made may ordinarily sue ; 16 if the contract were expressly made with one partner to the exclusion of the partner- ship he alone must sue upon it ; 16 on a contract under seal or a negotiable instrument the action must be brought in the name of the partner who was the party to it. 17 Where the partners sue on a contract made by one partner who did not disclose the existence of the firm, the defendant may usually avail himself of any defenses which might have been open to him if the partner had sued in his own name, and which he had acquired before he knew of the interest of the partner- ship. 18 one partner who was acting for the partnership would usually create rights of action in the partnership. See Creel v. Bell (1829), 2 J. J. Marsh. (Ky.) 309; De Wit v. Lan- der (1888) 72 Wis. 120, 39 N. W. 349; Kefauver v. Price (1918), 138 Ark. 342, 206 S. W. 664. Where several partners ostensibly carry on business, but in the name of one of them as the firm name, all should sue. Wilson v. Wallace (1822), 8 Serg. & Eawle (Pa.) 53. An undisclosed partnership would usually stand upon the same footing as to rights of action as an undis- closed principal. (See II Mechem on Agency, 2025) ; Badger v. Dae- nieke (1883), 56 Wis. 678, 14 N. W. 821; Curtis v. Belknap (1849), 21 Vt. 433. 15 See Curtis v. Selknap, supra, Partner in whose name a bill of lading has been issued may sue upon it. Mo. Pac. B. Co. v. Smith (1892), 84 Tex. 348, 19 S. W. 509. Partner in whose name insurance policy was issued may sue upon it : Mutual F. Ins. Co. v. Hammond (1899), 106 Ky. 386, 50 S. W. 545, 20 Ky. Law B. 1944; Clement v. Brit. Am. Assur. Co. (1886), 141 Mass. 298, 5. N. E. 847. 16 Where a written contract is ex- pressly made with two named part- ners of a named partnership of three, the two named only may sue. Hilliker v. Francesco (1877), 65 Mo. 598. Creditor who knowingly ac- cepts note of one partner and gets judgment upon it cannot later hold the firm. White v. Eech (1895), 171 Pa. 82, 32 Atl. 1130. Where action is based upon legal title and that is in one partner, he is proper party. Trott v. Irish (1861), 83 Mass. (1 Allen) 481. See also Law v. Cross (1861), 66 U. S. 533, 17 L. ed. 185; The Potomac (1862), 67 U. S. 581, 17 L. ed. 263. Partner may so conduct himself as to be estopped to assert that he was acting for himself only and not for the partnership. White Mt. Bank v. West (1858), 46 Me. 15. 17 See Metcalfe v. Eycroft (1817), 6 Maule & Sel. 75; Scott v. Good- TV in (1797), 1 Bos. & Pul. 67; State v. Merritt (1879), 70 Mo. 275. 18 See Gilbert v. Lichtenberg (1894), 98 Mich. 417, 57 N. W. 259. 291 328, 329] LAW OF PARTNERSHIP 328. Actions cannot usually be brought in firm name. As has already been noticed, actions cannot be brought by the part- ners in the firm name unless by virtue of a statute authorizing it. In the absence of such a statute, partners sue collectively, but as individuals. In their process and pleading it is proper, though not usually necessary, to allege that they are partners and constitute thp firm named. 19 In many states, however, there are now statutes authorizing suits in the firm name, either generally or where the individual names are not known at the time the action is commenced. In a number of States, by statute, partners doing business in a so-called "fictitious" name 20 may not sue, though they may usually be sued. 81 329. One suing for all where partners are very numerous. Where the partners are very numerous, as they sometimes are in joint-stock companies, and it would be impracticable or highly inconvenient to join them all as plaintiffs, it is sometimes provided by statute, following the practice in equity, that one or more may sue for the benefit of all. 28 A mere managing part- is Where the plaintiffs would be Schwartz v. Marcuee (1917), 175 entitled to recover as joint parties Cal. 401, 165 Pac. 1015; Axe v. merely, the failure to allege that Tolbert (1914), 179 Mich. 556, 146 they were partners would be imma- N. W. 418; Guiterman v. Wishon terial; the allegation that they were (1898), 21 Mont. 458, 54 Pac. 566; partners would be surplusage; and Patterson v. Byers (1907), 17 Okla. no issue could properly be raised 633, 89 Pac. 1114, 10 Ann. Cas. 810; respecting it. See Marx v. Cul- Bovee v. De Jong (1908), 22 S. pepper (1898), 40 Fla. 322, 24 So. Dak. 163, 116 N. W. 83; McFadden 59; Hyde v. Ford Co. (1894), 160 v. jShanley (1914), 16 Ariz. 91, 141 Mass. 559, 36 N. E. 585; Courson Pac. 732. v. Parker (1894), 39 W. Va. 521, 22 See Platt v. Colvin (1893), 50 20 S. E. 583. On the other hand, Ohio St. 703, 36 N. E. 735, where there would be cases in which an one member, who was also the presi- allegation of partnership might be dent, was permitted to sue in Ohio necessary to identify the plaintiffs for the United States Express Com- as the promisees in the contract sued pany, a joint stock company. In upon. New York, where the company was 20 See ante 121. organized, the statute authorized ac- 21 See Holden v. Mensingar tion in the name of the president. (1917), 175 Cal. 300, 165 Pac. 950; Here there were about 1,000 mem- 292 ACTIONS BY AND AGAINST PARTNERSHIP [330 ner, however, has been held to have no implied authority, under this rule, to sue as the representative of all. 23 2. In Tort. 330. All partners must sue for torts affecting firm. In actions for torts committed against the partners as such, such as trespass to partnership property, injury to its business, libels upon it, and the like, all of the partners must join as plaintiffs. 24 One partner alone, therefore, cannot ordinarily maintain an action to recover damages for an injury to partnership prop- erty, i. e., he cannot recover alone for the joint injury, nor can he ordinarily recover separately for his share of the joint in- jury. 25 Where he alone had possession, he might maintain pos- sessory actions. There can be no recovery, on the other hand, in the action by the firm, for injuries which only affect one or more partners personally. 26 Thus, for example, when suing for a libel upon the firm, the injury to the firm business is only to be recovered for in the joint action, and not the injury to the feelings of the partners personally ; 27 and when suing for the bers. But 35 are not "very numer- ous," i. e., so numerous that it is impracticable to join them: Kirk v. Young (1856), 2 Abb. Pr. (N. Y.) 453; nor are 40, Brainerd v. Ber- tram (1878), 5 Abb. N. C. (N. Y.) 102. In Chancey v. May (1722), Finch's Free. Chan. 592, there were apparently about 800. See also McKenzie v. L'Amoureux (1851), 11 Barb. (N. Y.) 516; Wall v. Boisgerard (1848), 11 Sm. & M. (Miss.) 574; George v. Benjamin (1898), 100 Wis. 622, 76 N. W. 619, 69 Am. St. E. 963. 23 See Brainerd v. Bertram, supra. 24 See White v. Campbell (1893), 18 E. I. 150, 26 Atl. 40; Hughes v. Boring (1860), 16 Cal. 81; Peaks v. Graves (1888), 25 Neb. 235, 41 ]SVW. 151; Farnum v, Ewell (1887), 59 Vt. 327, 10 Atl. 527; Medbury v. Watson (1843), 47 Mass. (6 Mete.) 246, 39 Am. Dec. 726; Forster v. Lawson (1826), 3 Bing. 452, Burd. Cas. 303. 25 See Sindelare v. Walker (1891), 137 111. 43, 27 N. E. 59, 31 Am. St. E. 353, Mechem 's Cas. 194, Burd. Cas. 304. See, also, White v. Camp- bell (1893), 18 E. I. 150, 26 Atl. 40; Bigelow v. Eeynolds (1888), 68 Mich. 344, 36 N. W. 95; Seed v. Gould (1895), 105 Mich. 368, 63 N. W. 415, 55 Am. St. E. 453. 26 See Calkins v. Smith (1872), 48 N. Y. 614, 8 Am. Eep. 575. 27 See Donnell v. Jones (1848), 13 Ala. 490, 48 Am. Dec. 59; Dona- ghue v. Gaffy (1885), 53 Conn. 43, 2 Atl. 397. Compare Collier v. Postum Cereal Co. (1912), 150 N. 293 331] LAW OF PARTNERSHIP wrongful seizure of property, the seizure of the individual prop- erty of one partner is not to be considered. 28 The same wrongful act may, of course, occasion both a part- nership and an individual loss, so that a joint action for the joint wrong, and individual actions for the individual wrongs might be maintained. In the same general act there may also be duties to the partnership and other duties to the individual, for the violation of either of which an action might be brought. 29 3. Effect of Personal Disability. 331. Effect of disability of one partner Recovering prop- erty wrongfully disposed of by him. Where one partner has wrongfully disposed of partnership property, securities or money (as by using it to pay his own private debts), or has at- tempted, for the same purpose, to permit his own debt to be set off against a partnership demand, the question whether an action at law may be maintained to recover it or its value from the transferee is involved in dispute. It is said in many cases that no such action can be maintained, not by the other part- ner alone, for the property did not belong to him alone, and he cannot even recover to the extent of his interest without an ac- counting ; 30 and not by an action in which all of the partners, including the guilty one, are parties, for the guilty partner could not recover if he alone were involved (having consented to the act), and to allow a recovery where he is one of the plain- tiffs is to permit him to profit by his own wrong. 31 The remedy Y. App. Div. 169, 134 N. Y. S. vidual account of one so carelessly 847 with Wills v. Jones (1898), 13 that he suffered loss, an action may App. Gas. D. C. 482. be brought by that one. Story v. 28 See Watts v. Kice (1883), 75 Eichardson (1839), 6 Bing. N. C. Ala. 289. Partners in a joint action 123. may not recover for seizure of indi- 30 See Eeed v. Gould (1895), 105 vidual exemptions of each. Eogers Mich. 368, 63 N. W. 415, 55 Am. St. v. Eaynor (1894), 102 Mich. 473, E. 453; Bumpus v. Turgeon (1904), 60 N. W. 980. 98 Me. 550, 57 Atl. 883; White v. 89 Where the defendant was em- Campbell (1893), 18 E. I. 150, 26 ployed to make out a firm account Atl. 40. and also an individual one for each 31 See Jones v. Yates (1829), 9 partner, and he made out the indi- B. & C. 532 (by assignee of firm) : 294 ACTIONS BY AND AGAINST PARTNEKSHIP [331 of the innocent partner, according to these cases, is either against the guilty partner alone, or in equity against him and the trans- feree in a forum where all rights can be adjusted. 32 Many other cases, on the other hand, permit the action to be maintained, either in the names of all for the benefit of the in- nocent partner, 33 or in the latter 's name alone to recover to the extent of his interest. 34 This disability would not exist where [But see Heilbert v. Nevill (1869), L. E. 4 Com. P. 354] ; Homer v. Wood (1853), 65 Mass. (11 Gush.) 62; Farley v. Lovell (1869), 103 Mass. 387; Grover v. Smith (1896), 165 Mass. 132, 42 N. E. 555, 52 Am. St. E. 506; Cornells v. Stanhope (1883), 14 E. I. 97; Greeley v. Wyeth (1838), 10 N. H. 15; Chase v. Bean (1877), 58 N. H. 183; Craig v. Hulsehizer (1871), 34 N. J. L. 363; Blodgett v. Sleeper (1877), 67 Me. 499; Bumpus v. Turgeon, supra; Church v. First Nat. Bank (1877), 87 111. 68 [compare McNair v. Platt (1867), 46 111. 211]; Carrie v. Cloverdale (1891), 90 Cal. 84, 27 Pac. 58; Estabrook v. Messersmith (1864), 18 Wis. 545 [compare Cotz- hausen v. Judd (1877), 43 Wis. 213, 28 Am. Eep. 539], 32 See Hoff v. Eogers (1889), 67 Miss. 208, 7 So. 358, 19 Am. St. E. 301. 33 See Eogers v. Batchelor (1838), 37 U. S. (12 Peters) 221, 9 L. ed. 1063; Johnson v. Crichton (1880), 56 Md. 108; Dob v. Halsey (1819), Ifi Johns. (N. Y.) 34, 8 Am. Dee. 293; Forney v. Adams (1881), 74 Mo. 138; Ackley v. Staehlin (1874), 56 Mo. 558; Nail v. Mclntyre (1858), 31 Ala. 532; Buck v. Mose- ley (1852), 24 Miss. 170; Daniel v. Daniel (1848), 9 B. Mon. (Ky.) 195. 34 See McNair v. Wilcox (1888), 121 Pa. 437, 15 Atl. 575, 6 Am. St. E. 799; Doll v. Hennessy Merc. Co. (1905), 33 Mont. 80, 81 Pac. 625; Phillips v. Thorp (1903), 12 Okla. 617, 73 Pac. 268; Eady v. Newton Coal Co. (1905), 123 Ga. 557, 51 S. E. 661, 1 L. E. A. (N. S.) 650; as assignee of other partner, Viles v. Bangs (1874), 36 Wis. 131. See, also, Liberty Bank v. Campbell (1881), 75 Va. 534. Where the wrongful disposal by one partner occurred after the dis- solution and after all firm debts were paid, other may recover to the extent of interest: Hogendobler v. Lyon (1893), 12 Kan. 276. Where one partner fraudulently released a firm claim on receipt of a portion of it, and deposited one half of the sum so received in a bank for his copartner, the latter was permitted to recover one half of the residue. Busby v. Books (1904), 72 Ark. 657, 8] S. W. 1056. But in a case (not officially reported) in Kentucky, where the circumstances were similar except that the fraudulent partner kept the whole sum received, the other partners were permitted to recover the whole claim. Phoenix Ins. Co. v. Miller (1891), 13 Ky. L. Eepr. 464. 295 332,333] LAW OF PARTNERSHIP one partner has acquired, e. g., by assignment, the right to sue in his own name alone without joining the guilty partner. 35 So if the innocent partner survived the other, he could recover. 88 II. PARTIES TO ACTIONS AGAINST THE PARTNERSHIP. 332. Who should be sued in actions against the firm. The question, who are proper parties defendant in actions against the partnership, presents substantially the same considerations as the question who should be plaintiffs, though the two cases are not identical. 1. In Contract. 333. All actual and ostensible partners should be joined. The contract obligations of the firm being joint, all of the actual and ostensible partners who were such at the date of the con- tract must, as a rule, be joined as parties defendant in actions on contract. 37 Failure to join them must, however, at common law, be taken advantage of by a plea in abatement, 38 unless the defect appeared upon the face of the papers, in which case the question could be raised by demurrer, motion in arrest of judg- ment, or writ of error. 39 This rule of joinder, however, has been changed in several states by statutes which make joint debts joint and several at the option of the obligee. 40 As has been seen, the fact that one who was a partner when the contract was made has since retired will not of itself relieve him from liability ; neither can one who was not then a partner, 35 See Brickett v. Downs (1895), land v. Woodward (1843), 15 Vt. 163 Mass. 70, 39 N. E. 776, Burd. 302, 40 Am. Dec. 682, Mechem's Gas. Gas. 215. 388; Wilson v. McCormick (1890), 36 See Binns v. Waddill (1879), 86 Va. 995, 11 S. E. 976. 32 Gratt. (Va.) 588. 39 See Sandusky v. Sidwell, supra; 37 See Smith v. Cooke (1869), 31 Sinsheimer v. Skinner Mfg. Co. Md. 174, 100 Am. Dec. 58; San- (1897), 165 111. 116, 46 N. E. 262. dusky v. Sidwell (1898), 173 111. 40 This seems to be the case in 493, 50 N. E. 1003; Harrison v. Me- Alabama, Arkansas, Colorado, Geor- Cormick (1886), 69 Gal. 616, 11 Pac. gia, Iowa, Kansas, Kentucky, Mis- 456. sissippi, Missouri, Montana, New 38 See Fogg v. Virgin (1841), 19 Jersey, New Mexico, North Carolina Me. 352, 36 Am, Dee. 757; Cleve- and Tennessee. 296 ACTIONS BY AND AGAINST PARTNERSHIP [334,335 but has since come in, be held liable unless by novation or other- wise he has assumed liability in such a way that the creditor may proceed against him at law. 41 If the partnership was dissolved by death, then, as will be seen, legal actions usually may be brought against the survivors only, and the representatives of the deceased partner are not to be joined; 42 though recourse may usually be had in equity to the estate of the deceased partner. 43 334. How when contract made in name of one partner. Where a partner is known to be acting as such for a known partnership, it is the presumption that all of the ordinary, in- formal contracts which he makes are upon the account of the partnership, and they should be enforced in the usual manner. If, however, credit were given to him to the exclusion of the partnership, he would be the only one bound to the other party. In making formal contracts in writing, he may so stipulate as to bind himself, even though that may not have been his actual intention. On non-negotiable and simple contracts so made, the partners would also usually be liable at the option of the other party, even though so framed that the single partner might be sued alone. Dormant and secret partners are dealt with in the next section. 335. Dormant and secret partners proper but not necessary parties. Dormant and secret partners are proper but not nec- essary parties. If the contract were made by one partner in his own name, but really for the firm, that partner or all of the partners may be sued, if it were a simple contract; but if it were a specialty or a negotiable instrument the partner named in it as the maker of it can alone be sued upon it. 44 The ordinary rules of agency respecting the liability of an undisclosed principal apply here. See ante, 317-321. (1864), 30 N. Y. 374; Scott v. Con- 42 See post, 402. way (1874), 58 N. Y. 619; Page v. 43 See post, 411. Brant (1856), 18 111. 37; Hatch v. 44 See Cleveland v. Woodward Wood (1862), 43 N. H. 633; Wright (1843), 15 Vt. 302, 40 Am. Dec. 682, v. Herrick (1878), 125 Mass. 154. Mechem's Cas. 388; North v. Bloss 297 336-338] LAW OP PAETNEBSHIP 336. Nominal partners. Similarly, a nominal partner, i. e., one who is not really a partner but who has caused or per- mitted himself to appear to the plaintiff to be a partner, is a proper but not a necessary party. He may be held, but the plaintiff may decline or omit to do so, and rely on those who are in fact the partners, if he can make a case against them. 45 If there were no actual partners or if they were not liable for the act, as for example / where it was the unauthorized act of the nominal partner only, the latter alone would be liable. 337. Firm as such not to be sued, except by statute. As in the case of parties plaintiff already referred to, the firm as such is not such a legal entity as may be sued, except where some statute so declares. 46 Nor, in the absence of a statute, may actions be brought against the partners in the firm name ; though statutes are common which give such a right, either generally or to sustain the action until the proper individual names can be learned and supplied. 2. Actions of Tort. 338. Actions of tort may be brought against all or any of the partners. Causes of action in tort for wrongs for which the partnership is responsible, whether committed by a partner or by partnership servants or agents, and not essentially con- sisting of a breach of a partnership contract, are not joint, but joint and several, and the suit may be brought against all or any of the partners. 47 45 See Hatch v. Wood (1862), 43 of process on one partner, with a re- N. H. 633; Wright v. Herrick, turn, of non est inventus as to the supra; Scarf v. Jardine (1882), L. ethers, shall authorize a judgment E. 7 App. Cas. 345, Mechem '& Gas. against the firm binding all the firm 484; Ex parte Watson (1815), 19 assets and the individual property Ves. 459; Thayer v. Goss (1895), 91 of the one served." Wis. 90, 64 N. W. 312, Mechem 's In penal actions, proceedings Cas. 492. should be against the partners, not 46 Thus in Georgia the statute against the firm as an entity. People (3167, Code 1911), provides: v. Paisley (1919), 288 111. 310, 123 "Judgments may be entered up and N. E. 573. execution issue in the name of the 47 See Albright v. McTighe firm or against a firm. And service (1892), 49 Fed. 817; Wisconsin 298 ACTIONS BY AND AGAINST PARTNERSHIP [339,340 An exception to this rule was said to exist where the action arises in respect of their common interest in land, where all ought to be joined ; but this distinction was not continued under the English Partnership Act. 48 339. No action against firm as such, except by statute. As in the preceding subdivision, no action for a tort lies against the firm as such, except by statutes; but under the Georgia statute, for example, it has been held that the partnership as a separate entity may be held liable for a tort. 49 III. SET-OFF IN ACTIONS BY AND AGAINST THE PARTNERSHIP. 340. Set-off of individual and of partnership claims. The question whether in an action by or against the partnership there may be a set-off of individual against partnership de- mands and vice versa, is one which frequently arises, and seems to be somewhat related to the question of parties which has just been considered. The question of set-off in general is the ques- tion whether the defendant in an action may avail himself in his defense of a claim which he has against the plaintiff who is suing him, instead of bringing a separate action to enforce it. If the claim in question is one for a reduction or allowance arising out of the very transaction upon which the plaintiff sues, it is usually a matter for recoupment rather than set-off; if it Cent. R. Co. v. Boss (1892), 142 111. in tort, is really founded upon the 9, 31 N. E. 412; Creed v. Hartmann breach of a partnership contract, (1864), 29 N. Y. 591, 86 Am. Dec. (e. g., the liability of a firm of 341; Wood v. Luscomb (1868), 23 physicians under their implied con- Wis. 287; Fletcher v. Ingram tract to use skill,) the liability is (1879), 46 Wis. 191, 50 N. W. 424; joint: Whittaker v. Collins (1885), Howe v. Shaw (1868), 56 Me. 291; 34 Minn. 299, 25 N. W. 632, 57 Am. Hess v. Lowrey (1890), 122 Ind. Rep. 55; Hess v. Lowrey, supra; 225, 23 N. E. 156, 7 L. E. A. 90, 17 Hyrne v. Erwin, supra. Am. St. E. 355, Mechem's Gas. 400; 48 Lindley on Partnership (7th Hyrne v. Erwin (1885), 23 S. Car. ed.), 320. 226, 55 Am. Rep. 15 ; Rice v. Van 49 See Page v. Citizens Banking Why (1910), 49 Colo. 7, 111 Pac. Co. (1900), 111 Ga. 73, 36 S.'E. 599. 41S, 78 Am. St. R. 144, 51 L. E. A. When the action, though in form 463, Mechem's Gas. 954. 299 341] LAW OP PARTNERSHIP arises independently and out of other transactions, it is a mat- ter for set-off. The common law did not permit set-off in actions at law but left each party to enforce his own claim by separate legal action. This condition, however, has now been very widely changed by statutes, which permit set-off under the conditions prescribed by the statute, though the statutes differ somewhat in terms and their interpretation is not always uniform. Be- fore these statutes, courts of equity permitted set-off in equit- able actions under certain circumstances, and a distinct equita- ble jurisdiction of this sort is still recognized. 341. Under the statutes of set-off the claim sought to be set off and the one sued upon must, in general, be mutual: they must arise between the same parties and be due in the same right. Consequently in an action by the partners, upon a part- nership demand, a debt due from one partner only, or from any number less than all, cannot ordinarily be set off. 50 To do so, moreover, is to pay the individual debt of the partner out of the partnership assets, and this may not be done without the consent of the other partners. They might give such consent, in many cases, expressly or by implication, 61 though they would not be free to do so if the partnership were insolvent. For similar reasons, if a partner sues for a debt due to him individually, the defendant may not set off a debt due him from the partnership, without the plaintiff's consent, 62 except where 50 See Cannon v. Lindsey (1887), v. Hardware Co. (1891), 95 Ala. 85 Ala. 198, 3 So. 676, 7 Am. St. R. 324, 11 So. 195. 38; Meeker v. Thompson (1875), 43 51 Thus in Clark v. Taylor (1880), Conn. 77; Bush v. Thompson (1887), 68 Ala. 453, it is said that such a 112 Ind. 158, 13 N. E. 665; Jones v. set-off may be allowed where a usage Steamboat Co. (1897), 90 Me. 120, of the firm is proved establishing a 37 Atl. 879; Payne v. O'Shea clear and uniform practice to allow (1884), 84 Mo. 129; McDonald v. such set-off, or where the consent of Mackenzie (1887), 24 Oreg. 573, 14 all the partners is satisfactorily Pac. 866. shown, citing Hood v. Riley (1835), Same, where an assignee or repre- 15 .N. J. L. 127. See, also, Morgen- aentative of the partnership is suing : thau v. King (1890), 15 Colo. 413, Boykin v. Persons (1891), 95 Ala. 24 Pac. 1048. 626, 11 So. 67. 52 See Ingols v. Plimpton (1887), One partner alone cannot, by his 10 Colo. 535, 16 Pac. 155; Houston agreement, change the rule: Cowen v. Brown (1861), 23 Ark. 333; 300 ACTIONS BY AND AGAINST PABTNERSHIP [ 341 partnership debts are made joint and several, 63 or where the plaintiff, by assumption or otherwise, has become individually liable to pay the claim so offered as a set-off. 64 In an action against one partner for a debt due from him individually, he may not set off a debt due from the plaintiff to the partnership, 65 unless that debt has been assigned to him, 56 or his copartners consent that he may so use it, and the rights of third persons will not be prejudiced thereby. 57 In an action against the partners for a partnership debt, they may of course set off any claim which the partnership has against the plaintiff, but it is held that they may not ordinarily set off individual claims which they or any of them may separately have against the plaintiff ; 68 though, mutuality aside, there seems to be no good reason why a partner should not thus use his in- dividual credits to pay the partnership debts if he so desires and if his own creditors are not thereby injured, and under some statutes it has been permitted. 69 Where there is a dormant partner that fact will not ordi- narily be permitted to defeat a set-off good against the ostensible partners. 60 The question of set-off in actions by and against the surviving partner is considered in another section. 61 Jones v. Steamboat Co., supra; Jack- 57 See Collins v. Campbell (1902), son v. Clymer (1862), 43 Pa. 79. 97 Me. 23, 53 Atl. 837, 94 Am. St. 53 See Allen v. Maddox (1874), 40 R. 458. Iowa 124 (but see Hoyt v. Murphy 58 See Wilson v. Runkel (1875), (1858), 18 Ala. 316; Drennen v. Gil- 38 Wis. 526; Pinckney v. Keyler more (1901), 132 Ala. 246, 31 So. (1855), 4 E. D. Smith (N. Y.) 469; 90, 90 Am. St. E, 902); Eust v. Cooley v. Sears (1861), 25 111. 613, Burke (1882), 57 Tex. 341; Moody (501); Beauregard v. Case (1875). v. Willis (1867), 41 Miss. 347. 91 U. S. 134, 23 L. ed. 263. 54 See Hoyt v. Murphy, supra. 58 See Doimell v. Portland, etc., R. 55 Jones v. Blair (1876), 57 Ala. Co. (1884), 76 Me. 33. 457; Western Coal Co. v. Hollen-' 60 See Bryant v. Clifford (1854), beck (1903), 72 Ark. 44, 80 S. W. 27 Vf. 664, Gilm. Cas. 246; Dixon 145; Olson v. Lamb (1898), 56 Neb. Livery Co. v. Kane (1915), 117 Va. 104, 76 N. W. 433, 71 Am. St. E. 656, 86 S. E. 106, L. E. A. 1916 A 670; Wrenshall v. Cook (1838), 7 1211; Willey v. Crocker Nat. Bank Watts (Pa.) 464. (1904), 141 Cal. 508, 75 Pac. 106, 56 See Hall y. Allen (1883), 80 61 See post, f 402, note, Mo, 286, 301 342] LAW OF PARTNERSHIP 342. Set-off in equity is, in general, governed by the same principles of mutuality as those which prevail at law, but courts of equity will at times allow a set-off which the statutes would not permit, especially where the plaintiff is shown to be insolvent and the defendant would therefore probably not be able to collect the demand in question if he is driven to a sep- arate action. 62 62 See Watts v. Sayre (1884), 76 v. Gaither (1904), 98 Md. 541, 56 Ala. 397; West v. Kendrick (1872), Atl. 965; Spofford v. Kowan (1891), 46 Ga. 526; Hall v. Kimball (1875), 124 N. Y. 108, 26 N. E. 350; Selig- 77 111. 161; Chamberlin v. Stewart mann v. Heller (1887), 69 Wis. 410, (1837), 6 Dana (Ky.) 32; Dubrenil 34 N. W. 232. 302 CHAPTER XV. OF THE DISSOLUTION OF THE PAKTNEESHIP. 343. Purpose of this chapter. 344. Of the methods of dissolution in general. I. DISSOLUTION BY ACT OF THE PARTIES. 1. Dissolution by Original Agreement. 345. What methods included. 346. Dissolution by lapse of time. 347. Dissolution by accom- plishment of object. 348. Dissolution upon a pre- scribed event or condition. 2. Dissolution ~by Subsequent Act of Parties. 349. In general. HI. 350. Dissolution by act of all Mutual consent. 373. 351. Dissolution by act of one 374. partner Partnerships at 375. will. 352. Dissolution by act of one 376. partner Partnership on condition. 377. 353, 354. Dissolution by one part- ner when for definite 378. period Dissolution in con- travention of partnership agreement. 379. 355-358. Can there be an in- 380. dissoluble partnership? 381. 359. Method of dissolving by act of partner. 382. 303 II. DISSOLUTION BY HAPPENING OF EVENTS. 360. What here included. 361. Death of a partner. 362. Bankruptcy of a partner. 363. Assignment or seizure of partner's interest. 364. Voluntary sale of interest by one partner. 365. Insanity of a partner. 366. Marriage of partner. 367. Guardianship of a partner. 368. Expulsion of a partner. 369. War. 370. Illegality. 371. Happening of a stipulated event. 372. Reorganization Incorpora- tion. DISSOLUTION BY JUDICIAL DECREE. Declaring void. Dissolving in equity. Causes for dissolution Fraud. Insanity or incapacity of partner. Misconduct of a part- ner. Must not be misconduct of partner seeking dissolu- tion. Irreconcilable discord. Impossibility of success. Under Uniform Partner- ship Act. Receivership in these cases. 343,344] LAW OP PARTNERSHIP 343. Purpose of this chapter. Having now seen something of the creation of partnership and of its incidents and conse- quences, attention may next be directed to the question of the dissolution of the relation, and of the consequences of such dissolution. Two expressions are here often used more or less interchangeably dissolution and termination, though a distinc- tion may be and often is made between them. Thus the Uni- form Partnership Act defines dissolution of the partnership as ' ' the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on, as distinguished from the winding up, of the business. " l It also declares that ' ' on dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. ' ' 2 The same idea is sometimes expressed by distinguishing between the termination of the original relation, and the winding up of the business. For the sake of uniformity, the nomenclature of the Partnership Act will be adopted here. 344. Of the methods of dissolution in general. The meth- ods by which the partnership relation may be dissolved may be classified under three heads: I. By the act of the parties. II. By the happening of some event. III. By decree of a court. The first of these may be further subdivided as follows : 1. By virtue of the original agreement of the parties. 2. By force of their subsequent act. The Uniform Partnership Act 8 proceeds upon a somewhat different plan, considering first causes which result in dissolu- tion "without violation of the agreement between the partners," such as lapse of time, accomplishment of object, mutual con- sent, act of one where partnership was at will, and expulsion of a member in pursuance of a power contained in the articles; next, dissolution "in contravention of the agreement of the part- ners, ' ' as where One partner without excuse attempts to dissolve a partnership created for a term not yet expired ; then dissolu- tion by the happening of events, like death or bankruptcy, and finally, dissolution by decree of a court. 1 Sec. 29. 3 Sec. 31. 2 Sec. 30. 304 DISSOLUTION OF PARTNERSHIP [ 345-348 I. DISSOLUTION BY ACT OP THE PARTIES. 1. Dissolution by Original Agreement. 345. What methods included. The partnership may be said to be dissolved by original agreement where it comes to an end by virtue of some limitation expressly or impliedly put upon it by the parties at the time of its creation. There are three principal methods falling under this head : a. By lapse of time ; 6. By accomplishment of object; c. By the happening of some prescribed event or condition. 346. Dissolution by lapse of time. a. Partnership is dissolved by lapse of time where the period for its continuance was originally fixed by the agreement of the partners, and that period has elapsed. It may be continued afterwards by agree- ment, but this is practically the creation of a new partnership. 4 The Uniform Partnership Act provides for this form of dis- vsolution. 6 347. Dissolution by accomplishment of object. &. Partnership comes to an end by accomplishment of its object where it was originally created for a single or temporary pur- pose, or a single transaction, and that purpose has been accom- plished or that transaction has come to an end. Such a partner- ship may be continued by agreement or acquiescence, but otherwise it comes to an end. 6 The Uniform Partnership Act provides for this form of disso- lution. 7 348. Dissolution upon a prescribed event or condition. c. Partnership may also come to end upon the happening of some event or the existence of some condition prescribed in the partnership agreement as one upon which the partnership shall 4 See Phillips v. Boeder (1866), W. 840; Bank of Montreal v. Page 18 N. J. Eq. 95. (1881), 98 111. 109; Cole v. Moxley 5 Sec. 31 (a). (1878), 12 W. Va. 730; Hanna v. 6 See Sims v. Smith (1858), 11 McLaughlin (1901), 158 Ind. 292, Eich. (S. C.) L. 565; Bohrer v. 63 N. E. 475. Drake (1885), 33 Minn. 408, 23 N. 7 Sec. 31 (a), Mech. Part. 20 305 349-351] LAW OP PARTNERSHIP cease. This event or condition may be wholly self -executing, or it may merely present a situation in which, by the original agreement, one or more partners may terminate the partnership. 2. Dissolution by Swbsequent Act of Parties. 349. In general. The dissolution of the partnership by the subsequent act of the parties may be the result of the act of all of the partners or of one. That act may be taken with the mutual consent of all, or it may be sought to be taken by one against the wish of the others. 350. Dissolution by act of all Mutual consent. Dissolu- tion by the act of all of the partners finds its most common form in dissolution by mutual consent. The same persons who created the partnership may dissolve it, and they may do this as well where it was originally created to endure for a fixed period, not yet expired, as where no period was fixed. 8 The same result will practically ensue where all cease or refuse to carry on the business or all unite in winding it up and dividing the assets. 9 The Uniform Partnership Act declares that there may be dissolution, without violating the agreement between the part- ners, "By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking." 10 351. Dissolution by act of one partner Partnerships at will. The question of the power and right of one partner, or any number less than all, to dissolve the partnership depends largely upon the period for which it was created. If no term or event was fixed for its continuance, it is in law a partnership 8 See Bank v. Page (1881), 98 HL 9See Kennedy v. Porter (1888), 109; Wells v. Ellis (1885), 68 Gal. 109 N. Y. 526, 17 N. E. 426; Simp- 243, 9 Pae. 80; Ligare v. Peacock son v. Miller, supra. (1884), 109 111. 94; Eichardson v. 10 Sec. 31 (c). Gregory (1888), 126 111. 166, 18 N. E. 777; Simpson v. Miller (1908), 51 Ore. 232, 94 Pac. 567. 306 DISSOLUTION OF PARTNERSHIP [352,353 at will, and may be dissolved by any partner without liability at any time. 11 The civil, French and Scotch law declare that the right to dissolve even a partnership at will is subject to the conditions that it shall be exercised in good faith and at a reasonable time ; 12 but these limitations do not appear to be recognized by the English common law. 13 The Uniform Partnership Act provides for dissolution "by the express will of any partner when no definite term or par- ticular undertaking is specified." 14 352. Dissolution by act of one partner Partnership on condition. The partners may provide in their partnership agreement or articles that one partner shall have the right to dissolve the partnership, though formed for a definite period, by giving a stipulated notice or upon the happening of a speci- fied event. Where such a provision is made, the partner, by acting in pursuance of it, may lawfully dissolve the partner- ship even though the period for which it otherwise would con- tinue has not expired. 15 353. Dissolution by one partner when for definite period Dissolution in contravention of partnership agreement. If, however, the partnership was originally created to continue for a fixed period, and no provision is made for its earlier dis- solution, its dissolution by one partner before that time has ex- pired presents difficulties. The conduct of the other partners may be such as to justify a dissolution, in which case it would 11 See Walker v. Whipple (1885), 39 Mont. 539, 104 Pac. 683, 25 L. B. 58 Mich. 476, 25 N. W. 472; Major A. (N. S.) 959. Compare Tankersiey v. Todd (1890), 84 Mich. 85, 47 N. v. Norton (1920), Ark. , 218 W. 841; Blake v. Sweeting (1887), S. W. 660, definite term implied 121 111. 67, 12 N. E. 67 ; Fletcher v. from circumstances. Reed (1881), 131 Mass. 312, Burd. 12 See Howell v. Harvey, supra. Gas. 554; Howell v. Harvey (1843), 13 See Story on Partnership, 275. 5 Ark. 270, 39 Am. Dec. 376, Me- 14 Sec. 31 (b). chem's Gas. 448; Stutt v. Lumber 15 See Swift v. Ward (1890), 80 Co. (1906), 98 Minn. 52, 107 N. W. Iowa 700, 45 N. W. 1044, 21 L. B. 824; Blaker v. Sands (1883), 29 A. 302. Kan. 551; Freund v. Murray (1909), 307 354, 355] LAW OF PARTNERSHIP not be in contravention of the agreement, to use the language of the Uniform Partnership Act or it may be sought at the mere will of one partner without any justification in which case it would be in contravention of the agreement. Although the authorities are not uniform, the true principle is probably found in the same distinction which was observed in terminating the relation of principal and agent, i. e., that of the power to revoke as distinguished from the right to revoke. 16 Every partner has doubtless the power to withdraw from the firm and terminate the right of his partner to further bind him, at any time, even before the stipulated period, and without any other reason than his own will ; but when he so revokes in violation of his agree- ment he subjects himself to an action for damages by his part- ner. 17 354. As has been already seen, 18 courts rarely attempt, by decrees of specific performance or otherwise, to compel reluc- tant persons to remain in and perform the duties of personal re- lations depending only upon their contract ; but will leave them to their actions at law for breaches of the contract. This does not conflict with the rule that there may be author- ities given by way of security or coupled with an interest which could not be revoked. These if present, as they might be, would survive notwithstanding the dissolution of the part- nership in other respects. The Uniform Partnership Act recognizes the power of one partner to dissolve the partnership at any time, even in con- travention of the agreement between the partners, where the circumstances do not permit a dissolution for any of the reasons specified in the act. 19 It also has some special provisions for safe-guarding the interests of the other partners, and subjects him to some special disabilities. 20 355. Same subject Can there be an indissoluble partner- ship? In a leading case 21 upon this subject it is said that the 16 See 1 Meehcm on Agency, 568. 19 Sec. 31 (2). 17 See ante, 209. 20 Sec. 38 (2). 18 Sec ante, 222-225. 21 Skinner v. Dayton (1822), 19 308 DISSOLUTION OP PARTNERSHIP [ 356 right of one partner to dissolve the partnership "is a right inseparably incident to every partnership. There can be no such thing as an indissoluble partnership. Every partner has an indefeasible right to dissolve the partnership, as to all future contracts, by publishing his own volition to that effect; and after such publication the other members of the firm have no capacity to bind him by any contract. Even where partners covenant with each other that the partnership shall continue seven years, either partner may dissolve it the next day by proclaiming his determination for that purpose; the only con- sequence being that he thereby subjects himself to a claim for damages for a breach of his covenant. The power given by one partner to another to make joint contracts for them both is not only a revocable power, but a man can do no act to divest himself of the capacity to revoke it." In another case, 22 in which the foregoing language was ap- proved, the court said: "There may be cases in which equity would enjoin a dissolution for a time, when the circumstances were such as to make it specially injurious ; but no question of equitable restraint arises here. When one partner becomes dis- satisfied there is commonly no legal policy to be subserved by compelling a continuance of the relation, and the fact that a contract will be broken by the dissolution is no argument against the right to dissolve. Most contracts may be broken at pleasure, subject, however, to responsibility in damages. And that re- sponsibility would exist in breaking a contract of partnership as in other cases." 356. In the Supieme Court of the United States, where both of the foregoing cases were cited, it was said: "A court of equity, doubtless, will not assist the partner breaking his contract to procure a dissolution of the partnership, be- Johns. (N. Y.) 513, 10 Am. Dec. (1868), 58 Pa. St. 169, 98 Am. Dec. 286. To same effect: Solomon v. 255; Karrick v. Hannaman (1897), Kirkwood (1884), 55 Mich. 256, 21 168 U. S. 328, 18 Sup. Ct. 135, 42 L. N. W. 336, Meehem's Gas. 455; ed. 484; Lapenta v. Lettieri (1899), Burd. Gas. 554, Gilm. Gas. 589; 72 Conn. 377, 44 Atl. 730, 77 Am. Mason v. Connell (1836), 1- Whart. St. E. 315. (Pa.) 381; Slemmer's Appeal 22 Solomon v. Kirkwood, supra. 309 357] LAW OP PARTNERSHIP cause, upon familial* principles, a partner who has not fully and fairly performed the partnership agreement on his part has no standing in a court of equity to enforce any rights under the agreement. But, generally speaking, neither will it inter- fere at the suit of the other partner to prevent the dissolution, because, while it may compel the execution of articles of part- nership so as to put the parties in the same position as if the articles had been executed as agreed, it will seldom, if ever, specifically compel subsequent performance of the contract by either party, the contract of partnership being of an essentially personal character. ' ' 23 357. Same subject. But this right of one partner to dis- solve at will a partnership created for a fixed period has been vigorously denied. Thus, Mr. Justice Story has said: "When- ever a stipulation is positively made that the partnership shall endure for a fixed period, or for a particular adventure or voy- age, it would seem to be at once inequitable and injurious to permit any partner, at his mere pleasure, to violate his engage- ment and thereby to jeopard, if not sacrifice, the whole objects of the partnership; for the success of the whole undertaking may depend upon the due accomplishment of the adventure or voyage, or the entire time be required to put the partnership into beneficial operation. It is no answer to say that such a violation of the engagement may entitle the injured partners to compensation in damages; for, independently of the delay and uncertainty attendant upon any such mode of redress, it is obvious that the remedy may be, nay, must be, in many cases utterly inadequate and unsatisfactory. If there be any real and just ground for the abandonment of the partnership, a court of equity is competent to administer suitable redress. But that is exceedingly different from the right of the partner, sua sponte, from mere caprice, or at his own pleasure, to dis- solve the partnership." 24 These views, while recognized in the English courts and some of the States, 25 have not been generally approved in this country. 28 Karrick v. JTannaman, supra. 25 One of the strongest eases on 24 Story on Partnership. 275. this sidp of the question in the 310 DISSOLUTION OF PARTNERSHIP [358,359 358. Same subject. Even, however, if it be conceded that the power to dissolve exists, its exercise by one who is confessedly proceeding in flat violation of his contract is not likely to re- ceive much encouragement or aid in a court of equity; and the partner who attempts it may be left to his own resources and such aid as a court of law will give him. The unsettled condition of the law upon the subject, therefore in some States, and the fact that a dissolution, conceding the right to make it, may often be impracticable of effect without judicial assistance, render it usually desirable, if not necessary, to have recourse to a court of equity when it is sought to enforce the dissolution of a partnership created for a fixed period. The reasons which will justify this proceeding will be discussed in later sections. 359. Method of dissolving by act of partner. No particu- lar method of dissolving a partnership by the act of a partner is necessary. Any unequivocal act which shows his determina- tion not to continue the relationship any longer will suffice. A voluntary sale or transfer of his interest by one partner usually works a dissolution. 28 In the absence of such a sale, an unconditional notice of the dissolution given by the partner to his partners is sufficient as between themselves. Even where the partnership was created by written instrument, or by instrument under seal, a dissolu- tion by parol is usually held sufficient. 27 The Uniform Partnership Act uses the phrase "by the ex- press will" of any partner at any time. 28 United States is, doubtless, Hanna- Ves. 49. See, also, McMahon v. He- man v. Karrick (1893), 9 Utah 236, Clerman (1877), 10 W. Va. 419. 33 Pac. 1039 (reversed as to this 26 See Blater v. Sands (1882), 29 point in 168 U. S. 328, 18 Sup. Ct. Kan. 551; Wilson v. Waugh (1882), 135, 42 L. ed. 484), which relied 101 Pa. 233, Mechem's Gas. 546; chiefly upon this position of Story, Carter v. Roland (1880), 53 Tex. and Lindley; Ferrero v. Buhlmeyer 540. (1867), 34 How. (N. Y.) Pr. 33; 27 See Green v. State Bank (1890), Pearpoint v. Graham (1818), 4 78 Tex. 2; Swift v. Ward (1890), Wash. C. C. 232; Cash v. Earnshaw 80 Iowa 700, 45 N. W. 1044, 11 L. (1872), 66 111. 402; Van Kuren v. E. A. 302. Trenton Co. (1861), 13 N. J. Eq. 28 Sec. 31 (2). 302; Peacock v. Peacock (1809), 16 311 360, 361] LAW OP PARTNERSHIP II. DISSOLUTION BY HAPPENING OP EVENTS. 360. What here included. In a number of cases, partner- ship is deemed to come to an end upon the mere happening of some event, the existence of which ipso facto makes the further continuance of the relation impossible, inconsistent, undesirable or illegal. "What the chief of these events are will be here con- sidered. 361. Death of a partner. Death of one partner operates to instantly dissolve an ordinary partnership, and this is usually held to be true even though the partnership articles provide for a continuance of the partnership by his executors or others, this being deemed to be really, if acted upon, the creation of a new partnership rather than the mere continuation of the old. 89 In the case of "joint stock companies" or partnerships with transferable shares the rule is often otherwise. 30 Where there were more than two partners, the death of one not only dissolves the partnership as to him, but it dissolves the partnership between the survivors also. 31 It is, of course, 29 See Vincent v. Martin (1885), clature and partly a question of 79 Ala. 540; Exchange Bank v. what one is talking about. A busi- Tracy (1883), 77 Mo. 594; McGrath ness may in fact be practically con- v. Cowen (1898), 57 Ohio St. 385, tinuous, though the personnel of its 49 N. E. 338; Schmidt v. Archer conductors may change. The par- (1887), 113 Ind. 365, 14 N. E. 543; ticular group of persons who corn- Stewart v. Eobinson (1889), 115 N. posed the partnership is unavoidably Y. 328, 22 N. E. 160, 163, 5 L. R. A. changed when one dies, no matter 410. how automatically the group may be It is undoubtedly true, ho'wever, reconstituted afterward. See Matti- that statements are frequently to be son v. Farnham (1890), 44 Minn, found to the effect that such pro- 95, 46 N. W. 347. visions may operate to prevent dis- 30 See Willis v. Chapman (1896), solution. See Gratz v. Bayard 68 Vt. 459, 35 Atl. 459; McNeish v. (1824), 11 Serg. & R. (Pa.) 41; Oat Co. (1884), 57 Vt. 316; Carter Laughlin v. Lorenz (1864), 48 Pa. v. McClure (1897), 98 Tenn. 109, 38 275, 86 Am. Dec. 592; Rand v. S. W. 585, 60 Am. St. R. 842, 36 L. Wright (1894), 141 Ind. 226, 39 N. R. A. 282; Tyrrell v. Washburn E. 447, Burd. Gas. 266; Schmidt v. (1863), 88 Mass. (6 Allen) 466. Archer (1887), 113 Ind. 365, 14 N. 31 See Hoard v. Clum (1883), 31 E. 543. Minn. 186, 17 N. W. 275, Mechem's It is partly a matter of nomen- Cas. 444; Marlett v. Jackman 312 DISSOLUTION OP PARTNERSHIP [ 362, 363 possible for the survivors to immediately form a new partner- ship among themselves, but it is in law and in fact a new one. No liability would ordinarily result as between the partners because the partnership was dissolved by death before the ex- piration of the agreed term. The Uniform Partnership Act recognizes this cause of dis- solution. 32 362. Bankruptcy of a partner. Bankruptcy of one partner by which is meant the public or statutory condition as dis- tinguished from mere insolvency operates to dissolve the part- nership. 33 Under the Uniform Partnership Act, the partner- ship is dissolved by the bankruptcy of any partner or of the partnership. 34 As in the case of death, the bankruptcy of a partner which dissolves the partnership as to him would dissolve it also as the remaining partners if there were several. 35 363. Assignment or seizure of partner's interest. Except in the case of partnerships having transferable shares, like joint stock companies and mining partnerships, the same result, i. e., dissolution, has generally been thought to ensue from a partner's assignment of all of his property including his partnership interests for the benefit of his creditors; or from the seizure and sale of his interest at the suit of his individual creditors ; 36 but the Uniform Partnership Act has changed this latter rule, 37 (1861), 85 Mass. (3 Allen) 287, 53 Tex. 540; Wilson v. Waugh Ames' Gas. 551, Burd. Gas. 547. (1882), 101 Pa. 233, Mechem's Gas. 32 Sec. 31 (4). 546; Ogden v. Arnot (1883), 29 S3 See Bustis v. Bolles (1888), 146 Hun (N. Y.) 146, Mechem's Gas. Mass. 413, 16 N. E. 286, 4 Am. St. 996, Burd. Gas. 461; Morrison v. E. 327, Mechem's Gas. 965, Gilm. Blodgett (1836), 8 N. H. 238, 29 Gas. 603; Siegel v. Chidsey (1857), Am. Dec. 653. 28 Pa. St. 279, 70 Am. Dec. 124; 37 See Sec. 27, quoted in note 42. Heyman v. Heyman (1904), 210 111. Sec. 28 (1), which provides for a 524, 71 N. E. 591. charging order against a partner's 34 Sec. 31 (5). share at the suit of his separate 35 See Lewis v. United States creditor (see ante, 148, 149), may (1875), 92 TJ. S. 618, 23 L. ed. 513. be so administered as to pay out the 36 See Carter v. Eoland (1880), creditor without a dissolution; while 313 364] LAW OF PARTNERSHIP and such a result certainly does not always and necessarily ensue. 88 A fortiori where all the partners unite in making an assignment of all of the partnership property for the benefit of partnership creditors, involving an entire suspension and winding up of partnership affairs, the partnership is dissolved. 39 364. Voluntary sale of interest by one partner. The volun- tary and absolute sale of his interest by one partner, either to a third person or his partner, is also commonly said to work a dissolution ipso facto? but it does not necessarily and always do so. 41 Such also is the Uniform Partnership Act. 42 The assignee Sec. 28 (2) provides for redeeming from such a sale or bidding it in, either with individual funds or part- nership funds on certafn conditions. 38 A variety of things may hap- pen. The assignment or sale may not be followed up. The debt may be paid out of other property. The other partners may consent to the continuance of the business notwith- standing the loss of his interest, etc. See Wood v. American F. Ins. Co. (1896), 149 N. Y. 382, 44 N. E. 80, 50 Am. St. E. 733, Mechem's Gas. 786, Burd. Gas. 240; Riddle v. Whitehill (1890), 135 U. S. 621, 34 L. ed. 282, 10 S. Ct. 924. In Helmore v. Smith (1887), 35 Ch. Div. 436, while one partner was temporarily incapacitated by illness his interest in the property was seized upon execution; his copartner became the purchaser and paid the amount out of firm funds and charged it to the debtor partner. On the latter 's application when re- stored to health, held, no dissolution. 89 See Wells v. Ellis (1885), 68 Gal. 243, 9 Pac. 80. 40 See Marquand v. N. Y. Mfg. Co. (1820), 17 Johns. (N. Y.) 525; Davis v. Megroz (1893), 55 N. J. L. 427, 26 Atl. 1009; Miller v. Brig- ham (1875), 50 Gal. 615; Moore v. Steele (1887), 67 Tex. 435, 3 S. W. 448; Spaunhorst v. Link (1870), 46 Mo. 197 (sale to partner) ; Barkley v. Tapp (1882), 87 Ind. 25; Allen v. Logan (1888), 96 Mo. 591, 10 S. W. 149 (sale to a stranger) ; Simpson v. Miller (1908), 51 Oreg. 232, 94 Pae. 567 (sale to partner). See Taft v. Buffum (1833), 31 Mass. (14 Pick.) 322; Waller v. Davis (1882), 59 Iowa 103, 12 N. W. 798. Of course, a mere mort- gage of his interest by one partner does not at once necessarily dissolve the partnership. In case of mortgage by one part- ner to another of his interest, see Monroe v. Hamilton (1877), 60 Ala. 226, Burd. Gas. 306. 42 The Uniform Partnership Act, sec. 27, provides: "(1) A convey- ance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the ab- sence of agreement, entitle the as- signee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to 314 DISSOLUTION OF PARTNERSHIP [ 365, 366 of the interest, of course, does not automatically become a part- ner: the delectus personarum prevents that, as does also the Uniform Partnership Act; he is at most a tenant in common. But he has a right to get out the value of what he has pur- chased. 43 The other partners cannot ordinarily be expected to retain as a partner one who has no longer any pecuniary interest in the business, and who would usually not be liable for future debts. They have therefore usually a strong motive to treat the partnership at an end, and would ordinarily have an un- questioned right to do so. But it is not impossible for them to waive the objections and continue the relation. If the partner in question not only sells out but goes out, a dissolution will result. A sale of his interest by a partner in a partnership having transferable shares of course stands upon a different footing. 365. Insanity of a partner. Although opinions have dif- fered upon the subject, and there is some authority for saying that an adjudication of insanity ipso facto works a dissolution, 44 the rule seems now to be settled that the insanity of one partner does not of itself work a dissolution of the firm, but may con- stitute sufficient ground to justify a court in decreeing a dis- solution. 45 366. Marriage of partner. Marriage of a female partner to a non-partner, at common law, but not under most of the modern statutes, would operate to dissolve the partnership. Even require any information or account 43 See the Uniform Partnership of partnership transactions, or to Act, Sec. 27, above, inspect the partnership books; but 44 See Isler v. Baker (1845), 25 it merely entitles the assignee to re- Tenn. (6 Humph.) 85. ceive in accordance with his contract 45 See Raymond v. Vaughn the profits to which the assigning (1889), 128 111. 256, 21 N. E. 566, partner would otherwise be entitled. 15 Am. St. E. 112, 4 L. E. A. 440, (2) In case of a dissolution of the Gilm. Gas. 595. Compare, incapacity partnership, the assignee is entitled by paralysis, Barclay v. Barrie to receive his assignor 's interest and (1913), 209 N. Y. 40, 102 N. E. may require an account from the 602, 47 L. E. A. (N. S.) 839, Ann. date only of the last account agreed Gas. 1913 D 1143. to by all the partners." 315 367-369] LAW OF PARTNERSHIP under such statutes, if a male and a female partner intermarry the partnership would, in many states, be thereby dissolved. 46 367. Guardianship of a partner. Guardianship of one partner, by virtue of which the management of his property is taken from him, operates probably to dissolve the partnership, and at all events would, like insanity, be a ground for decreeing a dissolution. 47 368. Expulsion of a partner. Partners have no inherent right to expel another, no matter by what majority; but it is competent to provide in the partnership articles for the con- pulsory withdrawal of a partner upon conditions prescribed. Such provisions are common in English practice, but rare in this country. They would need to be explicit, and must be at least substantially pursued. The Uniform Partnership Act 48 declares that dissolution is caused ''by the expulsion of any partner from the business ~bona fide in accordance with such a power conferred by the agreement between the partners." 369. War. War between the countries of which the part- ners are respectively citizens at least suspends, and ordinarily works a dissolution of, a commercial partnership. 49 The part- ners are now public enemies of each other and all commercial dealings between them are unlawful. So a war in the country in which the business is to be con- ducted, even though the partners themselves are not citizens of enemy countries, may make impossible or illegal the further prosecution of the business in that country. 46 See Brown v. Chancellor (1884), chem's Cas. 962; Stevenson v. 61 Tex. 437; Bassett v. Shepardson Aktiengesellsehaft, etc. [1917], 1 K. (1883), 52 Mich. 3, 17 N. W. 217, B. 842, 7 Br. Eul. Cas. 600; Wood v. Burd. Cas. 553; Little v. Hazlett Wilder (1870), 43 N. Y. 164, 3 Am. (1900), 197 Pa. 591, 47 Atl. 855. Rep. 684; Hubbard v. Matthews See, also, ante, 52. (1873), 54 N. Y. 43, 13 Am. Rep. 47 See Parsons on Partnership, 562; Griswold v. Waddington 303. (1818), 16 Johns. (N. Y.) 438, 491, 48 Sec. 31 (d). 15 id. 57, Burd. Cas. 544, Gilm. Cas. 49 See Bank of New Orleans v. 600. Matthews (1872), 49 N. Y. 12, Me- 316 DISSOLUTION OF PARTNERSHIP [ 370-372 370. Illegality. An event, like a change of status or a change of law, which made illegal the further prosecution of a business formerly legal, or which made it illegal for the partic- ular partners to continue to carry on a business which it was formerly lawful for them to conduct, would ordinarily dissolve the partnership. 60 ' The Uniform Partnership Act is to the same effect. 61 371. Happening of a stipulated event. So the mere hap- pening of some particular event which the parties by their con- tract have specified may, by the terms of that contract, either ipso facto dissolve the partnership, 62 or furnish ground for its dissolution by the act of a partner. 372. Reorganization Incorporation. A partnership is not necessarily terminated merely by the fact that the members of it form another partnership or become members of a corpora- tion. 63 If that particular partnership were reconstituted in such a way as to work a fundamental change in it as if new members were admitted, the purpose changed, and the like, there would doubtless result a dissolution of the partnership. So if that particular business were incorporated, a dissolution of the partnership would usually result. 64 So it would, in fact, if the capital, property and business of the partnership were transferred to the corporation and the partnership enterprise was abandoned. 65 50 See Justice v. Lairy (1898), 19 mercial Corporation (1904), 111 111. Ind. App. 272, 49 N. E. 459, 65 Am. App. 647; Seufert v. Gille (1910), St. R. 405, holding that where the 230 Mo. 453, 131 S. W. 102, 31 L. statute makes it unlawful for a E. A. (N. S.) 471; Southwick v. judge to practice law, an existing Allen (1839), 11 Vt. 75; First Nat. law firm is dissolved if one of the Bank v. Conway (1886), 67 Wis. members later accepts the office of 210, 30 N. W. 215 ; Pearce v. Suther- judge. land (1908), 90 C. C. A. 519, 164 51 See sec. 31 (3). Fed. 609. 52 See Smith v. Vandenburg 54 See Hennessy v. Griggs (1890), (1867), 46 111. 34. 1 N. Dak. 52, 44 N. W. 1010. 53 See Goddard v. Pratt (1835), See, also, Cavasso v. Downey 33 Mass. (16 Pick.) 412; Howe v. (1920), Cal. App. , 188 Pac. Thayer (1835), 34 Mass. (17 Pick.) 594. 91; Weise v. Gray's Harbor Com- 55 See Coggswell, etc., Co. v. 317 373] LAW OP PARTNERSHIP It is, of course, a different question, reserved for the following chapter, what notice, if any, of such a change must be given, and to whom. III.. DISSOLUTION BY JUDICIAL DECREE. 373. Declaring void. Before taking up the question of dissolution by decree, the present seems a convenient place for mentioning a remedy in the same line, but of far more extensive effect. Thus, instead of dissolving the partnership and thereby terminating it from the date of the decree, a court of equity may find sufficient ground for rescinding the contract of part- nership altogether and declaring the partnership void db initio. This may be done where one partner has been induced through fraud, deception or oppression to enter into the partnership in the first instance. 56 "Where a person is induced," says Mr. Justice Lindley, 67 "by the false representations of others to become a partner with them, the court will rescind the contract of partnership at his instance; and will compel them to repay him whatever he may have paid them, with interest, and to indemnify him against all the debts and liabilities of the part- nership, and, if the defendants have been guilty of fraud, against all claims and demands to which he may have become subject by reason of his having entered into partnership with them, he on the other hand accounting to them for what he may have received since his entry into the concern. ' ' The Uniform Partnership Act contains specific provisions as Coggswell (1898), N. J. Eq. , v. Stewart (1850), 10 B. Mon. 40 Atl. 213. (Ky.) 429; Smith v. Everett (1879), 56 See Adam v. Newbigging 126 Mass. 304, Gilm. Cas. 608; Kich- (1888), 13 App. Cas. 308; New- ards v. Todd (1879), 127 Mass. 167; bigging v. Adam (1886), L. E. 34 Grossman v. Lewis (1917), 226 Ch. Div. 582; Mycock v. Beatson Mass. 163, 115 N. E. 236; Harlow (1879), 13 Ch. Div. 384; Fogg v. v. La Brum (1897), 151 N. Y. 278, Johnston (1855), 27 Ala. 432, 62 45 N. E. 859; Gathright v. Fulton Am. Dec. 771; Howell v. Harvey (1917), 122 Va. 17, 94 S. E. 191. (1843), 5 Ark. 270, 39 Am. Dee. 67 Lindley on Partnership, vol. II 376, Meehem's Cas. 448; Oteri v. ( E well 's ed.), 482. Sealzo (1891), 145 U. S. 578; Hynes 318 DISSOLUTION OF PARTNERSHIP [374,375 to the rights of the defrauded partner which will be found in the footnote. 58 374. Dissolving in equity. Many causes, however, may exist which will justify a dissolution of the firm which would not suffice to render the partnership void ab initio. Of the causes for which a court will thus decree a dissolution several examples may be given. The courts of law, it may be noticed, have no jurisdiction for this purpose, and the relief can be sought only in equity. The grounds for the intervention of the court are usually acts occurring since the formation of the partnership, but they may be acts or events preceding its formation. The occasion for seeking a dissolution in a court of equity arises usually only in those cases in which it was to continue for a definite term not yet expired, because, as has been seen, a partnership at will merely is ordinarily dissolvable at any time by the mere act of the parties. 69 The fact that the articles provide for dissolution upon notice given by one partner to the other does not prevent an applica- tion to a court of equity for dissolution. 60 375. Causes for dissolution Fraud. Fraud in the creation of a partnership, as has been seen, may be a sufficient ground for a rescission of the contract, but it may also be treated as a reason for decreeing a dissolution. 61 58 See. 39. "Where a partnership (b) To stand, after all liabilities contract is rescinded on the ground to third persons have been satisfied, of the fraud or misrepresentation of in the place of the creditors of the one of the parties thereto, the party partnership for any payments made entitled to rescind is, without preju- by him in respect of the partnership dice to any other right, entitled liabilities; and (a) To a lien on, or right of reten- (c) To be indemnified by the per- tion of, the surplus of the partner- son guilty of the fraud or making ship property, after satisfying the the representation against all debts partnership liabilities to third per- and liabilities of the partnership." sons, for any sum of money paid by 59 See ante, 351. him for the purchase of an interest 60 Adams v. Shewalter (1894), in the partnership and for any cap- 139 Ind. 178, 38 N. E. 607. ital or advances contributed by him; 61 See Oteri v. Scalzo (1891), 145 and U. S, 578, 12 Sup. Ct. 895, 36 L. ed. 319 376-378] LAW OP PARTNERSHIP 376. -Insanity or incapacity of partner. The insanity or other physical incapacity of one partner, while not usually sufficient of itself, as has been seen, to terminate the partner- ship as matter of law, will, if of such a character as to perma- nently disable the partner afflicted from performing the duties of the partnership, be sufficient ground for decreeing a dissolu- tion. 62 377. Misconduct of a partner. The misconduct of one partner (not the one praying for relief), if of such a kind and degree as to render the further prosecution of the partner- ship inexpedient, injurious or impossible, may be ground for decreeing its dissolution. Courts will not interfere upon every disagreement between the partners, nor ' ' enter* into a consider- ation of mere partnership squabbles, ' ' 6S but they will interfere where the misconduct of one partner or the dissension between the parties is so serious as t6 endanger the prosperity of the firm or destroy the confidence which must exist between partners. Thus, abandonment of the business by one partner, his persistent violation of the articles, excluding his copartner from participa- tion, repudiating his interest, dishonesty, gross misconduct, ha- bitual drunkenness, and the Ijke, have been held sufficient. 64 378. Must not be misconduct of partner seeking 1 dis- solution. But the partner who is himself at fault will not be 824; Rosenstein v. Burns (1882), 66 111. 402, Gilm. Cas. 605; Gerard 41 Fed. 841; White v. Smith (1897), v. Gateau (1876), 84 111. 121, 25 63 Ark. 513, 39 S. W. 555. Am. Rep. 438, Mechem's Cas. 460. 62 See Barclay v. Barrie (1913), 64 See Seighortner v. Weissenborn 209 N. Y. 40, 102 N. E. 602, 47 L. (1869), 20 N. J. Eq. 172; Rosen- B, A. (N. S.) 839, and note, Ann. stein v. Burns (1882), 41 Fed. 841, Cas. 1913 D 1143; Raymond v. Burd. Cas. 557; New v. Wright Vaughn (1889), 128 111. 256, 21 N. (1870), 44 Miss. 202, Mechem's Cas. E. 566, 15 Am. St. R. 112, 4 L. R. 319; Moore v. Price (1896), 116 A. 440; Jurgens v. Ittmann (1895), Ala. 247, 22 So. 531; Groth v. Pay- 47 La. Ann. 367, 16 So. 952, Burd. ment (1890), 79 Mich. 290, 44 N. W. Cas. 558; Sayer v. Bennet (1783), 611; Cottle v. Leitch (1868), 35 Cal. 1 Cox 107; Whitwell v. Arthur 434; Holladay v. Elliott (1879), 8 (1865), 35 Beav. 140; Jones v. Oreg. 84; Harrison v. Tennant Noy (1833), 2 M. & K. 125. (1856), 21 Beav. 482; Essel v. Hay- 68See Cash v. Earnshaw (1872), ward (1860), 30 Beav. 158. 320 DISSOLUTION OF PARTNERSHIP [ 379-381 permitted to make use of his own misconduct to secure a dis- solution. "A party who is the author of the ill-feeling between himself and his partners," said the court in one case, 66 "ought not to be permitted to make the relation he has induced the ground of a dissolution of the partnership. His conduct may have been taken with a view to that very result, and it would be inequitable to allow him advantage from his own wrongful acts. It would allow one partner, at his election, to put an end to his own deliberate contract, when the other had been guilty of no wrongful act or omission of duty. ' ' 379. Irreconcilable discord. Even though both par- ties are at fault and often without attempting to appraise their respective demerits it may be found that such a condi- tion of irreconcilable discord and dissension has developed be- tween the partners as to make any reasonable and successful prosecution of the business impossible ; and the court may decree a dissolution on that ground. 66 380. Impossibility of success. So, though there be no misconduct, if the further prosecution of the partnership with profit or success has become impossible or impracticable, if its purpose or object has become unattainable, if it is found that the scheme or theory upon which the partnership was based was illusory or erroneous, in these and like cases the court may decree its dissolution, as it is not to the advantage of any one that the business should be continued under such circumstances. 67 381. Under Uniform Partnership Act. The provisions of the Uniform Partnership Act are substantially the same as those already existing under the general law, 68 and it is assumed 65 Gerard v. Gateau (1876), 84 41 Fed. 841, Burd. Gas. 557; Holla- Ill. 121, 25 Am. Eep. 438, Mechem's day v. Elliott (1878), 8 Oreg. 84; Gas. 460. See, also, Fairthorne v. Willis v. Chapman (1896), 68 Vt. Weston (1844), 3 Hare 387. 459, 35 Atl. 459; Jennings v. Bad- 66 See Singer v. Heller (1876), 40 deley (1856), 3 K. & J. 78. Wis. 544; Whalen v. Stephens 68 Sec. 32 (1) "On application by (1901), 193 111. 121, 61 N. E. 921. or for a partner the court shall de- 67 See Rosenstein v. Burns (1882), cree a dissolution whenever; Mech. Part. 21 321 382] that they would be subject to the same qualifications, e. g., that the partner by or for whom the application is made shall not be the one guilty of the misconduct. This Act also provides .for dissolution by decree of court on the application of the purchaser of a partner's interest, 69 under conditions which doubtless represent existing law. 382. Receivership in these cases. As has already been seen, 70 dissolution by judicial decree offers also the occasion in many cases for the appointment of a receiver, and other forms of incidental relief. (a) A partner has been declared a lunatic in any judicial proceed- ing or is shown to be of unsound mind. (&) A partner becomes in any other way incapable of performing his part of the partnership contract. (c) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business. (d) A partner wilfully or persist- ently commits a breach of the part- nership agreement or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him. (e) The business of the partner- ship can only be carried on at a loss. (/) Other circumstances render a dissolution equitable. ' ' 69 Sec. 32 (2) "On the applica- tion of the purchaser of a partner's interest under sections 28 or 29: (a) After the termination of the specified term or particular under- taking. (ft) At any time if the partner- ship was a partnership at will when the interest was assigned or when the charging order was issued." 70 See ante, 231. 322 CHAPTER XVI. OF NOTICE OF THE DISSOLUTION. 390. To whom notice req aired. 391, 392. How notice given 1. To those who have had deal- ings with the firm. 393, 394. How notice given 2. To those who have not had dealings with the firm. 395. Knowledge Construct- ive notice. 396. Who should give notice Actual and, ostensible part- ners. 397. Dormant and secret partners. 398. Effect of not giving notice. 383. In general. I. NOTICE TO PARTNERS. 384. On dissolution by act of a partner. 385. On dissolution by happening of events. 386. Under Uniform Partnership Act. II. NOTICE TO THIRD PERSONS. 387. The necessity of notice to them. 388. In what cases notice is re- quired Not on dissolution by mere operation of law. 389. Eequired on dissolution by or through act of parties. 383. In general. The formation of a partnership, as has been seen, results in the creation of a relationship between the parties by virtue of which they acquire certain rights and privi- leges, and come under certain duties and obligations, with re- spect of one another; and also confer upon each other certain authority to enter into business relations with third persons by which all of the partners are to be bound. If now this relation- ship is to be broken up, it is obvious that notice of that fact (where not self-evident or otherwise declaratory) should be brought home both to the partners themselves and also to the third persons who have been invited to rely on the authorities resulting from it. There must be considered, therefore, the necessity of notice : I. To the partners themselves ; and II. To non-partners. 323 384-386] . LAW OF PARTNERSHIP I. NOTICE TO PARTNERS. 384. On dissolution by act of a partner. Where the part- nership is terminated by the act of a parther, whether it be a partnership at will or one for a definite time, it is ordinarily incumbent upon such partner to notify his copartners of that fact, and the termination would ordinarily not be deemed legally effected until such notice was given. 1 Notice would ordinarily be necessary to terminate the agency of the other partners to bind the one seeking to dissolve the partnership. His secret intention, concealed in his own mind, or his purely ex parte acts, would have no effect. In many cases, the act itself by which the relationship is termi- nated would ipso facto give notice, as, e. g., where he sells out to his copartners, or sells to a third person whom the other part- ners contemporaneously admit to the partnership in his place. 385. On dissolution by happening of events. "Where the partnership is dissolved by one of those events which, like death, bankruptcy, war, change of law, and the like, operate to termi- nate the ordinary partnership, no notice of that fact could usually be required from one partner to another, because ordi- narily one would have as much opportunity for notice in fact as another. There might well be cases, however, in which one partner, who had actual notice of such a fact which he knew his copartner did not have, would be deemed to be under a legal duty to inform him. 386. Under Uniform Partnership Act. With respect of the right of a partner to contribution from his copartners for lia- 1 Thus, in Eagle v. Bucher (1856), of the firm. They should be advised 6 Ohio St. 295, 67 Am. Dec. 342, it of the new relations created by the is said : ' ' That a partnership may withdrawal of a member, or a trans- be dissolved by the act of one of fer of his interest in the concern, the partners we do not * * * Their future relations toward each intend to impugn. That is too well other, and their pursuit of the par- settled to be now questioned. But ticular enterprise, depend on the ac- to effect that purpose, the act must quisition of such knowledge." See, be done with a view to its accom- also, Abbot v. Johnson (1855), 32 plishment. It should be communi- N. H. 9; Jones v. Lloyd (1874), L. cated at once to the other members R. 18 Eq. 265, 271. 324 NOTICE OF DISSOLUTION [ 387, 388 bilities or expenses incurred by him after dissolution, the Uni- form Partnership Act, 1 confessedly to some extent changing the present law, provides that "where the dissolution is caused by the act, death or bankruptcy of a partner, each partner is liable to his copartners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved, unless (a) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution, or (&) The dissolution being by the death or bankruptcy of a partner, the partner acting for the partnership had knowledge or notice of the death or bankruptcy" as those terms are defined by the Act. II. NOTICE TO THIRD PERSONS. 387. The necessity of notice to them. The creation of a partnership and the transaction of its business are notice to the public that a relation has been entered into to which the law attaches certain incidents and liabilities. As a business venture it is ordinarily an invitation to third persons to deal upon the credit of the persons and the funds assembled for that purpose in the partnership. It seeks to establish good-will and habits of dealing. To be successful, the invitation to rely must usually be a continuing one. If this relation is terminated, it would seem to be a natural consequence that some notice of the fact should also be given, if it is desired to bring those incidents and liabilities to an end. And notice is required by law in many cases. We are now to consider when notice is required to third persons, to whom, and how it may be given. 388. In what cases notice is required Not on dissolution by mere operation of law. As has been seen, the dissolution may result either from the operation of the law or by the act of the parties. The causes which will operate to dissolve the partnership by mere operation of law have been considered, and it is obvious that the existence of these causes is usually accom- 1 See. 34. 325 388] LAW OF PARTNERSHIP panied by facts and circumstances which must of themselves give publicity to the event. Thus, the fact that one of the part- ners has died is usually, if not always, accompanied by circum- stances which must give publicity to the fact. The same is true of the bankruptcy of a partner, or the declaration of war between the countries of which partners respectively are citizens. More- over, upon such death or bankruptcy new parties acquire in- terests in the property of the decedent or the bankrupt which can not be affected by the future acts of the former partners. The result of this necessary and inherent publicity is the general rule that no notice is required where the partnership is dissolved upon the happening of one of the events which terminate a partnership by mere operation of law. 2 Such has, in fact, been held to be the rule in the case of dissolution by death, bank- ruptcy, war, and the marriage of a female partner. Change in the law, making the partnership thereafter illegal, must stand upon the same footing. Such, also, it is commonly said, is the case of dissolution by judicial decree: third persons must take 2 See Griswold v. Waddington (1818), 15 Johns. (N. Y.) 57, 16 id. 438; Marlett v. Jackman (1861), 85 Mass. (3 Allen) 287; Bank v. Mat- thews (1872), 49 N. Y. 12, Mechem 's Cas. 962; Eustis v. Bolles (1888), 146 Mass. 413, 4 Am. St. Rep. 327, 16 N. E. 286, Mechem 's Cas. 965. In this last ease it is said: "The bankruptcy, like the death of a part- ner, dissolves the partnership; and, as it is a public and notorious pro- ceeding, all creditors are bound to take notice of it, and no further no- tice need be given. The publication of bankruptcy or insolvency pro- ceedings is legal notice to all per- sons by which they are bound. Story en Partnership, sees. 332-336; Ar- nold v. Brown, 24 Pick. (Mass.) 89, 94, 35 Am. Dec. 296; Marlett v. Jackman, 3 Allen (Mass.) 287, Ames' Cas. 551, Burd. Cas. 547; Butler v. Mullen, 100 Mass. 453." In Hudson Eeal Estate Co. v. Tower (1894), 161 Mass. 10, 36 N. E. 680, 42 Am. St. Bep. 379, it is said: "Death is a public fact, of which all the world must take notice, * * * but insanity is not." The last statement, however, was not made concerning an adjudication of insanity. Where partnership is dissolved by war, no notice is required: Bank v. Matthews, supra; Griswold v. Waddington, supra. So held also in case of dissolution by marriage of a female partner: Little v. Hazlett (1900), 197 Pa. 591, 47 Atl. 855. An assignment for the benefit of creditors is not an act of which all persons are charged with notice: Kuser v. Wright (1894), 52 N. J. Eq. 825, 31 Atl. 397. 326 NOTICE OF DISSOLUTION [ 389, 390 notice, 3 though where disconnected with an adjudication as to property this seems not so clear. The doctrine, it is said, does not extend so far as to require one to take notice of the decrees of courts of other states.* The Uniform Partnership Act, as to death and bankruptcy at least, repudiates this rule of imputed notice in case of death or bankruptcy, clearly as between the partners, 5 and, apparently, as to third persons also. 6 389. Required on dissolution by or through act of parties. But in the case of a dissolution by or through the act of the partners, no such publicity is necessarily incident and therefore a different rule prevails. In such cases, whether the partnership comes to an end by lapse of time or by mutual con- sent, or by the act of one of the partners, notice must usually be given. 390. To whom notice required. Notice may be required for two purposes and to two classes of persons : 1. If a partner intends to dissolve the partnership in pur- suance of his power to do so, he must, as has been seen in the preceding subdivision, usually give his partners notice of that fact, both as a means to the dissolution, and also for the pur- pose of withdrawing the pow r ers conferred upon them at the time the partnership was created. 2. But the question most frequently arising, and the one giving most difficulty, is the question of notice to third per- sons. Of these there are two classes : those who have had previous 3 Thus there is frequently cited (3888), 96 Mo. 149, 9 Am. St. R. the statement of Adams' Equity, 328, 8 S. W. 907. See also Shelton 157: 'Tor it is presumed that legal v. Johnson (1857), 4 Sneed (Tenn.) proceedings, during their continu- 672, 70 Am. Dee. 265 (a case con- ance, are publicly known throughout cerning property). the realm. ' ' See Mining Co. v. 5 Sec. 34. The commissioners, in Anglo-Calif. Bank (1881), 104 U. S. their note to this section, avow the 192, 26 L. ed. 707. purpose to make this change as be- 4 The realm referred to in the rule tween the partners themselves, quoted, in proceedings concerning 6 Sec. 35 makes no exception of property, means the state where the dissolution by such events, property is. Carr v. Lewis Coal Co. 327 391] LAW OP PARTNERSHIP dealings with the firm and relied upon its credit, and those who have not. The former have necessarily knowlege of the ex- istence of the firm, and have had occasion to rely upon the credit of its members, while the latter have not necessarily known of it, and have been brought into no personal relation with it. Notice to both classes may perhaps be necessary to the former because they have already known and trusted to the partner- ship and are therefore likely to continue to do so; to the latter because if they do not already know of its existence or have not dealt with it, they may hereafter deal in reliance upon it and be deceived by supposing it to continue ; but the same kind of notice is not required for both classes. Thus 391. How notice given 1. To those who have given credit to the firm. Persons of the first class, having had actual notice of the existence of the partnership, and having given credit to it, frequently spoken of as ' ' former dealers, ' ' should be given actual notice of its dissolution. 8 It is not very material how the 8 Uniform Partnership Act, sec. 28 Conn. 1, Gilm. Gas. 341; Thayer 35 (16 I), uses the language: "Had extended credit to the partnership prior to the dissolution and had no knowledge or notice of the dissolu- tion. " This would exclude, e. g., the case in which the first dealings were after dissolution, and then, be- fore notice, the dealing in question. A "former dealer" within the meaning of the rule requiring actual notice is one who has extended credit to the firm: 2 Bates on Partnership, 613. The term does not include one who has previously merely pur- chased goods from the firm: Askew v. Silman (1895), 95 Ga. 678, 22 S. E. 573, Mechem's Gas. 474, Burd. Gas. 106 (though the Georgia Code requires that notice shall be given "to creditors"). A single former transaction may be enough. Block v. Price (1887), 32 Fed. 562; Lyon v. Johnson (1859), v. Goss (1895), 91 Wis. 90, 64 N. W. 312, Mechem's Gas. 492; but compare Merritt v. Williams (1876), 17 Kan. 287, where a habit of deal- ing is said to be necessary. The question does not turn upon the amount of the dealing: Clapp v. Rogers (1855), 12 N. Y. 283. A single sale of goods to the firm for cash is not enough: Clapp v. Rogers, supra; Merritt v. Williams, supra. Ordinarily the dealing must be with the firm directly, and it is not enough, for example, that the plain- tiff has taken, from others, paper upon which the firm was a maker or endorser: Hutchins v. Bank of Ten- nessee (1847), 8 Humph. (Tenn.) 418 ; per Verplanck, Senator, in Ver- non v. Manhattan Co. (1839), 22 Wend. (N. Y.) 183; Rocky Mt. Nat. Bank v. McCaskill (1891), 16 Colo. 408, 26 Pac. 821. Cases may easily 328 NOTICE OF DISSOLUTION [ 392 notice is given or by whom; the important thing is that they receive it. In one case, 9 after referring to the method of giving notice to strangers, the court said: "The rule is different in respect to persons who have dealt with the firm before the dissolution. The rule in such cases in this state requires that, to relieve a re- tiring partner from subsequent transactions in the partnership name, notice of the dissolution must be brought home to the persons giving credit to the partnership. If, in any way, by actual notice served, or by seeing the publication of the dis- solution, or by information derived from third persons, the party, at the time of the dealing, is made aware of the fact that the partnership has been dissolved, the contract will not bind the firm. It is sufficient to exempt the firm from liability that the person so contracting with a partner in the firm name knew or had reason to believe that the partnership had been dissolved, but this must appear and be found by the jury, or else the con- tract will be treated as the contract of the partnership." 392. A common method of giving the notice is by per- sonal communication or by letter or circular addressed to and received by all persons who have given credit to the firm. Mail- ing the notice, properly addressed, raises a presumption of its due receipt, but the presumption is not conclusive and, if rebutted, actual receipt must be shown. 10 Mere publication in a newspaper is obviously not enough; it must appear further that the party to be notified saw it or otherwise knew of it. 11 be imagined, however, in which the ference that the firm still continues, contrary would doubtless be held, as, 9 Austin v. Holland (1877), 69 for example, where the intermediate N. Y. 571, 25 Am. Eep. 246, Me- party was merely an agency for chem's Gas. 464, Gilm. Cas. 343. In reaching the real creditor. See Grin- this case it was held that the mere nan v. Baton Eouge Mills Co. mailing of a notice of dissolution (1852), 7 La. Ann. 638, Mechem's was not sufficient; it must be. re- Cas. 968. ceived. Within what time the previous 10 Meyer v. Krohn (1885), 114 dealing must have been had seema 111. 574, 2 N. E. 495; Young v. not to be settled, but certainly no- Clapp (1892), 147 111. 176, 32 N. E. tice must be given to those who have 187, 35 N. E. 372. extended credit within a time so re- 11 Notice of dissolution was pub- cent as to reasonably justify the in- lished in a paper and a copy of the 329 393] LAW OP PARTNERSHIP Notice to or by an agent will suffice if the receipt or the giving of it respectively was within the scope of his authority. 12 The lack of notice to the agent who has the knowledge of the part- nership and who has had the previous dealings, may at times avail the principal. 13 The Uniform Partnership Act 14 defines " knowledge" as either actual knowledge of the fact or knowlege of such other facts as would indicate bad faith if he proceeded; while " notice" is either a direct statement to the person or a written statement delivered through the mail or by other means of communication. 393. How notice given 2. To those who have not given credit to the firm. Of the persons who have not given credit to the firm, there are likewise two classes those who knew of the partnership but had not dealt with it, and those who did not know of it, prior to its dissolution. As to the latter class, it is said that no notice at all is necessary, 16 upon the paper with a red line drawn about the notice was mailed to a former dealer residing in another town. Held not alone sufficient: Haynes v. Carter (1873), 12 Heisk. (Tenn.) 7, 27 Am. Eep. 747, Meehem's Cas. 966. Proof of the publication of the notice in a newspaper is not sufficient where it is not shown that the other party either took or read the paper: Eose v. Coffield (1879), 53 Md. 18, 36 Am. Eep. 389, Me- chem's Cas. 469, Gilm. Cas. 346. Even though he was a subscriber for the paper, it is not enough if he shows that he did not see the notice : Askew v. Silman (1895), 95 Ga. 678, 22 S. E. Eep. 573, Mechem's Cas. 474. But it has been held to be a fact from which the jury might, otherwise at least, infer actual no- tice; Treadwell v. Wells (1854), 4 Cal. 260. Mere publication is not enough: Eobinson v. Floyd (1893), 159 Pa. 165, 28 Atl. 258. See, also, Nicholson v. Moog (1880), 68 Ala. 471; Stoddard Mfg. Co. v. Krause (1889), 27 Neb. 83, 42 N. W. 913; Long v. Garnett (1883), 59 Tex. 229; Gilchrist v. Brande (1883), 58 Wis. 184, 15 N. W. 817; Backus v. Taylor (1882), 84 Ind. 503; Sibley v. Parsons (1892), 93 Mich. 538, 53 N. W. 786. 12 See Marsh v. Wheeler (1904), 77 Conn. 449, 59 Atl. 410, 107 Am. St. E. 40; Neal v. Smith (1902), 54 C. C. A. 226, 116 Fed. 20. 13 See Haines v. Starkey (1901), 82 Minn. 230, 84 N. W. 910, Me< ehem's Cas. 974. 14 Sec. 3. 15 See Austin v. Appling (1891), 88 Ga. 54, 13 S. E. 955; Benjamin v. Covert (1879), 47 Wis. 375, 2 N. W. 625; First Inter. Bank v. Brown (1915), 130 Minn. 210, 153 N. W. 522; Chamberlain v. Dow 330 NOTICE OF DISSOLUTION [393 ground that, as they did not learn of the existence of the part- nership until it had actually been dissolved, they could not have been misled by prior appearances or influenced by former habits of reliance ; and therefore they could have no reason for holding it liable ; and this is doubtless correct where no element of estop- pel is involved, 16 though notice by publication, even in such cases, would be the safer course. As to the former, " general" notice is enough, and this notice may be given in a variety of ways, though publication for a reasonable period in a newspaper of general circulation at the place where the partnership busi- ness is carried on is deemed the most effectual and appropriate. 17 The English Partnership Act provides for publication in the "Gazette," but there is no corresponding official publication in this country. (1862), 10 Mich. 319; Swigert v. Aspden (1893), 52 Mirm. 565, 54 N. W. 738, Mechem's Cas. 971. In the last case it is said: "It is obvious that such creditors act wholly upon their present informa- tion of the firm and its members, and not at all upon their past knowl- edge. ' ' 16 See Benjamin v. Covert, supra. Here it appeared that a business had been carried on in the name of A. C. His brother, G. C., had in fact been a partner, and was generally believed and reputed in the neigh- borhood to be a partner, but he had withdrawn from the business, giving no notice, and A. C. was conducting the business alone. A. C. applied to plaintiff for credit. Plaintiff had had no previous dealings with him and had never heard of any partner- ship. A. C. told plaintiff that G. C. was his partner and was financially responsible. Plaintiff took time to look the matter up and upon in- quiry learned that G. C. was gener- ally reputed to be a partner. He thereupon gave credit to what he be- lieved to be a partnership of A. C. and G. C. doing business in the name of A. C. Held, that evidence of these facts was competent, and that G. C. might be liable upon the ground that by giving no notice of his retirement he was acquiescing in the continuance of the reputation of his being a partner, which reputa- tion he knew of. Where a contemplated partnership was abandoned before any business had been done under it, it was held that no notice was necessary to one who had had no knowledge of it but who had later dealt with the other proposed partner. Chamberlain v. Dow, supra. 17 In New York this was said to be "the only safe rule": Citizens Nat. Bank v. Weston (1900), 162 N. Y. 113, 56 N. E. 494. See, also, Bank v. Weston (1899), 159 N. Y. 201, 54 N. E. 40, 45 L. E. A. 547. 331 394] LAW OF PARTNERSHIP 394. Where there is no newspaper available as in the case of partnerships located in small or remote places some other method of giving general notice must be adopted ; but even where there is a newspaper, it is not generally held to be im- perative that it should be used. Other methods may suffice if they are reasonably adapted to the purpose, which is, to apprise generally that "public" which had notice of the partnership that it no longer exists. 18 Even though no method of giving 18 Thus, in Lovejoy v. Spafford (1876), 93 U. S. 430, 440, Mechem's Cas. 977, 23 L. ed. 851, it is said: "We think it is not an absolute, inflexible rule that there must be a publication in a newspaper to protect a retiring partner. That is one of the circumstances con- tributing to or forming the general notice required. It is an important one, but it is not the only or an in- dispensable one. Any means that, in the language of Mr. Bell, are fair means to publish as widely as possible the fact of dissolution, or which, in the words of Judge Ed- monds, are public and notorious to put the public on its guard; or, in the words of Judge Nelson, notice in any other public and notorious manner; or, in the language of Mr. Verplanck, notice by advertisement or otherwise, or by withdrawing the exterior indications of partner- ship, and giving the public notice in the manner usual in the com- munity where he resides, are means and circumstances proper to be con- sidered on the question of notice. ' ' See, also, Ellison v. Sexton (1890), 105 N. C. 356, 18 Am. St. Eep. 907, 11 S. E. 180; Polk v. Oliver (1879), 56 Miss. 566; Richards v. Butler (1880), 65 Ga. 593; Central Nat. Bank v. Frye (1889), 148 Mass. 498, 20 N. E. 325. In Ellison v. Sexton, supra, the court said : " It is often difficult to determine what amounts to due and sufficient notice of the retirement of a partner; but the evidence to prove it should be such as would reason- ably warrant the jury in finding the fact of notice; that the party to be charged with it actually had it, or might, by reasonable diligence, have learned of the dissolution of part- nership and the retirement of the partner sought to be charged, from, the means and opportunity supplied or afforded for the purpose of giv- ing notice of the same. Generally, the reasonableness of the notice will be a mixed question of law and fact to be submitted to the jury, under proper instructions of the court, as to whether, under all the attending circumstances of the particular case, it was sufficient to warrant the in- ference of actual or constructive knowledge of the dissolution. ' ' There is no fixed rule as to the number of papers in which notice must be published, or as to the char- acter of the paper, or the number of times the notice must appear, or as to the size of type or degree of con- spicuousness. The paper must be one published in the vicinity: Rich- ards v. Butler (1880), 65 Ga. 593. Where the manufacturing operations of the firm were carried on at Baton 332 NOTICE OF DISSOLUTION [394 notice was consciously adopted, there may still be other facts or circumstances which sufficiently show that the partnership has come to an end. Bouge, but the firm maintained an office at New Orleans where its chief financial operations were conducted, a notice published in a Baton Eouge paper only was held not enough: Grinnan v. Baton Rouge Mills Co. (1852), 7 La. Ann. 638, Mechem's Cas. 968. Where the firm carried on a small retail business in northern Michigan, it was held not necessary to publish notice in Chicago, where goods were subsequently bought of a wholesale dealer by a former part- ner: Solomon v. Kirkwood (1884), 55 Mich. 256, 21 N. W. 336, Me- chem's Cas. 455, Burd. Cas. 554, Gilm. Cas. 589. The notice must appear to be au- thoritative, but it is held that it need not be signed, and may appear in the "local" column: Solomon v. Kirkwood, supra. Compare Citizens Nat. Bank v. Weston, supra, which is more or less opposed. The paper must be one of general circulation, and the notice should be published a reasonable number of times: Ellison v. Sexton (1890), 105 N. C. 356, 11 S. E. 180, 18 Am. St. Eep. 907 (one insertion in a daily paper (held insufficient). If the partner relies on notice left for publication in a weekly paper, held, that he runs the risk of deal- ings before the paper can appear: Martin v. Searles (1859), 28 Conn. 43, Mechem's Cas. 985. Other means of notice than publi- cation may be resorted to, their suffi- ciency being usually a question for the jury. See Lovejoy v. Spafford (1876), 93 U. S. 430, 23 L. ed. 581, Mechem's Cas. 977, where evidence of various facts was hold admissible. A change in name may be suffi- cient, but it must be such as to rea- sonably indicate the withdrawal of the defendant: American Linen Thread Co. v. Wortendyke (1862), 24 N. Y. 550; Coggswell v. Davis (1886), 65 Wis. 191, 26 N. W. 557; Gibbs v. Humphrey (1895), 91 Wis. Ill, 64 N. W. Eep. 750. Compare also Bush v. McCarty (1906), 127 Ga. 308, 56 S. E. 430, 9 Ann. Cas. 240; Thayer v. Goss (1895), 91 Wis. 90, 64 N. W. 312, Mechem's Cas. 492. The mere fact of the formation of a new partnership or the organiza- tion of a corporation is not of itself notice of the dissolution of a pre- cedent partnership. There must be such change of name or other cir- cumstances as to reasonably show that it was that particular business which was reorganized. See God- dard v. Pratt (1835), 33 Mass. (16 Pick.) 412; Howe v. Thayer (1835), 34 Mass. (17 Pick.) 91; Weise v. Gray's Harbor Com. Corp. (1904), 111 111. App. 647; Seufert v. Gille (1910), 230 Mo. 453, 131 S. W. 102, 31 L. E. A. (N. S.) 471; Southwick v. Allen (1839), 11 Vt. 75; Arnold v. Hart (1898), 176 111. 442, 52 N. E. 936; Overlock v. Hazzard (1909), 12 Ariz. 142, 100 Pac. 447; Byrum v. Clark (1899), 125 N. Car. 352, 34 S. E. 438. Change in business conditions may be sufficient, such as closing the store, ceasing business, moving away, and the like, though the suffi- 333 395] LAW OP PARTNERSHIP The Uniform Partnership Act protects one who had known of the partnership prior to its dissolution where he had "no knowledge or notice " 19 of the dissolution, and ' ' the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on." 20 395. Same subject Knowledge Constructive notice. As is pointed out in the preceding section, it is not always neces- sary that any notice should expressly be given. The party con- cerned may already know it from other sources, or he may have knowledge of such other facts so related to the case that formal notice of the dissolution may be deemed unnecessary. This latter is sometimes termed a case of "constructive notice." The drafts- men of the Uniform Partnership Act criticise this last expres- sion, and suggest a sharp distinction between knowledge and notice. Unfortunately their definition of "knowledge" is awk- ward, though their meaning can be gleaned. They say "A per- son has 'knowledge' of a fact within the meaning of this act not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances shows bad faith. " 21 On the other hand, ' ' A person has ' notice ' of a fact within the meaning of this act when the person who claims the benefit of the notice (a) states the fact to such person, or (b) delivers through the mail, or by other means of com- munication, a written statement of the fact to such person or to a proper person at his place of business or residence." As stated in the note to the preceding section there may be ciency of these facts must ordinarily v. Calhoun (1904), 55 W. Va. 246, be left to the jury: Dickinson v. 46 S. E. 1024. Notice to Dun's and Dickinson (1874), 25 Gratt. (Va.) Bradstreet's commercial agencies, 321, Mechem's Gas. 477. "Reputa- plaintiff not being a subscriber to tion or notoriety in the community either, is not of itself enough. Citi- is not itself notice. But it may be zens Nat. Bank v. Weston, supra. considered by the jury, with the Bank v. Weston, supra. other evidence, in determining 19 These terms are defined by the whether an inference of notice to Act. the person sought to be charged 20See. 35 (1) (b) (II). with it should be drawn ' ' ; Bush v. 81 See. 3. McCarty, supra. See, also, Werner 334 NOTICE OP DISSOLUTION [ 396, 397 many situations in which the kind of ' ' knowledge ' ' here referred to may be present, and dispense with the necessity of giving the "notice" otherwise requisite. 396. Who should give notice Actual and ostensible part- ners. Notice of the dissolution may be given by either part- ner, and where the partnership is dissolved by mutual consent all of the partners usually unite in giving it. Each partner who withdraws from a firm is interested in giving notice, for, as will be seen, 22 where notice is required, a partner who retires, whether by sale of his interest or any other similar means, will, until notice is duly given, continue liable as a partner for future debts to those otherwise entitled to rely upon him as a partner. If the partner desiring to give notice is prevented by his copartners from exercising that right, they may -be compelled to do what may be necessary to enable notice to be given, as to sign advertisements or join in notices to former customers. 23 The persons most obviously interested in giving notice are, of course, the actual and ostensible partners; but a merely nominal partner also, if he wishes to withdraw the appearance of part- nership, will be interested in taking such steps as will accom- plish that purpose. 397. Dormant and secret partners. A dormant part- ner, i. e., one both secret and passive, 24 is, it is said, not bound to give notice of his withdrawal, for no one of the public knew of his connection with the firm, and no one, therefore, could have relied upon it ; 25 but a mere secret partner is bound to 22 See post, 398. 25 See Elmira Rolling Mill Co. v. 23 1 Lindley on Partnership (Ew- Harris, supra; Elkinton v. Booth ell's ed.), 214; Trough ton v. Hun- (1887), 143 Mass. 479, 10 N. E. ter (1854), 18 Beav. 470; Hendry 460; Austin v. Appling (1891), 88 v. Turner (1886), 32 Ch. Div. 355. Ga. 54, 13 S. E. 955; Nussbaumer 24 For definitions of who is a dor- v. Becker (1877), 87 111. 281, 29 mant partner, see Elmira Rolling- Am. Rep. 53; Lieb v. Craddock Mill Co. v. Harris (1891), 124 N. (1888), 87 Ky. 525, 9 S. W. 838; Y. 280, 26 N. E. 541, Mechem's Pitkin v. Benfer (1892), 50 Kan. Cas. 987, Burd. Cas. 398, Gilm. Cas. 108, 31 Pac. 695, 34 Am. St. R. 110, 349; Rowland v. Estes (1899), 190 Mechem's Cas. 383; Brown v. Fos- Pa. Ill, 42 Atl. 528. ter (1894), 41 S. C. 118, 19 S. E. 335 397] LAW OF PARTNERSHIP give notice of his withdrawal to those who knew of his con- nection with the firm, though not to those who had no knowledge of it. 86 A retiring dormant partner would also he liable to one 299 ; Milmo Nat. Bank v. Bergstrom (1892), 1 Tex. Civ. App. 151, 20 S. W. 836, Mechem's Gas. 481. Burden of proof that a partner was a dormant one is on him who seeks to escape on that ground. Eowland v. Estes (1899), 190 Pa. Ill, 42 Atl. 528. The mere fact that it is agreed among the partners that the rela- tionship of one of them shall not be mentioned, does not make him a dormant partner; Elmira Boiling Mill Co. v. Harris, supra. The mere fact that a creditor does not know who the partners are, does not make them, as to him, dormant partners. He may well have relied upon their credit, although he had never ascertained their names; El- kinton v. Booth, supra; Deford v. Reynolds (1860), 36 Pa. 325. The mere fact that a partner's name does not appear in the firm name does not make him a dormant partner. When a partnership is formed and an artificial name is adopted, e. g., "Titusville Savings Bank," it must, it is said, ''be re- garded as an invitation to give credit not to the empty name but to the individuals who compose the association thus designated, and hence none of the partners can properly claim to be dormant part- ners." Clark v. Fletcher (1880), 96 Pa. 416; Shamburg v. Ruggles (1876), 83 Pa. 148; Elkinton v. Booth, supra. But see Hornaday v. Cowgill (1913), 54 Ind. App. 631, 101 N. E. 1030; Carter v. Whalley (1830), 1 B. & Ad. 11, contra. Where A and B as partners do business under the name of A & Co., B is not thereby a dormant partner; Edward v. McFall (1850), 5 La. Ann. 167; Deering v. Flan- ders. (1870), 49 N. H. 225; Podras- nik v. Martin (1887), 25 111. App. 300 ; Elmira Boiling Mill Co. v. Har- ris, supra; Deford v. Beynolds, su- pra. But see Heath v. Sansom (1832), 4 B. & Ad. 172; Warren v. Ball (1865), 37 111. 76; Kennedy v. Bohannon (1850), 50 Ky. (11 B. Mon.) 118; Grosvenor v. Lloyd (1840), 42 Mass. (1 Mete.) 19, con- tra. Compare Benjamin v. Covert (1879), 47 Wis. 375, 2 N. W. 625. But where A and B do business under the name of A alone, B may be a dormant partner. See Pitkin v. Benfer (1892), 50 Kan. 108, 31 Pac. 695, 34 Am. St. E. 110, Me- chem's Gas. 383; Milmo Nat. Bank v. Bergstrom (1892), 1 Tex. Civ. App. 151, 20 S. W. 836, Mechem's Gas. 481; Nussbaumer v. Becker (1877), 87 111. 281, 29 Am. Eep. 53; Kelley v. Hurlbut (1826), 5 Cow. (N. Y.) 534; Brown v. Foster (1896), 41 S. Car. 118, 19 S. E. 299. So where A, B and C do business in the name of A and B alone, C may be a dormant partner. See Gor- man v. Davis (1896), 118 N. Car. 370, 24 S. E. 770. 26 See Lieb v. Craddock, supra; Milmo Nat. Bank v. Bergstrom, su- pra; Edwards v. McFall, supra. 336 NOTICE OF DISSOLUTION [ 398 who knew of his existence, and who was not given notice of his withdrawal. 27 This exemption of the dormant partner from the necessity of giving notice, however, is not always to be relied upon. The supposedly dormant partner may find that he has in fact been discovered or disclosed, perhaps by his own partner and in violation of their agreement; and, while he would doubtless in such a case have a remedy against his partner, he would also be liable to the creditor. 28 There is, moreover, much difference of view as to who is to be deemed a dormant partner within the rule, though the weight of authority in this country sup- ports the rule as stated in the first paragraph of this section. The Uniform Partnership Act seems to take the same view, though the language is somewhat obscure. 29 398. Effect of not giving notice. Where a partnership is dissolved or a known member of the firm retires, under circum- stances requiring notice, then, until the dissolution or retirement has been duly notified, the power of each partner to continue to bind the others by contracts within the scope of the business, made with third persons entitled to notice, remains unimpaired, although as between the partners themselves his authority may be at an end. 30 27 See cases in preceding note. In shall be satisfied out of partnership Benjamin v. Covert (1879), 47 Wis. assets alone when such partner has 375, 2 N. W. 625, it was held that been prior to dissolution where one who would normally be (a) Unknown as a partner to the regarded as a dormant partner be- persons with whom the contract is comes generally known as a part- made, and ner, and, after his withdrawal with- (6) So far unknown and inactive out notice, the reputation so formed in partnership affairs that the busi- that he is a partner still continues, ness reputation of the partnership a new customer who gives credit could not be said to have been in after such withdrawal but in re- any degree due to his connection liance upon that continuing reputa- with it." (Suppose, e. g., that an tion may hold the retiring partner unknown and inactive partner keeps liable. the firm in good standing by timely 28 See Milmo Nat. Bank v. Berg- and judicious advances or loans, is strom, supra; Elmira Boiling Mill he a " dormant " partner within this Co. v. Harris, supra. clause?) 29 Sec. 35. (2) "The liability of 30 See Morrill v. Bissell (1894), a partner under paragraph (16) 99 Mich. 409, and note; Prentiss v. Mech. Part. 22 337 398] LAW OF PARTNERSHIP The retiring partner, in the absence of notice, remains liable also, it has been said, for the torts committed subsequently by his late partners or their agents in the line of their former busi- ness ; 31 but this can be true only of those torts which result from reliance upon the apparent continuance of the partner- ship. 32 The partner who has given proper notice may, of course, nul- lify its effect as to particular persons by words or conduct rea- sonably inducing in them the belief that, notwithstanding the notice, he still continues as a partner. 33 Sinclair (1831), 5 Vt. 149, 26 Am. Dec. 288, and note; Austin v. Hol- land (1877), 69 N. Y. 571, 25 Am. Eep. 246, Mechem's Gas. 464, Gilm. Gas. 343; Benjamin v. Covert (1879), 47 Wis. 375, 2 N. W. 625. 31 See 1 Lindley on Partnership (Ewell's ed.), 214, citing Stables v. Eley (1825), 1 Car. & P. 614 a case wherein the plaintiff was in- jured by the negligent driving of a cart which still bore the old firm name. But see Pollock's Digest of Partnership (6th ed.), 54, where this error was pointed out. See also Smith v. Bailey (1891), 2 Q. B. 403; Shapard v. Hynes (1900), 45 C. C. A. 271, 104 Fed. -Eep. 449, 52 L. E. A. 675; Austin v. Appling (1891), 88 Ga. 54, 13 S. E. 955. The mistake is corrected in later editions of Lindley on Partnership, e. g., the 7th at p. 79. 32 See Jewison v. Dieudonne (1914), 127 Minn. 163, 149 N. W. 20. Compare Sherrod v. Langdon (1866), 21 Iowa 518; Maxwell v. Gibbs (1871), 32 Iowa 32. 33 See ante 106 ; In re Kreuger (1871), 2 Low. 66, Mechem's Gas. 183, (continuing name in firm name); Brown v. Leonard (1816), 2 Chitty 120, Ames' Gas. 141; (de- fendant told plaintiff he had re- tired but that his name was to con- tinue to be used for a time). Compare In re Fraser (1892), 2 Q. B. 633, Mechem's Cas. 781, Burd. Gas. 108. 338 CHAPTER XVII. OF THE EFFECT OF DISSOLUTION UPON THE EIGHTS AND AUTHORITY OF PAETNEES. 399. In general. 1. Dissolution by Death. 400. Effect on rights and liabili- ties of the firm. 401. Effect on authority of firm as agent of third persons. 402, 403. Eights, powers and lia- bilities of the surviving partner. 404. Where there are several sur- vivors. 405. Statutory changes in some states. 406. Uniform Partnership Act 407. Continuing business under provisions of will. 408. Continuing in pursuance of partnership articles. 409. Continuing in pursuance of personal agreements. 410. Provisions that survivor shall acquire interest of de- ceased. 411. Liability of estate of de- ceased partner for existing debts. 2. Dissolution by Bankruptcy, Insolvency, Assignment, Etc. 412. In general. 413. Bankruptcy, insolvency or assignment of entire firm. ^ 414. Bankruptcy of one partner Solvent partner may ad- minister. 415, 416. Insolvency, assignment, selling out of one partner. 417. Eights of assignee of such partner's interest. 418. Other causes. 3. Dissolution by Judicial Decree. 419. Eeceivership usually results. 4. Dissolution by Other Causes. 420. Eights and liabilities of part- ners after dissolution In general. 421. Authority of firm, as agent for third persons, after dis- solution. 422. Eights of partners after dis- solution under Uniform Partnership Act Effect of wrongful dissolution. 423, 424. Authority of partners after dissolution Author- ity continues for the pur- pose of closing up the business. 425. No authority to create new obligations. 426. Authority of settling or liqui- dating partner. 399. In general. The partnership being dissolved for some sufficient reason, and due notice having been given when nec- 339 400,401] LAW OF PARTNERSHIP essary, it remains to be considered what is the effect of the dis- solution, particularly as respects the powers and duties of the partners. For reasons which will be obvious, dissolution by death, which completely removes one of the partners, presents an aspect entirely different from that presented when dissolu- tion results from any other cause, leaving all partners alive and capable or desirous of acting. The effect of death, there- fore, must be separately considered. 1. Dissolution by Death. 400. Effebt on rights and liabilities of the firm. Existing and vested rights of the partners are, of course, not destroyed by the death, though the legal ownership of them may be altered. 1 Existing liabilities are not discharged, though the method of enforcing them may be changed. 2 The firm not being an entity, continuing contracts of a personal sort are not necessarily dis- charged by the death of a partner as though the firm were dead, 3 but as the continuance of the partnership may be an express or implied condition, its termination in fact by death may oper- ate to terminate such a contract. The decisions in the case of contracts of employment by the firm are not in harmony. 4 401. Effect on authority of firm as agent of third persons. Where the firm, i. e., the partners jointly and collectively, has been appointed agent of a third person, the dissolution of the partnership by the death of one of the partners will ordinarily terminate that agency. 6 ISee post, 402. Tasker v. Shepherd (1861), 6 Hurl. 2 See post, 411. & N. 575; Burnet v. Hope (1885), 3 See Hughes v. Oross (1896), 166 9 Ont. Eep. 10; Greggs v. Swift Mass. 61, 43 N. E. 1031, 55 Am. St. (1889), 82 Ga. 392, 9 S. E. 1062, E. 375, 32 L. E. A. 620, Burd. Gas. 14 Am. St. E. 176, 5 L. E. A. 405; 296. Greenburg v. Early (1893), 30 Abb. 4 That the contract is not termi- N. Cas. (N. Y.) 300. nated, see Fereira v. Sayres (1843), 5 See Mechem on Agency (2nd 5 Watts & S. (Pa.) 210, 40 Am. ed.) 673; Larson v. Newman Dec. 496. Not where the firm in (1909), 19 N. Dak. 153, 121 N. W. fact continues; Hughes v. Gross, 202, 23 L. E. A. (N. S.) 849. supra. That it is terminated: 340 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 402 402. Rights, powers and liabilities of the surviving part- ner. The death of one partner ordinarily operates, as has been seen, to dissolve the partnership. Such dissolution ordinarily operates instantly and ipso facto to terminate the authority of the survivors to continue the business or make new contracts, in the firm name. 6 It also devolves upon the survivors peculiar rights and duties. Upon dissolution by death the entire legal title to all the partnership personalty passes to the surviving partner or partners ; 7 and although the title to real estate ordi- narily descends to the heir of the deceased partner who held it, the survivors, as has been seen, have the power in equity to make it available for the purpose of liquidating the demands against the partnership. 8 They alone, to the exclusion of the representatives of the deceased partner, have the right to the possession of the partnership assets, 9 and to collect or receive 6 See Lang v. Waring (1850), 17 Ala. 145; Big Four Implement Co. v. Keyser (1916), 99 Kan. 8, 161 Pac. 592, L. E. A. 1917 C. 166; First Nat. Bank v. Cody (1893), 93 Ga. 127, 19 S. E. 831 (though where it is a renewal note the as- sets may still be liable for the orig- inal debt) : Central Sav. Bank v. Mead (1873), 52 Mo. 546; Macon Exch. Bank v. Tracy (1883), 77 Mo. 594; Bank of Port Gibson v. Baugh (1848), 9 Sm. & M. (Miss.) 290; Durant v. Pierson (1891), 124 N. Y. 444, 26 N. E. 1095, 21 Am. St. E. 686, 12 L. E. A. 146, Me- chem's Gas. 525; Castle v. Eeynolds (1840), 10 Watts (Pa.) 51; Bauer Grocer Co. v. McKee Shoe Co. (1899), 87 111. App. 434. Estate of deceased partner is not directly bound for debt so created; Bagel v. Miller (1903), 2 K. B. 212. 7 In Barry v. Briggs (1871), 22 Mich. 201, the rule is stated that a sole surviving partner has the en- tire legal title to all the partner- ship assets. He has the right, act- ing honestly and with reasonable discretion and diligence, to dispose of them as he pleases, to settle all debts against the concern, to make any compromise he may deem neces- sary, and to turn the assets into an available and distributable form. See also Andrews v. Brown (1852), 21 Ala. 437, 56 Am. Dee. 252, Gilm. Cas. 267. 8 See ante, 169 ; Shanks v. Klein (1881), 104 U. S. 18, 26 L. ed. 635, Mechem's Cas. 211, Ames' Cas. 597, Gilm. Cas. >269. 9 As to personalty see Hawkins v. Capron (1892), 17 E, L 679, 24 Atl. 466, Mechem's Cas. 499; An- drews v. Brown (1852), 21 Ala. 437, 56 Am. Dec. 252; Starr v. Case (1882), 59 Iowa 491, 13 N. W. 645 (the library of a firm of lawyers) ; Murray v. Mumford (1826), 6 Cow. (N. Y.) 441 (the firm account books); Hewitt v. Hayes (1910), 204 Mass. 586, 90 N. E. 985, 27 L. E. A. (N. S.) 154. 341 402] LAW OF PARTNERSHIP debts due the firm. 10 Causes of action, being joint, at law, sur- vive to or against them, and therefore they alone are the ones to sue or be sued in respect to partnership dealings. 11 But while As to realty, while the legal title does not go to the survivor, he would have the right of a tenant in posses- sion wherever the title stood in the name of both or of himself only; an undoubted right to the posses- sion of whatever was necessary to enable him to close up the business; and a right to make available for partnership purposes any legal titles held in trust for the partnership. See Dyer v. Clark (1843), 5 Mete. (Mass.) 562, 39 Am. Dec. 697, Ames' Gas. 251; French v. Vanatta (1907), 83 Ark. 306, 104 S. W. 141; Sternberg v. Larkin (1897), 58 Kan. 201, 48 Pac. 861, 37 L. E. A. 195; Clark v. Fleischmann (1908), 81 Neb. 445, 116 N. W. 290. 10 See Peters v. Davis (1811), 7 Mass. 257; Oakman v. Ins. Co. (1867), 98 Mass. 57; Belton v. Fisher (1867), 44 III 32; Willson v. Nicholson (1878), 61 Ind. 241; Bas- sett v. Miller (1878), 39 Mich. 133. 11 Survivor sues in his own name, usually describing himself as "sur- vivor of himself and (the other partner) deceased." Bepresenta- tives of deceased partner not proper parties defendant to be joined with survivor in actions at law on part- nership obligations. Childs v. Hyde (1859), 10 Iowa 294, 77 Am. Dec. 113; Voorhis v. Child's Exr. (1858), 17 N. Y. 354, Burd. Cas. 490, Gilm. Cas. 298. So, also, of equitable actions whose sole object is to en- force an accounting by the partner- ship. Rusling v. Brodhead (1896), 55 N. J. Eq. 200, 35 Atl. 841, Burd. Cas. 273. Eepresentatives of deceased part- ner not necessary or proper parties plaintiff in actions to enforce rights belonging to the partnership: the survivor alone is the person to sue. Sterns v. Houghton (1866), 38 Vt. 583, Gilm. Cas. 273. In equity: Haig v. Gray (1850), 3 DeO. & S. 741, Burd. Cas. 246. So, of causes of action arising after the death: Bassett v. Miller (1878), 39 Mich. 133, Gilm. Cas. 271 (action for price of goods sold by survivor) ; Pfeffer v. Steiner (1873), 27 Mich. 537, Gilm. Cas. 272 (trespass to firm property in possession of survivor). Survivor in suing may join an in- dividual claim with one accruing to him as survivor: Adams v. Hackett (1853), 27 N. H. 289, 59 Am. Dee. 376, Gilm. Cas. 274; Hancock v. Hay wood (1789), 3 T. E. 433. In action by survivor on partner- ship claim, held, that defendant may set off claim against survivor per- sonally: Holbrook v. Lackey (1847), 13 Mete. (Mass.) 132, 46 Am. Dec. 726, Meehem's Cas. 999; contra, Wain v. Hewes (1819), 5 Serg. & E. (Pa.) 468. A surviving part- ner, in a suit against him for a separate debt of his own, may set off a debt due to him and his de- ceased partner jointly: Slipper v. Stidstone (1794), 5 T. E. 493; Johnson v. Kaiser (1878), 40 N. J. L. 286; or in an action against him on a partnership debt, he may set off a debt due him personally: Lewis v. Culbertson (1824), 11 Serg. & E. (Pa.) 48, 14 Am. Dec. 607. The legal title to a judgment 342 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 402 they may have the legal title, they are commonly said to hold it in a species of trust. 12 It is their duty to collect and preserve the assets, to apply them to the payment of the debts, to close up the business with reasonable promptness, 13 and to account to the representatives of the deceased partner for his share of the final balance. 14 In their dealings with partnership assets, the surviving partners are charged with all the duties of fair recovered by the survivor as such is in him personally: Nehrbross v. Bliss (1882), 88 N. Y. 600, 2 Civ. Proc. E. 39, Burd. Gas. 246. But survivor cannot sue where he and his copartner while living could not have maintained an action: Patton v. Carr (1895), 117 N. Car. 176, 23 S. E. 182, Burd. Gas. 248. 12 The trust relationship is much more strongly stated in- the Ameri- can eases than in the English cases. See, for example, the remarks of Lord Westbury in Knox v. Gye (1872), L. E. 5 Eng. Ir. App. 656, and compare the views of the Lord Chancellor in the same case. For purposes of suit, the survi- vor is permitted to deal with the partnership claims very much as though he owned them. See Hoi- brook v. Lackey (1847), 13 Mete. (Mass.) 132, 46 Am. Dee. 726, Me- chem's Cas. 999, and cases cited. Massachusetts cases speak of him as the absolute owner, though sub- ject to a liability to account for the proceeds and for their applica- tion to partnership debts, etc. Hewitt v. Hayes, supra. Nevertheless, he is not the un- qualified owner. For example, his interest in the partnership property which can be reached by his indi- vidual creditor in competition with firm creditors, is not increased. Maddock v. Skinker (1896), 93 Va. 479, 25 S. E. 535, Burd. Cas. 250. See also Eiehardson v. Eedd (1896), 118 N. Car. 677, 24 S. E. 420, Burd. Cas. 260. 13 See Clay v. Field (1888), 34 Fed. 375; 115 U. S. 260; 118 U. S. 97; Gable v. Williams (1882), 59 Md. 46; Eoach v. Brannon, supra. He has large discretion as to methods, if acting in good faith. Is not obliged to apply assets pro rota on all debts, but may make preferences, if no statute forbids. As to the duty of the survivor to preserve the good will for the bene- fit of the partners, and his liability if he appropriates it to himself, see Hutchinson v. Nay (1903), 183 Mass. 355, 67 N. E. 601, Mechem's Cas. 838, s. c., 187 Mass. 262, 72 N. E. 974, 105 Am. St. E. 390, 68 L. B. A. 186, Mechem's Cas. 842; Costa v. Costa (1915), 222 Mass. 280, 110 N. E. 309 ; Eowell v. Eowell (1904), 122 Wis. 1, 99 N. W. 473; Eammelsberg v. Mitchell (1875), 29 Ohio St. 22; Lobeck v. Lee, etc. Hardware Co. (1893), 37 Neb. 158, 55 N. W. 650, 23 L. E. A. 795; Joseph v. Herzig (1910), 198 N. Y. 456, 92 N. E. 103; Dyer v. Shove (1897), 20 E. I. 259, 38 Atl. 498, Burd. Cas. 605. 14 See Valentine v. Wysor (1890), 123 Ind. 47, 23 N. E. 1076, 7 L. E. A. 788, Mechem's Cas. 500, Gilm. Cas. 275. 343 403] LAW OP PARTNERSHIP dealing and regard for the interests of the firm which are re- quired of trustees. 15 403. While engaged in closing up the business, the surviving partners may exercise such powers as are reasonably necessary to accomplish that purpose; and though no contract which they may make will directly bind the representatives or estate of the deceased partner, yet, if the liability was properly incurred, the survivors may reimburse themselves out of the partnership assets, and, in case of a deficiency, have a claim for contribution from the estate of the deceased partner. 16 Thus K A surviving partner so far oc- misappropriates the assets, equity cupies the position of trustee, that he cannot be permitted to make gain for himself at the expense of the estate of a deceased partner. Little v. Caldwell (1894), 101 CaL 553, 36 Pac. 107, 40 Am. St. E. 89; Galbraith v. Tracy (1894), 153 111. 54, 38 N. E. 937, 46 Am. St. E. 867, 28 L. E. A. 129, Burd. Gas. 257; Eussell v. McCall (1894), 141 N. Y. 437, 36 N. E. 498, 38 Am. St. E. 807, Burd. Cas. 256; Dewey v. Chapin (1892), 156 Mass. 35, 30 N. E. 223, Burd. Cas. 255; Joseph v. Herzig, supra. He cannot buy of or sell to himself without the consent of the representatives of the deceased partner. Denholm v. McKay (1889), 148 Mass. 434, 19 N. E. 551, 12 Am. St. E. 574. But he is not incompetent to buy from the representatives of the estate of the deceased partner. Valentine v. Wysor, supra. See, also, Clark v. Fleischmann, supra; Sternburg v. Larkin (1897), 58 Kan. 201, 48 Pac. 861, 37 L. R. A. 195. Must give full information if he deals with the representatives. Welbourn v. Kleinle (1900), 92 Md. 114, 48 Atl. 81; Tennant v. Dunlap (1899), 97 Va. 234, 33 S. E. 620. If he will give relief. Eussell v. MeCall (1894), 141 N. Y. 437, 36 N. E. 498, 38 Am. St. E. 807. He is bound to keep accurate accounts and to keep the representatives of the deceased partner informed of all that properly concerns them. Heath v. Waters (1879), 40 Mich. 457. 16 The contracts made by the sur- viving partner bind himself only, if any one, though he may by stip- ulation limit liability to goods pledged. If he properly incurs such a liability, he may pay it out of the assets, or pledge assets for its payment, (see Durant v. Pierson in next note). He may be sued per- sonally upon such liabilities. In case of deficiency in the partner- ship assets to reimburse him, he may have contribution from the es- tate of the deceased partner. He can ordinarily not make such claim until he has completed the adminis- tration of the partnership affairs. See generally Blakely v. Smock (1897), 96 Wis. 611, 71 N. W. 1052; Logan v. Dixon (1889), 73 Wis. 533, 41 N. W. 713; Gleason v. White (1867), 34 Cal. 28; Hanna v. Wray (1874), 77 Pa. 27. For the amount of his claim after settle- 314 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 403 they may sell, mortgage or pledge the property, borrow money, 17 ment and exhausting of partnership assets, he may prove as an indi- vidual creditor against estate of de- ceased partner, pari passu with other individual creditors, it is held in Olleman v. Reagan (1867), 28 Ind. 109. [Compare In re Ruby (1897), 24 Ont. App. 509]. Sub- ject to their priority, says Uniform Partnership Act, Sec. 40 (i). Undoubtedly, it might have been held in these eases that the surviv- ing partner had an authority coupled with an interest which would have made it irrevocable by the partner's death. (See Blodgett v. American Nat. Bank (1881), 49 Conn. 9; Laughlin v. Lorenz (1864), 48 Pa. 275, 86 Am. Dec. 592). But that is not the way in which the matter has been developed. Persons dealing with the surviv- ing partner are, of course, ordina- rily charged with notice of his situ- ation and restricted authority. The partnership creditor who ob- tains judgment against the survivor may levy upon the partnership property and the property of the surviving partner, but not upon the separate property of the deceased partner. His remedy as to the lat- ter is in equity, as will be seen post, 411. As to levies upon the part- nership property, by attachment or execution, see Roach v. Brannon (1879), 57 Miss. 490; Krueger v. Speith (1889), 8 Mont. 482, 20 Pac. 664, 3 L. R. A. 291; Stampfle v. Bush (1913), 71 W. Va. 659, 77 S. E. 283. 17 Thus in Durant v. Pierson (1891), 124 N. Y. 444, 26 N. E. 1095, 21 Am. St. R. 686, 12 L. R. A. 146, Mechem 's Gas. 525, the court say: "When a partnership is dis- solved by the death of a partner, the survivor is entitled to the possession and control of the joint property for the purpose of closing its business, and to that end and for that purpose he may, according to the settled prin- ciples of the law of partnership, administer the affairs of the firm, and by sale, mortgage, or other rea- sonable disposition of the property, make provision for meeting its ob- ligations. He may, for that pur- pose, borrow money, and give a valid pledge of the copartnership property for its repayment. Wil- liams v. Whedon, 109 N. Y. 333, 4 Am. St. R. 460; Emerson v. Sen- ter, 118 U. S. 3, 8; Fitzpatrick v. Flannagan, 106 U. S. 648; Butchart v. Dresser, 4 DeGex, M. & G. 542, 10 Hare 453; In re Clough, Brad- ford Commercial Banking Co. v. Cure, L. R. 31 Ch. Div. 326." See, also, Barton v. Love joy (1894), 56 Minn. 380, 57 N. W. 935, 46 Am. St. R. 482; Peoples Bank v. Wil- cox (1904), 136 Mich. 567, 100 N. W. 24; Kenney v. Howard (1896), 68 Vt. 194, 34 Atl. 700, Burd. Gas. 271; In re Bourne [1906], 2 Ch. 427, 3 Br. Rul. Gas. 569 and note. Survivor may assign choses in ac- tions belonging to the partnership, as well as dispose of the tangible property. See Lindner v. Adams County Bank (1896), 49 Neb. 735, 68 N. W. 1028, Mechem 's Gas. 523, Burd. Gas. 262. Notice of dishonor to charge the partnership may be given to the survivor. Slocomb v. DeLizardi 345 403] LAW OP PARTNERSHIP and repay it put of the assets, or make an assignment for the benefit of creditors. 18 They ordinarily may and should com- plete the executory contracts into which the firm had entered, 19 and for this purpose have the authority, in the manner above stated, to purchase materials, employ assistance or make such other incidental contracts as the case reasonably requires. 20 (1869), 21 La. Ann. 355, 99 Am. Dec. 740. 18 Although there has been a lit- tle doubt about the right of the survivor to make an assignment for the benefit of creditors, the weight of authority undoubtedly sustains it: Fitzpatrick v. Flannagan (1882), 106 U. S. 654, 27 L. ed. 211; Emerson v. Senter (1885), 118 U. S. 3, 30 L. ed. 49, Burd. Gas. 253; Williams v. Whedon (1888), 109 N. Y. 333, 16 N. E. 365, 4 Am. St. K. 460; Patton v. Leftwich (1889), 86 Va. 421, 10 S. E. 686, 19 Am. St. E. 902, 6 L. E. A. 569; Breen v. Eichardson (1883), 6 Colo. 605, Gilm. Gas. 410; in the absence of a statute expressly or by impli- cation forbidding: Shattuck v. Chandler (1889), 40 Kan. 516, 20 Pac. 225, 10 Am. St. E. 227, Me- chem's Cas. 363; State v. Withrow (1897), 141 Mo. 69, 41 S. W. 980. See also Hewitt v. Hayes (1910), 204 Mass. 586, 90 N. E. 985, 27 L. E. A. (N. S.) 154. Cannot give preferences in Colo- rado; Salisbury v. Ellison (1883), 7 Colo. 167, 2 Pac. 906, 49 Am. Eep. 347. 19 The liability of all the partners, including the estate of the deceased partner, for existing obligations is, of course, in the ordinary case, not terminated by the death, (see Davis v. Sowell (1884), 77 Ala. 262; Mason v. Tiffany (1867), 45 111. 392; McGill v. McGill (1859), 59 Ky. (2 Mete.) 258; Winter v. In- ness (1838), 4 Myl. & C. 101; De- vaynes v. Noble (1831), 2 Euss. & M. 495) ; though, as will be seen (post, 411) the method of enforc- ing it is altered. Contracts, however, depending upon the continued existence of a particular person would usually be terminated by his death. See Hughes v. Gross (1896), 166 Mass. 61, 32 L. E. A. 620, 43 N. E. 1031; Burd. Cas. 296, 55 Ani. St. E. 375; Tasker v. Shepherd (1861), 6 H. & N. 575; Schlau v. Enzen- backer (1914), 265 111. 626, 107 N. E. 107, L. E. A. 1915 C 576; Clifton v. Clark (1904), 83 Miss. 446, 36 So. 251, 102 Am. St. E. 458, 66 L. E. A. 821, Mechem's Cas. 1010. Contracts between two firms hav- ing some members in common, one of whom has died (thereby dissolv- ing both firms), are held not to be within this rule for completing per- formance. Oliver v. Forrester (1880), 96 111. 315, Mechem's Cas. 1004. There may be contracts, e. g., wholly executory contracts for work involving long time, much expense and great risk wherein it would doubtless be rather the part of pru- dence to endeavor to procure a can- cellation on fair terms. 20 See Little v. Caldwell (1894), 101 Gal. 553, 36 Pac. 107, 40 Am. 346 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 404 Upon the death of the sole surviving partner before the estate is closed, his powers and liabilities pass to his administrator or executor. 21 The right of the survivor to compensation has already been referred to in a previous section. 22 The fact that the surviving partner was a dormant one, or even that he is insolvent, is held not to affect his right to wind up the partnership affairs, as above stated; but under the Uni- form Partnership Act the survivor may not act if he has become bankrupt. 28 The Uniform Partnership Act provides that "on the death of a partner his right in specific partnership property vests in the surviving partner or partners, except where the deceased was the last surviving partner, when his right in such property vests in his legal representative. Such surviving partner or part- ners, or the legal representative of the last surviving partner, has no right to possess the partnership property for any but a partnership purpose. ' ' 24 404. Where there are several survivors. Where there are two or more survivors their respective rights, powers and duties in the field of closing up the business are, as were their rights, powers and duties in the field of carrying it on before the dis- solution, ordinarily equal. 25 Either one, for example, may re- st. B. 89; Calvert v. Miller (1886), fied under this rule, while general 94 N. C. 600, Mechem's Gas. 1002; purchases to enable the business to Oliver v. Forrester (1880), 96 111. be continued would not be. Oliver 315, Mechem's Cas. 1004; Andrews v. Forrester, supra; Andrews v. Stin- v. Stinson (1912), 254 111. Ill, 98 son, su.pra; Big Four Implement Co. N. E. 222, Ann. Cas. 1913 B 928; v. Keyser (1916), 99 Kan. 8, 161 Eemick v. Emig (1866), 42 111. 342; Pac. 592, L. E. A. 1917 C 166. Bust v. Chisholm (1881), 57 Md. 21 Galbraith v. Tracy (1894), 153 376; Condon v. Callahan (1905), 111. 54, 38 N. E. 937, 46 Am. St. 115 Tenn. 285, 89 S. W. 400, 112 B. 867, 28 L. B. A. 129, Burd. Cas. Am. St. E. 833, 1 L. B. A. (N. S.) 257; Dayton v. Bartlett (1882), 38 643, 5 Ann. Cas. 659; O'Connell v. Ohio St. 357; Brooks v. Brooks Schwanabeck (1889), 76 Mich. 517, (1873), 12 Heisk. (Tenn.) 12. 43 N. W. 599; Miller v. Hoffman 22 See ante, 178. (1887), 26 Mo. App. 199. Small 23 Sec. 35 (3) (b) ; Sec. 37. purchases, incident to closing up, or 24 Sec. 25 (d). calculated to promote the sale of the 25 See Davis v. Sowell (1884), 77 residue of the assets, may be justi- Ala. 262. 347 405,406] LAW OF PARTNERSHIP ceive payment of a debt due to the partnership, or make payment of a debt due from it. 26 They would have equal rights to the possession, and equal duties as to the disposition, of the assets. 27 Neither one could bind the other personally by a new contract made in the firm name or otherwise, without the latter 's con- sent ; 28 but if it were an expense properly incurred in closing up the business, it could be paid out of the assets, and, in case of a deficiency, the other survivor would be liable for contribu- tion of his pro rata share, as would also the estate of the de- ceased partner. They may, as between themselves, and often do, arrange that one of them shall act instead of all of them in closing up the affairs, but this would not of itself enlarge the authority of that one. 29 405. Statutory changes in some States. In a number of states, for example, Kansas, Maine, Missouri, New Mexico and Washington, statutes have made a more or less radical change in the situation of the surviving partner. These statutes com- monly provide that the partnership estate shall be administered by the representative of the deceased partner unless the sur- vivor, within a time limited, applies for administration and gives a bond provided for by the statutes. 30 406. Uniform Partnership Act. The Uniform Partnership Act makes no specific provision respecting administration by 26 See Davis v. Sowell, supra. liable to a third person for a con- 27 See Davis v. Sowell, supra. tract made by his direction through 28 See Marlett v. Jackman (1861), the one serving as his agent). 85 Mass. (3 Allen) 287, Ames' Gas. 80 See Shattuck v. Chandler 551, Burd. Gas. 547; Jenness v. (1889), 40 Kan. 516, 20 Pac. 225, First Nat. Bank (1879), 40 Mich. 10 Am. St. R. 227, Mechem's Gas. 347; Matteson v. Nathanson (1878), 363; Bass v. Emery (1883), 74 Me. 38 Mich. 377: Bass Dry Goods Co. 338; Shaw, et al. Appellants (1889), v. Granite City Mfg. Co. (1902), 81 Me. 207, 16 Atl. 662; Easton v. 116 Ga. 176, 42' S. E. 415. Courtright (1884), 84 Mo. 27; Dow 29 See Bass Dry Goods Co. v. Gran- v. Simpson (1912), 17 N. Mex. 357, ite City Mfg. Co. supra. (Here one 132 Pac. 568; State v. Neal (1902), survivor alone acted in closing up, 29 Wash. 391, 69 Pac. 1103. A some- and the other served as his agent. what similar statute exists in Illi- Held, that the one who acted was nois; also one in Louisiana. 348 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 407 the surviving partner. Section 37 provides that "unless other- wise agreed, the partners who have not wrongfully dissolved the partnership [and this would include the surviving partner or partners] or the legal representative of the last surviving partner, not bankrupt, has the right to wind up the partnership affairs; provided, however, that any partner, his legal repre- sentative or his assignee, upon cause shown, may obtain winding up by the court." The partnership is "dissolved" though not "terminated" by the death of any partner; 31 "except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership" in the situations enumerated; 32 "after dissolution a partner can bind the partnership (except as provided in paragraph 3), (a) by any act appropriate for winding up partnership affairs or com- pleting transactions unfinished at dissolution, (b) by any trans- action which would bind the partnership if dissolution had not taken place" provided notice had not been given when and as required. 33 Nevertheless, it is believed that in binding "the partnership," after the death of one partner, under this pro- vision the estate of the deceased partner or his legal representa- tive is not included. On the other hand, where there are several survivors it would seem that each was the agent for all and could bind them personally in winding up the partnership affairs or completing transactions unfinished at the time of the dis- solution. "The dissolution of the partnership does not of itself dis- charge the existing liability of any partner. " 3 * " The individ- ual property of a deceased partner shall be liable for all obliga- tions of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts." 85 407. Continuing business under provisions of will. The authority of the surviving partners is to close up and not to continue the partnership affairs, and they have therefore no 31 Sec. 30. 34 See. 36 (1). 82 Sec. 33. 35 See. 36 (4). 33 Sec. 35. 349 407] LAW OF PAETNEESHIP right to make new contracts, engage in fresh enterprises or carry on the partnership business for any longer period than is reasonably necessary to enable the affairs to be closed up without unnecessary loss or injury. If, in violation of their duty, they do continue the business, they may be restrained by injunction, or they may be held accountable for interest or profits and will be charged personally with the losses. 36 The deceased partner may, however, by his will authorize the business to be carried on for a period limited therein, either by the survivors alone or by the survivors and his executors jointly, and the business may be continued in pursuance of such a provision. 37 In such a case, unless there is something 36 See Story on Partnership, 343; Eobinson T. Simmons (1888), 146 Mass. 167, 15 N. E. 558, 4 Am. St. E. 299. 37 Such provisions are usually per- missive only, and not obligatory. The executor, for example, is not obliged to become a partner and as- sume that risk. See Andrews v. Stinson (1912), 254 111. Ill, 98 N. E. 222, Ann. Cas. 1913 B 928. If he does do so, he is usually person- ally liable for the debts subsequently contracted, with a right to indem- nity out of the partnership assets. These may prove insufficient: See Laible v. Perry (1880), 32 N. J. Eq. 791; Wild v. Davenport (1886), 48 N. J. L. 129, 7 Atl. 295, 57 Am. Kep. 552, Burd. Cas. 77; Austin v. Munro (1872), 47 N. Y. 360; Clop- ton v. Gholson (1876), 53 Miss. 466; Wade v. Pope (1870), 44 Ala. 690; "The Liabilities of a Partner's Executor" (1906), 54 American Law Eegister 565. So, also, where the survivor is au- thorized to continue : He is not obliged to do so unless he has agreed to do it. If he does continue, he usually makes himself personally liable for the subsequent debts, with a right to reimbursement out of the partnership assets. See cases cited in next section. Wherever it is optional so to act or not the exe- cutor or survivor could refuse to act unless and until those who might be interested in his acting, e. g., the heirs of the deceased partner, should make special terms for his protec- tion. It is said that provisions for con- tinuance of the business by the exe- cutor must specifically authorize it in order to justify it. Exchange Bank v. Tracy (1883), 77 Mo. 594. See, also, Ex parte Manchester Bank (1879), 12 Ch. D. 917, Burd. Cas. 263; Altgelt v. Sullivan (1903), Tex. Civ. App. , 79 S. W. 333. If the executor does not become a partner, he will not, merely by tacit- ly permitting the firm assets to re- main with the survivor as directed, or by receiving part of the profits of the business, become liable for the debts of the continued business. See Wild v. Davenport, supra; Walker v. Walker (1889), 88 Ky. 615, 11 S. W. 718; Owens v. Mackall (1870), 33 Md. 382; Tisch v. Eockafellow 350 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 408 in the will to indicate a contrary purpose, it will be presumed that the deceased intended to subject to the hazard of the busi- ness only the capital already embarked in it, and not the gen- eral residue of his estate ; 38 but under clear and appropriate provisions the entire estate may be involved. 39 408. Continuing in pursuance of partnership articles. Provisions for continuing the business by the survivor are fre- quently found in the partnership articles. They may be permis- sive only or contractually obligatory. They may also define the term and conditions. If they do not, permissive provisions, at least, are usually held to apply only to the assets of the deceased already embarked in the business and not to the general residue of his estate. 40 Contractually obligatory provisions are, of course, (1904), 209 Pa. 419, 58 Atl. 805; A very v. Myers (1882), 60 Miss. 367. If he actually participates as a partner he will be personally liable for the debts. Citizens Mut. Ins. Co. v. Ligon (1881), 59 Miss. 305; Alsop v. Mather (1831), 8 Conn. 584, 21 Am. Dec. 703. So if the business is continued by agreement with him, City Nat. Bank v. Stone (1902), 131 Mich. 588, 92 N. W. 99; but even in such cases he would not be personally liable for debts con- tracted in the deceased partner 's lifetime: Mattison v. Farnham (1890), 44 Minn. 95, 46 N. W. 347. When he thus participates by direc- tion of the will, he may be reim- bursed out of the assets properly devoted to the business. Wild v. Davenport, supra. 38 See Smith v. Ayer (1879), 101 U. S. 320, 25 L. ed. 955; Jones v. Walker (1880), 103 U. S. 444, 26 L. ed. 404, Mechem's Gas. 509; Bur- well v. Mandeville (1844), 2 How. (43 U. S.) 560, 11 L. ed. 378; Pit- kin v. Pitkin (1829), 7 Conn. 307, 18 Am. Dec. Ill; Brasfield v. French (1882), 59 Miss. 632; Furst v. Arm- strong (1902), 202 Pa. 348, 51 Atl. 996, 90 Am. St. E. 653; Davis v. Christian (1859), 15 Gratt. (Va.) 11; Ex parte Garland (1803), 10 Ves. 110; Ex parte Eichardson (1818), 3 Madd. 138. As to the application of payments made where the business is continued after the dissolution, see Wiesen- feld v. Byrd (1881), 17 S. Car. 106; Tootle v. Jenkins (1891), 82 Tex. 29, 17 S. W. 519; Stanwood v. Owen (1859), 80 Mass. (14 Gray) 195. 39 See Ferris v. Van Ingen (1899), 110 Ga. 102, 34 S. E. 347. 40 See Willis v. Sharp (1889), 113 N. T. 586, 21 N. E. 705, 4 L. E. A. 493; Stewart v. Eobinson (1889), 115 N. Y. 328, 22 N. E. 160, 35 L. E. A. 410; Vincent v. Martin (1885), 79 Ala. 540. Compare Shaw, et al, Appellants (1889), 81 Me. 207, 16 Atl. 662. Such provisions must be clear and unequivocal in order to justify continuance: Alex- ander v. Lewis (1877), 47 Tex. 481. In Stanwood v, Owen (1859), 80 351 409,410] LAW OP PARTNERSHIP to be construed according to their terms, but, in a number of cases, they have been held to involve the entire estate. 41 Provisions of the latter sort could not ordinarily be executed if there were existing general creditors of the deceased who in- sisted upon immediately subjecting the residue of the estate to the payment of their claims. 42 409. Continuing in pursuance of personal agreements. "Where there is no provision either in the will of the deceased partner or in the partnership articles, the persons who are en- titled to the deceased partner's share may consent to a continu- ance of the business on such terms as they may deem advisable ; and such consent of competent parties will, at least, estop them from complaining of any proceeding covered by it, 43 and by their contract they may bind themselves to contribute to the payment of debts and expenses on such terms as they see fit to make. Such an obligation may undoubtedly arise by implication, as where, without express arrangements, there is yet a tacit ac- quiescence in the fact. 410. Provisions that survivor shall acquire interest of de- ceased. Partnership articles not infrequently provide that, in case of the death of a partner, his interest shall or may be pur- chased by the survivor upon terms or in a manner stated. Such provisions are entirely lawful, and often highly desirable. Where they possess the requisite characteristics of certainty and con- sideration, such agreements are capable of being specifically en- Mass. (14 Gray) 195, it is held that vocable by death; Laughlin v. subsequent creditors may not prove Lorenz (1864), 48 Pa. 275, 86 Am. their claims directly against the Dec. 592. (See comments on this estate of the deceased partner in case in Wilcox v. Derickson (1895), competition with his individual 168 Pa. 331, 337, 31 Atl. 1080.) creditors. 42 See Stanwood v. Owen, supra; 41 See Blodgett v. American Na- Dowse v. Gorton [1891], App. Gas. tional Bank (1881), 49 Conn. 9, 190. where the court speaks of the pro- 43 See Robinson v. Simmons, vision as conferring a power coupled supra; Poole v. Munday (1869), 103 with an interest, and therefore irre- Mass. 174. 352 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 411 forced. 44 They may also be so framed as to be practically auto- matically operative, at least as between the parties. 45 In a late case an agreement that the survivor should have the entire interest without paying anything for it, and that the interest of any partner should cease on his death, was denied enforcement. 46 411. Liability of estate of deceased partner for existing debts. Although, as has been seen, 47 causes of action against the firm, at law, survive against the surviving partners only, the estate of the deceased partner is not thereby released from all liability on existing debts to the partnership creditors. 48 44 See Maddock v. Astbury (1880), 32 N. J. Eq. 181, Mechem's Cas. 936; McKinnon v. McKinnon (1893), 5 C. C. A. 530, 56 Fed. 409; Murphy v. Murphy (1914), 217 Mass. 233, 104 N. E. 466; Gaut v. Keed (1859), 24 Tex. 46, 76 Am. Dec. 94; Bankin v. Newman (1896), 114 Cal. 635, 46 Pae. 742, 34 L. E. A. 265; Scharringhausen v. Luebsen (1893), 52 Mo. 337 (optional); Kaufmann v. Kaufmann (1913), 239 Pa. 42, 86 Atl. 634; Morris v. Kearsley (1837), 2 Y. & C. Ex. 139; Essex v. Essex (1855), 20 Beav. 442; King v. Chuck (1853), 17 Beav. 325; Hibben v. Collister (1900), 30 Can. Sup. Ct. 459. See, also, Fitzsimmons v. Lindsay (1903), 205 Pa. 79. But if not enforceable as a contract, it must, it is said, be executed as a will so as to be en- forceable as such. Ferrara v. Eusso (1917), 40 E. I. 533, 102 Atl. 86, L. E. A. 1918 B 905. See, also, Gomez v. Higgins (1900), 130 Ala. 493, 30 So. 417. 45 See In re Simpson (1874), 9 Ch. App. 572, where Mellish, L. J., said: "I am of opinion that the whole interest in the assets passed Mech. Part. 23 353 immediately on the death of one partner to the survivors. ' ' The estate of the deceased then has, of course, the right to recover the com- pensation stipulated for in the agreement. 46 Fleming v. Fleming (1919) Iowa , 174 N. W. 946. Compare Stewart v. Todd (1919), Iowa , 173 N. W. 619. 47 See ante, 402. 48 As to the debts existing at the time of the dissolution the estate of the deceased partner remains liable (though the form of procedure is changed) to the partnership cred- itors (unless there has been a re- lease, a novation, or something of that sort as discussed post, 429), and this is true, notwithstanding that there may have been dealings with the survivors since the death. See Mason v. Tiffany (1867), 45 111. 392; McGill v. McGill (1859), 2 Mete. (Ky.) 258; Daniel v. Cross (1796), 3 Ves. 277; Sleech's Case (1816), 1 Meriv. 530; Devaynes v. Noble (1831), 2 Euss. & M. 495; Winter v. Innes (1838), 4 Mylne & C. 101. 411] LAW OF PARTNERSHIP The surviving partners who had paid the debt might have con- tribution in equity from the estate of the deceased partner, 49 and this equity of the surviving partners may be extended to the creditor himself. But more than this, it may be said that there is an independent right of the creditor in equity to proceed as though the partnership obligation were joint and several. 60 At any rate, the rule is now established in England and many of the United States that the creditor may proceed either against the survivors at law, or, without having any recourse to them or attempting to exhaust the partnership assets, he may in equity proceed at once against the estate of the deceased partner. 51 In several states by statute this method of procedure is expressly authorized. 62 Other states, however, such as New York, Georgia, Wisconsin and perhaps some others have declined to adopt this rule, and since the survivor is the one who has the possession and administration of the partnership assets, permit recourse to the estate of the deceased only after the plaintiff has ex- 49 If the surviving partner has paid the debts and there was a de- ficiency of assets for that purpose, he may have contribution from the estate of the deceased partner. In some states he may keep that estate open by filing a contingent claim. If that estate has been distributed before he can present his claim, he may, in some states, recover from the distributees who have received the assets of that estate. See Blake- ly v. Smock (1897), 96 Wis. 611, 71 N. W. 1052; Logan v. Dixon (1889), 73 Wis. 533, 41 N. W. 713. 50 See the discussions in Kendall v. Hamilton (1879), 4 App. Gas. 504, Gilm. Cas. 293, and especially Lord Selborne's opinion at p. 538. See, also, Beresford v. Browning (1875), L. E. 1 Ch. D. 30. 61 See .Doggett v. Dill (1884), 108 111. 560, 48 Am. Eep. 565, Mechem 'a Cas. 513, Burd. Cas. 495, Gilm. Cas. 300, where many cases are collected; Nelson v. Hill (1847), 5 How. (U. S.) 127; Fillyan v. Laverty (1850), 3 Fla. 72; Freeman v. Stewart (1866), 41 Miss. 138; Newman v. Gates (1905), 165 Ind. 171, 72 N. E. 638; Camp v. Grant (1851), 21 Conn. 41, 54 Am. Dec. 321; Union Trust Co. v. Shoemaker (1913), 258 111. 564, 101 N. E. 1050. Proceedings in probate courts are usually "equitable" within this rule. Where the obligation was several as well as joint, the creditor may proceed directly against the estate of the deceased partner. Filley v. Phelps (1847), 18 Conn. 294. 52 Thus, see Camp v. Grant (1851), 21 Conn. 41, 54 Am. Dec. 321; Manning v. Williams (1851), 2 Mich. 105; Ealston v. Moore (1885), 105 Ind. 243, 4 N. E. 673; Blair v. Wood (1884), 108 Pa. 278; McLain v. Carson (1842), 4 Ark. 164, 37 Am. Dec. 777, Gilm. Cas. 304. 354 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 412-414 hausted his remedies against the survivor. 53 In some of these states, this rule has now been changed by statute. 54 As will be seen hereafter, partnership creditors pursuing the separate estate of the deceased partner in equity are usually postponed until his individual creditors have been satisfied. 55 The Uniform Partnership Act provides that "The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts. ' ' 56 2. Dissolution by Bankruptcy, Insolvency, Assignment, Etc. 412. In general. Somewhat similar questions are raised where the partnership is dissolved by the bankruptcy, insol- vency or assignment of some or all of the partners, though the cases are obviously not identical with that of the death of a partner which completely removes him from the field of action. The law as to some of the points is not entirely clear. 413. Bankruptcy, insolvency or assignment of entire firm. Where all of the partners, in their partnership relation, i. e., the firm, become bankrupt, insolvent in the statutory sense, or assign all of the partnership property for the benefit of creditors, the effect upon their authority thereafter to administer the part- nership affairs, is usually not difficult of determination. Such an event ordinarily results in the appointment of some one else to act in the matter, and terminates or suspends the authority of the partners. 414. Bankruptcy of one partner Solvent partner may ad- minister. The present bankruptcy act provides that "in the event of one or more but not all of the members of a partner- 53 See Pope v. Cole (1873), 55 N. hugh (1918), 167 Wis. 355, 167 N. Y. 124, 14 Am. Rep. 198 ; Sherman W. 455 ; Cf. Seligman v. Friedlander v. Kreul (1877), 42 Wis. 33; Pullen (1910), 138 N. Y. App. Div. 784, v. Whitfield (1875), 55 Ga. 174; 123 N. Y. S. 583, 199 N, Y. 373, 92 Pearson v. Keely (1845), 6 B. Mon. e N. E. 1047. (Ky.) 128, 43 Am. Dec. 160. 55 See post, 453. 54 See Smith Lumber Co. v. Fitz- 56 See. 36 (4). 355 v 415] LAW OP PARTNERSHIP ship being adjudged bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership business as expeditiously as its nature will permit and account for the interest of the partner or partners adjudged bank- rupt." 67 This statute clearly gives to the solvent partner, unless he relinquishes it, the right to administer the partnership assets, including, of course, the right to the possession and control of them for that purpose. 58 This right of administration is said to be a personal one, which the solvent partner cannot transfer to a third person. 69 In suing for the recovery of the partnership assets the solvent partner may doubtless join the representatives of the bankrupt partner, though the latter would undoubtedly be entitled to an indemnity against the costs and expenses of unsuccessful actions. 60 415. Insolvency, assignment, selling out, of one partner. As has been seen, a dissolution of the partnership does not nec- essarily result from the mere insolvency of one partner; but where he assigns all his property for the benefit of his creditors or where his entire interest in the partnership is seized and sold by his creditors, a dissolution will frequently result. 61 In such 57 The Bankruptcy Act of 1898, 431; Vetterleiir v. Barnes (1880), 6 5, subd. h. See Appendix. As to Fed. 693. the effect on his partnership liability 60 See Ex parte Owen (1884), 13 of a discharge in bankruptcy of one Q. B. Div. 113; Heilbut v. Nevill partner, see Loomis v. Wallblom [1869], 4 L. B. C. P. 354; Lindley (1905), 94 Minn. 392, 102 N. W. on Partnership (7th ed.), pp. 326, 1114, 69 L. E. A. 771, Gilm. Cas. 714, note m, 739. 584 (discharges him) ; Corey v. In Ex parte Owen, supra, Cotton, Perry (1877), 67 Me. 140, 24 Am. L. J., said: "In my opinion, when Eep. 15, Burd. Cas. 466 (does not one partner in a firm has become a necessarily). bankrupt, the solvent partner has 68 See In re Bertenshaw [19071, the right to get in, and to insist on 85 C. C. A. 6', 157 Fed. 363, 17 L. getting in, the assets of the dis- K. A. (N. S.) 886, 13 Ann. Cas. solved partnership, and has even a 986. right to use for that purpose the 59Fraser v. Kershaw [1856], 2 K. name of the trustee in bankruptcy, & J. 496, s. C., 25 L. J. Ch. 445, 2 on giving him an indemnity." Jur. part I (N. S.) 880, 4 W. E. 61 See ante, 363, 364. 356 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 415 a situation the tendency of the more modern cases is to treat the solvent partner very much like a surviving partner so far as the possession and administration of the assets are concerned. Some of the cases speak of the legal title as surviving in him, 62 but this seems to be doubtful, 63 though he doubtless has the right to possess, control and dispose of the assets for the pur- poses of closing up the business. 64 Under Uniform Partnership Act, sec. 27, a dissolution does not neces- sarily result. 62 See Ogden v. Arnot (1883), 29 Hun (N. Y.) 146, Mechem's Gas. 996, Burd. Gas. 461; Eussell v. Cole (1896), 167 Mass. 6, 44 N. E. 1057, 57 Am. St. E. 432, Burd. Gas. 469; Horton's Appeal (1850), 13 Pa. 67; Harvey v. Crickett (1816), 5 Maule & Sel. 336; Fern v Gushing (1849), 4 Gush. (Mass.) 357, Ames' Gas. 271, Burd. Gas. 464, Gilm. Gas. 581; Fish v. Thompson (1895), 68 Vt. 273, 35 Atl. 174, Burd. Gas. 3. Gompare Hubbard v. Guild (1853), 8 N. Y. Super. Ct. 662; Murray v. Murray (1821), 5 Johns. Ch. (N. Y.) 60, Burd. Gas. 451, Gilm. Gas. 578. 63 See as to rights of action, sol- vent partner and assignee must join as plaintiffs: Pugh v. Holliday (1854), 3 Ohio St. 284; Halsey v. Norton (1871), 45 Miss. 703, 7 Am. Eep. 745, Mechem's Gas. 447, Gilm. Gas. 583. Action properly brought in names of both partners, notwith- standing insolvency proceedings against one of them. Eussell v. Cole, supra. 64 See Horton's Appeal (1850), 13 Pa, St. 67; Chase v. Scott (1871), 33 Iowa 309; Eenton v. Chaplain (1852), 9 N. J. Eq. 62; Miller v. Brigham (1875), 50 Gal. 615; Eeece v. Hoyt (1853), 4 Ind. 169 (where one sells out, other has right to possession and winding up); Hamill v. Hamill (1867), 27 Md. 679 (same where one ab- sconds) ; McGlensey v. Cox (1852), 1 Am. L. Eeg. 34, 1 Phila. (Pa.) 378. The court will not interfere with the right of the remaining part- ner to administer except upon a showing of incompetency, misman- agement or improper conduct: Eeece v. Hoyt, supra; McGlensey v. Cox, supra. In Ogden v. Arnot, supra, it is held that the solvent partner may not only sell the firm property for the purposes of administration, but may also mortgage it to secure a firm debt, even though this may re- sult in a preference to the creditor so secured, in a state wherein a debtor may prefer creditors. In Eenton v. Chaplain [1852], 9 N. J. Eq. 62, the court said: "It is true the partnership, by the sale, is dis- solved. But why should the court interfere with the other partner in settling up the concerns of the part- nership? Why should its manage- ment be taken out of his hands and transferred to an officer of this court? The object in view is to se- cure to the purchaser the benefit of his purchase. But the rights of the solvent partner are entitled to some regard, and the interests of the cred- itors of the firm are to be protected. 357 416,417] LAW OF PARTNERSHIP If what was seized or assigned were not his entire interest, but only a portion of it, or only his interest in certain specified chattels, granting that that were possible, then the effect as an act of dissolution seems less clear. 416. Although the continuing partner is here spoken of as the solvent partner, it is doubtless true that, even if he were insolvent in the legal sense, he would nevertheless, if un- disturbed in his possession and not proceeded against, be per- mitted to close up the business. If there were several partners, and the interests of more than one were successively seized by their individual creditors, but one solvent partner remained, he would doubtless have the right to administer. 65 If his interest also were finally seized by his separate creditor, the firm title would not thereby be necessarily divested, nor his right to continue the settlement necessarily be terminated, al- though, as a practical matter, such a situation would be likely to lead to bankruptcy or insolvency proceedings against the part- nership. 417. Rights of assignee of such partner's interest. As has already been seen, one who acquires the interest of one Who so competent to protect and than the debtor himself. The solv- secure those rights and interests as ent partner has a specific lien upon the solvent partner, who has every- the property, to liquidate the part- thing at stake, and whose familiar- nership debts, and upon the residue ity with the engagements and trans- until all the equities between the actions of the concern gives him very partners are settled. ' ' greatly the advantage over anyone The contrary seems to have been else that could be substituted for held in Hubbard v. Guild [1853], 8 the purpose? Does it follow be- Super. Ct. N. Y. (1 Duer) 662. cause one partner has become in- 65 See, for example, the discussion solvent, the other is dishonest, and in such cases as Menagh v. Whit- must be dealt with as a wrong-doer well (1873), 52 N. Y. 146, 11 Am. be deprived of his property, and Rep. 683, Mechem's Gas. 194, Ames' subjected to great embarrassment Gas. 229, Burd. Gas. 222, Gilm. Gas. and unnecessary expense and loss? 251; Doner v. Stauffer (1829), 1 What rights and interests does the Pen. & W. (Pa.) 198, 21 Am. Dec. purchaser acquire, and how does this 370, Ames' Gas. 302, Burd. Gas. 218, purchase affect the other partner? Gilm. Gas. 247; Coover's Appeal He stands in no better situation (1857), 29 Pa. 9, 20 Am. Dec. 149. 358 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS partner only in the partnership, as by attachment or execution sale, mortgage or assignment, does not thereby become a partner with the solvent partner, the delectus personae prevents that, nor does he thereby acquire the right to join with the solvent partner in continuing or closing up the business. 66 He does, however, acquire the right to demand that the solvent partner shall close up the affairs of the partnership with reasonable despatch under the terms of the partnership and account to him for what remains, if anything, of the pro rata share of the partner whose interest was so acquired. If the partnership were entirely insolvent, he would, of course, get nothing. His remedy to ascertain and secure his interest would ordinarily be by a bill for an accounting against the settling partner. 67 Some of the cases speak of him as a tenant in common with the other partner, 68 but that is not a wholly accurate designation. While he has thus a right to secure whatever share may be coming to hjm, he would not, merely by acquiring the interest, 66 The Uniform Partnership Act, 67 See Claggett v. Kilbourne (1861), 66 U. S. (1 Black) 346, 17 L. ed. 213; Lothrop v. Wightman (3861), 41 Pa. 297; Barrett v. Mc- Kenzie (1877), 24 Minn. 20; Farley v. Moog (1885), 79 Ala. 148, 58 Am. Eep. 585. Under the Uniform Partnership Act, Sec. 27 (2), if the assignment results in a dissolution, "the as- signee is entitled to receive his as- signor's interest, and may require an account from the date only of the last account agreed to by all the partners. ' ' 68 See Murray v. Murray (1821), 5 Johns. Ch. (N. Y.) 60, Burd. Gas. 451, Gilm. Gas. 578 (bankruptcy case); Halsey v. Norton (1871), 45 Miss. 703, 7 Am. Rep. 745, Me- chem's Gas. 447, Gilm. Gas. 583 (bankruptcy case). which provides ISec. 25 (2) (b)] that "a partner's right in specific partnership property is not assign- able except in connection with the assignment of the rights of all the partners in the same property," also provides (See. 27) that "A conveyance by a partner of his in- terest in the partnership does not of itself dissolve the partnership, nor, as against the other partners, in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or ac- count of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive, in accordance with his con- tract, the profits to which the assign- ing partner would otherwise be en- titled. ' ' 359 418-420] LAW OF PARTNERSHIP become liable for any deficiency in assets to pay partnership debts to which the partner, whose interest he acquired, might have been liable. As has been already seen, the Uniform Partnership Act gives the purchaser of a partner's interest, in a partnership termi- nated or determinable at will, the right to apply to a court for a dissolution. 69 418. Other causes. Similar rules would doubtless be ap- plied where the dissolution results from marriage, insanity, and the like, leaving part of the partners legally competent and the other incompetent. The legally competent would doubtless be ordinarily authorized and permitted to act in closing up the business. 3. Dissolution by Judicial Decree. 419. Receivership usually results. Where the partnership is dissolved by judicial decree, a matter considered in an earlier section, 70 there will frequently if not usually be a receiver ap- pointed, 71 under whose control the partnership affairs will be closed up. Such an appointment will ordinarily supersede the administration of partnership affairs by the partners themselves. 4. Dissolution by Other Causes. 420. Rights and liabilities of partners after dissolution In general. Attention must next be given to the cases wherein the partnership is dissolved by lapse of time, mutual consent, the act of one partner, or other acts or events which do not affect the existence, status, liberty or capacity to act, of any of the partners. Whatever rights have then vested in and accrued to the part- ners remain undestroyed by the dissolution. Their property is still theirs; their rights in action are still enforceable. Only those rights which depend upon the continuance of the part- nership will be affected. 69 See. 32 (2). 71 See ante, 231. 70 Ante, 373, 374. 360 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 421, 422 Existing liabilities, of course, will not be discharged. Con- tinuing contracts will usually be affected only where the con- tinuance of the partnership was an express or implied condi- tion. 72 421. Authority of firm, as agent for third persons, after dissolution. In accordance with the rule referred to in an earlier section, 78 it is held that where a firm has, as a partner- ship, been appointed agent for a third person, the dissolution of the partnership will ordinarily terminate the agency. 74 422. Rights of partners after dissolution under Uniform Partnership Act Effect of wrongful dissolution. The Uni- form Partnership Act provides that when the partnership is dis- solved in any way, except in contravention of the partnership agreement, each partner shall have the right to have the debts paid out of the assets and receive his share of the surplus in cash. But where the partnership is dissolved by the rightful expulsion of a partner, or any partner causes dissolution in contravention of the partnership agreement, the rights of such partner are much limited. In the former 'case, he is entitled "to receive in cash only the net amount due him from the partnership ; ' ' and in the other case, he is liable to his copartners for damages for the wrongful dissolution, and the other partners may, if they so desire, continue the business for the residue of the term and keep and use all the partnership property, upon giving him a bond to pay, or in fact paying, the value of his interest less these damages, and upon indemnifying him against all present and future partnership debts. His interest in the good will is not to be considered. If the other partners do not continue the business, he is entitled to receive his share less the damages. 76 ''Unless otherwise agreed, the partners who have not wrong- fully dissolved the partnership * * * have the right to wind up the partnership affairs." 76 * 72 See Brace v. Calder [1895], 2 L. E. A. 1915 C 576; Holbert v. Q. B. 253. Keller (1913), 161 Iowa 723, 142 73 See ante, 401. N. W. 962. 74 See Sehlau v. Enzenbacher 75 See. 38. Appendix. (1914), 265 111. 626, 107 N. E. 107, 76 Sec. 37. 361 423] LAW OP PARTNERSHIP 423. Authority of partners after dissolution Authority continues for the purpose of closing up the business. Such a dissoluti6n of the partnership terminates entirely the authority of each partner to continue to bind his partners by new con- tracts. The authority of each partner is thenceforward limited to closing up the partnership affairs, but for this purpose his authority is deemed to continue, with all the rights and incidents as before. Thus either partner may, after dissolution, receive payment of firm debts and give discharges therefor; sell part- nership property ; pay firm debts ; complete unfinished but bind- ing undertakings ; accept or give proper notices respecting them ; make, receive or waive incidental demands ; or, generally, do any other act respecting the closing up of previous transactions which he might do if the partnership still continued. 77 Unless they agree otherwise, each of the former partners has an equal right to the possession of the assets, and is under an 77 See Major v. Hawkes (1850), 12 111. 298, Gilm. Gas. 403; Heartt v. Walsh (1874), 75 111. 200; Euff- ner v. Hewitt (1874), 7 W. Va. 585; Seldner v. Mt. Jackson Nat. Bank (1887), 66 Md. 488, 59 Am. Eep. 190; Perkins v. Butler Co. (1895), 44 Neb. 110, 62 N. W. 308; Western Stage Co. v. Walker (1856), 2 Iowa 504, 65 Am. Dee. 789 ; Davis v. Megroz (1893), 55 N. J. L. 427; Lapenta v. Lettieri (1899), 72 Conn. 377, 44 Atl. 730, 77 Am. St. B. 315; Page v. Wolcott (1860), 81 Mass. (15 Gray) 536; Gordon v. Albert (1897), 168 Mass. 150, 46 N. E. 423; Holmes v. Shands (1854), 27 Miss. 40. In Butchart v. Dresser (1853), 4 DeG. M. & G. 542, 10 Hare 453, Ames' Gas. 563, Burd. Gas. 363, it vvas held that the mere fact that the two partners differed as to whether an existing contract should be per- formed or broken did not deprive one of his authority to perform it. Demand of payment to charge en- dorser of note may be sufficiently made of one of former firm of makers: Gates v. Beecher (1875), 60 N. Y. 518, 19 Am. Eep. 207, Me- chem's Gas. 1020, Burd. Gas. 372. Waiver of demand made by one after dissolution will bind other partners: Darling v. March (1842), 22 Me. 184, Gilm. Gas. 409; Seldner v. Bank (1887), 66 Md. 488, 8 Atl. 262, 59 Am. Eep. 190. Notice of dis- honor to one member of partnership dissolved by war is sufficient: Hub- bard v. Matthews (1873), 54 N. Y. 43, 13 Am. Eep. 562. There being no assignment, in law or in fact, and no survivorship here, the general rules as to parties to action (ante, 324, et seq.), are not ordinarily affected by the dissolu- tion: See Fish v. Gates (1882), 133 Mass. 441; Mudd v, Bast (1864), ?4 Mo. 465. 362 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 424, 425 equal duty to apply them to the discharge of partnership obliga- tions. 78 Where there are more than two partners, the majority have the same power to control the winding up of the business that they have to direct its conduct before dissolution. 79 424. "Within this narrow field of closing up the busi- ness there is here, unlike the case of the surviving partner, 80 a real agency and not merely a right to incur expenses, binding himself only in the first instance, but with a right to contribu- tion ; the authorized acts of the partner impose direct contractual obligations upon his partners as they would have done before dissolution. Under the Uniform Partnership Act after dissolution each partner (with certain exceptions named 81 ) "can bind the part- nership * * * by any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution. ' ' 82 The mere fact that a partner is insolvent does not, it is held, per se disqualify him from acting ; 83 but under the Uniform Partnership Act his bankruptcy would disqualify him. 84 425. No authority to create new obligations. But except for the closing up or completion of old transactions the authority of each partner after dissolution is ended. He can- not create new obligations, or vary the character, form or obli- gation of those already existing. 85 Hence he cannot, after 78 Gray v. Green (1894), 142 N. had no notice or knowledge of his Y. 316, 37 N. E. 124, 40 Am. St. E. lack of authority. Sec. 35 (3). 596. 82 Sec. 35 (1) (a). 79 Western Stage Co. v. Walker, 83 See Ileartt v. Walsh, supra, supra. 84 Sec. 35 (3) (6). 80 Ante, 402. 85 Thus, for example, if negotia- 81 Not, where the business has be- tions pending had not ripened into a come unlawful, by any act except contract at the time of notice of the one appropriate for winding up the dissolution, there is no authority affairs; not where the partner who ordinarily to complete it afterward, assumes to act has become a bank- See Goodspeed v. Plow Co. (1881), rupt; not, where the agreements ex- 45 Mich. 322, 7 N. W. 902, Gilm. elude him, except in certain cases Cas. 404. wherein the person dealing with him 363 425] LAW OF PARTNERSHIP dissolution, bind liis partners by making, accepting, indorsing or renewing negotiable paper ; 86 create a new or revive an old debt against them ; remove the bar of the statute of limitations as to them ; 87 or bind them by admissions or declarations not relating to the settlement of prior transactions ; 88 provided, of course, in all cases, that due notice of the dissolution had been given. 89 86 See Humphries v. Chastain (1848), 5 Ga. 166, 48 Am. Dec. 247, Meehem's Gas. 532, Gilm. Gas. 408; White v. Tudor (1860), 24 Tex. 639, 76 Am. Dec. 126; Palmer v. Dodge (1854), 4 Ohio St. 21, 62 Am. Dec. 271, Gilm. Cas. 405; Campbell v. Herrick (1919), 104 Kan. 657, 180 Pac. 237 ; Bank of Montreal v. Page (1881), 98 111. 109; Kobb v. Mudge (I860), 80 Mass. (14 Gray) 534; Woodson v. Wood (1888), 84 Va. 478, 5 S. E. 277; Clement v. Clem- ent (1887), 69 Wis. 599, 35 N. W. 17, 2 Am. St. R. 760. Fact that it was for an antecedent debt does not change the rule, except when made in pursuance of binding agreement made before dissolution: Richardson v. Moies (1862), 31 Mo. 430, Burd. Cas. 366. Might indorse "without recourse ' ' when necessary to pass title for a partnership purpose. Waite v. Foster (1851), 33 Me. 424; Yale v. Eames (1840), 1 Mete. (Mass.) 486. 87 Van Keuren v. Parmelee (1849), 2 N. Y. 523, 51 Am. Dec. 322, Meehem's Cas. 533; Tate v. Clements (1878), 16 Fla. 339, 26 Am. Rep. 709; Mayberry v. Wil- loughby (1877), 5 Neb. 368, 25 Am. Rep. 491, Gilm. Cas. 413; Kallen- bach v. Dickinson (1881), 100 111. 427, 39 Am. Rep. 47 ; Miller v. Meim- erick (1857), 19 111. 172, Gilm. Cas. 412. There are cases holding other- wise as to the power of one part- ner to prevent the operation of the statute of limitations by admis- sions or payments, following Whit- comb v. Whiting (1781), 2 Doug. 652, Meehem's Cas. 1025, and Wood v. Braddick (1808), 1 Taunt. 104, Meehem's Cas. 1026, Ames' Cas. 607, Burd. Cas. 369, Gilm. Cas. 411, such as Beardsley v. Hall (1869), 36 Conn. 270, 4 Am. Rep. 74; Mer- ritt v. Day (1875), 38 N. J. L. 32, 20 Am. Rep. 362, (compare Parker v. Butterworth (1884), 46 N. J. L. 244) but the weight of authority is opposed to these cases. The question is now frequently regulated by the statute, which de- clares, e. g., that one shall not lose the benefit of the statute by reason of any promise, etc., made by an- other. 88 See Pennoyer v. David (1860), 8 Mich. 407, Meehem's Cas. 543; Feigley v. Whitaker (1872), 22 Ohio St. 606, 10 Am. Rep. 778, Meehem's Cas. 550; Maxey v. Strong (1876), 53 Miss. 280. Compare Hackley v. Patrick (1808), 3 Johns. (N. Y.) 536; Baker v. Stackpoole (1827), 9 Cow. (N. Y.) 420, 18 Am. Dec. 508; Hart v. Woodruff (1881), 24 Hun (N. Y.) 510, Burd. Cas. 370, admis- sion of one after dissolution does not bind others. 89 In Tate v. Clements, supra, it 364 EFFECT OF DISSOLUTION ON POWERS OF PARTNERS [ 426 Subordinate and incidental expenses, necessary to the main purpose of winding up the business, e. g., clerical help, insur- ance of goods, storage, and the like, are not deemed new obliga- tions within this prohibition. 90 426. Authority of settling or liquidating partner. Instead of all the partners participating in the settlement of the part- nership affairs after dissolution, as contemplated in the last section, the partners may, upon such dissolution, agree that one of the partners only shall proceed to liquidate the affairs of the firm. An express agreement to this effect is not indispensable; it may be shown by acquiescence. 91 The effect of such an agree- ment is not to enlarge the authority of the settling partner, but to exclude the others from participation. Such an agreement could not, of course, affect third persons who had no notice of it, but if they have notice of special arrangements they will be subject to the equities of the partners if they do not deal only with the partner so specified. 92 The liquidating partner is bound to be diligent and must not unreasonably prolong the settlement. If he does, equity may interfere. His duty of good faith and fair dealing is perhaps intensified by his position as sole administrator. He has, like any other partner after dissolution, authority to wind up and complete partnership transactions only, and not is, indeed, said that notice is not Act, the partnership is not bound by necessary, as the requirement of no- any act of a partner who has no au- tice has reference to future deal- thority to wind up partnership af- ings only; but see Clement v. Clem- fairs, except by a transaction with ent, supra; Sage v. Ensign (1861), one who had extended credit to the 2 Allen (Mass.) 245. Compare partnership prior to dissolution and Green v. Baird (1893), 53 111. App. had no knowledge or notice of his 211. p.ant of authority, or with one who 90 See Conrad v. Buck (1883), 21 had not extended credit prior to dis- W. Va. 396; Stebbins v. Willard solution if he had no knowledge or (1881), 53 Vt. 665. notice of his want of authority 91 See Wilson v. Waugh (1882), and if the fact of such want of au- 101 Pa. 233, Mechem's Gas. 546. thority had not been advertised as 92 See Gillilan v. Sun Mut. Ins. required for dissolution. Sec. 35 Co. (1869), 41 N. Y. 376. (3) (c). Under the TTniform Partnership 365 426] LAW OF PARTNERSHIP to create new debts or obligations against his former partners ; 93 but for the purposes of winding up, collecting debts, discharging obligations, and reducing the assets to an available and distrib- utable form, all the powers of the partners are concentrated in him and may be exercised accordingly. 94 93 See White v. Tudor, supra; Conrad v. Buck (1883), 21 W. Va. 396; Bank of Montreal v. Page, supra. Not authorized to give notes: Potter v. Tolbert (1897), 113 Mich. 486, 71 N. W. 849, Burd. Gas. 367. 94 See Palmer v. Dodge (1854), 4 Ohio St. 21, 62 Am. Dec. 271, Gilm. Cas. 405 j Hilton v. Vanderbilt (1880), 82 N. Y. 591; Gilmore v. Ham (1894), 142 N. Y. 1, 36 N. E. 826, 40 Am. St. E. 554. In Pennsyl- vania, see Estate of Davis (1840), 5 Whart. 530, 34 Am. Dec. 574; Ful- ton v. Central Bank (1879), 92 Pa. 112; Earon v. Mackey (1884), 106 Pa. 452; Wilson v. Waugh, supra. 366 CHAPTER XVIII. OF SPECIAL AGREEMENTS BETWEEN THE PARTNERS AT DISSOLUTION. 427. Agreements as to distribu- 429. Creditor 's assent to ar- tion of property or pay- rangement. ment of debts. 428. Creating relation of principal and surety. 427. Agreements as to distribution of property or pay- ment of debts. It is not uncommon for the partners to agree at dissolution as to the distribution of the partnership property or the payment of the partnership debts. Thus, an agreement that the continuing partner shall assume and pay the partner- ship debts is often made, and, even though not expressly made, would often be implied. Thus, where one partner sells out to his co-partners under circumstances indicating that they are estimating and buying his interest over and above the amount of the indebtedness, there is held to be an implied assumption of the debts on their part, where nothing appears to the con- trary. 1 But where one partner sells out to a stranger who assumes the seller's obligations and forms a new partnership with the other partners to continue the business, an agreement by such other partners to assume the existing debts will, it is held, be implied only to the extent of the firm assets received by the continuing partners. 2 It is not an agreement to answer ISee Cobb v. Benedict (1900), 27 2 See Hobbs v. Wilson (1865), 1 Colo. 342, 62 Pac. 222, Mechem's W. Va. 50; Peyton v. Lewis (1851), Gas. 557. 12 B. Mon. (Ky.) 356, Mechem's As to the effect of suc"h a sale as Gas. 1028. See, also, LaMontagne an accounting and adjustment of v. Bank (1905), 183 N. Y. 173, 76 partnership and individual claims, N. E. 33; Sheppard v. Bridges see Lesure v. Norris (1853), 65 (1911), 137 Ga. 615, 74 S. E. 245. Mass. (11 Gush.) 328; Wiggin v. Where certain members of a part- Goodwin (1873), 63 Me. 389; Pierce nership with transferable shares (a v. Ten Eyck (1890), 9 Mont. 349, "joint stock company") sold and 23 Pae. 423. transferred their shares to persons 367 428] LAW OF PARTNERSHIP for the debt of another, and is therefore valid though not in writing. 3 Such agreements are entirely valid as between the partners themselves, but they do not bind the firm creditors unless the latter become a party to them. The liability of each partner for the payment of the partnership debts continues in solido after dissolution as before ; and creditors cannot be cut off from their remedies by any* agreement between the partners alone. They neither lose their right to proceed against the partner in whose favor the arrangement is made, nor are they required to first exhaust their remedies against the other. The Uniform Partnership Act is to the same effect. 4 428. Creating relation of principal and surety. Such an agreement, however, it has been held, in England and several of the States, creates the relation of principal and surety be- tween the partners the partner assuming the debts being the principal and the other the surety, and creditors who have notice of this arrangement have been held bound to respect the rights of the surety as in other cases. 5 Thus, it has been held who were accepted as members in curred while he was a partner but their place, this (while not releasing subject to the prior payment of his the transferors from their liability separate debts." to existing creditors) amounts to an 5 See Oakley v. Pasheller (1836), undertaking by the association to 4 Cl. & F. 207, 10 Bligh (N. S.) assume and indemnify them against 548; Eouse v. Bradford Banking such liability, and therefore mem- Co. [1894], App. Gas. 586; Col- bers of the association who have grove v. Tallman (1876), 67 N. Y. later paid those debts cannot recover 95, 23 Am. Rep. 90; Campbell v. contribution from the retired mem- Floyd (1892), 153 Pa, 84, 25 Atl. bers: Savage v. Putnam (1865), 32 1033, 1038; Preston v. Garrard N. Y. 501. (1904), 120 Ga. 689, 49 S. E. 118, 3 See Hunt v. Eogers (1863), 7 102 Am. St. R. 124, Gilm. Cas. 334. Allen (Mass.), 469; Vanness v. Du- See Smith v. Sheldon (1876), 35 bois (1878), 64 Ind. 338. Mich. 42, 24 Am. Rep. 529, Me- 4 See sec. 36: "(1) The dissolu- chem's Cas. 583, Gilm. Cas. 332; tion of the partnership does not of Brill v. Hoile (1881), 53 Wis. 537, itself discharge the existing liability 11 N. W. 42; Leithauser v. Bau- of any partner.' * * * (4) meister (1891), 47 Minn. 151, 49 The individual property of a dc- N. W. 660, 28 Am. St. R. 336; Por- ceased partner shall be liable for all ter v. Baxter (1898), 71 Minn. 195, obligations of thei partnership in- 73 N. W. 844. See, also, Tillis v. 368 SPECIAL AGREEMENTS BETWEEN PARTNERS [428 that a binding and definite extension of time 6 to the partner who has thus become the principal debtor, or a substantial change of terms, 7 or a neglect or refusal on request to collect of the principal debtor while he was solvent, 8 or a release of securities 9 will release the other ; and if the latter pays the debt he is en- titled to the benefit of the securities which the creditor held against the principal debtor. 10 On the other hand there is a considerable number of cases which emphatically deny that it is within the power of the part- ners by any arrangement between themselves alone to alter the relation in which they stood when the obligation was incurred or to impose upon the creditor any limitations or obligations which were not an incident to the original relation. 11 The Uniform Partnership Act adopts substantially the view first stated. 12 Folmar (1906), 145 Ala. 176, 39 So. 913, 117 Am. St. R. 31; Fernald v. Clark (1892), 84 Me. 234, 24 Atl. 823. 6 Smith v. Sheldon, supra; Brill v. Hoile, supra; Leithauser v. Bau- meister, supra; Campbell v. Floyd, supra; Preston v. Garrard, supra. Mere forbearance is not enough: Powers v. Silberstein (1888), 108 N. Y. 169, 15 N. E. 185. 7 See Porter v. Baxter, supra. S Where the right to make such a demand is recognized as part of the law of principal and surety. Colgrove v. Tallman, supra. See Bell v. Hall (1846), 5 N. J. Eq. 477. Compare First Nat. Bank v. Cheney (1896), 114 Ala. 536, 21 So. 1002; Johnson v. Jones (1913), 39'Okla. 323, 135 Pac. 12, 48 L. E. A. (N. S.) 547. 10 See Johnson v. Young (1882), 20 W. Va. 614. Compare Sands v. Durham (1901), 99 Va. 263, 38 S. E. 145, 54 L. E. A. 614, 86 Am. St. E. 884. 11 See Barnes v. Boyers (1890), Mech. Part. 24 369 34 W. Va. 303, 12 S. E. 708, Me- chem's Cas. 589; McCoy v. Jack (1899), 47 W. Va. 201, 34 S. E. 991; National Cash Eegister Co. v. Brown (1897), 19 Mont. 200, 47 Pae. 995, 37 L. E. A. 515, 61 Am. St. Eep. 498; Grotte v. Weil (1901), 62 Neb. 478, 87 N. W. 173, Me- chem's Cas. 592; Dean v. Collins (1906), 15 N. Dak. 535, 108 N. W. 242, 9 L. E, A. (N. S.) 49, 125 Am. St. E, 610, 11 Ann. Cas. 1027; McAreavy v. Magirl (1904), 123 Iowa 605, 99 N. W. 193, Gilm. Cas. 330; Clinchfield Fuel Co. v. Lundy (1914), 130 Tenn. 135, 169 S. W. 563, L. E. A. 1915 B 418; Shapleigh Hardware Co. v. Wells (1896), 90 Tex. 110, 37 S. W. 411, 59 Am. St. E. 783; Eawson v. Taylor (1876), 30 Ohio St. 389, 27 Am. Eep. 464. 12 Sec. 36 (3): "Where a person agrees to assume the existing obliga- tions of a dissolved partnership, the partners whose obligations have been assumed shall be discharged from any liability to any creditor of the partnership who, knowing of the 429] LAW OP PARTNERSHIP 429. Creditor's assent to arrangement. An assent, however, by the creditor to the assumption by one partner of the firm's debt to such creditor, and an agreement by the cred- itor to look to such partner alone for payment, if upon a suffi- cient consideration, will amount to a novation and discharge the retiring partner. Such assent must be actual, though it need not be express or formal. It may be inferred from words or conduct reasonably justifying the conclusion that he had released the retiring partner and accepted the continuing one in his stead. 13 It will not ordinarily be inferred from mere silence. 14 And unless there is a sufficient consideration, the agreement of the creditor to release the retiring partner and look only to the others will not be binding, 15 but the acquisition of the separate indebtedness of one partner would ordinarily furnish a suffi- cient consideration for the discharge of the joint obligation of all. 16 Not so, however, where the partnership obligation was already several as well as joint. 17 agreement, consents to a material and such agreement may be inferred from the course of dealing between the creditor" having knowledge of the dissolution and the person or part- nership continuing the business." 14 Eagle Mfg. Co. v. Jennings (1883), 29 Kan. 657, 44 Am. Rep. 668, Mechem's Cas. 1035. l&Collyer v. Moulton (1868), 9 R. I. 90, 98 Am. Dec. 370; Eagle Mfg. Co. v. Jennings, supra. 16 See Thompson v. Percival, supra; Lyth v. Ault (1852), 7 Exch. 669, Burd. Cas. 385, Gilm. Cas. 336; Ludington v. Bell (1879), 77 N. Y. 138, 33 Am. Rep. 601; Motley v. Wickoff (1897), 113 Mich. 231, 71 N. W. 520, Burd. Cas. 293, Gilm. Cas. 337; Grubbe v. Pierce (1914), 156 Wis. 29, 145 N. W. 207, 37 Ann. Cas. 1199, 51 L. R. A. (N. S.) 358. 17 As by statute in several states. See Eagle Mfg. Co. v. Jennings, supra; Early v. Burt (1886), 68 Iowa 716, 28 N. W. 35. alteration in the nature or time of payment of such obligations." 13 See First National Bank v.' Green (1884), 40 Ohio St. 431, Me- chem's Cas. 1031; York v. Orton (1885), 65 Wis. 6, 26 N. W. 166; Thompson v. Percival (1834), 5 B. & Ad. 925; Hart v. Alexander (1837), 2 M. & W. 484; First Nat. Bank v. State Savings Bank (1902), 130 Mich. 332, 89 N. W. 941; John- son v. Jones, supra; Hall v. Jones (1876), 56 Ala. 493, Gilm. Cas. 339; Kirwan v. Kirwan (1834), 2 C. & M. 617, Burd. Cas. 384; Walstrom v. Hopkins (1883), 103 Pa. 118. The Uniform Partnership Act is to the same effect. Sec. 36: "(2) A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the part- nership creditor, and the person or partnership continuing the business; 370 CHAPTER XIX. OF THE SO-CALLED LIEN OF PAETNEES. 430. In general. 434. Against whom lien exists. 431. Nature of the right. 435. What the lien secures. 432. When it becomes impor- 436. How lien is lost. tant. 437. No lien if partnership illegal. 433. To what the lien attaches. 430. In general. Something has been already said regard- ing the right of each partner to insist that the partnership assets shall be applied to the payment of the partnership debts; and it has been noticed that the right is often spoken of as the part- ner 's lien. 1 Before taking up the subject of the application of the assets and the final accounting, a little further consideration of this subject seems desirable. In dealing with this matter, the language of Mr. Justice Lindley will be largely adopted. 2 431. Nature of the right. In order to discharge himself from his liabilities as a partner, every partner has a right to have the property of the partnership applied in payment of the partnership debts. In order, also, to secure a proper division of the surplus assets, he has a right to have whatever may be due to the firm from his copartners, as members thereof, deducted from what otherwise would be payable to them in respect of their shares in the partnership. In other words, each partner may be said to have a sort of equitable lien on the partnership property for the purpose of having it applied in payment of the partnership debts; and also a similar lien upon the surplus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deducting what may be due from them as partners, to the firm. 8 1 See ante, 184. 3 See 1 Lindley, supra; Pearson 2 See 1 Lindley on Partnership v. Keedy (1845), 6 B. Mon. (Ky.) (Ewell's 2d ed.), 352 et seq. 128, 43 Am. Dec. 160; BardweU v. 371 432,433] LAW OF PARTNERSHIP 432. Same subject When it becomes important. This "right, lien, quasi lien, or whatever else it may be called," to use Mr. Justice Lindley's expression, does not exist for any practical purpose until the affairs of the partnership have to be wound up, or the share of a partner has to be ascertained ; nor has any partner thereby, as has been seen, 4 a right to insist that firm creditors shall exhaust the firm assets before having recourse to the partners as individuals. But when partnership accounts have to be taken, or the shares of the partners- have to be ascertained, the lien of the partners on the firm assets and on each other's shares becomes of the greatest importance. If, for example, a partner attempts to transfer, or his separate creditors attempt to seize, his interest in the partnership property, the right of the other partners to insist that nothing shall be with- drawn for this purpose until after the partnership claims are satisfied, is obviously of consequence. In many cases it is said that the rights of partnership creditors are to be worked out through the liens of the partners. 5 Nevertheless, a proper con- ception of the partnership tenure and of the nature of each partner's interest in the partnership property, renders the de- velopment of the partner's lien superfluous. The Uniform Partnership Act quite fully recognizes this view. 6 433. To what the lien attaches. During the continuance of the partnership, the lien attaches to everything which can be considered partnership property. It is not lost by substitution of new stock for old, and on the death or bankruptcy of a part- ner his lien continues in favor of those who represent him until his share has been ascertained and provided for by the other partners. After the partnership has been dissolved, however, the lien is confined to what was partnership property at the time of the dissolution, and does not extend to what may have been subsequently acquired by those who continue to carry on the business. Perry (1847), 19 Vt. 292, 47 Am. (1878), 99 U. S. 119, 25 L. ed. 370, Dec. 687. Mechem's Gas. 596, Ames' Cas. 246, 4 See ante, 314. Gilm. Cas. 226. 6 See e. g., Case v. Beauregard 6 Sec. 25. 372 LIEN OP PARTNERS [ 434, 435 As the lien extends only to that which is firm property, if the partnership be one in the profits only, the lien can attach to the profits alone and not to the means by which those profits were produced. 7 And as it is an incident of partnership, it does not exist where there is really no partnership but only a joint ad- venture, in respect of which each retains the title to his own goods and their proceeds. 8 434. Against whom lien exists. The lien of each partner exists not only as against the other partners, but also against all persons claiming through them or any of them. 9 It is available, therefore, against their executors, execution creditors and as- signees or trustees in bankruptcy. 10 While, however, it exists against the share of each partner and against a person who purchases that share from him, it would defeat the purposes of the partnership to enforce it against the purchaser of firm prop- erty in the ordinary course of business ; and a person, therefore, who in good faith and for value purchases from one partner in the course of the business specific chattels belonging to the firm, acquires a good title thereto notwithstanding the liens which the other partners might have had prior to the sale. 11 435. What the lien secures. The lien of the partners is intended to secure whatever is due to or from the firm by or to the members thereof as such. 12 It does not extend to debts in- curred between the firm and its members otherwise than in their capacity as partners, and in case of the bankruptcy of a partner his assignees may claim his share without regard to such a debt ; 7 See ante, 82. creditors who seek to reach his in- 81 Lindley, 353 (Swell's 2d. ed.). terest: Divine v. Mitchum (1844), 91 Lindley, 354 (Ewell's 2d ed.). 4 B. Mon. (Ky.) 488, 41 Am. Dec. 10 See Kirby v. Schoonmaker 241, Meehem 's Cas. 626. Or reim- (1848), 3 Barb. Ch. (N. Y.) 46, 49 bursement for firm credit extended Am. Dec. 160. to one partner as against a mort- 11 See 1 Lindley, ubi supra. gagee of his interest, Warren v. 12 For example, it secures the re- Taylor (1877), 60 Ala. 218, Me- payment of one partner's advances ehem's Cas. 1081, Burd. Cas. 580, to the firm, as against the other Gilm. Cas. 446. partner's transferees or attaching 373 436,437] LAW OF PARTNERSHIP as, for example, a debt for money borrowed by one partner from another for a purely private purpose of his own. 13 " 436. How lien is lost. The partner's lien on partnership property is lost by the conversion of such property into the separate property of another partner, or into the property of a stranger with the other partner's consent. If, therefore, on dissolution the property of the firm is divided between the part- ners upon the understanding that the debts shall be paid in some specified way, the lien, so far as the partners themselves are concerned, is gone and the partners cannot reclaim the property, although the debts remain unpaid. 14 So where one partner sells out all of his interest in the firm to his copartner, and the latter agrees to pay the debts of the partnership, the lien of the selling partner is, in many cases, held to be gone, and, as an incident, as will be seen, 15 the rights of the firm creditors to priority of payment out of the assets, which is a right worked out through the right of the partner, 16 is held to be gone also. 17 This sub- ject, however, will be more fully considered in the following chapter. 437. No lien if partnership illegal. If the partnership is illegal, its members have no lien upon their common property or upon each other 's shares therein, unless it be' by virtue of some agreement not affected by the illegality. 18 IS See 1 Lindley 354 (Swell's 2d 565; Parker v. Merritt (1883), 105 ed.). Surviving partner has no lien 111. 293; Vosper v. Kramer (1879), on share of deceased partner for a 31 N. J. Eq. 420; Ex parte Euffin private debt: Moffatt v. Thompson (1801), 6 Vesey 119, Meehem's Gas. (1852), 5 Eich. (S. Car.) Eq. 155, 1038, Ames' Cas. 192, Burd. Gas. 57 Am. Dee. 737. Lien secures part- 192, Gilm. Cas. 217. nership matters, but not the general 15 See post, 446. balance of a mixed account. Niehol 16 See ante, 186. v. Stewart (1880), 36 Ark. 612. 17 See Miller v. Estill, supra; 14 See 1 Lindley, 355 (Ewell's 2d Ladd v. Griswold (1847), 4 Gilm. ed.) ; Miller v. Estill (1856), 5 Ohio (111.) 25, 46 Am. Dec. 443; Bedding- St. 508, 67 Am. Dec. 305; Smith v. ton v. Franey (1905), 124 Wis. 590, Edwards (1846), 7 Humph. (Tenn.) 102 N. W. 1065. But see more 106, 46 Am. Dec. 71, Mechem's Cas. fully, post, 446 et seq. 563; Croone v. Bivens (1859), 39 18 1 Lindley 355 (Ewell's 2d ed.). Tenn. (2 Head) 339, Mechem's Cas. 374 CHAPTER XX. OF THE APPLICATION OF THE PARTNERSHIP AND INDIVID- UAL ASSETS TO THE CLAIMS OF CREDITOES. 438. In general. 439. What principles control. 440. I. Application of the assets of a partnership by the partnership creditors. 441. II. Application of the assets of a partnership by the partners themselves. Right to pay joint but not partnership debts out of partnership assets. Right to pay individual 442. 443. debts of all the partners. 444. Right to assume or pay individual debt of one part- ner. 445. Right of partner to ap- ply individual assets to firm debts. 446-448. Right of partners to convert firm property into individual property. 449. III. Application of assets when distributed by court Firm creditors first paid out of firm assets. 450. Joint but not partner- ship creditors not pre- ferred. 451. Partner cannot compete with firm creditors. 452. One partner's share 453. 454. 455. 456. 457. 458. 459, cannot be reached by his creditors until partners ' claims against firm are sat- isfied. Individual creditors usually given priority in individual assets of a part- ner. Contrary views. How where there are in- dividual but no partner- ship assets. Firm cannot compete with individual creditors. Partner competing with partnership creditors in in- dividual assets. Obtaining claims against 461. 462. 463. both estates by contract. 460. Application of assets when there was no osten- sible partnership When there was merely an osten- sible but not an actual partnership. Application of assets of firms having one or more part- ners in common. Application of assets where there are successive firms. Equitable rules do not defeat legal priorities. 438. In general. The question of the proper application and distribution of the partnership assets has given rise to no little difficulty and conflict of decision. The chief sources of 375 439] LAW OF PARTNERSHIP difficulty have been disputes between the creditors of the part- nership and the creditors of the individual partners. May the creditors of the individual partners obtain, in any way, the application of partnership funds to their claims ? May partner- ship creditors, whose claims are not satisfied out of the part- nership property, have recourse to the individual property of the partner, and in such case may they share equally with indi- vidual creditors or must they be postponed until individual creditors are paid? These and similar questions indicate the difficulties which arise. 439. What principles control. At the foundation of the matter lies the rule, already noticed, 1 which must constantly be kept in mind. The capital or property of the firm has been contributed for partnership purposes, and it is part of the im- plied, if not the express, understanding between the partners, that the partnership property shall primarily be used only for partnership purposes, e. g., to pay partnership debts. Each partner has therefore the right to insist that the partnership property shall be so applied. This right is primarily the right of the partners as between themselves ; but it has sometimes been regarded, not as the right of the partners alone, but, in some way, as the right of the partnership creditors, and many cases have been decided upon this assumption. If it is a right of the partners only, it is one which they may waive if they see fit to do so ; but if it is a right of the creditors, then it is not one which the partners may waive. The question may present a different aspect if it arises I, while the partnership is still going on or is being wound up by the partners themselves, than it will if it arises II, after the part- nership has been dissolved and the affairs are being wound up under judicial direction; and we will therefore separately con- sider each phase. Before doing so, however, it may be well to recall to mind what the partnership creditors may themselves legally do to secure the application of the partnership assets to the payment of their claims. 1 See ante, 184-186. 376 APPLICATION OF PARTNERSHIP ASSETS [ 440 440. I. Application of the assets of a partnership by the partnership creditors. Partnership creditors, as has been seen, have no direct lien upon the partnership assets, unless they acquire one specially by a mortgage, levy, or other similar act. In this respect they stand in the same situation as the creditors of an individual. They may be able to induce the partners to give them a direct lien; if not, they can only avail themselves of such legal remedies, as the law may give them for the enforcement of their claims. Equity has no original jurisdiction to enforce them. 8 These legal remedies are of two general sorts: I. In pursuance of some statute, creditors may be able to force the debtors into bankruptcy or insolvency proceedings, in the course of which they may secure the application of the partnership assets to their claims. The national bankruptcy act, for example, provides for declaring a partnership bankrupt and administering its assets for the benefit of creditors. 8 In some States insolvency proceedings may be instituted. II. In other cases, the ordinary process by suit, judgment and execution, supplemented, where the stat- ute provides for it, by proceedings in attachment, may be resorted to by creditors. "While, as has been seen,* partners are usually joint debtors, an execution for a partnership debt may usually be levied, as has also been seen, 1 upon either part- nership or individual property. Individual creditors may re- sort to the individual property, or to the partner's residuary interest 6 in the partnership property. While a prior levy by a partnership creditor upon individual property will usually take precedence over a subsequent levy by an individual creditor, a prior levy by an individual creditor upon a partner's inter- est in the partnership property operates in subordination to the demands of partnership creditors upon that property. 7 Legal liens so acquired, as will be seen, 8 are not usually dis- turbed by later judicial proceedings, unless they amount to a preference forbidden by some statute. 8e OEM T. Beauregard 4 See ante, f 308. (1878), M U. S. 119, 25 L. ed. * See ante, f 314. S70, Mcchem'i Gas. 596, Ames' See ante, S 146 ft teq. CM. 246, Glim. Cat. 22. 1 See ante, if 146-148. Bee. 5. Appendix. * See post, f 463. 377 441,442] LAW OF PARTNERSHIP 441. II. Application of the assets of a partnership by the partners themselves. While the affairs of the partnership are still going on and its property and business are still in the hands of the partners themselves, it is, in general, true that they may make such disposition of the property as they see fit. It has sometimes been said that the partnership creditors have a kind of lien upon the partnership assets, but this is not true. It is the property of the partners, which they may, in general, deal with as they please, provided they make no disposition of it which will be deemed to be in fraud of creditors. 8 Thus they may sell it, mortgage it, or turn it out in payment of their part- nership debts. They may assign all the partnership property for the benefit of the partnership creditors. They may apply it upon all partnership debts pro rata, or, in the absence of a statute forbidding it, they may prefer one partnership creditor to an- other. They may unite in selling all the partnership property to one who buys in good faith and for value ; and the purchaser will get a good title, even though the partnership was insolvent and the partners had a secret intent to defraud their creditors or afterwards did in fact misapply the proceeds. In all of these cases the partners are actually or ostensibly using the partner- ship property for partnership purposes. 442. Right to pay joint but not partnership debts out of partnership assets. When, however, the partners attempt to apply the partnership assets to the payment of any other than a partnership debt, different considerations present them- 8 Thus in Beyburn v. Mitchell poses, but this is a right or lien (1891), 106 Mo. 365, 16 S. W. 592, which they may waive. Hence the 27 Am. St. E. 350, the court, quot- great majority of adjudicated cases ing from Sexton v. Anderson, 95 are to this effect: that all the part- Mo. 381, says: "The partners may, ners may, by their joint act, dis- eo long as the firm exists, do with pose of partnership property in their property as they see fit. The liquidation and payment of a debt firm creditors have no lien on the owing by an individual member of partnership property for the pay- the firm. The qualification is that ment of their debts while the firm the transaction must be in good continues to exist. Partners have a faith, and not for fraudulent pur- right to have the partnership prop- poses." irty applied to partnership pur- 378 APPLICATION OF PARTNERSHIP ASSETS [ 442 selves. The first question will be whether it is a conveyance in fraud of creditors. Since the Statute of 13 Elizabeth, c. 5 (A. D. 1570) at least, all gifts, grants, conveyances, etc., devised to the intent to delay, hinder or defraud creditors and others of their just and lawful actions, etc., are, in our law, held to be void as to such creditors. Conveyances, etc., made upon good consideration and bona fide are not within this rule. Under this rule it is fraudulent for a debtor to give away his property, dispose of it for other than a good consideration, or use it to pay debts which he does not himself owe, if, to do so, will hinder or delay his creditors in securing their pay out of his property. To fairly use all his property to pay one or part of his debts is, however, not at common law fraudulent, even though the result is that there is nothing left to pay others. The common law permitted the debtor to prefer one creditor to another. To give away something, etc., was not fraudulent, if the debtor fairly reserved enough to pay his debts. All of these rules apply to partners, but how? May the partners lawfully use the partnership property to pay a joint debt of the partners which is not a partnership debt, leaving the partnership debts unpaid ? If the partnership were a legal entity this might not be done. 9 The entity would be using its property to pay debts it did not owe. It would be equivalent to a gift. A corporation, for example, may not law- fully use the corporate property to pay the individual debts of the corporators, leaving the corporate debts unpaid. But the partnership is not usually regarded as an entity; so that this does not settle the question. By the hypothesis, it is a debt which they all owe; but they do not owe it as partners. The part- nership assets are contributed for partnership purposes. Each partner has a so-called lien which would prevent their being applied otherwise. But here no one asserts that lien; all are willing to waive it; all, by the hypothesis, consent that the partnership assets shall be applied to the payment of this debt. Who else can object? The partnership creditors have no lien. Their rights, it is said, must be worked out through the lien of 9 See e. g., Kichards v. Le Veille Burd. Cas. 281, which is put upon (1895), 44 Neb. 38, 62 N. W. 304, this ground. 379 442] LAW OF PARTNERSHIP the partners. But this, by the hypothesis, has been waived by the partners themselves. May it thus be waived at the expense of the partnership creditors? It is said in some cases that such a disposition of the partnership property is not fraudulent as to the partnership creditors. 10 The better reason, it is believed, condemns it. As against the partnership creditors the partner- ship assets should not be capable of a transfer except for a partnership debt or a consideration moving to the partnership. 11 The proposed Uniform Fraudulent Conveyance Act expressly adopts this view. 12 A theory analogous to the so-called "trust-fund theory" which has been much resorted to in dealing with the application of the assets of corporations, might be made available here, namely, that the assets of a partnership are a species of trust fund, not 10 Thus in Saunders v. Eeilly (1887), 105 N. Y. 12, 12 N. E. 170, 59 Am. Eep. 472, Burd. Gas. 277, the court say: "All members of a firm may sell the partnership prop- erty, even if wholly insolvent, to a purchaser in good faith, and thus convey, free from the claim of firni creditors, a good title to the firm property. Instead of selling for cash, they may transfer firm prop- erty to pay a firm debt. And they may transfer the firm property to pay a joint debt for which they are jointly liable outside of the busi- ness of the firm, and the joint cred- itor will obtain a good title to the firm property." To same effect: Citizens' Bank v. Williams (1891), 128 N. Y. 77, 28 N. E. 33, 26 Am. St. E. 454, Mechem's Gas. 1050, Gilm. Gas. 289. 11 See Whelan v. Shain (1896), 115 Gal. 326, 47 Pac. 57, Burd. Gas. 283, Gilm. Gas. 288. 12 Sec. 8. [Conveyance of Part- nership Property.] Every convey- ance of partnership property and every partnership obligation in- curred when the partnership is or will be thereby rendered insolvent is fraudulent as to partnership cred- itors, if the conveyance is made or obligation is incurred (a) To a partner, whether with or without a promise by him to pay partnership debts, or (6) To a person not a partner without a fair consideration to the partnership as distinguished from consideration to the individual part- ners. The same statute, Sec. 2 (2), pro- vides that "In determining whether a partnership is insolvent, there shall be added to the partnership property the present fair salable value of the separate assets of each general partner in excess of the amount probably sufficient to meet the claims of his separate creditors, and also the amount of any unpaid subscription to the partnership of each limited partner, provided the present fair salable value of the assets of such limited partner is probably sufficient to pay his debts, including such unpaid subscription." 380 APPLICATION OF PARTNERSHIP ASSETS [ 443 applicable to other purposes until all partnership purposes, in- cluding the payment of the partnership debts, have been sat- isfied. 443. Right to pay individual debts of all of the part- ners. A somewhat similar question is presented where the partners attempt to use the partnership property to pay the individual debts of the partners severally. It could not law- fully be done by one partner without the other's consent. The partner's so-called lien would prevent that. For the other to give his consent without any corresponding advantage to himself would be equivalent to a gift of his interest in the property so used, and therefore objectionable. But suppose each partner wished to pay his individual debt out of the partnership prop- erty, and the debts in question bore a substantial relation to each partner's interest in the property. Their mutual release of their liens would furnish a good consideration. The debts, by the hypothesis, are valid debts, and it is usually most com- mendable to pay them. The debtor, at common law, may prefer one creditor to another. It seems quite unobjectionable, then, to use the partnership property to pay these debts rather than the partnership debts, unless there is something in the fact that the latter are partnership debts which should give them priority. The entity theory, again, would prevent such a use of the part- nership property. So would such a trust-fund theory as has been suggested. A number of cases have held such a use per- missible. 13 A number have held the contrary. Here, also, it 13 In Goddard-Peek Grocery Co. Brenneisen, 97 Mo. 148, and cased v. McCune (1894), 122 Mo. 426, 25 cited in each. The principle we S. W. 904, 29 L. E. A. 681, Me- think equally well settled by the chem's Gas. 613, the court says: more recent decisions of this court, "No principle of law is better set- as well as by the weight of judicial tied than that, in the administration authority in other jurisdictions, that of an insolvent partnership estate, the assets of an insolvent firm, be- the assets of the firm must be ap- fore dissolution, may, with the con- plied to the satisfaction of the firm sent of all the partners, be applied creditors to the exclusion of the to the satisfaction of all the indi- creditors of the individual partners. vidual debts of the members of the Hundley v. Farris, 103 Mo. 78, 12 firm, when done in good faith. Sex- L. E. A. 254; First Nat. Bank v. ton v. Anderson, 95 Mo. 380; Rey- 381 443] LAW OP PARTNERSHIP is believed that right theory forbids such an application of the partnership assets, and that their transfer should only be per- mitted, so far as partnership creditors are concerned, where the consideration moves to the partnership. 14 The Uniform Fraud- burn v. Mitchell, 106 Mo. 365 (supra), and cases cited in each; Seger's Sons v. Thomas Bros., 107 Mo. 635. As Phelps v. McNeely, 66 Mo. 555, 27 Am. Eep. 378, is in con- flict with the cases last cited and the great weight of authority, it should not be followed and is overruled." In Fisher v. Syfers (1887), 109 Ind. 514, 10 N. E. 306, it is said: "The rule that obtains in the dis- tribution of the estate of partners, and under which partnership cred- itors are entitled to priority of payment out of the partnership assets, is an equitable doctrine for the benefit and protection of the partners respectively. Partnership creditors have no lien upon part- nership property; their rignt to priority of payment out of the firm assets, over the individual cred- itors, is always worked out through the liens of the partners. Warren v. Farmer, 100 Ind. 593; Trentman v. Swartzell, 85 Ind. 443. Upon the death of one partner, or where the firm becomes bankrupt, or where the partnership assets are being administered by a court, the rule of equitable distribution is applicable to its fullest extent. Where, however, the partners have the possession and control of their own property, they have the right to make any honest disposition of it they see fit; each has the right to waive his equitable lien, and to- gether they may sell, assign or mortgage the property of the firm to pay or secure either an individ- ual debt of one of the partners, or the debts of the firm. ' ' See, also, Purple v. Farrington (1889), 119 Ind. 164, 25 N. E. Eep. 904, 4 L. E. A. 535 ; Ellison v. Lucas (1891), 87 Ga. 223, 13 S. E. 445, 27 Am. St. E. 242; Smith v. Smith (.1893), 87 Iowa 93, 54 N. W. 73, 43 Am. St. E. 359; First Nat. Bank v. Brubaker (1905), 128 Iowa 587, 105 N. W. 116, 2 L. E. A. (N. S.) 256, 111 Am. St. E, 209 ; Kincaid v. Wall Paper Co. (1901), 63 Kan. 288, 65 Pac. 247, 88 Am. St. E. 243, 54 L. E. A. 412; Armstrong v. Carr (1895), 116 N. Car. 499, 21 S. E. 175; Eeynolds v. Johnson (1891), 54 Ark. 449, 16 S. W. 124; Sargent v. Blake (1908), 87 C. C. A. 213, 160 Fed. 57, 15 Ann. Gas. 58, 17 L. E. A. (N. S.) 1040; Wiggins v. Blackshear (1894), 86 Tex. 665, 26 S. W. 939, Burd. Gas. 198; Stahl v. Osmers (1897), 31 Oreg. 199, 49 Pac. 958, Mechem's Gas. 579, Burd. Gas. 237. Compare Teague v. Lind- sey (1894), 106 Ala. 266, 17 So. 538. 14 See Jackson Bank v. Durf ey (1895), 72 Miss. 971, 18 So. 456, 48 Am. St. E. 596, 31 L. E. A. 470, Me- chem's Gas. 619, Burd. Gas. 201; Menagh v. Whitwell (1873), 52 N. Y. 146, 11 Am. Eep. 683, Mechem s Cas. 567, Ames ' Gas. 229, Burd. Gas. 222, Gilm. Cas. 251; Bannister v. Miller (1895), 54 N. J. Eq. 121, 701, 32 Atl. 1066, Burd. Cas. 207. APPLICATION OP PARTNERSHIP ASSETS [444 ulent Conveyance Act adopts this view. 16 If the only persons interested are the partners themselves, any arrangement satis- factory to them would ordinarily be unobjectionable. 444. Eight to assume or pay individual debt of one partner. Whether, however, the partners may apply the part- nership property in payment of the individual debt of one of the partners where no consideration moves to the others has been much disputed. It is conceded that they may do this if they reserve enough to satisfy the partnership creditors ; 16 but where the partnership is already insolvent, or where such an applica- tion will leave it insolvent and unable to pay the partnership debts, there is controversy. It is held, on the one hand, that if the firm is then insolvent, or if such an application of their assets will make them insolvent, it would be fraud upon the partnership creditors to permit such an application, and it will therefore not be allowed. 17 15 See Sec. 8, quoted in note to preceding section. 16 See Schmidlapp v. Currie (1878), 55 Miss. 597, 30 Am. Eep. 530; Hage v. Campbell (1891), 78 Wis. 572, 47 N. W. 179, 23 Am. St. K. 422, Mechem's Gas. 609; Wood- mansie v. Holcomb (1885), 34 Kan. 35, 7 Pac. 603; Jewett v. Meech (1884), 101 Ind. 289. 17 See Ransom v. Vandeventer (1863), 41 Barb. (N. Y.) 307; Wil- son v. Robertson (1860), 21 N. Y. 587; Bartlett v. Meyer-Schmidt Grocery Co. (1898), 65 Ark. 290, 45 S. W. 1063, Mechem's Gas. 1062; Hage v. Campbell, supra; Menagh v, Whitwell (1873), 52 N. Y. 146, 11 Am. Rep. 683, Mechem's Gas. 567, Ames' Gas. 229, Burd. Gas. 221, Gilm. Gas. 251; Bulger v. Rosa (1890), 119 N. Y. 459, 24 N. E. 853; Kurner v. O'Neil (1894), 39 W. Va. 515, 20 S. E. 589; Hill v. Draper (1894), 58 Ark. 625, 24 S. W. 1075. In Arnold v. Hagerman (1888), 45 N. J. Eq. 186, 17 Atl. 93, 14 Am. St. R. 712, Mechem 's Gas. 602, Gilm. Cas. 223, the court, adopting the language of Clements v. Jessup (1883), 36 N. J. Eq. 569, says: "Partnership creditors, in equity, have an inherent priority of claim upon partnership property over in- dividual creditors; and a transfer of partnership property by one partner, with the consent of the other part- ners, or by all the partners, to pay individual debts, is fraudulent and void as to firm creditors, unless the firm was then solvent and had suffi- cient property remaining to pay the partnership debts." The indorsement of a note in the firm name to secure the liability of one of the partners when the firm is insolvent is not fraudulent as 383 445] LAW OF PAKTNEBSHIP It is contended, on the other hand, that if done while the part- ners are still in control of their business, they may make such an appplication, if they act in good faith, though they were already or thereby became insolvent. 18 The latter view seems indefensible in point of theory, as it amounts practically to a gift by the partners not benefited to their copartner. The Uniform Fraudulent Conveyance Act con- demns it. 19 445. -Right of partner to apply individual assets to firm debts. Whether one partner will be permitted to apply his individual assets to the payment of the firm creditors and thereby exclude his own separate creditors, as by making an assignment for their benefit or giving them the preference in assigning his estate, is a question upon which the authorities are in some conflict. It is said, on the one hand, that inasmuch as the firm creditors are equally creditors of the partners as indi- viduals, there is no reason why the individual partner, so long as he has control of his own assets, should not pay the firm debts out of his own estate if he so prefers. 20 On the other hand, it is against firm creditors, provided it is Atl. 16; Anderdson v. Norton done for an honest purpose, in which (1885), 83 Tenn. 14, 54 Am. Hep. the firm was interested and with 400; Huiskamp v. Moline Wagon the consent of the members of the Co. (1886), 121 U. S. 310, 7 Sup. Ct. firm, and the indorsee did not know 899, 30 L. ed. 971; Coffin v. Day that the firm was insolvent. Bern- (1888), 34 Fed. 687; Sargent v. heimer v. Eindskopf (1889), 116 N. Blake (1908), 87 C. C. A. 213, 160 Y. 428, 22 N. E. 1074, 15 Am. St. E. Fed. 57, 15 Ann. Cas. 58, 17 L. E. 414. A. (N. S.) 1040. Where a firm, composed of two 19 See Sec. 8, quoted in note to former partners and an incoming second section preceding, partner, at the time of formation as- 20 See Gallagher's Appeal (1886), sume a debt of the former firm, it 114 Pa. 353, 7 Atl. 237, 60 Am. E. may properly be paid out of the 350, 4 Sad. 297; Newman v. Bagley firm assets, though the firm is insolv- (1835), 16 Pick. (Mass.) 570, Burd. ent. Peyser v. Myers (1892), 135 Cas. 285; Gadsden v. Carson (1857), N. Y. 599, 32 N. E. 699. 9 Eich. Eq. (S. C.) 252; Chesher v. 18 See Sigler v. Knox County Clamp (1895), 10 Tex. Civ. App. Bank (1858), 8 Ohio St. 511; Pep- 350, 30 S. W. 466. per v, Peck (1890), 17 B. I. 55, 20 Where the partner is actually in- 384 APPLICATION OP PARTNERSHIP ASSETS [ 446! urged that the separate Creditors have a first claim upon the separate assets, and to permit them to be diverted to the pay- ment of the firm creditors is a fraud upon the separate cred- itors. 81 The former would seem to be the better view. 446. Right of partners to convert firm property into Individual property. Intimately connected with the questions already considered is that of the right of the partners, by any arrangement among themselves, to so divest themselves of their own "lien" upon the partnership property that the right of the firm creditors to priority of payment out of that property which right, as has been seen, is commonly said to depend upon the partners' right shall be cut off. 22 Thus, for example, may the partners divide the partnership property among themselves and then use it to pay their separate rather than their partner- ship creditors? May one partner on retiring from the firm sell out all of his interest in the partnership assets to his copartner, who continues the business, in such a way that the latter may, thereafter apply those assets to the payment of his individual debts to the exclusion of the firm creditors ? May both partners by selling to a third person thus divest their firm creditors of their priorities in the property so sold? These questions are but another form of that already consid- ered, namely, the right of the partners to apply firm assets to debted to the partnership, a ~bona obviously much less danger of loss to fide transfer of his separate estate the partnership creditors where the to the firm in payment or security of partners or some of them retain the that debt, cannot be impeached by title to the partnership property, his separate creditors: Winslow v. than where they convey it to some Wallace (1888), 116 Ind. 317, 17 N. one else. While they or any of them E. 923, 1 L. E. A. 179, Mechem's hold it, it is just as much open to Gas. 658. (Here they were subse- seizure on execution by the partner- quent creditors, also.) ship creditors as individual property 21 See Holton v. Holton (1860), as it would be if partnership prop- 40 N. H. 77, Ames' Gas. 332; Jack- erty. It is when they attempt to son v. Cornell (1844), 1 Sandf. (N. mortgage, assign or transfer it as Y.) Ch. 348. individual property that the partner - 22 See ante, 436. There is ship creditor is chiefly endangered. Mech. Part. 25 385 447] LAW OF PARTNERSHIP the payment of individual debts. 23 They rest upon substantially the same considerations and present substantially the same con- flict of opinion. That solvent partners, acting in good faith, may do so, seems to be conceded. 24 That it may also be done, though the partners are not solvent, if done in good faith and for an adequate consideration moving to the partnership, would doubtless be held. That it may be done under similar circum- stances even though the consideration moves to the partners individually has also been held, 26 though this view is believed to be entirely unsound wherever it substantially hinders, delays or defeats the partnership creditors. 26 447. Whether the mere assumption of the debts by the continuing partner is a sufficient consideration has at times been in question. In one case 27 it is said : ' ' It is clear that while the partnership is solvent and going on, the partners may, by 23 See ante, 444. 24 See Ex parte Euffin (1801), 6 Ves. 119, Mechem's Gas. 1038, Ames' Gas. 192, Burd. Gas. 192, Gilm. Gas. 217; Dimon v. Hazard (1865), 32 N. Y. 65, Mechem's Gas. 1043; Fulton v. Hughes (1885), 63 Miss. 61; Stanton v. Westover (1886), 101 N. Y. 265, 4 N. E. 529; Ketchum v. Durkee (1846), 1 Barb. (N. Y.) Ch. 480, 45 Am. Dec. 412; Eeese v. Bradford (1848), 13 Ala. 837; In re Denning (1902), 114 Fed. 219. 25 See Allen v. Center Valley Co. (1851), 21 Conn. 130, 54 Am. Dec. 333; Howe v. Lawrence (1852), 9 Gush. (Mass.) 553, 57 Am. Dee. 68, Ames' Gas. 213; Lee v. Bradley Fertilizer Co. (1902), 44 Fla. 787, 33 So. 456; In re Suprenant (1914), 217 Fed. 470. The right of the partners to di- vide the partnership property among themselves with a view to then claim- ing individual exemptions in it, has been sustained in a number of eases : Lee v. Bradley Fertilizer Co., supra; Bates v. Callender (1883), 3 Dak. 256, 16 N. W. 506; Harris v. Viss- cher (1876), 57 Ga. 229; Goudy v. Werbe (1888), 117 Ind. 154, 19 N. E. 764, 3 L. E. A. 114; Worman v. Giddey (1874), 30 Mich. 151; Wat- son v. McKinnon (1889), 73 Tex. 210, 11 S. W. 197; O 'Gorman v. Fink (1883), 57 Wis. 649, 15 N. W. 771, 46 Am. E. 58. 26 See In re Denning (1902), 114 Fed. 219; In re Dillon (1900), 100 Fed. 627; Smith v. Heineman (1897), 118 Ala. 195, 24 So. 364, 72 Am. St. E. 150. 27 Darby v. Gilligan (1889), 33 W. Va. 246, 10 S. E. 400, 6 L. E. A. 740, Gilm. Cas. 221, citing many cases. See, also, Millhiser v. Mc- Kinley (1900), 98 Va, 207, 35 S. E. 446. Denied in Sargent v. Blake (1908), 87 C. C. A. 213, 160 Fed. 57, 15 Ann. Cas. 58, 17 L. E. A. (N. S.) 1040. 386 APPLICATION OF PARTNERSHIP ASSETS [448 unanimous assent or joint act, do what they please with the assets, if the act is ~boiia fide. Where, in such case, one partner sells or assigns his interest to the other, ~bona fide, for a valuable consideration, or an agreement to pay the debts of the firm, and indemnify against them, this will change the joint into a sep- arate property. The only question is upon the Ixma fides of the transaction. If such an arrangement could not be made, a part- ner could never retire. On the other hand, according to the better reason and the weight of authority, if the firm is insolvent, or on the eve of insolvency, and both of the partners are insolv- ent, a purchase by one partner of the interest of the other, in consideration of the former's assumption of all the debts of the firm, will be regarded as a purchase upon a consideration which is of no value whatever ; and, no equivalent having been given, the transfer is in effect voluntary, and its only effect, if sus- tained, would be to hinder partnership creditors, and hence is deemed ineffectual to convert the joint property into separate property as against the firm creditors.'' The proposed Uniform Fraudulent Conveyance Act, 28 as has been seen, will remove many of the doubts. It provides that "every conveyance of partnership property, and every partner- ship obligation incurred, when the partnership is or will be thereby rendered insolvent is fraudulent as to partnership cred- itors, if the conveyance is made or obligation is incurred (a) To a partner, whether with or without a promise by him to pay partnership debts, or (&) To a person not a partner without fair consideration to the partnership as distinguished from consideration to the in- dividual partners/' 448. Another view of similar transactions leading to the same result is that where there is an express stipulation that the continuing partner shall pay the debts this operates not to release but to continue the selling partner's lien upon the assets, unless expressly waived, and therefore the firm creditors may 28 Sec. 8. 387 449] LAW OF PAKTNERSHIP still work out their priority through his lien, until the property has come into the hands of a bona fide purchaser. 29 449. III. Application of assets when distributed by court Firm creditors first paid out of firm assets. When, however, the management of the partnership assets is taken out of the hands of the partners who have made no valid previous dispo- sition of them 80 and put under the control of the court, as in case of dissolution, bankruptcy proceedings, the settlement of insolvent estates in courts of equity, or the like, a different rule prevails. Acting here upon the presumed intention and desire of each partner that the partnership assets shall be applied to the discharge of the partnership liabilities, the courts apply them first to that purpose, and exclude the individual creditors 29 See Bulger v. Kosa (1890), 119 N. Y. 459, 24 N. E. 853; Olson v. Morrison (1874), 29 Mich. 395; Thayer v. Humphrey (1895), 91 Wis. 276, 64 N. W. 1007, 30 L. E. A. 549, 51 Am. St. E. 887, Burd. Gas. 117, Gilm. Gas. 546. 30 Thus, in Case v. Beauregard (1878), 99 U. S. 119, 25 L. ed. 370, Mechem's Gas. 596, Ames' Gas. 246, Gilm. Gas. 226, it is said: "The right of each partner extends only to the share of what may remain after payment of the debts of the firm and a settlement of its ac- counts. Growing out of the right, or rather included in it, is the right to have the partnership prop- erty applied to the payment of the partnership debts in preference to those of any individual partner. This is an equity that partners have between themselves, and in certain circumstances it inures to the benefit of the creditors of the firm. The latter are said to have the privilege or preference, some- times loosely denominated a 'lien,' to have the debts due to them paid out of the assets of a firm in course of liquidation to the exclusion of the creditors of its several mem- bers. This equity is a derivative one. It is not held or enforceable in their own right. It is practi- cally a subrogation to the equity of the individual partner, to be made effective only through him. Hence, if he is not in a condition to en- force it, the creditors of the firm cannot be. Eice v. Barnard, 20 Vt. 479, 50 Am. Dec. 54; York County Bank's Appeal, 32 Pa. St. 446. But so long as the equity of the partner remains in him so long as he retains an interest in the firm assets as a partner a court of equity will allow the cred- itors of the firm to avail them- selves of his equity and enforce through it the application of those assets primarily to the payment of the debts due them whenever the property comes under its adminis- tration. ' ' 388 APPLICATION OP PARTNERSHIP ASSETS [450 of the partners from participation until the partnership cred- itors are paid. The Federal Bankruptcy Act adopts this rule, in explicit terms, 81 and so also does the Uniform Partnership Act. 88 So where firm property has been levied upon for the individ- ual debt of one partner, inasmuch as the only interest which can ordinarily be so sold is the partner's share in the final sur- plus, 83 such levy must yield priority to subsequent levies for debts due to the partnership creditors. 84 And the same result will ensue where one partner has mortgaged or otherwise incum- bered his interest in the partnership property to secure his sep- arate creditors. 85 But where all of the partners themselves, while the assets re- mained under their control, have created valid liens upon the property, the court in administering the estate will give such liens effect. 86 450. Same subject Joint but not partnership creditors not preferred. The reasons which operate to give firm creditors 31 Sec. 5, subd. /, ' ' The net pro- ceeds of the partnership property shall be appropriated to the pay- ment of the partnership debts, and the net proceeds of the indi- vidual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after pay- ing his individual debts, such sur- plus shall be added to the partner- ship assets and be applied to the payment of the partnership debts. Should any surplus of the partner- ship property remain after paying the partnership debts, such surplus shall be added to the assets of the individual parties in the proportion of their respective interests in the partnership. ' ' 32 Sec. 40, subd. Ji. "When part- nership property and the individual properties of the partners are in the possession of a court for distribu- tion, partnership creditors shall have priority on partnership property, and separate creditors on individual property, saving the rights of lien or secured creditors as heretofore." 83 See ante, 148. 34Jarvis v. Brooks (1853), 27 N. H. 37, 59 Am. Dec. 359; Conroy v. Woods (1859), 13 Cal. 626, 73 Am. Dec. 605; Bullock v. Hubbard (1863), 23 Cal. 495, 83 Am. Dec. 130; Pierce v. Jackson (1810), 6 Mass. 242, Ames' Gas. 293; Meech v. Allen (1858), 17 N. Y. 300, 72 Am. Dec. 465, Mechem's Gas. 677, Ames' Gas. 326, Gilm. Gas. 499. 35 Ewart v. Mercantile Co. (1895), 130 Mo. 112, 31 S. W. 1041. 36 Smith v. Smith (1893), 87 Iowa 93, 54 N. W. 73, 43 Am. St. E. 359. 389 451] LAW OF PARTNERSHIP as such a preference in payment out of firm assets operate to exclude from suck priority any who do not stand in that rela- tion. It is consequently generally held in this country that the joint creditors of the partners as individuals, not being part- nership creditors, will, in a judicial distribution, be excluded from participation in the partnership assets until the firm cred- itors are paid. 87 The English courts have held the contrary. 38 A number of American courts have held the contrary where the question arose in controversies as to the right of partnership creditors to priority over an earlier levy by a creditor of all the partners jointly, though not a partnership creditor. 39 The rule in bankruptcy excludes the joint non-partnership creditor in favor of the partnership creditor. 40 As has been already seen, an obligation may be shown to be a partnership obligation in fact and hence entitled to be paid out of partnership assets although it was made in the individ- ual names of the partners instead of the firm name. 41 451. Same subject Partner cannot compete with firm creditors. So, if the partnership be indebted to one partner, inasmuch as he is himself, as a member of the partnership, one of the persons from whom his claim is due, and is therefore at once both debtor and creditor, while as to the claims of strangers against the partnership he is a debtor simply, it is clear that he is not strictly a partnership creditor within the rule which 37 See Forsyth v. Woods (1870), 38 See Hoare v. Oriental Bank 11 Wall. (U. S.) 484; Second Nat. (1877), L. R. 2 App. Cas. 589. Bank v. Burt (1883), 93 N. Y. 233; 39 See Saunders v. Reilly (1887), Turner v. Jaycox (1869), 40 N. Y. 105 N. Y. 12, 12 N. E. 170, 59 Am. 470; Whelan v. Shain (1896), 115 Rep. 472, Burd. Cas. 277; Steiner Cal. 326, 47 Pac. 57; Dunniea v. v. Peters Store Co. (1898), 119 Ala. Clinkscales (1881), 73 Mo. 500. 371, 24 So. 576; Couchman v. Mau- Where there is but one partner- pin (1879), 78 Ky. 33. ship, though it has several branches, 40 See In re Nims (1879), 16 all of the assets are to be admin- Blatchf. 439; In re Weisenberg istered as a unit: In re Vetterlein (1904), 131 Fed. 517. (1890), 44 Fed. 57. Otherwise, 41 See ante, 295; Rouse v. Wal- where there were really distinct part- lace (1897), 10 Colo. App. 93, 50 nerships; Gay v. Ray (1907), 195 Pac. 366. Mass/8, 80 N. E. 693; post, 461. 390 APPLICATION OF PAETNERSHIP ASSETS [451 gives such creditors priority. It is settled, therefore, that he cannot compete with the latter class in securing payment out of the assets of the partnership ; 42 neither can his own creditors, or others standing simply in his shoes, 43 by virtue of his claim, be permitted to so compete. "To that rule," said Lord Eldon, "there is an exception, man- ifestly founded in justice, and that is where a partner becomes a creditor in respect of the fraudulent conversion of his separate estate to the use of the partnership. ' ' 44 Another exception to this rule has been made in England where the firm and the partner were carrying on separate trades, and the claim was due in respect of goods furnished by one to the other as such separate traders ; ** but this exception has not been approved in the United States. 46 Some other exceptions have also been made, as where the claimant partner has been discharged from liability for the partnership debts and therefore is no longer one of the debtors, 47 or his liability has been barred by the statute of limitations, 48 and he has afterward become a creditor of the firm. 42 See Edison Illuminating Co. v. DeMott (1893), 51 N. J. Eq. 16, 25 Atl. 952; Ex parte Blythe (1881), 16 Ch. Div. 620; Bonwit v. Hey- man (1895), 43 Neb. 537, 61 N. W. 716; McCruden v. Jonas (1896), 173 Pa. 507, 34 Atl. 224, 51 Am. St. R. 774, Burd. Cas. 478; In re Rice (1908), 164 Fed. 509; In re Telfer (1910), 106 C. C. A. 366, 184 Fed. 224 (under present bankruptcy act). 43 McCruden v. Jonas, supra. Where the claim is a negotiable in- strument, the T)ona fide transferee for value will stand on a better footing. See Millers River Bank v. Jefferson (1884), 138 Mass. Ill, Gilm. Cas. 563; McCruden v. Jonas, supra; Parsons v. Tillman (1884), 95 Ind. 452; First Nat. Bank v. Wood (1891), 128 N. Y. 35, 27 N. E. 1020. 44 See Ex parte Sillitoe (1824) I Glyn v. Jam. 374, Ames' Cas. 428, Gilm. Cas. 569. 45 See Ex parte Sillitoe, supra; Ex parte Cook (1831), Montagu, 228, Ames' Cas. 432. As to claims be- tween firms having a common part- ner, see Haines Estate, (1896), 176 Pa. 354, 35 Atl. 237, Burd. Cas. 482; First Nat. Bank v. Wood, supra; Bonwit v. Heyman, supra. 46 See Somerset Potters Works v. Minst (1852), 10 Gush. (64 Mass.) 592; Ee Lane (1874), 2 Low. (IT. S. D. C.) 333. 47 See Ex parte Atkins (1820), 1 Buck 479. 48 See In re Hepburn (1884), 14 Q. B. Div. 394. 391 452,453] LAW OF PARTNERSHIP 452. Same subject One partner's share cannot be reached oy his creditors until partners' claims against firm are satis- fied. So, though the share or interest of one partner in the final surplus may, as has been seen, be rendered available to his creditors, it must be kept in mind that that surplus is not ascer- tained until not only the firm creditors as such are paid, but also not until the claims of the respective partners against the firm, as for advances made or money loaned to it, are satisfied. In equity, therefore, the individual creditors of one partner cannot reach his share until the claims of partners against the firm have been satisfied. 49 453. Same subject Individual creditors usually given priority in individual assets of a partner. The right of the partnership creditors to priority of payment out of the partner- ship assets being conceded, it has been urged that the separate creditors of the partner were entitled in a judicial distribution of the assets to a like priority of payment out of the separate assets of the partner, and this right has been maintained by many, perhaps by a majority, of the cases in the United States, following the early English precedents. 60 "The correctness of this rule, however," it was said in a leading case, 61 "has been 49 See Buchan v. Sumner (1847), H. 584; Greene v. Butterworth 2 Barb. Ch. (N. Y.) 165, 47 Am. (1889), 45 N. J. Eq. 738, 17 Atl. Dee. 305; Crocker v. Crooker (1863), 949; Peters v. Bain (1889), 133 U. 52 Me. 267, 83 Am. Dee. 509; Di- S. 670, 10 Sup. Ct. 354; New Market yine v. Mitchum (1844), 4 B. Mon. Nat. Bank v. Locke (1883), 89 Ind. (Ky.) 488, 41 Am. Dec. 241, Me- 428; Hawkins v. Mahoney (1898), chem's Gas. 626; Buck v. Winn 71 Minn. 155, 73 N. W. 720, Gilm. (1850), 11 B. Mon. 320; Cain v. Cas. 558; Davis v. Howell (1880), Hubble (1919), 184 Ky. 38, 211 S. 32 N. J. Eq. 72, Burd. Cas. 438, W. 413: Warren v. Taylor (1877), Gilm. Cas. 538. 60 Ala. 218, Mechem's Cas. 1081, Where one partner who is solvent Burd. Cas. 580, Gilm. Cas. 446. seeks to recover a private debt from 50 See Rodgers v. Meranda (1857), the estate of his insolvent copartner, 7 Ohio St. 180, Meehem's Cas. 630, it is no objection to his doing so Burd. Cas. 424, Gilm. Cas. 528; that the amount if recovered by him Hundley v. Farris (1890), 103 Mo. will ultimately go through his estate 78, 15 8. W. 312, 23 Am. St. E. to the partnership creditors; In re 863, 12 L. B, A. 254; Claflin v. Head [1894], 1 Q. B. 638. Behr (1889), 89 Ala. 503, 8 So. 61 Rodgers v. Meranda, supra. 45; Moody v. Lucier (1883), 62 N. In Murrill v, Neill (1850), 8 How. APPLICATION OF PARTNERSHIP ASSETS [ 453 much controverted, and there has not always been a perfect concurrence in the reasons assigned for it by those courts which have adhered to it. By some, it has been said to be an arbitrary rule, established from considerations of convenience; by others, that it rests on the basis that a primary liability attaches to the fund on which the credit was given that, in contracts with a partnership, credit is given on the supposed responsibility of the firm; while in contracts with a partner as an individual, reliance is supposed to be placed on his separate responsibility. And again, others have assigned as a reason for the rule that the joint estate is supposed to be benefited to the extent of every credit which is given to the firm, and that the separate estate is, in like manner, presumed to be enlarged by the debts con- tracted by the individual partner ; and that there is consequently a clear equity in confining the creditors, as to preferences, to each estate respectively which has been thus benefited by their transactions. But these reasons are not entirely satisfactory. So important a rule must have a better foundation to stand upon than mere considerations of convenience; and practically it is undeniable that those who give credit to a partnership look to the individual responsibility of the partners as well as that (U. S.) 414, 12 L. ed. 1135, it is estate of the partners with -whom said: "The rule in equity govern- they have made private and individ- ing the administration of insolvent ual contracts; and that the private partnerships is one of familiar ae- and individual property of the ceptance and practice; it is one partners shall not be applied in which will be found to have been in extinguishment of partnership debts practice in this country from the until the separate and individual beginning of our judicial history, creditors of the respective partners and to have been generally if not shall be paid. The reason and foun- universally received. This rule, with dation of this rule, or its equality one or two eccentric variations in and fairness, the court is not called the English practice which may be upon to justify. Were these less noted hereafter, is believed to be obvious than they are, it were enough identical with that prevailing in to show the early adoption and England, and is this: That part- general prevalence of this rule to nership creditors shall, in the first stay the hand of innovation at this instance, be satisfied from the part- day, at least under any motive less nership estate; and separate or priv- strong than the most urgent pro- ate creditors of the individual part- priety." ners from the separate and private 393 454] LAW OP PARTNERSHIP of the firm; and, also, those who contract with a partner in his separate capacity place reliance on his various resources or means, whether individual or joint. And inasmuch as individual debts are often contracted to raise means which are put into the business of a partnership, and also partnership effects often withdrawn from the firm and appropriated to the separate use of the partners, it cannot be practically true that the separate estate has been benefited to the extent of every credit given to each individual partner, nor that the joint estate has retained from the separate estate of each partner the benefit of every credit given to the firm." The court, however, concluded that the rule was well established, saying: "Some general rule is necessary, and that must rest on the basis of the unalterable preference of the partnership creditors in the joint effects, and their further right to some claim in the separate property of each of the several partners. The preference, therefore, of the individual creditors of a partner in the distribution of his sep- arate estate, results as a principle of equity from the preference of partnership creditors in the partnership funds, and their advantage in having different funds to resort to, while the indi- vidual creditors have but one." But whether the reasons as- signed to the rule are satisfactory or not, the rule itself seems to be established by the clear weight of authority. It is unqualifiedly adopted by the Federal Bankruptcy Act, 52 and by the Uniform Partnership Act, 63 as has been seen. 454. Same subject Contrary views. But notwithstanding the quite general concurrence in the rule giving each class of creditors priority in the respective funds, it has met with some forcible dissent, 54 and upon principle it is difficult to sustain it. 62 Sec. 5, subd. /. quoted ante, v. Woodruff (1890), 86 Va. 478, 10 note 31 449. S. E. 715; Freeport Stone Co. v. 53 Sec. 40, subd. h. quoted ante, Carey (1896),^ 42 W. Va. 276, 26 S. note 32 449. E. 183; Bardwell v. Perry (1847), 64 See Hutzler v. Phillips (1887), 19 Vt. 292, 47 Am. Dec. 687; Gue- 26 S. C. 136, 1 S. E. 502, 4 Am. St. ringer v. Creditors (1881), 33 La. E. 687; Blair v. Black (1889), 31 Ann. 1279, (see also Miller v. N. O. S. C. 346, 9 S. E. 1033, 17 Am. St. Fertilizer Co. (1908), 211 U. S. 496, E. 30, Mechem'sCas. 644; Pettyjohn 29 S. Ct. 176) ; Camp v. Grant 394 -APPLICATION OF PARTNERSHIP ASSETS [ 455 The true rule, from the standpoint of principle, would seem to be that inasmuch as each partner is individually liable for the partnership debts, the creditors of the firm (and therefore of each partner as well) are entitled to share equally with the separate creditors in the separate assets of the partners, at least after exhausting the partnership assets. The basis of this qualification is found in the fact that the partnership creditor has recourse to two funds (i. e., the partnership assets and the individual assets), while the individual creditor has recourse to but one fund, namely, the individual assets ; and it is a principle of equity that where one creditor has access to two funds while another creditor has access to but one, the former shall exhaust the separate fund before resorting to the common fund. Having done so, however, without obtaining payment in full, he may then resort to the other fund. In Kentucky a modified application of this principle is made whereby when the partnership creditor claims priority in and has secured a percentage of his claim out of the partnership assets, the individual creditor may take a similar percentage out of the individual assets; the residue of the individual assets, if any, will then be distributed pro rata among the partnership and the individual creditors. 55 455. Same subject How where there are individual but no partnership assets. But either rule giving the individual creditors a priority in the individual assets, so far as it rests upon equitable considerations, applies only where there are two funds. Thus, where there are individual assets but no partner- (1851), 21 Conn. 41, 54 Am. Dee. 653; Hill v. Cornwall (1894), 95 Ky. 321; Eobinson v. Security Co. 512, 26 S. W. 540, 16 Ky. Law E. (1913), 87 Conn. 268, 87 Atl. 879, 97. Ann. Cas. 1915 C, 1170, to the effect See also Johnson v. Gordon that partnership creditors may share (1897), 102 Oa. 350, 30 S. E. 507, equally with individual creditors in showing that the Kentucky rule had the separate assets. been adopted by the Georgia code. 55 See Northern Bank of Ky. v. Compare also Bell v. Newman Keizer (1865), 2 Duv. (Ky.) 169, (1819), 5 Serg. & E. 78, since over- Mechem's Cas. 650; Fayette Nat. ruled. See discussion in Hawkins v. Bank v. Kenney (1880), 79 Ky. 133, Mahoney, supra. 2 Ky. Law E. 35, Mechem's Cas. 395 456] LAW OP PARTNERSHIP ship assets and no solvent partner, it has usually been- held that the partnership creditors may share equally with -the individual creditors in the separate assets, of the partner, though there are holdings to the contrary. 56 "Whether the partnership creditors may so share in the indi- vidual assets under the provisions of the Federal Bankruptcy Act has been the subject of much dispute, but it has now been authoritatively decided that they may not. 67 456. Same subject Firm cannot compete with, individual creditors. Passing next from the right of partnership cred- itors as such to compete with the individual creditors in the separate estate of one partner, the question arises whether, if tha*t partner was indebted to the partnership, the latter or those who represent it can, in a judicial distribution of the assets, compete with the individual creditors of that partner in the 66 See In re Lloyd (1884), 22 Fed. 88; In re West (1889), 39 Fed. 203; Harris v. Peabody (1881), 73 Me. 262, Mechem's Gas. 667, Gilm. Gas. 541; Curtis v. Woodward (1883), 58 Wis. 499, 17 N. W. 328, 46 Am. E. 647; Alexander v. Gorman (1886), 15 E. I. 421, 7 Atl. 243. Contra, Howe v. Lawrence (1852), 9 Gush. (Mass.) 553, 57 Am. Dec. 68, Ames' Gas. 213; Warren v. Farmer (1884), 100 Ind. 593; In re Gray (1888), 111 N. Y. 404; 18 N. E. 719; Stew- art's Case (1857), 4 Abb. Pr. (N. Y.) 408, Burd. Gas. 493; In re Dauchy (1902), 169 N. Y. 460, 62 N. E. 573. See the case where the individual creditor resorted to un- usual methods to create a joint fund: In re Marwick (1845), 2 Ware 233, Mechem 's Gas. 672, Burd. Gas. 445, Gilm. Gas. 545. Secured Creditor A creditor, who also has security for the claim, may, in equity, by what seems the weight f authority, prove for the entire amount of his claim, and not simply for the amount after de- ducting the value of the security though, of course, he can not re- tain more than the full amount of his claim from all sources; in bank- ruptcy, on the other hand, he must deduct the value of his security. See Merrill v. National Bank (1898), 173 TJ. S. 131, 19 Sup. Ct. 360, 43 L. ed. 640; Aldrieh v. Chem- ical Nat. Bank (1900), 176 U. S. 618, 20 Sup. Ct. 498, 44 L. ed. 611 ; Tebbetts v. Eollins (1906), 192 Mass. 169, 78 N. E. 299; Bank Commissioners v. Trust Co. (1901), 70 N. H. 536, 49 Atl. 113; People v. Eemington (1890), 121 N. Y. 328, 24 N. E. 793, 8 L. E. A. 458, Burd. Gas. 442; Allen v. Danielson (1887), 15 E. I. 480, 8 Atl. 705, Gilm. Gas. 564. 57 See Farmers Bank v. Eidge Ave. Bank (1915), 240 U. S. 498, 26 S. Ct. 461. 396 f APPLICATION OF PARTNERSHIP ASSETS [457,458 distribution of his assets. As to this, the general rule is that the partnership or those who represent it cannot be permitted to compete with the separate creditors of one partner in the dis- tribution of his estate. 68 An exception to the rule has been made where the claim of the partnership against the partner is founded upon his wrong- ful and fraudulent appropriation of firm assets to his own use. 69 Although the Uniform Partnership Act seems to be opposed, 60 it has usually been held that a surviving partner who has paid the partnership debts may, as to any deficiency left after apply- ing the partnership assets, have a personal claim for a pro rota part against the estate of the deceased partner, upon which he may share pari passu with the individual creditors. 61 457. Partner competing 1 with partnership creditors in individual assets. "Where the partnership creditors may reach the separate estate of one partner (as where he has no individual creditors, etc.) another partner who has a claim against that partner may not compete with the partnership creditors. 62 But if his claim were a negotiable one, his 'bona fide transferee for value might compete, and if there had been a novation a trans- feree could compete although the claim were not negotiable. 458. Obtaining claims against both estates by con- tract. While it is thus generally true that the joint and the 58 See Bead v. Bailey (1877), 3 Gas. 569; McElroy v. Allfree App. Gas. 94, Ames' Gas. 409; In (1906), 131 Iowa 518, 108 N. W. re Hamilton (1880), 1 Fed. 800; 119, Gilm. Gas. 573. Cowan v. Gill (1883), 11 Lea 60 See Sec. 40 (i). (Tenn.), 674; Lodge v. Feudal 61 See Olleman v. Reagan (1867), (1790), 1 Vesey, Jr. 166, Ames' 28 Ind. 109; In re Euby (1896), 24 Gas. 394. Contra, Bird v. Bird Ont. App. 509; Payne v. Matthews (1885), 77 Me. 499, 1 Atl. 455. (1836), 6 Paige (N. Y. Ch.) 19, 29 This rule seems not to be altered Am. Dee. 738; [contra is Kirby v. by the Bankruptcy Act, 5 g. See Carpenter (1849), 7 Barb. (N. Y.) In. re Telfer (1910), 106 C. C. A. 373]; Morris v. Morris (1848), 4 366, 184 Fed. 224; In re Effinger Gratt. (Va.) 293; In re Dell (1878), (1910), 184 Fed. 728. 5 Saw. (U. S. D. C.) 344, Ames' 89 See Eead v. Bailey, supra; Ex Gas. 419. parte Sillitoe (1824), 1 Glyn & 62 See Ex parte Topping (1864), Jameson, 374, Ames' Gas. 428 ? Gilm. 4 De Gex. J. & S. 551, Ames' Gas, 397 459] LAW OF PARTNERSHIP separate assets are reserved for creditors of their respective class, it is possible that a creditor may have secured both a part- nership and an individual obligation which will entitle him to prove his claim against both the partnership and the individual estates. Thus it has been held, though there are also cases to the contrary, that a creditor holding a partnership note sep- arately endorsed by one partner may, in case of insolvency, prove against both estates. 63 ' A mere joint and several claim would be more questionable, 64 and if the obligation were really a partnership one only, although signed in the individual names of the partners instead of in the firm name, it would be treated accordingly. 66 459. Application of assets when there was no ostensible partnership When there was merely an ostensible but not an actual partnership. Questions as to the proper application of the assets also arise where there was really a partnership between the parties, but there was none ostensibly, as where, of two part- ners, one was dormant and the other appeared to the public as 473, Gilm. Gas. 576; In re Head ette Nat. Bank v. Kenney (1880), (1894), 1 Q. B. 638. 79 Ky. 133, 2 Ky. Law B. 35, Me- 63 See In re Farmim (1843), 8 chem's Gas. 653; Hill v. Cornwall Fed. Gas. 1057; In re Bradley (1894), 95 Ky. 512, 26 8. W. 540, (1871), 2 Biss. 515; In re Adams 16 Ky. Law E. 97, Burd. Gas. 474. (1887), 29 Fed. 843; Williams Nat. Compare In re Barnard (1886), 32 Bank v. Hall (1893), 160 Mass. 171, Ch. Div. 447. 35 N. E. 666, Burd. Gas. 473; 64 Under present Bankruptcy Act, Fowlkes v. Bowers (1883), 79 Tenn. held, not permissible: In re Hosier (11 Lea) 144; Union Nat. Bank v. (1901), 112 Fed. 138. Under state Bank of Commerce (1880), 94 111. insolvency statutes, permitted in Ex 271; Winslow v. Wallace (1888), parte Nason (1880), 70 Me. 363. 116 Ind. 317, 17 N. E. 923, 1 L. E. Compare Ex parte First Nat. Bank, A. 179, Mechem's Gas. 658; Haw- id. 369. On tort claim permitted: kins v. Mahoney (1898), 71 Minn. Matter of Peck (1912), 206 N. Y. 155, 73 N. W. 720; In re Gray 55, 99 N. E. 258, 41 L. E. A. (N. (1888), 111 N. Y. 404, 18 N. E. S.) 1223, Ann. Gas. 1914 A 798. 719; Eeed v. Bacon (1900), 175 65 See Adams v. Lumber Co. Mass. 407, 56 N. E. 716; Anderson (1912), 120 C. C. A. 302, 202 Fed. v. Stayton Bank (1916), 82 Oreg. 48. 357, 159 Pac. 1033. Contra: Fay- 398 APPLICATION OF PARTNERSHIP ASSETS [ 460 the sole dealer. "In such a case," say the court in Tennessee, 66 "the ordinary rule touching partnership transactions and part- nership property do not apply. The dormant partner has clearly no equity to require the application of the partnership property to the payment of the firm debts to his exoneration, as against the creditors of the ostensible partner who has been dealt with as the sole owner. 67 And the creditors of the firm, who have no equity except such as can be worked out through the dormant partner, cannot require that the partnership property be first applied to the satisfaction of their debts. 68 It is a race of dili- gence between the two classes of creditors, and equity will not interfere to deprive either of a legal advantage." 460. The reverse of this case also arises, as where two persons are ostensibly partners, but are not really such. The rule properly to be applied here, as declared in a recent case in Wisconsin, 69 is, "that if a person allows another to carry on business in such a way as to amount to a holding out to persons generally that he and such other are partners, and credit is given to both on the supposition that they are partners in fact, the property with which such business is carried on, though in law that of such person, in equity will be treated as the joint property of such person and such other; and neither of them, nor the creditors of either, can prove up in insolvency in com- 66 Whitworth v. Patterson (1880), (1891), 87 Mich. 599, 49 N. W. 872, 6 Lea 119. 24 Am. St. E. 182; Kelly v. Scott 67 Cammack v. Johnson (1839), 2 (1872), 49 N. Y. 595, Meehem's Gas. N. J. Eq. 163. 682; Elliot v. Stevens (1859), 38 68 French v. Chase (1829), 6 Me. N. H. 311; Taylor v. Wilson (1878), 166, Mechem's Gas. 1069; Lord v. 58 N. H. 465, Burd. Gas. 112; Cod- Baldwin (1828), 6 Pick. (Mass.) ville Co. v. Smart (1907), 15 Ont. 348. L. R. 357. See, also, Adams v. Al- 69 Thayer v. Humphrey (1895), bert (1898), 155 N. Y. 356, 49 N. E. 91 Wis. 276, 64 N. W. 1007, 30 L. 929, 63 Am. St. E. 675. Under the E. A. 549, 51 Am. St. E. 887, Burd. English Bankruptcy Act, dealing Cas. 117, Gilm. Gas. 546; Gibbs v. with goods of which the partnership Humphrey (1895), 91 Wis. Ill, 64 had the "reputed ownership," see N. W. 750, Burd. Cas. 475. To same Ex parte Hayman (1878), 8 Ch. Div. effect: Van Kleeck v. McCabe 11. 399 461] LAW OF PARTNERSHIP petition with the creditors who have trusted the two as partners and the business as that of the two." On the other hand, this conclusion has been vigorously de- nied, 70 upon the ground that the effect of estoppels is personal only, and does not affect the property; the person estopped is not in fact a partner and has no lien or other claim upon the partnership assets through which the creditors of the supposed partnership can reach them. The draftsmen of the Uniform Partnership Act express the belief that this latter conclusion is required by the language of Section 16. 1&, but this may well be thought doubtful. 461. Application of assets of firms having one or more partners in common. "Where there are two or more firms having some but not all of their partners in common, the assets of the several firms must usually be regarded as distinct groups. 71 "Where the membership was identical, then if it is properly to be regarded as a single partnership with branches, all of the assets are to be administered as a unit. 72 But if each was in fact a distinct and independent venture, then, though the partners were identical, the various groups of assets are, it is said, to be ad- ministered as those of separate firms. 73 But, in accordance with a principle already referred to, it is held that an insolvent partnership composed of three of the four members of a second insolvent partnership cannot compete, as a creditor of the latter, with its other creditors in the distribu- tion of its assets. 74 70 See Broadway Nat. Bank v. Bank v. Burt (1883), 93 N. Y. 233. Wood (1896), 165 Mass. 312, 43 N. 78 See In re Vetterlein (1890), 44 E. 100, Mechem's Gas. 688, Burd. Fed. 57; (Cf. In re Vetterlein Cas. 129; Bixler v. Kresge (1895), (1871), 5 Ben. (U. S. D. C.) 311, 169 Pa. 405, 32 Atl. 414, 47 Am. St. Burd. Cas. 276) ; Campbell v. Colo. E. 920, Burd. Cas. 115. Compare C. & I. Co. (1885), 9 Colo. 60, 10 Swann v. Sanborn (1878), 4 Woods Pac. 248. 625, Gilm. Cas. 557. 78 See Gay v. Bay (1907), 195 71 See Lewis v. United States Mass. 8, 80 N. E. 693. (1875), 92 U. S. 618, 23 L. ed. 513; 74 See ante, 451; McCruden v. Bullock v. Hubbard (1863), 23 Cal. Jonas (1896), 173 Pa. 507, 34 Atl. 495, 83 Am. Dee. 130; Haines 224, 51 Am. St. E. 774, Burd. Cas. Estate (1896), 176 Pa. 354, 35 Atl. 47S. 237, Burd. Cas. 482; Second Nat. 400 APPLICATION OP PARTNERSHIP ASSETS [462,463 In bankruptcy, one of such firms has been permitted to prove as a creditor against the other. 75 462. Application of assets where there are successive firms Uniform Partnership Act. The problem of the proper dis- tribution of a body of assets where, owing to changes of mem- bership, several really different firms have carried on business in succession with substantially the same stock or property, is often an exceedingly complicated and difficult one. Theoreti- cally, the assets of each firm are to be applied to the indebtedness of that firm. Each successive firm may have assumed the in- debtedness of the preceding firm, but that will not always be true. A new partner may have come into or a former partner may have gone out of an existing partnership, without any assumption or adjustment of the existing debts, and the new partnership may immediately incur fresh indebtedness. The whole subject is now very much in confusion and uncertainty. The Uniform Partnership Act proposes, in general, to regard all of the creditors at the various stages as creditors of the busi- ness at any stage, where the business is in fact continuous not- withstanding the changes in the personnel of the members. It provides for the rights of creditors when a new partner is ad- mitted, or a partner retires, is expelled or dies, but the business is continued without liquidation of the debts of the partnership dissolved by this change in personnel. The provisions are too long for reproduction in the text, but will be found in full in Sections 41, 42 and 43, in the Appendix. 463. Equitable rules do not defeat legal priorities. The rules of distribution prevailing in courts of equity by which the individual creditors get priority in the individual assets do not usually operate to defeat priorities previously acquired therein by the partnership creditors in legal proceedings. Thus, it has been held that the lien of a judgment, rendered after the death of one partner, but for a partnership debt, and attaching to the individual real estate of the surviving partner, will not be dis- 75 See In re Buckhouse (1874), 2 Lowell 331, Gilm. Gas. 572. Mech. Part. 26 401 463] LAW OF PARTNERSHIP turbed in favor of a later judgment against such survivor for his individual debt, even though such later judgment cannot otherwise be satisfied, and it was alleged that the prior one might have been satisfied out of the estate of the deceased partner. 76 Selden, J., after referring to the rule prevailing in courts of equity, as already noticed, said : ' ' This, however, is a rule which prevails in courts of equity in the distribution of equitable assets only. Those courts have never assumed to exercise the power of setting aside, or in any way interfering with, an abso- lute right of priority obtained at law. In regard to all such cases the rule is, Equitas sequitur leg em." So where the individual credits of one partner had been at- tached at the suit of the firm creditors and were subsequently attached by his individual creditor, it was held that the prior lien was effectual. 77 The court said that it was settled law in Massachusetts, [as it is generally], though otherwise in New Hampshire, that ' ' in a suit against two or more copartners upon their joint debt, the separate property of any one of the partners may be attached, and the lien so acquired is not discharged or impaired by a subsequent attachment of the same property upon a suit in favor of a separate creditor of the same partner." 76Meech v. Allen (1858), 17 N. Y. 300, 72 Am. Dec. 465, Mechem's Gas. 677, Ames' Gas. 326, Gihn. Gas. 499; In re Sandusky (1878), 17 Nat. Bankr. Reg. 452, Fed. Gas. No. 12,308, Burd. Gas. 421. 77 Stevens v. Perry (1873), 113 Mass. 380, Mechem's Gas. 961, Ames' Gas. 330, Burd. Gas. 377. To like effect: Allen v. Wells (1839), 22 Pick. (Mass.) 450, 33 Am. Dec. 757. 402 CHAPTER XXI. OF THE FINAL ACCOUNTING. 464. Necessity of accounting. 469, 470. Manner of accounting. 465. Basis of the accounting. 471. Uniform Partnership 466,467. Eight of general Act. creditors to present their 472, 473. Loss of capital, how demands. borne. 468. Partnership debts to be first 474. Opening and restating ac- paid. counts. 464. Necessity of accounting. Upon the termination of the partnership, either by the act of the parties or the operation of law, an accounting usually becomes necessary. If the part- nership is solvent, and the partners agree, they may close up their affairs, pay their debts and distribute the surplus, by their own act; but if they cannot agree, or if the partnership is in- solvent and there are conflicting claims, an accounting in court becomes necessary. As has been already seen, 1 the court of equity is the forum in which partnership accounts are to be settled, and something has been already said as to who is entitled to demand an accounting. 2 It has been sometimes said that the right to demand an accounting is a test of being a partner, but the true theory seems to be that the right to an accounting fol- lows because one is a partner. 465. Basis of the accounting. It has been seen 3 that it is the duty of each partner to keep full and accurate accounts of his partnership transactions, and that if he fails to do so, every uncertainty resulting therefrom will ordinarily be resolved against him. It has been seen also* that all profits and ad- vantages resulting from partnership transactions must be accounted for, even though done in the name of one partner 1 Ante, 227. 8 See ante, 175. 2 Ante, 230. *Ante, 170. 403 466,467] LAW OF PARTNERSHIP only ; and that a partner is not ordinarily entitled to extra com- pensation or interest in the absence of an agreement to pay it. 5 It has been seen, moreover, that the claims of partners for con- tribution as to debts paid, for reimbursement for advances, for indemnity against liability, and most other claims and demands arising between the partners themselves, are to be settled upon the final accounting. 6 Such an accounting becomes, therefore, the one great occasion for a comprehensive and effective settle- ment of partnership demands, between the partners. 466. Same subject Right of general creditors to present their demands. But the claims of the partners as between themselves are usually not the only ones to be adjusted. The claims of the partnership creditors must also be ascertained and paid. These may be cared for by the voluntary action of the partners without suit. If no court has acquired control of the assets for the purpose of distribution, ordinary actions at law can usually be maintained notwithstanding the termination of the partnership. Or in an action in equity instituted by a part- ner or a creditor to wind up the business and distribute the assets, the claims of the partnership creditors may be presented and proved without the commencement of separate actions to enforce them. Debts must be collected either by the partners themselves, or by a receiver in case the partnership affairs are being settled by a court of equity. A sale of the tangible property is also to be made, and is practically a matter of course, unless for special reason shown, some other method of disposition is ordered. When the assets have thus been reduced to an available and distributable form, and the claims of the partners among them- selves and of creditors against the firm have been ascertained, the estate is ready for distribution among those entitled accord- ing to the priorities which the law establishes. 467. As has been already seen in a previous section, 7 the partners themselves may, in pursuance of well-settled and 5 Ante, 178, 179. ?See ante, 227. 6 Ante, 190. 404 FINAL ACCOUNTING [468,469 long-established rules, have the aid of courts of equity in securing accountings, dissolutions and distributions of the partnership as- sets. Other persons who claim through the partners may also of- ten have such aid to secure an accounting and distribution. The mere general creditor does not usually need such aid, as he may reach the assets through ordinary legal process. But at times a creditor who has exhausted his legal remedies may have recourse to equitable ones, like a creditor's bill, for example. Moreover, in many states, there are statutory proceedings, such as state insolvency proceedings for example, by means of which he may bring the assets under judicial control; and, during the exist- ence of a national bankruptcy law, he may have the remedies which such a statute provides. The consideration of the appli- cation of these remedies, however, is not within the scope of the present work. 468. Partnership debts to be first paid. It follows from what has been said as to the application of the firm assets 8 that the partnership debts are to be paid first, and that claims of the individual partners against the firm or each other cannot compete with the claims of the firm creditors. It is thus said to be a general rule that by no form of claim can one partner compete with the firm creditors in the distribution of the firm assets ; 9 but this is a question which has been considered in the preceding chapter. 469. Manner of accounting. Mr. Justice Lindley lays down the following rules, 10 which have been generally adopted, as to the manner of accounting: "In adjusting the accounts of 8 See ante, 449. The partners may, of course, by 9 See Edison Illuminating Co. v. agreement vary these rules so far DeMott (1893), 51 N. J. Eq. 16, 25 as they affect themselves alone: Atl. 952; Ex parte Blythe (1881), Groth v. Kersting (1896), 23 Colo. 16 Ch. Div. 620. 213, 47 Pac. 393, Burd. Gas. 563, 102 Lindley on Partnership, 402 Gilm. Gas. 484; Huger v. Cunning- (Ewell's 2d Am. ed.). See, also, ham (1906), 126 Ga. 684, 56 S. E. Molineaux v. Eaynolds (1896), 54 64. N. J. Eq. 559, 35 AtL 536, Burd. Gas. 169. 405 470] LAW OP PARTNERSHIP partners, losses ought to be paid first out of assets excluding capital, next out of capital, and lastly by having recourse to the partners individually; and the assets of the partnership should be applied as follows: "1. In paying the debts and liabilities of the firm to non- partners. "2. In paying to each partner ratably what is due from the firm to him for advances as distinguished from capital. 11 "3. In paying to each partner ratably what is due from the firm to him in respect of capital. "4. The ultimate residue, if any, will then be divisible as profit between the partners in equal shares, unless the contrary be shown. ' ' 18 470. Same subject "If the assets are not sufficient to pay the debts and liabilities to non-partners," continues Mr. Justice Lindley, "the partners must treat the difference as a loss and make it up by contributions inter se. If the assets are more than sufficient to pay the debts and liabilities of the partnership to non-partners, but are not sufficient to repay the partners their respective advances, the amount of unpaid advances ought, it is conceived, to be treated as a loss to be met like other losses. In such a case the advances ought to be treated as a debt of the firm, but payable to one of the partners instead of to a stranger. If, after paying all the debts and liabilities of the firm and the advances of the partners, there is still a surplus, but not suffi- 11 This must be secured to him be- Folsom v. Marlette (1897), 23 Nev. fore a distribution of capital among 459, 49 Pae. 39, Burd. Gas. 570. the other partners. It is a violation 12 As has been- already seen, ante, of this right to distribute the capi- 145, it is the general rule that, in tal and give him merely a judgment the absence of some agreement to to collect his advances from the the contrary, profits and losses are other partners pro rata. See Leser- to be shared equally among the part- man v. Bernheimer (1889), 113 N. ners, even although their respective Y. 39, 20 N. E. 869, Mechem's Gas. contributions to the capital were un- 1072, Burd. Gas. 565. It will take equal. See Raymond v. Putnam precedence of a mortgage upon one (1862), 44 N. H. 160, Gilm. Gas. partner's interest: Warren v. Tay- 490. See, also, McMurtrie v. Guiler lor (1877), 60 Ala. 218, Mechem's (1903), 183 Mass. 451, 67 N. E. 358, Cas. 1081, Burd. Gas. 580. See, also, Gilm. Gas. 74. 40G FINAL ACCOUNTING [471,472 cient to pay each partner his capital, the balances of capitals remaining unpaid must be treated as so many losses, to be met like other losses. ' ' 471. Uniform Partnership Act. The Uniform Part- nership Act contains detailed provisions upon this subject, which are in substantial conformity with those mentioned in the pre- ceding section as to the order of application. It also contains other provisions which need not be repeated here. (Section 40.) The complete text is given in the Appendix. 472. Same subject Loss of capital, how borne. "In the absence of controlling agreement," said the court in .a leading case, 13 "partners must bear the losses in the same proportion as the profits of the partnership, even if one contributes the whole capital and the other nothing but his labor or services. Whether a loss of capital is a partnership loss, to be borne by all the partners, depends upon the nature and extent of the contract of partnership. "If, as is not infrequently the case in a partnership for a single adventure, the mere use of the capital is contributed by one partner, and the partnership is in the profits and losses only, the capital remains the property of the individual partner to whom it originally belonged, any loss or destruction of it falls upon him as the owner, and, as it never becomes the prop- erty of the partnership, the partnership owes him nothing in consideration thereof. 14 ISWhiteomb v. Converse (1875), Cameron v. Watson (1858), 10 Rich. 119 Mass. 38, 20 Am. Eep. 311, (S. Car.) Eq. 64, 103; Baker v. Mechem's Gas. 692, Burd. Gas. 575, Safe Deposit Co. (1900), 90 Md. Gilm. Gas. 488. See, also, Taf t 744, 45 Atl. 1028, 78 Am. St. E. 463 ; v. Schwamb (1875), 80 111. 289, Manley v. Taylor (1884), 50 N. Y. Burd. Gas. 577. Compare Magilton Super. 26; Hasbrouck v. Childs v. Stevenson (1896), 173 Pa. 560, (1858), 16 N. Y. Super. (3 Bosw.) 34 Atl. 235, Burd. Gas. 573. 105; Everly v. Durborrow (1871), 14 [For a later case holding the 8 Phila. 93, [but compare Emerick particular partnership to be on this v. Moir (1889), 124 Pa. 498, 17 Atl. basis, see Meadows v*. Mocquot 1] ; Stumph v. Bauer (1881), 73 (1901), 110 Ey. 220, 61 S. W. 28, lud. 157, Gilm. Gas. 175. 22 Ky. Law E. 1646.V See, also, 407 473] LAW OP PARTNERSHIP "But where, as is usual in an ordinary mercantile partner- ship, a partnership is created not merely in profits and losses, but in the property itself, the property is transferred from the original owners to the partnership and becomes the joint prop- erty of the latter ; a corresponding obligation arises on the part of the partnership to pay the value thereof to the individuals ^who originally contributed it; such payment cannot, indeed, be demanded during the continuance of the partnership, nor are the contributors, in the absence of agreement or usage, entitled to interest; but, if the assets of the partnership upon a final settlement are insufficient to satisfy this obligation, all the part- ners must bear it in the same proportion as other debts of the partnership." 473. Same subject. In accordance with these principles, it has been held that, where one partner contributes experience, skill, or the like, and the other money, the former is not, upon dissolution, entitled to any part of the cash capital, but each takes back, so far as possible, what he put in one his experi- ence, etc., and the other his money. 16 If, however, where one contributes labor and the other money [not merely its use], there is, upon dissolution, a loss of capital, it has been held that the one who contributed labor only must aid in making good the loss of the other who contributed money, 16 though there are cases which hold the contrary. 17 In making contribution at law, the loss is divided equally among the whole number, without regard to their solvency or insolvency ; but in equity the loss is made to rest upon the solvent partners alone. 18 The Uniform Partnership Act adopts the equity rule. 19 15 Shea v. Donahue (1885), 15 17 See Baker v. Safe Deposit Co., Lea (Term.), 160, 54 Am. Bep. 407, supra; Meadows v. Mocquot, supra; Mechem's Cas. 695, Gilm. Cas. 168; and other cases cited in preceding Conroy v. Campbell (1879), 13 section. Jones & Sp. (N. Y.) 326. ISWhitcomb v. Converse, supra; ISWhitcomb v. Converse, supra; 1 Lindley on Partnership (Ewell's Hayes v. Hayes (1889), 66 N. H. 2d Am. ed.), 376. 134, 19 Atl. 571. 19 Sec. 40 (d). 408 FINAL ACCOUNTING [474 474. Opening and restating accounts. When once a part- nership account has been settled, it will not be easily disturbed, particularly if much time has elapsed. Still, even after long acquiescence, an account may be reopened and corrected if fraud was practiced in the first accounting; and, within a reasonable time, an account may be reopened for the correction of errors or omissions. The fraud, however, must be clearly stated and proved, and the mistake or omission must be as to some matter not known to the complaining party at the time it was com- mitted. 20 20 See Claflin v. Bennett (1892), 51 Fed. 693; Valentine v. Wysor (1890), 123 Ind. 47, 23 N. E. 1076, 7 L. R. A. 788, Mechem's Gas. 500, Merriwether v. Hardeman (1879), 51 Tex. 436; Varner's Appeal (1888), 2 Monaghan (Pa.) 228, 16 Atl. 98; Cobb v. Cole (1890), 44 Minn. 278, 46 N. W. 364; King v. White (1890), 63 Vt. 158, 21 Atl. 535, 25 Am. St. E. 752. A partner who has been defrauded into making a private settlement with his partner may institute a suit for accounting without rescinding the settlement and restoring the fraudulent partner to statu quo: Daniel v. Gillespie (1909), 65 W. Va. 366, 64 S. E. 254; Oliver v. House (1906), 125 Ga. 637, 54 S. E. 732. 409 CHAPTER XXII. OF LIMITED PARTNERSHIPS. 475. Of the nature of such part- 479. Who may form them, nerships. 480. For what business. 476. Must be authorized by 481. Conduct of business. statute. 482. Withdrawal of capital. 477. The usual statutory require- 483. Special partner as a creditor. ments. 484. Renewal. 478. Necessity for complying with 485. Dissolution and notice. requirements. 475. Of the nature of such partnerships. Something has been already said in relation to these partnerships, 1 but they require a little fuller consideration. The purpose of such or- ganizations is to permit the formation of partnerships in which some of the partners, who manage the business, shall have the general personal liability of ordinary partners, while other of the partners, who take no part in the management, may con- tribute a given amount of capital and assume no liability beyond the amount so contributed. The former are usually designated as general partners, and the latter as special partners. 476. Must be authorized by statute. Partnerships of this nature can be organized only when permitted by statute, but statutes have been enacted for this purpose in the majority of the states. After many years, England adopted a limited partnership act in 1907. A Uniform Limited Partnership Act has also been prepared by the Commissioners on Uniform State Laws and recommended to the States for enactment. It will be found in the Appendix. It contains many provisions not usually in- cluded in the older acts. The demand for such a statute is felt less in States which 1 Ante, 9, 10. 410 LIMITED PARTNERSHIPS [ 477 have liberal incorporation statutes. In many of the States it is practically as easy to form a corporation in which all of the associates have a limited liability as it is to form a limited part- nership in which only part of the associates would have such an exemption. Only a very general sketch of this form of partnership will here be undertaken. 477. The usual statutory requirements. The statutory pro- visions are not entirely uniform, but they are substantially so. They require usually the execution of a certificate which shall set forth who the partners are, with their residence; who are to be the general partners, and who the special partners; the name under which the partnership is to do business ; the amount of capital actually contributed by the special partners ; the busi- ness to be conducted, and the date at which the partnership is to begin and end. This statement or certificate is to be published for a desig- nated period, and is also to be recorded in some specified public office. The names of all the general partners must usually appear in the firm name (though the statutes are not uniform on this point), but the names of the special partners must not appear. 2 Where the names of all the general partners are required to be in the firm name, there must usually be no such addition as "& Co.," indicating that there are other general partners. They are sometimes required to add the word "limited" to the firm name. The contribution of the special partners is usually required to be in cash, and when this is the requirement the courts have been very strict in refusing to recognize anything but cash as sufficient, 3 though a more liberal interpretation has been made in more recent cases. 4 2 See as to this Buck v. Alley 775, Oilm. Gas. 619; In re Allen (1895), 145 N.Y. 488, 40 N. E. 236, (1889), 41 Minn. 430, 43 N. W. Burd. Gas. 624; Groves v. Wilson 382; Durant v. Abendroth (1877), (1897), 168 Mass. 370, 47 N. E. 69 N. Y. 148, 25 Am. Eep. 158, Me- 100, Burd. Gas. 630. chem's Gas. 706. 3 See Lineweaver v. Slagle (1885), 4 The controversy here has been 64 Md. 465, 2 Atl. 693, 54 Am. Eep. chiefly over attempted payment by 411 478] LAW OP PARTNERSHIP In a few States the contribution may be either in cash or other property, but usually at its cash value. As will be observed, the Uniform Limited Partnership Act con- tains a variety of provisions not usually contained in the older acts, but it has not been thought necessary here to point out the:; : changes. 478. Necessity for complying with requirements. Inas- much as the effect of such organizations is to restrict the ordi- nary liabilities of certain of the partners, it is held that there must be at least a substantially full and exact compliance with the statutory requirements. 6 And since it is only by force of the statute that the limited liability is secured, it follows that a failure to comply with the statutory requirements will render the special partners liable to third persons like general partners. 6 As is said in one case, 7 checks: See Manhattan Co. v. Laim- beer (1888), 108 N. Y. 578, 15 N. E. 712, Gilm. Gas. 615; Chick v. Robinson (1899), 37 C. C. A. 205, 95 Fed. 619, Mechem's Gas. 699; White v. Eiseman (1892), 134 N. Y. 101, 31 N. E. 276, 52 L. R. A. 833, Mechem's Gas. 1099, Burd. Gas. 640. 6 See Selden v. Hall (1886), 21 Mo. App. 452; White v. Eiseman (1892), 134 N. Y. 101, 31 N. E. 276, 52 L. R. A. 833, Mechem 's Gas. 1099, Burd. Gas. 640; Lineweaver v. Slagle (1885), 64 Md. 465, 54 Am. Rep. 775, 2 Atl. 693, Gilm. Gas. 619; Haddock v. Grinnell Mfg. Co. (1885), 109 Pa. 372, 1 Atl. 174; Crouch v. First Nat. Bank (1895), 156 111. 342, 40 N. E. 974. 6 See Sheble v. Strong (1889), 128 Pa. 315, 18 Atl. 397; Vanhorn v. Corcoran (1889), 127 Pa. 255, 4 L. R. A. 386, 18 Atl. 16; Manhattan Co. v. Laimbeer (1888), 108 N. Y. 578, 15 N. E. 712, Gilm. Gas. 615; Briar Hill C. & I. Co. v. Atlas Works (1891), 146 Pa. 290, 23 Atl. 326; Metropolitan Nat. Bank v. Sirret (1884), 97 N. Y. 320, 15 Abb. N. C. 318, Burd. Gas. 633; First Nat. Bank v. Creveling (1896), 177 Pa. 270, 35 Atl. 595, Burd. Gas. 638; Myers v. Electric Co. (1896), 59 N. J. L. 153, 35 Atl. 1069, Burd. Gas. 644. 7Blumenthal v. Whitaker (1895), 170 Pa. 309, 33 Atl. 103. The statutes themselves often provide that a false statement in the cer- tificate shall defeat the limited lia- bility. Sheble v. Strong, supra; Dur- ant v. Abendroth (1877), 69 N. Y. 148, 25 Am. R. 158, Mechem's Gas. 706. But the failure of the record- ing officer to properly record will not usually defeat it (Manhattan Co. v. Laimbeer, supra), unless the party was himself in fault. Henkel v. Heyman (1878), 91 111. 96, Me- chem's Cas. 709. A special partner who by reason of failure to comply with the statute becomes liable like 412 LIMITED PARTNERSHIPS [ 479-481 "prima facie, a firm transacting business is a general partner- ship. * * * A limited partnership that has not complied with the law of its creation is not a limited partnership at all. It is, however, a partnership in which all the members are liable as at common law." 479. Who may form them. Competency to become a mem- ber of a limited partnership is, in general, the same as in the case of an ordinary partnership. Thus, unless the statute other- wise provides, 8 infants and married women are competent to the same extent as they have been seen to be in such partner- ships. 9 As to number, the statutes usually require "one or more" of each class, though a few statutes require two or more general partners at least, or two or more of each class. 480. For what business authorized. In many of the states no restrictions are placed upon the kind of business that may be carried on by a limited partnership ; in others certain kinds of business, usually insurance and banking, are excepted. 481. Conduct of business. The general partners alone rep- resent the firm and carry on its business. If the special partner takes part in its management, or if his name is used with his consent, he ordinarily loses irretrievably his limited liability and becomes liable as a general partner. 10 Contracts must there- fore be made by and in the name of the general partners, and suits must be brought by and against them. 11 a general partner, is, nevertheless, 32 N. E. 1066, Burd. Gas. 619 held not to thereby become a general (infant) ; Benard v. Packard partner in fact, so that he would be (1894), 12 C. C. A. 123, 64 Fed. 309, liable like one if he withdrew with- Burd. Cas. 623. out giving notice. Tilge v. Brooks 10 See Buck v. Alley (1895), 145 (1889), 124 Pa. 178, 16 Atl. 746, 2 N. Y. 488, 40 N. E. 236, Burd. Cas. L. B. A. 796, Gilm. Cas. 627. Contra: 624; (Groves v. Wilson (1897), 168 Haviland v. Chace (1860), 39 Barb. Mass. 370, 47 N. E. 100, Burd. Cas. (N. Y.) 283. 630; Farnsworth v. Boardman 8 Some statutes require all the (1881), 131 Mass. 115; Strang v. parties to be "of full age". Thomas (1902), 114 Wis. 599, 91 9 See Continental Nat. Bank v. N. W. 237. Strauss (1893), 137 N. Y. 148, 553, 11 See Columbia Land and Cattle 413 482-485] LAW OP PARTNERSHIP 482. Withdrawal of capital. The withdrawal of his cap- ital by the limited partner before the satisfaction of all of the demands against the partnership is forbidden by the statutes, under penalties which range from a liability to restore it to the incurring of the liability of a general partner. 483. Special partner as a creditor. Many of the statutes contain provisions that no special partner shall be paid as a creditor until all the other creditors of the firm are satisfied. Whether this prohibition refers to a claim for the restoration of his capital merely, or extends to later loans, etc., made to the firm, is in dispute. 12 484. Renewal. The statutes commonly provide for renew- ing the partnership at the expiration of the original term, and this may be done usually by making a renewal of the certificate, publication and record. Whether upon such renewal it must be the fact that the capital originally contributed is still intact and unimpaired (under the penalty, if it is not, of charging the special partners like general partners), is the subject of a sharp conflict in the cases, which does not seem to be referable merely to differences in phraseology. 13 485. Dissolution and notice. If not renewed, the limited partnership comes to an end as a limited partnership at the Co. v. Daly (1891), 46 Kan. 504, 26 (1885), 109 Pa. 372, 1 Atl. 174; Pac. 1042, Oilm. Gas. 625; Sharp v. Fourth St. Nat. Bank v. Whitaker Hutchinson (1885), 100 N. Y. 533, (1895), 170 Pa. 297, 33 AtL 100, 3 N. E. 500, Meehem's Cas. 718; Burd. Gas. 655. Under the statute Jaffe v. Krum (1885), 88 Mo. 669, as amended: Durgin v. Colburn Meehem's Cas. 716, Gilm. Cas. 626. (1900), 176 Mass. 110, 57 N. E. 213, 12 That it applies to all claims, Mechem 's Cas. 713. That the re- see Jaffe v. Krum (1886), 88 Mo. newal refers merely to the fact of 669, Meehem's Cas. 716, Gilm. Cas. original contribution, see Fifth Ave. 626; Dunning's Appeal (1863), 44 Bank v. Colgate (1890), 120 N. Y. Pa. 150. Contra: Clapp v. Laeey 381, 24 N. E. 799, 8 L. E. A. 712, (1868), 35 Conn. 463, Burd. Cas. 4 Silvernail Ct. App. 544; Hogan v. 611. Hadzsits (1897), 113 Mich. 568, 71 13 That it must be unimpaired, see N. W. 1092, Burd. Cas. 600. Haddock v. Grinnell Mfg. Co. 414 LIMITED PARTNERSHIPS [ 485 time designated, and if continued afterward it will be as a gen- eral partnership. It may also be terminated before that time by operation of law or the act of the partners, like general part- nerships. 14 Where it is so terminated before the time limited has expired, and no statutory provision for notice is made, notice must usually be given in the same cases and manner as upon the dissolution of a general partnership ; though where it is terminated by the act of the partner before the expiration of the stipulated term, the statutes usually require that notice shall be published and recorded like the orginal certificate. "Where it comes to an end by expiration of the time fixed, no notice is necessary, as the published and recorded certificate gives notice to all the world. 14 See the discussion in Ames v. 61 0, wherein it is held that the death Downing (1850), 1 Bradf. Sur. (N. of the limited partner dissolves the Y.) 321, Burd. Gas. 606, Gilm. Gas. partnership. 415 APPENDIX A UNIFORM PARTNERSHIP ACT PART I. PRELIMINARY PROVISIONS. SECTION 1. [Name of Act.] This act may be cited as Uniform Part- nership Act. SEC. 2. [Definition of Terms.] In this act, "Court" includes every court and judge having jurisdiction in the case. "Business" includes every trade, occupation, or profession. "Person" includes individuals, partnerships, corporations, and other associations. "Bankrupt" includes bankrupt under the Federal Bankruptcy Act or insolvent under any state insolvent act. "Conveyance" includes every assignment, lease, mortgage, or encum- brance. "Real property" includes land and any interest or estate in land. SEO. 3. [Interpretation of Knowledge and Notice.] (1) A person has "knowledge" of a fact within the meaning of this act not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances shows bad faith. (2) A person has "notice" of a fact within the meaning of this act when the person who claims the benefit of the notice (a) States the fact to such person, or (6) Delivers through the mail, or by other means of communication, a written statement of the fact to such person or to a proper person at his place of business or residence. SEC. 4. [Rules of Construction.] (1) The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this act. (2) The law of estoppel shall apply under this act. (3) The law of agency shall apply under this act. (4) This act shall be so interpreted and construed as to effect its gen- eral purpose to make uniform the law of those states which enact it. (5) This act shall not be construed so as to impair the obligations of Mech. Part. 27 417 APPENDIX A any contract existing when the act goes into "effect, nor to affect any action or proceedings begun or right accrued before this act takea effect. SEC. 5. [Bules for Cases not Provided for in this Act.] In any case not provided for in this act the rules of law and equity, including the law merchant, shall govern. PAET II. NATUEE OF A PAETNERSHIP. SEC. 6. [Partnership Defined.] (1) A partnership is an association of two or more persons to carry on as co-owners a business for profit. (2) But any association formed under any other statute of this state, or any statute adopted by authority, other than the authority of this state, is not a partnership under this act, unless such association would have been a partnership in this state prior to the adoption of this act; but this act shall apply to limited partnerships except in so far as the statutes relating to such partnerships are inconsistent herewith. SEC. 7. [Eules for Determining the Existence of a Partnership.] In determining whether a partnership exists, these rules shall apply: (1) Except as provided by section 16 persons who are not partners as to each other are not partners as to third persons. (2) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property. (3) The sharing of gross returns does not of itself establish a partner- ship, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business ; but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise, (6) As wages of an employee or rent to a landlord, (c) As an annuity to a widow or representative of a deceased partner, (d) As interest on a loan, though the amount of payment vary with the profits of the business, (e) As the consideration for the sale of the good-will of a business or other property by installments or other-wise. SEC. 8. [Partnership Property.] (1) All property originally brought into the partnership stock or subsequently acquired by purchase or other- wise, on account of the partnership is partnership property. (2) Unless the contrary intention appears, property acquired with partnership funds is partnership property. (3) Any estate in real property may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. 418 UNIFORM PARTNERSHIP ACT (4) A conveyance to a partnership in the partnership name, though without words of inheritance, passes the entire estate of the grantor unless a contrary intent appears. PART III. EELATIONS OF PARTNERS TO PERSONS DEALING WITH THE PARTNERSHIP. SEC. 9. [Partner Agent of Partnership as to Partnership Business.] (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. (2) An act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. (3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: (a) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership. (6) Dispose of the good-will of the business, (c) Do any other act which would make it impossible to carry on the ordinary business of a partnership, (d) Confess a judgment, (e) Submit a partnership claim or liability to arbitration or refer- ence. (4) No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. SEO. 10. [Conveyance of Real Property of the Partnership.] (1) Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of paragraph (1) of section 9, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority. (2) Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of section 9. (3) Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the 419 APPENDIX A partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of para- graph (1) of section 9, unless the purchaser or his assignee, is a holder for value, without knowledge. (4) Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a con- veyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of para- graph (1) SI section 9. (5) Where the title to real property is in the names of all the part- ners a conveyance executed by all the partners passes all their rights in such property. SEC. 11. [Partnership Bound by Admission of Partner.] An admis- sion or representation made by any partner concerning partnership af- fairs within the scope of his authority as conferred by this act is evidence against the partnership. SEC. 12. [Partnership Charged with Knowledge of or Notice to Part- ner.] Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, ac- quired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partner- ship, except in the case of a fraud on the partnership committed by or with the consent of that partner. SEO. 13. [Partnership Bound by Partner's Wrongful Act.] Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership, or with the authority of his co- partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable there- for to the same extent as the partner so acting or omitting to act. SEC. 14. [Partnership Bound by Partner's Breach of Trust.] The partnership is bound to make good the loss: (a) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (&) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. SEC. 15. [Nature of Partner's Liability.] All partners are liable (a) Jointly and severally for everything chargeable to the partner- nership under sections 13 and 14. (6) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract. 420 UNIFORM PARTNERSHIP ACT SEO. 16. [Partner by Estoppel.] (1) When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representa- tion or consenting to its being made. (a) When a partnership liability results, he is liable as though he were an actual member of the partnership. (6) When no partnership liability results, he is liable jointly with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. (2) When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. Where all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. SEC. 17. [Liability of Incoming Partner.] A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property. PART IV. EELATIONS OF PARTNERS TO ONE ANOTHER. SEO. 18. [Rules Determining Rights and Duties of Partners.] The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules: (a) Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits. (6) The partnership must indemnify every partner in respect of pay- ments made and personal liabilities reasonably incurred by him in the 421 APPENDIX A ordinary and proper conduct of its business, or for the preservation of its business or property. (c) A partner, who in aid of the partnership makes any payment or advance beyond the amount of capital which he agreed to contribute, shall be paid interest from the date of the payment or advance. (d) A partner shall receive interest on the capital contributed by him only from the date when repayment should be made. (e) All partners have equal rights in the management and conduct of the partnership business. (/) No partner is entitled to remuneration for acting in the partner- ship business, except that a surviving partner is entitled to reasonable compensation for his services in winding up the partnership affairs. (<7) No person can become a member of a partnership without the consent of all the partners. (h) Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners; but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners. SEC. 19. [Partnership Books.] The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at all times have access to and may inspect and copy any of them. SEC. 20. [Duty of Partners to Render Information.] Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability. SEC. 21. [Partner Accountable as a Fiduciary.] Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. (2) This section applies also to the representatives of a deceased part- ner engaged in the liquidation of the affairs of the partnership as the personal representatives of the last surviving partner. SEC. 22. [Eight to an Account.] Any partner shall have the right to a formal account as to partnership affairs: (a) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners, (6) If the right exists under the terms of any agreement, (c) As provided by section 21, (d) Whenever other circumstances render it just and reasonable. SEC. 23. {Continuation of Partnership Beyond Fixed Term.] (1) When a partnership for a fixed term or particular undertaking is con- tinued after the termination of such term or particular undertaking with- out any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. 422 UNIFORM PARTNERSHIP ACT. (2) A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a con- tinuation of the partnership. PART V. PROPERTY RIGHTS OF A PARTNER. SEC. 24. [Extent of Property Rights of a Partner.] The property rights of a partner are (1) his rights in specific partnership property, (2) his interest in the partnership, and (3) his right to participate in the management. SEC. 25. [Nature of a Partner's Right in Specific Partnership Prop- erty.] (1) A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership. (2) The incidents of this tenancy are such that: (a) A partner, subject to the provisions of this act and to any agree- ment between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners. (6) A partner's right in specific partnership property is not assign- able except in connection with the assignment of the rights of all the partners in the same property. (c) A "partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the part- ners, or any of them, or the representatives of a deceased partner, can- not claim any right under the homestead or exemption laws. (d) On the death of a partner his right in specific partnership prop- erty vests in the surviving partner or partners, except where the deceased was the last surviving partner, when his right in such property vests in his legal representative. Such surviving partner or partners, or the legal representative of the last surviving partner, has no right to possess the partnership property for any but a partnership purpose. (e) A partner's right in specific partnership property is not subject to dower, curtesy, or allowances to widows, heirs, or next of kin. SEC. 26. [Nature of Partner's Interest in the Partnership.] A part- ner 's interest in the partnership is his share of the profits and surplus, and the same is personal property. SEC. 27. [Assignment of Partner's Interest.] (1) A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agree- ment, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business 423 APPENDIX A er affairs, or to require any information or account of partnership transac- tions, or to inspect the partnership books; but it merely entitles the as- signee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. (2) In case of a dissolution of the partnership, the assignee is en- titled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. SEC. 28. [Partner's Interest Subject to Charging Order.] (1) On due application to a competent court by any judgment creditor of a part- ner, the court which entered the judgment, order, or decree, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint- a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, 'and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require. (2) The interest charged may be redeemed at any time before fore- closure, or in case of a sale being directed 'by the court may be purchased without thereby causing a dissolution: (a) With separate property, by any one or more of the partners, or (&) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. (3) Nothing in this act shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partner- ship. PAET VI. DISSOLUTION AND WINDING UP. SEC. 29. [Dissolution Defined.] The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. SEC. 30. [Partnership Not Terminated by Dissolution.] On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. SEC. 31. [Causes of Dissolution.] Dissolution is caused: (1) Without violation of the agreement between the partners, (a) By the termination of the definite term or particular undertaking specified in the agreement, (6) By the express will of any partner when no definite term or par- ticular undertaking is specified, (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular under- taking, 424 UNIFORM PARTNERSHIP ACT (d) By the expulsion of any partner from the business bona fidf in accordance with such a power conferred by the agreement between the partners; (2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this section, by the express will of any partner at any time; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partner- ship; (4) By the death of any partner; (5) By the bankruptcy of any partner or the partnership; (6) By decree of court under section 32. SEC. 32. [Dissolution by Decree of Court.] (1) On application by or for a partner the court shall decree a dissolution whenever: (a) A partner has been declared a lunatic in any judicial proceeding or is shown to be of unsound mind, (6) A partner becomes in any other way incapable of performing his part of the partnership contract, (c) A partner has been guilty of such conduct as tends to affect prej- udicially the carrying on of the business, (d) A partner willfully or persistently commits a breach of the part- nership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him, (e) The business of the partnership can only be carried on at a loss, (/) Other circumstances render a dissolution equitable. (2) On the application of the purchaser of a partner's interest under sections 28 or 29: (a) After the termination of the specified term or particular under- taking, (b) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. SEC. 33. [General Effect of Dissolution on Authority of Partner.] Ex- cept so far as may be necessary to wind up partnership affairs or to com- plete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership, (1) With respect to the partners, (a) When the dissolution is not by the act, bankruptcy or death of a partner; or (6) When the dissolution is by such act, bankruptcy or death of a partner, in cases where section 34 so requires. (2) With respect to persons not partners, as declared in section 35. SEC. 34. [Bight of Partner to Contribution From Co-partners After Dis- solution.] Where the dissolution is caused by the act, death or bankruptcy of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partner- ship had not been dissolved unless 425 APPENDIX A (a) The dissolution being by act of any partner, the partner acting tor the partnership had knowledge of the dissolution, or (&) The dissolution being by the death or bankruptcy of a partner, the partner acting for the partnership had knowledge or notice of the death or bankruptcy. SEC. 35. [Power of Partner to Bind Partnership to Third Persons After Dissolution.] (1) After dissolution a partner ean bind the partnership except as provided in Paragraph (3) (a) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; (&) By any transaction which would bind the partnership if dissolu- tion had not taken place, provided the other party to the transaction (I) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (II) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a news- paper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on. (2) The liability of a partner under Paragraph (1Z>) shall be satisfied o'ut of partnership assets alone when such partner had been prior to dis- solution (a) Unknown as a partner to the person with whom the contract is made; and (&) So far unknown and inactive in partnership affairs that the busi- ness reputation of the partnership could not be said to have been in any degree due to his connection with it. (3) The partnership is in no case bound by any act of a partner after dissolution (a) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or (ft) Where the partner has become bankrupt; or (c) Where the partner has no authority to wind np partnership af- fairs; except by a transaction with one who (I) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (II) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in Paragraph (1611). (4) Nothing in this section shall affect the liability under Section 16 of any person who after dissolution represents himself or consents to an- other representing him as a partner in a partnership engaged in carrying on business. SEC. 36. [Effect of Dissolution on Partner's Existing Liability.] (1) 425 The dissolution of the partnership does not of itself discharge the existing liability of any partner. (2) A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partner- ship continuing the business. (3) Where a person agrees to assume the existing obligations of a dis- solved partnership, the partners whose obligations have been assumed shall be discharged from any liability to any creditor of the partnership who, knowing of the agreement, consents to a material alteration in the nature or time of payment of such obligations. (4) The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner but sub- ject to the prior payment of his separate debts. SEC. 37. [Eight to Wind Up.] Unless otherwise agreed the partners who have not wrongfully dissolved the partnership or the legal representa- tive of the last surviving partner, not bankrupt, has the right to wind up the partnership affairs; provided, however, that any partner, his legal represen- tative or his assignee, upon cause shown, may obtain winding up by the court. SEC. 38. [Eights of Partners to Application of Partnership Property.] (1) When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all per- sons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to dis- charge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under section 36 (2), he shall receive in cash only the net amount due him from the partnership. (2) When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: (a) Each partner who has not caused dissolution wrongfully shall have, I. All the rights specified in paragraph (1) of this section, and II. The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. (&) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name, either by them- selves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages re- 427 APPENDIX A coverable under clause (2aII) of this section, and in like manner in- demnify him against all present or future partnership liabilities. (c) A partner who has caused the dissolution wrongfully shall have: I. If the business is not continued under the provisions of para- graph (2Z>) all the rights of a partner under paragraph (1), subject to clause (2aII), of this section, II. If the business is continued under paragraph (26) of this sec- tion -the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damages caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by bond approved by the court, and to be released from all exist- ing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. SEC. '39. [Eights Where Partnership is Dissolved for Fraud or Mis- representation.] Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled, (a) To a lien on, or right of retention of, the surplus of the part- nership property after satisfying the partnership liabilities to third per- sons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; and (6) To stand, after all liabilities to third persons have been satis- fied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and (c) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. SEO. 40. [Eules for Distribution.] In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (a) The assets of the partnership are; I. The partnership property, II. The contributions of the partners necessary for the payment of all the liabilities specified in clause (&) of this paragraph. (&) The liabilities of the partnership shall rank in order of payment, as follows: I. Those owing to creditors other than partners, II. Those owing to partners other than for capital and profits, III. Those owing to partners in respect of capital, IV. Those owing to partners in respect of profits. (c) The assets shall be applied in the order of their declaration in clause (a) of this paragraph to the satisfaction of the liabilities. (d) The partners shall contribute, as provided by section 18 (a) the amount necessary to satisfy the liabilities; but if any, but not all, of the partners are insolvent, or, not being subject to process, refuse to 428 UNIFORM PARTNERSHIP ACT contribute, the other partners shall contribute their share of the liabili- ties, and, in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities. (e) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in clause (d) of this paragraph. (/) Any partner or his legal representative shall have the right to enforce the contributions specified in clause (d) of this paragraph, to the extent of the amount which he has paid in excess of his share of the liability. (<7) The individual property of a deceased partner shall be liable for the contributions specified in clause (d) of this paragraph. (h) When partnership property and the individual properties of the partners are in the possession of a court for distribution, partnership creditors shall have priority on partnership property and separate credi- tors on individual property, saving the rights of lien or secured creditors as heretofore. (i) Where a partner has become bankrupt or his estate is insolvent the claims against his separate property shall rank in the following order: I. Those owing to separate creditors, II. Those owing to partnership creditors, III. Those owing to partners by way of contribution. SEC. 41. [Liability of Persons Continuing the Business in Certain Cases.] (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the de- ceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third per- sons, if the business is continued without liquidation of the partnership affairs, creditors of the first or dissolved partnership are also creditors of the partnership so continuing the business. (2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of part- nership affairs, either alone or with others, creditors of the dissolved part- nership are also creditors of the person or partnership so continuing the business. (3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in paragraphs (1) and (2) of this section, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partner- ship property, rights of creditors of the dissolved partnership and of the creditors of the person or partnership continuing the business shall be as if such assignment had been made. (4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership, creditors 429 APPENDIX A of the dissolved partnership are also creditors of the person or partnership continuing the business. (5) When any partner wrongfully causes a dissolution and the remain- ing partners continue the business under the provisions of section 38 (2&), either alone or with others, and without liquidation of the partnership af- fairs, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business. (6) When a partner is expelled and the remaining partners continue the business either alone or with others, without liquidation of the part- nership affairs, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business. (7) The liability of a third person becoming a partner in the partner- ship continuing the business, under this section, to the creditors of the dis- solved partnership shall be satisfied out of partnership property only. (8) When the business of a partnership after dissolution is continued under any conditions set forth in this section the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on ac- count of the retired or deceased partner's interest in the dissolved part- nership or on account of any consideration promised for such interest or for hia right in partnership property. (9) Nothing in this section shall be held to modify any right of credi- tors to set aside any assignment on the ground of fraud. (10) The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. SEC. 42. [Eights of Eetiring or Estate of Deceased Partner When the Business is Continued.] When any partner retires or dies, and the busi- ness is continued under any of the conditions set forth in section 41 (1, 2, 3, 5, 6), or section 38 (2&), without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such per- sons or partnership may have the value of his interest at the date of dis- solution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with inter- est, or, at his option or at the option of his legal representative, in lieu- of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this section, as provided by section 41 (8J of this act. Szo. 43. [Accrual of Actions.] The right to an account of his interest shall accrue to any partner, or his legal representative, as against the wind- ing up partners or the surviving partners or the person or partnership con- 430 UNIFORM PARTNERSHIP ACT tinuing the business, at the date of dissolution in the absence of any agree- ment to the contrary. PAET VII. MISCELLANEOUS PKOVISIONS. SEC. 44. [When Act Takes Effect.] This act shall take effect on the day of one thousand nine hundred and SEC. 45. [Legislation Kepealed.] All acts or parts of acts inconsistent with this act are hereby repealed. 431 UNIFORM LIMITED PARTNERSHIP ACT SECTION 1. [Limited Partnership Defined.] A limited partnership is a partnership formed by two or more persons under the provisions of Section 2, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obliga- tions of the partnership. SEC. 2. [Formation.] (1) Two or more persons desiring to form a limited partnership shall (a) Sign and swear to a certificate, which shall state I. The name of the partnership, II. The character of the business, III. The location of the principal place of business, IV. The name and place of residence of each member; general and limited partners being respectively designated. V. The term for which the partnership is to exist, VI. The amount of cash and a description of and the agreed value of the other property contributed by each limited partner, VII. The additional contributions, if any, agreed to be made by each limited partner and the times at which or events on the happening of which they shall be made, VIII. The time, if agreed upon, when the contribution of each limited partner is to be returned. IX. The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution, X. The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution, XI. The right, if given, of the partners to admit additional limited partners, XII. The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to com- pensation by way of income, and the nature of such priority, XIII. The right, if given, of the remaining general partner or partners to continue the business on the death, retirement or insanity of a general partner, and XIV. The right> if given, of a limited partner to demand and receive property other than cash in return for his contribution. (&) File for record the certificate in the office of [here designate the proper office], 432 UNIFORM LIMITED PARTNERSHIP ACT (2) A. limited partnership is formed if there has been substantial com- pliance in good faith with the requirements of paragraph (1). SEC. 3. [Business Which May Be Carried On.] A limited partner- ship may carry on any business which a partnership without limited part- ners may carry on, except [here designate the business to be prohibited]. SEC. 4. [Character of Limited Partner's Contribution.] The contribu- tions of a limited partner may be cash or other property, but not services. SEC. 5. [A Name Not To Contain Surname of Limited Partner; Ex- ceptions.] (1) The surname of a limited partner shall not appear in the partnership name, unless (a) It is also the surname of a general partner, or (6) Prior to the time when the limited partner became such the business had been carried on under a name in which his surname ap- peared. (2) A limited partner whose name appears in a partnership name contrary to the provisions of paragraph (1) is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner. SEC. 6. [Liability for False Statements in Certificate.] If the cer- tificate contains a false statement, one who suffers loss by reliance on sucti 1 statement may hold liable any party to the certificate who knew the state- ment to be false. (a) At the ' time he signed the certificate, or (6) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in Section 25 (3). SEC. 7. [Limited Partner Not Liable to Creditors.] A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. , SEC. 8. [Admission of Additional Limited Partners.] After the form- ation of a limited partnership, additional limited partners may be ad- mitted upon filing an amendment to the original certificate in accordance with the requirements of Section 25. SEC. 9. [Eights, Powers and Liabilities of a General Partner.] (1) A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners, except that without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to (a) Do any act in contravention of the certificate, (&) Do any act which would make it impossible to carry on the ordinary business of the partnership, (c) Confess a judgment against the partnership, (d) Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose, Mech. Part. 28 433 APPENDIX A (e) Admit a person as a general partner, (/) Admit a person as a limited partner, unless the right so to de is given in the certificate, (g) Continue the business with partnership property on the death, retirement or insanity of a general partner, unless the right so to do is given in the certificate. SEC. 10. [Eights of a Limited Partner.] (1) A limited partner shall have the same rights as a general partner to (a) Have the partnership books kept at the principal place of busi- ness of the partnership, and at all times to inspect and copy any of them, (6) Have on demand true and full information of all things af- fecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable, and (0) Have dissolution and winding up by decree of court. (2) A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Sections 15 and 16. SEC. 11. [Status of Person Erroneously Believing Himself a Limited Partner.] A person who has contributed to the capital of a business con- ducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership; provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income. SEC. 12. [One Person both General and Limited Partner.] (1) A per- son may be a general partner and a limited partner in the same partnership at the same time. (2) A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribu- tion, he shall have the rights against the other members which he would have had if he were not also a general partner. - SEC. 13. [Loans and Other Business Transactions with Limited Part- ner.! (1) A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, re- ceive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim (a) Receive or hold as collateral security any partnership property, or (ft) Receive from a general partner or the partnership any payment, conveyance, or release from liability, if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to per- sons not claiming as general or limited'partners, 434 ' . - UNIFORM LIMITED PARTNERSHIP ACT (2) The receiving of collateral security, or a payment, conveyance, or release in violation of the provisions of paragraph (1) is a fraud on the creditors of the partnership. SEC. 14. [Belation of Limited Partners Inter 8e.] Where there ar several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of in- come, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing. SEO. 15. [Compensation of Limited Partner.] A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided, that after such payment is made, whether from the property of the partnership or that of a general partner, the partnership assets -are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners. SEC. 16. [Withdrawal or Eeduction of Limited Partner's Contribu- tion.] (1) A limited partner shall not receive from a general partner or out of partnership property any part of his contribution until (a) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them, (b) The consent of all members is had, unless the return of the" contribution may be rightfully demanded under the provisions of para- graph (2), and (c) The certificate is cancelled or so amended as to set forth the withdrawal or reduction. (2) Subject to the provisions of paragraph (1) a limited partner may rightfully demand the return of his contribution (a) On the dissolution of a partnership, or (&) When the date specified in the certificate for its return has arrived, or (c) After he has given six months' notice in writing to all other members, if no time is specified in the certificate either for the return of the contribution or for the dissolution of the partnership, (3) In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution. (4) A limited partner may have the partnership dissolved and its affairs wound up when (a) He rightfully but unsuccessfully demands the return o his contribution, or (&) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required 435 APPENDIX A by paragraph (la) and the limited partner would otherwise be entitled to the return of his contribution. SEC. 17. [Liability of Limited Partner to Partnership.] (1) A lim- ited partner is liable to the partnership (a) For the difference between his contribution as actually made and that stated in the certificate as having been made, and (&) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate. (2) A limited partner holds as trustee for the partnership (a) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and (6) Money or other property wrongfully paid or conveyed to him on account of his contribution. (3) . The liabilities of a limited partner as set forth in this section can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partner- ship, who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. (4) When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return. SEO. 18. [Nature of Limited Partner's Interest in Partnership.] A limited partner's interest in the partnership is personal property. SEC. 19. [Assignment of Limited Partner^ Interest.] (1) A limited partner's interest is assignable. (2) A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a part- nership. (3) An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled. . , (4) An assignee shall have the right to become a substituted limited partner if all the members (except the assignor) consent thereto or if the assignor, being thereunto empowered by ' the certificate, gives the assignee that right. (5) An assignee becomes a substituted limited partner when the cer- tificate is appropriately amended in accordance with Section 25. (6) The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those 436 UNIFORM LIMITED PARTNERSHIP ACT liabilities of which he was ignorant at the time he became a limited partnwr and which could not be ascertained from the certificate. (7) The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Sections 6 and 17. SEC. 20. [Effect of Eetirement, Death or Insanity of a General Part- ner.] The retirement, death or insanity of a general partner dissolves the partnership, unless the business is continued by the remaining general partners (a) Under a right so to do stated in the certificate, or (6) With the consent of all members. SEC. 21. [Death of Limited Partner.] (1) On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of settling his estate, and such power as the de- ceased had to constitute his assignee a substituted limited partner. (2) The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner. SEC. 22. [Eights of Creditors of Limited Partner.] (1) On due application to a court of competent jurisdiction by any judgment creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of the judgment debt; and may appoint a receiver, and make all other orders, directions, and inquiries which the circumstances of the case may require. (2) The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property. (3) The remedies conferred by paragraph (1) shall not be deemed exclusive of others which may exist. (4) Nothing in this act shall be held to deprive a limited partner of his statutory exemption. SEC. 23. [Distribution of Assets.] (1) In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order: (a) Those to creditors, in the order of priority as provider! by law, except those to limited partners on account of their contributions, and to general partners, (ft) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions, (c) Those to limited partners in respect to the capital of their contributions, (d) Those to general partners other than for capital and profits, (e) Those to general partners in respect to profits, (/) Those to general partners in respect to capital. (2) Subject to any statement in the certificate or to subsequent agree- ment, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for com- pensation by way of income on their contributions respectively, in pro- portion to the respective amounts of such claims. 437 APPENDIX A SEC. 24. [When Certificate Shall be Cancelled or Amended.] (1) The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such. (2) A certificate shall be amended when (a) There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner, (6) A person is substituted as a limited partner, (o) An additional limited partner is admitted, (d) A person is admitted as a general partner, (e) A general partner retires, dies or becomes insane, and the busi- ness is continued under Section 20. (/) There is a change in the character of the business of the part- nership, (g) There is a false or erroneous statement in the certificate, (ft) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution, (t) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or (j) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agree- ment between them. SEC. 25. [Requirements for Amendment and for Cancellation of Cer- tificate.] (1) The writing to amend a certificate shall (a) Conform to the requirements of Section 2 (la) as far as nec- essary to set forth clearly the change in the certificate which it is de- sired to make, and (6) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner. (2) The writing to cancel a certificate shall be signed by all members. (3) A person desiring the cancellation or amendment of a certificate, if any person designated in paragraphs (1) and (2) as a person who must execute the writing refuses to do so, may petition the [here designate the proper court] to direct a cancellation or amendment thereof. (4) If the court finds that the petitioner has a right to have the writ- ing executed by a person who refuses to do so, it shall order the [here designate the responsible official in the office designated in Section 2] in the office where the certificate is recorded to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment. (5) A certificate is amended or cancelled when there is filed for record in the office [here designate the office designated in Section 2] where the certificate is recorded 438 UNIFORM LIMITED PARTNERSHIP ACT (a) A writing in accordance with the provisions of paragraph (1), or (2) or (&) A certified copy of the order of court in accordance with the provisions of paragraph (4). (6) After the certificate is duly amended in accordance with this sec- tion, the amended certificate shall thereafter be for all purposes the cer- tificate provided for by this act. SEC. 26. [Parties to Actions.] A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership. SEC. 27. [Name of Act.] This act may be cited as The Uniform Limited Partnership Act. SEO. 28. [Rules of Construction.] (1) The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this act. (2) This act shall be so interpreted and construed as to effect its general purpose to make uniform the law of those states which enact it. (3) This act shall not be so construed as to impair the obligations of any contract existing when the act goes into effect, nor to affect any action on proceedings begun or right accrued before this act takes effect. SEC. 29. [Eules for Cases not Provided for in this Act.] In any case not provided for in this act the rules of law and equity, including the law merchant, shall govern. 439 UNIFORM FRAUDULENT CONVEYANCE ACT The following provisions apply particularly to Partnerships. SEO. 2. (2) In determining whether a partnership is insolvent, there shall be added to the partnership property the present fair salable value of the separate assets of each general partner in excess of the amount probably sufficient to meet the claims of his separate creditors, and also the amount of any unpaid subscription to the partnership of each limited partner, provided the present fair salable value of the assets of such lim- ited partner is probably sufficient to pay his debts, including such unpaid subscription. SEO. 8. Every conveyance of partnership property, and every partner- ship obligation incurred, when the partnership is, or will be thereby ren- dered insolvent, is fraudulent as to partnership creditors, if the conveyance is made or obligation is incurred (a)- To a partner, whether with or without a promise by him to pay partnership debts, or (b) To a person not a partner without fair consideration to the part- nership as distinguished from consideration to the individual partners. 440 BANKRUPTCY ACT OF 1898 V SEC. 5. PARTNERS. (a) A partnership, during the continuation of the partnership business, or after its dissolution and before the final settlement thereof, may be adjudged a bankrupt. (&) The creditors of the^ partnership shall appoint the trustee; in other respects so far as possible the estate shall be administered as herein provided for other estates. (c) The court of bankruptcy which has jurisdiction of one of the part- ners may have jurisdiction of all the partners and of the administration of the partnership and individual property. (d) The trustee shall keep separate accounts of the partnership property and of the property belonging to the individual partners. (e) The expenses shall be paid from the partnership property and the individual property in such proportions as the court shall determine. (/) The net proceeds of the partnership property shall be appropriated to the payment of the partnership debts, and the net proceeds of the indi- vidual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after paying his individual debts, such surplus shall be added to the partnership assets and be applied to the payment of the partnership debts. Should any sur- plus of the partnership property remain after paying the partnership debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the partnership. (g) The court may permit the proof of the claim of the partnership estate against the individual estates, and vice versa, and may marshal the assets of the partnership estate and individual estates so as to prevent preferences and secure the equitable distribution of the property of the several estates. (h) In the event of one or more but not all of the members of a part- nership being adjudged bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt; but such partner or partners not adjudged bank- rupt shall settle the partnership business as expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt. 441 APPENDIX B PARTNERSHIP FORMS The following simple form may prove suggestive. It is divided into dis- tinct clauses, to a greater extent than might otherwise be thought advisable, in order to give prominence to each. A great variety of special clauses, not here included, are in use in special cases. AETICLES OF PAETNEKSHIP. This agreement, made this first day of January, 1920, between Adam Smith, Edwin Arnold and Eobert Burns, all of the city of Chicago, county of Cook, and state of Illinois, witnesseth: 1. The said parties hereby agree that they will become and be partners in business for the purpose and upon the terms hereinafter stated. 2. The firm name of the partnership shall be Adam Smith & Company. 3. The business to be carried on by said partnership is that of buying and selling dry goods at wholesale and retail, and carrying on a general dry goods business. 4. The place at which the said partnership is to be carried on is the said city of Chicago. 5. The term for which the said partnership is organized is ten years from and after February 1, 1920. 6. The capital of said firm is to be the sum of $150,000, of which each, of the said partners is to contribute one-third part in cash, on or before February 15, 1920, and they are to share in the profits and losses of said business in the same proportion. 7. Each of said partners is to give his undivided time and attention to the said business, and is to use his utmost endeavors to 1 promote the inter- ests of the said firm. 8. Books of account of the transactions of said partnership shall be kept at the place of business, and shall be at all times open to inspection by any partner. Each partner shall cause to be entered upon said books a just and true account of all his dealings, receipts and expenditures for or on account of said firm. 9. In the month of January in each year, a full and complete inven- tory of stock shall be taken, and a complete statement of the condition of said partnership shall be made, and an accounting between the said partners 443 APPENDIX B shall be had, and the profits or losses of the preceding year shall then be divided and paid or contributed. The fiscal year shall begin on February 1. 10. Each of said partners shall be permitted to draw from the funds of said firm the sum of $100 per week for his living expenses. Such sums so drawn shall be charged to him, and at the annual 'accounting shall be charged against his share of the profits. If his share of the profits shall not be equal to the sum so drawn, he shall at once pay the deficiency into the said firm. Such deficiency shall draw interest at six per cent, until paid. 11. Neither of said partners shall, without the consent of the others, compromise or release debts except upon full payment thereof, or engage in any unusual transaction, or make any contract on the partnership account involving more than $1000; or use the firm's name, credit or property for other than partnership purposes; or sign or indorse negotiable paper or become surety for third persons; or engage in any speculation; or know- ingly do any act by which the interests of said partnership shall be im- periled or prejudiced. 12. All questions of difference as to the management of the business shall be decided by a majority of said partners, and no partner shall know- ingly do any act in relation thereto contrary to the decision of the majority. 13. Either of said partners may retire from the said partnership at the expiration of any fiscal year upon giving his said partners three months' notice of his intention so to do. 14. Upon the dissolution of said partnership, by reason of the death, withdrawal or other act of any partner before the expiration of said term, the remaining partners may, if they so desire, continue the business, and they shall have the right to purchase the interest of such partner in the business, assets and good-will, by paying the value of such interest as determined by the last annual inventory and accounting, together with six per cent, interest upon such value since such inventory. Upon such payment the retiring partner or his representatives shall execute and deliver to the remaining members all necessary conveyances of such interest. The continuing members shall assume all of the existing firm obligations, and hold the sellers harmless from all liability thereon. The continuing partners may use the former firm name if it does not contain the name of the retiring partner. 15. Upon the final dissolution of said firm by lapse of time or otherwise, the said business shall be wound up, the debts paid, and the surplus divided between the partners in accordance with their interest therein. In witness whereof, we have hereunto set our hands, the day and year first above written. ADAM SMITH. EDWIN ARNOLD. EGBERT BURNS. 444 PARTNERSHIP FORMS NOTICE OF DISSOLUTION. (To be published and also delivered to all previous creditors.) Notice is hereby given that the copartnership heretofore existing between Adam Smith, Edwin Arnold and Robert Burns, under the firm name of Adam Smith & Company, and doing business at Chicago, Illinois, has been this day dissolved by mutual consent. [If desired, add: Eobert Burns has retired from said firm and business, but the said Adam Smith and Edwin Arnold will continue the business at the same place and under the same firm name.] Dated, Chicago, Illinois, May 1, 1921. ADAM SMITH. EDWIN ARNOLD. EGBERT BURNS. 445 TABLE OF CASES [REFERENCES ARE TO SECTIONS] A. Aas v. Benham, 170, 172. Abb v. Northern Pacific Ry. Co., 312. Abbott v. Omaha Smelting Co., 23. v. Johnson, 281, 384. v. Anderson, 6. Acheson v. Miller, 188. Ackley v. Staehlin, 331. Adam v. Newbigging, 59, 373. Adams, In re, 458. v. Achman, 271. v. Albert, 460. v. Beall, 49. v. Brown, 298. v. Church, 6, 7. v. Hackett, 402. v. Hardware Co., 289. - v. Kuehn, 319. v. Leeds, 262. v. Long, 257. v. Lumber Co., 458. v. Shewalter, 374. Adams Express Co. v. State, 123. African M. E. Church v. New Or- leans, 28. Aigen v. Boston, etc., E. B. Co., 3, 84. Aiken v. Steiner, 316. Alabama Fertilizer Co. v. Reynolds, 259. Albright v. McTighe, 338. Aldrich v. Chemical Nat. Bank, 455. Aldridgc, In re, 178. Alexander v. Alexander, 262, 293. v. Gorman, 455. v. Lewis, 408. v. McPeck, 322. Alkire v. Kahle, 160 Allen, In re, 477. v. Anderson, 194. v. Center Valley Co., 446. v. Chadsey, 271. v. Cheever, 261. v. Danielson, 455. v. Davids, 6. v. Farrington, 260. v. Hawley, 231. v. Logan, 364. v. Maddox, 341. v. Wells, 463. Alley v. Bowen-Merrill Co., 259. Alsop v. Central Trust Co., 265. v. Mather, 407. Altgelt v. Sullivan, 407. American Linen Thread Co. v. Wortendyke, 394. American Loan & Trust Co. v. Min- nesota, 19, 21. Ames v. Ames, 159. v. Downing, 485. Anderson v. Clayton, 279. v. Norton, 444. v. Powell, 45. v. Stayton Bank, 309, 458. Andrews v. Brewing Assoc., 46. - v. Brown, 165, 402. v. Planters Bank, 277. v. Stinson, 403, 407. 447 TABLE OP CASES [BEFEBENCES ABE TO SECTIONS] Anfenson v. Banks, 102, 103. Angler v. Webber, 131. Anthony v. Jeffress, 270. Armstrong v. Am. Exch. Nat. Bk., 46. v. Carr, 443. v. Kleinhaus, 128. Armstrong Co. v. Clarion Co., 188. Arnold v. Angell, 96. v. Brown, 388. v. Hagerman, 186, 444. v. Hart, 394. v. Nichols, 319. Arthur v. Weston, 153. Artman v. Ferguson, 52. Ash v. Guie, 3, 10. Ashurst v. Mason, 188. Askew v. Silman, 391, 392. v. Springer, 179. Atherton v. Whitcomb, 182. Atkins, Ex parte, 451. v. Hunt, 3, 30, 31. Atlas Nat. Bank v. Sarcey, 277. Aubin v. Holt, 225. Aultman v. Fuller, 148. v. Wilson, 316. Austin v. Appling, 393, 397, 398. v. Holland, 391, 398. v. Munro, 407. v. Neil, 96. v. Thomson, 3. Avery v. Myers, 407. v. Rowell, 277. Aylett T. Walker, 196, 220. Ayres v. Gallup, 319. B. Babcock v. Stewart, 318. Backus v. Taylor, 392. Badger v. Daenieke, 327. Baget v. Miller, 402. Bagley v. Smith, 137, 209. Bailey v. Bussing, 188. T. Hemenway, 61. Baird v. Baird, 148. Baker v. Cooper, 232. v. Mayo, 181, 182. v. Nappier, 298. v. Safe Deposit Co., 472, 473. v. Stackpoole, 425. Baldwin v. Leonard, 270. Bancroft v. Haworth, 297. Bank v. Delafield, 201. v. Mason, 242. Bank Commissioners v. Trust Co., 455. Bank of Buffalo v. Thompson, 6, 7. Bank of Montreal v. Page, 347, 350. 425, 426. Bank of New Orleans v. Matthews, 369, 388. Bank of Rochester v. Monteath, 122, 296. Bank of Port Gibson v. Baugh, 402. Bank of Monongahela v. Weston, 277, 393. Banner Tobacco Co. v. Jenison, 246, 247. Bannister v. Miller, 289, 443. Barclay v. Barrie, 171, 365, 376. Barcroft v. Haworth, 122. Bardwell v. Perry, 431, 454. Barkley v. Topp, 364. Barlow v. Parsons, 52. Barnard, In re, 458. Barnard v. Plank-road Co., 246. Barnes v. Boyers, 428. v. Clark, 170. v. Colorado, etc., R. Co., 271. v. Jones, 231. Barnett v. Lambert, 29. Barrett v. McKenzie, 417. Barry v. Briggs, 402. Barry v. Jones, 178. Bartlett v. Boyles, 182. v. Meyer-Schmidt Grocery Co., 444. v. Powell, 251. Barton v. Lovejoy, 403. 448 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Bass v. Emery, 405. Bass Dry Goods Co. v. Granite City Mfg. Co., 404. Bassett v. Miller, 402. v. Pereival, 131. v. Shepardson, 366. Batard v. Hawes, 3, 29. Batchelder & Co. v. Batchelder, 132. Bates v. Babcock, 42, 43, 61, 83. v. Collender, 446. ' v. Coronado Beach Co., 53. v. Lane, 193, 211. Battle v. Davis, 232. Bauer Grocer Co. v. McKee Shoe Co., 402. Baxter v. Hart, 81. v. Eodman, 15. v. Eollins, 235, 240, 278, 295, 296. Bays v. Conner, 257. Beacannon v. Liebe, 196, 219, 220. Beaman v. Whitney, 35, 153. Beard v. Rowland, 98. Beardsley v. Hall, 425. Beauchamp, Ex parte, 7. Beauregard v. Case, 341. Beekham v. Drake, 292. Beckwith v. Mace, 291. Beebe v. Olentine, 61. Beecher v. Bush, 59, 73, 79, 83, 92, 93. Beede v. Fraser, 193, 196, 203, 219. Behrens v. McKenzie, 51. Belcher v. Whittemore, 172. Bell v. Hall, 428. v. Hudson, 227. v. Newman, 454. Belser v. Tuscumbia Banking Co., 52. Belton v. Fisher, 402. Benard v. Packard, 479. Benedetto v. Di Bacco, 175. Benjamen v. McConnell, 311. Benjamin v. Covert, 393, 397, 398. Bennett v. Bennett, 165. Bennett v. Lathrop, 3. v. Stickney, 254, 276. Benninger v. Hess, 250. Bentley v. Harris, 230. v. White, 257. Beresford v. Browning, 411. Bergeron v. Hobbs, 23. v. Eichardott, 168. Berkshire Woolen Co. v. Juillard, 122, 295. Bernheimer v. Becker, 276, 302. v. Eindskopf, 444. Berridge v. Dawson, 322. Berry v. Gillis, 311. Bertenshaw, In re, 6, 414. Bestor v. Barker, 59. Bienenstok v. Ammidown, 271, 304. Bigelow v. Gregory, 23. v. Reynolds, 330. Big Four Implement Co. v. Keyser, 402, 403. Bigwold v. Waterhouse, 270. Bininger v. Clark, 124. Binns v. Waddill, 331. Birchett v. Boiling, 222. Bird v. Bird, 456. v. Wilcox, 42, 61. Bird Co. v. Hurley, 52. Birmingham Loan Co. v. First Nat. Bank, 121. Bisel v. Hobbs, 287. Bishop v. Bishop, 190. Bishop v. Hall, 110, 325. Bitzer v. Shung, 300. Bivingsville Mfg. Co. v. Bobo, 262. Bixler v. Kresge, 49, 460. Blair v. Black, 454. v. Eussell, 301. v. Wood, 411. Blake v. Atlantic Bank, 319. v. Sweeting, 357. Blakely v. Smock, 403, 411. Blaker v. Sands, 274, 357, 359. Blakeslee v. Blakeslee, 161. Blanchard v. Floyd, 155. Mech. Part. 29 449 TABLE OP CASES [REFERENCES ARE TO SECTIONS] Blancharfl v. Pascal, 316. Blinn v. Schwartz, 51. Blissett v. Daniel, 115, 281. Block v. Price, 391. Blodgett v. American Nat. Bk., 272, 403, 408. v. Sleeper, 331. Bloom v. Helm, 277. v. Insurance Agency, 127. v. Lofgren, 170, 229. Bloxham v. Pell, 96. Blue v. Leathers, 15, 83. Blumenfield v. Seward, 148. Blumenthal v. Whitaker, 478. Blythe, Ex parte, 451, 468. Blythe v. Cordingly, 309. Boardman v. Adams, 116, 246, 248. Bodey v. .Cooper, 290. Bogert v. Turner, 232. Bohrer v. Drake, 173, 347. Bolen v. Ligett, 121. Bolton v. Puller, 196. Bond v. Gibson, 259. Bonesteel v. Todd, 294. Bonnafee v. Fenner, 217. Bonneau v. Strauss, 300. Bonwit v. Heyman, 196, 451. Boosalis v. Stevenson, 65. Booske v. Ice Co., 24. Booth v. Jarre% 128. Bopp v. Fox, 31, 159. Boreing v. Wilson, 182. Bosanquet v. Wray, 196, 219. Boston Smelting Co. v. Smith, 64, 77, 98. Boswell v. Green, 274. Boughner v. Black, 215. Bowine, In re, 403. Bourne v. Freeth, 30. Boyee v. De Jong, 328. Bowen v. Clark, 253. v. Eutherford, 65. Bowker v. Bradford, 52. Boyd v. Amer. Carbon Black Co., 53. Boyd v. Thompson, 262, 264. Boykin v. Persons, 341. Brace v. Calder, 420. Bracken v. Dillon, 318. v. Kennedy, 227. Bradford Comm. Bk. Co. v. Cure, 403. Bradley, In re, 458. Bradley v. Chamberlin, 117. v. Conner, 92. v. Ely, 59, 64, 72, 83. Brasfield v. French, 407. Brainerd v. Bertram, 329. Bramah v. Roberts, 257. Branch v. Wiseman, 148. Brandenstein v. Hoke, 22. Brass & Iron Works Co. v. Payne, 126. Breen v. Richardson, 403. Brennan v. Pardridge, 121. Brenner v. Carter, 182. Brewer v. Browne, 163. Briar Hill C. & I. Co. v. Atlas Works, 478. Brickett v. Downs, 185, 239, 260, 267, 272, 274, 331. Briere v. Taylor, 3. Briggs, Ex parte, 79. Bright v. Carter, 193. Brill v. Hoile, 428. Broadway Nat. Bk. v. Wood, 460. Bromley v. Elliot, 87, 235, 240, 287. Brooke v. Washington, 287. Brooks v. Brooks, 403. v. Hamilton, 246. v. Martin, 46, 170, 278. v. Mclntyre, 310, 314. Brosnau v McKee, 61. Broughton v. Manchester Water- works, 257. Brojvn v. Benzinger, 131. v. Birdsall, 294. v. Chancellor, 52, 366. v. Crandall, 65. v. Foster, 397. 450 TABLE OF CASES [EEFEEENCES ABB TO SECTIONS! Brown v. Fresno Eaisin Co., 289. v. Hartford, 6. v. Hartford Ins. Co., 266. v. Hutchinson, 149. v. Leonard, 398. v. Orr, 185. v. Pettit, 277. v. Stoerkel, 3. v. Tapscott, 81, 210. v. Webb, 27. Brownell v. Steere, 187. Browning v. Marvin, 326. Bruce v. Hastings, 14, 16, 83, 206. Brumwell v. Stebbins, 271. Brundage v. Melton, 250, 301. Bruns v. Heise, 227. Bryant v. Clifford, 341. Buchan v. Sumner, 163, 166, 452. v. Mechanics', etc., Inst., 194, 200. Buck v. Alley, 477, 481. Buck v. Moseley, 331. v. Smith, 119, 222, 223. v. Winn, 452. Buckhouse, In re, 219, 233,. 461. Bucki v. Cone, 301. Buckley v. Doig, 163. Buckmaster v. Gowen, 214. Buettner v. Steinbrecher, 256. Buffalo Milling Co. v. Lewisburg Dairy Co., 111. Buffum v. Buffum, 169. Building & L. Ass'n v. Chamber- lain, 24. Bulger v. Rosa, 444, 448. Bull v. Coe, 193, 211. Bullard v. Kinney, 200. Bullen v. Sharp, 91. Bullock v. Hubbard, 54, 449, 461. Bumpus v. Turgeon, 331. Bunton v. Dunn, 322. Burchell v. Wilde, 125. Burdett v. Greer, 291. Burgan v. Lyell, 250, 251. Burgess v. Badger, 178. Burgwyn v. Jones, 61. Burley v. Harris, 201. Burnes v. Scott, 217. Burnet v. Hope, 400. Burnett v. Snyder, 58. Burney v. Grocery Co., 52. Burnham v. Kidwell, 51. Burns v. McCabe, 153. v. Nottingham, 203. Burrows v. Leech, 196, 233. Burt v. Lathrop, 3, 10. Burton v. Wookey, 170. Burwell v. Mandeville, 407. Busby v. Books, 331. Bush v. Linthicum, 49. Bush v. McCarty, 394. Bushnell v. Ice Co., 23. Butchart v. Dresser, 403, 423. Butler v. American Toy Co., 53. v. Mullen, 388. V. Prentiss, 170. v. L T nion Trust Co., 16, 43. Butler Savings Bank v. Osborne, 12. Buzard v. Bank of Greenville, 79. v. McAnulty, 30. Byam v. Biekford, 28, 153, 155. Byers v. Schulpe, 123. Byrne v. Eeid, 222, 224. Byrum v. Clark, 394. 0. Cady v. Shepherd, 263. Cain v. Hubble, 452. Cain Lumber Co. v. Standard Dry Kiln Co., 31. Caldwell v. Caldwell, 225. v. Davis, 170. v. Leiber, 178. California Bank v. Kennedy, 53. Calkins v. Smith, 215, 330. Callahan v. Heinz, 278, 279. Callender v. Eobinson, 287. Calor Oil Co. v. Franzell, 27. 451 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Calvert v. Miller, 403. Calvit's Ex'rs v. Markham, 219, 233. Gambia v. Santos, 15. Cambre v. Lasseigne, 194. Camerson v. Francisco, 178. Cameron v. Watson, 472. Cammock v. Johnson, 459. Camp v. Grant, 411, 454. Campbell v. Colo. Coal & Iron Co., 461. Campbell v. Floyd, 428. <- v. Hastings, 102. - v. Herriek, 425. v. Steele, 294. Canada v. Barksdale, 16, 43. Candee v. Clark, 294. Cannon v. Lindsey, 185, 272, 274, 341. Canton Bridge Co. v. City of Eaton Eapids, 77. Capen v. Barrows, 214. Capper's Case, 29. Carey v. Burruss, 52. Cargill v. Corby, 240. Garland v. Heckler, 121. Carley v. Jenkins, 251. Carlin v. Donegan, 173. Carpenter v. Greenop, 181, 194, 200, 217. Carr v. Hertz, 242, 267. Carrie v. Cloverdale Co., 146, 253, 274, 331. Carver Machine Co. v. Bannon, 186. Carr v. Lewis Coal Co., 388. Carson v. Byers, 295. Carter v. Beckwith, 51. v. Flexner, 163, 166. v. Lipsey, 304. v. MeClure, 3, 35, 361. v. Mitchell, 297. v. Producers' Oil Co., 36. v. Roland, 359, 363. v. Whalley, 397. Case v. Beauregard, 432, 449. Cash v. Earnshaw, 357, 377. Cashin v. Pliter, 121. Caster v. Graham, 121. v. Reynolds, 402. Catholic Church v. Tobbein, 22. Catskill Bank v. Gray, 53. Causten v. Barnette, 16, 43. Cavasso v. Downey, 372. Cavender v. Balteel, 168. Cayton v. Hardy, 274. Cedarberg v. Guernsey, 15, 83. Central Nat. Bank v. Frye, 394. v. Sheldon, 23. Central Savings Bank v. Meade, 402. Central Trust Co. v. Creel, 16. v. Respass, 42, 44, 46. Chalmers v. Chalmers, 173. Chambers v. Sloan, 7. Chamberlain v. Dow, 393. v. Stewart, 342. Champion v. Bostwick, 83. Chancey v. May, 329. Chandler v. Jessup, 157. v. Sherman, 175. Channon v. Stewart, 230. Chapman v. Evans, 219. v. Hughes, 72. Charles v. Eshleman, 254. Charlton v. Sloan, 173, 187. Chase v. Angell, 165. v. Bean, 331. v. Scott, 415. Cherry v. Strong, 15. Chesher v. Clamp, 445. Chester v. Dickerson, 42, 61, 301. Chicago v. Sheldon, 114. Chicago Hansom Cab Co. v. Yerkes, 282. Chicago Lumber Co. v. Ashworth, 150. Chick v. Robinson, 477. Childers v. Neely, 37, 229, 241, 257. Childs v. Hyde, 402. Chippendale, Ex parte, 182. 452 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Chittenden v. German-American Bank, 268. v. Witbeck, 128. Church v. First Nat. Bank, 331. Churchill v. Proctor, 168. Citizens' Commercial Bank v. Platt, 279. Citizens' Bank v. Mitchell, 44. v. Williams, 442. Citizens Mut. Ins. Co. v. Ligon, 407. Citizens ' Nat. Bank v. Johnson, 267. v. Weston, 393. City Nat. Bank v. Stone, 407. Claflin v. Behr, 453. v. Bennett, 474. v. Cross, 16. Clafflin v. Evans, 253, 279. Claggett v. Kilbourne, 417. Clay v. Field, 402. Clapp v. Lacey, 483. v. Eogers, 391. Clark v. American Cannell Coal Co., 22. v. Fleischman, 402. v. Fletcher, 397. v. Gridley, 227. v. Hyman, 283. v. Johnson, 259. v. Jones, 121. v. Mallory, 311. v. Eives, 274. v. Sidway, 14, 16, 43, 206. v. Taylor, 250. v. Truitt, 222, 223. v. Warden, 182. Clarke v. Clarke, 175. v. Hogeman, 274. v. Mills, 190, 205. v. Eailroad Co., 282. v. Taylor, 341. v. Wallace, 277. Clayton v. Davett, 187. v. May. 314. Clement v. Brit, 327. v. Clement, 425. Clements v. Jessup, 444. Cleveland v. Woodward, 292, 333, 335. Cleveland Paper Co. v. Courier Co., 53. Clift v. Barrow, 81. Clifton v. Clark, 403. v. Howard, 77, 94. Clinchfield Fuel Co. v. Lundy, 428. Clogston v. Gholson, 407. Clough, In re, 403. Cobb v. Benedict, 322, 427. v. Cole, 474. v. Martin, 203. Cocke v. Branch Bank, 257. Codville Co. v. Smart, 49, 460. Coffee v. Brian, 212. Coffin v. Day, 444. Coggschell v. Munger, 193. Coggswell v. Davis, 394. Coggswell, etc., Co. v. Coggswell, 372. Coldren v. Clark, 182. Cole v. Mette, 123, 153. v. Moxley, 347. v. Reynolds, 196, 220. Coleman v. Darling, 253, 283. v. Eyre, 61a. Colgrove v. Tallman, 428. Collamer v. Foster, 210. Coller v. Porter, 258. Collier v. McCall, 301. v. Postum Cereal Co., 330. Collins' Appeal, 146. Collins v. Campbell, 341. v. Decker, 159, 161. Collner v. Greig, 158. Collums v. Bead, 163. Collyer v. Moulton, 429. Columbian Land & Cattle Co. v. Daly, 481. Columbia Nat. Bank v. Eiee, 239, 250. Colwell v. Weybossit Bank, 295. Commercial Bank v. Pfeiffer, 24. 453 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Conary v. Sawyer, 49. Condon v. Callahan, 178, 403. Congdon v. Olds, 37, 241, 257. Conrad v. Buck, 425, 426. Conroy v. Campbell, 473. v. Woods, 449. Consaul v. Cummings, 178. Consolidated Bank v. State, 81. Const v. Harris, 116, 281. Continental Nat. Bk. v. Strauss, 49, 479. Conway v. Zender, 217. Cook, Ex parte, 451. v. Canny, 193, 210. v. Carpenter, 31. v. Gray, 264. v. Slate Co., 65. Cooley v. Sears, 341. Coope v. Eyre, 13. Coover's Appeal, 416. Corbett, Ex parte, 7. Corey v. Perry, 414. Cornells v. Stanhope, 273, 331. Cornhauser v. Eoberts, 102. Cossack v. Burgwyn, 92. Costa v. Costa, 129, 402. Cottrell v. Babock Printing Press Co., 131. Cothran v. Marmaduke, 92. Cottentin v. Meyer, 24. Cottle v. Leitch, 377. Cotton Plant Oil Mill Co. v. Buck- eye Cotton Oil Co., 256, 282. Cotzhausen v. Judd, 260, 331. Couchman v. Maupin, 450. Couilliard v. Eaton, 215. Courson v. Parker, 328. Cowan v. Creditors, 316. v. Cunningham, 264. v. Fairbrother, 127. v. Gill, 456. Coward v. Clanton, 16. Cowen v. Hardware Co., 185, 341. Cox v. Hickman, 88. v. Maddux, 294. Cox v. Willoughby, 225. Coxe v. State, 22. Craft v. McConoughy, 44, 46. Craig v. Aulschizer, 331. Crater v. Bininger, 210. Craswell v. Cattle Co., 291. Crawford v. Roberts, 311. Creed v. Hartman, 338. Creel v. Bell, 327. Crooks v. Crooker, 291, 452. Croone v. Bivens, 436. Crouch v. First Nat. Bk., 478. Crescent Ins. Co. v. Bear, 46. Crites v. Wilkinson, 274. Crittenden v. Cobb, 205. Cross v. National Bank, 319. Crossley v. Taylor, 190. Crosby v. Timolat, 196, 219, 233. Crockett v. Burleson, 216. Crosthwaite v. Ross, 257. Cruttwell v. Lye, 127. Culley v. Edwards, 77, 79, 98. Currier v. Rowe, 211. Curtis v. Belknap, 327. v. Hollingshead, 6, 314. v. Woodward, 455. Gushing v. Smith, 298. Cutler v. Winsor, 83. Cutling v. Daigneau, 194, 200. Czatt v. Case, 121. D. Dana v. Stearns, 50. Daniel v. Cross, 411. v. Daniel, 331. v. Gillespie, 474. v. Owens, 148. Darby v. Darby, 163. v. Gilligan, 447. Darling v. March, 423. Darrow v. Calkins, 163, 169. Dauchy, In re, 455. 454 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Davenport-Mills Co. v. Chambers, 262. Davis, Estate of, 426. Davis v. Amer, 225. v. Berger, 252. v. Christian, 164, 407. - v. Cook, 259. - v. Davis, 4, 13, 59, 136, 140, 228. v. Dodson, 246, 302. v. Gelhaus, 44, 188. v. Green, 165. v. Howell, 453. v. Megroz, 364, 423. v. Merrill, 196, 200. v. Kichardson, 279, 283. v. Smith, 163, 169. - v. Sowell, 403, 404. v. Stevens, 21. v. Turner, 295. Davison v. Holden, 3, 10. Davies v. Atkinson, 185. Daw v. Herring, 117. Dawson v. Elrod, 242, 283. Day v. Stevens, 15, 83. Dayton v. Bartlett, 403. Deakin v. Underwood, 251. Dean v. Collins, 428. v. Dean, 133. v. MacDowell, 172. Dearborn v. Keith, 148. Deardorf v. Thacher, 257. Deekard v. Case, 253. Decker v. Howell, 37. Deering v. Flanders, 397. Deeter v. Sellers, 267. Deford v. Reynolds, 397. De Leon v. Trevino, 46. Dell, In re, 456. Delmonico v. Guillaume, 169. Denholm v. McKay, 402. Denning, In re, 446. Dennis v. Gordon, 172. v. Kass, 316. Denny v. Cabot, 79. Denny v. Metcalf, 219. Denver v. Eoane, 227. Deska v. Smith, 183. De Tastel v. Shaw, 219. Deutschman v. Dwyer, 170. Devaynes v. Noble, 403, 411. Deveney v. Mahoney, 160. Dewey v. Chapin, 402. DeWit v. Lander, 327. Dexter v. Arnold, 182. Diamond v. Henderson, 175. Dickinson v. Bold, 117. v. Dickinson, 394. v. Valpy, 30. Didlake v. Grocery Co., 129. Dillon, In re, 446. Dimon v. Hazard, 446. Dinham v. Bradford, 182, 225. Divine v. Mitchum, 435, 452. Dixon Livery Co. v. Kane, 341. Dob v. Halsey, 87, 331. Dockery v. Faulkner, 297. Dodge v. Cutrer, 319. v. Ship Co., 326. Doggett v. Dill, 411. Doll v. Hennessy Merc. Co., 331. Donaghue v. Gaffy, 330. Donald v. Hewitt, 267. Doner v. Stauffer, 146, 416. Donnell v. Harshe, 15, 83. v. Jones, 330. v. Portland, etc., R. Co., 341. Dorwart v. Ball, 190, 205. Doty v. Patterson, 23. Douthit v. Douthit, 203. Dow v. Moore, 256. v. Simpson, 405. v. State Bank, 30. Dowling v. Exchange Bank, 241, 257. Downs v. Jackson, 187. Dowse v. Gorton, 408. Drake v. Thyng, 274. Drennen v. Gilmore, 341. Dressel v. Lonsdale, 52. 455 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Dresser v. Wood, 271. Dreyfus v. Union Nat. Bank, 122, 295. Drilling v. Armstrong, 79. Drucker v. Wellhouse, 6, 7. Drumright v. Philpot, 250. Dubois' Appeal, 264. Dubos v. Jones, 103. DuBree v. Albert, 162. Dubrenil v. Gaither, 342. Duff v. Maquire, 199. Duguid, In re, 49. Duke v. Taylor, 23. Dukes v. Kellogg, 215. Dunlap v. Byers, 163. v. Green, 153. Duncan v. Duncan, 164. Dunham v. Loveroek, 11, 12, 66. v. Presby, 45. Dunnica v. Clinkscales, 450. Dunnigan, In re, 49. Dunning 's Appeal, 483. Dunphy v. Kyan, 61. Dunton v. Brown, 49. Duquesne Distributing Co. v. Green- baum, 302. Durant v. Abendroth, 477, 478. v. Pierson, 402, 403. Durgin v. Colburn, 484. Duryea v. Burt, 168. v. Whitcomb, 59, 72. Dutcher v. Buck, 15, 83, 92. Dutton v. Woodman, 65. Dwight v. Hamilton, 131. Dwinel v. Stone, 15. Dwyer Pine Land Co. v. Whiteman, 153. Dyer v. Clark, 165, 169, 402. v. Shore, 125, 129, 402. v. Sutherland, 261. E. Eady v. Newton, 331. v. Newton Coal & Lumber Co., 116, 248, 260. Eagle v. Bucher, 384. Eagle Mfg. Co. v. Jennings, 429. Early v. Burt, 429. Earon v. Mackey, 426. Eastern Township Bank v. Beebe, 294. Eastman v. Clark, 83. Easton v. Courtright, 405. v. Strother, 170. Eaton v. Walker, 22, 24. Edgerly v. Gardner, 3. Edison Illuminating Co. v. De Mott, 451, 468. Edward v. McFall, 397. Edwards v. Dillon, 264. v. Eemington, 193, 212, 322. v. Warren Linoline Works, 36. Effinger, In re, 456. Eichbaum v. Irons, 10. Eighth Nat. Bank v. Fitch, 148. Eilers Music House v. Eeine, 189. Einstein v. Schnebly, 177. Elder v. Hood, 218. Elgie v. Webster, 211. Elgin Jewelry Co. v. Wilson, 121. Elkinton v. Booth, 397. Elliot v. Stevens, 460. Ellis v. Allen, 242, 267, 274. v. Harrison, 319. Ellison v. Lucas, 186, 443. v. Sexton, 394. Elmira Boiling Mill v. Harris, 287, 397. Emerick v. Moir, 472. Emerson v. Durand, 179. v. Senter, 403. Emery v. Candle Co., 46. v. Pease, 204. v. Wilson, 217. Empire Mills v. Alston Grocery, 21. England v. Curling, 116, 119, 222, 224. Englar v. Offutt, 271, 304. Enix v. Hayes, 325. 456 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Enterprise Oil & Gas Co. v. Transit Co., 283. Espy v. Comer, 164. Estabrook v. Messersmith, 331. v. Woods, 79. Essel v. Hayward, 377. Essex v. Essex, 410. Eustis v. Bolles, 362, 388. Evans v. Bryan, 316. Evens & Howard Fire Brick Co. v. Hadfield, 106. Everit v. Strong, 264. Everitt v. Chapman, 64, 247. Everly v. Durborrow, 472. Ewart v. Mercantile Co., 449. Ewers v. Montgomery, 42. Exchange Bank v. Gardner, 173. v. Tracy, 361, 407. F. Fairchild v. Fairchild, 61, 163. Fairthorne v. Weston, 227, 378. Fancher v. Furnace Co., 252. Faris v. Cook, 233. Farley v. Lovell, 331. Farley v. Moag, 417. Fanners Bank v. Bayless, 291, 297. v. Eidge Ave. Bank, 455. Farmers' L. & T. Co. v. New York, etc., R. Co., 282. Farmers Union Co. v. Seitz, 316. Farnum, In re, 458. Farnum v. Ewell, 330. v. Patch, 3, 35. Farnsworth v. Boardman, 481. Farrand v. Gleason, 14, 16. Farris v. Morrison, 273, 274. Farwell v. Huston, 262. v. St. Paul Tmst Co., 185, 260. v. Wilcox, 209. Faulkner v. Hyman, 6. Fay v. Burditt, 51. Fayette Nat. Bk. v. Kenney, 454, 458. Fechteler v. Palm Bros., 72, 77. Feigley v. Whitaker, 250, 425. Fenn v. Bolles, 126. Fereira v. Sayres, 400. Ferevira v. Silvey, 270. Ferguson v. Baker, 213. Fern v. Gushing, 415. Fernald v. Clark, 428. Ferrara v. Russo, 410. v. Buhlmeyer, 357. Ferris v. Van Ingen, 407. Feust v. Brown, 205, 256. Fidelity Banking Co. v. Kangara Co., 242. Fifth Ave. Bank v. Colgate, 484. Fillans v. Greenfield, 283. Filley v. Phelps, 148, 411. Fillyan v. Laverty, 411. Finnegan v. Noerenberg, 23. Fireman's Ins. Co. v. Floss, 325. First International Bank v. Brow*, 393. First Nat. Bk., Ex parte, 458. v. Brenneisen, 443. v. Brubaker, 443. v. Carpenter, 277. v. Cheney, 428. v. Cody, 31, 63, 402. v. Conway, 65, 250, 372. v. Creveling, 478. v. Farson, 241, 256, 277. v. Freeman, 274. v. Frost, 316. v. Green, 429. v. Greig, 271. v. Grignon, 279. v. Larson, 242. v. Rowley, 277. v. State Savings Bank, 429. v. Webster, 256. v. Wood, 451. Fish v. Gates, 326, 423. v. Thompson, 77, 415. Fish Bros. Wagon Co. v. Fish, 126. Fisher v. Syfera, 443. 457 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Pitch v. Harrington, 58. Fitzgerald v. Grimmell, 6. Titzpatrick v. Flannagan, 403. Fitzsimmons v. Lindsay, 410. Flagge v. Stowe, 23. Fleming v. Fleming, 11, 410. Flemyng v. Hector, 10. Fletcher v. Ingram, 338. v. Pullen, 102, 103, 106, 107. v. Reed, 351. v. Vandusen, 226. Flower v. Barnekoff, 42, 43, 61, 77, 83. Floyd v. Duffy, 61. Fogg v. Johnston, 373. v. Lawry, 148. v. Virgin, 333. Folds v. Allardt, 49. Folsom v. Marlette, 175, 181, 229, 469. Foot v. Goldman, 49. Forbes v. Scannell, 279. v. Webster, 187. v. Whittemore, 23. Fordyce v. Shriver, 54, 278. Forney v. Adams, 331. Forster v. Lawsen, 330. Forsyth v. Butler, 182. v. Woods, 450. Fosdick v. Van Horn, 298. Foster's Appeal, 166. Foster v. Sargent, 157. Fourth St. Nat. Bank v. Whitaker, 484. Fowlkes v. Bowers, 458. Fox v. Clifton, 30. v. Curtis, 253. v. Firth, 217. v. Norton, 263. Foyer v. Harken, 45. Francis v. McNeal, 6, 7. Frank v. Anderson, 200. Franklin v. Hoadley, 65. Fraser, In re, 106, 398. Fraser v. Kershaw, 414. Frazer v. Frazer Lubricating Co., 126. v. Ho/we, 318. v. Linton, 145. Frear v. Lewis, 129. Free v. Beatley, 165. Freeman v. Campbell, 295. v. Freeman, 230. v. Huttig Co., 318. v. Stewart, 411. Freeport Stone Co. v. Carey, 454. French v. Chase, 459. v. Donohue, 53. v. Parker, 127. v. Styring, 11, 14, 83. v. Vanatta, 402. Freund v. Murray, 351. Frey v. Eisenhardt, 157. v. Duryee, 257. Frink v. Branch, 161. Frith v. Thompson, 215. Frost v. Erath Cattle Co., 251. Frost v. Thompson, 26, 40. v. Wolf, 163. Fry v. Potter, 190, 205. Fuller v. McHenry, 52. v. Percival, 215. Fulmer's Appeal, 136, 278. Fulton v. Central Bank, 426. v. Hughes, 446. Furnace Eun Co. v. Heller, 92. Furst v. Armstrong, 407. G. Gable v. Williams, 402. Gadsden v. Carson, 445. Gage v. Parmlee, 116. Galbraith v. Tracy, 158, 402, 403. Gallagher's Appeal, 445. Gallway v. Mathew, 242. Gammon v. Huse, 116. Gant v. Reed, 410. Gardner v. Minneapolis, 22. Garland, Ex parte, 407. 458 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Garnett v. Eichardson, 23. Garr. v. Eedman, 16. Garth v. Davis, 61. Garver v. Kent, 232. Gasely v. Society, 32. Gaston v. Drake, 44. Gates v. Beeeher, 271, 423. v. Watson, 308. Gathright v. Fulton, 373. Gavin v. Walker, 287, 296. Gay v. Householder, 175. v. Johnson, 49. v. Eay, 450, 461. v. Seibold, 121. v. Waltman, 252. George v. Benjamin, 329. Gerard v. Bates, 148, 230. v. Gateau, 377, 378. Gerli v. Poidebord Silk Mfg. Co., 274. Getehell v. Foster, 120, 122. Gefuert v. Gille, 372. Gibbs' Estate, Ee, 4, 19, 23, 66. v. Humphrey, 394, 460. Gibson v. Lupton, 13. v. Ohio Farina Co., 220, 233. Gilbert, In re, 54. , Gilbert v. Lichtenberg, 327. Gilchrist v. Braude, 258, 392. Gilkerson-Sloss Com. Co. v. Salinger, 52. Gilk v. Hunt, 123. Gillet v. Shaw, 51. Gillilan v. Sun Mut. Ins. Co., 426. Gilman v. Vaughan, 182. Gilmore v. Ham, 426. Gilruth v. Decell, 271, 304. Ginterman v. Wishon, 328. Glade v. White, 217. Gleason v. White, 403. Glover v. Tuck, 214. Goddard-Peck Grocery Co. v. Mc- Cune, 443. Goddard v. Pratt, 372, 394. Godfrey v. White, 178. Goell v. Morse, 11, 14, 83. Goepper v. Kinsinger, 160. Goesele v. Bimeler, 32. Golding v. Brennan, 263. Goldsmith v. Eichold, 172. v. Eichold Bros., 186. Goldstein v. Fox, 271. v. Nathan, 61. Goldthwaite v. Janney, 160, 167. Gomez v. Higgins, 410. Good v. Bed Eiver Valley Co., 6. Goodenow v. Jones, 289. v. Smith, 311. Goodspeed v. Plow Co., 425. Gordon v. Albert, 423. v. Funkhouser, 263. v. Gordon, 136. v. Knott, 131. v. Moore, 173. Gorman v. Davis, 397. Gosling v. Gaskill, 91. Gottschalk v. Smith, 16, 43. Goudy v. Werk, 316, 446. Gould v. Kendall, 46. Grace v. Smith, 86. Graf ton Bank v. Moore, 65. Grant v. Bannister, 141. Gray, In re, 455, 458. Gray v. Green, 423. v. Hamil, 179. v. Palmer, 32. v. Smith, 225. v. Ward, 257. Grant v. Bannister, 161. Gratz v. Bayard, 361. Graser v. Stellwagon, 272, 274. Great Southern Hotel Co. v. Jones, 35, 36, 280. Greeley v. Wyeth, 331. Green v. Baird, 425. v. Beesley, 59. v. Chapman, 196, 219. v. Higham, 16. v. State Bank, 359. v. Taylor, 316. 459 TABLE OP CASES [REFERENCES Green v. Butterworth, 453. Gregg v. Hord, 116. v. James, 260. Greenburg v. Early, 400. Greenham v. Gray, 209. Greenslade v. Dower, 257. Greenville v. Greenville Co., 24. Greenwood v. Marvin, 6, 163. Griffin v. Orman, 322. v. Buffum, 292. Gribben v. Maxwell, 51. Griggs v. Clark, 189. v. Swift, 400. Grinnan v. Baton Kouge Mills Co. 391, 394. Grissom v. Moore, 165. Griswold v. Haven, 250. v. Waddington, 369, 388. Gross v. Davis, 190. Grossman v. Lewis, 373. Grosvenor v. Lloyd, 287, 397. Groth v. Kersting, 469. v. Payment, 377. Grotte v. Weil, 428. Grover v. Smith, 331. Groves v. Wilson, 477, 481. Grow v. Seligman, 126. Grubbe v. Pierce, 429. Grubb's Appeal, 161. Guccione v. Scott, 214. Guckert v. Hacke, 23, 24. Gueringer v. Creditors, 454. Guerinck v. Alcott, 53. Guiee v. Thornton, 63. Guidon v. Robson, 325. Guillon v. Peterson, 304. Guiterman v. Wishon, 121. Gulf City Co. v. Boyles, 77. Gunderson v. Hosterlick, 300. Gunn v. R. R. Co., 53. Guy v. Donald, 3. Gwynn v. Duffield, 302. ARE TO SECTIONS] H. Hackett v. Multnomah Ry., 53. v. Stanley, 79, 92. Hackley v. Patrick, 425. Haddock v. Grinnell Mfg. Co., 478, 484. Hage v. Campbell, 267, 444. Hagenbeck v. Arena Co., 83. Haggett v. Hurley, 4. Hahlo v. Mayer, 102, 103, 105, 106. Haig v. Gray, 402. Haines' Estate, 451, 461. Haines v. Starkey, 392. > Hale v. Spaulding, 311. v. Wilson, 216. Haley v. Case, 301. Hall v. Allen, 341. v. Clagett, 175. v. Jones, 429. v. Kimball, 219. v. Lanning, 254, 271, 276, 310, 311, 314. v. Sonnover, 173. Hall's Safe Co. v. Herring-Hall- Marvin Safe Co., 286. Haller v? Willamowicz, 174. Hallowell v. Blackstone Bank, 7, 313. Halsey v. Norton, 415, 417. Halstead v. Shepard, 272. Hamill v. Hamill, 269, 415. Hamilton, In re, 54, 456. Hamilton v. Buxton, 308. v. Halpin, 32. Hammel v. Feigh, 60, 61. Hammond v. Paxton, 168. Hanchett v. Gardner, 272. Hancock v. Haywood, 402. Haney v. Creamery Co., 311. Haney Mfg. Co. v. Adams, 302. v. Perkins, 276, 301. Hanna v. McLaughlin, 347. v. Wray, 403. Hannaman v. Karrick, 178. 460 TABLE OP CASES [REFERENCES ARE TO SECTIONS] Hannigan v. Allen, 319. Hanson v. Page, 148. Haralson v. Campbell, 308, 314. Hanway v. Eobertshaw, 164. Harbeck v. Papin, 311. Harker v. Brink, 310. Harlow v. La Brum, 170, 373. Harman v. Johnson, 304. Harper v. Eaymond, 135. Harrill v. Davis, 23. Harris v. Baltimore, 257, 258, 267. v. Carter, 182, 183. v. Harris, 154, 177, 203. v. Lloyd, 57. v. Peabody, 455. v. Visseher, 7, 446. Harrison v. Jackson, 263. v. MeCormick, 333. v. Tennant, 377. v. Warren Co., 232. Harsheim v. Brestup, 273. Hart v. Alexander, 429. v. Hiatt, 316. v. Myers, 180. v. Woodruff, 425. Hartley v. White, 272. Hartman v. Woehr, 31, 177. Hartnett v. Stilwell, 169. Hartney v. Gosling, 37. Harvey v. Adams, 276. v. Ohilds, 79, 94. v. Crickett, 415. v. Me Adams, 251. Hasbrouek v. Childs, 145, 472. Haskins v. Curran, 37, 211. v. D'Este, 6, 120, 300. Haslet v. Strut, 276. Haslett v. Wotherspoon, 23. Hastings Nat. Bank v. Hibbard, 298. Hatch v. Wood, 335, 336. Hatchett v. Blanning, 318. v. Blanton, 154. Haven v. Mehlgarten, 206. v, Wakefield, 219, 233. Haviland v. Chace, 478. Hawkins v. Capron, 402. v. Mahoney, 453, 454, 458. v. M,clntyre, 83. Hawn v. Land Co., 261. Hayes v. Bement, 219. v. Hayes, 136, 473. Hayman, Ex parte, 460. Haynes v. Carter, 392. Hayward v. French, 258. Head, In re, 453, 457. Heartt v. Walsh, 260, 423, 424. Heaton, Ex parte, 270. Heaton v. Schaeffer, 271. Heath v. Morgan, 123. v. Sansom, 397. v. Waters, 178, 402. Heckman v. Manning, 311. Heffron v. Gage, 232. v. Hanaford, 250. Heflebower v. Buck, 231. Heilbut v. Nevill, 331, 414. Helmer v. Smith, 13. Helmore v. Smith, 363. Henderson v. Farley Nat. Bk., 148. v. Goates, 150. Hendren v. Wing, 123, 150, 155. Hendricks v. Middlebrooks, 301. Hendry v. Turner, 396. Henkel v. Heyman, 23, 478. Hennessy v. Griggs, 372. Henning v. Raymond, 232. Henry v. Anderson, 162, 194. v. Jackson, 190. Hepburn, In re, 451. Heran v. Hall, 136. Herbert v. Odlin, 270. Hercy v. Birch, 222. Hershfield v. Claflin, 148. Hess v. Lowrey, 301, 338. Hewitt v. Hayes, 402, 403. Heyman v. Heyman, 52, 362. Hibben v. Collister, 410. Hibbs v. Brown, 35. Hicks v. Wyatt, 319. 461 TABLE OP CASES' [REFERENCES ARE TO SECTIONS] Hier v. Kaufman, 262. Higbie v. Etna B. & L. Ass'n, 27. Higgina v. Beauchamp, 241, 257. Higgins Co. v. Higgina Soap Co., 124. Hill v. Bell, 49. v. Cornwall, 454, 458. v. Draper, 444. v. Fearis. , v. Palmer, 137, 208. v. Postley, 253. Hilliker v. Francisco, 327. v. Loop, 325. Hillock v. Traders' Ins. Co., 266. Hilton v. Vanderbilt, 426. Hitchings v. Ellis, 72. Hitchcock v. Frackelton, 294. Hoag v. Alderman, 179. Hoaglin v. Henderson, 52, 148. Hoard v. Clum, 361. Hoare v. Dawes, 13. v. Oriental Bank, 450. Hobbs v. Chicago Packing Co., 301. v. Wilson, 427. Hocking v. Hamilton, 264. Hodge v. Twitchell, 170, 229. Hodgson v. Baldwin, 3, 35. Hoeflinger v. Wells, 291. Hoff v. Eogers, 331. Hoffmaster v. Hodges, 259. Hogan v. Hadzeik, 484. Hogendobler v. Lyon, 331. Hogg v. Hogg, 117. Hogman v. Westlecraft, 252. Holbert v. Keller, 421. Holbrook v. Chamberlin, 283. v. Lackey, 402. v. Nesbitt, 125. Holden v. Mensinger, 328. v. Thurber, 175. Holladay v. Elliott, 377, <380. Hollenbeek v. More, 304. Holmes v. Burton, 291. v. Darling, 172. v. Janett, 153. Holmes v. McCray, 61. v. Miller, 148. v. Shands, 423. Holt v. Howard, 193. v. Simmons, 256. Holton v. Holton, 445. v. McPike, 270. Holyoke v. Mayo, 203. Homer v. Wood, 331. Hook v. Stone, 253. Homfray v. Fothergill, 225. Hood v. Eiley, 341. Hookham v. Pottage, 125. Hooper v. Lusby, 266. Horgan v. Morgan, 40. Horn v. City Bank, 257. Hornaday v. Cowgill, 397. Horton's Appeal, 415. Horton v. Bloedorn, 267. Horton Mfg. Co. v. Horton Mfg. Co., 126. Hoskins v. Dickinson, 193. Hoskinson v. Eliot, 256, 258. Hotchkiss v. Quarry Co., 37. Houston v. Brown, 341. Howard v. France, 217. v. Paxton, 168. Howe v. Lawrence, 446, 455. v. Shaw, 312, 338. v. Thayer, 372, 394. Howe City Bank v. Widener, 318. Howe Scale Co. v. Wyckoff, 124. Howell v. Brodia, 30. v. Harvey, 357, 373. v. Kelly, 61. v. Moore, 295. v. Reynolds, 326. Howland v. Davis, 270. Howze v. Patterson, 77, 256, 258. Hoxie v. Chaney, 128. Hoyt v. Murphy, 341. Hubbard v. Matthews, 300, 369, 415, 423. Hubbardston Lumber Co. v. Covert, 6. 462 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Hubcnthal v. Kennedy, 2,89. Huber v. Martin, 22. Hudson Real Estate Co. v. Tower, 388. Huffman Farm Co. v. Busk, 260. Huger v. Cunningham, 145, 469. Huggins v. Huggins, 59. Hughes v. Allen, 166. v. Boring, 330. v. Ewing, 77. v. Gross, 400, 403. Huiskamp v. Wagon Co., 444. Hulett v. Fairbanks, 16, 43. Hull v. Young, 263, 283. Humes v. Higman, 136. v. O 'Bryan, 246. Humphries v. Chastain, 425. Hundley v. Farris, 186, 443, 453. Hunt v. Eogers, 427. Hunter v. Pfeiffer, 44, 46. Huntington v. Burdeau, 61. Hurley v. Walton, 15, 43. Hurt v. Clarke, 283. v. Salisbury, 23. Hurst v. Brennen, 170, 172. Huston v. Cox, 37. v. Neil, 163, 165. Hutchins v. Bank of Tennessee, 391. v. Page, 129. Hutchinson v. Dubois, 148. v. Nay, 129, 132, 402. v. Smith, 304. Hutzler v. Phillips, 454. Hyde v. Ford Co., 328. v. Moxie Co., 326. Hyer v. Richmond Traction Co., 222. Hyre v. Lambert, 178. Hyrne v. Erwin, 301, 338. Hynes v. Stewart, 373. I. Ice v. Kilworth, 182. Iddings v. Pierson, 295. Ihmsen v. Lathrop, 106. Illinois Malleable Iron Co. v. Reed, 63, 72, 76. Imperial Building Co. v. Board of Trade, 27. Ingols v. Plimpton, 341. Ins. Co. v. Malone, 285. Insley v. Shire, 173. International Trust Co. v. Wilson, 235. Iroquois Rubber Co. v. Griffin, 260. Irwin v. Williar, 246. v. Nashville, etc., B. Co., 3, 83, 84. Isler v. Baker, 365. Ivy v. Walker, 201. Jacks v. Greenhaw, 297. Jackson, Ex parte, 319. Jackson v. Akron Briek Ass 'n, 44. v. Clymer, 341. v. Cornell, 445. - v. Dickinson, 188. v. Hooper, 14, 16, 43, 92. v. Lahee, 232. v. McLean, 46. v. Stopherd, 217. Jackson Bank v. Durfey, 6, 443. Jacobs v. Pollard, 188. v. Shorey, 59, 301. Jaffe v. Krum, 481, 483. Jaffray v. Jennings, 301, 314. Jaques v. Marquand, 304. Janney v. Springer, 185, 272, 274. Jarvis v. Brooks, 449. Jenness v. First Nat. Bk., 404. Jensen v. Wiersma, 316. Jennings v. Baddeley, 386. v. Pratt, 181, 194, 200. v. Rickard, 170. Jeter v. Burgwyn, 79, 98. Jewison v. Diendonne, 108, 398. Jewett v. Meech, 444. Johnson's Appeal, 170. 463 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Johnson v. Bernheim, 242. v. Carter, 59, 81, 96. v. Clark, 158. v. Corser, 3. v. Evans, 148. v. First Nat. Bank, 123. v. Gordon, 454. v. Hogan, 161. v. Jones, 428, 429. v. Kaiser, 402. v. King, 148. v. Eobinson, 253. v. Wilson, 203. v. Wingfield, 148. v. Young, 428. Johnston v. Bunheim, 279. v. Crichton, 331. ' v. Button, 242, 282. v. Shirley, 146. v. Trask, 259. Jones v. Aspen Hardware Co., 29. v. Beekman, 157. v. Blair, 341. v. Blun, 6, 7. v. Davies, 14, 16, 43. v. Dexter, 170, 229. v. Gould, 14, 16, 43, 245. v. Howard, 326. v. Lloyd, 384. v. Noy, 376. v. Eose, 211. v. Steamboat Co., 341. v. Walker, 407. v. Yates, 331. Jordan v. Kirkpatrick, 51. v. Miller, 277. v. Soule, 206. Joseph v. Herzing, 402. Judd Oil Co. v. Hubbell, 308. Judge v. Braswell, 37, 257. Juilliard v. Orem, 183. Jurgens v. Ittmann, 117, 376. Justice v. Lairy, 370. K. Kahn v. Smelting Co., 37, 57. Kaiser v. Lawrence Savings Bank, 23. Kallenbach v. Dickinson, 425. Karrick v. Hannaman, 222, 224, 229, 355, 357. Katz v. Brewington, 177, 226. Kaufman v. Kaufman, 410. Kayser v. Maugham, 16, 43, 170. Kearney v. Snodgrass, 319. Keck v. Fisher, 267. Keen v. Price, 45. Kefanver v. Price, 327. Kell v. Nainby, 325. Kelley v. Hurlbut, 397. Kellogg v. Moore, 212. v. Olsen, 150. Kelly v. Bourne, 123, 155. 23, v. Greenleaf, 175. v. Eummerfield, 15. v. Scott, 460. Kemmerer v. Kemmerer, 182. Kendall v. Hamilton, 308, 309, 411. Kennedy v. Bohannon, 397. v. Lonabaugh, 44. v. McFadden, 190. v. Monarch Mfg. Co., 225. v. Porter; 278, 350. Kenney v. Altvater, 259. v. Howard, 403. Kenny, In re, 114. Kentucky Block Coal Co. v. Sewell, 155. Kepler v. Erie Dime Savings Co., 154. v. Savings & Loan Co., 167. Kerrick v. Stevens, 31, 63. Ketcham Bank v. Hagen, 259. Ketchum v. Durkee, 446. Keyes v. Nims, 16. Kimberley v. Arms, 170, 278. Kincaid v. Wall, 443. King v. Chuck, 225, 410. 464 TABLE OP CASES [REFERENCES ARE TO SECTIONS] King v. Moore, 199. v. White, 474. v. Winants, 44, 46. Kingsbury v. Tharp, 64. Kinney v. Maher, 179. Kintrea v. Charles, 191. Kirby v. Cannon, 311. v. Carpenter, 456. v. Schoonmaker, 434. Kirk v. Garrett, 276. v. Young, 329. Kirwan v. Kirwan, 429. Klosterman v. Hayes, 64. Knapp v. Edwards, 175. v. Heed, 170. Knard v. Hill, 103. Knaus v. Givens, 181, 194, 200. Knoedler v. Glaenzer, 130. Knowlton, In re, 54. Knox v. Buffington, 235. v. Gye, 402. Kock v. Endriss, 263. Kountz v. Holthouse, 318. Kreuger, In re, 106, 398. Kreuger v. Speith, 403. Kruschke v. Stefan, 140, 162. Kuhn, In re, 295. x Kuhn v. Weil, 276. Kurner v. O'Neil, 444. Kuser v. Wright, 388. Kntz v. Dreibelbis, 205. Kyle v. Griffin, 172. L. Ladd v. Griswold, 436. La Fayette Land Co. v. Caewell, 153. Lafond v. Deems, 10. Laibl^ v. Ferry, 407. Lamar v. Hale, 37. Lamb v. Eowan, 182. Lamb Knit-Goods Co. v. Lamb Glove & Mitten Co., 124. Lamont v. Fullam, 83. Mech. Part. 30 465 La Montagne v. Bank of N. T., 322, 427. Lane, In re, 451. v. Bishop, 52. Laney v. Fiekel, 3. Lang v. Waring, 402. Lanier v. McCabe, 257. Lansing v. Bever Land Co., 6, 34. Lapenta v. Lettieri, 355, 423. Larson v. Newman, 401. Lasher v. Cotton, 325. Lassiter v. Jackman, 179. v. Stainbaek, 194. Lathrop v. Adams, 301. Latrobe v. Dietrich, 49. Latta v. Kilbourn, 30, 63, 170, 172, 229. Laughlin v. Lorenz, 361, 403, 408. Law v. Cross, 327. Lawrence v. Clark, 190. v. Fox, 319. Lawson v. Glass, 208. Lay v. Emery, 180. Leaf's Appeal, 166. Leavitt v. Peck, 235, 242. v. Windsor Land Co., 79, 93, 222, 226. Leckie v. Kothenbarger, 55. Ledford v. Emerson, 205. Lee v. Bradley, 316, 446. v. First Nat. Bank, 241, 257. v. Hamilton, 260. Leffler v. Rice, 258. Leggett v. Hyde, 79, 92. Lehigh Val. R. Co. v. Dupont, 53. Leithauser v. Baumeister, 428. Lenow v. Fones, 166. Le Page Co. v. Russia Cement Co., 126. Le Roy v. Johnson, 122. Leserman v. Bernheimer, 469. Lesley v. Rosson, 205. Lesure v. Norris, 427. Letts-Fletcher Co. v. McMaster, 267. Levi v. Karrick, 179. TABLE OF CASES [REFERENCES ARE TO SECTIONS] Levi v. Latham, 257, 283. Levine v. Michel, 172, 226. Levy v. Walker, 126. Lewin v. Stewart, 61a. Lewis v. Culbertson, 402. v. Langdon, 126. v. U. S., 362, 461. Liberty Bank v. Campbell, 331. Lieb v. Craddock, 66, 397. Ligare v. Peacock, 145, 178, 350. Lill v. Egan, 295. Lincoln v. Craig, 102. Linder v. Adams County Bank, 403. Lindth v. Crowley, 256, 279. Lindsay v. Eace, 158. Lindsey v. Stranahan, 178, 179. Lineweaver v. Slagle, 477, 478. Linton v. Hurley, 301. Little v. Caldwell, 402, 403. Little v. Hazlett, 366, 388. Livingston v. Roosevelt, 267. Lloyd, In re, 455. Lobeek v. Hardware Co., 127, 402. Locke v. Lewis, 239, 267, 272, 274, 287. v. Stearns, 301. Lockwood v. Beckwith, 172. Lodge v. Feudal, 456. Loeb v. Pierpoint, 253. Logan v. Dixon, 189, 403, 411. v. Oklahoma Mill Co., 11, 13, 15, 83. v. Trayser, 187, 190. Long v. Citizens Bank, 29. v. Garnett, 392. v. Slade, 268. Loomis v. Barker, 313. v. Wallblom, 6, 414. Looney v. Gillenwaters, 174. Lord v. Baldwin, 459. v. Hull, 181, 227, 228. Lothrop v. Wightman, 417. Lott v. Young, 102, 111. Loudon Savings Society v. Savings Bank, 247. Louisville, etc., Co. v. Barnes, 312. Louisville E. Co. v. Alexander, 52. Love v. Payne, 57, 318. Lovejoy v. Lovett, 114. v. Spafford, 394. Lovell v. Beauchamp, 49. Loverin v. McLaughlin, 24, 29. Lowman v. Sheets, 274. Loy v. Alston, 187. Lucas v. Coulter, 318. Luddington v. Bell, 291, 429. Ludlow v. Cooper, 163. Lunt v. Stephens, 326. Lyman v. Lyman, 32. v. Eyman, 175. Lyon v. Knowles, 83. Lyons v. Lyons, 173. v. Murray, 187. Lynch v. Thompson, 259. Lyth v. Ault, 429. M. Mabbett v. White, 272, 274. Mack v. Engel, 182. Mackan v. Dann, 283. Macon Exchange Bank v. Tracy, 402. Maddock v. Ostburg, 225, 410. v. Skinker, 402. Madge v. Ping, 214. Maffet v. Leuckel, 291. Magee v. Magee, 43. Magilton v. Stevenson, 189, 195, 472. Magovern v. Eobertson, 72, 79. Mair v. Glennie, 83. Major v. Hawkes, 260, 423. v. Todd, 177, 351. Mallory v. Oil Works, 53. v. Eussell, 163, 165. Mandeville v. Courtright, 21. Manchester Bank, Ex parte, 407. Manhattan Co. v. Laimbeer, 23, 477, 478. 466 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Manley v. Taylor, 472. Mangels v. Shaen, 220. Manning v. Gasharie, 35. v. Williams, 411. Marble Co. v. Ripley, 222, 226. Markle v. Wilbur, 282. Markley v. Snow, 276. Marks v. Ghamos, 265, 290. v. Hastings, 276, 302. Marlett v. Jackman, 361, 388, 404. Marquand v. N. Y. Mfg. Co., 364. Marsh's Appeal, 174, 180. Marsh v. Davis, 61. v. Wheeler, 241, 256, 392. Marshall v. Keach, 27. v. Pinkham, 126. Martin v. Baird, 30, 31, 63. v. Morris, 163. v. Searles, 394. v. Stubbings, 217. Marwick, In re, 455. Marx v. Culpepper, 328. Maryland Nat. Bank v. Hollings- worth, 126. Mason v. Connell, 355. v. Eldred, 271, 294, 309, 310. v. Sieglitz, 205. v. Tiffany, 403, 411. Masters v. Brooks, 229. Matteson v. Nathanson, 404. Mattingly v. Stone, 178. Mattison v. Farnham, 361, 407. Matthews v. Adams, 182. Maugham v. Sharpe, 28, 155. Maxey v. Strong, 425. Maxfield v. Schwartz, 319. Maxwell v. Gibbs, 398. v. Sherman, 127. Mayberry v. Willoughby, 425. Mayer v. Bernstein, 253. v. Soyster, 52. Maynard v. Maynard, 179. v. Richards, 178. Mayor v. Manhattan Ey. Co., 22. McAlpine v. Millen, 15, 64, 74, 78, 83, 175. McAreavg v. Magirl, 428. McAuley v. Cooley, 216. McCabe v. Sinclair, 227. , McCall v. Moss, 116, 182. McCarney v. Lightner, 16, 81. McCarthy v. Seisler, 267. McCollum v. Carlucci, 209. McCord v. Callaway, 242. McCormick's Appeal, 61. McCoy v. Brennan, 316. v. Crossfield, 174, 191, 193. v. Jacks, 428. McCruden v. Jonas, 451, 461. McCullough v. Sommerville, 264. McDoel v. Cook, 271. McDonald v. Campbell, 59, 65, 92. v. Battle House Co., 79. v. Eggleston, 263. v. Fleming, 3, 71, 72. v. Holmes, 190. v. Mackenzie, 341. McDonough v. Bullock, 83. McElroy v. Adams, 276. v. Allfree, 456. McFadden v. Hunt, 219. v. Jenkins, 127, 129. v. Leeka, 3, 187, 195. v. Shanley, 328. McFarland v. Crary, 271. McGahan v. Rondout Bank, 283. McGill v. McGill, 403, 411. McGUvery v. McGilvery, 318. McGlensey v. Cox, 415. McGowan Co. v. McGowan, 226. McGrath v. Cowen, 57, 267, 274. Mcllroy v. Adams, 302. McKenzie v. L'Amoureux, 329. McKee v. Coralt, 146. McKinley v. Lynch, 42. McKinnon v. McKinnon, 410. McLain v. Carson, 411. McLaughlin v. Daily Telegraph Co., 51. 467 TABLE OF CASES [REFERENCES ARE TO SECTIONS] McLaughlin v. Mulloy, 54. McLennan v. Hopkins, 23. McLinden v. Wentworth, 289. McMahon v. McClerman, 357. McMaster v. City Nat. Bank, 309. MeMullen v. Mackenzie, 65. v. Hoffman, 44, 46. McMurtrie v. Gwiler, 469. McNair v. Platt, 331. v. Wilcox, 331. McNeal v. Gossard, 256, 277. McNeely v. Haynes, 302. McNeil v. Congregational Society, 167. McNeish v. Oat Co., 361. McVicker v. Cone, 23. Mead v. Shepard, 251. Meador v. Hughes, 54. Meadows v. Mocquot, 136, 472, 473. Mechanics' Ins. Co. v. Biehardson, 256. Medbury v. Watson, 330. Meech v. Allen, 148, 449, 463. Meehan v. Valentine, 6, 96. Meeker v. Thompson, 391. Megahan v. Bank of Eondent, 263. Mehlhop v. Bae, 49. Meinhart v. Draper, 3. Menage v. Burke, 123, 155. Menagh v. Whitwell, 143, 146, 416, 443, 444. Meneely v. Meneely, 124. Merchants Bank v. Johnston, 263. Merchants' Nat. Bk. v. Coyle, 51. v. Wehrman (69 Oh. St. 160), 53. v. Wehrman (167 IT. S. 362), 53. Meriden Nat. Bank v. Gallaudet, 120. Merrall v. Dobbins, 79. Merrill v. National Bank, 455. Merriman v. Barker, 294. v. Mfg. Co., 319. Merritt v. Buckman, 311. Merritt v. Day, 425. v. Williams, 391. Merriweather v. Hardeman, 474. Merry v. Hoopes, 128. Messner v. Lewis, 121. Metcalfe v. Bradshaw, 117, 172, 229. v. Eycroft, 327. Methodist Church v. Piekett, 19. Metropolitan Bank v. St. Louis Dis- patch Co., 128. Metropolitan Nat. Bank v. Sirret, 478. Meyer, In re, 326. v. Krohn, 54, 58, 392. v. Parsons, 322. Mick v. Howard. 122. Mifflin v. Smith, 117. Miles v. Ogden, 273. v. Schmidt, 225. Mickle v. Peet, 199, Miles Co. v. Gordon, 83. Miller v. Bailey, 212. v. Brigham, 364, 415. v. Consolidated Bank, 277. v. Estill, 436. v. Ewer, 23. v. Ferguson, 61. v. Freeman, 180, 193, 214, 229. v. Hoffman, 403. v. Hughes, 87. v. Miller, 61. v. Neimerick, 250, 425. v. N. O. Fertilizer Co., 454. v. Eapp, 58. v. Sims, 49. v. Waite, 316. Miller's Eiver Bank v. Jefferson, 451. Millhiser v. McKinley, 447. Mills v. Barber, 274. v. Gray, 205. v. Eiggle, 291. Milmo Nat. Bk. v. Bergstrom, 397. Milnes v. Gery, 225. 468 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Co. v. Anglo-Calif. Bank, 388. Missaukee Farm Co. v. Ferris, 121. Missouri Pac. E. Co. v. Smith, 327. Mitchell v. Fish, 46. - v. Greenwald, 271. - v. O'Neale, 4, 62. - v. Eeed, 170, 229. - v. Tonkin, 16, 43. Mitehell-Borne Const. Co., In re, 81. Mix v. Shattuck, 295. Moffat v. Thompson, 435. Mohawk Nat. Bank v. Van Nyck, 287. Moist 's Appeal, 260. Mokelumne Hill Mining Co. v. Woodbury, 23. Molen v. Orr, 326. Moley v. Brine, 49. Molineaux v. Eaynolds, 132, 163, 469. Mollwo v. Court of Wards, 91. Mondamin Bank v. Burke, 179. Monmouth College v. Dockery, 301, 304. Monroe v. Conner, 242. - v. Ezzel, 325. - v. Hamilton, 238, 364. Moody v. Lucier, 453. - v. Payne, 148. , - v. Wilks, 349. Moore v. May, 35, 63, 235, 280. - v. Price, 377. - v. Eawson, 129, 229. - v. Steele, 364. - v. Stevens, 263, 277. - v. Thompson, 14. - v. Westbrook, 183. Moreau v. Saffarans, 123, 153. Morehouse v. Northrop, 301. Morgan v. Parrel, 64, 65, 79, 102, 103, 247. - v. Nanea, 210. - v. Eandolph, 319. - v. Eichardson, 262. Morgan v. Schuyler, 125, 128, 130. Morganthau v. King, 341. Morgart v. Smouse, 61. Morison v. Moat, 225. Moritz v. Lavelle, 61. Morrill v. Bissell, 398. v. Weeks, 227. Morris v. Griffin, 179. v. Kearsley, 225, 410. v. Morris, 456. v. Peckham, 60, 222, 223. Morris Run Coal Co. v. Barclay Coal Co., 53. Morrison v. Austin Bank, 57. v. Bennett, 46. v. Blodgett, 148, 170, 363. v. Dickey, 52, 55, 58. Morse v. Carpenter, 155. v. Hutchins, 216. Pacific Railway Co., 13, 140. Mosgrove v. Golden, 326. Mosier, In re, 458. Motley v. Wiekoff, 429. Moyer v. Drummond, 316. Mudd v. Bast, 423. Munsey v. Butterfield, 131. Munson v. Sears, 83. Munton v. Eutherford, 102. Murphy v. Crafts, 174, 191, 193. v. Murphy, 410. v. Warren, 136. Murray v. Blackledge, 155. v. Herrick, 190. v. Mumford, 402. , v. Murray, 326, 415, 417. Murrell v. Mandelbaum, 144. Murrill v. Neill, 453. Murtrey v. Allen, 232. Musselman's Appeal, 129. Mutual Fire Ins. Co. v. Hammond, 327. Mycock v. Beatson, 373. Myers v. Council Bluffs Ins. Co., 266. v. Electric Co., 418. 469 TABLE OF CASES [REFERENCES ARK TO SECTIONS] Myers v. Kalamazoo Buggy Co., 126. v. Lewis, 301. N. Nail v. Mclntyre, 331. Nashua Co. v. Moore, 24. Nason, Ex parte, 458. Nathanson v. Spitz, 310. National Bank v. Cringan, 30, 63, 121, 289. National Cash Register Co. v. Brown, 428. Nat. Exchange Bank v. Wilgus, 297. National Shutter Bar Co. v. Zim- merman, 28. National State Bank v. Noyes, 257, 258. National Surety Co. v. Winslow, 10. National Union Bk. v. National Mechanics' Bk., 154, 160, 161, 167. National Wire Bound Box Co. v. Healy, 170, 172. Natusch v. Irving, 134, 281. Neal v. Berry, 49. v. Smith, 392. Neale v. Turton, 257. Nehrbross v. Bliss, 402. Neil v. Greenleaf, 217. Neilson v. Mossend Iron Co., 17, 225. Nelms v. McGraw, 83. Nelson v. Hill, 411. Nemeth v. Tracy, 256. New v. Wright, 226, 231, 377. New Haven Wire Co. Cases, 28. New Market Nat. Bk. v. Locke, 453. New York, etc., Ins. Co. v. Bennett, 277. New York Nat. Bank v. Crowell, 23. Newan v. Eldridge, 6. Newbigging v. Adam, 373. Newby v. Harrell, 199, 215. Newcomb-Endicott Co. v. Fee, 23. Newell v. Cochran, 170. Newhall v. Buckingham, 148. Newman v. Bagley, 445. v. Gates, 411. v. Kuby, 211. Newsom v. Pitman, 215, 218. Nichol v. Stewart, 143, 435. Nicholls v. Buell, 29. Nichols v. Burcham, 163. v. Murphy, 136. v. Thomas, 239, 273, 274. Nicholson v. Moog, 392. Niday v. Hancy, 293. Nims, In re, 450. Nirdlinger v. Bernheimer, 58. Nixon v. Nash, 148. North v. Bloss, 335. v. Madge, 262. North Star Co. v. Stebbins, 300. North Penri. Coal Co. 's Appeal, 289, 291, 293. Northen v. Tatum, 173, 187. Northern Bank of Ky. v. Keizer, 454. Northern Ins. Co. v. Potter, 311. Norton v. Brink, 61. Norwalk Nat. Bk. v. Sawyer, 167. Nott v. Downing, 271. Noyes v. Crandall, 256. v. Cushman, 12, 13. v. New Haven, etc., B. Co., 242, 260, 261. v. Ostrom, 196, 219, 233. Nussbaumer v. Becker, 397. O. Oakley v. Pasheller, 428. Oakman v. Ins. Co., 402. O'Brien v. Foglesong, 123. v. Smith, 199. O'Connell v. Schwanabeck, 403. Odom v. Denny, 294. O'Donnell v. Battle House Co., 83. Ogden v. Arnot, 269, 363, 415. 470 TABLE OF CASES [REFERENCES ARE TO SECTIONS] O 'Gorman v. Fink, 316, 446. Olcott v. Little, 294. Old Corner Bookstore v. Upham, 131. Oliphant v. Markham, 267. Oliver v. Forrester, 403. v. Gray, 11, 73. v. House, 474. Olleman v. Keagan, 403, 456. Olson v. Lamb, 341. v. Morrison, 448. O'Neal v. Judsonia Bank, 269. Osborn v. McBride, 146. Osborne v. Barge, 267. v. Thompson, 277. Osburn v. Farr, 49, 50. Oteri v. Scalzo, 373, 375. Overlook v. Hazzard, 394. Overton v. Tozer, 262. Owen, Ex parte, 414. Owen v. Meroney, 210. Owens v. Mackall, 407. Owensboro Wagon Co. v. Bliss, 23. P. Page v. Brant, 335. v. Citizens Banking Co., 339. v. Cox, 225. v. Morse, 49. v. Thomas, 158. v. Wolcott, 423. Paige v. Paige, 154, 158, 165. Paine v. Moore, 193, 218. v. Thacker, 178, 217. Palmer v. Dodge, 425, 426. v. Scott, 304. Parchon v. Anderson, 79, 98. Parker v. Bowles, 158, 160. v. Butterworth, 425. v. Canfield, 92. v. Macomber, 201. v. Merritt, 436. Parsons v. Tillman, 451. Patrick v. Weston, 37. Patten v. Cunningham, 310. Patterson v. Atkinson, 146, 267. v. Byers, 328. v. Lily, 278. v. Ware, 227. Pattison v. Blanchard, 83. Patton v. Carr, 402. v. Leftwieh, 403. Patty-Joiner Co. v. City Bank, 44, 46. Payne v. Dexter, 304. v. Matthews, 456. v. O 'Shea, 341. v. Thompson, 52. Peacock v. Peacock, 145, 357. Peacocks v. Cummings, 282. Peaks v. Graves, 330. Pearce v. Ham, 229. v. Sutherland, 372. Pearson v. Keedy, 411, 431. Pearpoint v. Graham, 357. Pease v. Cole, 241, 257. Peasler v. Sanborn, 316. Peck, Matter of, 6, 7, 458. Peckham Iron Co. v. Harper, 302. Peirce v. Weber, 263. Pelletier v. Couture, 49. Pendleton v. Cline, 121. Penn v. Folger, 271, 304. v. Kearney, 265, 290. Pennington v. Todd, 228. Pennoyer v. David, 250, 425. Pennybacker v. Leary, 61. People v. Coleman, 6, 35, 280. v. Paisley, 337. v. Remington, 455. v. Sugar Refining Co., 53. People's Bank v. Shryock, 148. People's Bank v. Wilcox, 403. People's Nat. Bank v. Hall, 314. Peoria Ins. Co. v. Hall, 266. Pepper v. Peck, 444. v. Thomas, 158. Percifull v. Platt, 153. Perens v. Johnson, 148. 471 TABLE OF CASES [REFERENCES AKE TO SECTIONS] Perkins v. Butler Co., 423. Persons v. Oldfield, 277. Peters v. Bain, 453. v. Dans, 402. v. McWilliams, 318. Peterson v. Armstrong, 240. v. Humphrey, 125. v. Roach, 289. Petrie v. Torrent, 16. Pettis v. Atkins, 23, 280. Petty v. Brunswick By. Co., 24. Pettyjohn v. Woodruff, 454. Pettyt v. Janeson, 115. Peyser v. Myers, 318, 444. Peyton v. Lewis, 322, 427. Pfeffer v. Steiner, 402. Pfeuffer v. Maltby, 228. Phelps v. Brewer, 254, 276. v. McNeely, 443. Phillips v. Blatchford, 9, 35, 187. v. Furniture Co., 267. v. Phillips, 4. v. Eeeder, 346. v. Reynolds, 16. v. Stanzell, 241, 256, 257. v. Thoys, 274, 331. v. Trezevant, 231. Phipps v. Little, 256. Phoenix Ins. Co. v. Miller, 331. Pickels v. McPherson, 246. Pico v. Cuyas, 199. Pierce v. Jackson, 449. v. Scott, 175. v. Ten Eyck, 427. v. Trigg, 6. Pierson v. Hooker, 261. Pike 's Peak Co. v. Pf untner, 170. Pilcher, Succession of, 6. Pillsbury v. Pillsbury Washburn Co., 124. Pinckney v. Keyler, 341. Pinson, In re, 111. Pirtle v. Penn, 145, 226, 229. Pitkin v. Benfer, 287, 296, 397. v. Pitkin, 407. Pittsburg V. F. & C. Co. v. Klingel- hofer, 286. Place v. Sweetzer, 148. Platt v. Colvin, 329. Plummer v. Stuby Co., 24. Podrasink v. Martin, 397. Poillon v. Secor, 105. Polk v. Buchanan, 87. v. Oliver, 394. Pollard v. Stanton, 81. Pollock v. Dunning, 123. Pomeroy v. Benton, 175. Pond v. Kimball, 316. Poole v. Hintrager, 319. * v. Koons, 173. v. Munday, 409. Pooley v. Driver, 1, 2, 6, 91. v. Whitmore, 257. Pope v. Cole, 411. v. Randolph, 203. Porch v. Arkansas Milling Co., 316. Porter v. Baxter, 428. v. Curry, 259, 283. Post v. Kimberly, 59. Potter v. Greene, 65. v. Tolbert, 426. Powell Co. v. Finn, 35. Power Grocery Co. v. Hinton, 135. Powers v. Silberstein, 428. Pratt v. Langdon, 87. v. McGuinness, 146. Prentice v. Elliott, 182, 260. Prentiss v. Sinclair, 398. Preston v. Fitch, 144. v. Garrard, 428. President, etc., of Adams Bank v. Rice, 59. Price v. Alexander, 79, 264. v. Matthews, 126. v. Spencer, 219. Prince v. Crawford, 257, 258, 279. Prosser v. Hartley, 316. Providence v. Bullock, 157. Pugh v. Holliday, 326, 415. Pullen v. Whitfield, 411. 472 TABLE OF CASES [REFERENCES ABB TO SECTIONS] Pulliam v. Schimpf, 83. Purple v. Farrington, 186, 443. Purviance v. Sutherland, 264. Purvines v. Champion, 217. Purvis v. Butler, 92. Putnam v. Wise, 15, 83. Q. Quackenbush v. Sawyer, 11, 14, 83 Queen v. Robson, 1, 2, 3. Queen City Furniture Co. v. Craw ford, 23, 63. Quinn v. Quinn, 78 B. Radeliffe v. Varner, 235. Railsback v. Lovejoy, 170. Bains v. Weiler, 179. Bainwater v. Childress, 23. Balston v. Moore, 411. Eammelsberg v. Mitchell, 129, 402. Ramsay v. Meade, 208, 209. Rand v. Nutter, 294. v. Wright, 361. Randall v. Johnston, 148. v. Merideth, 241. Bandle v. Richardson, 189. Randolph v. Daly, 314. Ranft v. Reimers, 131. Rankin v. Newman, 410. Ransom v. Vandeventer, 444. Rapp v. Latham, 250. Ratcliffe v. Mason, 165. Ratzer v. Ratzer, 4. Rawson v. Taylor, 428. Raymond v. Patnam, 54, 145, 469. v. Vaughn, 365, 376. Read v. Bailey, 456. v. Mackay, 129, 130. v. Smith, 46. Beams v. Taylor, 51. Beddington v. Franey, 436. Redenbaugh v. Kelton, 289. Redfield v. Gleason, 178. Redlon v. Churchill, 256, 277. Beed v. Bacon, 278, 458. v. Cremer, 65. v. Gould, 215, 330, 331. v. Meagher, 30, 37, 63. Beece v. Hoyt, 415. Beese v. Bradford, 446. Beid v. Hollingshead, 14, 272, 274, 287. Eeilly v. Woolbert, 227. Beirden v. Stephenson, 250, 282. Beis v. Hellman, 215. Beiser v. Johnston, 205, 282. Bemick v. Emig, 403. Bemington v. Allen, 199, 203. Benfro v. Adams, 271. Benton v. Chaplin, 415. Beyburn v. Mitchell, 186, 291, 441, 443. Beynell v. Lewis, 29. Beynolds v. Cleveland, 292. v. Johnson, 443. v. Pool, 15, 83. v. Swain, 290. Bice, In re, 451. v. Angell, 129. v. Barnard, 32, 449. v. Culver, 216. v. Johnson, 235, 244. v. Bockefeller 40. v. Van Why, 338. Richard v. Allen, 148, 271. Richards v. Butter, 394. v. Grinnell, 61. v. Le Veille, 442. v. Minnesota Savings Bank, 22. v. Todd, 373. Bichardson, Ex parte, 407. v. Farmer, 287. v. Gregory, 350. v. Hughitt, 79. v. Moies, 425. v. Bedd, 316, 402. 473 TABLE OF CASES [REFERENCES ABE TO SECTIONS] Bicker v. American L. & T. Co., 6. Eickman v. Eickman, 271. Eiddell v. Bamsey, 215. Biddle v. Whitehill, 154, 158, 363. Eidenour v. Mayo, 29. Eider v. Hammell, 64. Biedeburg v. Schmitt, 58. Bingo v. Wing, 318. Bingolsky v. Mining Co., 29. Bipley v. Colby, 122. Eittenhouse v. Leigh, 102. Eizen v. James, 105. Boach v. Bannon, 402, 403. v. Perry, 189. Bobards v. Waterman, 267. Bobb v. Mudge, 425. Bobbins v. Kimball, 61. v. Laswell, 81, 82. Boberts v. Eldred, 158. v. Johnston, 312. v. McCarty, 161. v. McKee, 226. Eobertson v. Corsett, 6. Eobinson v. Anderson 145. v. Bullock, 83. v. Floyd, 392. v. Goings, 302. v. Magarity, 121. v. Boos, 322. v. Security Co., 454. v. Simmons, 178, 407, 409. v. Storm, 124. v. Wilkinson, 287. Bobinson Bank v. Miller, 141, 158, 160, 161, 168. Boby v. Colehour, 170. Bock v. Collins, 267, 283. Eocky Mt. Nat. Bank v. McCaskill, 391. Bocky Mt. Stud Farm Co. v. Lunt, 13. Bodgers v. Clement, 182, 183. v. Meranda, 453. Bogers v. Batchelor, 331. v. Betterton, 185, 272, 274. Bogers v. Baynor, 330. v. Bogers, 124, 196, 233. Eoger-Williams Nat. Bk. v. Hall, 194. Eohlfing v. Carper, 319. Eolfe v. Dudley, 276. Eollins v. Stevens, 277. Boop v. Herron, 6. Eose v. Coffield, 392. Bosenbaum v. Hayden, 6. Bosenblatt v. Weinman, 59. Eosenfield v. Haight, 79. Eosenkrans v. Barker, 276, 302. Bosenstein v. Burns, 375, 377, 380. Boss v. Burrage, 16, 79. v. Henderson, 158. Bothwell v. Humphreys, 258. Bouse v. Bradford Banking Co., 428. v. Wallace, 122, 295, 450. Bouse, Hazard & Co. v. Detroit Cycle Co., 36. Bovelsky v. Brown, 163, 268, 275. Eowland v. Estes, 397. Eowell v. Bowell, 129. Euby, In re, 403, 456. Buffin, Ex parte, 436, 446. Buffner v. Hewitt, 423. v. McConnell, 164. Buggies v. Buckley, 178. Bumery v. MeCulloch, 253. Eumsey v. Briggs, 257, 296. Eush v. Thompson, 341. Eusling v. Brodhead, 402. Bussell v. Annable, 263. v. Cole, 415. v. Leland, 272. v. McCall, 402. Eussia Cement Co. v. Le Page, 126, 124. Bust v. Burke, 341. v. Chisholm, 403. Eutherford v. Hill, 23. v. McDonnell, 274. Eyan, In Estate of, 45, 188. Eyckman v. Manerud, 309. 474 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Ryder v. Wilcox, 209, 214, 217. Ryerson v. Hendrie, 308. S. Sabel v. Savannah Kail & Equip. Co., 30, 63. Sabine Tram Co. v. Bancroft, 53. Sadler v. Nixon, 203. Sage v. Ensign, 425. Sailors v. Nixon-Jones Printing Co., 59, 70, 73. St. Louis, etc., Co. v. International, etc., Co., 316. St. Paul Trust Co. v. Fineh, 183. Salinas v. Bennett, 50. Salisbury v. Ellison, 403. Salmon v. Davis, 260. Salter v. Ham, 79. Salt Lake Brewing Co. v. Hawke, 258, 277, 278, 279. Samstag v. Ottenheimer, 298. Sanborn v. Eoyce, 148. Sanders v. Schilling, 52. Sands v. Durham, 428. Sandusky, In re, 148, 463. v. Sidwell, 333. Sanger v. French, 60, 227. Sangston v. Hack, 117. Sargent v. Blake, 443, 444, 447. v. Henderson, 259. Satterthwait v. Marshall, 224. Saunders v. Reilly, 442, 450. Savage v. Putnam, 322. Sawyer v. First Nat. Bk., 79. v. Worthington, 78. Sayer v. Bennett, 376. Scarf v. Jardine, 108, 336. Scarlett v. Snodgrass, 52. Scekell v. Fletcher, 297. Scharringhausen v. Luebsen, 410. Schele v. Wagner, 257. Schlau v. Enzenbacker, 403, 421. Schmertz v. Spreeve, 263. Schmidlapp v. Currie, 444. Schmidt v. Archer, 361. Schneider v. Sansom, 274. v. Schmidt, 264. Schumacher v. Telephone Co., 3, 241, 257. Schwartz v. Marcuse, 328. Schweppe v. Wellauer, 123. Scott v. Bryan, 190. v. Campbell, 211. v. Conway, 335. v. Rayment, 222. Scudder v. Ames, 116. Seabury v. Crowell, 107. Seaman v. Apcherman, 265. Sears v. Starbird, 190. Seattle Board of Trade v. Hayden, 52. Second Nat. Bk. v. Burt, 291, 450, 461. Seeberger v. Wymans, 277. Seeley v. Mitchell, 167. Seger's Sons v. Thomas Bros., 443. Seighortner v. Weissinborn, 377. Selden v. Hall, 478. Seldner v. Mt. Jackson Nat. Bk., 423. Seligman v. Friedlander, 411. v. Heller, 342. Selwyn v. Waller, 16. Serviss v. McDonnell, 318, 319. Setzer v. Beale, 58. Seifert v. Gille, 394. Sexton v. Anderson, 441, 443. Sewell v. Cooper, 217. Seymour v. Harrow Co., 121. Seymour v. Railroad Co., 325. Shackelford v. Williams, 43. Shaffer v. Martin, 304. Shamberg v. Ruggles, 397. Shamp v. Meyer, 319. Shanks v. Klein, 154, 164, 169, 402. Shannon v. Wright, 226, 231. Shapard v. Hynes, 398. Shapleigh Hardware Co. v. Wells, 428. 475 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Sharp v. Hutchinson, 481. Shattuck v. Chandler, 253, 403, 405. v. Lawson, 213. Sharer v. Sharer, 126. Shaw, et al., Appellants, 405, 408. Shaw v. MeGregory, 319. Shea v. Donahue, 136, 473. Shearer v. Shearer, 163, 166. Sheble v. Strong, 478. Sheldon v. Bigelow, 103. Shelton v. Johnson, 388. Shepard v. Pratt, 79, 98. Sheppard v. Boggs, 129. v. Bridges, 322, 427. Sherburne v. Hyde, 308. Sheridan v. Medara, 87. Sherman v. Kreul, 411. Sherrod v. Langdon, 108, 398. Sherry v. Gilmore, 123, 153. Sherwood v. Snow, 256, 258, 277. Shield v. Adkins, 30. Shirk v. Shultz, 49. Shrader v. Downing, 172. Shropshire v. Adams, 60. Shurtleff v. Willard, 193. Sibley v. Parsons, 392. Siegel v. Chidsey, 362. Sigler v. Knox County Bank, 444. Sikes v. Work, 11. Sillitoe, Ex parte, 451, 456. Silverman v. Kristufek, 153. Silvers v. Foster, 300. Sinsheimer v. Skinner, 333. Simons v. Stuart, 225. Simonton v. McLain, 54. Simpson, In re, 410. Simpson v. Feltz, 87. - v. Miller, 203, 350, 364. Simroll v. O'Bannons, 194, 200. Sims v. Smith, 347. Sindelare v. Walker, 143, 146, 215, 330. Singer v. Heller, 379. Singer Mfg. Co. v. June Mfg. Co., 124. Singerly v. Fox, 232. Sivingston v. Eoosevelt, 240. Skillman v. Lachman, 37, 57. Skinner v. Dayton, 264, 355. Slack v. Suddott, 18, 129, 130. Sladen v. Lance, 235, 259. Slater v. Slater, 126. Sleech's Case, 411. Sleeper v. Park, 40. Slemmer's Appeal, 355. Slipper v. Stidstone, 402. Sloan v. Gibbes, 190. v. Moore, 267, 274. v. Wilson, 146. Slocomb v. De Lizardi, 403. Smith v. Ayer, 407. v. Ayrault, 187, 188. v. Bailey, 108, 398. v Black, 294. v. Canfield, 123. v. Cisson, 265. v. Collins, 250, 256, 291. v. Cooke, 333. v. Cooper, 125. v. Edwards, 436. v. Everett, 129, 373. v. Heineman, 446. v. Hill, 105. v. Jayes, 114. v. Kemp, 211. v. Kerr, 263. v. Knight, 178. v. Loring, 191. v. Moynihan, 66. v. Eichmond, 44. v. Sheldon, 428. v. Sloan, 241, 257. v. Smith, 443, 449. v. Texas, 28. v. Vandenburg, 371. v. Walker, 127. v. Weston, 277. Smith Lumber Co. v. Fitzhugh, 411. Snell v. Dwight, 46. Sniders' Sons Co. v. Troy, 27. 476 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Snively v. Matheson, 257. Snyder Mfg. Co. v. Snyder, 126, 129. Society Perun v. Cleveland, 19. Sodiker v. Applegate, 79, 98. Solomon v. Kirkwood, 355, 394. Somerby v. Buntin, 119j 222, 224. Somerset Potters Works v. Minot, 451. Soper v. Fry, 262. Southern Coal Co. v. Smith, 316. Southern Cotton Oil Co. v. Hen- shaw, 169. Southern Fertilizer Co. v. Reams, 92. Southwick v. Allen, 372, 394. Spalding v. Oakes, 188. Spann v. Cockran, 319. Sparman v. Keim, 49. Sparrow v. Kohn, 121. Spaulding v. Stubbings, 72, 77, 79. Spaulding Mfg. Co. v. Godbold, 153. Spaunhorst v. Link, 364. Spear v. Newell, 203, 204, 229. Speer v. Bishop, 106. Spencer v. Jones, 16, 43. Sperry v. Tulley, 187. Spitz, In re, 316. Spofford v. Eowan, 342. Spotswood v. Morris, 35, 280. Sprout v. Crowley, 211. Staats v. Bristow, 143. Stables v. Eley, 108, 398. Stahl v. Osmers, 146, 443. Stampfle v. Bush, 403. Stanhope v. Swafford, 301. Stanton v. Westover, 446. Stanwood v. Owen, 407, 408. Staples v. Schmid, 302. v. Sprague, 282. Starr v. Case, 402. State v. Merritt, 327. v. Neal, 405. v. Withrow, 403. State Bank v. Kelly, 146. State National Bank v. Butler, 13. Starer & Abbot Mfg. Co. v. Blake, 23, 26, 36. Stearns v. Houghton, 402. Stebbins v. Willard, 425. Stecker v. Smith, 259. Stegman v. Berryhill, 180. Steiner v. Peters Store Co., 450. Stein v. Robertson, 189. v. La Dow, 253. Steinhart v. Fykrie, 253. Stephens v. Orman, 117. v. Thompson, 291. Sterling v. Bock, 263, 264. Stern v. Warren, 16. Sternberg v. Larkin, 402. Stettauer v. Carney, 16. Stevens v. Faucet, 82. v. Perry, 314, 463. Stevenson v. Aktiengesellschaft, etc., 369. v. Erskine, 114. Stewart's Case, 455. Stewart v. Brown, 316. v. Robinson, 361, 408. v. Todd, 52, 410. Stillman v. Harvey, 259, 265. Stirling v. Heintzman, 56. Stitt v. Lumber Co., 61, 351. Stockdale v. Ullery, 267. Stoddard Mfg. Co. v. Krause, 392. Stokes v. Hoffman House, 232. Stone v. Clark, 114. v. Wendover, 214, 235. Story v. Richardson, 330. Stout v. Baker, 314. v. Ennis Nat. Bk., 261. Stoutimore v. Clark, 24. Straffin v. Newell, 264. Strang v. Bradner, 301. v. Thomas, 481. Streichen v. Fehleisen, 285. Strong v. Lord, 163. v. Smith, 250. Stuart v. Stewart Co., 124. 477 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Stumph v. Bauer, 136, 472. Stundon v. Dahlenberg, 43, 63, 64, 247. Sturges v. Vanderbilt, . Suau v. Caffe, 52. Sugg v. Thornton, 310, 314. Sullivan v. Smith, 253, 269. v. Visconti, 274. Summerson v. Donovan, 261. Suprenant, In re, 446. Sutro v. Wagner, 231. Button v. Mo., etc., Ry. Co., 14, 43, 94. v. Weber, 259. Suydam v. Barber, 294. Swan v. Steele, 287, 298. Swann v. Sanborn, 460. Sweeney v. Neely, 182, 25L Sweet v. Wood, 265, 285. Swift v. Green, 271. v. Ward, 352, 359. Swigert v. Aspden, 393. Sykes v. Beadon, 46. Symonds v. Jones, 126. T. Taber-Prang Art Co. v. Durant, 141, 161. Taft v. Buffam, 364. v. Church, 250, 300. v. Schwamb, 145, 472. Tankersley v. Norton, 351. Tanner v. Hall, 277. Tanner Engine Co. v. Hall, 106. Tapley v. Butterfield, 267. Tappen v. Bailey, 35. Tarbell v. Page, 23. v. West, 167. Tasker v. Shepherd, 400, 403, Tate v. Clements, 278, 425. v. Ins. Co., 326. Tattersall v. Nevels, 164. Taylor v. Thompson, 196. v. Wilson, 460. Teague v. Lindsey, 443. Tebbetts v. Dearborn, 170, 229. v. Rollins, 455. Teed v. Parsons, 3. Telfer, In re, 451, 456. Temple v. Seaver, 194. Tennant v. Dunlop, 129, 402. Tenney v. Simpson, 61. Terrill v. Richards, 210. Thayer v. Augustine, 79. v. Badger, 178. v. Goss, 106, 336, 394. v. Humphrey, 448, 460. Theus v. Dugger, 52. Thillman v. Benton, 77. Thimsen v. Reigard, 16. Thomas v. Atherton, 187. v. Hardsocg, 297. v. Lines, 116. Thompson v. Emmert, 309. v. First Nat. Bank, 102, 103, 105, 106. v. McKee, 61. v. Percival, 429. v. White, 308. Thornton v. Lambeth, 289. Thrall v. Seward, 116. Thropp v. Richardson, 213. Thurlow v. Warren, 316. Thwaites v. Coulthwaite, 45. Thynne v. Shove, 126. Tibbetts v. Shopleigh, 294. Tidd v. Rines, 153. Tilge v. Brooks, 478. Tillinghast v. Champlin, 169. v. Gilmore, 252. Tillis v. Folmar, 428. Tisch v. Rockafellow, 407. Tischler v. Kurtz, 263. Tobey v. Bristol County, 119. Todd v. Emly, 10. v. Jackson, 304. v. Lorah, 267, 272, 274. v. Rafferty, 172. Tom v. Goodrich, 293. 478 TABLE OP CASES [REFERENCES ARE TO SECTIONS] Tomlinson v. Broadsmith, 276. Tonge v. Item Pub. Co., 23. Tootle v. Jenkins, 407. Topping, Ex parte, 457. Topping v. Paddock, 195. Torbert v. Jeffrey, 16, 76, 77. Towle v. Meserve, 203. Townley v. Crickenberger, 59. Townshend v. Goodfellow, . v. Jarman, 125. v. Long, 319. Trafford v. Hubbard, 148. Traphagen v. Burt, 61, 140. Treadwell v. Wells, 392. ' Treat v. Hiles, 137, 208. Trego v. Hunt, 127, 131, 170. Trexlar v. Africa, 153. Trott v. Irish, 327. Troughton v. Hunter, 396. Tucker v. Cole, 270, 271. Tuckerman v. Newhall, 311. Tuite v. Tuite, 49. Turner v. Jaycox, 450. v. Major, 225. Tutt v. Land, 182. Twin City Brief Printing Co. v. Eeview Pub. Co., 122, 126. Tyler v. Waddingham, 289. Tyrrell v. Washburn, 35, 322, 361. U. Uhler v. Browning, 122. Ullman v. Myriek, 272. Union Bank v. Kansas City Bank, 267. Union Nat. Bank v. Bank of Com- merce, 458. Union Trust Co. v. Shoemaker, 411. Updike v. Doyle, 319. United States v. Adams Express Co., 35. v. Astley, 293. U. S. v. Lyman, 293. United States Bank v. Binney, 32, 117, 292. United States Wood Preserv. Co. v. Lawrence, 29, 102. V. Vaccaro v. Security Bank of Mem- phis, 6. Vail v. Winterstein, 52. Valentine v. Wysor, 402, 474. Vance v. Blair, 214, 235. Vanderhurst v. De Witt, 65. Van Deusen v. Blum, 263. Vanhorn v. Corcoran, 478. Van Keuren v. Parmelee, 425. v. Trenton, 226, 357. Van Kleeck v. Hammell, 102. v. McCabe, 460. Vanneman v. Young, 23, 27. Vannerson v. Cheatham, 52. Vanness v. Dubois, 427. Van Ness v. Forrest, 202. Varner's Appeal, 474. Vernon v. Manhattan Co., 391. Vetsch v. Neiss, 241, 257. Vetterlein v. Barnes, 414. Vetterlein, In re, 450, 461. Vickers v. Vickers, 225. Viles v. Bangs, 260, 326, 331. Vincent v. Martin, 361, 408. Vinson v. Beveridge, 98. Volk v. Eoche, 193. Von Bremen v. Mac Monnies, 131, 132. Vonderbank v. Schmidt, 126, 128, 130. Voorhees v. Jones, 82. Voohris v. Child's Exr., 402. Voshnik v. Urquhart, 253. Vosper v. Kramer, 436. Vredenburg v. Behan, 21. W. Wade v. Hornaday, 16, 72, 59, 92, Wade v. Pope, 407. Wadsworth v. Manning, 222. 479 TABLE OF CASES [REFERENCES ARE TO SECTIONS] "Waggoner v. First Nat. Bk., 64, 79, 98. Wagner v. Buntcs, 15. v. Buttles, 83. v. Simmons, 256. Wahl v. Barntim, 60. Wait v. Dodge, 325, 326. Waite v. Foster, 425. v. Vinson, 272. Walker v. Bean, 252. v. Herman, 146, 148. v. Miller, 155. v. Mottram, 132. v. Sharpe, 271. v. Steel, 326. v. Stimmel, 121. v. Wait, 6, 194, 200. v. Walker, 257, 407. v. Whipple, 351. Wall v. Boisgerard, 329. v. London Assets Corp., 282. Waller v. Davis, 364. v. Keyes, 246. Wallerstein v. Ervin, 53. Walling v. Burgess, 169. Wain v. Hewes, 402. Walsh v. Lennon, 256, 258, 264. Walstrom v. Hopkins, 429. Waltham Piano Co. v. Pierson, 279, Wann v. McNulty, 294. Ward v. Barker, 276. v. Johnston, 294. Warder v. Newdigate, 260. Ware v. Owens, 161. Warner v. Beers, 280. Warren v. Ball, 397. v. Farmer, 455. v. Martin, 272, 274, 287. v. Taylor, 435, 452, 469. Warriner v. Mitchell, 295. Warring v. Arthur, 189, 190. Watson, Ex parte, 336. Watson v. Fletcher, 44. Watson v. Hinchman, 302. v. McKinnon, 446. Watson v. Murray, 44. Watts v. Rice, 330. v. Sayre, 342. Waugh v. Carver, 86. Waverly Nat. Bk. v. Hall, 79. Way v. Stebbins, 157, 158. Webber v. Webber, 261. Webb v. Fordyce, 175. v. Hicks, 92. v. Johnson, 58. Webster v. Clark, 64, 79, 103. v. Webster, 126. Wechselberg v. Nat. Bank, 29. Weeks v. Mascoma Rake Co., 263, 300. v. McClintoek, 174, 179. Weiland v. Sell, 98. Weise v. Gray's Harbor Commercial Corp., 372, 394. Welbourn v. Kleinle, 402. Weisenberg, In re, 450. Welch v. Miller, 205. Wells v. Ellis, 350, 363. Wells v. Mitchell, 215. Wendling v. Jennisch, 182. Wentzel v. Barbin, 131. Werner v. Calhoun, 394. Wessels v. Weiss, 92. West, In re, 455. v. Citizens Ins. Co., 326. v. Kindrick, 342. v. Valley Bank, 6, 121. Western Coal Co. v. Hollenbeck, 341. Western Stage Co. v. Walker, 423. Whaken v. Stephens, 379. Wheat v. Eice, 319. Wheatley v. Tutt,. 254. Wheeler v. Arnold, 187, 205. v. Sage, 172. Wheeloek v. Zevitas, 110. Whelan v. Shain, 442, 450. Whigham's Appeal, 146, 148. Whitcomb v. Converse, 136, 145, 181, 183, 190, 472, 473. 480 TABLE OF CASES [REFERENCES ARE TO SECTIONS] Whiteomb v. Whiting, 425. White v. Campbell, 330, 331. - v. Eiseman, 477, 478. White v. Eech, 327. v. Smith, 312, 375. v. Thielens, 319. v. Trowbridge, 126. v. Tudor, 425, 426. White Mt. Bank v. West, 327. White Star Line v. Star Line, 53. Whitewell v. Arthur, 376. Whiting v. Wyman, 23. Whitney v. Bank, 79. v. Dewey, 170. Whittaker v. Collins, 301, 338. v. Howe, 225. Whittenton Mills v. Upton, 53. Whitworth v. Patterson, 459. Wiesenfeld v. Byrd, 407. Wiggin v. Goodwin. 427. Wiggins v. Bisso, 46. - v. Blackshear, 7, 443. v. Markham, 172. Wilcox v. Derickson, 408. v. Jackson, 253. Wild v. Davenport, 57, 407. v. Milne, 143. Wiley v. Holmes, 294. v. Wiley, 61. Wilhite v. Boulware, 157. Wilkins v. Pearce, 277. Wilkinson v. Eutherford, 232. v. Tilden, 226. Willey v. Bank, 110, 274, 287, 341. Williams v. Farrand, 124, 126, 128, 130. v. Frost, 253. v. Gillespie, 279. v. Gillies, 14, 43, 245, 293. v. Hendicks, 302. v. Hurley, 6. v. Lewis, 148, 250. v. Pederson, 178. v. Rogers, 15, 83, 308. Williams v. Southern Pacific E. Co., 326. v. Whedon, 403. Williams Nat. Bk. v. Hall, 458. Williamson v. Barbour, 270. v. Kokomo B. & L. Ass'n, 23. v. Monroe, 170. v. Nigh, 43. Willis v. Chapman, 280, 361, 380. v. Crawford, 15. v. Downs, 316. v. Henderson, 148. v. Jones, 330. v. Sharp, 408. v. Simmoiids, 214. Willson v. Morse, 44. v. Nicholson, 402. Wilmot v. The Quachita Belle, 262. Wilson v. Carter Oil Co., 53. v. Cobb, 4. v. Fitchter, 226. v. McCarty, 183. v. McCormick, 333. v. Eichardson, 240. v. Eobertson, 444. v. Eunkel, 341. v. Todhunter, 42, 65. v. Wallace, 327. v. Waugh, 359, 363, 426. v. Welch, 232. v. Wilson, 217. Winchester v. Glazier, 114, 179, 182, 183. Winget v. Building Ass'n., 22, 24. Winship v. Bank of U. S., 235, 240, 241, 256, 278, 287. Winslow v. Wallace, 186, 445, 458. Winstanley v. Gleyre, 43, 170. Winter v. Inness, 403, 411. v. Pipher, 81. v. Stock, 123, 153. Wintermute v. Tarrant, 194, 200. Wipperman v. Stacy, 78, 242. Wishek v. Hammond, 45. Wisner v. Field, 178. Mech. Part. 31 481 TABLE OF CASES [REPEEENCES AEE TO SECTIONS] Woelfel v. Thompson, 145. Wolf v. Mills, 301. Wolfe v. Joubert, 121. Wolff v. Madden, 318. Wood v. American Fire Ins. Co., 363. v. Braddick, 425. v. Humphrey, 225. v. Luscount, 338. v. Macafer, 319. v. O 'Kelly, 325. v. Pennell, 103, 104. v. Kailroad Co., 121. v. Watkinson, 271, 294, 310. v. Wilder, 369. Woodman v. Boothby, 194, 01. Woodmansie v. Holeomb, 444. Woodruff v. Scaife, 241. v. Woodruff, 225. Woods v. Lamb, 117. Woodson v. Wood, 425. Woodward-Holmes Co. v. Nudd, 163, 165, 166. Woodward v. Lazar, 128. v. Bennett, 44, 46. v. McAdam, 123, 155. v. Winship, 248. Woolsey v. Henke, 265. Worcester Corn Exchange, In re, 187. Word v. Word, 231. Worthy v. Brower, 189 Wray v. Wray, 155. Wrenshall v. Cook, 341. Wright v. Cudahy, 44, 46. v. Herrick, 335, 336. v. Stooker, 120. Wycoff v. Purnell, 203. Y. Yale v. Eames, 425. v. Taylor Mfg. Co., 121. Yates v. Lyon, 49. Yeager v. Wallace, 232, 242. Yeoman v. Lasley, 16, 43. Yerkes v. McFadden, 314. Yetzer v. Applegate, 173. Yoho v. MicGovern, 294. York v. Orton, 429. York County Bank's Appeal, 449. Yorks v. Tozer, 176, 187, 191. Yorkshire Banking Co. v. Beatson, 296. Young v. Clapp, 392. v. Currier, 311. v. Stevens, 51. Z. Zabriskie v. E. E. Co., 281. Zanturjian v. Boornazian, 131. ZelPs Appeal, 178. Zimmerman v. Erhard, 121. Zuber v. Eoberts, 59, 79. 482 INDEX [REFERENCES ARE TO SECTIONS] ACCEPTANCE (see BILLS AND NOTES). ACCOMMODATION partner no implied power to bind firm for accommodation of stranger, 277. ACCOUNT STATED action at law may be brought upon, when, 199. ACCOUNTING who may demand, 230. in what court, 227-230. all profits and advantages must be accounted for, 170. not usually ordered of illegal transactions, 46. usually had only on dissolution, 227. basis of, 465 manner of, 469. reopening or restating, 474. ACCOUNTS duty of each partner to keep, 175. presumption against partner who fails, 175. ACTIONS respecting partnership transactions not usually cognizable at law, 199 et seq. one partner cannot sue another at law, when, 199-205. one partner can sue another at law, when, 207-218. one partner cannot sue firm at law, 199. firm cannot sue partner at law, 201. in equity, what may be brought, 221-232. who should sue in actions by the firm, 324-330. who should sue in actions against the firm, 332-338. cannot usually be brought in firm name, 328. ADMINISTEATOE (see EXECUTOR). 483 INDEX [REFERENCES ARE TO SECTIONS] ADMISSIONS partner cannot bind firm by, when, 250. after dissolution, 425. as evidence of partnership, 65. power to make, after dissolution, 425. ADVERTISEMENT of dissolution, see NOTICE OP DISSOLUTION. AGENCY as a test of partnership, 88-98. partner's, for the firm, 244 et seq. AGENT of the implied powers of partners as agents for the firm, 244. power of partnership to be, 251. power of partner to appoint, 251. liability of firm for acts of, 306. AGEEEMENT BETWEEN PARTNERS action for breach of, 207 et seq. on dissolution, effect of, 427-429. AGREEMENT TO ENTER INTO PARTNERSHIP how enforced, 208. AGREEMENTS what operate to create partnership, 74-84. ALIEN power of, to be a partner, 48. APPLICATION OF ASSETS how assets of firm to be applied, 438 et seq. by going partnership, 441. by court, 449-463. ARBITRATION power of partner to submits claims to, 252. ARTICLES OF PARTNERSHIP (see PARTNERSHIP ARTICLES). ASSETS (see PROPERTY; APPLICATION- OP ASSETS). ASSIGNMENT FOR CREDITORS power of partner to make, 253. power of surviving partner to make, 402, 403. 484 INDEX [REFERENCES ARE TO SECTIONS] ASSOCIATIONS other than partnerships, 9, 16. ASSUMING DEBTS on dissolution, 427. action for not paying, 213. ATTORNEYS power of partner to employ, 254. liability of firm of, for partner's negligence, 301. AUTHORITY (see POWERS OF PARTNERS). BANKRUPTCY effect of, to dissolve the firm, 362. notice of, necessity for, 388. BILLS AND NOTES implied power of partner to make, indorse or accept, 255-257. power of surviving partner, 402, 403. of partner after dissolution, 423. of partner in non-trading firm, 255-257. BREACH OF TRUST liability of firm for partner's, 304. BURDEN OF PROOF of partnership, 66. BUYING (see PURCHASE). CAPACITY to be partner, see PARTNER. CAPITAL of firm, what constitutes, 133. amount and interests in, 134. in what contributed, 136. loss of, how borne, 472. CARE AND SKILL duty of partner to exercise, 173. CHANGE IN FIRM operates as dissolution, 57. 485 INDEX [REFERENCES ARE TO SECTIONS] CLASSIFICATION of partners and partnerships, 32-41. CLUBS are not partnerships, 10. COLLECTING DEBTS implied authority of each partner for, 260. COMMITTEES not partnerships, 9, 10. COMMON MEMBER effect where two firms have, 298, 461. dealings between such firms, 196. cannot sue at law, 219. COMPENSATION partner not entitled to extra, unless stipulated for, 178. COMPETITION duty of partner not to carry on business in competition of firm, 172. of conflicting claimants to assets, 452, 456. see APPLICATION OF ASSETS. COMPROMISE power of partner to, 261. CONFESSION OF JUDGMENT implied authority of partner for, 262. CONSTRUCTION of partnership articles, 115. CONSULTING duty of partners as to, 176. CONTEMPLATED PARTNERSHIPS when become charged with liability, 30, 31, 63. CONTINUING PARTNER right of, to use former firm name, 125, 126. CONTINUING PARTNERSHIP under old articles, 117. 486 INDEX [REFERENCES ARE TO SECTIONS] CONTRACT RELATION partnership is, 4. CONTRACTS implied authority of partner to make, 244. who are bound by, 285. how when made by partner in his own name, 288, 289. how when made in individual names of all partners, 295. how when firm does business in name of one partner, 296. how when two firms of same name have common member, 298. obligations of partners upon, is joint, 308. who should be sued in actions upon, 333 et seq. who should sue in actions upon, 325 et seq. illegal effect of, 42-46. CONTRIBUTION partner entitled to, who pays more than his share, 187-190. how enforced, 190. when entitled, if transaction illegal, 46, 188. CONVERSION of firm property into individual property, 446-448. of firm land into personalty, 163. CO-OWNERSHIP (see JOINT TENANCY; TENANCY IN COMMON). CORPORATION how partnership differs from, 8. what constitutes de facto corporation, 17-28. whether members of defectively organized corporations are part- ners, 17-28. power of corporations to enter into partnership, 53. COX v. HICKMAN effect of, on law of partnership, 88-98. CREDITORS priority of, in partnership assets, 449 et seq. firm creditors first paid out of firm assets, 449. individual creditors first paid out of individual assets, 453. DEATH operates to dissolve partnership, 361. DEBTS order of payment of, out of assets, 438 et seq. priority of, 449 et seq. power of firm to assume debts of partner, 444. of partner to assume debts of firm (see ASSUMING DEBTS). 487 INDEX [REFERENCES ARE TO SECTIONS] DECEASED PARTNER interest of estate of, in partnership assets, 402, 403. liability of his estate, 411. DECEIT dissolving partnership for, 373. DECLARATIONS (see ADMISSIONS). DECREE of dissolution, 373 et aeq. DEEDS AND OTHER SEALED INSTRUMENTS implied authority of partner to execute, 263, 264. DE FACTO CORPORATION what constitutes, 17-28. DEFECTIVELY ORGANIZED CORPORATIONS are not partnerships, when, 17-28. DELECTUS PERSONARUM right of, 57. DISSENT power of partner to dissent from contemplated acts, 242. DISSOLUTION causes for, 344 et seq. by original agreement, 345347. by act of parties, 349-359. by act of law, 360-380. by death, 361. by marriage, 366. by war, 369. by guardianship, 367. by insanity, 365. by bankruptcy, 362. by sale of partner's interest, 146, 363-364. notice of, 387 et seq. to whom given, 390. when required, 389. how given, 391, 392. by whom given, 396. effect on powers of partners, 399 et seq. of surviving partner, 402-407. of liquidating partner, 426. of partners generally, 423-425. 488 INDEX [REFERENCES ARE TO SECTIONS] DORMANT PARTNER who is, 41. how liable, 287. when should be party to action, 325, 335. when should give notice of dissolution, 397. has no lien as against creditors of ostensible partners, 459-460. DOWER when widow of partner entitled to, in partnership lands, 165. DUTIES of partners to each other, 170-190. to exercise good faith, 170. not to compete in business, 172. to exercise care and skill, 173. to conform to partnership agreements, 174. to keep accounts, 175. to consult with other partners, 176. to permit others to participate in management, 177. to indemnify copartners, 187-190. ENTITY partnership as a distinct, 6. EQUITY the Jorum for partnership actions, 221. what actions maintainable in, 221-232. ESTOPPEL partnership liability by, 99-108. EVIDENCE of existence of partnership, 64-66. of partnership by holding out, 99 et seq. EXECUTION sale of partner's interest upon, 148. levy on partner's property for firm debt, 314. exemptions from, 316. EXECUTOR interest of in partnership assets, 402, 403. EXEMPTIONS power of firm or partner to claim, 316. 489 INDEX [REFERENCES ARE TO SECTIONS] EXPULSION of partner, authority for, 368. effect of, 368. EXTRA COMPENSATION see COMPENSATION. FIRM meaning of term, 1. see PARTNERSHIP. FIRM NAME necessity of, 120. what may be, 121. what may be done in, 123. property in, 124. right to, upon sale or dissolution, 125-129. FRAUD as ground for dissolving partnership, 373-375. liability of firm for partner's, 301. liability of one partner to another for, 215, 216. FRAUDULENT CONVEYANCES what conveyances by partners deemed fraudulent as to firm creditors, 443-448. GENERAL PARTNER (see LIMITED PARTNERSHIP) who is, 41, 475. GENERAL PARTNERSHIP what constitutes, 32. GOOD FAITH duty of partners to exercise to each other, 170. GOOD WILL what constitutes, 127. as an asset, 128. disposal of, on dissolution, 129. GUARANTY partner no implied power to bind firm by, 277. GUARDIANSHIP when dissolves partnership, 367. 490 INDEX [REFERENCES ARE TO SECTIONS] HIRING PROPERTY implied power of partner as to, 265. HOLDING OUT liability as partner by, 99 et aeq. ILLEGAL OBJECTS effect of, on partnership, 42-46. ILLEGALITY as cause for dissolution, 370. no lien, when illegal, 437. IMPLIED AUTHORITY of partners, 246 et seq. IMPOSSIBILITY OP SUCCESS as ground for dissolution, 380. INCOMING PARTNER liability of, 318. INDEMNITY partner entitled to, when, 187-190. action for not furnishing, 212. INDISSOLUBLE PARTNERSHIP can there be, 355 et seq. INDIVIDUAL LIABILITY of partners for firm debt, etc., 313. INDIVIDUAL PROPERTY may be taken for firm debts, 314. rights of individual creditors to, on insolvency, 453. power of partner to use in paying firm debts, 445. INFANT may be a partner, 49, 50. powers of, as partner, 50. dissolution by, 49, 50. ratification by, 50. INJUNCTION when granted in partnership controversies, 226. 491 INDEX [REFERENCES ARE TO SECTIONS] .INSANITY effect on capacity to be partner, 51. dissolution of firm for, 365. INSOLVENCY as ground for dissolution, 362. INSURANCE implied powers of partner as to, 266. INTENTION as test of partnership, 72, 73, 84. INTEREST on advances or capital, partner not entitled to, without agreement 182, 183. JOINT partnership obligations in contract are, 308. in tort, joint and several, 312. JOINT-STOCK COMPANIES how different from partnership, 9, 10, 35. JOINT TENANCY how partnership differs from, 11. JOINT VENTURE how differs from partnership, 16, 43. when suit at law between associates, 206. JUDGMENT against one partner bars action against firm, 309, 310. LAND may be partnership to deal in, 42. how affected by statute of frauds, 61. the implied authority of one partner to sell, 275. when particular land deemed to be partnership property, 166. right to take in firm name, 153 et seq. interest of partners in, 162. dower and inheritance in, 163, 165. when deemed personal property, 163. bona fide purchaser from partner having legal title, 167. interest of surviving partner in, 169. 492 INDEX [REFERENCES AIJE TO SECTIONS] LIABILITY OF PABTNEES upon authorized contract of partners, 285. upon contracts made in partner's own name, 288-293. upon contracts generally, 285-299. extent of liability, 313. for torts, 301-304. for partner's negligence, 301. for partner's malicious or criminal act, 302. for partner's breach of trust, 304. liability joint in contract, 308. joint and several in tort, 312. beginning and ending of, 317-321. LIEN firm creditors no lien on assets of firm, 441. partners have such a lien, 142, 431, 432. attaches to what, 433. good against whom, 434. secures what, 435. how lost, 436, 459. LIMITED PAETNEESHIP nature of, 475. must be authorized by statute, 476. statutory requirements, 477. statute must be complied with, 478. conduct of business, 481. for what business may be organized, 480. dissolution of, 485. LIQUIDATING PAETNEE rights and powers of, 426. LOSSES sharing of, as test of partnership, 84. MAJOBITY power of, 281, 282. MANAGEMENT right of each partner to participate in, 177. MANAGING PAETNEE duty to exercise good faith, 170, 426. authority of, 278-280. 493 INDEX [REFERENCES ARE TO SECTIONS] MARRIAGE when dissolves partnership, 366. MARRIED WOMAN capacity to be a partner, 52. MISCONDUCT of partner as ground for dissolution, 377. MORTGAGE power of partner to make, 267. NAME (see FIRM NAME). NEGLIGENCE liability of partner to partners for, 173. liability of firm for negligence of partners, 301. NEGOTIABLE INSTRUMENTS (see BILLS AND NOTES). NOMINAL PARTNER who is, 41. liability of, 99, 287. NON-TRADING PARTNERSHIP what is, 241. power of partner to make bills and notes, 255-257. to buy, 259. to borrow money, 250. NOTICE to partner as notice to firm, when, 270. NOTICE OF DISSOLUTION necessity for, 387, 398. in what eases required, 388. to whom given, 390. how given, 391-393. who should give, 396. of limited partnership, 455. NOVATION new contract by, on dissolution of firm, 429. OSTENSIBLE PARTNER who is, 41. liability of, 113. 494 INDEX [REFERENCES ARE TO SECTIONS] OSTENSIBLE PARTNERSHIP distribution of assets where partnership is merely ostensible, 459. where partnership is actual but not ostensible, 459-460. OUTGOING PARTNER liability of, 321. PARTIES (see ACTIONS). PARTNERS defined, 1. how classified, 41. who may be, 47. number of, 56. how persons become, 67-107. rights and duties of to each other, 170-190. actions between, 197-232. authority of, as between themselves, 235, 236. as respects third persons, 237-283. majority of, powers, 281, 282. who are bound by acts of, 284-304. liability of, 307-321. PARTNERSHIP defined, 1. essential elements of, 2. is contractual relation, 4. whether a distinct entity, 6. commercial conception of, 7. how differs from corporation, 8. from other associations, 9, 10. from joint tenancy and co-ownership, 11, 12. from joint purchasers of goods for resale, 14. whether defectively organized corporation is, 17-28. promoters of companies not partners, 29. when contemplated become consummated, 30, 31. classification of, 32. for what purposes created, 42-46. who competent to enter into, 47-54. what formalities required to create, 59. how existence proven, 65. what acts and contracts create, 67-108. tests of, 74, 85. distinction between partnership inter se and as to third persons, 68. by "holding out," 99-108. articles of, 113 et seq. 495 INDEX [REFERENCES ARE TO SECTIONS] PAETNEESHIP Continued property of, 138 et seq. name of, 120 et seq. good- will of, 127 et seq. capital of, 133 et seq. dissolution, 344 et seq. PAETNERSHIP AETICLES necessity for, 113. how far conclusive, 114. how construed, 115. enlargement and waiver of provisions of, 116. continuing under old, 117. usual clauses in, 118. how enforced, 119. PAYMENT implied power of partner to receive, 260. implied power of partner to make, 272. PEE8ONAL PEOPEETY what constitutes property of firm, 139. may be held in firm name, 150. or in name of one partner, 151. title in firm collectively, 152. interest of each partner in, 145. PEESONAL TEUSTS cannot be executed by partnership, 44. PLEDGE implied authority of partner to, 267. authority of surviving partner to, 403. POWEES OF PAETNEE as between the partners, 235, 236. what implied, 236. as respects third persons, 237 et seq. limited by usage, 236. limited by scope of business, 246. implied powers in particular eases, 250-277. after dissolution, 423. of surviving partner, 402. PEINCIPAL AND SUEETY when continuing and retiring partner stand as, 428. 496 INDEX [REFERENCES ARE TO SECTIONS] PRIORITY of firm creditors in partnership assets, 449 et seq. of individual creditors in individual assets, 453 et seq. PROFITS sharing of, as test of partnership inter se, 74-83. as test of partnership as to third persons, 86-98. PROMISSORY NOTES (see BILLS AND NOTES). PROMOTERS of corporations, not liable as partners, 29. PROPERTY OF PARTNERSHIP what may be, 138. what constitutes, 139. property bought by partner in his own name, 140. property used by firm, 141. interest of partners in, 143-145. to be applied to partnership debts, 184. PUBLIC OFFICE cannot be held in partnership, 44. PUBLIC POLICY purposes opposed to, 44. PURCHASE implied power of partner to, 259. PURPOSE for what partnerships may be organized, 42. effect of illegal, 46. QUASI-PARTNERSHIP what constitutes, 85 et seq. RATIFICATION by infant partner, 49, 50. by firm, of partners' acts, 283. of execution of sealed instruments, 263, 264. REAL ESTATE (see LAND) of partnership, 153-169. interest of partners in, 162. liability of, 156 et seq. Mech. Part. 32 497 INDEX [REFERENCES ABE TO SECTIONS] RECEIVER appointment of, in partnership controversies, 231, 232. REIMBURSEMENT (see CONTRIBUTION; INDEMNITY) action for not reimbursing as agreed, 212. RELEASE authority of partner to give, 260, 263, 264. effect of release of one on liability of residue, 311. REMEDIES (see ACTIONS). RENEWAL OF PARTNERSHIP (see CONTINUING PARTNERSHIP; LIMITED PARTNERSHIP). REORGANIZATION when results in dissolution, 372. ' /''' RERESENTATIONS (see ADMISSIONS). RESCISSION of partnership contract for fraud, 373. RETIRING PARTNER right to use old firm name, 125. right to continue business, 126. duty to give notice of, 396. liability of, 398. SALE implied authority of partner to sell personal property, 274. to sell real property, 275. SCOPE OF BUSINESS what is meant by, 247. extending by conduct, 248. limitations imposed on partners' power by, 246. SEAL partner no implied power to execute instruments under, 263, 264. ratification of, 264. SECRET PARTNER who is, 41. liability of, 287. action by and against, 335. 498 INDEX [REFERENCES ABE TO SECTIONS] SEPARATE CREDITORS right of, to have payment out of separate assets, 463 et seq. SERVANTS liability of firm for acts of, 306. SET OFF of individual and partnership claims, 340. under statutes, 341. in equity, 342. SHARE OF PARTNER what constitutes, 143-145. sale of, 146, 147. seizure on execution, 148. SILENT PARTNER who is, 41. liability of, 287. actions by and against, 335. SINGLE VENTURE whether associations for, are partnerships, 16, 43. SPECIAL PARTNER (see LIMITED PABTNEBSHIP; SPECIAL PARTNEB- SHIP). SPECIAL PARTNERSHIP (see LIMITED PABTNEBSHH>). SPECIFIC PERFORMANCE of partnership agreements, 222-224. STATUS whether partnership is, 4. STATUTE OF FRAUDS when requires partnership to be created by writing, 59-61a. STATUTE OF LIMITATIONS power of partner to waive, after dissolution, 425. SUB-PARTNERSHIP what constitutes, 58. rights and liabilities of members of, 58. SUIT (see ACTIONS). 499 INDEX [REFERENCES ARE TO SECTIONS] SURETY one partner's implied power to bind firm as, 277. SURVIVING PARTNER right to use former firm name, 125, 126. rights and powers of, 402 et seq. interest of, in real property, 169. SYNDICATES whether to be deemed partnerships, 16, 43. TENANCY IN COMMON how differs from partnership, 11, 12. TEST OF PARTNERSHIP as between partners themselves, 69-84. as respects third person, 85-108. sharing profits as, 75, 86. TORT liability of partners in, 301. liability in, joint and several, 312. actions for, parties to, 330, 338. TRADING FIRM what is, 241. power to make negotiable paper, 255-257. to borrow money, 258. to buy property, 259. TRANSFER OF SHARE dissolves partnership, 146, 363, 364. TRUSTS how compare with partnerships, 40. UNIFORM FRAUDULENT CONVEYANCE ACT See Appendix A. UNIFORM LIMITED PARTNERSHIP ACT See Appendix A. UNIFORM PARTNERSHIP ACT See Appendix A. UNIVERSAL PARTNERSHIP what constitutes, 32. 500 INDEX [REFERENCES ARE TO SECTIONS] USAGE effect on power of partners, 236. WAIVER of provisions of articles by conduct, 116. WAR dissolves partnership, 369. WILL continuing business under, 407. WINDING UP (see ACCOUNTING; APPLICATION OF ASSETS; PRIORITY) , 501 LAW LIBRARY V OP CALIFORNIA JBRARY FAqUTY University of California SOUTHERN REGIONAL LIBRARY FACILITY 305 De Neve Drive - Parking Lot 17 Box 951388 LOS ANGELES, CALIFORNIA 90095-1388 Return this material to the library from which it was borrowed.