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Full text of "Handbook on the law of partnership, including limited partnerships"

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Elementary Treatises on all the Principi^ Subjects of the Law 

The special features of these books are as follows: 

1. A succinct statement of leading principles In black-letter type. 

2. A more extended commentary, elucidating the principles. 

3. Notes and authorities. 

Published in regular octavo form, and bound in buckram. 



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Black on Judicial Precedents. 

Bogert on Trusts. 

Burdick on Real Property. 

Chapin on Torts. 

Childs on Suretyship and Guaranty* 

Clark on Code Pleading. 

Clark on Contracts (3d Ed.). 

Clark on Criminal Law (3d Ed.). 

Clark on Criminal Procedure (2d Ed.). 

Clark on Private Corporations (3d Ed.). 

Clephane on Equity Pleading. 

Cooley on Municipal Corporations. 

Costigan on American Mining Law. 

Croswell on Executors and Administrators. 

Dobie on Bailments and Carriers. 

Dobie on Federal Jurisdiction and Procedure. 

Eaton on Equity Jurisprudence (2d Ed.). 

Gardner on Wills (2d Ed.). 

Gilmore on Partnership. 

Goodrich on Conflict of Laws. 

Hale on Damages (2d Ed.). 

Hughes on Admiralty (2d Ed.). 

McKelvey on Evidence (3d Ed.). 

Norton on Bills and Notes (4th Ed.). 

Radin on Roman Law. 

Shipman on Common-Law Pleading (3d Ed.). 

Smith's Elementary Law. 

Tiffany on Agency (2d Ed.). 

Tiffany on Banks and Banking. 

Tiffany on Persons and Domestic Relations (3d Ed.). 

Tiffany on Sales (2d Ed.). 

Vance on Insurance. 

Wilson on International Law (2d Ed.). 

Hornbooks on the law of other subjects will be published from 
time to time. 

PnblisHed and for sale hj 
WEST PUBLISHUrG CO., ST. PAXTI., MCfN. 



CliniT- Id 



eo(>«|i 



HANDBOOK 



ORTHB 



LAW OF PARTNERSHIP 



WCLUDINQ 



LIMITED PARTNERSHIPS 



BY EUGENE ALLEN GILMORE 

PROFESSOR OF LAW "^ 
m THE UNIVERSITY OF WISCONSIN 



t . '• 



• * »• 






'-*-•"--- ', » f .. ' It, » • •« • C » 1 » . 



ST. PAUL, MINN. 

WEST PUBLISHING CO. 

1911 



OOPTBIGHT, 1911 



WBST PUBLISHING €X)MPANY 



(Qil.Pabt.) 



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PREFACE 



The original arrangement with the publishers contem- 
plated, not an entirely new treatise on the law of Partner- 
ship, but merely a new edition of Mr. William George's 
text on this subject. After the work was begun, however, 
it seemed advisable to abandon Mr. George's text for the 
most part, and to prepare a substantially new treatise, us- 
ing such portions of his work as should be found suitable. 
With the exception, therefore, of Chapters VIII and IX, 
the present book, both in arrangement and text, is new. A 
few passages and a number of citations and notes have been 
taken from Mr. George. Chapters VIII and IX are repro- 
duced substantially as found in Mr* George's book, with the 
addition of later cases. The law on the subject being rea- 
sonably well worked out in the authorities, the aim of the 
present author has been to make a clear and definite state- 
ment of the leading principles, in a form serviceable alike 
to students and practitioners. Whatever merit the book 
has lies in this direction, rather liran in the discussion of 
controverted points, or the advancement of new theories. 
The citations, while including all the leading cases, are not 
exhaustive, but are sufficiently full for practical purposes. 
The author acknowledges his great indebtedness for valua- 
ble assistance in the task to Mr. Henry A, Hirshberg and * 
to Mr. Oliver S. Rundell; also to Mr. Olcott O. Partridge 
for his preparation of the chapter on Limited Partnerships. 

£• A* G* 

Madison, Wisconsin, May, 1911. 



TABLE OF CONTENTS 



CHAPTER I 

WHAT CJONSTITUTES A PARTNERSHIP 
BsctloB 

1. Partnership Inter Se — ^True Partnership.. 1-6 

2. Partnership the Result of Intention 6-7 

3. Legal Intention Controls 7-10 

4-6w Partnership by Operation of Law — Partnership as 

to Third Parties 10-18 

7. Doctrine of Partnership as to Third Parties 

Overthrown 19-24 

& Tests of Intention — In General 25-26 

9. Mutual Agency 26-29 

10. Sharing Gross Returns 29^1 

11. Sharing Profits 81-38 

12. Sharing Profits and Losses. 34-86 

18. Oommon Ownership of Property 86-^ 

14. Joint Enterprise or Business. . : 89-40 

15. Relations Distinguishable from Partnership. •..•• 40-46 
16^ Contract for a Partnership 47-49 

17. Promoters of Cori)oratlon8. • 60-51 

18. Liability of Stockholders In Defective Corpora- 

tions 51-58 

19. B3zistence of Partnership — Nature of Question... • 58-59 

20. Burden of Proof 59-60 

21. Partnership by Estoppel • • 61-68 



CHAPTER II 

FORMATION AND CLASSIFICATION OF PARTNERSHIPS 

22. Partnership Arises trom a Contract 69-77 

23. Requirements of the Contract 77 

24. Competency of the Parties 77-89 

25. Consideration 89-92 

26. Formalities • 92-93 

27-28. Statute of Frauds 93-98 

20. Subject-Matter 98-99 

3a Legality of Object 100-lOi 

Oil.Pa»t. (vii) 



yiii TABLB OF CONTENTS 

Section 

31. dasslflcatlon of Partnerships 103 

3Z Ordinary Partnershii» — Unlverfial, General* 

Special, or Partic^ilar 104 

83. limited Partnerships 105 

34. Joint-Stock Companies... 105 

85. Subpartnershlps 106 

36. Mining Partnerships 107 

37-38. Trading and Nontrading Partnerships 107-110 

39. Classification of Partners 110-112 



CHAPTER III 

THE NATURE AND CHARACTERISTICS OF A PARTNERSHIP 

40. Various Conceptions of a Partnership 113-118 

41-42. The Partnership Name 118-127 

43. Partnership Property 127-131 

44. What is Included in Partnership Property... 132 

45-46. Partnership Capital 132-133 

47-48. Amount of Contribution 134-136 

49-51. Good Will.... 136-146 

62. Title to Partnership Property — How Taken and 

Held .* 146-153 

53. Conversion of Partnership Realty Into Personalty 154-155 

54. Extent of Conversion 155-169 

55. Nature and Extent of Partner's Interest in Part- 

nership Property 170-176 

56-57. Transfer of Partnership Property — By Act of 

Partnership ,.:... 176-179 

5a iFirm Creditors' Rights in Firm Assets— Part- 
ner's Lien 179-181 

59. Change of Firm Property into Separate Prop- 
erty 181-189 

60-61. Use of Firm Property to Pay Separate Debts 

of Partners •••••• 189-194 

• 62. By Act of a Single Partner. . . ^ 195-196 

63. Form of Conveyance 196-197 

64. Successive or Simultaneous Transfers of each 

Partner's Interest 197-204 

65-66. Effect of Death of Partner on Partnership Prop- 
erty 204^208 

67. Surviving Partner as Quasi Trustee 208-214 

68. Agreement of Partners Controlling Property after 

Death of Partner 215-216 



TABLB OF CONTBNXa iX 



CHAPTER IV 

nature; extent, and duration of partnership 

liability 

Section Page 

69. Nature of Liability in Contract 217-220 

70. Characteristics of Joint Obligations '• • • . 220-224 

71. Partnership Liability and Joint Liability 224-226 

72. Quasi Severable Character of Joint Obligations in 

Equity 227-231 

73. Liability of Estate of Deceased Partner 231-234 

74. Extent of Uabillty in Contract 234-235 

75. Nature and Extent of Liability in Toji:. 236-239 

76. Commencement of Partnership Liability in Con- 

tract 240-241 

77. LiabUlty of an Incoming Partner • 242-249 

7& Liability of Retiring Partner 249-258 

79. Termination of Partnership Liability in Contract 258 

80. Past Transactions 258-263 

81. Future Transactions 263 

82. Dissolution by Operation of Law 263-264 

83» Dissolution by Act of the Parties 265-272 



CHAPTER V 

POWERS OF PARTNERS 

84. Origin and Nature of the Partner's Power to Bind 

the Firm 274 

85. Powers of Partners Inter Se 275 

86. Powers of Partners as to Third Persons 276 

87. Express Power 276 

8a Implied Power 276-278 

89. Ratification 278-279 

90. Estoppel 279 

91. Test of Authority— Nature of Question 280-282 

92. Limitations Arising from Scope of Business.. 282-286 

93. Limitations Arising from Nature of Business 286-287 
94-95. Particular Powers Considered — Power to Sell 

Firm Property 288-294 

96. Power to Pledge or Mortgage Firm Property 294-296 
97* Assignment for Benefit of Creditors 297-298 



: TABLE OF CONTENTS 

Section 

9& Power to Buy.. 298-300 

99. To Borrow Money 300-302 

lOa Issue BUls and Notes 802-308 

101. Execute Sealed Instruments 308-313 

102. Pay and Ck)llect Debts 313-316 

103. Institute and Conduct Legal Proceed- 

ings 31^-317 

lOi. Receive NoUce 318-819 

105. Make Admlssious and Representations 320-322 

103. Miscellaneous Powers 322-323 

107. Power to Subject Firm to Tort Liability 324-327 

108. Illegal Acts— Penalties and Crimes 827-330 

109. False Arrest and Malicious Prosecution 330-332 

110. Defamation 332-333 

IIL FraYid and Misrepresentation 833-334 

112. Conversion and Misapplication of Property. •• 834-337 

113. Wrongful Use of Trust Funds 337-339 

114. Powers of Partners after Dissolution 839-341 

115. Particular Powers Considered— Power to Dis- 

pose of Firm Assets 842-^43 

lia Power to Collect Debts 844 

117. Pay and Settle Firm Debts 845 . 

11& Perform Existing Contracts 346-^47 

119. Incur New Obligations 847-349 

120. Make Admissions 849-351 

121. Take Firm Debts out of the Statute of 

limitattons 351-353 

122. Powers of Surviving Partner ••••••• 353-^60 



CHAPTER VI 

RIGHTS AND DUTIES OF PARTNERS INTER SB 

123. Duty to Conform to the Partnership Agreement. . 861-832 

124. Right to Participate in Management 832-363 

125. Control of Majority 364-369 

126. Right to Information Concerning Business 870 

127. Duty to Keep and Right to Inspect Accounts 371-378 

128. Duty to Devote Themselves to the Business and to 

Exercise Care and Skill 873-874 

129. Duty to Observe Good Faith 874-378 

130. Right to Benefits from Transactions Concerning 

Firm Interests 378-881 

131. Right to Benefits from Information Obtained as 

Partner 881-382 



TABLB OF CONTENTS XI 



Btetlon 

182. Right to Garry on Separate Business • 88^-384 

188. Right to Compensation for Services 884-886 

184. Right to Indemnity and Contribution 887-892 

186. Right to an Accounting 892-894 

186. Distribution of Assets among Partners 894-899 

137. Partner's So-CaUed Lien 40(M06 



CHAPTER VII 

REMEn>IES OF CREDITORS 

188. Remedies at Law 404 

189. Creditors of the Partnership 404-410 

140. Creditors of the Separate Partner 410-420 

141. Garnishment of Partnership Debtors 420-422 

142. Remedies In E>]ulty — Insolvency or Bankruptcy of 

rirm 428 

143. Firm Creditors Against the Firm Estate 428-425 

144. Separate Creditors Against the Firm Estate. • 426 

145. Partners Against the Firm Estate 427-481 

146. Separate Creditors Against the Separate Es- 

tates 431-437 

147. Firm Creditors Against the Separate Estates 437-448 

148. Partner Against the Separate Estate of a Co- 

partner 444-446 

149. Rights of Secured Creditors 446-450 

150. Rights of Joint and Several Creditors — ^Double 

Proof 450-453 

151. Insolvency or Bankruptcy of a Partner 453-457 

15Z Rights Against Estate of Deceased Partner... 457-458 



CHAPTER VIII 

ACTIONS BETWEEN PARTNERS 

158. Action on Partnership Claim or Liability — At Law 469-406 

154. In Equity 466-471 

155. Under the Code 471-472 

156. Actions between Firms with Common Member. . • . 473-478 

157. Action at Law on Individual Obligation 478 

158. Claims Not Connected with Partnership 479 

159. Claims for Agreed Final Balances 479-181 

160. Express Contracts between Partners 481-487 

161. TiOsses Caused by Partner's Wrong 488-490 



ZU TABLB OF C0NTBNT8 

Section TBg9 

162. Bqultable Actions in General— Jurisdiction 491-492 

163. Necessity of Praying for a Dissolution 492-498 

164. Noninterference in Matters of Internal Regu- 

lation 498-494 

165. Effect of Laches 494-496 

166. Accounting and Dissolution 497-498 

167. Eight to Accounting 49^-^10 

168. Accounting upon Dissolution 499-503 

169. Accounting without Dissolution 604-510 

170. Specific Performance 510-514 

171. Injunction « 514-^19 

172. Receivers 619-{K29 



CHAPTER IX 

ACTIONS BETWEBN PARTNERS AND THIRD PERSONS 

178. In General 530 

174. Parties to Actions by the Firm 580 

175. Claims Arising Ex Contractu 581-<^ 

176. Contracts in Firm Name 531-533 

177. Contracts in Name of Partner 538-540 

17& Claims Arising Ex Delicto 540-542 

179. Parties to Actions against the Firm 542 

180. Liabilities Arising Ex Contractu 542-548 

181. Liabilities Arising Ex Delicto 549 

182. Effect of Changes in Firm 550 

183-185. Admission of New Member 550-4553 

186-188. Retirement of Old Member 653-556 

189. Death of Member 556-657 

190-193. Bankruptcy and Insolvency 558-559 

194. Disqualification of One Partner to Sue • • • 560-565 

195. Action in Firm Name 566-667 



CHAPTER X 

TERMINATION OF THE PARTNERSHIP 

196. By Act of the Partners — ^Mutual Assent 666-670 

197. By Act of one Partner— Partnership at Will* • 670-671 
19a Partnership for Fixed Period 671-678 



TABLB OF CONTENTS 

■•etion Pm« 

199. Dissolution by Operation of Law 67&-581 

(a) Death of a Partner 573-575 

(b) Bankruptcy of a Partner or of the Firm. . 675-576 

(c) Marriage of a Female Partner 576-577 

(d) Where the Business has Become lUesal.. 578 

(e) Alienation of Entire Firm Property or 

Partner's Interest Therein. 578-581 

200. Dissolution by Judicial Decree — Impossibility of 

Success 581-583 

201. Incapacity or Insanity of a Partner ••• 683-580 

202. Misconduct of Partner 685-689 

203. Annulment of Partnership^ 689-501 



CHAPTER XI 

LIMITED PARTNERSHIPS 

204. General Nature— Definition 092-695 

205. Establishment of the Relation — Statutory Author- 

ity 695-601 

200-207. Purposes 601-602 

206. Location of Business ; 603-604 

209. Members— General and Special 604-605 

210. Gontribution to Capital— How made 606-607 

211. Certificate s-*« 608-611 

212. Recording 612-613 

213. Publication eia-617 

214. Affidavit of Payment of Capital 617-^18 

215. Failure to File Certificate 618-619 

2ia Duration — Continuance or Renewal 620-622 

217. Effect of Alteration 622-623 

218-219. Firm Name— Firm Sign 623-626 

220. Withdrawals of Capital 626-628 

221. Bights and Liabilities 62&-631 

222. Liability for Fraud 631-682 

223-^S24. Fraudulent Preferences 632-634 

225. Assignments for Benefit of Creditors 635-636 

226. Dissolution 636-638 

227. Death of Partner 63&-639 

228. Admission of New Partners 639 

229. Sale of Partner's Interest 640 

230. Miscellaneous Statutory Provisions 640-642 

281-232. Actions-^Between Members — Between Firm and 

Third Persons • 643-^644 




This volume contains 
Key- Number Annotations 

Tliftt 18 to say, for every j^int of Uw which 10 stateJ or 
Jiscusse J in the text, and in 8u{>{>ort of which cases are 
cited, there is adJed to the author's note a citation to the 
Key-Numher section or sections in the Decennial Digest 
or in the Key-Mumher Series, under which all cases di- 
rectly involving that j^int have heen digested. A similar 
citation to the Century Digest is given, excet>t where the 
«)nnci^le involved is one on which no case law CTisted 
^rior to 1897. 



Gil.Pabt. 



(xiv)t 



HANDBOQX 

ON THE : 






LAW OF PARTNERSHIP 



- -* « 






CHAPTER I 



•j^ 



WHAT C?ONSTITUTBS A PARTNERSHIP 



• 



1. Partnership Inter Se — True Partnership. 

2. Partnership the Result of Intention. 

8. Legal Intention Controls. 

4-6w Partnership by Operation of Law — ^Partnership o to Third 
Parties. 
7. Doctrine of Partnership as to Third Parties Overthrown. 

& Tests of Intention — In General. 

9. Mutual Agency. 

10. Sharing Gross Returns. 

11. Sharing Profits. 

12. Sharing Profits and Losses. 

13. Ck)mmon Ownership of Property. 

14. Joint Enterprise or Business. 

15. Relations Distinguishable from Partnershipi. 

16. Contract for a Partnership, 

17. Promoters of Corporations. 

18. Liability of Stockholders in DefectiVe Corporations 

19. Existence of Partnership — ^Nature of QuABtlon. 

20. Burden of Proot 

21. PartnersUp by EstoppeL 



PARTNERSHIP INTER SE— TRUE PARTNERSHIP 

1. Partnership is a relation existing, by virtue of a contract, 
express or implied, between persons carrying on a 
business owned in common, with a view of profit to 
be shared by them. 
Gil.Pabt. — ^1 



• • 



. .... 



2 WHAT CONSTITUTES A PARTN¥:RSHIP (Ch. 1 

A complete and e^^ustive definition of the term "partner- 
ship/' in the presenf ^codified state of the law, is imprac- 
ticable. Numerous ^attempts have been made to formulate a 
satisfactory statjm^nt of the essential elements constituting a 
partnership, .J}ttf.*^&c various definitions have been approxi- 
mate rather. tteih exhaustive."* This is due in part to the 
difficultyjnlicrent in any attempt at exhaustive definition. It 
is also».(iftft» in part to the fact that "the law of partnership 
rest^ on, sr foundation composed of three materials : The com- 
mqn%vf ; the law merchant ; and the Roman law" * — and 
jffo/n'these sources come fundamentally different conceptions 
liqi* ^partnership. . It is further due to the fact that the term is 
»*1ised to describe a situation of fact composed of several ele- 
;• *ments. In other words, the existence of a partnership is de- 
termined by the concurrence of several independent facts re- 
sulting from an agreement between the parties, such as, for 
example, the ownership of property in common, the joint own- 
ership of capital, sharing of profits and losses arising from 
the use of common property or the prosecution of joint ven- 
tures, and the joint conduct of a business owned in common. 
The existence or nonexistence of certain of these elements 
constitutes tests by which the existence or nonexistence of a 
partnership is determined. Some of the difficulty in defining 
a partnership lies in the confusion that has existed in the 
courts as to which elements were necessary to constitute a 
partnership, varying tests having been applied from time to 
time.* 



1 MEEHAN T. VALENTINE, 145 U. S. 611, 12 Sup. Ct 972, 86 L. 
Ed. 835, Gilmore, Cas. Partnership, 45. See ** Partnership*^ Deo. 
Dig. (Key No.) f| I-IS; Cent. Dig. U IS-SSyi. 

sCoUyer on Partnership, 1. 

• Below is given a collection of definitions. A number are statuto- 
ry, and others are collected from standard texts. 

"Partnership is the relation Bubsisting between persons carrying 
on a business in common with a view to profit" Eng. Partn. Act, 
1890 (53 & 54 Vict c. 89). 

**The association of two or more persons, for the purpose of carry- 
ing on business together, and dividing its profits between them." 
Civ. Code Cal. 1906, i 2395 ; Civ. Code Mont 1907, | 5466 ; Civ. Code 
N. D. 1905, f 5818 ; Civ. Code S. D. 1908, f 1723. 

'*A Joint interest in the partnership property, or a joint interest in 



§ 1) INTER SB 8 

Partnership is a Relation Existing for Profit 

The older definitions commonly speak o{ partnership as 
a contract. This is not quite accurate. Partnership is a 
relation existing between persons. It is true that that re- 
lation arises out of a contract; that a partnership does 
not arise except by agreement; but the term is used to 

the profits and losses of the business, constitutes a partnership as to 
third persons. A common interest Jn profits alone does not" CIy. 
Code Ga. | 2629. 

^'Partnership is a synallagmatic and cummutative contract made be- 
tween two or more persons for the mutual participation in the profits 
which may accrue from property, credit, skill or Industry, furnished 
in determined proportions by the parties." Civ. Code La. art 2801. 

"As between the members thereof, the association, not incor- 
porated, or two or more persons who have agreed to combine their 
labor, property and skill, or some of them, for the purpose of en- 
gaging in any lawful trade or business, and sharing the profits and 
losses as such between them." Partnership Law (Laws N. T. 1897) 
c. 41>0. f Z 

"Partnership is the relation which subsists between persons who 
have agreed to combine their property, labor and skill in some busi- 
ness and to share the profits thereof between them." Indian Contract 
Act f 289. 

''A partnership is the contract relation subsisting between per- 
sons who have combined their property, labor or skill in an enter- 
prise or business as principals for the purpose of Joint profit"* Bates, 
Partnership, I 1. 

'*A partnership is a voluntary unincorporated association of in- 
dividuals, standing to one another in the relation of principals, for 
carrying out a Joint operation or undertaking for the purpose of a 
Joint profit" Dixon's Law of Partnership, 1. 

"Partnership is a contract of two or more competent persons to 
place their money, effects, labor and skill, or some or all of them, 
in lawful commerce or business, and to divide the profit and bear 
the loss in certain proportions." T. Parsons, Partnership, c. 2, f 1. 

"Partnership is the relation which subsists between persons who 
have agreed to share the profits of a business carried on by all 
or any of them on behalf of all of them." Pollock's Digest of the 
Law of Partnership (3d Ed.) f 4. 

"Partnership is a contract of two or more competent persons to 
place their money, effects, labor and skUl, or some or all of them, in 
lawful commerce or business, and to divide the profit and bear the 
loss in certain proportions." 3 Kent's Commentaries, 23. 

"Partnership is a voluntary contract between two or more persons. 
Joining together their money, goods, labor and skill, or either or all 
of them, upon an agreement that the gain or loss shall be divided 



4' WHAT CONSTITUTES ▲ PARTNERSHIP (Ch. 1 

describe the relation that results, and not the contract 
from which it arises. The contract may -be express or im- 
plied. If not expressed, its terms are determined from 
all the acts of the parties/ 

The basis of a partnership is a business enterprise; 
without it there can be no partnership. As a legal insti- 
tution the partnership was introduced into the common 
law from the law merchant, and had its source in the 
Roman law. As an aid in facilitating business enterprises 
it was well known among the merchants of the Middle 
Ages. Few cases involving partnership are to be found 
in the common-law reports until the seventeenth century, 
because they were tried in the mercantile courts. Yet 
though originated by the mercantile class, and usually 
composed of merchants, it is not necessary that the busi- 
ness be a mercantile one.' It is only necessary that there 
be a legal business of some kind conducted in common 
with a view to profit. It is not necessary that the per- 
sons composing a partnership firm be natural persons. 
The conventional person represented by a partnership may 
become a member of another partnership.* An artificial 

proportionably between them, and having for its object the advance- 
ment and protection of fair and open trade." Watson, Partnership, 
p. 1. 

''See Llndley, Partnership, p. 8, for a more extended collection of 
deflnltions." 

4 See chapter II, post, p. (38^ on the Formation and Classification 
of Partnerships; Brlggs t. Kohl, 182 HI. App. 484; Goons ▼. Coons, 
106 Va. 572, 56 S. E. 576; Williamson & Co. v. Nigh, 58 W. Va. 
629, 53 S. E. 124. Bee **PartncrsUpr Dec. Dig, {Key No,) U i, ««; 
Cent. Dig, ff i, 7, 8. 

i Bates y. Babcock, 95 Cal. 479, 30 Pac. 605, 16 L. R. A. 745, 29 
Am. St. Rep. 183; Southworth y. People, 85 111. App. 289 (appealed 
183 111. 621, 56 N. E. 407) ; CHESTER y. DICKBRSON, 54 N. Y. 1, 
18 Am. Rep. 550, Oilmore, Gas. Partnership, 186; Flower y. Bame- 
koff, 20 Or. 137, 25 Pac. 370, 11 L. R. A. 149. Bee ''Partnershipr 
Dec. Dig, {Key No,) f IS; Cent. Dig, f S. 

« In re Hamilton (D. C.) 1 Fed. 800 ; Bollock t. Hubbard, 28 Gal. 
495, 83 Am. Dec. 130 ; Meyer y. Erohn, 114 111. 574, 2 N. B. 495 ; 
Meador y. Hughes, 14 Bush (Ky.) 652 ; Simonton y. McLaiu, 37 La. 
Ann. 663; RAYMOND y. PUTNAM, 44 N. H. 160. Gllmore, Gas. 
Partnership, 490. See **Partner8hip,*' Dec. Dig. {Key No.) H 16, t$; 
Cent. Dig, f 9. 



§ 1) INTER 8E 6 

person, such as a corporation, may also become a mem- 
ber of a partnership. Though it is usually held that the 
power to enter a partnership is not within the implied 
powers of a corporation, there is nothing in the nature of 
a corporation to prevent it. Consequently, it may do so 
where the power is expressly given or necessarily im- 
plied.' 

Profits to be SJiar^ed 

The profits of every business belong to the proprie- 
tors of the business. The profits of a partnership business 
belong to the partners, who are proprietors of that busi- 
ness. The securing of an interest in the profits of the 
business is the inducement which causes each partner to 
enter the partnership. Ordinarily the profits are by agree- 
ment to be shared between the partners in certain propor- 
tions, and all attempted common-law definitions state, as 
an essential element of a partnership, that the profits are to 
be shared. The English Partnership Act, however, does 
not in its definition of partnership mention a sharing of 
profits, but defines partnership as a common business car- 
ried on "with a view of profit." • This has led to some 
questioning as to whether or not a sharing of profits is 
a necessary object of a partnership. It has been suggest- 
ed that "this object appears to be rather an accident than 
of the essence of the partnership relation." • It is doubt- 

7 Butler V. American Toy Ck>., 46 Conn. 136 ; Geurinck ▼. Alcott, 66 
Ohio St 94, 63 N. E. 714, Bee '^Corporations,'' Deo, Dig, {Key 2fo.) 
i 979; Cent. Dig, f 16S8, 

• English Partnership Act (1890) | 1 (1). 

• ''The terms 'partnershiiy' and 'partner' are evidently derived 
from 'to part,' In the sense of to divide amongst or share, and doubt- 
less the division of profits amongst the partners is an almost uni- 
versal object of partnerships. But this object appears to be rather 
an accident than of the essence of the partnership relation. It 
is apprehended that even before the act of 1890 there could have been 
no doubt that persons who carried on a business in all other respects 
as partners, but with the object of applying the profits towards some 
charitable purpose, instead of dividing them amongst themselves, 
would have been partners. If this be so, the omission of any words 
suggesting a division of profits from the definition of partnership is 
in accordance with the previous law." Lindley's Law of Partnership 
(7th Ed.) pp. 10, 11. 



6 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

ful if sharing of profits can be considered as merely an 
accident of the partnership relation. It seems impossible 
to conceive of a proprietorship in a business which does 
not include a proprietorship in the profits of the busi- 
ness. Hence it is conceived that one with no interest in 
the profits of a business cannot be a partner in the busi- 
ness itself. It may be true that the profits are never in 
fact divided. The profits become the joint property of the 
partners, and there is, of course, no reason why they may 
not dispose of them jointly, without making any actual 
division. But it is believed that, if one conducts a busi- 
ness the profits of which do not belong to him, he can- 
not be considered as a proprietor of the business, nor held 
to a principal's liability with respect thereto.. So in part- 
nership a joint proprietorship of the profits is indissol- 
ubly connected with a joint proprietorship in the partner- 
ship business.** 



PARTNERSHIP THE RESULT OF INTENTION 

2. Partnership arises only by consent of the parties to 
the relationship, and never by operation of law. 
The existence of a partnership depends upon the 
intention of the parties to establish the relation- 
ship which the law terms '^partnership.' 



ff 



Partnership arises by virtue of a contract. Each mem- 
ber of a partnership, by entering into the relationship, au- 
thorizes his copartners to act for him in the conduct of 
the business. He intrusts his interests to them, thereby 
indicating his confidence in them. It is therefore neces- 
sary that every one entering into a partnership should 

10 Pollock's Digest of the Law of Partnership (8th Ed.) pp. 7, 8. 
9. "The evidence must show that the persons taking the profits 
shared them as principals in a Joint business, in which each has an 
express or implied authority to bind the others.** Harvey v. Childs, 
28 Ohio St 319, 22 Am. Rep. 387 ; Briere v. Taylor, 12G Wis. 347, 
105 N. W. 817. See ^'Partnership" Dec Dig. (Key No.) §§ i^lS, SO, 
70; Cent. Dig. §{ 15-28, 39-48, lU. 



\ • 



§ 3) BESULT OP INTENTION 7 

have the right to select his copartners. It being a rela- 
tionship of trust and confidence no one can be forced into 
it against his will. Hence the existence of a partnership 
depends upon the intention of the parties. *'A partner- 
ship inter se must result from the intention of the par- 
ties as expressed in the contract, and they cannot be made 
to assume toward each other a relation which they have 
expressly agreed not to assume." ^^ 



SAME— LEGAL INTENTION CONTROLS 

3. It is the legal or manifestedt not the secret, intention 
of the parties that is to detennine whether a 
partnership exists. 

Here, as elsewhere in the law, intention means the 
manifested, not the secret, intention. This is to be ascer- 
tained from the words and conduct of the parties; If they 
have entered into a written agreement, their intention is 
ascertained by a construction of such writing. If the 
agreement is not in writing, the intention is to be found 
in an interpretation of their words and conduct. Even 
if the agreement was originally put in writing, the lan- 
guage and conduct of the parties may be put in evidence 
to show that it was subsequently varied.** It is the in- 
tention to establish the relationship which the law in- 
quires into. If two or more agree to enter into a certain 
relationship, it becomes a question of law as to whether 
or not that relationship constitutes a partnership; if the 
agreement is clear, the mere fact that the parties did or 
did not think they were becoming partners is immaterial. 
They must intend their acts; the consequences of those 
acts are determined by law. In one sense, therefore, per- 
il London Assurance Ck>. t. Drennan, 116 U. S. 461, 6 Sup. Ct 442, 
29 li. Ed. C88. See ^'Partnership;* Dec. Dig. (Key No.) f 17; Cent. 
Dig, S 9. 

IS England ▼. Curling, 8 Beav. 129. See, also, Lord Eldon in Jack- 
son V. Sedgwick, 1 Swanst 460, 469. See '^Partnership;' Deo. Dig. 
{Key No.) f{ 17, 18, 20-22, 29; Cent. Dig. if 1, S, 4, ^-8, SO-^S, S8. 



8 WHAT CONSTITUTES A PARTNERSHIP • (Ch. 1 

sons may be held liable as partners who never intended 
to form a partnership. "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 of no importance that they call it some- 
thing else, or that they even expressly declare that they 
are not to be partners. The law must declare what is 
the legal import df their agreements." *• 

The objection that persons charged as partners had 
never intended to be partners was thus answered in a 
leading case: "What tihey did not intend to do was to 
incur the liabilities of partners. If intending to take the 
profits and have the business carried on for their benefit 
was intending to be partners, they did intend to be part- 
ners. If intending to see that the money was applied for 
that purpose, and for no other, and to exercise an effi- 
cient control over it, so that they might have brought an 
action to restrain it from being otherwise applied, and so 
forth, was intending to be partners, then they did intend 
to be partners." " So, on the other hand, the mere fact 
that the parties themselves call their relation a partner- 
ship will not make it so. "Where the question of part- 

!• Cooley, J., in BEECHER v. BUSH, 45 Mich. 188, 7 N. W. 785, 
40 Am. Rep. 465, Gilmore, Gas. Partnership, 49 ; Brelnig v. Sparrow, 
39 Ind. App. 455, 80 N. E. 37. See ** Partnership," Dec. Dig, (Key 
No.) H i7, 18, 20-22, 29; Cent Dig. §f i, S, 4, «-«, SO-SS, 58. 

14 POOLE Y V. DRIVER, 5 Ch. Dlv. 458. 

'The real inquiry always is: Have the parties by their contract 
combined their property, labor, or skill in an enterprise or business, 
as principals, for the purpose of joint profit? If they have done so, 
they are partners in that enterprise or business, no matter how earn- 
estly they may protest they are not, or how distant the formation of 
a partnership was from their minds. The terms of their contract 
given, the law steps in and declares what their relations are to the 
enterprise or business and to each other." Spaulding v. Stubbings, 
86 Wis. 255, 56 N. W. 469, 39 Am. St Rep. 888. 

"Whether the parties knew that they were partners or not, they 
certainly intended and contracted to do all that in law is necessary 
to create a partnership. The relation of partnership may be es- 
tablished, although the parties may not expressly intend to create 
such relation." Chapman v. Hughes, 104 Cal. 304, 37 Pac. 1048. 

"The intent of the parties must be ascertained from the legal ef- 



§ 3) LEGAL INTENTION CONTROLS 9 

nership is to be determined from a contract between the 
parties to it, the relation must be found from the terms 
and provisions of the contract, and even though parties 
intend to become partners, yet if they so frame the terms 
and provisions of their contract as to leave them without 
any community of interest in the business or profits, they 
are not partners either in fact or in law.    The 
terms of the agreement, where there is one, fix the real 
status of the parties toward each other." ^' If, however, 
the agreement between the parties leaves the relationship 
between them doubtful, or, in case there is no express 
agreement, if the conduct of the parties is ambiguous, it 
is material to show whether or not the parties intended to 
form a partnership, for "every case must be solved in fa- 
vor of their intent; otherwise we should 'carry the doc- 
trine of constructive partnership so far as to render it a 



feet of the Instrument, and not the names employed by the parties." 
Van Knren y. Trenton Locomotive & Machine Mfg. Co., 13 N. J. Eq. 
306. 

"Their belief , or understanding, that during that time they were 
not partners, in the legal sense of the word, was a mistaken and im- 
material view of the law." Famom y. Patch, 60 N. H. 294, 48 Am. 
Rep. 313. 

Bestor y. Barker, 106 Ala. 250, 17 South. 389 ; Parker y. Canfield. 
37 Conn. 250, 9 Am. Rep. 317; Pursley v. Ramsey, 31 Ga. 403; 
Fongner v. Chicago First Nat. Bank, 141 111. 124, 30 N. E. 442 ; Grif- 
fin y. Cooper, 50 lU. App. 257 ; Halliday y. Bridewell, 36 La. Ann. 
238; Gunnison y. Langley, 3 Allen (Mass.) 337; Cudahy Packing 
Co. y. Hlbou, 92 Miss. 234, 46 South. 73, 18 L. R. A. (N. S.) 975 ; 
Sheridan y. Medara, 10 N. J. Eq. 4G9, 64 Am. Dec. 464; Magoyem y. 
Robertson, 116 N. Y. 61, 22 N. E. 398, 6 Ia R. A. 589; Rlghter y. 
Farrel, 134 Pa. 482, 19 Atl. C87 ; BenUey v. Brossard, 33 Utah, 396, 
94 Pac. 736; Rosenfleld v. Halght, 53 Wis. 260, 10 N. W. 378, 40 
AUL Rep. 770. See ^^Partnership:' Dec, Dig, {Key No.) f| 17, 18, 20- 
22, 29: Cent. Dig. (( i. ^. 4> ^^i 90-^, $8. 

is Sailors y. Nixon-Jones Printing Co., 20 111. App. 509; OLIVER 
y. GRAY, 4 Ark. 425; DWINEL y. STONE, 30 Me. 384; Rose y. 
Buscher, 80 Md. 225, 30 AU. 637 ; RYDER y. WILCOX, 103 Mass. 
24 ; McDonald y. Matney, 82 Mo. 358 ; Van Knren y. Trenton Loco- 
motiye & Machine Mfg. Co., 13 N. J. Eq. 302; BURNETT y. SNY- 
DER, 76 N. Y. 344, GUmore, Cas. Partnership, 117. See '^Partner- 
Bhipr Dec Diff. (Key No.) {| 17, 18, 20-22, 29; Cent. Dig. U i, S, 4, 
6^, SO^S, 88. 



10 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

trap to the unwary/ Kent, C. J», in Post v. Kimbcrly, 9 
Johns. (N. Y.) 470, 604." " 



PARTNERSHIP BY OPERATION OF LAW— PART- 
NERSHIP AS TO THIRD PARTIES 

4. While true partnership results only from the inten^on 

of the parties to form the relation, there once ex- 
isted in England, and still exists to some extent 
in the United States, an anomalous relation call- 
ed ''partnership as to third persons," which arose 
by operation of law, and which was neither true 
partnership nor a liability based upon estoppel. 
The origin of this relation was defined as follows : 
Those who share the profits of a business are lia- 
ble by operation of law as partners to third per- 
sons for the debts incurred in such business, irre- 
spective of whether or not they are in reality part- 
ners as between themselves. 

5. REASON: Every one who has a share in the profits 

of trade ought also to bear his share of the losses, 
for when he takes of the profits he takes a part 
of that fund upon which the creditor relies for his 
pa3rment. 

e. EXCEPTIONS: 

(1) Those who share gross returns are not necessarily 

liable as partners by operation of law. 

(2) A reference to profits as a measure of compensation 

for services rendered or for the use of property 
furnished does not create a partnership as to third 
persons. 

t« BEECHER ▼. BUSH, 45 Mich. 188, 194, 7 N. W. 785, 40 Am. Rep. 
465, Ollmore, Cas. Partnership, 49. 

"One may not make a contract of partnership, and, calling it an 
agency^ have It treated as such by the courts ; for, when the facts are 
known, the law fixes the legal consequences which flow from them. 
Neither may one secure the benefits of the relation of a partner, and, 
by contract, secure immunity from its obligations as against credi- 
tors. But when the contract is susceptible of the construction put 



§§ 4-6) AS TO THIRD PARTIES 11 

The Origin of the Rule 

It has been seen that partnership is the result of a con- 
tract, and that the relationship exists only between those 
who have voluntarily consented to assumfe it. Partner- 
ship liability, therefore, will exist only where there is a 
true partnership. It is possible, however, that a partner- 
ship liability may come about by the application of the 
well-established doctrines of estoppel. It may be that 
two or more persons have represented themselves to a 
third person as partners, and have induced such person to 
rely on those representations. They will not be permitted 
as against him to deny that they are partners. They are 
really not partners; but they, are estopped, by reason of 
their representations, to show the contrary, andlare there- 
fore held as if they were partners. 

Notwithstanding the general principle that partnership 
results only from a contract whereby the parties indicate 
an intention to form the relation, there early became es- 
tablished in the law an anomalous relation known as 
"partnership as to third parties," which was neither true 
partnership nor founded upon estoppeh This anomaly 
resulted from making certain acts arbitrary tests of part- 
nership, rather than tests of intention. It continued to 
exist for many years in England, when it was finally 
abandoned, as will be shown presently, and still exists to 
some extent in the United States. The basis of the anom- 
aly thus created by operation of law was found in the 
fact of participating in the profits of a business. It was 
laid down that he who shared the profits should be liable 
to third persons as a partner. It might be that he had 
never agreed to 5e a partner. Moreover, it might be, 
when the third person dealt with the alleged partnership, 
he did not even think that a partnership existed. Yet if 
he later discovered that some one, even though a stranger 
to him, had an agreement to share the profits of the 



upon it by the parties at the time it was made, such oonstraction 
will \^ accepted by the courts as the true one." Fairly ▼. Nash, 70 
Miss. 108, 12 Sonth. 149. See •'Partnership,*' Deo. Dig. {Key No.) H 
17, 18, 20-^, 29; Cent. Dig. K U S, 4, ^-S. SOSS, 28. 



12 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

business conducted by the one or ones actually dealt with/ 
the third person could hold him as a partner. Thus there 
existed the possibility of one being held as a partner who 
was not one in fact, and who had never represented him- 
self as such. 

The reason given for the rule was that every one who 
has a share in the profits of a trade ought also to bear his 
share of the losses; for when he takes of the profits he 
takes a part of that fund upon which the creditor relies 
for his payment. The origin and meaning of the rule can 
best be considered in connection with the cases which 
first announced and applied it. 

In Bloxham v. Pell *' one partner purchased the interest 
of the other and continued the business, giving the out- 
going partner a bond for the amount of his share. The 
bond bore 5 per cent, interest, and the purchasing partner 
agjeed to pay in addition £1,200 per year for six years in 
lieu of the profits of the trade. This arrangement, if re- 
garded as a loan to the purchasing partner, would give the 
outgoing partner an illegal rate of interest, and would 
therefore amount to a usurious transaction, and subject 
the participants to a criminal liability. In an action on 
a debt contracted after dissolution. Lord Mansfield said 
that such an arrangement was a mere device to get more 
than the legal rate of interest, and arbitrarily held the de- 
fendant liable as a partner; for "if it was not a partner- 
ship it was a crime, and it shall not lie in the defendant 
Pell's [the retiring partner] mouth to say: 'It is usury 
and not a partnership.* " The proposition thus announced, 
that persons may be held as partners by operation of law, 
appears to have been the basis of the decision in the later 
case of Grace v. Smith,** where on facts similar to those 
in Bloxham v. Pell, De Grey, C. J., laid down the doc- 
trine stated in black-faced type above. This, however, 
as originally stated in Grace v. Smith, was accompanied 

XT BLOXHAM ▼. PELL, 2 W. Bl. 998. 999. See •'Partnership,^ 
Dec, Dig, {Key No,) { SO; Cent, Dig. §i 89-48' 

18 0RACE V. SMITH, 2 W. Bl. 998, GUmore, Cas. Partnership, 
IT. See '*PartnersMp;' Deo, Dig. (Key No.) H S0-S2; Cent. Dig. H 
54, S5, S9-48. 



§§ 4-6) AS TO THIRD PABTIK8 18 

by an important qualification, viz.: That if the profits 
are looked to only as a fund of payment, then the taking 
from such profits will not create a partnership by opera- 
tion of law. It is only where one participates in the prof- 
its as proprietor or co-owner that the court in Grace v. 
Smith Qieant to hold that a partnership arose by implica- 
tion of law. This qualification was not observed in the 
subsequent cases. 

In Waugh v. Carver,** the next case of importance, the 
broad proposition was laid down, without limitation, that 
persons participating in the profits of a business are as to 
third persons partners, by operation of law. In this case 
certain ship agents, carrying on business at different ports, 
agreed to allow each other certain portions of the profits 
or commissions made by the other: but it was expressly 
agreed that neither of them should be prejudiced or af- 
fected by the losses of the other, or be answerable for 
the other's acts, but each should carry on his own busi- 
ness on his own credit, and be accountable for his own 
losses and acts. In an action brought by a third person 
against all the parties to this agreement for goods sui^plied 
to one of them, the court said : "It is plain upon the con- 
struction of the agreement, if it be construed only between 
the Carvers and Geisler, that they were 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. * * * But the question is whether they 
have not, by parts of their agreement, constituted them- 
selves partners in respect to other persons. The case, 
therefore, is reduced to the single point, whether the Car- 
vers did not entitle themselves, and did not mean, to take 
a moiety of the profits of Geisler'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, up- 
on the authority of Grace v. Smith, he who takes a moiety 



!• WAUGH ▼. CARVER, 2 H. Bl. 235, Gllmore, Gas. Partnership, 
W Bee "^Partnership;' Deo. Dig, {Key No,) i SO; Cent Dig, H 
S9-48. 



11 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

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." 

Abundant criticism of the broad rule thus laid down 
may be found in the works of text- writers and commen- 
tators and in judicial •opinions. The fallaciousness of the 
rule lies in the violence it does to the real facts; for as a 
matter of fact creditors do not look to the profits of a 
business as security for their debts. The existence of 
debts is entirely inconsistent with the existence of profits. 
There are no profits so long as unpaid debts exist ; hence 
it is entirely inaccurate to say that creditors rely on 
profits as a source of payment. It may be that they desire 
the business to be a profitable one in order that their se- 
curity may be more ample; but when their debts are 
paid it is a matter of indifference to them as to how the 
profits are distributed. 

Exception — Sharing Gross Returns 

It was very soon apparent that, in the application of the 
doctrine of Grace v. Smith and Waugh v. Carver, a dis- 
tinction was to be made between sharing in the profits 
and in the gross returns of a business or property. By 
"profits" is meant the amount by which the total income 
of a business exceeds the expenditures. There is, in strict- 
ness, no other kind of "profits." The term "gross profits" 
has, however, been used to designate the gross returns 
of a business. This has brought about the use of the term 
"net profits," to indicate what is really profits. Hence 
the two terms, "gross profits," to indicate gross returns, 
and "net profits," to indicate profits. The use of the terms 
"gross returns" and "profits" is preferable. 

The reason given for holding one who shared profits 
to be a partner as to third persons was inapplicable, be- 
cause creditors do not rely on profits for payment. There 
is no doubt, however, that creditors do rely on the gross 
returns of a business for payment. A clerk who works for 
a fixed salary is paid out of the gross returns of the busi- 



§§ 4-6) AS TO THIKD PABTIES 15 

ness. Consequently he takes part of that upon which the 
creditors rely for payment. Yet it has never been sug- 
gested that he incurs a partnership liability. Every one 
recognizes that he is but a general creditor, as others are ; 
that the failure or success of the firm is no more material 
to him than to other creditors. He has the interest of a 
third person, not that of a proprietor. Suppose, however, 
his payment is a share of the gross returns. Even then 
the amount he receives does not indicate whether or not 
the business is successful. His interest is distinct from 
that of the proprietor, and may even be in conflict with 
it. "Though the sum may come out of profits, if they 
are sufficient, it will, nevertheless, come out of somebody, 
though there^ be no profits. The fixed amount, which is 
independent of the success or failure of the business, be- 
trays a stranger's interest, and not a principal's. A pro- 
prietor's share springs out of the business, and varies 
according to its vicissitudes. A principal who made no 
contribution himself could never take his copartner's, and 
make gain out of his copartner's loss and the failure of 
the business." *• Hence, despite the applicability of the 
reason which was given for holding those who shared 
profits to a partnership liability, it was soon decided that 
an agreement to share "gross profits" or "gross returns'* 
did not make the parties partners even as to third per- 
sons. Thus a sailor shipping on a whaling voyage under 
an agreement to receive a share of the oil for his services 
is not a partner with the captain.*^ A captain of a ship, 
who receives one-fifth of the returns of the voyage, is 
not a partner with the owners.'* No partnership exists 
between the owner of a barge and a man who works it 
and receives for his services one-half the gross earn- 
ings.*" The proprietor of a theater, who lets it to a man- 

«o J. Parsons, Principles of Partnership, | 62. 

«i WILKINSON V. FRASIER, 4 Esp. 182. Bee ''Partnership,'* 
Dec. Dig. {Key No.) i SO; Cent. Dig. H 99-48. 

s> Mair y. Glennle, 4 M. & S. 240. See '*Partner8h4p,** Deo. Dig. 
{Key No.) | SO; Cent. Dig. H S9-48. 

28 DRY ▼. BOSWELL^ 1 Camp. SSa 8ee ^'Partnership,** Deo. Dig. 
{Key No.) | SO; Cent. Dig. | 4S. 



16 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

ager, who finds the acting company, the proprietor provid- 
ing the general service and expenses of the theater, and 
the gross receipts being equally divided, is not a partner 
with such manager.** Brokers who have agreed to divide 
commissions are not partners.** Co-owners of a chattel, 
who agree to divide its gross earnings, are not partners.** 
A landowner and one who cultivates the land for a share 
of the crops are not partners.*^ Connecting carriers are 
not partners, though a through rate is charged, where 
each bears the expense of its own line, and the gross re- 
ceipts are shared in an agreed proportion.** And the own- 
er of a hotel, who leases it, receiving as rent a share of 
the gross receipts, is not a partner of the lessee.** 

Same — Not Sharing Profits as Profits 

In the application of the rule of Waugh v. Carver an- 
other distinction is well recognized, viz. : Between a shar- 
ing of profits as profits, by virtue of a proprietary interest 
therein, and a reference to profits as a measure of compen- 

2« Lyon ▼. Knowles« 8 Best & S. 556; Thomas ▼. Springer, 134 App. 
Dlv. 640, 119 N. Y. Supp. 460. See ''Partnership,'' Deo, Dig, (Key 
No.) { SO; Cent. Dig, S 45. 

as Wass V. Atwater, 33 Minn. 83, 22 N. W. 8; Pomeroy ▼. Slgerson, 
22 Mo. 177. See '* Partnership;* Dec. Dig. (Key No.) S SO; Cent. Dig. 
H 5. S9-48. 

"FRENCH ▼. STYRTNG, 2 C. B. (N. S.) 357; QUACKENBUSH 
V. SAWYER, 54 Cal. 439, Qllmore. Cas. Partnership, 66. See ''Part* 
nership;* Dec. Dig. (Key No.) §§ 10. SO; Cent. Dig. §{ 15, 25, 45. 

2T DONNBLL V. HARSHE, 67 Mo. 170, Gilmore, Cas. Partnership, 
63 ; BLUE ▼. LEATHERS, 15 lU. 31 ; Randall ▼• Ditch, 123 Iowa, 
582, 99 N. W. 190. See 'Partnership^' Dec. Dig. (Key No.) $| 8, 50; 
Cent. Dig. Ǥ 21, 42. 

28 Peterson v. Chicago, R. I. & P. R'y. Co., 80 Iowa, 92, 45 N. W. 
673. Where, however, connecting carriers have associated themselves 
under a contract for a division of the profits of the carriage in cer- 
tain proportions, or the receipts from it after deducting any expenses 
of the business, they may be held liable as partners. Bostwlck v. 
Champion, 11 Wend. (N. Y.) 571 ; Hutchinson on Carriers (3d Ed.) § 
250. See "Partnership," Dec. Dig. (Key No.) S SI; Cent. Dig. { S5. 

29 BEECHER V. BUSH, 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 
466, Gilmore, Cas. Partnership, 49; Drilling ▼. Armstrong (Ark.) 
127 S. W. 725; Nantasket Beach Steamboat Co. v. Shea, 182 Mass. 
147, 65 N. E. 57 ; Austin v. Neil, 62 N. J. Law, 462, 41 Atl. 834. See 
''Partnership,'* Dec. Dig. (Key No.) §§ 8, SO; Cent. Dig. §S 21, 22, 42. 



§§ 4-6) AS TO THIRD PABTIB8 17 

sation for services rendered or for the use of property 
furnished. This distinction appears to have arisen through 
an attempt to reconcile the cases of Bloxham v. Pell and 
Grace v. Smith, for, while Lord Mansfield decided in favor 
of the plaintiff in the former case, a verdict for the de- 
fendant in the latter case was not disturbed ; it being in- 
ferred that in the exercise of their right to find the facts, 
the juiy had found that the payments did not come out of 
the profits. Confronted by these two cases, Lord Eldon, 
in Ex parte Hamper,** said : "It is clearly settled, though 
I regret it, that, if a man stipulates that, as a reward of 
his labor, he shall have, not a specific interest in the busi- 
ness, but a given sum of money, even in proportion to a 
given quantum of the profits, that will not make him a 
partner; but, if he agrees for a. part of the profits, as such, 
giving him a right to an account,** though having no 
property in the capital, he is, as to third persons, a part- 
ner." This distinction may be illustrated by the case of 
Leggett V. Hyde.** The defendant loaned a certain sum 
of money to the firm of A. D. Putnam & Co. in considera- 
tion that the firm would employ defendant's son as a clerk, 
and pay to the defendant one-third of the profits of the 
business, which was to be settled half yearly. In hold-, 
ing the defendant liable as a partner the court said: "It 
was one-third of the profits that he was to have, and not 
a sum in general equal to that one-third; so that he was 
to take it as profits, and not as an amount due — not as a 
measure of compensation, but as a result of the capital and 
industry. * * * He had that interest in the profits, as 
profits, because he could claim a share of them specifically. 



»• 17 Ven 403, 412. Bee ^'Partnership," Dec. Dig. (Key No,) {§ +- 
15; Cent. Dig. K 15'-28. 

•1 A right to an accounting does not prove a partnership. Any 
one whose compensation depends upon the profit realized from a 
business has a right to an accounting. Schultz ▼. Brackett Bridge 
Ck>., 35 Misc. Rep. 605, 72 N. Y. Supp. 160. See *' Partner ship," Deo. 
Dig (fey No.) U 4'iS; Cent. Dig. §{ 15-28. 

82 LEQOB3TT ▼. HYDE, 58 N. Y. 272, 17 Am. Rep. 244, GUmore, 
Cas. Partnership, 22. See '^Partnership," Dec Dig. {Key No.) | SO; 
Cent. Dig. H S9-48. 

OIL.PART.— 2 



18 WHAT CON8TITX7TBS A PARTNERSHIP (Ch. 1 

as they should appear on each six months. *  * It mat- 
ters not that the defendants meant not to be partners at 
all, and were not partners inter se. They may be partners 
as to third persons. * * * The test of partnership is 
a community of profit — a specific interest in the profits 
as profits — in contradistinction to a stipulated portion of 
the profits as a compensation for services." As a result 
of this distinction certain exceptions have been well rec- 
ognized in those jurisdictions which follow the earlier 
English rule. 

An agent, servant, factor, broker, or employe, who, with 
no interest in the capital or business, is to be remunerated 
for his services by a compensation from the profits, or by 
a compensation measured by the profits, is not by this fact 
alone made liable as a partner. In Loomis v. Marshall,*' 
the court deemed it contrary to public policy to declare to 
"enterprising citizens of our country, who possess industry 
and skill, but are without capital, that they can neither im- 
prove farms, nor manufacture goods, nor be employed as 
mechanics, for a compensation proportioned to the avails 
of the sales — the product of their labor and skill — ^without 
involving themselves and their employers in such respon- 
sibility as partners as would to a considerable extent de- 
prive them of employment." The establishment of such a 
narrow exception indicated that the courts felt that the 
test was economically sound; it has already been shown 
that the reasoning upon which it was founded was inac- 
curate. Those who shared profits generally were, however, 
held to a partnership liability in England until after the 
middle of the last century.** 

•« 12 Conn. 69, 85, 30 Am. Rep. 506. Bee ''Partnership,^ Deo. Big. 
(Key Vo.) | SO; Cent, Dig, | ^. 

s« Sharing profits as compensation for services rendered does not 
constitute one a partner In the huslness In which the service was. 
rendered. Smythe's Estate ▼. Evans, 209111. 376, 70 N. E. 906; Mc- 
WlUlams ▼. Elder, 52 La. Ann. 995, 27 South. 352; Smith v. Dunn, 44 
Misc. Rep. 288, 89 N. Y. Supp. 881 ; Lance v. Butler, 135 N. G. 419, 
47 S. E. 488 ; State v. Hunt, 25 R. I. 75, 54 Aa 937 ; Altgelt v. Alamo 
Nat Bank» 98 Tex. 252, 83 S. W. 6; Langley ▼. Sanborn, 135 Wis. 
178, 114 N. W. 787. The same rule applies where profits are received 
aa compensation for property or capital furnished. JOHNSON BROS. 



S 7) AS TO THIRD PARTIES 19 

SAME— DOCTRINE OF PARTNERSHIP AS TO 
THIRD PARTIES OVERTHROWN 

7« The rule which made the sharing of profits a test of 
partnership rather than a test of intention to form 
a partnership was overthrown in England, and 
was never generally accepted in the United States. 
Partnership liability grows out of true partner- 
ship only. Sharing of profits is evidence merely 
of intention. 

The rule that there could be a partnership as to third 
persons without there being at the same time a partner- 
ship inter sese, and the subsidiary rule that such a part- 
nership could be proved by showing that profits were 
shared, were both overthrown by the case of Cox v. 
Hickman. Though it did not profess to overrule the case 
of Waugh V. Carver, it has been understood as having 
done so.** The case was as follows: B. and J. T. Smith 

V. GARTER ft CO., 120 Iowa, 855, 94 N. W. 850, Gilmore, Cas. Part- 
nership, 54 ; Roberts ▼. G. W. Adams ft Son Go., 110 S. W. 314. HH 
Ky. Law Rep. 207 ; Gille Hardware ft Iron Go. t. McGleverty, 89 Mo. 
App. 154 ; Hazell ▼. Glark, 89 Mo. App. 78. But see Dilley ▼. Abright 
19 Tex. Glv. App. 487, 48 S. W. 64a See "Partnership,'' Dec. Dxy. 
{Key 2fo.) || 4-iS, SO; Cent Dig. §| IS-^tS, SQ-J^S, ' 

«B GOX V. HIGKMAN, 8 H. L. G. 268, Gllinore, Gas. Partnership, 31. 

**The first point, therefore^ to be determined in the present case. 
Is what really was the effect of the decision of the House of Lords 
in GOX ▼. HIGKMAN, 8 H. L. G. 268 [Gilmore, Gas. Partnership, 
31]. Prior to that decision, the dictum of De Grey, G. J., in GRAGE 
▼. SMITH, 2 W. Bl. 998 [Gilmore, Gas. Partnership, 17], *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 ▼. GARVER, 2 H. Bl. 235 [Gilmore, Gas. Partnership, 19], 
where it was laid down that he who takes a moiety of all the profits 
indefinitely shaU by operation of law be made liable to losses, if 
losses arise, upon the principle that by taking a ];)art of the profits 
he takes from the creditors a part of that fund which is the proper 
secnnty to them for the payment of their debts.' This decision had 
never been overruled. The reasoning on which it proceeds seems to 
have been generally acquiesced in at the time ; and when, more re- 



20 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

for some time previously to the year 1849 carried on a 
business at the Stanton Iron Works, in Derbyshire, as 
ironmasters and corn merchants. In that year, becoming 
embarrassed in circumstances, a meeting of their cred- 
itors took place, and later a deed was entered into by the 
Smiths, of the first part, certain creditors, as trustees, of 
the second part, and the general creditors, including those 
named as trustees, of the third part. By the terms of this 
deed the Smiths transferred their interest to the trustees, 
with power to them 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 the Smiths, among the creditors, and when all the 
debts were paid they were to hold for the Smiths. Provi- 
sion was made for meetings of the creditors, and at such 
meetings a majority in value of the creditors present was 
to have power to make rules governing the conduct of the 
business, or order its discontinuance. Cox and Wheat- 
croft were among the members named as trustees, but 
Cox never acted, and Wheatcroft resigned before the hap- 
pening of the events immediately giving rise to the cause 
of action. This arose through the acceptance by the trus- 
tees per proc. of the Stanton Iron Company, pursuant 
to the power given them in the deed, of bills of exchange 

cently, it was disputed, It was a common opinion (in which I for one 
participated) that the doctrine had become so Inveterateiy part of 
the law of England that it would require legislation to reverse It 
In COX ▼. HICKMAN • • • I think that the ratio decidendi is 
that the proposition laid down In WAUGH ▼. CARVER, 2 H. Bl. 235 
[Oilmore, Cas. Partnership, 19], ylz., that a participation in the prof- 
Its of a business does of itself, by operation of law, constitute a part- 
nership, is not a correct statement of the law of England ; but that 
the true question is, as stated by Lord Cranworth, whether the trade 
is carried on on behalf of the person sought to be charged as a part- 
ner, the participation in the profits being a most important element 
in determining that question, but not being in itself dedalve; 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 carry- 
ing on tbe business." Blackburn, J., in BULLEN y. SHARP, L. R. 
1 C. P., at lOS, Gllmore, Cas. Partnership, 3a See **Fartfier9hip," 
Deo. Dig. {Key No.) i SO; Cent. Dig, H 59-43. 



g 7) A8 TO T^IBD PARTIES 21 

drawn by Hickpan who had supplied goods to the Stan- 
ton Iron G^mpany. Action was brought against the de- 
fendants as partners, upon one of the bills. The fact 
that they had been named or had acted as trustees was 
not dwelt upon, at least in the House of Lords ; Black- 
burn, J., stating the question thus: "The question is, 
whether the stipulations are such as to render those credi- 
tors who are parties to the deed partners in the Stanton 
Iron Company, so far, at least, as regards liability to third 
persons." Judgment was given for the plaintiff in the 
Common Pleas,'* and an appeal was taken to the Ex- 
chequer Chamber, where the judges were equally divided. 
The judgment therefore stood, and the defendants appeal- 
ed to the House of Lords. The judges were summoned, 
the opinions of those who attended being equally divided ; 
but the Lords were unanimous in holding that the defend- 
ants were not liable as partners. Lords Cranworth and 
Wensleydale delivered the principal opinions.*^ Lord 
Cranworth in the course of his opinion said that : "The lia- 
bility of one partner for the acts of his copartner is in 
truth the liability of a principal for the acts of his agent. 
* * * It was argfued that, as they would be interested 
in the profits, therefore they would be partners. But this 
is a fallacy. It is often said that the test, or one of the 

••18 G. B. 617. JervlB, C. J., In dellyering the opinion of the 
court, said: "The case, in fact, is expressly bound by the authority 
of Ow^ y. Body, 5 Ad. & E. 28. 6 N. & M. 448, which is recognized, 
and its principle clearly and neatly stated by Maule, J., in Janes v. 
Whitbreaid, ante. Vol. XI, p. 406, shortly before we had the mis- 
fortune to lose him." See "Partnership,*' Deo, Dig, {Key No.) § SO; 
Cent Dig. §§ S9-48. 

ST **in the result, the House of Lords, consisting of Lord Campbell, 
C, and Lords Brougham, Cranworth, Wensleydale and Chelmsford, 
unanimously decided that the creditors were not partners. The 
judgments of Lord Cranworth and of Lord Wensleydale bear in- 
ternal evidence of having been written. Lord Campbell, C, and 
Lords Brougham and Chelmsford said a few words expressing their 
concurrence. It is therefore in the written Judgments, and more es- 
peclaUy in the elaborate judgment of Lord Cranworth, that we 
must look for the ratio decidendi." Blackburn, J., in BULLEN v. 
SHARP, L. R. 1 C. P., at 100, Gilmore, Cas. Partnership^ 36. Bee 
'*Partner8Mpr Dec. Dig. {Key No.) I SOj Cent. Dig. §{ S9-^8. 



22 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

tests, whether a person, not ostensibly a partner, is never- 
theless, in contemplation of law, a partner, is whether he 
is entitled to participate in the profits. This, no doubt, is, 
in general, a sufficiently accurate test; for a right to par- 
ticipate in profits affords cogent, often conclusive, evi- 
dence that the trade in which the profits have been made 
was carried on in part for or on behalf of the person set- 
ting up the claim. But the real ground of liability is that 
the trade has been carried on by persons 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 behalf; i. e., that he 
stood in the relation of principal towards the persons act- 
ing ostensibly as the traders, by whom the liabilities have 
been incurred, and under whose management the profits 
have been made." Lord Wensleydale said: "A man who 
allows another to carry on trade, whether in his own 
nam.e or not, to buy and sell, and to pay. over all the 
profits to him, is undoubtedly the principal, and the per- 
son so employed is the agent, and the principal is liable 
for the agent's contracts in the course of his employment. 
So if two or more ag^ee that they should carry on a trade, 
and share the profits of it, each is a principal, and each 
is an agent for the other, and each is bound by the other's 
contract in carrying on the trade, as much as a single prin- 
cipal would be by the act of an agent, who was to give 
the whole of the profits to his employer. Hence it be- 
comes a test of the liability of one for the contract of an- 
other that he is to receive the whole or a part of the profits 
arising from that contract by virtue of the agreement 
made at the time of the employment. I believe this is 
the true principle of partnership liability. Perhaps the 
maxim that he who partakes the advantage ought to bear 
the loss, often stated in the earlier cases on this subject, 
is only the consequence, not the cause, why a man is 



§ 7) AS TO THIRD PARTIES 23 

• 

made liable as a partner/' •' This case clearly states that 
a sharing of profits is not sufficient to charge one with a 
partnership liability, in the absence of all other elements 
of partnership. Though some doubt was expressed in 
Kilshaw v. Jukes as to whether it should be extended be- 
yond its particular facts, later cases demonstrated that it 
was to be taken as establishing a general rule.** 

Since, except where the parties by their conduct had 
estopped themselves to deny the partnership relation, 
those cases where profits were shared constituted the only 
class of cases where there existed a partnership as to third 
persons, in the absence of a partnership inter se, it follow- 
ed that, when sharing profits ceased to be a conclusive test 
of partnership liability, partnerships as to third persons 

ceased to exist.*® 

. 

Effect of Cox V, Hickman in America 

The case of Cox v. Hickman has been generally follow- 
ed in the United States. In Beecher v. Bush,** Cooley, 
J., said that "it would be easy to show that the American 

»« COX ▼. HICKMAN, 8 H. L. C. 268, Gllmore, Ceb. Partnership, 
31. See "Partnership,^' Dec, Dig. {Key No.) i 30; Cent. Dig. §§ 89-48. 

••KILSHAW ▼. JUKES, 3 Best & Smith, 847; BULLEN v. 
SHARP, L. R. 1 C. P. 86, Gllmore, Cas. Partnership, 36; Holme v. 
Hammond, L. R. 7 Ex. Cas. 218. Bee "Partnershdp/' Dec. Dig, (Key 
yo.) § SO; Cent. Dig. §§ 89-48. 

40 "They say that the defendant Is a partner with his son, and 
that. If not partners Inter se, they are so as regards third parties. 
A most remarkable expression! Partnership means a certain re- 
lation between two parties. How, then, can It be correct to say 
that A. and B. are not In partnership as between themselves, they 
have not held themselves out as being so, and yet a third person has 
a right to say they are so as relates to him? But that must mean 
Inter se, for partnership Is a relation Inter se, and the word cannot 
be used except to slgnl^ that relation.** Bramwell, B., In BULLEN 
r. SHARP, L. R. 1 0. P. 86, Gllmore, Cas. Partnership, 36. See 
''Partnership^ Dec. Dig. (Key No.) I 80; Cent. Dig. §§ 89-48. 

41 BEECHER ▼. BUSH, 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 
465, Gllmore, Cas. Partnership, 40. See Eastman ▼. Clark, 63 N. H. 
276, 16 Am. Rep. 102, for an exhaustive examination of the cases on 
the subject of partnership as to third persons, by Doe, J. In speak- 
ing of the test of WAUGH v. CARVER, 2 H. Bl.. 235, Gllmore, Cas. 
Partnership, 10, he says: "Neither Is such a test established by a 
preponderance of the weight of American cases decided without rof- 



24 WHAT CONSTITUTES A PABTNBBSHIP (Gh. 1 

authorities are, in the main, in harmony with it." In a 
few states, however, the courts have held themselves con- 
cluded by previous decisions following the rule of Waugh 
V. Carver. Hence they have refused to recognize the later 
case, declaring that to do so would involve a change in the 
law such as the Legislature alone was competent to ef- 
fect." 

irence to COX ▼. HICKMAN," 8 H. L. Cas. 288, Gilmore, Gas. Part- 
nership, 81. See ''Partnership,** Dec, Dig, (Key No.) i SO; Cent. 
Dig. §S S9-48. 

42 "We are aware that the trend of modem outside authorities Jb 
against the old rule, • • • and that now many courts hold that 
persons are not liable to third persons as partqers, although they 
share tn the profits of a business, unless they are really partners in- 
ter sese, or have held themselves out as partners under such circum- 
stances as to estop them from denying that they were. For my own. 
part, I wish the law in this state upon the subject of partnership 
had undergone the change which Is pointed out, * * * so that 
even as to third persons, a partnership could not be held to exist, 
unless there was really a partnership inter sese, or else the person 
claimed to be a partner had, by holding himself out as such, es- 
topped himself to deny that he was. This would greatly simplify 
matters in cases in which the question of partnership or no partner- 
ship may arise, and would, it seems to me, place the law in such 
cases upon a more rational and reasonable basis. But we are bound 
by' the previous decisions of this court which we have cited, which 
are directly in point, and must follow them so long as they stand 
unreviewed and unreversed." Brandon & Dreyer v. Conner, 117 
Ga. 759, 45 S. E. 371, 63 L. R. A. 260. 

*'It is claimed by the learned counsel for the appellant that the 
rule in GRACE v. SMITH [2 W. Bl. 998, Gilmore, Cas. Partnership, 
17] and WAUGH v. CARVER* [2 H. Bl. 235, Gilmore, Cas. Partner- 
ship, 19} has been exploded, and another rule propounded, which 
shields the appellant He Is correct so far as the courts in England 
are concerned." After commenting on COX v. HICKMAN, 8 H. L. 
Cas. 268, Gilmore, Cas. Partnership, 81, and BULLEN v. SHARP, U 
R. 1 C. P.. 86^ Gilmore, Cas. Partnership, 36, the court proceeds : 
** Without discussing those decisions and determining Just how far 
they reach, it is sufficient to say that they are not controlling here ; 
that the rule remains in this state as it has long been, and that 
we should be governed by it until here, as in England, the Leg- 
islature shall see fit to abrogate it" Folger, J., in LEGGBTT v. 
HYDE, 58 N. T. 272, 17 Am. Rep. 244, Gilmore, Cas. Partnership, 
22. See HACKETT v. STANLEY, 115 N. Y. 625, 22 N. B. 746, Gil- 
more, Cas. Partnership, 27. 

"The agreement between the defendants made ,them partners at 



§ 8) TB8T8 OF INTENTIOH 26 



TESTS OF INTENTION— IN GENERAL 

8. As partnership arises from the actual manifested in- 
tention to do those things which in law constitute 
the relation, it is necessary to ekamine the vari- 
ous constituent acts which tend to prove the es- 
sential intention, and to determine the eviden- 
tial value of such acts. 

The question to be ascertained in determining whether 
or not two or more persons are partners is : Did they in- 
tend to become co-proprietors of a common business, con- 
ducted for mutual profit? If they can be proved to have 
intended this, there is no further question; they are part- 
ners. The difficulty, however, lies in ascertaining the ex- 
istence of an intention to do this. Parties frequently agree 
upon the elements of a partnership, leaving to be inferred 
whether by such agreement they intend to be partners. 
If they agree upon all of the elements, there can be no dif- 

eommon law and In this state. The case of WAU6H y. CARVER, 
2 H. Bl. 235 [Gllmore, Gas. Partnership, 10], decided in 1793. which 
followed GRACE ▼. SMITH, 2 W. Bl. 998 [Gllmore, Gas. Partner- 
ship, 17], decided in 1775, was followed and adopted to its full ex- 
tent in Puryiance ▼. McClintee, 6 Serg. & R. (Pa.) 259, In 1820. The 
well-settled rule of WAUGH y. CARVER was oyerruled in England 
in 1860 by the case of COX y. HICKMAN, 8 H. L. Gas. 268 [Gllmore, 
Gas. Partnership, 31], but there has been no departure from It in 
this state, except by legislation In 1870. In the opinion in Edwards 
y. Tracy, 62 Pa. 374, decided in 1869, Sharswood, J., pointed out the 
new English rule of COX y. HICKMAN, but followed the old one of 
WAUGH y. CARVER, saying: *It is entirely too late now to ques- 
tion either the rule or the exception. We are bound to stand super 
antiquas yias by our own decided cases.' In the opinion in Lord y. 
Proctor, 7 Phila. (Pa.) 630, decided at nisi prius the same year, he 
said that the rule in WAUGH y. CARVER was too ancient a land- 
mark in our law to be now disturbed, and that it had accordingly 
been followed in Edwards y. Tracy. Since the act of 1870 there has 
been no change in Judicial decision." Wessels y. Weiss, 166 Pa. 
490, 81 Atl. 247. See, also, the Texas cases : Gothran y. Marmaduke, 
60 Tex. 370 ; DiUey y. Abright, 19 Tex. Civ. App. 487, 48 S. W. 548 ; 
Fouke y. Brengle (Tex. Ciy. App.) 51 S. W. 519. See '* Partner ship;* 
Deo. Dig. {Key No.) | SO; Cent. Dig. Sf S9-48. 



26 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

ficulty in making such an inference. If they agree upon 
only one or more, however, it often becomes a ques- 
tion of extreme difficulty to determine their intention. No 
conclusive test can be given, each case depending in large 
measure upon its peculiar facts. Yet the agreement to 
do anything which ordinarily goes to make up a partner- 
ship is of value as being evidence of the intention of 
tlie parties. In this sense, therefore, they may be con- 
sidered as t^sts of intention. While all the facts of each 
particular case are to be taken into consideration, it is 
obvious that some facts will have more evidential value 
than others.** In the main, the doctrine that participat- 
ing in profits will of itself make the participants partners 
has been abandoned. It is now proposed to examine the 
various facts tending to establish the required intention, 
and to consider their value as evidence. 



SAME— MUTUAL AGENCY 

9. Mutual agency is not a test of partnership. Agency Is 
a result of partnership, but mutual agency does 
not create a partnershipw 

Mutual Agency as a Test 

In Cox V. Hickman Lord Cranworth stated, as a test of 
liability as a partner, "the fact that the trade has been car- 
ried on on his behalf; 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." ** 
It has been recognized, however, that the relation of prin- 
ts "So far as the notion ever took hold of the Judicial mind that 
the question of partnership or no partnership was to be settled by ar- 
bitrary tests it was erroneous and mischievous, and the proper cor- 
rectlye has been applied." Gooley, J., in BEEGHER v. BUSH, 45 
Mich. 188, 200, 7 N. W. 785, 789, 40 Am. Rep. 463, Gilmore, Gas. 
Partnership, 49. Bee ^^Partnership," Dec. Dig, (Key No.) |§ ^-15, 17, 
SO; Cent. Dig, SS 5, 15-28, S9-48. 

** GOX v. HICKMAN, 8 H. L. G. 288, Gilmore, Gas. Partnership, 
BL Bee "Partnership," Dec. Dig. (Key No.) § U; Cent. Dig. ( IS. 



§ 9) TESTS OF INTENTION 27 

cipal and agent does not furnish a conclusive test of part- 
nership. "As has been pointed out in later English cases, 
the reference to agency as a test of partnership was unfor- 
tunate and inconclusive, inasmuch as agency results from 
partnership, rather than partnership from agency. *   
Such a test seems to give a synonym, rather than a defini- 
tion; another name for the conclusion, rather than a state- 
ment 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." *• While the relationship of a 
principal undoubtedly serves as a test of "liability," it does 
not furnish a test of liability as a partner. The relation- 
ship of agent and principal results from the foundation of 
a partnership. "The acting partners are identified with the 
company, and have power to conduct its general business in 
the usual way. This power is conferred by entering into 
the partnership, and is perhaps never to be found in the 
articles/' *• Every partner is the general agent of the part- 
nership in the conduct of the partnership business ; hence • 
one who seeks to charge the partnership with the acts of 
a partner need but prove the partnership. It is true that 
as between the partners the authority of one to act in the 
conduct of the business may be limited;*^ but this does 
not relieve the firm from liability for the acts of such part- 
ner as against one who knew of the existence of the part- 



*B Gray, J., In MEEHAN ▼. VALENTINE, 145 U. S. 611, 12 Sup. 
Ct 972, 36 L. Ed. 835, Gilmore, Gas. Partnership, 45; Boreing y. 
WUson & Moss, 108 S. W. 914, 33 Ky. Law Rep. 14. See "Partner- 
ship," Deo. Dig. (Key No.) §§ i, U; Cent. Dig. §§ IS, 11. 

*« Marshall, O. J., in WINSHIP v. BANK of UNITED STATES, 5 
Pet 529, 8 L. Ed. 216, Gllmore, Gas. Partnership, 356. See **Partner' 
ship," Dec. Dig. (Key No.) § 125; Cent. Dig. § 190. 

*T BEEGHEB v. BUSH, 45 Mich. 188. 7 N. W. 785, 40 Am. Rep. 
465, Gllmore, Gas. Partnership, 49; McAlplne y. Millen, 104 Minn. 
289, 116 N. W. 583; First Nat Bank y. Stodden, 103 Minn. 403, 
115 N. W. 198; Taylor v. Sartorious, 130 Mo. App. 23, 108 S. W. 
1089. See ^^Partnership,'' Dec. Dig. (Key No.) S U; Cent. Dig. § 13. 



28 WHAT CON8TITUTB8 A PARTNERSHIP (Gh. 1 

nership, but did not know of the limitation on the partner's 
authority.** 

It may thus be seen that mutual agency results from 
partnership. The mere fact that it is but a result of part- 
nership would not render it inapplicable as a test of the 
existence of a partnership, provided that it always did re- 
sult from the existence of a partnership, and provided, fur- 
ther, that it did not exist independent of the existence of 
a partnership. As a matter of fact mutual agency does not 
always result from the existence of a partnership. In 
Holme V. Hammond, Cleasby, B., said : "I must add, how- 
ever, that I cannot quite concur in the passage cited by 
my Brother Martin from the judgment of O'Brien, J., in 
Shaw V. Gait, 8 H. L. C. 268, to the effect that the exist- 
ence of partnership is to be ascertained by seeing whether 
each is principal and agent to and for the others. My 
view is that agency is in such cases deduced from partner- 
ship, rather than partnership from agency. But neither 
does partnership always imply this mutual agency. In the 
common case of partnership, where, by the terms of the 
partnership, all the capital is supplied by A., and the busi- 
ness is to be carried on by B. and C. in their own names» 
it being a stipulation in the contract that A. shall not ap- 
pear in the business or interfere in its management, that 
he shall neither buy nor sell, nor draw or accept bills, no 
one would say that, as among themselves, there was any 
agency of each one for the others." *• Therefore mutual 

48 *'Every partner Is an agent of the firm and his other partners 
for the purpose of the business of the partnership; and the acts 
of every partner who does any act for carrying on in the usual 
way business of the kind carried on by the firm for which he is a 
member bind the firm and his partners, unless the partner so acting 
has in fact no authority to act for the firm in the particular matter. 
and the person with whom he Is dealing either knows that he has 
no authority, or does not know or believe him to be a partner.** 
Bng. Partnership Act of 1890, { S. 

"This section introduces no change in the law.^ Lindle^B Law 
of Partnership (7th Ed.) p. 146. 

See the opinions of James, L. J., In Benld*s Case, 5 Ch. 788, and 
of Parke, B., in Hawken v. Bourne, 8 M. & W. 710. Bee '^Partner- 
shipr Dec, Dig, {Key 2fo,) §{ 1S2, 160; Cent. Dig. S 196. 

4» Holme V. Hammond, L. R. 7 Ex. Cas. 218, 233. See "'Partner- 
ship,** Dec, Dig. (Key No.) § 14; Cent. Dig. § IS, 



§ 10) TESTS OF INTENTION 29 

agency as a test of partnership, even if it were accurate, 
is not sufficiently extensive to include all cases of partner- 
ship. It is not, however, even accurate, because it is pos- 
sible to have cases of mutual agency without the existence 
of a partnership. For instance, joint owners of chattels 
may ag^ee upon the use of the chattels, giving each cer- 
tain powers over it, as co-owners of a horse may agree 
that each shall find a buyer for the horse, without thereby 
creating a partnership between them.** Or two persons 
may jointly own and jointly use a threshing machine in 
threshing for others, without thereby becoming liable as 
partners.** 



SAME— SHARING GROSS RETURNS 

10. An agreement to divide the gross returns of a business 
is not prima facie evidence of an intention to form 
a partnership. 

The reason for the rule holding sharers of the profits of 
an enterprise to a partnership liability was stated to be 
that he who shares in the profits of a business should share 
in the losses, because he takes part of the fund upon which 
the creditor relies for payment.** It has been shown that 
this reason was inaccurately applied to sharing profits, for 
the creditor does not rely on profits as a fund of payment. 
But, if the reasoning were sound, it should have been ap- 
plied to those who agreed to share the gross returns of 
a business ; for he who shares the gross receipts of a busi- 
ness does take from the fund upon which the creditor 
ordinarily relies for reimbursement.** 

soGOBLL ▼. MORSB, 126 Mass. 480. See ^'Partnership,'* Dec. 
Dig, {Key No.) { U; Cent Dig. § 13. 

51 STATE BANK OF LUSHTON v. O. S. KELLEY CO., 47 Neb. 
678, 66 N. W. 619 ; FRENCH v. STYRING, 2 0. B. (N. S.) 357. See 
'* Partnership;* Cent. Dig. { 75. 

^•^ OBACE T. SMITH, 2 Wm. Bl. 998, GUmore, Oas. Partuership, 
17. See '*Partnership;' Dec. Dig. (Key No.) §f 4-13, 30; Cent. Dig. §§ 
15-28, 88-48. 

61 **i may here observe, that If the ground upon which a participa- 
tion in profits was considered as constituting a partnership be (as 



30 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

It was early decided, however, that sharing gross re- 
turns did not make the parties liable as partners ; ^* and, 
since an agreement to share gross returns did not create 
a partnership liability, it follows that it alone would not 
b^ sufficient to create a partnership. This principle has 
been enacted into the English Partnership Act, 1890.** 



stated by Chief Justice De Grey in GRACE ▼. SMITH), that 'if any 
person takes part of the profits, he takes part of tJiat fund on 
which the creditor of the trader relies for his payment,' it appears 
difficult to explain why a person should not be rendered liable as 
a partner by a participation in the gross profits or proceeds as 
well as by one in the net profits. The latter are only to be ascer- 
tained after deducting and providing for all liabilities; but the 
amount of a share in the gross proceeds would be ascertained, and 
might be taken away as soon as they were received, without pro- 
viding for the liabilities." 0*Brien, J., in Shaw v. Gait, 16 Ir. Com. 
Law, 357, 373. 

"The question has been raised whether consistency to the sup- 
posed 'net profit rule' requires that a sharer of gross returns should 
be held to a similar liability. On the one hand, 'the letter of the 
net profit rule' has been looked at without regard to its reason. 
It is said, in substance, that gross returns, though they include net 
profits, are not literally the same thing ; that a participant in gross 
returns does not participate tn profits as profits; and tha*t a divi- 
sion of gross returns is only incidentally a division of profits, not a 
division of profits as such. This reasoning is extremely unsatis- 
factory. On the other hand. It is said that the reason of the 'net 
profit rule' applies with much greater force to the sharer of gross 
returns. Gross returns necessarily include net profits. If the 
sharer in net profits takes from the creditors the fund upon which 
they rely for payment, much more does the sharer in gross returns. 
And, if taking from the fund is sufficient reason for holding the 
former liable, a fortiori it is a reason for holding the latter. Net 
profits 'are only to be ascertained after deducting and providing for 
all liabilities; but the amount of a share in the gross proceeds 
would be ascertained, and might be taken away as soon as they were 
received, without providing for the liabilities.' This train of rea- 
soning appears to be unanswerable." Smith, J., in Eastman v. Clark, 
53 N. H. 276, 16 Am. ^ep. 192. See ^'Partnership,'* Dec Dig, {Key 
No.) S{ 4-lS, SO; Cent. Dig. §§ 15-'28, 88-48. 

s4 Benjamin ▼. Porteus, 2 H. Bl. 590; DRY ▼. BOSWELL, 1 Camp. 
330 ; Mair v. Glennie, 4 M. & S. 240. 

"A person who shares gross profits (gross returns) is not a part- 
ner, but a person who shares net profits is prima facie to be con- 
sidered as a partner." Parke, B., in Heyhoe v. Burge, 9 C. B. 431. 
Bee ^'Partnership,** Dec. Dig. {Key No.) §S 10, SO; Cent. Dig. H 25, 45. 

66 <'The sharing of gross returns does not of itself create a part- 



§ 11) TESTS OF INTENTION 81 

Moreover, taken alone, it is not even prima facie evidence 
that parties are partners to prove that they have agreed to 
share the gross returns of a business. This is true even 
though, in addition to the agreement, they are co-owners 
of a chattel from or through which they expect to gain the 
returns to be divided/* 



SAME— SHARING PROFITS 

11. An agreement to share the profits of a business is prima 
facie evidence of an intention to form a partner^ 
ship. 

The case of Cox v. Hickman, as finally understood, ef- 
fectually dispelled the notion. that participation in profits 
made a partnership by operation of law as to third per- 
sons. Yet it is one of the results of a partnership that the 
profits shall be divided. That is in general the purpose of 
the establishment of a partnership. Therefore proof of 
sharing of profits, or of an agreement to share profits, is 
cogent evidence that the parties intended to form a part- 
nership. It is evidence so strong that, if nothing to the 
contrary is shown, it is conclusive."^ In other words, shar- 

nership, whether the persons sharing such returns have or have not 
a joint or common right or interest in any property from which or 
from the use of which the returns are derived." Partnership Act, 
1890, § 2 (2). 

se Partnership Act, 1890, f 2, par. (2). This section merely codi- 
fies the law as it already existed. Gibson ▼. Lupton, 9 Bing. 297; 
FRENCH V. STYRING, 2 O. B. N. S. 357 ; Moore v. Curry, 106 Mass. 
409; Tyson v. Bryan, 84 Neb. 202, 120 N. W. 940. See '^Partner- 
shipr Dec. Dig. (Key No.) §| 10, SO; Cent. Dig. S§ 25, Jt5. 

B7 <*A right to participate in profits affords cogent, often conclu- 
sive, 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." Lord Cranworth in COX v. HICKMAN, 8 H. L. C. 
268, Gilmore, Cas. Partnership, 31. 

'*But it is said that there are dicta of various judges in various 
cases that the participation in the profits may decide the questipn, 
or that It is prima facie evidence of a partnership. Undoubtedly, 
if one found that two persons were participating in the profits made 
t^ a business, and knew nothing more, one would say, How is this? 



32 WHAT CONSTITUTBS A PARTNERSHIP (Ch. 1 

ing profits is prima facie evidence of the existence of a 
partnership. It is not, however, conclusive evidence. Part- 
nership involves more than merely sharing the profits of 
a business, and if the parties prove that they intended to 
form none of the ot^er elements of partnership they will 
not be considered as partners. They may show that the 
profits were to be shared in some other right."* Their in-* 
tention is gathered from the whole contract, and the sur- 
rounding circumstances control. Thus, where a father paid 
a sum of money as his infant son's share of the capital of 
the partnership, and it was agreed that during the son's 
minority the profits should be accounted for to the father, 
it was held that the father was not himself a partner.** 
The presumption that a partnership exists may be rebutted 
by showing that the profits were received by one of the 
alleged partners as interest on or payment of a loan ; •• or 

If they participate In the profits as being jointly entitled to. the 
profits, that, unless explained, would lead to the conclusion that the 
business is the Joint business of the two, and this would be part- 
nership." Cotton, L. J., in Badeley v. Ck>n8olidated Bank, L. B. 38 
Ch. Diy. 238, at page 250. 

The receipt of a share of profits in a business is, under section 
2, subsec. 3, E^ngllsh Partnership Act, 1890, prima facie evidence 
of a partnership. Buford v. Lewis, 87 Ark. 412, 112 S. W. 963; 
JOHNSON BROS. v. CARTER & CO., 120 Iowa, 355, 94 N. W. 850, 
Gilmore, Cas. Partnership, 54; Boreing v. Wilson & Moss, 108 S. W. 
914, 33 Ky. Law Rep. 14 ; Weiss v. Hamilton. 40 Mont 99, 105 Paa 
74. See "Partnership;* Dec, Dig, {Key No,) ff 4-i5, SO; Cent. Dig. 
S$ 15-2S, 88-48. 

Bs "The way in which the profits are to be shared Is the essence 
of the matter ; and when the right to profits arises by virtue of an 
express contract and does not flow from the relation of the parties, 
the right exists qua debt, and not by virtue of a partnership." Llnd- 
ley, Partn. (Wentw. Ed.) p. 13, note 2. FBCHTELBR v. PALM 
BROS. & CO., 133 Fed. 462, 66 C. C. A. 336, GHmore, Cas. Partner- 
ship, 76; Pierpont v. Lanphere, 104 IlL App. 232; Beard v. Row- 
land, 71 Kan. 873, 81 Pac. 188; Leonard v. Sparks, 109 La. 543, 33 
South. 594; Sawyer v. Burris, 141 Mo. App. 108, 121 S. W. 321. 
Bee "Partnership,** Dec, Dig, (Key No,) f§ i-iS, 30; Cent. Dig. ff 
15-28, 38-48. 

p9 Barklie v. Scott, 1 Huds. & B. 83. See *' Partnership,** Dec Dig, 
(Key No,) SS 4-13, 17, 30; Cent, Dig. SS 3, 15-^8, 38-48, 

«o Ex parte BRIOOS, In re NOTLET, 8 Deac. & Ch. 867, Ollmore, 
Cas. Partnership, 4; MOLLWO, MARCH & CO. v. COURT of 



§ 11) TESTS OF INTBNTION 33 

that they were received as compensation for services ren- 
dered;** or that they w^ere shared as income or rent from 
property owned in common, as, for example, where two 
persons bought a circus, and agreed that one should run 
it and that the income should be divided.*' 



WARDS, L. p. 4 p. C. 419; POOLET ▼. DRIVER, 5 Oh. Dlv. 458; 
MagoTern v. Robertson, 116 N. T. 61, 22 N. E. 398, L. R. 
A. 589; HACKETT v. STANLEY, 115 N. Y. 625, 22 N. E.'745, Gil- 
more, Gas. Partnership, 27; Richardson v. Hughitt, 76 N. Y. 55, 32 
Am. Rep. 267 ; LEGGETT t. HYDE. 58 N. Y. 272, 17 Am. Rep. 244, 
Gllmore, Gas. Partnership, 22 ; Waverly Nat Bank v. Hall, 100 Pa. 
466, 24 Aa 665, 30 Am. St Rep. 823 ; Boston & G. Smelting Go. ▼. 
Smith, 13 R. I. 27, 43 Am. Rep. 3 ; POLK v. BUGHANAN, 5 Sneed 
(Tenn.) 721 ; Ford v. Smith, 27 Wis. 261 ; MEBHAN v. VALENTINE, 
145 U. S. 611, 12 Sup. Gt 972, 36 L. Ed. 835, Gllmore, Gas. Partner- 
ship, 45. In case of an alleged lending, very slight power of con- 
trol may turn the scale in fayor of a partnership. See "Partner- 
ahipr Dec, Dig. (Key No.) H 6, SO; Cent. Dig. %% 17-19, 40. 

• I SODIKER V. APPLEGATB. 24 W. Va. 411. 49 Am. Rep. 252. 
Gllmore, Gas. Partnership, 5; Regina v. McDonald, 7 Jur. N. S. 
1127 ; Pott V. Ey ton, 8 G. B. 32 ; Ross ▼. Parkyns, L. R. 20 Eq. 33 ; 
Berthold ▼. Goldsmith, 24 How. 536, 16 L. Ed. 762 ; Brown y. Hicks 
(G. G.) 24 Fed. 811; Hodges ▼. Dawes, 6 Ala. 215; Le Fevre y. Gas- 
tagnio, 5 Golo. 564; Pond t. Gummlns, 50 Gonn. 372; Burton v. 
Goodspeed, 69 111. 237; Holbrook v. Oberne, 56 Iowa, 324, 9 N. W. 
291 ; Shepard v. Pratt, 16 Kan. 209 ; Hallet v. Desban, 14 La. Ann. 
529; Reddlngton y. Lanahan, 59 Md. 429; Partridge ▼. Kingman, 
130 Mass. 476 ; Fairly v. Nash, 70 Miss. 193, 12 South. 149 ; Webb 
▼. Liggett, 6 Mo. App. 345 ; Waggoner v. First Nat Bank of Greigh- 
ton, 43 Neb. 84, 61 N. W. 112 ; Mason v. Hackett, 4 Nev. 420 ; Brom- 
ley Y. Elliot, 38 N. H. 287, 75 Am. Dec. 182 ; Voorhees y. Jones, 29 
N. J. Law, 270 ; Lewis y. Greider, 51 N. Y. 231 ; Bartlett v. Leyy, 
2 Stro. 471 ; Gherry y. Owsley (Tex.) 10 S. W. 519 ; Jackson y. Hay- 
nie's Adm'r, 106 Va. 365, 56 S. E. 148; Nicholaus y. Thielges, 50 
Wis, 491, 7 N. W. 341. See ''Partnership," Dec. Dig. {Key No.) U 
P, 30; Cent. Dig. |§ 23, 24, 4^, U- 

•s QUAGKENBUSH y. SAWYER, 54 Gal. 439, Gllmore, Gas. Part- 
nership, 66; Parker y. Fergus, 43 111. 437; Ghapman y. Eames, 67 
Me. 452; Thompson y. Snow, 4 Me. 264, 16 Am. Dec. 263; HOLMES 
y. OLD GOLONY R. GORP., 5 Gray (Mass.) 58 ; BEEGHER y. BUSH, 
45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 4*65, Gllmore, Gas. Partner- 
ship, 49; Kellogg Newspaper Go. y. Farrell, 88 Mo. 594; Austin y. 
NeU, 62 N. J. Law, 462, 41 Atl. 834; Helmstreet y. Howland, 5 
Denio (N. Y.) 68 ; Dunham y. Rogers, 1 Pa. 255 ; Friedlander y. Hill- 
coat (Tex.) 14 S. W. 786. See ''Partnership," Deo. Dig. {Key No.) H 
8, 30; Cent. Dig. H 21, 2S, ^2. 

Gil. Past.- 



34 WHAT CONSTITUTES A PARTNERSHIP (Oh. 1 



SAME— SHARING PROFITS AND LOSSES 

12. An agreement to share the profits and losses of a busi- 
ness is prima fade evidence of an intention to form 
a partnership. 

Ordinarily, when two or more persons become co-pro- 
prietors of a business, they intend and expect to share both 
the profits and losses of such business — the profits, be- 
cause that is the inducement which causes them to enter 
into the relationship; the losses, because as a rule no one 
will enter a business with another except upon the condi- 
tion that that other shall bear his share of the risk. The 
intention to engage in a common business is the true test 
of partnership; therefore those who engage in such a busi- 
ness under an agreement to share the profits and losses 
are as a matter of law partners. Since a case will rarely 
be found in which one will agree to share the losses of a 
business in which he is not a principal, in the conduct of 
which he has not a right to participate, a partnership is 
found in practically all cases where an agreement is made 
to share the profits and losses of a common enterprise. 
Therefore the existence of such an agreement is very strong 
evidence that a partnership exists. It is evidence so strong 
that it has sometimes been thought to be conclusive.*' 
Yet it is certainly not necessarily inconsistent with the ex- 
istence of an agreement to share profits and losses that 
the parties never intended to engage in a common busi- 
ness.** Consequently, where the plaintiflF agreed to cul- 



•« Scott V. CampbeU, 80 Ala. 728; Miners' Co-operative Ass'n v. 
The Monarch, 2 Alaska, 383; Brooke v. Tncker, 149 Ala. 96, 43 
Sooth. 141. See ''Partnership,*' Dec. Dig. (Key No.) f{ ii, 12, SO; 
Cent. Dig. S§ 26, 27, 46, ^7. 

•« In the earlier editions of liindley's Law of Partnership this 
statement appeared: ''Whatever difference of opinion there may be 
as to other matters, persons engaged in any trade, business or ad- 
venture, upon the terms of sharing the profits and losses arising 
therefrom, are necessarily to some extent partners in that trade, 
business or adventure; nor is the writer aware of any case in 



§ 12) TESTS OF INTENTION 35 

tivate defendant's farm, each to pay half the expense and 
receive half of the profits, a charge to the jury that they 
were partners was held erroneous ; •• and an agreement be- 
tween A. and B., rival buyers of cattle, to buy each for 
himself as before, but each to share equally in the profits 
and losses of every shipment, was held not to constitute 
a partnership.** An agreement to share profits and losses 
is, however, prima facie evidence of an intention to form 
a partnership.*^ 

which persons who have agreed to share profits have heen held not 
to be partners!'* 

Prof. Ames criticises this statement In a note to his Gases on 
Partnership, p. 124, saying: "But this statement, It Is conceived. Is 
much too sweeping. An agreement to share profits and losses cre- 
ates a strong, but not conclusive, presumption of a partnership be- 
tween the parties, as appears from the following authorities: 
MOORE V. DAVtS, 11 Gh. Dlv. 261 (semble) ; Stevens ▼. Feucet, 24 
111. 483 ; Chaffralx v. Price, 29 La. Ann. 176 ; DWINEL ▼. STONE, 
30 Me. 384 (semble) ; Howe v. Howe, 99 Mass. 71 (semble) ; DON- 
NELL V. H ARSHE, 67 Mo. 170, Qllmore, Gas, Partnership, 63 ; Mus- 
ser V. Brink, 68 Mo. 242 (semble); Osbrey ▼. Relmer, 49 Barb. (N. 
Y.) 265." 

The later editions of Lord Llndley's work (7th Ed. p. 46) have al- 
tered the last clause of the quotation 'given, so that It reads : "Nor 
Is the writer aware of any case In which persons who have agreed 
to share profits and losses In this sense have been held not to be 
partners.*' That Is, "In this sense" means "as persons engaged In 
any trade, business, or adventure." National Surety Co. v. T. B. 
Townsend Brick & Contracting Co., 74 111. App. 312, affirmed 176 
lU. 156, 52 N. E. 938. See ^'Partnership,'* Dec. Dig. {Key No.) H 
^IS, SO; Cent. Dig. §S 15-^28. 38-48. 

•8 DONNELL V. HARSHE, 67 Mo. 170. Gllmore, Gas. Partnership, 
63. See "Partnership,*' Dec. Dig. {Key No.) J 5; Cent. Dig. $ IS. 

•6 CLIFTON V. HOWARD, 89 Mo. 192, 1 S. W. 26, 58 Am. Rep. 
97. See ** Partnership,** Dec. Dig. {Key No.) §§ S, 11, SO; Cent. Dig. 
U S, IS, H, 47. 

«7 "If the question In this case had depended on the simple ques- 
tion whether sharing In profits and losses constituted a partnership, so 
as to authorize one party to pledge the other's credit, I should have 
thought the direction right; as, since the decision In COX v. HICK- 
MAN, 8 H. L. C. 268 [Gllmore, Gas. Partnership, 31], It has been 
the law that sharing In profits and losses does not In Itself con- 
stitute a partnership, but only affords a strong presumption that 
the one party Is made the agent for the other." Blackburn, J., In 
Noakes ▼. Barlow, 26 L. T. N. S. 136. See "Partnership,** Dec. Dig. 
{Key No.) U 4-^S, 17, SO; Cent. Dig. §{ S, 15-4t8, S8-48. 



36 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

The inference that the parties did 'not intend to become 
partners is stronger, however, than in thfe case of an agpree- 
ment to share profits, only, simply because an agreement 
to share profits and losses without intending to become 
partners is more rare than an agreement to share prcffits 
only without a like intention. Hence stronger evidence 
would be required to rebut such prima facie evidence. 



COMMON OWNERSHIP OP PROPERTY 

18. Common ownership of property does not create a part- 
nership between the parties. 

As has been indicated, the true test of partnership is an 
agreement to engage in a joint business. It is a common 
incident of such an agreement that the parties should 
jointly contribute a capital to be owned in common, to be 
used in the partnership business, and in the payment of 
partnership debts. Yet common ownership of property 
constituted a well-known and clearly defined relation in 
the common law before partnership was introduced from 
the law merchant. Hence, while a usual result of partner- 
ship, and in that sense evidence that a partnership exists, 
it does not of itself prove that there is a partnership. More- 
over, it should not have that effect; for such ownership 
is not necessarily founded on a contract between the par- 
ties, and does not in any way depend upon their mutual 
confidence. 

Property owned in common is not necessarily held for 
gain, as is partnership property. The mere fact, however, 
that it produces a profit in the way of income or rent, ought 
not to involve the owners in an unwilling partnership. 
Hence the common ownership of property, combined with 
a sharing of the profits arising from the use of such prop- 
erty, does not create a partnership.** For example, A, and 



e« **Jolnt tenancy, tenancy in common. Joint property, eommon 
property, or part ownership does not of itself create a partnership 
as to anything so held or owned, whether the tenants or owners dc 



S 18) COMMON OWNERSHIP OF PROPBRTT 3T 

B., being tenants in common of a horse, agreed that A. 
should have the general management of the horse, training 
and racing him, and that the expense and winnings should 
be equally divided. It was held that they were not part- 
ners so far as the keep of the horse was concerned.** The 
owners of an undivided interest in the leases of certain oil 
wells, who agreed to share in the expense of operating the 
leases and of mining the oil, were held not to be partners. 
"They were engaged in the development and operation of 
the common property for their undividual benefit. They 
were doing what tenants in common may. properly do, and 
in the only way practical for them, viz., turning the com- 
mon property to the profit of its owners, at their individual 
cost, and dividing the product between themselves." ^* 
Also, where a circus property was transferred to two per- 
sons as security for a debt, and it was agreed that one 
should take charge of the circus, make exhibitions, and 
apply the receipts first to the payment of the other, then 
of himself, it was held that the receipts came into his 
hands as trustee, and not as partner.** Where, however, 
co-owners of property use such property in joint business, 
they become partners in such business. The difficulty will 
always be to determine whether or not they have gone into 
business.** For instance, in reference to the remarks of 

or do not share any profits made by the use thereof." English Part- 
nership Act, 1890, I 2 (1). 

e» FRENCH v. STYRING, 2 C. B. N. S. 357. "It Is no more a 
partnership than If two tenants in common of a house agreed that 
one of them should have the general management, and provide funds 
for necessary repairs, so as to render the house fit for habitation of 
a tenant, and that the net rent should be divided between them 
equally." Per wiUes, J., at page 366 of above case. Bee **Pari' 
nersMp;* Dec. Dig. {Key No.) f§ 5, 30; Cent. Dig, H 13, U, 38. 

70 BUTLER SAVINGS BANK v. OSBORNE et al., 159 Pa. 10, 18, 
28 AU. 163, 39 Am. St. Rep. 605, Gilmore, Gas. Partnership, 58. See 
^^Partnership:* Deo. Dig. {Key No.) Sl 5, 30; Cent. Dig. ff 13, 14, 38. 

71 QUACKBNBUSH v. SAWYER, 54 Gal. 439, 5 Pacific Goast Law 
J. 277, Gilmore, Gas. Partnership, 66. See **Partner9Mp:* Dec Dig. 
(Key No.) $ 5; Cent. Dig. § 15. 

" NO YES V. GDSHMAN et al., 25 Vt 390, Gilmore, Gas. Part- 
nership, 65. See ^^Partnership:* Dec. Dig. {Key No.) §§ |-i5; Cent. 
Oig. H i^^fi. 



88 WHAT CONSTITUTES A PABTNBRSHIP (Gh. 1 

Willes, J., in French v. Styring/* Pollock says : ^* "But if 
they furnished the house at their joint expense, and then let 
portions of the house as lodging, they might well be part- 
ners. Letting a house is not a business, but letting fur- 
nished rooms is." It is in the business that the partnership 
exists, however, and not in the property. Common owners 
of property may at the same time be partners in business, 
and the mere fact that they use the common property in 
the partnership business does not make such property part- 
nership property, any more than does the use of the prop- 
erty of one partner in the partnership business make such 
property partnership property. Whether or not joint property 
becomes partnership property depends upon the agreement 
of the parties.^* 



tt 



78 FRENCH V. STYRING, 2 O. B. N. S. 367. See '^Partnership, 
Dec. Dig, {Key No,) §{ ^-i5; Cent Dig. §« 15-28. 

7« In note 1, p. 3, of Digest of the Law of Partnersblp (8th Ed.). 

7B '*i think the fair result of the evidence is that there was no 
partnership between the plaintiff and the defendant in the horse 
in question. They were owners in common, each being entitled to 
an undivided moiety — part owners, but not partners in the ordinary 
sense of the term. I incline to agree with the defendant's counsel 
that, though not partners in the horse, the plaintiff and defendant 
might be partners in the mode of working and managing it for their 
common good." Cockburn, C. J., in FRENCH v. STYRING, 2 C. 
B. N. S. 357, 363. See Bryant v. Fitzslmmons, 106 Md. 421, 67 AtL 
356. 

*'It Is not necessary to constitute a partnership that there should 
be any property constituting the capital stock which shall be joint- 
ly owned by the partners. But the capital may consist in the mere 
use of property owned by the individual partners separately." Wal- 
worth, C, in CHAMPION v. BOSTWICK, 18 Wend. (N. Y.) 182, 31 
Am. Dec. 376. 

"If, then, it is true that the parties were owners in common of 
the property before the agreement was made, and the agreement 
specially preserves their title as such through the time that the 
business as to which they were partners lasted, and the use of such 
property owned In common by them for the business does not make 
it partnership property, under the circumstances of this case, the 
plaintiffs have no right to a judgment that the property be sold 
in the winding up of the partnership business." Sedgwick, J., in 
Auten V. EUlngwood, 51 How. Prac. (N. Y.) 359, 365; Holton ▼. 
Quinn (C. C.) 76 Fed. 96; Hendy v. March, 75 Cal. 566, 17 Pac. 
702; Merritt v. Walsh, 32 N. Y. 685. See "Partnership,'* Dec. Dig. 
{Key No.) §§ 4-18, SO; Cent. Dig. S§ 15-28, 38-48. 



§ 14) JOINT ENTSRFBISB OB BUSINESS 89 



JOINT ENTERPRISE OR BUSINESS 

14. Engaging as co-owners in a joint enterprise or business 
for profit to be shared creates a partnership. 

In order to create a partnership, there must be some- 
thing more than the engaging in a common enterj^rise, even 
though that enterprise be entered upon with a view to 
profit. A joint agreement to do a piece of work for a third 
person and divide the payments does not necessarily make 
the parties partners. The fact that payments were to be 
immediately divided, instead of being placed in a common 
fund, indicated in the case in question that they did not 
intend to form a partnership/* Neither does a joint agree- 
ment to arrest a criminal and divide the reward offered ; '^ 
nor a joint enterprise to make a single haul of fish and 
divide them equally.'* There must be a joint business, 
not in any technical sense, but actually. In the above 
illustrations the parties would not have been ordinarily un- 
derstood as being engaged in business, nor were they. In 
Coope V. Eyre,'* the parties agreed that one should pur- 
chase oil, which was to be divided among all, each paying 
the one who made the purchases his share of the purchase 
price. It was held that they were not partners. So, also, 
in Gibson v. Lupton,** where two persons joined in the 
purchase of some wheat to be divided and paid for equally. 
In neither case was there a joint business. Had the pur- 
chases* been made with the intention of reselling, they 



TeFINKLB v. STAGEY, Menaghten'B Sel. Gas. In Ghan. 9; Willis 
▼. Crawford, $8 Or. 522, 63 Pac. 985, 64 Paa 866, 53 L. R. A. 904. 
See **Partnership,'' Deo. Dig. {Key No,) $ 11; Cent. Dig. f 26. 

T7 DawBon t. Gurley, 22 Ark. 381. See "Partnership;* Cent. Dig. 

7« Hurley r, Walton, 63 111. 280. See ** Partnership;* Dec. Dig. 
{Key yo.) \ 5; Cent. Dig. f 16. 

T» 1 H. Bl. 37. See "Partnership;* Deo. Dig. {Key No.) H |-15, 
SO; Cent. Dig. U 15-28, 5M8. 

80 9 BlDg. 297. See "Partnership,** Dec. Dig. {Key No.) K -M^, 
SO; Cent. Dig. §§ 15-28, S8'-48. 



40 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

would have been partners.** It should not be understood 
from the above cases that a single transaction may not 
constitute a partnership. A partnership may be created 
for one adventure only, as well as a series of adventures, 
provided that it is a business adventure.*' 



RELATIONS DISTINGUISHABLE FROM 

PARTNERSHIP 

16* There are various relations bearing some resemblance 
to partnership, and having certain characteristics 
of partnerships, which should be distinguished as 
follows : 

(1) Corporations. 

(2) Joint ownership of property* 

(a) Coi>arcenary. 

(b) Joint tenancy. 

(c) Tenancy in common. 

(3) Associations not for profit. 

Partnership Distinguished from a Corporation 

It is frequently convenient for men engaged in business 
to unite their capital and efforts in a common business. 
It may be that each one alone has not the capital or the 

81 HOARE v. DAWES, 1 Doug. 371, Gllmore, Gas. Partnership, 1: 
REID V. HOLLINGSHEAD, 4 B. & C. 867; Worsham ▼. Vlgnal, 
14 Tex. Civ. App. 324, 37 S. W. 17; McNealy v. Bartlett, 1^ Mo. 
App. 68, 99 S. W. 767. 

In GOELL v. MORSE, 126 Mass. 480, two persons bought a horse. 
Intending to resell, but it was agreed that neither should have pow- 
er to sell without the concurrence of the other. This was held not 
to be a partnership. It would seem, however, that It might more 
properly have been held to be a partnership with limited authority. 
See ^'Partnership," Dec. Dig. {Key No.) tS 4-^5, SO; Cent. Dig. §§ 
15-28, S8'48. 

ss Heyhoe v. Burge, 9 O. B. 431; Smith r, Watson, 2 B. ft O. 401 ; 
Kayser y. Maugham, 8 Colo. 232, 6 Pac. 803; Jones v. DaTles, 60 
Kan. 309, 56 Pac. 484, 72 Am. St. Rep. 354; Spencer v. Jones, 92 
Tex. 516, 50 S. W. 118, 71 Am. St. Rep. 870. See Partnership Act, 
1890, § 32, subsec. "b," as to the termination of such partnership. 
See ** Partnership," Dec. Dig. (Key No.) S 5; Cent. Dig. % 16. 



§ 16) BELATION8 DISTINOUISHABLB 41 

credit to prosecute the business successfully. There may 
be many other reasons why they find it convenient to unite 
their forces. One way of combining their interests for 
purposes of business is to form a partnership. One im- 
portant characteristic of a partnership is the unlimited lia- 
bility of each of the members for the debts incurred in 
conducting the joint business. Another way of uniting 
their interests and gaining the benefits of combined capital 
and credit is to form a corporation. One important char- 
acteristic of a corporation is the limited liability of its 
stockholders. It becomes important to distinguish a part- 
nership from a corporation. 

A corporation is a legal entity or person created by 
special authority from the state or the sovereign. Though 
it consists of a number of individuals, it has a legal ex- 
istence apart from any of them. Hence it may sue or be 
sued in its corporate name. It may sue its own members 
and be sued by them. It may own property and incur lia- 
bilities with respect to it. It owns the profits made in any 
business in which it may engage. The death or retirement 
of a stockholder, by sale or otherwise, does not in any way 
affect the identity of the corporation. The liability of the 
shareholders does not, ordinarily, extend beyond the 
amount of their subscriptions to the capital stock. 

On the other hand, a partnership is created by the agree- 
ment of the parties. Though it transacts business as an 
individual might, it has no legal existence apart from the 
members composing it. It is not a legal person, and can 
acquire no rights aAd incur no liabilities. Hence it cannot 
sue or be sued as an entity. Its property is their property. 
Its rights are their rights, and can be enforced by them. 
Its liabilities are their liabilities, and can be enforced 
against them. The death or retirement of a member de- 
stroys the partnership. Each member is individually liable 
for the whole of the obligations of the partnership, even 
though he has paid in full his contribution to the partner- 
ship capital.*' 

•« In re GIBBS* ESTATB, 157 Pa. 50, 27 AU. 383, 22 L. R. A. 2761, 
Gilmore, Gas. PartDershlp, 91 ; La Cotts t. Pike. 91 Ark. 26, 120 S. 



42 WHAT CONSTITUTES A PABTNBB8HIP (Ch. 1 

Common Ownership — In general 

The property owned by a partnership is held in one form 
of co-ownership. It is one of the incidents of partnership 
that the capital contributed and the profits realized are 
owned in common. Co-ownership of property may exist, 
however, without arising from a partnership, or without 
creating one. The usual fofms of co-ownership recognized 
by the common law are coparcenary, joint tenancy, and 
tenancy in common. A brief examination of these forms 
of co-ownership is necessary to a proper understanding of 
partnership ownership. 

Same — Coparcenary 

Coparcenary was the term applied at common law to the 
tenancy which existed where, as under the common law, 
the female descendants, or, as under special custom, the 
male descendants of equal degree, took jointly, yet as a 
single heir, by descent from a common ancestor. Since it 
only applied to property held by descent, it applied to real 
property only. The relationship was imposed upon the par- 
ties by operation of law, and their consent was immaterial. 
Neither had any power of disposal over the shares of the 
rest as a partner would have; but each could dispose of 
his own share and introduce a new party, which a partner 
could not do. In case one coparcener did dispose of his 
interest, the coparcenary would cease to exist and become 
a tenancy in common. The grantee would become a co- 
owner, but not a coparcener.** Coparcenary has in this 
country never existed, except in Maryland; estates which 
under the common law would be estates in coparcenary 
being declared either by statute or by judicial legislation to 
be tenancies in common.*' 

Same — Joint Tenancy 

Joint tenancy is created when a conveyance is made to 
two or more jointly. Being a conveyance by act of the par- 

W. 144, 184 Am. St Rep. 4a Bee ^'Partnership,'* Deo. Dig. {Key 
Vo,) HS,6; Cent. Dig. || lS-28. 

•* 2 Bl. Com. c. 12, p. 187. 

••1 Washburn on Real Property, 651; Tiedeman on Real Prop- 
erty (2d Bd.) 202. 



§ 15) RSI^TIONS DISTINGUISHABLB 43 

• 

ties, it might consist of atv interest in personalty as well as 
of an interest in land. The joint owners were called joint 
tenants. Though none of them could dispose of the whole, 
each could dispose of his interest. Since all joint tenants 
hold by the same title, the grantee of a single joint tenant, 
though a co-owner, would not become a joint tenant. A 
sale by one destroyed the joint tenancy, and created a ten- 
ancy in common.** Though a tenancy in common in real 
estate might be created in the same way as a joint tenancy 
— ^i. e., by a conveyance to two or more by apt words in 
the conveyance — the common law was inclined in case of 
doubt to construe the conveyance as creating a joint ten- 
ancy rather than a tenancy in common; the former being 
more beneficial to the feudal lord. In a devise, however, 
the contrary rule prevailed. In a joint tenancy, upon the 
death of one joint tenant, his share accrued to the surviv- 
ors ; in a tenancy in common, this rule of survivorship did 
not obtain. Hence a devise was, if possible, construed as 
creating a tenancy in common ; it being presumed that the 
devisor had intended that which was most beneficial for 
the devisees.*' The presumption that existed in favor of 
the creation of a tenancy in common in a devise came to 
exist also in a conveyance by deed, when once the courts 
were freed of feudal influences.** 

In the United States joint tenancies have never been 
favored, though, except in Ohio, they have generally ex- 
isted in this country till abolished by statute. There is, 
however, in general, a presumption, either judicial or stat- 
utory, against their creation, and in some states they have 
been expressly abolished by statute.** Therefore the com- 
mon form of co-ownership, apart from partnership owner- 
ship, is tenancy in common. 

Same — Tenancy in Common 

A tenancy in common, though it may be created in the 
same manner as a joint tenancy — i. c., by a conveyance to 

•• 2 Bl. Com. c. 12, p. 180. •f 2 Bl. Ck>m. c. 12, p. 193. 

•» Fisher v, Wigg, 1 P. Wins. 14, note; York y. Stone, 1 Balk. 158; 
Fisher y. Wlgg, 1 Salk. 392, note 2 ; Rlgden y. Yalller, 28 Ves. Sr. 
252, 258. See ""Willsr Deo. Dig. {Key No,) f 627; Cent. Dig. |! USZ- 
1459. 

8* See Joint Tenancy, Deo. Dig. (Key No.) f t; Cent. Dig. | t. 



I 

44 WHAT CONSTITUTBS A PARTNERSHIP (Ch. 1 

• 

two or more jointly — may also be created by the convey- 
ance of an undivided interest to different individuals at 
different times by separate conveyances. Therefore there 
need be no concurrence of action, even in the inception of 
the relationship. Each tenant in common may, moreover, 
introduce new tenants in common without the consent of 
the others, by selling all or part of his interest. He has, 
however, no power over the interest of his fellow tenants. 
Due to the disfavor with which the survivorship of joint 
tenancy is viewed, tenancy in common has come to be the 
usual form of co-ownership in this country. Therefore 
property owned in common is now ordinarily owned in 
partnership or in tenancy in common.** 

Organizations Not for Profit 

Partnerships were originally composed of merchants, 
who had combined in order to gain mutual profit from 
dealing in commodities. Partnership is not confined to 
mercantile enterprises, however, as it has long been held 
that lawyers, physicians, and other nontrading persons, 
may become partners by combining their forces for mutual 
profit Yet the object of every partnership must be the ac- 
quisition of gain. Partnership is a business relation, and 



•oTbe priDdpal differences between partnership ownership and 
other forms of C0H>?mer8hip is summed up In Lindley on Partner- 
ship as follows : 

"1. Go-ownership is not necessarily the result of an agreement 
Partnership Is. 2. Go-ownership does not necessarily involve com- 
munity of profit or of loss. Partnership does. 3. One co-owuer 
can, without the consent of the others, transfer his interest to a 
stranger, so as to put him in the same position as regards the other 
owner as the transferror himself was before the transfer. A part- 
ner cannot do this. 4. One co-owner is not as such the agent, real or 
implied, of the others. A partner is. 5. One co-owner has no lien 
on the thing o?med in common for outlays or expenses, nor for what 
may be due from the others as their share of a common debt A 
partner has. 6. One co-owner of land is entitled to have it divided 
between himself and co-owners, but not (except by virtue of the 
Partition Acts) to have it sold against their consent A partner 
has no right to partition in specie, but is entitled, on a dissolution, 
to have the partnership property, whether land or chattels, sold, 
and the proceeds divided." Lindley, Law of Partnership (7th Ed.) 
p. 26. 



§ 15) RKLATI0N8 DI8TINGUI8HABLB 45 

the purpose of every business is gain. Therefore no asso- 
ciation or combination which is not formed for gain con- 
stitutes a partnership. Members of social, religious, char- 
itable, political, and commercial societies or clubs are not 
partners.** As the members of such organizations are not 
partners, their liability to third persons must depend upon 
the principles of the law of agency. No liability attaches 
by virtue of membership in the association ; hence liability 
for the acts of the representatives cannot be fastened on a 
member by merely proving his membership. Actual au- 
thority, as in other cases of principal and agent, must be 
proved.** As between the members, their liability is de- 
termined by their contract, and is usually limited to a def- 
inite subscription or assessment ; ** and an action at law 
may be maintained for unpaid subscriptions.** 

The fact that persons unite for mutual benefit does not 
alone make them partners. They must derive that benefit 
from the conduct of a joint business. It has been repeat- 
edly decided that joint purchasers of property with intent 
to divide are not partners. They are not engaged in a joint 
business. Beneficial associations are not partnerships, un- 
less they engage in business.** Thus it has been held that 



•1 REG. Y. ROBSON, L. R. 16 Q. B. Div. 137, Gilmore, Gas. Part- 
nership, 85; Caldicott ▼. Griffiths, 8 Ex. 898; Pipe v. Batement, 1 
Iowa, 369 ; Teed v. Parsons, 202 111. 455. 66 N. E. 1044 ; BURT t. 
liATHROP, 52 Mich. 106, 17 N. W. 716, Gllmore, Gas. Partnership. 
57 ; White v. Brownell, 8 Abb. Prac. N. S. (N. Y.) 818 ; Local Union 
No. 1, Textile Workers, y. Barrett, 19 R. I. 668, 36 Atl. 5. See ^^Part- 
nersMp," Dec. Dig. {Key No.) H 1* H; Cent. Dig. | 56; ^^Associa- 
tionsr Cent. Dig. % 1; "Cluhar Cent. Dig. | 1. 

•2 Wise V. Perpetual Trustee Co., [1903] A. G. 139; Flemyng ▼. 
Hector, 2 M. & W. 172; Luckombe ▼. Ashton, 2 Fas. & Fin. 705; 
Dunham v. Loverock, 158 Pa. 197, 27 Atl. 990, 88 Am. St Rep. 838. 
8ee "Partnership^ Cent. Dig. | 7. 

•» Wise V. Perpetual Trustee Go., [1903] A. G. 139 ; Harington ▼ 
Sendall, L1903] I Ch. 921. See ** Partnership,'* Deo. Dig. {Key No.) 
n 70, 71; Cent. Dig. §§ 1X4-^6. , 

»4 Hall V. Thayer, 12 Mete. (Mass.) 130. See "Subscriptions,'- Cent. 
Dig. |§ 10, 25. 

OS State ex rel. Hadley ▼. Kansas City Live Stock Exchange, 211 
Mo. 188, 109 S. W. 675, 124 Am. St. Rep. 776; Webster v. Taplln, 
Rice & Co., 29 Ohio Cir. Gt R. 543, affirmed 76 Ohio St 590. 81 N. 



46 WHAT CONSTITUTES A PARTNERSHIP (Ch, 1 

mutual insurance companies, where each member is an in- 
surer of the others, are not partnerships.** Though each 
member expects to obtain a financial benefit through his 
membership, they are not in business, which implies dealing 
with a third person for gain ; hence are not partners. The 
same is true of secret lodges which insure the members.*' 
Also an organization of farmers to conduct a telephone ex- 
change for their mutual convenience was held not to con- 
stitute a partnership.** Also where property is bought to be 
divided, it is held that members of a co-operative association 
formed for the purpose of buying goods to be resold to the 
members are not partners. Where, however, they engage in 
selling to persons who are not members, they engage in a 
business enterprise, and become partners.** 

B. 1196. See ^'Partnership,'' Dec, Dig. {Key Vo.) |{ 4-15; Cent,. Dig. 
$1 15-28. 

08 Strong Y. Harvey, 8 Bing. 304; Red way v. Sweeting, L. R. 2 
Ex. 400; Gray v. Pearson, L. R. 5 O. P. 568 ; Andrews & Alexander's 
Case, 8 Eq. 176. Bee '^Insurance,** Dec. Dig. (Key No.) i 55; Cent. 
Dig. I 68. 

•T Burke v. Roper, 79 Ala. 138 ; Kuhl ▼. Meyer, 85 Mo. App. 206 ; 
Laf ond v. Deems, 81 N. Y. 607. Contra : Gorman v. Russell, 14 Cal. 
531. See, however, CIy. Code Cal. S 603, and St Cal. 1873-74, p. 
745. In Pennsylvania such organizations are held to create part- 
nerships, and except as exempted by statute, the members are held 
liable as such. Babb v. Reed, 6 Rawle, 151; 28 Am. Dec 650; 
Pritehett v. Schafer, 2 Wkly. Notes Cas. 817; Pain v. Sample, 158 
Pa. 428, 27 Atl. 1107; Sparks v Husted (Com. PL) 5 Pa. Dist R. 
189. See ^'InBuranoe,*' Dec. Dig. {Key No.) § 694; Cent. Dig. | I8S4. 

•• Melnhart v. Draper, 133 Mo. App. 50, 112 S. W. 709 ; Branagan 
V. Bnckman, 67 Misc. Rep. 242, 122 N. Y. Supp. 610. See **Partner- 
ship,*' Dec. Dig. {Key No.) || 1, 5, 15. 

•0 Teed v. Parsons, 202 lU. 455, 66 N. E. 1044; Hodgson v. Bald- 
win, 65 111. 532 ; Manning v. Gasharle, 27 Ind. 399 ; Beaman v. Whit- 
ney, 20 Me. 418; Atkins v. Hunt, 14 N. H. 205; Farnum v. Patch, 
60 N. H. 294, 49 Am. Rep. 813 ; Edgerly v. Gardner, 9 Neb. 130. 1 N. 
W. 1004; Smith v. HoUlster, 32 Vt 695; Stlmson v. Lewis, 36 Vt 
91 ; Tenney v. New England Protective Union, Division No. 172, 37 Vt 
64; Henry v. Jackson, 87 Vt 431. See ^'PartneruMpt" Dec Dig. 
{Key No.^ H S, 4I; Cent. Dig. i| IS, U, 66. 



8 16) CONTRACT FOB A PABTNBRSHIP 47 



CONTRACT FOR A PARTNERSHIP 

16. A contract for a partnership to arise in the future or 
upon the happening of a contingency does not 
make the parties thereto partners until the time 
prescribed has elapsed, or imtil the contingency 
has happened. 

Though partnership arises by contract, the making of an 
executory contract of partnership does not create a part- 
nership. If the partnership is not to take effect till a cer- 
tain time has elapsed, or a certain contingency has hap- 
pened, no . partnership will exist until the elapsing of the 
time or the happening of the contingency.^ "A marked 
distinction exists in law between an agreement to enter 
into the copartnership relation at a future day and a co- 
partnership actually consummated. It is an elementary 
principle that a partnership in fact cannot be predicated 
uplon an agreement to enter into a copartnership at a fu- 
ture day, unless it be shown that such agreement was ac- 
tually consummated. In the language of the text-books, 
the partnership must be 'launched.' To constitute the rela- 
tion, therefore, the agreement between the parties must be 
an executed agreement. So long as it remains executory, 
the partnership is inchoate, not having been called into be- 
ing by the concerted action necessary under the partnership 
agreement. It is undoubtedly true that a partnership in 



1 DOW Y. STATE BANK OF SLEEPY BYE, 88 Minn. 355, 93 N. 
W. 121, Gllmore, Cas. Partnership, 87; Dickinson v. Valpy, 10 B. & 
C. 128 ; Rebonl y. Ghalker, 27 Conn. 114 ; Johnston y. Eichelberger, 
13 Fla. 230; WHson v. Wilson. 6 Idaho, 597, 57 Pac. 708; Metcalf 
Y. Redmon, 43 111. 2S4; Haskins y. Burr, 106 Mass. 48; Bird y. 
Hamilton, Walk. Gh. (Mich.) 361 ; Westwood y. Cole, 66 Misc. Rep. 
53, 120 N. Y. Supp. 884; Atkins y. Hunt, 14 N. H. 205; Matter 
of Hoagland, Zl App. DiY. 347, 64 N. Y. Supp. 920; Mosier y. Par- 
ry, 60 Ohio St 388, 54 N. E. 364; Irwin y. Bidwell, 72 Pa. 244; 
Buasard Y. McAnulty, 77 Tex. 438, 14 S. W. 138; State y. Menden- 
han. 24 Wash. 12, 63 Pac. 1109; Hoile y. York, 27 Wis. 209; Hol- 
gate V. Downer, 8 Wyo. 344, 57 Pac. 9ia See "PartnersJiip,*' Deo, 
Dig. {Key No.) |{ 20, 21, 40, 57; Cent. Dig. {{ 6, S6, 82, 



48 WHAT CONSTITUTES ▲ PAltTNBRSHIP (Gh» 1 

praesenti may be constituted by an agreement, if it appears 
that such was the intention of the parties. But where it 
expressly appears that the arrangement is contingent, or 
is to take effect at a future day, it is well settled 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 
performance, or an action at law for the recovery of dam- 
ages, should any be sustained." • It is the present estab- 
fishment by agreement of the relationship that creates a 
;oartncrship, not a contract to establish one in the future. 
Thus an agreement to enter into a partnership according to 
articles to be later drawn up does not create a partnership.* 

s Meagher t. Reed, 14 Colo. 335, 24 Pac. 681, 685, 9 L. R. A. 455. 
Where there is an agreement to be partners after a fixed time, the 
mere arrival of such time does not necessarily make the parties 
partners. Non constat one of them may repudiate the agreement, 
and elect to respond in damages for breach of contract The part- 
nership must be launched. See Doyle v. Bailey, 75 IIL 418; Wil- 
son y. Campbell, 10 111. 383 ; Powell y. Maguire, 43 Cal. 11 ; Truitt 
y. Clark, 81 111. App. 652, affirmed 183 lU. 239, 55 N. B. 683 ; Vance 
y. Blair, 18 Ohio, 532, 51 Am. Dec. 467; Gray y. Gibson, 6 Mich. 
300; Brink y. New Amsterdam Fire Ins. Co., 5 Rob. (N. Y.) 104. 
See, also, Que^ City Furniture & Carpet Co. y. Crawford, 127 Mo. 
356, 30 S. W. 163; LATTA y. KILBOURN, 150 U. S. 524, 14 Sup. 
Ct 201, 37 L. Ed. 1169, Gilmore, Cas. Partnership, 425. See "Part- 
nership,'* Dec. Dig, {Key No.) §! 20, 21, 29, iO; Cent, Dig, %\ 6, 7, 
SO-SS, S6, 

9 Syers y. Syers, 1 App. Cas. 174. The commencement, as to third 
persons, of a partnership at a time prior to the date of the partner- 
ship articles, may be shown by the acts, declarations, and dealings 
of such persons, as partners, prior to that date, which have in- 
duced such third persons to deal with them as partners. Gain Lum- 
ber Co. y. Standard Dry-Kiln Co., 108 Ala. 346, 18 South. 882; Cook 
y. Carpenter, 34 Vt 121, 80 Am. Dec. 670; Davis y. Evans, 89 Vt 
182; Atkins v. Hunt, 14 N. H. 205; Hartman y. Woehr, 18 N. J. 
Eq. 383; Morrill v. Spurr, 143 Mass. 257, 9 N. B. 580; National 
Bank of Chemung y. Ingraham, 58 Barb. (N. Y.) 290; First Nat. 
Bank of Gainesville v. Cody, 93 Ga. 127, 19 S. E. 831. Defendant 
and plaintiff agreied orally to form a partnership to carry on a hotel 
purchased by defendant In contemplatioi;i of the fulfillment of tftis 
agreement, they began business, made contracts, opened the books, 
and performed various other acts in the partnership name. When 
the articles of parthership were drawn up. they could not agree 
upon the terms, and defendant finally declined to enter into the 



g 16) OONTBAOT FOR A PARTNERSHIP 49 

An option g^ven to one to become a partner in a present 
business does not make him a partner. He becomes a part- 
ner only upon exercising the option and electing to become 
a partner.* The death of one of the parties before the time 
fixed upon for the beginning of the partnership, or the fail- 
ure to perform a condition precedent, will prevent a part- 
nership ever arising." The existence of a partnership is 
determined, however, by what the parties have done, not 
by what they think they have done. Therefore a declara- 
tion in a preliminary agreement that they do not intend to 
form a present partnership will not prevent a partnership 
arising, if what is actually agreed upon and done does 
create one. Whether one is actually created or not depends 
upon all of the terms ,of the agreement and all of the cir- 
cumstances of the case.* Moreover, since no formal instru- 
ment of agreement is necessary, the terms of the prelim- 
inary agreement may be subsequently varied and perform- 
ance of its conditions waived ;' but the waiver of a condi- 
tion definitely agreed upon is not to be presumed.* 

IMirtnersblp. Held, that there was nothing to Indicate that the 
partnership was actually formed, entitling plaintiff to an account- 
ing. MARTIN Y. BAIRD, 175 Pa. 540, 34 Atl. 800. See ^'Partner- 
«Mp," Dec. Dig. (Key No,) |i 21, 40; Cent. Dig. §§ 6, S6. 

4gABBL V. SAVANNAH RAIL & EQUIPMENT CO., 135 Ala. 
380, 33 South. 663, Gllmore, Cas. Partnership, 116; Ex parte Davis, 
4 De G. J. & S. 523; Gabrlell v. Evill, 9 M. & W. 297; Price v. 
Groom, 2 Ex. 542; Howell y. Brodie, 6 Bing. N. C. 44; Bumell v. 
Hunt, 5 Jur. 650 (Q. B.); Re Young, Ex parte Jones, [1896] 2 Q. 
B. 484. See "Partnership,*' Dec. Dig. (Key No.) U 20, 21, 40, 57; 
Cent. Dig. §fi 6, 7, S6, 82. 

» DOW V. STATE BANK, 88 Minn. 355, 93 N. W. 121. Gllmore, 
Cas. Partnership, 87; Metcalf v. Redmon, 43 111. 264. See "Part- 
nership,'* Dec. Dig. {Key No.) | 21; Cent. Dig. | 6. 

8 England y. Curling, 8 Beay. 129, 133 ; Arnold y. Conkliu, 96 111. 
App. 373 ; Ehrhardt y. Steyenson, 128 Mo. App. 476, 106 S. W. 1118. 
See "Partnership,** Dec. Dig. {Key No.) §i 17-22, 29; Cent. Dig. §S 
1-7, SOSS, S8. 

T First Nat Bank of GainesyiUe y. Cody, 93 .Ga. 127, 19 S. E. 
831. See "Partnership,** Dec. Dig. {Key No.) |§ 22, 29, 67; Cent. 
Dig. |§ 8, S2, 82. 

• Johnston y. Eichelberger, 13 Fla. 230; Bird y. Hamilton, Walk 
Ch. .(Mich.) 361. See "Partnership,** Deo. Dig. {Key No.) §i 21, 71; 
Cent. Dig. §| 6, 115. 

Gii^Part.- 



50 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 



PROMOTERS OF CORPORATIONS 

17. Those who engaged in the promotion of a corporation 
do not thereby become partners. 

''A promoter is a person who brings about the incorpo- 
ration and organization of a corporation." • If two or more 
persons ag^ee to combine in promoting a corporation, they 
do not thereby become partners. Their combination has no 
more of the elements of a partnership than an a^eement 
to form a partnership at a future date would have.** 
Though it has been stated in England that persons combin- 
ing for the purpose of procuring the act of Parliament nec- 
essary in order to form a company were partners,** such 
statement is clearly inaccurate, and is inconsistent with 
later decisions.** Promoters may, of course, become liable 
to third persons, but it is not a partnership liability. It is 
the liability of one who contracts, either himself or by an 
agent, with another.** It may also be true that promoters 
become in fact partners by actually carrying on, as inci- 
dental to the work of forming a corporation, a business en- 
terprise.** It is the carrying on of such business, not the 
combination to effect an incorporation, that makes them 
partners. It is conceived, also, that promoters might be- 
come partners in the business of promoting; i. e., if they 

• Cook on GorporationB, vol. Ill, p. 2188. 

10 Arnold y. Ck>nklin, 96 lU. App. 373. See ^'Partnership,** Deo. 
Dig. {Key No,) I 42; Cent. Dig. % 67; ^'Corporations,*' Cent. Dig. 
\ 26, ' 

11 HOLMES ▼. HIOGINS, 1 B. & O. 74; Lucas ▼. Beach, 1 Man. 
& Gr. 417. See ''Partnership," Deo. Dig. (Key No.) | 42; Cent. Dig. 
I 57. 

i« Reynell v, Lewis, 15 M. & W. 517; Wyld v. Hopkins, Id. ; Cap- 
per's Case, 1 Sim. N. S. 17& See "Partnership;* Deo. Dig. (Key No,) 
S 42; Cent, Dig, | 57. 

itHersey v. Tully, 8 Colo. App. 110, 44 Pac 854; Whetstone v. 
Crane Bros. Mfg. Co., 1 Kan. App. 820, 41 Pac. 211. Bee "Partner* 
ship,** Dec. Dig {Key No.) | 42; Cent. Dig. | 57; ^^Corporations,** 
Cent, Dig f 26 

i« Bamett v. Lambert, 19 M. & W. 489. See "Partnership,** Deo. 
Dig, (Key No,) i 42; Cent. Dig, i 57. 



§ 18) 8TO0KHOLDEBS IN DSFBCTIVK OOBPORATIONS 51 

engaged in creating successive corporations as an occupa- 
tion, putting their profits in a common fund, it might well 
be held that they had made promotion a business, and were 
partners in that business*^* 

LIABILITY OF STOCKHOLDERS IN DEFECTIVE 

CORPORATIONS 

18. Whether stockholders in a defective- corporation' are 
liable as partners is a question on which the cases 
are conflicting. By the weight of authority, such 
persons are not liable as partners, if they have pro- 
ceeded far enough in an attempted incorporation 
to create a de facto corporation. 
Persons who, without attempting to incorporate, pre- 
tend to be a corporation, or who, though attempt- 
ing to incorporate, fail for some reason to create a 
de facto corporation, are liable as partners. 

Corporations De Jure and Corporations De Facto 

Corporations are either de jure or de facto. A de jure 
corporation is one which has legal existence. Not even the 
state can question its right to operate under its charter, nor 
deprive it of any power which its charter grants. A cor- 
poration de jure is a corporation in law as well as in fact. 
Td create a corporation de jure there must be a law under 
which the incorporation can be effected and a substantial 
compliance with the terms of that law. It is not necessary 
that there be a literal compliance with it. Thus it does not 
affect the validity of an incorporation if there is a failure to 
comply with specifications in the statute which are direct- 
ory merely. Those conditions which by the law are made 
conditions precedent to incorporation must be complied 
with ; but it does not affect the legal existence of a corpora- 
tion if there is a failure to comply with conditions preced- 
ent, not to incorporation, but to doing business under the 
corporate charter.** 

i6Llndley'B Law of Partnership (7th Ed.) p. 20. 
i«"A sabstantlal complia^ice wiU make a corporation de Jure. 
But there miifit be an apparent attempt to perfect an organization 



52 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

• A corporation de facto, as distinguished from a corpora- 
tion de jure, is a corporation in fact, but which has not been 
legally organized. Though it exists as a corporation, and 
must for all practical purposes be treated as a corporation, 
its existence is, if not illegal, at least illegitimate. Though 
individuals must ordinarily be treated, as a corporation in 
all cases, and though even the state cannot deny its corpo- 
rate existence in collateral proceedings, a corporation de 
facto may be dissolved and its corporate existence terminat- 
ed by a direct proceeding brought against it by the state. 

To create a de facto corporation there must be a law un- 
der which a de jure corporation could have been created,*^ 
a bona fide attempt to incorporate under the law, some com- 
pliance with it, and a subsequent user of corporate rights. 
If these things are done, a corporation de facto exists, even 
though all of the conditions required by law in order to 
form a de jure corporation have not been complied with.^^ 



under the law. There being such an apparent attempt to perfect 
an organization, the failure as to some substantial requirement will 
prevent the body being a corporation de Jure." Finnegan ▼. Noeren- 
berg, 52 Minn. 239, 53 N. W. 1150, 18 L. R. A. 778, 38 Am. St Rep. 
552. 

"Where there has been a substantial compliance with the law, 
the corporation is, of course, de Jure." Re GIBE'S ESTATE, 157 
Pa. 59, 27 Atl. 388, 22 L. R. A. 276, Ollmore, Gas. Partnership, 91. 
See "Corporations,** Dec, Dig, {Key No.) {| «5, 28; Cent, Dig,* {§ 
70, 71, 79-76; ^'Partnership:* Dec, Dig, 141; Cent, Dig. ff 56, 58, 59. 

17 A few courts hold that an incorporation under an tmconstltu- 
tional act creates a de facto corporation. Richards ▼. Minnesota 
Savings Bank, 75 Minn. 196, 77 N. W. 822; City of St Louis v. 
Shields, 62 Mo. 247; Lincoln Building & Savings Ass'n v. Graham, 
7 Neb. 173; Coxe ▼. State, 144 N. Y. 396, 89 N. E. 400. Bnt the 
weight of authority and the better view seems to be that a de 
facto corporation cannot be created under an unconstitutional stat- 
ute. Doboy & Union Island Tel. Ck). v. De Magathlas (0. 0.) 25 Fed. 
697; Brandenstein v. Hoke, 101 Cal. 131, 35 Pac. 562; Georgia, S. 
& F. R. Co. V. Mercantile Trust & Deposit Co., 94 Ga. 806, 21 S. E. 
701, 32 L. R. A. 208, 47 Am. St Rep. 153; Eaton ▼. Walker, 76 
Mich. 579, 43 N. W. 638, 6 L. R. A. 102. See "CorporaiiOfM," Dec. 
Dig. (Key No.) H 25, 28; Cent. Dig. §S 70, 71, 75-76: ''Partner- 
ship:' Dec. Dig. | 41; Cent. Dig. U 56, 58, 59, 

IS '*Wbere the law authorizes a corporation, and there Is an eflCort, 
in good faith, to organize a corporation under the law. and there- 



§ 18) STOCKHOLDERS IN DBFEOTIYB OOBFOBATION8 63 

Pretended Incorporation 

If, however, a number of individuals pretend to be a cor- 
poration and to exercise corporate powers, without having 
even attempted to organize properly as a corporation, it is 
held that such pretended corporation has no legal existence 
at all.^* Such organization can be attacked by an individ- 
ual or the state, directly or collaterally, and the persons 
thus conducting business are liable as partners.*^ 

Liability of Stockholders in Defective Corporations, or Mem- 
bers of Associations Assuming to Act as Corporations 
One of the advantages to be derived from the privilege 
of doing business as a corporation is the limited liability of 
the stockholders. While in partnership each partner is lia- 
ble to the full extent of all his separate property for the 
debts of the firm, a stockholder is usually not liable beyond 
the amount paid in for his stock. In order, however, to gain 
this advantage and others incident to incorporation, all the 
conditions prescribed by the law for the organization must 
be complied with. When there has been a substantial com- 
pliance with the law, and a corporation de jure has been 
found, no question as to the extent and manner of the stock- 
holder's liability can arise. That has been determined by 
the Legislature. If persons have, however, failed to com- 
ply substantially with the law, and yet have assumed to act 
as a corporation, their liability may constitute a question 

upon, as a result of such effort, corporate functions are assumed and 
exercised, the organlasatlon becomes a corporation de facto, and as 
a general rule the legal existence of such a corporation cannot be 
Inquired Into collaterally, although some of the required legal for- 
malities have not been complied with. Ordinarily, such an Inquiry 
can only be made In a direct proceeding, brought in the name of 
the state." Nlblack, J., in Hasselman y. United States Mortgage 
Co., 07 Ind. 365, 368. See **CorporationM," Dec. Dig, (Key No.) I 29; 
Cent, Dig. || 77. 78. 

!• MartlB y. Deetz, 102 Oal. 55, 36 Pac. 868, 41 Am. St Rep. 151 ; 
Journal Go. y. Nelson, 133 Mo. App. 482, 113 S. W. 690; Childs y. 
Hurd, 32 W. Va. 66, S. E. 362. See ^Corporations,** Dec. Dig. 
(Key No.) H 25, 28; Cent. Dig. §§ 70, 71, 75-76. 

to FuUer y. Rowe, 57 N. Y. 23 ; McLBNNAN y. HOPKINS, 2 Kan. 
App. 260, 41 Pac. 1061. See '^Corporations,** Dec. Dig. (Keg No.) §§ 
26. 29; Cent. Dig. §{ 77, 78; ^'Partnership,** Dec. Dig. | 4I; Cent. 
Dig. U 58, 59. 



54 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

of much perplexity. On the one hand, it is said that they 
ought to be held to a partnership liability, that they have 
contracted for all of the benefits of partnership, that that 
is all that is necessary in order to create a partnership, and 
that in order to escape the liabilities of partnership they 
should be compelled to obey the requirements of the Leg- 
islature.*^ On the other hand, it is said that the parties 
never intended to form a partnership, that they never con- 
tracted as partners, and ought not to be held to a partner- 
ship liability.** 

It seems to be true that in forming a corporation the 
members or stockholders do, in effect, contract for what in 
law constitutes a partnership, viz., the conduct of a com- 
mon business with a view to mutual profit. We have seen 
that the relationship which the parties think they are as- 
suming is immaterial. Therefore it seems that, so far as 
the intention of the parties is concerned, the stockholders 
of a defective corporation might well be held to a partner- 
ship liability. Still it should be recognized that creditors 
are really not injured by granting to stockholders in a de- 
fective corporation the limited liability attendant upon per- 
fect incorporation, since such creditors usually deal with 
the stockholders on that basis. It is possible, therefore, 
that all stockholders in a defective corporation may be held 
liable as partners, unless it appears that public policy would 
be better served by holding them liable as stockholders. 
This seems to be the view of the courts, and, though there 
is much conflict in the cases, the* conflict is due, mainly, to 
difference in policy rather than in principle. 

The question may arise in different situations, varying 
from those where the law would not permit of the forma- 



«i BIGELOW Y. GRB60BT, 73 lU. 197, Onmore, Caa. PartnereWp, 
104 ; Melnhard, Schaul & Go. y. Bedingfield MercantUe Go^ 4 Ga. App. 
176, 61 S. E. 34. See ** Partner ship,"* Dec. Dig. {Key No.) i 41; Cent. 
Dig. |§ 56, 58, 59; ^^Corporations,'' Cent. Dig. | H. 

«« RUTHERFORD ▼. HILL, 22 Gr. 218, 29 Pac. 546, 17 L. R. A. 
549, 29 Am. St Rep. 596, Gilmore, Gas. Partnership, 106; Gwens- 
boro Wagon Go. y. Bliss, 182 Ala. 253, 31 South. 81, 90 Am. St Repu 
907. See '' Partnership, ** Dec. Dig. {Key No.) §S 17, 41; Cent. Dig. 
SI 5, 56, 56, 59; ^'Corporations;' Cent. Dig. | 7-t, 



§ 18) STOCKHOLDERS IN DEFEOTIVB CORPORATIONS 55 

tion of a corporation to carry on the business actually car- 
ried on to the situation where a corporation might have 
been created, and was honestly attempted to be created, but 
there was an innocent failure to comply substantially with 
the law. 

No Law Permitting Incorporation 

General incorporation acts usually specify the particular 
businesses for which corporations may^be formed under the 
act. A corporation formed for any other purpose exists 
without legislative sanction, and the members are usually 
held to a partnership liability.** Thus the members of a 
rifle club formed under a statute permitting incorporation 
for "literary, scientific, and charitable purposes" were held 
individually liable to the widow of a man killed by a bear 
kept by the club.** 

If the act under which a corporation was organized is 
unconstitutional, the mere fact that an attempt was made 
in good faith to organize under it will not prevent the stock- 
holders from being liable as partners.** And, though for- 
eign corporations generally are permitted to transact busi- 
ness in each state, if their organization constitutes a fraud 
upon the laws of a state, the members will be held to a 
partnership liability.** 

«» MandevUle y. Courtrlght, 142 Fed. 97, 73 C. 0. A. 821, 6 L. R. 
A. (N. S.) 1003. See ^^Partnership,*' Dec, Dig, {Key No,) § 41; Cent 
Dig, n 56, 58, 59; "Corporatiom*' Cent. Dig. | H. 

s« Vredenburg y. Behan, 83 La. Ann. 627. 

**The business conducted by the members of the organization 
was BO entirely aside from the power conferred upon the grange by 
the statute under which the Incorporation was effected that the 
business must be regarded as a partnership, and not corporate." 
Henry v. Slmanton, 64 N. J. Eq. 572, 54 Atl. 153; Wonderly v. 
Booth, 86 N. J. Law, 250; Re Mendenhall, 9 Nat Bankr. R. 497, 
Fed. Cas. No. 9,425; Ridenour y. Mayo, 40 Ohio St 9; Empire 
Mills y. Alston Grocery Co. (Tex. App.) 15 S. W. 200. Bee **Oorporar 
turns,"* Dec, Dig. {Key No,) § U; Cent, Dig, | 16. 

2s Brandensteln y. Hoke, 101 Cal. 135, 35 Pac. 562; Snyder y. 
Stndebaker, 19 Ind. 462, 81 Am. Dec. 415 ; Eaton y. Walker, 76 Mich. 
579, 43 N. W. 638, 6 L. R. A. 102. But see Richards y. Minnesota 
Sayings Bank, 75 Minn. 196, 77 N. W. 822. See ^^Partnership;* Deo. 
Dig, {Key No,) | 41; Cent, Dig, U 56, 58, 59, 

s« Montgomery y. Forbes, 148 Mass. 249, 19 N. B. 342; Hill y. 



66 WHAT CONSTITUTES A PARTNERSHIP (Oh. 1 

A Statute Authorising Incorporation, but no Bona Fide At- 

tempt to Organise under It 

Even if a statute exists which permits the organization 
of a corporation to conduct a particular business, those who 
wish to escape individual liability must at least make a 
bona fide attempt to organize under it. Unless they do so 
they will be held to have entered on the business as part- 
ners.*' 

A Colorable Attempt to Organize under a Valid Existing Law 

and Subsequent User 

Although there is nothing inconsistent with the law of 
partnership in holding stockholders in a defective corpo- 
ration liable as partners, and though it has been seen that 
in many cases they are so held, the present tendency atid 
the weight of authority is in favor of holding stockholders 
in a de facto corporation to a corporate liability merely.** 
Corporati9ns are recognized as beneficial to the state in the 
promotion of trade, and when the state has authorized the 
doing of a certain kind of business through a corporation 
it is recognized as unwise to discourage their organization 
by holding those who have in good faith attempted to or- 

Beach, 12 N. J. Eq. 31 ; Humphreys v. Mooney, 6 Colo. 282 ; Staf- 
ford Nat. Bank v. Palmer, 47 Coun. 443. See '* Partnership,*' Dec, 
Dig, {Key No,) | 41; Cent. Dig, §§ 56, 58, 59; "^Corporations;' Cent. 
Dig, %\ n, 2547. 

«T Harrlll v. Davis, 168 Fed. 187, 94 C. C. A. 47, 22 L. R. A. (N. 
S.) 1153 ; Owen v. Shepard, 59 Fed. 746, 8 C. C. A, 244 ; Forbes v. 
Whlttemore, 62 Ark. 229, 35 S. W. 223 ; Pettis y. Atkins, 60 111. 454 ; 
Sanders & Walker v. Hemdon, 128 Ky. 437, 108 S. W. 908, 32 Ky. 
Law Rep. 1362, rehearing denied 110 S. W. 862, 33 Ky. Law Rep. 
669 ; Fuller v. Rowe, 67 N. Y. 23 ; Worthlngton v. Griesser, 77 App. 
Dlv. 203, 79 N. T. Supp. 52; Hyatt v. Van Riper, 105 Mo. App. 664,. 
78 S. W. 1043 ; McLBNNAN v. HOPKINS, 2 Kan. App. 260, 41 Pac. 
1061; Queen City Furniture & Carpet Co. v. Crawford, 127 Mo. 
356, 80 S. W. 163 ; In re Browne & Jenkins Co., 106 La. 486, 81 South. 
67. See "Partnership;' Deo. Dig, (Key No,) U 41, 42; Cent. Dig. 
II 56-59; "Corporations," Cent. Dig. H 26, 74. 

28 **The test of a de facto corporation is this: Was .there a law 
under which there might have been a de jure corporation of the 
kind, character, and class to which the organization in question ap- 
parently belongs?'* Toledo, St L. & K. C. R. Co. y. Continental 
Trust Co., 95 Fed. 497, 508, 36 C. C. A. 155, 167. See ^^Corporations;' 
Deo. Dig. (Key No.) | 28; Cent. Dig. | 70, 



5 18) STOCKHOLDERS IN DEFEOXIYB CORPORATIONS 57 

ganize one to a partnership liability.** There is much au- 
thority, however, for the view that all stockholders in de- 
fective corporations are liable as partners. It is said that 
they are claiming an exemption in derogation of common 
right, and must comply strictly with the statutory require- 
ments in order to claim the exemption.** As stated before, 
the question resolves itself into one of public policy. The 
effect of holding members of de facto corporations as part- 
ners is to discourage attempts to organize corporations. 
The question is : Is it wise to do so, and thereby hold the 
members to a greater liability than they had intended in fa- 
vor of those who would get all they expected to get when 
they contracted if they are held to a stockholder's liability? 
The tendency seems in favor of the position that it is for the 



«» Whitney v. Wyman, 101 U. S. 392, 25 L. Ed. 1050; St Louis 
lb S. F. R. Co. V. Soathwestem Telephone & Telegraph Co., 121 Fed. 
276^ 58 Cw C. A. 198 ; Owensboro Wagon Co. v. Bliss, 132 Ala. 253, 
31 South. 81, 90 Am. St Rep. 907 ; Bates v. Wilson, 14 Colo. 140, 24 
Pac. 99; Butler Paper Co. v. Cleveland. 220 111. 128, 77 N. E. 99, 
110 Am. St Rep. 2^0 ; Love t. Ramsey, 139 Mich. 47, 102 N. W. 279 ; 
Brown v. Corbin, 40 Minn. 608, 42 N. W. 481; Central R. Co. of 
New Jersey v. Pennsylvania R. Co., 31 N. J. Eq. 475; Vanneman v. 
Young, 52 N. J. Law, 403, 20 Atl. 53 ; People ex rel. New York, N. 
H. & ^. R. Co. V. Board of R. Com'rs, 81 App. Div. 242. 81 N. Y. 
Supp. 20, affirmed 175 N. Y. 516, 67 N. E. 1088 ; Albright v. Lafay- 
ette BuUding & Savings Ass'n, 102 Pa. 411, 423 ; American Salt Co. 
V. Heidenhelmer, 80 Tex. 344, 15 S. W. 1038, 26 Am. St Rep. 743 ; 
Mitchell V. Jensen, 29 Utah, 346, 81 Pac. 165. See "PartneraMp," 
Dec. Dig, {Key No.) §| U, 4i&; Cent. Dig. %% 56^9; "Corporations," 
Cent. Dig. H 2^. H, 

30 '*Our law furnishes so simple a method by which societies such 
as these may be incorporated and acquire the right to contract 
• • * and it is 80 easy for any one to know what is the truth 
of the case, that if men will make business transactions of the 
character disclosed by this record, they must take the consequences." 
Wilkins V. Wardens and Vestry of St Mark's Protestant Episcopal 
Church of Dalton, 52 Ga. 351, 353 ; Forbes v. Whittemore, 62 Ark. 
229, 35 S. W. 223 ; Loverin v. McLaughlin, 161 111. 417, 44 N. E. 99 ; 
Kaiser v. Lawrence Savings Bank, 56 Iowa, 104, 8 N. W. 772» 41 
Am. Rep. 85; Sebastian v. BooneviUe Academy Co. (Ky.) 56 S. 
W. 810 ; Louisiana Nat Bank v. Henderson, 116 La. 413, 40 South. 
779; Smith v. Warden, 86 Mo. 382. 8ee ^^Partnership;' Deo. Dig. 
[Key No.) §§ 41, Jfi; Cent, Dig. || 56-59; "Corporations,'* Cent. Dig. 



58 ' WHAT CONSTITUTBS A PARTNERSHIP (Ch. 1 

state only to question the corporate privileges and liabili- 
ties of a de facto corporation.** 

EXISTENCE OF PARTNERSHIP— NATURE OP 

QUESTION 

19. Whether or not a partnership exists is ultimately a 
question of law, to be determined by the court 
after the facts have been established. 

Whether or not a partnership exists is ultimately a ques- 
tion of law. After the facts are established, their legal ef- 
fect is determined as a matter of law. It is customary, 
however, to say that the question of the existence of a part- 
nership is a mixed question of law and fact.** Where all 

Si "Not Infrequently the holding that the legal existence of a de 
facto corporation cannot be questioned by a private individual is 
referred to as being based on estoppel. This is not so, however, for 
the elements of estoppel are lacking. Moreover, if it were based on 
estoppel, those who had not dealt with the supposed corporation as 
a corporation could attack the validity of its existence; for 
they, at least, could not be said to be estopped. Besides, If those 
who have dealt with a de facto corporation were estopped to deny 
its corporate existence, those who have dealt with any association 
which, though not a de facto corporation, is assuming corporation's 
functions as a corporation, should be estopped. It has already been 
seen that they are not, however. The theory that a de facto cor- 
poration has no real existence, that it is a mere phantom, to be in- 
voked only by that rule of estoppel which forbids a party who has 
dealt with a pretended corporation to deny its corporate existence, 
has no foundation, either in reason or authority. A de facto cor- 
poration is a reality. It has an actual and substantial legal exist- 
ence. It is, as the term implies, a corporation." Society Perun v. 
City of aeveland, 43 Ohio St 481, 490, 3 N. E. 3o7, 360. 

"This rule [concerning de facto corporations] is not founded upon 
any principle of estoppel, as Is sometimes assumed, but upon the 
broader principles of common Justice and public policy. It would 
be unjust and Intolerable if, under such circumstance, every Inter- 
loper and Intruder were allowed thus to take advantage of every in- 
formality or irregularity of organization." Mitchell, J., in East 
Norway Lake Church v. FrolsUe, 37 Minn. 447. 451, 35 N. W. 260, 
262. See '^Corporations," Dec, Dig, {Key No.) §| 28, 29; Cent, Dig, 
SI 70, 77. 78. 

•2 Fox V. Clifton, 9 Bing. 115, 117; Gabriel v. EvUl, Car. & M. 
358; EVERITT v. CHAPMAN, 6 Conn. 347, Gilmore, Cas. Partner- 



§ 20) QUESTION or EXISTENOB 69 

the facts are admitted, it is for the court to say whether or 
not they constitute a partnership.** Thus the court must 
say whether a written agreement renders the parties to it 
partners.** But, where the facts are in dispute, the court 
will instruct the jury as to what {acts will constitute a part- 
nership, and it is for the jury to say whether or not the nec- 
essary facts exist;** or, if a special verdict is desired, the 
jury will determine what the facts really are, and the court 
will then determine whether or not such facts constitute a 
partnership. 

SAME— BURDEN OF PROOF 

20. The burden of proving the existence of a partnership 
is upon him who relies upon its existence. 

The burden of proving a partnership is on him who relies 
upon its existence.** Thus where a suit was begun for the 

ship, 68; Beecham y. Dodd, 3 Har. (Del.) 485; Doggett y. Jordan, 2 
Fla. 541; Drake v. Elwyn, 1 Gaines (N. Y.) 184; TerriU y. Richards, 1 
Nott & McC. (S. C.) 20. See ** Partnership,'' Dec. Dig. {Key No,) §| 
122, 218; Cent. Dig, %% ISS"^, J^. 

*s 'Morgan y. Farrel, 58 Conn. 413, 20 Atl. 614, IS Am. St Rep. 
282 ; EVERITT y. CHAPMAN, 6 Conn. 347, GUmore, Cas. Partner- 
ship, 68 ; Kingsbury v. Tharp, 61 Mich. 216, 28 N. W. 74. Bee "ParU 
nership,'* Dec, Dig. (Key No.) §§ 122, 218; Cent. Dig. SS 185%, 427. 

•* Boston & O. Smelting Co. y. Smith, 13 R. I. 27, 43 Am. Rep. 3. 
See '^Partnership;* Deo. Dig. {Key No,) || 122, 218; Cent. Dig. U 
iO, my^, 427. 

••McGrew y. Walker, 17 Ala. 824; Morgan y. Farrel, 58 Conn. 
413, 20 Aa 614, 18 Am. St Rep. 282; EVERITT v. CHAPMAN, 6 
Conn. 347, Gllmore, Cas. Partnership, 68; Kingsbury y. Tharp, 61 
Mich. 216, 28 N. W. 74 ; Waggoner y. First Nat Bank of Creighton, 
43 Neb. 84, 61 N. W. 112 ; Dulany y. Elf ord, 22 S. C. 308. See "Part- 
nershipr Deo. Dig. {Key No.) |S 122, 218; Cent. Dig. H 185M, 186, 
426, 427. 

«• Woodward y. Sutton, 1 Cranch, O. C. 351, Fed. Cas. No. 18,009; 
Smith y. Moynihan, 44 Cal. 53 ; Hobson y. Porter, 2 Colo. 28 ; De 
St Aubin y. Laskin, 74 lU. App. 455; Henshaw y. Root 60 Ind. 
220; Byington y. Woodward, 9 Iowa, 360; MaunseU y. WUlett, 36 
La. Ann. 322; Howe y. Thayer, 17 Pick. (Mass.) 91; Campbell y. 
Sherman, 49 Mich. 534, 14 N. W. 484; Stickney y. Smith, 5 Minn. 
486 (GiL 390) ; Cook y. Martin, 5 Smedes & M. (Miss.) 379 ; Walga- 



60 WHAT C0NSTITUTB8 A PARTNERSHIP (Gb. 1 

pasturage of certain cows, and the defense was interposed 
that the plaintiff and defendant were partners and the cows 
were pastured under the partnership agreement, it was held 
that the burden of proving the partnership was on the de- 
fendant, the court saying: '"It is not clear that the parties 
to this suit intended to form a partnership relation, and the 
burden of proving that relation was on the party asserting 
its existence." *^ And where, in an action for goods sold to 
a partnership, the defendant admitted that he was a mem- 
ber of a partnership of the same name as that to which the 
goods were alleged to have been sold, but contended that 
there were two partnerships of the same name, and that he 
was not a member of the one which bought the goods, it 
was held that the burden of proving that defendant was a 
member of the partnership which bought the goods was on 
the plaintiff.** If a partnership is proved to have once ex- 
isted, however, its continued existence is presumed. To es- 
cape liability in such a case the one alleging the termination 
must prove that fact, and also that proper notice, where 
necessary, was given to the one seeking to establish a part- 
nership liability.** 

mood V. Randolph, 22 Neb. 493, 35 N. W. 217; Kelly r. Deylln, 47 
N. T. Super. Ct 555; Clark v. Kensell. Wright (Ohio) 480; Strlck- 
ler r. Gitchel, 14 Okl. 523, 78 Pac 94; Ashley v. Williams, 17 Or. 
441, 21 Pac. 556; Hallstead y. Coleman, 143 Pa. 353, 22 Atl. 977, 
13 L. R. A. 370; State v. Penman, 2 Desaus. (S. C.) 1; Clifton & 
Wadklns v. Royse Cotton OH Co., 39 Tex. Civ. App. 188, 87 S. W. 
182. See "Partnership,** Dec, Dig, {Key No.) { U; Cent. Dig. H 
61-63, 

ST BrlggB y. Kohl, 132 111. App. 484. See ^Partnership,^ Dec. Dig 
{Key No.) § U; Cent. Dig. H 61-68. 

«« Bristol & Sweet Co. v. Skapple, 17 N. D. 271, 115 N. W. 841. 
See ""Partnership;* Dec. Dig. (Key No.) I 44; Cent. Dig. §S 61-^8. 

»» Lleb V. Craddock, 87 Ky. 525, 9 S. W. 838; Dunham v. Loverock, 
158 Pa. 197, 27 Aa 990, 38 Am. St Rep. 838. See "'Partnership,'* 
Deo, Dig. (Key No.) | 259; Cent Dig. { 599. 



§ 21) PABTNERSHIF BT ESTOPPEL 61 



PARTNERSHIP BY ESTOPPEL 

21. One who represents himself to be a partner, or who 
knows and assents to such a representation by an- 
other, is liable, by the doctrine of estoppel, as a 
partner to all persons who, knowing of the repre- 
sentation, rely upon the same. 

Estoppel — In General 

One is said to be estopped when he is not permitted to 
tell the truth. He is not permitted to tell the truth, be- 
cause he has at some other time told the contrary, either 
by words or conduct, under such circumstances that it 
would, in the view of the courts, be unjust to permit him 
now to tell the truth and to rely upon it. 

The principal circumstances usually considered as essen- 
tial in creating an estoppel are: A misrepresentation of 
some material question of fact or law, made mediately or 
immediately to the one in whose favor the estoppel is as- 
serted, under such circumstances that it might reasonably 
be expected that he who asserts the estoppel would act 
upon it, and upon the faith of which he did act, so that it 
would injure him to permit the truth to be established.** 

Holding Out by Defendant 

Partnership by estoppel exists only where the parties 
have not agreed to be and are not partners in fact. They 
are held as partners only because they have represented 
themselves to be such,' and in consequence it would be un- 
just to a third person, who has relied on such representa- 
tions, to permit them to show that they are not in fact part- 
ners.** It may be, however, that the partnership created 
by estoppel does not in any way resemble true partnership 
even as to third persons, for one who represents another 
as his partner may be held liable as a partner for the acts 

4» Bwart on Bstoppel, p. 72. 

« > Gershner y. SCDtt-Mayer Ck>mmls8lon Co, (Ark.) 124 S. W. 772 ; 
Meh'hard, Schaul ft Go. ▼. Bedingfleld Mercantile Co., 4 Ga. App. 
nil. 01 8. B. 34. See -PartnenMp;' Dec. Dig. {fLey No.) U SSSS; 
Cent. Dig. ^^ 4$^^. 



62 WHAT CONSTITUTES A PARTNERSHIP (Ch. 1 

« 

of such other without the other incurring any partnership 
liability at all.** One may estop himself to deny that he 
is a partner by a direct assertion that he is one, or by con- 
duct which would reasonably entitle one to believe him to 
be one. The responsibility for the belief existing in the 
plaintiff's mind must be brought home to the defendant. 
For instance, a decedent's estate is not liable on the repre- 
sentations of the survivors that the partnership still con- 
tinued.** The estoppel is founded upon equitable princi- 
ples and cannot be asserted against innocent parties. 

Liability by Being Held Out by Others 

It is plainly just that one who has held himself out as 
a partner should be held liable to those who have acted on 
such representation. The cases where such holding out 
has been shown are clear. The rule is the same where such 
holding out has been authorized by the defendant ; for what 
is done by his authority is, in law, done by himself. Such 
authority may be shown by conduct as well as by words. 

Where, however, tio authority can be shown, the ques- 
tion is more perplexing. One cannot be held for that for 
which he is in no way responsible. Hence, if one is held 
out as a partner without his knowledge, he cannot be es- 
topped to deny the partnership, even as against those who 
relied on the representation,** But the rule has been laid 
down that "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 honest man should do under similar circumstances to 
assert and manifest his refusal, and thereby prevent inno- 
cent parties from being misled." *" This rule makes it nec- 

« 3 Hess V. Ferris, 57 111. App. 37; Mechem on Partnership, § 73. 
See **Parther8Mp,'* Dec. Dig, (Key No,) §| SS-S8; Cent. Dig. §§ 49-55. 

*» Webster v. Webster, 3 Swanst 400; VuUiamy v. Noble, 3 Mer. 
593, 614. See ''Partnership;* Dec. Dig. (Key No.) H 33S8; Cent, 
Dig. §§ 49-53. 

4* Campbell v. Hastings, 29 Ark, 512; Butler v. Hinckley, 17 
Colo. 523, 30 Pac. 250 ; Bishop v. Georgeson, 60 111. 484 ; Sheldon v. 
Bigelow, 118 Iowa, 586^ 92 N. W. 701; Bery v. Callahan, 15 Ky. 
Law Rep. 539; Crook v. Davis, 28 Mo. 94; Cole v. Butler, 24 Mo. 
App, 76; Seabury & Johnson v. Bolles, 51 N. J. Law, 103, 16 AtL 
54, 11 L. R. A. 136. See "Partnership;* Deo. Dig. {JBley No.) ^ 36; 
Cent. Dig. § 51. 

«B T. Parsons on Partnership, 134. 



S 21) PARTNERSHIP BT ESTOPPEL 63 

essary for one who has knowledge only that he is being 
held out as a partner to deny the truth of the representa- 
tion. It in effect makes him chargeable, not only for his 
own conduct, but for the conduct of others. It apparently 
invests him with the guardianship of his own name and 
credit, and charges him with liability for their misuse in 
the hands of others. It is submitted that the rule as stated 
is too broad, and that one is not liable as a partner to third 
persons unless a jury would be justified in finding, not only 
that he knew that he was being held out as a partner, but 
that he assented to being so held out. Even in a case where 
the rule above stated was adopted, it was stated that evi- 
dence existed from which the jury would be justified in 
' finding that the defendant knew of and assented to his be- 
ing held out as a partner.** In another case it was said: 
"The court instructed the jury as follows : 'If you find that 
Mrs. Rutherford knew that her name had been mentioned 
in a commercial newspaper as associated with Mr. Beck- 
with, and composing the partnership of Charles M. Beck- 
with & Co., it was her duty, if she was not such partner, to 
see that a denial of such copartnership was promptly made, 
in unmistakable terms, and as full as the publication of the 
partnership had been made. Failing to do this, she will be 
held to have acquiesced in such publication, and would be 
estopped from denying the existence of such copartnership 
as against the plaintiff, provided he gave the firm of Charles 
M. Beckwith & Co. the credit of the liability in question in 
reliance upon the alleged facts of such holding out, and 
failure on the part of defendant Rutherford to publicly deny 
the same.' The instruction was erroneous. Mrs. Ruther- 
ford was under no legal or moral obligation to publish 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 her on the strength of such 
assent, the rule of estoppel would have applied. There be- 

<« FLETCHER v. PULLEN, 70 Md. 205, 16 Ati. 887, 14 Am. St 
Rep. 355, Gilmore, Cas. Partnership, 100. See ** Partnership,*' Dec. 
Dig. {Key No,) SI S6, 56; Cent. Dig. §{ 51, 80. 



64 WHAT CONSTITUTES A PABTNBB8HIP (Ch. 1 

ing no evidence that she authorized or assented to it, there 
is no room for the application of the rule." ** 

Knowledge of the Plaintiff 

Not only must responsibility for the representation be 
fastened upon the defendant, but it must be shown that the 
plaintiff knew of the representation. "A person who is not 
in fact a partner, who has no interest in the business of the 
partnership, and does not share in its profits, and is sought 
to be charged for its debts because of having held himself . 
out, or permitted himself to be held out, as a partner, can- 
not be made liable upon contracts of the partnership, ex- 
cept with those who have contracted with the partneriship 
upon the faith of such holding out. In such a case, the only, 
ground of charging him as a partner is that by his conduct 
in holding himself out as a partner he has induced persons 
dealing with the partnership to believe him to be a partner, 
and, by reason of such belief, to give credit to the partner- 
ship. As his liability rests solely upon the ground that he 
cannot be permitted to deny a participation which, though 
not existing in fact, he has asserted, or permitted to appear 
to exist, there is no reason why a creditor of the partner- 
ship, who has neither known of nor acted upon the asser- 
tion or permission, should hold as a partner one who never 
was in fact, and v/hom he never understood or supposed to 
be, a partner, at the time of dealing with and giving credit 
to the partnership." *• 

4r Grant C. J., in Manton ▼. Rutherford, 121 Mich. 418, 80 N. 
W. 112; Rittenhouse ▼. Leigh, 67 Miss. 697. *'The holding one*8 
self out to the world as a partner, as contradistinguished from the 
actual relation of partnership. Imports at least the yolontary act of 
the party so holding himself out It implies the lending of his 
name to the partnership, and is altogether incompatible with the 
want of knowledge that his name has been so used. Thus, in the 
ordinary Instances of its occurrence, where a person aUows his 
name to remain in a firm, either exposed to the public over a shop 
door, or to be used in printed invoices or bills of parcels, or to be 
published in advertisements, the knowledge of the party that his 
name is used and his assent thereto is the very ground upon wliich 
he is estopped from disputing his liability as a partner." Tlndal, 
C. J., in Fox V. Clifton, 8 L. J. 0. P. 257. See '* Partnership*' Dea 
Dig, {Key Vo.) S 96; Cent. Dig. § 51. 

*«Gray, J., in THOMPSON et aL ▼. FIRST NAT. BANK OF 



B 21) PABTMBRBHIP BY B8TOFPBL 65 

It has been said, however, that, although the plaintiff 
did not know of defendant's representation of partnership, 
he may nevertheless recover. "The whole foundation of 
the theory that a person who, not being in fact a partner^ 
has held himself out as a partner, may be liable as such to 
a creditor of the partnership who had no knowledge of the 
holding out, and who never gave credit to him or to the 
partnership by reason of supposing him to be a member of 
it, is a statement attributed to Lord Mansfield in a note of 
a trial before him at nisi prius in 1784,** as cited by counsel 
in a case in which it was sought to charge as a partner one 
who had shared in the profits of a partnership. By so much 
of that note as was thus cited, which is the only report of 
the case that has come down to us, it would appear that 
in an action by Young, a coal merchant, against Mrs. Axtell 
and another person, to recover for coals sold and delivered, 
the plaintiff introduced evidence that Mrs. Axtell had lately 
carried on the coal trade, and that the other defendant did 
the same under an agreement between them by which she 
was to bring what customers she could into the business, 
and the other defendant was to pay her an annuity, and 
also two shillings for every chaldron that should be sold to 
those persons who had been her customers or were of her 
recommending, and that bills were made out in their joint 
names for goods sold to her customers, and that the jury 
found a verdict against Mrs. Axtell, after being instructed 
by Lord Mansfield that *he should have rather thought, on 
the agreement only, that Mrs. Axtell would be liable, not 
on account of the annuity, but the other payment, as that 
would be increased in proportion as she increased the busi- 
ness. However, as she suffered her name to be used in the 
business, and held herself out as a partner, she was cer- 



TOLEDO, 111 U. S. 529, 536, 4 Sup. Ct 689, 28 L. Ed. 507. Gllmore, 
Gas. Partnership, 96; Spaulding v. Nathan, 21 Ind. App. 122, 51 N. 
E. 742; Daniel v. Schultz, 12 Ky. Law Rep. 987; Adrian Knitting 
Co. ▼. Wabash IL Co.. 145 Mich. 328. 108 N. W. 706. See ^^Pmrtner- 
8Mpr Dec. Dig. (Key No.) ^ S7; Cent. Dig. H S7, 52. 

4» Young V. AxteU, cited in WAUGH v. CARVER, 2 H. BL 236. 
!242, Gilmore. Cas. Partnership, 19. See ** Partnership,'* Dec Dig. 
{Key No.) { 57; Cent. Dig. S| 57, 52. 

Gil.Pabt. — 5 



66 WHAT CONSTITUTES A PARTNERSHIP (Gh. 1 

tainly liable, though the plaintiff did not, at the time of deal- 
ing, know that she was a partner, or that her name was 
used.* * *  But as the case was not there cited upon 
the question of liability by being held out as a partner, it 
is by no means certain that we have a full and accurate re- 
port of what was said by Lord Mansfield upon that ques- 
tion ; still less that he intended to lay down a general rule, 
including cases in which one, who in fact had never taken 
any part in or received any profits from the business, held 
himself out as a partner." •• 

The great weight of authority accords with the view 
that, in order to succeed on the grounds of estoppel, the 
plaintiff must show that he personally was aware of defend- 
ant's representation.*^ 

»• Gray, J., in THOMPSON v. FIRST NATIONAIi BANE OP TO- 
LEDO, 111 U. 8. 529, 4 Sup. Gt 689, 28 L. Ed. 507, Gilmore^ Gas. 
Partnership, 96. See '^Partnership,*' Dec. Dig. {Key No,) { 57; Cent, 
Dig, §§ 57, 52. 

«iMcIver v. Humble, 16 East, 169; Ford ▼. Whltmarsh, Hurl- 
stone & Walmsley, 53 ; Pott v. Eyton, 3 G. B. 32; Martyn v. Gray, 
14 G. B. N. S. 824; Edmundson y. Thompson, 31 L. J. N. S. 207; 
Benedict ▼. Davis, 2 McLean, 347, Fed. Gas. No. 1,293; Hefner y. 
Palmer, 67 111. 161; Uhl y. Haryey, 78 Ind. 26; SHERROD y. 
LANGDON, 21 Iowa» 518; Sheldon y. Blgelow, 118 Iowa, 586, 92 
N. W. 701; Wood y. Pennell, 51 Me. 52; Fitch y. Harrington, 13 
Gray (Mass.) 469, 74 Am. Dec. 641 ; Gook y. Penrhyn Slate Go., 36 
Ohio St 135, 38 Am. Rep. 568 ; Kirk y. Hartman, 63 Pa. 97 ; Hicks 
y. Gram, 17 Vt 449. 

Gontra: POILLON y. SEGOR, 61 N. Y. 456. This case adopted 
the following rule laid down in Parsons on Partnership: "Where 
one Is held forth to the world as a partner, the first question is: 
Was he so held out by his own authority, assent or connlyance, or by 
his negligence? If by his authority, consent or connlyance, the pre- 
sumption Is absolute that he was so held out to eyery creditor or 
customer. If so held out by his own negligence only, he should be 
held only to a creditor who had been actually misled thereby." 
Parsons on Partnership (3d Ed.) 130. This rule was omitted In the 
later editions, and the statement was made that the decision adopt- 
ing It was erroneous. Parsons on Partnership (4th Ed.) 104, note 
2. The case Itself must be considered as oyerruled by the subse- 
quent cases of Gentral Glty Sayings Bank y. Walker, 66 N. Y. 424 ; 
Gassldy y. Hall, 97 N. Y. 159 ; Rogers y. Murray, 110 N. Y. 658, 18 
N. E. 261. See ''Partnership,'' Deo. Dig. (Key No.) fj 57, U; Cent, 
Dig, |§ 57, 52, 61-SS. 



§ 21) PARTNERSHIP BY ESTOPPBIi 67 

Reliance by the Plaintiff 

It is not only necessary for the creditor to show that he 
knew of the representations made or permitted by, the de- 
fendant, but that he believed them and relied upon them/* 
Thus, while one might hold an actual partner of whose ex- 
istence he was unaware at the time he made the contract 
sued upon, if he subsequently discovered it, he can hold by 
estoppel only those upon who^e credit he at the time re- 
lied ; also, even though he has been told that a certain per- 
son was a partner in a certain firm, he cannot hold him if 
the statement has been subsequently denied by the reputed 
partner; •• nor can he hold him if by the exercise of due 
diligence he might have learned the truth.'* 

Though the plaintiff must have believed and had reason 
to believe that the defendant was a partner,'" it is not nec- 

»s Herman Kahn Go. y. A. T. Bowden & Co., 80 Ark. 23, 96 S. W. 
126; James Rellly Repair & Supply Go. t. GaUagher (Sup.) 108 N. 
Y. Supp. 655; Mims v. Brook & Go., 3 Ga. App. 247, 69 S. E. 711; 
Breinig y. Sparrow, 39 Ind. App. 455, 80 N. B. 87. Bee ^'Partner- 
shipr Deo, Dig. (Key No.) § 57; Cent. Dig. » S7, 62. 

B« McGlean y. Clark, 20 Ont App. 660; Erans y. Luthy, 56 111. 
App. 506; Rittenhouse y. Leigh, 57 Miss. 697. 

'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 
permitted others to do so, and by reason thereof is estopped from 
denying that he is one, as against those who haye in good faith 
dealt with the fliTn,. or with him as a member of it But It must 
appear that the person dealing with the firm belieyed, and had a 
reasonable right to belieye, 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 appear that the holding 
out was by the party sought to be charged, 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 from ad- 
yertisements, shop bills, signs, or cards, and from yarious other acts 
from which it is reasonable to infer that the holding out was with 
his authority* knowledge or assent" FIiETCHER y. PULLEN, 70 
Md. 205, 16 AtL 887, 14 Am. St Rep. 355, Gilmore, Gas. Partnership, 
100; Riyes y. Michaels, 16 Misc. Rep. 57, 37 N. Y. Supp. 644. 8ee 
^^Partnership/' Deo. Dig. {Key No.) S 37; Cent. Dig. §| 57, 52. 

»4 Morgan y. Ferrel, 58 Conn. 413, 20 Atl. 614, 18 Am. St Rep. 282. 
See **Partner8hip," Deo. Dig. (Key No,) § S7; Cent. Dig. U S7, 50, 52. 

BB Fisher y. A< Y. McDonald Co., 85 111. App. 653. Bee "^Partner- 
ship;' Dec. Dig. {Key No.) { S7; Cent. Dig. S{ ^7, 52. 



fl8 WHAT CONSTITUTBS A PARTNBRSHIP (Ch. 1 

essary for him to show that he relied solely on the credit 
of the defendant It is sufficient to charge the defendant 
if he gave credit to a firm of which he believed him to be 
a partner. Thus it is not necessary for the plaintiff to show 
that the defendant was a man of financial ability.'* Nor 
need he be able to swear that had defendant not been a 
partner he would not have sold the goods to the firm."^ 

Nature of Question 

Whether or not defendant has held himself out to the de- 
fendant as a partner is a question of fact." Hence it is 
possible for the same holding out to be regarded as suffi- 
cient in one case to establish liability and insufficient in 
another. This result was actually reached in two English 
cases.** The same representations were relied upon as con- 
stituting a holding out in each case. Similar instructions 
were given to the jury in each case ; they being instructed 
that they must hold the defendant liable if they find a hold- 
ing out. In one case a verdict was returned for the plain- 
tifiF, in the other for the defendant, and in each case the 
court refused to disturb the verdict. 

B« Strecker y. Ck}im, 90 Ind. 460. See **PartneriMp/* Dec Dig. 
{Key No.) | Si; Cent. Dig. S 49- 

»T Lleb V. Oraddock, 87 Ky. 625, 8. W. 83a See "Partnerahip,'* 
Deo. Dig. (Key No,) || 57, 241; CerU. Dig. K S7, 52, ^79^, 4S0. 

B* Wood y. The Duke of Argyll, 6 Man. ft Gr. 028; Lake y. The 
Duke of Argyll, 6 Q. B. 477 ; FLETCHER y. PULLBN, 70 Md. 206, 
16 Atl. 887, 14 Am. St Bep. 396, GUmore, Cas. Partnership, 100; 
Seabury & Johnson y. Bolles, 61 N. J. Law, 103, 16 Atl. 64^ 11 L. B. 
A. 136. See "Partnership,'* Dec. Dig. {Key No.) H l^t ^IS; Cent. 
Dig. IS 185^, 427. 

B« Wood y. The Duke of Ars^U, 6 Man. ft Gr. 028; Lake y. The 
Duke of Argyll, 6 Q. B. 477. See ^'Partnership,^ Deo. Dig. iKey No:^ 
U SS-S8, 122, 218; Cent, Dig. U 49-^8, 186\i, 4^. 



i 22) VOBMATION AND CLASSIFICATION 69 



CHAPTER II 

FORMATION AND OLA88IFIOATION OF PABTNBRSHIPS 

22. Partnership Arises from a Contract 

23. Requirements of the Contract 

24. Competency of the Parties. 
20. Consideration. 

20. Formalities. 

27-2& Statute of Frauds. 

29. Bubject-Matter. 

30. Legality of Object 

81. Classification of Partnerships. 

3Z Ordinary Partnerships — ^Universal, General^ Special* or 

Particular. 
83. Limited Partnerships. 

34. Joint-Stock Companies, 

35. . Subpartnershlps. 

36. Mining Partnerships. 

87-^88. Trading and Nontrading Partnerships. 

89. Classification of Partners. 



PARTNERSHIP ARISES FROM A CONTRACT 

SS2. Partnership is a relation which results only from a con- 
tract between the parties; it is never created by 
operation of law. Being a relation based upon 
mutual trust and confidence, it can only exist 
where the parties have voluntarily created it. This 
gives rise to the principle of delectus personarum, 
or right of selection, which requires that every 
member to the relation consent to its formation 
and continuance. 

Partnership Created Only by Contract 

Since partnership is the relation existing between per- 
sons who have so agreed that the profits of a business car- 
ried on by one or more for all inure to them all as co-own- 
ers, it necessarily follows that a partnership can be created 
only by contract, either express or implied. In the absence 
of such an agreement, a true partnership is never created by 



70 FOBMATION AND CLASSIFICATION (Gh. 2 

operation of law.* Thus where sons assisted their father for 
many years in carrying on business, although the former 
received no compensation and regarded themselves as hav- 
ing an interest in the business, it was held that no partner- 
ship existed, for there was no agreement to form the rela- 
tion, and the law will not "surprise them into a partnership 
of which they never dreamed." The most that the sons 
had was an expectation of ultimate succession to the busi- 
ness.* So a mere agreement between two cornmcrcial 
houses to share commissions in sales of goods forwarded 
by one to the other does not constitute a partnership.* So, 
also, where a broker purchased a quantity of tea for sev- 
eral persons, who were to have separate shares therein, 
such persons were held not to be partners with the broker 
and one another, because they "had never met or contracted 

1 North Pac. Lumber Co. y. Spore, 44 Or. iffZ, 75 Pac. 800; Reyn- 
olds ▼. Radke, 112 111. App. 575; Wilson's Ex'rs y. Cobb's Ex'rs, 28 
N. J. Eq. 177, 179, where, In holding that Joint prosecution of a 
lawsuit does not create a partnership, the court said : **There is no 
such thing as a partnership by implication or operation of law. 
The relation inter sese is founded in voluntary contract, and cannot 
exist independent of it" 

A partnership is not established by the mere fact that parties 
purchase property Jointly. Ingals v. Ferguson, 59 Mo. App. 299. See 
''Partnership,*' Dec. Dig. (Key No,) §| 18, 20-22, 28S2; Cent. Dig. 
§1 1, JhS, 30-48. 

« PHILLIPS y. PHILLIPS, 49 HI. 437, GUmore, Cas. Partnership, 
113. **The Intention or even belief of one party alone cannot cre- 
ate a pa^nership without the assent of the others." Id. But see 
Ratzer y. Ratzer, 28 N. J. Eq. 136, where a partnership was declared 
to exist on similar facts. See ^'Partnership,** Dec. Dig. (Key No.) 
I 18; Cent. Dig. ^ 4. 

» Pomeroy y. Sigerson, 22 Mo. 177; FBCHTELER et al. y. PALM 
BROS. & CO., 133 Fed. 462, 66 C. C. A. 336, GUmore, Cas. Partner- 
ship, 76 ; SABEL et al. y. SAVANNAH RAIL & EQUIPMENT CO.. 
135 Ala. 380, 33 South. 663 (1903) GUmore, Cas. Partnership, 116; 
In re Winter's Estate, Myr. Prob. (Cal.) 131, where persons Hying 
together as husband and wife accumulate property, on the death of 
the man the woman was held not entitled to the property as sur- 
yiylng partner, as against a former wife. But where the ^ife in- 
vests community property in a partnership business, the husband 
becomes a partner. Houghton y. Puryear, 10 Tex. Civ. App. 383, 
30 S. W. 583. See ''Partnership,*" Deo. Dig. {Key No.) {| JhlS, 28- 
82; Cent. Dig. §| 15-28, S0S5, 88-48. 



§ 22) PARTNERSHIP ARISES FROM A CONTRACT 71 

• 

together as partners/'* Again, where the plaintiff furn- 
ished the master of a vessel with money with which to pur- 
chase goods to be taken on a voyage and sold and the prof- 
its to be divided, they were not partners, for "it was only 
■an agreement for so much as a compensation for the plain- 
tiff's trouble, and for lending the master his credit."  This 
rule, that all the parties to the relation must have voluntar- 
ily assented thereto, originated in the Roman law, was in- 
corporated in the law merchant, and became an integral 
part of the common law. As explained elsewhere,* an 
anomalous exception to the rule was established, called 
partnership as to third persons, by reason of participation 
in the profits of a business, whereby persons not really 
partners as between themselves were held liable as partners 
to third persons dealing with them. This exception was ^ 
abandoned in England, where it originated, and was either 
never adopted by American courts, or, if adopted, was dis- 
carded save in a few jurisdictions.^ Where the relation ex- 
ists, it usually does so as the result of an express or implied 
agreement to form a partnership. It is not necessary that 
any particular words be used in the contract, nor that the 
parties specifically designate their agreement as one of part- 
nership. It is sufficient if the agreement is to dp such acts 
as the law regards as amounting to partnership.* 

Delectus P^sonarum 

The requirement of a contract for the creation of a part- 
nership is founded upon the principle of delectus person- 

« HOARE ▼. DAWES, 1 Dong. S71, Gllmore, Gas. Partnership, 1. 
See ^^Partnership," Dec. Dig, (Key No.) §§ 18, 20-22; Cent, Dig. §§ 
i, 4. e-8. 

bHESKETH ▼. BLANOHARD, 4 East, 144, Gllmore, Cas. Part- 
nership, 2. See "Partnership,** Dec, Dig, (Key No.) |§ 9, SO; Cent. 
Dig. a 2S, 24, 43, U> 

• Chapter I, ante, "Partnership as to Third Persons," |S 4-7, 

pp. 10-24. 

f COX V. HICKMAN, 8 H. L. Cas. 268, Gllmore, Cas. Partnership, 
31; BEECHER v. BUSH, 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 
465, Gilmore, Cas. Partnership, 49. See **Partnership,** Dec Dig. 
(Key No.) fi SO; Cent. Dig. §S S8'48. 

sBeecher ▼. Bnsh, supra; Spaulding ▼. Stubbings, 86 Wis. 255, 
56 N. W. 409, 89 Am. St Rep. 888; Coons ▼. Coons, 106 Va. 572, 56 



72 FORMATION AND CLASSIFICATION (Ch. 2 

arum, or right of selection, and this in turn grows out of 
the nature and consequences of the relation. "When a man 
enters into a partnership, he certainly commits his dearest 
rights to the discretion of every one who forms a part of 
that partnership." "It is an imprudent thing for a man to 
enter into partnership with any person, unles3 he has the 
most implicit confidence in his integrity." • Within the 
scope of the partnership one partner may bind his copart- 
ners by his contracts and acts, may pledge their credit and 
may convey a perfect title to the firm chattels. The prop- 
erty or money which one puts into a partnership venture 
ceases to be his exclusively and comes under the control 
and disposition of his copartners. Because of the powers 
of partners to subject one another to liability and to deal 
with common property, and because of the mutual confi- 
dence and trust required in the relation, this right of selec- 
tion of one's associates is a fundamental principle, not only 
in the establishing, but also in the continuance, of the rela- 
tion. It therefore follows that no person can be introduced 
as a partner without the consent of himself and of all those 
who for the time being are members of the firm.^" If a 
partner does assign his interest in the firm, his assignee 
does not become a member of the partnership, but acquires 
merely a right to insist upon an accounting from the firm, 
and to have whatever his assignor would be entitled to 
upon a settlement of the partnership affairs. Thus the pur- 
chaser of the interest of a deceased partner, or of the inter- 
est of a partner sold on execution, does not become a mem- 
ber of the firm.^^ Likewise, if a partner by will leaves his 

S. B. 576. See ** Partnership,'' Deo, Dig. (Key No.) Si »0-62, 28^2; 
Cent. Dig. §| i, 6-8, S0S5, S8-48. 

» Wells V. Masterman, 2 Bsp. 731 ; Baker v. Charlton, 1 Peake, 80. 
8ee ''Partnership,'' Deo. Dig. {Key No.) |§ 1, 18; Cent. Dig. % k. 

10 Morrison v. Austin State Bank, 213 111. 472, 72 N. E. 1109, 104 
Am. St Rep. 226 ; Gray ▼. Gibson, 6 Mich. 800 ; McNamara v. Gay- 
lord, 1 Bond, 302, Fed. Gas. No. 8,910; Frellgh v. Miller, 16 La. 
Ann. 418; Freeman v. Bloomfleld, 43 Mo. 391; Filley v. Walker, 
28 Neb. 50e, 44 N. W. 737; Marquand v. New York Mfg. Co., 17 
Johns. (N. Y.) 529, 535. See **ParinersMp,'* Deo. Dig. (Key No.) § 
227; Cent. Dig. S ^75. 

11 Noonan v. Nunan, 76 CaL 44, 18 Pac. 98; Carter v. Roland, 63 



I 22) FABTNERSHIP ABISES FBOH A OOMTBAOT 73 

interest in the firm to his executors or to a legatee, this 
does not make the executor or the legatee a partner, al- 
though the devise was for the express purpose of accom- 
plishing such a result.^* 

Apparent Exceptions 

Partners may, however, agree at the outset in the part- 
nership contract to accept the assignee of a partner's inter- 
est as a member of the firm, and if such assignee elects to 
become a partner by virtue of the assignment he will then 
take on all the rights and liabilities of a member of the re- 
lation. Under such an arrangement the old partnership is 
said to continue. In reality, the old firm is at an end, and 
a new partnership of the continuing member and the as- 
signee is created.^* The partnership articles may also pro- 

I 

Tex. 540; Nlcoll v. Mumford, 4 Johns. Gh. (N. Y.) 522; Kingman 
y. Sparr, 7 Pick. (Mass.) 235; ModdeweU v. Keever, 8 Watts. & S. 
(Pa.) 63. See ^'Partnership,'' Dec. Dig. {Key No,) | 227; Cent. Dig. 

U US, 47S--m. 

12PEARGE y. CHAMBERLAIN, 2 Ves. 33, GUmore, Cas. Part- 
nership, 692; Wilson v. Greenwood, 1 Swanst. 471; FOX y. HAN- 
BURY. Ck)wp. 445; WILD y. DAVEfNPORT, 48 N. J. Law, 129. 7 
Atl. 295, 57 Am. Rep. 552. See '* Partnership;' Dec, Dig. (Key No.) | 
255; Cent. Dig. |§ 552-561, , 

IS "As a partner cannot possibly continue to be a member of a 
firm after his death, any agreement with his executor, or other 
person haying a beneficial Interest In the share of the assets which 
belonged to him, for the continuation of the business thereafter 
with the snrylylng partner, Is, necessarily, the formation of another 
partnership, the terms of which, when not otherwise expressly agreed 
upon, may be Implied, from the manner of conducting the business, 
to be the same as those of the former partnership. 'What Is In- 
accurately called proyislon against the dissolution of the partner- 
ship Is an agreement that, If either party dies, his property shall 
remain in the firm and In the business, or that his executors shall 
carry on the business, for the benefit of his children, or that his 
children, or some one of them, or some other person, shall. Imme- 
diately on his death, take his place In the firm, and become a part- 
ner In his stead. All these agreements and arrangements, and all 
that can be made for a similar purpose, are, in fact, only bargains 
for the creation of a new partnership when the old one ceases to 
exist And so, too, all arrangements or contracts which may be 
made between the surylylng partners and the representatives or 
appointee of the deceased have for their effect only the formation 
of a new i>artnership, which, upon some terms or other, takes the 



74 FORMATION AND CLASSIFICATION (Ch. 2 

vide that on the death of one partner the surviving partners 
will continue the business and accept into the firm the rep- 
resentative of the deceased member. If the representative 
elects to come in, but not otherwise, the partnership will 
continue.** Although there be no agreement in advance for 
substitution of members, an implied assent may be found 
in the actual acceptance of a partner's assignee. The new 
partner becomes such, however, by reason of the acceptance 
of the other partners and his agreement with them, and not 
by reason of the assignment or transfer of the one who has 
ceased to be a partner.*' 
Nor does^ the principle of delectus personarum prohibit 

stock, and carries on the business of the old one.* Parsoos on Part- 
nership, I 343. The effect cannot be otherwise of any arrangement 
for a continuation of the business, between the surviving member 
of the firm and the executor or other appointee under the wlU of 
the deceased member, made In pursuance of the will; for, upon the 
death of the partner, his personal estate, Including his Interest In 
the partnership, devolves upon his executor, and vests In the bene- 
ficiaries of the will, and becomes their property." Per Williams, 
J., In McGrath v. Cowen, 57 Ohio St 885, 401, 49 N. B. 338, 340 
(1893). See ^Partnership," Dec. Dig, {Key No,) §fi «27, 255; Cent 
Dig, §§ 145. 4yS-4'^5, 552-561. 

14 Ex parte Garland, 10 Ves. 110, 119; Warner v. Cunnlnghame, 
8 Dow. 76. 

In WILD V. DAVENPORT, 48 N. J. Law, 129, 136, 7 Atl. 295, 
299, 57 Am. Rep. 552 (1886), It Is said: "A provision In articles 
of partnership that on the death of a partner his executor, or per- 
sonal representative, or some other person, shall be entitled to the 
place of a deceased partner In the firm, with the capital of the de- 
ceased In the firm business, or some part of It, Is binding upon the 
surviving partner to admit the executor, personal representative, 
or nominee of the deceased partner, but does not bind the latter to 
come in. They have an option to come In or not, and a reasonable 
time within which to elect." fifee **Partner8hip,** Deo. Dig. {Key No.) 
{ 255; Cent, Dig. §| 552^61. 

isMeaher v. Cox, 87 Ala. 201; Rosenstlel v. Gray, 112 IlL 282. 
In the absence of any new stipulations, the acceptance of a part- 
ner's assignee Is only for the conduct of the business according to 
the terms and conditions of the original articles. Love v. Payne, 
73 Ind. 80, 38 Am. Rep. 111. Silence or failure to dissent from an 
assignment by one partner purporting to substitute his assignee for 
him Is evidence from which acceptance of the assignee may be In- 
ferred. Jones V. O'Farrel, 1 Nev. 351 fifee ^^Partnership," Deo. Dig. 
{Key No.) |§ 227, 255; Cent, Dig. H 14S, 479^475, 652-561. 



§ 22) PABTNEBSHIF ARISES FROM A CX)NTRAGT 75 

ft 

what IS called a "subpartnership," which is sometimes des- 
ignated a partnership within a partnership, and which 
arises when a partner agrees with an outsider to share with 
him his profits derived from the business. Such person is 
not a partner, accurately speaking, nor is he under a part- 
nership liability. The term "subpartnership" is misleading. 
The so-called "subpartner" has no relations whatsoever 
with the firm, but only with the person with whom he has 
contracted.** Likewise, in that species of so-called part- 
nerships designated "mining partnerships," the principle of 
delectus personarum does not enter, and the fact that it 
does not is sufficient to deny to them the character of per- 
fect partnerships in the strict sense. They are anomalous 
relations, having many of the characteristics of a partner- 
ship.*^ So, also, in joint-stock companies there is no de- 
lectus personarum. This is anomalous, and may be ex- 
plained by saying that the parties to such relation have 
agreed in advance that the respective shares may be trans- 
ferred without affecting the partnership.** 

Effect upon the Partnership of Assignment by Partner of His 

Interest Therein 

If, notwithstanding the requirement of the principle of 
delectus personarum, a partner assigns his interest in the 
partnership to a stranger, what consequences follow? Un- 
less the case falls within one of the apparent exceptions 
just discussed, the logical result of such an act is a dissolu- 
tion of the partnership. Whether such a result will follow 
depends upon the time stipulated for the continuance of the 
relation.** If the partnership is one determinable at the 



i« See post, I 85, p. 106; BURNETT v. SNYDER, 76 N. T. 844, 
Gilmore, Gas. Partnership, 117 ; Nlrdllnger y. Bemhelmer, 133 N. Y. 
45, SO N. E. 561. Bee ** Partnership," Dec Dig, (£ei/ No.) i 2S; 
Cent, Dig. | 9. 

IT Kahn y. Central Smelting Co., 102 U. S. 641, 26 L. Ed. 266, Gil- 
more. Gas. Partnership, 120, note; Dnryea y. Burt, 28 Gal. 569: 
Spotswood y. Morris, 12 Idaho, 360, 85 Pac. 1094, 6 Ia R. A. (N. S.) 
665. See post, chapter II, | 36, p. 107. See **Min€S and Minerals,^ 
Dec. Dig. (Key No.) S| 96-100; Cent. Dig. i| 222-225. 

i« See post, p. 105. 

1* For further discussion of the subject, see post, p. 578. 



76 rORMATION AND CLASSIFICATION (Ch. 2 

will of the partners, the introduction of a stranger into the 
firm, by the conveyance to him of the share of one partner 
Without the consent of the others, brings the relation to an 
end ipso facto.** If, however, the partnership is by the con- 
tract creating it to continue for a certain time, the Ameri- 
can authorities are in considerable conflict as to the power 
of one partner, by his own acts, to put an end prematurely 
to the relation.** Some hold that it is inequitable and in- 
jurious to permit any partner to violate his engagement 
that the firm shall exist for a certain time.** Where this 
rule prevails, the partners who are aggrieved by the intro- 
duction of a new member have merely the right to apply 
to a court of equity for a receivership. There is no dissolu- 
tion ipso facto, as in the case of a partnership at will.** 
But probably the weight of authority is with the cases 
holding that the right of a partner to dissolve the firm is 

10 Wilson V. Waugh, 101 Pa. 233 ; Carter ▼. Roland, 63 Tex. 540 ; 
Fourth Nat Bank v. New Orleans & O. R. Co., 11 WalL 824, 20 L. 
Bd. 62; Moras y. Gleason, 64 N. Y. 204; Blake ▼. Sweeting, 121 lU. 
67, llJ N. B. 67. See "Partnership;' Dec, Dig. {Key No.) i 264; Cent. 
Dig. §1 S24, 472, 608, 6H, 611. 

SI The BngUsh oonrts hold that such a partnership cannot be dis- 
solved by one partner. BROWN v. HUTCHISON, [1805] 2 Q. B. 126. 
See **Partner8Mp;* Deo. Dig. (Key No.) || 67-^2, 259^; Cent. Dig. 
§i 82-86, 601. 

a« Cole V. Moxley, 12 W. Va. 730; Hannaman ▼. Karrick, 9 Utah, 
236, 33 Pac. 1039. Cf . with same case in 168 U. S. 335, 18 Sup. Ct 
135, 42 L. Bd. 484, where the court in taking the opposite view says : 
"An absolute assignment by one partner of all his interest in the 
partnership to a stranger dissolves the partnership. • • • No 
partnership can efficiently or beneficially carry on its business with- 
out the mutual confidence and co-operation of all the partners. 
Bven when, by the partnership artides, they have covenanted with 
each other that the partnership shall continue for a certain period, 
the partnership may be dissolved at any time, at the will of any 
partner, • • • rendering the partner who breaks his covenant 
liable to an action at law for damages, as In other cases of breaches 
of contract" See "Partnership,'* Dec. Dig. (Key No.) i £55%;^ Cent. 
Dig. S 601. 

ss "It can hardly be that a partner, who has himself no right to 
dissolve or to introduce a new partner, can, by assigning his share, 
confer on the assignee a right to have the accounts of the firm 
taken, and the affairs thereof wound up, in order that he may ob- 
tain the benefit of his assignment** LindL Partn. 364. 



i 



§ 24) BXQUIBEMENT8 OF THE OONTRAOT 77 

a right inseparably incident to every partnership, whether 
at will or for a term oi years.** In these jurisdictions, the 
introduction of a n^Cw member into a partnership for defi- 
nite time would dissolve it ipso facto, just as it would a 
partnership at will.* The only distinguishing feature would 
be the right of action of the aggrieved partners for damages 
for the premature dissolution of the firm. 



REQUIREMENTS OF THE CONTRACT 

23. A contract for a partnership must comply in all respects 

with the requirements of a valid contract. These 
requirements wiU be considered under the follow- 
ing heads : 

(a) The competency of the parties. 

(b) Consideration. 

(c) Formalities to be observed. 

(d) Subject-matter* 

SAME— CbMPETENCY OF THE PARTIES 

24. Parties competent to enter into ordinary contracts are 

competent to form a partnership. The capacity of 
the following persons will be specially considered: 

(a) Aliens (p. 78). 

(b) Felons (p. 79), 

(c) Infants (p. 79). 

(d) Lunatics (p. 83). 

(e) Married women (p. 85). . 

(f) Corporations (p. 88). 

(g) Partnership between firms (p. 88). 

(h) Number of persons who may become pcutners (p. 
89). 

S4 Skinner y. Dayton, 19 Johns. (N. T.) 518, 538, 10 Am. Dec. 280. 
"Even where partners covenant with each other, that the partner- 
ship shaU continue seven years, either partner may dissolve it the 
next day, by proclaiming his determination for that purpose; the 
only consequence being that he thereby subjects himself to a claim 
for damages for a breach of his covenant" HoweU v. Harvey. 5 



78 FORMATION AND CLASSIFICATION (Oh. 2 

 

Like the parties to all other contracts, prospective part- 
ners must have the capacity to contract if they are to be 
the partners of each other. The question in each case is: 
What power has this individual at law to consent, so as to 
bind himself? As certain classes of persons are not com- 
petent in law to enter into contracts at all, or only under 
limitations and restrictions, it is necessary to consider such 
classes. The contractual capacity of aliens, felons, infants, 
lunatics, married women, and corporations must therefore 
be particularly examined. On the capacity of no other per- 
sons is there any doubt* 

Aliens 

The rule is well established that the mere fact that a 
man is an alien will not render him ineligible as a partner, 
so long as the nation of which he is a citizen is not at war 
with the nation of his partner.*' When, however, actual 
war breaks out between the United States and the nation 
of the alien, it not only prevents a voluntary resident of the 
latter from joining a partnership here, but the partnership, 
once formed, necessarily is suspended, and, in effect, dis- 
solved, since the partners are barred from commercial in- 
tercourse with each other.** 

Ark. 270, S9 Am. Dec. 876; Lapenta r. Lettlerl, 72 Conn. S77, 44 Atl. 
730, 77 Am. St Rep. 815; McKee ▼. Ck>wle8, 161 lU. 201, 43 N. E. 
785 ; Richardson v. Gregory, 126 IIL 166, 18 N. B. 777 ; SOLOMON 
V. KIRKWOOD, 65 Mich. 256, 21 N. W. 336, GUmore, Gas. Partner- 
ship, 589; SIeimner'8 Appeal, 58 Pa. 168, 98 Am. Dec. 255; Becker 
v. Hill, 20 Lane. Law Rev. 845. Statutory provlslODs: Civ. Gode 
Ga. S 2633 ; Giv. Gode Mont S 3262 ; GIt. Gode N. D. f 5848 ; Glv. 
Gode S. D. i 1753. Bee **PartnersMp;* Deo. Dig. (Key Nq.) i 259^; 
Cent. Dig. %% 600, 601. 

«B QRISWOLD V. WADDINGTON, 15 Johns. (N. Y.) 57, GUmore, 
Gas. Partnership, 600; McGonnel v. Hector, 3 Bos. & P. 113; Bran- 
don V. Nesbit, 6 Term R. 23. See ^^Partnership," Deo. Dig. iKey No.) 
{ 268; Cent. Dig. fi 612; ''Wwrr Cent. Dig. \ SO. 

" QRISWOLD V. WADDINGTON, 15 Johns. (N. Y.) 67, GUmore, 
Gas. Partnership, 600 ; HiUyard ▼. Mutual Ben. Life Ins. Go., 35 N. 
J. Law, 415; Woods ▼. Wilder, 43 N. Y. 164, 3 Am. Rep. 684; Bank 
of New Orleans v. Matthews, 49 N. Y. 12 ; Hanger v. Abbott, 6 WaU. 
532, 18 L. Ed. 939; Kershaw y. Kelsey, 100 Mass. 561, 97 Am. Dec. 
124, 1 Am. Rep. 142; Glemontson ▼. Blessig, 11 Exch. 135. See fur- 
ther discussion chapter X, §§ 197, 198, pp. 570-573, Termination of 



g 24) BEQUIBEHENTS OV THE CONTBAGT 79 

If the partnership and its business is of such a nature that 
an entire suspension of all intercourse during the war 
would not be inconsistent with a continuance of the rela- 
tion, it might very well be regarded as revived on the sus- 
pension of hostilities. 

Felons 

Since felons do not, in the absence of statutory restric- 
tions, labor under any disability to contract in this coun- 
try, they may, unless so restricted, be members of a part- 
nership.** 

Infants 

As an infant's contracts, with few. exceptions,** are not 
void, but voidable merely, he may enter into a contract of 
partnership, which will be binding or not, according as he 
chooses to stand by it or repudiate it,** He incurs no per- 
sonal responsibility during his minority, cither to his co- 
partners on the partnership contract •• or to third parties 
on contracts negotiated pursuant to the partnership enter- 
prise.** ' He may, before becoming of age, or within a rea- 



the Partnership. See '^Partnership,'* Dec. Dig. {Key No.) S 268; 
Cent. Dig. % 612; "War,** Cent. Dig. § SO. 

2T Pen, Code N. Y. §§ 707, 708; Code Cr. Proc. N. Y. S 819; Avery 
V. Everett, 110 N. Y. 817, 18 N. E. 148, 1 Ll R. A. 264^ 6 Am. St Rep. 
368. Bee "Convicts,** Dec. Dig. {Key No.) |§ S, 4; Cent. Dig. || 2, 
S, 8. 

>• It is nsnally stated that contracts of infants are voidable, ex- 
cept those for necessaries, which are binding, and those creating a 
power of attorney, which are said to be void. Fetrow v. Wiseman, 
40 Ind. 148. 165. See "InfanU;* Dec Dig. {Key No.) U 46-58; Cent. 
Dig. §§ 98-160. 

sAGoode V. Harrison, 5 Bam. & Aid. 147; Dnnton v. Brown, 81 
Mich. 182; Osbum v. Farr, 42 Mich. 134, 8 N. W. 299; Whitney v. 
Dutch, 14 Mass. 457, 7 Am. Dec. 229; BUSH v. LINTHICUM, 59 
Md. 344. See "Infants:* Dec Dig. {Key No.) || ^7, $4, 57, 58; Cent. 
Dig. H 1S2-1S4, 149. 150. 

•• Neal V. Berry, 86 Me. 193, 29 Ati. 987. Bee **InfanU,*' Dec Dig. 
{Key No.) S! 47, 54; Cent. Dig. § 1S4. 

SI SHIRK V. SCHULTZ, 118 Ind. 671, 15 N. B. 12, Gilmore, Gas. 
Partnership, 125; Gordon v. Miller, 111 Mo. App. 842, 85 S. W. 943 
(1905) ; Bush v. linthicum, 69 Md. 344, Gilmore, Cas. Partnership, 
126, note; BIXLER v. KRESGB, 169 Pa. 405, 32 AtL 414, 47 Am. St 
Rep. 920. In Mehlhop v. Rae, 90 Iowa, 30, 67 N. W. 650, it was held 



80 FORMATION AND CLASSIFICATION (Gh. 2 

sonable time thereafter, avoid the partnership agreement 
and all transactions pursuant thereto, even to the prejudice 
of a stranger dealing with him in ignorance of his minori- 
ty.** What constitutes a reasonable time after majority 
within which the infant must disaffirm, if he would avoid 
personal liability, depends upon the facts of the particular 
case. Unless he disaffirms within a reasonable time, he may 
be held to have elected to stand by the contract, and the 
transactions consummated during his infancy. Mere con- 
tinuance in the partnership, however, will not of itself consti- 
tute an affirmation of debts incurred prior to majority.** As 
to all contracts made by the firm after becoming of age, he 
is bound by continuing in the business.** Whether or not 
he has elected to be bound is a question of his intention, to 
be determined by his conduct and declarations.** The 
right to repudiate the partnership is the privilege of the 

that the Infant may repudiate a partnership contract with a third 
person, without also repudiating a partnership agreement In MU- 
ler V. Sims, 2 Hill (S. C.) 479, It was held that an Infant i>artner, 
confirming the contract of partnership after coming of age, sub- 
jects himself to all the liabilities of the firm Incurred during his 
minority. See "Infants,** Dec. Dig, {Key No,) §f 47, 54; Cent. Dig. 

§ m. 

S2 Murphy ▼. Johnson, 46 Iowa, 57; Ghllds V. Dobbins, 55 Iowa, 
205, 7 N. W. 496 ; Adams v. Beall, 67 Md. 53, 8 Atl. 664, 1 Am. St 
Rep. 379 ; Folds v. Allardt 35 Minn. 488, 29 N. W. 201. In Dunton 
V. Brown, 31 Mich. 182, it was said that the Infant could not dis- 
aflSlrm during minority and recover his capital and the value of his 
services. See ''Infants** Dee. Dig. iKey No.) §§ 47, 54, 58; Cent. 
Dig. §§ 155, 1S4. 149. 150. 

tt CONTINENTAL NAT. BANE OF BOSTON v. STRAUSS, 137 N. 
Y. 148, 32 N. E. 1066; Osbum v. Farr, 42 Mich. 134, 3 N. W. 299; 
Crabtree v. May, 1 B. Mon. (Ey.) 289; Dana ▼. Stearns, 3 Oush. 
(Mass.) 372. See ''Infants,** Dec. Dig. {Key No.) §§ 47, 54, 57; Cent. 
Dig. §§ m, 151. 

t4 Goode V. Harrison, 5 B. A Aid. 147. Cf. King v. Barbour, 70 
Ind. 35. In Salinas v. Bennett, 33 S. C. 285, 11 S. E. 968^ it was 
held that an infant partner who continues his connection with the 
business after reaching majority ratifies all partnership transactions 
during his Infancy. See "Partnership,** Dec. Dig. iKey No.) | 155; 
Cent. Dig. fi 278. 

SB Jenkins v. Jenkins, 12 Iowa, 195; Mlnock ▼. Shortrldge, 21 
Mich. 304; Whitney v. Dutch, 14 Mass. 457, 7 Am. Dec. 229: 
Keegan ▼. Cox, 116 Mass. 289 ; Todd ▼. Glapp, 118 Mass. 495 ; Kemp 



{ 24) BEQUIREMENT8 OF THE CONTRACT 81 

infant. The adult partner is bound, both to the infant on 
the partnership agreement and to third parties on firm con- 
tracts. Nor can third parties set up the infancy of one of 
the partners as a ground for avoiding liability to the firm.** 
The right of repudiation being the infant's, and his con- 
tract being only voidable in all actions by and against the 
firm, he should be made a party.*^ While the adult part- 
ner is bound to the infant on the partnership agreement, he 
may, in case Ae has been induced to enter the cpntract by 
fraudulent representations of the infant that he is of age, 
or in- case the infant is misconducting himself in relation to 
the firm business, have the partnership dissolved on that 
account.* • 

Infanfs Rights Before Repudiation 

Until the right of repudiation is exercised, the partner- 
ship relation continues, and the infant has all the rights and 
powers of an adult partner. He is entitled to equal posses- 

V. Cook, 18 Md. 130, 79 Am. Dec. 681. See **Infafi4s,'' Dec, Dig, {Kep 
yo.) H 57, 58; Cent, Dig. §§ 186-^160, 

•• Stein V. Robertson, 30 Ala. 286 ; Halt v. Ward, 2 Str. 037 ; War- 
wick V. Bruce, 2 M. & S. 205 ; WiUard v. Stone, 7 CJow. (N. Y.) 22, 
17 Am. Dec. 406; Gannon v. Alsbury, 1 A. K. Marsh. (Ky.) 76, 10 
Am. Dec. 709. The privilege of repudiation has been held to extend 
to the Infants' legal representatives. Hnssey v. Jewett, 9 Mass. 100 ; 
Martin v. Mayo, 10 Mass. 137, 6 Am. t)ec. 103 ; Jackson v. Mayo, 11 
Mass. 147, 6 Aul Dec. 167. See **Infant8," Dec. Dig, {Key No.) f 
68; Cent. Dig. fi 160; ''Partnership;' Deo. Dig. {Key No.) § 2k; Cent. 
Dig. \ 10. 

87 Teed v. El worthy, 14 East, 210; Osbum v. Farr, 42 Mich. 134, 
8 N. W. 299; Wamsley v. Llndenberger, 2 Rand. (Va.) 478; Slocum 
V. Hooker, 18 Barb. (N. Y.) 536; Mason v. Denlson, 15 Wend. 64. 
English and some American courts have held that an Infant partner 
Is not a proper party defendant ; but these cases may often be ex- 
plained on the ground that the Infant's contract was treated as void 
and not voidable; Bnsgers v. MerrlU, 4 Taunt. 468 ; Jaffray v. Fre- 
baln, 5 Esp. 47. See 1 Ghitty on Pleading, pp. 14, 50, and notes; 
1 Lludley on Part (2d Ajn. Ed., Ewell), 74 and notes. See "Part- 
nership;' Dec. Dig. (Key No.) §§ 198-202; Cent. Dig. §f S61-SH; 
"Infants,*' Dec. Dig. (Key No.) § 74; Cent. Dig. §§ 188-190. 

S8 Bush V. Llnthicum, 59 Md. 344, Gllmore, Gas. Partnership, 126, 
note ; Lemprlere v. Lange, 12 Ch. Dlv. 675. While this last case Is 
not one of partnership, it stands for the proposition announced. See 
**Infants;' Dec. Dig. {Key No.) | 56; Cent. Dig. | 100. 

Gil.Pabt. — 6 



82 FORMATION AND CLASSIFICATION (Ch. 2 

sion with his adult copartner of the firm assets. He may 
incur and collect firm debts, buy and sell the firm property, 
and subject the partnership to liability in contract and tort 
by acts falling within the partnership business. He may 
also make contracts in the firm name, which, though void- 
able as to' him, will bind his copartner and the firm assets." 

Infant's Rights After Repudiation 

Where the rights of firm creditors arc not involved, an 
infant partner, who has been induced by fraud to enter ~ a 
partnership, may have the contract set aside and recover 
his contribution from the adult partner.** In the absence 
of fraud, however, he could probably not recover his con- 
tribution, especially where his contribution was in the form 
of time and services.** If the infant paid a premium or 
bonus to gain admission to the firm, it has been held that 
he cannot, upon repudiation of the contract, recover it,** 

Effect of Repudiation on Rights of Creditors 

While the infant may repudiate all personal liability on 
firm obligations, he cannot by so doing prevent the appli- 
cation of the firm assets to the payment of the firm debts, 
nor claim his original contribution to the adventure. This 
result may be stated as due to the right of the adult part- 
ner to have the assets acquired with the firm capital and in 
the course of the business applied to the firm debts. "The 
adult partner * * * is entitled to insist that the part- 
nership assets shall be applied in payment of the liabilities 
of the partnership, and that until these are provided for 
no part of them shall be received by the infant partner, and 
if the proper steps are taken this right of the adult partner 
can be made available for the benefit of the creditors.'* ** 

••Parker y. Oakley (Tenn. Gh. App.) 67 S. W. 426; Bush ▼. Lln- 
thicum, 59 Md. 344, 349, Gllmore, Gas. Partnership, 126, note. See 
^*Infant8/' Deo, Dig. (Key No.) i 5k; Cent, Dig. | ISi. 

«o Sparman v. Kelm, 83 N. Y. 245. See "Infants,^ Deo. Dig. (Key 
yo.) § 58; Cent. Dig. § 149. 

«i Page ▼. Morse, 128 Mass. 99; Moley ▼. Brine, 120 Biass. 821 
See ^'Infants;* Cent. Dig. \ ISS. 

48 Adams y. Beall, 67 Md. 53, 8 AtL 664, 1 Am. St Rep. 879; Ex 
parte Taylor, 8 DeG. M. & G. 254. See **Infanta,'* Cent. Dig. § ISS. 

4SL0VELL y. BEAUGHAMP [1894] A. G. 607, 611. See ''In- 
fanta,'' Cent. Dig. § ISi. 



§ 24) REQUIREMENTS OF THE CONTRACT 83 

"If an infant goes into a mercantile adventure which proves 
unsuccessful, he ought at least to be held so far as that the 
assets acquired by the firm should be applied to the pay- 
ment of the debts of the concern." ** Another explanation 
of this result may be found in treating the firm as an entity 
distinct from its members and holding that this entity has 
acquired the title to the firm assets. The infant, being no 
longer the owner of the property, cannot reclaim it. The 
explanation, however, does not appear in the decided 
cases.*' The chief advantage the infant partner gains in 
repudiating the firm obligations is that when the partner- 
ship property is exhausted, and his contribution is used, his 
liability ceases. He does not have to pay his pro rata share 
of the firm debts out of his individual resources, as do the 
adult partners.** 

Lunatics 

Whether a lunatic can enter into a partnership contract 
depends upon his capacity' to enter into contracts generally. 
While the law is in some confusion on this subject, the fol- 
lowing propositions appear to be established: Where the 
sane person is unaware of the other party's insanity, and 
there has been no formal abjudication of insanity, the con- 
tract is binding on the lunatic. If, however, the contract 
has not been executed, and the parties can be restored to 
their former position, it may be avoided.*^ If the sane party 

** Yates V. Lyon, 61 N. Y. 844 ; Page v. Morse, 128 Mass. 99 ; Mo- 
ley ▼. Brine, 120 Mass. 824; Pelletler ▼. Couture, 148 Mass. 269, 19 
N. B. 400, 1 L. R. A. 863 ; SHIRK v. SCHULTZ, 118 Ind. 671, 15 
N. B. 12, Gilmore, Gas. Partnership, 125. See **Infant8," Dec. Dig. 
{Key No.) i 54; Cent. Dig. H ISS, ISi. 

«s Burdick on Partnership (2d Ed.) p. 97. It has been held that 
under the present federal bankruptcy act (Act July 1, 1898, a 541, 
80 Stat 544 [U. S. Oomp. St 1901, p. 8418]) a firm containing an in- 
fant partner may be adjudicated bankrupt and the partnership as- 
sets applied to firm debts. The petition as to the infant partner was 
dismissed. In re Dunnigan (D. C.) 95 Fed. 428; In re Duguid (D. 
C.) 100 Fed. 274. See ''Bankruptcy,'' Deo. Dig. (Key No.) | 69. 

*• Gay V. Johnson, 32 N. H. 167 ; Yates v. Lyon, 61 N. Y. 344 ; 
WhITTEMORB v. ELLIOTT, 7 Hun (N. Y.) 5ia See ''Infants^ 
Dec. Dig. iKey No.) § 54; Cent. Dig. S 1S4» 

«T Gribben v. Maxwell, 34 K^n. 8, 7 Pac 584, 55 Am. Rep. 233 ; 
Young ▼. Steyens, 48 N. H. 183, 2 Am. Rep. 202, 97 Am. Dec 592; 



84 FORMATION AND CLASSIFICATION (Ch. 2 

is aware of the other's insanity, or if there has been a for- 
mal adjudication of insanity, of which the sane party is 
bound to take notice, the contract is voidable.** In some 
jurisdictions contracts by lunatics are made void.** Sub- 
ject to the foregoing general principles, a lunatic may en- 
ter into a partnership.*® The innocent partner is protected, 
as are other innocent partners ; for a lunatic cannot avoid 
a contract made with him in good faith by one who had no 
knowledge of his insanity, save as his lunacy is cause for 
dissolution of the partnership.'* If the partnership is to 
be set aside where the sane partner was ignorant of the 
other's condition, the parties must be restored to their 
former position.'* The fact that a partner becomes insane 
during the existence of the partnership does not dissolve 
the latter ipso facto, but may be a ground of dissolution 
by a court of equity. Until such dissolution, the lunatic is 

Mutual Life Ins. Go. ▼. Hunt, 79 N. Y*. 541. Even if the contract has 
been executed, if the sane party can be put in statu quo, the con- 
tract is voidable. Burnham y. Eldwell, 113 111. 425. See **In8ane 
Persowt," Dec. Dig, (Key No.) | 72; Cent. Dig. § 125. 

4s Carter v. Beck with, 128 N. Y. 312, 28 N. E. 582; Wadsworth ▼. 
Sharpsteen, 8 N. Y. 388, 59 Am. Dec. 499. In England the rule ap- 
pears to be that a defendant who seeks to avoid a contract on the 
ground of his insanity must plead and prove, not merely his in- 
capacity, but also the plalntllTs knowledge of that fact, and unless 
he proves these two things he cannot succeed. Imperial Loan Ck>. 
V. Stone, 1892, 1 Q. B. 599; Drew v. Nunn, L. R. 4 Q. B. D. 661. 
See ^'Insane Persona,'* Dec. Dig. (Key No.) { 7S; Cent. Dig. H 12$, 
132^188. 

«• Bums' Ann. St Ind. 1908, § 3110; Civ. Code Oa. 1895, | 365Z 
Contracts of lunatics under guardianship are declared void by Civ. 
Code Cal. §§ 38-40, and Civ. Code S. D. §§ 20-22. See "Insane Per- 
sons,'* Dec. Dig. (Key No.) { 75; Cent. Dig. §§ 125, 182-188. 

soBehrens v. McKenzie, 23 Iowa, 333, 92 Am. Dec. 428; Fay ▼. 
Burditt, 81 Ind. 433, 42 Am. Rep. 142. See **Insane Persons,** Deo. 
Dig. {Key No.) § 72; Cent. Dig. § 125. 

SI Molton V. Camroux, 2 Ex. 487, 4 Ex. 17. Nor is lunacy a de- 
fense to an action by an innocent person on an executed contract 
Drew V. Nunn, 2 Q. B. D. 661; Baxter v. Earl of Portsmouth, 5 
Bam. & C. 170. See "Insane Persons,** Dec. Dig. (Key No.) | 75; 
Cent Dig. §i 125, 182-188. 

fi2 Behrens v. McKenzie, 23 Iowa, 333, 92 Am. Dec 428; Fay ▼. 
Burditt 81 Ind. 433, 42 Am. Rep. 142. WhUe these are not part- 
nership cases, it is submitted that the principle would govern the 



§ 24) BEQUIREMBNTS OV THS COMTRAOT 86 

entitled to a share of the profits made by the other part- 
ners, and IS liable for their misconduct," 

Married Women 

At common law a married woman had no capacity to en- 
ter into contracts, except where she had a separate estate, 
or where her husband was a convicted felon, or an alien 
residing abroad, or where she had been abandoned by her 
husband, or judicially separated from him. Her capacity 
to be a partner was no greater than her capacity to con- 
tract** 



partDership contract, jnst as It does other contracts with Innatica. 
See "Insane Persons," Dec. Dig. (Key No.) { 7S; Cent. Dig. | 1S3. 

»s RAYMOND v. VAUGHAN, 17 IlL App. 144, affirmed 128 lU. 2S6, 
21 N. E. 566, 4 L. R. A. 440, 15 Am. St. Rep. 112, Gllmore, Gas. 
Partnership, 395 ; Reynolds v. Austin, 4 Del. Gh. 24. See ^^Partner- 
ship," Dec. Dig. (Key No.) I 274; Cent. Dig. § 621. 

»4 De Graum ▼. Jones, 23 Fla. 83, 6 South. 925 ; Bradstreet ▼. 
Baer, 41 Md. 19; Carey v. Burruss, 20 W. Va. 571, 43 Am. Rep. 790; 
Brown v. Jewett, 18 N. H. 230; Gwynn v. Gwynn. 27 S. C. 525, 4 
8. E. 229 ; Weislger y. Wood, 36 8. a 424, 15 S. B. 597 ; Frank v. 
Anderson, 13 Lea (Tenn.) 695; Brown ▼. Chancellor, 61 Tex. 437; 
Miller ▼. Marx, 65 Tex. 131. 

The right of a married woman to engage in business as a sole 
trader has been recognized in cases where she has been abandoned 
by her husband — ^whether voluntarily or involuntarily — or has been 
separated from him. Bogget v. Frier, 11 East, 301; Krebs v. 
O'Grady, 28 Ala. 726, 58 Am. Dec. 312; Young v. PoUak, 85 Ala. 
439, 5 South. 279; Schwartz v. Reesch, 2 App. Gas. (D. G.) 440; 
Love V. Moynehan, 16 111. 277, 63 Aul Dec. 306; Gregory v. Pierce, 
4 Mete. (Mass.) 478; Buffer v. Ril^, 47 Mo. App. 479; McArthur 
V. Bloom, 2 Duer (N. Y.) 151; King v. Paddock, 18 Johns. (N. Y.) 
141 ; Cleaver, v. Scheetz, 70 Pa. 496 ; Rhea v. Rhenner, 1 Pet. 105, 
7 L. Ed. 72. Also, where her husband has been convicted of a fel- 
ony: Lean v. Schutz, 2 W. Bl. 1195; Gorbett v. Poelnitz, 1 T. R. 
5; Marshall v. Rutton, 8 T. R. 545; Garrol v. Blencow, 4 Esp. 27. 
Also, where the husband is an alien who has never resided in the 
country: Deerly v. Mazarine, 1 Salk. 119; De Gallow v. L'Aizle, 1 
B. & B. 357 ; Marsh v. Hutchison, 2 B. & P. 226 ; Farber v. Gran- 
arie, 4 B. & P. 80 ; Walford v. De Pieniie, 2 Esp. 554 ; Abbot v. Bay- 
ley, 6 Pick. (Mass.) 89. 

The foregoing cases, recognizing the right to engage in business 
as a sole trader, would seem to authorize the engaging in business 
as a partner. See **HuMband and Wife," Deo, Dig. (Key No.) |§ di- 
100; Cent. Dig. §§ S65-976. 



86 FOBMATION AND CLASSIFICATION (Gh. 2 

The common-law disability has been removed or modi- 
fied by statute in most states. The extent to which she 
may now make contracts and enter into partnership will 
depend upon the extent of her statutory emancipation. 
While these statutes are similar in their main features the 
wording of each and its judicial interpretations must be sep- 
arately examined, in order to ascertain her contractual ca- 
pacity in any particular jurisdiction. In most states she 
may enter into partnership contract with any person ex- 
cept her own husband."' Statutes, however, which secure 
to a married woman merely the use or control and profits 
of her separate estate, have been held not to authorize her 
to engage in partnership.'* 

Same — Partnership between Hushand and Wife 

At common law a married woman could not enter into 
contracts with her own husband, and consequently she 
could not join him in partnership. It is generally held that 
the statutory changes do not remove the disability.*' In 

» Abbott ▼. Jackson, 43 Ark. 212; Camden ▼. Mullen, 29 Cal. 
565; Francis ▼. Dickel, 68 Ga. 255; Conant v. National State Bank 
of Terre Haute, 121 Ind. 323, 22 N. E. 250 ; VaU v. Winterstein, 04 
Mich. 230, 53 N. W. 932, 18 L. R. A. 515, 34 Am. St Rep. 834 ; New- 
man V. Morris, 62 Miss. 402; Scott v. Conway, 58 N. T. 619; Fremont 
First Nat Bank y. Rice, 12 O. a D. 121, 22 Ohio Cir. Ct R. 
183 ; Loeb ▼. Mellinger, 12 Pa. Super. Ct 592 ; Emott v. Hawley, 34 
Wash. 585, 76 Pac. 93, 101 Am. Rep. 1016; Krouskop v. Shontz, 51 
Wis. 204. 8 N. W. 241, 37 Am. Rep. 817. See ^'Husband and Wife,'' 
Dec. Dig. {Key No.) §§ i2, 97; Cent. Dig. §§ 225, S7S. 

s« Bradstreet ▼. Baer, 41 Md. 19; Landers v. Dithridge, 2 Pa. Co. 
Ct. 560; Lycoming Fire Ins. Co. ▼. Fetterman, 2 Danph. Co. Rep. 
(Pa.) 337; Hagan v. Hoover, 33 S. G. 219, 11 S. E. 725; Gwynn v. 
Gwynn, 27 S. C. 525, 4 S. E. 229; Bradford ▼. Johnson, 44 Tex. 381. 
See *'Hu8band and Wife,** Dec. Dig. (Key No.) H 4^$ 97; Cent. Dig. 
S§ 225, S7$. 

S7 Gilkerson-Sloss Commission Co. v. Salinger, 56 Ark. 294, 19 S. W. 
747, 16 K R. A. 526, 85 Am. St Rep. 105 ; Barlow Bros. Co. v. Par- 
sons, 73 Conn. 696, 49 AtL 205; Scarlett v. Snodgrass, 92 Ind. 262; 
Clay V. Vanwinkle, 75 Ind. 239; Montgomery v. Sprankle, 31 Ind. 
113; Squire v. Belden, 2 La. 268; Mayer v. Soyster, 30 Md. 402; 
Lord y. Parker, 3 Allen (Mass.) 127 ; Bowker v. Bradford, 140 Mass. 
621, 5 N. E. 480 ; Artman v. Ferguson, 73 Mich. 146, 40 N. W. 907, 
2 L. R. A. 345, 16 Am. St Rep. 572; JacQuin v. Jacquin, 15 Abb. 
N. 0. (N. Y.) 408; Payne ▼. Thompson, 44 Ohio St 192, 5 N. E. 654; 



5 24) BEQUIREMENTS OF THE OONTRAOT 87 

some jurisdictions, either by reason of express statutory 
provision or by judicial construction, the partnership re- 
lation between husband and wife is recognized, and the 
present tendency of the decisions is to allow a married wo- 
man to become a partner, even with her husband, where 
the right to contract is given to h^r generally, as distin- 
guished from the right to contract merely as to her sepa- 
rate property.** 



Purdom v. Boyd, 82 Tex. 130, 17 S. W. 606; Brown v. Chancellor, 
61 Tex. 437 ; Stelnback v.- Weill, 1 White & W. Civ. Ca8. Ct App. 
(Tex.) S »34; Cockrum v. McCracken, 1 White & W. Civ. Cas. Ct 
App. (Tex.) § 65; Board of Trade of City of Seattle v. Hayden, 4 
Wash. 263, 30 Pac. 87, 32 Pac. 224, 16 L. R. A. 530, 31 Am. St Rep. 
019; Fuller & FuUer Co. y. McHenry, 83 Wis. 573, 53 N. W. 896, 
18 L. R. A. 512. 

In Board of Trade of City of Seattle v. Hayden, 4 Wash. 283. 
267, 30 Pac. 87, 88, 32 Pac. 224, 16 L. R. A. 530, 31 Am. St Rep. 
919, in denying the capacity of the wife to enter into partnership 
with her husband, Stiles, J., said : "In the foreground of the dis- 
• cussion is placed the proposition that the purpose of the statute 
is to free the wife from the control and influence of her husband, 
and to relieve her property from his debts and management; but 
the next following suggestion, that unless she can become his part- 
ner she will not be whoUy free, if yielded to, will place her and 
her property within touch of the very dangers which it is sought 
in the flrst place to vdthdraw her from. Her improvident husband, 
by the most ordinary persuasion, or by his mere declaration made 
in her presence, as in the case at bar, could, in spite of her, unless 
she assumed a hostility which would endanger the continuance of 
the marriage relation, waste and dissipate her entire estate, and 
thus the very purpose which, it seems to us, stands out the most 
clearly in the act in question — 1. e., to Secure her protection in the 
management and enjoyment of her estate — would be defeated.** See 
*'Hu8l)and and Wife," Dec. Dig. {Key No.) § i2; Cent. Dig. § 225. 

B«HOAGLIN V. C. M'. HENDERSON & CO., 119 Iowa, 720, 94 
N. W. 247, 61 L. R. A. 756, 97 Am. St Rep. 335, Gllmore, Cas. Part- 
nership, 121; Belser y. Tuscumbia Banking Co., 105 Ala. 514, 17 
South. 40 (subpartner) ; Vizard v. Moody, 119 Ga. 918, 47 S. B. 
348 ; Ellis v. Mills, 99 Ga. 490, :?7 S. B. 740 ;• BURNBY v. SAVAN- 
NAH GROCERY CO., 98 Ga. 711, 23 S. B. 915, 58 Am. St Rep. 
342; Heyman v. Heyman, 210 111. 524, 71 N. E. 691 (affirming 110 
IlL App. 87) ; Louisville & N. R. Co. v. Alexander, 27 S. W. 981, 16 
Ky. Law Rep. "806 ; Suau v. Caffe, 122 N. Y. 308, 25 N. E. 488, 9 
L. R. A. 593; Hook y. Kenyon, 56 Hun, 69^ 9 N. Y. Supp. 40; Lane 



88 FOBMATION AND CLASSIFICATION (Gh. 2 

Corporations 

A corporation may be expressly authorized by its charter 
to enter into a partnership."* In the absence of such au- 
thorization,' however, a corporation is not competent to 
form a partnership, whether with an individual, a firm, or 
another corporation/* This does not mean, however, that 
while acting within the scope of its corporate powers, and 
without actually becoming a partner, a corporation may 
not so contract as to incur, as to third persons, a joint lia- 
bility." 

Partnership between Firms 

While the law does not recognize a partnership as an en« 
tity, nevertheless there is no inaccuracy in saying that one 
firm may enter into a contract of partnership with another 
firm or with an individual. As between the parties to such 
a contract, in keeping accounts, making contributions, and 
distributing profits, the firm is treated as an entity. As re- 
gards third parties, however, the firm joining in such an 



T. Bishop, 65 Vt 575, 27 Atl. 499 ; In re Klnkead, 3 Bias. 405, Fed. 
Cas. No. 7,824. 

In England a married woman with a separate estate may be ft 
partner with her husband. Butler v. Butler, 16 Q. B. Div. 374. See 
'*Hu8l)and ^nd Wife," Dec, Dig. {Key No.) { i2; Cent. Dig. { 225. 

s» For example of such a charter, see Butler v. Toy Co., 46 Conn. 
136. See "Corporations," Deo. Dig. (Key No.) S 379; Cent. Dig. | 
1538. 

«o White Star Line v. Star Line of Steamers, 141 Mich. 604, 105 
N. W. 135, 113 Am. St Rep. 551 (1905) ; People v. North River Sugar 
Refining Co., 121 N. Y. 582, 24 N. E. 834, 9 L. R. A. 33. 18 Am. St. 
Rep. 843; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. 173, 8 
Am. Rep. 159; Aurora State Bank v. Oliver, 62 Mo. App. 390. A 
national bank cannot become a partner. MERCHANTS' NAT. 
BANK V. WEHRMANN et al. a003) 69 Ohio St 160, 68 N. E. 1004, 
Gilmore, Cas. Partnership, ^81. A department' store corporation can- 
not form a partnership with a restaurateur. Franz et al. t. Wm. 
Barr Dry Goods Co., 132 Mo. App. 8, 111 S. W. 636 (1908) ; Breinig 
V. Sparrow, 39 Ind. App. 455, 80 N. B. 37. See "Corporations," Deo. 
Dig. {Key No.) | 379; Cent. Dig. § 1538. 

61 Marine Bank of Chicago v. Ogden, 29 111. 248; Cleveland Paper 
Co. T. Courier Co.. 67 Mich. 152» 34 N. W. 556. See "Corporations^*^ 
Dec Dig. (Key No.) tt 378, 379; Cent. Dig. U 1538, 1539. 



S 25) BEQUIBEMBNTS OF THE OONTKAGT 89 

arrangement loses its identity, and each member becomes 
liable as a partner in the joint concern.*' 

Number of Persons Who may Become Members of the Part- 

nership 

In the absence of statutory enactments, there is no limit 
on the number of persons who may join in partnership. 
For statutory limitations the laws of the particular juris- 
diction should be consulted/* 



SAME— CONSIDERATION 

lUI. A partnership agreement, like other contracts, must 
have a consideration to support it. 

Agreements to become partners, like all other agree- 
ments, must be founded upon some consideration in order 
to be binding. The mutual covenants and promises of the 
partners with respect to the common enterprise are regard- 
■ed as constituting sufficient consideration. The promises 
by each to contribute capital, services, or credit, and to 
perform the duties and liabilities of a partner, in considera- 
tion of similar promises by the others, will constitute a 
binding agreement.'* Any contribution in the shape of 

•«In re Hamilton (D. O.) 1 Fed. 800; RAYMOND v. PUTNAM, 
44 N. H. 160, Gllmore, Cas. Partnership, 490; Bullock v. Hubbard, 
23 Cal. 496, 83 Am. D6c. 130; Meador v. Hughes, 14 Bush (Ky.) 652. 
A partnership between individuals and a second partnership con- 
stitutes all members of the second partnership members of the first 
Meyer v. Krohn, 114 111. 574, 2 N. B. 496 ; North Pac. Lumber CJo. 
V. Spore, 44 Or. 462, 75 Pac. 890 ; WiUson y. Morse, 117 Iowa, 581, 
«1 N. W. 823. See "Partnership^ Deo. Dig. {Key No.) §{ 16, 29; 
Cent. Dig. S 9l 

es By English Companies Act, 1862 (25 & 26 Vict e. 89, S 4), no 
more than ten persons may engage as partners in banking, and not 
more than twenty in any other kind of partnership for profit 

There must of necessity be more than one person in the partner- 
ship. Stirling V. Heintzman, 42 Mich. 449, 4 N. W. 165. See **Part- 
nerahip," Dec, Dig. (Key No.) | 4S; Cent. Dig. S 60. 

•4 Byrd v. Pox, 8 Mo. 574 ; COLEMAN v. EYRE, 45 N. Y. 38, GU- 
more. Cas. Partnership, 137. See, also, Brady v. Powers, 112 App. 
Div. 845, 98 N. Y. Supp. 237 (modifying 105 App. Div. 476, 94 N. Y. 



90 FORMATION AND CLASSIFICATION (Gh. 2 

capital or labor, or any act which may result in liability to 
third parties, is a sufficient consideration to support such 
an agreement. Allowing the use of one's name is sufficient 
consideration.*" A promise to account for one-half of the 
profits is supported by a promise to share one-half of the 
losses.** Nor need the contribution to the firm assets be 
equal in value, for the partners are the best judges of the 
adequacy of the consideration of the agreement into which 
they enter.*' Where, however, one person, without fur- 
nishing any means or doing anything whatever toward the 
common enterprise, is to share equally in the profits and 
the firm property, there is ho mutuality in the arrangement, 
and such agreement is unenforceable.** But if such per- 
son participates in the business, and thus subjects himself 
to partnership liability for firm obligations, the agreement 
will be binding.** 

Supp. 259); Breslln v. Brown, 24 Ohio St. 565, 15 Am. Rep. 627; 
Rush Center Creamery Co. v. HiUis, 3 Pa. Super. Ct 527; Belcher 
y. Conner, 1 S. C. 88; Kimmins v. Wilson, 8 W. Va. 584; In re 
Wedgwood Coal, etc., Co., 7 Ch. D. 75, 47 L. J. Ch. 278, 37 L. T. Rep. 
442; Dale v. Hamilton, 6 Hare, 869; 67 Eng. Reprint 955; The 
Herkimer, Stew. (Nova Scotia) 17. See **Partner87Up,** Dec Dig, 
{Key yo.) S 19; Cent. Dig. i 5. 

•» McCord V. Field, 27 U. C. O. P. 391 ; Breslin v. Brown, 24 Ohio 
St 565, 15 Am. Rep. 627. Bee '^Partnership,'' Dec. Dig. {Key No.) 
fi 19; Cent. Dig. § 5; ^'Contracts," Cent. Dig. I S45. 

«• COLEMAN y. EYRE, 45 N. Y. 38, Gllmore, Cas. Partnership, 
137. See ''Partnership;' Dec. Dig. (Key No.) § 19; Cent. Dig. § 5; 
''Contracts,'* Cent. Dig. § S52. 

«7 "If one man has skill and wants capital to make that skill avail- 
able, and another has capital and wants skill, and the two agree 
that the one shall provide capital and the other skill, it is perfect- 
ly clear that there is a good consideration for the agreement on 
both sides ; and it is impossible for the court to measure the quan- 
tum of value. The parties must decide that for themselves." Vice 
Chancellor Wigram, in Dale v. Hamilton, 5 Hare, 369, 393. See 
"Partnership," Dec. Dig. {Key No.) { 19; Cent. Dig. fi 5; "Contracts," 
Cent. Dig. %\ SU, S45, 352. 

•sTrayes v. Johns, 11 Colo. App. 219, 52 Pac. 1113; Mitchell v. 
O'Neale, 4 Nev. 504; Frothingham v. Seymour, 118 Mass. 489; 
Alabama Fertilizer Co. v. Reynolds, 79 Ala. 497; Kimmins v. Wil- 
son. 8 W. Va. 584. See "Partnership," Dec. Dig. (Key No.) § 19; 
Cent. Dig. § 5; "Contracts," Cent. Dig. §§ 3U, 345, 352. 

e» Emery v, Wilson, 79 N, Y, 78; Guccione v, Scott, 21 Misc. Rep. 



§ 26) BEQUIBBHEKT8 OF THS CX>KTRA€JT 91 

Premiums 

When one is admitted into a partnership with a person 
who is already established in business, he frequently agrees 
to pay the latter a premium or bonus ; i, e., a sum of money 
for his own private benefit This premium belongs indi- 
vidually to the former owner of the business, and forms no 
part of the firm assets. . 

Such an agreement is valid, and gives a plaintiff who is 
ready and willing to take the defendant into partnership 
a good cause of action for the premium.'* The only difii- 
cult question is as to whether any of the premium is re- 
turnable in the event the partnership is terminated sooner 
than is expected, either by reason of fraud or total or par- 
tial failure of consideration. This, however, involves no 
principles peculiar to partnership law alone, and is gov- 
erned by the law applicable to all contracts.''^ Where a 
premium has been obtained by false and fraudulent repre- 
sentations, the defrauded partner may make his loss good ei- 
ther by having the partnership accounts taken or by dis- 
affirming the contract and thereby recovering the money 
paid directly.''" In the absence of fraud, where the partner- 
ship is terminated sooner than contemplated, whether by 



410, 47 N. T. Supp. 475; Id., 33 App. Dlv. 214, 53 N. T. Supp. 462; 
Geddes y. Wallace, 2 Bligh, 270 ; Heyhoe v. Barge, 9 G. B. 431. 

The sarrender by one partner of his right to withdraw from the 
firm and continuance therein is a good consideration for the prom- 
ise of his copartners that he should have one-half the net assets of 
the firm upon dissolution In addition to one-half of the profits dur- 
ing the continuance of the firm. Melville v. Kruse, 69 App. Dlv. 
211, 74 N. T. Supp. 826 ; Id., 174 N. Y. 306, 66 N. B. 965. See 'Tart- 
nerahip,'* Deo. Dig. (Key No.) fi 19; Cent. Dig. § 6; '^Contracts,** 
Cent. Dig. %% SU, Si5, S52. 

TO Walker ▼. Harris, 1 Anstr. 245. See, also, post, p. 484, "Ac- 
tions between Partners," chapter VIII, § 160. See "Partnership;* 
Dec. Dig. {Key No.) § 19; Cent. Dig. i 5. 

71 SMIT£[ V. EVERETT, 126 Mass. 304, Gilmore^ Oas. Partnership, 
608; Toumade v. Hagedom, 5 Thomp. & O. (N. Y.) 288; Capen v. 
Barrows, 1 Gray (Mass.) 376. Bee **Partner8hip,*' Deo. Dig. (Key 
No.) fil 25, S04; Cent. Dig. SS 11, 701. 

TiBx parte Turquand, 2 M. D. & D. 339; Burg t. Allen, 1 Coll, 
589. See "Partnership;* Deo. Dig. (Key No.) K 25, S04; Cent. Dig. 
il 11, 701. 



d^ rOBMATION AND CLASSIFICATION (Cb. 2 

death or otherwise, the tendency of the cases is to hold 
that, if persons wish to secure a return of the premium, 
they should cover such contingencies in the partnership 
articles.** 



SAME^FORMALITIES 

26. No particular formalities are essential to the validity 
of a contract of partnership. The existence of the 
contract may be implied from the conduct of the 
parties. 

In the absence of statute, the partnership agreement may 
be either express or implied, in writing or oral. While 
the terms of the agreement are ordinarily set forth in writ- 
ing, a valid partnership may exist although no express 
agreement may be discovered. It may be established 
solely from the conduct of the parties.'* On the other 
hand, merely calling the relationship a partnership will not 

»• Taylor t. Hare, 1 Bos. & P. (N. S.) 260; Whlncup v. Hnghes, 
L. R 6 C. P. 78; Ferns v. Carr, 28 Ch. Div. 409; Farr t. Pearee, S^ 
Madd. 74. 

Bng. Partnership Act, 1890, § 40, provides: ^Wbere one partner 
has paid a premium to another on entering into a partnership 
for a fixed term, and the partnership is dissolved before the ex- 
piration of that term otherwise than by the death of a partner, the 
court may order the repayment of the premium, or of such part 
thereof as it thinks just, having regard to the terms of the part- 
nership contract and to the length of time during which the part- 
nership has continued; unless (a) the dissolution is, in the judg- 
ment of the court, wholly or chiefly due to the misconduct of the 
partner who paid the premium, or (b) the partnership has been dis- 
solved by an agreement containing no provision for a return of any 
part of the premium." See ^'Partnership,^ Deo. Dig. {Key No.) f- 
S04; Cent. Dig. S 701. 

T4 Breinig v. Sparrow, 39 Ind. App. 455, 80 N. B. 87 (1907) ; DA- 
VIS v. DAVIS, 1 Ch. a894) 393; Ratzer v. Ratzer, 28 N. J. Eq. 
137; Haug v. Haug, 193 IlL 645, 61 N. B. 1053; Buffum v. Buffum. 
49 Me. 108, 77 Am. Dec. 249; Hirbour ▼. Reeding, 3 Mont 15: 
Sanger v. French, 157 N. Y. 213, 91 N. B. 979 ; Bverhart v. Everhart,. 
4 Luz. Leg. Reg. (Pa.) 259; Fernandez v. De la Rosa, 1 Philippine, 
671, See ** Partnership," Dec. Dig. {Key No.) U ZO, 22, 29; Cent.. 
Dig. {§ i, 5, 7, 8, SO-SS; 38. 



5§ ^-28) BSQUIBBMENT8 OF THE OONTRAGT 93 

make it one. The term may have been used in a popular 
sense, and the real relationship may be something quite differ- 
ent/* In some states there are statutes requiring agreements 
for all partnerships to be in writing, duly executed and re- 
corded; in all the states not only writing, but publication, 
and sometimes still other formalities, are required in the 
case of limited partnership/* Unless these requirements 
are strictly observed, the parties will be held liable as gen- 
eral partners. 



SAME— STATUTE OF FRAUDS 

27. Partnership agreements that are not to be performed 

within the. space of one year are required by the 
Statute of Frauds to be in writing.. If, however, 
parties act upon an oral agreement, they will be 
treated as partners at wiU. 

28. While the decisions are conflicting, by the weight of 

authority the Statute of Frauds does not require 
the partnership contract to be in writing in order 
to enable the partners to show that real estate con- 
stitutes partnership assets. 

Statute of Frauds 

In considering the application of the Statute of Frauds 
to partnership agreements, we have first to examine that 
provision of the fourth section which prescribes that all 
agreements which are not to be performed within the space 
of one year from the making thereof shall be in writing. 
This provision covers, not only partnerships to commence 
more than a year from the date of the agreement, but also 
agreements for present partnerships that are to last more 
than a year/* But if in either case the parties have acted 

T8 Sailors y. Nlzon- Jones Printing Co., 20 IlL App. 509. See "Part- 
nersMp,'' Dec. Dig. {Key No.) H i7, 20, 22; Cent. Dig. S! 1, S, 6^, 14. 

T« See the statutes of the Taiious states. As to limited partner- 
ship, see post, chapter XI, It 211-214, pp. 604-617. 

77 Stitt T. Bat Portage Lumber Co., 98 Minn. 62, 107 N. W. 824 
(1900) ; Smith v. Tarlton, 2 Barb. Gh. (N. Y.) 836 ; Wliipple y. Park- 



9i rOBMATION AND CLASSIFICATION (Gh. 2 

on the agreement, and have become partners, they must be 
treated as such, and the statute will not apply.*' In such 
case they will be treated as partners at will.** 

Same — Partnerships in Real Estate 

The other important provisions of the Statute of Frauds 
provide that no estate or interest in lands shall be created, 
assigned, or declared except by deed in writing, and that 
all contracts for the sale of land or any interest therein shall 
be in writing. To what extent these provisions require a 
contract of partnership to be in writing is a question on 
which there is much confusion and conflict of authority. 
Whether the contract is for the formation of an ordinary 
commercial partnership, in the conduct of which real es- 
tate may be incidentally involved as an asset, or for the 
formation of a partnership for the special purpose of deal- 
ing in land, the weight of authority is apparently to the ef- 
fect that the statute does not require it to be in writing.'* 

er, 29 Mich. 369. But see Shropshire t. Adams (1905) 40 Tex. Civ. 
App. 339, 89 S. W. 448, Gllmore, Cas. Partnership, 138, note, hold- 
ing a verbal contract of partnership to be valid, since the death of 
one of the partners might work a dissolution at any time. See 
**Fraud$, Statute of,*' Dec. Dig. {Key No.) H 44, 49, 56; Cent, Dig. 
H 74, 1S5-1S9, 159. 

T»McNealy v. Bartlett, 123 Mo. App. 58, 99 8. W. 767; Allison 
V. Perry, 130 111. 9, 22 N. B. 492; Coward v. Clanton, T9 Cal. 23, 
21 Pac. 359 ; Gates v. Fraser, 6 lU. App. 229. Bee **Fraud8, Statute 
of,** Dec. Dig. {Key No.) | 76; Cent. Dig. §| 1S5-1S9. 

7» Wahl V. Bamum, 116 N. Y. 87, 22 N. B. 280, 6 L. R. A. 623. 
See '^Partnership,** Dec. Dig. {Key No.) { 261; Cent. Dig. {§ 600, 601; 
''Frauds, Statute of,'* Cent. Dig. § 66. 

•ocausler v. Wharton, 62 Ala. 358; McClintock y. Thweatt, 71 
Ark. 323, 73 S. W. 1098; Bates v. Babcock, 95 Cat 479, 30 Pac. 
605, 16 L. R. A. 745, 29 Am. St Rep. 133; Coward v. Clanton. 79 
Cal. 23, 21 Pac. 359; Meylette v. Brennan, 20 Colo. 242, 38 Pac. 
75; Meagher v. Reed, 14 Colo. 367, 24 Pac. 681, 9 L. R. A. 455; 
Murley v. Ennis, 2 Colo. 300; BunneU v. Talntor's Adm*r, 4 Conn. 
568; Van Housen v. Copeland, 180 IlL 74, 54 N. B. 169; Speyer v. 
Desjardins, 144 lU. 641, 32 N. B. 283, 36 Am. St Rep. 473 ; AlUson 
V. Perry, 130 IlL 9, 22 N. B. 492; Home v. Ingraham, 125 111. 198, 
16 N. B. 868; Bopp v. Fox, 63 111. 540; Eaton v. Graham, 104 111. 
App. 296; Frankenstein v. North, 79 lU. App. 669; Van Housen v. 
Copeland, 79 111. App. 139; Hunt v. Elliott, 80 Ind. 245, 41 Am. 
Rep. 794; Holmes v. McCray, 61 Ind. 358, 19 Am. Rep. 735; PEN- 



6§ 27-28) BEQUIREHENTS OF THE CONTRACT 95 

The result is explained in several ways: Partnership is a 
relation resulting from a contract, and whether there is a 
contract giving rise to such a relation is a question of fact, 
which may be shown by oral evidence. The contract being 
thus proved, the relation of partnership is established. 
Oral evidence may then be used to show what constitutes 
the assets of such partnership, and the interest of the part- 

NYBAOKBR v. LEARY, 65 Iowa, 220, 21 N. W. 575, GUmore, Cas. 
Partnership, 214 ; Richards v. GrinneU, 63 Iowa, 44, 18 N. W. 668, 
50 Am. Rep. 727 ; Jones v. Davies, 60 Kan. 300, 56 Pac. 484, 72 Am. 
St Rep. 354 ; Tenney v. Simpson, 37 Kan. 363, 15 Pac. 187 ; MARSH 
▼. DAVIS, 33 Kan. 328, 6 Pac. 612, GUmore, Cas. Partnership, 133: 
Simon V. Gulick, 50 S. W. 992, 104 Ky. Law Rep. 104; Garth v. 
Dayls & Johnson, 120 Ky. 106, 85 S. W. 692, 117 Am. St Rep. 571 ; 
CoUins V. Decker, 70 Me. 28 ; Petrle v. Torrent, 88 Mich. 43, 49 N. 
W. 1076 ; Davis v. Gerber, 69 Mich. 246, 37 N. W. 281 ; Morgart v. 
Smouse, 103 Md. 463, 63 Atl. 1070, 115 Am. St Rep. 367 ; Fall River 
Whaling Co. v. Borden, 10 Cash. (Mass.) 458; Howard v. Priest 5 
Mete. (Mass.) 582; Stitt v. Rat Portage Lumber Co., 98 Minn. 52, 
107 N. W. 824 ; Fountain v. Menard, 53 Minn. 443, 55 N. W. 601. 39 
Am. St Rep. 617; NeweU v. Cochran, 41 Minn. 374, 43 N. W. 84; 
Sherwood v. St Paul & C. Ry. Co., 21 Minn. 127 ; Connell v. Mulli- 
gan, 13 Smedes & M. (Miss.) 388; Hunter v. Whitehead, 42 Mo. 
624; Springer v. Cabell, 10 Mo. 640; Hlrbour v. Reeding, 3 Mont 
15; Personette ▼. Pryme, 34 N. J. Eq. 26; CHESTER v. DICKERSON, 
54 N. Y. 1, 13 Am. Rep. 550, Gilmore, Cas. Partnership, 136 ; Fairchild 
V. FalrchUd, 64 N. Y. 471 ; Smith v. Tarlton, 2 Barb. Ch. (N. Y.) 336 ; 
WILLIAMS V. GILLIES, 75 N. Y. 197 ; Traphagen v. Burt 67 N. Y. 
30 ; Falkner v. Hunt 73 N. C. 571 ; Flower v. Bamekoff, 20 Or. 132, 
23 Pac. 370, 11 L. R. A. 149 ; Knott v. Knott, 6 Or. 142 ; Howell v. 
Kelly, 149 Pa. 473, 24 Atl. 224; Davenport v. Buchanan, 6 S. D. 
876, 61 N. W. 47 ; MurreU v. Mandelbaum, 85 Tex. 22, 19 S. W. 880. 
34 Am. St Rep. 777; Miller v. Ferguson, 107 Va. 249, 57 S. E. 649, 
122 Am. St Rep. 840; Henderson v. Hudson, 1 Munf. (Va.) 510; 
BROOKE v. WASHINGTON, 8 Grat (Va.) 248, 56 Am. Dec. 142, 
Gilmore, Cas. Partnership, 318; McCuUy v. McCully, 78 Va. 159; 
Case V. Seger, 4 Wash. St 492, 30 Pac. 646; McElroy v. Swope, 47 
Fed. 380; Wright v. Smith, 105 Fed. 841, 45 C. C. A. 87; Forster 
▼. Hale, 6 Ves. Jr. 309; Dale v. Hamilton, 5 Hare, 369. 

Ontra: Causler v. Wharton, 62 Ala. 358; Rowland v. Boozer, 
10 Ala. 690 ; Roughton v. Rawlings, 88 Ga. 819, 16 S. E. 89 ; GOLD- 
STEIN V. NATHAN, 158 111. 641, 42 N. E. 72; Gantt v. Gantt 6 
La. Ann. 677; Pecot v. Armelin, 21 La. Ann. 6G7; Slocomb v. De 
Lizardi, 21 La. Ann. 355, 99 Am. Dec. 740; Dunbar v. BuUard, 
2 La. Ann. 810; Parsons v. Phelan, 134 Mass. 109; Raub v. Smith, 
61 Mich. 543, 28 N. W. 076, 1 Am. St Rep. 619; Norton v. Brink, 



96 FORMATION AND CLASSIFICATION (Ch. 2 

ners therein/^ Whether this is anything more than an ap- 
plication of the doctrine of implied or resulting trusts to 
cases where partnership funds have been invested in land, 
the legal title to which is held by one partner subject to a 

75 Neb. 566. 110 N. W. 669, 7 L. R, A. (N. S.) 945, 121 Am, St Reii. 
822 ; SchultJz v. Waldons, 60 N. J. Eq. 71, 47 Atl. 187 ; Clancy ▼. Graine^ 
17 N. C. 363; Everhart's Appeal, 106 Pa. 349; Lefevre's Appeal, 
69 Pa. 122; McGormick's Appeal, 57 Pa. 54, 98 Am. Dec 191; Lang- 
.ley V. Sanbom, 135 Wis. 178, 114 N. W. 787; Scheuer v. Cochem, 
126 Wis. 209, 105 N. W. 573, 4 L. B. A. <N. S.) 427; McMUlen v. 
Pratt, 89 Wis. 612, 62 N. W. 588; Bird v. Morrison, 12 Wis. 138; 
Smith V. Burnham, 3 Sumn. 435, Fed. Gas. No. 13,019; Young ▼. 
Wheeler (C. C.) 34 Fed. 98 ; McKinley ▼. Lloyd (O. C.) 128 Fed. 519. 

Where the agreement is merely to share the profits and losses 
arising from the use of land, owned either by one of the parties or 
by both, the statute is not applicable. MoClintock v. Thweatt, 71 
Ark. 323, 73 S. W. 1093 ; Von Trotha v. Bamberger, 15 Colo. 1, 24 
Pac. 883; Kilbourn v. Latta, 5 Mackey (D. C.) 304, 60 Am. Rep. 
373 ; PENNYBACKER v. LEARY, 65 Iowa, 220, 21 N. W. 575, Gil- 
more, Gas. Partnership, 214; Davis v. Gerber, 69 Mich. 246, 37 N. 
W. 281; Newell v. Gochran, 41 Minn. 374, 48 N. W. 84; Pitman t. 
Hodge, 67 N. H. 101, 36 Atl. 605; Babcock v. Read, 99 N. Y. 609, 1 
N. B. 141 ; Falkner v. Hunt, 73 N. G. 571 ; Flower v. Bamekoff, 20 
Or. 132, 25 Pac. 370, 11 L. R. A. 149; Everhart's Appeal, 106 Pa. 
349 ; Davenport v. Buchanan, 6 S. D. 376, 61 N. W. 47 ; BRUGE v. 
HASTINGS, 41 Vt 380, 98 Am. Dec. 592, Gilmore, Gas. Partner- 
ship, 71; Case v. Seger, 4 Wash. St 492, 30 Pac. 646; Treat y. 
HUes, 68 Wis. 344, 32 N. W. 517, 60 Am. Rep. 858. See "Frauds, 
Statute ofr Dec, Dig. {Key No,) S 7^; Cent. Dig, H 1S5-1S9, 

81 "The question of partnership must be tried as a fact, and as if 
there was an issue upon it If by facts and circumstances it is 
established as a fact that these persons were partners in the col- 
liery, in which land was necessary to carry on the trade, the lease 
goes as an incident The partnership being established by evidence 
upon which a partnership may be found, the premises necessary for 
the purposes of that partnership are by operation of law held for 
the purposes of that partnership." Forster v. Hale, 5 Ves. 309. 

"An agreement to form a partnership for the purpose of buying 
and selling land may be proved by parol ; It may thei\ be shown by 
parol that certain land has been bought for the purpose of the part- 
nership, and consequently that the plaintiff is entitled to the profits 
obtained by its resale." Dale v. Hamilton, 6 Hare, 369. 

The leading case opposed to Dale v. Hamilton, supra, and Forster 
y. Hale, supra, and antedating the former, is Smith v. Burnham, 3 
Sumn. 435, Fed. Gas. No. 13,019. See "Partnership,*' Dec, Dig. {Key 
No,) §§ ^5-50; Cent, Dig. {§ 64-74; "Frauds. Statute of;* Deo. Dig. 
(Key No,) §§ U, 49, 56; Cent. Dig. §§ 66, 74, 136-1S8. 




g§ 27-28) BBQUIRBMENTS OF TRB CONTRACT 97 

trust in favor of his copartners, is not at all satisfactorily 
discussed by the authorities. Apparently the rule has a wider 
significance and is applied to cases not falling within the 
doctrine of trusts.'* 



""The result of the cases we have been considering upon this 
subject of the effect of a parol partnership upon the title to lands 
acquired and used for partnership purposes is that, the fact of 
partnership being proved, whether by articles or by parol, real es- 
tate acquired and used for the partnership purposes becomes, as 
between the partners, and for aU purposes of adjustment of claims 
against the firm or its members, partnership assets; that in cases 
where the title to the land is in the partners as joint t^iants the 
right of survivorship incident to that tenancy does not exist; and 
that where the title is in one, or some number less than the whole, 
of the partners, it is for the purposes above named devested, and 
becomes vested in all the partners by partnership title; and this 
whether the land was purchased with the money of the firm (creating 
a resulting trust to the firm) or with the money of the partner tak- 
ing the title; and that it is not material whether the partnership 
was already established and engaged in its business when the land 
was acquired and brought into the stock, or whether it was es- 
tablished and the land acquired and put in contemporaneously, or 
whether the partnership was established for the purposes of some 
other trade or business, or for the special purpose of dealing in 
and making profit out of the very land itself which is in question. 
The whole doctrine (unless it can stand as an application of the law 
of implied trusts to cases of land purchased and held by one partner 
in derogation of his fiduciary obligation to the other) must be re- 
garded as a bald exception to the rule that no oral agreement can be 
made available directly or indirectly to effect or compel the transfer 
of any interest in land. It has been iseverely criticised, and strenu- 
ous efforts have been made to stop it half way by limiting it to 
cases of a partnership already formed for and engaged in business, 
as distinguished from a partnership formed and the land acquired in 
pursuance of one and the same verbal agreement, or to cases of a 
partnership for general purposes to which the holding and use of the 
land was incidental, as distinguished from a partnership formed for 
the special purpose of dealing in the land. On principle, the doctrine 
of Forster v. Hale, that, on parol proof of a partnership existing and 
doing business, land used by the firm for the purpose of that business 
is assets of the firm, however the paper title may stand, seems to 
admit of no such limitations. And the cases which assert them do 
not deal at all, or do not appear to deal satisfactorily, with that 
question." Browne, Stat Frauds (5th Ed.) f 261a. See **Truats*' Dec. 
Dig. (Key No,) i 84; Cent. Dig. fi 127; "Partnerihip;' Cent. Dig. 
%10S. 

GiL.PAKr.^7 



98 rOBMATION AND CLASSIFICATION (Gb. 2 

Where resulting trusts are not prohibited by statute, oral 
evidence may be used to show that lands acquired with 
partnership funds after the formation of the firm are held 
subject to firm purposes. Many of the cases cited in the 
footnotes involve the application of the doctrine of result- 
ing trusts to after-acquired real estate with partnership 
funds. Again, it is said that real estate is treated and ad- 
ministered in equity as personal property for all the pur- 
poses of the partnership. A court of equity, having full ju- 
risdiction of all cases between partners touching the part- 
nership property, will inquire into, take an account of, and 
administer all the partnership property, whether it be real 
or personal, and in such cases will not allow a partner to 
commit a fraud or breach of trust upon the copartner by 
taking advantage of the statute.*' 

SAME— SUBJECT-MATTER 

29. The subject-matter of a contract of partnership invari- 
ably involves the prosecution of a business for 
profit. 

Gain the Object of Partnership 

It cannot be said that the creation of a partnership is the 
subject-matter of a contract of partnership, for the partner- 
ship relation is only the result of the agreement to prose- 
cute a business jointly, and to share profits and losses. The 
real subject-matter is the purpose which the parties have 
in mind when they contract together, and that invariably 

•« CHESTER et al. v. DICKERSON, 64 N. T. 1, 13 Am. Rep. 650, 
Gilmore, Gas. PartDership, 136; Flower v. Bamekoff, 20 Or. 132» 
25 Pac. 370, 11 L. R. A. 149; Essex v. Essex, 20 Bear. 442, 449; 
Selkrig y. Davies, 2 Dow. P. G. 230 ; Grawshay y. Maule, 1 Swanst 
495. MARSH v. DAVIS, 33 Kan. 326, 6 Pac 612, Gilmore, Gas. Part- 
nership, 133; Richards y. Grinnell, 63 Iowa, 44, 18 N. W. 668, 60 
Am. Rep. 727 ; Bates y. Baboock, 95 Gal. 479, 30 Pac. 605, 16 L. R. 
A. 745, 29 Am. St Rep. 133 ; Speyer y. Desjardlns, 144 111. 641, 32 
N. E. 283, 36 Am. St. Rep. 473. See **Trust8;' Dec. Dig. {Key No.) 
i 84; Cent. Dig. S 127; "Partnership,** Dec Dig. (Key No.) S 68; 
Cent. Dig. §S 108, 52S; ^'Frauds, Statute of," Dec. Dig. (Key No.) f 
16; Cent. Dig. f§ 1S5'1$9. 



8 29) BEQUIREMENTS OF THE CONTRAOT 99 

involved the idea of a business for profit. The contempla- 
tion of profits inheres in the very definition of a partner- 
ship.** 

Societies Not Having Gain for Their Object 

Societies and clubs, the object of which is not to share 
profits, are not partnerships ; nor are their members, as 
such, liable for each others' acts.** If liabilities are to be 
fastened on any of their members, it must be by reason of 
the acts of those members themselves,** or by reason of 
the acts of their agents ; and the agency must be made out 
by the person who relies upon it, for none is implied by the 
mere fact of association.** 

What Business Enterprises may be the Subject of a Partner-- 

ship Agreement 

While partnerships originally related only to trade and 
commerce, they may extend to all callings and professions. 
Any enterprise proper for an individual to engage in for 
the purpose of enjoying the profits of it may as properly be 
pursued by a partnership for a like purpose, whether the oc- 
cupation be mining, farming, or the practice of law or medi- 
cine. At one time the impression prevailed that a partner- 
ship could not validly be formed for the purpose of dealing 
in real estate ; but, under the modem decisions, real estate 
forms no exception to the rule stated above.** 

•* Laf ond v. Deems, 81 N. T. 507 ; McGabe v. Goodfellow, 133 N. 
Y. 89, 30 N. B. 728, 17 L. R. A. 204 ; Danbury Comet Band t. Bean, 
64 N. H. 524; State ex rel. Hadley v. Kansas City Live Stock 
Bxch., 211 Mo. 181, 109 S. W. 675, 124 Am. SL Rep. 776. 

Farmers' telephone company, organized merely for convenience of 
Its members, is not a partnership. Melnhart v. Draper, 133 Mo. App. 
60. 112 S. W. 709. See ^'Partnership," Dec. Dig. {Key No.) H i» 4- 
IS; Cent. Dig. SS i5-28. 

8 s Teed ▼. Parsons, 202 IlL 455, 66 N. E. 1044 (religions society); 
Reg. V. Robson, 16 Q. B. Dlv. 137 (Young Men*s Christian Associa- 
tion). See chapter I, § 15, p. 44, "Organizations Not for Profit*' See 
•^Partnership;* Dec. Dig. (Key No.) SS i. 9-lS; Cent. Dig. SS lS-28. 

••As In Cross v. Williams, 7 Hurl. & N. 675, where the command- 
ant of a rifle corps was held liable for uniforms he had ordered. 
See •'Associations,'* Dec. Dig. (Key No.) S IS; Cent. Dig. SS 26-28; 
•'Clubs;* Dec. Dig. S ii; Cent. Dig. S 7. 

«T See ante, chapter I, S ^» P- 44. . 

•8 CHESTER Y. DICKERSON, 64 N. Y. 1, 13 Am. Rep. 650, GU- 



100 rOBMATION AND CLASSIFICATION (Qh. 2 



SAME— LEGALITY OP OBJECT 

80. A partnership cannot be formed to carry on a business 
which is unlawful or opposed to public policy. 

What Partnerships are Illegal 

In order that a partnership may result from a contract, 
the contract must be legal. Illegality, however, will not be 
presumed, but must plainly appear to enter into the es- 
sence of the contract. An agreement is illegal where its 
performance involves either (1) the violation of a 'positive 
law, or (2) where it is opposed to public policy. 

The following are illustrations of partnerships illegal be- 
cause involving the violation of positive law : Partnerships 
formed for the purpose of deriving profit from a criminal 
offense, such as smuggling, gambling, robbery, theft, and 
the like.'* So, where a statute prohibits unqualified per- 
sons from carrying on certain trades or business, a part- 
nership between unqualified persons for the purpose of 
carrying on such a business would be illegal. But the mere 
fact that one or more members of such a partnership are 
disqualified will not render the partnership illegal, if the 
business is in fact carried on by persons duly qualified. 
There is no presumption that the disqualified one was to 
perform any part of the duties for which he was disquali- 
fied.*» 

more, Gas. Partnership, 136, and cases there cited ; Flower t. Bame- 
koflf, 20 Or. 187. 25 P. 370, 11 L. R. A. 149. See **Partner$hip,'* Deo. 
Dig. {Key No.) S 15; Cent. Dig. § «; **Frauds, Statute of,*' Dec. Dig. 
(Key No.) S 76; Cent. Dig. K ISS-ISB. 

«» CENTRAL TRUST & SAFE DEPOSIT 00. T. RBSPASS, 112 
Ky. 606, 66 S. W. 421, 66 L. R. A. 479, 99 Am. St Rep. 317, Gilmore, 
Cas. Partnership, 139; Smith v. Richmond, 114 Ky. 308, 70 S. W. 846, 
102 Am. St Rep. 283 ; Graft v. McGonoughy, 79 111. 346, 22 Am. R^. 
171 ; Davis v. Gelhaus, 44 Ohio St. 69, 4 N. E. 593. A partnership 
in breeding, training, and racing horses for purses is legal. CEN- 
TRAL TRUST & SAFE DEPOSIT GO. ▼. RESPASS, snpra. See 
"•PartnersMp;* Deo. Dig. (Key No.) § 26; Cent. Dig. S 12; "Gaming,'' 
Dec. Dig. {Key No.) S 17; Cent. Dig. { SS. 

•0 Williams y: Jones, 6 Bam. k C. 108; Harland y. LUienthai, 
63 N. T. 438. Where a statute prohibits a lawyer or a physician not 




§ 80) REQUIBEMENT8 OF THE COI^IUGT 101 

A partnership may also be illegal ujpoa" the general 
ground that it is formed for a purpose forbidrleir by the cur- 
rent notions of morality or public policy. A 'pWf tnership, 
for examplfe, formed for the purpose of deriving profit from 
the sale of obscene prints, or for the procurement of 'ftiar- 
riages, or of public offices of trust, would be undoltfot'^dly 
illegal.*^ We have already seen that partnerships bet^eca 
citizens of one country and alien enemies are illegal.*^ ^o, 
also, are partnerships between persons resident in this 
country for the purpose of trading with an enemy's jcoun- 
try.** But a partnership in this country for running the 
blockade established by one belligerent nation in the ports 
of another is not illegal ; for, subject to the risk of capture, 
a neutral may lawfully trade with a belligerent.** Public 
policy does not permit of a partnership in a public office.** 

licensed from practicing, a partnership between him and a licensed 
practitioner is not Illegal, if his share of the profits is not in consid- 
eration of ills practicing. Scott t. Miller, Johns. Bng. Oh. 220. But 
a sheriff who is forbidden to buy county scrip cannot do It indirectly 
by forming a partnership for that purpose. Read y. Smith, 60 Tex. 
379. See "Partnership," Dec, Dig. (Key No.) I 16; ''Attorney and 
Client;* Deo. Dig. (Key No.) f SO; Cent Dig. \ 4S- 

•1 Sterry t. Clifton, 9 C. B. 110 (sale of offices) ; Pare t. Cflegg, 29 
Beav. 589, and Thornton v. Haw, 8 Jur. (N. S.) 663 (associations for 
promulgating irreligious opinions). Bee "Partnership^' Deo. Dig. 
{Key Vo.) § 26; Cent. Dig. f 12. 

93 See chapter II, i 24, "Aliens." ' 

0s Generally, as to effect of war, see Prize Cases, 2 Black, 635, 
17 Jj. Ed. 459; The Cheshire, 8 Wall. 231, 18 L. Ed. 175; also Evans 
V. Richardson, 3 Mer. 469 ; Snell v. Dwlght, 120 Mass. 9 ; Dunham ▼; 
Presby. Id. 285. See "Partnership,** Dec. Dig. {Key No.) H 26, 268; 
Cent. Dig. H i«, 612. 

o« Ex parte Chayasse, 4 De Gex, J. & 8. 655; The Helen, Ij. R. 1 
Adm. & Ecc. 1. See "Partnership,** Dec Dig. (Key No.) \ 26; Cent. 
Dig. S 12; "Contracts,** Dec. Dig. (Key No.) \ 166; Cent. Dig. H 
662r-6S0. 

»B Jons T. Perchard, 2 Esp. 507 (sheriff) ; Gaston y. Drake, 14 Nev. 
175, 33 Am. Rep. 548 (prosecuting attorney); Forsyth* v. Woods, 11 
Wall. 484, 20 L. Ed. 207 ; Seely's Adm'r y. Beck, 42 Mo. 143 ; Bowen 
T. Richardson, 133 Mass. 293 (executor or administrator) ; Wollcott 
y. Gibson, 61 111. 69 ; Hobbs y. McLean, 117 U. S. 567, 6 Sup. Ct 870, 
29 L. Ed. 940; Warner y. Griswold, 8 Wend. (N. Y.) 665; Gould y. 
Kendall, 15 Neb. 549, 19 N. W. 483. On partnerships for the purpose 
of bidding on public lands, and stifling competition, see Piatt >. 



102 roaitf ATioN and classification (Gh. 2 



, • • • 

• • * 



A combinati^a* a£ manufacturers and dealers, formed sole- 
ly to enhaq<;er.thc price of articles manufactured and dealt 
in, cannotj^ud in the name adopted by it as a partnership, 
for such^i 'partnership is illegal.** 



•^ • 



••• 









Santf&rBfFect of Illegality 

vThp law will not interfere between the members of an 

'illegal partnership to compel an accounting or settlement of 

.•/••.thfe partnership affairs.*' It leaves the parties where it 

.•/••.•!• fends them, and will not enforce either a division of the 

profits or contribution for losses. Even if an agreement 

for an illegal partnership has been partly performed, the 

law will not enforce it.** In order, however, that illegality 

may be a defense, it must affect the contract on which the 

plaintiff is compelled to rely in order to make out his right. 

He may recover, if the obligation in which he sues is sup- 



Oliver, 2 McLean, 267, Fed. Cas. No. 11,115; King y. Wlnants, 71 
N. C. 469, 17 Am. Rep. 11 ; Hunter v. Pfeiffer, 108 Ind. 197, 9 N. E. 
124. See ''Partnership;* Dec, Dig. {Key No,) f 26; Cent, Dig. I 12; 
''Contracts,*' Dec. Dig. (Key No.) §| 119, 124; Cent. Dig. H 581, 65Jh 
657. 

99 Jackson y. Akron Brick Ass'n, 53 Ohio St. 303, 41 N. E. 257, 35 
L. R. A. 287, 63 Am. St Rep. 638. See "Partnership," Dec. Dig. 
{Key No.) S 26; Cent. Dig. S 12. 

97 CENTRAL TRUST & SAFE DEPOSIT CO. V. RESPASS, 112 
Ky. 606, 66 S. W. 421, 56 L. R. A. 479. 99 Am. St Rep. 317, Gllmore. 
Cas. Partnership, 139. See note, 99 Am. St Rep. 326^ "AccounttDg by 
Illegal Partnership." See, also, Craft v. McConoughy, 79 111. 346, 
22 Am. Rep. 171; Snell v. D wight, 120 Mass. 9; Fairbank v. Leary, 
40 Wis. 637; Planters' Bank v. Union Bank, 16 Wall. 483, 21 h. 
Ed. 473. If part of the business only is Ulegal, and is separable, 
the partnership is not wholly void, and the court may settle the legal 
part Wishek v. Hammond, 10 N. D. 72, 84 N. W. 587 ; Anderson v. 
PoweU, 44 Iowa, 20. See "Equity,** Dec. Dig. {Key No.) |* 25; Cent. 
Dig. i 79; "Gaming,** Dec. Dig. {Key No.) i 17; Cent. Dig. f SS; 
"Contracts,** Cent. Dig. I 695. 

98 Ewing V. Osbaldiston, 2 Mylne & C. 53. 

No action lies to recover a premium agreed to be paid by defend- 
ant in consideration of being admitted to an illegal partnership. 
WilUams v. Jones, 5 Bam. & C. 108. Accounting not allowed of lot- 
tery business. Smith v. Richmond, 114 Ey. 303, 70 S. W. 846, 102 
Am. St Rep. 283. See "Partnership,** Dec: Dig. {Key No.) I 50i; 
Cent. Dig. §{ 701, 702; "Contracts,** Dec. Dig, {Key No.) i 1S8; 
"Equity,** Dec. Dig. {Key No.) I 25; Cent, Dig, f 80. 



I 



§ 31) CLA8SIFIOATION OF PABTNERSHIPS 103 

ported by an independent consideration, although indirectly- 
connected with the illegal partnership.** In short, the 
cases may be summarized as holding that no accounting 
will be granted in the case of an illegal partnership, but 
that, if the origin of the fund is foreign to the controversy, 
the property being at present invested in a legal business, 
accounting may be had, and that if the parties to an illegal 
partnership waive the illegality, and themselves state their 
Accounts, no one else may object to the accounting.* 



CLASSIFICATION OF PARTNERSHIPS 

31. Partnerships may be divided, in respect to the nature 
of the association, into 

(a) Ordinary partnerships (p. 104) • 

(b) Limited partnerships (p. 105) • 

(c) Joint-stock companies (p. 106). 

(d) Subpartnerships (p. 106). 

(e) Mining partnerships (p. 107). 

09 *'Two men enter into a conspiracy to rob on the highway, and 
they do rob, and while one Is holding the traveler the other rifles 
his pocket of $1,000, and then refuses to divide, and the other files a 
bill to settle up the partnership, when they go into all the wicked 
details of the conspiracy and the rencounter and the treachery. Will 
a court of justice hear them? No case can be found where a court 
has allowed itself to be so abased. Now If the robbers had taken 
the $1,000 and invested it in some legitimate business as partners, 
and had afterwards sought the aid of the court to settle up that 
legitimate business, the court would not have gone back to inquire 
how they first got the money; that would have been a past trans- 
action, not necessary to be mentioned in the settlement of the 
new business." King v. Winants, 71 N. C. 473, 17 Am. St Rep. 11, 
See, also, Armstrong v. American Exch. Nat Bank, 150 U. S. 433, 10 
Sup. Ct 450, 33 L. Ed. 747 ; Woodworth v. Bennett, 43 N. T. 273, 3 
Am. Rep. 706. See ''Contracts,*' Dec. Dig, (Key No,) K 199, HO; 
Cent. Dig. §| 699, 1 19-121. 

1 Woodworth v. Bennett 43 N. Y. 273, 3 Am. Rep. 706; CENTRAL 
TRUST & SAFE DEPOSIT CO v. RESPASS, 112 Ky. 606, 66 S. W. 
421, 96 li. R. A. 479, 90 Am. St Rep. 317, Gllmore, Cas. Partnership, 
139. See '^Contracts;' Dec. Dig. {Key No.) K 1S9, HO; Cent. Dig. §§ 
e9S, 71S-t21; ^'Gaming;* Dec. Dig. iKey No.) t 17; Cent. Dig. i S3. 



104 rOBUATION AND CLABSiriCATIOM (Ch. 2 



SAME— ORDINARY PARTNERSHIPS 

32. Ordinary partnerships may be divided, in respect to 
their extent, into universal, general, and special 
or particular, partnerships^ 

Ordinary Partnerships — Universal, General, and Special or 

Particular 

A universal partnership is one where the parties agree to 
bring into the firm all of their property, of whatever de- 
scription, and to employ all their skill, labor, and services 
in the business of that partnership for their mutual bene- 
fit* While theoretically possible, such partnerships are 
practically never found/ A general partnership is one 
where the partners agree to join in all transactions of a par^ 
ticular class of more or less permanency, such as a part- 
nership in banking, merchandising, or contracting. A spe- 
cial partnership, on the other hand, contemplates associa- 
:ion in only a single venture.* 

* See Story, Partnership, p. 71. 

• But, as approaching them, see Gray t. Palmer, 9 Oal. 616; 
vlasely t. Separatist's Society of Zoar, 13 Ohio St 144; Qoesele t. 
Bimeler, 14 How. 589, 14 L. Ed. 554; Lyman y. Lyman, 2 Paine, 
11. Fed. Gas. No. 8,628; Houston t. Stanton, 11 Ala. 412; Baker t. 
Na ^htrieb, 19 How. 126, 15 L. Ed. 528 ; Rice t. Barnard, 20 Vt 479, 
50 Am. Dec 54; Hamilton v. Halpin, 68 Miss. 99, 8 South. 739; 
United States Bank y. Binney, 5 Mason, 176, 183, Fed. Gas. No. 16,- 
791. See, also. Fuller ▼. Ferguson, 26 Cal. 546, for the relation anal- 
ogous to universal partnerslilps which the Mexican law in force in 
Calif oinia before its cession created between husband and wife. See 
"Partnerthip;' Dec. Diff, (Key No,) U 1-iS, 65; Cent, Dig. H 1-60, 

« Ther« is much confusion in the tlse of the terms, and there la no 
particular advantage in such classification. The scope of a partner- 
ship business and the rights and liabilities of the participants must 
be determined by the facts of each particular case Cf. Mechem, 
Partn. Bq. 15; Bates, Partn. Eq. 12; T. Pars. Partn. Eq. 40; Story, 
Partn. Eq. 70; Bates, Tim. Partn. Eq. 1; Shumaker, Partn. Eq. 
4^43. 



I 84) OL48SIFIGATION OF PARTNER8HLP8 105 



SAME— LIMITED PARTNERSHIPS 

S3. Limited partnerships are those in which the liabilities 
of some of the partners are limited to specified 
amounts* 

Limited partnerships exist solely by virtue of statutes, 
which allow the liabilities of some of the partners to bear 
losses to be restricted to a defined amount- The distin- 
guishing feature is the absence of the common-law liability 
of each partner for the full amount of the partnership 
debts.* 

SAME— JOINT-STOCK COMPANIES 

84. A joint-stock company is a partnership with a capital 
divided into transferable shares. 

Where, in America, persons form corporations in exten- 
sive business enterprises in order to avoid their individual 
liability for all the debts of the association, in England it 
is more common to resort to the formation of a joint-stock 
company. The business management of these companies 
is committed to a board of directors, the capital is divided 
into shares, and the shares are freely assignable, as in cor- 
porations. The provisions of the joint-stock companies' 
acts, and the memorandum and articles of association, con- 
trol. When these are silent, the members are individually 
liable for all the debts of the company, as are the members 
of an ordinary partnership.* 

The absence of the delectus personariim, the limited lia- 
bility, and the assignability of the shares are the distin- 
guishing features of these associations. 

* See poet, chapter XI, p. 692. 

• 25 & 26 Vict c. 89; 80 & 31 Vict c. 181. See, also. Laws N. T. 
1881, a 699 ; Shumaker, Partn. 11, 280. 



106 FORMATION AND CLASSIFICATION (Cb. 2 



SAME— SUBPARTNERSHIPS 

35. A contract between a partner and a third person to 
share the former's proportion of the profits does 
not make such third person a member of the part- 
nership, but creates a subpartnership, provided the 
other requisites of a partnership agreement are 
present. 

We have already seen that the principle of delectus per- 
sonarum does not apply to a subpartnership, for this is 
merely a partnership within the main partnership, of which 
it is independent/ "I take it," says Lord Eldon, "to have 
long since been established that a man may become partner 
with A., where A. and B. are partners, and yet not be a 
member of that partnership which exists between A. and 
B." • A. may ag^ee to divide the profits of his partnership 
with B. with the stranger, but the latter thereby acquires 
no standing whatever in the original firm, and is not enti- 
tled to any share of its profits as such. With A. alone is 
he privity.* 

T See ante, chapter II, § 22, p. 74; BURNETT v. SNYDER, 70 
N, Y. 344, Gilmore, Cas. Partnership, 117; Setzer v. Beale, 19 W. 
Va. 274. Bee *' Partnership,'* Deo, Dig. (Key No,) S§ 18, 2S, 29; Cent. 
Dig. IS h 9, SS, 475. 

8 Ex parte Barrow, 2 Rose, 252, 254; Nlrdlinger y. Bemhelmer, 
133 N. Y. 45, 30 N. E. 561 ; Morrison y. Dickey, 122 Oa. 353, 60 S. E. 
175, 60 L. R. A. 87 (1905). See "^Partnership," Deo. Dig. (Key No.) |{ 
18, 2S, 29; Cent. Dig. {{ i, 9, SS. 

• Note that since the decision of COX y. HICKMAN, 8 H. L. Oas. 
268, Gilmore, Cas. Partnership, 31, the participation of the sub- 
partner In the profits of the principal firm does not render him liable 
to its creditors, as he would haye been under WAUGH y. CARVER, 
2 H. BL 235, Gilmore, Cas. Partnership, 19. See chapter I, §{ 5, 6, 7. 
Bee "Partnership;' Deo. Dig. iKey No.) H IS, 23, SO; Cent. Dig. f{ 
4, ft^S-W. 



§§ 37-^8) CLA8SIFIGATION OF PARTNERSHIPS 107 



SAME— MINING PARTNERSHIPS 

36. Where tenants in common of a mine work it together, 
but divide the profits in proportion to their inter- 
ests, they are mining partners. 

Mining partnerships are a cross between tenancies in 
common and partnerships proper.** Their chief peculiarity 
is the absence of the delectus personarum, the essential ele- 
ment of a strict partnership. ' Moreover, the shares of a 
mining partnership may be assigned ad libitum. The 
death of a partner, or his retiring from the firm, does not 
dissolve the partnership.** However, there is nothing to 
prevent the partners in a mining operation from forming a 
strict partnership, if they wish it, and when it appears that 
the confidential relation — the delectus personae — is estab- 
lished, and the firm is not subject to the intrusion of other 
partners at will, the ordinary incidents of partnership at- 
tach.** 



SAME— TRADING AND NONTRADING PARTNER- 
SHIPS 

87. Partnerships are also divided, in respect to their busi- 
ness, into trading and nontrading. 

38. Trading partnerships are those in the conduct of whose 
business there is contemplated the periodical or 
continuous buying and sdling of mercantile com« 
modities. 

10 Nolan ▼. Lovelock, 1 Mont 224. See '*Mine$ and Minerala,** 
Dee. Dig. (Key No.) H OS-lOO; Cent. Dig. St £2^-225. 

11 Katm V. Central Smelting Oo. (1880) 102 U. S. 641, 26 L. Ed. 
266, Gilmore, Cas. Partnership, 120, note; Blackmarr v. Williamson, 
57 W. Va. 249, 50 S. B. 254. See "PartnersMp,** Dec. Dig. (Keu 
No.) It 96-100; Cent. Dig. fit 222-225. 

IS Decker y. Howell, 42 Cal. 636. See "Mines and Minerals,** Deo. 
Dig. (Key No.) fi 97; Cent. Dig. i 222. 



108 FORMATION AND CLASSIFICATION (Ch. 2 

Trading and Nontrading Partnerships 

Partnerships are usually classified, on the basis of the 
nature of the business, into trading or commercial partner- 
ships and nontrading partnerships. The significance of the 
classification lies in the fact that the scope of each partner's 
power to act as agent for his copartners is usually much 
broader in the former class than in the latter. For exam- 
ple, in a trading firm each partner has implied power to 
borrow money and issue therefor negotiable paper^ while 
in a nontrading firm no such implied power exists.*' The 
classification is quite generally recognized by the courts 
and is of importance in ascertaining the scope of a partner's 
power.** 

Same — Trading and Nontrading Firms Defined 

A trading firm is one in the conduct of whose business 
there is contemplated the periodical or continuous buying 
and selling of mercantile commodities. "The test of the 
character of a partnership is buying and selling. If it buys 
and sells, it is a commercial or trading; if it does not buy 
or sell, it is one of employment or occupation." *• It is a 
trading firm if the conduct of its business "so involves buy- 
ing or selling, whether incidentally or otherwise, that it 
naturally comprehends the employment of capital, credit, 
and the usual instrumentalities of trade, and frequent con- 
tact with the commercial world in dealings which in their 



itPE2ASE T. COLE, 53 Conn. 53, 22 Atl. 681, 55 Am. Rep. 53, 
Gllmore, Gas. Partnership, 372; Smith y. Sloan, 37 Wis. 285, 19 
Am. Rep. 757 ; HEDLEY y. BAINBRIDGE, 3 Q. D. 3ie. 2 O. & D. 
483, 11 Ix J. Q. B. 293, Oilmore, Gas. Partnership, 371. For further 
discussion, see chapter V, t 98, p. 288, "Powers of Partners.** See 
'^Partnership," Deo. Dig, {Key yo.) i US; Cent, Dig, i m.. 

i« Marsh, Merwln & Lemon y. Wheeler, 77 Gonn. 449, 57 Atl. 410, 
107 Am. St Rep. 40; Lee v. First Nat Bank of Ft Scott, 45 Kan. 
8. 26 Pac. 196. 11 L. R. A. 238; WINSHIP y. BANK OF UNITED 
STATES, 9 Pet 629, 561, 8 L. Ed. 216, Gilmore, Gas. Partnership, 
356. But see, contra, Hoskinson y. Eliot 62 Pa. 393. See ^'Pariner- 
9Mpr Dec Dig. (Key No,) i 146; Cent, Dig, H 242-255, 

IB Lee y. First Nat Bank of Ft Scott 45 Kan. 8, 25 Pac. 196, 
11 L. B. A. 238 ; Kimbro y. Bullitt 22 How. 256, 268, 16 L. Ed. 318. 
See '^Partnership;' Deo, Dig. {Key No,) f§ 125-164; Cent, Dig, U 190- 
900, 



§§87-88) OLA88I11GATION or PARTMEB8HZF8 109 

character and incidents are like those of traders gener- 
ally," " 

While the distinction between trading and nontrading 
firms is recognized, it is not always easy to draw the line. 
The courts have judicially declared certain partnerships to 
be in trade/^ and others not to be in trade.^* Doubtful 
cases are to be dealt with according to their facts, and the 
question of the extent of the partner's power should be sub- 
mitted to the jury. "While, on the authorities, it may not 
be very difficult, in many cases, to hold, as a matter of law, 
that the scope of the business carried on by a certain firm 
renders it a trading partnership, with a power or authority 

i« Marsh, Merwin & Lemon ▼. Wheeler, 77 Oonn. 449, 454, 59 AtL 
410, 412, 107 Am. St Rep. 40. In PHILLIPS v. STANZELL (Tex. 
Civ. App.) 28 S. W. 900, the court quotes with approval the following 
definition from Bates, Partn. | 827 : '*If the partnership contemplates 
the periodical or continuous or frequent purchasing, not as an in- 
cident to an occupation, but for the purpose of selling again the 
thing purctiased, either in its original or manufactured state, it Is 
a trading partnership; otherwise, it is not" See '* Partnership^** 
Dec. Dig, (Key No.) §| 125-164; Cent. Dig. K 190-900. 

iTQenerally, all partnerships engaged in carrying on mercantile 
business in the ordinary way have been held to be in trade. Smith 
T. Collins, 116 Mass. 388; Wagner v. Simmons, 61 Ala. 143; Gano 
V. Samuel, 14 Ohio, 592; Dow v. Moore, 47 N. H. 419; Walsh v. 
Lennon, 98 III. 27, 38 Am. Rep. 75. 

Likewise firms manufacturing commodities for sale are in trade. 
WINSHIP V. BANK OF UNITED STATES. 5 Pet 529, 8 L. Ed. 
216; Gilmore, Gas. Partnership, 8^6; Holt v. Simmons, 16 Mo. App. 
97; Oowand v. Pulley, 11 La. Ann. 1; Hoskinson v. Eliot, 62 Pa. 
393. See ^^Partnership" Deo. Dig. {Key No.) K 125-164; Cent. Dig. 
II 190-SOO. 

!• Smith V. Sloan, 87 Wis. 285, 19 Am. Rep. 757 (attorneys) ; Third 
Nat Bank v. Snyder, 10 Mo. App. 211 (brokers) ; Kimbro ▼. Bullitt, 
22 How. 296, 16 L. Ed. 313 (farmers and planters) ; Levi y. Latham, 
15 Neb. 509, 19 N. W. 460, 48 Am. Rep. 361 (livery men) ; Scheie v. 
Wagner, 163 Ind. 20, 71 N. E. 127 (money lenders and Insurance 
agents); Horn v. Newton Gity Bank, 32 Kern. 518, 4 Pac. 1022 
(operators of threshing machines); PEASE v. GOLE, 53 Gonn. 53, 
22 Atl. 681, 55 Am. Rep. 53, GUmore, Gas. Partnership, 372 (theater 
managers) ; Deardorf *s Adm'r v. Thacher, 78 Mo. 128, 47 Am 
Rep. 95 (real estate agents); Third Nat Bank of Sedalia v. D. A. 
Faults & Go., 115 Mo. App. 42, 90 S. W. 755 (contractors carrying 
government mail). See *' Partnership,'* Dec. Dig. {Key No.) |{ 125- 
164; Cent. Dig. U 190-900. 



110 FOBMATION AND CLASSIFICATION (Ch. 2 

 

resting in each partner to borrow money for the use of the 
firm, and to execute and deliver negotiable paper therefor, 
or to hold, as a matter of law, that the firm business con- 
stitutes it nothing but a nontrading partnership, in which 
the partners have, prima facie, no authority to borrow 
money, or to bind the concern by a promissory note, there 
are many partnerships concerning which no rule of law as 
to the implied powers of the partners with respect to firm 
notes can be applied with safety. In these cases the au- 
thority of either partner in this respect must be determined 
is a question of fact, depending upon circumstances pecu- 
liar to each. Certain it is, from the nature of the business 
conducted by defendant firm, that the court below could 
not hold, as a matter of law, that it was a trading partner- 
ship, and hence that each partner had implied authority to 
borrow money for its use, and to execute and deliver a firm 
note for the same." *• 



CLASSIFICATION OF PARTNERS 

39. Partners have been divided into various dasseSt tuch 
as: 

(a) General. 

(b) SpeciaL 

(c) Ostensible. 

(d) Secret. 

(e) Silent. 

(f) Dormant. 

(g) NoxninaL 

General and Special Partners 

A general partner being one whose liability for partner- 
ship debts is unlimited, the term has no significance as ap- 
plied to members of ordinary partnerships, who are neces- 
sarily all general partners. It is used merely to distinguish 
the one or more members of a limited partnership who are 

i» VETSOH ▼. NBISS et al., 06 Minn. 459, 69 N. W. 815, Gllmore, 
Gas. Partnership, 879. Bee ^'Partnership,** Dec Dig. {Key No.) i 218. 



§ 89) CLASSIFICATION OF PARTNEBS 111 

not special partners; that is, whose liability is not limited 
to a defined amount, as is that of the special partners. In 
a limited partnership there must always be one or more 
general partners, as well as one or more special partners.'* 

Ostensible Partners 

An ostensible . partner is one whose connection with the 
firm is openly avowed, either by means of the firm- sign or 
otherwise. 

Secret Partners 

A secret partner, on the other hand, is one whose con- 
nection with the firm is concealed, or at least is not an« 
nounced or made known to the public.** 

Silent Partners 

A silent partner, while having his right to a share of the 
firm profits, has no voice in the management of the part- 
nership business. This restriction placed upon his power 
by the mutual agreement of the partners will not, how- 
ever, be allowed to work to the detriment of a third person, 
deeming himself, upon good grounds of belief, in dealing 
with a partner, to be dealing with the firm.'* 

Dormant Partners 

A dormant partner combines in himself the characteris- 
tics of both the secret and the silent partner. Although 
his identity may be a secret, and he may not transact any 
of the business of the firm, he still maintains the relation of 
principal to his agent, the fellow partner. This distin- 
guishes him from the mere sharer of profits, who, since Cox 
V. Hickman, has had no partnership liability.*' Once the 
secret of his existence is disclosed, the dormant partner, 
like the undisclosed principal in the law of agency, is held 



so See post, chapter XI, pi 592, '^Limited Partnerships.** 

ai WlUard v. BuUen, 41 Or. 26, 67 Pac 924, 68 Pac. 422. See ^'Part- 
nership," Dec. Dig. (Key No.) | S9; Cent. Dig. H Si, 55. 

" As to what notice Is sufficient to relieve the firm from liability 
for acts of a partner of restricted authority, see post, "Powers of 
Partners," chapter Y, S 86 et seq., p. 276. 

ss COX T. HICKMAN, 8 H. L. Gas. 268, Gllmore, Gas. Partnership, 
81. See ''PartnertMp!' Deo. Dig. (ICey HOn) % S9; Oent. Dig. ii 
54, 55. 



• _ 



-fta^klTOn MJtD CLASSIFICATIOM (Gh. 2 

X. "n ^iiv liabflity, even where he has attempted 

^ >5t 'acit OS a mere lender.'* He has this advan- 

- ^ - r- rhat so long as he is unknown he is pro- 

• - c -nie that "a dormant partner may retire from 

• . »•, ut ^ving notice to the world," *• 

X v..;-.ta.i partner is the expression used to designate a 

X >^>« ^ix^ iMs acquired the name, with outside persons, 

, V ii^ a '^drtner^ without necessarily participating in the 

. . :>. Liability attaches to him by reason of his own act 

'• v^-.^iiMb:^ alone* Having courted liability for the firm's 

X ov>^ I^ can generally be forced to pay them.** 

•^ IWI^KT ▼* DRIVER, S Ch. DiT. 458; Allen & Go. T. Davids, 

V 5^ O *iW» 40 & E. 846. See '* Partnership,'* Deo. Dig. (Key No.) il 
vwv :^*.' CvnL Dig* H 296-900. 

••'v^VKCKK T. WHALLEY, 1 Bam. & Adol. U. Farther dls- 

V u««4vu v^ ttt^ UabUity of dormant and secret partners will be found 
:sm. <^<ki^t«r lY, I 88, p. 265. Bee ^^Partnership,'* Deo. Dig. {Key 
>u.> I tCW; Cent. Dig. if i8Jhi88' 

«« s^i^ aal% chapter I, | 26, ''Partnership by BstoppeL" 



§ 40) MATURE AND CHABACTlBBISTICa 113 



CHAPTER III 

THB NATURE AND GHABAOTERISTICS OF A PARTNERSHIP 

40. VarionB Conceptions of a Partnership. 
41-42. The Partnership Name. 

43. Partnership Property. 

44. What Is Included in Partnership Property. 
45-46. Partnership Capital. 

47-48. Amount of Gontrlbntlon. 

40-61. Good Will. 

62. Title to Partnership Property — ^How Taken and Held. 

63. Conversion of Partnership Realty into Personalty. 

64. Extent of Conversion. 

66. Nature and Extent of Partner's Interest in Partnership 

Property. 
66-67. Transfer of Partnership Property — ^By Act of Partnership. 

68. Firm Creditors' Rights in Firm Assets — ^Partner's Lden. 

69. Change of Firm Property into Separate Property. 
60-6L Use of Firm Property to Pay Separate Debts of Partners. 

62. By Act of a Single Partner. 

63. Form of Conveyance. 

64. Successive or Simultaneous Transfers of each Partner's 

Interest 
66-66. Effect of Death of Partner on Partnership Property. 

67. Surviving Partner' as Quasi Trustee. 

6& Agreement of Partners Controlling Property after Death of 
Partner. 



VARIOUS CONCEPTIONS OP A PARTNERSHIP 

40. Whether a firm is a legal entity distinct from its mem- 
bers is a question on which there is diversity of 
opinion. By merchants and by the civil law a part- 
nership is regarded as an entity; by the common 
law it is considered merely as an association of 
individuals. 

In General 

No one question in the law of partnership has produced 
more controversy, at least among text-writers, than the 
question as to the true nature of a partnership. It is de- 

GlL.PAaT. 



114 NATUBB AND CHABACTBBISTIC8 (Ch. 3 

clared by one learned writer that: "It is certain that a 
partnership is neither a tenancy in common, nor a corpora- 
tion; and it is equally certain that it has some of the at- 
tributes and qualities of each of these forms of joint own- 
ership. The question, which lies at the bottom of the dif- 
ficulties presented by our present topic, seems to us to be 
this: Which of these two things does partnership most 
nearly approach?    A partnership is a legal body 
by itself. We do not say it is a corporation, because it 
wants some of the most essential elements of incorporation. 
But we say it is a body by itself, and is so recognized by 
the law for some purposes, and should be — always in a 
proper way, and to a proper degree — for all purposes." * 
But the above view is criticised by another writer in the 
following language: "What is the polarity of mind of a 
lawyer who advocates making a partnership by turns a 
corporation and a number of individuals? If he compre- 
hended the elemental distinction of kind, he would not ex- 
pose his confusion by making the suggestion; but he 
would disguise the proposition in the jargon of lawyers, 
who speak of a man quo inodo a horse." * The author fur- 
ther insists that, if the fiction that the firm is a person had 
a legal basis for its existence, a partnership would become 
a corporation, and would be subject to the incidents of in- 
corporation. 

The Mercantile Conception 

However we may regard a partnership, whether as a le- 
gal entity or as a collection of individuals combined for 
purposes of mutual profit, there is no doubt that according 
to the conception of merchants the firm is regarded as a 
distinct body from the individuals of which it is composed. 
Partnership bookkeeping is conducted as though the firm 
were a natural person, possessing rights and obligations of 

1 Parsons (TheophUus) on Partnership (4th Ed.) pp. 826, 328. 

s Parsons (James) Principles of Partnership (Ist Ed.) 287. Mr. 
Parsons' conception of a partnership Is as follows: '*The sum of 
the rights and datles of the partners in the relation is caUed the 
status of partnership. The status may be created by contract, like 
marriage or sale. The contract is the occasion or doir, and the 
consummation or conveyance establishes rights in rem." 



§ 40) YARIOUS GONCEFnONS OF PABTNER8HIF 115 

its own. Each partner is represented as a debtor to the 
firm for money or other property received by him from the 
common fund. He becomes a creditor of the firm for the 
amount of his contributions to that fund. In general, ^it 
may be said that, though they probably recognize gen- 
erally the personal liability of partners,* business men are 
apt to conceive of a firm as distinct from its members. This 
distinction, thus made, is often recognized by the courts in 
the interpretation of mercantile contracts. Even though a 
court may not recognize the partnership as an entity, it will 
recognize the usage of business men in interpreting their 
contracts. Thus in Bank of Buffalo v. Thompson,* a mort- 
gage was given by Thompson to the bank, conditioned for 
the payment of all notes, checks, or bills of exchange there- 
after "made, drawn, indorsed, or accepted" by Thompson 
and discounted by the bank for his benefit, and also for 
the payment of "all sums of money which shall at any time 
be due or owing by him to said bank upon any account 
whatever." Subsequent to giving the mortgage Thompson 
formed a copartnership with three other persons. The 
bank, having discounted for the firm several notes made 
and indorsed by Thompson in the firm name, claimed that 
these were secured by the mortgage. In refusing to sus- 
tain the contention of the bank, the court said: "In ordi- 
nary commercial language the obligation of a firm would 
not be spoken of as the obligation of any one of its mem- 
bers, and a firm is regarded as an entity distinguished 
from all the individual members of which it is composed. 
*   This mortgage must be regarded as a commer- 
cial instrument, executed in commercial transactions, and 
must be construed as ordinary commercial men would un- 
derstand the language used; and we think that among 
business men a distinction is made between the firm, as an 

t Holmes, J., In HALLOWELL y. BLACKSTONB NAT. BANK, 
154 Mass. 859, 28 N. B. 281, 13 L. R. A. 815, Gllmore, Gas. Partner- 
ship, 809. See **Partner9hip/' Dec Dig. {Key No.) I 6S; Cent Dig. 
I 9S; '*Pledffe8,'* Cent, Dig. | 61. 

4 BANE OF BUFFALO V. THOMPSON, 121 N. Y. 280, 24 N. B. 
473, Gllmore, Gas. Partnership, 152. See "Partnership^" Deo. Dig. 
i^ey No.) %6S: Cent. Dig. | 99; '^Mortgages:' Cent. Dig. I 228. 



116 NATUBB AND CHARACTBRISTICS (Ch. 3 

entity, and the members who compose it, and that this 
language would not be understood as broad enough to 
cover the indebtedness of a firm of which Thompson was 
a member, and for whose debts, jointly with the odier mem- 
bers of the firm, he could be made responsible." The court 
did not mean to say that it recognized a partnership as an 
entity. It merely took cognizance of the way in which 
those who had made a contract treated it, in order to give 
effect to their intention.* 

The same rule has been applied in the interpretation of 
statutes relating to commercial transactions. In an Ohio 
case an attempt was made to recover statutory damages on 
a protested bill "drawn on persons without the state/' The 
bill was drawn in Cincinnati on "Taylor & Cassily, New 
Orleans." Taylor and Cassily were partners in trade, hav- 
ing branches both in New Orleans and Cincinnati ; Taylor 
living in New Orleans and Cassily in Cincinnati. The busi- 
ness of each branch was kept distinct, and each kept ac- 
counts with the other as with customers generally. In con- 
struing the statute to apply to this bill, the court said : "It 
can hardly be doubted that the terms, 'any person or per- 
sons, or body corporate,' as used in the statute, were .in- 
tended to include all persons, natural or artificial, upon 
whom bills of exchange could properly be drawn. Can any 
good reason be assigned why mercantile firms, by whose 
agency so much of the commerce of the world is transacted,^ 
should be excluded from the operation of a* statute designed 
to regulate commercial paper?"* In another case it was 
held, under a statute requiring a chattel mortgage to be filed 
where the owner of the property resided, or, in case of his 
nonresidence, where the property was located, that a filing 
of a chattel mortgage given by a firm, one of whose miembers 
was a nonresident, at die place where the resident partner re- 
sided and where the principal business of the firm was carried 

s But see HALLOWBLL y. BLAGKSTONE NAT. BANK, 154 Mass. 
359, 28 N. E. 281, 13 L. B. A. 315, GilmoFe, Gas. Partnership, 309^ 
where a contrary result was reached. See **Pledgea^** Cent. Dig, | €1. 

WBST ▼. VAIJ.BY BANK, 6 Ohio St 169, 172. Bee **BUl9 and 
Notes;' dent. Dig. § A|. 



§ 40) TABIOnS OONOBFnONB OF PARTNERSHIP UT 

on, "should be considered a sufficient filing within tfie spirit 
of the statute." ^ 

The Legal Conception 

The legal conception of a partnership is, however, very 
different from the commercial one. While the civil law re- 
gards a partnership as an entity,* the common law, in the 
language of the courts, at all events, rarely recognizes the 
partnership as distinct from the members of which it is 
composed.* They possess the rights and liabilities of the 
partnership. The obligations of the partnership may be 
satisfied out of their assets, and the death or retirement of 
any one of them terminates the partnership. Though stat- 
utes have made it possible in many instances to sue the part- 

T HUBBARDSTON LUMBER CO. 7. COVERT, 35 Mich. 255, Gil- 
more, Cas. Partnership, 14& See "Chattel Mortgages,** Cent. Dig. 

» SnccesBlon of PILGHER, 39 La. Ann. 862, 1 Sonth. 029, Gilmore, 
Gas. Partnership, 148. "The partnership, once formed and put Into 
action, becomes, in contemplation of law, a moral being, distinct 
from the persons who compose it It is a clyil person, which has its 
peculiar rights and attributes." Smith v. MeMicken, 3 La. Ann. 322. 
See ^'Partnership** Dec, Dig. (Key No.) I 6S; Cent. Dig. § 95. 

• "It was not the lease of the firm, because there was no such 
thing as a firm known to the law." James, Jj. J., in Ex parte GOR- 
BETT, L. R. 14 Gh. D. 122, 126, Gilmore, Gas. Partnership, 146. 

"In contemplation of law there is no merger or fusion of the several 
persons composing a partnership into a common or comprehensive 
person including them all. A firm adds nothing to population, and 
in this respect is unlike a corporation, which augments population 
in the legal, though not in the natural, world." Bleckley, G. J., in 
DRUOKER y. WELLHOUSE, 82 Ga. 129, 132, 8 S. E. 40, 42, 2 L 
R. A. 328. 

"A partnership is not a person, either natural or artificial." Bean, 
J., in Adams v. Church, 42 Or. 270, 272, 70 Paa 1037, 1038, 59 L. 
R. A. 782, 95 Am. St Rep. 740. 

"A partnership cannot be considered as a person, in contradlstlne^ 
tion to the persons composing It, simply because such is not its 
nature." Stayton, 0. J., in WIGGINS v. BLAGKSHEAR, 86 Tex. 
665, 668, 26 a W. 939, 9i0. 

"Persons who have entered into partnership with one another are, 
for the purposes of this act, called collectively a firm, and the name 
onder which their business is carried on is called the firm name." 
Partnership Act, 1890, | 4(1). Bee "Partnership,** Dec. Dig. {Key 
Jfo.) I 63; Cent. Dig. | 9S. 



118 NATURB AND CHARACTBRISTICS (Ch. 3 

ners in the name of the partnership, such statutes are pro- 
cedural merely and do not change the essential nature of a 
partnership.** The same is true of statutes which permit 
the levying of taxes in the firm name, and the bringing of 
suit where the firm transacts business. The taxes, if not 
satisfied out of the firm assets, may be satisfied out of those 
of the individual partners, and the execution may be levied 
on the judgment against the property of the partners. The 
attitude of the courts towards the firm as a collection of 
individuals, and not as an entity, is illustrated in Jones v. 
Blun.** A statute forbade a corporation which had re- 
fused payment of its debts to transfer any of its property 
to any of its stockholders, directly or indirectly, in payment 
of a debt. A corporation of which Blun was a stockholder, 
having refused payment of its debts, transferred certain 
property to a firm of which Blun was a member. Though 
the same court had in Bank of Buffalo v. Thompson, supra, 
recognized, in construing a mercantile contract, tiie commer- 
cial conception of partnership, it declared, in setting aside the 
transfer as contrary to statute : "There' is no such potency in 
the entity known as a copartnership as to shield a stockholder 
of a corporation from the penalty denounced by this statute 
because he happens to be a member of a firm, and thus allow 
him to secure to himself a preference of his claim against a 
corporation/' 

THE PARTNERSHIP NAME 

41. Partners may, in the absence of statutory restrictions^ 
carry on their common business in any name they 
wish. They will be bound on simple contracts 
made in any name, if in fact such contracts were 
made on their behalf by one having authority. 
They cannot, however, be held on negotiable or 

!• Bz parte Blaln, 12 Gh. D. 522; Western National Bank of N. T. 
T. Perez, Trlanca & Ck>., [1891] 1 Q. B. 304; Bx parte Beauchamp, 
[1894] 1 Q. B. 1. See '*Partner8Mpr Deo. Dig. (Key No.) « 69, 197; 
Cent. Dig, §1 93, S60. 

11 JONBS y. BLUN, 145 N. Y. 833, 39 N. B. 954» OUmore^ Cas. 
Partnership, 160. See **Corporation8,*' Cent, Dig. I 2155. 



S§ 41-42) THE PARTNERSHIP NAMB 119 

sealed instruments, unless signed with an adopted 
firm name» or with the names of all the partners. 

42. If the firm name is also the name of a partner, there is 
a presumption, if sxich partner has no separate 
business of his own, that contracts signed in that 
name are firm contracts. If he carries on a sepa- 
rate business, no presumption arises. It is a ques- 
tion of fact whether the name represents himself 
or the partnership. 

Partnership Name 

At common law, in the absence of statutory limitations, 
one may carry on business in any name he chooses, if he 
does not have a wrongful intent in so doing. Likewise per- 
sons in the partnership relation may carry on their com- 
mon business under afay name they wish. A firm being at 
law a collection of individuals, the partnership name is rep- 
resentative of them rather than of the partnership. This 
being so, an obligation in the names of all of the partners 
is as much a partnership obligation as though it were 
signed in a partnership name.** It is not necessary that 
the partners should fix upon a firm name at all.** But, if 
chosen, it is merely a convenient way of expressing the col- 
lective names of the partners.** It is in law the name or 
symbol by which each partner has chosen to represent him- 
self, and it may, in the absence of statutory restrictions, 
consist of the names of any or all of the partners, or the 
names of individuals who are not partners, or it may be 
purely fanciful. In some jurisdictions restrictions are 

"DREYFUS y. UNION NAT. BANK. 164 lU. 83, 46 N. E. 408; 
Kahn y. Thomson, 113 Ga. 957, 89 S. E. 322; McGREGOR y. 
CLEVELAND, 5 Wend. (N. Y.) 475, Ollmore, Cas. Partnership, 154; 
BERKSHIRE WOOLEN CO. y. JUILLARD, 75 N. Y. 535, 81 Am. 
Rep. 488, Ollmore, Cas. Partnership, 156. See **Partner8Mp,*' Dec 
Dig. {Key No.) H 64, 1S6; Cent. Dig. §§ 87^1, tOS, 20k, 240. 

i» Parsons y. Hay ward, 4 De O., F. & J., 474; JUROENS y. ITT- 
MAN, 47 La. Ann. 367, 16 South. 952. See ''PartnereMp," Dec. Dig. 
(Key No.) | 64; Cent. Dig. §§ 87-Pi. 

14 HASKINS y. lyESTE, 138 Mass. 856, Ollmore, Cas. Partnership, 
154. See **Partner$hip;' Deo. Dig. ^Key No.) ^ 64; Cent. Dig. U 
87-^i, 4i6. 



120 NATUBB AND CHARACTBBI8TIC8 (Ch. 3 

placed upon the name which an individual or firm may use» 
as forbidding the use by a firm of a name which represents 
a corporation,*' or the use of "& Co.," unless it actually 
represents a member of the firm,** and in England it is said 
to be an offense against the prerogative of the crown for 
private persons to "assume to act as a corporation." *' 

Authority to Use Firm Name 

If no firm name is chosen, each partner has the implied 
power to choose and use any appropriate name to represent 
the firm.** If a name is chosen, however, that name be- 
comes the partnership name, and the only one by which 
the partnership can be bound on those contracts in which 
the use of a correct name is essential.** 

Same — Simple Contracts 

It is a principle of agency that in, a simple contract he 
for whom and by those authority it was made can be bound, 
whether his name appears in the contract or not, or whether 
or not his existence was known to the other contracting 
party.** This general rule of agency applies in the case of 
contracts made by a partner; he being the agent for the 
firm. His agency extends to the binding of the partnership 
by contract If he makes a contract in his own name, but 

li Cr. Code, HI. § 220. 

i«See North y. Moore, 186 Cal. 621, 67 Pac. 1037; Brister y. 
Joseph Bowling Co. (Miss.) 29 South. 830; Gaiterman y. Wishon, 
21 Mont 458. 54 Pac 566; Castle Bros. y. Graham, 180 N. Y. 553, 
73 N. B. 1120; Loeb y. Firemen's Ins. Co., 78 App. Diy. 113, 79 
N. Y. Snpp. 510; Lauferty y. Wheeler, 11 Abb. N. C. (N. Y.) 220; 
Walker y. Stlmmel, 15 N. D. 484, 107 N. W. 1081 ; Jenner y. Shope, 
67 Misc. Rep. 159, 121 N. Y. Supp. 599 ; K. B. Co. y. Batie, 25 Ohio 
Cir. Ot R. 482; Choctaw Lumber Co. y. GUmore, 11 Okl. 462, 68 
Pac. 733 ; Boyee y. De Jong, 22 S. D. 163. 116 N. W. 83. See *'Part' 
nereMp,'* Deo. Dig. {Key Vo.) i§ ^9, 64; Cent. Dig. H 60, 87-91. 

If Pollock's Digest of the Law of Partnership (8th Ed.) p. 25. 

i« Meriden Nat Bank y. Gallaudet, 120 N. Y. 298, 24 N. E. 994. 
ffee 'Tartnershipr Deo. Dig (£ey No.) | 64; Cent. Dig. H 87-91. 

i»KIRK y. BLURTON, 9 Mees. & W. 284, Gilmore, Cas. Part> 
nership, 881. Bee **Partner9Mp,*' Deo. Dig. (JSey No.) ^ 156; OenU 
Dig. f§ SOS, 204. 

20 Thomson y. Dayenport 9 B. & O. 78; Wattean t. Fenwlck 
(1893) 1 Q. B. 346 ; Leyitt y. Hamblet [1901] 1 K. B. 58 ; Schendel y. 
eteyenson, 15B Mass. 351, 26 N. B. 689; Hubbard t. Ten Brook, 124 



§§ 41-42) THE PABTMEB8HIP NAMB 121 

It is shown that it was in fact made for the firm of which 
he is a member, the firm can be held, even though its ex- 
istence was unknown to the other party at the time the 
contract was made,** or, if the known members of a firm 
make a contract for the firm in their own names, a dormant 
partner can be held thereon.*' Whether a contract entered 
into in the name of one partner is his individual obligation, 
or the obligation of the firm, is a difficult question of fact. 
It is entirely possible for the partnership to be liable on a 
contract negotiated in the name of one of its members. 

Same — Negotiable and Sealed Instruments — Authorized 

In the case of negotiable and sealed instruments, the rule 
of agency is different from that which prevails in the case 
of simple contracts. Only those whose names appear on 
such instruments are liable thereon. In order to bind his 
principal upon an authorized negotiable or sealed instru- 
ment, the agent must execute it in his principal's name. 
Likewise a partner, acting for his firm in an authorized 
transaction, in order to bind his copartners, must execute 
the instrument in the adopted firm name.**. If he uses some 
other name, his copartners are not liable, unless it should 
be made to appear that, while the firm has an adopted 
name, they had also been accustomed to use the other 



Pa. 291, 16 Atl. 817, 2 Ll R. A. 828, 10 Am. St. Rep. 585 ; Kayton y. 
Barnett, 116 N. T. 625, 23 N. B. 24. See ''Contracts^ Dec. Dig. {Key 
No.) §§ 185-188; Cent. Dig. U 790^10; '*Principal and Agent," 
Dec. Dig. (Key No.) | 1S2; Cent. Dig. §§ 459, ^67-^71. 

21 Ruppen V- Roberts, 4 Nev. & Man. 31 ; ROBINSON ▼. WILKIN- 
SON, 3 Price, 538; Bottomley y. Nuttall, 5 0. B. N. S. 122. See 
•^Partnership," Dec. Dig. (Key No.) S 1S6; Cent. Dig. §g 20S, 204. 

22 Beckham y. Drake, 9 M. & W. 79. See "Partnership,** Deo. Dig. 
{Key No.) §§ 1S6, 164; Cent. Dig. §§ 209, 204, 296-^00. 

2 a Negotiable Instruments: KIRK y. BLURTON, 9 M. & W. 2Si, 
Ollmore, Gas. Partnership, 381; Faith y. Richmond, 11 A. & E. 339; 
Williamson y. Johnson, 1 B. & Ow 146 ; Macklln's Ex'r y. Crutcher, 69 
Ky. 401, 99 Am. Dec. 680 ; Tllf ord y. Ramsay, 37 Mo. 563 ; Palmer 
y. Steyens, 1 Denlo (N. Y.) 471. Sealed Instruments: McNaughten 
y. Partridge, 11 Ohio, 223, 38 Am. Dec. 731. An immaterial yarlation 
in the name used from the real firm will not prevent a recovery upon 
a bUl of exchange so signed. Norton y. Seymour, 3 G. B. 792. See 
•'Partnership," Dec. Dig. (Key No.) | 146; Cent. Dig. §| 24»-255. 



122 NATURB AND CHARACTERISTICS (Gh. 3 

name.** If he uses his own name, he will be personally lia- 
ble, as he appears as an obligor on the face of the instru- 
ment.^' Can the firm, however, be held on an authorized 
contract executed in the name of one partner? Admitting 
that the contract itself was made on behalf of the firm, and 
was properly authorized, it would seem that the holder of 
a note or sealed instrument given on such a contract, signed 
in the name of one of the partners, would be able to bring 
an action against the partnership, not on the instrument it- 
self, but on the original contract, the terms of which are 
disclosed by the instrument. Such a holding would in no 
way injure the partners themselves. They have authorized 
the contract to be made, and if they have any equitable de- 
fenses they may plead them. That such an action could be 
maintained was clearly implied in . Emly v. Lye,** where 
the plaintiff failed because unable to prove that the con- 
tract was a firm contract, and was in effect decided in the 
Kentucky cases of Hikes v. Crawford,*' and Paris v. 
Cook.** If, however, it has been agreed to take the note 
or bond of one member as payment of a partnership debt, 
the debt is thereby extinguished, and the partnership dis- 
charged from liability.** 

«* Williamson v. Johnson, 1 B. & 0. 146. See ^^Partnership,** Dec 
Dig. {Key No,) | 1S6; Cent, Dig, §§ 20S, 20k. 

28 Sealed Instrument: Appleton v. Binks, 5 East, 147; Firemen's 
Ins. Co. y. Floss, 67 Md. 403, 10 Atl. 139, 1 Am. St Rep. 398. Nego- 
tiable instrument : Leadbitter v. Farrow, 5 Maule & S. 345 ; Pentz y. 
Stanton, 10 Wend. (N. T.) 271, 25 Am. Dec. 558. See *" Partnership,** 
Deo. Dig. {Key No.) | 1S6; Cent. Dig. | 20J^. 

26 EMLY y. LYE, 15 East, 7. See, also, Wilson y. Kennedy, 2 Esp. 
245 ; Puckf ord y. Maxwell, 6 T. R. 51. See ''Partnership,** Dec. Dig. 
{Key No.) ${ 125-164; Cent. Dig. f§ 190-SOO. 

s7 67 Ky. 19. In this case a surety on a note signed by one partner, 
who was compelled to pay the note, was permitted to recoyer against 
the partnership because, as explained in the later cases of Macklin^s 
Ex'r y. Crutcher, 69 Ky. 401, 99 Am. Dec. 680, and Faris v. Cook, 
110 Ky. 867, 62 S. W. 1043, 63 S. W. 600, the creditor might have an 
action against the firm, not on the note, but on the contract itself. 
Fair y. Citizens' State Bank, 9 Kan. App. 779, 59 Paa 43 ; Hoeflinger 
y. Wells, 47 Wis. 628, 3 N. W. 589. See '* Partnership,** Dec Dig 
{Key No.) f 1^6; Cent. Dig. § «^8. 

as 110 Ky. 867, 62 S. W. 1043, 63 S. W. 600. See ""Partnership,** 
Dec Dig. {Key No.) § US; Cent. Dig. % 2J^S. 

«»Bonnell y. Chamberlin, 20 Conn. 487; MAFFET t. LEUCKEU 



§§ 41-42) THE PARTNERSHIP NAMB 123 



Same — Negotiable and Sealed Instruments — Ufvauthorized 

liy without authority, a partner sig^s the firm name to a 
negotiable or sealed instrument, his copartners are not lia- 
ble. But, inasmuch as the partnership name is the name 
of each member, it is usually held that the partner thus ex- 
ecuting an instrument in the firm name, without authority, 
binds himself personally.'* 

It may be, however, that a partner has authority to bind 
his firm on certain contracts, but not authority to put those 
contracts in negotiable or sealed form ; that is, the contract 
itself may be authorized, but not the form of it. As pointed 
out in chapter V, it is only in trading firms that there is an 
implied power to issue negotiable paper; also, as a general 
rule, a partner has no implied power to bind his firm by a 
sealed instrument.** When, therefore, he executes and de- 
livers a negotiable or sealed instrument without authority, 
it is clear that his copartners are not liable upon such in- 
strument, but that he himself may be held thereon.** Can 
the copartners be reached in any way? Applying the prin- 
ciple just noticed in connection with authorized contracts 
in a partner's name, it would seem that where a partner puts 
the authorized contract between the firm and the third per- 



S3 Pa. 468, Gllmore, Cas. Partnership, 317. See ^'Partnership,'* Deo. 
Dig. {Key No.) ^ 146; Cent. Dig, | 248; '^Payment,** Dec Dig. (Key 
No.) § 16; Cent. Dig. I 67. 

•0 EUlott y. Davis, 2 B. & P. 338; Fulton y. Williams, 11 Cush. 
(Mass.) 108; Sherman y. Christy, 17 Iowa, 322; Snow y. Howard, 
35 Barb. (N. Y.)' 55; Morris v. Jones, 4 Har. (Del.) 428; Lay ton v. 
Hastings, 2 Har. (Del.) 147; Brozee y. Poyntz, 3 B. Mon. (Ey.) 178; 
Heath y. Gregory, 46 N. C. 417; Horton y. ChUd, 19 N. a 460; 
Hosklnson y. Eliot, 62 Pa. 3d3; Palmer y. Taggart, 1 Chest. Co. 
Rep. (Pa.) 107; MUwee y. Jay, 47 S. C. 430, 25 S. E. 298. 
Contra: Fisher y. Pender, 52 N. O. 483; Hart y. Withers, 1 Pen. 
& W. (Pa.) 285. See "Partnership,*" Deo. Dig. (Key 2fo.) §f 1S6, 146^ 
161; Cent. Dig. §§ 20S, 204, 242-255, 255%. 

SI iSee chapter V, S 101, p. 30a 

>s See case, supra, note 30. In Fisher y. Pender, 62 N. O, 
483, and Hart y. Withers, 1 Pen. & W. (Pa.) 285, It was held that 
the partner himself Is not liable on the Instrument because It \va8 
not dellyered as his Indlyldual deed, but that of the firm. See 
'' Partnership;* Deo. Dig. (Key No.) i§ 1S6, 146; Cent. Dig. {f 205, 
204, 242-^5. 



124 NATURB AND CHARACTERISTICS (Ch. 3 

son, into a negotiable or sealed form, which is unauthor- 
ized, the firm should be liable, not on the instrument itself, 
but upon a simple contract. Thus in Daniel v. Toney ** it 
was said: "The petition discloses the consideration of the 
note, and alleges in distinct terms that the lumber and 
money for which the note was given went to the use and 
benefit of the firm of which appellant was a member, and 
was so received and enjoyed by the firm. These allegations 
are fully upheld by the evidence, and fix his liability as a 
partner for the value of the property, although the note 
may not, because of the scrawl, be operative as a partner- 
ship obligation." So, also, in Walsh v. Lennon,** where 
the plaintiff, who had loaned money to a firm and received 
a sealed note therefor, which in such form was unauthor- 
ized, was permitted to hold the partners on the common 
counts. 

Another way to reach the copartners, where an author- 
ized contract is put in an unauthorized sealed form, is to 
treat the seal as surplusage, provided it is not essential, and 
to hold the firm on the instrument as though it were a sim- 
ple contract.*' Some courts, however, have refused to per- 
mit this, holding that the parties intended to enter into a 
specialty contract only, and that to treat it as a simple con- 
tract would be doing violence to their clear intention.** 

Partnership Name and Partner^s Name the Same 

It not infrequently happens, especially where some of the 
partners are dormant, that the business of a firm is carried 
on in the name of one of the partners, which name thereby 
becomes the firm name. This use of the name of one of the 

»» 50 Ky. 523. See **Partn€rsMp,^ Dec. Dig. {Key Vo.) § JJ^6; Cent 
Dig. fi 2^7. 

S4 08 lU. 27, 38 Am. Rep. 75. See, further, Brown v. Bostfan. 51 
N. C. 1; HosklDSon v. Eliot, 62 Pa. 803. Bee **Partner8hip** Dec. 
Dig. (Key No.) | X46; Cent. Dig. f «^7. 

80 Cook y. Gray, 133 Bfass. 106; Moore v. SteTens, 60 Miss. 800. 
See, also, Blanchard y. Inhabitants of Blackstone, 102 Mass. 343. 
See ^^Partnership;* Dec. Dig. {Key No.) §| 1S6, i57, 146; Cent. Dig. 
If 20S-B05, 2i0, til. 

80 Russell y. Annable, 100 Mass. 72, 12 Am. Rep. 665 ; SchmprU 
T. Shreeye, 62 Pa. 467, 1 Am. Rep. 430. See ''Partnership,*' Dec Dig. 
{Key No.) f § 1S7, HI, U6; Cent. Dig. H BOS, 2X8, 240, 247. 



S§ 41-42) THE FABTNERSHIP NAMB 125 

partners as the firm name is not likely to produce confu- 
sion, except where commercial paper is issued, which gets 
into the hands of third persons, who are unacquainted with 
the manner of its origin. Again, it is not likely to arise 
where the firm is a nontrading, partnership, whose members 
have no implied authority to issue negotiable paper.'' But 
if a trading partnership uses the name of one partner as the 
firm name it may become a question of much difficulty to 
determine whether negotiable instruments bearing that 
name have been signed in the partnership or in the indi- 
vidual name. The implied authority exists to sign negotia- 
ble paper in the firm name in the firm business; but the 
partner whose name is used still has the right to sign ne- 
gotiable paper in his own name in his behalf. In the case 
of Yorkshire Banking Co. v. Beatson,'* William Beatson 
and John Mycock carried on business as chemical manu- 
facturers, under the name of William Beatson. Mycock 
was a dormant partner. Beatson indorsed one bill and ac- 
cepted another in the name of William Beatson. In a suit 
against the firm upon the bills, it was held that upon proof 
that Beatson, the partner whose name was used, carried on 
no business on his own behalf apart from the partnership 
business, a presumption arose that the signatures were 
those of the firm.** The presumption is purely one of ex- 
pediency, the court saying: "The vast majority of bills 
given under the circumstances supposed would be really 
partnership bills, and yet it would be often difficult, if not 
impossible, for the holders of such bills to do more than 

«» See chapter V, 1 100, p. 302, on Powers of Partners. 

•3 YORKSHIRE BANKING CO. v. BEATSON, Ll R. 5 O. P. D. 
109, Ollmore, Gas. Partnership, 157, 161. See "Partnership,** Dec, 
Dig. (Key No.) | 1S6; Cent. Dig. %% 203, 204. ' 

8t SWAN V. STEELE, 7 East, 200 ; EMLT y. LYE, 15 East, 7 ; 
Bz parte Bolltho, 1 Buck, 100; Bank of South Carolina v. Case, 8 
B. & C. 427; Furze v. Sharwood, 2 Q. B. 388; Nicholson t. Rlck- 
etts, 2 E. & B. 497 ; In re Adonsonia Fibre Co. v. Miles* Claim, Lb 
R. 9 Ch. 635 ; United States Bank y. Binney, 5 Mason, 176, Fed. Cas. 
No. 16,791; Bank of Rochester y. Monteath, 1 Denio (N. Y.) 402, 
48 Am. Dec. 681; Ollphant y. Mathews, 16 Barb. (N. Y.) 606; Mif- 
flin y. Smith, 17 Serg. & R. (Pa.) 165. Bee 'TartneraMp,** Deo. Dig. 
{fLey }fo.) H 64, 1S6, 146; OefU. Dig. H 87, 209, 204, 248. 



126 NATUBB AND CHARACTERISTICS (Ch. 8 

prove that the only trade carried on under the individual 
name was the trade of partnership, and if they were com- 
pelled to go further, and prove that the particular bill was a 
partnership bill, the effect might be that in many cases 
dormant partners, and in some cases ostensible ones, too, 
might escape from just liabilities. On the other hand, the 
partners sought to be made responsible on the bills would 
in most instances be able to prove whether any particular 
bill sued on was or was not a partnership bill, and should, 
as it appears to us, at least have the onus of doing so 
thrown upon them, when it is through their own act, in al- 
lowing the firm name to be the same as that of an individ- 
ual in the firm, that difficulty and doubt arise/' 

This presumption does not arise, even where the firm 
is a trading partnership, where the partner whose name is 
used carries on a separate business.*** It may also be re- 
butted by proof that the signature was really intended to 
be that of the persons signing. This was actually proved 
in the Beatson Case mentioned above. 

Use of Name Protected 

It is a matter of some question as to whether or not there 
is any property in a name as distinguished from its use as 
a label or trade-mark on certain specific articles.** It is 
clear, however, that one who has or uses a name of estab- 
lished reputation in a business will be protected from the 
efforts of competitors to secure part of that business 
through adoption or imitation of the name.** And, though 
it is said that one cannot be prevented from using his own 
name in business,*' yet the use of one's own name may be, 

«• United States Bank t, Binney, Mason, 176, Fed. CaB. No. 
16.791. Bee **Partner8hip;' Dec Dig. (Key No.) SI ^96, U6; Cent. 
Dig. a 20S, 204, ^S, 261. 

«i Singer Mfg. Go. ▼. Loog, L^ R. 8 App. Cas. 15; Borthwick t. 
Evening Post, 37 Ch. Div. 449. See ** Partnership,"* Dec Dig. (Key 
yo.) § 64; Cent. Dig. §| 87-9i; '^Trade-Marks and Trade-Names," 
Dec. Dig. (Key No.) §{ 2S, SI; Cent. Dig. || 26, S6. 

42 Bininger y. Clark, 60 Barb. (N. Y.) 113. See ""Trade-Marks and 
Trade-Names,'' Dec. Dig. {Key No.) S| 5S-101; Cent. Dig. H 61-115. 

48 Cash y. Cash, 19 R. P. G. 181 ; Meneely T. Meneely, 62 N. Y. 
427, 20 AnL Rep. 489. See "'Trade-Marks and Trade-Names;' Dec 
Dig. (Key No.) U 10, 59, 64, 7S; Cent. Dig. ^i 14, 70, 75, 84. 



§ 43) PARTNERSHIP PROPERTY 127 

if not enjoined, at least regulated so as to prevent confu- 
sion and consequent injury.** The protection of a name is 
not a question peculiar to individuals, for the right of pro- 
tection of its name against improper aggression belongs to 
a partnership as well. The security of a firm in the pos- 
session of the name it has adopted lies altogether in its right 
to seek the intervention of equity to prevent fraud. This 
security does not depend upon any exclusive right which 
the firm may be supposed to have to a particular name, or 
to a particular form of words. The right is to be protected 
against fraud ; and fraud may be practiced by means of a 
name, though the person practicing it may have a perfect 
right to use that name, provided he does not use it under 
circumstances such as to effect a fraud upon others/' 



PARTNERSHIP PROPERTY 

43. Partnership or firm property means the property which 
the partners have agreed shall be devoted to the 
purposes of the partnership relation.. What is 
partnership property, as distinguished from prop* 
erty owned by the partners individually or jointly, 
depends upon their intention. In the absence of 
express agreement, the intention is ascertained 
from the manner and purpose of its acquisition 
and the way in which it is used. The mere use of 
property by the firm does not of itself prove that 
it is partnership property. 

The expression "partnership" or "firm" property means 
that property, real or personal, which the partners have 
agreed shall be devoted to partnership purposes. It is clear 

44Wyckoff, Seaman & Benedict ▼* Howe Scale Co. of 1886, 122 
Fed. 348, 58 C. G. A. 510 ; Baker v. Baker, 115 Fed. 297, 53 C. €w A. 
157. See *'Trade-Mark8 and Trade-Names j** Dec Dig. {Key No,) SS 
10, 59, 64, 7S; Cent. Dig. §{ U, 70, 75, 81 

*8 Croft V. Day, 7 Beav. 84 ; Frazer v. Frazer Lubricator Co., 
121 lU. 147, 13 N. E. 639, 2 Am. St Rep. 73. See '^Trade-Marks and 
Trade-Names," Dec. Dig. (Key No.) §§ 10, 59, 64, 75; Cent. Dig. {$ 
U, 10, 76, 84; '*JPartner8hip," Dec. Dig. {fiey No.) | 64; Cent. Dig. 
» 87-91. 



128 NATUBB AND CHARACTBRI8TIC8 (Gh. S 

that persons engaged in business as partners may have 
property, owned separately or jointly, which is not firm 
property. It is for the partners to determine among them- 
selves what shall be the property of them all in their part- 
nership relation, and what shall be the separate property 
of some one or more of them. It is competent for them, by 
agreement among themselves, to convert what is the joint 
property of all into the separate property of some one or 
more of them, and vice versa. The only true method, 
therefore, of determining, as between the partners them- 
selves, what belongs to the firm and what does not, is to 
ascertain what agreement has been come to on the subject. 
If there is no express agreement, attention must be paid to 
the source whence the property was obtained, the purpose 
for which it was acquired, and the mode with which it has 
been dealt.** 

The Manner in Which Acquired 

The property which comes into the hands of the firm by 
virtue of a claim arising in favor of the firm becomes firm 
property. Thus the proceeds of a suit for trespass brought 
for trespass to firm property constitute firm assets.*^ The 
proceeds are assets of the firm as constituted at the time 
the cause of action accrued. It was the firm that was 
injured.  Hence, if one partner dies before recovery on a 
cause of action which accrued in his lifetime, the proceeds 
recovered become assets of the firm of which he was a 
member.** And any property which is produced by the 
firm becomes firm property.** If the partners improve the 
property of one of the partners which is used in the part- 
nership, as by building upon his land, such improvements 
become partnership property.** 

«• Jenkins ▼. Jenkins, 81 Ark. 68, 98 S. W. 685. See ''Partner' 
ship:* Dec. Dig. (Key No.) U 61-69; Gent. Dig, |§ 95-11$. 

*T Collins V. Butler, 14 Gal. 223. See **Partner8Mp,** Deo. Dig. 
(Key No.) §§ 67-69; Cent. Dig. H 95-llS. 

48 Richards y. Maynard, 166 IlL 466, 46 N. E. 1138. See **ParU 
nership,** Dec. Dig. {Key No.) 5 67; Cent. Dig. f 95. 

«B Snyder v. Lunsford, 9 W. Va. 223. See ** Partnership,'' Deo. Dig. 
(Key No.) I 67; Cent. Dig. | 97. 

00 Clark's Appeal, 72 Pa. 142. See **Partner$hipi* Dec Dig. (fey 
No.) § 68; Cent. Dig. § 102. 



§ 48) PABTNBRBHIF FBOPBRTT 129 

Property purchased with partnership funds becomes part- 
nership property in the absence of any agreement to the 
contrary. There is, however, in the absence of fraud, no 
reason why partners may not purchase property with the 
partnership assets, and when so purchased each partner 
may hold his interest therein on his individual account.** 
It may be that it is desired to invest undivided profits in 
this way rather than by dividing them among the partners, 
and there is no objection to such a proceeding. In Collumb 
V. Read,** the court said: "Where the land was not pur- 
chased for partnership uses, and there was no agreement 
making it partnership property, and yet it was paid for out 
of the funds of the partnership or taken in payment of debts 
due it, the question between the two classes of creditors 
would be one of construction as to the intent of the part- 
ners in making the purchase. It might be that such a pur- 
chase would be maoe as an investment of realized profits. 
If, for instance, the purchase price should be charged to 
the separate accounts of the partners, that would be an in- 
dication that it was considered by them as an application of 
divided profits. If, on the other hand, the income should 
be carried into the books of the copartnership, or if the land 
itself should be included in the periodical inventories of 
stock in trade, there would be an inference, more or less 
strong, that it had been agreed to hold the estate as part- 
nership property." But, as stated before, in the absence of 
evidence to the contrary, property bought with partnership 
funds becomes partnership property, and when so bought 
for use in the partnership business the evidence is very 
strong that the parties so intended. 

Where real estate is bought jointly, the tendency of the 
courts is to construe the manner of its holding as tenancy 
in common or joint tenancy rather than as held for partner- 
ship purposes;** and in a case where co-owners of land 

•1 Hoxle V, Carr, 1 Samn. 173, Fed. Gas. No. 6,802. 8ee **Partner' 
•hip,** Dec. Dig. {Key No.) § fi7; Cent. Dig. S 98. 

»s 24 N. Y. 505, Onmore, Cas. Partnership, 176, note. See -Part- 
mer$Mp,** Deo. Dig. {Key No.) I 68; Cent. Dig. § 108. 

•8 Thompson y. Bowman, 6 Wall. 816, 18 It. Ed. 736w Bee ^^Part- 
nership," Dec. Dig. {Key No.) § 68; Cent. Dig. § 104. 

Gil.Pabt.- 



130 NATURB AND CHARACTBRISTICS (Ch. 3 

used it as a quarry, and bought other land with the pro- 
ceeds, it was held that such land did not become partner- 
ship land. There was, however, some doubt as to whether 
there was even a partnership in the business with the proceeds 
of which the land was bought"* The general rule with re- 
gard to real estate has been stated by the Supreme Court 
of Alabama thus: "Steering clear of all cases of fraud, or 
of the use by one partner, without the approbation of his 
associates, of partnership funds in the acquisition of real 
estate, the two facts must concur to constitute real estate 
partnership property — acquisition with partnership funds, 
or on partnership credit, and for the uses of the partner- 
ship." " 

Property Used tn the Partnership Business 

The premises upon which a business is principally con- 
ducted are often the sole property of |i partner. Likewise, 
in some instances, are the tools of a trade, the furniture 
of an office, and even what is known as "stock in trade." "• 
The mere fact that one of the partners permits his prop- 
erty to be used by the partnership does not necessarily dis- 
close an intent to make it partnership property, nor does 
it in fact make it such. One partner may supply the entire 
property used by a partnership, and, if so stipulated, he 
may remain the owner and possess the legal title ; the firm 
possessing nothing more than a right to use the property 
in the firm business." ' Even if property owned by all of 

»* Steward y. Blakeway, L. R. 4 Gh. App. 003. See ^^Partnership,** 
Deo. Dig. (Key No.) §§ 67-69; Cent. Dig. U 95-119. 

5s BrlckeU, J., in Hatchett y. Blanton, 72 Ala. 423, 435. 

"In the absence of proof of its purdiase with partnership fands 
for partnership purposes, real property standing in the names of 
several persons is deemed to be held by them as Joint tenants or 
as tenants in common." Field, J., in Thompson y. Bowman, 6 Wall. 
816, 317, 18 L. Ed. 730. Bee ''Partnership;* Deo. Dig. (Key No.) § 
68; Cent. Dig. § 104. 

^e Burden v. Barkus, 8 GifF. 412; Ex parte Owen, 4 De Gez & 
S. 351 ; Ex parte Smith, 3 Madd. 63. See ^^Partnership,** Dec. Dig. 
(Key No.) §§ 67-69; Cent. Dig. {§ 95"! IS. 

BTSTUMPH et al. y. BAUER et al., 76 Ind. 157, Oilmore, Gas. 
Partnership, 175. See "Partnership,** Deo, Dig. iKey No.) f 67; Cent. 
Dig. I 95. 



§ 48) PARTNERSHIP PROPERTY 131 

the partners jointly is used in the firm business, such prop- 
erty does not thereby become partnership property.** In 
Robinson Bank v. Miller et al./* Newton, Emmons, and 
Miller entered into an oral agreement of partnership to 
carry on the business of milling and of buying and selling 
grain. Each had acquired a one-third interest in a parcel 
of land upon which the mill, in which the business of the 
firm was done, was situated. Each paid for his share out 
of his individual money.' Each acquired his interest before 
the partnership was formed. It was held by the court that 
the weight of authority supported "the position that where 
persons who afterwards become partners buy land in their 
individual names and with their individual funds, before 
the making of a partnership agreement, the land will be re- 
garded as the individual pr6perty of the partners, in the 
absence of a clear and explicit agreement subsequently en- 
tered into by them to make it firm property, or in the ab- 
sence of controlling circumstances which indicate an inten- 
tion to convert it into firm assets." 

■•DAVIS ▼. DAVIS [ISM] 1 Gh. 383; HnmeB T. Hlgman, 145 
Ala. 216, 40 South. 128 ; Ware v. Owens, 42 Ala. 212, 94 Am. Dee. 
672; Frlnk v. Branch, 16 Conn. 260; ROBINSON BANK ▼. MIIj- 
LER, 153 111. 244, 38 N. B. 1078, 27 L. R. A. 449, 46 Am. St Rep. 
883, Gilmore, Cas. Partnership, 171; Theriot v. Michel, 28 La. Ann. 
107 ; Gordon v. Gordon, 49 Mich. 501, 13 N. W. 834 ; Reynolds v. Ruck« 
man, 35 Mich. 80; Dexter v. Dexter, 43 App. Dlv. 268, 60 N. Y. 
Snpp. 371. 

<*The mere use of the property by the partnership did not Impress 
upon it the character of partnership property. It is not an un- 
common occarrence that a partnership uses the property of Its sev* 
eral members, or of a preceding partnership. In the absence of 
an agreement that the property shall become joint property, its title 
and character is unchanged." Brickell, O. J., in Hatchett v. Blan- 
ton,. 72 Ala. 423. See "Partnership,** Deo. Dig. (Key No,) H ^f 68; 
Cent. Dig. H 95-111. 

s» ROBINSON BANK v. MILLER, 158 111. 244, 88 N. S. 1078, 27 
Lb R. A. 449, 46 Am. St Rep. 883, Gilmore, Gas. Partnership, 17L 
See "Partnership;* Deo. Dig. ij^ey l^oj i 68; Cent. Dig. I KH. 



132 NATURB AND CHABACTBBISTICS (Gh. 3 

SAME— WHAT IS INCLUDED IN PARTNERSHIP 

PROPERTY 

44. Partnership property, in its lai^est sense, embraces ev* 
erything that the firm owns, consisting of both 

(a) The capital contributed by its members, and 

(b) The property subsequently acquired in partnership 

transactions. 
The term ''partnership propert}^'' is sometimes used, in 
a narrower sense, to designate what the firm owns, 
other than its capitaL 

During the continuance of a firm, the capital contributed 
by its members is not distinguishable from other property 
acquired in partnership transactions. All' alike constitutes 
partnership property or assets, and is treated alike in the 
administration of the partnership affairs. Third persons 
are not concerned with the origin of the firm's titie. In 
treating of the general characteristics, therefore, of part- 
nership property, it is impossible to distinguish between 
the capital and the other property of the partnership. As 
between themselves, however, under the partnership agree- 
ment, the partners have certain rights, and are under cer- 
tain liabilities, with respect to the partnership capital. It 
will be convenient first to discuss these rights and liabili- 
ties separately, and then to take up the subject of partner- 
ship property in general. 

SAME— PARTNERSHIP CAPITAL 

46. The capital of a partnership is the aggregate of the 
sums contributed by its members to establish or 
continue the partnership business. 

46. A partner's contribution to the firm's capital need not 
be in money, but may consist of anything else of 
value. 

The •'capital" is, under the agreement of partnership, in- 
variable; and in this respect the force of the expression 



§§ 45-46) PARTNERSHIP PBOPBRTT 133 

differs widely from that of the other expression, "the firm's 
property or assets"; for the latter fluctuates according to 
the fortunes of the business. The capital is in some cases 
(notably, in the cases of professional and mechanical part- 
nerships) a matter of nominal contribution merely, unless 
we choose to say, rather, that in some cases the capital is 
in profits, which is a confusing expression. In any case it 
need not consist of money, but may consist of anjrthing 
which the parties ag^ee to consider as capital.** 

Form of Contribution 

It is not necessary, in order to have the contribution to 
a firm's capital perfectly valid, that such contribution shall 
be in money in all cases ; for, by agreement, the contribu- 
tion, although stated in terms of money, may be (except 
in the case of a special partner's contribution) in the form 
of securities, a patent, the good will of a business, or any- 
thing else which is apparently readily convertible into 
money. It must come into the fund, however, free from 
liens and incumbrances generally, to the extent of the con- 
tribution ; and any expenditure upon the property neces- 
sary, in order to make the amount agreed to be contributed 
good, is chargeable to the partner contributing the prop- 
erty.** 

•0 DEAN y. DEAN, 04 Wis. 23, 11 N. W. 289, GUmore, Oas. Part- 
nership, 164; Cf. Thomas v. Lines, 83 N. C. 191. See, also. Sexton 
y. Lamb, 27 Kan. 426 ; Nutting y. Ajshcrof t, 101 Mass. 300 ; Mathers* 
Ex'r y. Patterson, 33 Pa. 485. ^ Where a former clerk is taken Into 
co-partnership by a firm which was Indebted to him, and the amount 
of such indebtedness is placed to his credit upon the new books, to 
which, on dissolution of the firm, Is added his share of the net prof- 
Its, such Indebtedness will not be regarded as capital put In by such 
new member, but rather as a loan to the firm, to be repaid him. with 
his share of the profits. Topping y. Paddock, 92 111. 92. See, also, 
Stafford y; Fargo, 35 111. 481. A premium paid for admission to 
another's business Is the latter's indlyldual property, and not a con- 
tribution to capital. Eyans y. Hanson, 42 111. 234; Ball y. Far- 
ley, 81 Ala. 288, 1 South. 253. Bee ^'Partnership,** Dec Dig. (JBCey 
No.) t 72; Cent. Dig. t§ 117, 119. 

•1 Dunnell y. Henderson, 28 N. J. Eq. 174. See, also, Nlchol y. 
Stewart, 36 Ark. 612; Sexton y. Lamb, 27 Kan. 426. See **Partner^ 
ship:* Dec. Dig. iKey No.) H 72, H; Cent. Dig. U 117, 119. 



134 MATURB AND CHARACTBBI8TICS (Gh. 3 

SAME— AMOUNT OF CONTRIBUTION 

47. The amount of capital to be contributed by each part- 

ner is to be determined by the agreement between 
the partners. 

48. No partner can increase or diminish his share of the 

capital without the agreement of the rest. 

The amount of each partner's contribution to the firm 
capital, is determined by the agreement of the parties. It 
may be that the partnership is formed without the contri- 
bution of any tangible property to a common fund. It 
may be that one partner contributes money or its equiva- 
lent, and another places his especial skill, experience, or 
something else personal to himself, at the service of the 
partnership. In the absence of agreement to the contrary, 
the capital on dissolution is to be distributed in the propor- 
tions paid in by each. In this distribution only the tangible 
property contributed by each can be considered as capital. 
Skill, experience, or peculiar ability does not admit of dis- 
tribution, and on dissolution of the partnership cannot be 
taken into account. Thus in Shea v. Donahue,** it was 
agreed that Shea should contribute $1,000 to constitute a 
fund to carry on the business of "making, buying, and 
selling all kinds of tinware, stones, pumps, etc.," in part- 
nership with Donahue. Donahue, being a practical work- 
man of considerable experience in the business, it was 
agreed that he should "give the business his entire per- 
sonal attention and the benefit of his experience" to place 
against the cash furnished by Shea. On dissolution it was 
contended by Donahue that he was entitled to share equally 
in the capital as in the profits, "and this, although it goes 
without saying he would retain all his practical experience 
which was to be placed against the cash furnished by his 
partner." It was held, however, that there was "nothing 

•> SHEA y. DONAHUB, 83 Tenn. 160, 54 Am. Rep. 407, Gilmore, 
Gas. Partnership, 16& Bee "Partnership,** Dec Dig, {fiey No.) { 
304; Cent. Dig. ^ 702. 



§§ 47-48) PARTNERSHIP PROPERTT 135 

in the agreement to take the case out of the ordinary one 
of a partnership in profit and loss upon' unequal capitals"; 
that in consequence Shea was entitled to be paid $1,000 as 
his contribution to the firm capital before the profits were 
divided. 

Having agreed to contribute a certain amount to the 
firm capital, a partner can be compelled to pay that amount. 
He cannot, however, be required to pay more than the 
agreed amount, even though the necessity may be extreme, 
and though the alternative may be a dissolution of the 
partnership. The capital of a firm remains stationary, ex- 
cept as the members as a whole agjee, and no partner can, 
of himself, either increase or diminish his proportion.*' 
If undivided profits are permitted to remain in the firm, 
they do not thereby become capital ; •* nor do they become 
a loan for which the partner who is entitled to them can 
charge interest, in the absence of an agreement to that ef- 
fect.«» 

On the dissolution of a partnership, each member is en- 
titled to draw out the proportion of capital which he con- 
tributed. But even though the proportions were unequal, 
it will be presumed, in the absence of agreement to the 
contrary, that profits and losses are to be shared equally. 
In determining losses, the capital of each member is con- 
sidered as a debt due from the firm, and each member will 
be required to contribute equally in order to make up the 
deficiency which the assets of the firm are unable to meet. 

••Farmer v. Samuel, 4 Lltt (Ky.) 187, 14 Am. Dec 106; Ful- 
mer's Appeal, 00 Pa. 143 ; Ck)ck v. Evans' Heirs, 9 Yerg. (Tenn.) 287. 
See ""PartneraMpr Dec. Dig, (Key No.) H 68, 76; Cent. Dig. S§ lOl- 
111, 116, m. 

•4 DEAN y. DBAN, 64 Wis. 23, 11 N. W. 239, QUmore, Cas. Part- 
nership, 164. Bee ^^Partnership;' Deo. Dig. {Key No.) U 72, SOS; 
Cent. Dig. U li7, 70S-705. 

••Dexter v. Arnold, Fed. Gas. No. 8,855; Gage ▼. Parmelee, 87 
111. 829; Bowling's Heirs y. Dobyns* Adm'rs, 5 Dana (Ky.) 434; 
Sweeney y. Neely, 53 Mich. 421, 19 N. W. 127 ; Buckingham y. Lud- 
lum, 29 N. J. EiQ. 345; Rensselaer Glass Factory y. Reid, 5 Cow. 
(N. T.) 587; Brown's Appeal, 89 Pa. 139; Gilman y. Vaughan, 44 
Wis. 646. See ^^Partnership;' Dec Dig. {fey No.) i 76; Cent. Dig. 
H 120-129. 



136 NATURE AND CHARACTERISTICS (Gh; 3 

In Whitcomb v. Converse et al.,** Whitcomb, Converse, 
Stanton, and Blagclen entered into a partnership; Whit- 
comb and Converse contributing the entire capital. The 
partnership was dissolved by mutual consent, and Whit- 
comb wound up the business. The business resulted in a 
loss, and Whitcomb brought a bill in equity to compel con- 
tribution from the other partners to make up his loss of 
capital. Blagden being insolvent, it was held that the capi* 
tal contributed by each partner constituted a debt of tiie 
partnership, and each solvent partner must share equally 
in its loiss.*T 

SAME— GOOD WILL 

48. The '^good-wiir' of a business represents the momentum 
of organization possessed by a "going concern/' 
with the advantages of an established location, 
name, and reputation. It is part of the assets of a 
partnership business, and may be sold and trans- 
ferred. Its value must be accounted for « by the 
surviving partner to the representatives of the de«- 
ceased partner. 

BOl The vendee of the good will of a partnership business 
' acquires the sole right to represent himself as con- 
tinuing such business, and to carry it on in the old 
firm name, provided, however, that he will not 
thereby subject the vendor to liability. 

51. Unless restricted by an express agreement, the vendor 
of a business and its good will may enter into the 
same line of business again in the same locality; 
but he may not represent himself as continuing the 
old business, and according to some decisions he 

••WHITCOMB V. CONVERSE. 119 Mass. 38, 20 Am. Rep. 811. 
Gllmore. Cas. Partnership, 488. See *' Partnership,*' Deo, Dig. {Kep 
Jfo.) n S0S-S05; Cent. Dig. {{ 700-705. 

•f Barfield v. Loughborough, L. R. 8 Ch. 1 ; In re Anglesea Col- 
liery Co., L. R. 2 Eq. 379; Nowell v. Nowell, Ia R. 7 Bq. 538; In 
re Hodges* Distillery Co., L. R. 6 Ch. 61 ; BRADBURY v. SMITH. 
21 Me. 117 ; Julio v. Ingalls, 1 Allen (Mass'.) 41. See ** Partnership,** 
Dec. Dig. (Key No.) §{ SOS-305; Cent, Dig. S{ 700-705. 



§§ 49-61) PARTNERSHIP PROPERTT 137 

may not personally solicit the customers of the 
old business. He may use his own name, provided 
such use will not amount to a representation that 
.he is continuing the old business. 

Good Will — Former Attitude of Courts 

The term "good will" has not yet received a precise sig- 
nificance in the law. This is due in part to the fact that 
the good will of a business has not long been recognized 
as an asset of the business. Though Lord Hardwicke,** 
in 1743, in reference to the duties of an executor, said: 
"Suppose the house were a house of great trade, he must 
account for the value of what is called the good will of it," 
it was held in 1800 by Lord Loughborough, in Hammond 
V. Douglas,*' that the good will of a business was not a 
part of the partnership stock, which must be accounted for 
by a surviving partner to the representatives of the de- 
ceased. Though doubt was expressed later by Lord El- 
don,^* the decision of Hammond v. Douglas was sustained 
in 1835 by Vice Chancellor Shadwell in Lewis v. Lang- 
don.^* Early text writers on Partnership paid little atten- 
tion to good will. Watson,^* writing in the latter part of 
the eighteenth century, does not refer to it, and Kent, writ- 
ing a little more than a quarter of a century later, in a 
passing reference, declared that "the good will of a trade 
is not partnership stock." ^* 

Same — Good Will Defined 

The small importance formerly attached to good will 
was due in part to the comparatively narrow definition 



•8 Oibblett V. Read, 9 Mod. 459. See ^'Partnership;* Deo. Dig. {Key 
Vo.) U ««5, 257, SOO, SIO; Cent Dig. H 4^7* S6S, 694; "(^ood WiUr 
Deo. Dig. {Key No.) » 1-7; Cent. Dig. H 1-9. 

•• 5 Ves. 539. See ** Partnership;* Dec. Dig. (Key No.) H ^9, «5T, 
SOO, SIO; Cent. Dig. SS 4^^, 563, 694. 712. 

70 Crawshay v. CoUlns, 16 Ves. 227. See "Partnership;' Dec Dig. 
(Key No.) U ««^, 257, SOO, SIO; Cent. Dig. §{ ^77, 56S, 694, 712. 

71 7 Sim. 421. See "Partnership;* Dec. Dig. {JS.ey No,) U 229, 2S7, 
SOO, SIO; Cent. Dig. ({ 477, 563, 694, 712. 

7 > Watson on Partnership (Ist Ed.) 1794. 
Ts Kent's Com. ^94. 



138 NATUKB AND CHARACTERISTICS (Ch. 3 

which was given to the term. Lord Eldon/* in 1810, said : 
"The good will which has been the subject of sale is noth- 
ing more than the probability that the old customers will 
resort to the old place." " In 1828 Sir John Leach, M. R., 
said : "The good will of the business is nothing more than 
an advantage attached to the possession of the house." 
While according to Lord Langdale, in England v. Downs,^* 
decided in 1842: "Good will is the chance or probability 
that custom will be at a certain place, in consequence of 
the way in which that business has been previously car- 
ried on." But whatever good will is to-day, there is no 
doubt that it comprises far more than the mere benefit to 
be derived from carrying on a business in a particular 
place. Modern methods of advertising . and solicitation 
have come to make it mean at least something besides that. 
Vice Chancellor Wood, in Churton v. Douglas,^^ pointed 
out that, while location is important, it would be absurd 
to say that in case of a large wholesale business it made 
any great difference to the public whether it was located 
at one end of the Strand or the other, or in the Strand, or 
any place adjoining. The location at which the business 
is carried on is not the chief element of value in its good 
will. "When you are parting with the good will of a busi- 
ness you mean to part with all that disposition which cus- 
tomers entertain towards the house of business identified 
by the particular name or firm, and which may induce them 
to continue giving their custom to it." The wider signifi- 
cance thus given to the term "good will" is also shown in 
the words of a New York case : ^* "Good will embraces at 
least two elements : The advantage of continuing an estab- 

T4 Crtittwell V. Icre, 17 Ves. 335, 34e. Bee **Oood WHW" Deo, Dig, 
(Key No.) 11; Cent. Dig. { 1. 

rs Chissum v. Dewes, 5 Rnss. 29, 80. See "Good WiU,'' Deo. Dig. 
(Key No.) (1; Cent. Dig. { 1. 

Tt 6 Beay. 2G9. See **Good Will," Deo. Dig. (Key No.) % 1; Cent. 
Dig. t i. 

TT H. B. V. Johns. 174. See "Good W«I," Deo. Dig. (Key No.) 1 1: 
Cent. Dig. 1 1. 

T« People ex rel. A. J. Johnson Co. v. Roberts, 150 N. Y. 70, 63 
N. B. 685, 45 L. B. A. 126. Bee "Good WilW* Dec. Dig. (Key No.) % 
1; Cent. Dig. % 1; "Taxation,'' Deo. Dig. (Key No.) % 391. 



§§ 49-61) PARTNERSHIP PROPERTY 139 

lished business in its old place, and of continuing it under 
the old style or name. While it is not necessarily alto- 
gether local, it is usually to a great extent, and must of 
necessity be, an incident to a place, an established busi- 
ness, or name known to the trade." 

Notwithstanding the increasing importance of good will 
in the business world, its limits are not yet clearly defined, 
perhaps because they have not yet been reached. Though 
the bill drawn by Sir F. Pollock, which served as a founda- 
tion for the English Partnership Act,^* dealt with the sub- 
ject of good will, the act itself does not. In the introduc- 
tion to the seventh edition of Lindley's Law of Partnership 
it is said : •• "Owing, it is believed, to differences of opin- 
ion, and to the difficulty of arriving at a conclusion which, 
would be acceptable to both Houses of Parliament, the 
clauses relating to these subjects were struck out. The law 
upon them must therefore be extracted from judicial de- 
cisions, and the doubts and difficulties which beset ques- 
tions arising on these subjects must remain for future ju- 
dicial or legislative solution." In a few states good will 
has received legislative definition. For instance, the Civil 
Code of California defines it as follows : •* "The good will 
of a business is the expectation of continued public pat- 
ronage, but it does not include a right to use the name of 
any person from whom it was acquired. The good will of 
a business is property, transferable like any other." It is 
noticeable that the name of the vendor of a business does 
not go with the good will according to this definition, 
though it may be that the |^ame of a proprietor of a busi- 
ness may become so closely associated with a business that 
the good will minus the name is of little practical value. 

In Churton v. Douglas,** Vice Chancellor Wood said: 
"The word 'firm,' I believe, like most mercantile terms, is 
derived from an Italian word, which means simply signa- 

T» Partnership Act, 1890. 

io Lindley's Law of Partnership (7th Ed.) p. & 

•1 Sections 092, 993. 

•s H. R. V. John& 174, 1S9. Bee *'Oood WOI," Pea Diff. (Key VoJ 
% 1; Cent. Dig. % 1; ^^Partnership,'' Deo. Dig. {Key No.) H 229, 267, 
SOO, $10; Cent. Dig. SS 477, 66S, 694, tl2. 



140 NATUBB AND CHARACTBRISTIC8 ' (Ch. 3 

• 

ture ; and it is as much the name of the house of business 
as John Nokes or Thomas Stiles is the name of an indi- 
vidual. The name of a firm is a very important part of the 
good will of the business carried on by the firm." In the 
same case the Vice Chancellor gave what is the most 
widely quoted judicial definition of good will : " 'Good will,' 
I apprehend, must mean every advantage — every positive 
advantage, if I may so express it — ^as contrasted with the 
negative advantage of the late partner not carrying on its 
business himself that has been acquired by the old firm in 
carrying on its business, whether connected with the prem- 
ises in which the business was previously carried on, or 
with the name of the late firm, or with any other matter 
carrying with it the benefit of the business." Good will 
represents the momentum of organization. It represents 
the expenditure of time, capital, and energy involved in 
overcoming the inertia of a business which has not yet been 
"launched," and transforming it into a "going concern." 
It represents, also, the favor which an established business 
has acquired in the eyes of the purchasing public, in so 
far as such favor can be transferred with the business which 
produced it. 

Same — Must be Accounted for by a Surviving Partner 

The good will of a business is inseparable from the busi- 
ness itself. In order to have a good will there must be a 
business to which it is attached. Hence, if a partner dies, 
and the firm business is wound up, the surviving partners 
may immediately begin a new business in the same line 
and in the same locality. TMfe surviving partner has the 
authority to wind up the firm business, and he is liable to 
the deceased partner's representatives for such partner's 
share of the surplus remaining after debts are paid; but 
he cannot continue the business and subject them to future 
liabilities. These considerations led Vice Chancellor Shad- 
well,** following Hammond v. Douglas,'* to say: "If a 

••Lewis y. Langdon, 7 Sim. 4ZL Bee '^Partnership,^* Deo, Dig. 
{Key tfo,) St «29, 857. SOO, SIO; Cent. Diff, St ^77, 56S, 694, 7i«. 

•*16 Ves. 227. See ^Tartnership,*' Deo. Dig. (Key No.) tS ^29, 
257, SOO, SIO; Cent. Dig, tS -*77, 565, 69i, 712, 



§§ 49-51) PARTKBB8HIP PROFERTT ' 141 

partnership is carried on between A. and B. under the 
name of Smith & Co., and the surviving partner chose to 
discontinue the business, and to write to the customers 
and say that his partner was dead, and that the business 
was at an end, the effect would be that that which is said 
to be salable would cease to exist. Now what power is 
there in a court of equity to compel a partner to carry on 
a trade after the death of his copartner merely that, at a 
future time, the good will, as it is called, may be sold? 
It is plain that, unless there is such a power in this court, 
it must be in the discretion of the surviving partner to de- 
termine what shall be done with the good will; and, if 
that is the case, it must be his property." 

The former rule, that the good will of a business goes to 
the surviving partners, and need not be accounted for to 
the representatives of the deceased, no longer prevails in 
England or in the United States.*' The good will of a firm 
is built up by the combined industry and credit of the part- 
ners, and if it can be disposed of — that is, if the firm busi- 
ness can be sold as that of a going concern — the represen- 
tatives of the deceased are entitled to have an accounting 
of the value of the good will.®' It frequently happens that 
the survivors continue the business, and that they buy the 
share of the deceased partner. In such a case they succeed 
to the benefits arising from the favor which the business 
has obtained, and may be compelled to account for those 
benefits.*^ 

•> Slater v. Slater, 175 N. Y. 148. 67 N. B. 224, 61 L. R. A. 796, 
06 Am. St Rep. 606; Rammelsberg v. Mitchell, 29 Ohio St 22; 
Holden'8 Adm'rs v. McMakin, 1 Pars. Bq. Cas. (Pa.) 270; Tennant 
y. Dunlop, 97 Va. 234, 33 S. E. 620; Rowell v. Rowell, 122 Wis. 1, 
99 N. W. 478; In re David (1899) 1 Ch. 378; HaU v. Barrows, 4 
De O. J. & S. 150; Smith v. Everett, 27 Beav. 446; Wedderburn 
V. Wedderburn, 22 Beav. 84. See ''Partnership,'* Deo, Dig, {Key No.) 
H 229, 257, 900, SIO; Cent. Dig, §S 477, 56S, 694, 71«. 

86 Matter of SUkman, 121 App. Dlv. 202. 105 N. T. Supp. 872, af- 
firmed In 190 N. Y. 560, 83 N. E. 1131. See 'TartneraMp,** Dec. Dig. 
{Key No.) H ^9. 257, SOO, SIO; Cent. Dig. §§ ^77, 56S, 69i, 712. 

8T Slater v. Slater. 175 N. Y. 143. 67 N. B. 224, 61 L. R. A. 796, 
96 Am, St Rep. 605 ; Rowell v. Rowell, 122 Wis. 1, 99 N. W. 473 ; 
Wedderburn v. Wedderburn, 22 Beav. 84. See ''Partner ship,'' Dec. 
Dig. {Key No.) H 229, 257, SOO, SIO; Cent. Dig. K 477, 56S, 694, 712. 



142 • NATUBB AND CHABACTBBISTIC8 (Ch. 3 

Same — Rights of the Vendee 

The purchaser of a business gets with it, as incident 
thereto, in the absence of stipulation to the contrary, the 
good will of the business.** He thereby gets the right to 
advertise to the public generally that he is the successor 
to the business of his vendor, and that he is carrying on 
that business.** 

Same — Right to Use Old Firm Name 

It seems doubtful, however, as to the extent the purchase 
of the good will of a business entitles one to use the old 
name. Though it has been repeatedly said that the firm 
name constitutes an important part of the good will of the 
firm,** yet there is danger of liability accruing to one who 
permits himself to be held out as a member of a firm or 
as proprietor of a business in which he is not in fact inter- 
ested. Hence, where a business name is the name of an 
individual, or it is partly composed of such a name, the 
courts, if they permit the purchaser of the good will to 
use the old firm name, will compel him to do so so as 
to avoid possible injury to the vendor. In Levy v. Walk- 
er,** Misses Charbonnel and Walker were conducting a 
business under the name of Charbonnel & Walker. Miss 
Charbonnel having married Levy, the partnership was dis- 
solved. Miss Walker purchased the business and good 



••Jennings r. Jennings, 1 Oh. 878; Menendez r. Holt, 128 U. S. 
614, 9 Sup. Gt 143, 82 L. Ed. 526 ; Hozle v. Chaney, 143 Mass. 002, 
10 N. E. 718, 58 Am. Bep. 149; Merry y. Hoopes, ill N. Y. 415, 
18 N. E. 714; StdUifeld r. National Shirt Waist Co., 99 App. Dlv. 
286, 90 N. Y. Supp. 964. Bee ''Good WUl,** Dec. Dig. (Key No.) {{ 
IS; Cent. Dig. §i IS. 

••Ghurton v. Douglas, H. R. V. Johns. 174; Holbrook v. Nesbitt, 
163 Mass. 120, 89 N. B. 794; Flte r. Dorman (Tenn.) 57 S. W. 120. 
See "Partnership,*' Dec. Dig, (Key No.) U 229, 251, 300, 310; Cent. 
Dig. if 477, 563, 694, 712. 

•0 Ghurton v. Douglas, H. R. V. Johns. 174 ; People ex reL A. J. 
Johnson Co. y. Roberts, 159 N. Y. 70, 68 N. E. 685, 45 L. R. A. 126. 
See "Partnership," Deo. Dig. (Key No.) H 228, 229, 256, 257; Cent. 
Dig. U 476, 477, 562, 563. 

•1 10 Ch. Dly. 436. See "Partnership,** Dec Dig. (Key No.) il 228. 
229, 256, 257; Cent. Dig. H 476, 477, 562, 563; "Good Will,** Deo. 
Dig. (Key No.) H IS; Cent. Dig. U IS. 



g§ 49-^1) PARTNERSHIP PROPERTT 143 

will, and continued the business under the same name. 
Mr. and Mrs. Levy, having commenced a business in 
Paris under the name of Charbonnel et Cie., sought to 
enjoin the use of the name Charbonnel by Miss Walker. 
Jessel, M. R., said: "The plaintiffs are under no liability 
by reason of Miss Walker so carrying on the business. 
The plaintiffs are not actual partners in the firm of Char- 
bonnel & Walker. The dissolution decreed by the court 
has been duly advertised, and no person dealing with Miss 
Walker for the first time can make Mr. or Mrs. Levy liable. 
 * * What conceivable interest the plaintiffs may have 
in the question as to the firm name under which Miss 
Walker chooses to carry on the business I have been un- 
able to ascertain^" From the foregoing it is evident that 
the only way that a vendee of a business can raise an ob- 
jection to the use of the old firm name by the purchaser 
is by showing a possible injury to himself from the use of 
such name. If he can, the use of the name by the pur- 
chaser will be enjoined, unless the vendor expressly agreed 
that he might use it. In Thynne v. Shove,'* Thynne sold 
his business to Shove, including good will and certain 
trade cards bearing the name "O. Thynne, Baker." Shove 
used the cards till exhausted, and then printed others in 
the same name. Thynne sought to enjoin the printing and 
use of such cards, alleging that "the defendant has no right 
to use my name, and I strongly object to his so doing, as 
it will materially injure me if I start in business again at 
Blackheath." Sterling, J., observed that such a demand 
was far in excess of the plaintiff's rights; that the only 
limitation on the defendant's right to use the name of the 
plaintiff was in using it in such a way as to expose the 
plaintiff to any liability by being held out as the real owner 
of the business. The defendant was enjoined from using 
the name of the plaintiff so as to expose him to liability. 
New York has held that a firm name in the form of "J. 
& J. Slater" was part of the good will, and the right to use 

•s I* R. 46 Ch. D. 577. Bee '^PartnerBhip,'* Deo. Dig. (Key No.) 
if Z28, 2B9, 256, 257; Cent. Dig. » 476, 477, 662. 66S; **Qood WttW* 
Dec. Dig. {Key No.) U 1-^; Cent. Dig. U i-5. 



144 NATURE AND CHARACTERISTICS (Gh. 8 

the name could be sold to the survivor or a stranger.** 
In this case a statute •* required the purchaser to make the 
facts relating to the continued use of the firm name a mat- 
ter of public record. Hence every one was given notice 
as to who the proprietor was, and no legal liability could 
attach to those whose names constituted a part of such 
partnership name. In Louisiana it has been decided, how- 
ever, that the trade-name of a business does not pass with 
the good will, and that the use of such name might be 
enjoined without reference to the injury caused by the use 
of such name.** 

Same — Rights of the Vendor 

The vendor of the good will of a business *'may do ev- 
erything that a stranger to the business in ordinary course 
would be in a position to do. He may set up where he 
will. He may push his wares as much as he pleases. He 
may thus interfere with the custom of his neighbor as a 
stranger and an outsider might do; but he must not, I 
think, avail himself of his special knowledge of the old cus- 
tomers to regain without consideration that which he has 
parted with for value. He must not make his approaches 
from the vantage ground of his former position, moving 
under cover of a connection which* is no longer his. He 
may not sell the custom and steal away the customers in 
that fashion. That, at all events, is opposed to the com- 

»• Slater v. Slater, 175 N. Y. 143. 67 N. B. 224, 61 L. R. A. 796, 
96 Am. St Rep. 605. The following cases also recognize the right 
of the purchaser of the good will to use the old firm name : Snyd^ 
Mfg. Co. V. Snyder, 54 Ohio St 86, 43 N. B. 326, 81 L. R. A. 657 ; Row- 
eU ▼. Rowell, 122 Wis. 1. 99 N. W. 473. In WILLIAMS v. FAR- 
RAND, 88 Mich. 473, 50 N. W. 446, 14 L^ R. A. 161, Gilmore, Cas. 
Partnership, 177, the court stated that the purchaser will not, in 
the absence of an express agreement, be allowed to continue the 
business in the name of the old firm. See **Partn€r8hip" Dec. Dig. 
{Key No.) K 228-280, 256, 257; Cent. Dig. U 47^77%, 562, 56$; 
''Good wm,"" Dec, Dig. {Key No.) H !-€; Cent. Dig. U 1-5. 

•4 Sections 20 and 21 of New Tork Partnership Law (chapter 420, 
Laws 1897). 

»B Vonderbank v. Schmidt, 44 La. Ann. 284, 10 South. 619, 15 Li 
R. A. 462, 32 Am. St Rep. 336. See ''Partnership," Dec. Dig. {Key 
No.) 11 228, 229, 256. 251; Cent. Dig. %% ^16, ^77, 562, 563; "Good 
WiK." Deo. Dig. {Key No.) M 1-^; Cent. Dig. K i-5. 



tS 4fr-51) PARTMEBSHIP PROPERIT 1^5 

inon understanding of mankind and the rudiments of com- 
mercial morality, and is not, I think, to be excused by any 
maxim of public policy." •• The remarks quoted were 
made in a case where the question involved was as to the 
right of a member of an old firm, who has disposed of his 
interest in the good will, to solicit custom from the former 
customers of the firm. The question has been a cause of 
division among the authorities. It is admitted that a ven- 
dor of the good will of a business can set up in a similar 
business in the same locality and solicit customers gener- 
ally.*^ The courts have hesitated to draw a line between 
solicitation in general and personal solicitation of the old 
customers. In a well-considered case, the Michigan court 
held,** in accordance with the then established rule in Eng- 
land, that "the doctrine that a retiring partner who con- 
veyed his interest in an established business, whether the 
good will be included or not, cannot personally solicit the 
customers of the old firm, has no support in principle." 
The case of Pearson v. Pearson,** upon which the court 
here relied, was, however, overruled in England by the 
House of Lords in Trego v. Hunt, and the rule of the 



»« Lord Macnaghten In TREGO ▼. HUNT, L. R. [1896] App. Cas. 
1, 24 ; WILLIAMS v. FARRAND, 88 Mich. 478, 60 N. W. 446, 14 L. 
R. A. 161, Gilxnore, Cas. Partnership, 177; Hutchinson v. Nay, 183 
M«B8. 356, 67 N. B. 601. See **Partner8Mp,*' Deo. Dig, (Key No.) §| 
«8*-«50, 256, 257; Cent. Dig, U 47M77%, 562, 56S; '*Good Will:' 
Dec. Dig. {Key No.) ^ 6; Cent. Dig. f 5. 

•T White V. Trowbridge. 216 Pa. 11, 64 Ati. 862. See ^'Partner- 
sMpr Dec. Dig. {Key No.) SS 22S-2S0, 256, 251; Cent. Dig. St 475- 
477%, 562, 56S; "Good TF«I," Dec. Dig. {Key No.) H J-^/ Cent. 
Dig. Sfi Jf-5. 

•• WILLIAMS V. FARRAND, 88 Mich. 473, 60 N. W. 446^ 14 L. 
R. A. 161, Qilmore, C^. Partnership, 177. See, also, Webster v. 
Webster, 180 Mass. 310, 62 N. E. 383, and Hutchinson y. Nay, 187 
Mass. 262, 72 N. E. 974, 68 L. R. A. 186, 105 Am. St. Rep. 390, 
where the question of the right to solicit old customers Is left open. 
See ''Partnership:' Dec. Dig. {Key No.) §{ 228-'230, 256, 257 ;y Cent. 
Dig. it 47M77%, 562, 56S; ''Good WiU:* Dec. Dig. (fey No.) H 
1-6; Cent. Dig. tt l-^- 

•• 27 Ch. Dlv. 145. See "Partnership:* Dec. Dig. {Key No.) tt 228- 
2S0, 256, 257; Cent. Dig. tt 475-477%, 562, 665; "Good WiU:' Dec. 
Dig. {Key No.) t§ 1-6; Cent. Dig. St i-5. 

Gil.Part. — 10 



146 NATUBB AND CHARACTBRISTICS (Gh. 3 

earlier case of Labouchere v. Dawson * re-established there. 
As the law stands, there is very strong authority for the 
position that the vendor may not solicit the customers of 
the old business.' With regard to the use of the old firm 
name, the vendor of the good will is bound by the same 
restrictions as strangers to the business. He may not use 
it to enable him to lead the public to believe that he is 
continuing the old business.* 



TITLE TO PARTNERSHIP PROPERTY- 
HOW TAKEN AND HELD 

52. Title to personal pnoperty can be taken and held in the 
partnership nan^. Because of the lack of cer- 
tainty as to the grantee, caused by the use of sudi 
a name, it is generally held that title to real estate 
cannot be taken in a partnership name. The legal 
title to land conveyed to a partnership in the part- 
nership name vests only in tliose whose names 
appear in the partnership namie. If the name of 
no person appears in such name, the conveyance 
is a nullity. There is some authority, however, 
for the position that, if the persons meant by the 
partnership name can be id'entified, the legal title 
will vest in thenL 

Title to Partnership Property — How Taken and Held — Per- 
sonal Property 
In refusing to recognize the legal existence of the firm 

as an entity, the law has made it impossible for the firm, 

1 L. R. 13 Eq. 822. See '^Partnership," Deo. Big. (Key No.) §§ ^8^ 
2S0, 256, 257; Cent. Dig. || 47M77%, 562, 663; ''Good W«Z," Deo. 
Dig. (Key No.) §S 1-6; Cent. Dig. |§ 1-5. 

a TREGO v. HUNT, L. R. [1896] App. Gas. 1. See ^'Partnership,'* 
Deo. Dig. (Key No.) §§ 228-260, 256, 257; Cent. Dig. U 47M77%*, 
562, 569; "Good Will,*' Dec. Dig. (Key No.) H 1-6; Cent. Dig. §| 
1^. 

• Cliarton ▼. Douglas, H. R. V. Johns. 174; WILLIAMS ▼. FAR- 
RAND, 88 Mich. 473, 60 N. W. 446, 14 L. R. A. 161, Gilmore, Gas. 
Partnership, 177; Myers ▼. Kalamazoo Buggy Co., 64 Mich. 216, 



§ 62) TITLB TO PABTNEBSHIP PBOPEBTT 147 

as such, to hold the | legal title to any kind of property 
whatsoever. The ordinary business transactions of the firm 
are, however, conducted in the partnership name, and the 
law recognizes that name as sufficiently representative of 
the partners to enable them to bind themselves by it. Bills 
of sale of personal property in the partnership name pass 
title to the property described. A chattel mortgage in a 
firm name does the same. In Hendren et al. v. Wing et 
al.,^ though the same court had held that "a partnership 
as such cannot be the grantee in a deed or hold real es- 
tate," and that "if the deed be to a name adopted as the 
firm style, which includes the name of no party, it passes 
nothing at law," • it was decided a chattel mortgage did 
pass title. In this case a chattel mortgage was made to 
the Arkansas Machinery & Supply Company, a partner- 
ship, in the firm name. The court said : "The business of 
the country is largely carried on by partners under partner- 
ship names, which frequently do not contain the name, of 
any person. Vast quantities of personal property of all 
kinds are contracted for, Ibought, and sold by such firms 
under their firm names each year, and their right to thus 
buy and sell goes unchallenged. A consideration of this 
fact shows that there is a wide distinction between the 
rights of partnerships at law in regard to the buying and 
selling of personal property and the restrictions which pre- 
vail therein in regard to transfers of real estate. A mort- 
gage is only a conveyance for the purpose of securing a 
debt If a bill of sale conveying personal property to a 
partnership by its firm name is valid, we see no reason 
why a mortgage of personal property to a partnership 
should not be upheld under like circumstances.? The fact 
that the mortgage is under seal does not alter the rule.* 

19 N. W. 981, 20 N. W. 545, 62 Am. Rep. 811. Bee **Partner8hipr 
Deo. Dig. {Key No.) §| 928-280, 256, 251; Cent. Dig. U 47M77V^, 
562, 568; **Qood WUW* Dec. Dig. {Key No.) §§ i-6; Cent. Dig. H 1-^- 

4 HENDREN Y. WING, 60 Ark. 561, 81 S. W. 149, 46 Am. St Rep. 
218, GUmore, Gas. Partnership, 189. Bee '^PartnersMp," Deo. Dig. 
(Key No.) % 64; Cent. Dig. § 90. 

ftPerdfuU t. P2att, 86 Ark. 456. Bee ^^Partnership,** Deo. Dig- 
(Key No.) % 68; Cent. Dig. § 105. 

• In MAUG^AN Y. 8HARPE, 17 G. B. N. S. 443, a chattel mort- 



148 ' NATUBB AND CHABACTBBI8TIC8 (Ch. 3 

Same— Real Property 

In the case of real estate, it has repeatedly been declared 
that the title thereto cannot be held by a partnership/ 
This is, of course, true when we consider the nature of a 
partnership. Its nature does not permit of its holding 
property. Since the partnership cannot hold property, it 
has been decided in many courts that, if a conveyance of 
real estate is made to a partnership in the partnership 
name, the legal title vests in those partners whose names 
appear in the partnership name — ^they being the only gran- 
tees mentioned in the conveyance who are capable of re- 
ceiving and hoHing title to the real estate conveyed; the 
remaining partners, even if designated by the collective 
term "and Co.," getting no legal title whatever.* The 
grounds upon which the above cases were decided are 
summed up in the case of PercifuU v. Piatt, as follows:* 

m 

gage under seal was glyen to the firm known as the Olty Invest- 
ment & Advance Company. Williams, J., said: **The deed purports 
and intends to convey the goods to those persons who use the style 
and firm of the City Investment & Advance Company. They may 
or may not be a corporation, but when it is ascertained that those 
who carry on business under that name are the defendants, the deed 
operates to convey the property to them." Bee **Partner8lUp,'* Dec. 
Dig. (Key No.) § 68; Cent. Dig. f 90. 

T GILLB V. HUNT, 35 Minn. S57, 29 N. W. 2. Gilmore, Cas. Part- 
nership, 190; PercifuU v. Piatt, 86 Ark. 456; Moreau v. SafTarans, 
3 Sneed (Tenn.) 599, 67 Am. Dec. 582; HOLMES T. JARRBTT, 7 
Heisk. (Tenn.) 506; Tidd v. Rines, 26 Minn. 201, 2 N. W. 497; 
WOODWARD V. McADAM, 101 Cal. 438, 36 Pac. 1016. iSfee ^'Pari- 
nership," Dec. Dig. (Key No.) § 68; Cent. Dig. H 101-111, 

< Riddle V. Whltehill, 135 U. S. 621, 10 Sup. Ct 924, 84 L. Bd. 
282; PercifuU v. Piatt, 36 Ark. 456; GILLB T. HUNT, 85 Minn. 
357, 29 N. W. 2, GUmore, Cas. Partnership, 190; Arthur V. Weston, 
22 Mo. 378. 

In Kringle v. Rhomberg, 120 Iowa, 472, 94 N. W. 1116, it was held 
that, "where title to real estate purchased in a partnership transac- 
tion is taken in the name of one of the partners, there is a result- 
ing trust in favor of the partnership, which may be established by 
parol evidence, so that the title in the one partner may be charged 
with the interest of the partnership.'* See further, chapter II, $S 
27, 28, p. 93. Bee '^Partnership," Dec. Dig. {Key No.) | 68; Cent. 
Dig. §§ 101-111; ''Deedsr Cent. Dig. \ 288. 

• PercifuU v. Piatt, 36 Ark. 456. Bee ** Partnership;' Deo. Dig 
{Key No.) S 68; Cent. Dig. § 105. 



: 



g 52) TITLE TO PABTMBBfiHZP FBOPBBTT 149 

"A partnership, as such, cannot, at law, be the grantee in 
a deed, or hold real estate. The legal title must vest in 
some person, and a partnership is not a corporation. If 
the title be made to all the partners by name, they hold 
the legal title as tenants in common, without survivorship. 
If to one partner alone, the whole legal title vests in him, 
which is the case, also, where the title is to a partnership 
name, which, as in this case, expresses the name of one 
party only, with the addition of '& Co.' If the deed be to 
a name adopted as the firm style, which includes the name 
of no party, it passes nothing in law. The same occurs 
where the deed is to one already dead." *• 

The reasons here given for holding that title passes 
only to those partners included in the firm name are not 
sound. They are founded on the theory that a partnership 
name is the name of an entity not recognized in law. The 
reason why a deed to a dead grantee fails is because the 
person intended to take is not in existence. But a partner- 
ship name is a compendious expression used instead of the 
names of the partners. It is actually a name indicating ex- 
isting natural persons. This being so, the courts have. been 
driven to seek another reason for the rule. This has been 
found in the uncertainty of the grantee intended by a part- 
nership name and the consequent confusion of titles. Thus, 
in Arthur v. Weston," the court, in holding that a convey- 
ance of land to W. W. Phelps & Co.- passed title to Phelps 
alone, declared that the question was "whether the part- 
nership style is, as a matter of law, a good name of pur- 
chase in a conveyance of real property sufficient to pass 
the legal title to all the individuals of the firm.'* They an- 
swered the question by saying that, "a conveyance of real 
property being required by statute to be put in writing, 
the party who is to take as grantee must be sufficiently 
ascertained . by the written instrument, or it is a nullity, so 
far as it purports to etfect a transfer of the legal title." 



loRiffel y. Ozark Land & Lumber Co., SL Mo. App. 177. See 
''Partnership,'' Dec. Dig. {Key No.) § 68; Cent, Dig. U 101-111. 

11 22 Mo. 37a Bee ** Partnership;* Deo. Dig. (Key No.) % 68; Cent. 
Dig. U lOl-Ul; ''Deeda," Cent. Dig. I «88. 



150 NATURB AND CHARACTBRISTICS (Oh. 3 

In Winter v. Stock,** the court held that a conveyance to 
"Louis Blanchard & Co." passed title to Louis Blanchard 
alone, saying: "A deed to a person by name 'and Com- 
pany,' as to 'Louis Blanchard & Co.' contains no certain 
designation or description of any other person than Louis 
blanchard, for the reason that the word 'Company^ may de- 
scribe one person as well as another." In Gille v. Hunt,** 
it was decided that a conveyance to "D. B. Dorman & Co." 
passed title to D. B. Dorman alone ; the court saying with 
reference to a conveyance under general designations, such 
as "associates" and "& Co.": "There are some authorities 
which seem to hold that such a conveyance would be good 
to the persons so designated, and that it may be proved 
by parol who they are; but we think these cases go a 
g^eat way towards holding that a conveyance of real estate 
may vest partly in parol, and when we consider the infinite 
confusion in titles to real estate, in which there ought to 
be g^eat definiteness and certainty, such a rule might let 
in, we do not hesitate to decide that the proposition that 
such a designation is too indefinite and uncertain rests in 
better reason and authority." 

There is no doubt that the reasoning of the last-mentioned 
cases is sound. The grantee in a conveyance of real estate 
should be certain. Yet there is much authority for the 
statement that a designation of the members of a partner- 
ship, either by a wholly fictitious name, or by one in which 
the names of some of the partners only appear, is suffi- 
ciently certain to enable all of the partners to take title 
under a conveyance in such name. That is certain which 
may be made certain. If a grantee is sufficiently described, 
so that the person meant may be identified, the grant is 
certain. Applying the maxim, it is said in Sheppard's 
Touchstone : ** "And yet, if the grant do not intend to de- 
scribe the grantee by his known name, but by some other 

is 29 Gal. 407, 89 Am. Dec. 67. See "Partnership,'' Dec Dig. {Kep 
yo.) § 68; Cent. Dig. S§ lO!--!!!; ''Deeds,'' Cent. Dig. % 28S. 

It GILLE Y. HUNT, 85 Minn. 857, 29 N. W. 2, GUmore, Gas. Part- 
nership. 190. Bee ''Partnership," Deo. Dig. (Key Ho.) § 68; CenL 
Dig. |§ 101-111; "Deeds," Cent. Dig. § 288. 

i« Sheppard'8 Touchstone, p. 230. 



g 52) TITLE TO PARTS fiRSHIP PBOPERTT 151 

matter, there it may be made good by a certain description 
of the person, without either surname or name of baptism." 
Accordingly it has been held that a conveyance to the 
"Lady Superior" of a convent passed the legal title to the 
person who was at the time of the conveyance the Lady 
Superior of the convent.** And it was held in Hoffman v. 
Porter,** by Marshall, J., sitting as circuit judge, that, as 
against demurrer to the complaint of John Hoffman, suing 
as surviving partner on the covenants contained in a deed 
to "Peter Hoffman & Son," John Hoffman was sufficiently 
designated in the deed to enable him to sue on the cove- 
nants contained therein. In Alabama it was held that a 
deed to "Stoudenmeier & Co." vested the legal title in the 
several members of the firm as tenants in common, and not 
in the name of the partnersl^ip as such. Its legal effect 
was the same as if the deed had been made to the three 
partners in their individual names.*^ 

In Byam v. Bickford,** a deed was made to the "South 
Chelmsford Hall Associates." It was agreed that South 
Chelmsford Hall Association was meant. The court said: 
"It is probable that, in making the deed, it was supposed 

IB Lady Superior y. McNamara, 8 Barb. Ch. (N. T.) 375, 49. Am. 
Dea 184. 

i^Fed. Cas, No. 6^577. The court said: 'That the word 'Son,* 
connected with other words which ascertain the son intended, is a 
word of purchase, has been very well settled. In all the conveyances 
In what is termed 'strict settlement,' a conveyance to A., remainder 
to the first, second, third, and fourth sons of B., has been considered 
as unquestionably valid. If these words are good to pass a remain- 
der, I can perceive no reason why they might not pass a present 
estate. If, then, this conveyance had been to the 'first son' of Peter 
Hoffman, the estate might have passed to the first son. So, if he had 
been an only 'son.' But It is admitted that a conveyance to the son 
of A., he having several sons, would be void for uncertainty, and 
that no averment could make it good. The question then is whether 
there is anything in this deed to ascertain the son who is the pur- 
chaser. Peter Hoffman was in partnership with his son John, and 
the firm was known by the name of 'Peter Hoffman & Son.' I am 
dis];>osed to think that this circumstance may designate the son 
intended in the deed." See **Deed3," Cent. Dig. § 288. 

17 Brunson y. Morgan, 76 Ala. 503. Bee ^^Partnership,*' Dec Dig, 
(Key No.) § 68; Cent. Dig. §S lOUlll; ''Deedsr Cent. Dig. % 288. 

IS 140 Mass. 81, 2 N. B. 687. See ** Associations,'' Cent. Dig. | 20. 



152 NATUBB AND CHARACTBBI8TICB (Gh. S 

that, although unincorporated, this association, as such, was 
capable of taking and holding real estate. While there are 
certain unincorporated societies which may, as such, take 
and hold real estate by statute, this society does not belong 
to that class. The general rule, therefore, applies to it, and 
it is not qualified to take, as such, real estate as grantee. 
But the South Chelmsford Hall Association was a body 
well known, all the members of which could be ascer- 
tained, and, as it could not take as a corporation, the deed 
may properly be construed as a grant of the estate to those 
who were properly described by this title, especially as the 
grant is to the 'Associates,' a term deemed by the grantors 
to mean the same as 'Association.' The persons associ- 
ated in the society were thus tenants in common of the 
land conveyed." In Kelley v. Bourne,** it was decided 
that a deed to a partnership called the "Grant's Pass Real 
Estate Association" passed at least an equitable title to the 
members of the partnership.** 

In Walker v. Miller,** a partnership business in the 
name of James Webb, Jr., & Bro. was continued in the 
same name after the death of both members of the firm by 
the beneficial owners of their interests. A question arising 
as to the validity of a conveyance of real estate made to 
those owning the business in the partnership name, it was 
held that parol evidence might be given in order to ascer- 
tain the grantees.** From the above cases it may be seen 

!• 15 Or. 476, 16 Pac. 40. Bee ^'Partnership,'' Dec. Dig. {Key No.) 
i 68; Cent Dig. § 105. 

>o Spaulding Mfg. Co. y. Qodbold, 92 Ark. 63, 121 8. W. 1063. 
See ''Parinerahipr Dec. Dig. {Key No.) | 68; Cent. Dig. H 101-111. 

SI 139 N. C. 448, 52 8. E. 125, 1 L. R. A. (N. S.) 157, 111 Am. St. 
Rep. 805. Bee ^'Partnership** Deo. Dig. {Key No.) § 68; Cent. Dig. 
II 101-111. 

sfl The court saying: *'It Is sometimes said that only an equitable 
title is conveyed in such cases. The better view, we think, is that 
which we find sustained by the authorities cited — ^that the am- 
biguity is latent and open to explanation, by which the real party 
is disclosed and the deed treated as If the names were inserted. If 
however, the other view be adopted, the same result would follow 
in this case. It is well settled under our judicinl system that a par- 
ty may recover in ejectment upon an equitable title." 

It has been decided in a number of cases that where a mortgage 



§ 52) TITLE TO PABTNER8HIP PROPERTT 153 

that there is strong authority for the proposition that a 
grant of land in the partnership name, whatever that name 
may be, passes title to all of the members of the partner- 
ship. But the objection of uncertainty is entitled to great 
weight. It certainly adds much to the difficulty of deter- 
mining in whom the record title lies to permit several gran- 
tees to be named by a collective title, 

of real estate creates a lien only, and is not a conveyance, a mort- 
gage in the partnership name Is good, and the lien accrues to the 
firm. Chicago Lumber Go. y. Ash worth, 26 Kan. 212; Foster y. 
Johnson, 39 Minn. &80, 40'N. W. 259; Barber Y. Growell, 55 Neb. 
571. 75 N. W. 1109. 

In Barber v. Crowell, in determining the effect of a mortgage to 
the ^'Western Trust & Security Company," the court said: "On 
the assumption that the mortgagee was a partnership or unincorpo- 
rated association, it is contended that it could not take title to 
real estate, and that the mortgage Is therefore a nullity. It is un- 
doubtedly true that a conyeyance of land will be ineffectual to pass 
the legal title, unless made to a grantee haying capacity to receiye 
it ; and it is also true that a partnership possesses no such capacity. 
But a mortgage is not a conveyance. It is a mere security in the 
form of a conditional conveyance, and the interest which it vests 
in the mortgagee is not essentially different from that created by a 
mechanic's lien or an ordinary judgment." 

In Foster v. Johnson, supra, an action was begun to foreclose a 
mortgage to a firm composed of L. S. Blake and James Y. Elliott, 
the mortgage being given in the firm name, Blake & Elliott The 
court held that the partners were sufficiently described to enable 
them to take. They held further, however, that this question was 
immaterial as a mortgage in the form of the one in question did 
not operate" as a conveyance, distinguishing GILLE v. HUNT, 35 
M4nn. 357, 29 N. W. 2, Gilmore, Gas. Partnership, 190, in the fol- 
lowing language: ''But, in an action to foreclose, it is only neces- 
sary that there should be a lien, and no question can be made that 
a lien may accrue to a partnership in its firm name. In this re- 
spect there is a difference l)etwe^n a foreclosure under the power of 
sale and a foreclosure by action. In the former case the title must 
pass by virtue of the mortgage, and the mortgage must be sufficient 
to operate as a conveyance as soon as the equity of redemption is 
barred by the sale ; but in the latter case the title passes by virtue 
of the decree and sale under It There is no going behind the de- 
cree to ascertain if the mortgage was sufficient to operate as a con- 
veyance." See ^^Partnership," Deo. Dig. {JBLey No,) § 68; OetU. Dig. 
%% lOl'lll. 



154 MATUBB AND CHARACTERISTICS (Ob. 3 

CONVERSION OF PARTNERSHIP REALTY 

INTO PERSONALTY 

53. By the doctrine of equitable conversion, the real estate 
of a partnership is, unless a contrary intention ap- 
pears, deemed to be personal property. 

« 

It is a well-established maxim of equity that equity re- 
gards that as done which ought to be done. The most re- 
markable application of the principle of equity indicated 
by the maxim is found in what is called the "conversion'* 
of property. Conversion has been defined as "that change 
in the nature of property by which, for certain purposes, 
real estate is considered as personal, and personal estate 
as real, and transmissible as such." *" This change in the 
nature of property is dependent upon the intention of the 
owner, and if he has indicated an intention to alter his real 
property into personal property, or his personal property 
into real property, equity will treat the property as though 
the intention had been carried out.** When persons enter 
into partnership, there is an implied agreement that the 
partnership property shall be liable for firm debts. This 
means that it is agreed among them that as far as neces- 

ss Francis, Maxims, Max. 13 ; Pomeroy's Equity Jurisprudence, 
§ 1159; Green y. Smith, 1 Atk. 572; Lorillard ▼. Coster, 5 Paige (N. 
Y.) 172. Bee '^Partnership^' Deo. Dig, {Key No,) §§ 68, 246; Cent. 
Dig, S§ 108, 522, 523; *'Con/ver8ion;' Dec. Dig. (Key No.) SI 1-22; 
Cent. Dig. S§ 1-72. 

S4 The rule as stated by Sir Thomas Sewell, in Fletcher y. Ash- 
bum, 1 Brown's Chan. 4d7, is as follows: "Money directed to be 
employed in the purchase of land, ^nd land directed to be sold and 
turned into money, are to be considered as that species of property 
into which they are directed to be converted ; and this in whatever 
manner the direction is given, whether by will,' by way of contract, 
marriage, articles, settlement, or otherwise, and whether the money 
is actually deposited or only covenanted to be paid, whether the 
land is actually conveyed or only agreed to be conveyed. The own- 
er of the fund or the contracting parties may make land money or 
money land." See '* Partnership," Dec. Dig. (Key No.) §S 68, 246; 
Cent. Dig. SS 108, 522, 523; ^'Conversion;' Dec. Dig. {Key No.) {| 
i-2a; Cent. Dig. §S 1-72. 



§ 54) COMTEBSION OV BEALTT INTO PER80NALTT 165 

sary to pay the firm obligations the firm property may be 
turned into money. If the firm acquires real estate, it is 
acquired on this understanding. Carrying out the inten- 
tion thus manifested by entering into the partnership, eq- 
uity regards partnership real estate as personal property^ 
at least as far as necessary to pay debts. 



SAME— EXTENT OF. CONVERSION 

54, Equitable conversion being based upon the intention 
of the partners, implied from the partnership agree- 
ment, the extent to which firm realty will be con- 
verted into personalty will depend upon the view 
taken by the court of such intention. A difference 
in view has led to the establishment of two rules, 
known, respectively, as the English and the Amer- 
ican rule. 

(1) English rule of out and out conversion: Partnership 

realty is, unless a contrary intention appears, con- 
verted for all purposes into personalty, and is ad- 
ministered and distributed according to the rules 
governing personal property. 

(2) American rule of pro tanto conversion : Partnership 

realty is converted into personalty so far as is nec- 
essary for carrying on the firm business and the 
payment of the firm debts. The ordinary incidents 
of dower and descent attach, even in equity, to 
the siuplus left after the partnership business js 
woimd up and the partnership accounts are settled. 
Special rule in Massachusetts: Partnership realty 
may be subjected to the payment of firm debts, 
but not pursuant to the doctrine of equitable con- 
version. Such realty is not converted at all, but 
is impressed with a trust for the benefit of the 
partnership and partnership creditors. 

Conversion of Partnership Realty — Extent of Conversion De^ 

pefids upon Agreement of Partners 

Since the conversion of partnership realty is a manifesta- 
tion of the law of equitable conversion, and since equitable 



156 NATURE AND CHARACTBRI8TIC8 (Ch. 3 

conversion is based upon the intention of the parties, it fol- 
lows that, if it can be shown that the partners so intended, 
the partnership realty will be held to be converted for all 
purposes.'* Such an intention is most clearly indicated by 
means of an express agreement to that effect.'* In the ab- 
sence of an express agreement, the intention of the parties 
must be ascertained from their conduct, and, if there is 
nothing more, it must be ascertained from the nature and 
incidents of a partnership agreement. It is sometimes said 
that such an agreement may be inferred from the purpose 
for which particular real estate was purchased and used.'* 

25 Holladay v. Land & River Imp. Co., 57 Fed. 774, 6 G. C. A. 560; 
Riddle T. WhitehlU, 135 U. S. 621, 10 Sup. Gt 924, 34 L. Ed. 282; 
Allen V. Withrow, 110 U. S. 119. 3 Sup. Gt. 517, 28 L. Ed. 90 ; Brown 
▼. Slee, 108 U. S. 828, 26 U Ed. 618; ROVELSKY v. BROWN. 92 
Ala. 522, 9 South. 182, 25 Am. St. Rep. 83, Gllmore, Gas. Partner- 
ship, 239 ; DAVIS v. SMITH, 82 Ala. 198, 2 South. 897 ; Lenow v. 
Fones, 48 Ark. 557, 4 S. W. 56 ; NlcoU v. Ogden, 29 111. 323, 81 Am. 
Dec. 811; Maddock v. Astbury, 32 N. J. Eq. 181; Rosenbaum v. 
City of N. Y., 59 Misc. Rep. 30, 109 N. Y. Supp. 775 ; DARROW v. 
GALEINS, 154 N. Y. 503, 49 N. E. 61, 48 L. R. A. 299, 61 Am. St. Rep. 
637, Gllmore, Gas. Partnership, 203 ; Barney y. Pike, 94 App. Dlr. 199, 
87 N. Y. Supp. 1038 ; Ludlow's Heirs ▼. Gooper's Devisees, 4 Ohio St. 
1; Leaf's Appeal, 105 Pa. 505; Frost ▼. Wolf, 77 Tex. 466, 14 S. W. 
440, 19 Am. St. Rep. 761 ; Davis v. Ghrlstlan, 15 Grat (Va.) 11 ; Pierce's 
Adm'r v. Trigg's Heirs, 10 Leigh (Va.) 406. "The question whether 
the interest of a partner in such real estate shall for purposes of dis- 
tribution be treated as realty or personalty is incidental to the relation 
of copartnership. Its disposition is governed by express agreement, 
or that implied from the acts of the copartners.*' Hiscock, J., in 
Buckley v. Doig, 188 N. Y. 288, 80 N. E. 913. See "Partnership:* 
Deo, Dig. (Key No,) S§ 68, 24$; Cent. Dig. » 108, 522-523. 

2e Wilson v. HoUoway, 8 Gh. 340; THORNTON v. DIXON, 3 Bro. 
Gh. 199; DAVIS v. SMITH, 82 Ala. 198, 2 South. 897; Smith v. 
Jackson, 2 Edw. Gh. (N. Y.) 28. See "PartnersMp;' Dec Dig. (Key 
yo.) §§.^8, 246; Cent. Dig. §§ 108, 522^23. 

ST **The investment of partnership funds in lands and chattels 
for the purpose of a partnership business, the fact that the two 
species of property are in most cases of this kind so commingled 
that they cannot be separated without impairing the value of each, 
has been deemed to justify the inference that under such circum- 
stances the lands as well as the chattels were intended by the part- 
ners to constitute a part of the partnership^ stock, and that both to- 
gether should take the character of personalty for all purposes; 
and Judge Denio, in GoUumb v. Read [24 N. Y. 505], expressed the 



§ 54) CX>NyER8ION OV BEALTT INTO PBRSONALTT 157 

Equity seeks to give effect to the intention of the parties, 
and will convert firm realty into personalty to the extent in- 
dicated by such intention. In interpreting the agreement of 
the partners with respect to their intention as to the treat- 
ment of their real estate courts have differed, but the dif- 
ference is as to the extent and not as to the principle of 
conversion. The differences may be expressed in two rules, 
which for convenience may be called the American and 
English rules, representing the weight of authority in each 
country. 

Same — English Rule 

The English rule may be stated as follows : Real prop- 
erty owned by a partnership becomes, as a consequence of 
such ownership, converted into personal property for all 
purposes. This is embodied in the Partnership Act, 1890, 
§§ 22 and 20 (2) : Section 22. "Where land or any herit- 
able interest therein has become partnership property, it 
shall, unless the contrary intention appears, be treated as 
between the partners (including the representatives of a 
deceased partner) and also as between the heirs of a de- 
ceased partner and his executors or administrators, as per- 
sonal or movable and not real or heritable estate." Section 
20 (2) provides "that the legal estate or interest in any land, 
or in Scotland the title to and interest in, any heritable es- 
tate, which belongs to the partnership, shall devolve ac- 
cording to the nature and tenure thereof, and the general 
rules of law thereto applicable, but in trust, so far as neces- 
sary, for the persons beneficially interested in the land un- 
der this section." *• 

opiDion that to this extent the EngUsh mle of conversion prevailed 
here. That imramount consideration should be given to the inten- 
tion of the partners when ascertained Is conceded by most of the 
cases." Andrews, C. J., in DARROW v. CALKINS, 154 N. T. 508, 
616, 49 N. B. 61, 64, 48 L. R. A. 299, 61 Am. St Rep. 687, Gilmore, 
Gas. Partnership, 203. See ^^Partnership," Dec. Dig. (Key No.) §§ 
68, 246; Genu Dig. H 108, 522^23. 

28 The Bnglish cases were not uniform in sustaining the above 
rule, the following being opposed to it: THORNTON y. DIXON, 8 
Bro. O. O. 199; Bell ▼. Phyn, 7 Yes. 453; Randall ▼. Randall, 7 
Sim. 271; Oookson v. Cookson, 8 SinL 529. The later cases and 
the majority of them were in favor of It, however. Ripl^ y. Wa- 



168 NATUBB AND CHARACTERISTICS (Ch. 3 

The rule is "said to have grown out -of the peculiar law 
of inheritance there (England), and to remedy the hard- 
ship of the rule which excludes all but the eldest child from 
the inheritance, and of the other rule which exempts real 
estate in the hands of the heir from all but the specialty 
debts of the ancestor." •• These considerations may have 
influenced the English courts, in that they took them into 
consideration in determining what the parties intended; 
but there is no doubt that the immediate basis of the deci- 
sions establishing the rule which is above stated was the 
intention of the parties themselves. This is nowhere bet- 
ter indicated than in Darby v. Darby,*® the reasoning in 
that case being as follows: In a court of equity the share 
of a partner, on the dissolution of the partnership, in the 
partnership property, is the amount of money that his share 
of the surplus amounts to after the partnership property 
has been sold and the partnership debts paid. Every part- 
ner has a right to demand that all the assets of the partner- 
ship shall be converted into money and no partner can be 
compelled to accept his share in specie. This right is in- 
herent in the contract of partnership, and is as much /a part 
of the contract as though expressly stipulated. It applies 
to all kinds of property, real as well as personal. It fol- 
lows that all the real estate of partnership is acquired and 
held under the implied agreement that it shall be sold on 
dissolution of the partnership. If one agrees to sell land, 
such land is, in equity, considered as converted into per- 
sonalty. Applying this rule to partnership realty, such 

terworth, 7 Ves. 425; Townsend ▼. Devaynes, 1 Mont Part Appen- 
dix, p. 96 ; Phillips y. Phillips, 1 M. & K. 649 ; Broom ▼. Broom, 8 
M*. & K. 443 ; Morris ▼. Kearsley, 2 Y. & G. Ex. 139 ; Houghton y. 
Houghton, 11 Sim. 491; DARBY v. DARBY, 3 Drew. 495, GUmore, 
Cas. Partnership, 193; Essex y. Essex, 20 Beay. 442; Waterer y. 
Waterer, 15 Eq. 402; Murtagh y. Ck>stello, 7 L. R. Ir. 428; Hol- 
royd V. Holroyd, 7 W. R. 428. 8ee "Partnership,*' Dec Dig, {Key 
No.) §S 68, 246; Cent. Dig. Sf 108, 522^2S. 

»» D ARROW y. CALKINS. 154 N. Y. 503, 49 N. B. 61, 48 Lw R. 
A. 299, 61 AuL St Rep. 637, Gilmore, Cas. Partnership, 203. See 
••Partnership," Deo. Dig. (Key No.) S§ 68, 246; Cent. Dig. S§ 108, 
522^2S. 

80 DARBY y. DARBY, 3 Drew. 495, Gilmore, Gas. Partnership, 
193. See ** Partnership," Deo. Dig. (Key No.) I 68; Cent. Dig. § 108. 



§ 64) CONVERSION OF REALTT INTO PERSON ALTT 159 

realty is in equity converted into personalty for all pur- 
poses.*^ 

Same — American Rule 

Both the English and American courts which recognize 
the doctrine of conversion proceed upon the theory of giv- 
ing eflFect to the intention of the partners, implied from the 
partnership agreement. The difference lies in the implica- 
tion the courts of the two countries make, respectively, as 
to the partners' agreement with respect to th'e treatment 
of the firm real estate; the English courts holding, on the 
one hand, that the partners contemplated and impliedly 
agreed that upon dissolution all the firm assets, real and 
personal, should be turned into cash for payment of debts 
and distribution. The American courts hold, on the other 
hand, that the partners did iiot thus contemplate and im- 
pliedly agree, but rather intended that firm realty should 
continue such, and upon dissolution be divided in kind, sub- 
ject only to being converted into personalty if necessary for 
the carrying on of the firm business and for the payment 
of firm debts. The reason for thus interpreting the inten- 
tion of the partners seems to be found in the nature of the 
property. Personal property, while capable of being di- 
vided in kind upon a dissolution of the firm, is not usually 
so divided, but is turned into cash. Real estate, on the 
other hand, is easily partitioned, and is usually divided in 
kind. The partners therefore intended upon dissolution to 
divide the two kinds of property in the usual way. This 
reason is stated in Shearer v. Shearer:"* "In relation to 
personal property, there is a practical difficulty in this re- 
spect. The law recognizes it, and, upon the death of one 

•1 "From the principle that a share of a partner is nothing more 
than his proportion of the partnership assets after they have been 
turned Into money and applied in liquidation of the partnership 
debts, it necessarily follows that. In equity, a share In a partner- 
ship, whether its property consist of land or not, must, as between 
the real and personal representatives of a deceased partner, be deem- 
ed to be personal, and not real estate, unless, Indeed, such conversion 
is Inconsistent with the agreement between the parties." Lindley, 
Partnership, •343. 

»2 SHEARER V. SHEARER, 98 Mass. 107, 115. See '^Partner- 
Mhip," Dec Dig. (Key No.) IS 68, 246; Cent. Dig. U 108, 522^. 



160 NATURE AND CHABACTBBI8TIC8 (Gh. 3 

partner, vests the whole title in the survivor. Even during 
the continuance of the copartnership, one partner may 
transfer the entire title of the firm by sale of any of its per- 
sonal property in the course of its business. In regard to 
such property, the rule that it is to be in all cases converted 
into money is undoubtedly well established and entirely 
uniform everywhere. In this equity follows the analogies 
of the law. On the other hand, neither partner can con- 
vey the interest of his copartner in real estate. The law 
provides for its transmission in undivided shares; for its 
partition; for its descent to the heirs of a deceased part- 
ner. It seems to us best to accord with the general prin- 
ciples of equitable interference that equity should recog- 
nize the division of real estate held by copartners as al- 
ready effected by operation of law, unless and except so 
far as the terms of the copartnership and the state of the 
accounts require its interposition in order to make the legal 
title conform to the equitable or beneficial interest. When 
this is accomplished, equity has no longer any office to 
perform towards it." 

Perhaps a more fundamental reason is found in the un- 
conscious recognition of the firm as an entity, usually ex- 
pressed by saying that the interest of a partner in partner- 
ship property pertains not to any tangible property, but 
only to the surplus which remains after the partnership 
debts are paid and its affairs wound up. Since firm real 
estate need not ordinarily be sold upon dissolution in or- 
der to effect a division, there is no reason for implying an 
agreement of the partners that it should be sold. But it 
clearly was the intention that all the firm assets of every 
kind be available for the purposes of firm business and for 
the payment of the firm debts, and, in converting the realty 
into personalty, equity is merely carrying out the implied 
agreement of the partners. Therefore the general rule in 
the United States is that partnership realty is to be con- 
sidered as converted into personalty only so far as may be 
necessary for the carrying on of the firm business and for 
the payment of the firm debts.*' As the rule is sometimes 

•» DARROW ▼. CALKINS, 154 N. Y. 503, 4^ N. B. 61, 48 L. R. A. 
299, 61 Am. St Rep. 637, Qllmore, Gas. Partnership, 203 ; SHANKS 



§ 64) OOKYSRSION OF BEALTT INTO PBRQOKALTY 16] 

Stated, the conversion is limited to the payment of firm 
debts. It would seem, however, that conversion for all the 
purposes of the partnership, including the payment of 
debts, is more correct. That some courts recognize a con- 
version to this extent is manifest in the dower cases to be 
noticed presently.** 

Equity only regards the real estate of a partnership as 
personal property for the purpose of carrying on the firm 
business and paying the debts and settling the accounts of 
the partners. In other respects it retains its legal inci- 
dents,*** both at law and in equity.** 

Special Rule in Massachusetts 

Though the rights of the partners inter se and of firm 
creditors in the firm realty are usually worked out through 
an equitable conversion of the realty, such rights are not 
infrequently spoken of as being based upon a trust aris- 
ing out of the partnership relationship. This is notably 
true in Massachusetts, where it is held that there is no con- 
version at all, and that the rights of partners and creditors 
are based upon a trust, the existence of which does not de- 
pend upon the intention of the parties. This view is thus 
stated in Shearer v. Shearer :*^ "Conceding the agreement 
as supposed (in Darby v. Darby) either express (provided 
it be not in writing) or implied, it is not such a contract as 

V. KLEIN, 104 U. S. 18, 26 L. Ed. 695, Gllmore, Cas. Partnership, 
260 ; DAVIS t. SMITH, 82 Ala. 108, 2 South. 807 ; MorriU v. Cole- 
hour, 82 111. 618; Whitney v. Gotten, 53 Miss. 680; Campbell v. 
Campbell, 30 N. J. Eq. 415; Mann v. Paddock, 108 Va. 827, 62 S. 
E, 051. See "Partnership,'' Deo. Dig. (Key No.) §{ 68, 246; Cent. 
Dig. H i08, 522^523. 

»* See post, p. 167. 

••Schllchter Jute Cordage Co. v. Mulqueen (O. C.) 142 Fed. 588; 
Powers V. Robinson, 00 Ala. 225, 8 South. 10; Lenow t. Fones, 48 
Ark. 557, 4 S. W. 56; Pepper v. Pepper, 24 IlL App. 316; CoUumb 
y. Bead, 24 N. Y. 505 ; Dawson v. Parsons, 10 Misc. Rep. 428, 81 N. 
Y. Supp. 78; Martin V. Morris, 62 Wis. 418. 22 N. W. 525. See 
'* Partnership;' Dec. Dig. {Key No.) Si 68, 246; Cent. Dig. §} 108, 
52Z-52S. 

3« Flanagan v. Shuck, 82 Ky. 617. See ''Partnership;* Dec Dig. 
{Key No.) § 68; Cent, Dig. { 108. 

»T SHEARER V. SHEARER, 08 Mass. 107, lia See "Partner- 
ship,'' Dec. Dig. {Key No.) }{ 68, 246; Cent. Dig. §§ 108, 522^25. 
Gil.Pabt. — 11 



162 NATUBB AND CHARACTERISTICS (Ch. 3 

entitles the parties to a specific performance, and it does 
not create the trust required for the conversion of real es- 
tate. The statute demands a written agreement for that 
purpose. Geni St. c. 100, § 19." The English statutes 
seem equally to require it. The implied trust, which is en- 
forced in equity for the adjustment of partnership obliga- 
tions, results from the investment of the funds of the part- 
nership in the real estate in question, for the use of the 
partnership. Regarding it in that light, the court have but 
to inquire to what use the funds, represented in the land, 
are devoted; to whom and in what proportions the bene- 
ficial interests belong; and the execution of the trust will 
follow according to the nature of the rights to be secured. 
It is not necessary to resort to inventions to work out the 
equities of the case through some implied contract, or sup- 
posed intentions of the parties in entering into the relation 
of partnership, or in applying it to the ownership of land. 
The ordinary, well-known, and generally recognized prin- 
ciples of equity, as applied to trusts arising by implication 
of law, are sufficient for all the requirements of that rela- 
tion." 

The reasoning here gfiven is radically different from that 
of the cases upon which the doctrine of conversion is based. 
Here there is no conversion, but the real estate continues 
as real estate, subject to being changed with a trust to dis- 
charge from debts. The result reached under this doctrine 
is not apparently greatly different from that reached un- 
der the pro tanto conversion rule. In each case the real 
estate is liable for the firm debts, and in each case the sur- 
plus, after debts are paid and accounts are settled, descends 

ss "A question, however, is made and concerning which some 
doubt arises from the conflict in decided cases. Will anything 
short of an express covenant in the partnership articles have the 
effect in equity of converting realty into personalty to all intents? 
We see no good reason for holding that an agreement in writing is 
necessary for such conversion. Undoubtedly the intention to con- 
vert out and out should be made to appear clearly ; but such inten- 
tion may be inferred from circumstances with sufficient deamess." 
Mcllvalne, J., in Rammelsberg v. Mltcheil, 29 Ohio St 22, 53. See 
•'Partnership," Deo, Dig. (Key No.) §§ 68, 246; Cent. Dig. U 108, 
622-523. 



S 64) OONYSBSION OF REALTY* INTO PBB50NALTT . 163 

to the heirs of a deceased partner, free from trust or equit- 
able obligation.** 

Position of the Legal Title 

It must be remembered that the doctrine of conversion is 
an equitable one, as is also the doctrine that each partner 
is endowed with an equity against the firm property for 
the payment of firm debts. Neither in any way affects the 
legal title. That passes either by virtue of a conveyance 
good under the Statute of Frauds, by judicial decree, or, in 
certain situations, by operation of law. The inception or 
dissolution of a partnership does not constitute one of 
those situations. The legal title to real property is not af- 
fected in any way by the fact that it may be partnership 
property, though the fact that those owning it are part- 
ners may prevent them from using it as ordinary joint own- 
ers could, and though it may in equity be subjected to in- 
cidents that joint property is not ordinarily subject to. 
This is due to the necessity of being able to establish a rec- 
ord title. The facility and informality with which a part- 
nership can be created and dissolved, with which it can 
convert separate property into joint property and convert 
joint property into several property, and with which it can 
convert real property into personal property, in the view 
of a court of equity, would destroy the stability of record 
titles, if any of those things were permitted to affect them. 
Hence, so far as the question of title to land is concerned, 
partnership land is conceived of as being held either in joint 
tenancy or tenancy in common. These relationships being 
only incident to the holding of the legal title to land and 
consequent upon it, they have no tendency to cause confu- 
sion in titles. Though the fact of the existence of a part- 
nership does not affect the legal title to land held by the 
partnership, since the same fact, notably the death of a 
partner, may cause a dissolution of the partnership and a 
devolution of the title to land held by the partnership, it 



«• Lenow y. Fones, 48 Ark. 557, 4 S. W. 56; SHBARER y. SHEAB- 
ER, 98 Mass. 107 ; Scruggs y. Blair, 44 Miss. 406 ; Buchan y. Sum- 
nep, 2 Barb. Ch. (N. Y.) 109, 47 Am. Dec 305. See ''Partnership,'' 
Deo. Dig. (Key No.) §§ 68, 2i6; Cent. Dig. §{ 108, 6iZ-623, 7(7^ 



164 NATUBB AND *CHAItACTBRI8TIC8 (Ch. 3 

may make considerable difference in winding up a partner^" 
ship, on the death of one partner, whether partnership land 
is conceived of as being held in joint tenancy or in tenancy 
in common. 

In England the view seems to be that the legal title of 
partners is held in joint tenancy. Hence, on the death of 
one of the members of the firm, the legal title to his un- 
divided intereist of the partnership survives to the other 
members of the firm in whose name the legal title to the 
rest of the land stands.^* In case the legal title is all in 
one partner, it passes on his death to his personal repre* 
sentative.*^ In this country joint tenancy is not favored,** 
and it is generally held that partners hold the legal title to 
firm realty as tenants in common, and on the death of one 
of the partners the legal title to his share of the firm realty 
passes to his heirs.** It passes to them subject to be ap- 
plied to the firm debts. 



*«JEFFBREYS ▼. SMALL, 1 Vera. 217, Oilmore, Cas. Partner- 
ship, 266; Elliot y. Bfowd, 3 Swans. 489, note. See "Partnership," 
Deo. Dig. (Key No,) § 246; Cent Dig. S§ 519-^23, 

«i Land Transfer Act, 1897 (60 ft 61 Vict c. 65) § 1. 

«* See Joint Tenancy and Tenancy in Ck>mmon, chapter I, pp. 42-43. 

«• SHANKS Y. KLEIN, 104 U. S. 18, 26 L. Ed. 635, Gllmore, Gas. 
Partnership, 269; Perin y. Megibben, 53 Fed. 86, 3 G. G. A. 443, 6 U. 
S. App. 348;' Megibben's Adm'rs y. Perin (G. G.) 49 Fed. 183; Glay 
Y. Field (D. G.) 34 Fed. 375 ; Logan y. Greenlaw (G. G.) 25 Fed. 299 ; 
Walton Y. Atkinson (Ala.) 51 South. 826; Blanchard y. Floyd, 96 
Ala. 58, 9 South. 418; ANDREWS' HEIRS y. BROWN'S ADM'E, 
21 Ala. 437, 56 Am. Dec. 252; Gllmore, Gas. Partnership, 267; Per- 
cifuU Y. Piatt, 36 Ark. 456; Dupuy y. LeaYenworth, 17 Gal. 262; 
Loubat Y. Nourse, 5 Fla. 350 ; Galbraith y. Gedge, 16 B. Mon. (Ky.) 
631; Flanagan y. Shuck, 82 Ky. 619; Gasky y. Gasky, 6 Ky. Law 
Rep. 775; Holmes y. Self, 79 Ky. 297; Lowe y. Lowe, 18 Bush 
(Ky.) 688; Goodbum t. SteYens, 6 Gill (Md.) 1; Wilcox t. Wilcox, 
13 Allen ^ass.) 252; Howard y. Priest, 6 Mete. (Mass.) 582; DYER 
Y. GLARK, 5 Mete. (Mass.) 562, 39 Aul Dec. 697, Gilmore, Gas. Part- 
nership, 196 ; Hanway y. Robertshaw, 49 Miss. 758 ; Scruggs v. Blair, 
44 Miss. 406; Buchan y. Sumner, 2 Barb. Gh. (N. Y.) 166» 47 Am. 
Dec. 305; DELMONIGO y. GUILLAUME, 2 Sandf. Ch. (N. Y.) 366; 
Buckley y. Buckley, 11 Barb. (N. Y.) 43 ; Smith y. Jackson, 2 Edw. 
Gh. (N. Y.) 28; Rammelsberg t. Mitchell, 29 Ohio St 22; Greene y. 
Graham, 5 Ohio, 264; Summey y. Patton, ^ N. G. 601. 86 Am. Dec 
451; Yeatman's Heirs y. Woods, 6 Yerg. (Tenn.) 20, 27 Am. Dec. 



§ 64) OONYEBSION OF REALTY IKTO PER80NALTT 165 

What influence the holding as to the legal title may have 
had on the respective rights of the heirs and the personal 
representatives of a deceased partner in his share of the sur- 
plus of the firm realty it is difficult to say. That it may 
have had some in this country, at least, seems probable; 
for, the title once being in the heir, equity would not be in- 
clined to disturb it in favor of the personal representative, 
whose equity would be no greater than that of the heir.** 

Effect on Dower 

The right of a wife to dower in her husband's property 
is a legal right, and attaches in law to the property of which 
the husband is legally seised during her coverture. It is, 
however, subject to the equities and incumbrances which 
might be urged against the husband. Thus, if the husband 
acquires property as trustee, though in a court of law the 
wife might urge her right of dower, her recovery would be 
enjoined by a court of equity.*** Where an equitable de- 
fense can be pleaded in a court of law, the right of dower 
in trust property in effect ceases to exist. 

If a vendor contracts to sell land, he becomes, until the 
conveyance is made, a trustee of the land for the vendee, 
and the land in his hands is, in equity, regarded as hav- 
ing the character of the property with which it is to be re- 
placed ; i. e., of personalty. Hence, if a man contracts to 
sell land before marriage, then marries before conveyance, 
his wife is not entitled to dower in such land.** The same 

452; WilUamson v. Fontaln, 7 Baxt (Tenn.) 212; MurreU v. Man- 
delbaum, 85 Tex. 22, 19 S. W. 880, 34 Am. St Rep. 777; Pierce's 
Adm'r V. Trigg's HelrB, 10 Leigh (Va.) 406. 

But see French v. Vanatta, 83 Ark. 306, 104 S. W. 141. See "Part- 
nership:' Dec Dig. (Key Vo.) |§ 68, 246; Cent. Dig. §1 101-111, 
519^23, 

«« SHEARER V. SHEARER, 98 Mass. 107. See ^^Partnership," 
Dec. Dig. {Key No.) § 246; Cent. Dig. {{ 619-^2S. 

4ft Noel V. Jevon, 2 Freem. 43; Hlnton y. Hlnton, 2 Yes. Sr. 630; 
634; Cashbom v. English, 2 Eq. Ga. Abr. 728; Cowman v. Hall, 8 
GUI A J. (Md.) 898; Small y. Procter, 16 Mass. 495; Ck>ster ▼. 
Clarke, 3 Edw. Ch. (N. Y.) 428; Derush v. Brown, 8 Ohio, 412; 
Firestone t. Firestone, 2 Ohio St 415. See "Dotoer," Dec. Dig. {Key 
yo.) §§ 11-19; Cent. Dig. i§ 18, S6S5. 

«« Roper, Husb. & Wife (by Jacob) 358 ; Dean's Heirs y. Micbeirs 
Heirs, 4 J. J. Marsh (Ky.) 451; Oldham y.-Sale, 1 B. Mon. (Ky.) 76; 



166 NATURE AND CHARACTBBISTIC8 (Ch. 3 

is true where land is bought under an agfreement to resell. 
It never becomes, in the view of a court of equity, realty 
to which dower attaches.** 

It must also be noted that dower does not attach to land 
held by the husband in joint tenancy.** 

Same — English Rule 

As to dower in partnership, it seems clear that in Eng- 
land the wife of a partner gets no right of dower in partner- 
ship land, either because of the way in which the legal title 
is held, or because of the fact that it is held to be converted 
into personalty.** 



Gaines v. Gaines* Ez'r, B. Mon. (Ey.) 295, 48 Am. Dec. 425; Raw- 
lings v. Adams, 7 Md. 26 ; Bowie y. Berry, 3 Md. €h. 359 ; Cowman 
Y. Hall, 3 Gill ft J. (Md.) 398; Firestone y. Firestone, 2 Ohio St 
415; Adklns y. Holmes, 2 Cart (Ind.) 197. See ''Dower,'* Dee. Dig. 
(Key No.) SI 11-19; Cent. Dig. f§ 18, 36-6^5. 

*T In Coster y. Clarke, 3 Edw. Gh. (N. Y.) 428, flYe persons pur- 
chased real estate, title being taken in the name of Clarke, one of 
the number, under an agreement to resell the same at a profit. On 
the question of the right of the wife of Clarke to dower, the court 
said: "The lands were bought In the first instance with moneys, 
to a large amount, adYanced by Mr. Coster, and some by Mr. But- 
ler, under an agreement which was embodied In the written instru- 
ment before mentioned of the 17th of August, 1826. This agree- 
ment preceded or was simultaneous in effect with the purchases i^nd 
the Yesting of the title in James B. Clarke. The purchases were 
based upon it, or were made with reference to its proYisions; and 
from the Yery inception of Mr. Clarke's title and legal seisin the 
trust attached; and from that moment the property became con- 
Yerted Into personalty, leaYlng nothing for the wife's right of dower 
to attach to, except in subordination to the trusts." See "Dotoer,** 
Dec. Dig. {Key No.) |§ 11-19; Cent Dig. }§ 18, 36-65. 

48 "The wife shall not be endowed of lands or tenements which 
the husband holdeth jointly with another at the time of his death; 
and the reason of this dlYersity is, for that the joint tenant, which 
surYiYeth, claimeth the land by the feoffment and by surYiYorship, 
which is aboYe the title of dower, and may plead the feoffment made 
to himself, without naming of his companion that died." Coke on 
Littleton, lib. 1, c. 5, { 45; Mayburry y. Brien, 15 Pet 21, 10 L. Ed. 
646. See **Dower," Dec. Dig. (Key No.) { 16; Cent. Dig. { 61. 

*» Conger y. Piatt, 25 N. S. Q. B. 277; Houghton y. Houghton, 
11 Sim. 491 ; Morris y. Kearsley, 2 Younge ft a 139. See "Dower,'* 
Dec Dig. {Key No.) % 11; Cent. Dig. I 6B. 



§ 54) OONYEBBION Ol* BBALTT INTO FfiBSONALTT 167 

Same — American Rule 

In this country the question is more difficult. The man- 
ner of the holding of the legal title does not prevent dower 
from attaching. It must be barred, then, in equity, if at 
all. That it would be barred there, if the real estate of a 
firm were conceived as being converted into personalty for 
all purposes, there is no doubt. Since it is generally held 
that it is only converted for the necessities of the partner- 
ship, or that a trust is imposed upon it for those purposes, 
it is held that as to the rest, which descends to the heirs of 
a deceased partner, his widow is entitled to dower/* 

Same — When Dower Attaches 

The question as to when the dower attaches is one of 
some perplexity. Does it attach to the entire interest of a 
partner in the real estate, subject to being displaced on a show- • 
ing that it is needed to pay the debts of the firm, or does 
it only attach to the surplus remaining after the debts are 
paid? The better rule and the majority holding would 
seem to be that it does not attach in equity till all of the 
firm debts are paid. Any other rule would seriously ham- 
per the business of the partnership.'* 



«o Perln v. Meglbben, 53 Fed. 86, 8 C. C. A. 443 ; Holton t. Gulnn 
(C. C.) 65 Fed. 450 ; Espy v. Comer, 76 Ala. 501 ; Drewry v. Mont- 
gomery, 28 Ark. 256; GALBRAITH v. TRACY, 153 111. 54, 38 N. 
E. 837, 28 Ia R. A. 129, 46 Am. St Rep. 867 ; Pepper v. Pepper, 24 
111. App. 316; Orlssom y. Moore, 106 Ind. 296, 6 N. E. 629, 55 Am. 
Rep. 742; HUSTON v. NEIL, 41 Ind. 504, Gllmore, Cas. Partner- 
ship, 200; SHEARER ▼. SHEARER, 98 Mass. 107; Campbell y. 
Campbell, SO N. J. Eq. 415 ; Bucban v. Sumner, 2 Barb. Ch. (N. Y.) 
165, 47 Am. Dec. 305 ; Dawson y. Parsons, 10 Misc. Rep. 428, 31 N. 
Y. Supp. 78'; Greenwood y. Marvin, 111 N. Y. 423, 19 N. E. 228; 
Mowry y. Bradley, 11 R. I. 370. Bee ''Dower,'' Deo. Dig. {Key No,) 
§ 17; Cent, Dig, § 62, 

■iTbis is clearly pointed out by Mitchell, J., in WOODWAREK- 
HOLMES CO. V. NUDD, 58 Minn. 236, 239, 59 N. W. 1010, 1011, 27 
L. R. A. 340, 49 Am. St Rep. 503. "It is now held with practical 
unanimity by the American courts that, If partnership capital be in- 
vested in land for the benefit of the company, all the incidents at- 
tach to it which belong to any other stock, so far as consistent 
with the statute of frauds and the technical rules of conveyancing, 
and that it will be treated as personal estate until it has performed 
all its functions to the partnership, and thereby ceases to be any 



168 MATURB AND CHARACTBRI8TIC8 (Ch. 3 

An early New York case held that dower attached im- 
mediately to the partnership land of the husband as an in- 
cident to the legal estate and seisin; that in consequence 
it was necessary for the wife to join in a mortgage; that 
after a mortgage had been given she had a right of dower 
in the equity of redemption, which was not entirely lost 

longer partnership property, and until then it is not subject to ei- 
ther dower or inheritance, but that, after all the purposes of the 
partnership hare been thus accomplished, whatever land remains 
in specie will be regarded as real estate. The question is: At 
what precise moment Is it reconverted into real estate, or, to speak 
more accurately, does it resume all the attributes and incidents of 
real property? We think the answer Is: The moment the part- 
nership is terminated and wound up by judgment or agreement, 
and it is determined that it no longer forms a part of the partner- 
ship stock, and is not required for Its purposes. When a partner- 
ship is dissolved and its afTalrs wound up and completely ended, 
and any land remains in specie, unconverted, this must be deemed a 
determination that it is no longer a part of the partnership stock, 
and an election to hold it thereafter, individually, as real estate. 
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 partnership real estate as personal 
property; for otherwise the business of the firm might be stopped, 
and the partners unable to realize on the assets of the firm, by rea- 
son of the wife of one of them refusing to join In the conveyance 
or mortgage. They have the same power of disposition over it for 
the purposes of a dissolution of the partnership, the payment of Its 
debts, and the distribution or division of the capital among them- 
selves ; for until that Is done the property has not fulfilled Its func- 
tions as personalty, or ceased to be partnership property. And 
what the partners may thus do voluntarily the court may do for 
them, in an action brought to dissolve the partnership and wind 
up its affairs. • • • The error which lies at the foundation 
of the whole argument of defendant's counsel is In the assumption 
that, at the time of the purchase of this property, It became the 
Individual real estate of the husband, and that the Inchoate right 
of the wife under the statute Immediately attached, subject only to 
a lien for the payment of partnership debts. This is not correct, 
and none of the authorities that we have found so hold. The fact 
is that only so much of It becomes the individual real estate of the 
partner as remains in specie, unconverted, after aU the purposes 
of the partnership have been entirely fulfilled, and it is only to 
such of it that any inchoate Interest of the wife ever attaches. 



5 54) OONYERSION OF REALTY INTO FEBSONALTl' 169 

by foreclosure and sale.*' The case is not, however, con- 
sistent with later New York decisions, and the question of 
the necessity of a wife joining in a conveyance of partner- 
ship land has been decided in the negative in the New York 
Supreme Court ;•■ the court saying, with reference to the 
earlier case: "In so far as the case of Smith v. Jackson 
holds that dower attaches to such real estate, it is only cor- 
rect in a modified sense. So long as the partnership exists, 
the real estate owned by it is in equity considered personal 
property, subject to firm debts, and to the interests of each 
partner in the firm, and it Ss only after the partnership 
ceases to exist, the copartnership debts have been paid, and 
the individual interests of the copartners adjusted and set- 
tled, as between themselves, that the real estate or the pro- 
ceeds thereof are treated or considered as real estate to 
which dower can attach." 

In Massachusetts and in some other states it would seem 
that the right of dower attaches at once, and that the wife 
is a necessary party to conveyances of firm real estate.*^ 

If connfiel's contention la correct, the partners could never, even 
during tbe active life of the copartnership, convey perfect title to 
partnership land without their wives Joining, except to the extent 
actually necessary to pay existing debts of the firm. This would 
practicaUy involve, in every case where one of the wives refused to 
Join in a conveyance, the necessity of a suit to which she is made a 
party, in order to determine whether the sale was necessary to pay 
debts. Any such rule would hamper the business of the firm to an 
extent that might practically defeat the purposes of the partner- 
ship." 

See, to the same efTect, the dictum of the court in Walling ▼. 
Burgess, 122 Ind. 2d9, 304, 22 N. E. 419, 23 N. B. 1076, 7 L. R. A. 
481; HUSTON v. NEIL, 41 Ind. 604, Gilmore, Gas. Partnership, 
200. Also Hauptmann v. Hauptmann, 01 App. Div. 107, 86 N. Y. 
Supp. 427 ; Paige v. Paige, 71 Iowa, 318, 32 N. W. 360, 60 Am. Rep. 
790; HamUton v. Halpin, 68 Miss. 99, 8 South. 739; Parrish v. Par- 
rlsh, 88 Va. 529, 14 S. E. 325. See ''Dower," Deo, Dig. (Key No.) § 
17; Cent. Dig. { 62. 

B2 Smith V. Jackson, 2 Edw. Ch. (N. Y.) 2a See '^Dower,^ Dec. 
Dig. (Key No.) §} 10, 15; Cent. Dig. §§ IS, S2, SS, SISO. 

fts Dawson y. Parsons, 10 Misc. Rep. 428, 31 N. Y. Supp. 78, 80. 
See ''Dower,"* Dec. Dig. {Key No.) §{ 10, 15; Cent. Dig. IS IB, S2, S3. 
57-60. 

64 DYER V. CLARK, 5 Mete. (Mass.) 5G2, 39 Am. Dec. 697, Gilmore, 
Cas. Partnership, 196; Bowman v. Bailey, 20 S. C. 553; Lenow v. 



170 KATX7BB AND CHARACTBRISTIC8 (Gh. 3 

NATURE AND EXTENT OF PARTNER'S INTEREST 
IN PARTNERSHIP PROPERTY 

56. The characteristic features of an estate in partnership 
are the following: 

(a) The title to partnership property is in all of the part- 

ners jointly, but the partners are neither 
(1) Tenants in common, 

(I) Because a sale of a partner's interest does 

not pass ai^ undivided interest in the 
property, but only such partner's share of 
what remains after all partnership debts 
are paid, and 

(II) Because a sale of specific partnership prop- 

erty by a partner passes the whole title, 
and not simply the seller's individual in- 
terest, nor 
'(2) Joint tenants, 

(I) Because there is no beneficial survivorship, 

and 

(II) Because one partner can sell partnership 

. property in the lifetime of his copartners. 

(b) A partner's share simply entitles him to a given pro- 

portion of what remains after all the firm debts 
have been paid. 

(c) A partner is not entitled to a partition or division of 

the property in kind. 

There has been always a question as to the nature of 
partnership property; that is, whether this property is an 
estate in common or one in joint tenancy, inasmuch as it 
is characterized by features found in both. It is held by 
all the partners, and since it is the substantial effect of in- 
dividual contribdtions of money or service, as the case may 
be, it is difficult to understand at first that the individuals 

Fones, 48 Ark. 557, 4 S. W. 66; Pugh's Heirs ▼. Carrie, 6 Ala. 446; 
Brewer t. Browne, 68 Ala. 210; Collins y. Warren, 29 Mo. 236. See 
*'Dower/' Dec Dig. (Key No.) SS 10, IS; Cent. Dig.. U ^S, SB, S3, 



§ 55) fartneb's interest in partnership property 171 

do not own it each in the ratio of his separate interest in 
the business." 

Partners are Not Tenants in Common of the Firm Property 

It might appear tljat here is unity of possession, and 
since, after the partnership shall have been dissolved, each 
will be restored his proportion again, instead of all the prop- 
erty going into the estate of the survivor, and since any 
one of the partners may convey his share to a stranger 
meantime, there seems to be an absence of that survivor- 
ship without which there can be no estate in joint tenancy. 
But, while the property thus is held by all the partners, it 
is held by them as members of their firm ; and, just as has 
been said of the partnership capital, so it is to be said of 
partnership property, generally, that a partner does not 
own any part of it."* Partners are not tenants in common. 
For while a partner may, as was said above, convey his 
.share to a stranger, the stranger will take nothing whatso- 
ever by the conveyance until after a dissolution of the part- 
nership, and a settlement with the partnership creditors, fo 
whom he is postponed.*^ Even if a personal judgment is 

i> T. Pars. PartD. (4tli Ed.) § 255, says : ''Wliat, then, is the right 
or interest or property of a partner to or in the effects of the part- 
nership? Certainly, not a separate and exclusive right to any part 
or portion of it, or any right of any kind to any one part rather 
than to any other part, or any other right or Interest than that 
which all the other partners have. It follows, therefore, that he 
can have no right or interest which is snch in kind or in degree as 
prevents all or any of his copartners from haying precitely the 
same; and the right which he has la the same as theirs In refer- 
ence to the whole and every part of the property. We cannot, there- 
fore, define this right of any one partner better than we have al- 
ready done, by calling it an ownership of all the property of the 
firm, subject to the ownership of the copartners, who hold it all 
subject to his ownership. This Is at least the foundation of his 
property and interest; and from this he derives certain rights as 
incident to it." 

ft«Lingen v. Simpson, 1 SIul ft S. 600; Cockle ▼. Whiting, Tam. 
55; Fourth Nat Bank v. New Orleans ft C. R. Co., 11 Wall. 624, 20 
L. Ed. 82; United States v. Hack, 8 Pet 271, 8 L. Ed. 941. See "Part- 
nersMpr Dkc Dig. (Key Ifo.) {§ 67-^9, 76; Cent. Dig. §{ 95-118, 116, 
1Z4. 

" MBNAGH V. WHITWBI/L, 52 N. X. 146, 11 Am. Rep. 683, Gllmore 
Ca& Partnership, 251; Carrie v. Cloverdale Banking ft Commercial 



172 NATURE AND ' CHARACTBRI8TICS (Oh. 3 

recovered against a partner for a private debt, and execu- 
tion follows the judgment, a levy on the partner's share 
will affect nothing but what it may afterwards appear that 
the partner is entitled to; that is, after the dissolution of 
the partnership, the payment of all the firm creditors, and 
a determination of the share of the partner in the property 
that remains/* For that is the significance of the word 
"share," as used in such a connection ; it having been well 
defined as "the value of his (partner's) original contribu- 
tion, increased or diminished by his share of profit or 
loss." •• But then the effect of a sale of property by an 
individual is very different^ where such individual is a ten- 
ant in common with the person interested with him in the 
ownership of the property, from what it is where he is his 
partner in such ownership. Thus, in the case of Person v. 
Wilson,** there was a question whether a partnership or a 
tenancy in common subsisted between certain individuals, be- 
cause, all the property having been sold by one of them, the 
sale would, on the latter hypothesis, have carried only the sell- 
er's individual interest.** In another case the rights of a 
purchaser from a member of a defunct partnership of a 

Ck>., 90 CaL 84, 27 Pac. 58 ; SINDBLARE ▼. WALKER, 137 lU. 43, 27 
N. B. 60, 31 Am. St Rep. 853 ; OoUlns' Appeal, 107 Pa. 590, 52 Am. Rep. 
479 ; Dnrborrow's Appeal, 84 Pa. 404 ; Wliigham*8 Appeal, 63 Pa. 194. 
But such a purchaser takes whatever would have been due his ven- 
dor in preference to the latter's unsecured creditors. Thompson v. 
Spittle, 102 Mass. 207. He does not become a tenant in common. 
Donaldson v. President etc., of State Bank, 16 N. C. 103, 18 Am. 
Dec. 577; Fourth Nat Bank v. New Orleans ft G. R. Co., 11 WaU. 
624, 20 L. Ed. 82. See "Partnership^ Dec. Dig. (Key No.) }§ 61-69, 
76, 77; Cent Dig. |§ SS-^U^, 116, m, 125, 145. 

«8 TAYLOR V. FIELDS, 4 Yes. 396, GUmore, Gas. Partnership, 
210; Fourth Nat Bank v. New Orleans ft C. R. Co., 11 WalL 624, 
20 L. Ed. 82 ; SANBORN v. ROYGE, 132 Mass. 594, Oilmore, Gas. 
Partnership, 510; Reinheimer t. Hemingway, 35 Pa. 432. Bee ''Part- 
nership;* Deo. Dig. (Key No.) H 67-S9, 76, m-lSS; Cent. Dig. §} 
95-llS, 116, m, SS7-S48. 

>• Indian Oontract Act, | 253. 

«o 25 B£inn. 189, 194. See "'Partnership,'* Deo. Dig. (Key No.) |S 
77, 1S8, HI, 15S; Cent. Dig. }{ 125, US, 21Jh221, 275, S$6; ""Tenancy 
in Common,*' Dec. Dig. (Key No.) § 27; Cent. Dig. f 72. 

«i Thompson v. Bowman, 6 WaU. 316, 18 L. Ed. 736; Mersereau 
V. Norton, 15 Johns. (N. Y.) 180. See "Partnership,** Deo. Dig. (Key 



§ 55) fabtneb's interest in pabtnebship pbopebty 173 

judgment in favor of the latter, which judgment had been 
previously sold by the firm's assignee to a person secretly 
representing the partners, were sustained on the ground that 
the sale of the successful party had been made by a part- 
ner, and not a tenant in common ; •* not, of course, a part- 
ner as of the old firm, but in respect of the transaction of 
buying and selling the judgment. 

Partners are Not Joint Tenants of the Firm Property 

Close examination into the question results in little that 
is more substantial where the claim is made that firm prop- 
erty is held in joint tenancy. To be sure, so far as concerns 
the existence of some sort of survivorship, this claim has a 
semblance of a basis; for, if the partner dies, the whole 
property goes to the surviving copartner, instead of going 
proportionably to the executor of the deceased. It has been 
said that, just as a pledgee or mortgagee has a right to hold 
the property in his hands until the debt due him is paid, 
so a surviving partner may hold partnership property until 
the debts of the firm arc paid, whether such debts run to 
general firm creditors or to himself, and that the statute of 
limitations will not run against him, so as to render his 
hold upon the assets the less valid until such debts are 
paid.** The surviving copartner has the closing up of the 
partnership affairs, the reduction of its property into cash 
for the payment of the firm debts, and the actual payment 
of these debts,** without the executor having the right to 
interfere, except, of course, that he has access to the courts 
to compel this surviving partner to proceed to close up the 
business,*^ and to have his proceedings scrutinized to the 

No.) n 77. 1S8, m, 159; Cent. Dig. H 125, H5, 21Jh221, 275, 506; 
**Tenanoy in Common;'* Dec. Dig. {Key No.) H ^» 55; Cent. Dig. §§ 
27, 72. 

•a Thursby v. Lidgerwood, 69 N. Y. 1©8. See **PartnersMp,*' Dec. 
Dig. (Key No.) § 245; Cent. Dig. § 515. 

OS Clay Y. Freeman, 118 U. S. 97, 6 Sup. Ct 964, 30 L. Bd. 104. 
8ee ^'Partnership:' Dec. Dig. (Key No.) §| 7fi, 77. 246; Cent. Dig. 
K J 16, m, 125, U5, 522. 

04 BUCKLEY v. BARBER, 6 Ezch. 164. See ^^Partnership:* Deo. 
Dig. {Key No.) §§ 243-255; Cent. Dig. }{ 509-561. 

•• Olay y. Freeman, 118 U. & 97, 6 Snp. Ct 964, 30 L. Ed. 104. 
See ''Partnership," Deo. Dig. (Key No.) S 246; Cent. Dig. f 522. 



174 NATUBB AND CHARACTBRI8TIC8 (Ch. 8 

end that the estate be not made to suffer through any fraud 
of his.** And it is necessary at times for the executor thus 
to have the survivor compelled to proceed to close up the 
firm's affairs; for the standing idly by of those interested 
in the estate of the deceased partner, while the survivor 
continues the business, using the property of the partner- 
ship as before, must result in the subordination of the rights 
of the estate in the assets to those of subsequent creditors 
of the firm.*^ But this is the extent of the right to inter- 
fere, and, while the whole property does not become part 
of the permanent estate of this survivor, the latter can, by 
his disposition of it in aid of such settlement, bind the ex- 
ecutor and the heirs and devisees of the deceased partner, 
so that they may be compelled subsequently, in a court of 
equity, to give effect to such disposition so far as they may 
be able to do so.** This is all that the survivorship really 
amounts to in connection with partnership property; for, 
after paying all the firm debts, the survivor's right to the 
corpus of that property ends. He has his share, and the 
executor or other representative of the deceased has the 
share of the latter after the settlement of the firm's affairs 
is done. Thus the tenancy can be no more properly called 
"joint" than "in common." It has, it is true, been said that 
this holding by the survivor is not that of a trustee; ** but 
it has never been claimed that it is beneficial to him- 
self, although in Holbrook v. Lackey^* a firm debtor, sued 
by such survivor, was allowed to set off the tatter's private 
indebtedness. However, in a situation like the last the sur- 

«• KNOX T. GYB, H R. 6 H. L. 656. Bee ^^Partnership,** Dee, Dig, 
(Key yo.) H 248-255; Cent. Dig. SI 509-561. 

«T Hoyt ▼. Sprague^ 103 U. S. 613, 26 L. Ed. 585. See ^Partner- 
ship** Dee. Dig. (Key No.) U 2Jfi-255; Cent. Dig. » 609-56L 

«8 SHANKS V. KLEIN, 104 U. S. 18, 26 L. Ed. 635, OUmore, Ca& 
Partnership, 269. See ^^Partnership** Deo. Dig. (Key No.) K 24S-255; 
Cent Dig. §| 609-561. 

•9 KNOX ▼. GTE, L. R. 5 H. L. 65a But see Jones t. Dexter, 130 
Mass. 380, 39 Am. Rep. 459. See ''Partnership," Deo. Dig. {Key No.) 
SS 24S-255; Cent. Dig. §{ 509-561. 

TO HOLBROOK v. LACKEY, 13 Mete. (Mass.) 132, 46 Am. Dea 720. 
See "Set-Off and Counterclaim^** Deo. Dig. {jsiey No.) % 45j Cent, 
big. I 97. 



§ 55) partner's interest in partnership profertt 175 

vivor would be required to account for this in his settle- 
ment, so that here is no attempt to give to the holding a 
beneficial character. Pollock describes partners, with ref- 
erence to their title generally to partnership property, as 
"owners in common or joint owners without benefit of sur- 
vivorship," ^* as if it is not necessary to be specific in the 
matter at all ; and it has elsewhere been said that, although 
it is essential to a partnership that there be a community 
of interest in the substance of it, "this community of in- 
terest must not be that of mere joint tenants or tenants in 
common." ^* The title of partners to firm property can be 
said merely to bear an analogy to these two species of ten- 
ancy in respect of diflferent features of each of them. For 
partnership property, as we have seen, is (theoretically, at 
least) always of a personal nature, which the significance 
of the old feudal tenancies does not properly touch. Be- 
sides this, the fact being that one partner can sell all the 
firm assets, and that, too, in the lifetime of his copartner, 
it is plain that the law of neither tenancy controls either the 
relation or its property.'* 

Share a Right to Money 

What is meant by the "share** of a partner is his propor- 
tion of the partnership assets after they have been all real- 
ized and converted into money, and all the debts and lia- 
bilities have been paid and discharged.'* When a partncr- 

»i Pol. Partn. c. 6, art 27. 

Ts DONNELL y. HARSHE, 67 Mo. 170, Oilmore, Gas. Partnership, 
63. See "Partnership,** Dec. Dig, {Key No.) § S; Cent. Dig. { IS. 

ra **The legal title of real estate, if in the name of more than one 
partner, is always held by them as tenants in common; but, in 
equity, it may be partnership property." Bates, Partn. { 280. 

T4 **The interest of a member of such a firm in the assets of it is 
the share to which he is entitled by the terms of the copartnership 
in the surplus of those assets remaining after all partnership debts 
are fully paid. It appears in this case that the firm was insolvent; 
that its debts much exceeded its assets; that there never could 
arise a surplus. So the interest of Stockbrldge, as an individual, In 
this property, was nothing ; and so the plaintifT got nothing by his 
purchase." STAATS ▼. BRISTOW, 73 N. Y. 264, 267, Gilmore, Gas, 
Partnership, 211. As to the nature of a partner's interest, see, also, 
Fourth Nat Bank y. New Orleans ft G. R. Go., 11 Wall. 624, 20 L. 
Ed. 82; FUley ▼• Phelps, 18 Gonn. 294; SINDBLARB Y. WALKER, 



1 76 NATURB AND CHARACTERISTICS (Gh. 3 

ship is dissolved or terminated, any one of the partners is 
entitled to have the whole assets sold and the proceeds ap- 
plied to the payment of partnership debts, and whatever 
then remains is to be divided among the partners in propor- 
tion to their several shares. No partner is entitled to a par- 
tition of the property in kind, whether the property is real 
or personaL'* 



TRANSFER OF PARTNERSHIP PROPERTY— BY 

ACT OF THE PARTNERSHIP 

58. Partnership property may be transferred by the act of 
all the partners or by the act of one authorized to 
represent all. The method and validity of such 
transfers are governed by the general laws appli- 
cable to all transfers of property held jointly. 

57* All transfers of individtial property and of partnership 
property are subject to being set aside, if found to 
be maofe with intent to hinder, delay, or defraud 
the creditors of the grantor. 

Property owned by partners may be transferred in all 
the ways in which any other property held in common may 
be transferred, and subject to the same general laws appli- 

187 111. 43, 27 N. B. 59, 31 Am. St Bep. 853; Trowbridge ▼. Cross; 
117 111. 109. 7 N. B. 347 ; Douglas ▼. Wlnslow, 20 Me. 89 ; MBNAGH 
▼. WHITWELL. 52 N. Y. 146, 11 Am. Rep. 683, Gilmore, Cas. Part- 
nership, 251 ; Hiscock ▼. Phelps, 49 N. Y. 97. A partner's share is a 
right to money. Lindl. Partn. p. 839. A partner can compel a sale 
and a division of the proceeds, but not a partition of the partner- 
ship property. WILD ▼. MILNB, 26 Beav. 504. A partner's interest 
is a chose in action. Ames, Gas. Partn. 163. A partner's daim for 
an accounting after a dissolution must be brought within the period 
prescribed by the statute of limitations, or It will be barred. KNOX 
▼. GYE, L. R. 5 H. L. 656, followed in Taylor ▼. Taylor, 28 Law T. 
189. See, also, Strange v. Graham, 56 Ala. 614 ; Pierce ▼. McClellan, 
93 III. 245; Coudrey ▼. Gilliam, 60 Mo. 86; Massey ▼. Tingle, 29 Mo. 
437 ; Manchester v. Mathewson, 3 R. I. 237. See "Partnerghip,** Dec. 
Dig. {Key No.) §| 76, 220; Cent. Dig. §§ m. ^5S%. 

TB WILD ▼. MILNE, 26 Beav. 604 ; KRUSCHKE ▼. STEFAN. 83 
Wis. 373, 53 N. W. 679; PENNYB ACKER ▼. LEARY, 65 Iowa. 220, 



§§ 56-57) TRANSFER Or PARTNERSHIP PROPERTY 177 

cable to all such transfers. As the law does not recognize 
the firm as an entity, it is necessary for purposes of aliena- 
tion of firm property to follow the general rules of convey- 
ancing. Firm property, as has been pointed out, is the 
property of the members of the firm, held and used for pur- 
poses of the common business. To alienate it, all the part- 
ners must join, or one of them must act with authority for 
all. The transfer may be made for any purpose, although 
when one partner alone acts his authority will usually be 
limited to transfers within the scope of the partnership 
business and for firm purposes. Likewise the transfer may 
be made to strangers, or to a member of the partnership. 
By the latter conveyance what is joint property of all the 
partners may become the joint property of less than all,** 
or the separate property of a single partner.*' 

Same — Conveyances in Fraud of Creditors 

All transfers of property, however, whether belonging to 
individuals severally, jointly, or as partners, are subject to 
being set aside on the ground that they were made with 
intent to hinder, delay, or defraud the creditors of the trans- 
ferror. All transfers of partnership property are subject to 
the same attack. The firm creditors have no lien upon the 
firm property as such, and have no right to object to the 
use of the property by the firm in any way it sees fit, so 
long as the use does not make the partners insolvent, and 
was not done to delay or defraud creditors.*' No person 
can defraud his creditors by disposing of his property with 
the intent of defeating them in their attempts to collect 

21 N. W. 576, Oilmore, Gas. Partnership, 214 ; Mendenhall ▼. Benbow, 
84 N. C. 646. In MOLINEAUX ▼. RAYNOLDS et al., 64 N. J. Bq. 
559, 35 Atl. 536, GUmore, Gas. Partnership, 215, the court decreed 
a partition; it appearing that there were abundant assets left to 
meet all possible firm debts. See ^^Partnership,'* Deo, Dig. {Key No.) 
H 297-^06; Cent. Dig. §f 679-709. 

f BOLTON ▼. PULLER, 1 Bos. & P. 539. See "Partnership:* Dec. 
Dig. iKey, Vo.) §§ 68, 93, 94; Cent. Dig. |§ 112, US, HO, 141. 

TT Bx parte RUFFIN, 6 Ves. 119, Gilmore, Gas. Partnership, 217. 
See '^Partnership:* Dec Dig. (Key No.) |§ 9S, 94; Cent. Dig. §§ 14O, 
141. 

78 Blake v. Sargent (D. 0.) 162 Fed. 263. See ** Partnership,** 
Dec. Dig. (Key No.) § 183; Cent. Dig. S| S19-S36, 348. 

GIL.PXBT.— 12 



178 NATUBB AND CHARACTERISTICS (Gh. 3 

their debts. The same rule applies to a partnership. The 
creditors ot a partnership have a claim against the assets 
of the partnership which prevents the partnership from dis- 
posing of them with a fraudulent intent. "In this respect 
it resembles the claim which the general creditors of an in- 
dividual have upon his property. It is neither an estate 
nor a lien. It is, ordinarily, but a right by lawful procedure 
to acquire a lien during the ownership of the debtor ; yet, 
under certain circumstances, that lien may be acquired 
after the debtor's ownership has ended. This results from 
the provisions of the ancient statute for the prevention of 
fraud and perjuries, by force of which, when a person has 
alienated his property with intent to hinder, delay, or de- 
fraud his creditors, the rights of those creditors remain as 
if no alienation had taken place, except against the claims 
of bona fide purchasers, for good consideration, without no- 
tice. Equity applies this statute to a partnership, its prop- 
erty and creditors, just as it woufd in case of an individual, 
and therefore, while generally it is true that a partnership 
may defeat the equity of its creditors by the alienation of 
its property and consequent extinguishment of the rights 
of its partners inter sese, yet, if the alienation be effected 
with intent to hinder, delay, or defraud the firm creditors 
by defeating their equity, the claims of creditors will be 
unimpaired, and the property will be treated as partner- 
ship assets, unless it shall have passed into the hands of 
those whom the statute protects." ^* 

Purpose of Transfer of Firm Property 

Assuming that the transfers are made in proper form by 
all the partners, or by one acting under authority for all, 
the validity thereof will be affected essentially by their pur- 
pose. Before considering the purpose of the transfers, it 
will be necessary to discuss the purpose for which firm as- 
sets are held and the origin and nature of the firm creditors' 
rights in firm assets. All questions relating to the power 
of each partner to transfer firm property are discussed in 

r» ARNOLD ▼. HAGERMAN, 45 N. J. Eq. 186, 17 Atl. 93, 14 Am. 
St Rep. 712, Gllmore, Cas. Partnership, 223. Bee **PartnersMp,** 
Deo, Dig. (Key No.) § 18S; Cent. Dig. §| S19SS6, S48. 



§ 58) TRANSFER OF PARTNERSHIP PROFERTT 179 

the chapter on Powers of Partners. It is assumed here 
that, so far as authority of an agent partner making the 
conveyance is concerned, the transfer is valid. 



SAME— FIRM CREDITORS' RIGHTS IN FIRM AS- 

SET&-PARTNER'S LIEN 

58. When persons enter into a partnership relation, there 
is implied tr a mutual agreement that all partner- 
ship property shall be devoted first to the payment 
of partnership debts. A coiut of equity, if it has 
acquired jurisdiction of the settlement pf the af- 
fairs of a partnership, will recognize and enforce 
their agreement. The effect of such enforcement 
will be the payment of the firm creditors out of 
the firm assets before the separate creditors of each 
partner. Firm creditors are said, therefore, to have 
a priority in equity in a distribution of firm assets. 
Such priority, however, is based, not upon any 
right of their own, but upon the right of the part- 
ners against one another, and is called a ''deriva- 
tivc right." 
The firm creditors' priority is also put upon other 
grounds: (a) That they extended credit on the 
faith of the firm assets and should have first claim 
upon them; (b) that the firm is an entity having 
its own creditors and property* 



While it should be recognized that the priority of firm 
creditors in firm assets is variously explained, it would 
seem the explanation given in the foregoing black letter is 
the one most frequently found in the language of the de- 
cisions. 

In the distribution of assets of the partnership in a court 
of equity, the firm creditors are given a preference out of 
the firm assets over the individual creditors. This prefer- 
ence is said to be derived from the right which each part- 
ner has, in equity, to have the firm assets applied to firm 
debts, rather than to the individual debts of the respective 



180 NATURE AND CHARACTERISTICS . (Ch. 3 

partners. The origin of this ''equity'' of the partners, as it 
is called, is said to rest in ''an implied contract that the as- 
sets shall not be used for private purposes," •• or, in other 
words, "upon the presumed intention of the partners them- 
selves." *^ Out of the equity of the partners themselves 
grows the equity of the firm creditors. "The right of each 
partner extends only to a share of what may remain after 
payment of the debts of the firm and the settlement of its 
accounts. Growing out of this right, or rather included in 
it, is the right to have the partnership property applied to 
the payment of the partnership debts in preference to those 
of any individual partner. This is an equity the partners 
have as between themselves, and in certain circumstances 
it inures to the benefit of the creditors of the firm. The 
latter are said to have a privilege or preference, sometimes 
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 members. Their 
equity, however, is a derivative one. It is not held or en- 
forceable in their own right. It is practically a subroga- 
tion to the equity of the individual partner, to be made ef- 
fective only through him. Hence, if he is not in a position 
to enforce it, the creditors of the firm cannot be. 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 creditors of the firm to avail them- 
selves of his equity, and enforce, through it, the application 
of those assets primarily to payment of the debts due them, 
whenever the property comes under its administration. It 
is indispensable, however, to such relief, when the cred- 
it DARBY V. GILLIGAN, 83 W. Va. 216, 10 S. EL 400. 6 L. R. 
A. 740, Gllmore, Cas. Partnership, 221. In this case It Is also sag- 
gested that the priority is based upon the doctrine of suretyship, 
since such partner is liable In solido for the firm debts, and Is there- 
fore, inter se, ylrtually a surety for the copartners for their pro- 
portions, and is entitled to have the firm assets applied so as to 
relieve him from paying more than his share. See '*PartnenifUp, 
Deo. Dig. (Key No.) §i 176-183; Cent. Dig. §§ S09-SS6. 

«i ARNOLD ▼. HAGERMAN. 45 N. J. Eq. 186, 17 Atl. 08. 14 Am. 
St. Rep. 712, Gllmore, Cas. Partnership, 223. See "Partnership, 
Deo. Dig. {Key No.) H 176-183; Cent. Dig. SI 308-336. 



H 



•t 



§ id) TRANSFER OF PARTNERSHIP PROPERTT 181 

itors are, as in the present case, simple contract creditors, 
that the partnership property should be within the control 
of the court, and in the course of administration, brought 
there by the bankruptcy of the firm, or by an assignment, 
or by the creation of a trust in some mode. This is because 
neither the partners nor the joint creditors have any spe- 
cific lien, nor is there any trust that can be enforced until 
the property has passed in custodia legis. Other property 
can be followed only after a judgment at law has been ob- 
tained and an execution has proved fruitless." •* 

It should be noticed that the foregoing statements deal 
with the situation where the assets of the partnership are 
in the hands of the court for distribution. As will be more 
fully discussed in a later chapter,** most courts, with more 
or less slight variations, follow the general rule announced. 
How far this equitable rule of distribution should control 
the partners, while the partnership is a going concern and 
they are in full control of the firm assets, is a question 
of considerable perplexity. It remains, therefore, to con- 
sider certain transfers made by the partners while the part- 
nership is a going concern: First, transfers whereby the 
firm property becomes the separate property of the part- 
ners, or the property of fewer than all the original num- 
ber of partners, or becomes the property of a single part- 
ner; second, transfers whereby the firm property is applied 
to the payment of the debts of a single partner or of the 
individual debts of all the several partners. 



SAME— CHANGE OF FIRM PROPERTY INTO SEP- 

ARATE PROPERTY 

59. Partnership property may by agreement of all the part- 
ners become the separate property of such part- 
ners, or the property of fewer than all the original 
partners^ or the property of a single partner. 

•1 Strong, J., in CASE ▼. BEAUREGARD, 99 U. S. 119, 25 L. Ed. 
370, Ollmore, Cas. Partnership, 226. 8ee '* Partnership/* Dec. Dig. 
(Key yo,) §S ne-lSS; Cent, Dig, §§ S08-S36. 

•• Obapter VII, p. 404, Rights of Creditonk 






182 NATURB AND CHARACTBBI8TICS (Ch. 3 

PROVIDED, HOWEVER, that such change of own- 
ership is not made with intent to hinder, delay, or 
defraud firm creditors. It is held by a majority of 
the courts that a fraudulent intent must be actually 
shown; the transfer, being upon a consideration, 
is not impeached by the fact of insolvency alone. 
It is held by bther courts that, if the partnership 
and its members are insolvent, the change is fraud- 
ulent; the conveyance being volimtary, the fact of 
insolvency is proof of bad faith. 

In General 

A brief statement of the law governing fraudulent con- 
veyances seems desirable for a clear understanding of the 
principles here involved. Having laid down the general 
rule governing fraudulent conveyances, they will then be 
discussed in connection with partnership cases. 

Persons in the partnership relation enjoy the same rights 
and are subject to the same restrictions as the owners of 
property generally with respect to its alienation. The ab- 
solute ownership of property includes the right to dispose 
of it, by gift, sale, or otherwise, as one sees fit, subject, al- 
ways, however, to one restriction, imposed by the common 
law and by statutes declaratory thereof, viz., that such alien- 
ation shall not be done with intent to hinder, delay, or de- 
fraud the grantor's creditors. One may g^ve away or sell 
his property. If a person is solvent, he may make a volun- 
tary g^f t, if he acts in good faith ; i, e., without intent to 
hinder, delay, or defraud his creditors. As the donor is sol- 
vent, however, and has other property with which to pay 
his creditors, it will rarely, if ever, occur that a voluntary 
gift by such a person will be fraudulent If, however, a 
person is insolvent, a gift of his property will inevitably 
hinder and defraud his creditors, and will always, there- 
fore, be fraudulent. The insolvency of the donor, in deal- 
ing with voluntary conveyances (that is, conveyances with- 
out consideration), is commonly said to prove bad faith. 

One may sell his property, and if he does so for a con- 
sideration and in good faith the transfer is valid. The law 
requires both consideration and good faith. If the vendor 



§ 59) TRANSFEB OF PABTNERSHIP PBOPEBTT 183 

is solvent and received a good consideration, the transac- 
tion can scarcely be impeached, because the sale, being for 
a good consideration, will seldom hinder and delay the 
creditors, and will therefore rarely be fraudulent. The na- 
ture and adequacy of the consideration, however, is always 
material on the issue of good faith. Likewise, if an insol- 
vent person should sell his property for a good considera- 
tion, the transfer would be valid if made in good faith. 
Here, also, the presence or absence of good faith will de- 
pend to considerable extent upon the nature and adequacy 
of the consideration. If the consideration^ is adequate, it 
will not be likely that the alienation will hinder and delay 
creditors, and will not be fraudulent. There is necessarily 
an intimate connection between consideration and good 
faith, so intimate that it is commonly said that good faith 
requires consideration. But good faith may be disproved, 
even though there be consideration, and inadequacy of con- 
sideration does not always prove bad faith. It should be 
noticed here that a conveyance purporting to be upon a con- 
sideration may be attacked on the ground that the consid- 
eration is worthless, and hence that the conveyance is vol- 
untary. If thus established to be voluntary, the insolvency 
of the grantor will of itself be sufficient to prove bad faith. 
Good faith, when dealing with voluntary conveyances, 
means the state of mind of the donor ; for the donee, hav- 
ing paid no value, could not retain the property against the 
creditors of the fraudulent donor, and therefore the donee's 
state of mind is immaterial. Good faith, on the other hand, 
when dealing with conveyances on consideration, means the 
state of mind of the seller and purchaser; that is, the law 
protects the innocent purchaser for value, and in order to 
impeach a transfer it must appear that the vendor and ven- 
dee were both in bad faith.** 

Transfer of Firm Property for Promise to Pay Firm Debts — 

Valid 

While a partnership is a solvent and going concern, there 
can be no doubt that its members may by agreement make 
such disposition of the firm property as they see fit, so 

•4 Bump on Fraudulent Conveyances (4th Bid.) ce. VIII, IX, XI. 



184 NATUBB AND CHABACTBRISTICS (Gh. 3 

long as they act in good faith.** The usual situation that 
arises in this connection is one in, which the firm property 
is transferred by all the partners to one or more of their 
number, who ag^ee in consideration of such transfer to as- 
sume and pay the firm debts. As between the partners 
such a transaction results in changing the firm property 
into separate property. Its effect upon the rights of firm 
' creditors, however, must be determined by the law of fraud- 

sBThiB was decided in BOLTON v. PUIiLBR, 1 Bos. & P. 539, 
where two banking firms carried on business, one in Liverpool and 
one in London. All the members of the latter firm were partners in 
the former, which, however, included others besides the members of 
the London firm. In the course of business between the two firms, 
certain bills of exchange were transferred from the Liverpool firm 
to the London firm. On both firms becoming bankrupt, it was held 
that the bills were the property of the London firm ; the court say- 
ing : ^There can be no doubt that as between themselves a partner- 
ship may have transactions with an individual partner, or with two 
or more of th^ partners having their separate estate, engaged in 
some Joint concern, in which the general partnership is not inter- 
ested, and that they may by their acts convert the Joint property of 
the general partnership' into the separate property of an individual 
partner. • • • And their transactions in this respect will, gen- 
erally speaking, bind third persons, and third persons may take ad- 
vantage of them in the same manner as if the partnership were trans- 
acting business with strangers." 

CASE V. BEAUREGARD, 99 U. S. 119, 25 L. Ed. 370. Gilmore, 
Gas. Partnership, 226; Levy v. Williams, 79 Ala. 171; Conroy y. 
Woods, 13 Cal. 628, 73 Am. Dec. 605; Allen v. Center Valley Co., 
21 Conn. 136, 54 Am. Dec. 333; Schleicher v. Walker, 28 Fla. 680, 
10 South. 33; Upson v. Arnold, 19 Ga. 190, 63 Am. Dec. 302; Singer, 
Nimick & Co. v. Carpenter, 125 111. 117, 17 N. B. 761; Dunham v. 
Hanna, 18 Ind. 270; City of Maquoketa v. Willey, 35 Iowa, 323; 
Kelley v. Flory, 84 Iowa, 671, 51 N. W. 181; Woodmansie v. Hol- 
comb, 34 Kan. 35, 7 Pac. 603 ; Wilson v. Soper, 13 B. Mon. (Ky.) 411, 
56 Am. Dec. 573 ; Jones v. Lusk, 2 Mete. (Ky.) 861 ; Coakley v. Weil, 
47 Md. 277; Robb v. Mudge, 14 Gray (Mass.) 534; Schmidlapp v. 
Currie, 55 Miss. 597, 30 Am. Rep. 530; Sexton v. Anderson, 95 Mo. 
873, 8 S. W. 564 ; Stanton v. Westover, 101 N. Y. 265, 4 N. B. 529 ; 
MENAGH V. WHITWELI^ 52 N. Y. 146, 11 Am. Rep. 683. GUmore. 
Cas. Partnership, 251; Mortley v. Flanagan, 38 Ohio St 401; 
Baker's Appeal, 21 Pa. 76^ 69 Am. Dec. 752; Waterman v. Hunt, 
2 R. I. 298 ; Ooone v. Bivens, 2 Head (Tenn.) 339 ; White v. Parish, 
20 Tex. 688, 73 Am. Dec 204 ; Rice ▼. Barnard, 20 V t 479, 50 Am. 
Dec. 54. See ^^Partnership,'' Dec. Dig, {Key No.) {§ 69, 76, 77, 176- 
18S; Cent. Dig. || 112, IIS, 116, 124, l^f H5, S08-336, 



.\ 



§ 69) TRANSFER OF PARTNERSHIP PROPERTT 185 

ulent conveyances. The transfer now discussed purports 
to be one upon a consideration, and therefore should not in 
the first instance be dealt with as a voluntary conveyance. 
The consideration for the transfer from partnership prop- 
erty into separate property was the promise by the gran- 
tees to assume and pay the firm debts. If such promise be 
regarded as a consideration, and there would seem to be 
no reason why it should not be so regarded, even though 
the promisee is or soon becomes insolvent and never per- 
forms his promise, then the conveyance should be valid, 
unless it was made in bad faith; that is, with intent to hin- 
der, delay, and defraud the firm creditors. Whether the 
firm be solvent or insolvent is not the determining factor, 
for an insolvent person may sell his property, if he acts in 
good faith. Mere knowledge of insolvency will not, in con- 
veyances upon consideration, prove bad faith.®* The valid- 
ity of such conveyance being one upon a consideration, will 
depend upon the good faith of the parties, and, in the ab- 
sence of proof of actual bad faith, the weight of authority 
seems to sustain such a transaction, whether the firm be 
solvent or insolvent.*^ If the transaction be valid, then the 
priority of the firm creditors to payment is lost; for such 
priority, being derived through the rights of the partners, 
disappears when the partners relinquish that right by agree- 
ing to change firm into several property.*® 

•• Ruhl V. PhUUps. 48 N. Y. 125, 8 Am. Rep. 522. See ^'Partner- 
ahipr Dec, Dig. (Key No.) S§ 176-183; Cent. Dig. §§ 308SS6. 

87 See cases cited in note 85, above. Myers v. Tyson, 2 Kan. App. 
404, 48 Pac. 91; Hulskamp y. Moline Wagon Co., 121 U. S. 310, 7 
Sup. Gt. 899, 30 L. Ed. 971 ; Reynolds y. Johnson, 54 Ark. 449, 16 S. 
W. 124 ; Sickman v. Abernathy, 14 Colo. 174, 23 Pac. 447 ; AUen 
▼. Center Valley Co., 21 Conn. 130, 54 Am. Dec. 333 ; Ellison v. Lucas, 
87 Ga. 223, 13 S. E. 445, 27 Am. St. Rep. 242 ; Hapgood y. Comwell, 
48 111. 64, 95 Am. Dec. 516 ; Hanf ord y. Prouty, 133 111. 339, 24 N. a 
565; Purple y. Farrington, 119 Ind. 164, 21 N. B. 543, 4 L. R. A. 
539; Richards y. Manson, 101 Mass. 482; Dimon y. Hazard, 82 N. Y. 
65; Gallagher's Appeal, 114 Pa. 353, 7 Atl. 237, 60 Am. Rep. 350; 
CarYer Gin & Machine Co. y. Bannon, 85 Tenn. 712, 4 S. W. 831, 4 
AuL St Rep. 803: Sigler y. Knox County Bank, 8 Ohio St 511. 
See "Pariner8hipr Dec. Dig. (Key No.) SS 176-183; Cent. Dig. H 308- 
336. 

•* *'If, before the interposition of the court is aBked, the property 



186 NATURB AND CHARACTERISTICS (Ch. 3 

Same — Contrary View 

It should be recognized that there are many cases which 
hold that a transaction of the kind above described is in- 
valid.** The conveyance, according to these cases, is im- 
peached on the ground that it is voluntary. This is estab- 
lished by holding that what purports to be the considera- 
tion for it is worthless. It is worthless because, the prom- 
isee being insolvent, or becoming so within a short time 
without having performed his promise to pay the firm 
debts, the retiring partners received nothing for relinquish- 
ing their interest in the firm property. Being a voluntary 
conveyance, and the grantor being insolvent, this latter fact 
conclusively shows that its effect is to hinder and defraud 



has ceased to belong to the partnership, if by a bona fide transfer 
it has become the several property either of one partner or of a 
third person, the equities of the partners are extinguished, and con- 
sequently the derivatlTe equities of the creditors are at an end. It 
Is, therefore, always essential to any preferential right of the cred- 
itors that there shall be property owned by the partnership when the 
claim for preference is sought to be enforced." Strong, J., in CASE 
▼. BEAUREGARD, 99 U. S. 119, 25 L. Bd. 370, Gilmore, Cas. Part- 
nership, 226. 

In HOWE ▼. LAWRENCE, 9 Cush. (Mass.) 553, 57 Am. Dec. 68, 
Henry Shaw and William Gardner, partners under the name of Shaw 
& Gardner, becoming dissatisfied, dissolved the partnership; Gard- 
ner buying the firm property and agreeing to pay the firm debts. 
The partnership and each partner was at the time insolvent, though 
there was no proof that either knew it It was held, in the distri- 
bution of the assets of Gardner in insolvency, that the former prop- 
erty of the firm had become his separate property, and the firm cred- 
itors were not entitled to priority in its distribution. Mansur-Teb- 
betts Implement Co. v. Ritchie, 159 Mo. 213, 60 S. W. 87; Bedford 
V. McDonald, 102 Tenn. 358, 52 S. W. 157. See ** Partnership;* Dec, 
Dig. (Key No.) {§ 176-188; Cent. Dig. §§ S08SS6. 

«» DARBY V. GILLIGAN, 33 W. Va. 246, 10 S. E. 400, 6 L. R. A. 
740, Gilmore, Cas. Partnership, 221; ARNOLD v. HAGERMAN, 45 
N. J. Eq. 186, 17 Atl. 93, 14 Am. St. Rep. 712, Gilmore, Cas. Partner- 
ship, 223 ; JACKSON BANK V. DURFEY, 72 Miss. 971, 18 South. 
456, 31 L. R. A. 470, 48 Am. St Rep. 596; BANNISTER v. MILLER, 
54 N. J. Eq. 121, 32 Atl. 1066 ; MUler v. Bannister, 54 N. J. Eq. 701, 
37 Ati. 1117 ; Ex parte MA YOU, 4 De G., J. & S. 604 ; Marsh v. Ben- 
nett, Fed. Cas. No. 9,110; In re Cook, Fed. Cas. No. 3,150; Conroy 
V. Woods, 13 Cal. 626, 73 Am. Dec. 605. See ** Partnership;' Dec Dig. 
(Key No.) H 116-183; Cent. Dig. %% 308^36. 



§ 59) TBAMSFER OF FABTNEBSHIF FBOFSBTT 187 

the creditors, and hence it is fraudulent. Thus in Ex parte 
Mayou,*" one of two partners made an assignment to the 
other of the firm property in consideration that the other 
assumed the firm debts. Both were in fact insolvent at the 
time, as was the partnership. It was held that such an as- 
signment was fraudulent as against the firm creditors. 
Lord Chancellor Westbury said: "Taking, then, in the 
first place, the principle of law which is embodied in the 
statute of 13 Eliz. c. 5, and applying that to the transaction, 
I think that it was not competent for the one to make or 
for the other to accept an assignment of that description, 
both of them being insolvent at the time, * * * be- 
cause it had for its immediate and necessary object and 
consequence the alteration of the property in such a man- 
ner as would defect or delay the joint creditors. * * * 
Having regard to the principle that a voluntary assignment 
is, in this sense, a fraudulent assignment, if I regard the 
transaction as entered into by one partner alone, I cannot 
look at it^as a conveyance for good or valuable considera- 
tion, seeing that the covenant by the assignee of the part- 
ners was a covenant entered into by a man in a state of in- 
solvency, and in this sense, being voluntary, it would be 
fraudulent within the meaning which has been applied to 
this term." •» 

••Ex parte MAYOU, 4 De G., J. & S. 664. See ** Partnership,** 
Dec. Dig. (Key No.) §§ 176-18S; Cent. Dig. S§ 308-3S6. 

•1 In ARNOLD v. HAGERMAN, 45 N. J. Eq. 186, 17 Ati. 93, 14 
Am. St Rep. 712, Gilmore, Cas. Partnership, 223, one Farr, being 
in the lumber business, formed a copartnership In the business with 
Hagerman and Fielder, under the name J. G. Farr & Go. Hagerman 
and Fielder gave their notes to Farr to pay for certain property al- 
ready in the business, which became firm property. The firm becom- 
ing embarrassed, an assignment was made to Farr; he returning 
the notes, and agreeing to pay the firm indebtedness. Farr made 
an assignment for the benefit of creditors, and upon an attempt being 
made to set aside the assignment to Farr the court held it to be 
fraudulent, saying: "At the time of the transfer by Hagerman and 
Fielder to Farr, the insolvency of each of these persons and of the 
firm of J. G. Farr & Go. was patent to them all, and, indeed, was 
the moving cause of the transfer. They all knew that, in the con- 
dition of affairs then existing, none of them could meet maturing 
obligations, and it was in the hope of facilitating an extension or 



188 NATURB AND CHARACTERISTICS (Ch. 3 

Same — Some Partners Remaining Solvent 

In the foregoing discussion it has been assumed that aU 
the partners are insolvent. If any of the partners who thus 
join in changing the firm property into the several property 
of one of the partners remain solvent, the transaction, even 
though established to be voluntary in the manner above de- 
scribed, is not necessarily fraudulent. It is to be treated, 
then, as a gratuitous transfer by any solvent person, and 
such transfers, as has been seen, can rarely be impeached. 

Same — All the Partners Still Remain Liable 

Notwithstanding that the firm assets may be thus con- 
verted into the separate property of the partners, the con- 
tract liability of all the original members of the firm still 
continues, and firm creditors may pursue their remedies at 
law and seize the property upon execution in the hands of 
the partner to whom it has been conveyed. But they have 
lost their priority with respect to such property, and, un- 
less they have perfected their liens at law, they will, upon 
a distribution in equity of the assets of the separate part- 
ners, be postponed to the separate creditors.*" 

compromise with creditors that the transfer was made. The transfer 
embraced all the partnership property. If valid in all respects, it 
appropriated the shares of Hagerman and Fielder to the payment 
of the debts of Farr, for which those shares were previously not 
liable, and left Hagerman and Fielder without any property what- 
ever, as we gather from the testimony, to pay their debts. Inevit- 
ably, therefore, by defeating the equity of the partnership creditors, 
it would hinder them in the collection of their just claims. It is a rea- 
sonable inference that these partners intended this manifest effect of 
their act, and consequently the assignment by Hagerman and Field- 
er to Farr must, according to the terms of the statute, be deemed 
void as against the partnership creditors. Not only upon the ground 
of a conmion intent to hinder partnership creditors, thus Inferred 
from the knowledge which all parties must have had of the neces- 
sary consequences of the transfer itself, but also upon the ground 
that the transfer was made without valuable consideration — ^was 
voluntary in the legal sense — ^it should be decreed invalid against the 
partnership creditors, aU of whose debts were then in existence." 
See ^^Partnership,'* Dec. Dig, (Key No.) SS 176-183; Cent. Dig. H 
S08-^Se. 
•1 See chapter VII, pw 404, on Bights of Creditors. 



§§ 60-61) TRAN8F£B OF PARTNERSHIP PROPERTY 189 

Satne — Executory Agreements — Reservation of Lien 

If the agreement to change the firm property into sev- 
eral property remains executory, or the legal title is not 
to pass until certain acts are done, the rights of firm cred- 
itors will not be destroyed.®' So, also, if the conveyance 
is made with a reservation by the partners of the right to 
have the firm debts paid, the priorities of firm creditors will 
be preserved. As, for example, where the grantors have 
the right to defeat the conveyance if the firm debts are not 
paid.** If the legal title, however, has actually passed, and 
has by subsequent conveyance come into the hands of a 
purchaser in good faith for value, it would seem that a res- 
ervation of lien would be unavailing to save the firm cred- 
itors' priorities. 



SAME— USE OP FIRM PROPERTY TO PAY SEPA- 
RATE DEBTS OF PARTNERS 

60. A transfer by an insolvent partnership of firm property 

to pay the individual indebtedness of a partner, be- 
ing voluntary, is fraudulent as to firm creditors. 

61. A transfer by an insolvent partnership of firm property 

to^ pay the individual indebtedness of all the mem- 
bers of the partnership is held by some courts to 
be valid, unless there was actual intent to defraud 
firm creditors. By other courts it is held that such 
a transfer, being voluntary, is necessarily fraud- 
ulent 



•« In re KEMPTNBR, L. R. 8 E3q. 28a Bee ^^Partnership,** Deo. 
Dig, {Key No.) §{ 176-18S; Cent. Dig. §| 308-^S6. 

•* THAYER V. HUMPHREY, 91 Wis. 276, 64 N. W. 1007, 80 L. 
R. A. 549, 51 Am. St Rep. 887;Oilmore, Gas. Partnership, 546; 
Bulger V. Rosa, 119 N. Y. 459, 24 N. E. 853. 

It lias also been held that the continuing partner takes the assets 
In trust for the firm creditors, and will be required to pay the firm 
debts before using them for other purposes. Bowman y. Spalding 
(Ky.) 2 S. W. 911; Shackelford's Adm'r ▼. Shackelford, 32 6rat 
(Va.) 481. See ^^Partnership,'' Dec. Dig. (Key No.) M 176-183; Cent. 
Dig. H S0&-^36. 



190 NATURB AND CHARACTERISTICS (Ch. 3 

Transferring Partnership Property to Pay a Separate Debt of 

One Partner 

Firm property is often, by conveyance of all the part- 
ners, or by one acting under authority from all, used to pay 
or secure the debt of a single partner. This may be done 
by a conveyance or a mortgage. The effect of such a trans- 
action is to put the firm property out of the reach of the 
firm creditors, or to incumber it to their prejudice. If the 
firm is solvent, or receives a good consideration, no objec- 
tion can be made to it If, however, the firm is insolvent, 
and no consideration is received, the law applicable to vol- 
untary conveyances by insolvent persons applies, and the 
transaction is invalid.** In the case of Menagh v. Whit- 
well,** it was said with reference to a mortgage given by 
members of a firm : "The mortgages executed by John C. 
Smith and William B. Rubert appear to have been regarded 
by the learned referee as transferring an undivided four- 
fifths of the corpus of the partnership property therein de- 
scribed. He has found, as to the mortgage from Smith, 
that it was executed and delivered with the assent of the 
other members of the firm. This mortgage, if such be its 
true construction, having been given to secure the individ- 



•B Keith y. Fiuk, 47 111. 272; Heineman ▼. Hart, 55 Mich. 64, 20 
N. W. 792; Rothell v. Grimes, 22 Neb. 526, 35 N. W. 392; Ferson v. 
Monroe, 21 N. H. 462; BANNISTER ▼. MILLER, 54 N. J. Eq. 121, 
32 Ati. 1066 ; Ransom ▼. Vandeventer, 41 Barb. (N. Y.) 307 ; Lester 
V. PoUock, 3 Rob. (N. Y.) 691. 

An assumption by a solvent firm of the debts of one of Its members 
is valid, notwithstanding that when the undertaking is performed the 
firm is Insolvent Nordlinger v. Anderson, 123 N. Y. 544, 25 N. E. 
992; Teagne v. Lindsey, 106 Ala. 266, 17 South. 538; Werner v. Her, 
54 Neb. 576, 74 N. W. 833 ; Bemheimer ▼. Rindskopf , 116 N. Y. 428, 
22 N. E. 1074, 15 Ain. St Rep. 414. 

It has also been held that, if the debt of the single partner which 
is paid was incurred for the firm and the firm got the benefit of it, 
the firm property may be used to pay it Blackwell ▼. Rankin, 7 N. 
J. Eq. 152 ; Gwin v. Selby, 5 Ohio St 96 ; Siegel v. Ghidsey, 28 Pa. 
279, 70 Am. Dec 124 ; Coffin's Appeal, 106 Pa. 280. See "Partner- 
sMpr Deo, Dig. (Key No,) §§ 176-183; Cent. Dig. §§ S08-3S6. 

»fl MENAGH V. WHITWELL, 52 N. Y. 146, 11 Am. Rep. 683, Gil- 
more, Gas. Partnership, 251. 8ee "Partnership,*' Dec Dig. {Key No.) 
S§ 220, 227; Cent, Dig. U U9, 479%. 



§§ 60-61) TRANSFEB OF PABTNEKSHIP PROPERTY 191 

ual debt of the partner, even if effectual as to the firm, by 
reason of the concurrence of all the partners giving it, 
would be a fraudulent misapplication of the partnership 
property, and void as to the creditors of the firm, under 
the principle of the cases of Ransom v. Vandeventer,"^ and 
Wilson v. Robertson,"* unless the firm were solvent at the 
time the mortgage was given, and sufficient property would 
remain, over and above that devoted by that instrument to 
the payment of the individual debt, to pay the debts of the 
firm." •• 

Transferring Partnership Property to Pay Separate Debts of 

All of the Partners 

If the partners are solvent, there would seem to be no 
doubt that they may by mutual agreement divide the firm 
assets and each apply his respective share to the payment 
of his individual debts. Whether such a transaction is 
valid as against firm creditors, if the partners are insolvent, 
is a question on which the authorities are in conflict. The 
conflict involves the same principles already discussed in 
connection with the transfer by all the members of a firm 
to a single partner, who agrees to pay the firm debts. The 
courts which uphold such transfers generally sustain the 
validity of the transaction now under consideration, and 
those which take the opposite view in that situation take 
the same view here. 

Same — Such Transfer is Valid 

The right of firm creditors to prior payment out of firm 
assets is a derivative right, and depends, as has been shown, 

»T 41 Barb. (N. Y.) 307. See ^^Partnership," Dec. Dig. (Key No,) i 
183; Cent. Dig. U S28, SSS. 

»• WILSON V. ROBERTSON, 21 N. Y. 587. See '^PartnersMpr 
Dec. Dig. {Key No.) | 18$; Cent. Dig. fi§ S19SS6; "Assignments for 
Benefit of Creditors;' Cent. Dig. i§ 146, U7, 406. 

»oGoodbar v. Gary (D. 0.) 16 Fed. 316; Caldwell v. Bloomlngton 
Mfg. Co., 17 Neb. 489, 23 N. W. 336; Bernhelmer v. Rindskopf, 116 
N. Y. 428, 22 N. E. 1074, 15 Am. St Rep. 414; Knauth v. Bassett, 
34 Barb. (N. Y.) 31; Nordlinger v. Anderson, 123 N. Y. 544, 25 N. 
E. 992; SAUNDERS v. REILLY, 105 N. Y. 12, 12 N. B. 170, 59 Am. 
Rep. 472; Ransom v. Vandeventer, 41 Barb. (N. Y.) 307; WILSON 
V. ROBERTSON, 21 N. Y. 587. See '* Partnership," Dec. Dig. {Key 
No.) i 183; Cent. Dig. §§ 319-336, 348. 



192 NATURB AND CHABACTBBI8TICS (Ch. 3 

upon an implied agreement between the partners that the 
common assets shall not be divided until the debts incurred 
in the joint enterprise have been discharged. It is gener- 
ally held that a relinquishment of this right by the partners 
against one another, if they are solvent and act in good 
faith, destroys the priority of firm creditors. Likewise it 
is held ^ that, even though the partners are insolvent, if they 
act in good faith and receive a consideration, the priority of 
the firm creditors is lost. The priority thus depending upon a 
right which is in the control of the partners themselves, they 
may, upon a good consideration and in good faith, relinquish 
such right. When, therefore, they decide to take the common 
assets and use them to pay their separate debts, the agreement 
amounts to a mutual relinquishment of reciprocal rights ; each 
promise being the consideration for the other. There being, 
then, a consideration and good faith, the transaction cannot 
be impeached by the firm creditors. This is the holding by 
many courts.* 

1 See cases In note 85 above, and also In note 2 below. 

sin WIGGINS v. BLACKSHEAR, 86 Tez. 665, 26 S. W. 9S9, 
an assignment was made of partnership property for the benefit of 
creditors ; preference being given to individual creditors. The court 
said : "If they [the firm] had conveyed or mortgaged the entire prop- 
erty to pay or secure the debt of one of the partners, for which 
neither the firm nor the other partner was liable, then, on the plain- 
est principles of right it ought to be held that such a conveyance or 
mortgage was fraudulent as to firm creditors, and as to creditors of 
the member of the firm not bound for the debt, for, to the extent of 
his interest In the property, the conveyance would be voluntary. 
Such, however, is not the case we have before us. The value of the 
firm assets, exclusive of accounts and claims, which amounted to 
$800, was shown to be $1,310, and one-half of this was more than 
the individual indebtedness of either partner secured by the mort- 
gage. As partnership creditors had no Uen on firm property, no rea- 
son is perceived why each member might not lawfuUy permit the 
other to pay his individual debt out of his own share of the partner- 
ship property ; and the same reasons which would make lawful such 
a payment would give validity to a mortgage given by both partners 
to secure debts of members of the firm." 

Also, In Re Edwards' Estate, 122 Mo. 426, 25 S. W. 904, 29 L. R. 
A. 681, where the question was as to whether or not it was fraudu- 
lent for an insolvent firm to assume the individual debts of the 
partners by giving notes, the purpose of such notes being to put such 
creditors on an equality with firm creditors, the court. In holding 



§§ 60-61) TRANSFER OF PARTNERSHIP PROPBRTT 198 

Same — Such Transfer is Inimlid 

Other courts, however, hold that such a transaction by 
insolvent partners is fraudulent as to firm creditors. The 
ground for this position is that the relinquishment of their 
reciprocal rights is voluntary and without consideration, 
and, the parties being insolvent, is therefore fraudulent It 
is said that there is no consideration, because each partner 
has no specific interest in any tangible assets of the firm, 
but only a right to his share of the residue after the firm 
debts are paid; or it may be put on the ground that, the 
partners being insolvent, their mutual promises are worth- 
less.* 

snch assumption not to be fraudulent, said : 'The principle we think 
equally well settled by the more recent decisions of this court, as 
well as by the weight of Judicial authority In other Jurisdictions, 
that the assets of an Insolvent firm, before dissolution, may, with the 
consent of all the partners, be applied to the satisfaction of aU the 
Individual debts of the members of the firm, when done In good 
faith. * * * In the case at bar the firm notes were given In 
satisfaction of Individual debts long prior to the dissolution of the 
partnership, and that transaction cannot be declared fraudulent at 
law on the ground simply that the firm was at the time Insolvent or 
was made so by the act of making these notes." 

The court dted the following Missouri cases to sustain Its state- 
ment: Reybum v. Mitchell, 106 Mo. 866, 16 S. W. 592, 27 Am. St 
Rep. 350 ; Sexton v. Anderson, 95 Mo. 380, 8 S. W. 564 (referring also 
to the cases dted In each) ; and Seger's Sons v. Thomas Bros., 107 
Mo. 635, 18 S. W. 33, overruling Phelps v. McNeely, 66 Mo. 555, 27 
Am. Rep. 378. 

There was also cited the following from other Jurisdictions: Huls- 
kamp V. MoUne Wagon Co., 121 U. S. 310, 7 Sup. Ct 899, 30 L. Ed. 
971 ; CASE v. BE2AUREGARD, 99 U. S. 119, 25 L. Ed. 370, GUmore, 
Cas. Partnership, 226 ; Coffin v. Day (D. C.) 34 Fed. 687 ; In re Kah- 
ley, 2 Bias. 383, Fed. Cas. No. 7,598 ; Purple v. Farrlngton. 119 Ind. 
164, 21 N. B. 543, 4 L. R. A. 535 ; Warren v. Farmer, 100 Ind. 593 ; 
Trentman v. Swartzell, 85 Ind. 443; Schaeffer v. Flthlan, 17 Ind. 
463 ; George v. Wamsley, 64 Iowa, 175, 20 N. W. 1 ; Jones v. Lusk, 
2 Mete. (Ky.) 356; Klrby v. Schoonmaker, 3 Barb. Ch. (N. Y.) 46, 
49 Am. Dec. 160 ; Kennedy y. National Union Bank of Watertown, 23 
Hun (N. T.) 494; Pepper v. Peck, 17 R. I. 65, 20 Atl. 16; Anderson 
?. Norton* 15 Lea (Tenn.) 14, 54 Am. Rep. 400. See ^^Partnership," 
Dec. Dig. (Key No.) {S 176-190; Cent. Dig. H $08-947- 

• In JACKSON BANK v. DURFEY, 72 Miss. 971, 18 South. 456, 81 
U R. A. 470, 48 Am. St Rep. 596, Durfey and Ascher were members 

Gii*.Pabt.— IB 



194 NATURE AND CHARACTERISTICS (Ch. 3 

It should be noticed that some of the cases which hold 
invalid transfers of firm assets by an insolvent partnership 
do not in reality treat the priority of firm creditors as based 
upon the right of the partners inter se. The priority is 
based upon an inherent primary right of the firm creditors 
themselves,* or it is regarded as a property right of the 
firm creditors, which cannot be destroyed by the partners,* 
or the firm is treated as an entity having its own creditors 
who must be paid out of its own assets.* 

of a partnership which was insolvent, as were each of the partners. 
Durfey was indebted to an individual creditor in the sum of $5,000 
and Ascher was likewise Indebted to an individual creditor in the 
sum of $5,550. Being so indebted, each, on the same day, made a 
trust deed of his undivided interest in certain firm property to secure 
his individual indebtedness. On an attempt by a firm creditor to 
have the trust deeds set aside, the court said: "The issue is thus 
sharply presented whether it is lawful for the members of an in- 
solvent firm to convert the Joint estate into severalty and appropriate 
it to the payment of the individual debts of its members, leaving 
the firm debts unpaid. * • • Durfey had a right to have the 
partnership property applied to the partnership debts, and Ascher 
had a like right While these reciprocal rights existed, they were of 
value as property rights of the debtors to a certain class of cred- 
itors; t e., firm creditors. Now, It is manifest that, for the very 
purpose of preventing these creditors from resorting to these rights 
for the satisfaction of their demands, the rights themselves were 
waived, and attempted to be obliterated. We are unable to perceive 
any Just principle upon which the right of a debtor can be recog- 
nized to thus deal with his estate for tihe very purpose of obstructing 
his creditors." Sanderson v. Stockdale, 11 Md. 563; Phelps v. Mc- 
Neely, 66 Mo. 554, 27 Am. Rep. 378 (overruled in Goddard-Peck 
Grocery Co. v. McGune, 122 Mo. 426, 25 S. W. 904, 29 L. R. A. 681) ; 
BANNISTER v. MILLER, 54 N. J. Eq. 121, 32 AU. 1066; Miller v. 
Bannister, 54 N. J. Eq. 701, 87 Atl. 1117. See ''Partnership," Dec 
Dig. {Key No.) §§ 176-190; Cent. Dig. i{ S08S47. 

* Caldwell v. Scott. 54 N. H. 414 ; Kidder v. Page, 48 N. H. 380 ; 
Tenney v. Johnson, 43 N. H. 144. See ** Partnership,'' Dec. Dig. {Key 
T.O.) {§ lie-190; Cent. Dig. §fi S08-S47. 

B Franklin Sugar Refining Co. v. Henderson, 86 Md. 452, 38 Atl. 
691, 63 Am. St Rep. 524 ; Bartlett v. Meyer-Schmidt Grocer Co., 65 
Ark. 290, 45 S. W. 1063. Bee "Partnership,*' Dec. Dig. (Key No.) 
i{ 176-190; Cent. Dig. §§ 808-^47- 

• Teague v. Lindsey, 106 Ala. 286, 17 South. 538. See ^'Partner- 
•hip;' Deo. Dig. {Key No.) U 176-190; Cent. Dig. S§ S08S47. 



§ 62) TBAHSFBB OF PARTNBBSHIF PBOPBBTT 195 



SAME— BY ACT OF A SINGLE PARTNER 

62. Unless restricted by the partnership agreement, each 
partner has power to sell those firm assets held for 
sale. Any sale by a single partner, acting within 
the scope of the firm business, is effective to pass 
the title to the firm assets thus sold. 

A discussion of the power of a partner to sell the firm 
property is found in chapter V.^ It is only necessary here 
to refer generally to the subject. Whether expressly pro- 
vided for in the partnership agreement or not, there is im- 
plied a mutual agency among the partners. The limits of 
this agency, in the absence of express limits provided in 
the articles of partners, are found in the scope of the firm 
business. Each partner, within the scope of that business, 
has power to bind his copartners. In an ordinary trading 
firm there is an implied power to sell those firm assets held 
for sale, and in many other kinds of partnership there may 
be found an express or implied power of sale. In any part- 
nership, trading or nontrading, power in one partner to 
sell firm property may be found. This power may be es- 
tablished in any of the ways in which the power of agents 
generally is established. To be effective, the transfer of 
firm assets by the act of a single partner must be author- 
ized. Furthermore, as to real estate, the authority must 
.be manifested in the proper manner. A transfer of firm 
assets may fail, as has been seen, because it is fraudulent. 
Likewise it may fail because made by a partner acting 
without authority at all, or without authority in proper 
form, or by a partner with authority, but who fails to com- 
ply with the laws of conveyancing. An obvious example of 
a sale invalid for want of authority is where one partner 
disposes of the firm assets to pay his separate debts. This 
is clearly beyond the scope of his implied authority, and 

T See chapter Y, p. 2SS. The question of the validity of a convtsy- 
ance of firm property by a single partner to pay his Indiyidual debts 
is also considered there. 



196 NATURE AND CHARACTERISTICS (Gh. 3 

I 

in the absence of actual authority, or an estoppel, a buyer 
under such circumstances acquires no title. Even if he 
acquired a title, it would be subject to impeachment for 
fraud on the grounds previously noticed.* 



SAME— FORM OP CONVEYANCE 

63* Conveyances of firm property, whether real or personal, 
must conform to the rules governing conveyances 
of property generally. 

Portn of Transfer — Personal Property 

In the sale of personal property no particular formality 
is required ; a sealed instrument not being necessary. This 
being true, though in general a partner has no power to 
bind his copartners by a sealed instrument,* the courts 
incline to treat as surplusage a seal on an instrument as- 
signing an interest in personal property. Therefore an as- 
signment by one partner of such property by a sealed in- 
strument is not necessarily bad merely because of the fact 
that specific authority to make it was not given.^* 

Same — Real Property 

In the transfer of real estate a deed under seal is gener- 
ally required. As to be noticed later,** sealed documents 
were not usually regarded as mercantile instruments, and 
therefore no power in one partner to execute them was 
ordinarily implied. Express authority previously given, or 
express subsequent ratification, was necessary. A partner 

ft 

• See, farther, chapter V, p. 282L 

» HARRISON V. JACKSON, 7 T. R. 207, Gllmore, Caa. Partner- 
ship, 382; Pollock v. Jones, 124 Fed. 163, 61 G. G. A. 555; Gerard 
V. Basse, 1 Dall. 119, 1 L. Ed. 63; Gordon y. Funkhouser, 100 Va. 
675, 42 S. B. 677. See '^Partnership;' Deo. Dig, (Key No.) i 1S7; 
Cent, Dig. | 205. 

10 DEX3KARD ▼. OASB, 5 Watts (Pa.) 22 , 80 A m. Dec 287, GH- 
more. Gas. Partnership, 283 ; TAPLBY y. BUTTERFIBIiD, 1 Mete. 
(Mass.) 515, 35 Am. Dec. 874. Gontra: Pollock y Jones, 124 Fed. 
163, 61 G. G. A. 655. See ^'Partnership,*' Deo. Dig. '{^ey No.) I 1S7; 
Cent. Dig. { 205, 

11 See chapter V, pi 806. 



§ 64) TRANSFERS OF PARTNER'S INTEREST 197 

may, however, make a binding contract to sell firm real es- 
tate, if selling such real estate is within the scope of the 
partnership business. The contract so made will support 
an action for specific performance against the partnership.^* 
If power to sell the firm real estate is established, the con- 
veyance must conform to the rules governing conveyances 
of real estate generally. 



SUCCESSIVE OR SIMULTANEOUS TRANSFERS 
OF EACH PARTNER'S INTEREST 

64. There are two holdings as to the effect of a transfer 
of a partner's interest in a partnership: 

First: That such a transfer passes title to a share in the 
corpus of the firm propertyt subject to the equita- 
ble right of the remaining partners to have such 
property applied in payment of firm debts. Ac- 
cording to this holding, successive or simultane- 
ous independent transfers by each partner of his 
interest in the partnership operate to transfer the 
legal title to all of the partnership property free 
from the equitable right of any of the partners. 

Second : That a transfer by one partner of his interest 
passes title to his share of the surplus only. Ac^ 
cording to this holding, successive or simultane- 
ous independent transfers by each partner of his 
interest operate to pass title to the undivided sur- 
plus only after firm debts are paid and accounts 
settled. 

As has been shown, the interest of a partner in the part- 
nership property is an interest in the surplus which re- 
mains after the payment of firm debts and the settlement 
of accounts between the partners. "The property or ef- 
fects of a partnership belong to the firm, and not to the 
partners, each of whom is entitled only to a share of what 

IS ROVELSKY T. BROWN et al., 92 Ala. 522, 9 South. 182, 25 
Am. St Rep. 83, Gllmore, Gas. Partnership, 239. See ''PartnersMp,** 
Dec Dig. {Key No.) { I4I; Cent. Dig. \ 218. 



198 NATUBB AND CHARACTBRI8TIC8 (Ch. 3 

m^y remain after payment of the partnership debts, and 
after a settlement of the accounts between the partners." *• 
This is the language of the law of partnership. As we 
have seen, however, the courts do not recognize the firm as 
an entity apart from its members. The property and the 
obligations of the partnership belong to the persons com- 
posing the firm. According to the law of property, the 
legal title to all firm assets is in the partners individually, 
and it can be alienated only in conformity with the require- 
ments for conveyances of property generally. When, there- 
fore, the courts say that a partner does not own any spe- 
cific portion of the firm assets, they mean that^ while in 
reality, according to the laws of property, he may own it, 
he cannot use such ownership in violation of his obliga- 
tions to his copartners. Courts of equity have read into 
the partnership agreement a stipulation, binding alike on 
each member of the firm, that the firm assets shall not be 
used for individual purposes until the partnership purposes 
are accomplished. As such stipulation arose from the mu- 
tual consent of the partners when they entered into the re- 
lation, it can be abrogated only by the same mutuality. 
One partner, acting independently of the others, cannot 
escape the restriction thus by common consent imposed 
upon all. The effect of thus interpreting the partnership 
contract is to make the interest of each partner in the firm 
assets nothing more than an interest in the surplus after 
the payment of the firm debts. A court of equity will com- 
pel observance of the partnership agreement in this respect, 
by preventing one partner from alienating the firm prop- 
erty to pay his separate debts. Thus in Place v. Sweetzer ^* 
a creditor of one partner was enjoined from selling on ex- 
it Fourth Nat. Bank t. New Orleans & C. R. C6., 78 U. S. 624, 
628, 20 L. Ed. 82. See '*Partner8hipr Deo. Dig, (Key No.) §§ lt&- 
190, 227; Cent. Dig. §§ S08-S47, 47S, 474. 

1* PLACE V. SWEETZER. 16 Ohio, 142, Gllmore, Gas. Partner- 
ship, 511. See, also, T. Pars. Partn. (4th Ed.) p. 290, note (c), where 
cases are collected and the conclusion Is reached that equity will 
at the suit of the debtor's partners or the partnership creditors en- 
join the creditor of a single partner from satisfying his execution 
of the partnership effects until the firm debts are paid. See "Part- 
nership,'* Deo. Dig. {Key No.) { 209; Cent. Dig, $S 401, 402. 



§ 64) TBANSFER8 OF PARTNER'S INTEREST 199 

ecution the debtor partner's interest in the firm assets until 
an account was had. While perhaps no case can be found 
where equity has, at the suit of one partner, enjoined a co- 
partner from attempting to sell an interest in specific firm 
assets, instances are numerous where equity has taken 
charge of firm assets at the suit of one partner to prevent 
the other partner from wasting or dissipating then^. Fur- 
thermore, so thoroughly has the rule become established, 
that a partner's interest in the firm assets relates only to 
the surplus left after the payment of the firm debts, that 
any alienation by him of his interest in the firm is invari- 
ably construed to mean his interest in the surplus, and not 
his interest in any specific articles of property. 

The effect of the sale by a partner of his interest in the 
firm assets can be viewed in two ways: First, that inas- 
much as the legal title to his portion in such assets is really 
in him, according to the law of property, the sale passes 
a legal title to such portion, subject, however, to the pay- 
ment of the firm debts. Second, that no legal title passes, 
but only the partner's right to the surplus after the part- 
nership debts have been paid. On the first view, the sale 
by a partner of his interest in the firm assets does affect 
the firm title pro tanto to the extent of such partner's pro- 
portion of the total assets ; on the second view, it does not. 
The necessity of determining which view is correct arises 
when all the partners, acting independently, sell their re- 
spective interests in the firm. For example. A., of the firm 
of A. B. & C, sells his interest to X., B. his interest to Y., 
and C. his interest to Z. Is the firm title now gone, and 
with it the priority of the firm creditors? It is said that 
this priority is based upon the rights of the partners 
against one another to have the firm assets applied to the 
firm debts. It is conceded on all hands that, if all the part- 
ners join, they may pass the legal title to the common as- 
sets free from the claims of the firm creditors, and that 
such conveyance is effective, unless impeachable for fraud. 
If, however, one only sells his interest, the other partners 
may still insist that the property be applied to the firm 
debts. But if they all sell successively or simultaneously, 
but each acting independently of the others, do they 



200 NATURB AND CHABACTBBI8TIC8 (Gh. 3 

thereby pass the legal title to the entire firm assets free 
from the claims of firm creditors? There is no doubt that 
the sale by one partner alone will not produce such effect. 
Whether a sale by all acting independently will do so de- 
pends upon the view one takes of the transaction. On the 
view first mentioned, by A/s sale X. acquired a legal title 
to a portion of the firm assets, charged with the burden of 
the so-called equity of the other partners. Likewise Y. 
acquired B.'s interest similarly charged. When C. sold to 
Z., all the partners now having alienated their interests, 
their mutual equities are gone, and the legal title is in the 
three grantees, freed from such equities. Where X. first 
got a legal title incumbered, he now has it unincumbered. 
It might be urged, however, that, although by the independ- 
ent sales by each partner of his interest the title to the en- 
tire firm assets passes, the partners still retain their mutual 
rights to have the property applied to the payment of firm 
debts, and their grantees take the property subject to such 
burden, and conceivably the price paid for each interest 
was fixed with reference to this liability. While it is pos- 
sible to regard the title thus conveyed as subject to firm 
debts in cases arising between the partners and their gran- 
tees, it is difficult to see how such incumbrance could affect 
the property if it should be sold to third persons; for, if 
it be assumed that the legal title to the entire corpus actu- 
ally passed by the successive sales, then the grantees may 
convey the title thus acquired to third persons, who would 
hold it free from the partners' equities. For example, if 
X., Y. and Z., in the illustration above, should convey their 
respective interests to M., the entire title would rest in him, 
and it could not be subjected to any liability growing out 
of the mutual rights of the partners who formerly owned it. 
The leading case holding that the successive independent 
sales by all the partners of their respective interests passes 
the legal title to the corpus of the firm property is Doner 
V. Stauffer,*' where the respective interests of all the part- 
is DONER V. STAUFFER, 1 Pen. & W. (Pa.) 198, 21 Am. Dec 
870, Gilmore, Cas. Partnership, 247. In First Nat Bank of Indian- 
Ola V. Brubaker, 128 Iowa, 587, 105 N. W. 116^ 2 L. R. A. (N. S.) 
256, 111 Am. St Rep. 200, the partners, acting independently, sold 



§ 64) TRANSFERS OF PARTNER'S INTEREST 201 

ners were sold on execution in favor of their separate cred- 
itors. No distinction apparently is made between volun- 
tary and involuntary sales. The leading case holding that 
the sales by all the partners of their respective interests in 
the partnership do not affect the corpus of the firm prop- 
erty, but convey only a right to the surplus after the firm 

their respectlYe interest In the firm assets. The court denied the 
claim of the firm creditors to priority, on the ground apparently 
that the partners had released their mutual equities. 

**The injustice, and, it may be said, the absurdities, which re- 
sult from such a view, lead to an inquiry into its correctness. A 
firm may be perfectly solvent, though the members are individually 
insolvent, and yet in such a case the doctrine that the property of 
the firm is divested, and the equities of the partners and partner- 
ship creditors are extinguished, by separate transfers of the in- 
dividilkl interests of all the partners, might result, not only in an 
appropriation . of all the properties of the Arm to the payment of 
the individual debts, to the entire exclusion of the firm creditors, 
but to a most unjustifiable sacrifice and waste of such properties. 
For instance, suppose a firm to consist of three members, each hav- 
ing an equal interest, and to be possessed of assets to the amount 
of 1300,000, and to owe debts to half of that amount; the interest 
of each partner, supposing their accounts between themselves to be 
even, is $50,000. The members of the firm are individually indebt- 
ed. One of them sells his share, and receives for it $50,000, which 
\b its actual value. The share of another of the partners is sold un- 
der exeaition, and brings its full value, $50,000. Thus far one part- 
ner remains, and he has an equity to have the firm debts paid, and 
those who have sold out are protected against those debts. The 
purchasers of the separate interests are entitled to the surplus only. 
The joint creditors still have their recourse against the partner- 
ship property, and the right to levy on such of it as is subject to 
sale on execution; but before any levy the remaining partner sells 
out his individual interest, or it is sold on execution. According 
to the doctrine applied in the present case, and maintained in the 
case of Coover's Appeal [29 Pa. 9, 70 Am. Dec. 149], supra, the firm 
property is by this last sale relieved from the partnership debts, 
the two shares first sold are at once changed from interests in the 
surplus to shares in the corpus of the property free from the debts, 
their value is doubled, and the fund which should have gone to 
pay the joint debts is, without any consideration, appropriated by 
the transferees of the individual interests of the partners." Rapallo, 
J., in MENAGH v. WHITWELL, 52 N. T. 146, 11 Am. Rep. 683, 
Gilmore, Gaa Partnership, 251, 255. See "Partnership," Dec Dig. 
(Key No.) H 176-190, tH; Cent. Dig. %% S08-^47f *75, -^7^ 



202 NATURB AND CHARACTERISTICS (Ch. 3 

debts are paid, is Menagh v. Whitwell.** This case was 
decided on the assumption that there was no intention to 
convey more than each partner's interest in the undivided 
surplus. Had an intention to transfer an interest in the 
corpus of the property been clearly shown, and had a final 
conveyance been made to an innocent purchaser for value, 
and had there been an attempt to reach the property in his 
hands, the question would have arisen as to the nature of 
the restriction on a partner's selling power. Is a partner 
under a total inability to convey any part of the corpus of 
the firm property, or can he convey a part of the corpus 
in such property, subject, however, to the equities of the 
other partners? If he can make such a conveyance, then 
separate transfers by each member of a firm, with the in- 
tention of passing title to firm property, would, if the inter- 
ests conveyed became united in the hands of an innocent 
purchaser for value, give him a legal and unincumbered 

i« MENAGH T. WHITWELL, 52 N. Y. 146, 11 Am. Rep. 683, GU- 
more, €as. Partnership, 251. In this case there was a firm of five 
persons, each owning a one-fifth Interest Two of them sold their 
interest to a third member, who thereby became an owner of three- 
fifths interest in the firnL The owner of the three-fifths interest 
mortgaged it to X., the plaintiff. Another partner mortgaged his 
one-fifth to T. Plaintiff by foreclosure acquired title to the three- 
fifths Interest of his mortgage, and Y. acquired the Interest of his 
mortgagor. The remaining partner afterwards sold his one-fifth 
Interest to a stranger. It was held that, if the Intent was to con- 
vey an interest in the corpus, the mortgages were in fraud of cred- 
itors and void; that, on the assumption that the mortgages were 
intended to pass an interest In the surplus only, no share in the cor- 
pus of the property passed, and each partner would have the right to 
see that the property Itself was applied to the payment of firm 
debts. Rapallo, J., said: "I do not Bee how this right can be af- 
fected by the question whether the separate interest of aU or only 
one of the partners is thus sold. Each of the purchasers would 
acquire an interest merely in the surplus, and each partner whose 
interest was sold would have the right to Indemnity against the firm 
debts by the application to such debts of so much of the property 
as might be necessary for the purpose. These debts must have been 
taken into consideration in fixing the price of the interest sold, and 
consequently allowed to the purchaser, and the partnership assets 
are the primary fund for their payment" See "Partnership,*' Deo. 
Dig. (Key No,) i t27; Cent. Dig. U J^IS-AH. 



§ 64) TRANSFERS OF PARTNER'S INTEREST 203 

title. The case of Menagh v. Whitwell, howevefj seems to 
incline to the view that a partner is under a total disability 
to convey more than his share of the surplus. Rapallo, J., 
in the latter part of his opinion, said: "Until some act is 
done by the firm to transfer the joint interest, no separate 
act of either or all of the partners, or proceedings against 
them individually with reference to their individual inter- 
ests, should be held to affect the title of the firm, so as to 
preclude a creditor of the firm, having a judgment and ex- 
ecution, from levying on the joint property." It is mani- 
fest that, if a partner can sell nothing but his surplus, the 
doctrine of protection of purchaser for value without notice 
will have no application. The purchaser cannot get any- 
thing that the firm creditors have a claim upon, because 
the partner himself can sell nothing that they are entitled 
to.^^ Further, if it be true that a partner cannot by his 
independent sale pass any legal title to his share of the 
corpus of the firm property, then partnership ownership of 
property differs fundamentally from the ordinary owner- 
ship of tenants in common, for there is no doubt that, by 
the law of property governing tenancies in common, each 
co-owner by his independent sale can pass a legal title to 
his share of the common property. Again, if it be said that 
a partner, like a cotenant, can by his independent sale pass 
a legal title to his share of the common property, but that 
such share is subject to the claim which his copartners 
have, by virtue of the partnership agreement, against the 
common property to have it applied to the payment of the 
firm debts, then this is an exceptional form of co-ownership ; 
for, by the law of property governing ordinary tenancy in 
common, a purchaser from a cotenant of his individual in- 
terest would take it free from any claim which the other 
cotenants might have upon the share by virtue of any con- 
tract between such cotenants, unless the claim were evi- 

iT Tuner ▼. Leaverton, 143 Iowa, 162, 121 N. W. 615; PRATT v. 
McGUINNESS, 173 Mass. 170. 53 N. B. 380, Gllmore, Cas. Partner- 
ship, 212; Ewart v. Nave-McCord Mercantile Co., 130 Mo. 112, 31 
S. W. 1041 ; Kenneweg v. Schilansky, 45 W. Va. 521, 31 S. E. 949. 
See ^'Partnership;' Dec, Dig. {Key No,) i 227; Cent. Dig, §§ 473-474. 



204 NATURE AND GHARACTBBISTICS (Gh. 3 

denced by mortgage or in some other way, so that the 
purchaser could be said to have bought with notice of the 
incumbrance. 



EFFECT OF DEATH OP PARTNER ON PARTNER- 

SHIP PROPERTY 



L Upon the dieath of a partner the legal title to the choees 
in action and to the chattels of the partnership 
vests in the surviving partner; in England the le- 
gal title to real estate vests also in the surviving 
partner; in the United States it vests in the heir 
of the deceased partner, according to his interest 
therein. 

» 

66. Whatever legal title vests in the surviving partner is 
not for his sole benefit, but for the purpose of pay- 
ing the firm debts and settling the affairs of the 
partnership. The legal title to the real estate in 
the hands of the heir is subject to being charged 
by the stuviving partner for the same purpose. 

It is well settled that survivorship, which is characte^ris- 
tic of joint tenancies, does not apply to property held by 
partners.^' When, however, it is said that there is no sur- 
vivorship in partnership assets, it is meant merely that 
there is no beneficial survivorship. The legal title may 
survive, but not for the benefit of the survivor. 

Same — Choses in Action 

So far as the legal title to the choses in action of a part- 
nership is concerned, there is no doubt now that it sur- 
vives, though an early case *• held that an action on a firm 
debt was properly brought by a surviving partner and the 
representative of a deceased partner jointly. The case is, 

i«Goke*s Iilttleton» 182A; JBFFEREYS t. SMALL, 1 Vem. 217, 
GUmore, Oas. Partnership, 266. See ^^Partnership,** Deo. Dig, (Key 
^0.) i 246; Cent Dig. § 520. 

19 Han ▼. Huffman, 3 Kebb. 798. See "Partnership,** Dec. Dig. 
{Key No.) S§ 243-^245, 258; Cent. Dig. {§ 509-518, 564^. 



S§ 65-66) EFFECT OF DBATH OF PARTNfiB 205 

however, clearly contra to the later cases and to the over- 
whelming weight of authority.** The legal title is viewed 
as devolving upon the survivor in his own right. He is 
not an assignee of his deceased partner's interest.** He is 
the only proper party to sue and to be sued with respect 
to the partnership obligations and property.** 

so BUCKLEY t. BARBBB, 6 Exch. 164 ; Kemp v. Andrews, Garth, 
170; Dixon t. Hammond, 2 B. & A. 310; Gamble v. Rural In- 
dependent School Dist of Allison (C. G.) 182 Fed. 514; ANDREWS' 
HEIRS V. BROWN'S ADM'R, 21 Ala. 437, 56 Am. Dec. 252, GUmore, 
Gas. Partnership, 267; Newman ▼. Gates, 165 Ind. 171, 72 N. E. 
638; BA8SBTT t. MILLER, 39 Mich. 133, Gilmore, Gas. Partner- 
ship, 271; STEARNS t. HOUGHTON. 38 Vt 584, GUmore, Gas. 
Partnership, 273. See "Partnership,** Dec. Dig. (Key No.) §i 24$" 
245; Cent. Dig. %\ 509-518. 

SI NEHRBOSS v. BLISS, 88 N. T. 600. See ""Partnership,** Deo. 
Dig. {Key No.) M 249-^47; Cent. Dig. K 509-528. 

** Gases in note 20 above. 

In ADAMS v. HAGKETT, 27 N. H. 289, 59 Am. Dec. 876, Gilmore, 
Gas. Partnership, 274, an action was brought on promises made to 
the plaintiff as the suryivlng partner of the firm of J. G. Bancroft 
& Go., and as snrriTlng partner of the firm of G. A. & J. Q. Adams, 
and also npon promises made to the plaintiff in ^ his indiyidual ca- 
pacity. It was objected that the causes of action could not be Join- 
ed, as they accrued in different rights. The court held that there 
was no objection to Joining them, saying: "It is not disputed that 
the plaintiff is the surriving partner of the two firms, and it is well 
settled that where a firm consists of two persons, and one of them 
dies, the rights of action which were vested in the firm survive to 
the remaining member, not to him as to an administrator or execu- 
tor, representing another person, but as the survivor of the part- 
nership, representing himself, and being ali that is left of the firm. 
The cause of action is in him; and hence it has been often held 
that, in an action at the suit of a surviving partner, he may include 
a count for a debt due to himself in ids own right, as both causes 
of action are in him. Slipper v. Stidstone, 5 T. R. 493 ; French v. 
Andrade, 6 T. R. 582; Golding v. Vaughan, 2 Ghit 436; Richards 
V. Heather, 1 B. & A. 29 ; Smith v. Barrow. 2 T. R. 476.   • 
As it is clear upon authority that a surviving partner may, in an 
action brought by him as such survivor, include in his declaration a 
count for a debt* due to himself in his own right, no reason occurs 
to us why he may not also, in the same suit, Join another count for 
a debt accruing to him as survivor of another firm. The causes of 
action are ail in him, and the principle in the one case must be the 
same as in the other.*' See, also, Hewitt v. Hayes, 204 Mass. 586, 
90 N. E. 985, 27 L R, A. (N. S.) 154 ; HOLBROOK v. LAGKET, IB 



206 NATURE AND CHARACTERISTICS (Ch. 3 

Same — Ordinary Chattels 

There can be no doubt that in the United States the le- 
gal title to ordinary chattels survives, despite the disfavor 
with which joint tenancy in land is viewed.** In England 
there has been some doubt upon this point, however, and 
in 1851, in a case holding that the chattels of a partnership 
might be seized under a fi. fa. issued on a judgment ob- 
tained against the executors of a deceased partner on his 
separate debt,** Baron Parke said there was "no satisfac- 
tory authority for the position that the title to partnership 
chattels survives at law, and the authorities the other way 
greatly predominate." This view has since been character- 
ized *• as "the peculiar views on the subject once taken by 
the Court of Exchequer," and can hardly be said to repre- 
sent the law in England at the present time.*' 

Same — Real Estate 

The doctrine of conversion of firm realty into personalty 
has already been explained.*^ Under the English rule of 
out and out conversion the legal title to firm realty appar- 
ently vests, upon the death of one partner, in the survivor. 
This is true where the title is held jointly, and the result 
in such cases may be explained as due to the general rule 
of survivorship applicable to joint estates.** Where the 
title stands in the name of the deceased partner only, it 

Mete. (Mass.) 132, 46 Am. Dec. 728. Bee ^PartnerBhip^*' Dec. Dig, 
{Key No.) SS 24S-247, 258; Cent. Dig. §f 509-^28, 664V!t, 569^75. 

2« ANDREWS' HEIRS V. BROWN'S ADM'R, 21 Ala. 437, 56 Am. 
Dec 252, Gilmoret Cas. Partnership, 267 ; Dldlake y. Roden Grocery 
Co., 160 Ala. 484, 49 South. 384, 22 L. R. A. (N. S.) 907 ; BASSETT y. 
MILLER, 39 Mich. 133, Gllmore, Gas. Partnership, 271. See **Part' 
nership,'* Deo. Dig. (Key No.) f 245; Cent. Dig. f 5U> * 

s« By Partnership Act, 1890, f 23, it is no longer possible to leyy 
on firm property, except on a judgment against the firm. 

36 By Lord Justice James in Taylor y. Taylor, 28 L. T. R. 189. 
See "Partnership;* Dec. Dig. {Key No.) |f 2|5-W; Cent. Dig. H 
509-528. 

s« KNOX y. GYE, L. R. 5 E. ft I. App. 656. See quotation from 
this case in note 33, post See "Partnership,** Dec. Dig. (Key No.) 
ff 2iS-2i7; Cent. Dig. ff 509-528. 

>r See section 53, p. 154, ante. 

s«Llndley'B Law of Partnership (7th Ed.) p. 879; JEFFERETS 
T. SMALU 1 Vem. 217, Gllmore, Oas. Partnership, 266; Elliot T. 



§§ 66-66) EFFECT OF DEATH OF PABTKEB 207 

would seem to go to his heirs in the usual way, subject to 
being divested pursuant to the partnership agreement.** 
In the United States, while the doctrine of pro tanto con- 
version is quite generally recognized, the legal title to firm 
realty goes, upon the death of one partner, to his heirs, ac- 
cording to the rules governing devolution of property upon 
the death of the owner. If the legal title stands in the 
name of the deceased partner, it passes to his heirs; if in 
the names of both partners, the share of the deceased de- 
volves upon his heirs after the manner of estate held in 
common. The fact that the title thus passes does not, 
however, release it from the partnership obligations. The 
surviving partner has the power to charge such realty for 
the payment of debts and the settlement of partnership 
accounts. While he has not the legal title, still he can, 
in the settlement of the firm business, convey an equitable 
title; that is, he can confer upon a grantee his right to 
have the real estate charged with the payment of firm 
debts, and a court of equity will recognize such right by 
compelling the heir to divest himself of the legal estate. 
Thus, in Delmonico v. Guillaume,** a surviving partner, 
in order to aid in paying firm debts, entered into a written 
contract with the defendant to convey certain firm realty. 
Defendant refused to accept the conveyance, on the ground 
that one-third of the legal title was outstanding in the in- 
fant heir of one of the deceased partners. In a suit by the 
surviving partner for specific performance, in which the 
infant heir was a defendant, the court held for plaintiff 
and ordered the guardian ad litem of the infant to join in 
the conveyance. The court said: "In this case * * * 
the surviving partner, * * * as between himself and 
the heir, * * * had an absolute right to dispose of it 

Brown, 3 Swanst. 489, note. See, also, Partnership Act, 1890, 8 
20(2). See *' Partnership,"* Deo. Dig. {Key No.) S 246; Cent. Dig. 
§§ 519-52S. 

s» Since Land Transfer Act, 1897 (60 ft 61 Vict c. 65) K 1. 25, the 
legal title would devolve upon the legal personal representative of 
the real property. 

so DELMONICO V. GUILLAUME, 2 Sand. Ch. (N. T.) 866. See 
'^Partnership,*' Deo. Dig. (Key No.) | 246; Cent. Dig. 88 519-628. 



208 NATURE AND CHARACTBRI8TICS (Gh. 3 

[the land] for the payment of the debts of the firm, in th< 
same manner as if it had been personal estate. * * * 
There is no doubt that the legal title is vested in the infant 
defendant to the extent of one undivided half of the lots 
contracted to Guillaume, But, the equitable right and in- 
terest being vested in the surviving partner, the infant is 
a mere trustee of the legal title, and the court of chancery 
must compel a conveyance of the estate upon the applica- 
tion of such surviving partner." *^ While it is well settled 
that equity will compel the heir of a deceased partner to 
convey the legal title to any firm real estate which may 
have devolved upon him, where such real estate is needed 
for the payment of firm debts, it would seem that equity 
would also compel a divestment of the legal title whenever 
necessary for the proper adjustment and settlement of the 
partnership affairs. 



SURVIVING PARTNER AS QUASI TRUSTEE 

67. The surviving partner succeeds to the firm assets, sub- 
ject to the same obligations of honesty, fidelity, 
and integrity as when the partnership was in be- 
ing. He is bound to pay the firm debts and dis- 
tribute the balance of the assets among the part- 
ners and their representatives according to their 
respective interests. He must perform his duty 
with diligence and in full recognition of his fidu- 
ciary capacity, and he is accountable to the repre- 
sentatives of the deceased partner for any miscon- 
duct. 

Upon the death of a member of a partnership, the surviv- 
ing partner becomes the representative of the firm. Upon 
him devolve all the assets of the partnership, and upon him 
rests the duty of bringing the affairs of the firm to a close. 

•1 Barton y. Lovejoy, 56 Minn. 880, 57 N. W. 835, 45 Am. St. Rep. 
482; Tlllinghast v. Champlln, 4 R. I. 173, 67 Am. Dec. 510; Plerce'B 
Adm*r v. Trigg's Heirs, 10 Leigh (Va.) 406. See **Partner9hip,** Dec. 
Dig. (Key No.) f 24S; Cent. Dig. %% 519-^2S. 



§ 67) 8URYIVINO PABTNBB AS QUASI TBUSTEB 209 

This includes the collection of the obligations due the firm, 
reducing to possession all the firm property, paying the 
firm debts, making a complete accounting of the firm busi- 
ness, and distributing the net assets, according to the inter- 
ests of the several partners or their representatives,** The 
mutual obligations of honesty, good faith, and integrity 
resting upon the partners during the continuance of the 
firm are in no way relaxed upon the death of a member. 
The survivor owes the same fidelity to the representatives 
of his deceased copartner. He is bound to administer the 
affairs of the firm and to wind up its business in full rec- 
ognition of his fiduciary relation. While he is not, accu- 
rately speaking, a trustee, and does not hold the firm as- 
sets in trust for the deceased partner's representatives,** 

•s Kenton Furnace R. ft Mfg. Go. y. MoAlpin (G. G.) 5 Fed. 737; 
In re F. Dobert & Son (D. G.) 165 Fed. 749; Word v. Word, 90 Ala. 
81, 7 South. 412; McElroy y. Whitney, 12 Idaho, 512, 88 Pac. 349; 
Beale y. Beale (IlL) 2 N. B. 65 (1885) ; Swafford*8 Adm'r y. White, 
89 S. W. 129, 28 Ky. Law Rep. 119 ; Mathison y. Field, 8 Rob. (La.) 
44; Gockerham y. Bosley, 52 La. Ann. 65, 26 South. 814; Hamlin y. 
Mansfield, 88 Me. 131, 33 Atl. 788; Walker y. House, 4 Md. Gh. 
39 ; Heath y. Waters, 40 Mich. 457 ; McGaughan y. Brown, 76 Miss. 
496, 25 South. 155; Scudder y. Ames, 142 Mo. 187, 43 S. W. 659; 
Haynes y. Brooks, 8 Giy. Proc. R. (N. Y.) 106 ; Lockwood y. Mitchell, 
7 Ohio St 387, 70 Am. Dec. 78 ; Hanna y. Wray, 77 Pa. 27. 

For further discussion of the rights and duties of the surylying 
partner, see post, chapter V, fi 122. 8ee "Partnership," Dec, Dig. 
{Key yo.) S§ 2J^-255; Cent, Dig. §§ 509-561. 

««In KNOX y. GTE, L. R. 5 H. L. 656, Gilmore, Gas. Partner- 
ship, 280, note, in holding that an action by the executor of the 
deceased partner against the suryiylng partner was barred by the 
statute of limitations. Lord Westbury said: "In deciding this case, 
it must be recollected that the representatiye of a deceased partner 
has no specific interest in or claim upon any particular i)art of 
the partnership estate. The whole property therein accrues to the 
Buryiying partner; and he is the owner thereof, both at law and 
in equity. The right of the deceased partner's representatiye con- 
sists in haying an account of the property, of its collection and ap- 
plication, and in recelying that portion of the clear balance that ac- 
crues to the deceased's share and interest in the partnership. An- 
other source of error in this matter is the looseness with which the 
word *trustee* is frequently used. The suryiving partner is often 
called a 'trustee*; but the term is used inaccurately. He is not a 
trustee, either expressly or by implication. On the death of a 

Gii^Pabt. — 14 



210 NATUBB AND CHABACTBRISTICS (Ch. 3 

yet there are many analogies between his duties and those 
of an ordinary trustee.** He will not be allowed to exer- 
cise his power of disposal over the firm assets to his private 
advantage.** In closing up the partnership business^ and 
disposing of the firm property, he cannot buy it himself. 
"This is so, not only because his duty as seller and his in- 
terest as purchaser are in irreconcilable conflict, but for the 
more cogent reason that it is indispensable to every legal 
contract of sale and purchase that there be two contracting 
parties competent to enter into a binding engagement with 
each other!" •• Yet he may buy the interest of a deceased 
partner from his personal representatives, if the sale is 
made in good faith, and thus prevent the necessity of a sale 

partner, the law confers on his representatives certain rights as 
against the surviving partner, and imposes on the latter correspond- 
ent obligations. The surviving partner may be called, so far as 
these obligations extend, a trustee for the deceased partner; but, 
when these obligations have been fulfilled, or are discharged, or 
terminate by law, the supposed trust is at an end. * * * In like 
manner here the surviving partner may be called a trustee for the 
dead man; but the trust is limited to the discharge of the obliga- 
tion, which is liable to be barred by lapse of time. As between the 
express trustee and the cestui que trust, time will not run ; but the 
siurvlving partner is not a trustee in that full and proper sense of 
the word.    There is nothing fiduciary between the sur- 
viving partner and the dead partner's representative, except that 
they may respectively sue each other in equity. There are certain 
legal rights and duties which attach to them ; but it is a mistake to 
apply the word 'trust* to the legal relation which is thereby created." 
See, also, Krueger v. Speith, 8 Mont 482, 20 Pac. 664, 3 L. R. A. 291. 
See ''Partnership;* Deo, Dig. {Key No.} f§ 2JiS-255; Cent. Dig. Sf 
509-561. 

•* Porter v. Long, 136 Mich. 150, 98 N. W. 990 (chargeable with 
interest on Interest) ; Egan v. Wirth, 26 R. I. 363, 58 Atl. 987 (ac- 
countable for profits) ; Rowell v. RoweU, 122 Wis. 1, 99 N. W. 473 
(accountable for good will). See ''Partnership,** Dec Dig. (Key No.) 
S§ 24S-255; Cent. Dig. f§ 509-561. 

88 Gable v. Williams, 59 Md. 46; DEWEY v. CHAPIN, 156 Mass, 
35, 30 N. B. 223. See "Partnership,** Deo. Dig. (Key No.) f{ 24S-255; 
Cent. Dig. §§ 509-561. 

•• VALENTINE et aL v. WYSOR, 123 Ind. 47, 23 N. B. 1076, 7 
L. R. A. 788, Gilmore, €as. Partnership, 275, 279; Didlake ▼. Roden 
Grocery Co., 160 Ala. 484, 49 South. 384, 22 L. R. A. (N. S.) 907. 
See "Partnership,** Dec. Dig. (Key No.) t§ 251, 25i; Cent. Dig. {{ 
537, 651. 



§ 67) SXTRVIVINO PABTNEB AS QUASI TBUSTES 211 

of the partnership property and an accounting of the firm 
assets.*^ He may even buy from them such legal title to 
the partnership property as passed to them or to the heirs 
of the deceased, provided they are vested with a power of 
sale over such property.** The reason that would prevent 
a surviving partner from selling to himself "has no applica- 
tion to a case where a surviving partner purchases prop- 
erty from the executor or administrator of the deceased, 
and hence the rule which would govern the one case cannot 
control the other." •• 

In England/® and in some jurisdictions in the United 
States, the trusteeship of the surviving partner is denied.*^ 
According to these cases "the right of the legal personal 
representative of the deceased partner is to an account 
merely of the partnership assets, and to the taking of that, 
as to the taking of any other account, the statute of limita- 
tions applies.*' 



»T In re Silkman, 190 N. T. 560, 83 N. B. 1131. See "^Partnership,'' 
Dec. Dig. (Key Vo.) %% 2^255; Cent. Dig. %% 509-561. 

*• Chambers t. Howell, 11 Beav. 6 ; Brown y. Slee, 103 U. S. 828, 
26 L. Ed. 618; Balrd y. Baird's Heirs, 21 N. G. 524, 31 Am. Dec. 
399; Roys y. VUas, 18 Wis. 169. See, also, Mulherin v. Rice, 106 
Ga. 810, 32 S. B. 865. See "Partnership,*' Dec. Dig. (Key No.) f§ 
tJfi-t55; Cent. Dig. %% 609-^61. 

••KimbaU y. Lincoln, 99 III. 578, 586. See "Partnership,** Dec. 
Dig. (Key No.) U ^51, 254; Cent. Dig. f§ 5S7, 551. 

«o See ante, note 33, p. 209. 

«i BUSH y. CLARK, 127 Mass. Ill; Mutual Life Ins. Co. of New 
York y. Sturges, 33 N. J. Eq. 328; Hogg*s Ex'rs y. Ashe, 2 N. C. 
471. See "Partnership," Dec. Dig. iKey No.) |{ 24S-255; Cent. Dig. 
K 509-561. 

"Taylor y. Taylor, 28 L. T. R. N. S. 189, 190; KNOX y. GYB, 
L. R. 5 H. L. 656, Gilmore, Cas. Partnership, 280, note. 

See, howeyer, McPherson y. Swift, 22 S. D. 165, 116 N. W. 76, 133 
Am. St Rep. 907, where it was held that an action In equity to as- 
certain and recover a deceased partner*s interest in the ultimate 
distribution of partnership assets was not an action on a contract, 
and was not barred by the lapse of the statutory period of six years. 

The English Partnership Act, 1890, f 43, provides: "Subject to 
any agreement between the partners, the amount due from surviv- 
ing or continuing partners to an outgoing partner or the representa- 
tives of a deceased partner in respect to the outgoing or deceased 
partner's share is a debt accruing at the date of the dissolution or 



212 NATUBB AND CHARACTBBI8TIC8 (Gh. 3 

Rights of Representatives of Deceased Partner 

The duty of the surviving partner to wind up the firm 
business, pay the firm debts, and distribute the residue is 
owed to the representatives of the deceased partner,** who 
may "invoke the interference of a court of equity, and com- 
pel such a disposition of the partnership effects as will be 
just and proper; this, because, as between the partners, 
and therefore as between the surviving partner and the 
personal representatives of the deceased partner, the joint 
assets constitute a fund to be apportioned primarily to the 
discharge of partnership liabilities." ** The representa- 
tives of the deceased partner are entitled to his share of the 
balance that may be left after the partnership affairs have 
been settled. They have the same right that the surviving 
partner has to require that the firm assets be applied to 
the payment of the firm debts, and they may call upon the 
survivor for an accounting to ascertain the condition of the 
partnership business.** 



death." Bee ** Partnership,'' Deo, Dig, (Key Vo.) {| tiS-tSS; OeiU. 
Dig, §S 509-561, 

4s The surviving partner is In no sense a trustee for the firm 
creditors. Burchinell v. Koon, 25 Colo. 59, 52 Pac. 1100; Fairbanks, 
Morse ft Qo, v. Welshans, 55 Neb. 362, 75 N. W. 865. 

As to the remedies of firm creditors against the surviving part- 
ner and the estate of the deceased partner, see cliapter IV, H 72. 
73, pp. 227, 231, and chapter VII, f 152, p. 457. See ^'Partnership,*' 
Dec, Dig. {Key No.) §S 243-255; Cent, Dig, IS 509-561. 

«« EMERSON V. SENTER, 118 U. S. 8, 6 Sup. Ot 981, 80 L. Ed. 
49; SIgoumey v. Munn, 7 Conn, 11; People v. White, 11 111. 341; 
Fletcher v. Vandusen, 52 Iowa, 448, 8 N. W. 488; Cockerham v. 
Bosley, 52 La. Ann. 65, 26 South. 814; Gable v. Williams, 59 Md. 
46; Jones v. Dexter, 130 Mass. 380, 39 Aul Rep. 459. 

A continuance of the business with the old assets, an intermingling 
of the firm assets with the survivors' individual assets, and a failure 
to keep separate accounts constitute an abuse of trust and will be 
ground for an injunction, receiver, and accounting. Jennings' Adm'r 
V. Chandler, 10 Wis. 21 ; Hooley v. Gieve, 9 Daly (N. Y.) 104. ifee 
"Partnership," Dec. Dig. {Key No.) $} 243-255; Cent. Dig. §S 509-561, 

«B Freeman v. Freeman, 136 Mass. 260 ; Hoard v. Clum, 31 Minn. 
186, 17 N. W. 275; Egberts v. Wood, 3 Paige (N. Y.) 517, 24 Am. 
Dec. 236 ; Watkins v. Fakes, 5 Helsk. (Tenn.) 185 ; Hoyt v. Sprague, 
103 U. S. 613, 26 L. Ed. 585. See ** Partnership,** Dec. Dig. {Key No.) 
S8 243-255; Cent. Dig. fS 509-561. 



§ 67) fiUBViyiNO PABTNEB AS QUASI TBUSTES 218 

Same — Survivor Liable for Deficiency on Sale of Assets-^ 

Following Assets Wrongfully Sold 

The fiduciary obligations of the surviving partner re- 
quire him to use due diligence to dispose of the assets to 
the best advantage. . If he sacrifices them by a sale at less 
than their true value, the representatives of the deceased 
partner may compel him to make up the deficiency. They 
may also compel the purchaser of the assets, who has col- 
luded with the survivor in the improper sale, to account for 
their true value, notwithstanding they may have already 
taken judgment against the survivor for such breach of 
trust. If the fraudulent purchaser still has the assets in his 
possession, they may be recovered and applied to the pay<- 
ment of the firm debts.^* 

The right to dispose of partnership property comes to the 
surviving partner, subject to the equity of the deceased 
partner to have such property applied in payment of the 
firm debts. If he uses it for his personal benefit, he does 
so at his own risk,^^ and he is liable to the representatives 
of the deceased for the deceased's ratable share of any profit 
he may make out of such use of firm property.** 

The Title of the Surviving Partner is Held for Firm Creditors 
The fact that the legal title to the chattels of the firm 
vests in the surviving partner does not enable his separate 
creditors to reach such assets for the payment of their 
debts to the prejudice of the firm creditors. Thus, if the 
surviving partner's separate creditors obtain judgment 
against him on his individual debt and seize the firm assets 
in his hands, the representatives of the deceased partner 
may by a bill in equity prevent the satisfaction of the sep- 

♦« BUSSELL V. McCALIi, 141 N. T. 487, 36 N. B. 498, 38 Am. SL 
Rep. 807; DEWET ▼. CHAPIN, 156 Mass. 35, 30 N. E. 223. See 
^^Partnership,'' Dec, Dig. {Key No.) | 245; Cent. Dig. S$ 5U-51S. 

«r Morgan t. Morgan, 68 Ala. 80 ; Fltz v. Reichard, 20 La. Ann. 
649; Bauchle v. Smylle, 104 App. Dlv. 513, 93 N. Y. Supp. 709; Hib- 
ber# V. Hubbard. 211 Pa. 331, 60 Atl. 911. Bee "Partnership,'* Deo. 
Dig. {Key No.) §§ 21fi''255; Cent. Dig. %% 509-561. 

*• Booth T. Parkes, Beatty. 444 ; Painter's Ex*r8 v. Painter. 133 
Gal. xlx, 65 Pac. 135; Oliver v. Forrester, 96 111. 315; Young v. 
ScbviUe, 99 Iowa, 177, 68 N. W. 670; Roberts v. Hendrlckson, 75 
Mo. App. 484. See ** Partnership," Deo. Dig. (Key No.) §S 248-255; 
Cent. Dig. U 509-561. 



214 NATUBB AND CHARACTERISTICS (Ch. 3 

arate creditors out of the assets thus seized until the firm 
debts have been paid and the claims of the firm against the 
survivor have been settled.** Also, if the surviving part- 
ner becomes insolvent and assigns all his property for the 
benefit of creditors, or is adjudicated a bankrupt, the firm 
assets in his hands pass to his assignee^ subject to the pay- 
ment of the firm creditors.** 

Same — C hoses in Action 

In the case of choses in action the foregoing principles 
receive a modification to such an extent that a separate 
creditor of a surviving partner does gain an advantage by 
the survivorship of the legal remedies. The surviving part- 
ner is the only proper party to bring actions on firm ob- 
ligations,"* and this he may do in his own name.** When 
thus suing on a debt due to his firm, the defendant may set 
off a claim due from the surviving partner individually."* 
Or when he is sued on a firm debt he may set off his in- 
dividual debt against the plaintiff.** Or if he is sued on a 
debt owed by him individually he may set off a firm debt 
due to him as survivor.** Or if he sues on his own private 
claim a partnership debt may be set off against it.** 

*• MADDOCK'S ADM'X v. SKINKER, 93 Va. 479, 25 S. B. 535. 
See "Partnership,** Dec, Dig. {Key No,) §{ 243-255; Cent. Dig. |§ 
509-561. 

»o Preston v. Fitch, 137 N. Y. 41, 33 N. B. 77; Bx parte Leaf, In 
re Simpeon ft WindroBS, 4 Deac. 287; Bz parte MANCHESTER 
BANK, In re MELLOR, 12 Ch. D. 917. See "Partnership,** Deo. Dig. 
(Key No,) U 24S-255; Cent. Dig. §f 509-561. 

81 See note 20, p. 206, ante. 

82 Smith V. Wood, 31 Md. 293; Header y. Leslie, 2 Vt 569; Brown 
y. Allen, 35 Iowa, 306, eontra. See "Partnership,** Dec Dig. (Key 
No,) S§ 243-258; Cent, Dig, |S 509-598. 

6s White y. Union Ins. Co., 1 Nott ft McC. (S. C.) 556, 9 Aul Dee. 
726. Bee "Partnership,** Deo, Dig. {Key No,) f§ 176-189; Cent. Dig. 
§S 308-348; "Set-OfT and Counterclaim,** Deo. Dig. CKey No.) 9S 44. 
45; Cent. Dig. K 82-99, 

s« Lewis y. Culbertson, 11 Serg. ft R. (Pa.) 48, 14 Am. Dec. 607. 
See "Bet'Oft and Counterclaim,** Deo. Dig. (Key No.) |§ 44, 45; C^. 
Dig, S§ 82-99. 

fts Slipper y. Stidstone, 5 T. R. 493; Johnson y. Kaiser, 40 N. X 
Law, 286. See "Set-Oft and Counterclaim,** Dec. Dig. {Key No,) fi{ 
44, 45; Cent. Dig, H 82-99. 

••French y. Andrade, 6 T. R. 682. See "Set-Oft and Counter- 
claim,'* Deo. Dig. {Key No.) H 44* 45; Cent. Dig, f{ 82-99. 



8 68) PROFEBXT AFTER DEATH OF FABTNEB 215 

AGREEMENT OF PARTNERS CONTROLLING 
PROPERTY AFTER DEATH 
OF PARTNER 

68. The members of a partnership may agree in advance 
that on the death of one of them his interest shall 
pass to a third person or to the surviving partners. 

It is not infrequently provided in partnership articles 
that on the death of one partner his share shall go to a per- 
son of his nomination. This agreement is binding upon 
the surviving partners, they thereby waiving their right 
to object to the introduction of a new member into the firm. 
Moreover, it has been held that the nominee may enforce 
this right, even though there has been no direct assignment 
to him, and even though the jurisdiction in which the part- 
nership exists does not permit a third person to sue on a 
contract made for his benefit. It is held that a trust is 
created in his favor by the agreement which the courts will 
enforce.'^ The agreement between the partners is, of 
course, not obligatory upon the person named, and he has 
a right to inform himself of the condition of the partner- 
ship before deciding to become a member, though he can- 
not demand a formal accounting.*^* If he decides to come 
in, he must comply with the terms upon which he was en- 

•T Thus In Page v. Cox, 10 Hare, 163, by agreement of the part- 
ners, the widow of one of them was, at his decease, to be admitted 
into partnership with the others. The same partner had previously 
made a will by which he bequeathed his Interest in the stock and 
trade to other persons. Upon his death the widow entered into the 
partnership and made a conveyance of her interest A claim was 
made under the will, but it was held that the partnership agree- 
ment took the property out of the will and left the legal title in the 
survivor, impressed with a trust in favor of the widow; that the 
trust did not interfere with the disposal of the firm property during 
the life of the deceased, because it was not to arise until his death ; 
and that it was not the less enforceable because it was founded on 
contract. See, further, chapter II, § 22, at page 73. See "Partner- 
8hipr Dec, Dig, {Key No.) §§ 2JiS-255; Cent. Dig. §§ 509-561. 

B«Plgott V. Bagley, McCl. & Y. 569. See "Partnership,'* Dec. Dig. 
{Key No.) U 243-255, 298; Cent. Dig. §§ 509-561, 685, 686. 



216 NATUBB AND CHARACTBRIBTIC8 (Oh. S 

titled to do so.*^* Upon the admission of a new member 
under a partnership agreement in place of the deceased, 
there is no need for an accounting, and the assignable 
rights of the old firm vest in the new one/* It may also 
be that the partners agree among themselves that in the 
event of the death of one of them the sole right to the as- 
sets of the partnership and to continue the business of the 
partnership shall vest in the survivors. In such a case the 
representatives of the deceased have no right to compel an 
accounting, but are only entitled to a settlement according 
to the terms of the agreement ; and, in the absence of cir- 
cumstances which would make such an arrangement fraud- 
ulent as against them, the creditors of the old firm have 
no preference in the assets of the old firm over the creditors 
of the new firm, composed of the surviving partners.'* 

»• Holland v. King, 6 O. B. 727. See ^'Partnership,** Deo. Dig. iKeu 
No.) §§ 243-255; Cent, Dig. fi§ 509-561. 

eo RAND v. WRIGHT, 141 Ind. 226, 39 N. B. 447. See •'Partner- 
ship," Dec. Dig. {Key No.) i 255; Cent. Dig. { 55S. 

«i In re SIMPSON, L. R. Oh. App. Gas. 572L If the anrviTor 
gets the right to the firm assets under such an agreement, the ex- 
ecutor of the deceased partner cannot, of course, be held to account 
for them. In re Weir, 59 Misc. Rep. 320, 112 N. Y. Supp. 27a See 
'^Partnership,** Dec. Dig. (Key Vo.) H 24S-t55, B98; Cent. Dig. || 
609^61, 68(h^86. 



I 69) FABTNBRSHIF LIABILITY 81T 



CHAPTER IV 

NATURB, BXTENT, AND DURATION OF PABTNBB8HIP 

' LIABILITY 

68. Nature of Liability In Contract 

70/ CharacterlBtics of Joint Obligations. 

71. Partnership Uablllty and Joint Liability. 

72. Qnasl Severable Character of Joint Obligations In Bqnltjr. 

73. liability of Estate of Deceased Partner. 

74. Extent of liability In Contract 

76, Nature and Extent of Liability In Tort 

76. Commencement of Partnership liability In Contract 

77. liability of an Incoming Partner. 
7& liability of Retiring Partner. 

79. Termination of Partnership Iilablllty In Contract 

80. Past Transactions. 

81. Future Transactions. 

82. Dissolution of Operation of Law. 

83. Dissolution by Act of the Parties, 



NATURE OP LIABILITY IN CONTRACT 

69. Aa the law does not recognize the partnership as a 
legal entity apart from, its members, a partnership 
as such cannot be a party to a contract. The lia- 
bilities of a contract are the liabilities of the per- 
sons composing such relationship, and the con- 
tracts of a partnership are the contracts of the 
individual partners jointly. Liability in contract 
may be either several, joint, or joint and several. 
Unless modified by statute, or affected by doc- 
trines of equity, the liability of partners with re- 
spect to partnership transactions is joint. 

As stated in the black letter proposition above, since 
there is no entity known as a partnership, there is in the 
law no partnership contract apart from the contract of the 
persons composing the partnership. While it is customary 
to speak of the partnership contract, this is but a conven- 



218 PARTNERSHIP LIABILITY (Ch. 4 

ient way of describing the contractual obligations of the 
partners with respect to the partnership transactions. For 
example, a partnership contract between A. and B., part- 
ners, on the one hand, and X., on the other, is in reality 
the joint contract of A. and B. with X.^ By the law of 
contracts, a number of individuals may become obligated 
in different ways, viz.: Severally, jointly, or jointly and 
severally. The obligations of partners with respect to the 
partnership transactions are joint, and are in general sub- 
ject to the rules governing all joint contracts. "It is true 
that each copartner is bound for the entire amount due on 
partnership contracts, and that this obligation 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 con- 
tract. There the contract contains distinct engagements, 
that of each contractor individually, and that of all jointly, 
and different remedies may be pursued upon each. The 
contractors may be sued separately on their several engage- 
ments, or together on their joint undertaking. But in co- 
partnerships there is no such several liability of the co- 
partners. The copartnerships are formed for joint pur- 
poses. The members undertake joint enterprises. They 
assume joint risks, and they incur in all cases joint liabili- 
ties. In all copartnership transactions this common risk 
and liability exists. Therefore it is that in suits upon these 
transactions all the copartners must be brought in, except 
when there is some ground of personal release from lia- 
bility, as infancy or 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 were made jointly with an- 

1 HASKINS y. D*ESTE et al., 133 Mass. 356, Gllmore, Cas. Part- 
nership, 154; HALLO WELL v. BLACKSTONE NAT. BANK, 154 
Mass. 359, 28 N. E. 281, 13 L. R. A. 315, Gilmore, Cas. Partnership, 
309. See ^^Partnership,'* Deo. Dig. (Key No.) SS 165-179; Cent. Dig. 

n soi-^05. 



S 69) NATURB or UABIUTT IN OONTRAOT 219 

Other, and not with the defendant alone, a plea which 
would be without meaning, if the copartnership contract 
was the several contract of each copartner." * 

Contract liability is, however, in all cases joint, or joint 
and several, or several, according to the intention of the 
parties, and partners may make their contracts joint and 
several, or several, by express agreement to that effect.* 

Joint Obligations Distinguished from Joint and Several and 

Several Obligations 

Promises made by several persons may be several, joint 
and several, or joint; several where each promises for 
himself alone, joint and several where each promises for 
himself and for all, and joint where each promises for all. 
Whether a contract is several, joint and several, or joint 
depends upon the intentions of the parties as determined 
from the terms of their agreement.* As the liability of the 
partners is joint, and is governed by the rules applicable 

« Field, J., In MASON t. ELDRED, 6 WalL 231, 244, 18 I*. Ed. 
783, Gilmore, Cas. Partnership, 281; Brandt ▼. Hall, 40 Ind. App. 
451, 82 N. E. 929 ; Drew v. Bank of Monroe, 125 La. 673, 51 South. 
683. See '* Partnership,** Dec, Dig, (Key No.) H 161-11$; Cent. Dig. 
%% SOISOS. 

s ** Joint contracts, or contracts which would be Joint by the com- 
mon law, are in many states declared to be construed as Joint and 
several." 1 Stlm. Am. St Law, H 4113, 5014, 5015. These statutes 
haye been held to apply to contracts made by partners. Burgen t. 
Dwlnal, 11 Ark. 314 ; Williams ▼. Muthersbaugh, 29 Kan. 730 ; NeU 
V. Childs, 32 N. C. 195; WIGGINS v. BLACKSHEAR, 86 Tex. 665, 
28 S. W. 939. But see Currey v. Warrington, 5 Har. (Del.) 147; 
Sandusky v. Sldwell, 173 111. 493, 50 N. E. 1003 ; CJoates v. Preston, 
105 111. 470; Hyde v. Gasey-Grinshaw Marble Co., 82 111. App. 83; 
Pope Mfg. CJo. V. Charleston Cycle Co., 55 S. C. 528, 33 S. B. 787. 
See *'Partner8hip;* Dec Dig. (Key No.) ff 165-17S; Cent. Dig. fS 
SOl-305. 

* '*That rule is that a covenant will be construed to be Joint or 
several according to the interest of the parties appearing upon the 
face of the deed, if the words are capable of that construction; 
not that it win be construed to be several by reason of several in- 
terests, if it be expressly joint" Parke, B., in Sorsbie v. Park, 12 
M. & W. 146, 158. See "Contracts;* Dec Dig. {Key No.) H 181-184; 
Cent. Dig. §§ 780-789; **Cov€nants;* Dec Dig. ifiey No.) t 28; Cent. 
Dig. {§ 27, 28. 



220 PARTNERSHIP LIABILITY (Ch. 4 

to joint contracts in general, it will be necessary to exam- 
ine the characteristics of joint obligations. 



CHARACTERISTICS OF JOINT OBLIGATIONS 

70. A joint obligation is one arisiiig upon a single promise 
made by two or more persons jointly. Unaifected 
by statutory change or by doctrines of equity, the 
characteristics of a joint obligation are as follows : 

(a) In an action to enforce such a promise all the prom- 

isors are necessary parties. 

(b) A release of one promisor releases all. 

(c) A judgment upon a joint promise, whether satisfied 

or not, extinguishes the promise and discharges 
all the promisors, even though not parties to the 
acticML 

(d) In case of death of any promisor, the liability rests 

upon the surviving promisors ; and; upon the death 
of all the promisors, upon the representative of the 
one dying last. 

If the contract is several, there is a separate cause of 
action against each promisor; there are as many causes 
of action as there are promisors. If it is joint and several, 
there is a cause of action against each promisor, and one 
against them all jointly. Thus there is, therefore, one more 
cause of action than there are promisors. In the case of 
a joint contract there is but one promise, and hence but 
one cause of action — a, right t& proceed against all of the 
promisors collectively/ 

8 Streicheo t. Tehleisen, 112 Iowa, 612, 84 N. W. 715, SI L. B. A. 
412 ; Ripley y. Orooker, 47 Me. 370, 74 Am. Dec. 491 ; Meyer y. Es- 
tes, 164 Mass. 457, 41 N. E. 683, 32 L. R. A. 283; Dnmanolse y. 
TowDsend, 80 Mich. 802, 45 N. W. 179; Alpaugh y. Wood, 53 N. J. 
Law, 638, 23 Ati. 261 ; Field y. Bunk, 22 N. J. Law, 525 ; AlUn y. 
Shadbume's Ex*r, 1 Dana (Ky.) 68, 25 Am. Dec. 121; Slocum y. 
FalrchUd, 7 Hill (N. Y.) 292 ; Clark y. Rawson, 2 Denlo (N. T.) 135 ; 
Eichbaum y. Irons, 6 Watts ft S. (Pa.) 67, 40 Am. Dec. 540; O'Brien 
y. Bound, 2 Speers (S. G.) 498, 42 Am. Dec. 384. See **Oontraot8,** 
Dec, Dig, {Key No.) H 181-184; Cent. Dig. U 780-789. 



§ 70) CHABACTERT8TIC8 OF JOIKT OBLIOATION8 221 

Actions on Joint Obligations 

Since, in a promise by two or more jointly, there is but 
a single promise, in which all joined, it is the right of the 
promisors that they all be made defendants in any action 
for the enforcement of such promise. If all are not made 
defendants, those actually sued may, by plea in abatement 
for nonjoinder of the others, prevent further proceedings 
untii all are brought in. If for any reason the plaintiff is 
not able to make all the promisors defendants, as, for ex- 
ample, because one is out of the jurisdiction and cannot 
be served, then, if the others object, he will be unable to 
enforce the promise. By reason of the hardship thus inci- 
dent to the enforcement of joint obligations, "in most of 
the states legislative acts have been passed, called 'joint 
debtor acts,' which, as a substitute for outlawry, provide 
that if process be issued against several joint debtors or 
partners, and served on one or more of them, and the others 
cannot be found, the plaintiff may proceed against those 
served, and, if successful, have judgment against all. Va- 
rious effects and consequences are attributed to such judg- 
ments in the states in which they are rendered. They gen- 
erally are held to bind the common property of the joint 
debtors, as well as the separate property of those served 
with process, when such property is situated in the state, 
but not the separate property of those not served; and, 
whilst they are binding personally on the former, they are 
regarded as either not personally binding at all, or only 
prima facie binding on the latter." • 

RelecLse of One Promisor 

Since there is but one cause of action in case of a joint 
contract, a cause of action against all of the promisors, it 
ordinarily follows that a .discharge of one releases all. 
Thus, if a technical release — ^i. e., a release under, seal — ^is 



« Hall et al. ▼. Lannlng et al., 91 U. 8. 160, 168, 23 L. Ed. 271, 
GUmore, Gas. Partnership, 286, note; MASON v. ELDRED et al., 
6 WalL 231, 18 L. Ed. 783, Gilmore, Cas. Partnership, 281 ; State y. 
Glondt (Tex. OIv. App.) 84 S. W. 416. See ^'Contracts:* Dec. Dig. 
{Key Nn.) M 181-184; Cent. Dig. H 780-789; **Partner8Mp,'* Dec. 
Dig. (Key Ifo.) | 219; Cent. Dig. H i29-U5. 



222 PARTNERSHIP LIABILITY (Gh. 4 

given one joint debtor, the effect is to release all.' They 
agreed to be jointly liable only. Moreover, even if the re- 
lease were construed as being effective as to one only, the 
other would, if compelled to pay, have a right to demand 
contribution from the released promisor, thus in effect 
nullifying the release.^ In order to avoid the loss of the 
right to hold the other joint obligors by reason of a release 
of one, it became the practice of the creditor, instead of 
making a formal release, to covenant not to sue the party 
sought to be released, and to reserve all rights against the 
other joint promisors. If such was the intention of the par- 
ties, the liability of the obligors not parties to the covenant 
was unaffected.* 



7 Brooks ▼. Stuart, 9 Ad. & El. 854 ; Beltzhoover ▼. Stockton, 4 
Cranch, C. C. 095. Fed. Cas. No. 1,283; Armstrong v. Hay ward, 6 
Cal. 186 ; Haney ft Campbell Mfg. Ck>. y. Adaza Go-operative Cream- 
ery Co., 108 Iowa, 313, 79 N. W. 79; WUIiamson v. McGinnis, 11 B. 
Mod. (Ky.) 75, 52 Am. Dec. 561; Drinkwater v. Jordan, 46 Me. 432; 
Shaw V. Pratt, 22 Pick. (Mass.) 305; McAUister v. Dennln, 27 Mo. 
40; Berry y. GlIIls, 17 N. H. 9, 43 Am. Dec. 584; Crane y. Ailing, 
15 N. J. Law, 425; Harrison y. Close, 2 Johns. (N. Y.) 448, 3 Am. 
Dec. 444; Finch y. Simon, 61 App. Diy. 141, 70 N. Y.' Supp. 361; 
Greenwald y. Kaster, 86 Pa. 47. See **Release" Dec. Dig, (Key yo.) 
IS 27-29; Cent, Dig. S$ 5S-1L 

8 North y. Wakefield, 13 O. B. 536 ; State y. Matson, 44 Mo. 305. 
The rule has been changed in a number of states by statute, making 
a release of one Joint debtor effectiye as to all only with respect to 
the proportionate share of those released. See 24 Aul & Eng. Ency. 
(2d Ed.) p. 305. note 4 ; also NORTHERN INS. CO. y. POTTER, 63 
Cal. 157, Gllmore, Cas. Partnership, 286. Bee ''Release,** Dec. Dig. 
{Key No.) §1 27-29; Cent. Dig. If 55-7i; **ContHbutUm,** Dec. Dig. 
(Key No.) §§ ^, 6; Cent. Dig. §S S. i, 10-12. 

• Lacy y. Kinaston, 2 Salk. 575; Dean v. Newhall, 8 T.. R. 168; 
Person y. Sanger, Fed. Cas. No. 4,752; TnthiU y. Babcock, Fed. Cas. 
No. 14,^75; MuUendore y. Wertz, 75 Ind. 431, 39 Am. Rep. 155; 
Williamson y. McGinnis, 50 Ky. 75, 52 Am. Dec. 561 ; Walker y. Mc- 
CuUoch, 4 Me. 421 ; Ooodnow y. Smith, 35 Mass. 414, 29 Am. Dec. 
600; City of Carondelet y. Desnoyer's Adm'r, 27 Mo. 36; CoUier y. 
Field, 2 Mont 320; Line y. Nelson, 38 N. J. Law, 358; Sandlin y. 
Ward, 94 N. C. 490; Oregg y. Hilsen, 34 Leg. lot (Pa.) 20; Pinney 
y. Bugbee, 13 Vt 623. 

"It is plain that the agreement released none of the debtors, much 
less all of them. Indeed, if Eyans himself were sued contrary to 
the covenant, Inasmuch as it Is one of Indemnity only, it is not ap-. 



§ 70) CHARACTERISTICS OF JOINT OBLIGATIONS 223 

Judgment on a Joint Obligation 

A judgment, even though obtained against fewer than 
all of the persons liable on a joint contract, constitutes a 
bar to an action against the others. There is but one cause 
of action, and that cause of action is merged in the judg- 
ment obtained.^* The judgment is, however, binding upon 
those against whom it was ;actually obtained. Though they 
had a right to object for nonjoinder of all the promisors, 
the right is personal to them, and if they do not raise the 
objection the plaintiflf may proceed to judgment, which, 
as has just been pointed out, bars all further action on the 
joint promise, and discharges all the promisors, irrespective 
of whether they were parties or not. Statutory changes, 
however, in many of the states, preserve a right to proceed 
against the other joint obligors whenever found.** 

parent how he could plead It In bar .or set It up as a defence Ini any 
manner, nor why he should not be left to his action upon it for re- 
dress." Benton v. Mullen, 61 N. H. 125, 128. 

"It is true, if the bank had formally released Reardon, she would 
thereby have also released Bozeman. For it is well settled that a 
release of one of several obligors is a discharge of all. And on this 
point the authorities referred to by learned counsel are conclusive. 
But we cannot consider the bank's agreement with Reardon a re- 
lease; it is a covenant not to sue and to indemnify, which in its 
nature is not a release. If Reardon himself had been sued by the 
bank, he could not have pleaded that the bank had released him, 
though he might have pleaded the covenant In bar; but even that 
would only be permitted to avoid circuity of action." Bozeman v. 
State Bank, 7 Ark. 328, 333, 46 Am. Dec. 291. 

Various statutes have been enacted in different states with re- 
spect to the effect of sealed instruments. The statutes and deci- 
sions of each jurisdiction should be consulted. See ** Release,** 
Dec. Dig. {Key No.) §§ 27-29; Cent. Dig. §§ 5S-71. 

10 King V. Hoare, 13 M. & W. 494; MASON v. ELDRED. 73 U. 
S. 231, 18 L. Ed. 783, Gilmore, Gas. Partnership, 281; Willings t. 
Gonsequa, Fed. Gas. No. 17,767; Taylor v. Glaypool, 5 Blackf. (Ind.) 
557 ; Ward v. Johnson, 13 Mass. 148. See **Judgment,** Dec. Dig. 
{Key No.) f| 628, 629; Cent. Dig. §§ IIU, iU5. 

11 MASON V. ELDRED. 73 U. S. 231, 18 L. Ed. 783, GUmore, Gas. 
Partnership, 281 ; Bonesteel t. Todd, 9 Mich. 371, 80 Am. Dec. 90 ; 
Thomas v. Mohler, 25 Md. 36; Westheimer v. Graig, 76 Md. 399, 25 
Ati. 419; NATHANSON v. SPITZ et al., 19 R. I. 70. 31 Atl. 690. 
See, also, post, chapter IX, pp. 543-545. See ** Judgment,** Dec. Dig. 
{Key No.) §9 €28, 629; Cent. Dig. §§ llUf iU^. 



224 PARTNERSHIP LIABILITY (Gh. 4 

Survivorship in Joint Obligations 

Since the liability on joint contracts survives at law, it 
follows that, in the case of the death of one of the joint 
obligors, all actions on such contracts must be brought 
against the survivors.^* In case of the successive deaths 
of all of the joint obligors, the legal liability on the con- 
tract accrues to the personal representative of the last sur- 
vivor.^* 



PARTNERSHIP LIABILITY AND JOINT 

LIABILITY 

71. Partnership liability, as distinguished from joint liabil- 
ity, is a liability incurred by the partners in con- 
ducting the partnership lousiness. Whether part- 
nership liability and joint liability are identical is 
a question on which the courts di£Fer. According 
to some decisions they are distinct; according to 
others they are identical. 

Distinction between Joint Liability and Partnership LAdbility 

Though partnership contracts are joint, it is possible for 
partners. to enter into joint contracts which have no rela- 
tion to the partnership business, and which are not, there- 
fore, partnership contracts. Ordinarily it makes but little 
difference whether a joint contract is a partnership con- 
tract or not, until an attempt is made to prove against the 
partnership estate in insolvency proceedings or to reach 
it on execution. It then becomes important to determine 
whether a liability by persons in their partnership relation 
is any different from a joint liability of the same persons 
outside the partnership relation. 

IS Towers t. Moore, 2 Vem. 98; Moore T. Rogers, 10 IlL S47; 
Oere v. Clarke, 6 HUl (N. Y.) 350. Bee '*Contracts** D^e. Dig. {Key 
No.) I 182; Cent, Dig, S§ 780-757. 

IS In equity, however, a Joint obligation Is frequentlj treated aa 
several. See section 72, post, on Quasi Severable Cbaracter of Joint 
Obligations in Equity. 



§ 71) JOINT LIABILITT 225 

One View: Partnership Liability and Joint Liability Not Idetk- 

tical 

The members of a partnership have a right, as between 
themselves, to demand that the assets of the firm shall be 
applied to the payment of firm debts rather than to the 
separate debts of any one partner. This right can be en- 
forced by the creditors of the partnership, and is the basis 
of the priority of firm creditors over separate creditors in 
the distribution of firm assets.^*. It may be, however, that 
all of the members of a partnership are liable on a joint 
obligation which has no connection with the partnership 
business. The question whether or not the creditors on 
such a joint obligation shall be entitled to proceed against 
the partnership property equally with the firm creditors 
is one of some difficulty. On the one hand, it is contended 
that a firm liability is distinct from a joint liability; that 
the assets of the firm have been built upon the firm busi 
ness, and are gained in part at least through the credit ex- 
tended by firm creditors, who should in consequence be 
given a preference over .those who are joint creditors 
merely, and not firm creditors.^' 

14 In re OHILDS, 9 Ch. App. 508; MurrUl v. NeH, 8 How. 414. 
12 L. Ed. 1135 ; Irf re Lloyd (D. C.) 22 Fed. 90 ; Preston v. CJolby, 
117 111. 477, 4 N. E. 375 ; Pahlman v. Graves. 26 111. 405 ; BUSH v. 
CLARK, 127 Mass. Ill ; Mumford v. NicoU, 20 Johns. (N. Y.) 611 ; 
Hartman's Appeal, 107 Pa. 327; Black's Appeal, 44 Pa. 503. See 
'"Partnership," Deo. Dig. {Key No.) §§ 165-189; Cent. Dig. §| SOl- 
SJ^8. 

16 *<if a atm be composed of two persons, associated for the con»- 
duct of a particular branch of business, It can hardly be maintained 
that the joint contract of the two partners, made in their indlyidual 
names, respecting a matter that has no connection with the Arm 
business, creates a liability of the firm as such. The partnership 
is a distinct thing from the partners themselves, and it would seem 
that debts of the firm are different in character from other Joint 
debts of the partners. If it is not so, the rule that sets apart the 
property of a partnership exclusively, in the first instance, for the 
payment of its debts, may be of little value. That rule presumes 
that a partnership debt was incurred for the benefit of the partner- 
stiip, and that its property consists, in whole or in part, of what 
has been obtained from its creditors. The reason of the rule fails 
when a debt or liability has not been Incurred for the firm as such, 
OHi.PABT. — 15 



226 PARTNERSHIP LIABILITY (Ch. 4 

Another View: Partnership Liability and Joint Liability are 

Identical 

But it is held, on the other hand, that the right of the 
partner to have the firm assets applied in payment of the 
firm debts is an equitable doctrine, established for the ben- 
efit and protection of the partners respectively; that the 
partners are not injured if partnership property is taken to 
pay a joint debt for which all are liable. Since they are 
not injured, they cannot complain; and since they cannot 
complain, the firm creditors, who must work out their 
rights through the rights of the partners, likewise cannot 
complain.*' 



even though all the persons who compose the firm may be parties to 
the contract Dictum of Strong, J., In Forsyth t. Woods, 78 U. S. 
484, 486, 20 L. Ed. 207. , 

In WHBLAN v. SHAIN, 116 Cal. 826. 47 Pac. 57, Gllmore, Cas. 
Partnership, 288, an action was brought against two partners on a 
note, which the court found not to be a partnership obligation, and 
not to have been issued as such, and certain partnership property 
was attached. Later the same property was attached in suit against 
the copartners as such on a firm obligation. Judgment being se- 
cured in both actions, the sheriff sold the property on execution, 
and the question arose as to whe£her the attachment on the joint 
obligation merely was prior to that on the firm obligation. It was 
held that partnership debts should be paid first out of the partner- 
ship property, and that the attachment on the Joint obligation did 
not give a preference over subsequent attachments on a firm ob- 
ligation. 

In Re Nims (C. a) 16 Blatchf. 439, Fed. Oas. No. 10,269, It was 
held that creditors of O. Ii. Nims & Go. could not prove against the 
estate of the firm of O. L. Nims, Agent, on the bankruptcy of the 
latter firm, though both firms were composed of the same persons. 
See Freedman v. Holberg, 89 Mo. App. 340, and cases cited. Bee 
•'Partnership;' Deo. Dig. {Key No.) fi| 165-189; Cent. Dig. SI SOI- 
S48. 

i« In Re Vetterlein (D. G.) 44 Fed. 57, the court refused to aega- 
rate the assets of two partnerships composed of the same persons 
and consolidated the claims against both firms. GITIZENS' BANK 
OF PERRY V. WILLIAMS, 128 N. Y. 77, 28 N. B. 83. 26 Am. St 
Rep. 454, Gllmore, Gas. Partnership, 289; SAUNDERS y. REILLY, 
105 N. Y. 12, 12 N. B. 170, 59 Am. Rep. 472. 

In case of bankruptcy, the respective rights of Joint creditors, who 
are not firm creditors, and of firm creditors, depend upon the pro- 
visions of the bankruptcy act involved. Hoare v. Oriental Bank 



§ 72) SfiTBBABLB CHARACTER OF JOINT OBLIGATIONS 227 

QUASI SEVERABLE CHARACTER OF JOINT 
OBLIGATIONS IN EQUITY 

78. While at law, when one of the joint obligors dies, the 
entire liability falls upon the survivor, in equity 
such liability is kept alive, and becomes a charge 
upon the estate of the deceased obligor. Because 
of this, the statement is usually made that part- 
nership obligations are in equity joint and several. 

Survivorship at Low 

In discussing joint tenancy and joint obligations, it was 
seen that survivorship was a common characteristic. The 
title to property held in joint tenancy went upon the death 
of one joint tenant to the survivor; the liability of a joint 
contract fell, in case of the death of one joint obligor, upon 
the survivor. This doctrine of survivorship, however, was 

Corporation, L. R. 2 App. Gas. 589. In re Nims (G. G.) 6 Blatchf. 
439, Fed. Gas. No. 10,269; Ex parte Weston, 12 Mete. (Mass.) 1. 

*'But appellants urge that their claim is otte against both the de- 
fendants — a joint obligation — and, hence, as the equity of firm cred- 
itors is derived from the privilege of a member to see that the as- 
sets are first used to pay the firm debts for which he is liable, and 
as both are liable for this debt, so that neither can have any in- 
terest in preventing it from being paid out of the common property, 
the reason of the rule fails. If we adhere strictly to the doctrine 
that the firm creditors ^ve nio superior right except on that far- 
fetched theory, there is much reason in this contention. But it 
cannot be reconciled with the decisions, any more than the theory in 
its rigor can be. The precise point has been decided adversely to 
the appellant's position. Dunnica v. Glinkscales, 73 Mo. 500. In 
that case, the partnership of Morehead Bros, had made an assign- 
ment for the benefit of their creditors. Plaintiff presented, for al- 
lowance, notes given by the two members of the firm in settlement 
of a partnership business which they had previously conducted in 
the state of Iowa. It was held these notes ought not to be allowed 
against the assets of the new firm in Missouri. Similar rulings 
were made in Forsyth v. Woods, 78 U. S. 484 [20 L. Ed. 2071 ; Page 
V. Carpenter, 10 N. H. 77 ; Buffum v. Seaver, 16 N. H. 160 ; Bart- 
lett V. Meyer-Schmidt Grocer Go. [65 Ark. 290], 45 S. W. 1063.*' 
Ooode, J., in Freedman v. Holberg, 89 Mo. App. 840, 347. See **Part' 
nerahip,*' Deo. Dig. (Key No.) U 165-190; Cent. Dig. SS 801-348. 



228 PARTNERSHIP LIABILITT (Gh. 4 

early, held not to be applicable to partnership property and 
obligations. The maxim, "J^s accresccndi inter mercatores 
locum non habet," was well established.^^ But it is not 
literally true that there is no survivorship among partners. 
"When it is said that by the law merchant the jus accres- 
cendi, or right of survivorship, does not take place among 
partners in trade, it is meant that it does not take place for 
the exclusive benefit of the survivor; as it does in a joint 
tenancy at the common law, but that the survivor holds 
the partnership fund for the payment of the partnership 
debts and the settlement of the partnership concerns, and 
the balance, if any, to be distributed equitably between the 
representatives of the deceased partner and the surviv- 
or." *• The legal title to the personal property of the firm 
and to the choses in action goes upon the death of one part- 
ner to the survivor.* • All actions growing out of the con- 
trol and disposition of the personal property are brought 
only by or against him.*® The choses in action are in law 
treated as joint contracts and subject to all the incidents 
of such contracts. The surviving partner is the only proper 
party in actions to enforce firm contracts, and this he may 
do without joining with him the representative of the de- 
ceased partner.** In an action by a surviving partner to 
recover a debt due the firm, he may include a debt due 
himself in his own right, or the defendant may set off a 

IT Co. Lit. 182, a. 

IB Walworth, C, In Egberts v. Wood, 3 Balge (N. T.) 517, 628, 24 
Am. Dec. 236, Gllmore, Cas. Partnership, 267, note. 8ee **Partner' 
sMp,** Dec. Dig, {Key No.) K 243-258; Cent. Dig. || 509-698. 

ift See, however, chapter III, §§ 66, 66, p. 204, for a discussion of 
the English rule as to the legal title to the chattels of a firm. 

20 Martin v. Crompe, 1 Ld. Raym. 340; PFEFFER v. STEINBR, 
27 Mich. 637, GUmore, Cas. Partnership, 272. See "Partnerahip,** 
Deo. Dig, (Key No.) §9 24S-258; Cent. Dig. H 509-598. 

SI BASSETT T. MILLER, 39 Mich. 133, Oilmore, Cas. Partner- 
ship, 271; STEARNS v. HOUGHTON, 38 Vt 584, Gllmore, Cas. 
Partnership, 273 ; Gamble v. Rural Ind. School Dlst. of Allison (G. 
C.) 132 Fed. 614, 522 ; Newman v. Gates, 166 Ind. 171, 72 N. E. 63& 

Even in equity the representatiyes of a deceased party need not 
be parties plaintiff in suits to collect firm debts. BUCKLEY ▼. 
BARBER, 6 Exch. 164. See "Partnership,'* Dec, Dig. {Key No.) U 
24S-258; Cent. Dig. |§ 509-598. 



§ 72) SSVSRABLX CHARACTER OF JOINT OBLIGATIONS 229 

claim due him from the suing partner individually.** On 
the Other hand, he alone can be sued on the firm liabilities. 
The firm debts are, as other joint debts, the debt of the col- 
lective individuals who have contracted, and no one can be 
held who has not promised. Therefore, if one of the joint 
promisors dies, the obligation remains upon the survivors 
only. The representatives of the deceased partner cannot 
be held at law on such joint obligation, because they never 
promised.*" 

Survivorship in Equity 

Owing to the hardship which the rule of the common law 
frequently imposed in the case of the death of one of the 
co-obligors in joint obligations, equity has always shown a 
willingness to - reform such contracts , and convert them 
into joint and several obligations.** Even though there 
was no mistake justifying reformation by a court of equity, 
it was held very early that in equity the creditors of joint 
obligors might hold the representative of the deceased ob- 
ligor.** Furthermore, where the survivor in a joint obliga- 
tion was compelled to pay the common debt, he was al- 
lowed in equity to charge the estate of the deceased ob- 

" ADAMS V. HACKETT. 27 N. H. 289. 59 Am. Dec. 376* GUmore, 
Cas. Partnership, 274 ; Slipper v. Stidstone, 5 T. R. 493. See **Part- 
nershipr Dec. Dig. {Key No,) U B4S-258; Cent. Dig. §f 509^98. 

» Kemp V. Andrews, Garth. 170; Dixon v. Hammond, 2 B. ft Aid. 
810; Martin v. Grompe, 1 Ld. Raym. 340; Slipper v. Stidstone^ 5 
T. K. 493 ; French v. Indrade, 6 T. R. 582. See ''Partnership,** Dec. 
Dig. (Key No.) §| 243-258; Cent. Dig. S§ 509-598. 

24 Simpson y. Vaughan, 2 Atk. 31; GRAY ▼. GHISWELL, 9 Yes. 
118; Plckersgill t. Lahens, 15 Wall. 140, 21 L. Ed. 119. See "Part- 
nler«Wp," Dec. Dig. (Key No.) §§ 2iS^268; Cent. Dig. IS 509-598; 
''Contracts:* Dec. Dig. (Key No.) | 182; Cent. Dig. |§ 780-787. 

2ft *'There was a case which I determined in this conrt, where 
there were two persons jointly bound in a bond, one of the ob- 
ligors died, and to be sure, at law, it might have been put In suit 
against the survivor, but as I thought it extremely tiard, I decreed 
the representative of the co-obligor should be charged pari passu 
with the surviving obligor in payment of the bond." Lord Hard- 
wicke," in Primrose v. Bromley, 1 Atk. 90. See, also, THORPEI v. 
JAGKSON, 2 Y. & G. 553, Gilmore, Gas. Partnership, 292. See 
''Contracts:* Dec. Dig. (Key No.) § 182; Cent. Dig. §§ 780-787. 



230 PARTNBB8HIP LIABILITY (Gh. 4 

Hgor to the extent he had paid more than his share.** 
These general principles governing joint obligations and the 
relief in equity from their hardships are applicable to part- 
nership obligations. There is, indeed, additional ground 
for holding the representative of the deceased obligor ; for, 
as has been seen, it is an essential part of the partnership 
agreement that the property of the partnership shall first 
be used to pay the partnership debts before any division 
among the partners. Obviously, therefore, the representa- 
tives of the deceased partner cannot withdraw any of the 
partnership assets until the common debts are paid, and 
equity will aid the survivor to accomplish this result. Be- 
cause of the foregoing considerations it is frequently said 
that joint contracts are joint and several in equity, but "it 
has never been determined that every joint covenant is in 
equity to be considered as the several covenant of each of 
the covenantors." *'' "There is no doubt that in many cases 
and text-books we find the expression that a partnership 
debt is in equity joint and several. This, however, is only 
a compendious expression, which must be interpreted with 
reference to what were the functions of the court of equity 
as to partnership debts. The only interposition of a court 
of equity with regard to partnership debts took place in the 
administration of the assets, either of the partnership or of 
a deceased member of the partnership. Where a member 
of the partnership died, the debts became in the eye of the 
court at law the debts of the survivors ; but the survivors, 
on the other hand, in a court of equity, had the right, as 
against the estate of a deceased partner, to say that his rep- 
resentatives should not withdraw any part of the partner- 
ship property until all of the debts were paid or provided 
for. If, therefore, a court of equity was administering the 
assets of a deceased partner, it would, in order to clear his 
estate, ascertain his liabilities to the partnership, and for 

«• Musson V. May, S V. ft B. IM. See ''Partnership,*' Deo. Dig, 
(Key No.) fS 165-119; Cent, Dig, §§ 801-905. 

ST Sir William Grant, in Sumner v. Powell, 2 Mer. SO, 86'; Rich- 
ardson V. Horton, 6 Beav. 185; United States y. Price, 9 How. 83, 
13 L. Ed. 56. . See '^Partnership, Dec, Dig, (Key No.) §§ 165-179, 
2i9'258; Cent, Dig. U 901-905, 509-598. 



§ 73) 8EYEBABLE CHABAOTES OF JOINT OBLIGATIONS 231 

this purpose would ascertain the debts due from the copart- 
nership at his death. From this the other transition was 
easy to giving the creditors of the partnership a direct right, 
and not merely an indirect right, through the surviving 
partners, to come for payment against the assets of the de- 
ceased partner ; and from this again the transition was easy 
to the expression which said that partnership debts, in the 
eye of a court of equity, were joint and several, not thereby 
meaning that a court of equity altered or changed a legal 
contract, but merely that the court, in order, before dis- 
tributing assets, to administer all the equities existing with 
regard to them, would go behind the legal doctrine that a 
partnership debt survived as a claim against the surviving 
partners only, and would g^ve the creditors the benefit of 
the equity which the surviving partners might have insisted 
Qjj "28 Thus it will be seen that until dissolution of a part- 
nership by death no several liability exists in equity upon a 
joint contract, and if such contract should be reduced to judg- 
ment against part of the firm no liability in equity ever 
arises against the estate of the others.** 

SAME— LIABILITY OF ESTATE OF DECEASED 

PARTNER 

73. While it is well settled that the estate of the deceased 
partner can be made liable in equity for the part- 
nership obligatipns, there is a conflict in the deci- 
sions as to when such liability can be enforced. 
In England and in some jurisdictions in the United 
States, the liability can be enforced inmiediately; 
in New York and other jurisdictions, the legal 
remedies against the surviving partners must be 
first exhausted, or a showing made that the sur- 
vivors are insolvent. 

>• Calms, Lb C, In KENDALL y. HAMILTON, L. R. 4 App. Gas. 
604, 616, Ollmore, Gas. Partnership, 293. See ''Partnership,*' Deo. 
Dig. (Key No,) §§ 243-^8; Cent. Dig. IS 509-598. 

29 KENDALL ▼. HAMILTON, L. R. 4 App. Gas. 604, GUmore, 
Gas. Partnership, 293. See "Partnership,** Dec. Dig. iKey No.) H 
165-119, 1^49-258; Cent. Dig. n S01S05, 509-598. 



'232 PARTNERSHIP LIABILITY (Ch. 4 

While it is well settled that the estate of the deceased 
partner may be made liable in equity, there is' a conflict of 
authority as to whether the right to charge such estate 
arises immediately upon the death of the partner, or wheth- 
er the legal remedies of the creditor against the survivors 
must first be exhausted or a showing be made that they are 
insolvent. In England the rule has been established that 
the estate of a deceased partner is liable in equity immedi- 
ately.'® They cannot, however, compete with the separate 
creditors of such partner.'^ 

80 The cases upon which doctrine of liability in equity of the es- 
tate of a deceased partner rests are Primrose v. Bromley, 1 Atk. 
89 ; Bishop v. Church, 2 Ves. 371 ; LANB v. WILLIAMS, 2 VeriL 
292; Jacomb t. Harwood, 2 Ves. Sr. 265; Hoare v» Oontendn, Bro. 
C. C. 27; GRAY v. CHISWELL, 9 Ves. 118; Ex parte Kendall, 9 
Ves. 118; Devaynes v. Noble, 1 Mer. 397; WILKINSON t. HEN- 
DERSON, 1 M. & K. 582. The last two cases cited established the 
doctrine that the creditors of the partnership might proceed im- 
mediately against the estate of the deceased. 

The English rule seems formerly to have been as is now held in 
New York. In VOORHIS t. CHILDS* EXECUTOR, 17 N. Y. 354, 
Gilmore, Cas. Partnership, 298, Selden, J., said: **Prior to the case 
of Devaynes v. Noble, 1 Mer. 397, the decisions of the Court of Chan- 
cery in England appear to have been, for a considerable time at 
least, in accordance with those in this state. The precise ground 
of the change seems to have been this: In the earlier cases it had 
been assumed that the liability in equity of the estate of the de- 
cased partner was produced by a sort of equitable transfer to .the 
creditor of the right of the surviving partners to Insist that the 
estate of their deceased associate should contribute to the payment 
of the debts of the firm; but, upon its being afterwards held that 
the obligations of partners were to be regarded as joint and sev- 
erable, the English conrts said that in all cases of that kind cred- 
itors had a right to pursue their remedies against all or either of 
their debtors. They therefore held that they might proceed im- 
mediately in equity against the representatives of a deceased part- 
ner, without resorting to their legal remedies against the survivors." 
869 "Partnership,'* Dec, Dig. (Key No.) §§ S^7, 258; Cent, Dig. S9 
525, 566. 

•1 See chapter VII, p. 457, on Remedies of Creditors. The above 
rule is codified in the English Partnership Act: "Every partner in a 
firm \a liable Jointly with the other partners, and in Scotland sev- 
erally also, for all debts and obligations of the firm incurred while 
he is a partner ; and after his death his estate is also severally liable 
in a due course of administration for such debts and obligations. 



g 73) SEVERABLE CHARACTER OF JOINT OBLIGATIONS 233 

In the United States the decisions are conflicting, many 
jurisdictions holding with the English courts that the es- 
tate of the deceased partner may be proceeded against im- 
mediately.** On the other hand, there is much authority 
for the view that the estate of a deceased partner cannot 
be proceeded against, even in equity, unless it is shown that 
the surviving partners are insolvent or that the legal reme- 
dies against them have been exhausted. In New York this 
view has been sustained in the following language: "The 
surviving partners succeed primarily to all the rights and 
interests of the partnership. They have the entire control 
of the partnership property, and the sole right to collect the 
partnership dues. The assets of the firm are, of course, to 
be regarded as the primary fund for the payment of the 
partnership debts, and it would seem equitable, at least, 
that the parties having the exclusive possession of this 
fund should be first called upon. The answer g^ven to this 
by the English courts, that the representatives of the de- 
ceased partner have their remedy over, seems hardly sat- 
isfactory. The presumption is that the primary fund is 
sufficient to meet the demands upon it. Why, then, per- 
mit in equity a resort to another fund, and thus give rise 
to a second action for its reimbursement? Besides, these 
English decisions, permitting the creditors to proceed in 
the first instance in equity against the estate of the de- 
ceased partner, are in conflict with the established doctrine 

so far as they remain unsatisfied, but subject In England or Ire- 
land to the prior payment of his separate debts." Partnership Act 
(1890) I 9. 

«« DOGGETT V. DILL, 108 111. 560, 48 Am. Rep. 565, Gllmore, 
Cas. Partnership, 300; United States v. Hughes (O. C.) 161 Fed. 
1021; Nelson v. Hill, 6 How. 127. 12 L. Ed. 81; Travis v. Tartt, 

8 Ala. 577 ; McLAIN v. CARSON'S EX'R, 4 Ark. 165, 37 Am. Dec. 
777, Gllmore, Cas. Partnership, 304; Camp v. Grant, 21 Conn. 41, 
54 Am. Dec. 321; Fillyau v. Laverty, 3 Fla. 72; Newman v. Gates, 
165 Ind. 171, 72 N. E. a^>8: Freeman v. Stewart, 41 Miss. 141; Bow- 
ker T. Smith, 48 N. H. Ill, 2 Am. Rep. 189 ; Wlsham v. Llppincott, 

9 N. J. Eq. 353 ; Saunders v. Wilder, 2 Head (Tenn.) 579 ; Gaut v. 
Reed, 24 Tex. 46, 76 Am. Dec. 94; Washburn v. Bank of Bellows 
Falls, 19 Vt 278. See '* Partnership;' Dec. Dig. (Key No.) fif 2^5- 
258; Cent. Dig. §§ 609-598. 



234 PAKTNBRSHIP LIABILITY (Ch. 4 

that parties must first exhaust their legal remedies before 
resorting to courts of equity." •• 

Notwithstanding the fact that a judgment against less 
than all of the members of a partnership extinguished the 
claim against the others even in equity,"* it has been held 
that a judgment recovered against the surviving members 
of a partnership does not preclude the judgment creditors 
from obtaining payment of the original debt from the es- 
tate of the deceased partner in equity.*' The judgment at 
law is no bar, because at law the survivors only were lia- 
ble. The estate of the deceased not being liable at law, 
there was no merger. 



EXTENT OF LIABILITY IN CONTRACT 

74. In an ordinary partnership, each partner is liable in- 
dividually to the full extent of his separate estate 
for all the obligations of the partnership. 
By complsringy however, with statutes in some juris- 
dictions for the organization of limited partner- 
ship, the liability may be fixed at a certain amotmt 

The law does not recognize a partnership as distinct 
from the individuals composing it Hence, though the con- 
tracts of the partnership are joint, and the members, when 
sued, are entitled to demand that all shall be sued jointly, 
the contract is looked at as the contract of the members of 
the partnership. Each partner is liable for all the debts of 

tt Selden, J., in VOORHIS ▼. CHILDS* EX'B, 17 N. Y. 85^ 6U- 
more, Gas. Partnership, 29S; PuUen in Whitfield, 55 Ga. 174; Pope 
V. Cole» 55 N. Y. 124, 14 Am. Rep. 198; Sherman v. Kreul, 42 Wis. 
33. Bee ''Partnership," Dec Dig. (Key No,) |§ 249-^8; Cent. Dig. 
H 509^98. 

s« KENDALL v. HAMILTON, 4 App. Cas. 504, Gilmore, Gas. Part^ 
nershlp, 293 ; King t. Hoare, 13 M. W. 494; Ex parte Hlgglns, 3 De 
O. ft J. 33. See ''Partnership,*' Deo. Dig. (Key No.) | 219; Cent. Dig. 
SI 429-JH5. 

ss In re Hodgson, 31 Gh. Dlv. 177. See "Partnership** Deo. Dig. 
{Key No.) || 219, 220, 24S'-258; Cent. Dig. §S 429-469, 609-^98. 



§ 74) EXTENT OF LIABILITY IN CONTSAOT 235 

the partnership.** "The contract, when made with part- 
ners, is originally a joint contract, but may be separate as 
to its effects. Though all are sued jointly, and a joint ex- 
ecution taken out, yet it may be executed against one 
only." *'' An execution may be levied against the assets 
of the partnership, or against the assets of any member of 
the partnership. If levied against the assets of a single 
partner, the entire demand may be satisfied out of such as- 
sets at the will of the creditor, leaving all questions of con- 
tribution to be settled among the members of the partner- 
ship themselves. Even though there be an agreement be- 
tween the partners that one shall not be liable beyond a 
certain amount for partnership debts, the rights of firm 
creditors to go against such partner, for the full amount of 
the firm debts will not be affected thereby.** Th^ only ef- 
fectual way that a partner can escape the unlimited liability 
of the common law, without legislative assistance, is by con- 
tracting with the creditor, at the time that the contract is 
made, that such creditor shall satisfy his claim out of the 
partnership funds. Such an arrangement, while possible, 
would be unusual.** Under legislative authority, however, 
a partner may limit his liability by complying with the stat- 
utes providing for the organization of limited partner- 
ships.** 

«• HALLOWELL ▼. BLAGKSTONB NAT. BANK, 164 Mass. 859, 
28 N. B. 281, 18 L. R. A. 815, Gilmore, Cas. Partnership, 809; Chris- 
tian y. lUinols Malleable Iron Ck>., 92 IlL App. 820; Benchlej ▼. 
Ghapln, 10 Gush. (Mass.) 178 ; Nebraska Ry. Co. r. Lett, 8 Neb. 251 ; 
Allen ▼. Owens, 2 Speers (S. G.) 170. See "Partnership,*' Deo. Dig. 
{Key Vo.) §8 165^17S; Cent. Dig. §§ 301-^05. 

ST De Grey, G. J., in Abbot ▼. Smith, 2 W. Blackstone, 947, 949. 
Bee "Partnership^ Deo. Dig. (Key Vo,) §§ 165-17S, 219, 220; Cent. 
Dig, S8 S01-S05, 429-469, 

« MAGII/rON v. STEVENSON et aL, 178 Pa. 500, 84 Aa 235, 
Gllmore, Gas. Partnership, 445; Dean y. Phillips, 17 Ind. 406. See 
"Partnership," Dec Dig. {Key No.) §§ 165-173, 176-190, 219, 220; 
Cent. Dig. || 601^05, 609^48, 429-4^9. 

••Lindley's liiaw of Partnership (7th Bd.) p. 229L 

«• See chapter XI, p. 592, Limited Partnerships. 



236 PARTNERSHIP LIABILITY (Oh. 4 



NATURE AND EXTENT OF LIABILITY IN TORT 

75. For all torts committed in the course of the partnership 
business each partner is liable, and this liability is 
joint and several. 

• 

Tort Liability Joint and Several 

' Though the contract liability of partners is joint only, 
their liability for torts is joint and several. The reason for 
this difference is that in the case of contract liability regard 
is had to the intentipn of the parties; in the case of tort 
liability the liability is imposed by law with especial regard 
to the rights of the injured person. Hence an action for a 
tort may be brought against any or all of the partners lia- 
ble, and those against whom the action is brought cannot 
plead in abatement that the rest are not joined.** Thus, 
where an action was brought against several partners, 
whose servant, in command of a ship owned by them, had 
negligently caused his ship to run into another ship, upon 
which were the plaintiff's goods, thereby causing damage 
to such goods, it was held that those partners who were 
sued could not complain that others were not joined.** But 
if the cause of action is founded upon contract, and can- 
not be maintained without reference to such contract, all 
the partners must be joined, even though the action itself 
sounds in tort** If, however, an action is prosecuted to 

41 WHITE ▼. SMITH, 12 Rich. Law (S. G.) 595, Gilmore, Gas. 
Partnership, 306 ; Roberts v. Johnson, 58 N. Y. 613 ; Hoxle ▼. Farm- 
ers' ft Mechanics' Nat Bank, 20 Tex. Glv. App. 462, 49 S. W. 637; 
Grlssom ▼. Hofius, 39 Wash. 51, 80 Pac. 1002. Bee ''Partnership,** 
Dec. Dig. iKey No.) SS i55. 174; Cent. Dig. §§ 27^-277, S06. 

*2 Mitchell V. Tarbutt, 5 T. R. 649. See '* Partnership.*' Dec. Dig. 
(Key No.) |§ 15S, 174, 200; Cent. Dig. §S 274-277, S06. 869-^71. 

49 "The principle running through all the cases seems to be that 
where the action is maintainable for the tort simply, without ref- 
erence to any contract between the parties, the action is one of tort 
purely, although the existence of a contract may have been the 
occasion or furnished the opportunity for committing the tort. But 
where the action is not maintainable without pleading and proving 
the contract — where the gist of the action is the breach of the con- 
tract, eltheif by malfeasance or nonfeasance — It Is, In substance. 



§ 75) UABILITT IN TORT 237 

judgment against some of several joint tort-feasors, such a 
judgment is held, in England, to be a bar to a subsequent 
action against the others, even though it remains unsatis- 
fied/* In this country it is generally held that an unsatis- 
fied judgment against one or more of several joint tort- 
feasors is no bar to a subsequent action against the others.** 
The liability of a firm for the torts of one member, is co- 
extensive with that of the partner who actually committed 
the tort.** 

Liability for Tort Committed in the Course of Business 

It has been said that "the law as to partnership is un- 
doubtedly a branch of the law of principal and agent." ** 
Whether this is so or not, it is undoubtedly true that the 
law of partnership and the law of agency are intimately 
connected; for "every partner is an agent of the partner- 
ship, and his rights, powers, duties, and obligations are in 
many respects governed by the same rules and principles 
as those of an agent. A partner virtually embraces the 
character of both a principal and an agent." *• This being 
true, we find that the liability of the partnership for the 

whatever may be the form of the pleading, an action on the con- 
tract, and hence all persons Jointly liable most be sued.*' Mitchell, 
J., in WhitUker ▼. Collins, 34 Minn. 289, 25 N. W. 632, 57 Am. Rep. 
55; citing Powell v. Layton, 2 Bos. & Pnl. 365; Max v. Roberts, 
2 Bos. ft PuL 454; Cabell v. Vaugban, 1 Wms.' Saund. 288h, 291e, 
291f ; WeaU y. King, 12 East, 452; Bretherton ▼. Wood, 3 Brod. ft 
B. 54; Waloott v. Canfleld, 3 Conn. 194. See ^'Partnership,'' Dec, 
Dig, (Key No.) §§ 153, 174, ^00; Cent. Dig, || 27-f-«77, SOS, 869-871. 

«4 Brinsmead y. Harrison, L. R. 7 C. P. 547. 8ee '^Judgment," 
Deo. Dig. (Key No.) §§ 629-631; Cent. Dig, SS 106k, 1088, lUJhlH6. 

«• LoTejoy ▼. Murray, 3 Wall. 1, 18 L. Ed. 129. 

As the rules governing the liability of Joint tort-feasors who are 
partners are the same as govern Joint tort-feasors generally, a full 
discussion of this subject belongs more properly to a work on torts. 
For such a discussion, see Cooley, Torts (3d Ed.) pp. 231-238. See 
** Judgment," Dec. Dig, (Key No.) |§ 629-631; Cent. Dig. SS 106^, 
1088, im-llJi6. 

4» Helm V. McCaughan, 32 Miss. 17, 60 Am. Dec. 588. See '*Part- 
nership," Dec, Dig. (Key No.) §S 153, 174; Cent, Dig. SS 27Jh277, 306, 

4T Lord Wensleydale, in COX v. HICKMAN, 8 H. L. C. 268, Gil- 
more, Cas. Partnership, 31. See ''Partnership,*' Dec. Dig, (Key No.) 
S 125; Cent. Dig, S 190. 

4s Story on Partnership, section 1. 



938 PABTNBRSHIP LIABILITY (Gh. 4 

torts of each partner is determined by the law of agency. 
It is the liability which a principal has for the torts of his 
agent. It is well established in the law of agency that the 
principal is liable for the authorized torts of his agent, and, 
further, that he is liable for torts which he commits in the 
course of the business of the principal, even though the 
principal may not have expressly authorized the act com- 
plained of, or even though he had expressly forbidden it.** 
The test, then, of the liability of a partnership, or rather 
of the members of a partnership, for the tort of one part- 
ner, is: Was it committed in carrying on the firm busi- 
ness? *® Thus, if one member of a publishing partnership 
should put a libel in the partnership paper to be given out 
as news, all of the partners would be liable. The business 
of the firm being the publishing of news, the partner has 
the implied authority to publish the libel as news. Such 
news being libelous, all of the partners are liable.** But if 
one partner in a mercantile or other business maliciously 
tells untruths about a third party, which constitute a libel, 
but which are not told in furtherance of the firm business, 
the others are not liable. This is not because of the fact 
that the libel was told maliciously, but because it was out- 
side of the firm business. Thus, where a table was returned 
to A., B., C. & D., trading as a furniture company, and a 
placard was placed upon it saying: "Taken back from Dr. 
N., who would not pay for it. To be sold at a bargain. 
Moral : Beware of deadbeats" — it was held that the utter- 
ance of the libel was not shown to be sufficiently connected 
with the firm business to make any partner liable, in the 
absence of a showing of knowledge or authority on his 
part.** 



4»Collman y. MUls, 1 Q. B. 896: Bee ''Partnership,** Deo. Dig. 
(Key yo,) M 15S, 174; Cent. Dig. H 27Jh2Tr, $06. 

•0 Haase y. Morton ft Morton, 138 Iowa, 205, 115 N. W. 821. See 
"Partnership,*' Dec. Dig. {Key No.) tf ^55, m; Cent. Dig. U W- 
«77, 306. 

Bi Lothrop T. Adams, 133 Mass. 471, 43 Am. Rep. 528. Bee Part- 
nership," Dec Dig. (Key No.) U 15$, 174; Cent. Dig. U «74-«77, $06. 

•a Woodllng v. Knickerbocker, 31 Bllnn. 268, 17 N. W. 387. SUU, 
U ttie Ubel is told in aid of the business through Injury to a com- 



§ 75) UABIUTT IN TOBT 239 

Other instances of acts which have been held to be with- 
in the scope of the business and for which the partners 
generally have been held liable are : Where in the prosecu- 
tion of the business one member of a firm of butchers neg- 
ligently left meat where it was eaten by a dog, who died 
from the effects of it; •• where one member of a firm which 
held a chattel mortgage on certain goods, the owner of 
which was in default, entered the mortgagor's premises by 
force, forcibly took possession of the mortgaged property, 
and in doing so committed an assault upon the mortgagor : •* 
where one of several partners drove a partnership coach 
negligently, thereby injuring a third person ;•■ where one 
of a firm of solicitors gave negligent advice to a client.*' 

On the other hand, it has been held that a partner was 
not liable where his partner converted property to his own 
use ; *^ nor where he, without advice or consent, instituted 
malicious prosecution for larceny of firm property/* The 
acts in question could not be said to have been committed 
in furtherance of the firm business, and were not within the 
implied authority of a partner.** 

petitor, all the members, even of a trading company, may be liable. 
HANEY MFG. CO. v. PERKINS, 78 Mich 1, 43 N. W. 1073, Gil- 
more, Gas. Partnership, 396. Bee "Partnership," Deo. Dig. iKey No.) 
SS 15$, m; Cent. Dig. §S «7^, 906. 

»• Dudley t. Love, 60 Mo. App. 420. Bee ^ParinerBhip,** Deo. Dig. 
{Key No.) S$ 15S, 174; Cent. Dig. U «74-«77, S06. 

»4Titcomb V. James, 57 111. App. 296. Bee ** Partnership,'* Dec. 
Dig. (Key No.) I 153; Cent. Dig. S 274. 

»»Moreton v. Hardern, 4 B. ft G. 223. Bee ** Partnership,** Deo. 
Dig. (Key No.) | 15S; Cent. Dig. | 274. 

««Blyth V. Fladgate, [1891] 1 Gh. 337; Morgan ▼. Blyth, [1891] 
1 Gh. 354; Smith v. Blyth, [1891] 1 Gh. 337. Bee ^'Attorney and 
Client:* Dec. Dig. (Key No.) S 115; Cent. Dig. | 2$1. 

BTTownsend v. Hagar, 72 Fed. 949, 19 O. O. A. 256; Stokes T. 
Bnmey. 3 Tex. Giv. App. 219, 22 S. W. 126. Bee **Partner8hip,** Deo. 
Dig. (Key No.) S§ 15S, 174; Cent. Dig. H «7f-«77, $06. 

S8 Marks y. Hastings, 101 Ala. 165, 13 South. 207; Farrell ▼. 
Friedlander, 63 Hun, 254, 18 N. T. Supp. 215. Bee **Malioious Prose- 
cution,** Dec. Dig. (Key No.) | 42; ^^Partnership,** Cent. Dig. § 274. 

B9 For further discussion of the power of a partner to subject 
his copartner to liability in tort, see diapter ¥» Powers of Partners. 



240 PARTNERSHIP LIABILITY (Oh. 4 

COMMENCEMENT OF PARTNERSHIP LIABILITY 

IN CONTRACT 

76. While two or more persons who are not partners may 
become liable on a joint contract, the joint liability 
of partners arises only when the relation of part- 
nership has been duly established and the result- 
ing mutual agency necessary to enable one partner 
to bind his copartners has commenced. 

It IS quite possible for two or more persons who are not 
partners to make themselves liable on a joint contract, ei- 
ther because they both immediately entered into such con- 
tract, or because one was authorized to make such a con- 
tract for the others. In the latter alternative it is a ques- 
tion of fact whether there was authority in one to bind the 
others. Such authority must be established in the manner 
pertaining to ordinary agency. The joint liability of part- 
ners, however, can arise only when the partnership relation 
has been duly established. The power of one partner to 
bind his copartner by acts done within thie scope of the busi- 
ness results from the mutual agency implied from the very 
formation of the relation. Until such relation is formed, 
therefore, no agency exists, and consequently no power to 
create partnership liability.'® 

The agency of each partner commencing with the part- 
nership, and not before, it follows that the firm is not liable 
for what may be done by any partner before he becomes a 
member thereof. So that, if several persons agree to be- 
come partners, and to contribute each a certain amount of 
money or goods for the joint benefit of all, each one is solely 
responsible to those who may have supplied him with the 
money or goods to be contributed by him ; '^ and the fact 



•0 See chapter V, p. 273. Powers of Partners. 

•1 Klrby v. McDonald, 70 Fed. 139, 17 C. C. A. 28; National Bank 
of Virginia v. Crlngan, 91 Va. 347, 21 S. E. 820. See ''Partnership,'* 
Dec. Dig. (Key No,) S§ 125-164; Cent Dig. §S 190-^00. 



g 76} OOMMENOEMBNT OF LIABILITT IN CMDNTRAOT 241 

that the money or goods so supplied have been brought in 
by him as agreed will not render his copartners liable.'* 

It may very well be that those who contemplate a part- 
nership may authorize each other to perform certain acts 
preparatory to the launching of the enterprise. In such a 
case all will be liable for the acts of the others by the gen- 
eral rules of agency. In order, however, to hold them, it 
must be shown that such authority was actually given. Of 
course, those who contemplate a future partnership may 
contrary to their expectations make a present partnership. 
If it can be proved that they have in fact formed a partner- 
ship, a partnership liability can then be imposed upon them. 
But, except in cases of estoppel, only those can be held as 
partners who were actually partners at the time the liability 
accrued. 

If persons agree to become partners as from a future 
day, upon terms to be embodied in articles of partnership 
to be executed on that day, and the articles are not then 
executed, but they nevertheless immediately commence 
their business as partners, they will all be liable for the acts 
of each, whether those acts occurred before or after sign- 
ing of the articles ; for the question in such a case is not 
when the articles were signed, but rather when did the part- 
ners commence business. The mutual agency begins from 
that time, whether they choose to execute any partnership 
articles or not. Where there is an agreement for a partner- 
ship, and there is nothing to lead to the conclusion that the 
partnership was intended to commence at any other time, 
it will be held to commence at the date of the articles, un- 
less in fact it began at some other time.'* 

9* Brooke ▼. Eyans, 5 Watts (Pa.) 196 ; Heap ▼. Dobson, 15 C. 
B. (N. S.) 460. 8ee "Partnership," Deo, Dig, (Key No,) § 1S5; Cent, 
Dig. S 202, 

OS Williams ▼. Jones, 5 Barn. & G. 108. See "PartneraMp,*' De<k 
Dig. {Key No.) SI 57, 58; Cent. Dig. Si S2, 8S. 

GIL.PABT. — 16 • 



242 PABTNBBSHIP LIABILITY (Ch. 4 



SAME— LIABILITY OF AN INCOMING PARTNER 

77. As one partner's liability for the acts done by his co- 
partners exists by virtue of the mutual agency nec- 
essarily incident to the partnership relation, it fol- 
lows that until such relation is established there 
can be no liability. Therefore an incoming part- 
ner is not liable for the obligations which arose 
before he became a member of the firm. 
He may, however, make himself liable by assuming re- 
sponsibility for a part or all of the existing obliga- 
tions. This assumption may take the form of: 

(1) Novation. 

(2) Agreement to be joint obligor, surety, or guarantor. 

(3) A promise to his prospective copartners for the ben- 

efit of the holders of such existing obligations. 

In General 

While it is customary to speak of a person as being ad- 
mitted into a firm, and to describe him as an incoming part- 
ner, what really takes place is the formation of a new part- 
nership, composed of the persons previously engaged in 
business and the additional person. Whatever liabilities 
there may be existing against the members of the original 
firm remain their personal liabilities. The new member 
does not join the old firm, and consequently does not be- 
come liable for the debts of the former partners. He be- 
comes a partner for the future ; he has no part in what is 
past, and incurs no liability in respect to it.'* It cannot be 
said that the entering into the firm constitutes a ratifica- 
tion of what has already been done, because such was not 
in any probability the intention of the incoming partner. 
Besides, the liability of the old firm was not incurred on 

•4 Mellor T. Lawyer, 65 111. App. 679 ; Humes ▼. Hlgman, 145 Ala. 
215, 40 South. 128 ; Bank of Commerce t. Ada County Abstract Co., 
11 Idaho, 756, 85 Pac. 919; Strickler ▼. Gitchel, 14 OkL 523, 78 
Pac. 94. See ^^Partnership," Deo. Dig. {Key Ifo.) % 2S8; Cent. Dig. H 



§ 77) GOilMENGEMBNT OF UABIUTT IN CMDNTRAOT 243 

behalf of the new partner, and one cannot ratify that which 
was not done on his behalf. •• 

Assumption of Liability by Incoming Partner 

While an incoming partner is not liable for the existing 
obligations of a firm of which he becomes a member, he 
may nevertheless make himself liable. This may be done 
by assuming responsibility for a part or all of the existing 
obligations. The assumption of liability may take the form 
of a novation, of an agreement to become a joint obligor 
with the old partners, or a surety or guarantor of the exist- 
ing debts, or of a promise to his prospective copartners to 
pay such obligations, which promise may inure to the ben- 
efit of the creditors of the old firm. In order to explain the 
nature and scope of this assumed liability, it will be neces- 
sary to recur briefly to certain elementary and fundamental 
doctrines of the law of contracts. 

A contract is the result of an agreement between certain 
persons, who for a consideration undertake to act or refrain 
from acting in a designated manner. The obligations of the 
contract rest upon those only who have promised to be 
bound. They are the parties to the contract. They only 
can enforce its obligations or be held on its undertakings. 
While the performance of the stipulations of a contract 
may result in benefit to a third person, such person does 
not by that fact become a party to the contract. Any doc- 
trine, therefore, which recognizes a right in a person not a 
party to a contract to enforce its performance, is, in the 
eyes of a court of law, anomalous. At common law the rule 
was well established that only the parties to the contract 
could bring an action to enforce it.** 

Where a partnership is in existence and has incurred 
debts, these obligations rest upon contracts between the 
creditor on the one hand and the members composing the 
partnership on the other. The rights and liabilities of the 



•• Wilson ▼. Tnmman, 6 Man. ft G. 236; HUGHES t. GROSS, 166 
Mass. 61, 43 N. E. 1031, 32 L. IL A. 620, 55 Am. St Bep. 875. See 
""Partnerahip;' Deo. Dig. (Key No,) S ^3; Cent. Dig. U 491-499. 

•• Wald's Pollock on Contracts C3d Ed.) p. 233. 



244 PARTNERSHIP LIABILITY (Ch. 4 

parties are to be determined by the terms of the contracts. 
If a stranger is admitted to a partnership after debts have 
arisen, he is clearly not bound by these debts, because he is 
not a party to the contracts. In order, therefore, to render 
an incoming partner liable oii existing obligations, a new 
contract must be made. The form of this agreement will 
determine the nature of his liability. He may, in consid- 
eration of being thus admitted or for some other considera- 
tion, agree to pay a part or all of the existing debts of the 
firm, or he may agree to be liable with the original part- 
ners for the old debts, or agree to act as surety or guarantor 
with respect to those. 

Same — Novation — As Affecting Incoming Partner 

While the obligations of a contract pertain only to those 
who are parties to it, and a contract once made cannot be 
changed or abandoned, except all who originally joined in 
it consent, it is well established that, if the original parties 
do come together, they may, upon a consideration, rescind 
the old contract, or make a new contract differing in terms 
or parties. Where the new agreement has for its object a 
change of parties, it will, when consummated, constitute a 
novation. For example, where A. is indebted to M., and X. 
promises M., in consideration of A.'s release by M., to pay 
A.'s debt to M., M. may now hold X., not on the old prom- 
ise of A., but on the new promise of X. As novation is a 
substitution of parties in a contract, it is obvious that it 
may be used to create a liability against an incoming part- 
ner or to relieve an outgoing partner from an existing obli- 
gation by substituting some one in his place. Novation, 
therefore, in this section, is discussed in connection with 
the liability of an incoming partner, and also in a later sec- 
tion in connection with the liability of a retiring partner. 

An incoming partner may become a party to a novation 
whereby the existing obligations resting upon the original 
members of the firm are, by a valid contract with the firm 
creditors, transferred to him, and the original members are 
released. But such a substitution of debtors must be made 
in compliance with the well-established rules governing no- 
vations in general. The agreement giving rise to the nova- 



§ 77) COMMBNCBIMBNT 07 LIABILITY IN CONTRAOT 246 

tion may be ieither express or implied.** "The rule stands 
on the principle of assent by the party to be charged, and 
X)nsent of the creditor to accept the new liability." •• 
"There must be a novation before the new firm is liable: 
and the new contract must receive the consent. of all the 
parties, and must have the effect to extinguish the old con- 
tract, and create a new liability of debtor and creditor, or 
of contractors, between the creditor or contractor and the 
new firm, and such new contract must be based on some 
consideration." •• 

Same — Assumption as Joint Obligor, Surety, or Guarantor 

The agreement between the incoming partner and the 
original members of the firm may not, however, constitute 
a novation. It may provide that the incoming partner will 
become jointly liable with the old partners, or be a surety 
for them, or a guarantor. It is always a question to be de- 
termined by the facts of each particular case as to what 
was the incoming partner's agreement. Having determined 
this, his liability will be governed by the rules of law ap- 

•7 Roife T. Flower, Ia R. 1 P. C. 27 ; Regester t. Dodge (G. C) 6 
Fed. 9; Venable ▼. Steyens, 94 6a. 281. 21 S. E. 516; HeUman t. 
Schwartz, 44 111. App. 84; Rusk ▼. Gray, 83 Ind. 589; Hoopes t. 
McCan, 19 La. Aim. 201 ; Ck>n8alu8 t. McConihe, 119 N. Y. 652, 23 N. 
E. 1150; Earon ▼. Mackey, 106 Pa. 452; Frye & BruUn v. PhUllps, 
46 Wash. 190, 89 Pac. 559. 8ee ^^Partnership," Dec, Dig. (Key No') | 
2$9; Cent. Dig. SI 487, 488, 495-499, 

•s Shoemaker Piano Mfg. Ck>. ▼. Bernard, 2 Lea (Tenn.) 858, OU- 
more, Cas. Partnership, 328, note. See ^Partnership,*' Dec. Dig. {Key 
No.) H ^8, 2S9; Cent. Dig. |§ 487, 488, 491-499, 495-499. 

•• Parmalee v. Wiggenhom, 6 Neb. 322, Gilmore, Cas. Partnership, 
328, note. 

'It is indisputable that an incoming partner is not, as of course, 
liable for the debts and transactions of the firm, and that he can 
be made liable in an action at law by the creditor only by some 
agreement on his part to assume such liability. The mere fact that 
he becomes a member of the firm creates no presumption of the exis- 
tence of such agreement The fact, however, may be established 
by indirect as well as by direct evidence, and may, in the absence 
of an express agreement, be inferred from facts and circumstances 
which Justly raise an* implication of its existence." Andrews, J., 
in Peyser v. Myers, 135 N. Y. 51)9, 602, 32 N. E. 699. 'See ^'Partner- 
ship,*' Dec. Dig. {Key No.) U m, 2S9; Cent. Dig. fS 487, 488, 491^ 
493, 495-499. 



246 PARTNERSHIP LIABILITY (Ch. 4 

plicable to such situations generally. On (>r;nciple, the 
firm creditor should be a party to any contract by which an 
incoming partner agrees to become a joint obligor with re- 
spect to existing firm debts, or to be liable as surety or 
guarantor, thereon. Whether he is a necessary party to 
such an arrangement is not entirely clear from the cases. 
As, for example, where one was taken into an existing part- 
nership having debts, the court said in a Wisconsin case : "It 
is settled law in this state, as in many others, that when an 
incoming partner, in consideration of being received into 
the firm and becoming part owner of the firm property, 
agrees to assume with the old partner or partners the exist- 
ing debts of the business, such agreement is valid and bind- 
ing, though it be by parol, and that such promise is enforce- 
able by the creditors whose debts are thus assumed." As 
to whether the firm creditor must be a party to the arrange- 
ment the court says : "It is probably true that acceptance 
by the creditor is necessary to make the assumption a com- 
plete contract as between the firm and the creditor." *• 

Same — Promise for the Benefit of Third Person 

It may very well be, however, that the arrangement 
whereby an incoming partner is admitted to an existing 
firm will not take the form of a novation or make him a joint 
obligor or guarantor. The agreement which is more likely 
to be made is this : The incoming partner will promise the 
original members of the firm that in consideration of his 
being admitted he will pay the existing debts of the firm. 
This promise will run, however, to the original members, 
and not to the firm creditors ; and therein it differs essen- 
tially from a novation, where the promise which effects a 
substitution of debtors always runs to the creditor. The 
promise will create a valid contract between the incoming 
partner and his prospective associates. The question will 
at once arise: How can the creditor of the original firm 



rowinslow, 3^ in J. & H. GlasgeDs Co. t. Silber, 98 Wia. 079, 
585, 67 N. W. 1122, 1124; HoUe v. Bailey, 58 Wia 434, 17 N. W. 
322; Coleman t. Lansing, 65 Barb. (N. Y.) 54. See '^Partnerghip/' 
Deo. Dig. (fey No.) H ^S, 2S9; Cent. Dig. || 487, 488, 491-493, 495^ 
499. 



§ 77) COMMENCEMENT OF LIABILITT IN CONTRACT 247 

take advantage of such promise? Clearly according to the 
law of contracts he ought not to be able to bring an action 
at law to enforce it. While the performance of the promise 
will result beneficially to him, in that he will get his claim 
against the old firm paid, still this does not make him a 
party to the contract. The promise was not to him, and 
he gave no consideration for it. At law, therefore, he 
should have no remedy upon it. 

The English courts hold, consistently with the theory of 
contracts, that privity of contract is necessary in order to 
enforce a contract ; one who is merely a beneficiary under 
the contract of other persons has not such privity, and can- 
not, therefore, enforce the promise.^* The same rule is ap- 
plied in a number of the state courts in this country.^* 

In equity, however, it is entirely proper to afford the firm 
creditors a remedy. When the incoming partner enters 
into a binding agreement with the original partners to pay 
the firm debts, he is clearly liable to them for the nonper- 
formance of his promise. This right of the original part- 
ners against the incoming partner is an asset in their hands. 
Assuming that the incoming partner is solvent, and that an 
action against him will be effective to compel the perform- 
ance of his contract or respond in damages, the creditors of 
the original firm may properly claim to be subrogated to 
this right of the original partners against the incoming 
partner, and a court of equity will recognize the right and 
enforce it.^* 

»i Price ▼. Easton, 4 B. ft Ad. 433. See ''Partnership,'^ Deo. Dig. 
{Key 7fo) %% 2S8, 2S9; Cent. Dig. S$ 487, 488, 491-408, 495-499; 
**Contractsr Deo. Dig. (Key No.) U 186, 181; Cent. Dig. |§ 790^ 
807. 

Ys Borden t. Boardman, 157, Mass. 410, 82 N. E. 4G9; Exchange 
Bank of St Lonls v. Rice, 107 Mass. 37, 9 Am. Rep. 1; Linneman 
V. Moross' Estate, 08 Mich. 178, 57 N. W. 103, 39 Am. St Rep. 528. 
See '^Partnership,'' Deo. Dig. {Key No.) H 258, 2S9; Cent. Dig. §§. 
487, 488, 491-498, 495-499; '^Contracts;' Deo. Dig. {Key No.) S| 186, 
187; Cent. Dig. |§ 790-807. 

Ts EeUer t. Ashford. 133 U. S. 610, 10 Sup. Ct 494, 33 L. Ed. 667; 
Union Mutual Life Insurance Co. t. Hanford, 143 U. S. 187, 12 Sup. 
Gt 437, 86 Ia Ed. 118. Youngs y. Trustees for Support of Public 
Schools, 81 N. J. Eq. 290. See '^PartneraMp," Deo. Dig. {Key No.) %l 
238, 289; Cent. Dig. \% 487, 488, 491-498, 495-499. 



248 PARTNERSHIP LIABILITY (Ch. 4 

Same — Anomalous Doctrine at Law 

While it is inconsistent on principle with the law of con- 
tracts to permit the firm creditors to enforce the promise 
of the incoming partner, running to the original partners, 
to pay the existing firm debts, it must be recognized that 
in very many jurisdictions in the United States it is well 
settled that the firm creditors may bring an action at law 
directly to enforce such promise.^* The cases proceed upon 
the doctrine of the law of contracts that a person for whose 
benefit a promise is made should be permitted to enforce 
such promise immediately. Thus, where A. is indebted to 
M., and X. promises A. for a consideration to pay this debt, 
M. may enforce X/s promise, although it was not made to 
him and he gave no consideration for it. What really takes 
place is that A. holds the promise of X. as a chose in ac- 
tion in trust for M., the beneficiary. The law executes the 
trust by permitting the beneficiary to proceed directly to 
reduce the chose to possession. The doctrine of Lawrence 
V. Fox and similar cases in contract is applicable to part- 
nership contracts, so that the firm creditors may enforce 
directly the promise of the incoming partner made for their 
benefit.^* It is a very general qualification of the rule, how- 
ever, that only in case the performance of the contract by 

T4 Lawrence v. Fox, 20 N. Y. 208; Hendrick v. Lindsay, 83 U. 
S. 143. 23 L. Ed. 855 ; Mason v. Hall, 30 Ala. 601 ; Morgan t. Oyer- 
man Silver Min. Ck>., 37 Cal. 537; Lehow v. Simonton, 3 Colo. 340; 
Treat v. Stanton, 14 Conn. 454 ; Bristow v. Lane, 21 III. 194 ; Stevens 
V. Flannagan, 131 Ind. 122, 30 N. E. 898; West v. Western Union 
Tel. Co., 39 Kan. 93, 17 Pac. 807, 7 Am. St. Rep. 530; Bohanan v. Pope, 
42 Me. 96 ; Dearborn y. Parks, 5 Me. 81, 17 Am. Dec. 206 ; Vrooman 
V. Turner, 69 N. Y. 280, 25 Am. Rep. 195; Bellas v. Fagely, 19 Pa. 
276; Hind v. Holdship, 2 Watts (Pa.) 104. 26 Am. Dec. 107; Brown 
y. O'Brien, 1 Rich. Law (S. C.) 288, 44 Am. Dec. 254 ; Grant y. Die- 
bold Safe Co., 77 Wis. 72, 45 N. W. 951 ; Tweeddale v. Tweeddale, 
116 Wis. 517, 98 N. W. 440. 61 L. R. A. 509. 96 Am. St. Rep. 1003. 
See ^'Partnership,** Dec. Dig, {Key 2Vo.) §S 2S8, 239; Cera. Dig. %% 487, 
488, 491-m, 495-499. 

TB Lehow y. Simonton, 3 Colo. 346; Poole v. Hintrn^er, 60 Iowa, 
180, 14 N. W. 223; Reynolds v. Lawton, 62 Hnn, 596. 17 N. Y. 
Supp. 432. See '* Partnership," Dec. Dig. {Key No.) ii 2S8, 239; 
Cent. Dig. H ^87, 4^8, 491-498, 495-499. 



§ 78) GOMMflSNCRMENT OF LIABILITY IN CORTRAOr 249 

the promisor relieves the promisee from a legal obligation 
to the beneficiary can the beneficiary enforce the contract/* 
In a leading New York case the distinction was made 
that if the agreement was to assume only a certain propor- 
tion of the debts of the firm the agreement could not be 
taken advantage of by the firm creditors. The contract might 
be fulfilled by paying certain creditors to the exclusion of 
others; hence no one creditor could show that such a con- 
tract was for his benefit/^ But the same court has held 
that where the contract was to pay specific debts those to 
whom such debts were owed could take advantage of the 
contract ; ^* and where a third person agreed to pay all of 
the debts of a firm it was held that the creditors of the firm 
generally could hold him on his promise.'* 



SAME— LIABILITY OF RETIRING PARTNER 

78. A partner who retires from a firm continues liable on 
all obligations created while he was a member of 
the partnership, unless there has been a terminSi- 
tion of partnership liability in one of the methods 
designated in the preceding section 70 or section 
80» or imless there has been a novation. 
MODIFIED LIABILITY: In some jurisdictions, 
however, it is held that where a partner retires, 
and the continuing. partners take the firai assets 

f Barnes v. Hekla Fire Ins. Co., 56 Minn. 38, 57 N. W. 314, 45 
Am. St Rep. 438 ; Jefferson ▼. Ascb, 53 Minn. 446, 55 N. W. 604, 25 
Ia R. A. 257, 39 Am. St. Rep. 618 ; Lawrence v. Fox, 20 N. Y. 268 ; 
Ck)leman v. Whitney, 62 Vt 123, 20 Atl. 322. 9 L. R. A. 517. See 
''PartnerBliipr Dec. Dig. {Key No.) |§ 238, 239; Cent. Dig. SI 487, 
488, 491''49S, 495-499. 

TT Wheat V. Rice, 97 N. Y. 296; Servlss v. McDonnell, 107 N. Y. 
260, 14 N. E. 314. See ^^Partnership;' Dec. Dig. (Key No.) fS W«, 
2S9; Cent. Dig. SS 487, 488, 491-493, 495-499. 

T8 ARNOLD y. J^ICHOLS. 64 N. Y. 117, Gllmore, Cas. Partnership, 
328. See "Partnership," Dec. Dig. {Key No.) §§ 238, 239; Cent. Dig. 
|§ 487, 488, 491-493, 495-499. 

»• Barlow V. Myers, 64 N. Y. 41, 21 Am. Rep. 582. See "Partner- 
ship;' Dec. Dig. (Key No.) H ^S8, 239; Cent. Dig. » ^87, 488, 491- 
49S, 495-499; **CowtractM," Cent. Dig. | 800. 



250 PARTNERSHIP LIABILITT (Ch. 4 

and assume to pay the existing firm debts, the re- 
tiring partner ceases to be primarily liable and be- 
comes a surety merely for such debts. All firm 
creditors who have notice of such an arrangement 
are boimd to treat him as a surety, and any con- 
duct by the creditor that will discharge an ordi- 
nary surety will discharge the retiring partner. 

Novation — Release of Retiring Partner 

It will not be necessary to examine specially the termi- 
nation of a partner's liability by payment, release, and mer- 
ger. This has already been sufficiently discussed under 
sections 70 and 80. Novation as a means of creating a lia- 
bility against an incoming partner has also been considered 
under the foregoing section. It remains to notice, how- 
ever, the application of the rules governing novation as af- 
fecting the liability of a retiring partner. As an incoming 
partner was not liable on the debts of the firm incurred pre- 
vious to his admission, because he was not a party to the 
contract giving rise to such debts, so a retiring partner can- 
not escape liability on the debts incurred while he was a 
member of the firm because he is a party to the contract 
giving rise to them. When a party incurs a contract liabil- 
ity, he cannot, without the consent of the other party to the 
contract, escape such liability. 

It is quite usual, when a person who has been a member 
of a partnership retires from such relation, for his copart- 
ner or copartners to continue the business and to agree 
with the retiring partner to pay the outstanding debts. It 
is obvious that such an arrangement between the retiring 
and continuing partners, without the consent of the firm 
creditors, can, by the law of contracts, have no effect upon 
the rights of such creditors. Two debtors cannot, by thus 
getting together, affect the rights of their common creditor. 
In order to make a valid substitution of the continuing 
partners for the retiring partner, the common creditor must 
be a party to the arrangement, which must take the form of 
a novation,** which may be either express or implied. 

to A person who is admitted as a partner into an existing Ann 
does not thereby become liable to the creditors of the firm for any- 



§ 78) GOMMBNCEMENT OF UABILITT IN CONTRACT 251 

Whatever the form, the agreement for substitution must 
be based upon a consideration. A mere promise by the firm 
creditor to look to the continuing partner is not effective.*^ 
And an assent to an arrangement by which the new firm 
becomes liable for the debts of the old one does not of it- 
self relieve the retiring partner from liability.** 

Same — Consideration for Agreement to Release Retiring Part- 
ner • 

Some difficulty has been felt by the courts in finding 
the consideration for the promise of the old creditor to re- 
lease the retiring partner and look only to the continuing 
partners. For example. A., B., and C. being partners, C. 
withdraws. A. and B. promise X., a firm creditor, that in 
consideration of his releasing C. they will pay X.'s claim 
against A., B., and C. But as A. and B. are already bound 
to pay X., their promise adds nothing to their liability, and 
is not a good consideration for X.'s promise to release C. 
This is the holding of a number of cases.** But in the case 



thiDg done before he becomes a partner. A partner who retires from 
a firm does not thereby cease to be liable for partnership debts 
or obligations incurred before his retirement A retiring partner may 
be discharged from existing liabilities by an agreement to that effect 
between himself and the members of the firm as newly constituted 
and the creditors, and this agreement may be either express or in- 
ferred as a fact from the course of dealing between the creditors and 
the firm as newly constituted. Flour City National Bank of Roches- 
ter V. Widener, 163 N. Y. 276, 279, 57 N. E. 471 ; Frye & Bruhn v. 
Phillips, 46 Wash. 190, 89 Pac 559. See ** Partnership,'' Dec Dig. 
{Key No,) §1 2S6, 2S7; Cent, Dig, fi§ m-4H. 

•1 Thomas v. Shillabeer, 1 N. & W. 124; Clark v. Billings, 59 Ind. 
508; Eagle Mfg. Co. v. Jennings, 29 Kan. 657, 44 Am. Rep. 668; 
Chase v. Vaughan, 30 Me. 412; Wildes v. Fessenden, 4 Mete. (Mass.) 
12; Walstrom v. Hopkins, 103 Pa. 118; Collyer ▼. Moulton^ 9 R. I. 
90, 98 Am. Dec. 370. See "Partnership,** Deo. Dig. (Key No.) §| BS6, 
2S7; Cent. Dig. §§ 48Jh494. 

•a Harris v. Farwell, 15 Beav. 81. See ** Partnership,** Deo. Dig. 
{Key No.) IS 2S6, 2S7; Cent. Dig. |§ iSJhiH. 

•* Lodge v. Dicus, 8 B. & Aid. 210; David t. Elllce, 5 B. & a 19a 
These cases must be held to be overruled by LYTH v. AULT & 
WOOD, 7 Exch. 669, Gilmore, Cas. Partnership, 336, and Thompson 
V. Percival, 5 B. & Ad. 925. See, also, the remarkji of Wlgram, V. C^ 



252 PARTNERSHIP LIABILITY (Gh. 4 

of Lyth V. Autl & Wood '* it was held that the considera- 
tion, even though it was to pay a debt for which the pro- 
misor was already liable, was sufficient to sustain the cred- 
itor's promise to release the retiring partner. In that case 
there was a partnership of A. and B. A. withdrew and B. 
continued the business. X., a firm creditor, agreed, in con- 
sideration of a payment by B. of a part of X.'s debt and a 
promise to pay the balance, to release A. frqpi further lia- 
bility. It was objected that there was no consideration for 
X/s promise. In holding that the consideration was suf- 
ficient. Baron Parke said: "It cannot be doubted that the 
sole security of one of two joint debtors may be more ben- 
eficial than the joint responsibility of both. In the latter 
case, you are not entitled to sue one with safety, for the de- 
fendant may plead in abatement the nonjoinder of his co- 
contractor. In case of the bankruptcy of one of the part- 
ners, there would also be a difference. * * * Where 
there is more than one debtor, the creditor's remedy is dif- 
ferent. There is, therefore, no doubt that the thing substi- 
tuted is altogether different from the original debt." 

This view of Baron Parke has generally prevailed.** 
While what was said related to the dissolution of a partner- 
ship of two, the reasoning would seem to be applicable to 
a partnership composed of more than two. 

The question of sufficiency of consideration will not arise 

In MlUs T. Boyd, 6 Jar. 948 ; Early v. Bnrt, 68 Iowa, 716, 28 N. W. 
35 ; Wild ▼. Dean, 8 Allen (Mass.) 579. 

"The promise of a creditor to release the ontgoing and look to the 
continuing partners for payment is not binding for want of con- 
sideration. The creditor had the several liability of the continuing 
partner already in the Joint obligation." Parsons (James) Partn. f 
95. See "Partnership,'' Dec. Dig. (Key No.) H 2S6-2S9; Cent. Dig, 

§§ m-m. 

«* LYTH T. AULT & WOOD, 7 Bxch. 669, Gilmore, Cas. Partner- 
ship, 386. See ^'Partnership,'* Deo. Dig. {Key No.) H 2S6-299; Cent. 
Dig. §§ m-499. 

8 B Thompson ▼. Percival, 5 B. ft Ad. 925; In re Clap, 2 Low. 
226 ; Backus v. Fobes, 20 N. Y. 204 ; Ludington t. Bell, 77 N. Y. 138 
33 Am. Rep. 601; Allison y. Abendroth. 108 N. Y. 470, 15 N. B. 606; 
Collyer v. Moulton, 9 R. T. 90, 98 Am. Dec. 370; iBtna Ins. Co. V. 
Wires, 28 Vt. 93. See "Partnership;* Deo. Dig. (Key No.) ff 236-^9; 
Cent. Dig. fif m-499. 



i 78) OOMMEKCEMBKT OF LIABILTTT IN OONTRAOT 253 

where, upon the retirement of an old partner, a new part- 
ner IS taken in. If the new firm, which now contains a 
member not already liable on the debts of the original part- 
nership, agrees to pay the old debts in consideration of the 
release of the retiring partner, the promise of release is 
clearly supported by adequate consideration. Very slight 
circumstances will justify a finding that the creditors 
agreed to accept the liability of the new firm in place of the 
old one.** 

Same — Novation by Implication 

It is entirely possible to establish a novation by implica- 
tion from the conduct of the parties. As the retiring part- 
ner will usually be the one setting up his release from lia- 
bility, he must plead and prove a valid agreement amount- 
ing to a novation. Being liable under the contract, the pre- 
sumption is that he continues so unless discharged.*' A 
creditor who, after a partner has retired from the firm, 
treats the continuing partners as his debtors, does not, 
without more, discharge the retired partner.** The fact 
that the creditor said nothing when informed that one of 
the partners had withdrawn and the continuing partner had 
assumed all the debts will not be sufficient to infer a nova- 
tion.** Nor will the fact that the creditor, when so inform- 
ed by the continuing partner, said, "All right ; pay as fast 
OS you can," be sufficient.** Even if the new firm adopts 

•• Regester v. Dodge (O. C.) 6 Fed. 6; ». c., 61 How. Prac. (N. Y.) 
107. See "Partnership,'* Dec. Dig. {Key No,) §§ 296-299; Cent. Dig. 
If Jfik-k99. 

BT Benson v. Hadfleld, 4 Hare, 82, 87; First Nat Bank of Athens 
V. Green, 40 Ohio St 431, 440 ; Botsf ord v. Eleinhans, 29 Mich. 332. 
Bee ** Partnership,'* Dec. Dig. (fey No.) || 2S6-239; Cent. Dig. U 
m-m. 506. 

«« Botsford V. Eleinhans, supra. See "Partnership,** Dec. Dig. 
(Key No.) §| 2S6-2S9; Cent. Dig. |§ m-499. 

«• Wadhams v. Page, 1 Wash. St 420, 25 Pac. 462. See "Partner- 
Bhip,** Deo. Dig. (Key No.) §§ 236-289; Cent. Dig. §§ W-W. 

•0 MOTLEY V. WICKOFF, 118 Mich. 231, 71 N. W. 520, Gilmore, 
Cas. Partnership, 837. In this case the creditor also promised the 
retiring partner to release him; but the court held that there was 
no consideration for the promise. 

In KIRWAN Y. EIRWAN, 2 C. & M. 617, the creditor's state- 
ment to the retiring partner that he knew he had no further claim 



254 PABTNBBSHIP LIABILITY (Ch. 4 

the old debt and pays the interest on it, this is prima facie 
evidence only of some agreement between the partners 
themselves, and a creditor who does no more than allow 
the partner to carry out this agreement does not debar him* 
self of his right to look for payment to those originally in- 
debted to him.*^ Moreover, if the continuing partners give 
a new security for the old debt, this will not operate to dis- 
charge the retired partner, unless the creditors intended 
that such should be the case, or unless the new security is 
of such a nature as to merge the original debt.*' But the 
fact that a creditor has ]taken from a continuing partner a 
new security for a debt due from him and the retiring part- 
ner jointly is strong evidence of ^n intention to look only 
to the continuing partner for payment.** 

A creditor may so conduct himself as to be estopped from 
saying that a retired partner is still liable to him. A set- 
tlement by partners of their accounts on the footing that 
one of them only is liable to the creditor will not affect 
him, unless he has been guilty of some fraud, or has done 
some act or made some statement in order to induce the 
pastners, or one of them, to settle their accounts on the faith 
that one of them is no longer liable.** 

on him was held not to release him. See "PartnershiPt* Deo. Dig. 
(Key No.) H 2S6-2S9; Cent, Dig, §§ iSk-k99, 

•iHALL T. JONES, 56 Ala. 4d3, Gilmore, Cas. Partnership, 339; 
United States Nat Bank ▼. Underwood, 2 App. DIt. 342, 37 N. 
Y. Supp. 838; Day t. Wetherby, 29 Wis. 363; Griffee t. Griffee, 173 
Pa. 434, 34 Atl. 441 ; Hopkins v. Carr, 31 Ind. 260 ; Gulick v. GnUck, 
16 N. J. Law, 18a See ''Partnership,'' Deo, Dig, {Key No,) {| 286- 
239; Cent, Dig. {f 484-499, 506. 

»« Walstrom v. Hopkins, 103 Pa. 118; Ludlngton t. Bell, 77 N. Y. 
138, 33 Am. Rep. 601. 

It has been held that a creditor may take the negotiable paper of 
the new firm or continuing partner, without releasing the original 
debtors, if it was taked merely as security for the old debt Smith 
V. Rogers, 17 Johns. (N. Y.) 340 ; First Nat Bank of Athens y. Green, 
40 Ohio St 431 ; In re Head (1893) 3 Gh. 426. See ''Partnership;' 
Deo. Dig. (Key No.) §§ 2Se-2S9; Cent. Dig. If 4S4-499, 506. 

•» Evans v. Drummond, 4 Esp. 89. See "Partnership," Dec Dig. 
{Key No.) H 2S6^S9; Cent. Dig. §§ 4^4-499, 506. 

•«Rege8ter t. Dodge (a G) 6 Fed. 6^ 19 Blatcht 79; Harris v. 



§ 78) GOMMENOEMENT OF LIABILITT IN OONTRAGT 255 

Modified Liability of Retiring Partner 

While a novation is a well-recognized method whereby 
a retiring partner may be released from liability, and the 
continuing partner, either alone or with a stranger who 
joins the firm, may be substituted for him, there is a com- 
mon situation arising upon the retirement of a partner that 
does not amount to a novation.*' Without consulting their 
common creditor, the members of a firm may agree that 
one of them shall retire, and that the other shall continue the 
business and pay all the existing debts. Such an ar- 
rangement is entirely proper and valid as between them- 
selves. By it the continuing partner becomes the principal 
debtor and the retiring partner becomes merely a surety, 
with a right to indemnity from his copartner in case he is 
called upon to pay any of the firm debts.** It is also well 
settled that if two persons become jointly bound to a third 
person, apparently as principals, but one is in fact a surety 
for the other, the third person to whom the obligation runs 
must treat him as a surety, on notice of the fact being given 
him.*^ Since a partner who has obtained an agreement 
from his copartner to assume the firm debts becomes as to 

Farwell, 13 Beav. 403; Featherstone v. Hunt, 1 Bam. & O. 113; 
Davison v. Donaldson, 9 Q. B. Div. 623. 

In Porter v. Baxter, 71 Minn. 105, 73 N. W. 844, a dealer in fur- 
niture contracted to supply certain goods to defendants as partners, 
to be shipped by a specified date. Before the arrival of that time 
one of the partners retired and a new firm continued the business. 
With knowledge of this fact the dealer shipped the goods to the new 
firm. It was held that the retiring partner was no longer liable. 
See ^'Partnership** Deo. Dig. (Key Jfo.) fi tSe-iSQ; Cent. Dig. il 
48Jh499. 

•8 For a full collection of the authorities on the subject, see the 
notes to Dean Co. v. GoUins, 9 L. R. A. (N. S.) 49. See ''Partner- 
9hipr Dec. Dig. {Key No,) §i 2Se-2S9; Cent. Dig. i§ 484-499. 

•• McAREAVY v. MAGRIL, 123 Iowa, 605, ^9 N. W. 193, Gllmore, 
Cas. Partnership, 330; PRESTON t. GARRARD, 120 Ga. 689, 48 
S. E. 118, 102 Am. St Rep. 124, Gilmore, Cas. Partnership, 334; 
Fairfield v. Day, 71 N. H. 63, 51 AU. 2G3. See "Partnership;' Deo. 
Dig. {Key No.) i 2S9; Cent. Dig. H ^87, 4S8. 

91 Overend, Gumey ft Co. v. Oriental Financial Corporation, L. 
R. 7 Ch. 142 ; Lauman v. Nichols, 15 Iowa, 161. See "Partnership,** 
Deo. Dig. (Key No.) i 239; Cent. Dig. §§ 487, 488. 



266 PABTNBR8HIP LIABILITT (Oh. 4 

such partner a surety,** and since one apparently a princi- 
pal debtor can compel the creditor to treat him as a surety, if 
he is in fact such, many courts hold that a retiring partner be- 
comes as to those creditors who have notice of the agree- 
ment a surety merely, and is, therefore, entitled to the 
rights of a surety.** This view has been thus stated in the 
House of Lords : "If, notwithstanding that both the debt- 
ors appeared to be principal debtors, the knowledge after- 
wards that one of them is a surety only disentitles you to 
deal with the other in the way of giving time without dis- 
charging that debtor, then it seems to me it must equally 
be the case (for otherwise there would be a distinction, 
resting on no intelligible or solid basis) that where, al- 
though both are principal debtors at the time, one of them 
afterwards, as between himself and his codebtor, becomes 
a surety, that one is discharged if time be given to the 
other." 1 

On the other hand, it is maintained that there is a dis- 
tinction between the case where an obligor was originally 
a surety, though not known to be such by the obligee, and 
the case where one of two partners seeks by a contract be- 
tween himself and his partner to change his relation to 
the firm creditors from that of a principal debtor to that of 
a surety. In the former case the original and true relation 
of the makers to the debt is unchanged, while in the latter 
"the debtors seek by an agreement between themselves 
alone to change their relations to the debt without the con- 

•• Rodgers v. Maw, 15 M. & W. 444. See "PartnertMp/' Deo. Dig. 
(Key No,) § 2S9; Cent Dig, §§ 487, kSS, 

»• SMITH y. SHELDON, 35 Mich. 42, 24 Am. Rep. 629, OUmore, 
Cas. Partnership, 332; PRESTON v. GARRARD, 120 Ga. 689, 48 S. 
B. 118. 102 Am. St Rep. 124, Gilmore, Cas. Partnership, 884 ; Wiley 
▼. Temple, 85 111. Appl 69; Colgrore y. Tallman, 67 N. Y. 95, 28 Am. 
Rep. 90; Millerd y. Thorn, 56 N. Y. 402; Lazelle t. Miller, 40 Or. 
549, 67 Pac. 307. Bee **Partner8h4p,'' Deo. Dig, {Key No.) t 2S9; 
Cent. Dig. f§ 487, 488. 

1 Lord Herschell, L. O., In Rouse y. Bradford 'Banking Co., L. R. 
(1894) App. Cas. 586, 592. See, also, Oakeley y. Pasheller, 10 Bit 
(N. S.) 548. See ^^Partnership,'' Deo. Dig. (Key No.) i 2S9; Oeni, 
Dig. iS 4^7, 4S8. 



§ 78) O^MlfBNCBMENT OF UABIUTT IN CONTRACT 257 

sent of the creditors." ' This distinction it is declared will 
prevent an agreement between the partners changing the 
liability of one of them from that of a principal debtor to 
that of a surety becatise, "the liability of the partners as 
principal debtors being fixed by the terms of the original 
contract, it is not competent for them by any agreement 
between themselves to change the nature of that liability, 
or impose upon the creditor, without his consent, any new 
or additional obligation or duty, a neglect of which may 
work a discharge of one of such debtors from his obligation 
to pay. The agreement between the partners by which 
one of them assumes to pay the entire debt is regarded res 
inter alios acta as respects the creditor who is neither bene- 
fited nor prejudiced thereby." • 

A third view, which is a modification of the two given, 
seems to prevail in some jurisdictions. According to the 
view in these jurisdictions the creditor will, if he has knowl- 
edge of the agreement, be compelled to exercise reasonable 
diligence and good faith in enforcing his right against the 
partner who has assumed the debts of the firm. "Should 
the creditors fail, after notice, to perform these duties, and 
such failure result in damage to the retired partner, it 
might well be regarded in a court of equity as cause to re- 
lease him, at least to the extent of his damage. In such 
case the terms of the contract have not been changed ; but 
the fact that new relations had arisen between the partners, 
by which one assumes, as between them, the burdens of all, 
might well call upon the creditors to act in such a way as 
not to injure the retiring partner." The court in the case 
from which the above quotation was taken nevertheless de- 

s McAREAVT v. liiAGRIL, 123 Iowa, 005, 90 N. W. 103, GUmore, 
Cas. Partnership, 830. 8ee "Parinerahij^,** Dec Dig. {Key No,) | 
tS9; Cent. Dig. |f iBTt, 488- 

s McAREAVY y. MA6RIL, 123 Iowa, 005, 99 N. W. 193, GUmore, 
Gas. Partnership, 330; HALL v. JONES, 5C Ala. 493, Gilmore, Gas. 
Partnership, 339 ; Dean & Go. v. Gollins, 15 N. D. 535, 108 N. W. 242, 
9 L. R. A. (N. S.) 49, 125 Am. St Rep. 010; Rawson t. Taylor, 30 
Ohio St 889, 27 Am. Rep. 404 ; White v. Boone, 71 Tex. 712, 12 S. 
W. 51; Buchanan v. Glark, 10 Grat (Va.) 104; Barnes v. Boyers, 84 
W. Va. 303, 12 S. B. 708. See '^PartneriMp," Deo. Dig. (Key No.) fi{ 
tS&-2S9; Cent. Dig: if 484-499. 

Oil.Pabt, — ^17 



258 PARTNBB8HIP LIABILITY (Gh. 4 

Clares: ''We cannot, however, go to the extent of holding 
that a contract upon which two persons agree with a third 
to be jointly and primarily liable for a debt can be changed 
by the agreement of the debtors themselves, so as to re- 
quire the creditor to accept one as a principal debtor and 
the other as a surety for its payment." * 



TERMINATION OF PARTNERSHIP LIABILITY IN 

CONTRACT 

79. Termination of partnership liability should be consid- 

ered with respect to 

(a) Past transactions. 

(b) Future transactions. 

SAME— PAST TRANSACTIONS 

80. The liability on all partnership obligations which have 

been properly created during the continuance of 
the relationship can be terminated only in one of 
the methods recognized by law for the termination 
. of joint contracts in general, viz.: 
(a) . Payment. 

(b) Release. 

(c) Merger. 

(d) Novation. 

Payment 

In a partnership debt there is but one debt owed, the 
joint debt of all. Therefore, if any one of the partners pays 
it, the obligation is discharged. If, however, one partner 
pays a firm creditor in such a manner as to show an intent 
that the debt shall be kept alive for his benefit, the other 
partners cannot plead such a payment in an action brought 
by the creditor. Thus, where one partner paid a partner- 
ship creditor and had the debt assigned to a trustee for him, 

* Grotte V. WeU, 62 Neb. 478, 87 N. W. 173. See **Partner$hip,'* 
Dec. Dig. (Key ^o.) { iS9; Cent. Dig. %% 487, 488. 



g 80} TERMINATION OF LIABIIJTT IN CONTRACT 259 

• 

it was held that it was not extinguished.* If the pa)rment 
is made out of partnership money, it must be applied to the 
partnership debt and will extinguish it* 

Same — Appropriation of Payments 

As the question of the appropriation of payments be- 
comes important in the settling of partnership accounts, it 
will be necessary to state briefly the general rules govern- 
ing the subject and their applicability to partnership cases : 

(1) Where one person owes another two or more debts, 
they may agree upon the application of payments to one or 
more of the debts owed. (2) A debtor owing several dis- 
tinct debts to the same person cannot insist upon paying a 
part of any one, but he can pay in full whichever he wishes 
in the order in which he wishes.^ He must, however, ex- 
ercise his right of selection at the time of payment ; but he 
need not expressly indicate the debt which he desires to 
pay. His intention to pay a particular debt may be infer- 
red from the circumstances of the payment.* (3) If the 
debtor does not exercise his right to select the debt to 
which his payment should be applied, the creditor may ap- 
ply it. He has a reasonable time at least in which to exer- 



iMcIntyre ▼. Miller, 13 M. & W. 725. See ^'Partnership,^ Dec, 
Dig. {Key No.) If i^5, 165; Cent. Dig. fi§ 229-255%. SOI. 

• THOMPSON V. BROWN, Moo. & W. 40. See '*Part'ner8hip;' Deo. 
Dig. {Key No.) f US; Cent. Dig. |9 229-238%. 

t Lynn v. Bean, 141 Ala. 236, 87 South. 515 ; Wendt ▼. Ross, 83 
Gal. 650; Boyd v. Watertown Agricultural Ins. Co., 20 Colo. App. 28, 
76 Pac. 986; Pickering v. Day, 2 Del. Ch. 333; Jackson t. Bailey, 
12 111. 159; Thayer v. Denton, 4 Mich. 192; Seymour v. Marvin, 
11 Barb. (N. Y.) 80 ; Patterson v. Van Loon, 186 Pa. 367, 40 Atl. 495 ; 
Hassard v. Tomkins, 108 Wis. 186, 84 N. W. 174. See '^Partnership,'* 
Dec. Dig. {Key No,) | 143; Cent. Dig. | 232; **Poyment*' Dec. Dig. 
{Key No.) §i 36-41; Cent. Dig. ff 99-129. 

• Shaw V. Plcton^ 4 B. & C. 715 ; Waters y. Tompkins, 2 C, M. 
& R. 723;. Peters v. Anderson, 6 Taunt 596; Wittkowsky v. Reld, 
82 N. C. 116 ; Lysaght v. Walker, 5 BIL N. S. 1 ; City Discount Co. 
V. McClean, L. R. 9 C. P. 692. Pearce v. Walker, 103 Ala. 250, 15 
South. 568; Hanson t. Cordano, 96 Cal. 441, 31 Pac. 457; Mitchell 
V. Dall, 2 Har. & 6. (Md.) 159; Roakes v. Bailey, 55 Vt 542L Bee 
''Partnership;' Dec. Dig {Key No.) f 143; Cent. Dig. § 232; •'Pay- 
tnent,*' Deo. Dig. {Key No.) U 36-47; Cent. Dig. ii 99-129. 



260 PARTNERSHIP LIABILITY (Ch. 4 

cise his choice,* and can apply ft to any legal debt owed 
him by the debtor at the time the payment was made ; *• 
and even the debts barred by the statute of limitations in 
preference to those which have not been barred.** 

In certain situations a legal presumption arises that the 
debtor intended that a payment should be appropriated in 
a certain manner, and the creditor can appropriate them in 
no other. Thus in payments on a running account it is pre- 
sumed that payments are to be applied to the oldest items 
of the account.** This rule is very important in determin- 
ing the liability of retired and deceased partners ; for if the 
new firm or the surviving members continue the old ac- 
counts and make payments upon them, without specifying 
the parts of the account to be paid, the payments will be 

• Slmson T. Ingham, 2 B. & C. 66 ; Mills t. Fowkes, 6 Blng. N. O. 
455; Mayor of Alexandria v. Patten, 4 Granch, 317, 320, 2 L. Ed. 
633; Falrchild v. HoUy, 10 Conn. 176; Harker v. Conrad, 12 Serg. 
& R. (Pa.) 301, 14 Am. Dec. 691. See ''Partnership,** Dec. Dig. (Key 
Vo.) I US; Cent. Dig. § 2S2; ''Payment;* Dec. Dig. (Key No.) f§ 
S6-4y; Cent. Dig. §§ 99-J29. 

10 Hammersley v. Knowlys, 2 Esp. 665; Goddard v. Hodges, 1 Gr. 
& M. 33 ; McCurdy v. Middleton, 82 Ala. 131, 2 South. 721 ;. Lyon 
V. Bass, 76 Ark. 534, 89 S. W. 849 ; Byrnes y. Claffey, 69 Cal. 120, 
10 Pac. 821 ; Nichols v. Culver, 51 Conn. 177 ; Lowenstein v. Meyer, 
114 Ga. 709, 40 S. E. 726 ; Wellman t. Miner, 179 111. 826, 53 N. B. 
609; Eeaimes v. Durst, 110 Iowa, 114, 81 N. W. 238; Henry Bill 
Pub. Co. V. Utiey, 155 Mass. 366, 29 N. E. 635. See "PartnertMp,** 
Dec. Dig. (Key No.) f US; Cent. Dig. % 2S2; "Payment,** Deo. Dig. 
(Key No.) || S6-47; Cent. Dig. H 99^129. 

11 Friend v. Young, [1897] 2 Ch. 421; Mills ▼. Fowkea, 6 Blng. 
N. C. 455; Williams v. Griffiths, 5 M. & W. 800; Nash v. Hodgson, 
Kay, 650; Blake ▼. Sawyer, 83 Me. 129, 21 AU. 834, 12 L. R. A. 712, 
28 Am. St Rep. 762. 

It should be noted, however, that sudi payment and appropriation 
does not serve as an admission which will take the debt itself out 
of the statute. This must be shown by other means. See "Partner^ 
ship,** Dec. Dig. (Key No.) | US; Cent. Dig. f 2S2; "Payment,* 
Dec. Dig. (Key No.) H 3M7; Cent. Dig. |§ 99-129. 

12 Lazarus v. Freidheim, 51 Ark. 371, 11 S. W. 518; Molask^y t. 
Peery, 76 Cal. 84, 18 Pac. 120; Falrchild v. Holly, 10 Conn. 175; 
Johnson v. Foster (Iowa) 101 N. W. 741. fiCee "Partnership,** Dec. 
Dig. (Key No.) fi US; Cent. Dig. f 2S2; "Payment,** Dee. Di^ UTey 
No.) %% 5M7; Cent. Dig. §| 99^129. 



§ 80) TERMINATION OF LIABILITY IN OONTRAOT 261 

appropriated to the items owed by the old firm." The re- 
tired or deceased partner will be excused to that extent, 
even though he was, when a member of the firm, a dor- 
mant partner and his existence was unknown.^* Moreover, 
though an incoming partner is not liable for the debts of 
the old firm, if the new firm with his assent" continues the 
old accounts without break, payments by s\ich firm will be 
applied in payment of the debts of the old firm.** 

Release 

It has been pointed out that at common law a release of 
one of several joint debtors operated to release all of them. 
To avoid this effect of a release it became the custom, 
where a creditor wished to release one only of several joint 
obligors, to covenant not to sue him. Moreover, the courts 
mitigated the rigor of the rule by permitting a creditor to 
give to one joint debtor a qualified release, which, if prop- 
erly worded, was held not to discharge the remaining joint- 
debtor." Thus it was said in North v. Wakefield : "The 
deed contained an express clause that the release to God- 
dard should not operate to discharge any one jointly or 
otherwise liable to plaintiff for the same debts. It is plain, 
therefore, that it did not release the defendant. The rea- 
son why a release to one debtor releases all jointly liable 
is because, unless it be held to do so, the codebtor, after 
paying the debt, might sue him who was released for con- 
tribution, and so in effect he would not be released; but 
that reason does not apply where the debtor released agrees 

laDeTaynes v. Noble, 1 Mer. 529; Sleech's Oase, 1 Mer. 640; 
Clayton's Case, 1 Mer. 572. See '^Partnership,** Dec. Dig. (Key ^o.) I 
US; Cent Dig. | 2S2; **PaymenV* Deo. Dig. (Key No.) H S6-47; 
Cent. Dig. |§ 99-129. 

1* Newmarch v. day, 14 East, 239; Brooke ▼. Enderby, 2 Brod. & 
B. 70; Falrchlld v. HoUy, 10 Conn. 176. See *'Partner8Mp,** Deo. 
Dig. {Key No.) || 14s. 2S6-2S9; Cent. Dig. Sf 292, 493^. 

" St Louis Type Foundry Co. v. Wisdom, 72 Tena. 696. See 
^^Partnership," Dec. Dig. (Key No.) §i US, 2S6-2S9; Cent. Dig. {§ 2S2, 

!• Morgan v. Tarbell, 28 Vt 498. See ''Partnership," Dec Dig. 
iKey No,) {( US, 236-2S9; Cent. Dig. f§ 232, 49S%. 

17 Solly V. Forbes, 2 Bro. & B. 8& See "Release," Deo. Dig. {Key 
No.) 1 28; Cent. Dig. U 67-^2. 



262 PARTNERSHIP LIABILITY (Gh. 4 

to such a qualification of the release as will leave him lia* 
ble to any rights of the codebtor." *• Partnership debts be- 
ing joint debts, these rules with respect to covenants not 
to sue and releases apply to such debts. Thus in Northern 
Insurance Co. v. Potter^* it was held that a release of two 
of three partners did not release the third, it being specific- 
ally agreed that the release should not have that eflEect** 

Merger 

Since at common law the promise in a joint obligation 
was merged in a judgment obtained on that promise, the 
same was true of partnership obligations. A different rule 
was once laid down in the United States Supreme Court in 
the case of Sheehy v. Mandeville & Jamesson ; "^ but it 
was later decided, in accordance with the weight of author- 
ity, that a judgment obtained on a partnership note in a 
suit in which only one of the partners was served consti- 
tuted a bar to a subsequent action against the partner not 
served, because the obligation was merged in the judgment 
obtained.** The court said : "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 
defendant in the original action, and this fact was unknown 
to the plaintiff when that action was commenced. When 
the contract is joint, and not joint and several, the entire 
cause of action is merged in tlie judgment. The joint lia- 
bility of the parties not sued with those against whom the 
judgment is recovered being extinguished, their entire lia- 
bility is gone. They cannot be sued separately, for they 
have incurred no several obligation. They cannot be sued 

IS Patterson, J., in North v. Wakefield, 13 Q. B. 630, 64a Bee 
''Release,'* Deo, Dig. (Key No.) { 28; Cent. Dig. ifi 57-62. 

i» NORTHERN INSURANCE CO. V. POTTER, 63 CaL 157, GU- 
more, Cas. Partnership, 286. See ''Release^** Dec. Djig, (Key No.) | 
28; Cent. Dig. i§ 51~€2. 

so By statute it is provided in many jurisdictions that a release 
of one partner shaU not operate as a release of the others. See 
Stim. Am. Statute liaw, f 5330. 

SI 6 Cranch, 254, 3 L. Ed. 216. See "Judgment;* Dee. Dig. (Key 
No.) f 628; Cent. Dig. | IIU. 

St MASON V. ELDRED, 6 WaU, 231, 18 L. Ed. 783, Gilmore Caa 
Partnership, 281. See "Judgment;* Deo. Dig, (Key No.) { 628; CenL 
Dig. § 1144. 



§ 82) TERMINATION OF LIABILITY IN CONTRACT 2G3 

jointly with the others, because judgment has been already 
recovered against the latter, who would otherwise be sub- 
jected to two suits for the same cause." *■ 

Novation 

As pointed out in considering the liability of an incoming 
partner,** it is always possible under the law governing no- 
vation for one debtor to be substituted for another. By 
means of a novation, therefore, the existing debt of the 
members of a firm may be transferred to strangers. Such 
novation must be effected in conformity with the rules ap- 
plicable to novations generally, 

SAME— FUTURE TRANSACTIONS 

81. So long as the partnership relation continues the mu- 

tual agency of the partners to bind one another ex- 
ists. In order to terminate liability for future 
transactions the relation must be dissolved. The 
dissolution may be 

(a) By operation of law. 

(b) By act of the parties. 

SAME— DISSOLUTION BY OPERATION OF LAW 

82. Where the dissolution is by operation of law, this of 

itself terminates all liability of a partner for future 
transactions, and all persons are bound to take no- 
tice of the change. 

Dissolution by Operation of Law 

A partnership may be dissolved by operation of law. 
Ordinarily the event which is designated by law as ter- 

ss The Joint debtor acts which have been passed by many of the 
states apply to partnership debts, and prevent a Judgment against less 
than all of the partners from having the effect of extinguishing the 
obligation existing against the others. Hall v. Lanning, 91 U. S. 
IGO, 23 L. Ed. 271 ; MASON v. ELDRED, 6 WaU. 231, 18 L. Ed. 783, 
Gllmore, Cas. Partnership, 281. See, also, chapter IX, post, pp. 543- 
545. See ^'Judgment,** Dec. Dig, {Key No.) § 628; Cent. Dig. i 1J44: 
^^Partnership;' Dec. Dig. {Key No.) §§ 165-J7S; Cent. Dig. §§ S0J-S05. 

24 See ante, p. 244. 



264 PARTNERSHIP TJABILITT (Gh. 4 

minating a partnership is of sufficient notoriety to put one 
on his g^ard ; but, whether so or not, it terminates the lia- 
bility of each partner, and also of his estate, for the future 
acts of his partners, without any notice being given. . Hav- 
ing no voice in the termination of the partnership, he is not 
held to the same standard of conduct as where he volunta- 
rily terminates the relationship. Thus, if a partnership is 
terminated by war between the countries of the respective 
partners, no notice of the dissolution need be given.** The 
same is true in the case of the death of one partner.'* The 
rule of agency which prevails in the case of the death of 
a principal prevails in this situation, and by such dissolu- 
tion of a partnership the agency of each partner is thereby 
terminated. This is subject to the qualification that the 
agency of a partner does continue for the purposes of wind- 
ing up the firm business and the surviving partners have all 
power necessary for that purpose.*^ So, also, where one 
partner becomes bankrupt,** or is adjudged insane.** 

•i LYON V. JOHNSON, 28 Conn. 1, Gllmore, Caa. Partnership, 841. 
Planters* Bank v. St John, Fed. Gas. No. 11,208; GRISWOLD v. 
WADDINGTON, 16 Johns. (N. Y.) 57, Gllmore, Cas. Partnership, 
600; Id., 16 Johns. (N. Y.) 438; Dickinson v. Dickinson, 25 Grat 
(Va.) 321, 329; FOX v. HANBURY, Cowp. 445; Thomason v. 
Frere, 10 East, 418 ; Morgan y. Marquis, 9 Exch. 145. See "^Partner- 
ship,*' Dec, Dig. {Key No.) § 290; Cent Dig. | 651. 

20 LYON V. JOHNSON, 28 Conn. 1, Gllmore, Gas. Partnership, 
341; Williams v. Rogers, 14 Bush (Ky.) 776; Price v. Succession 
of Mathews, 14 La. Ann. 11 ; Washburn v. Goodman, 17 Pick. (Mass.) 
519; MARLETT v. JACEMAN, 8 Allen (Mass.) 287; GaldweU v. 
StUeman, 1 Rawle (Pa.) 212; Devaynes ▼. Noble, 1 Mer. 616; Vul- 
Uamy v. Noble, 3 Mer. 592, 614. See ^^PartnerBhip,^ Dec Dig. {fey 
No.) fi 290; Cent Dig. § 651. 

ST Weiss T. Hamilton, 40 Mont 99, 105 Pac. 74. 

In Usher t. Dansey, 4 Camp. 97, It was held that the agency of an 
agent of a partnership, such agent not being himself a partner, was 
not terminated by the death of a partner; Lord Ellenborough de- 
claring that that authority of the agent must be considered to 

«9 EUSTIS V. BOLLES, 146 Mass, 413, 16 N. B. 286, 4 Am. St 
Rep. 327, Gllmore, Cas. Partnership, 603 ; Watterson v. Patrick (Pa.) 
1 Ati. 602. See '^Parinershipr Dec. Dig. {Keg No.) t 271; Cent. 
Dig. i 616. 

*9 laier v. Baker, 6 Humph. (Tenn.) 85. Bee **PartnerMMpt** Dee. 
Dig. {Key No.) t 274; Cent Dig. { 621. 



§ 83) TBKMINATION OF LIABILITT IN OONTRACT 266 



SAME— DISSOLUTION BY ACT OF THE PARTIES 

83. Where the dissolution is by the act of the parties, lia- 
bility for future transactions will cease only upon 
the giving of due notice of such change. The no- 
tice must be given: 

(a) To the public generally. This may be done by pub- 

lishing in a newspaper or by any other equally ef- 
fective method. i 

(b) To those who have extended credit to the firm. This 

notice must be actual. 
EXCEPTION: A dormant partner is not required to 
give notice of his retirement from a firm in order 
to prevent his further liability for future transact 
tions. 

A partnership may be dissolved either by operation of 
law or by the act of the parties. If it is dissolved by the 
act of the parties, they must, in order to escape liability for 
the future acts of their former partners, give notice of the 
dissolution of the partnership. The reason for this rule is 
the same as in other cases of revocation of agency, and is 
variously stated as resting on estoppel, or on negligence 
inducing credit, or on the presumption of a continuance of 
an existing state of affairs, or on the theory of a holding 
out as partners. "When one of two parties is to sustain 
injury from the giving of credit, the one who originally in- 
duced it should bear the loss, rather than the one who, 
without notice of the change, relied upon the continued ex- 
istence of the partnership." •• This reason does not apply, 

emanate from the partnership, and not from the partners as in- 
dividuals. This case has been sometimes regarded as authority for 
the view that the agency of such an agent is unaffected by the death 
of a partner. It seems probable, however, that it would only be held 
to exist in the same modified sense as does that of the surviving 
partners. See Bank of New Tork v. Vanderhorst 32 N. X. 558. See 
'^Partnership^ Deo. Dig. {Key No.) H 2J,3-258, 275; Cent. Dig. 
i§ -609^98, 621. 

so AUSTIN V. HOLLAND, 68 N. Y. 571, 677, 26 Am. Rep. 246, 
Oilmore, Cas. Partnership, 843. See **Partner8hip," Dec. Dig. (JTey 
No.) §1 288-292; Cent. Dig. §f 651-661. 



266 PARTNERSHIP LIABILITY (Ch. 4 

however, where the dissolution is by death or bankruptcy, 
or any other cause which terminates the partnership by op- 
eration of law. But if a firm is dissolved by mutual con- 
sent, and one member retires, while the rest conduct the 
same business under the same name, the retiring member 
will be held liable on the contracts of the new firm to those 
who relied on the credit of the old firm, unless he gives 
proper notice of the dissolution of the partnership.** No- 
tice is necessary, also, where the partnership expires by the 
limitation created in the original articles,'" unless the plain- 
tiff knew the term the partnership was to continue.** 

Even if a retiring partner does give notice of dissolution, 
be may, of course, be held by estoppel for the subsequent 

•1 Graham t. Hope, Peake, 154; Moline Wagon Ck). t. Rmnmell 
<0. C.) 12 Fed. 658; Stewart ▼. Sonnebom, 51 Ala. 126, WUllams 
▼. Bowers, 15 GaL 321, 76 Am. Dec. 489 ; Johnson ▼. Totten, 8 Cal. 
843, 58 Am. Dec. 412; Holland ▼. Long, 57 6a. 36; Carmichael v. 
Greer, 55 Ga. 116; Ennls ▼. Williams, 30 Ga. 691; Holtgreve v. 
Wintker, 85 111. 470; Page ▼. Brant, 18 111. 37; Stall ▼. Gassady, 57 , 

Ind. 284; Denman v. Dosson, 19 La. Ann. 9; Lowe v. Penny, 7 La. 
Ann. 356; Pope ▼. Risley, 23 Mo. 185; Scheiffelln v. Stevens, 60 
N. C. 106, 84 Am. Dec 3£|5; Deerlng v. Flanders, 49 N. H. 225; Zol- 
lar V. Janvrln, 47 N. H. 324 ; AUSTIN v. HOLLAND, 69 N. Y. 571, 
25 Am. Rep. 246, Gilmore, Cas. Partnership, 343; Vernon ▼. Man- 
hattan Go., 17 Wend. (N. Y.) 524; Shamburg t. Ruggles, 83 Pa. 148; 
Kenney ▼. Altvater, 77 Pa. 34 ; Little y. Glarke, 36 Pa. 114 ; White 
▼. Murphy, 3 Rich. Law (S. G.) 369; Hutchins ▼. Hudson, 8 Humph. 
<Tenn.) 426; Kirkman v. Snodgrass, 3 Head (Tenn.) 370; Davis v. 
WlUis, 47 Tex. 154; Tudor v. White, 27 Tex. 584; Prentiss v. Sin- 
clair, 5 Vt 149, 26 Am. Dec. 288; Dickinson ▼. Dickinson, 25 Grat 
(Va.) 321; Benjamin v. Govert, 47 Wis. 375, 2 N. W. 625. See 
** Partnerships Deo. Dig. {Key No,) H 288-292; Cent. Dig. M 651- 
661. 

•s Holt ▼. Simmons, 16 Mo. App. 97 ; Ketcham t. Glark, 6 Johns. I 

<N. Y.) 144, 5 Am. Dec. 197. See ''Partnership,** Deo. Dig. (Key 
No,) SS 288-292; Cent. Dig. SS 651-661. 

«« Schlater v. Winpenny, 75 Pa. 321. 

Where members of an existing partnership dissolved it and formed 
a corporation, without changing the original firm name in such a 
way as to indicate the incorporation, it was held that notice of dis- 
solution should have been given. Martin v. Fewell, 79 Mo. 401; 
Goddard v. Pratt, 16 Pick. (Mass.) 412; WUley t. Thompson, 9 Meta 
(Mass.) 829, 831. See ^^Partnership,'' Deo. Dig. (JTey No.) H 288- 
S92; Cent. Dig. U 651-^61. 



§ 88) TERMINATION OF LIABILITY IN GONTRACT 267 

acts of the other partners, if he knowingly permits his name 
to be used in the partnership business.** But merely al- 
lowing the business to continue in the old firm name does 
not of itself make him liable.** 

Notwithstanding a dissolution, each partner has the im- 
plied power to do all acts necessary to settle demands 
against the firm and to complete transactions incompleted 
at the time of dissolution.'* 

Notice to the Public 

In the giving of notice there are two classes of persons 
to consider : The public generally, and those who have pre- 
viously relied on the credit of the firm. It cannot be ex- 
pected that actual notice shall be given to all members of 
the public on the dissolution of a firm. It is sufficient if 
reasonable means are used to make them aware of the 
change in the firm. It has been held in England that a 
publication in the London Gazette was sufficient notice as 
against those who had no prior dealings with the firm,, 
whether they actually saw such publication or not.*^ A 
similar rule has been applied in this country.** In some 

•« See section 21, chapter I, p. 61, on Estoppel. 

••Webster ▼. Webster, 8 Swanst 490, note; Newsome ▼. C!ole8, 
2 Camp. 617; Ex parte Central Bank of London, [1892] 2 Q. B. 
G33. See ^^Partnership,'' Deo. Dig. {Key No.) H ^^, ^S; Cent. Dig, 
SS 476, 665. 

••Yale T. Eames, 1 Mete. (Mass.) 486; Tutt t. Cloney, 62 Mo. 
116; Thursby t. Lddgerwood, 69 N. Y. 198; Murray t. Mamford, 
6 Cow. (N. Y.) 441; Molst's Appeal, 74 Pa. 166. See, further, chap- 
ter y. Powers of Partners, Powers of Partners after Dissolution, ffi 
114-122, post, p. 839. See ^Partnership,*' Dec Dig. {Key No.) IS 
277-287; Cent. Dig. U 622^50. 

•T Godfrey t. Tumbull, 1 Esp. N. P. C 871; Newsome t. Coles, 
2 Camp. 617. 

"An advertisement in the London Gazette as to a firm whose prin- 
cipal place of business is in England or Wales, in the Edinburgh 
Gazette as to a firm whose principal place of business is in Scot- 
land, and in the Dublin Gazette as to a firm whose principal place 
of business is in Ireland, shaU be notice as to persons who had not 
dealings with the firm before the date of the dissolution or change so 
advertised.'* Partnership Act (1890) | 86(2). See ^^Partnership," 
Dec. Dig. {Key No.) U 289-292; Cent. Dig. U 651-661 

•• Shurlds ▼. Tilson, 2 McLean, 458, Fed. Cas. No. 12,827; Mauldin 
V. Branch Bank at Mobile, 2 Ala. G02; Lucas t. Bank of Darien» 



268 PABTNBRSHIP LIABILITY (Gh. 4 

cases, it has been held that a change in the name of a firm 
was sufficient notice of dissolution, even to prior dealers ; ■• 
in others, notoriety of the change in the firm has been held 
equivalent to published notice.*' 

Actual Notice — Who are Entitled to 

Those who have previously dealt with the partnership, 
relying on its credit, must be g^ven actual notice of a disso- 
lution. Such persons are usually designated "former deal- 
ers" or "former customers." The terms are vague and in- 
definite. No exhaustive definition of their meaning can be 
gfiven. It must be arrived at by a process of judicial in- 
clusion and exclusion. The essential requisite, in order to 
constitute one a former customer entitled to actual notice, 
is dealing with the partnership on credit. The credit must 

« 
2 dtew. (Ala.) 280; Martin ▼. Searles, 28 Conn. 43; Polk ▼. Oliver, 
56 MteB. 566 : Graves v. Merry, 6 Cow. (N. Y.) 701, 16 Am. Dec. 471 ; 
Lansing v. Gaine, 2 Johns. (N. T.) 300, 3 Am. Dec. 422; Watkinson 
V. Bank of Pennsylvania, 4 Whart (Pa.) 482, 34 Am. Dec. 621; 
Planters' ft Mechanics' Bank v. Galliott, 1 McMoL (S. C.) 209, 36 
Am. Dec. 256; Martin t. Walton, 1 McCord (S. C.) 16; Slmonds v. 
Strong, 24 Vt 642. 

"It is not an absolute, inflexible rule that there most be a pnb- 
lication in a newspaper to protect a retiring partner. That is one 
of the circumstances contributing \o or forming the general notice 
required. It is an important one ; but it is not the only or an indis- 
pensable 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 Edmonds, are public and notorious 
to put the public on its guard, or, in the words of Judge Nelson, 
notice in any other public or notorious manner, or, in the language 
of Mr. Verplank, notice by advertisement or otherwise, or by with- 
drawing the exterior indications of partnership and giving public 
notice in the manner usual in the community where he resides, are 
means and circumstances proper to be considered on the question 
of notice." Lovejoy v. Spafford, 03 U. S. 430, 440, 23 L. Ed. 851, 
by Hunt, J. Bee ^'Partnership;* Dec. Dig. {Key No.) K 289-^2; 
Cent. Dig. IS 651^61. 

«• Barfoot v. Goodall, 3 Camp. 147. See ^'Partnership,*' Deo, Dig. 
(Key No.) | 291; Cent. Dig, H 657-^60. 

«• Hart V. Alexander, 2 M. & W. 484 ; Lovejoy v. Spafford, 83 U. 
S. 430, 23 L. Ed. 851 ; SOLOMON v. KIRKWOOD, 55 Mich. 256, 21 
N. W. 336, Gilmore, Cas. Partnership, 589. But see Martin v. 
Searles, 28 Conn. 43: Goddnrd v. Pratt, 16 Pick. (Mass.) 412. See 
"Partnership;* Dec. Dig. {Key No.) S 291; Cent. Dig. If 667-^60. 



§ 83) TERMINATION OF LIABIUTT IN CONTRAOT 269 

have been given directly to the firm/* Those who have 
given credit to the firm without its knowledge or consent, 
as by discounting its commercial paper, are not entitled to 
notice of the dissolution.** Former dealers are presumed 
to know the composition of the partnership, and- to rely on 
the individual credit of each ostensible. member. They are, 
hence, entitled to act on this knowledge till informed to the 
contrary- No practical difficulty can exist in their case, 
since their names are on the partnership books and actual 
notice can be imparted to them. Those who have previ- 
ously dealt with the firm, but always for cash or without 
becoming firm creditors, are not entitled to greater notice 
then the public generally.*' But those who have loaned 
money to the firm,** or have sold goods to it on credit, even 
though the amount is small, and the credit was implied, are 
entitled to actual notice of dissolution ; *• also those who 
have discounted paper for the partnership,** or have de- 



41 Oreen v. Waco State Bank, 78 Tex. 2, 14 S. W. 253. See **ParU 
nership,"* Deo, Dig. {Key No.) | 289; Cent Dig, SS 652, 65S. 

4s City Bank of Brooklyn v. McChesney, 20 N. Y. 241 ; Hutchins 
V. Bank of State, 8 Humph. (Tenn.) 418. But see Vernon ▼. Man- 
hattan CJo., 17 Wend. (N. T.) 524; Id.. 22 Wend. (N. Y.) 183; Me- 
chanics' Bank ▼. LiTlngston, 83 Barb. (N. Y.) 458. See **Partner' 
ship," Dec, Dig. {Key No.) | 289; Cent. Dig. U 652, 65S, 

4« ASKEW T. SILMAN, 95 Ga. 078, 22 S. E. 573 ; Merrltt T. Wil- 
liams, 17 Kan. 287. 

Obviously those persons who have no knowledge whatever of the 
existence of a partnership, and who have never had any dealings 
under the belief that there was a firm, are not entitled to notice of 
any kind. Austin v. Appling, 88 6a. 54, 13 S. E. 955; Chamber- 
lain V. Dow, 10 Mich. 319; Swlgert v. Aspden, 52 Minn. 565, 54 N. 
W. 738; Bloch v. Price, 24 Mo. App. 14; Blanks v. Halfln (Tex. Civ. 
App.) 30 S. W. 941. See *' Partnership," Dec Dig, {Key No.) | 289; 
Cent. Dig, H 652, 659. 

44 Jansen v. Grlmshaw, 26 111. App. 287 ; Howell v. Adams, 68 
N. Y. 314; Buffalo City Bank v. Howard, 85 N. Y. 500; Williams 
V. Birch, 6 Bosw. (N. Y.) 299. See '"Partnership," Deo, Dig, {Key 
No.) % 289; Cent. Dig, U 652, 65S, 

4 6Clapp V. Rogers, 12 N. Y. 283. See ** Partnership," Dec. Dig, 
(Key No.) § 289; Cent, Dig. H 652, 65S, 

4tf ROSE V. GOFFIELD, 53 Md. 18, 36 Am. Rep. 389, Gilmore, 
Gas. Partnership, 346; Bank of Gommonwealth v. Mudgett, 44 N. 
Y. 514 ; National Shoe ft Leather Bank of Glty of New York v. Herz, 



270 PARTNERSHIP LIABILITT (Ch. 4 

posited money with it/^ or have indorsed accommodation 
paper for it/* or have made advancements to it as factors 
or consignees/* even though there were but one or two 
transactions, are entitled to actual notice.** 

Soffte — What is SuMcient Notice 

No particular form of notice is necessary. It is sufficient 
to show that actual notice was brought home to the one 
seeking to enforce a partnership liability. Thus it has 
been held that a change in the name of the firm was suf- 
ficient.** Anything which should put an ordinarily prudent 
man on his guard is sufficient, as an informal unsigned no- 
tice of dissolution,'* or a notorious and violent dissolution 
of a firm in Mobile, Ala., followed by a change in location 
to Milwaukee, Wis., where the business was continued in 
the name of the former firm.** As to whether or not actual 
notice has been given, it has been held that the jury might 
infer that it had been given from evidence that plaintiff's 
credit man was accustomed to read the daily slips of a com- 
mercial agency which contained notice of such dissolu- 
tion.** Also the fact that plaintiff took a certain paper in 



88 N. T. 629; National Bank t. Norton, 1 HIU (N. T.) 572. Bee 
''Partnership;* Dec, Dig. {Key No.) | 289; Cent. Dig. SS 652, 65S. 

«r Howell ▼. Adams, 68 N. Y. 314. See ^^Partnership;' Dec Dig. 
{Key No.) | 289; Cent. Dig. {{ 652, 65S. 

*• Hutchlns ▼. Sims, 8 Humph. (Tenn.) 423. See ^'Partnership,*^ 
Dec. Dig. (Key No.) | 289; Cent. Dig. H 652, 65S. 

4»wmiams T. Birch. 6 Bosw. (N. T.) 299. See **Partnership;* 
Dec Dig. (Key No.) | 289; Cent. Dig. H 652, 655. 

«o LYON T. JOHNSON, 28 Conn. 1, Gllmore, Gas. Partnership, 341 ; 
Wardwell t. Haight, 2 Barb. (N. Y.) 649. See ''Partnership,** Deo. 
Dig. (Key No.) { 289; Cent. Dig. St 652, 65S. 

■iHolt T. AUenbrand, 52 Hun, 217, 4 N. Y. Supp. 922; Kehoe t. 
Garvllle, 84 Iowa, 415, 51 N. W. 166. But see Roof ▼. Morrlsaon, 37 
111. App. 37; American Linen Thread Go. t. Wortendyke, 24 N. Y. 
550. See "Partnership,** Deo. Dig. (Key No.) | 291; Cent. Dig. H 
657-660. 

"Young T. Tlbbltts, 32 Wis. 79. See ^'Partnership/' Dec Dig. 
(Key No.) S 291; Cent. Dig. H 657-660. 

BsGlapp T. Upson, 12 Wis. 492. See '^Partnership,^ Dec Dig. 
(Key No.) i 291; Cent. Dig. {{ 657-^60. 

54 Gage V. Rogers, 51 Mo. App. 42a See "Partnership,** Dec Dig. 
{Key No.) { 291; Cent. Dig. n 657-660, 662. 



§ 83) TERMINATION OF LIABILITY IN CONTRACT 271 

which notice of dissolution was published has been held 
evidence to prove that he knew of such dissolution.'* 

It must be shown, however,, that notice was actually re- 
xreived, and it has been held that though, on the mailing of a 
notice properly addressed, a presumption that it was re- 
ceived arises, such presumption may be rebutted by proof 
that it was not in fact received.** 



«B Jenkins t. Blizard, 1 Starkle, 418; Rabe y. Wells, 8 Gal. 148; 
Whltesldea ▼. Lee, 2 111. 650. See ''Partnership,** Deo. Dig. {Key 
No.) f 291; Cent. Dig. %% BSl-SSO, 662. 

B« Hunt V. Ck>lorado MUling & Elevator Ck>., 1 Colo. App. 120, 27 
Pac. 873; Meyer ▼. Krohn, 114 lU. 674, 2 N. B. 495; AUSTIN ▼. 
HOLLAND, 69 N. Y. 671, 25 Am. Rep. 24Q» GUmore, Cas. Partner- 
ship, 343. 

"It is often difficult to determine what amounts to due and suffi- 
cient notice of the retirement of a partner, but the evidence to 
prove it should be such as would reasonably warrant the jury in 
finding the fact of notice, that the party to be charged with it ac- 
tually had it, or might, by reasonable diligence, have learned of the 
dissolution of the partnership and the retirement of the partner 
sought to be charged, from the means and opportunity supplied or 
afforded for the putpose of giving 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 inference of 
actual or constructive knowledge of the dissolution. As said above, 
ordinarily, notice fairly given in a newspaper, generally circulated 
abroad, and particularly among the business people of the town or 
city where the partnership carried on its business, would be suffi- 
cient as to all persons who had not had previous dealings with the 
partnership. It is better and safer to give notice in that way, al- 
though it might be given in other ways. This would afford busi- 
ness men reasonable opportunity to learn of the dissolution, and, 
in the course of business, the matter would be generally known, 
and more or less spoken of, to business men from every direction. 
But such publication must be fair and reasonable, as to Its terms 
and the number of times it shall be made. If the facts are found 
or ascertained, the reasonableness and sufficiency of the notice may 
be a question of law for the court The court must determine that 
there is, or is not, evidence sufficient to go to the jury to prove no- 
tice." Merrimon, O. J., in Ellison v. Sexton, 106 N. 0. 366, 861, 11 
S. E. 180, 181, 18 Am. St Rep. 907. See ""Partnership;* Deo. Dig. 
{Key No.) ( 291; Cent. Dig. H 657-660, 662. 



272 PABTIISBSHIP LIABUJTT (Cll. 4 

Dormant Partner 

One who deals with a firm relies only on the credit of 
those who are the apparent members of it. A dcMtnant 
partner not being an apparent member of the firm, it can- 
not be said that reliance is placed upon his credit. Hence, 
though he can be held, if discovered, on liabilities incurred 
by the firm while he was member of it," he is not bound 
upon retiring to give notice of dissolution to escape liabil- 
ity for future obligations/* When a dormant partner be- 
comes known to certain persons, he ceases to be dormant 
as to them, and must give them notice of his retirement 
from the firm/* If many learn that he is a partner, he is 
no longer a dormant partner, but an ostensible partner, and 
is bound to give such notice as is required of such part- 
ners.** 

•7 See Dormant PartDers, chapter II, | 89, p. lU. 

••CARTER T. WHALLET, 1 B. ft Ad. 11; Bigelow t. EUlot, 
Fed. Cas. No. 1,399; Nussbaumer y. Becker, 87 111. 281, 29 Am. 
Rep. 58 ; Ellis' Adm*rB ▼. Bronson, 40 111. 455 ; Scott v. ColmesiiU, 
80 Ky. 416; Magill t. Merrle. 44 Ky. 168; Edwards ▼. McFall, 5 
La. Ann. 167; GROSVENOR ▼. LLOTD, 1 Mete (Mass.) 19, GU- 
more, Cas. Partnership, 348; Deford t. Reynolds, 86 Pa. 325; Vac- 
caro ▼. Toof, 66 Tenn. 194. See '^Partnership,*' Deo. Dig. {Key Ho.) 
S 289; Cent. Dig. % 651 

•• Farrar ▼. Deflinne, 1 Car. ft K. 580 ; Park v. Wooten's Ex'rs, 
. 85 Ala. 242; Warren y. Ball, 37 111. 76; Nussbaumer y. Becker, 87 
111. 281, 29 Am. Rep. 53; Cregler y. Durham, 9 Ind. 375; Lleb y. 
Craddock, 87 Ky. 525. 9 S. W. 838; Dayis y. Allen, 8 N. Y. 108; 
Milmo Nat Bank y. Bergstrom, 1 Tex. Oiy. App. 151, 20 S. W. 836. 
Bee "Partnership,'* Dec. Dig. {Key No,) % 289; Cent. Dig, S 654. 

•9 ELMIRA IRON ft STEEL ROLLING-MILL CO. y. HARRIS* 
124 N. Y, 280, 26 N. B. 541, Ollmore, Cas. Partnership, 849. See 
Partnership,** Dee. Dig. (Key No.) 1289; Cent. Dig. S 654. 



POWERS OF PA&TNEKfi 278 



CHAPTER V 

POWBRS OF PABTNBB8 

84. Origin and Nature of the Partner's Power to Bind tba Firm. 

85. Powers of Partners Inter Se. 

Sd, Powers of Partners as to Third PersonSi 

87. Express Power. 

88. Implied Power. 
88. Ratification. 

90. Estoppel. 

91. Test of Authority — Nature of Question. 

92. Limitations Arising from Scope of Business. 

93. Limitations Arising from Nature of Business. 

M-95. Particular Powers Considered — ^Power to Bell Firm Propertjr. 

96. Power to Pledge or Mortgage Firm Property. 

97. Assignment for Benefit of Creditors. 
9& Power to Buy. 

99. To Borrow Money. 

100. Issue Bills and Notes. 

lOL Execute Sealed Instruments. 

102. Pay and Collect Debts. 

108. Institute and Conduct Legal Proceedings. 

104. Receive Notice. 

105. Make Admissions and Representations. 

106. Miscellaneous Powers. 

107. Power to Subject Firm to Tort Liability. 

108. Illegal Acts — Penalties and Crimes. 

109. False Arrest and Malicious Prosecution. 

110. Defamation. 

111. Fraud and Misrepresentation. 

112. Conversion and Misapplication of Property. 

113. Wrongful Use of Trust Funds. 

114. Powers of Partners after Dissolution. 

115. Particular Powers Considered — ^Power to Dispose of 

Firm Assets. 
11& Power to Collect Debts. 

117. Pay and Settle Firm Debts. 

118. Perform Existing Contracts. 

119. Incur New Obligations. 

120. Make Admissions. 

121. Take Firm Debts out of the Statute of Limitations. 

122. Powers of Surviving Partner. 

QIL.PABT. — 18 



274 POWERS OF PARTNtiSRS (Ch. 5 

ORIGIN AND NATURE OF THE PARTNER'S POW- 
ER TO BIND THE FIRM 

S4. The power of a partner tp bind his firm in transactions 
with third persons is to be determined by the gen* 
eral principles of the law of agency. Each partner 
is the general agent of the partnership, with power 
to conduct its business in the usual way. 

Origin and Nature of the Partner's Power — In General 

Whatever power a partner has, as to third persons, arises 
from the custom of merchants, which has attached to the 
partnership relation a doctrine of mutual agency. "This 
power is conferred by entering into the partnership, and is 
perhaps never to be found in the articles." * As the com- 
mon law does not in terms recognize the firm as an entity, 
the partners are agents, not of the firm, but of one another. 
Each partner is both a principal and an agent He is re- 
garded as an agent of his copartners when he is acting, and 
as the principal of his copartners when they are acting. 
When he acts, he binds himself directly; he binds his as- 
sociates by virtue of being their agent.* While the forego- 
ing is the usual way of describing the agency involved in 
partnership, it is also described in another manner, on the 
assumption that the firm as an entity is the principal and 
each partner is an agent for this entity.* In their results, 
the decisions in reality recognize the firm as the principal. 

1 MarshaU, C. J., In WINSHIP v. BANK OF UNITED STATES, 
5 Pet. 529, S L. Ed. 216, GUmore, Cas. Partnership, 356; Alley y. 
Bowen-MerrUl Co. (1905) 76 Ark. 4, 88 S. W. 838, 113 Am. St Rep. 
73; Standard Wagon Co. of Georgia v. D. P. Few k Co., 119 Ga. 
293, 46 S. B. 109. See ''Partnership^' Dec. Dig. {Key tfo.) S§ 125, 
126; Cent. Dig. %% 190, 191. 

2Welirman v. McFarlan, 9 Ohio Dec 400; BROOKE t. WASH- 
INGTON, 8 Grat (Va.) 248, 56 Am. Dec. 142, Gllmore, Cas. Part- 
nership, 318; BURGAN t. LYELL, 2 Mich. 102, 55 Am. Dec. 53, 
Oilmore, Cas. Partnership, 358; Edwards ▼. Tracy, 62 Pa. 374; 
Blodgett V. Weed, 119 Mass. 215; Fletcher ▼. Ingram, 46 Wis. 191, 
50 N. W. 424. See "Partnership,'' Deo. Dig. (JKey No.) K 125, 126; 
<Jent. Dig. \% 190, 191. 

t "Everybody knows that partnership Is a sort of agency, but a 



§ 86) FOWEBS INTER SB jS75 



POWERS OF PARTNERS INTER SE 

85. The powers of partners inter se are governed by the 
agreement between them. 

It is very common for the partners to stipulate among 
themselves for the sole management of the business or spe- 
cific departments by one or more of the partners, or to limit 
the power of some of them to contract debts.* When, 
therefore, the rights of third persons are not involved, the 
scope of a partner's power is to be ascertained by the terms 
of the partnership agreement. In the absence of express 
mutual agreements defining the powers to be exercised by 
the partners, all have equal rights to the management of 
the firm business, and possess the ordinary powers inci- 
dental to such cases." 



▼ery peculiar one. You cannot grasp the notion of agency, prop- 
erly speaking, unless yon grasp the notion 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 Roman lawyers, and 
which was partly understood in the courts of equity before it was 
part of the whole law of the land, as it is now. But when you get 
that idea clearly, you will see at once what sort of agency it is. It 
is the one person acting on behalf of the firm. He does not act as 
agent, in the ordinary sense of the word, for the others, so as to 
bind the others. He acts on behalf of the firm of which they are 
members; and as he binds the firm, and acts on the part of the 
firm, he is properly treated .as the agent of the firm. If you can- 
not grasp the notion of a separate entity for the firm, then you are 
reduced to this: That Inasmuch as he acts partly for himself and 
partly for the others, to the extent that he acts for the others he 
must be an agent, and in that way you get him to be an agent for 
the other partners, but only in that way, because you insist upon 
ignoring the existence of the firm as a separate entity." Per Jes- 
sel, M. R., in POOLEY T. DRIVER, 5 Ch. D. 458, GUmore, Cas. Part- 
nership, 360, note. Bee ^^Partnership;* Dec, Dig. (Key No.) SS ^^i 
125, 126; Cent. Dig. SS 9S, 190, 191. 

^Leavitt T. Peck, 8 Conn. 125, 8 Am. Dec. 157; Stone ▼. Wen- 
dover, 2 Mo. App. 247. Bee ^^Partnership,*' Dec. Dig. (Key No.) SS 
70-91; Cent. Dig. SS IH-^SS. 

s lioyd V. Loaring, 6 Ves. 773, 777 ; Marshall ▼. Oolman, 2 Jac. 
ft W. 266; Goodman v. Whitcomb, 1 Jac & W. 689. See post. 



276 POWBR8 OF PARTNERS (Ch. 5 



POWERS OP PARTNERS AS TO THIRD PERSONS 

86. The powers of partners as to third persons consist (1) 
of the express authority derived from the partner- 
ship agreement; and (2) of the implied authority 
derived from the nature of the business, though 
not included in the partnership agreement. 



SAME— EXPRESS POWER 

87. By express agreement authority may be conferred upon 

one partner to bind the firm by any act which 
would be binding if done by all the pcurtners 

By express agreement any power may be conferred upon 
a partner that could be lawfully exercised by all the part- 
ners, and the firm will be liable for any act of the partner 
done within such express authority, although the act seems 
to the third person to be beyond the apparent authority of 
the partner. At the same time the powers of a partner may 
be limited to any extent, but such limitations do not affect 
third persons who have no reason to know but what the 
restricted partner has all the usual powers of a partner 
agent.* 

SAME— IMPLIED POWER 

88. Unless his power is limited by the partnership agree- 

ment and this restriction is known to third per- 
sons, a partner has implied power to bind the firm 
by any act necessary and usual for canying on its 
business in the ordinary manner. 

chapter VI, p. 362, Rights and Duties of Partners Inter Se. Bee 
''Partnership:' Dec. Dig. (Key No.) §§ 70-91; Cent. Dig. || 1H-1S8. 
• Rice V. Jackson, 171 Pa. 89, 32 Atl. 1036; Stark y. Corey, 45 
tU. 431; Stimson v. Whitney, 130 Mass. 591; Tradesmen's Bank v. 
Astor, 11 Wend. (N. T.) 87. See post, § 90. p. 279, "Estoppel" ; Sladen, 
Fakes & Co. v. Lance, 151 N. C. 492, 66 S. E. 449. S^ee ''Partnership/' 
Dec. Dig. {Key No.) S§ 125-161^; Cent. Dig. %% 190-300. 



§ 88) POWERS AS TO THIRD PERSONS 277 

It is very seldom that the partnership articles attempt to 
define all the rights and duties of a partner. "The articles 
of copartnership are, perhaps, never published. They are 
rarely, if ever, seen, except by the partners themselves. 
The stipulations they may contain are to regulate the con- 
duct and rights of the parties as between themselves. The 
trading world, with whom the company is in perpetual in- 
tercourse, cannot individually examine these articles, but 
must trust to the general powers contained in all partner- 
ships. * * * If it is to be restrained, fair dealing re- 
quires that the restrictions should be made known. These 
stipulations may bind the partners, but ought not to affect 
those to whom they are unknown, and who trust to the 
general and well-established commercial law." ^ As we 
shall see in a later section, a partner has implied power to 
bind the firm within the scope of the partnership business, 
and most of his acts for his firm are done by virtue of this 
implied authority. When, therefore, he acts within its 
scope, he binds the firm, provided the person with whom he 
deals has no notice of any limitation upon such implied au- 
thority." But, though the firm is bound in such a case to 
the third person, the partner so exceeding his authority is 
in turn liable to his copartners for any damage resulting 
from his breach of the agreement. Conversely, where the 

T Marshall, C. J., In WINSHIP ▼. BANK OF UNITED STATES, 
5 Pet. 529, 560, 8 L. Ed. 216, Gllmore, Oas. Partnership, 357. Au- 
thority to do acts necessary to carry on the business in the ordi- 
nary manner will be presumed. Garth v. Davis ft Johnson, 120 
Ky. 106, 85 S. W. 692, 117 Am. St. Rep. 571 (1905) ; Boice ▼. Jones, 
86 App. Div. 613, 83 N. Y. Sjapp. 230; Salt Lake City Brewing Go. 
V. Hawke, 24 Utah, 199, 66 Pac. 1059. See ^'Partnership,** Dec. Dig. 
{Key No,) {f 125-164; Cent. Dig. $S 190^00, 

• See post, f 92, p. 282. See, also, IRWIN v. WILIiIAR> 110 U. S. 
499, 4 Sup. C^t 160, 28 Ia E)d. 225, GUmore, Gas. Partnership, 363; 
Hotckln V. Kent, 8 Mich. 526 ; Conely v. Wood, 73 Mich. 203, 41 N. W. 
259 ; Krasky v. Wollpert, 134 Cat 338, 66 Pac. 309 ; Morrison v. Austin 
State Bank, 213 111. 472, 72 N. B. 1109, 104 Am. St Rep. 225 ; Wool- 
sey V. Henke, 125 Wis. 134, 103 N. W. 267 (1905) ; Clark v. BaU, 34 
Colo. 223, 82 Pac. 529, 2 L. R. A. (N. S.) 100, 114 Am. St Rep. 154 ; 
Slnden, Fakes & Co. ▼. Lance, 151 N. C. 492, 66 S. E. 449. See 
''Partnership;* Deo. Dig. {Key No.) H 125-164; Cent. Dig. H 190- 
SOO. 



278 POWERS OF PARTNERS (Cb. 5 

third person has notice of the limitation upon the partner's 
authority, the firm is not bound.* This rule .is again re- 
laxed somewhat where the firm has acquired a usage or 
habit, affecting the apparent nature of its business, incon- 
sistent with the strict limitations in the partnership agree- 
ment known to the third party.** 



SAME— RATIFICATION 

88. A subsequent ratification of a partner's act, done with^ 
out authority, is equivalent to antecedent author- 
ity. 

Since the powers of partners are governed by the princi- 
ples of agency, it follows that where authority is lacking 
for a partner's act it may be supplied by a subsequent rati- 
fication by the other partners.** The ratification may im- 
pose liability in either contract or tort; it may be express 
or implied. Thus in a recent case it was held that an un- 
authorized contract of purchase by one partner was ratified 
by the failure of the others to repudiate the contract be- 
fore delivery of the goods.** Whether there has been a 

• Bailey t. Clark, 6 Pick. (Mass.) 872 ; Boardman y. Gore, 15 
Mass. 839; Ensign t. Wands, 1 Johns. Cas. (N. T.) 171; Wilson v. 
Richards, 28 Minn. 837, 9 N. W. 872. Bee "Partnership;' Dec Dig, 
{Key No.) f{ 1S», 1S5; Cent Dig. H 196-199. 

10 Woodward v. Wlnship, 12 Pick. (Mass.) 430. See post, 1 93, p. 286, 
"Limitation Arising from Nature of Business." Bee "Partnership,^ 
Dee. Dig. {Key No.) S 129; Cent. Dig. f 194. 

11 MILLER ▼. ROYAL FLINT GLASS WORKS, 172 Pa. 70, 83 
Atl. 350; Russell ▼. Annable, 109 Mass. 72, 12 Am. Rep. 665; Padflc 
Mat. Life Ins. Ck>. t. Fisher, 109 Cal. 666, 42 Pac. 155; Cassidy ▼. 
Saline County Bonk, 14 OkL 532, 78 Pac. 824; Guthiel t. Gilmer, 
27 Utah, 496, 76 Pac. 628 ; Hatchett & Large ▼. Sunset Brick & Tile 
Co. (Tex. Civ. App.) 99 S. W. 174 (1907) ; Moran Bros. Co. t. Wat- 
son, 44 Wash. 392, 87 Pac. 508 (1906) ; Lee ▼. Klrby, 80 Ark. 366, 
97 & W. 298. Bee '^Partnership/* Deo. Dig. {Key No.) S 167; Cent. 
Dig. f§ 282-291. 

IS Hatchett & Large t. Sunset Brick & Tile Co. (Tez. Civ. App.) 
99 S. W. 174 a907). Bee ^'Partnership,*' Dec Dig. {jKey No.) | 157; 
Cent. Dig. U 282^91. 



§ 90) POWERS AS TO THIRD PERSONS 279 

ratification in any particular case is always a question of 
fact for the jury, and is to be determined according to the' 
general rules of agency governing that subject.** 



SAME—ESTOPPEL 

90* A partner, though acting in excess or abuse of his ac- 
tual authority, may bind the firm as to third per- 
sons who bona fide rely on representations by 
word or deed of the other partners that such part- 
ner is acting within his authority, and who would 
sustain loss if the act were not considered that of 
the firm. 

In addition to the liability of the partnership for acts 
done by a partner within his express or implied authority, 
or for unauthorized acts later ratified, a partner may bind 
the firm where authority in the usual sense does not exist 
at all, but where the other partners are estopped to deny 
the authority he has assumed. As in the law of agency, 
those who lead third persons to believe that certain author- 
ity exists will not be heard to deny the existence of that 
authority to the prejudice of those who relied upon it." 
This principle was well applied in a recent case to hold a 
partnership to liability whose members negligently per- 
mitted one of them to put notes in circulation purporting 
on their face to be genuine and firm obligations, when in 
fact fraudulent and for the accommodation of others out- 
side the partnership business.* • 

i« Stewart ▼. Bmbaker, 112 111. App. 408; Cassldy T. Saline Coun- 
ty Bank, 14 Okl. 532, 78 Pac. 324; Banner Tobacco Go. ▼. Jenlson, 
48 Mich. 459,. 12 N. W. 655. Mere silence is not a ratification per 
se. First Nat Bank v. State Nat Bank, 131 Fed. 422, 65 0. C. A. 
406. See '^PartnersMp,'' Deo, Dig. (Key No.) U 157, 218; Cent Dig. 
U 282-291, 427. 

14 Walsh T. Hartford Fire Ins. Ck>., 73 N. Y. 10; Sheldon Hat 
Blocking Go. t. Eickemeyer Hat Blocking Mach. Go., 00 N. Y. 613. 
See, further, chapter I, S 21, p. 61. See "Partnership,** Dec Dig. 
{Key yo.) U 155, 156; Cent. Dig. H 278-281. 

15 Bank of Monongahela Valley ▼. Weston (1902) 172 N. Y. 259, 
64 N. E. 946. The principle is taken over from the law of agency, 



280 POWERS OF PARTNERS (Cb. 6 



TEST OP AUTHORITY— NATURE OP QUESTION 

81* Where an express authority, ratification, or estoppel 
cannot be proved, the test of authority is what is 
reasonably and usually necessary to carry* on the 
business in the ordinaxy way. This is generally a 
question of fact for the jury. 

We have seen, in a preceding section, that a large part 
of a partner's powers must necessarily be implied ; that he 
has implied power, unless a restriction upon his actual au- 
thority is known, to bind the firm by any act necessary and 
usual for carrying on its business in the ordinary way.** 
The very statement of the rule makes it clear that the im- 
portant thing to be looked to is the necessity of the act in 
the particular case and in the particular business in which 
the firm is engaged. 

The nature of the question is well stated' in Pooley et al. 
V. Whitmore: "Every member of an ordinary partnership 
is its general agent for the transaction of its business in the 
ordinary way, and the firm is held responsible for what- 
ever is done by any of its partners, when acting for the 
firm, within the limits of the authority conferred by the 
nature of the business it carries on. Every person is en- 
titled to assume that each partner is empowered to do for 
the firm whatever is necessary for the transaction of its 
business, in the way in which that business is ordinarily 
carried on by other people. But no person is entitled to as- 
sume that any partner has more extensive authority than 
that above described. It will be observed that what is nec- 

as laid down in New York & N. H. R. Go. t. Schuyler, 84 N. Y. 6& 
See, also, Jamison ▼. Charles F. Cnllom & Co., 110 La. 781, 84 South. 
775, See ''Partnerahip/* Deo. Dig. (Key No.) f§ 155, 156; Cent. Dig. 
H r78-28i. 

!• See ante, I 88, p. 276.. The implied or apparent authority of a 
partner is limited to acts which are reasonably necessary for carrying 
on the business in the ordinary way. Kelley-Goodfellow Shoe Co. 
▼. Long-Bell Lumber Co., 86 Mo. App. 4.?8 ; Stiindnrd Wagon Co. of 
Georgia t. D. P. Few & Co., 119 Ga. 283, 46 S. E. 109. See ^^Part- 
nerahip,** Deo. Dig. (Key No.) U 125-164; Cent. Dig. §| 190-SOO. 



§ 91) TEST OP AUTHORITT 281 

essary to carry on the partnership business in the ordinary 
way is made the test of an authority when no actual au- 
thority or ratification can be proved. * * * The ques- 
tion whether a g^ven act can or cannot be necessary to the 
transaction of the business in the way in which it is usually 
carried on must evidently be determined by the nature of 
the business and by the practice of persons engaged in it. 
Evidence on both of these points is necessarily admissible, 
and, as readily may be conceived, an act which is necessary 
'for the prosecution of one kind of business may be wholly 
unnecessary for the carrying on of another in the ordinary 
way. Consequently no answer of any vafue can be given 
to the abstract question, Can one partner bind his firm by 
such an act? unless, having regard to what is usual in busi- 
ness, it can be predicated of the act in question, either that 
it is one without which no business can be carried on, or 
that it is one which is not necessary for carrying on any 
business whatever. There are obviously very few acts of 
which such an affirmation can be truly made. The great 
majority of acts which g^ve rise to doubt are those which 
are necessary in one business and not in another." *' More- 
over, the act must be reasonably necessary, if the power to 
do it is to be implied. The mere fact that it is convenient, 
or that it facilitates the transaction of the firm business, is 
not enough." Nor, going to the other extreme, has a part- 
ner implied power to do an act, however necessary, even to 
save the business, if the act is in any sense unusual, or the 
necessity an "extraordinary" one. Reasonable necessity is 
the criterion of authority.** Whether the act in question 

iTPOOLBT 7. WHITMORB, 10 Heisk. (Tenn.) 633, 27 Am. Rep. 
733. Gllmore, Gas. Partnership, 360; IRWIN v. WILLIAR, 110 U. 
S, 499. 4 Sup. Ct 160, 28 L. Ed. 225, Gllmore. Gas. Partnership, 863. 
See post, S;i 02, f«, pp. 282, 286, "Limitations Arising from Scope and 
Nature of Business." See *' Partners hi pr Dec. Dig. {Key No,) §§ 125- 
164; Gent. Dig. §§ 190S00. 

18 Diclsinson y. Valpy, 10 Bam. & O. 128; Ricketta y. Bennett, 4 
C. B. 686; Mason v. Gibson, 73 N. H. 190. 60 Atl. 96. See ''Partner- 
9hipr Deo. Dig. {Key No.) §S 125-164; Cent. Dig. H 190-600, 

IB Eiawtayne ▼. Bume. 7 Mees. & W. 595; Russell y. Annable, 109 
Mass. 72. 12 Am. Rep. G65 ; Barnard y. Lapeer & P. H. Plank Road 
Co.. 6 Mich. 274; Gotzhausen y. Judd, 48 Wis. 213. 28 Am. Rep. 539; 



282 POWERS OF PARTNERS (Ch. 5 

is reasonably necessary to carry on the business in the or- 
dinary way is, of course, generally a question of fact for 
the jury.** 



SAME— LIMITATIONS ARISING FROM SCOPfe OF 

BUSINESS 

92. Unless express authority, ratification, or an estoppel is 
shown, a partner has no authority to bind his co- 
partners in a matter which is beyond the scope of 
the par&ership business. 

By the acts of the firm all the partners are bound; and 
all acts done by a partner on behalf of the firm within the 
scope of its business are acts of the firm.** The phrase 
"scope of the business" means whatever is usually done by 
persons engaged in a similar business in the ordinary man- 
ner at the same time and place.** The scope of the busi- 



Morae V. Richmond, 97 111. 810; Mason v. Gibson, 73 N. H. 190, 60 
Atl. 06. See ^'Partnership;* Dec. Dig. {Key No,) i§ 125-164; Cent. 
Dig. i§ 190-900. 

aoBeckwlth ▼. Mace (1905) 140 Mich. 157, 103 N. W. 559; Hef- 
ferlln v. Karlman, 29 Mont 139, 74 Pac. 201 ; POOLBY v. WHIT- 
MORB (1873) 10 Heisk. (Tenn.) 633, 27 Am. Rep. 733, Gilmore^ Gas. 
Partnership, 860. 

"Dealing in grain is not a technical phrase, from which a court 
can properly infer as matter of law authority to bind the firm in ev- 
ery case, irrespective of its circumstances; and if, by usage, it has 
acquired a fixed and definite meaning, as a word of art in trade, 
that is matter of fact to be established by proof found by a jury." 
IRWIN ▼. WILLIAR, 110 U. S. 499, 4 Sup. Ct IGO. 28 L. Ed. 225, 
Gilmore, Gas. Partnership, 863. Bee "Partnership,** Dec Dig. {Key 
No.) § 218; Cent. Dig. i 4^. 

SI Eastman ▼. Ck)oper, 15 PiclC (Mass.) 276, 26 Am. Dec 600; 
Livingston ▼. Roosevelt, 4 Johns. (N. Y.) 251, 4 Am. Deo. 273 ; Mer- 
cein ▼. Andrus, 10 Wend. (N. Y.) 461 ; Beardsley v. Tuttle, 11 Wis. 
74 ; Bank of Ft Bladison ▼. Alden, 129 U. S. 372, 9 Sup. Gt 332, 32 
L. Ed. 725. See *' Partnership," Deo. Dig. {Key No.) %% 125-164; 
Cent. Dig. SS 190-900. 

a« IRWIN V. WILLIAR, 110 U. S. 499, 4 Sup. Gt 160. 28 L. Ed. 
225, Gilmore, Gas. Partnership, 363; Seaman y. Ascberman, 57 Wis. 
547, 15 N. W. 788; Lynch v. Ulllstrom, 64 Minn. 521, 67 N. W. 636; 



§ 92) TEST OF AUTHORITT 2S3 

ness may be set forth in the articles of partnership. More 
likely, however, it will be ascertained by considering the 
usual course of similar businesses as usually carried on.'* 
This is a question of fact,'^ especially in a new business. 
In an old and well-known business the scope is determined 
as a matter of law.*' If the scope of the business as defined 
by the articles of partnership is actually observed by the 
partners, then third persons who have notice thereof can- 
not hold the partnership on contracts beyond the scope.'* 

Banner Tobacco Ck). v. Jenlson, 48 Mich. 459, 12 N. W. 655. Bee 
'* Partnership,'* Deo. Dig. {Key No.) Ii 125-16^; Cent. Dig. §S 190- 
300. 

ss The scope of the firm business is determined "according to the 
usual and ordinary course in which it is carried on by those en- 
gaged in it in the locality which is its seat, or as reasonably neces- 
sary or fit for its successful prosecution. It it cannot be found In 
that, it may still be inferred from the actual, though exceptional, 
course and conduct of the business of the partnership itself, as per- 
sonally carried on with the knowledge, actual or presumed, of the 
partner sought to be charged." IRWIN v. WILLIAR, 110 U. S. 499, 
4 Sup. Ct 160, 28 L. Ed. 225, Gilmore^ Cas. Partnership, 363. Bee 
"Partnership;' Deo. Dig. {Key No.) ii 125-164; Cent. Dig. §i 190- 
SOO. 

S4 "What the nature of that business In each case Is, what is 
necessary and proper to its successful prosecution, what is involved 
In the usual and ordinary course of its management by those en- 
gaged in it, at the place and time where It is carried on, are all 
questions of fact to be decided by the jury, from a consideration of 
all the circumstances which, singly or in combination, affect its char- 
acter or determine Its peculiarities; and from them all, giving to 
each its due weight, it is its (the jury's) province to ascertain and 
say whether the transaction in question is one which those dealing 
with the firm had reason to believe was authorized by all of its 
members." Civ. Code Cal. § 2420; IRWIN v. WILLIAR, 110 U. S. 
499, 4 Sup. Ct 160, 28 L. Ed. 225, Gilmore, Caa Partnership, 363. 
See **Partner8^ip;' Deo. Dig. (Key No.) i 218; Cent. Dig. § 427. 

t6 ALSOP V. CENTRAL TRUST CO., 100 Ky. 375, 38 S. W. 510, 
Gilmore, Cas. Partnership, 365, note; Walcott v. Oanfleld, 3 Conn. 
194; WeUs v. Turner, 16 Md. 133; DAVIS y. DODSON, 95 Ga. 
718, 22 S. E. 645, 29 L. R. A. 496, 51 Am. St Rep. 108. Bee ''Part- 
nerahip;' Deo. Dig. (Key No.) H 125-164, 218; Cent. Dig. ii 190-800, 
427. 

2«Aultman & Taylor Co. v. Shelton, 90 Iowa, 288, 57 N. W. 857; 
Harper v. McKinnis, 53 Ohio St 434, 42 N. E. 251 ; Enterprise Oil 
& Gas Co. y. National Transit Co., 172 Pa. 421, 33 Ati. 687, 51 Am. 



284 POWERS OF PARTNERS (Ch. 5 

If, however, the scope of the business is to be ascertained 
by the usual course of similar business, third parties must 
take notice of the limitations which usually exist, and can- 
not hold the firm on contracts outside the usual course of 
business.*' If a partner, like any other agent, does an act 
for a purpose which is clearly not connected with the firm's 
ordinary scope of business, he is not acting in pursuance of 
any apparent authority. The only way to charge the firm, 
therefore, is to prove that he had actual authority to do the 
act.** For example, an agreement by one member of a law 
firm to collect a note without charge is not binding on the 
copartners, as gratuitous undertakings are clearly not within 
the scope of the business of such a firm.** Further, if a part- 
ner pledges the credit of a firm, without authority, to pay his 
own private debts, to one who knows or has reason to know 
they are private debts, the firm is not liable.** But, even 
as against the other partners, an act of a partner for his 
own exclusive benefit may be binding on the firm, where 
there was nothing which ought to have put a reasonable 
person on his guard as to the true nature of the transac- 

St. Rep. 746; KUDg y. TnnstaU, 109 Ala. 608, 19 Sooth. 907. Bee 
''Partnership^ Dec. Dig. {Key No.) SS 125--164; Cent. Dig. %% 190-900. 

2 7 Taylor v. Thompson, 62 App. Div. 159, 70 N. Y. Supp. 997; Id. 
74 App. Div. 820, 77 N. Y. Supp. 438, affirmed 176 N. Y. 168, 68 N 
E. 240; Beatty v. Bulger, 28 Tex. Glv. App. 117, 66 S. W. 893; ISady 
y. Newton Goal & Lumber Co., 123 Ga. 557, 51 8. B. 661, 1 L. R. A. 
(N. S.) 650. 8ee "Partnership,*" Dec. Dig. (Key No.) H 12S-164; 
Cent. Dig. H 190-SOO. 

28 Standard Wagon Ck>. of Georgia y. D. P. Few & Go., 119 Ga. 
293, 46 S. B. 109; Liylngston y. Roosevelt, 4 Johns. (N. Y.) 251, 4 
Am. Dec. 273. See "Partnership,*" Deo. Dig. {Key No.) H 12S-164; 
Cent. Dig. §§ 190-^00. 

s» DAVIS V. DODSON, 95 Ga. 718, 22 S. B. 645, 29 L. B. A. 496, 
51 Am. St Rep. 108. See ** Partnership;* Dec. Dig. {Key No.) | 1S9; 
Cent. Dig. | 206. 

soLeveson v. Lane, 18 G. B. (N.S.) 278; Snalth y. Burridge^ 4 
Taunt 684. See, also, generally, Taylor y. Thompson, 62 App. Dly. 
159, 70 N. Y. Supp. 997 ; Id., 74 App. Dly. 320, 77 N. Y. Supp. 438, 
affirmed 176 N. Y. 168, 68 N. B. 240 ; Bady y. Newton Goal & Lum- 
ber Go., 123 Ga. 557, «S1 S. B. 661, 1 L. R. A. (N. S.) 650, and note; 
Alley y. Bowen-Merrill Go., 76 Ark. 4, 88 S. W. 838. 113 Am. St 
Rep. 73 (1905). See "Partnership;* Dec Dig. {Key No.)^ IJH; Cent. 
Dig. H 2Si-2S9. 



8 92) TEST OF AUTHOKITT 285 

tion.** If a partner makes a contract necessary for the con- 
duct of the partnership business in the ordinary way, the 
firm will be liable, unless the partner had in fact no author- 
ity to bind the firm, and the person dealing with him was 
aware of that want of authority; but if the contract was 
not necessary for the conduct of the partnership business 
in the ordinary way the firm will not be liable, unless an 
authority to do the act in question, or some ratification of 
it, can be shown to have been conferred or made by the 
other partners.'* 

Enlargement of Scope or Nature of Business by Subsequent 

Conduct ' 

It may sometimes happen that the original scope of a 
partnership business will be enlarged by the actual or im- 
plied consent of all the partners, and what was originally a 
nontrading partnership be converted into a trading firm, 
with the consequent enlargement of the implied powers of 
the individual partners. This was well illustrated in a case 
where partners engaged in the printing business had grad- 
ually added piano selling to their activities ; the court hold- 
ing that the power of each partner to bind the firm had now 
become coextensive with the whole business of the firm. 
Where formerly he could do only acts necessary and proper 
to the conduct of nontrading printing business, he could 



ai Union Nat. Bank of Kansas City, Mo., v. NelH, 149 F. 711, 79 
C. G. A. 417, 10 L. R. A. (N. 8.) 426; Fox ▼. Olemmons (Ky.) 99 8. 
W. 641; Dnnnett & Slack v. Gibson, 78 Vt 439, 63 Atl. 141; Rice 
T. Jackson, 171 Pa. 89, 82 AtL 1036 ; WINSHIP v. BANK OF UNIT- 
ED STATES, 6 Pet 629, 8 L. Ed. 216, Gllmore, Gas. Partnership, 
356 ; Nat Bank of Virginia ▼. Gringan, 91 Va. 847, 21 S. B. 820. A 
member of a firm engaged in the cattle commission business has au- 
thority to enter into an agreement whereby a bank is to fnmlsh a 
customer money to purchase cattle with, in consideration that the 
firm accept drafts drawn on it to the extent of the net proceeds of 
the cattle shipped to it First Nat Bank of Pipestone ▼. Rowley, 
92 Iowa, 680^ 61 N. W. 195. See ^'Partnership,'* Dec. Dig. (Key No.) 
H 125-164; Cent, Dig. K 190-400. 

•sGrellln y. Brook, 14 Mees. & W. 11; Dickinson v. Valpy, 10 
Bam. ft G^ 128; Walden y. Sherburne, 15 Johns. (N. Y.) 422. See, 
also, ante, H W, 92, pp. 280, 282. See ''Partnership,** Dec. Dig. (Key 
Vo.) ft 125-164; Cent. Dig. H 190-SOO. 



286 POWERS OF PARTNERS (Ch. 5 

now exercise, in addition, the powers of a partner in a piano 
selling, i. e., a trading, firm.** 



SAME— LIMITATIONS ARISING FROM NATURE 

OF BUSINESS 

93. The scope of the firm business, and the extent to which 
each partner is to be regarded as the implied agent 
of the firm in his dealings with strangers, also de- 
pend upon the general nature of the firm business. 

We have already seen that a partner has power to do that 
which is reasonably necessary to carry on the business of 
the firm in the ordinary way, but no power to act beyond 
the scope of its business.'* Obviously the scope of a firm's 
business, and the ordinary way of carrying it on, will vary 
according to the nature of that business. An act which is 
. common and proper in the conduct of a grocery business 
may not be required at all in the business of a firm of con- 
tractors and builders, and third persons must take notice 
of that fact." 

Trading and Nontrading Partnerships 

In any classification of partnerships with respect to the 
nature of their business, the most obvious distinction is be- 
tween trading and nontrading partnerships, of which some- 
thing has already been said, and more will be said later.*' 



»» Boardman v. Adams, 5 Iowa, 224. See "Partnership,** Deo, Dig, 
{Key No.) §§ 125-164; Cent. Dig. §| 190-^00. 

t4 Ante, §§ 88, 92, pp. 276, 282. 

SB Where a partnership is limited to a particular trade or bnsi- 
ness, one partner cannot bind his copartner by any contract not re- 
lating to* such trade or business, and third persons wiU be presumed 
to have knowledge of the limited nature of the partnership from 
circumstances connected with the business of the firm. Livingston 
▼. Roosevelt (1809) 4 Johns. (N. Y.) 251, 4 Am. Dec. 273, 1 Am. Lead. 
Cas. 507, and note. See **Partner8Mp,'* Deo. Dig. iJS.ey No.) iS 125" 
164; Cent. Dig. iS 190-300. 

>• See ante, chapter II, i§ 37, 38, p. 107, and post, chapter V^ | 
100, p. 302. 



B 93) TEST OP AUTHORITT 287 

The distinction between trading and nontrading partner- 
ships is, in this connection, a difference in the powers of the 
partners. In a trading firm, each partner has implied power 
to borrow money and to give the firm paper therefor. In a 
nontrading firm, no such implied power exists. That the 
members of a nontrading partnership have not the same 
extent of authority to bind the other members is so only 
because the scope of business of such firms is not so wide 
as that of trading partnerships; and where the act of a 
partner is within the scope of the firm's business, a member 
of a nontrading partnership may bind his copartners just 
as truly as can members of a trading partnership.'^ Orig- 
inally, in both trading and nontrading partnerships, the 
question whether an act of a partner was necessary and 
proper for the particular business was purely one of fact 
for the jury.** This is probably still true of new business, 
and of old businesses conducted in an exceptional manner. 
But the gjeat mass of ordinary, every-day transactions in 
trading partnerships have become usages recognized by the 
courts, and are now treated either a$ questions of fact for 
the court or as pure questions of law.** 



<T Alley y. Bowen-MerriU Co. (1906) 76 Ark. 4. 88 S. W. 838, 113 
Am. St Rep. 73; Lee v. First Nat Bank of Ft Scott, 45 Kan. 8, 
25 Pac. 196, 11 L. R. A. 238; PEASE v. COLE, 53 Conn. 53, 22 AU. 
681, 55 Am. Rep. 53, Gilmore, Cas. Partnership, 372. See "Partner- 
shipr Dec, Dig. {Key No.) i§ 125-164; Cent. Diff. M 190S00. 

«« IRWIN V. WILLI AR, 110 U. S. 499. 4 Sup. Ct 160. 28 L. Ed. 
225, Gilmore, Cas. Partnership, 363. See ^^Partnership,'' Deo. Dig. 
iKey No.) i 218; Cent. Dig. i 427» 

s» '•The partnership (in farming) in this case is not a trading or 
commercial one, which is generally governed as to Its scope of au- 
thority by the rules of the law merchant of which the courts take 
judicial cognizance. The principle goveming a nontrading partner- 
ship Is well settled. There are three classes of case? 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 cus- 
tomarily Incident to the partnerships of like nature," Woodruff v. 
Scaife, 83 Ala. 152, 3 South. 311. See, also, Pollock's Digest of Part 



288 POWERS OF PARTNERS (Gh. 8 

PARTICULAR POWERS CONSIDERED—POWER 

TO SELL FIRM PROPERTY 

94. Each partner has implied power to sell any specific 
part of the partnership personalty, tangible and in- 
tangible, which is held for the purpose of sale, so 
as to pass the entire title to the purchaser. 

96. Where a firm is organized to deal in real estate, or 
where a firm holds real estate for sale, each part- 
ner has implied power to enter into a contract for 
the sale of the same; but, where a deed under seal 
is required to convey the legal title, power to ex- 
ecute such an instrument is not implied, but must 
be expressly conferred. 

While the question whether a particular act is within the 
power of a partner must depend largely upon the facts of 
each case, there are certain powers which usually Accom- 
pany ordinary partnerships. Some of these powers will 
now be considered. 

Power to Sell Personal Property of the Firm 

In an earlier chapter there was an extended discussion 
of the transfer of firm property in general, the purposes for 
which it might be transferred, and the form of the trans- 
fer, always assuming the existence of a partner's power so 
to transfer.*^ 

As stated in the black letter proposition above, each part- 
ner has the general power of sale of the property of the^ firm 
held for sale, and "the sale of one partner is the sale of 



(5th Ed.) 27; Fftrmer t. Bank of Wickllffe, 51 S. W. 680, 21 Kj. 
Law Rep. 425. 

"In a commercial partnership the extent of a partner's power to 
bhid the firm 1b a question of law, while In the noncommercial firm 
the power of one partner to bind his copartner Is a question of fact** 
ALSOP V. CENTRAL TRUST CO. (1897) 100 Ky. 875, 38 S. W. 510, 
Gilmore, Cas. Partnership, 365, note. Bee **Partner8hipt** Deo. Dig, 
{Key No.) S 218; Cent, Dig, S 4^7. 

*o Ante, chapter III, §S 56-04, pp. 176-203. 



§§ 94-95) PAUTICULAR POWJSRS 289 

both/'** It was formerly broadly stated that a partner 
might sell all the partnership personalty at one time, and 
thus terminate the partnership.** The tendency of the 
modem cases, however, is to limit the implied power of 
sale to the property which is held for the purpose of sale, 
and not to include the property kept for the purpose of 
carrying on the business. Thus one of a firm of farmers 
ha§ no implied authority to sell the domestic animals 
bought for and used in cultivating the farm.** 

Like all other implied powers of partners, the power of 
sale depends upon the general nature of the partnership 
business. Obviously one of a firm of lawyers would not 
have the same power to dispose of the partnership librarj- 
that one of a firm of grocers would have to sell goods of its 
stock. Also, one member of a partnership formed for the 
increase and improvement of a flock of sheep has no implied 
power to sell the entire flock, where the purpose of the part- 
nership is brought homd to the purchaser.** 

The power to transfer firm personalty includes also the 

41 LAMBERT'S CASE, Godb. 244, Gflmore, Cas. Partnership, 230. 
See "PartneraMp;' Dec. Dig. {Key No.) SS 1S8, I4I; Cent. Dig. i| 
217-221. 

4 2 Lamb v. Durant, 12 Mass. 54, 7 Am. Dec. 31; TAPLEY v. BUT- 
TERFIELD, 1 Mete. (Mass.) 515, 85 Am. Dec. 374 ; Arnold v. Brown, 
24 Pick. (Mass.) 89, 35 Am. Dec. 296; Graser ▼. Stellwagen, 25 N. 
Y. 315; Mabbett v. White, 12 N. Y. 442. See "Partnership,'* Deo. 
Dig. (Key No.) SS 141, 269; Cent. Dig. $S 220, 613. 

48 Oayton v. Hardy, 27 Mo. 536. See, also, Blaker t. Sands, 29 
Kan. 551; SLOAN v. MOORE, 37 Pa. 217, Gllmore, Cas. Partner- 
slilp, 231 ; Hunter v. Waynick, 67 Iowa, 555, 25 N. W. 776 ; Lowman 
V. Sheets, 124 Ind. 417, 24 N. E. 351, 7 L. R. A. 784 ; Wilcox v. Jack- 
son, 7 Colo. 521, 4 Pac. 966. On sale of entire property of firm oper- 
ating to discontinue the firm bnsiness, see, also, Doll y. Hennessy 
Co. (1905) 33 Mont 80, 81 Pac. 625, holding It Inmiaterial that the 
purchase price was applied to the liquidation of firm debts. If a 
partner sell all the firm property, he acts beyond the scope of the 
partnership buslnesa Bender y. Hemstreet, 12 Misc. Rep. 620, 34 
N. Y. Supp. 423. A partner has no power, as such, to sell the good 
will of the partnership business. Kelly y. Pierce (1907) 16 N. D. 
234, 112 N. W. 995, 12 L. R. A. (N. S.) 180. See ** Partnership,** Deo. 
Dig. {Key No.) H 1S8, Ul; Cent. Dig. %% 217-221. 

44 Blaker y. Sands, 29 Kan. 551. See "Partnership** Deo, Dig. 
{Key No.) %% 1S8, Ul; Cent. Dig. §S 217-221. 

On.. Past. — ^19 



290 POWBBS OF PARTNERS (Gh. 5 

power to transfer negotiable instruments and all other 
tangible property belonging to the firm.*' And as an agent 
with power to sell has implied power to warrant quality or 
soundness, so has the partner who sells firm property.** 

Sale by Single Partner cf Firm Property to Pay Separate 

Debts^-^s Against Ostensible Partners 

A partner has no authority to use firm property to pay 
individual debts. If he does so, the creditor can be com- 
pelled to pay ilie partnership, even though he supposed that 
the payment was made with individual property. Thus, in 
Janney v. Springer,*^ the defendants were creditors of A. 
A. Paine, of the firm of A. A. Paine & Co., on a promissory 
note, and bought goods belonging to the firm from Paine 
on condition that the price of the goods should be applied 
on the note. They did not know that the goods were firm 
goods, nor that the plaintiff, Janney, was in partnership 
with Paine. It was held that the defendants were liable 
for the goods so bought; the court isaying: "It is said there 
was no firm sig^ erected at the place of business of the 
partnership, and that defendants had no knowledge of the 
existence of the firm. This want of knowledge and omis- 
sion to use a sign was in no sense conflicting evidence upon 
the question of a partnership in fact. It having been estab- 
lished beyond question that the feed was partnership prop- 
erty, it was incumbent on the defendants to show that Jan- 
ney in some way assented to the alleged agreement to pay 

«s George y. Tate, 102 U. S. 564, 26 L. Ed. 232; First National 
Bank of Negannee v. Freeman, 47 Mich. 408, 11 N. W. 219; Gerli 
v. Poidebard Silk Mfr. Co., 57 N. J. Law, 432, 81 Atl. 401, 30 L. R. 
A. 61, 51 Am. St Rep. 611. See ^'Partnership,^ Dec Dig, (Key No.) 
K 1S8, 146; Cent. Dig. §S 217-221, 251-252. 

«• Sweet v. Bradley, 24 Barb. (N. Y.) 549; HUBBARD t. GA- 
LUSHA, 23 Wis. 898 ; Sandllands y. Marsh, 2 B. & Aid. 673, at page 
679. A partner in a contracting and building firm has implied au- 
thority to warrant the durability of materials and workmanship 
in constructing a building. Powell y. Flowers & McPhail, 151 N. GL 
140. 65 S. E. 817. See *' Partnership," Dec. Dig. (Key No.) H 1S8, 
HI; Cent Dig. | 221. 

*T JANNEY y. SPRINGER, 78 Iowa, 617, 48 N. W. 461, 16 Am. 
St Rep. 460, Gilmore, Cas. Partnership, 24a See ^'Partnership,'* 
Deo. Dig. (Kev No.) i U4; Cent. Dig. i 236. 



88 94r-96) PARTICULAR POWERS 291 

the individual debt of Paine in partnership property, or that 
he (Janney) in some way ratified the act after it was 
done." *• It is sometimes said, however, that if the partner's 
separate creditor takes in ignorance of the firm title he may 
keep the property. Locke v. Lewis *• is cited for the propo- 
sition, but an examination of the facts of that case would 
seem to establish an estoppel.'* 

Same — As Against Dormant Partners 

If, however, one intentionally conceals the fact of his 
membership in a firm from the world, he has no right to 
complain if those who deal with the ostensible partner as 
an individual offset firm demands with debts due from the 
individual.'* Nor can he assert his right in firm goods as 
against those who have extenfcd credit on the faith of the 
individual ownership of the ostensible partner." 



^sFarrlB y. Morrison, 06 Ark. 818, 60 S. W. 683; BRICKETT 
T. DOWNS, 163 Mass. 70, 39 N. B. 776 ; HARTLEY ▼. WHITE, M 
Pa. 31, Gilmore, €as. Partnership, 245; Todd y. Lorah, 75 Pa. 155; 
Rogers y. Batchelor, 12 Pet. 221, 9 L. Ed. 1063. 

One who knowingly receives partnership property with knowledge 
that Its proceeds are passing to the Indiyidual nse of one partner is 
charged with notice of such partner's want of authority tb dispose 
of the property for his individual benefit COLUMBIA NAT. BANK 
OF LINCOLN V. RICE, 48 Neb. 428, 67 N. W. 165. But see Grover 
y. Smith, 165 Mass. 132, 42 N. B. 555, 52 Am. St Rep. 506, holding 
that where a partner sells firm goods under an agreement that one- 
fourth of the price should be applied In a private debt owed by the 
partner to the purchaser, the firm cannot recover such one-fourth. 
A fair sale made In good faith to an existing bona ^de creditor by 
one partner, without the consent of the other, may, where the pur- 
chaser has notice of such want of consent, be questioned by the 
nonassenting partner, but is good as to all third persons. Klemm 
y. Bishop, 56 111. App. 613. Bee ^'Partnership,"^ Deo. Dig. {Key No.) 
i lU; Cent. Dig. H 2SJh2S9. 

4» LOCKE y. LEWIS, 124 Mass. 1, 26 Am. Rep. 631. Bee "Part- 
nership," Deo. Dig. (Key No.) i lU; Cent. Dig. iS 2SJh^9. 

•0 See Burdlck on Partnership (2d Ed.) pp. 129, 130, for a criticism 
6f the case. 

•1 BRYANT y. CLIFFORD, 27 Vt 664, Gilmore, Cas. Partnership, 
246; SWAN v: STEELE, 7 East, 210; WlUey v. Crocker- Wool- 
worth Nat Bank, 141 Cal. 508, 75 Pac 10& Bee '^Partnership,** Deo. 
Dig. (Key No.) S 164; Oent. Dig.. | SOO. 

tts Swofford Bros. Dry Goods Co. y. Diment, 132 Mo, App. 616, HI 



292 POWERS OF PARTNERS (Ch. 5 

Same-^ale of Partnership 'Realty 

' It is said that a partner has no implied authority to sell 
firm realty. This absence of authority may be due to the 
fact that real estate is not ordinarily the subject-matter of 
a partnership and is not usually included in the property 
held for sale. As the implied power of a partner to sell 
usually extends only to those things held for sale, it would 
not include firm real estate. But in so-called real estate 
partnerships, where land is the commodity dealt in, it 
would seem that there should be implied power in each 
partner to sell it. Further, the lack of authority may be 
explained by the nature of the instrument required to ef- 
fect a transfer of real estate. Usually this can be done only 
by deed under seal. As pointed out,** a partner has no im- 
plied authority to execute a sealed instrument, and there- 
fore, it is said, no power to sell the firm realty. But a dis- 
tinction should be' drawn between the actual conveyance 
of firm realty and a contract to convey. It might very well 
be that a partner has power to bind the firm by an agree- 
ment to convey partnership land, but has not the power to 
execute the formal conveyance.'* Distinguishing, there- 
fore, between a contract to sell and the actual conveyance 
of the firm realty, the question whether a partner has im- 
plied power to bind his copartner with respect to firm realty 
will depend upon the position which such real estate occu- 
pies in the firm assets and upon the nature of the firm busi- 
ness. If land is a part of the partnership stock, and is a 
commodity held for sale, then there should be implied pow- 
er in each partner to make binding contracts to sell it.** 

S. W. 1196. Bee *«Paitfi6rtMp,** I>ec Ma. (Ke^ Vo.) % m: Omni. 
Dig. f $00. 

ft* See post, S 101, p. 806, **Power to Execute Sealed Instnunents," 
and ante, chapter III, | 63, p. 196, "Form of Transfer.** The general 
Implied powers of a partner do not extend to binding the firm by 
seaL Arnold v. Steyenson, 2 Nev. 234 ; Foster's Appeal, 74 Pa. 391. 
15 Am. Rep. 553. See *' Partnership," Dec. Dig. (Kew Vo.) H ISS, 
141; Cent. Dig. SS 217-^21. 

S4 Bates, Partnership, § 299. 

 CHESTER ▼. DIOKBRSON, 64 N. Y. 1, 18 Am. Rep. 800, GO- 
niore. Out Partnership. 136; Thompson t. Bowman, 6 Wall. 816; 
18 L. Ed. 786; Sage ▼. Sherman, 2 N. Y. 417; Robinson y. Growder, 



§g 94-95) PAUTIGULAB POWERS 293 

Authorities recognizing such implied power often do so on 
the ground that partnership realty is treated in equity as 
personalty, and therefore each partner in a real estate firm 
has implied power to sell it, and equity will decree specific 
performance of contracts made pursuant to such author- 
ity."' If, on the other hand, land is held as a. mere inci- 
dent to the firm business, or as one o'f the things used in the 
prosecution of the main enterprise, such as the site on 
which the partnership activities are conducted, then there 
should be no implied power to contract to sell it.*^ 

Sofne — Firm Title in Name of One Partner 

It is possible, however, that a firm, by permitting the 
title to firm realty to stand in the name of one partner, may 
estop itself from claiming against a bona fide purchaser or 
mortgagee from such partner; but, if the purchaser knows 

4 McGord (S. a) 519, 536-587, 17 Am. Dec. 762; Batty t. Adams 
Co., 16 Neb. 44, 20 N. W. 15 ; Baldwin ▼. Richardson, 33 Tex. 16. 

In Thompson t. Bowman, supra. It Is said: "There is no doubt 
that a copartnership may exist In the purchase and sale of real prop- 
erty, equally as in any other lawful business. Nor is there any 
doubt that each member of such copartnership possesses full author- 
ity to contract for the sale or other disposition of its entire proper- 
ty, though for technical reasons the legal title vested in all the co- 
partners can only be transferred by their Joint act." See "Partner- 
shipr Deo, Dig. {Key Vo.) H iS8, m; Cent. Dig. |§ 217-221. 

B« In ROVELSKY ▼. BROWN, 92 Ala. 522, 5 South. 182, 26 Am. 
St Rep. 83, Gilmore, Gas. Partnership, 239, specific performance 
was granted of a contract to convey firm real estate, made by one 
partner in a firm engaged in buying and selling realty. 

See, also, Moderwell v. Mullison, 21 Pa. 257; Ludlow's Heirs y. 
Cooper's Devisees, 4 Ohio St 1 ; Olcott v. Wing, 4 McLean, 15, Fed. 
Gas. No. 10.481 ; Pugh's Heirs v. Currie, 6 Ala. 446. 

See. further, post S 101, p. 808, on the "Power to Execute Sealed 
Instruments.? Bee '"Partnership," Deo. Dig. (Key No.) S| i58> lJ^l; 
Cent. Dig. iS Zn-ft21. 

■TRuffner v. McConnel, 17 111. 212, 68 Am. Dec. 862; TAPLEY 
V. BUTTERFIELD, 1 Mete. (Mass.) 515, 35 Am. Dec. 874; Judge y. 
Braswell, 13 Bush (Ky.) 69, 26 Am. Rep. 185. 

£^ven in Jurisdictions which deny the authority to sell the firm 
real estate, it is held that if the conveyance is made in the presence 
of all the partners and with their consent or Is ratified by them, it 
will pass the title. Ferguson v. Hanauer, 56 Ark. 179, 19 S. W. 749; 
Little V. Hazzard, 5 Har. (Del.) 291 ; Haynes v. Seachrest, 13 Iowa, 
455; Weld v. Peters, 1 La. Ann. 432; Shirley v. Feame, 33 Miss. 



294 POWBUS OF PARTNERS (Ch. 5 

the property is firm property, he is presumed to know that 
the partner having the legal title has implied power to sell 
or mortgage it only for firm purposes." 



SAME— POWER TO PLEDGE OR MORTGAGE FIRM 

PROPERTY 

4 

96* A partner has implied power to pledge or mortgage the 
personal property of the firm, either to raise 
money or to pay the firm debts* But a partner has 
no power to mortgage the firm realty without spe- 
cial authority. 

The power to give chattel mortgages and pledges is co- 
extensive with the power to sell firm property, on the one 
hand, and the power to borrow money, on the other/* In 
the case of an ordinary trading partnership, the authorities 
are all agreed that a partner has implied power to mortgage 
any or all of the firm chattels held for the purpose of sale, 
either to raise money for the firm, or to secure firm debts, 
even antecedent debts.'* But a partner has no implied 

653, 69 Am. Dec 875; Lawrence v. Taylor, 6 Hill (N. T.) 107; Frost 
V. Wolf, 77 Tex. 455, 14 S. W. 440, 19 Am. St Rep. 761. 

Although ineffective to pass the title of his copartners, it is held 
to convey the interest of the partner actually executing it. El- 
liott V. Dycke, 78 Ala. 150; Goddard v. Renner, 67 Ind. 532; Wal- 
ton Y. Tusten, 49 Miss. 569. See **Partner8hip,'* Dec Dig, {Key No.) 
H 1S8, Ul; Cent. Dig. I 1^18. 

58 ROBINSON BANK ▼. MILLER, 163 lU, 244, 88 N. B. 1078. 27 
L. R. A. 449, 46 Am. St Rep. 883, Gilmore, Gas. Partnership, 171; 
Glark v. Allen, 84 Iowa, 190; Ghittenden v. German-American Bank, 
27 Minn. 143, 6 N. W. 773; TarbeU v. West, 86 N. Y. 287. See, 
also, National Union Bank of Maryland v. National Mechanics* 
Bank, 80 Md. 371, 30 AU. 913, 27 L. R. A. 476, 45 Am. St Rep. 350 ; 
GOLDTHWAITE v. JANNEY, 102 Ala. 431, 15 South. 560, 28 L. R. 
A. 161, 48 Am. St Rep. 56. See "Fartnerahip,** Deo. Dig. iKey No.) U 
1S8, Ul; Cent. Dig. §| 217-^21. 

60 See ante, S 94, p. 288;; post, | 99, p. 300. 

•0 Gates ▼. Bennett, 33 Ark. 475; Phillips y. Trowbridge Fur- 
niture Company, 86 Ga. 699, 13 S. E. 19; Nelson v. Wheelock, 46 
DL 26; McCarthy ▼. Seisler, 130 Ind. 63, 29 N. B. 407; Patch y. 
Wheatland, 8 Allen (Mass.) 102; Richardson y. Lester, 83 IlL 55; 



B 96) PARTICULAR POWERS 295 

power to give security for the debts of others.'* And 
a partner has no power to mortgage the firm property for 
his individual debts.'* With regard to property not held 
for the purpose of sale, however, the law seems to put mort- 
gages and pledges upon the same basis as assignments for 
the benefit of creditors, denying the presumption of the 
power, except where the other partners have absconded, 
are absent, or are otherwise incapacitated from assenting or 
dissenting.** The power to pledge is implied from the 
power to borrow money on the credit of the firm.'* 

Same — Power to Mortgage Firm Realty 

The general rule seems to be that one partner has no im- 
plied authority to mortgage the firm real estate," and, in 

Dickson V. Dryden, 97 Iowa, 122, 66 N. W. 148 ; Beckman v. Noble, 
115 Mich. 523, 73 N. W. 803 ; Keck v. Fisher, 58 Mo. 532 ; Galway 
v. Pullerton, 17 N. J.Bq. 389; Horton v. Bloedom, 37 Neb. 666, 56 
N. W. 321 ; Morris v. Hubbard, 14 S. D. 525, 86 N. W. 25 ; West 
Ck>ast Grocery Company v. Stinson, 18 Wash. 255, 48 Pac. 35 ; Rock 
V. Collins, 99 Wis. 630, 75 N. W. 426, 67 Am. St Rep. 885 ; Union 
Nat. Bank v. Kansas City Bank, 136 U. S. 223, 10 Sup. Ct 1013, 34 
L. Ed. 341. See '^Partnership*' Dec. Dig. {Key No.) i H2; Cent, 
Dig. I 22S. 

•1 Bank of Conunerce v. Selden, 3 Minn. 160 (GU. 99) ; Lellman 
V. Mills, 15 Wyo. 149, 87 Pac. 985. 8ee ''Partnership,** Deo. Dig. 
{Key No.) 8 142; Cent, Dig. §§ 222-228. 

•2 Lance v. Butler, 135 N. C. 419, 47 S. B. 48a See "Partnership;* 
Dec, Dig. (Key No.) i 142; Cent. Dig. §§ 222-228, 

«» See TAPLBY v. BUTTERFIELD, 1 Mete. (Mass.) 515, 85 Am. 
Dec. 375 ; Hage v. Campbell, 78 Wis. 572, 47 N. W. 179, 23 Am. St 
Rep. 422 ; McCarthy v. Selsler, 130 Ind. 63, 29 N. B. 407 ; Horton v. 
Bloedorn, 37 Neb. 666, 56 N. W. 321. See "Partnership,** Deo. Dig. 
{Key No.) | 142; Cent. Dig. f| 222-228. 

•* Harris v. Baltimore, 73 Md. 22, 17 Ati. 1046, 20 Ati. Ill, 8 L. 
R. A. 677, 25 Am. St Rep. 565; Hopkins ▼. Thomas, 61 Mich. 389, 
28 N. W. 147; Clark v. Rives, 33 Mo. 579; Keller v. Smith, 20 Tex. 
Civ. App. 314, 49 S. W. 263 ; George v. Tate, 102 U. S. 564, 26 L. Ed. 
232; Marshall v. MaClure, 10 App. Cas. 325. See "Partnership,^ 
Dec. Dig, (Key No.) § 142; Cent. Dig. IS 222-228. 

«« Greer v. Ferguson, 56 Ark. 324, 19 S. W. 966 ; Cottle v. Har- 
rold; 72 Ga. 830; Kahn v. Becnel, 108 La. 296, 32 South. 444; Har- 
din v. Dolge, 46 App. Dlv. 416, 61 N. Y. Supp. 753; McGahan T. 
Rondout Bank, 156 tJ. S. 218, 15 Sup. Ct 347, 39 L. Ed. 403. 

But such a mortgage has been held effective as to the Interest of 
the partner executing It Cottle ▼.' Harrold, 72 Ga. 830; Baker v 



296 POWERS OF PARTNERS (Ch. 5 * 

the absence of prior express authority 01* subsequent rati- 
fication, an attempt to do so is futile But the absence of 
such power is doubtless due here, as in the case of convey- 
ances of real estate already noticed, to the peculiar rule in 
regard to sealed instruments.** In a trading firm, where 
real estate is held for sale, and where the power exists to 
borrow money and issue negotiable paper, it would seem 
that there should be the power to mortgage the firm real 
estate as security. While such a mortgage might be inef- 
fective, because of the lack of implied authority to execute 
a sealed instrument, it should be treated as an equitable 
mortgage,*^ especially in a jurisdiction where the firm 
realty is regarded as converted into personalty for the pay- 
ment of firm debts.** However, a firm, by permitting the 
title to firm realty to stand in the name of one. partner, 
clothes him with apparent authority to mortgage it in his 
own name for firm purposes.** 



Lee, 49 La. Ann. 874 21 South. 688; Weeks ▼. Afascoma Rake Go., 
58 N. H. 101 ; -Watts ▼. DurscoH, 82 L. T. Rep. N. 8. 255 (affirmed 
in 1001, 1 Ch. 294). See ^^Partnership,'' Deo, Dig. (Key No.) S IJtZ; 
Cent. Dig. S 222. 

•• It is not always put upon that ground, as appears from the 
following: "Lands held by partners are considered as lands held 
by tenants in common; and as one tenant in common cannot pass 
any estate of his cotenant, and as land cannot pass without deed, 
it follows that one partner cannot convey away the real estate of 
the firm, without special authority/* Shaw, O. J., in TAPLEY v. 
BUTTERFIELD, 1 Mete. (Mass.) 515, 35 Am. Dec. 375, Gilmore, 
Cas. Partnership, 236^ note. See '^Partnership,** Dec. Dig. {Key No.) 
IS 1S8, UK H2; Cent. Dig. §§ 217-228. 

•7 Ex parte Broadbent, 4 Deac. & C. 8 ; Lindley, Partnership (7th 
Eng. Ed.) 166. See ""Partnership;' Deo. Dig. {Key No.) S 142; Cent. 
Dig. i 222. 

e« Long ▼. Slade, 121 Ala. 267, 25 South. 81. It has been held, 
however, that a mortgage on firm realty cannot be regarded as a 
mortgage on personalty, merely because realty is sometimes consid- 
ered personalty in equity. Miller v. Proctor, 20 Ohio St 442. See 
"Partnership:* Dec. Dig. {Key No.) S 142; Cent. Dig. §§ 222-228. 

•9 ROBINSON BANK v. MILLER, 153 111. 244, 38 N. B. 10781 27 
L. R. A. 449, 46 Am. St Rep. 883, Gilmore, Gas. Partnership, 171; 
Chittenden v. German-American Bank, 27 Minn. 143, 6 N. W. 778. 
See "Partnership,** Deo. Dig. (Key No.) §{ 142, 155; Cent. Dig. H 
222-228, 278, 279. 



§ i>7) PARTICULAR POWERS 297 

« 

SAME— ASSIGNMENT FOR BENEFIT OF CREDI- 
TORS 

87. A partner has no authority to make an assignment for 
the benefit of creditors, without the consent of all 
the partners who are within the jurisdiction and 
who are accessible. 

By the weight of authority, it is not within the scope of 
authority of onp partner to assign all the property of the 
nrm for the benefit of creditors, when the other partners 
can be consulted; for such an assignment, far from being 
preservative, like the power to sell all the property of a 
trading partnership in order to pay debts, is really destruc- 
tive of the partnership business.** If, however, the other 
partners are permanently beyond the jurisdiction, or for 
some other reason incapable of giving their assent or dis- 
sent to the proposed assignment, a partner has implied 
power to make it of his own motion.** But mere tempo- 
rary disability, due to illness or absence, will not warrant 
such an assignment.** A managing partner, where the oth- 
ers are absent from the country, or even, as held in one 

TO Fox V. Curtis, 176 Pa. 52, 34 Atl. 952; WELLES v. MARCH, 
30 N. Y. 844; Brooks v. Sullivan, 32 Wis. 444; Crittenden ▼. HUl, 
61 Minn. 462, 63 N. W. 1030; Osborne v. Barge (C. C.) 29 Fed. 725. 

Some cases, however, sustain such an assignment on the groimd 
that, if a partner has implied power to sell all the firm assets, he 
should also have the power to assign them for the benefit of cred- 
itors. Scruggs V. Burmss, 25 W. Va. 670; Hennessy v. Western 
Bank, 6 WatU & S. (Pa.) 300, 40 Am. Dec. 560. See ^'Partnership,*' 
Dec. Dig. {Key No.) S 151; Cent. Dig, H 267-271. 

71 DEOKARD V. CASE, 5 Watts (Pa.) 23, 30 Am. Dec 287, Gil- 
more, Cas. Partnership, 233 ; Loeb v. Plerpoint, 58 Iowa, 469, 12 N. 
W. 544, 43 Am. Rep. 122; Sullivan v. Smith, 35 Neb. 476, 19 N. W. 
620, 48 Am. Rep. 854 ; Rumery v. McCuUoch, 54 Wis. 565, 12 N. W. 
65; Mayer v. Bernstein. 69 Miss. 17, 12 South. 257: H. B. CLAF- 
LIN CO. ▼. EVANS, 55 Ohio St 183, 45 N. E. 3, 60 Am. St. Rep. 
686. Bee "PartnersMp,'* Dec. Dig, {Key No.) { 151; Cent. Dig. H 
£67-271. 

72 Stadelman ▼. Loehr, 47 Hun (N. T.) 327; Stockham v. Wells, 
25 Wkly. Notes Cas. (Pa.) 84. See ''Partnership," Dec. Dig. {Key 
No.) S 151; Cent. Dig. i| 267-271. 



298 POWERS OF PARTNERS (Ch. 5 

case, merely nonresident, may make an assignment.^* So, 
also, as with other powers not implied, an assignment by 
one partner will be valid if the other partners have previ- 
ously consented to it, or subsequejitly ratify; but a ratifi- 
cation will not aflfect liens of firm creditors acquired in the 
interim.^* Prior authority or subsequent assent may be im- 
plied from the circumstances or from the conduct of the 
parties/* 



SAME— POWER TO BUY 

88. A partner has implied power to buy property, within 
le scope of the firm's business, on the credit of 
le firm. 



t 



It has long been decided that every member of an ordi- 
nary partnership has implied power to purchase on the 
credit of the firm such goods as are or may be necessary 
for carrying 6n its business in the ordinary way.^* Thus, 

Tt Williams v. Frost, 27 Minn. 255, 6 N. W. 793; H. B. CLAFLIN 
GO. T. EVANS, 65 Ohio St 183, 45 N. E. 8, 60 Am. St Rep. 686. 
But see Ck)x v. Swofford Bros. Dry Goods Go., 2 Ind. T. 61, 47 S. 
W. 308. See, also, VosKmlk v. Urquhart, 91 Wis. 513, 65 N. W. 60 ; 
Hennessy v. Western Bank, 6 Watts & 8. (Pa.) 800, 40 Am. Dec. 560. 

But the mere fact tliat a partner, as general manager, has au- 
thority to carry on the business for the others, does not necessa- 
rily proTe authority to make. an assignment Callahan v. Heinz, 
20 Ind. App. 359, 49 N. E. 1078; Hook v. Stone, 34 Mo. 829; Harper 
y. Goodsell, L. R. 5 Q. B. 422. See ^'Partnership,** Deo. Dig, (Key 
No.) S 151; Cent. Dig. §§ 267-271. 

74 stein v. La Dow, 13 Minn. 412 (Gil. 881). But see Adee y. Cor- 
nell, 93 N. Y. 572. A letter from an absent partner, containing the 
words, *'Take charge of everything In our business; close It up 
speedily," Is sufficient consent to an assignment WELLES y. 
MARGH, 30 N. Y. 844. See "Partnership,** Deo. Dig. (Key No.) H 
151, 157 ; Gent Dig. {{ 267-271, 290. 

7» SHATTUGK v. CHANDLER, 40 Kan. 516, 20 Pac 225, 10 Am. 
St Rep. 227, Gllmore, Gas. Partnership, 286; Elrby y. Ingersoll, 1 
Doug. (Mich.) 477 ; Lowensteln y. Flauraud, 11 Hun (N. Y.) 899. 

The burden of proving sufficient authority Is upon those claiming 
under the assignment Callahan y. Heinz, 20 Ind. App. 859, 49 N. 
B. 1078. See ^'Partnership,** Deo. Dig. {Key No.) U iSl, 165, 157, 
217; Cent. Dig. S{ 267-271, 278^91, 419, i20. 

Tt PORTER y. CURRY, 50 111. 819, 99 Am. Dec. 520, GUmorQ, Caft 



§ 98) PARTICULAR POWERS 299 

where one of a firm of harness makers bought on the credit 
of the partnership a number of bits to be made up into 
bridles, but instead pawned them for his own use, the seller 
of the bits was allowed to recover their price in an action 
against both partners. The fact that a partner misappro-. 
priates the goods to his own use will not relieve the firm 
of liability J ^ The firm is liable, although the goods may 
have been supplied to only one of the partners, and no other 
person may have been known to the supplier as belonging 
to the firm/* If, however, goods are bought by a partner 
actually and ostensibly as an individual, he alone is liable 
to the seller; and a partner acting thus as an individual, 
and not as an agent, would in such a transaction still be 
solely liable, even should the firm become benefited by it.^* 
Nor is the firm liable for goods ordered by and supplied to 
one partner which it was his duty to contribute to the joint 
stock of the firm.'* 

Partnership, 868; McDonald ▼. Fairbanks, Morse & OKf 161 lU. 
124, 43 N. B. 783 ; Braches t. Anderson, 14 Mo. 441 ; Mead y. Shep- 
ard, 54 Barb. (N. Y.) 474 ; STEGEEB ▼. SMITH, 46 Mich. 14, 8 N. 
W. 683, Gllmore, Gas. Partnership, 867 ; Smith ▼. Smyth, 42 Iowa, 
483; LEFFLEB ▼. BIGB, 44 Ind. 103, Gllmore, Gas. Partnership, 
868. A partner may buy land if necessary for the firm business. 
Davis ▼. Gook, 14 Nev. 265 ; but see Glay ▼. Garter, 16 Wkly. Notes 
Gas. (Pa.) 385; Judge ▼. Braswell, 13 Bush (Ey.) 67, 28 Am. Bep. 
185. Bee ^^Partnership,'* Deo. Dig. {Key No.) | 14I; Cent. Dig. %% 
214-216. 

TT BOND ▼• GIBSON, 1 Gamp. 185, Gllmore, Gas. Partnership, 
366. See ''Partnership;* Dec. Dig. (Key No.) | HI; Cent. Dig. H 
214-2I6. 

T8 BISEL T. HOBBS, 6 Blackf. (Ind.) 479, Gllmore, Gas. Partner- 
ship, 321; Bracken v. March, 4 Mo. 74; Gardiner ▼. Ghllds, 8 Cat. 
& P. 345. Where persons were erecting buildings as partners, and 
one of them bought brick for use therein, without any express agree- 
ment that the purchase was an individual purchase, and the brick 
was used In the buildings, the firm was liable. STEGKER ▼. 
SMITH, 46 Mich. 14, 8 N. W. 583, Gllmore, Gas. Partnership, 367. 
See ''Partnership,** Dec. Dig. (Key No.) { HI; Cent. Dig. S{ 214-216. 

TtEMLY y. LYE, 15 East, 7; Heckert ▼. Fegely, 6 Watts & S. 
(Pa.) 139 ; Sinkler v. Lambert, 5 PhUa. (Pa.) 86 ; HOLBIES v. BUB- 
TON, 9 Vt 252, 31 Am. Dec. 621, Gllmore, Gas. Partnership, 312. 
See "Partnership,** Deo. Dig. (Key No.) S 14I; Cent. Dig, {§ 214-216. 

60 BANNISTER Y. MIIJ.ER, 54 N. J. Eq. 121, 32 Ati. 1066. See 
"Partnership,** Deo. Dig. (Key No.) | 14I; Cent. Dig. S{ 214-216. 



300 POWERS OP PARTNERS (Oh. 5 

This power of one partner to bind the firm by a purchase 
of goods on its credit is not confined to trading partner- 
ships. It is of no consequence what the partnership busi- 
ness may be, if the goods supplied are necessary for its 
transaction in the ordinary way. Thus a partner of a firm 
engaged in the livery business is acting within the scope of 
the partnership business when he procures horses for the 
use of the firm.'* One of a firm of lawyers may buy law 
books for the firm.** So, also, where some printers and 
publishers agreed to share the profits of a work, and the 
publishers ordered paper for that particular work, and be- 
came bankrupt, the printers were held liable for its price 
to the stationers who supplied it.** A partner binds the 
firm in purchasing goods, even though his intention is to 
defraud his fellow partners, so long as the seller is not privy 
to the fraudulent intention.** 



SAME— POWER TO BORROW MONEY 

; A member of a trading ftna has implied power to bor- 
row money, where necessary for the transaction of 
the partnership business in the ordinary way. A 
member of a nontrading partnership has no power 
to borrow, in the absence of previous express au- 
thority or subsequent ratification. 

The requirements of commerce render it necessary that 
the power to borrow money should exist in the members of 

•1 Chappie ▼. Davis, 10 Ind. App. 404, 88 N. B. 856. See **Part- 
nenhip,'* Dec. Dig. (Key 2Vo.) S 14I; Cent, Dig, %% tlJh^lS. 

8s Alley V. Bowen-Merrill Oo., 76 Ark. 4, 88 S. W. 838, 118 Am. 
St Rep. 78. See ** Partner ship** Dec, Dig, {Key No.) S 1J^; Cent. 
Dig. n 2U''216. 

?» Gardiner v. Chllds, 8 Car. & P. 345. See "PartnersMp,** Deo. 
Dig. (Key No.) { Ul; Cent. Dig. §S 21J^16. 

•4 BOND ▼. GIBSON, 1 Camp. 185, Gilmore, Cas. Partnership, 
866; Carver v. Dows, 40 lU. 374; Clark v. Johnson, 90 Pa. 442; 
Kenn^ v. Altvater, 77 Pa. 34. And see Johnson v. Barry, 95 lU. 
483: See ^'Partnership;* Dec Dig. (Key No.) H HI, 164; Oent. 
Dig. IS 2H, 276. 



g 99) PABTIGULAB POWERS 301 

a trading partnership.'* Thus a partner has power to bor- 
row money for his traveling expenses while conducting 
business for his firm.'* At the same time the power of bor- 
rowing money, like every other implied power of a part- 
ner, only exists where it is necessary for the transaction 
of the partnership business in the ordinary way. Accord- 
ingly a partner has no implied authority to borrow where 
the business is one usually conducted on a cash basis, e. g., 
mining on the cost-book principle, and third persons, loan- 
ing money to one partner, with knowledge of the custom of 
the firm, do so at their peril.*^ So, also, third persons have 
no right to assume the existence of the power in a business 
where borrowing is unusual, as in the case of lawyers or 
doctors, but must, in order to hold the firm, prove actual 
authority or ratification.'* In fact, the power is seldom im- 
plied in the case of members of nontrading partnerships.** 

s« Union National Bank of Kansas City, Mo., ▼. Nelll, 149 Fed. 711, 
79 O. O. A. 417, 10 K R. A. (N. S.) 4fi8 ; Smith ▼. Collins, 115 Mass. 
388; Pahlman y. Taylor, 75 111. 629; BUnn v. Brans, 24 111. 317; 
Church ▼. Sparrow, 6 Wend. (N. T.) 223; Sherwood v. Snow, 46 
Iowa, 481, 26 Am. Rep. 155; National Bank of Commerce v. Mead- 
er, 40 Minn. 325, 41 N. W. 1043 ; WINSHIP v. BANK OF UNITED 
STATES, 5 Pet 529, 8 L. Ed. 216, Gllmore, Cas. Partnership, 356; 
Lemke v. Faustmann. 124 111. App. 624 (1906); Hatchett ft Large 
V. Sunset Brick ft Tile Co. (Tex. Civ. App.) 99 S. W. 174; Parker 
▼. Parker (Ky.) 80 S. W. 209. Bee "Partnerahtp,*^ Deo. Dig, {Key 
yo.) I US; Cent. Dig. § 241. 

«• ROTHWELL v. HUMPHRIES, 1 Esp. 406, Gllmore, Cas. Part> 
nershlp, 366. See "Partnership*' Deo, Dig. (Key yo.) { IJ^S; Cent. 
Dig. S 241. 

8T Burmester v. Norrls, 6 Exch. 796; Hawtayne v. Bourne, 7 Mees. 
ft W. 595 ; RlckettB v. Bennett, 4 O. B. 686. See '^Partnership,'' Dec. 
Dig. {Key yo.) S 145; Cent. Dig. { 241. 

•» Smith V. Sloan, 87 Wis. 285, 19 Am. Rep. 767; Friend ▼. Dur- 
yee, 17 Fla. Ill, 35 Am. Rep. 89; Crosthwalt v. Ross, 1 Hnmph. 
(Tenn.) 23, 84 Am. Dec. 613. See ^'Partnership,*' Dec. Dig. (Key 
yo.) SS 145, 151; Cent. Dig. §S 241, 282. 

8» But see Hoskineon y. Eliot, 62 Pa. 393 ; LEFFLER ▼. RICE, 
44 Ind. 108, Gllmore, Cas. Partnership, 368. ''Partners in other 
bnslD^ss (than commercial), such as farming, mining, etc., have 
prima fade no such authority. But this presumption against lack 
of authority may be rebutted by showing that the organization and 
particular purposes of the firm are such as to render it in the spe- 
cial instance necessary, or, if not necessary, usual in similar cases." 



802 POWERS OF PABTNBBS (Oil. 5 

Nor, even in a trading partnership^ does the power to bor- 
row money cover the borrowing of money to increase the 
capital of the firm, which is the mere aggregate of the con- 
tributions of all the partners. The transaction is in effect 
like borrowing money for the partner's own individual con- 
tribution, for which he alone remains bound.** Still less will 
the firm be bound where, borrowing is prohibited, and the per- 
son advancing the money is aware of the prohibition.*^ 



SAME— POWER TO ISSUE BILLS AND NOTES 

100. A member of a trading partnership has implied power 
to bind the firm on negotiable instrmnents. A 
member of a nontrading partnership has prima 
facie no such power. 

In Trading Partnerships 

Since a partner in trading partnerships has implied 
power to borrow money on the credit of the firm, he should 

Deardorf's Adm'r ▼. Thacher, 78 Mo. 131, 47 Am. Rep. 96w See 
"PartneraMp,'* Dec. Dig. {Key No,) i US; Cent. .Dig. § t^l. 

•0 Fisher ▼. Taylor, 2 Hare, 218 ; Greenslade ▼. Dower, 7 Bam. 
& C. 635. The power to borrow money so as to bind the firm in- 
cludes the case of his obtaining money from the firm's bank by an 
overdraft Blackburn Bldg. Soe. y. Ounliffe, 22 Oh. Div. 61, 9 App. 
Gas. 857; Waterlow ▼. Sharp, L. B. 8 Eq. 501. But it does not in- 
clude opening a bank account in his own name. Alliance Bank v. 
Kearsley, L. R. 6 P. O. 433. Bee '^Partnership,'* Deo. Dig. iKey No.) 
I 145; Cent. Dig. S 2il. 

91 In re Worcester Oom Bxchange Co., 3 De Gex., M'. & G. 180; 
Blackburn Bldg. Soc. v. Cunliife, 22 Ch. Div. 61. When money is 
borrowed by a partner as an individual, the fact that it is applied 
for the benefit of the firm wlU not make the firm liable. Oibbs v. 
Bates, 43 N. Y. 192; National Bank of Salem v. Thomas, 47 N. Y. 
15 ; Green y. Tanner, 8 Mete (Mass.) 411 ; McLinden ▼. Wentworth, 
51 Wis. 170, 8 N. W. 118. When money is borrowed for the firm, 
and the partner borrowing it uses it for private purx>08e8, the firm 
is nevertheless liable. Stark v. Ck)rey, 45 111. 431 ; Real Estate Inv. 
Go. V. Smith, 162 Pa. 441, 29 AtL 855; Freeman ▼. Carpenter, 17 
Wis. 126; Warren v. French, 6 Allen (Mass.) 817; Hay ward y. 
French, 12 Gray (Mass.) 453; Klelnhaus y. Generous, 25 Ohio St 
667. See "Partnership,** Dec. Dig. (Key No.) i 145; Cent. Dig. i 241. 



§ 100) PARTICULAB POWEBfl 303 

• 

also have the power to bind the firm by giving evidence of 
that indebtedness in any of the usual forms of commercial 
paper. Accordingly third persons are justified in presum- 
ing, as a matter of law, that all commercial paper, executed 
by one of the members of a trading partnership, which 
bears the signature of the firm, whether as maker, indorser, 
or acceptor, is issued within the scope of the partnership 
powers, and for partnership purposes.** Although the part- 
nership agreement may expressly forbid any partner from 
signing the firm name to negotiable paper, such restriction 
is not binding upon third parties, who without notice be- 
come holders of firm paper actually g^ven by a partner for 
partnership purposes.** Even if one partner gives a' note 
or bill in payment of a firm debt, in ignorance that his co- 
partner has already done so, and both notes or bills come 
into the hands of bona fide holders without notice of the 
mistake, the firm is liable on both.** 

•1 WINSHIP T. BANK OF UNITED STATES, 5 Pet 529, 8 L. Ed. 
216, Gilmore, Gas. Partnership, 356; Silverman t. Chase, 90 IlL 
37; PINKNBY v. HALL, 1 Salk. 126, Gilmore, Gas. Partnership, 
371 ; Fuller v. Percival, 126 Mass. 381 ; First Nat Bank of Negau- 
nee t. Freeman, 47 Mith. 408, 11 N. W. 219; Ketcham Nat Bank v. 
Hagen, 164 N. Y. 446, 58 N. E. 523; Pettyjohn ▼. Nat Exchange 
Bank, 101 Va. Ill, 43 S. E. 203. That a partner cannot bind the 
firm by a guaranty for the payment of a bill of exchange, see DUN- 
GAN V. LOWNDES, 3 Gamp. 478, Gilmore, Gas, Partnership, 369; 
Lemke v. Faustmann (1906) 124 III. A^p. 624. As a joint maker of 
a- note is not, as against the holder, a surety for the comaker to the 
extent of the latter*8 portion of the note, in case the Joint maker 
is a partnership, the holder will be chargeable with notice of the 
suretyship, and therefore of the lack of authority to sign the note. 
Union Nat Bank of Kansas Gity, Mo., v. NeiU (1906) 149 Fed. 711, 
79 G. G. A. 417, 10 L. R. A. (N. S.) 42a See '^Partnership," Deo. 
Dig. {Key No.) % U6; Cent, Dig. {{ 24^255. 

9 s Bloom v. Helm, 53 Miss. 21; Benninger ▼. Hess, 41 Ohio St 
64. See "Partnership,'* Deo. Dig. {Key No.) | 146; Cent. Dig. SS 
242-255. 

94 Davison v. Robertson, 3 Dow. 218. A Joint and several prom- 
issory note, signed by one partner for himself and copartners, does 
uqt bind them severally. Sherman v. Ghristy, 17 Xowa, 322; Per- 
ring V. Hone, 2 Gar. & P. 401. But it does bind all the partners 
Jointly, and the maker separately. Doty t. Bates, 11 Johns. (N. 
Y.) 544; LORD GALWAY V. MATTHEW, 1 Gamp. 403; Maclae 
T. Sutherland, 3 El. & BL 1; Snow ▼. Howard, 35 Barb. (N. Y.) 56; 



304 POWERS OF PARTNBR8 (Gh. 5 

Nontrading Partnerships 

With respect to nontrading partnerships, however, the 
great weight of authority denies the implied power of a 
partner to bind the firm by the issuance of commercial 
paper.** Thus the execution of a note for the purchase 
price of a team of horses is not within the implied powers 
of either partner of a firm engaged in the dairy business.** 

While a nontrading firm cannot usually be held on ne- 
gotiable paper given by one partner, the plaintiff may show 
that the usage of the firm or the consent of the other part- 
ners justified its issue.** Thus, if a member of a nontrad- 

Fulton ▼. Williams, 11 Cush. (Mass.) 108; Gillow ▼. Ullle, 1 Bing. 
N. C. 695. See *' Partner ship;* Dec. Dig. {Key No.) S 146; Cent. Dig, 
%% 24^-255. 

OB PEASE ▼. COLE, 53 Conn. 53, 22 Atl. 681, 55 Am. Rep. 53, Gil- 
more, Gas. Partnership, 372; Alley ▼. Bowen-MerriU Go., 76 Ark. 4, 
88 S. W. 838, 113 Am. St Rep. 73; Teed v. Parsons, 202 111. 455, 
6C N. E. 1044; Powell Hardware Go. v. Mayer, 110 Mo. App. 14, 
83 S. W. 1008. See ^'Partnership,'' Dec. Dig. (Key No.) { 146; Cent. 
Dig. §S 24Z-255. 

•• Schellenbeck ▼. Studebaker, 13 Ind. App. 437, 41 N. E. 845, 55 
Am. St Rep. 240. The power is also denied to one of several min- 
ing adventurers. Brown v. Byers, 16 Mees. & W. 252; Dickinson v. 
Valpy, 10 Bam. ft G. 128. There Is no custom or usage that attor- 
neys should be parties to negotiable instruments, nor is It necessary 
for the purposes of their business. HEDLET v. BAINBRID6E et 
al., 3 Adol. ft E. 316, Gilmore, Gas. Partnership, 371 ; Smith v. Sloan, 
37 Wis. 285, 19 Am. Rep. 757 ; Alley v. Bowen-MerriU Go., 76 Ark. 
4, 88 S. W. 838, 113 Am. St Rep.. 73. But see Miller v. Hines, 15 
Ga. 197; Klmbro v. Bullitt, 22 How. 256, 16 D. Ed. 313; Ulery ▼. 
Ginrich, 57 111. 531 ; Hunt v. Ghapin, 6 Lans. (N. T.) 139 ; Garland 
V. Kacomb, L. R. 8 Bxch. 216 ; Levy v. Pyne, Gar. ft M. 453 ; HAH- 
MAN V. JOHNSON, 2 El. ft Bl. 61, Gilmore, Gas. Partnership, 399; 
Grosthwait v. Ross, 1 Humph. (Tenn.) 23, 34 Am. Dec. 613 ; POOL- 
EY V. WHITMORE, 10 Heisk. (Tenn.) 629, 637, 27 Am. Rep. 733, 
Gilmore, Gas. Partnership, 300. See ^'Partnership,** Dec. Dig. (Key 
No.) S 146; Cent. Dig. K 242-255. 

•T KIRK ▼. BLURTON, 9 Mees. ft W. 284, Gilmore, Gas. Partner- 
ship, 381; PEASE V. GOLE, 53 Gonn. 53, 22 Atl. 681, 55 Am. Rep. 
53, Gilmore, Gas. Partnership, 372; Harris v. Baltimore. 73 Md. 22, 
17 Atl. 1046, 20 Atl. Ill, 985, 8 L. R. A. 677, 25 Am. St Rep. 565. 
One authority broadly lays down the rule, without distinction 'be- 
tween trading and nontrading partnerships, that the firm is liable 
ns against bona fide holders on firm paper issued by one imrtner for 
his individual use. New Tork Firemen's Ins. Go. ▼. Bennett, 5 



§ 100) PARTICULAB POWERS 306 

ing firm concurs in drawing, or authorizes his partner to 
draw, a bill in the name of the firm, he impliedly authorizes 
its indorsement in the same name for the purpose for which 
it was drawn.** While the presumption is that in the case 
of nontrading firms no implied power in a partner exists to 
bind his copartner on negotiable paper, still it is quite pos- 
sible to establish a situation where a presumption of such 
power would arise. "And, of course, the fact that the firm 
derives the benefit of the act may be taken into considera- 
tion when applying this test."** In a nontrading firm the 
question whether each partner has or has not the power to 
bind the firm by the issuance of negotiable paper would 

Ck)im. S74, 18 Am. Dec. lOO. But this was clearly a commercial 
partnership. 

In the following cases notes executed without express authority 
were held binding on the firm: Voorhees v. Jones, 29 N. J. Law, 
270 (railroad contractors); Van Brunt v. Mather, 48 Iowa, 508 (a 
storage and forwarding firm); Miller t. Hlnes, 15 Ga. 197 (a law 
firm). See " Partner sMp,'' Dec, Dig. (Key 2Vo.) § U6; Cent, Dig. {{ 

08 Horn ▼. Newton City Bank, 82 Kan. 518, 4 Pac. 1022. A part- 
ner has no authority to sign a bank check postdated, even' where 
he has express authority to issue checks for the firm. Forster ▼. 
Mackreth, I^ ^. 2 Bxch. 163. A bill drawn and accepted by one 
partner after the dissolution of the firm, although dated before, 
does not bind the firm. WRIGHT v. PULHAM. 2 Chit. 121 ; MAR- 
LETT y. JACKMAN, 3 Allen (Mass.) 287. One partner, after the 
dissolution of the partnership, cannot indorse notes or bills given 
before to the firm, so as to bind his copartner, though he Is au- 
thorized to settle up the firm business. SANFORD v. MICKLES, 
4 Johns. (N. Y.) 224. But, when one of two partners in trade had, 
after an act of bankruptcy, accepted a biU of exchange in the name 
of the firm, without the privity of his copartner, it was held to be 
an available security in the hands of an innocent indorsee. LACT 
V. WOOLCOTT, 2 Dowl. & R. 45a Bee ''Partnerahipr Dec, Dig 
{Key No.) S 146; Cent. Dig. §§ 242-255. 

»» VBTSCH V. NBISS, 66 Minn. 450, 69 N. W. 315, Gilmore, Cas. 
Partnership, 379. But see dictum in New Tork Firemen's Ins. Co. 
V. Bennett, 5 Conn. 574, 13 Am. Dec. 109, that any partnership is 
bound as against a bona fide purchaser, though the paper was in 
fact issued for the individual use of the acting partner. "If bills 
are necessary, then they have a power to accept bills, and so to 
bind each other." KIRK v. BLURTON. 9 Mees. & W. 284, Gil- 
more, Cas. Partnership, 381. See ^^Partnership,** Dec. Dig. {Key 
No.) I 146; Cent. Dig. H 242-256. 

Gil.Pabt. — ^20 



306 POWERS OP PARTNERS (Cll. 5 

properly seem to depend upon whether the issuing of such 
paper is essential to carry into effect the ordinary purpose 
for which the partnership was formed. 

As the presumption of the existence or nonexistence of 
the power to sign negotiable paper depends upon whether 
the firm is trading or nontrading, it becomes important to 
distinguish between these two kinds of partnerships. This 
subject is discussed in a previous chapter, M^liich should be 
read in connection herewith,* 

Bona Fide Holder 

Like all other makers of commercial paper, a trading 
partnership is bound to third persons who purchase its pa- 
per for value without notice of the lack or abuse of author- 
ity on the part of the partner issuing it* If, however, one 
taking firm paper knows that the partner issuing it had no 
authority to issue it, or issued it in fraud of the other part- 
ners, the firm is not bound to pay the obligation.' Thus, 
where paper in the firm name is g^ven to satisfy a separate 
debt of the partner executing it, the firm is not bound.* 



1 See ante, chapter IT, §§ 37, 38, pp. 107-110; chapter V,§93,p.286. 

« Fuller V. Percival, 126 Mass. 381 ; Atlas Nat Bank v. Savery, 
127 Mass. 75; Munroe v. Oooper, 5 Pick. (Mass.) 412; Atlantic State 
Bank of City of Brooklyn v. Savery, 82 N. T. 291; Moorehead v. 
Gilmore, 77 Pa. 118, 18 Am. Rep. 435. One who loans money to 
a member of a mercantile firm, and receives from him a note exe- 
cuted in the name of the firm, has a right to presume that the note 
Is made in the course of the partnership business. Sherwood v. Snow, 
46 Iowa, 481, 26 Am. Rep. 155; Piatt v. Koehler, 91 Iowa, 592, 
60 N. W. 178. Bee "Partnership,'* Dec. Dig. (Key No.) S IJ^S; CetU. 
Dig. i 252; **Btll8 and Notes,** Dec. Dig. {Key No.) S§ 827-^84; Cent. 
Dig. i% 788-^95. 

• New York Firemen's Ins. Co. t. Bennett, 6 Conn. 574, 13 Am. 
Dec. 109; Cotton v. Evans, 21 N. C. 284; Smyth v. Strader, 4 How. 
404, 11 L. Ed. 1031 ; Moynahan y. Hanaford, 42 Mich. 329, 8 N. W. 
944 ; Powell v. Waters, 8 Cow. (N. Y.) 688 ; Boyd v. Plumb, 7 Wend. 
<N. Y.) 309. But see, for facts held not to show knowledge of lack 
of authority, WAIT v. THAYER. 118 Mass. 473 ; Atlas . Nat Bank 
V. Savery, 127 Mass. 75. See ^'Partnership,** Deo. Dig. {Key No.) S 
H6; Cent. Dig. {{ 2Jt2-255. 

4 Funk V. Babbitt, 55 lU. App. 124. A partner cannot Issue firm 
paper for his own accommodation. National Surety Bank y. Mc- 
Donald, 127 Mass. 82 ; Wilson y. Williams, 14 Wend. (N. Y.) 146, 28 



§ 100) PARTICULAR POWERS 307 

But in the case of a trading partnership the fact that the 
paper was issued for the individual benefit of a partner 
must have been clearly brought home to the holder, if the 
firm is to escape liability.' In fact, it may be said generally 
that whether a trading firm is to escape from liability de- 
pends upon the notice the holder has. Thus notes made 
by a member of two firms in the name of one of them, in 
favor* of his copartner in the other firm, for an individual 
debt, would bind only the individual; for the payee had 
knowledge of the transaction.* 

Am. Dec. 518; Heffron t. Hanaford, 40 Mich. 805. Bee **Partner- 
ship,*' Deo. Dig. (Key No.) {{ 146, W; Cent. Dig. {{ 2^9, 256, 257. 

B Richardson ▼. Erckens, 53 App. Div. 127, 65 N. Y. Supp. 872, 
affirmed 169 N. Y. 588, 62 N. B. 1100. See, also, King ▼. Mecklenburg, 
17 Colo. App. 312, 68 Pac. 984. Where notice is clearly proved, the 
firm is not liable. First Nat Bank y. State Nat Bank, 131 Fed. 
422, 65 0. O. A. 406; Adams v. Long, 114 IlL App. 277; Kahn v. 
OverstolZy 82 Mo. App. 235. '*In commercial partnerships a note ex- 
ecuted by one member in the firm name is prima facie the obligation 
of the firm; and,, if one of the parties seeks to avoid its payment, 
the burden of proof lies upon him to show that the note was given 
in a matter not relating to the partnership business, and that, also, 
with the knowledge of the holder of the note." Lee v. First Nat 
Bank of Ft Scott, 45 Kan. 9, 25 Pac. 196, 11 Ll B. A. 238; Third 
Nat Bank v. Snyder, 10 Mo. App. 213; Stevens T. McLachlan, 120 
Mich. 285, 79 N. W. 627. See *' Partnership r Deo. Dig. (Key No.) % 
m; Cent. Dig. %\ 242-255. 

• McCk>nnell v. Wilklns, 13 Out App. (Can.) 438. Where the firm 
name is that of an individual, and the latter executes and delivers 
a note, so that it does not appear as a certainty whether it is a 
firm or private obligation, the burden of proof is on the holder to 
show that the note was given on the partnership account; the pre- 
sumption being, where he is engaged in no separate business, that 
the maker intended to bind the firm. YORKSHIRE) BANKING GO. 
V. BEATSON, 5 0. P. Div. 109, Gilmore, Gas. Partnership, 157; 
United States Bank v. Binney, 5 Mason, 176, Fed. C^s. No. 16,791; 
Funk ▼. Babbitt, 56 111. App. 124. Gontra, that the burden of proof 
is on the firm to show that it was not the obligor, Mifflin v. Smith, 
17 Serg. & R. (Pa.) 165. But see Burroughs' Appeal, 26 Pa. 264. 
Where the firm name imports a partnership, see Garrier ▼. Gameron, 
31 Mich. 373, 18 Am. Rep. 192; Vallett ▼. Parker, 6 Wend. (N. Y.) 
615; Whitaker v. Brown, 16 Wend. (N. Y.) 505; Hogg v. Orgill, 
34 Pa. 344. As to the liability of dormant partners, see Bank of 
Alexandria T. Mandeville, 1 Granch, G. O. 575, Fed. Gas. No. 851; 



308 rowisRS OF partners (Cli. 5 

In case of a nontrading partnership the innocent pur- 
chaser for value will seldom be protected, for the issuing of 
the paper will usually be beyond the power of the partner.^ 
Moreover, the very nature of the business and of the par- 
ticular transaction is sometimes sufficient to prevent the 
holder from being considered an innocent purchaser for 
value. Thus, where one member of a shipping firm signed 
the partnership name as surety for another's individual ob- 
ligation, it was held that the nature of the transaction pre- 
cluded the innocence of the holder.' 



SAME— POWER TO EXECUTE SEALED INSTRU- 
MENTS 

101. A partner has no implied power to bind his copartner 
by the execution of sealed instruments. 

EXCEPTIONS AND QUALIFICATIONS: 

(a) One partner may execute a sealed rele^ise of a 

firm debt. 

(b) When the seal is unnecessary to the validity of 

the instrument, it will be treated as surplus- 
age, and the document will be regarded as un- 
sealed. 

(c) When the instrument is executed in the personal 

presence of all the partners and with their 

Ontario Bank v. Hennessey, 48 N. Y. 645. Where a note is given 
partly for a private debt and partly for a firm debt, the cases are 
not agreed as to the etfect King v. Faber, 22 Pa. 21 ; Rice ▼. Doane, 
164 Mass. 136, 41 N. B. 126 ; Guild v. Belcher, 110 Mass. 257 ; WU- 
son V. Forder, 20 Ohio St 89, 6 Am. Rep. 627. Bee *'Partner9hip^'* 
Dec Dig. {Key No.) S§ 1S4, 146; Cent Dig. SS 200, 2i^255. 

TPBASB ▼. OOLE, 53 Conn. 53, 22 Atl. 681, 55 Am. Repi 53, 
Gllmore, Cas. Partnership, 372. Dickinson v. Vaply, 10 B. & O. 128; 
Cocke ▼. Branch Bank at Mobile, 8 Ala. 175 ; DeardorTs Adm'r ▼. 
Thacher, 78 Mo. 128, 135, 47 Am. Rep. 95. See "Partnership;* Dee, 
Dig. {Key 3Vo.) § H6; Cent. Dig. §{ 242-255. 

• ROLLINS v.. STEVENS, 31 Me. 454, Gilmore, Cas. Partnership, 
370; DUNCAN ▼. LOWNDES. 3 Camp. 478, Gilmore. Cas. Partner- 
ship, 369. A firm can be held upon paper signed in blank in its 
name by a partner. Chemung Canal Bank v. Bradner, 44 N. Y. 680. 
Contra: Hogarth v. Lathan, 3 Q. B. DIv. 643. See '^PartnereMp,'* 
Deo. Dig. {Key No.) { U6; Cent. Dip. % 252. 



i 101) PARTICULAR POWERS 909 

knowledge, it wiU be regarded as the instru- 
ment of alL 
(d) When there is previous authority or subsequent 
ratification, which may be shown by parol, or 
may be implied from the declarations or acts 
of the parties, or from the drctunstances^ the 
instrument will be binding. 

At common law one partner could not bind the firm by 
deed, bond, mortgage, or other instrument under seal, un- 
less he had express authority to do so under the seals of the 
other partners.* The reason usually given for this rule is 
that to recognize such a power would enable one partner 
to give a favorite creditor a lien on the real estate of the 
partners, and, consequently, a preference over the simple 
contract creditors of the firm.** The correct reason, how- 
ever, is to be found in the fact that a deed of real estate, the 
kind of instrument under seal with which this rule origi- 
nated, is not ordinarily a commercial document. As al- 
ready pointed out,** real estate was not usually the sub- 
ject-matter of a partnership, and its conveyance, not per- 
taining to the customary activities of mercantile firms, was 
naturally not regarded as within the implied powers of part- 
ners. The rule being established, however, with respect to 
deeds, was extended to all sealed instruments, and the state- 
ment became common that contracts under seal were not 
ordinary mercantile documents and were subject to rules 
of law independent of trade and commerce.** While deeds 



• "A general partnership agreement, thongh ander seal, does not 
authorize the partners to give deeds for each other, unless a par- 
ticular power be given for that purpose." Per Kenyon, G. J., in 
HABRISON V. JACKSON et al., 7 Term R. 207, Gilmore, Gas. Part^ 
nership, 882. See **Partnership," Dec. Dig. (Key No.) { 157; Oenl. 
Dig. I 205. 

10 HARRISON ▼. JACKSON et al., supra. See **PartneraMp,*' 
Dec Dig. {Key No.) i 1S7; Cent. Dig. S 205. 

11 See ante, p. 292. 

IS Gerard ▼. Basse, 1 Dall. 119, 1 L. Ed. 63; Macleod's Theory 
and Practice of Banking (4th Ed.) pp. 236-244; STRAFFIN'S 
ADM'R T. NEWELL, T. U. P. Charlt (Qa.) 168, 4 Am. Dec. 70S. 



810 POWBBS OF PARTNERS (Ch. 5 

of real estate were not usual mercantile documents, there 
were, however, other documents under seal which did per- 
tain^ to trade and commerce, and which might properly be 
held to be within the implied power of a partner to execute. 
Thus, in Straffin's Adm'r v. Newell,** which involved the 
binding effect upon the firm of a sealed charter party exe- 
cuted by one partner, the court, in upholding the instru- 
ment, said : "I bottom my decision upon the broad ground 
that a charter party is exclusively a mercantile transaction, 
and always in the course of trade." ** It should be noticed 
that the inability of a partner to bind his copartner by a sealed 
instrument was due to the entire absence of power, and not 
merely to the lack of power evidenced in the proper mianner, 
viz., under seal. 

Exceptions and Qualifications 

While the rule is nominally adhered to, the inconvenience 
of it has been avoided by the courts in various ways. It 
was very early held that one partner could execute under 
seal a release of a firm debt. This was an incident to the 
implied power of each partner to collect debts.** But a 

See ''Partnership;: Deo. Dig. (Key No.) SI 157, HI; Cent. Dig. H 
205, 218. 

i» STRAFFIN'S ADM'R v. NEWELL, T. U. P. Oharlt (Ga.) 163, 
4 Am. Dec. 705. See ''Partnership,** Cent. Dig. K 206. 

i« If aU forms of sealed instruments are foreign to ordinary com- 
mercial transactions, and hence beyond the scope of a partner's 
Implied power, it would seem that the statutory changes abolish- 
ing the distinction between sealed and unsealed instruments has 
considerably enlarged the implied powers of a partner. 1 Bates, 
Partnership, S 413, note. 

It has been held that, where a statute gives to notes the status 
of sealed instruments, a partner may nevertheless have implied 
power to execute such notes. Southard v^ Steele, 3 T. B. Mon. 
(Ky.) 438; Montgomery v. Boone, 2 B. Mon. (Ky.) 244. See "Partner- 
ship," Deo. Dig, {Key No.) S 1S9; Cent. Dig. ^ 206. 

1* ''It is a general principle of law that, where two have a Joint 
personal interest, the release of one bars the other; and I camiot 
perceive that the case of copartners in trade proves an exception 
to the general rule. Each partner is competent to seU the effects, or 
to compound or discharge the partnership demands. He is to be 
considered as an authorized agent of the firm for all such pur- 
poses. Each has an entire control over the personal estate. So, in 
like manner, one coexecutor or administrator cannot bind his com> 



§ 101) PARTICULAR POWERS 311 

mere covenant by one partner not to sue for a partnership 
debt does not amount to a release of that debt by the firm.** 
An actual release, moreover, must be bona fide made ; if it 
can be shown that one partner has executed it in collusion 
with the defendant, with the fraudulent intention of pre- 
venting his copartners from enforcing a just demand, the 
defendant will not be allowed to plead this release as a de- 
fense to an action against him.*^ 

Same — Seal Treated as Surplusage 

A further exception is recognized in cases where the seal 
which the partner affixes is unnecessary to the validity of 
the transaction in question. If one partner puts a seal on 
a firm note, the seal may be disregarded, and all the part- 
ners held to their ordinary liability.** A seal unnecessarily 
affixed to a firm obligation will be treated as mere sur- 
plusage, and the partners held as on a note, bill, or simple 
contract, as the case may be.** 

panlon to an obligation, but he may commit a separate devastayit 
and release of a debt" Per Kent, G. J., in Plerson y. Hooker, 3 
Johns. (N. Y.) 68, 3 Am. Dec. 467. See, also, Dyer y. Sutherland, 
75 111. 583 ; Gillilan y. Sun Mut Ins. Co., 41 N. Y. 376 ; Noonan y. 
Orton, 31 Wis. 265; McDONALD y. EGGLESTON, 26 Vt 154, 60 
Am. Dec. 303, Gllmore, Cas. Partnership, 383. But see Brayley y. 
Goff, 40 Iowa, 76; Gram y. Cadwell, 5 Cow. (N. Y.) 489. See **Part- 
nership,*' Deo, Dig. {Key No,) { 148; Cent. Dig, t 2SS, 

i« Emerson y. Baylies, 19 Pick. (Mass.) 65; Walmesley y. Cooper, 
11 Adol. & E. 216. Cf. Richards y. Fisher, 2 Allen (Mass.) 527. See 
** Partnership,*' Dec, Dig, {Key No,) { U8; Cent, Dig, I 2Sd, 

IT Gram y. Cadwell, 5 Cow. (N. Y.) 489; Huntington y. Potter, 32 
Barb. (N. Y.) 300 ; Brayley y. Goff, 40 Iowa, 76 ; Beatson y. Harris, 
^ N. H. 83. See "Partnership," Dec, Dig. {Key No,) f US; Cent 
Dig. § 23S, 

i«Purylance y. Sutherland, 2 Ohio St 478; semble, chattel mort- 
gage, TAPLEY y. BUTTERFIELD, 1 Mete. (Mass.) 515. 35 Am. Dec. 
374. See "Partnership;* Dec. Dig, {Key No,) || 157, U6; Cent. Dig. 
II 205, 247, 

i» EDWARDS y. DILLON, 147 111. 14, 35 N. E. 135, 37 Am. St 
Rep. 199, Gilmore, Cas. Partnership, 387 ; Sweetzer y. Mead, 5 Mich. 
107 ; Price y. Alexander, 2 G. Greene (Iowa) 427, 52 Am. Dec. 526 ; 
Oibson y. Warden, 14 Wall. 247, 20 L. Ed. 797. Cf. Purviance y. 
Sutherland, 2 Ohio St 478. For certain further exceptions to the 
general rule as to sealed instruments, permitted in bankruptcy pro- 
•ceedings, see Halsey y. Fairbanks, 4 Mason, 206, Fed. Cao. No. 5,- 



312 POWEKS OF PARTNERS (Ch. 5 

Same — Instruments Executed in Presence of Partners 

Where one partner executes an instrument under seal in 
the presence of his copartners, they being cognizant of the 
transaction and offering no objection, the instrument is re- 
garded as the deed of all.** 

Same — Parol Authority or Assent 

Although by the law governing sealed instruments the 
agent executing them was required to have sealed author- 
ity, still in partnership transactions this requirement was re- 
laxed, and a previous oral authority or a subsequent oral 
ratification is sufficient to supply the want of express au- 
thorization. Such previous authority or subsequent rati- 
fication may be implied from the declarations or acts of the 
partners, or from the circumstances.** 

064; Dudgeon v. O'Connell, 12 Ir. Eq. 566; In re Sauls (D. G.) 6 
Fed. 715 ; Ex parte Hodgkinson, 19 Ves. 291. The authority of one 
member of a partnership to execute a sealed lease in the name of 
the firm will be presumed, where his partner was instrumental In 
procuring the lease. Bodey v. Cooper, 82 Md. 625, 34 Atl. 862. See, 
also, STRAFFIN'S ADM'R ▼. NEWELL, T. U. P. Charlt (Ga.) 163. 
4 Am. Dec. 705. In re Barrett, 2 Hughes, 444, Fed. Oas. No. 1,043, 
holding that a partner may execute a power of attorney under seal 
In the firm name for the purpose of collecting the firm debts, be- 
cause of "the necessity of the case." See ^Partnership,** Dec. Dig. 
{Key No.) § 1S7; Cent. Dig. { 205. 

ao Fichthom ▼. Boyer, 5 Watts (Pa.) 159, 30 Am. Dec. 300 ; Ball 
y. DunsterviUe, 4 Term R. 313 ; Bum v. Burn, 3 Ves. 573. Former- 
ly the court held that, if any one of the partners was not so pres- 
ent and thus assenting, it would require a formal instrument under 
his hand and seal to clothe the partner officiating in the transac- 
tion with the requisite authority to bind such absentee, but the 
courts are now far less strict Bentzen v. Zierlein, 4 Mo. 417; 
Cummins v. Cassily, 5 B. Mon. (Ky.) 74; HARRISON v. JACKSON, 
7 Term R. 207. Gilmore, Cas. Partnership, 382; SMITH v. KERR, 3 
N. Y. 144: Schmertz t. Shreeve, 62 Pa. 457, 1 Am. Rep. 439; Wil- 
cox V. Dodge, 12 111. App. 517; Russell v. Annable, 109 Mass. 72, 12 . 
Am. Rep. 665. See ** Partnership," Dec. Dig, {Key No.) | 1S7; Cent. 
Dig. I 205. 

SI EDWARDS T. DILLON, 147 111. 14, 35 N. B. 135, 37 Am. St 
Rep. 199, Gilmore, Cas. Partnership, 387; McDONALD v. EGGLES- 
TON, 26 Vt 154, 60 Am. Dec. 303, Gilmore, Cas. Partnership, 383; 
Swan T. Stedman, 4 Mete. (Mass.) 548; 1 Am. Lead'. Cas. 446; 
SMITH ▼. KERR, 8 N. Y. 144; Wilcox v. Dodjje. 12 IlL App. 517; 
Pike v. Bacon, 21 Me. 280, 88 Am. Dec. 259; Pollock y. Jones, 124 



§ 102) PARTICULAR POWERS 813 

Partner Bound Although Firm is Not Bound 

Although the partner, executing a sealed instrument in 
the name of the firm without actual authority, may not suc- 
ceed in binding his copartners, he may nevertheless bind 
himself, either upon the instrument itself, or upon an im- 
plied warranty of authority.*" 



SAME— POWER TO PAY AND COLLECT DEBTS 

102. A partner has implied power to collect debts owed to 
the firm, and to pay those which it owes. 

Each member of a partnership, in consequence of his 
agency, has implied power to accept payment of firm debts, 
and to give receipts and releases therefor.** The power 
exists, although the firm has been dissolved, and some third 

Fed. 163, 61 G. G. A. 556; MILLBR ▼. ROTAL FLINT GLASS 
WORKS, 172 Pa. 70, 83 Atl. 850. 

In a few jurisdictions it is held that there most be previous sealed 
authority or subsequent sealed ratification. Gummlns v. Gasslly, 5 
B. Mon. (Ky.) 74 ; Gordon v. Funkhouser, 100 Va. 675, 42 S. E. 677. 
See ^^Partnership,** Deo, Dig. {Key No.) IS 197, 157; Cent. Dig, ff 
205, 286. 

» United States v. Astley, 8 Wash. G. G. 508, Fed. Gas. No. 
14,472; Hoskinson y. Bliot, 62 Pa. 393; Van Deusen v. Blum, 18 Pick. 
(Mass.) 229, 29 Am. Dec. 582; Skinner v. Dayton, 19 Johns. (N. Y.) 
513, 10 Am. Dec. 286; Settle v. Davidson, 7 Mo. 604; Bowker 
V. Bnrdekin, 12 L*. J. Exch. 329. But see Hart v. Withers, 1 Pen. 
& W. (Pa.) 285, 21 Am. Dec. 382; Brown t. Bostlan, 51 N. G. 1; 
Fisher v. Pender, 52 N. G. 488. 

See. also, chapter III, § 63, p. 196. Bee ^^Partnership,** Dec. Dig. 
(Key No.) §1 1S7, 161; Cent. Dig. §| 205, 255%. 

«» Collins V. Collins (Ky.) 83 S. W. 99 ; People ▼. Devlin, 63 Misc. 
Rep. 363, 118 N. Y. Supp. 478; Progressive Lumber Co. v. Rogers 
(Tex. Civ. App.) 120 S. W. 280; Salmon v. Davis, 4 Bin. (Pa.) 375, 
5 Am. Dec 410; Vanderburgh v. Bassett, 4 Minn. 242 (Gil. 171). 
He has the power to receive tenders of payment Wyckoff y. An- 
thony, 9 Daly (N. Y.) 417 ; Douglas v. Patrick, 3 Term R. 683. And 
to give receipts and releases. Gordon v. Freeman, 11 111. 14; Steele 
V. First Nat Bank of Joliet. 60 III. 23 ; Henderson v. Wild, 2 Gamp. 
561 ; Dyer ▼. Sutherland, 75 111. 583. Such receipts and releases may 
be impeached by the firm for fraud. Gordon v. Albert 168 Mass. 
150, 46 N. SL 423. For the effect of a fraudulent release on the pow* 



314 POWERS OF PARTNERS (Ch. 5 

person has been appointed for the purpose of collecting the 
outstanding assets.** Nor is the power limited to the re- 
ceipt of cash. The partner may receive negotiable paper 
in payment, and even goods, if the nature of the firm's busi- 
ness and its usage will justify.** But a bill or note made 
in the partner's own name will not affect the firm's right 
of action against the debtor, unless the partner had actual 
authority from the firm to accept a bill so made, or unless 
the bill is actually paid ; *• and, similarly, goods which are 
accepted in payment must be for the use of the firm, not 
for the individual use of the partner.*^ 

On the same general principles, a partner has implied 
power to compromise firm debts, where be acts in good 
faith, without fraud or collusion, and with reasonable 
care.** 

Since a partner has implied power to accept payment of 
obligations due the firm, the converse power to pay the 
firm debts may also be implied** Another phase of this 

er to sue at law on the released claim, see chapter IX, { 194, pp. 
660-565. See ^^Partnership," Dec. Dig. (Key No.) §| US, US; Cent, 

Dig. t§ 229-2SS}A- 

s 4 MAJOR y. HA WEES, 12 111. 298, Gllmore, Cas. Partnership, 
403 ; Tyng ▼. Thayer, 8 Allen (Mass.) 391 ; Robblns v. Fuller, 24 N. 
Y. 570 ; Glllllan y. Sun Mut Ins. Ck>., 41 N. Y. 876. Not so, however, 
if the debt had, to the knowledge of the debtor, been previously as- 
signed to an individual partner. Hilton ▼. Vanderbilt, 82 N. Y. 591 ; 
Bank of Montreal v. Page, 98 111. 100. See ^'Partnership,'* Dec. Dig, 
(Key Nd.) |§ US, U8. 2SS; Cent. Dig. U 229'2S8\(t, 642-644- 

asHeartt ▼. Walsh, 75 111. 200; Tomlins v. Lawrence, 8 Moore 
& P. 555; Lee v. Hamilton, 12 Tex. 413, 41& ^ree '^Partnership,'' 
Dec. Dig. (Key No.) 1 14S; Cent. Dig. i 2S0. 

a« Hogarth v. Wherley, L. R* 10 0. P. 630. See "Partnership," 
Dec. Dig. (Key No,) { US; Cent, Dig, U 229-235%. 

aT FarweU v. St Paul Trust Co., 45 Minn. 405, 48 N. W. 828, 22 
Am. St Rep. 742 ; Gregg ▼. James, Breese (111.) 143, 12 Am. Dec. 
151. See ^'Partnership," Deo. Dig. (Key ifo.) f 14S; Cent. Dig. U 
229-283%. 

«• Walker ▼. Yellow Poplar Lumber Co. (Ky.) 35 S. W. 272; Pier- 
son V. Hooker, 8 Johns. (N. Y.) 68, 3 Am. Dec. 467; Hawn v. Sev- 
enty-Six Land & Water Co., 74 Cal. 418, 16 Pac. 196. Compare, how- 
ever, Niemann v. Niemann, 43 Ch. D. 198. See "Partnership," Dec. 
Dig, (Key No,) { U8; Cent, Dig. | 2SS. 

i»Inne8 Y. Stephenson, 1 Moo. & Ry. 145; Cannon Y. Wildman, 



§ 102) PABTIGULAB POWEB8 815 

power, namely, the power to mortgage firm property to 
pay firm debts, has already been discussed.** These lim- 
itations upon the power to mortgage will be found to apply 
equally well to the power to pay debts in general. The 
firm will be bound by actual payments by one partner, by 
his tenders of payment, and by his refusals to pay a cred- 
itor uppn demand.** But a partner has no authority to 
pay his private debts with partnership ftmds, or out of part- 
nership property.** An agreement by one partner, where- 
by his own separate creditor is induced to accept firm goods 
in discharge of the debt, is not binding on the other part- 
ners, who may sue for the value of the property thus turned 
over ; nor is it material that the goods would not have oth- 
erwise been purchased.** 

A situation similar to the one Just described, but essen- 
tially different, should be distingfuished : An agreement by 
one partner and a third person, whereby the latter pur- 
chases firm goods and agrees to pay for them in something 



28 Conn. 472; Osborn ▼. Osborn, 86 Mich. 48. See ^'Partnership,'* 
Dec. Dig. (Key No.) { US; Cent. Dig. H 229-238%. 

»o See ante, chapter V, | 96, p. 294. 

•1 Wyckoff V. Anthony, 9 Daly (N. Y.) 417; Douglas v. Patricdc, 8 
Term R. 683; Pelrse v. Bowles, 1 Starkie, 323. 

The effect of a release by one joint debtor upon the liability of 
his co-obligors has been discussed in chapter IV, §§ 70, 80, pp. 220, 
258. Bee "Partnership^ Dec. Dig. (Key No,) § 143; Cent. Dig. SI 229- 
233%k, 

»a JANNET ▼. SPRINGER, 78 Iowa, 617, 43 N. W. 461, 16 Am. 
St Rep. 460, Gilmore, Gas. Partnership, 243; Cannon v. Lindsey, 
85 Ala. 198, 3. South. 676, 7 Am. St Rep. 38; Blake ▼. Third Nat 
Bank of St Louis, 219 Mo. 644, 118 S. W. 641. 

If the same person is creditor of the firm and of a separate part- 
ner, payments by the latter with partnership funds will be applied 
on the firm debt Campbell v. Mathews, 6 Wend. (N. Y.) 551; 
Downing v. Llnville, 3 Bush (Ky.) 472. Also, If the same person is 
debtor to the firm and to a separate partner, payments by the debtor 
will be applied first in discharge of the firm. Baton ▼. Whitcomb, 
17 Vt 641 ; Scott ▼. Trent, 1 Wash. (Va.) 77. 

See, also, chapter IV, I 80, p. 258> on appropriation of payments. 
See ''Partnership;* Dec. Dig. (Key yo.) | 144; Cent. Dig. H 234-^9. 

«» Harper v. Wrigley, 48 Ga. 495; Todd v. Lorah, 75 Pa. 156; Cad- 
wallader ▼. Kroesen, 22 Md. 200. See "Partnership^* Deoi Dig. (ITey 
A'o.) \ Hi; Cent. Dig. S§ 234-239. 



316 POWERS OF PABTMBBS (Gh. 5 

Other than money, as, for example, labor or goods, is bind- 
ing on the firm, provided the labor or goods are of a sort 
as would be used within the scope of the firm business and 
are supplied for the firm, and without notice of any design 
by the partner with whom the contract was made to appro- 
priate them for his own private use.** 



SAME— POWER TO INSTITUTE AND CONDUCT 

LEGAL PROCEEDINGS 

108. A partner has implied power to resort to the ordinary 
legal proceedings proper for collecting the firm 
debts, and for defending suits brought against the 
firm; but he has no implied power to submit a 
firm controversy to arbitration, nor to confess 
judgment on behalf of the firm. 

The power to collect debts implies with it a power to 
resort to the ordinary legal process proper for that purpose. 
Thus one partner may employ attorneys to sue in behalf of 
the firm, and may execute a power of attorney under seal 
for that purpose, notwithstanding the general rule denying 
to one partner the power to execute sealed instruments in 
the firm name.*' It is not necessary that the partner should 
have the consent of the others in order to sue in the name 
of all ; but, if he sues against their consent, he should in- 
demnify them against the costs.** Conversely, a partner 

i 4 Warder t. Newdigate, 11 B. Mon. (Ky.) 174, 52 Am. Dec. 567: 
Lemon v. Fox, 21 Kan. 152; Liberty Say. Bank v. Campbell, 75 
Va. 534; White v. Toles, 7 Ala. 569. See **Partner8Mp;' Dec. Dig. 
(Key No,) U IV, m; Cent. Dig, || ^ftd-ZBd, 

is In re Barrett, 2 Hughes, 444, Fed. Gas. No. 1,043; Wheatley v. 
Tutt, 4 Kan. 240. Any partner has the right to use the firm name 
in perfecting a mechanic's lien for the firm. Jones v. Hurst, 67 
Mo. 568; German Bank v. Schloth, 59 Iowa, 316, 13 N. W. 814. 8ee 
^^Partnership" Deo. Dig. (Key No.) % 149; Cent. Dig. §{ t29-2SS^i 
**Meo7MniC8' Liene,*' Dec. Dig. {Key No.) 1 155; Cent, Dig. f 185. 

••Kuhn ▼. Weil, 78 Mo. 213; Ward ▼. Barber, 1 B. D. Smith 
(N. Y.) 423 ; Whitehead v. Hughes, 2 Gromp. & Mv 318. See "^Part- 
nership*' Deo. Dig. (Key No.) 1 191; Cent. Dig. l,S50. 



f 108) PABTICtTLAB POWERS 817 

who Has the implied power to sue on behalf of the firm has 
power to defend actions brought against it, and to employ 
counsel for the purpose of entering an appearance.** Such 
an appearance, however, binds the partners as partners, not 
individually; so that a judgment rendered against the part- 
nership would not, by virtue of the appearance merely, be 
binding upon an individual partner in another jurisdiction, 
•who never authorized it.** 

Same — Arbitration and Confession of Judgment 

The power of a partner to resort to legal process in order 
to collect debts owed the firm, and to defend suits brought 
against it, does not include proceedings which are unusual. 
Thus, a partner cannot, without express authorization, bind 
his copartners by the submission of a firm controversy to 
arbitration.** The same considerations apply even more 
strongly to confessions of judgment by one partner in be- 
half of the firm ; the cases uniformly denying the implied 
power of the partner to bind others than himself thereby.** 

»T Bennett ▼. Stickney, 17 Vt 681 ; Wheatley v. Tutt, 4 Kan. 
240. Bee **Partner8Mp;* Deo. Dig. (Key No.) |§ 128, 191, 204; Cent. 
Dig. §1 19S, S81. 

*8 PhelpB y. Brewer, 9 Onah. (Mass.) 390, 57 Am. Dec. 56. See, 
also. Hall y. Lannlng, 91 U. S. 160, 23 L. Ed. 271; Haslet y. 
Street, 2 McCord (S. G.) 310, 13 Am. Dec. 724, and note. 

For liability of partnership, where one partner commits trespass, 
malicious prosecntion, etc., in enforcing partnership demands, see 
post, § 109, p. 330. See ** Partnership,** Dec. Dig, (Key No.) f 204; 
Cent. Dig. f 581. 

s» Buchanan y. Garry, 19 Johns. (N. X.) 137, 10 Am. Dec. 200; 
Buchoz y. Grandjean, 1 Mich. 367 ; Fancher y. Bibb Furnace Go., 80 
Ala. 481, 2 South. 268 ; Walker y. Bean, 34 Minn. 427, 26 N. W. 232 ; 
St Martin y. Thrasher, 40 Vt 460. "The authority to bind a par^ 
ner to submit to arbitration does not flow from the relation of 
partnership; and, when it is relied upon, It must, like eyery other 
authority, be proyed either by express eyldence or by such circum- 
stances as lead to the presumption of such authority haying been 
conferred." See Baron Parke, in Adams y. Bankart, 1 Gr. M. & R. 
681, 686. But see Gay y. Waltman, 89 Pa. 453, and Hallack y. 
March, 25 III. 48, holding parol submission to arbitration to be yalid. 
See, Also, Alexander y. Mulhall, 1 Posey, Unrep. Gas. (Tex.) 764 (1881). 
See ^^Partnership," Dec Dig. (Key No.) { 1^8%; Cent. Dig. § 258. 

40 MORGAN V. RIGHARDSON, 16 Mo. 409, 57 Am. Dec. 235, Gil- 
luore. Gas. Partnership, 370; Hall y. Lanning, 91 U. S. 160, 23 L^ 



318 POWBBS OF PABTNBBfl (CIl 5 



SAME— POWER TO RECEIVE NOTICE 

104. One partner baa implied authority to receive notice 
for all his copartners as to matters within the scope 
of the partnership business, and his authority and 
his knowledge is the knowledge of all within the 
same limits. 

Just as, in the law of agency, notice given to an agent 
in the course of his employment will bind the principal, so 
notice to one partner of any matter relating to the business 
of the firm is notice to all the other members.*^ Thus, 
where a firm is the maker of a note or acceptor of a bill, 
presentation or demand of payment on one partner is suf- 
ficient to charge indorsers.** Or, if a firm is an indorser of 
a note or bill, notice of nonpayment or protest served upon 
one partner is sufficient to bind the others.** Likewise 

Ed. 271; Remington ▼. Cummlngs, 5 Wis. 138; Soper Y. Fry, 37 
Mich. 236; Hler v. Kaufman, 134 lU. 216, 25 N. E. 617; Boyd y. 
Thompson, 153 Pa. 78, 25 Atl. 709, 34 Am. St Rep. 685. But see, as 
to creditors' right to object, McGormick Harvesting Mach. Co. y. 
Coe, 53 111. At)p. 488. Nor can one partner giye a cognoyit to pay 
the firm debt and costs. Rathbone v. Drakef ord, 4 Moo. & P. 57, and 6 
Bing. 375. See "Partnership,*' Deo. Dig, (Key No.) f 150; Cent, Dig, 
%\ 259-266. 

41 Mechem, Agency, | 718; Tucker y. Cole, 54 Wis. 539, 11 N. W. 
703 ; HUBBARD v. GALUSHA, 23 Wis. 398 ; Haywood y. Harmon, 
17 111. 477 ; Holbrook v. Wight, 24 Wend. (N. T.) 169, 35 Am. Dec. 
607; Miller y. Perrine, 1 Hun (N. Y.) 620; Hubbardston Lumber Co. 
y. Bates, 31 Mich. 158; Howland y. Davis, 40 Mich. 545; McClurkan 
y. Byers, 74 Pa. 405; Stockdale y. Keyes, 79 Pa. 251. See "Partner- 
8hipr Deo. Dig. {Key No.) f 159; Cent. Dig, §{ 298-295. 

42 Mt Pleasant Branch of State Bank y. McLeran, 26 Iowa, 306; 
Erwin y. Downs, 15 N. Y. 575. 

Also, notice to take depositions served upon one partner is suffi- 
cient Spaulding y. Ludlow Woolen Mill, 36 Vt 150. Notice of ap- 
peal given to one partner is notice to all. MUler v. Perrine, 1 Hun 
(N. Y.) 620. Demand upon and refusal by one partner is sufficient 
to establish conversion. Nisbet v. Patton, 4 Rawle (Pa.) 120, 26 Am. 
Dec. 122. See "Partnership,'' Deo. Dig. {Key No.) U 146, 159; Cent 
Dig. SI 254, 29S-295. 

4tHume y. Watt, 6 Kan. 84; Nott y. Dauming, 6 La. 684. See 
Partnership,'* Deo. Dig. {Key No.) f I46; Cent, Dig. f 254. 



M 



5 104) PARnCULAR POWERS 819 

knowledge of one partner is knowledge of all. For example, 
where partners took a mortgage on land, and one partner 
knew of a prior mortgage upon it, this was notice to all.** 
Or, where a firm bought logs, and then sought to rescind 
the contract because they claimed it was represented that 
the logs were afloat, they were held, as it appeared that one 
partner knew the logs were not afloat, and his knowledge 
was binding on all.** 

It is only, however, where the partner is acting within 
the scope of the firm business and within his authority that 
notice to him is notice to his copartners.** Knowledge of 
a partner obtained outside the scope of the firm business is 
not imputed to his copartners.*^ Where a partner commits 
a fraudulent act beyond the scope of the firm business, 
which is a fraud upon his copartners as well as upon third 
parties, knowledge of such fraud is not chargeable to the 
innocent partners.** Or, if a partner misuses trust funds 
in the firm business, his guilty knowledge is not imputed 
to his copartners.** 

«« Watson V. Wells, 5 Conn. 468 ; Herbert ▼. Odlln, 40 N. H. 287. 
Bee ""Partnership,** Dec. Dig. (Key Ifo.) f 159; . Cent. Dig. H 299- 
295. 

«B Hubbardston Lumber Co. ▼. Bates, 81 Mich. 158. Further 
cases: Blgelow ▼. Heanlger, 88 Kan. 362, 6 Pac. 693; Tucker ▼. 
Bradley, 83 Vt 324. See "Partnership,** Deo. Dig. (Key No.) { 159; 
Cent. Dig. U 29S-295. • 

4« BIgnold ▼. Waterhouse, 1 M. & S. 255; Coon ▼. Pniden; 25 Minn. 
105. See "Partnership,** Dec. Dig. (Key No.) | 159; Cent. Dig. || 
298-^295. 

4T German Say. Bank v. Wnlfeknhler, 19 Kan. 60; Atlantic State 
Bank of City of Brooklyn ▼. Sayery, 82 N. Y. 291. See "Partner- 
ship,** Deo. Dig. (Key No.) i 159; Cent. Dig. §fi 29S''295. 

«• GILRUTH v. DECELL, 72 Miss. 232, 16 South. 250, Gilmore, 
Cas. Partnership, 401. See "Partnership,** Deo. Dig. (Key No.) 1 15k; 
Cent. Dig. § 216. 

4» Bienenstok ▼. Ammidown, 155 N. Y. 47, 49 N. E. 321. But see 
Randall v. Eneyals, 27 App. Div. 146, 60 N. Y. Supp. 748; Cun- 
ningham y. W'oodbridge, 76 Ga. 302. See, farther post, {{ 111, 113, 
pp. 833, 337, for discussion of liability of partnership for the fraud 
and misconduct of a partner. See "Partnership** Dec Dig. (ITey No.) 
I 159; Cent. Dig. H 298-295. 



320 P0WBB8 or PABTMBB8 (Oh. 5 

SAME— POWER TO MAKE ADMISSIONS AND REP- 

RESENTATIONS 

105* Bach partner has implied power to bind the firm by 
admissions or representations made during the 
continuance of the partnership concerning the 
partnership afFairs and in the ordinary course of 
the partnership business. But the statements or 
admissions of one partner, tmless authorized or 
ratified, are not admissible as evidence to prove ei- 
ther the existence of the partnership or that a 
given transaction was a partnership transaction. 

Where there has been prima facie proof of the existence 
of the partnership, each partner has implied power to bind 
his copartners by admissions or declarations made concern- 
ing matters within the scope of the partnership business 
and within his power as agent for the firm.** Thus, where 
one partner, during the continuance of the partnership, ac- 
knowledges a debt as due by the partnership, he binds the 
firm as by a promise.** Or an admission by a partner that 
he set fire to certain firm property is competent to defeat an 
action by the partners to recover the insurance/* This 

00 Franklin ▼. Hoadley, 116 App. Dlv. 638, 101 N. T. Supp. 874; 
Carls ▼. Nlmmons, 92 Mo. App. 66; Oollett ▼. Smith, 143 Mass. 
473, 10 N. E. 173 ; Western Assur. Ck>. y. Towle^ 66 Wis. 247, 28 N. 
W. 104 ; Munson v. Wickwlre, 21 Conn. 613. 

An admission by a dormant partner has been held to be binding. 
Kaskaskia Bridge Ck). y. Shannon, 6 IlL 16; Weed ▼. Kellogg, 6 
McLean, 44, Fed. Cas. No. 17,346. 

As to admissions waiving the statute of limitations after the dis- 
solution of the firm, see SAGE y. ENSIGN, 2 Allen (Mass.) 246; 
Kallenbaeh y. Dickinson, 100 111. 427, 39 Am. Rep. 47; and post, f 
118. Bee *' Partnership,*' Dec. Dig. {Key No.) || 152, 15S, fHS; Cent 
Dig. n 272, rrs, 277, 6S0; ^'Evidence,'' Dec. Dig. (Key No.) t 249; 
Cent. Dig. H 965-975. 

Bi BURGAN y. LYELL, 2 Mich. 102, 66 Am. Dec. 68, Gilmore, Gas. 

Partnership, 358. See ''Partnership,'' Dec Dig. {Key No.) | 152; 

Cent. Dig. §§ 272, 275; ''Evidence," Dec. Dig. {Key No.) | 2^9; 

Cent. Dig. §S 965-975. 

. ss Western Assur. Co. y. Towle, 66 Wis. 247, 26 N. W. 104. See 



§ 105) FABTICULAB VOWEBa 821 

power does not differ materially from that of other agents 
to bind their principals by admissions. Just as, in the law 
of agency, the existence of the relation of principal and 
agent must be shown by other independent evidence before 
the admission of the agent will be received, so must it be 
proved by satisfactory extraneous evidence that the parties 
charged are partners, before the admission or representa- 
tion of the alleged partner will have eflfect to bind others 
than himself.** Thus a declaration of one man that another 
is his partner is not competent to prove a partnership.** 
Nor arc the admissions of a partner competent to prove 
that a particular transaction is a partnership affair. Thus, 
where a firm was sued on a note made by a partner in the 
firm name, the plaintiff was not allowed to put in evidence 
the statements of that partner that the note was a partner- 
ship trajisaction.** Nor are the declarations of a partner 
as to the scope of his own authority competent to prove 
such authority.** 

The effect of an admission or declaration by one partner 
is not necessarily conclusive, but is governed by the rules 
applicable to admission by agents in general.*^ Where, 

"Partnership,*' Dec, Dig. {Key No.) | 152; Cent. Dig. St «7«, «75; 
"Evidence^ Dec. Dig. (Key No.) fi 249; Cent. Dig. f| 965-975. 

f a Oppenheimer y. GlemmonB (G. G.) 18 Fed. 886; Hahn y. St 
aalr Sav. & Ins. Go., 50 111. 456; Union Nat Bank y. UnderhHl, 102 
N. Y. 836, 7 N. E. 293 ; Boor y. Lowrey, 103 Ind. 468, 3 N. B. 151. 58 
Am. Rep. 519; Reynolds v. Radke, 112 111. App. 575; Taft y. 
Ghurch, 162 Mtiss. 527, 39 N. B. 283. But the partner's actual 
testimony In the trial, as distinguished from his extrajudicial ad- 
missions, to the fact of partnership, is competent First Nat 
Bank of Wausau y. Gonway, 67 Wis. 210, 30 N. W. 215. Bee ^'Evi- 
dence*' Dec. Dig. {Key No.) | 259; Cent. Dig. f 1009. 

»* Hahn v. St Glair Sav. & Ins. Go. 50 111. 456 ; Taft y. Church, 
162 Mass. 527, 39 N. B. 283. Bee "Partnership,** Dec. Dig. {Key No.) 
S 46; Cent. Dig. ^ 69-11. 

5 5TUTTLiE V. GOOPBR, 5 Pick. (Mass.) 414; Lock wood y. Beck- 
with, 6 Mich. 168, 72 Am. Dec. 69. Bee "Partnership,"* Dec. Dig. {Key 
tlo.) % 46; Cent. Dig. n 69-71; ""Evidence** Deo. Dig. {Key No.) t 
249; Cent. Dig. U 965-975. 

s« Thomas y. Harding, 8 Me. 417; Heifron y. Hanaford, 40 Mich. 
306. Bee "Partnership," Dec. Dig. {Key No.) f 152; Cent. Dig. || 272, 
27S; "Evidence," Deo. Dig. {Key No.) | 249; Cent. Dig. §§ 965-975. 

•THoUis y. Burton, 8 Gh. 226; RAPP y. LATHAM, 2 B. ft Aid. 

Gil.Pabt. — 21 



322 POWERS OF PABTNBB8 (Ch. 6 

however, third persons have been induced, by representa- 
tions within the implied authority of the party making 
them, to alter their condition to their disadvantage, a con- 
clusive estoppel against the firm may be raised. Where 
one partner representee! that certain flour was bought on 
account of a third person, and that the firm's interest in it 
was limited by the amount advanced by them in making 
the purchase, the members of the firm were not allowed to 
assert their ownership as against one who had purchased 
of such third person.** So, also, where one partner receives 
for his firm plaintiff's money, representing that he will in- 
vest it in a particular mortgage and paying the plaintiff 
sums from time to time as interest thereon, the firm is es- 
topped to deny the representations." 



SAME— MISCELLANEOUS POWERS ' 

106. In addition to the foregoing enumerated powers, there 
are various miscellaneous powers which are usu- 
ally incident to every partnership. The nature and 
extent of these powers are to be determined by the 
facts and circumstances of each particular part- 
nership. 

It remains only to mention a few more instances of the 
powers of partners, which, while not important enough for 
extended discussion, are governed by no different principles 
than those already mentioned. A partner has power to bind 
the firm by an account rendered,** by varying a contract 

795. See ''Partnership,*' Dec. Dig. {Key No,) f 152; Cent. Dig. H ^2* 
27S; ''Evidence;* Deo. Dig. {Key No.) | 2i9; Cent. Dig. || 965-975. 

BsBemls v. Becker, 1 Kan. 226. See "Partnership;* Dec. Dig. 
(Key No.) H 152, 155, 156; Cent. Dig. U 272, 275, 278-281. 

B» Blair v. Bromley, 2 Phillips, 854; Grlswold v. Haven, 25 N. 
Y. 5d5, 82 Am. Dec 880; Ooleman y. Pearce, 26 Mimi. 123, 1 N. W. 
84& See "Partnership,** Deo. Dig. (Key No.) U 152, 155, 156; Cent. 
Dig. II 2rt2, 27S, 278-281. 

•0 BURGAN v. LYELL, 2 Mich. 102, 55 Am. Dec. 63, Gllmore, Cas. 
Partnership, 358; Cady ▼. Kyle, 47 Mo. 846; Gullck v. Gullck, 
14 N. J. Law, 578; Fergusson ▼. Fyffe, 8 Clark ft F. 121. Where one 



§ 106) PARTIOULAB POWBBS 823 

previously made by all,** by the appointment of an agent 
or servant,**' by assenting to a deed of a debtor for the ben- 
efit of his creditors,** by assenting to a transfer of a debt,** 
by a penalty,** by accepting security for a debt,** by insur- 
ing firm property, by settling the loss with the insurance 
company, or by consenting to the cancellation of a policy.*^ 
All these are within the implied powers of a partner. 

firm succeeds another, a statement of the indebtedness of each of 
the firms, rendered to third persons during the existence of the 
new firm, is as to each firm binding on one who, as a partner, is 
individually liable for the debts of both firms, when such state- 
ment is so made by one acting as his managing agent In both firms 
during their existence. Waite ▼. High, 96 Iowa, 742, 65 N. W. 807. 
Bee ""Account Stated^' Cent. Dig. t 20. 

•1 HUlock V. Traders* Ins. Co., 54 Mich. 532, 20 N. W. 571; Leiden 
y. Lawrence, 2 New Reports, 283. But see Detroit v. Bobinson, 
42 Mich. 198, 8 N. W. 845; Horn ▼. Newton City Bank, 82 Kan. 
518, 4 Pac 102Z Bee '"Partnership;* Deo. Dig. (ICey Vo.) % 159; 
Cent. Dig. f 21S. 

•2 Durgin T. Somen, 117 Mass. 55 ; Mead v. Shepard, 54 Barb. 
(N. Y.) 474; BURGAN v. LYELL, 2 Mich. 102, 55 Am. Dec 53, 
Gilmore, Gas. Partnership, 858; Sweeney v. Neely, 58 Mich. 421, 19 
N. W. 127; Burleigh ▼. White, 70 Mei 180; Barcroft ▼. Ha worth, 
29 Iowa, 462. Bee ""Partnership,'* Deo. Dig. (Key No.) f HO; Cent. 
Dig. I 212. 

••Dudgeon v. O'Gonnell, 12 Ir. Eq. 566; Morans v. Armstrong, 
. Arms., M. & O. 25. Bee ""Partnerehip,** Deo. Dig. (Key No.) |i 125^ 
164; Cent. Dig. fi| 190^00. 

•«Beale ▼. Caddick, 2 HurL ft N. 826; Backhouse v. Charlton, 
8 Gh. Div. 444. 

•B Beckham v. Drake, 9 Mees. & W. 79. 

••Tomllns v. Lawrence, 8 Moore & P. 555. Bee ^^Partnership,** 
Deo. Diq. (Key Jfo.) | US; Cent. Dig. i 2S0. 

•f Graves v. Ins. Co., 2 Cranch, 439, 2 L. Ed. 824; Clement v. 
Fire Ins. Asso., 141 Mass. 298, 6 N. £3. 847; Hillock v. Traders' Ins. 
Co., 54 Mich. 581, 20 N. W. 571 ; BROWN v. HARTFORD FIRE IN& 
CO., 117 Mass. 479, Gilmore, Gas. Partnership, 151; Hunt v. Royal 
Assur. Co., 5 Maule & S. 47. Bee ""Partnership,** Deo. Dig. {Key No.) 
H 12S-m; Cent. Dig. U 190^00; ^"Insuranoe;* Cent. Dig. i 1342. 



32^4 POWBRS OP pabtnbA (Gh. 6 



POWER TO SUBJECT FIRM TO TORT LIABILITY 

107. A partner, acting in the ordinary course of the busi- 
ness of the firm, or beyond it, if with the express 
or implied authority of his copartners, may render 
his copartners liable in tort for any loss or injury 
caused by such action to any person not a member 
of the firm, or for any penalty incurred by any 
wrongful act or omission of such partner. 

In General 

The law of partnership with respect to the powers of 
partners to bind one another is generally recognized as 
governed by the doctrines of the law of agency. Conse- 
quently the general scope of the business, which has been 
adopted from the law of agency to mark the limitations on 
the partner's implied power to bind his copartners in con- 
tract, also applies to the liability of the firm for the torts 
of a partner. When a tort is committed by a partner act- 
ing within the scope of the firm business, the partners are 
jointly and severally liable for the consequences of such 
tort.** Thus, where one partner borrows a horse for the 
use of the firm business, and negligently loses it, the owner 
may recover therefor against his copartners.** Or where 
one partner, while driving in the course of the firm busi- 
ness, negligently ran over the plaintiff, each partner is li- 

••Helm ▼. McOaaghan, 32 Miss. 17, 66 Am. Dec 588; Hess t. 
Lowrey, 122 Ind. 225, 28 N. B. 156, 7 Ia R. A. 90, 17 Am.*St Rep. 
855; Wood v. Lnscomb, 23 Wis. 287. See an exhaastlye note In 
61 L^ R. A. 463-496. 

The English Partnership Act of 1800, { 10, provides: "Where, 
by any wrongful act or omission of any partner acting in the or- 
dinary course of th^ business of the firm, or with the authority of 
his copartners, loss or injury is caused to any person not being a 
partner in the firm, or any penalty is incurred, the firm Is liable 
therefor to the same extent as the partner so acting or omitting to 
act" Bee *'Partner»Mp,'' Dee. Dig. (Key No.) ff 155, 174; Cent 
Dig. H 274-S77, S06. 

•» WItcher t. Brewer, 49 Ala. 119. See "Partnership,** Dec Dig. 
(Key No.) §§ 15S, 174; Cent. Dig. |f 274, 906. 



§ 107) POWER TO SUBJECT TO TOST LIABILITY 825 

able.'* Sor alsp, a firm of butchers, one member of which, 
in furtherance of the partnership, places poisoned meat 
where dogs might reasonably be expected to get it, is lia- 
ble to an owner of a dog which dies from eating such 
meat.^* If the tort is committed by the partner in the ordi- 
nary course of the firm business, the others are liable there- 
for, even though they may have used every effort to pre- 
vent the wrong, or may have expressly forbidden it/* 

On the other hand, the firm will not be liable for the torts 
of a partner committed while acting outside of the scope 
of his authority.''* Thus a copartner is not responsible for 
the conversion of a third person's property by one partner 
to his own individual use.''* Nor is it within the ordinary 
course of business of a drug firm to give away drugs, so 
that any liability for the negligence of the partner mixing 
the drugs is his aloneJ* 

TO CHAMPION T. BOSTWICK, 18 Wend. (N. Y.) 175, 81 AnL Dec. 
376. See '* Partnership,*' Deo. Dig. {Key No.) H 15S, 174; Cent. Dig. 
H 21 J,, 906. 

71 Dudley v. Love, 60 Mo. App. 420. See **Partner8hip,** Dee. Dig. 
{Key No.) U 15S, 174; Cent. Dig. If «7i-«77, S06. 

72 Collman v. MUls, [1897] 1 Q. B. 396: Limpus v. London General 
Omnibus Co., 1 H, & C. 526; ATTORNEY GENERAL v. STRANY- 
FOBTH, BTinb..97. See "^Partnership;* Dec. Dig. {Key No.) M 155, 
174; Cent. Dig^%% 27-^-277, SOS. 

78 Stock well V. United States, 3 Cliff. 284, Fed. Cas. No. 18,466; 
Gooley, Torts, pp. 533, 536. See ''Partnership,** Dec. Dig. {Key Noi 
U 153, 174; Cent. Dig. |S 27^-277, 306. 

74 Stokes V. Burney, 3 Tex. Civ. App. 219, 22 S. W. 126; Town- 
send V. Hagar, 19 C. C. A. 256, 72 Fed. 949. Even though had the 
tort-feasor not been connected with the firm, he might not have been 
in a position to commit the wrong. Sherwood v. Marwick, 5 Me. 
295; PIERCE v. JACKSON, 6 Mass. 242. Cf., also. Manufacturers' 
& Mechanics' Bank v. Gore, 15 Mass. 75, 81, 8 Am. Dec 83; Reyn- 
olds V. Waller's Heir, 1 Wash. (Va.) 164. See "Partnership,** Dec 
Dig. {Key No.) || 153, 174; Cent. Dig. %^ »7^«77, 306. • 

75Gwynn v. Duffield, 66 Iowa, 708, 24 N. W. 523, 55 Am. Rep. 
286. But all the members of a firm of lawyers or doctors are liable 
for the negligent advice furnished for pay by one of them to a client 
of the firm. Blyth v. Fladgate, [1891] 1 Ch. 337; Haley v. Case, 
142 Mass. 316, 7 N. B. 877 ; Hess v. Lowrey, 122 Ind. 225, 23 N. E. 
156, 7 L^ K A. 90, 17 Am. St Rep. 355. See, also, Rhodes v. Moules, 
[1895] 1 Ch. 236; Dudley v. Love, 60 Mo. App. 420. See "Partner- 
ship;' Dec. Dig. (Key No.) f§ 153, 174; Cent. Dig. {{ 27^277, 306. 



326 POWERS OF PARTNERS (Ch. 5 

While each partner is agent for his copartners, and binds 
them by his acts, he also binds himself as principal. The 
agency is peculiar, in that the partner is both an agent and 
a principal. For this reason the doctrine of agency known 
as the "fellow servant rule" does not apply where one part- 
ner negligently injures an employ^ of the firm while work- 
ing with him. Both partners are liable for the injuries thus 
inflicted.^* 

Where a partner expressly authorizes the commission of 
a tort, he is, of course, liable, though the tort be beyond the 
scope of the business of the firm. Subsequent adoption of 
the wrongful act of one partner, or receipt of its benefits, 
will render the other partners equally liable.^* Where part- 
ners join in the commission of a tort, they arb liable as 
joint tort-feasors, and not because of being partners.** 

Same— Willful Tort 

It is sometimes said that a firm is not liable for the will- 
ful tort of a partner ; but an examination of the cases makes 
it clear that, if the firm is relieved from liability in such 
situations, it is not because the tort in question is willful, 
but because, as in the case of a malicious arrest, for ex- 
ample,^* by one partner, it is outside of the scope of the 
partnership business. While willful acts tend to fall out- 
side the scope of a partner's power, nevertheless, if, while 
acting within the scope of his authority, a partner will- 



f ASHWORTH ▼. STANWIX, 8 B. & B. 701, 7 Jur. N. S. 467. 
See '*Partner8hipr Deo. Dig. (Key No.) |§ 163, J74; CeM. Dig. %% 
i7Jh277, 306. 

TT D>arant t. Rogers, 87 111. 508; United States t. Baxter (O. G.) 
46 Fed. 850; Blenenstok y. Ammldown, 11 Misc. Rep. 76^ 2& N. Y. 
Supp. 593. A subsequent approyal will not render a partner liable 
for a trespass by his copartner, unless the taking of property which 
constitutes the trespass was available to the firm. Grand ▼. Van 
Vleck, 69 111. 47& See '^Partnership,'' Deo. Dig. (JTey No.) || 153, 
174; Cent. Dig. SS «7|-«77, 306. 

T8 Graham y. Meyer, 4 Blatchf. 129, Fed. Gas. No. 6,673, 24 Meyer, 
Fed. Dec. 131. For parties to action ex delicto against a firni« see 
ante, chapter IV, | 75, p. 236, and post, chapter IX, { 181, p. 549. 
See •^Partnership,'* Deo. Dig. {Key No.) H 153, 174; Cent. Dig. |i 
B74-1^7, 306. 

T» See post, { 109, p. 880. 



§ 108) POW£B TO SUBJECT TO TOBT UABIIilTT 827 

fully causes injury to anotiier, his copartners are liable. If, 
for instance, one partner in an omnibus transfer firm, while 
driving a coach, should willfully run into his competitor's 
coach, in order to prevent him from picking up a particular 
passenger whom he himself desired, the willfulness of the 
one partner's act would not per se relieve his copartners 
from liability.'* 



SAME— ILLEGAL ACTS— PENALTIES AND 

CRIMES 

108. Whether innocent partners are civilly liable for illegal 
acts or omissions of a copartner in the course of 
the firm business is a question on which the cases 
are divided* Some hold that an illegal act is per 
se beyond the scope of the firm business, and 
hence innocent partners are not civilly liable for 
it; others hold that an illegal act or omission 
may occur in the performance of acts within the 
scope of the firm business, and, if so> all the part- 
ners are civilly answerable therefor. 
Except in the case of certain statutory crimes, a part- 
ner is not criminally liable for the acts of hia co- 
partner, unless he expressly or impliedly author- 
ized theuL 

Illegal Acts 

A leading case has held that acts which are illegal as 
being contrary to a statute will not be regarded as within 
the scope of the business, so as to charge the other part- 
ners by construction merely.'* In this case the court re- 

soLlmpus T. London General Omnibus Co., 1 H. & C. 626; Mor&- 
ton ▼. Hardem, 4 B. & C. 223, 10 E. G. L. 316; CHAMPION v. 
BOSTWICK, 18 Wend. (N. Y.) 175^ 31 Am. Dec. 876. 

A full discussion of liability of a principal for the willful torts of 
his agent will be found in works on Agency. See Tiffany on Agen- 
cy, pp. 269-274. Bee '*Partner8Mp» Deo. Dig. {Key No.) §f 15S, 174; 
Cent. Dig. §{ £71-877, S06. 

•1 Graham t. Meyer, 4 Blatchf. 129, Fed. Cas. No. 5,673. See Bur* 



328 POWERS or PARTNERS (Ch. 5 

fused to hold to liability in coiyrersion the innocent mem- 
bers of a partnership whose business was lending money, 
and for whose purposes one partner had taken a chattel 
mortgage on a steamboat to secure a usurious loan void by 
statute.** If the innocent copartners are not liable, the true 
ground of their immunity is, not because the act is illegal, 
but because it is beyond the scope of the partnership busi- 
ness, and hence beyond the partner's power. Illegal acts 
are quite likely to be outside the scope of the firm business ; 
but illegality per se does not make an act unauthorized. 
Just as in the case of willful or malicious torts, it is entirely 
possible for them to be committed by a partner while act- 
ing within the scope of his power. It would seem, there- 
fore, that for the act or omission of a partner in the course 
of the firm business each member of the firm should be civ- 
illy liable, whether that act be negligent merely, or willful, 
or illegal."* Thus in Tenney v. Foote ■* a firm was held li- 
able in tort where one partner, in the firm name, made an 
illegal option or gaming contract for trading on the board 
of trade. Similarly it is not necessary for a member of a 
partnership which is conducting a quarrying business to 
assent in his partnership capacity to the firing of a blast, to 
render himself liable for the violation of a municipal ordi- 
nance forbidding such firing.** 
It must be recognized, however, that there are many 

dick. Torts (2d Ed.) pp. 212-214, for a criticism of this holding. 
See ''Partnership,'* Dec, Dig. (Key yo.) i 153; Cent, Dig, i 274, 

8« See, also, Schreiber v. Sharpless (D. a) 6 Fed. 175. See ''Part- 
nership," Dec. Dig, {Key No,) §$ 153, Ilk; Cent. Dig, {{ 27f-e76, 306. 

"ATTORNEY GENERAL v. STRANYFORTH, Bunbury, 07; 
StockweU v. United States, 18 Wall. 531, 547-^8, 20 L. Ed. 491; 
Warner v. Griswold, 8 Wend. (N. Y.) 665 ; Lockwood v. Bartlett, 180 
N. Y. 340, 29 N. E. 257 ; Grnmless y. Sturgess, 6 Heisk. (Tenn.) 190 ; 
AUen y. Leighton, 87 Me. 206, 32 Atl. 877; Bayles y. Newton, 50 
N. J. Law, 549, 18 Ati. 77; Hyme y. Erwln, 23 S. 0. 226, 55 Am. 
Rep. 16; I)yer y. Monday (1895) 1 Q. B. 742. 

"In almost eyery action for negligent driying, an illegal act is 
imputed to the seryanf Per Byles, J., In Limpus y. London Gen- 
eral Omnibus Co., 1 H. & G. 526; 541. See "Partnership,** Dec Dig, 
{Key No,) || 153, IH; Cent. Dig, S§ £74-277, 306. 

•*95 lU. 99. See "Partnership;* Cent, Dig,'i 2H. 

»• City of Spokane y. Patterson (1907) 46 Wash. 93, 89 Pac. 402, 



g 108) POWER 'to subject to tort LIABI1.ITT 329 

cases apparently to the effect that illegal acts are per se 
beyond the scope of a partner's power, and hence do not 
subject innocent copartners to liability. "An agency or au- 
thority to a partner to violate the provisions of a public 
statute cannot be implied ; ' nor can it be implied that such 
illegal act is within the scope of the partnership business, 
which could only exist for lawful purposes." •• Thus one 
partner was held not liable for the penalty imposed by stat- 
ute for "willfully and knowingly" cutting trees of another 
person, when this was done without his consent or knowl- 
edge by his copartner.** 

With respect to the liability of partners for violations of 
liquor laws by one partner, there is considerable conflict of 
authority, the majority relieving the nonacting partner from 
liability, unless the act was done with his authority or as- 
sent. But where the statute prohibits the act in question 
absolutely, whether by one's own hand or another's, all the 
partners will be liable.'* 

Same—Crimes 

The mutual agency of partners is not sufficient to render 
one criminally liable for the acts of the other, though done 
in the course of the partnership business.** One partner 
may be civilly liable for the other's fraud, but he cannot be 



♦> 



8 li. R. A. (N. 8.) 1104, 123 Am. St Rep. 021. See *'Partner8Mp, 
Dec. Dig. (Key No.) H 15S, 17^ 175; Cent. Dig. H 274-277, 306, 307. 

86 Hutchlns y. Turner, 8 Humph. (Tenn.) 415; Marks y. Hast- 
ings, 101 Ala. 165, 13 South. 297 ; Martin y. Simklns, 116 Ga. 254, 
42 S. E. 483 ; Rosenkrans y. Barker, 115 lU. 331, 3 N. E. 93, 56 Am. 
Rep. 169; Titcomb y. James, 57 HI. App. 298; Bemhelmer y. Beck- 
er, 102 Md. 250. 62 AU. 526, 3 L. R. A. (N. S.) 221. Ill Am. St. Rep. 
356; Noblett y. Bartsch, 31 Wash. 24, 71 Pac. 551, 96 Am. St Rep. 
886. See, further, post, pp.330, 331. Bee ^^Partnership;* Dec. Dig, 
(Key No.) §{ 153, 174. i75; Cent. Dig. Sfi 274-276, 306, 307. 

8T WUliams y. Hendricks, 115 Ala. 227, 22 South. 439, 41 L. R. A. 
650, 67 Am. St Rep. 32. See ** Partnership," Dec Dig. (Key No.) f§ 
153, 174; Cent. Dig. §f 274-277, 306. 

88 Williams y. Hendricks, supru. Elaborate annotations to the 
case will be found in 41 L. R. A., at pages 661 and 664. See "In- 
toxicating Liquors;* Dec. Dig. (Key No.) $ 171; Cent. Dig. f 185. 

s*Acree y. Com., 13 Bush (Ky.) 353; Robinson v. State, 38 Ark. 
641 ; Whltton *y. State, 37 Miss. 379. See ^^Partnership;* Deo. Dig. 
(fey No.) I 175; Cent, Dig. f 307. 



3d0 POWERS OF PARTNERS (Ch. 5 

arrested for it.'* In order to be criminally liable, the non- 
acting partner must either assent to or participate in the 
crime.** 



SAME— FALSE ARREST AND MALICIOUS PROSE- 

CUTION 

109. One partner will not make the others liable for a false 
arrest or a malicious prosecution, which he insti- 
tutes for the suspected larceny of partnership prop- 
erty, imless they advise or participate therein, and 
then only in their individual capacity. 

It is well settled, in carrying on ordinary legal proceed- 
ings for the collection of firm debts and the protection of 
firm property, a partner acts within the scope of his power. 
For his misconduct in this connectibn all the partners are 
liable, as where one partner, in attempting to collect a firm 
debt, causes the goods of the third party to be levied upon, 
instead of the debtor's goods,** or where he seizes the prop- 
erty of a firm debtor on a void judgment against him.** He 
would likewise seem to be acting within the scope of the 
powers when he causes the arrest or the prosecution of a 
person suspected of stealing the firm property. The fact 
that he is prompted by malicious motives should not take 
the act, otherwi3e authorized, outside his authority.** 

While on principle the partners should be liable for ma- 
licious arrests or malicious ' prosecutions caused by one 
partner, it must be recognized that the authorities are prac- 

•oMcNeely t. Haynes, 76 N. a 12S; Watson y. Hlnchman, 42 
Mich. 27, 3 N. W. 236. See ** Partnership,** Dec Dig. {Key N4>.) i 
207; Cent. Dig. f 359, 

•1 See Clark & M., Crimes, 395. 

•s Kuhn T. Well, 73 Mo. 213. Bee ^'Partnership;* Deo, Dig. ^Key 
No.) II 153, 174; Cent. Dig. || S74-277, 306. 

•» Rolfe ▼. Dudley, 58 Mich. 208, 24 N. W. 657. See '^Partnership,** 
Deo. Dig. (Key No.) || 153, 174; Cent. Dig. || 274, 306. 

•« Staples T. Schmld, 18 R. I. 224, 26 AtL 193, 19 L. B. A. 824. 
See '^Partnership,** Deo. Dig. (Key No.) | 153; Cent Dig. | 274; 
^'Malicious Prosecution,** Deo. Dig. (^ey No.) i 4^; Cent. Dig. i 83. 



§ 109) FOWEB TO SUBJECT TO TOKT LIABILITT 331 

tically unanimous in holding the contrary. Thus a partner 
in an ordinary mercantile house has no implied authority 
to bind his copartners by his acts in detaining and search- 
ing a customer suspected of having stolen firm property.'* 
Nor is one partner liable for a malicious prosecution insti- 
tuted by his copartner on a charge of larceny.** Nor on an 
attachment sued out by his copartner maliciously and with- 
out probable cause.** With respect to cases of arrest and 
malicious prosecution, the courts proceed upon the theory 
that the partner, in bringing suspected criminals to justice, 
acts not in the performance of any duty owed his copart- 
ners, but the community as a whole, and therefore his co- 
partners are not liable. The termination of the prosecution 
in the defendant's favor imposes no liability on the firm, 
although the charge was stealing the property of the firm.** 
If, however, a partner advises, directs, or participates in an 
arrest, although he may not have directly caused it, he will 
be equally liable in his individual capacity with the partner 

•s Bemheimer y. Becker, 1Q2 Md. 250, 62 Atl. 526^ 8 L. R. A. (N. 
S.) 221, 111 Am. St Rep. 356; Rosenkrans ▼. Barker, 115 111. 831, 
3 N. E. 08, 56 Am. Rep. 169. See ** Partnership,** Dec. Dig. {Key No,) 
{§ 153, 174; Cent. Dig. Sf IB74, 306; ^FaUe Imprisonment,** Deo, Dig. 
{Key No.) 1 15; Cent. Dig. |§ 61-63. 

•• Marks ▼. Hastings, 101 Ala. 165, 18 South. 297. See "^Partner- 
ship,** Deo. Dig. (Key No.) || 153, 174; Cent. Dig. H ^if 306; **M^ 
lupous Prosecution,** Deo. Dig. {Key No.) S 42; Cent. Dig. | 85. 

•T Swenson y. Erlckson, 90 111. App. 358. 

It has been held, howeyer, that a partnership may be sued as such 
in an action for malicious arrest, when the process was sued out in 
the interest of the partnership, and tmder the direction of all the 
members of the partnership. Page y. GitizeniE^ Banking Co. (1900) 
111 Ga. 73, 86 S. E. 418, 61 L. R. A. 468, 78 Am. St Rep. 144, and 
note. See ^^Partnership,** Dec Dig. (Key No.) |S 153, 174; Cent. 
Dig. §§ 274, 306; **Malicious Prosecution,** Deo. Dig. (Key No.) S 
42; Cent. Dig. | 83. 

99 Kirk y. Garrett, 84 Md. 383, 85 Att. 1089; Tarrell y. Frledland- 
er, 63 Hun, 254, 18 N. Y. Supp. 215; Marks y. Hastings, 101 Ala. 
165, 13 South. 297; Gilbert y. Emmons, 42 lU. 143, 89 Am. Dec. 412; 
Rosenkrans y. Barker, 115 111. 331, 8 N. E. 93, 56 Am. Rep. 169. 
See exhaustiye note in 51 Ia R, A. 463. See ^^Partnership,** Dec. Dig. 
(Key No.) |ft 153, 174; Cent. Dig. fiS 274, 306; "False Imprison, 
ment,** Deo. Dig. (Key No.) | 15; Cent. Dig. || 5-^7; "Malicious 
Prosecution,** Dec Dig. (Key No.) | 42; Cent. Dig. U 83-86. 



332 P0WBB8 OF PARTNERS (Ch. 5 

who does; but mere passive knowledge of the prosecution 
will not be enough to render him liable.®* 



SAMB— DEFAMATION 

110. Each partner is liable for defamatory statements made 
by one partner during the continuance of the part- 
nership and in the ordinary course of the partner- 
ship business. 

•I 

In order that the member of a firm may be held respon- 
sible for defamation by one partner, it is only necessary 
that the defamatory statements be made to aid the firm 
business. Accordingly partners are jointly liable for state- 
ments made by one of them in derogation of a competitor. 
"Each of the partners is an agent of the partnership as an 
entirety, and if, in the course of that business, he injures 
the business of another by slander, the partnership is liable 
therefor, just as it might be for any other tort by any other 
agent." * The partners in a firm publishing a newspaper 
are all liable for the defamatory matter contained in arti- 
cles prepared and printed by one.* The malicious intention 
' of the partner guilty of the defamation is no defense to his 
copartners, even in a jurisdiction where by statute the truth 
of defamatory statements maliciously made cannot be 
pleaded by the defendant.* If, however, the defamatory 
statments are made by a partner while acting outside 
the scope of the firm business, the innocent copartners are 



••Gilbert t. Emmons, 42 111. 143, 89 Am. Dec. 412; Kirk ▼. Qar- 
rett, 84 Md. 383, 35 Atl. 1089. Bee ^'Partnership," Dec. Dig. {Key 
No.) §1 15S, IH; Cent. Dig. §{ S74, S06; '*FaUe Imprisonment,** Deo. 
Dig. (Key No.) S 15; Cent. Dig. §§ 61-6S. 

1 HANEY MFG. CO. v. PERKINS, 78 Mich. 1, 43 N. W. 1073, Gil- 
more, Gas. Pai'tiiership, 396. See '^Partnership** Deo. Dig. {Key No.) 
H 15S, IH: Cent. Dig. U 274, S06. 

s McDonald v. Woodruff, 2 DiU. 244, Fed. Cas. No. 8,770. See 
^'Partnership^ Dec. Dig. {Key No.) H i5$, 174; Cent. Dig. H 274. 

soe. 

t Lothrop T. Adams, 133 Mass. 471, 43 Am. Rep. 528. See "Part- 
nership,** Dec Dig. (Key No.) SS 153, 174; Cent. Dig. H B74, 306. 



§ 111) POWER TO SUBJBCT TO TORT LIABILITT 333 

not liable. In such case only those actually participating 
in the slander or authorizing it, can be held/ 



SAME— FRAUD AND MISREPRESENTATION 

111. All the partners are civilly liable for fhe frauds coix^ 
mitted by a copartner in fhe course of the trans- 
actions and business of the partnership, even 
though they have no connection with, knowledge 
of, or participation in, the fraud. 

The liability of a partnership for the frauds and misrep- 
resentations of its members, in the course of the partner- 
ship business, is governed by the same doctrines applicable 
in the law of agency. By the association of partnership 
each member holds out his associate to be worthy of con- 
fidence in their copartnership dealings. Accordingly, if a 
partner makes a false representation as to the solvency of a 
third person, by means of which an innocent third person 
is induced to accept the note of such third person in pay- 
ment of goods purchased for the firm, every member of. the 
firm is liable in an action of fraud for the damages result- 
ing.* So, also, where a member of a firm engaged in selling 
pelts fraudulently substituted different and inferior pelts 
from the ones actually sold, his copartner was held liable.* 

ft 

« Woodllng T. Knickerbocker, 31 Minn. 268, 17 N. W. 887 ; Blyth 
V. Fladgate, [1891] 1 Ch. 337. See "Partnership," Dec. Dig. {Key No,) 
H 15S, 174; Cent. Dig, §§ 274, ^06; "Libel and 8lander;' Cent. Dig. 
§ 17$. 

» HawklDs y. Appleby, 2 Sandf. (N. Y.) 421 ; Tenney t. Foote, 95 
lU. 09; Peckham Iron Co. t. Harper, 41 Ohio St. 100. See generaUy, 
Banner v. Schlessiiiger, 100 Mich. 262, 67 N. W. 116; CHESTER v. 
DICEERSON, 54 N. Y. 1, 13 Am. Rep. 550; Gilmore, Cas. Partner- 
ship, 136; GUI V. First Nat Bank (Tex. Civ. App.) 47 S. W. 751. 
Bee ^^Partnership,*' Deo. Dig. {Key No.) H 15S, 174; Cent. Dig. f§ 
276, 277, 306. 

• WOLF y. MILLS, 66 111. 360, Gilmore, Gas. Partnership, 397. 

In CHESTER y. DIOKERSON, 54 N. Y. 1, 11, 13 Am. Rep. 560, 
Gilmore, Cas. Partnership, 136, the court said: '*It is well settled 
that the firm is, bound for the fraud committed by one partner in 
the coarse of the transactions and business of the partnership, even 



S34 powBBS or partners (Ch. 5 

The firm will, however, not be liable for a fraud committed 
by a partner on his own individual account.^ Similarly, 
where a partner, in attempting to sell, not partnership 
goods held for the purpose of sale, but the interest of a co- 
partner in the firm, makes fraudulent representations to the 
prospective purchaser, the copartner whose interest is sold 
will not be liable therefor, unless he instigates or approves 
of them, or unless the partner making the representations is 
actually his agent* 



SAME— CONVERSION AND MISAPPLICATION OP 

PROPERTY 

112. One partner renders his copartners liable: (a) Where, 
while acting within the scope of the partnership 
business^ he wrongfully converts the property of 
another; (b) where, while acting within the scope 
of his apparent authority, he receives the money 
or property of a third person and misapplies it; 
(c) where he misapplies money or property re« 
ceived by the firm in the course of its business, 
while such money or property is in the custody of 
the finxu 

Conversion of Property 

If, while acting within the scope of his authority, a part- 
ner deals with property in a way amounting to a conversion 
of it, all the partners are liable. Thus all the members of a 
partnership were held responsible for staves made out of 
timber unlawfully cut by one partner on the plaintiff's land, 

when the other partners haye not the slightest connection with, or 
knowledge of, or participation in, the frand.** See "PartnerehiPf" 
Dec. Dig. (Key No.) H 153, 174; Cent. Dig. §| rtS, 277, $06. 

f Sherwood ▼. Marwick, 5 Me. 295; PIERCE t. JACKSON, 6 
Mass. 242. Compare, also, Manufacturers' & Mechanics' Bank ▼. 
Gore, 15 Mass. 75, 81, 8 Am. Dec. 83; Boardman y. Gore, 15 Mass. 
331 ; Reynolds v. Waller's Heir, 1 Wash. (Va.) 164. Bee ^'Partner- 
shipr Dec. Dig. {Key No.) |§ 153, 17 i; Cent. Dig. if 275, £77, 306. 

8 Schwabacker y. Riddle, 84 lU. 517. Bee ''Partnership;* Dec Dig. 
{Key No.) H 153, 174; Cent. Dig. f| 276, 277, 306. 



i 112) POWBR TO SUBJECT TO TORT LIABILITT 335 

sold by such partner to the firm, and afterwards resold by 
it.* So, where one partner illegally seized the plaintiff's 
cotton, though the other partner took no part in the sei- 
zure, both were held liable for punitive damages.** So, 
also, if one partner buys with partnership funds the prop- 
erty of the plaintiff, wrongfully attached while in another's 
custody as the property of third persons, all the partners 
are liable for the conversion.** 

Misapplication of Money or Property 

With respect to the misapplication or misappropriation 
of the property of third persons, the important question for 
determination is whether the partner, when he received the 
money or property, was acting within the scope of his au- 
thority. If it is within the scope of the firm business, or 
within the authority of a partner to receive the money or 
property, then all the partners are liable for any misappli- 
cation or misappropriation ; otherwise not. Thus one mem- 
ber of a firm of attorneys received money from the plain- 
tiff to be invested, and misappropriated it to his private use. 
In deciding the question of the liability of the innocent co- 
partner, the court held that, if the money was received to 
be laid out on a particular mortgage, such a transaction 
would come within the scope of the business of a firm of 
lawyers, and all the partners would be liable for the misap- 
propriation; but if received to be laid out generally, that 
would not be within the scope of the business of lawyers, 
but of scriveners or loan agents, and hence the innocent 
partners would not be liable. ^^ If, however, it be shown 
that investing money for others was a part of the business 

» Tucker v. Cole, 54 Wis. 539, 11 N. W. 703. See "Partnership;' 
Deo, Dig, {Key No,) {{ 15S, lU; Cent. Dig. H 275, S06. 

10 Robinson y. Goings, 63 Miss. 500. Bee "PartnereMp,** Deo, Dig. 
{Key No,) §§ 15S, 174; Cent. Dig, K «75, 306, 

11 Fletcher ▼. Ingram, 46 Wis. 191, 50 N. W. 424. See, also, Ger- 
hardt v. Swaty, 57 Wis. 24, 14 N. W. 851. See **Partner8Mp,** Dec, 
Dig. (Key No.) §| 15$, lU; Cent. Dig. |{ 275, $06. 

12 HARMAN y. JOHNSON, 2 El. & BL 61, Gilmore, Cas. Partner- 
ship, 399; Gleather y. Twlsden, 28 Gh. Div. 340; Rhodes t. Monies, 
<1895) 1 Ch. 23a See ^'Partnership;* Deo. Dig. {/ieu No.) U 153, 
lUi Cent. Dig. §i ^5, 306'. 



336 P0WBB8 OF PABTNBB8 (Oh. 6 

of the firm, then if one partner receives money, and mis- 
appropriates it, his copartners are liable." So, if one mem- 
ber of a law firm collects money for a client, and absconds 
with it, his copartner is liable.** Where, however, the act 
is not within the scope of the firm business, the innocent 
partners are not liable for any misappropriation. Thus X., 
of a shipping firm, undertook to collect a draft for A. The 
draft was made payable to the order of X., who indorsed it 
to his firm, with the request to collect and put the pro- 
ceeds to his credit. The firm collected the money, and X. 
withdrew the money for his own use. His innocent co- 
partners were not held liable.*' Nor will the mere fact that 
property obtained by a partner in his individual capacity, 
and subsequently misappropriated, was for a time in the 
innocent possession of the firm, render the latter liable for 
the one partner's tort. The temporary possession of the 
firm is not the same thing as a receipt of property by the 
firm in the course of its business.*' Whether the receipt of 
the money or property is within the scope of the business 

itWlUet V. Chambers. Cowp. 814; Moore v. Knight (1891) 1 Ch. 
.547. See ^'Partnership;' Dec. Dig. {Key No,) f| 153, 174; Cent. Dig. 
IS 275. S06. 

i« Dwlght ▼. Simon, 4 La. Ann. 490. 

If a partner in a mercantile firm coUects money for a third per- 
son and uses it in the firm business, instead of remitting it to his 
principal, the partnership and every member will be liable for the 
amount Welker v. Wallace, 81 Ga. 362; Whitaker v. Brown, 16 
Wend. (N. Y.) 505. See ** Attorney and Client,'' Dec. Dig. (Key No.) 
i 119; Cent. Dig. f 286; ^^Partnership," Dec. Dig. {Key Vo.) H ^53. 
m; Cent. Dig. %% 275. 306. 

i» Toof V. Duncan, 45 Miss. 48. See '^Partnership,** Dec. Dig. (Key 
yo.) fiS 153, 174; Cent. Dig. Sf 275. 306. 

i« Dounoe ▼. Parsons, 45 N. Y. 180; Toof y. Duncan, 45 Miss. 48; 
Bienenstok y. Ammidown, 155 N. Y. 47, 49 N. E. 321, reversing g. c, 
11 Misc. Rep. 70, 29 N. Y. Supp. 593, 32 N. Y. Supp. 1138. See, also, 
Marsh y. Keating, 2 CI. & F. 250 ; GuiUou y. Peterson, 89 Pa. 163. 

The principles of the foregoing cases have been embodied into the 
British Partnership Act of 1890, { 11, providing : '*(a) Where a part- 
ner, acting within the scope of his apparent authority, receiyes the 
money or property of a third person and misapplies It, and (b) 
where a t^rm In the course of its business receives money or property 
of a third person, and the money or property so received Is mlsap- 
plied by one or more of the partners while it is In the coatody of 



8 113) POWER TO SUBJECT TO TORT UABILITT 337 

must be determined in the same manner as in other situa- 
tions involving liability for acts of an agent. It is essen- 
tially a question of fact, which in all but clear cases must 
be decided by the jury.^^ 

Same — Property Wrongfully Obtained by One Partner for 

His Firm 

It has been held that where one partner obtains money 
or property by fraud or crime, and turns it over to his firm, 
or uses it for the benefit of the firm, all the partners are 
liable to the defrauded person. Thus, where money was 
obtained by one partner by false pretenses and used for the 
firm, the innocent partners were held liable for money re- 
ceived to their use.^** So, also, where a partner wrongfully 
put into the firm assets, and thereby increased them, the 
property of a third person, his innocent copartner was held 
liable." 



SAME— WRONGFUL USE OF TRUST FUNDS 

113, One partner cannot make the others responsible for 
his breach of trust in emplo3ring funds of which he 
alone is trustee in the partnership business, un- 
less such other partners are implicated in the 
breach of trust by their preknowledge of the source 
of the fund, or of such facts as should have put 
fhem on inquiry as to its source.'^ 

the firm, the firm is liable to make good the loss." See **Partner' 
sMpr Dec, Dig, {Key No.) f§ 153, lU; Cent. Dig. S| 275, S06, 

IT Palmer v. Scott, 68 Ala. 380; Birckhead v. De Forest, 120 Fed. 
045, 57 0. O. A. 107; Hefferlln v. Earlman, 29 Mont 139, 74 Pac. 
201. Bee **PartnerBhip," Dec, Dig, (Key No,) } 218; Cent, Dig, | 427, 

i» RAPP V. LATHAM, 2 B. & Aid. 795. Bee "Partnership," Dec. 
Dig. (Key No,) §S 15$, 174; Cent, Dig, §| 216, 277, S06, 

J» Durant v. Rogers, 87 111. 508; Blight's Heirs v. Tobin, 7 T. B. 
Mon. (Kj,) 612, 18 Am. Dec. 219 ; Wallace y. James, 5 Grant's Ch. 
(Up. Can.) 163; Manufacturers' ds Mechanics' Bank ▼. Qore, 15 
Mass. 75, 8 Am. Dec. 83. Bee '^Partnership,'* Deo. Dig. {Key No:) H 
153, 174; Cent. Dig. §{ 274-217, 306, 

aoThe English Partnership Act of 1890, f 13, provides: "If a 
partner, being a trustee, improperly employs trust-property in the 
business or on the account of the partnership, no other partner is 

G11..PABT.— 22 



^38 POWBR8 OF PARTNBB8 (Ch. 5 

Presumptively it is not in the ordinary course of the busi- 
ness of a partnership for one partner to apply trust funds 
to its use. Thus, where one partner obtained his wife's 
money by forging her name to a check, and used it as his 
contribution to the capital of the firm, his act was held 
wholly outside the scope of the partnership business, and 
his knowledge of the fraud not to be imputable to his co- 
partners.** Accordingly the firm must be implicated in the 
breach of trust, if it is to be made liable. This it cannot be, 
unless all the members either knew the source of the 
money, or that it did not belong to the partner who applies 
it to firm purposes, in which case they are bound to inquire 
on what terms the money is held.** The knowledge of the 
misconducting partner should not be imputed to the inno- 
cent partners. It is only where a partner is acting within 
the scope of his authority that notice to him is notice to all 
the partners.** Where, however, partners know that a 
fund belongs to an estate which their copartner represents, 
they are bound to inquire on what trusts it is held, and 
knowledge of the powers of the trustee partner is imputed 

liable for the trust-property to the persons benefldaUy Interested 
therein; provided as follows: (1) This section shall not affect any 
liability Incurred by any partner by reason of his having notice of 
a breach of trust ; and (2) nothing In this section shaU prevent tmst 
money from being followed and recovered from the firm if stlU in 
its i)ossession or under its controL" 

SI 6ILRUTH V. DECELL^ 72 Miss. 232, 16 South. 250, Gllmore, 
-Cas. Partnership, 401; Blenenstok v. Ammldown, 155 N. Y. 47, 
49 N. B. 321. See *' Partnership r Deo. Dig. (Key No.) | 153; Cent, 

Dig. §1 rn-m. 

ss Dent V. Slough, 40 Ala. 518; Hutchinson v. Smith, 7 Paige (N. 
T.) 28 ; In re Jordan (D. G.) 2 Fed. 319 ; Ran v. Small, 144 Pa. 304, 
22 Atl. 740; Hawley v. Tesch, 88 Wis. 213, 59 N. W. 670; Penn v. 
Fogler, 182 lU. 76, 55 N. E. 192; Garter v. Llpsey, 70 Oa. 417. The 
other partners are not liable, where one partner lends trust money 
to his firm, unless the fact of Its being trust money Is known to 
such other partners. Wlllett v. Stringer, 17 Abb. Prac (N. Y.) 152; 
Englar v. Offutt, 70 Md. 78^ 16 AU. 497, 14 Am. St Rep. 832; Shaf- 
fer V. Martin, 25 App. Dlv. 501, 49 N. Y. Supp. 853. Bee **Partner^ 
shipr Dec. Dig. (Key No.) |§ 15S, 174; Cent. Dig. H rtJHSTt, S06. 

St Blenenstok v. Ammldown, 155 N. Y. 47, 49 N. B. 321. See ante, 
1 104, p. Sia Bee ** Partnership,*' Deo. Dig. (Key No.) f 159; Cent. 
Dig. if 295-295. 



6 114) FOWEBS AFTER DISSOLUTIOH 839 

to them, whether they had actual knowledge or not.** The 
mere fact that the firm has been benefited by the money in 
question does not render it liable to the cestui que trust.'* 
However this doctrine will not prevent the cestui from fol- 
lowing his own money in the hands of the firm, if he can 
show that the firm still has it intact, and that it did not 
come by it by purchase for value without notice of its 
trust character.** Such an action is quite different from 
that wherein a cestui que trust sues all the partners who 
are implicated in a breach of trust, either as his debtors or 
as constructive trustees of the fvmd.** 



POWERS OP PARTNERS AFTER DISSOLUTION 

114. Upon dissolution of a partnership by act of the par- 
ties, and notice thereof duly given, or by operation 
of law, without notice, the mutual agency incident 
to the relation ceases. Each partner, however, 
even after dissolution, has implied authority to 
bind his copartners and the firm property by such 
. acts as are reasonably necessary to wind up the 
partnership affairs, or to complete transactions be- 
gun, but unfinished, at the time of dissolution. 

Upon the dissolution of the relation of partnership, the 
mutual agency incident thereto ceasies. As between them- 
selves, the partners no longer have any power to bind one 
another in the same general way as when the firm was a 
going concern. But, as in the law of agency, an agent's 

t4 Davis ▼. Gelhaus, 44 Ohio St 69, 4 N. B. {S98. Bee '^Partner- 
ship,'' Dec. Dig. {Key Vo.) | 159; Cent. Dig. §f 29S-295. 

SB Ex parte Apsey, S Brown, Ch. 265; Ex parte Heaton, Buck. 
386. See "Partnerthip,'' Deo. Dig. (Key No.) || 15S, lU; Cent. Dig. 
If tH-^J, S06. 

>• Hollenbaek ▼. Moore, 44 N. Y. Super Ct 107. See, also, U. S. 
T. Cohn (a a) 128 Fed. 616. Bee "Partnership,*' Deo. Dig. {JBiey 
tfo.) SI 159, m, 175; Cent. Dig. H 274-277, S06, 307. 

s7 Emerson y. Durand, 64 Wis. Ill, 116, 24 N. W. 129, 04 Am. Rep. 
593; Stoddard ▼. Smith, 11 Ohio St 581. Bee "Partnership,** Deo. 
Dig. (Key yo.) IS 153, 174; Cent. Dig. K 274-277, 306. 



3M POWERS or PARTNERS (Oh. 6 

power may continue for some time after his employment 
has actually ceased, so, also, in partnership, the mutual 
agency may continue, after the actual termination of the 
partnership, unless such termination be by operation of law, 
as by death. • As pointed out elsewhere, in the case of os- 
tensible partners, the mutual agency continues, so far as 
third parties afe concerned, until due notice of the dissolu- 
tion has been given.'* 

While upon dissolution by act of the parties, with proper 
notice, or by operation of law, the general agency ceases, 
^ it is obvious that some power must still remain in the part- 
' ners to wind up the partnership affairs. There is a mutual 
agency, therefore, after dissolution, as well as before; but 
it is of a different sort and exists for a different purpose. 
Its chief end is the closing up of the firm business, and its 
scope extends no further than to such acts as reasonably 
tend towards the accomplishment of this end.** 

Liquidating Partners 

Upon the dissolution of a partnership, whether by death 
or otherwise, all the surviving former members have an 



S8 See chapter X, { 196, p. 568, and chapter IV, { 88, p. 265. Bris- 
tol ▼. Sprague, 8 Wend. (N. Y.) 423. '*The principle upon which this 
responsibility proceeds is the negligence of the partners in leaving 
the world in Ignorance of the fact of the dissolution, and leaving 
strangers to conclude that the partnership continues, and to bestow 
faith and confidence on the partnership nieane In consequence of 
that belief.** CoUyer, Partn. (3d Ed.) 505; Lovejoy y. Spafford, 98 
U. 8. 430, 23 Ia Ed. 851 ; Smart et al. t. Breckenbridge Bank (Ky., 
1906) 90 S. W. 5^ 4 Ia R. A. (N. S.) 800, and note. See ^'Porlner. 
ship;* Dec. Dig. {Key No.) f§ 28^292; Cent. Dig. f| 651-661. 

>• The dissolution of a partnership does not destroy the authority 
of a partner to act for his former associates In matters in which 
they still have a common interest and are under a common liability. 
GATES y. BEEGHER, 60 N. Y. 518, 19 Am. Rep. 207. After dissolu- 
tion the agency of a partner exists for winding up the firm busi- 
ness, collecting credits, and paying off debts. Thursby v. Lidgeiv 
wood, 69 N. T. 198; Lange y. Kennedy, 20 Wis. 279; Bryant v. 
Lord, 19 Minn. 396 (GU. 342); Hayden y. Cretcher, 75 Ind. 108; 
Hawn V. Water Co., 74 Gal. 418, 16 Pac 196; Conrad y. Buck, 21 W. 
Va. 396, 413 ; Stebbins v. Willard, 53 Vt 665. 

The majority of the partners exercise the same controlling Id 
fluence after the dissolution of a partnership as before. Western 



g 114) POWERS AFTKB DISSOLUTIOH 841 

equal right to the possession of the firm assets for the pur- 
pose of winding up the firm affairs.'^ It often happens, 
however, that the partners will delegate to one of their 
number the exclusive authority to liquidate the business. 
Such a delegation gives no additional powers to those usu- 
ally implied, unless additional powers are expressly grant- 
ed.'* The only effect of the appointment of a liquidating 
partner is to compel third persons, who have notice of it, 
to deal with him alone, unless they would be subject to 
the equities of the other partners." In the absence of such 
notice, third persons have a right to assume that all the 
former partners have authority to do such acts as are nec- 
essary or proper to the winding up of the partnership busi- 
ness." 

What powers in particular are included in the agency ex- 
isting after dissolution will be considered in the ensuing 
sections. 

Stage Co. V. Walker, 2 Iowa, 504, 65 Am. Dec. 789. 8ee "Partner- 
fiMpr Dec, Dig, {Key No.) U 277-Z95; Cent. Dig, U 622-665. 

so Lapenta v. Lettiere, 72 Conn. 877, 44 Atl. 730, 77 Am. St Rep. 
815; Gray v. Qreen. 142 N. Y. 816, 87 N. B. 124, 40 Am. St Bep. 
596; Geortner v. Trustees of Vniage of Canajoharle, 2 Barb. (N. Y.) 
625. See '* Partnership;' Deo. Dig. (Key No,) |§ 277-295; Cent. Dig. 
H 622-665. 

SI But in Pennsylvania It Is held that a liquidating partner has 
power to borrow money on the credit of the late firm, for the par- 
pose of paying its debts. Baron v. Mackey, 106 Pa. 452 ; McGowin 
▼. Cubbison, 72 Pa. 358. See, also, McCoon v. Galbraith, 29 Pa. 298 ; 
Meyran v. Abel, 189 Pa. 215, 42 Ati. 122, 69 Am. St Rep. 80a See 
''Partnershipr Dee. Dig. (Key No.) U 277-295; Cent. Dig. H 62^^65. 

s2GiUUan v. Sun Mut Ins. Co., 41 N. Y. 376; Clark v. Reed, 
31 Leg. Int (Pa.) 413. See ** Partnership,'* Dec. Dig. CKey No.) Sl 
277-295; Cent, Dig. SS 622-665. 

as Hilton v. Vanderbilt, 82 N. Y. 591; PALMER v. DODGB, 4 
Ohio St 21, 62 Am. Dec 271, Gilmore, Cas. Partnership, 405; GU* 
more v. Ham, 142 N. Y. 1, 36 N. B. 826, 40 Am. St Rep. 554. Bee 
**Partner8hipr Deo. Dig. (fey No.) U 277-296; Cent. Dig. U $i$-^6S. 



342 POWBBS OF PARTNBB8 (Ch. 5 

SAME — PARTICULAR POWERS CONSIDERED — 
POWER TO DISPOSE OF FIRM ASSETS 

116* After dissolution, in the absence of agreement to the 
contrary, each partner has implied authority to 
oisposp of the partnership property, by sale or any 
other mode reasonably necessary for the purpose 
of winding up the firm business* 

Power to Sell 

The equal right of each partner, after dissolution, to the 
possession of the firm assets, would be valueless without 
the accompanying right of disposing of those assets in dis- 
charge of the firm liabilities, or in settling up the firm busi- 
ness generally.** In the absence of agreement to the con- 
trary, it is accordingly recognized that each partner may 
sell the partnership assets for the purposes above indicated. 
Thus a sale by one partner, after dissolution, of a judgment 
in favor of his firm, conveys a perfectly good title.*' Real 
estate being considered personalty for the purpose of pay- 
ing firm debts, it, too, may be sold in order to discharge the 
firm liabilities and settle the partnership accounts.** But 
the exercise of the power is subject to the same limitations 
as have been determined in a previous part of this chap- 
ter.*^ Since the good will of a partnership is part of its 
property, it follows that it, too, can be sold.** Certain 

•4 Lapenta v. Lettlere, 72 Conn. 377, 44 Atl. 730, 77 Am. St Rep. 
315; Bach r. State Ins. Co., 64 Iowa, 595, 21 N. W. 99; Gray v. 
Green, 142 N. Y. 816, 87 N. E. 124, 40 Am. Si Rep. 596. Bee "Part- 
nership** Deo. Dig. (Key No.) | 1^82; Cent. Dig. §S SSS-^il. 

SB Robbing v. Fuller, 24 N. Y. 570. See, also, Needham ▼. Wright, 
140 Ind. 190« 89 N. B. 510. See '^Partnership,'' Dec. Dig. (fey No.) 
I B82; Cent. Dig. SS 638-641. 

scRoulston V. Washington, 79 Ala. 529; Walling r. Burgess, 122 
Ind. 299, 22 N. B. 419, 23 N. E. 1076, 7 L^ R. A. 481 ; Barton v. Love- 
Joy, 56 Minn. 880, 57 N. W. 935, 45 Am. St Rep. 482 ; SHANKS y. 
KLEIN, 104 U. S. 18, 26 L^ Ed. 635, Gilmore, Gas. Partnership, 289. 
See '^Partnership;' Deo. Dig. {Key No.) S 282; Cent. Dig. Si 69&-6il. 

ST See ante, SS 94-96, 101, pp. 288-296, 308. 

«« Dayton r. WUkes, 17 How. Prac (N. Y.) 510; Holden's Adm'rs 
T. McMakin, 1 Pars. Bq. Gas. (Pa.) 270; Snyder Mfg. Go. v. Snyder, 



§ 116) POWERS AFTEB DISSOLUTION 343 

cases, however, relying on the now abandoned conception 
of partnership as a tenancy in common,** have intimated 
that the power to sell partnership assets should cease with 
the necessity for it ; in other words, that as soon as the 
firm debts are paid the power to sell the firm assets comes 
to an end.** Obviously this overlooks the fact that a part- 
ner's functions, after dissolution, are something more than 
the mere paying of debts. If the property is more than suf- 
ficient to pay firm debts, it femains to be divided among the 
former members of the firm, and very often it cannot be di- 
vided unless it is first sold. 

Same — Power to Pledge 

That a surviving partner has power to pledge firm prop- 
erty in the course of winding up the firm business is well 
settled.** There is some authority for the view that in case 
of a dissolution inter vivos each partner has such power.** 
But it has been denied.** 

Same — Assignment for Benefit of Creditors 

After dissolution inter vivos there is no implied power in 
the partners to make an assignment for the benefit of cred- 
itors, nor to confess judgment against the firm.** 

54 Ohio St. 86, 43 N. B. 325, 31 L. R A. 657. See ^^Partnership!* 
Dec. Dig, {Key Vo.) § SIO; Cent, Dig, § tl2, 

»» See ante, chapter III, §§ 52, 55, 56, 62, pp. 146, 170, 176, 195, •Ti- 
tle to Partnership Property." 

40 Hogendobler y. Lyon, 12 Kan. 276. See, also, Stair v. Rich- 
ardson, 108 Ind. 429, 9 N. E. 300; Halstead v. Shepard, 23 Ala. 558; 
Bank of Port Gibson y. Bangh, 9 Smedes & M. 290; Roots y. Mason 
City Salt & Mining CJo., 27 W. Va. 483, at page 492. Bee ^'Partner- 
shipr Dec. Dig. {Key No,) i 282; Cent. Dig, IS 6S8-641. 

41 Bohler y. Tappan (D. C.) 1 Fed. 469; First National Bank of 
Peru y. Parsons, 128 Ind. 147, 27 N. B. 486 ; Durant y. Plerson, 124 
N. Y. 444, 28 N. E. 1095, 12 L. B. A. 146, 21 Am. St. Rep. 686 ; Bur- 
chinell y. Koon, 25 Colo. 59, 52 Pac. 1100. See '^Partnership;^ Dec 
Dig. {Key No.) I 282; Cent. Dig. {§ 638-^41. 

4* Miller y. Florer, 15 Ohio St 148. See ''Partnership!' Dec. Dig. 
{Key No.) i 282; Cent. Dig, U 6S8-6U. 

4s Roots y. Mason City Salt & Mining Co., 27 W. Va. 483. See 
''Partnership!* Dec. Dig, {Key No.) S 282; Cent. Dig. S§ 6S8-6il. 

** Paton V. Wright, 16 How. Prac. (N. T.) 481 ; Egberts v. Wood, 
3 Paige (N. Y.) 517, 24 Am. Dec. 236 ; Deckert y. Filbert, 3 Watts & 
S. (Pa.) 454 ; Kellogg y. Cayce, 84 Tex. 213, 19 S. W. 388 ; Mbir y. 



344 POWERS OF PABTNBB8 (Cb. 6 



SAME— POWER TO COLLECT DEBTS 

116. After dissolution each partner has implied power to 
collect and settie claims, receive payments, and 
grant discharges from debts owed the firm. 

If a partner is to wind up the firm business after its dis- 
solution, he must obviously have the same power to collect 
outstanding obligations as he had during the continuance 
of the partnership.*' Firm debtors, paying a partner after 
dissolution who is notoriously insolvent, will be protected, 
even though notified by the other partners not to pay him.** 
So, also, payment to a retiring partner, with notice that he 
has retired, is good.*^ But the other partners are not 
bound, if a debtor, knowing that a receiver has been ap- 
pointed, nevertheless pays one, of the former members of 
the firm.** The power to collect debts, of course, carries 
with it power to receipt for them, and to grant discharges 
on payment.** 

Beck (Pa,) 2 Atl. 21S. Compare ante, §§ 07, lOa, 122, pp. 297, 316, 353. 
See Partnership,** Dec. Dig, (Key No.) § 282; Cent. Dig. SS 6S8^il. 

45Heartt v. Walsh, 75 in. 200; De Mott v. Kendrlck, 65 Hun, 
623, 20 N. Y. Supp. 195; Robbing v. Fuller. 24 N. T. 570; Granger 
V. McGUvra, 24 111. 152; GlllUan v. Sun Mut Ins. Co., 41 N. Y. 376. 
That a partner has no authority to accept anything but money In 
payment of a firm debt, see Kutz v. Naugle, 7 Pa. Super. Ct 179; 
Kirk V. Hlatt, 2 Ind. 322. See "Partnership,** Dec. Dig. (Key No.) f 
283; Cent. Dig. IS 642, 6iS. 

«eGmilan v. Sun Mutual Ins. Co., 41 N. Y. 376; MAJOR y. 
HAWKES, 12 111. 298, Gllmore, Cas. Partnership, 403 ; Heartt v. 
Walsh, 75 lU. 200. See "Partnership,** Dec. Dig. (Key No.) S 28$; 
Cent. Dig. §§ 642, 64S. 

*T Fettrecht v. Armstrong, 6 Rob. (N. Y.) 339. See "Partnership,** 
Dec. Dig. (Key No.) I 283; Cent. Dig. iS 642, 643, 655. 

48 Manning v. Brlckell, 8 N. O. 133. Nor wlU the debtor be pro- 
tected. If, having notice that his debt has been made the property 
of one of the partners by assignment, he nevertheless pays another. 
Hilton V. VanderbUt, 82 N. Y. 591; Bank of Montreal v. Page, 98 
in. 109; GlUllan v. Sun Mut Ins. Co., 41 N. Y. 370. 380. Contra: 
Hansen v. Miller, 44 lU. App. 550. See "Partnership,** Dec. Dig. 
(Key No.) i 283; Cent. Dig. §§ 642, 643. 

4» Gordon v. Albert, 168 Mass. 150, 46 N. £. 423; Riddle v. Et- 



§ 117) POWERS AFTER DISSOLUTION 845 

SAME— POWER TO PAY AND SETTLE FIRM 

DEBTS 

117. Each partner has power to pay and settle firm liabili- 
ties. 

The application of partnership property to firm debts, 
and the right and duty of the partners so to apply it, Sire 
the subject of other sections.'* It is also necessary here to 
state that the power of each partner after dissolution to pay 
firm debts follows from the equitable right of each partner 
to insist upon the application of the partnership funds to 
partnership debts, and that the existence of the power has 
never been seriously doubted.'* Without it practically 
every step in the winding up of a partnership would have 
to be taken in the courts. A partner may compromise firm 
debts and make bona fide settlements.'* He may pay not 
only in cash, but by transferring firm property. The pay- 
ment of rent due under a pre-existing lease is a mere pay- 
ment of a firm debt, and not a new obligation." 

ting, 32 Pa. 412; Van Keuren v Parmelee, 2 N. Y. 523, 51 Am. Dec' 
322; (Jeortner v. Trustees of Village of Canajoharie, 2 Barb. (N. 
Y.) 625. See ^^Partnership," Dec. Dig. {Key No.) § 283; Cent. Dig. 
il 642, 64S, 

BO Ante, chapter III, §S 58-^, pp. 179-195; post, chapter VI, | 187, 
p. 400. 

Bi MAJOR V. HAWKES, 12 111. 298, Gllmore, Cas. Partnership, 
403; Card y. Clark. 29 Iowa. 189; Knowlton v. Reed, 38 Me. 246; 
HaU V. Clagett, 48 Md. 223. See "Partnership:' Dec. Dig. (Key No.) 
S 28S; Cent. Dig. § 6U- 

BaChirry v. Kurtz, 33 Miss. 24; MUllken v. Lorlng, 37 Me. 408; 
Bass V. Taylor, 34 Miss. 342 ; Union Bank y. HaU, Harp. (S. C.) 245. 
See ^^Partnership:' Dec. Dig. (Key No.) § 287; Cent. Dig. I 633. 

BsMiiliken y. Lorlng, 37 Me. 408; Barnes v. Northern Trust Co., 
109 lU. 112, 48 N. B. 31. See '' Partnership," Dec Dig. {Key No.) H 
JSSi; 283, 28S; Cent. Dig. H 63&-ei&. 



346 POWERS OF PARTNBB8 (Ch. 5 

SAME— POWER TO PERFORM EXISTING CON- 

TRACTS 

118. After dissolution each partner has authority to com- 
plete transactions begun, but not finished, at the 
time of dissolution, and even to incur new obliga- 
tions necessarily incidental to the performance of 
such existing obligations. - 

That the mere dissolution of a partnership should not re- 
lieve its members of the duty of performing its unfulfilled 
contracts is obvious. Whatever a partner, as survivor or 
liquidator, does that is reasonably necessary to the comple- 
tion of the firm's existing obligations is within the scope of 
his authority."* Thu9 if, at the time of dissolution, a firm 
was under obligation to execute a guaranty, and one part- 
ner executes it, he binds all the former partners.'' Simi- 
larly third persons may hold the partners by completing 
contracts made with the firm before dissolution, as by de- 
Hverini^ goods that were ordered during the continuance of 
the partnership to one of the partners after dissolution." 
A partner has no authority after dissolution, however, to 
complete a contract that was a personal one, in reliance 

S4 Denver v. Roane, 90 U. S. 555, 25 L. Ed. 476 ; Little v. Cald- 
well, 101 Cal. 553, 36 Pac. 107, 40 Am. St. Rep. 89; King v. Leigh- 
ton, 100 N. T. 886, 8 N. B. 594 ; GATES v. BEECHER, 60 N. X. 518, 
19 Am. Rep. 207. Bee '^Partnership,'' Dec, Dig, (Key No.) i 284; 
Cent, Dig. I 629, 

B« Star Wagon Co. v. Swezy, 59 Iowa, 609, 13 N. W. 749. On 
duty of surviving law partner to carry on pending litigation for es- 
tate of deceased partner, see Sterne v. Goep, 20 Hnn (N. Y.) 396; 
Moses T. Bagley, 55 Oa. 283. See ^'Partnership,** Dec, Dig. {JKey No.) 
S 284; Cent, Dig, { 629. 

«e WHITING et al. v. FARRAND et al., 1 Conn. 60, GUmore, Cas. 
Partnership, 404; Kenney v. Altvater, 77 Pa. 84; Hubbard v. Mat- 
thews, 54 N. Y. 43, 51, 13 Am. Rep. 562; Oady v. Shepherd, 11 Pick. 
(Mass.) 400, 222 Am. Dec. 379. But a mere offer to sell, unaccepted 
before the death of a partner, cannot afterwards by acceptance be- 
come a contract GOODSPEED v. WIARD PLOW CO., 45 Mich. 
322, 7 N. W. 902, Gilmore, Cas. Partnership, 404. See ^'Partnership,** 
Dec. Dig, (Key No.) f 284; Cent. Dig, | 629. 



§ 119) POWERS ATTEB DISSOLXJTIOH 847 

Upon a particular partner, such as a contract between an 
author and a publishing firm,'^ nor a general contract to 
do all work of a certain kind. These are both terminated 
by the dissolution of the partnership."* It is often impossi- 
ble to complete the firm contracts without incurring some 
new obligations; if these are necessary to that end, they 
will be treated as merely incidental, and therefore witliin 
the implied authority of the partner.'* Thus, although a 
partner ordinarily has no authority after dissolution to 
make or renew negotiable paper, where a firm had, before 
dissolution, agreed to renew certain notes, it was held that 
any partner might do so in pursuance of the firm agree- 
ment.'* 



SAME— POWER TO INCUR NEW OBLIGATIONS 

119. After dissolution the partners have no power to bind 
each other upon any new contracts. 

As the authority of a partner, after dissolution, is re- 
stricted to the settlement of the partnership affairs, it fol- 
lows that dissolution revokes the power of the partners to 
bind each other by new contracts.*^ This is clearly shown 

BT Stevens v. Bennlng, 1 K. ft J. 168, 6 De O., M. ft O. 223. See 
""Partnership;' Dec. Dig. (Key No.) SS ^9, 284; Cent. Dig. U (>29, 
«57. 

8 s Caldwell v. Stlleman, 1 Rawle (Pa.) 212; Robb t. Mudsre, 14 
Gray (Mass.) 534; Schlater v. Wlnpenny, 76 Pa. 321^ But dissola- 
tion does not terminate a contract for a spedfled length of time. 
Oakford r. European ft Am. Shipping Ck)., 1 H. ft M. 182, 191. See, 
also, Horst v. Roehm (O. C.) 84 Fed. 565. Bee ""Partnership,** Deo. 
Dig. {Key No.) U 279, 28i; Cent. Dig. SS 629, 6S7. 

9»BnTC;HART y. DRESSER, 10 Hare, 453, 4 De O., M. ft O. 
542. See ""Partnership,** Dec Dig. {Key No.) |§ 285, 286; Cent. Dig. 
n 6i5-650. 

60 RICHARDSON ▼. MOIES, 31 Mo. 430. But the Uquidatlng 
partner cannot bind the others by Indorsing a new draft and sub- 
fltituting it for any old one, and a creditor taking such a draft with 
knowledge of the facts cannot hold the other partners upon it. First 
Nat Bank of Macon v. Ells, 68 Ga. 192. See ""Partnership,'* Dec. 
Dig. (Key No.) { 286; Cent. Dig. §1 647, 648. 

ei Ben T. Morrison, 1 Pet 351, 7 L^ Ed. 174; Clay T. Field (D. 



;;48 POWERS OF PARTNBRfi (Cb. 5 

in the denial of the power to borrow, so as to bind the firm, 
even to pay firm debts.** Were it allowed, the settlement 
of the firm affairs might be indefinitely postponed. 

Power to Give or Indorse Negotiable Paper 

As a partner cannot, after dissolution, create new obli- 
gations, or vary the nature or obligation of those already 
existing, it follows that he cannot, after dissolution, bind 
his copartners by making, accepting, indorsing, oi renew- 
ing negotiable paper.** The mere fact that the proceeds of 
the paper are applied to the payment of firm debts makes 
no difference.** Here, again, to imply such a power would 
indefinitely postpone the settlement of the partnership af- 
fairs. As with all other powers, not ordinarily implied, 
however, previous special authorization** or subsequent 
ratification will supply the lack of authority.** 

C.) 84 Fed. 875 ; Weld t. Johnson Mfg. Co., 86 Wis. 662, 57 N. W. 
874 ; Perrln v. Keene, 19 Me. 355, 86 Am. Dec. 759 ; Speake v. White, 
14 Tex. 364; Hicks v. Russell, 72 111. 230; Bennett y. Buchan, 61 N. 
Y. 222. But each partner is liable for all expenses reasonably, neces- 
sary in winding up the firm business. CJonrad v. Buck, 21 W. Va. 
396 ; Stebblns v. WiUard, 58 Vt 665. Bee '^Partnership;' Dec, Dig. 
{Key No.) U 285, fm; Cent. Dig. SS 6i5-S50. 

•s Hayden v. Cretcher, 75 Ind. 108 ; Dowzelot v. Rawlings, 58 
Mo. 75 ; Payne v. Gardiner, 29 N. T. 146 ; Lee v. Stowe, 57 Tex. 444. 
See "Partnership;* Dec. Dig. {Key No.) H 285, 286; Cent. Dig. U 
646^50. 

•s Lock wood V. Gomstock, 4 McLean, 383, 15 Fed. Gas. No. 8,449 ; 
Funck V. Heintze (Tex. Civ. App.) 23 S. W. 417 ; Lange v. Kennedy, 
20 Wis. 279 ; Bank of Montreal v. Page, 98 111. 109. See ^'Partner- 
ship;* Deo. Dig. {Key No.) § 286; Cent. Dig. S§ 646-649. 

•4 Falls V. Hawthorn, 80 Ind. 444; Hayden v. Cretcher, 75 Ind. 
108; Parham Sewing Machine Company v. Brock, 113 Mass. 194. 
Such a note will not extinguish a firm debt Gardner v. Conn, 34 
Ohio St 187. But that notes given in liquidation of partnership 
liability constitute no new obligation, see Chappell v. Allen, 38 Mo. 
213; McPherson ▼. Rathbone, 11 Wend. (N. Y.) 96; Ward v. Tyler. 
52 Pa. 893. See *^Partnershipy** Deo. Dig. iKey No.) f 286; Cent. 
Dig. t§ 246-249. 

es Wilson ▼. Forder, 20 Ohio St 95, 5 Am. Bep. 627; New Haven 
County Bank v. Mitchell, 15 Conn. 222. But general authority to a 
partner after dissolution to close up the partnership indeirtedness 
by executing notes in the firm name does not authorize him to bind 

•0 See note 66 on following page. 



§ 120) POWERS AFTEK DISSOLUTION 849 

Same — -Indorsement Without Recourse 

An exception to the general rule is recognized by the 
weight of authority in the case of indorsements without re- 
course of paper payable to the firm. To be sure, an ordi- 
nary indorsement is a new contract, and therefore impliedly 
forbidden to a partner after dissolution. But as a partner 
has implied power to sell firm property, of which the firm's 
choses in action are a part, there would seem to be no val- 
id reason for denying validity to such a sale. The implied 
warranty of genuineness which an indorsement without re- 
course involves should be no more beyond the scope of a 
partner's power after dissolution than the implied warranty 
of title in transfers of the firm's other assets.*' 



SAME— POWER TO MAKE ADMISSIONS 

180. After dissolution a partner has power to bind his for- 
mer copartners by only those admissions fairly re- 
lating to the settlement of the partnership affairs. 
Whether he can by admissions bind his copartners 
as to transactions occurring during the continu- 
ance of the partnership is a question on which the 
authorities are conflicting* 

» 

hlfl late copartner by stlpnlatins: In sucb notes to pay attorney's 
fees and to waive exemptions. Brown v. Bamberger, 110 Ala. 842» 
20 Sonth. 114. Though paper Is signed before dissolution, a partner 
has no authority to Issue It after. Qale v. Miller, 54 N. Y. 53S, 
affirming 1 Lans. (N. Y.) 451, and 44 Barb. (N. Y.) 420; Robb v. 
Mudge, 14 Gray (Mass.) 534 ; Woodford v. Dorwln, 3 Vt 82, 21 Am. 
Dec. 578. See, also, Glasscock v. Smith, 25 Ala. 474. See **Partner' 
«Mp,*' Dec. Dig. {Key No,) |§ 285, 286; Cent. Dig, §{ 6k5-S50. 

•• Sanborn* v. Stark (C. O.) 81 Fed. 18 ; Whltworth v. Ballard, 56 
Ind. 279 ; Carter v. Pomeroy, 80 Ind. 48& The ratification may be 
by parol and Informal, as by a partner's saying he had no objection 
to the firm name being used. Smith v. Winter, 4 M. & W. 454. See 
**Partner8hip," Dec. Dig. (Key yo.) S 286; Cent. Dig. S 649. 

•TYale V. Eames, 1 Mete. (Mass.) 486; Walte v. Foster, 88 Me. 
424; Parker v. Macomber, 18 Pick. (Mass.) 505. Ck>ntra, Fellows v. 
Wyman, 88 N. H. 351 ; Glasscock v. Smith, 25 Ala. 474 ; Whltworth 
▼. BaUard, 56 Ind. 279. See "Partnership;* Deo. Dig. (Key No.) i 
Z86; Cent. Dig. ^ 648. 



350 POWBBS OF PABTNBB8 (Cb. 5 

At first glance it would seem that, after dissolution of a 
partnership, one partner should have no more power to im- 
pose an obligation upon his former associates by his ac- 
knowledgment or admissions than could an agent, for the 
relation of mutual agency no longer exists when the firm 
is dissolved. Such is the view of a long line of cases fol- 
lowing the first American decision on the subject** In 
these jurisdictions, for instance, the admission of a partner 
after dissolution that a certain partnership note was given, 
not for his private debt, but for a firm debt, would not be 
received in evidence.** 

In the same year that the leading American case deny- 
ing the authority to bind one's former partners by admis- 
sions was decided, however, an English case, with an al- 
most equally long line of followers, recognized such au- 
thority/* The theory of these cases is that the firm still 
exists as to things past, and that, as each partner has the 
power to pay debts after dissolution, there is no reason 
why he should not have power to say whether a certain 
debt exists and what is its amount. So long as the admis- 
sions concern things which took place during the existence 
of the copartnership, in the regular course of the business 
of the firm, and do not create a new liability, one partner 
may bind the others thereby.^* Where the admissions in 

esHackley t. Patrick (1808) 8 Jolm& (N. Y.) 636. See, also, 
Blspham y. Patterson, 2 McLean, 87, Fed. Gas. No. 1,441; Cunning- 
ham Y. Bragg, 37 Ala. 436 ; Dowzelot v. RawUngs, 68 Mo. 76 ; Nich- 
ols ▼. White, 86 N. Y. 581; Tassey ▼. Church, 4 Watts & S. (Pa.) 
141, 89 Am. Dec. 66. See, also, collection of cases in Gllmore t. 
Ham, 40 Am. St Rep. 667. See ^^Partnership,** Deo. Dig, (Key No.) 
S 294; Cent. Dig. i 6S0; ^'Svidence,"* Deo. Dig. {Key No.) S B49; Cent. 
Dig. n 965-^5. 

•» Curry v. White, 61 Cal. 630 ; Brewster t. Hardeman, Dud. (Ga.) 
138; MILLER v. NEIMERIOK, 19 111. 172, Gllmore, Cas. Partner- 
ship, 412. See ^^Partnership,'' Deo. Dig. {Key No.) i 294; Cent. Dig. 
S 630; ^'Evidence," Deo. Dig. {Key No.) { 249; Cent. Dig. H 96S^75. 

TO WOOD T. BRADDICns (1808) 1 Taunt 104, Gllmore, Cas. Par^ 
nership, 411. See ^'Partnership;* Deo. Dig. {K^ No.) f 294; Cent. 
Dig. I 630; ^'Evidence," Deo. Dig. {Key No.) i 249; Cent. Dig. U 
965-975. 

Ti Cochran ▼. Cunningham's Bx*r, 16 Ala. 448, 60 Am. Dec. 186; 
Gady ▼• Sh^herd, 11 Pick. (Mass.) 400, 22 Am. Dec. 879; Nalle ▼• 



§ 121) POWERS AFTEB DISSOLUTION 351 

question relate merely to the winding up of the partnership 
affairs, and the power of the partners in so winding up, it 
is possible to steer a middle course; for probably even the 
decisions following Hackley v. Patrick ^* would find no ob- 
jection to the liquidating partner's binding his former asso- 
ciates by such admissions.^* 



SAME— POWER TO TAKE FIRM DEBTS OUT OF 
THE STATUTE OF LIMITATIONS 

121. Although the decisions are conflicting, still by the 
weight of authority, when due notice of dissolu- 
tion has been given, a partner cannot, by an ac- 
knowledgment of a partnership debt or a promise 
to pay it, remove the bar of the statute of limita- 
tions, so as to bind his copartners. 

With respect to the power of partners after dissolution 
to remove the bar of the statute of limitations on firm 
debts, there is the same conflict of authority as in the case 
of admissions. Some of the disagreement is doubtless due 
to the difference in view as to the effect of the statute. If 
the running of the statutory period extinguishes the debt, 
so that a new promise is necessary to restore it, the surviv- 
ing partner should have no power by an admission thus to 
create a new obligation. If, however, the old debt still ex- 
ists, but the remedy merely is barred, an admission does 
not involve the creation of a new liability. The former 
would seem to be the general view of the effect of the stat- 

Gates, 20 Tex. 315; Loomls t. Loomis, 26 Yt 198; Rlcli v. Flanders, 
89 N. H. 304. See ''Partnership,'' Dec, Dig. {Key No,) f 294; Cent. 
Dig, % 690; ''Evidence,'* Deo. Dig. (Key No,) I W; Cent. Dig, IS 
965-975. 

7a 3 Johns. (N..Y.) 536 (1808), supra. See "Partnership,'* Dec. Dig, 
(Key No.) I 294; Cent, Dig, t 6$0; "Evidence," Deo. Dig. (Key No.) 
i 249; Cent, Dig. §§ 965-975. 

T» Barnes ▼. Northern Trust Co., 169 111. 112, 48 N. E. 31; Par- 
sons on Part (4th Ed.) § 128. See "Partnership," Dec. Dig. (Key 
No.) S 294; Cent. Dig. | 6S0; "Evidence," Dec Dig. (Key No.) I 
249; Cent. Dig. tf 965-975. 



352 POWERS OF PARTNBB8 (Ch. 6 

ute. Where such view prevails as to debts already barred 
at the time of the admission, the weight of authority is to 
the effect that a partner has no more power to revive an 
extinct debt, so as to render his former associates liable, 
than he has to involve them in a new one after dissolu- 
tion.'* On the other hand, there are a few cases which pro- 
ceed on the theory that the agency of partners, even after 
dissolution, enables them to stop the running of the stat- 
ute as against their associates/" 

With respect to acknowledgments after dissolution, but 
before the statute of limitations has taken effect, there is 
even greater diversity of opinion. On the ground that it 
is absurd to regard a part payment by one partner after dis- 
solution as a promise by him and his former associates to 
pay the rest, the weight of authority denies the right to 
prolong the statutory time for enforcing claims.'* By the 
minority it is urged that the agency of the partners for the 
purpose of winding up includes power to make payments 
which are for the benefit of all, and therefore to prolong 
the time limit of the statute of limitations by such pay- 
ments.'' Where no notice of dissolution has been given, it 

T4 MAYBERRY V. WILLOUGHBY, 5 Neb. S68, 25 Am. Rep. 401, 
Gil more, Cas. Partnership, 413; Lang's Heirs y. Waring, 17 Ala. 
145; Newman v. McGomas, 43 Md. 70; Van Kenren v. Parmelee, 2 
N. Y. 523, 51 Am. Dec. 322; Bell v. Morrison, 1 Pet 851, 375, 7 U 
Ed. 174 ; Kerper y. Wood, 48 Ohio St 613, 29 N. E. 501, 16 L. R. A. 
656; Reppert y. Golyin, 48 Pa. 248. Where there is express au- 
thority by all the partners, of course, the power exists. Watson 
y. Woodman, L. R. 20 Eq. 721, 730; Dayis y. Poland, 92 Va. 225, 
28 S. E. 292. See **Liinitation of Actions;' Dee. Dig. (Key No.) | 
14S; Cent. Dig. I 580; "Partnership;* Cent. Dig. § 634. 

TttWhltcomb y. Whiting, 2 Doug. 652; Day y. Merritt 38 N. J. 
Law, 32, 20 Am. Rep. 362 ; Wheelock y. Doollttie, 18 Vt 440, 46 Am. 
Dec. 163, but altered by statute since. See "Limitation of Actions;' 
Dec. Dig. (Key No.) I 143; Cent. Dig. I 580; ''Partnership,'* CenL 
Dig. I 634- 

Te Tappan y. KimbaU, 30 N. H. 136; Curry y. White, 51 OaL 580; 
Tate y. Clements, 16 Fla. 339, 26 Am. Rep. 709; Wilson y. Wangh, 
101 Pa. 233; Haddock y. Crocheron, 82 Tex. 276, 5 Am. Rep. 244. 
fifee ^'Limitation of Actions;' Deo. Dig. (Key No.) §| 143. 155; Cent. 
Dig. §S 580, 626; "Partnership;* Cent. Dig. S 634. 

TT Whltcomb y. Whiting, 2 Doug. 652; Burr v. Williams, 20 Ark. 
171 ; Bissell y. Adams, 85 Conn. 299 ; Van Staden y. Kline, 64 Iowa, 



§ 122) POWERS OF SXmVIYINO PABTNSB S63 

is generally held that creditors receiving a part payment or 
a new promise from one of the partners should be allowed 
to rely on it as a protection from the running of the stat- 
ute/* 



POWERS OP SURVIVING PARTNER 

122. In case of the death of a partner, the aurviving part- 
ner or partners have the exclusive right of posses- 
sion and control of the firm property for the pur- 
pose of doing any act necessary or proper for com- 
pleting existing contracts and winding up the firm 
business. 

Powers of Surviving Partner 

How the death of a partner affects partnership property, 
the nature of the title of the surviving partner as quasi 
trustee, and his duties towards the representatives of the 
deceased partner, have been the subjects of an earlier 
chapter.'* Also the nature of the partnership liability and 
the quasi severable character of firm contracts has been dis- 
cttQsed.** It now remains to notice the scope of the power 
of the surviving partner with respect to winding up the 
partnership business. Here, as in the case of dissolution 
inter vivos, the power of the surviving partner exists for • 
the purpose of bringing the affairs of the firm to a close. 

180, 20 N. W. 3 (surviving partner); McClarg y. Howard, 45 Mo. 
365, 100 Am. Dec. 378. See ''Limitation of Actions*' Deo. Dig, 
{Key No,) { 155; Cent. Dig. I 626; '^Partnership,'' Cent Dig. fW-J. 

T8 Fbrbee v. Garfield, 32 Hun (N. Y.) 889; Clement v. Clement, 69 
Wis. 599. 85 N. W 17, 2 Am. St Rep. 760; SAGB v. ENSIGN, 2 
AUen (Mass.) 245; Gates v. Flslc, 46 Mich. 522, 528, 8 N. W. 558 
But see Tate .v. Clements, 16 Fla. 389, 26 Am. Rep. 709. 

The law of the state where the remedy Is sought governs the que^ 
tlon as to the power of the partner to relieve from the statute 
MAYBERRY v. WILLOUGHBY, 5 Neb. 368, 25 Am. Rep. 491, Gil 
more, Cas. Partnership, 413. See **Limitation of Actions" Dec Dig. 
{Key No.) H IV. tS5; Cent. Dig. %\ 5.80, 626; ""PartnensMp;' Cent. 
Dig. S 6H. 

T» Ante, chapter III, %% 65-67, pp. 204-214. 

•0 See chapter IV, || 69-73, pp. 217-233. 

Gil.Pabt. — ^23 



354 POWBBS OF PABTNEKS (Ch. 6 

Strictly speaking, the surviving partner is not an agent at 
all. He acts in his own right, and while he is answerable 
to the representatives of the deceased partner for his ad- 
ministration of the firm business he does not represent 
them. He takes the legal title to the personal property and 
the choses in action and an equitable title to the real estate. 
He stands in the place of the partnership with respect to 
its assets and liabilities, and is vested with full power, pos- 
session, and management of the firm business.** His func- 
tion as such quasi trustee is to collect all the firm assets, to 
apply them to the firm debts, and to distribute the surplus, 
if any, among the surviving partners and the representa- 
tives of those who are dead."* He has no right to continue 
the partnership business longer than is necessary for wind- 
ing up the affairs,®* except where the deceased partner by 
will authorized the business to be carried on for a limited 
period.** If he does continue the business without author- 
ity, he only is liable for the debts thus incurred,** and is 
answerable to the representatives of the deceased partner 
for all losses caused by such continuance.** Whatever he 
does in winding up the firm business, therefore, may be 
considered within the fair scope of the purpose of the trust. 



81 Murray t. Fox, 89 Hon (N. Y.) 110; NEHRBOSS ▼. BLISS, 88 
N. Y. 600. Bee '^Partnership;* Deo. Dig. {Key No.) §| ^48-258; Cent. 
Dig. S$ 509^98. 

82 Patton Y. Leftwlcli, 86 Va. 421, 10 S. E. 686, 6 L. R. A. 569, 19 
Am. St Rep. 902. See ^^Partnership,*' Dec. Dig, (Key Jfo.) | 2i5; 
Cent. Dig. H 5H-518. 

ssClay Y. Field (D. O.) 84 Fed. 875; Nelson v. Hayner, 66 IlL 
487; Clay y. Freeman, 118 U. S. 97, 6 Sup. €t. 964, 80 L^ Ed. 104; 
Orlm's Appeal, 105 Pa. 875. See ""Partnership,** Deo. Dig. (Key No,) 
S 255; Cent, Dig. H 552-561. 

84 Stewart y. Robinson, 116 N. Y. 828, 22 N. E. 160, 163, 5 U R. 
A. 410. 

See chapters II, | 22, p. 73; III, S 68, p. 215; X, i 199, p. 673, 
for discussion of proYlsion for the continuation of the business after 
death of a partner. See ""Partnership,** Deo. Dig. (Key xfo.) S 255; 
Cent. Dig. S§ 552-561. 

•« Julland Y. Watson, 43 N. Y. 571. Bee ""Partnership** Deo. Dig. 
(Key No,) S 255; Cent, Dig, |§ 552-561. 

80 Roberts y. Hendrickson, 75 Mo. App. 484. Bee ""Partnership,*' 
Deo. Dig. (Key No.) | 255; Cent. Dig. IS 552^61. 



S 122) POWERS OF SURYITINO PABTNBB 856 

and of his authority.*^ So far as third persons are con- 
cerned, who have dealt with or might deal with the part- 
nership as such, the right of a surviving partner to take all 
the property of the firm for the purpose of reducing it to 
money and paying the firm debts is a right incidental to 
all partnerships, and. one of which he cannot be deprived 
by the personal representatives of the deceased partner, in 
the absence of any allegation of mismanagement or want of 
capacity.** If there be more than one surviving partner, 
the right and duty to wind up the firm business devolves 
equally upon them all. •• But the privilege of participating 
in the winding up is personal, and may be waived or re- 
signed to the other partners or their representatives.** The 
right and duty survives, so that, if there be several sur- 
viving partners and one dies, the remaining survivors suc- 
ceed to the work. Upon the death of the last survivor, his 
administrator is chargeable with the duty of completing the 
settlement.** 

•T Offutt v. Scott, 47 Ala. 104. See •'Partnership,'^ Deo. Dig. (JTcy 
yo.) IS 2i9-251; Cent Dig. §S 509^68. 

ss Shearer t. Paine, 12 Allen (Mass.) 289; Rice v. Merchants' ft 
Planters* Nat Bank of Montgomery, 100 Ala. 617, IS South. 659. 
The sorvlTlng partner has the sole power of settling the partnership 
affairs, and only when a case of plain dellnqnency is shown on his 
part can the representatives of the deceased Invoke the aid of a 
court of equity to compel him to act for the good of all Interested 
parties. Miller v. Jones, 39 111. 54 ; Merrltt v. Dickey, 88 Mich. 41 ; 
Nelson y. Hayner, 66 ly. 487; Shields v. Faller, 4 Wis. 102, 105, 
65 Am. Dec. 293. See, also, BUSH v. CLARK, 127 Mass. 111. See 
'TartnersMp,'' Deo. Dig. (Key Vo.) H tJfi-tke; Cent. Dig. IS 50^ 
523. 

8» Davis ▼. SoweU, 77 Ala. 262; Heartt ▼. Walsh, 75 111. 20a 
See "Partnership;' Deo. Dig. {Key No.) | 2i5; Cent. Dig. §{ 51Jh518. 

•oGrlfEln v. Spence, 69 Ala. 393; Welbom v. CkK>n, 67 Ind. 270. 
See ''Partnership,'' Deo. Dig. iKeg No.) H 248-257; Cent. Dig. U 
509-563. 

91 Richards v. Heather, 1 B. & A. 29; C!ostley ▼. Wllkerson's 
Adm'r, 49 Ala. 210 ; Copes v. Fullz, 1 Sim. & Mar. 623 ; NEHRBOSS 
V. BLISS, 88 N. Y. 600; Calder v. Rutherford, 8 Brod. ft Blng. 302; 
Dayton v. Bartlett, 88 Ohio St 357; Brooks v. Brooks, 12 Helsk. 
(Tenn.) 12. See "Partnership;' Deo. Dig. (fiey ^o^ U 243-257; Cent 
Dig. Si 509-^63. 



356 POWERS OF PABTNBB0 (Oh. S 

Satne — Righf to Compensation 

Unless there is an express agreement to that cifect, or 
unless the partnership business must be continued for some 
time to effect a settlement, a surviving partner is not en- 
titled to compensation for his services merely in closing up 
the business,** "but the tendency is to deal with such 
questions on their particular circumstances, rather than by 
absolute rules." •• 

Same-^ower to Dispose of Firm Assets 

For the purpose of paying firm debts, or in the discharge 
of firm contracts, the surviving partner has full power to 
dispose of all firm assets, whether they consist of realty or 
personalty.** But since the legal title to firm real estate 

•s Condon ▼. Callahan, 115 Tenn. 285, 89 S. W. 400, 1 L. R. A. 
(N. S.) 643, 112 Am. St Rep. 833 ; Young v. ScovlUe, 09 Iowa. 1T7, 
68 N. W. 670; AMBS T. DOWNING, 1 Bradf. (N. Y.) 321, GiUnore. 
Cas. Partnership, 610; Denver y. Roane, 99 U. S. 855, 25 L. Ed. 
476; Schenkl y. Dana, 118 Mass. 236. A partner, rendering seryices 
in excess of the mere winding up of the business of the partnership 
on dissolution by the death of his copartner, is entitled to compen- 
sation therefor. Richards y. Maynard, 166 lU. 466, 46 N. B. 1138. 
See, also, Aldrldge y. Aldridge, 8 Reports, 189; Id., [1894] 2 Ch. 
97 ; JacksonyiUe, M. P. Ry. & Nav. Co. y. Warriner, 85 Fla. 197, 16 
South. 898. See '^Partnership," Deo. Dig. {Key No.) U 25S, tS5; 
Cent. Dig. §S 559, 650, 560. 

•a THAYER y. BADGER, 171 Mass. 279, 60 N. B. 641, (^ilmore, 
Cas. Partnership, 435. See, also, Royster y. Johnson, 78 N. C. 474; 
McElroy y. Whitney, 12 Idaho, 512, 88 Pac. 349. 

But the administrator of a suryiying partner has been allowed 
compensation. Dayton y. Bartlett, 38 Ohio St 357. See ''Partner^ 
•hip;* Deo. Dig. {Key No.) fS ft5S, 255; Cent. Dig. ff 5S9, 550, 560. 

•* Bohler y. Tappan (D. C.) 1 Fed. 469 ; Milner y. Cooper, 65 Iowa, 
190, 21 N. W. 558; Calvert y. Miller, 94 N. C. 600; Loeschigk y. Hat- 
field, 51 N. Y. 660 ; Bartlett y. Smith, 5 Neb. (Unof .) 337, 98 N. W. 
687 ; JUtNDNBR y. ADAMS COUNTY BANK, 49 Neb. 735, 68 N. W. 
102a 

In the case of negotiable paper payable to the firm, he may trans- 
fer it by indorsement This Is yalid to pass the legBl title, bat will 
not create a new liability on the contract of indorsement Johnson 
y. Berlizheimer, 84 111. 54, 25 Am. Rep. 427; Bredow y. Mntnal Say- 
ings Inst, 28 Mo. 181. So, also, a snryiying partner may assign 
Judgment recovered by the firm. Thnrsby y. Lidgerwood, 69 N. Y. 
198. See *'Partnor$Mp,'* Dec Dig. (Key No.) i 245; Cemk Dig. if 
51JhS18. 



S 122) POWERS or SURTIVINO PARTNER 867 

passes upon the death of a partner to his heirs, the deed of 
the surviving partner conveys merely an equity to the pur- 
chaser, who, however, acquires a right to call upon and 
compel the heirs to convey the legal title. Performance 
of the contract will be decreed against the purchaser in fa- 
vor of the survivor ; the heirs being required to join in de- 
vesting themselves of any legal tide that may have come 
to them.** 

Except as to firm real estate, the power of disposition 
exists for the purpose of turning the assets into cash for 
purpose of distribution.** As to real estate, his power of 
sale seems to be limited in this country to sales for the pay- 
ment of debts.*^ If, however, the partnership realty has 
been converted into personalty by the express terms of the 
partnership agreement and the will of the deceased part- 
ner,** or if the law of the particular jurisdiction recognizes 
such power, then a conveyance by him is effective.** 

Same — Power to Pledge or Mortgage 

The power of disposition by a surviving partner is not 
limited to selling merely. He may pledge or mortgage firm 
assets as security for a firm debt/ or for a loan for firm pur- 
poses.* 



•s DELMONIGO ▼. GUILLAUME, 2 Sandf. Oh. (N. T.) 86S. See 
^Partnership^ Dec. Dig {Key No.) H 245, 246; Cent, Dig. U ^^*- 
52S. 

•« Cases supra, note 94. 

•7 See chapter III, §§ 63, 54, pp. 154-160. 

•« DAVIS V. SMITH, 82 Ala. 198, 2 South. 897. See, also, chapter 
III. f 68, p. 215. See '*Partner$Mp:* Deo. Dig. (Key No.) %% 24S, 246; 
Cent. Dig. ff 514-^28. 

B» Jones V. Sharp, 9 Helsk. (Tenn.) 660; Sanhom ▼. Sanborn, 11 
Grant, Ch. (IT. C.) 359. See ^^Partnership,** Deo. Dig. {Key No.) H 
245,246; Cent. Dig. U 514-523. 

1 In re GLOUGH, L. R. 81 Gh. D. 324. See, also, cases nnder | 
114, notes 41-43. p. 343. See ** Partnership,*' Dec. Dig. {Key No^ 
f 245; Cent. Dig. f 516. 

* BUTOHART ▼. DRESSER, 4 D., M. ft O. 542 ; Conrtland Forg- 
ing Go. y. Ft Wayne First Nat Bank, 141 Ind. 518, 40 N. B. 1070; 
Burchinell v. Koon, 25 Golo. 59, 52 Pac. 1100. See **Partner9Mp,*' 
Deo. Dig. {Key No.) H 245, 246; Cent. Dig. H 514^2S. 



358 POWBRS OF PARTNBB8 (CSl 5 

Same — Power to Assign for Creditors 

Since the surviving partner succeeds to all the rights and 
power of the partnership, and has entire control over the 
firm property, he may make an assignment of it for the ben- 
efit of the firm creditors, and in doing so may make such 
preferences among the firm creditors as he sees fit.* Nor 
is the consent of the representatives of the deceased part- 
ner necessary.^ By statute in some states this power has 
been taken away.* 

Same — Power to Collect Claims Due the Firm 

Being the sole representative of the firm, he has the ex- 
clusive power to collect claims due the firm.* He is the 
only proper person to receive payment, and he may compel 
a firm debtor who has paid the administrator of the de- 
ceased partner to pay again,^ or may compel the adminis- 
trator to turn over the money thus collected by him.* 

Same — Power to Complete Existing Contracts 

As the existing obligations of a partnership, which do not 
call for the personal service of the deceased, continue after 



t EMERSON ▼. SBNTER, 118 U. S. 8, 6 Sup. Ct 981, 30 L. Ed. 
49; Bartlett v. Smith, 5 Neb. (Unof.) 837, 98 N. W. 687; Patton y. 
Leftwlch, 86 Va. 421, 10 S. E. 686, 6 L. R. A. 669, 19 Am. St Rep. 
902. See ** Partnership,*' Deo. Dig, {Key No,) ^ 2J^5; Cent. Dig. | 
Sieyj^; ^^Assignments for Benefit of Creditors,^ Deo. Dig, {Key No.) 
I SO; Cent. Dig. M 99-104. 

« WUliams y. Whedon, 109 N. T. 841, 16 N. E. 865, 4 Am. St Rep. 
460. See **Partners?Up,** Deo. Dig. (Key No.) | 245; Cent. Dig. | 
616^. 

B SHATTUGK y. CHANDLER, 40 Kan. 616, 20 Pac. 225, 10 Am. 
St Rep. 227, Gilmore, Oas. Partnenhip, 236 ; State y. Wlthrow, 141 
Mo. 69, 41 S. W. 980. Bee '^Partnership,** Deo. Dig. (JTey No.) % 245; 
Cent. Dig. f 516%. 

• Davis y. Sowell, 77 Ala. 262; Gockerham y. Bosley, 62 La. Ann. 
65, 26 Sonth. 814; Peters y. Davis, 7 Mass. 257; O'GonneU v. 
Scfawanabeck, 76 Mich. 517, 48 N. W. 599; Potter y. Stransky, 48 
Wis. 235, 4 N. W. 95. See '^Partnership,'* Deo. Dig. (Key No.) | 
245; Cent. Dig. U SI4, 5i^Mi* 

T Rice y. Richards, 45 N. a 277 ; Galvert v. Marlow, 18 Ala. 67. 
Bee ''Partnership,** Deo. Dig. (Key No.) | 245; Cent. Dig. U 5i4, 

• Shields y. FuUer, 4 Wis. 102, 65 Am. Dec. 293. Bee "Partner^ 
ship,** Deo. Dig. (Key No.) i 245; Cent. Dig. U 514, 5i4^. 



§ 122) POWERS OF SUKYIYING PARTNEB 859 

dissolution, it is the duty and right of a surviving partner 
to do all necessary and proper acts for the completion of 
unfinished contracts. Thus, where a firm ordered goods to 
be manufactured, and one partner dies, the surviving part- 
ners were held empowered to receive the goods and pay for 
them.* So, also, the surviving partner may complete a 
firm contract to cut and manufacture a quantity of lum- 
ber.** It has also been held that he may borrow money, or 
pledge firm property,*^ or give a note,^ if .necessary to com- 
plete a firm contract.** The power to contract is limited to 
existing and unfinished, business. There is no authority to 
enter into new obligations, except so far as they are neces- 
sary to the completion of unfinished transactions. Thus 
the surviving partner cannot give a note binding his cosur- 
vivors and the estate of the deceased partner.** Nor can 
he make a binding contract of indorsement.** 

An economical and eflfective winding up may, however, 
involve the incurring of some new obligations. For exam- 

• Mason v. Tiffany, 45 in. 892; Miller v. Hoffman, 26 Mo. App. 
199; Weiss y. HamUton, 40 Mont. 99, 105 Pac. 74. 

Any loss incurred by a ennrlving partner in completing a firm 
contract is chargeable against the firm assets or pro rata against 
the estate of the deceased partner. Tompkins y. Tompkins, 18 
S. 0. 1. 

There is, howeyer, no obligation to complete contracts calling for 
personal seryice, where death terminates the liability. Tasker y 
Shepherd, 6 H. & N. 575. See "Partnership,'* Dec. Dig. (Key No.) §f 
«47, 248; Cent. Dig. §§ 524-528, 549. 

!• Dayis y. SoweU, 77 Ala. 282. See ^^Partnership," Dec. Dig. (Key 
yo.) f 247; Cent. Dig. H 524-528. 

11 BUTCHART y. DRESSER, 10 Hare, 463, 4 D., M. & G. 542. 
See '^Partnership,'* Dec, Dig. (Key No.) §S 245, 248; Cent. Dig. §9 
516, 649. 

i« Mason y. Tiffany, 45 111. 892. See ''Partnership," Dec Dig. (Key 
No.) S§ 243, 247, 248; Cent. Dig. §f 513, 524-528, 549. 

1* Macon Exch. Bank y. Tracy, 77 Mo. 594; Matteson y. Nathan- 
son, 38 Mich. 877. See ''Partnership,*' Dec. Dig. (Key No.) {| 243, 
247, 248; Cent. Dig. §§ 513, 524-528, 549. 

1* First Nat Bank of Gainesville y. Cody, 93 Ga. 127, 19 S. B. 
831 ; Nat Exch. Bank of Lexington y. Wilgos' Ex'rs, 95 Ky. 309, 25 
S. W. 2; Johnson y. Berlizheimer, 84 lU. 54, 25 Am. Rep. 427; 
Bredow y. Mutual Sayings Inst, 28 Mo. 181. See "Partnership,'* 
Dec. Dig. (Key No.) » 243, 247, 248; Cent. Dig. §f 513, 524-528, 549. 



860 POWERS or partnera (Ch. S 

pie, where the assets consist of a large amount of unfin- 
ished and raw material, which, to be sold without sacrifice, 
should be manufactured, the surviving partner may work 
it up, borrowing money or buying more material for that 
purpose.** Likewise reasonable and necessary expenses in- 
cident to a legitimate closing up of the business may be in- 
curred.** 

IS GalTert ▼. Miller, 04 N. a 600; OUver ▼. Forrester, 96 111. 819; 
Roach ▼• Brannon, 57 Mlas. 490. Bee ^'Partnenhip/' Deo. Dig. (Key 
yo.) i 248; Cent. Dig. f Si9. 

i« CENTRAL TRUST, ETC, 00. ▼. RBSPASS, 112 Ky. 600, 06 a 
W. 421, 56 Ia B. A. 479, 99 Am. St Rep. 817, GUmore, Gas. Partner- 
ship, 189; Herron ▼. Wampler, 194 Pa. 277, 45 Atl. 81. See ^ParU 
wenMpr Deo. Dig. {Keg No.) f £48; Cent. Dig. I 649. 



§ 123) RIGHTS AND DUTIES OF PABTNBBS INTBB SB 861 



CHAPTER VI 

BIGHTS AND DUTIES OF PABTNER8 INTER SB 

12B. Duty to Oonf orm to the Partnership Agreement 

124. Right to Participate In Management 

125. Control of Majority. 

128. Right to Information Concerning Bnslnesa. 

127. Duty to Keep and Right to Inspect Acconnti. 

128. Doty to Devote Themselyes to the Business and to Bxerdae 

Care and Skill. 

129. Duty to Ohserve Good Faith. 

130. Right to Benefits from Transactions Concerning Firm Interests. 

131. Right to Benefits from Information Ohtained as Partner. 

132. Right to Carry on Separate Business. 

133. Right to Compensation for Services. 

134. Right to Indemnity and Contribution. 

135. Right to an Accounting. 

136. Distribution of Assets among Partners. 

137. Partner's So-Called Lien. 



DUTY TO CONFORM TO THE PARTNERSHIP 

AGREEMENT 

123. It is the duty of the partners to conform their actions 
to the agreement between them, whether this 
agreement is contained in a formal written instrur 
ment, known as the ''Articles of Partnership," or 
whether informal or left to the implication of law. 

It has already been noted that partners may make their 
respective rights and liabilities whatever they see fit.^ 
While not indispensable, it is far safer to embody the agree- 
ment of the partners in a formal instrument, known as the 
"Articles of Partnership," to which the partners may refer 
as a guide in all their transactions. These "Articles" should 
state the general nature of the business, the capital and the 
shares of the various partners, the powers of the respective 



1 Ante, chapter V, I 85, p. 275, and chapter II, § 22, p. 09. 



362 RIGHTS AND DUTIES OF PARTNERS INTER SB (Ch. 6 

partners, the distribution of profits, and any other perti- 
nent agreement the members care to insert. But whether 
this contract be fully stated, or its details left to implication 
of law, it is obvious that it is the duty of the partners to 
conform thereto. Every known deviation from this duty 
may afford the occasion for a dissolution, and make it ob- 
ligatory upon the guilty partner to indemnify his copartners 
for the loss they suffer from his breach of contract. Thus, 
where a firm suffered a loss by reason of one partner sign- 
ing the firm name to accommodation paper, in breach of 
the partnership agreement, such partner was held individ- 
ually liable to his copartners for the amount of the loss.* 



RIGHT TO PARTICIPATE IN MANAGEMENT 

124 In the absence of an express agreement to the con- 
trary, all the members of a partnership have equal 
rights in the management of the firm business. 
But the partners may by agreement confer exclu- 
sive management on one or more of their nimiber. 

Although the duties and obligations arising from the re- 
lation between the partners are regelated by the express 
agreement between themselves, so far as such express con- 
tract extends and continues in force,' it is possible that, 
even on so important a subject as just what share each mem- 
ber is to have in the management of the firm business, their 
contract may be silent. Where this is the case, it will be 
presumed that the powers of the various partners are equal, 
even though their shares may be unequal.^ If a partner is 

« MURPHY ▼. CRAFTS. 13 La. Ann. 519, 71 Am. Dec 519, Qll- 
more, Gas. Partnership, 438. See post, S 134, p. 387, Indemnity and 
Contribution; Robinson v. Bullock, 58 Ala. 618. See **Partnership,** 
Dec. Diff. (Key No.) §§ 8S, 88; Cent. Dig. ff ISS, 1S6. 

s Shamburg y. QtizenB' Bank, 85 Pittsb. Leg. J. (Pa.) 87. See 
^'Partnership," Deo. Dig. {Key No.) f 79; Cent. Dig. i 127. 

« KATZ y. BRBWINGTON, 71 Md. 79, 20 Aa 139, Oilmore^ Gas. 
Partnership, 433; Peacock y. Peacock, 16 Yes. 51. A partner does 
not lose his right to a yoice in the management of firm affairs by 
pledging his share in the bosiness to secure an indiyldual debt Wil- 



§ 124) BIQHT TO PARTIQIFATE IN MANAGEMENT 363 

unjustly excluded from this right of participation in the 
management of the firm affairs, whether the right be ex- 
pressly or impliedly given, he may have his remedy by in- 
junction.* Although a court of equity is loath to take 
charge of a partnership and compel the partners to behave 
themselves, still it will, when one partner is excluding a co- 
partner or denying him his rights, take jurisdiction to de- 
termine what his rights are under the partnership agree- 
ment, and will enjoin his copartner from interfering with 
the free exercise of those rights; nor is it necessary that 
a dissolution be asked for in such cases.* A willful exclu- 
sion, however, is ordinarily sufficient ground for a dissolu- 
tion, and will of itself justify the court in appointing a re- 
ceiver to take charge of the firm assets pending a winding 
up.* It is always possible for the partners to agree among 
themselves that one or more of them shall have exclusive 
management of the partnership affairs, or they may stipu- 
late that the management of certain phases of the business 
shall be committed exclusively to one and other phases ex- 
clusively to another. 

cox y. Pratt, 125 N. T. 688, 25 N. B. 1091, afDrmed 52 Hon, 840, 6 
N, Y. Supp. 861. See "Partnership,** Deo. Dig. {Key No.) f 79; 
Cent. Dig. § 127. 

8 Miller y. O'Boyle (O. O.) 89 Fed. 140; liyingston t. Lynch, 4 
Johna Gh. (N. T.) 573; Jennings' Appeal (Pa.) 16 AtL 19, 2 L. R. A. 
43 ; Abbot y. Johnson, 82 N. H. 9. For the effect on third persons 
of secret limitations on a partner's authority, see ante, chapter Y, 
I 86 et seq., p. 276 et seq. See "Partnership,** Dec. Dig. (Key No.) 
if 79, 118; Cent. Dig. t§ 127, 181. 

• PIRTLrE y. PENN, 8 Dana (Ky.) 247, 28 Am. Dec. 70, Qilmore, 
Cas. Partnership, 480; Rutland Marble Co. y. Ripley, 10 Wall. 389, 
19 L. Ed. 955; Wolbert'y. Harris, 7 N. J. Eq. 605. See "Partner- 
ship,"' Dec. Dig. (Key No.) §f 79, 118, 273; Cent. Dig. f§ 127, 181, 620. 

T Barnes y. Jones, 91 Ind. 161 ; Parkhurst y. Miiir, 7 N. J. Eq. 
307; Hottenstein y. Conrad, 9 Kan. 487; Wilson y. Greenwood, 1 
Swanst 471 ; Blakeney y. Dufanr, 15 Beay. 40. See ^^Partnership,** 
Deo. Dig. iKey No:i % 79 i Cent. Dig. % 127. 



3M BIOHT8 AND DUTIES OF PABTMBHS INTBB 8B (OIl 6 



SAME— CONTROL OF MAJORITY 

125. In the absence of express provision in the partnership 
agreement to the contrary, the majority of the 
partners in a firm of more than two have power 
to decide all questions arising in the ordinary 
course of the partnership business, providing they 
act in good faith for the interest of the firm as a 
m^le, as contrasted with the private interest of 
all or any of the majority, and all of the partners 
are consulted. 

All transactions with third parties, conducted by the ma- 
jority acting within the scope of the partnership business, 
will bind the minority. In a firm of two, one member, by 
dissent duly communicated to a third person, may prevent 
the creation of new obligations. While the questions of 
the power of a majority of the partners to control the mi- 
nority has been much discussed, and there has been caution 
manifested in stating any definite rule, the proposition em- 
bodied in the first part of the black-letter type is supported 
by authority, when dealing with the rights of the partners 
inter se in a firm composed of more than two members.* 

• JOHNSTON ▼. BUTTON'S ADM'R, 27 Ala. 245, Oilmore^ Gas. 
Partnersbip, 391; G&.mpbell ▼. Bowen, .49 Ga. 417; Western Stage 
Co. ▼. Walker, 2 Iowa, 504, 65 Am. Dec. 789; PBACOCK y. CUM- 
MINOS, 46 Pa. 434 ; Iryine v. Forbes, 11 Barb. (N. Y.) 587 ; Kirk t. 
Hodgsdon, 8 Johns. Gh. (N. Y.) 400. 

The English Partnership Act of 1890, I 24(8), provides: "Any 
difference arising as to ordinary matters connected with the part- 
nership business may be decided by a majority of the partners, but 
no change may be made in the nature of the partnership business 
without the consent of all existing partners." For comments there- 
on, see Pollock's Digest of Part. (6th Ed.) 79. 

For a similar provision, see CTlv. Code Gal. § 2428. 

In Gonst v. Harris, Turner & R. 616, 525, Lord Bldon said: '^ 
call that^ the act of all which is the act of the majority, acting bona 
fide, meeting, not for the purpose of negativing what any one may 
have to offer, but for the purpose of negativing what, when they are 
met together, they may, after due consideration, think proper to 
negative. For a majority of partners to say, 'We do not care what 



S 125) RIGHT TO PARTIOIPATE IN MANAOEMBNT 866 

Control Inter Se in a Firm of More than Two Members 

In considering the question, a distinction should be 
drawn between cases arising among the partners inter se 
and those involving third persons. Ag^in, as between the 
partners themselves, the control of the majority will de- 
pend upon the nature of the act The basis of the major- 
ity's power rests upon an implied consent derived from the 
partnership contract. When several persons associate in 
a business venture as partners, it is reasonable to imply 
that they intend, in the absence of an expressed contrary 
intention, that the judgment of the majority shall control 
with respect to the conduct of all matters arising in the or- 
dinary course of the firm business. "There is always an im- 
plied understanding that the acts of the majority are to 
prevail over those of the minority as to all matters within 
the scope of the common business." • The majority may, 
for instance, determine when and how much of the profits 
are to be divided, unless otherwise provided for by agree- 
ment.^* Or the majority may decide to devote the firm as- 
sets to a pro rata distribution among the firm creditors. A 
minority partner cannot then mortgage those assets to a 
firm creditor who is aware of the majority decision.** 

This implied consent to majority control, however, does 
not exist as to unusual and extraordinary transactions. 
Thus the majority cannot, against the wishes of a dissent- 
one partner may say, we, being the majority, will do what we please,' 
Is, I apprehend, what this court will not allow. * * * In all 
partnerships, whether it is expressed in the deed or not, the part- 
ners are bound to be tme and faithful to each other. They are to 
act upon the Joint opinion of all, and the discretion and Judgment 
of any one cannot be excluded. What weight is to be given to it 
is another question." See "PartneraMp" Dec, Dig, {Key No.) ii 
79, ISO; Cent. Dig. M 127, 195. 

• JOHNSTON V. DUTTON'S ADM'R. 27 Ala. 245, Gilmore, g*i»- 
Partnership, 301. See **PartnersMp,*' Deo. Dig. (Key No.) H 79, ISO; 
Cent. Dig. §f 127, 195. 

!• Robinson t. Thompson, 1 Vem. 465; Stevens ▼. Railway Co., 9 
Hare, 318. See "Partnership,** Deo. Dig. ^Key No.) %% 79, ISO; Cent. 
Dig. H 12rt, 195. 

11 CARR y. HBRTZ, 54 N. J. Eq. 127. 33 Aa 194, affirmed in 54 
N. J. Eq. 700, 37 Atl. 1117. See "Partnership,'* Dec. Dig. (^ey No.) 
II ISO, ISS; Cent. Dig. || 195, 199. 



366 BIGHTS AND DUTIES OF PARTNERS INTER SB (Ch. 6 

ing partner, engage the firm in a different business than 
that in which it was originally engaged ; ** nor enlarge the 
scope of the business, so as to include dealing in commodi- 
ties expressly eliminated by the partnership agreement ; *• 
nor delegate to a manager the right to sign the firm 
name; ** nor decide where the business of the partnership 
is to be carried on after the expiration of the lease on the 
regular place of business.^* 

Same—^Majority Must Act in Good Faith 

The power of the majority to control as to all matters 
within the ordinary scope of the firm business must, how- 
ever, be exercised in fairness and good faith, and not ar- 
bitrarily or capriciously, or for private advantage.^* Fair- 
ness requires that they should consult all the members of 
the firm, and give all a chance to present their objections.*^ 

Same — Control Inter Se in a Firm of Two Members 

As to extraordinary acts outside the scope of the firm 
business, one partner cannot control the other, for the rea- 
sons already noticed.*' As to transactions within the ordi- 
nary scope of the business, and affecting only the partners 
inter se, there is no occasion for the application of the right 
of control. Prima facie the rights of the partners are equal, 
and there is no reason to suppose that in the firm of two 



It Zabriskle ▼. Hackensack & N. T. R. Co., 18 N. J. Eq. 178, 90 
Am. Dec. 617 ; Lindl. Part p. 816, citing Natnsch ▼. Irving, Gow on 
Part (8d Ed.) App. 398. See "Partnership;' Dec. Dig. {Key No.) § 
ISO; Cent. Dig. 1 195. 

i> Jennings' Appeal (Pa.) 16 Afl. 19, 2 L. R. A. 43. Bee ** Partner- 
•Wp," Dec. Dig. {Key No.) § ISO; Cent. Dig. §§ 181, 195. 

i4 Beveridge y. Beyerldge, L. R. 2 H. U So. 183. See ^^Partner- 
sMpr Dec. Dig. {Key No.) H 7P, ISO; Cent. Dig. §§ 127, 195. 

IS dements ▼. Norris, 8 Gh. Div. 129. See "* Partnership,"* Dec. Dig. 
(Key No.) IS 79, ISO; Cent. Dig. » 127, 195. 

i«'Blisset ▼. Daniel, 10 Hare, 493; JOHNSTON ▼. DUTTON'S 
ADM'R, 27 Ala. 246, Gilmore, Gas. Partnership, 891; Western Stage 
Go. y. Walker, 2 Iowa, ^18, 66 Am. Dec 789; Wall y. London & Nas- 
sets Gorp., [1898] 2 Oh. 469. See ^^Partnership;' Dec Dig. (Key No.) 
f ISO; Cent. Dig. i 195. 

IT Id.; Gonst y. Harris, Turner & B. 616; fitory, Part | 123. Bee 
^'Partnership;' Dec. Dig. {Key No.) S ISO; Cent. Dig. ^ 195. 

!• See cases, notes 8-17» pp. 364-366, supra. 



§ 125) BIGHT TO FARTIOIPATE IN MANAGEMENT 367 

only the judgment of one should control the judgment of 
the other. If they are unable to agree, and the partnership 
articles make no provision for the settlement of such dif- 
ferences, there would seem to be nothing to do but to dis* 
solve the relation. 

Same — Power of Control — Rights of Third Parties 

The nature and scope of the powers of the members of a 
partnership have already been discussed.^* Each partner 
has authority, implied from the agreement out of which the 
relation springs, to bind his copartners in all matters within 
the scope of the partnership business. Transactions carried 
on by one partner within this limit are binding on the firm ; 
without that limit the firm is not bound, in the absence of 
explicit authorization or subsequent ratification. The 
power which thus belongs to one partner belongs to a ma- 
jority of the partners in a firm composed of more than two 
members. So far as third persons are concerned, a trans- 
action carried on by a majority of the partners, acting with- 
in the ordinary scope of the firm business, will bind all. 
Thus one purchasing the partnership goods from two of 
the three members of a firm in good faith and without col- 
lusion acquires a perfect title, though notified by the third 
partner of his repudiation of the sale.** 

Since a single partner has no implied power to bind the 
firm by acts beyond the scope of the firm business, so a 
majority of the partners have no such power.*^ Obviously 
the majority have no power to bind the minority to third 
persons with respect to unusual transactions not within the 
ordinary course of the firm business. Of this fact third 
persons must take notice. If, for instance, a firm is com- 
posed of more than two members, and one of them dissents 

It Chapter V, | 86 et seq., p. 276. 
- a staples y. Sprague, 75 Me. 458; Bllsset ▼. Daniel, 10 Hare^ 
403 ; JOHNSTON v. DUTTON'S ADM'R, 27 Ala. 245, GUmore, Cas. 
Partnership, 391 ; Western Stage Go. ▼. Walker, 2 Iowa, ^3, 65 Am. 
Dec. 789; Cotton Plant Oil Mill Co. v. Bnckeye Cotton Oil Co., 92 
Ark. 271, 122 S. W. 658 ; Markle v. WUbur, 200 Pa. 457, 50 Aa 204. 
See **Partner8Mp," Deo. Dig, {Key No.) f 141; Cent. Dig. §§ tH-^l. 

SI The authorities cited in the preceding note by implication 8o»> 
tain the last proposition in the text 



368 BIGHTS AND DUTIES OF PABTNBBS INTER SB (Oh. 6 

to a contemplated contract, the party with whom the con* 
tract is made acts at his peril, and cannot hold the dissent- 
ing partner liable, unless his. liability results from the part- 
nership articles or the nature of the partnership contract.** 

Satne — Rights of Third Parties — Dissent by One of a Pirm 

of Two Members 

In a partnership of two persons there is ordinarily no 
power of control by one of the other. As to transactions 
within the scope of the business, each is agent for the other. 
But, even as to acts falling within this scope, one partner 
may, by dissenting and giving notice thereof to third par- 
ties, prevent his copartner from binding him by any new 
undertaking^. Thus, if one member of a, trading firm of 
two persons refuses to consent to the issue of negotiable 
paper, a payee, taking with notice of such dissent, cannot 
enforce it against the firm.*' Where goods have been sold 
to a firm against the known wishes of a dissenting partner, 
the mere fact that the goods came to the use of the firm 
does not impose any liability on the dissenting partner to 
pay for them ; for the purchase may have been made at a 
loss, which he foresaw, and, therefore, sought to avoid.** 
One partner cannot engage a new, nor dismiss an old, serv- 
ant against the will of his copartner.** Where both part- 
ners have assented to a firm contract not limited to a defi- 
nite period, either can keep it in force against the wishes of 
his copartner; for the partner who is opposed to change 
has always the advantage of position.** 

St See cases cited in notes 8-17, pp. 364-360. 

«» Leavitt v. Peck, 3 Conn. 124, 8 Am. Dec. 157; Wllklns ▼. Pearce, 
5 Denlo (N. Y.) 541. See ^'Partnership^ Dec Dig. (Key No,) f| ISS, 
US; Cent. Dig. H 199, «^«. 

" MONROE V. CONNER, 15 Me. 178, 32 Am. Dec. 148, Gilmore. 
Gas. Partnership, 395. See, however, Johnston ▼. Bemheim, 86 N. 
0. 889. Notice of dissent may be effectively given by a dormant 
partner, and to one who knew nothing of the existence of the part- 
nership. Leavitt v. Peck, 8 Conn. 124, 8 Am. Dec. 157 ; Wlpperman 
T. Stacy, 80 Wis. 345, 50 N. W. 33G. See ^^Partnership,*' Dec, Dig, 
(Key No,) U ISS, Ul; Cent. Dig. §§ 199, 214. 

S5 Donaldson v. Williams, 1 Cromp. & M. 345. See **Partnership,^ 
Dec. Dig. (Key No,) | 14O; Cent, Dig, $ 212. 

se Clement v. Norrls, 8 Ch. Div. 129: BUTCH ART ▼. DRESSBR 



S 126) BIGHT TO PARTIOIPATE IN'MANAOSMBNT 369 

The dissent of one pairtner will not, however, deprive his 
copartner of the powers that the partnership articles ex- 
pressly or impliedly confer upon him, so as to impose ad- 
ditional burdens upon third persons. One partner cannot, 
for example, by notifying debtors not to pay his copartner, 
prevent the latter from receiving payment of firm debts ; " 
nor prevent his partner from paying a firm debt, even 
though such payment may amount to a preference.'* 

Same — Waiver of Dissent 

It is always possible for a dissenting partner to waive the 
effect of his dissent. Evidence of such waiver is frequently 
found in the acceptance and use of the proceeds of the act 
dissented from. Thus, where one partner refused to con- 
sent to the act of his copartner in procuring the acceptance 
of a draft, but afterwards received the draft and used it for 
firm purposes, he was held to have waived his dissent. •• 

Remedies of Dissenting Partner 

If the dissenting partner is not satisfied, he may retire 
from the firm ; or, if the act to which he objects is one the 
other member or members have no authority to do, he may 
obtain an injunction.** 

4 DeG., M. & G. 042. See •^Partnership," Deo. Die. {Key No.) H 
79, 139; Cent. Dig. §f in, 209^1S. 

2T QUlUon y. Sun Mat Ins. Ck>., 41 N. T. 87& Bee "Partnership,'* 
Deo. Dig. {Key Ho.) SS 1S3, 14S; Cent. Dig. §§ 197-199, 2S0. 

«• MABBETT v. WHITE, 12 N. T. 442. See "Partnership," Deo. 
Dig. {Key No.) f§ 13S, IJfi; Cent. Dig. §{ 197-199, 229, 231. 

stpearoe y. WUkUis, 2 N. 7. 469. See, also, Johnston v. Bern* 
helm, 86 N. 0. 889; Mason v. Partridge, 66 N. Y. 638. Bee "Part- 
nership,*" Deo. Dig. {Key No.) |§ 138, 165; Cent. Dig. §f 197-199, 
278-280. 

to Ahhot ▼. Johnson, 82 N. H. 9 ; Natasch y. Trying, 2 Oooper's Ch. 
858; Bates, Partn. § 435. Bee "Partmership,** Deo. Dig. {^ey No.) 
if 118, 272; Cent. Dig. U iSl, 619. 

Gil-Pabt.— S 



370 BIQHTS AND DUTIES OF PABTNBB8 INTER SB (Ch. 6 

RIGHT TO INFORMATION CONCERNING BUSI- 
NESS 

126. E^ch partner has the right to fuU information concern- 
ing the partnership affairs and the manner in 
which its business is conducted. . 

Even though a partner may leave the active management 
of the business altogether to the other members of the firm, 
he does not thereby waive his right to be informed of all 
the firm's operations, and to investigate all its acts to sat- 
isfy himself that good faith and good business methods are 
being observed. This involves a corresponding duty of 
members of the firm so to manage that tiiiere shall be no 
concealment one from another, whether willfully or negli- 
gently, of what is being done of common concern.** If, ac- 
cordingly, one partner fails to notify his copartners of the 
service of process upon him in a suit against the firm, and 
subsequently judgment is rendered against the firm, and 
execution issued against firm property, he becomes' liable 
to his copartners for breach of his duty to inform them.** 
In every important exigency the partner about to act should 
consult the other partner, and where, through his negli- 
gence in failing to do so, loss occurs to him, he cannot com- 
pel his partner to share therein.'* This applies as well to 
persons who are negotiating to become partners as to those 
who already are partners.** 

ti YOBKB ▼. TOZER, 59 Minn. 7S, 60 N. W. 846» 28 L. B. A. S8, 
50 Am. St Rep. 395, Gilmore, Gas. Partnership, 440; 1 Golly. Partn. 
f 163, citing Qoodman y. Whitcomb, 1 Jac. & W. 593, per Lord Bl- 
don. See ''Partnership,** Deo. Dig. (Key No,) K 70, 88; Cent. Dig. 
t§ llh 1S6. 

»«Devall y. Bnrbrldge, 6 Watts & S. (Pa.) 529; TORKS v. TO- 
ZER, 59 Minn. 78, 60 N. W. 846, 28 L. R. A. 86^ 50 Am. St Rep. 395, 
OUmore, Cas. Partnership, 440. See ^'Partnership,** Dec Dig. iKey 
No.) f 88; Cent. Dig. § 136. 

** YORKS y. TOZER, supra. In this case one partner, without 
eonsniting the other, bought ont an invalid, but what he sapposed 
was a yalid, claim against the firm real estate. See ''Partnership,*' 
Deo. Dig. (Key No.) H 88, 101; Cent. Dig. M 136, 155. 

•4 Fawcett y. Whitehouse, 1 Russ. & M. 132. See "Partnership,** 
Deo. Dig. (Key No.) S| 88, 101; Cent. Dig. \% 136, 155. 



§ 127) PUTT TO KEEP AGOOUNT8 871 

DUTY TO KEEP AND RIGHT TO INSPECT AC- 

COUNTS 

127. It is a partner's duty to keep correct accounts of his 
transactions for the firm and to allow them to be 
examined by his copartners. 

If a partner is to have information as to the status of the 
partnership business, it is necessary that accurate accounts 
of the firm transactions should be kept, and be open to his 
inspection.'" The articles of partnership usually delegate 
this general duty of keeping the firm accounts to one part- 
ner, or to a clerk ; in either case it is the duty of each part- 
ner to give the bookkeeper all necessary information.'* In 
the absence of an agreement on the subject, the duty of 
keeping the books rests equally upon each partner.'^ To 
allow each partner convenient access thereto, the books 
should be kept at the firm's place of business, and no part- 
ner should remove them without the consent of the others.** 
So strictly guarded is the right to inspect firm accounts 



•s KATZ ▼. BREWINGTON, 71 Md. 79, 20 Ati. 139, Ollmore, Gas. 
Partnership, 483; Saunders ▼. Dnval's Adm'r, 19 Tex. 467; God- 
frey V. White, 43 Mich. 171, 188, 5 N. W. 243 ; Knapp ▼. Edwards, 
67 Wis. 191, 15 N. W. 140; Chandler y. Sherman, 16 Fla. 99; Rowe 
V, Wood, 2 Jac. & W. 658, per Lord Eldon ; Goodman y. Whitoomb, 
1 Jac & W. 539. Of. VermUlion v. Bailey, 27 111. 320. See **Part' 
neraMp," Dec. Dig. {Key No,) H SO, 81; Cent. Dig. U i^* 1^9. 

86 Dimond ▼. Henderson, 47 Wis. 172» 2 N. W. 73; Knapp ▼. Ed- 
wards, 67 Wis. 191, 15 N. W. 140; Webb ▼. Fordyce, 55 Iowa, 11, 
7 N. W. 385; Pomeroy y. Benton, 77 Mo. 64; Hall y. Glagett, 48 
Md. 223; Pierce y. Scott, 37 Ark. 308; Kelley y. Greenleaf, 3 Story, 
105, Fed. Oas. No. 7,657. See ''Partnership,'' Deo. Dig. {Key Ifo.) M 
80, 81; Cent. Dig. %% 128, 129. 

tT Morris y. GrifOn, 83 Iowa, 827, 49 N. W. 846. See, also, cases 
preyiously cited. But in Theall y. Lacey, 5 La. Ann. 548, it was held 
that the keeping of regular books of account was not to be expected 
in a partnership orally contracted between mother and son for con- 
ducting a plantation. See "Partnership,** Deo. Dig. {Key No.) H 80, 
81; Cent. Dig. %% 128, 129. 

•B Goodman y. Whitcomb, 87 Eng. Reprint, 492; Greatrex y. Great- 
rex, 1 De G. & 8. 692, 11 Jur. 1052, 63 Bng. Reprint, 1254 ; Taylor 



872 BIGHTS AND DUTIBS OB* PABTNBBS INTBB SB (Gh. 6 

that even the private books of a partner, from which he 
transcribes accounts into the firm books, must on demand 
be shown.** Unless he has bargained away the right, each 
partner may, without the permission of the others, not only 
inspect and examine the firm books, but also make extracts 
from them.** But he may not inspect and make copies 
from the books for an improper purpose, such as soliciting 
customers of the firm to patronize him in his individual 
competing business.** 

Unless impeachable for fraud or mutual mistake, the pe- 
riodical statements of account for the firm are to be treated 
as conclusive on the partners.** If, however, the partner 
whose duty it is to keep the books culpably neglects his 
duty by not keeping them at all, by keeping them unintel- 

▼. Dayls, 8 Beay. 888, note; Charlton r. Poalter, 19 Ves. 148, note. 
See "^ Partnership/' Dec. Dig. (Key No.) H 80, 81; Cent. Dig. U 1281 
129. 

s^Toulmln y. Copland, 8 Y. & O. Ex. 625, 660, 661; Fre^nan ▼. 
Fairlle, 3 Mer. 43. But see Ward ▼. Apprice, 6 Mod. 264. A solvent 
partner Is entitled to retain the firm books as against the trustee in 
bankmptcy of a copartner. Ex parte Freeman, 4 Deac. & C 404; 
Ex parte Finch, 1 Deac. & 0. 274. See* ** Partnership/' Deo, Dig. 
{Key No.) S§ 80, 81; Cent. Dig. H l^S, 129. 

40 Taylor t. Rundell, 1 Younge & 0. Ch. 128, 1 Phil. Oh. 222; 
Stnart ▼. Lord Bute, 12 Sim. 460. iSfee **Partnership;* Deo. Dig. (Key 
No.) H 80, 81; Cent. Dig. {$ 128, 129. 

«i A partner who has no share in the good will of the boslness 
has no right, during the existence of the partnership to extract from 
its books the names and addresses of customers for the purpose of 
soliciting such customers on his own behalf after the termination of 
the partnership.. TREGO t. HUNT, [1896] A. G. 7, 65 L. J.- Ch. 1, 
73 L. T. Rep. (N. S.) 514, 44 Wkly. Rep. 225. See '*Partnershipr 
Deo. Dig. (Key No.) H 80, 81; Cent. Dig. U i28, 129. 

4s Stretch v. Talmadge, 65 CaL 510, 4 Pac. 513 ; Gage ▼. Parmelee, 
87 lU. 329 ; Broderick y. Beaupre, 40 Minn. 379, 42 N. W. 83. The 
bookkeeping of a partner cannot be questioned by one who la in 
pari delicto, or chargeable with laches. Carpenter ▼. Camp, 39 La. 
Ann. 1024, 30 South. 269; Lewis ▼. Loper (C. C.) 54 Fed. 237; Of. 
Shoemaker t. Shoemaker, 92 S. W. 546, 29 Ky. Law Rep. 134; Al- 
bee V. Wachter, 74 lU. 173; Stuart v. McKichan, 74 IlL 122; Keys 
▼. Baldwin, 10 Ohio Dec. (Reprint) 268, 19 Wkly. Law Bui. 375. 
See ^'Partnership;' Deo. Dig. (Key No.) U 80, 81; Cent. Dig. H 1£8. 
129. 



S 12S) DUTT AS TO THS BDSINOflS 878 

ligibly, or by destroying or hiding them, eveiy presumption 
will be indulged against him/' 



DUTY TO DEVOTE THEMSELVES TO THE BUSI- 
NESS AND TO EXERCISE CARE AND SKILL 

128. It is the duty of each member of a partnership, in the 
absence of an exemption therefrom, to devote his 
entire time and energies to the partnership affairs. 
So long as he acts in good faith, and in the exer- 
cise of reasonable skill and diligence, and within 
the ^cope of the firm business, he is not responsi- 
ble to his copartners for losses occasioned by his 
acts. 

The partnership relation demands that each member 
should bend his utmost energies and devote all his time to 
the partnership affairs. So fundamental is this duty that 
the most sweeping assertion of it in the articles of partner- 
ship are held to be mere surplusage. ^^ If a partner wishes 
to be free to indulge in outside enterprises and to secure 
individual profits, he should see to it that permission there- 
for is given him by the partnership agreement. The law 
will not otherwise tolerate his becoming involved in inter- 
ests that may either divert his attention from the partner- 

«« Knapp ▼. BdwardB, 57 Wis. 191, 15 N. W. 140 ; Pierce ▼. Scott, 
87 Ark. 308 ; Walmsley ▼. Walmsley, 8 Jones & L. 556 ; Gray ▼. 
Halg, 20 3eay. 219. "Omnia prsesumuntur contra spoliatorem." 
It is the duty of continuing or suryiylng partners so to keep the 
accounts of the firm to show the position of the firm at any time 
when a change among its members occurred. Boddam v. Ryley, 1 
Brown, Ch. 239 ; Id., 2 Brown, Ch. 2, 4 Brown, Part Cas. 561 ; Ex 
parte Toulmin, 1 Mer. 598, note; Toulmin v. Copland, 3 Younge ft 
G. 655. But no presumptions will be indulged where, for over 20 
years, the partners assented to a defective system of bookkeeping. 
Shoemaker v. Shoemaker, 92 S. W. 546, 29 Ky. Law Rep. 134 (1906). 
8ee ^^Partnership;' Dec. Dig. (Key No,) §§ 80, 81; Cent, Dig, H 128, 
129; **Evidence:' Dec. Dig, (Key No,) § 78; Cent, Dig. S 98, 

««Moynihan v. Drobaz, 124 Cal. 212, 56 Pac. 1026, 71 Am. St 
Rep. 46; Pollock's Digest of Partnership (6th Ed.) 88. See "Part- 
nership;* De>c. Dig. (Key No.) a 70, 83, 92; Cent, Dig. SS tH, ISl, 
1S9. 



374 BIGHTS AND DUTIBS OF PARTNERS INTBR SB (Gh. 6 

ship welfare or, by imperiling his own credit, affect likewise 
that of his firm.*' The injured partners have their remedy 
by injunction, by petition for dissolution, or by action for 
damages/* 

Degree of Skill Required 

Yet in his devotion to the firm business a partner does 
not guarantee that he will exercise the very highest degree 
of skill and diligence. His duty is performed if he trans- 
acts the business of the firm with reasonable care, econ- 
omy, skill, and diligence.*^ If one of a firm of bankers 
causes loss to his firm by an honest error in judgment as to 
an investment, he is under no liability to indemnify them.*' 
So long as his act is not wanton or fraudulent, a partner 
cannot be charged up for his lack of discretion or good judg- 
ment/* 

DUTY TO OBSERVE GOOD FAITH 

128. Partnership is a relatioa of trust and confidence, and 
partners must observe the utmost good faith to- 
wards each other in all of their transactions, from 
the time they begin negotiations with each other 
to the complete settlement of the partnership af- 



«v Dean ▼. McDowell, 8 Ch. D. S45, 348. Bee ^^Partnership,'* Dec, 
Dig. {Key No,) H 70, 83, 9^101; Cent, Dig, %% 114, ISl, ISO-ISS. 

46 But they are not entitled to any share of the profits gained In 
the aeparate baslness, unl^ It Is a competitive business. See post, 
IS 130-132, pp. 378-884; LATTA v. KILBOURN, 160 U. S. 524, 14 
fiup. Ct 201, 37 Ix Ed. 1169, Qllmore, Gas. Partnership, 425. See 
''Partnership,'' Dea Dig. (Key No.) §§ 86, 99; Cent. Dig. H 18k, 158. 

4T7etzer y. Applegate, 83 Iowa, 726, 50 N. W. 66; MORRIS v. 
WOOD (Tenn. Ch.) 36 S. W. 1013. See '^Partnership," Deo. Dig. 
{Key No.) §§ 70, 88; Cent. Dig, H lUf 186. 

48 Exchange Bank of Leon y. Gardner, 104 Iowa, 176, 73 N. W. 
691. See, also, Tygart v. WUson, 39 App. Dly. 58» 66 N. Y. Supp. 
827; Sayery y. Thurston, 4 111. App. 66. See "Partnership," Deo. 
Dig, {Key No,) §S 70, 85, 88; Cent, Dig, U lU, 188, 186. 

4» GHARLTON y. SLOAN, 76 Iowa, 288, 41 N. W. 303» Qilmore, 
Gas. Partnership, 439; Knlpe y. Liylngston, 209 Pa. 49, 67 AtL 1130; 
Fordyce y. Shrlyer, 116 lU. 580, 6 N. E. 87. See ''Partnership," Deo. 
big. {Key No.) |t 70, 88; Cent. Dig. H 114, 186. 



§ 129) DUTY TO OBSERYB GOOD FAITH 375 

In General 

The duty of each partner to exercise toward the others 
the highest integrity and good faith is the very basis of 
their mutual rights in all partnership matters.'* As the 
partnership relation is one of mutual confidence and trust, 
every member is obligated in all partnership affairs to con- 
sider the mutual welfare of all the partners, rather than his 
own private benefit. If, therefore, he attempts to secure 
any private advantage from any transaction concerning the 
partnership, or from any wrongful use of the partnership 
name or property to his own ends, he violates his cardinal 
duty, and must account to his associates for the benefits re- 
ceived through its breach.'^ Therefore, if a partner obtains 
a commission from a third person for inducing the firm to 
enter into any particular transaction, he is likely to think 
more of his private advantage than of the welfare of the 
firm. The law, accordingly, insists on his sharing such 
commission with his associates.'* In Fouse v. Shelley *• 



»o BURTON V. WOOKEY, 6 Madd. 367, Gllmore, Cas. Partner- 
ship, 418; MITCHELL y. REED, 61 N. Y. 123, 19 Am. Rep. 252, 
Gllmore, Cas. Partnership, 419; JENNINGS et al. y. RICKARD, 
10 Colo. 395, 15 Pac. 677, Gllmore, Cas. Partnership, 421 ; Wiggins 
V. Markham, 131 Iowa, 102, 108 N. W. 113 ; Whitney v. Dewey, 158 
Fed. 385, 86 O. C. A. 21 ; Fouse v. SheUy, 64 W. Va. 425, 63 S. B. 
208 ; Finn y. Young, 50 Wash. 543, 97 Pac. 741. See ** Partnership,'* 
Dec, Dig. {Key No,) |§ «5, 70, 88, 154; Cent, Dig. {{ 11, lU, 136, S76. 

51 MITCHELL V. REED, 61 N. Y. 123, 19 Am. Rep. 252, Gllmore, 
Cas. Partnership, 419; Pollock's Digest of Part (8th Ed.) pp. 92- 
94 ; McAlplne y. Millen, 104 Minn. 289, 116 N. W. 583. If one part- 
ner, in fraud of his copartner's rights, abstracts funds and Inyests 
them in property in his own name, or in that of his wife or of a 
third person, or uses them to pay off incumbrances upon his own 
property or that of his wife, the defrauded partners can follow the 
funds; but there must be some element of fraud in the appropria- 
tion. Thus niere oyerdrafts give no right to proceed against the 
separate estata Stone y. Baldwin, 226 111. 338, 80 N. B. 890, affirm- 
ed 127 111. App. 663. See **Partner»Mp;' Deo. Dig. (Key Ho.) H 70, 81, 
88, 92-101, 154; Cent. Dig. Sl 114, 129, 1S6, 139-155, 276. 

8s Newell ▼. Cochran, 41 Minn. 374, 43 N. W. 84 ; Esmond y. See- 
ley, 28 App. Dly. 292, 51 N. Y. Supp. 36. That a partner may act as 
agent for a third person In dealing with the firm, where the firm is 

»• Supra, note 60. 



376 BIQHTS AND DUTIES OF PARTNERS INTBR SB (Ch. 6 

defendant secured an option on 1,600 acres of tand and 
formed a partnership wiUi plaintiffs in order to procure the 
necessary funds. He represented to them that there were 
only 850 acres, and upon buying the land had the vendor 
make two deeds, one for 850 acres to the firm, and the other 
to himself individually for the balance. In a suit by his co- 
partners, the court declared that he held the land conveyed 
him in trust for the firm. 

PrelinUnary Negotiations 

This obligation to perfect fairness and good faith is not 
confined to persons who actually are partners, but applies 
in all stages of their connection. There is some authority 
for the proposition that with regfard to the preliminary ne- 
gotiation of prospective partners the rule of caveat emptor 
applies, and each may therefore secure for himself such 
share in the contemplated firm as he can.'* The tend- 
ency of the cases, however, is undoubtedly to require frank 
disclosure and honest dealing from the very first.** Thus 
one who contemplated forming a partnership may not ap- 
propriate to himself alone the gain from buying at a low 
figure, and selling to his firm at a higher, the property in 
which the firm is designed to deal.** If one partner induces 
the other to enter into, copartnership with him by fraudu- 
lent representations, the latter may have the partnership 
contract annulled, without showing actual damage, and 
may further recover the value of. what he has contributed to 

not harmed, see Randolph Bank t. Armstrong, 11 Iowa, 515; West- 
cott V. Tyson, 88 Pa. 389. Cf. Fryer v. Harker, 142 Iowa, 708, 121 
N. W. 52e, 23 L. R. A. (N. S.) 477. See "Partnership,'' Dec. Dig. 
{Key No.) S§ 88. 9B-101; Cent. Dig. %% 1S6, 199-155. 

s«nhler ▼. Semple, 20 N. J. Eq. 288. Bee ^'Partnership,^ Dee. 
Dig. {Key No.) § 25; Cent. Dig. | 11. 

»• BLOOM V. LOFGREN. 64 Minn. 1, 65 N. W. 900 ; HARLOW 
▼. LA BRUM, 151 N. Y. 278, 45 N. E. 859 ; Densmore Oil Co. v. 
Densmore, 64 Pa. 43. See ^^Partnership:* Dec. Dig. (Key No.) | 26; 
Cent. Dig. § 11. 

s« Densmore Oil Go. ▼. Densmore, sapra ; BLOOM t. LOFGREN, 
64 MlnxL 1, 65 N. W. 960; Fawcett t. Whltehouse, 1 Rubs. & M. 
132; Fouse ▼. Shelly, 64 W. Va. 425, 63 S. E. 208. See "'Partner- 
ship," Dec. Dig. {fep No.) ^ 26; Cent. Dig. S 11. 



§ 129) DUTY TO OBSERYB GOOD FAITH 877 

the firm, with interest,*^ and also the value of his services 
in attending to the firm business.** 

Purchase of Copartner^s Interest 

In buying out a copartner, partners are bound to exercise 
the utmost frankness and honesty, and to make full dis- 
closure of the fair value of the partnership assets.'* To 
sustain a purchase by a managing partner from a copartner 
ignorant of the state of the business, the price must be at 
least approximately adequate, and all information possessed 
by him necessary to enable the seller to form a sound judg- 
ment must have been communicated.** Where certain 
members of a cigarette manufacturing, concern purchased tiie 
interest of a copartner, concealing from him the existence 
of a contract by which the patentee of a cigarette making 
machine had granted the firm the use of his machines at 
a much lower rate than was given other manufacturers, 
thereby greatly increasing the profits of the firm, and 
knowledge of such contract could not have been acquired 
by an inspection of the partnership books, it was held that 
the retiring partner could maintain an action for deceit.** 
The same principles will, of course, apply where one part- 
ner se^ks to "unload" his interest on another and to with- 
draw from the firm. 

Satne — On Dissolution 

The obligation to perfect fairness and good faith is 
equally incumbent on persons who have dissolved partner- 

8T HARLOW V. LA BRUM, 151 N. Y. 278, 45 N. B. 850. See 
** Partnership,'' Dec, Dig, {Key No.) { 25; Cent. Dig. ^ 11, 

B8 Caplen y. Cox, 42 Tex. Civ. App. 297, 92 S. W. 1048. See, also, 
chapter X, § 203, p. 589. See "Partnership," Dec, Dig. (Key No.) i 
«5; Cent. Dig, { 11. 

B> Sexton V. Sexton, Grat (Va.) 204, 215 ; Meyers ▼. Merlllion, 
118 Cal. 352, 50 Pac. 662; Baker v. Cammlngs, 4 App. D. O. 230; 
Pomeroy t. Benton, 57 Mo. 531; Goldsmith v. Koopman, 162 Fed. 
173, 81 C. O. A. 465. See ** Partnership;* Deo. Dig. (Key No.) H 95, 
226; Cent. Dig. {§ U2, 472. 

•0 Brooks V. Martin, 2 Wall. 70, 17 L. Ed. 732 ; GUbert ft O'CaUl- 
irhan V. Anderson, 78 N. J. Bq. 243, 66 Atl. 926. See **Partner8hip,*' 
Deo, Dig. {Key No.) H 95, 226; Cent. Dig. §§ 142, 472. 

•1 weight V. Duke, 91 Hun, 409, 86 N. Y. Supp. 853. See ** Part- 
nership;' Dec. Dig. (Key No,) M 95, 226; Cent. Dig. U 142, 472, 



878 RIGHTS AND DUTIES OF PARTNERS INTER SB (Ch. 6 

shJp, but who have not completely wound up and settled 
the partnership affairs.** Even after the dissolution of a 
firm, where one partner obtained for himself a renewal of 
an unexpired firm lease containing no provision for renewal, 
without the consent of his copartner, he was obliged to ac- 
count to the latter for the value of the expectancy of the 
renewal; "for this," said the court, "pertained to the old 
lease as a firm asset," •• 



RIGHT TO BENEFITS FROM TRANSACTIONS 
CONCERNING FIRM INTERESTS 

130. A partner will not be permitted to obtain for himself 
profits or benefits arising from a transaction con- 
cerning firm interests or property. Such benefits 
accrue to all the members of the firm. 

In a great measure the rights, functions, and duties of 
partners comprehend those of both trustees and agents.** 
If, therefore, any benefit is to be gained from transactions 
regarding firm affairs, it is the partner's duty to obtain it, 
not for himself, but for the firm.*' There should be no 

•a Betts y. June, 51 N. Y. 274 ; Jones y!* Dexter, 130 Mass. 880, 
39 Am. Rep. 459; Beam y. Macomber, 33 Mich. 127; Warren y. 
Schainwald, 62 Gal. 66; Lees y. Laforest, 14 Beay. 250; Clegg y. 
Fishwick, 1 Macn. & G. 294; Wells y. McGeoch, 71 Wis. 196, 35 N. 
W. 769; Pierce y. McClellan, 93 111. 245. See "Partnership,'* Dec. 
Dig. (Key No,) §§ 277-295; Cent, Dig. {§ 624-665. 

68 Johnson's Appeal, 115 Pa. 129, 8 Atl. 36^ 2 Am. St Rep. 539. 
See, also, MITCHELL y. REED, 61 N. Y. 123, 19 Am. Rep. 252, 
Gilmore, Gas. Partnership, 419. See ** Partnership,^ Dec Dig. {Key 
No.) U 277-295; Cent. Dig. U 624-665. 

64 MITGHELL y. REED, 61 N. Y. 123, 19 Am. Rep. 252, GUmore, 
Gas. Partnership, 419. See "Partnership,** Dec. Dig. (Key No.) U 
70''X01; Cent. Dig. §{ lU-155. 

•» Klmberly y. Arms, 129 U. S. 512, 9 Sup. Gt 355, 32 L. Ed. 764; 
HiU y. MUler, 78 Gal. 149, 20 Paa 304; Tebbetts y. Dearborn, 74 
Me. 392; Filbnin y. Ivers, 92 Mo. 388, 4 S. W. 674; Goursln's Ap- 
peal, 79 Pa. 220. See, also, David Belasco Go. y. Klaw, 48 Misc. 
Rep. 597, 97 N. Y. Supp. 712. See "Partnership** Dec. Dig. (Key 
yo.) K 70, 97; Cent. Dig. |§ lU, 146-151. 



§ 130) BIGHT TO BENEFITS FBOH FIBM TBAK8AOTION8 879 

clandestine profits in a partner's dealings with his firm. If 
he furnished to the partnership, at the then prevailing 
market price, goods which he had previously obtained at a 
lower price, he must share his profits with his copartners.** 
But a partner need not account to his firm for a benefit per- 
sonal to himself, received outside the affairs of the part- 
nership.*^ Similarly, the purchase by one partner of prop- 
erty of any kind in which the partnership is concerned may 
be regarded as a purchase for the firm, and each copartner 
will be entitled to his share in it, upon reimbursing the 
purchasing partner to that extent** Thus, where A. and 
B. became partners to secure a contract for public work in 
Mexico, and the authorities, without A.'s knowledge, told 
B. they would not deal with A., and B. thereupon made a 
contract with them himself without notifying A., it was de- 
cided that B. held such contract for the firm, and that A. 
was entitled to an injunction to prevent his exclusion from 
participating in the management of the business.** If a 
partner procures in his own name, and without the consent 

••Bentley ▼. Craven, 18 Beav. 75. Wbere partners had agreed 
that property hought by them to be sold again should be sold to a 
person named and for a named sum, and one of the partners sold It 
for a larger sum to a company in which he had an interest, it was 
held that all the partners should participate in the whole profits. 
Dunne ▼. English, L. R. 18 Eq. 524. As to secret commission on 
firm sales or purchases, see, further, Hodge ▼. Twitchell, 33 Minn. 
389, 23 N. W. 547 ; Newell ▼. Cochran, 41 Minn. 874, 43 N. W. 84 ; 
Mattern y. Canavan, 8 Cal. App. 493, 86 Paa 618. See, also, Deaner 
V. 0*Hara, 36 Colo. 476, 85 Pac. 1123 ; Rutan y. Huck, 30 Utah, 217, 
83 Pac. 833. See '^Partnership,** Dec Dig. (Key No.) fS 70, 88, 97; 
Cent Dig. §§ IH, 186, U6-151. 

•TMoffatt y. Farquharson, 3 Brown, Ch. 338; Campbell y. Mul- 
iett, 2 Swanst 551. See ^Partnership,** Dee. Dig. {Key No.) fS 9B- 
101; Cent. Dig. H 189-155. 

•• Anderson y. Lemon, 8 N. Y. 236. See ^^Partnership,** Dec. Dig. 
(Key No.) § 96; Cent., Dig. S lU. 

•• MiUer y. 0*Boyle (O. C.) 89 Fed. 140. One who agrees with an- 
other to organize a railroad company and dlylde the profits, paying 
his own expenses, cannot refuse to dlylde alsalary which he secures 
from subscribers to the corporate stock for continued serylce after 
the enterprise is under way. Leeds y. Townsend, 228 111. 451, 81 N. 
E. 1069, 13 L. B. A. (N. S.) 191. See ''Partnership,** Deo. Dig. (Key 
No.) §{ 92-101, 118; Cent. Dig. H 189-155, 181. 



380 RIGHTS AND DUTIES OF PARTNERS INTER SB (Gh. C 

of his associates, a renewal of the lease of the firm prem- 
ises, he must hold that renewal as firm property/* Neither 
may a partner for his own benefit buy up a claim against 
his firm, and if he takes an assignment of such a claim he 
will be considered as holding it for the firm, and may 
charge against the firm only what he has actually paid out 
for the claim/* Still less may he acquire an adverse title 
or interest, so as to hold it against the firm/* If he buys 
in the firm property at an execution sale, he does so in trust 
for the partnership, and a purchaser from him with notice 
occupies the same position/" 

The rule requiring benefits acquired clandestinely to in- 
ure to the firm rather than to the partner seeking them for 
his own does not, however, necessarily apply to the case of 
an acquisition of property or claims by a partner after dis- 
solution of the firm/* Where a brother and sister were 
partners, and the former had been abroad almost continu- 
ously, while the latter had regularly carried on the business 

TO Featherstonhangh ▼. Fenwlck, 17 Ves. 298, 811. Where the 
partnership was to terminate on a certain day, and the lease on 
the same day, the partner who clandestinely took a lease in his 
own name was held to be in so far a trustee for the finn. MITCH- 
ELL, ▼. REED, 61 N. Y. 128, 19 Am. Rep. 252, GUmore, Oas. Part- 
nership, 419. See, also, Lindley, Part 807; Clements v. Norris, 8 
Ch. Div. 129; Gaddle v. Mann (0. O.) 147 Fed. 960. See ''Partner^ 
ship," Dec, Dig. (Key Vo,) | 96; Cent, Dig. § lU- 

Ti Easton v. Strother, 57 Iowa, 506, 10 N. W. 877; Pllbnin ▼. 
Ivers, 92 Mo. 888, 4 S. W. 674; Miller t. Ferguson, 110 Va. 217, 66 
S. E. 562, 28 L. R. A. (N. S.) 618 (1909). See ** Partnership,'' Dec. 
Dig, (Key No,) § 96; Cent, Dig. § lU- 

T« Roby V. Colehonr, 185 111. 800, 26 N. E. 777; Mfller v. CBoyle 
(C. C.) 89 Fed. 141 ; Kinsman v. Parkhnrst, 18 How. 289, 16 L. Ed. 
385. See ^^Partnership,'' Deo, Dig, (Key No.) S 96; Cent. Dig, S H4. 

T 8 Roby V. Colehonr, 185 111. 300, 25 N. E. 777; Lamar's Ex'r v. 
Hale, 79 Va. 147; Farmer y. Samuel, 4 Litt (Ky.) 187, 14 Aul Dec. 
106 ; Evans ▼. Gibson, 29 Mo. 223, 77 Am. Dec. 566. But see Brad- 
bury ▼. Barnes, 19 Cal. 120 (mining partnership); McKensie ▼. 
Dickinson, 48 Oal. 119. See ** Partnership,'' Dec. Dig. (Key No.) ^ 
96; Cent, Dig. ^ lU- 

T4 Pierce ▼. McClellan, 98 111. 245; Chittenden ▼. Witbeck. 50 
Mich. 401, 15 N. W. 626 ; Payne t. Hornby, 26 Beav. 280. Bnt see 
Spiess y. Rosswog; 68 How. Prac (N. T.) 401. See "Partnership,' 
Dec. Dig. (Key No.) S 96; Cent. Dig, § lU. 



8 131) BIGHT TO BENEFITS FROM INFORMATION 381 

alone, later marrying, and continued in the same business, 
purchasing property for its purposes, such property was 
held to belong to her solely.^* 



RIGHT TO BENEFITS FROM INFORMATION OB- 
TAINED AS PARTNER 



181. ii a partner uses information obtained by him in the 
course of the transaction of the partnership busi- 
ness for purposes within the scope of the partner- 
ship business, or for any purposes which would 
compete with the partnership business, he must 
account to the firm for any benefits which he may 
have derived from such information.'* 

Very often information may be acquired by a partner 
through his association with the firm that he would like to 
use for his personal profit. One member of a partnership 
formed to speculate in real estate may in* the course of the 
partnership business secure knowledge of a profitable deal 
and attempt to appropriate its benefits all to himself. 
Clearly this would be a case where his information should 
be considered the property of the partnership, in the sense 
that it should properly be applied to purposes within the 
scope of the partnership business, and for the advance- 
ment of all the members.'^' If, however, the business of the 
firm is limited to real estate brokerage, or the sale and pur- 
chase of real estate for the account of others, then the mere 
fact that one member of the firm applied knowledge gained 
therein to a successful speculation on his own account 
would constitute no such violation of his duty to the firm 

'•Merot ▼. Bumand, 4 Auss. 247. See **Partner8hip,** Dee. Dig. 
{fiey No.) I 96; Cent. Dig. | lU- 

70 Aas ▼. Benham, 2 Gh. 244, 255, 65 L^w T. (N. S.) 25, 19 Eng. 
Oas. 580. Bee **PartnersMp," Deo. Dig. {Key No.) |§ 81, 9^101; 
Cent. Dig. H 129, 1S9-155. 

*T LATTA V. KILBOURN, 150 U. S. 524, 14 Sup. Ct. 201, 87 U 
Bd. 1168, Ollmore, Gaa Partnership, 420. See *'Panner$hip,** Dee. 
big. (Key No.) U 97-^9; Cent. Dig. U H6-15S. 



382 RIGHTS AND DUTUDS 07 PABTNBBS INTBB SB (Oh. 6 

as to entitle it to a share of his profits/' ''It is not the 
source of the information, but the use to which it is ap- 
plied," says the leading English authority on the subject,^* 
"which is of importance in such matters. To hold that a 
partner can never derive any personal benefit from informa- 
tion which he obtains as a partner would be manifestly ab- 
surd. Suppose a partner to become, in the course of carry- 
ing on his business, well acquainted with a particular 
branch of science or trade, and suppose him to write and 
publish a book on the subject; could the iirm claim the 
profits thereby obtained? Obviously not, unless by pub- 
lishing the book he in fact competed with the firm in their 
own line of business." •• So, also, information concerning 
a mining district, acquired by a partner while prospecting 
for his firm, if not fraudulently withheld from the firm, can 
be used for his sole advantage after the dissolution of the 
partnership.'* It is the misapplication of information that 
may be regarded as firm property to purposes which are 
competitive, such as the use of information gathered for 
one newspaper partnership in another publication, that 
makes the guilty partner liable to account to his firm.** 
But there is no principle or authority which prevents a part- 
ner from using information gained as a partner for purposes 
which are wholly without the firxn business.** 

T«Id. 

r» Aas T. Benham (1891) 2 CIl 244, 255, 65 Law Times (N. S.) 25, 
19 Eng. Gas. 589. See '^Partnership," Dec. Dig, (Key No,) SS 97-99; 
Cent. Dig. %% U6^15S. 

•0 Id. As to competing business, see post, fi 132. 

81 JENNINGS ▼. RIQKARD, 10 Ck)lo. 395, 15 Pac. 677, Oilmore, 
Gas. Partnership, 421. See, also. Burr y. De La Vergne, 102 N. T. 
415, 7 N. E. 36a See **Portner8hip,** Deo. Dig. (Key No.) H 92-101; 
Cent. Dig. §{ 1S9-155; **Mine8 and Minerals,'* Deo. Dig. {Key No.) 
S 99; Cent. Dig. ^ 22S. 

»s Glasslngton v. Thwaites, 1 Sim. & St 124. See ''Partnership,'* 
Deo. Dig. (Key No.) S§ 9Z-101; Cent. Dig. §§ 1S9-155. 

ssDean v. MacDoweU, 8 Ch. Dly. 345; Aas v. Benham (1891) 2 
Ch. 244, 65 Law Times (N. S.) 25, 19 Eng. Gas. 589; LATTA v. 
KILBOURN, 150 U. S. 524, 14 Sup. Gt 201, 37 L. Ed. 1169, Gil- 
more, Gas. Partnership, 425. See "Partnership,** Deo. Dig. (iCey No:) 
H 9Z-101; Cent. Dig. U 1S9-155. 



S 132) SIGHT TO OABBT ON SEPARATE BUSINESS 883 



RIGHT TO CARRY ON SEPARATE BUSINESS 

132. In the absence of any agreement to the contrary, a 
partner may carry on a separate business, so long 
as he does not compete with his firm. Competing 
with it, he must account to the firm for all the 
profits made in such separate business, and for all 
losses suffered by the firm therefrom. 

Unless a partner has contracted expressly or impliedly 
to devote all his energies and time to the partnership busi- 
ness, his mere membership in a firm should not prevent him 
from engaging in other enterprises not inconsistent with 
his duty as a partner. Although the business he carries on 
for his private benefit may be similar to that of the firm, if 
it is in fact different, he is under no obligation to account 
for its profits to his associates. A member of a firm of 
warehousemen does not compete with his partnership in 
owning and managing wharfboats.** It is evident, there- 
fore, that the right to engage in a separate business is no 
different in principle than the right to use information ac- 
quired as a partner for one's own private gain. It is the 
competition with the firm within the scope of the firm busi- 
ness that is forbidden. A partner stands in a relation of 
trust and confidence, and must not, in the pursuit of his 
private advantage, place himself in a position that g^ves 
him a bias against the due discharge of that trust or con- 
fidence.*' It is often, however, a difiicult question to de- 
cide whether the separate business carried on by a partner 

s^Northnip v. Phillips, 99 111. 449. One of a firm of attorneys 
Is entitled to retain for himself the compensation he receives for 
acting as executor of an estate. Metcalfe v. Bradshaw, 145 111. 124, 
83 N. B. 1116, 36 Am. St Rep. 478. A dormant or silent partner, 
who only lends capital or credit to the firm, may consistently have 
an antagonistic interest, if there is no deception. Pierce v. Daniels, 
25 Vt. 624, 634. See "Partnerahipr Deo. Dig. (Key No.) § 99; Cent. 
Dig. S 15S. 

a 5 BURTON ▼. WOOKEY, 6 Madd. 867, 368, GUmore, Cas. Part- 
nership, 418; Van Deusen ▼. Crlspell, 114 App. Div. 361, 99 N. Y. 
Supp. 874. See '^Partnership,'* Deo. Dig. {Key No.) { 99; Cent, Dig, 
S 15S. 



384 aiQHTS AND DUTIES OF PARTNBB8 INTBB SB (Ch. 6 

is in fact competitive. The Supreme Court of , the United 
States, in the leading case of Latta v. Kilboum,** has held 
that a partner in a firm of real estate brokers does not in- 
terfere with its business by engaging in the purchase of 
real estate as an individual speculation. This question of 
fact once decided, the principle of law is easily applicable.*' 
Beyond the line of trade or business in which the firm is 
engaged, there is no restraint upon the right of a partner 
to trafiic for his own benefit, in the absence of express 
agreement on the subject.** 

It should be noted, in addition, that the right of the part- 
ners to claim a share in the clandestine profits of a copart- 
ner's competitive business can be asserted by them alone, 
and is not otherwise available to third persons for the pur- 
pose of fixing a liability upon the partnership.** While the 
partner engaging in another business not competitive with 
the firm business is not liable to account for profits made 
in such separate business, «he may be liable to his copart- 
ners for any damages caused by the breach of his agreement 
to devote his entire time and energy to the firm business.** 

RIGHT TO COMPENSATION FOR SERVICES 

133. A partner's services in the transaction of the firm busi- 
ness do not entitle him to compensation, unless 
there has been a special agreement to that effect, 
or unless unreasonable burdens have been cast 
upon hini by his copartner's willful neglect of his 
duties. 

•• LATTA V. KILBOURN, 150 U. S. 524, 14 Sup. Gt 201, 87 L. 
Ed. 1169, Gilmore, Cas. Partnership, 425. See **Partner8Mp,^ Dec 
Dig. {Key No,) S 99; Cent. Dig. | 15S. 

ST Tlchenor ▼. Newman, 186 111. 264, 57 N. B. 828. See ''Partner^ 
ffMp," Dec. Dig. (Key No.) f 99; Cent. Dig. | 15S. 

•8 Metcalfe y. Bradshaw, 145 111. 124, 83 N. B. 1116, 86 Am. St 
Rep. 47& See "Partnership,** Deo. Dig. (Key No.) | 99; Cent. Dig. 
S ISS. 

99 Lockwood ▼. Beckwlth, 6 Mich. 168, 72 Am. Dec. 69. See *«Porl- 
nership,** Dec. Dig. (Key No.) S 99; Cent. Dig. I 15S. 

»o LATTA V. KILBOURN, 150 U. S. 524, 14 Sup. Ct 201, 87 U 
Ed. 1109, Gilmore, Oas. Partnership, 425. See ^'Partnership;* Deo, 
Dig. (Key No.) ^ 99; Cent. Dig. § 15S. 



§ 133) BIGHT TO OOMPSNSATIOK FOB 8SBTI0B8 386 

Since the law implies, from the very relation of partner- 
ship, that each member should devote his entire time and 
energies to partnership affairs, with no further selfish 
thought than of his share of the common profits, it follows 
♦that, if he is to exact payment from the firm for services 
by him on its behalf, there must be a special agreement to 
that effect.*^ The mere fact that one partner has bc^en 
more active than the others in promoting their mutual wel- 
fare is not enough to justify a claim for additional compen- 
sation on his part. It is easy enough to provide for such a 
contingency in the agreement itself, if it is intended. If no 
such stipulation is made, the law will not imply one.** 
While the rule may seem to impose considerable hardship 
upon the partner who is forced to assume more work than 
he had anticipated, it is clear that, should the courts under- 
take, upon a mere estimate of a partner's services, to award 
compensation in one case, they must do so in all cases 
where skill and labor are unequally bestowed. This would 
be to abolish the rule of law, and to place the right to com- 
pensation not upon contract, where it belongs, but upon 
the principles of quantum meruit.*' The force of the rule 
is particularly shown in the denial of extra compensation 
to a partner upon whose shoulders a disproportionate 
amount of work is thrown by the illness of a copartner; 

•1 Wimams T. Pedersen et al., 47 Wash. 472, 92 Pac. 287, 17 L. 
B. A. (N. S.) 384; Denver ▼. Roane, 99 U. S. 355, 25 L. Ed. 476; 
NeylllB V. Moore Min. Co., 135 Oal. 561, 67 Pac. 1054 ; Drew ▼. Per- 
son, 22 wis. 651; Glover v. Hembree, 82 Ala. 324, 8 South. 251; 
Emerson v. Durand, 64 Wis. Ill, 24 N. W. 129, 54 Am. Rep. 593 ; 
Roth V. Boles, 139 Iowa, 953, 115 N. W. 930. For compilation of 
cases, see note in 17 L. R. A. (N. S.) 884-4ia See *' Partnership,'* 
Dec. Diff. iKev Vo.) | 8S; Cent. Dig. I ISl. 

»2 LINDSEY V. STRANAHAN, 129 Pa. 635. .18 Ati. 524, Gllmore, 
Gas. Partnership, 435; Danlap v. Watson, 124 Mass. 305; Peck ▼. 
Alexander. 40 Colo. 392, 91 Pac. 38 a907) ; Caldwell ▼. Lang, 101 8. 
W. 972, 31 Ky. Law Rep. 237. See ^'Partnership,*' Deo. Dig. {Key 
No.) ^ 8S; Cent. Dig. ^ ISl. 

»» Caldwell y. Lelber, 7 Paige (N. Y.) 488 ; Roth ▼. Boles, 139 Iowa, 
253, 115 N. W. 930; WUllams y. Pedersen, 47 Wash. 472, 92 Pac. 
287. See annotated note to this case in 17 L. R. A. (N. S.) 885i. See 
'^Partnership,'* Dec. Dig. {fey No.) | 85; Cent. Dig. | ISl. 

GII..PABT.— 25 



386 BIGHTS AND DUTIES OF PABTNBBS IMTBB SB (Ch. 6 

such illness being held to be a risk that should have been 
foreseen.** 

An exception to the general rule is recognized where the 
difference in extent or importance of the services actually 
rendered by the various partners was clearly not contem- 
plated by them when they entered into the partnership re- 
lation. Thus, where one partner willfully violates his duty 
as partner by neglecting the business, leaving it altogether 
to the care of his copartner, the latter was held entitled to 
credit for his services in addition to his share of the prof- 
its." 

Ordinarily the general rule, denying extra compensation 
in the absence of special agreement, applies also to liquidat- 
ing and surviving partners.** The tendency of the cases is, 
however, to allow extra compensation to surviving part- 
ners under special circumstances, wherever it is possible to 
construe the same as extraordinary.*^ 

•4 Heath t. Waters, 40 Mich. 457. But see Hart ▼. Myers (Snp.) 
12 N. Y. Supp. 140, affirmed 59 Hun, 420, 18 N. Y. Sppp. 388, where 
there was an express covenant on the sick partner's part to per- 
form a certain part of the duties of the firm. For farther examples 
of express provision for compensation, see Eeiley v. Tnmer, 81 Md. 
269, 81 AU. 700; Smith v. Knight, 88 Iowa, 257, 55 N. W. 189; 
Bckert v. Clark, 14 Misc. Rep. 18, 85 N. Y. Snpp. 118. A promise to 
pay for extra services will not be implied from the mere rendition 
of such services, no matter how great the excess of services may 
be. Burgess v. Badger, 124 111. 288, 14 N. B. 850; McAllister ▼. 
Payne, 108 Ga. ^7, 84 S. E. 185. See **Partner8Mp;' Dee. Dig. (Key 
No.) % 83; Cent. Dig. | 131. 

••Denver v. Roane, 99 U. S. 855, 25 L. Ed. 476; Marsh's Appeal, 
89 Pa. 80, 8 Am. Rep. 206; Airy v. Borham, 29 Beav. 620; MAT- 
TINGLY V. STONE'S ADM*R, 85 S. W. 921, 18 Ky. Law Rep. 187 ; 
MiUer V. Hale, 96 Mo. App. 427, 70 S. W. 25& See ^'Partnership,'' 
Dec. Dig. (Key No.) || 83, 86; Cent. Dig. H 131 134. 

••Beatty v. Wray; 19 Pa. 516, 57 Am. Dec. 677; Brown ▼. Me- 
Farland's Ex*r, 41 Pa. 129, 80 Am. Dec 598; OYOEB'S APPEAI^ 
62 Pa. 73, 1 Am. Rep. 882; EimbaU v. Lincoln, 5 111. App. 816, af- 
firmed 99 111. 578 ; Slater v. Slater, 78 App. Div. 449, 80 N. Y. Supp. 
863 ; Id., 175 N. Y. 143, 67 N. E. 224, 61 L. R.' A. 796, 96 Am. St. 
Rep. 609. Contra, Royster v. Johnson, 73 N. O. 474. See, also, ante, 
chapter V, | 122, p. 853, Surviving Partner. Bee '^Partnership,'* Dec. 
Dig. (Key No.) §| 253, 307; Cent. Dig. 8§ 550, 710, 711. 

»T THAYER V. BADGER, 171 Mass. 279. 50 N. E. 541, Gilmore, 
Cas. Partnership, 435; Zell's Appeal, 126 Pa. 329, 17 AtL 647; Rob- 



§ 134) BIGHT TO INDEMNITY AND OONTBIBUTION 887 



RIGHT TO INDEMNITY AND CONTRIBUTION 

134. A partner is entitled to indemnity for losses caused by 
his copartner's violation of the partnership con- 
tract. In addition, if he pays or is compelled to 
bear more than his just share of the firm's debts or 
liabilities^ or incurs a personal liability or loss in 
the ordinary and proper conduct of the firm busi- 
nesSy or in doing something necessary for the 
preservation of the business or property of the 
firm, he is entitled to demand that his copartners 
should, for his relief, contribute their due propor* 
tion of his outlay or loss on the firm's behalf. 

Indemnity 

The right and duty of indemnity is a natural consequence 
of the duty to conform to the partnership agreement. For 
all losses due to failure to conform to the partnership agree- 
ment, or to lack of skill and diligence, the partner in fault 
must indemnify the copartners. For example, where a part- 
ner, in violation of an express agreement not to extend 
credit to relatives, advances money from the partnership 
funds or sells partnership goods to an impecunious relative, 
he is personally liable for the account.*^ 

Inson ▼. Simmons, 146 Mass. 167, 15 N. E. 558, 4 Am. St Rep. 299; 
Bite's Heirs y. Hite's Ex'rs, 1 B. Mon. (Ky.) 177. As to Burvivor of 
law partnership, see Osment ▼. McElrath, 68 Gal. 466, 9 Pac. 731, 
58 Am. Rep. 17; dictum citing this as possible exception, Lamb t. 
WUsin, 3 Neb. (Unof.) 496, 92 N. W. 167; Littie ▼• Caldwell, 101 
Cal. 553, 36 Pac. 107, 40 Am. St Rep. 89; Sterne ▼. Goep, 20 Hun 
(N. Y.) 396. See '^Partnership,'' Dec Dig. (iTey No.) || 253, 307; 
Cent. Dig. %% 550, 710, 711. 

» 8 McCoy y. Cossfield, 54 Or. 591, 104 Pac. 423. See, also, Holden 
T. Thiirber (R. I., 1909) 72 Atl. 720 ; Brown v. Orr aOOD) 110 Va, 
1, 65 S. E. 499; Loy v. Alston, 172 Fed. 90, 96 a O. A. 578; MUR- 
PHY V. CRAFTS, 13 La. Ann. 519, 71 Am. Dec. 519, Gilmore, Cfts. 
Partnership, 438; CHARLTON v. SLOAN, 76 Iowa, 288, 41 N. W. 
303, Gilmore, Cas. Partnership, 439; YORES v. TOZER, 59 Minn. 
78^ 60 N. W. 846, 28 L. R. A. 86, 50 Am. St Rep. 395, Gilmore, Cas. 
Partnership, 440. See ante, chapter VI, | 123, Duty to Conform to 
Agreement, and | 128, Duty to Exercise Care fuid SkilL See ''Part" 
nership,'* Dec. Dig. (Key No.) i 85; Cent. Dig. | 1S3. 



388 RIGHTS AND DUTIES OV PABTNBBS INTBB SB (Ch. 6 

Contribution 

The right and duty of contribution, while similar, is more 
peculiar to the law of partnership. In all partnership trans- 
actions there is common risk and common liability. The 
members undertake joint enterprise^, assume Joint risks, 
and they incur in all cases joint liabilities.** Each partner 
is bound for the entire amount due on the copartnership 
contracts. If, then, he is forced to pay alone an obligation 
which properly should be borne by all the parties, it is but 
right that he should be reimbursed for the amount he has 
expended beyond his own pro rata liability.^ The right to 
contribution, while often expressly recognized in the articles 
of partnership, exists irrespective of them as an incident of 
the partnership relation. Prima facie all losses or expendi- 
tures of the character above indicated are to be borne by the 
partners equally.* 

Same — Basis of the Right 

The right of contribution in the cases above cited resem- 
bles indemnity in being nothing more than a partner's due 
as agent for the firm.* Where, however, the expense in- 
curred by the partner for which he seeks reimbursement 



•• MASON T. ELDRED, 6 Wall. 231, 18 L. Ed. 783, OUmore, G^s. 
Partnership, 281. See "Partnership,*' Dee, Dig. (Key No.) | 101; 
Cfint.' Dig. § 155. 

iMoran Bros. Go. v. Watson (1006) 44 Wash. 382, 87 Pac. 508. 
The firm Is liable for the expense of repairs on a partnership ves- 
sel, paid by one partner during the voyage. Mumford v. Nicoll, 20 
Johns. (N. Y.) 611. A partner is allowed all his personal expenses 
while away from home on firm business, although the partnership 
contract binds each partner to pay his own individual expenses; 
that contract provision being construed to apply only to expenses 
when the parties were at home. Withers v. Withers, 8 Pet 355, 8 L. 
Ed. 972. Of. French v. Vanatta (1907) 83 Ark. 306, 104 S. W. 141. 
See "Partnership," Dec, Dig. {Key No.) | 101; Cent. Dig. | 155. 

2Moley V. Brine, 120 Mass. 324; Jones v. Butler, 87 N. Y. 613; 
TAFT V. SOH WAMB, 80 Dl. 289 ; Richards v. Grlnnell. 63 Iowa, 44, 
18 N. W. 668, 50 Am. Rep. 727 ; Knapp v. Edwards, 67 Wis. 191, 15 
N. W. 140. See "Partnership^* Deo. Dig. (Key No.) || 84, 87, 101; 
Cent. Dig. H iS2, 185, 155. 

• Thomas v. Atherton, 10 Gh. Div. 185; Spottlswoode's Oase, 6 
De Gex, M. ft G. 845; Robinson's Ex'rs' Gase, Id. 572; Lefroy v. 
Gore, 1 Jones ft L. 571 ; Bury v. Allen, 1 Golly. 604. See "Partner- 
ship;* Deo. Dig. (Key No.) %% 85, 101; Cent. Dig. U 188, 15$. 



§ 134) BIOHT TO INDEMKITT AND OONTRIBUTION 889 

has been an "extraordinary outlay for necessary purposes," 
for example, to pay the cost of operations without which 
the business cannot go on, there is some difference of opin- 
ion as to the proper origin of the principle of contribution. 
Pollock * maintains that the duty of contribution in this 
class of cases has nothing to do with either agency or trust; 
that it is a duty imposed, if at all, by quasi contract, a duty 
to be recognized only under special circumstances, and more 
analogous to salvage and average than aught else. The 
English cases, however, hardly sustain this, clearly basing 
the partner's right to be protected by contribution against 
extraordinary losses upon the implied authority of the part- 
ner to make the expenditures. "A partnership creates an 
agreement that, in case any partner pays more than his 
share, the others shall indemnify him." " But the right to 
contribution is not necessarily limited by the scope of a 
partner's powers in dealing with third parties. For exam- 
ple, while a partner might not have any express or implied 
authority to borrow money and thereby subject his co- 
partners to liability to repay it, he may be entitled to re- 
imbursement for money necessarily laid out by him for the 
firm.* In the United States the right to indemnity or con- 
tribution has never been seriously questioned ; the courts rec- 
ognizing its existence, irrespective of whether based on the 
rules of agency,^ trust,* or implied authority.* 

Same — Modified by Agreement 

It may always be shown that there has been a tacit or 
express agreement that there should be no contribution.** 

4 Digest Part (8th Ed.) 82. 

• Wright V. Hunter, 5 Ves. 792. See ^'Partnership,^ Deo, Dig. (fay 
^0.) «§ 84, 87, 101; Cent. Dig. §| ISZ, 135, 155. 

• Ex parte Chippendale, In re German Mining Go., 4 De G., IL ft 
G, 19. See '* Partnership r Dec. Dig. {Key No.) H 84, 87, 101; Cent. 
Dig. §1 182, 185, 155. 

TMeserve v. Andrews, 106 Mass. 419. See '^Partnership,'* Deo, 
Dig. (Key No.) || 85, 101; Cent. Dig. If 18$, 155. 

• Lee*B Bx*r v. Dolan's Adm'x, 89 N. J. Bq. 19B. See **Partner- 
shipr Dec. Dig. {Key NO.) $| 85, 101; Cent. Dig. H 188, 155. 

• (Chancellor Kent, In SeUs' Adm'rs v. Hnbbell, 2 Johns. Ch. (N. 
J.) 394, 397. Sec '* Partnership r Dec. Dig. {Key Vo.) U 85. 101; 
Cent. Dig. fS IBS. 155. 

loLymaii v. Lyman. 15 Fed. Cas. No. 8.028. 2 Paine, 11; Mallett 



390 RIGHTS AND DUTIES OF PABTNBBS INTBB SB (Gh. 6 

Agreement also may fix a limit as to the amount of contri- 
bution; but, in the absence of such an agreement, the 
amount which a partner may be' called on to contribute is 
not necessarily limited to a sum proportionate to his share 
in the partnership. For, if some of the partners are unable 
to contribute their share, those who are solvent must con- 
tribute the whole.*^ 

Same — Conditions for Obtaining Contribution — Losses Due 

to Partner^ s Own Negligence 

In order that a partner be allowed credit for expendit- 
ures made by him, however, it is not enough that he deemed 
them necessary and proper. It must further appear that 
they related to the common undertaking, and were in some 
way beneficial to the partnership.^* If the loss or outlay 
for which a partner seeks indemnity or contribution was 
caused only through his own negligence, bad faith, or 
breach of duty, or while he was acting outside of his au- 
thority, no duty to reimburse him arises.^' Still less does 

y. Eellar, 181 N. Y. 543, 73 N. E. 1126, affirmed 91 App. Diy. 502, 86 
N. Y. Supp. 917; Boskowltz v. Nickel, 97 Cal. 19, 81 Pac. 732. See 
'^Partnership,'' Dec Dig. {Key No.) {§ 84, 87, 101; Cent. Dig. f| 132, 
1S5 155 

11 MAGII/rON V. STEVENSON et al., 173 Pa. 560, 84 Ati. 235, 
Gllmore, Gas. Partnership, 445; Scudder ▼. Ames, 89 Mo. 496, 14 
S. W. 525 ; McEewan's Gase^ 6 Gh. Dlv. 447 ; In re Worcester Gom 
Exchange Go., 3 De Gez, M<. ft G. 180. Gf. Meadows y. Mocqaot, 
110 Ey. 220, 61 S. W. 28, 22 Ey. Law Hep. 1646, to the effect that 
one who Is to contribute labor as his share of the partnership capital, 
cannot be compelled to contribute to losses of capital by the other 
partner. Gf. Hebblethwalte y. Flint, 115 App. Div. 597, 101 N. Y. 
Supp. 43. See ''Partnership,'^ Dec. Dig. (Key No.) {§ 84, 87, 101; 
Cent. Dig. Sfi 1S2, 185, 155. 

12 Van Tine v. Hilands (G. G.) 142 Ted. 613 ; Godfrey y. White, 
43 Mich. 171, 5 N. W. 243; Meserye y. Andrews, 106 Mass. 419. 
See, also, Butler y. Butler, 164 111. 171, 45 N. E. 426 ; ^rbea y. Hes- 
ton, 202 Pa. 406, 51 Atl. 1025. A payment by one partner of money 
in excess of his share of the capital, not deriyed from partnership 
profits, when it was necessary to be paid to preserye the partner- 
ship business, constitutes a preferred claim on the partnership prop- 
erty, which must be paid before there can be any surplus found to 
be dlyided among partners. Matthews y. Adams, 84 Md. 143, 35 
Atl. 60. See "Partnership,'' Dec Dig. (Key No.) fif 84, 87, 101; Cent. 
Dig. §fi 1S2, 1^5, 155. 

liMcFadden y. Leeka, 48 Ohio St 513, 28 N. B. 874; Ball y. 



§ 134) BIGHT TO INDEMNITT AND CONTRIBUTION 891 

the right to contribution exist in favor of a partner who 
has, by his own fraud or misrepresentations, enticed an- 
other into the firm ; for the latter is in a position to with- 
draw from the partnership agreement without liability for 
losses.^* 

Same — Illegal Transactions 

With regard to the right of a partner to reimbursement 
whose loss has occurred through an illegal act, it should be 
said at the outset that by a familiar rule there is no con- 
tribution between wrongdoers. The courts, however, are 
so liberal in this respect that unless the partnership itself is 
illegal, or unless the act relied on as the basis of the claim 
is not only illegal, but has been committed by the partner 
seeking contribution, either expressly or impliedly knowing 
its illegality, contribution will be allowed." A partner is 
entitled to contribution where the act which causes him loss 
was a mere breach of trust as distinguished from an illegal 
act^ or not so clearly illegal but what it may have been done 
in good faith or honest ignorance.^' 

Same — Obtainable Only on Settlement of Partnership AC" 

counts 

Contribution proceeds upon the supposition that the part- 
ner has paid more than his share of a burden which was 
common to all the partners. To ascertain whether he has 
really paid more than his share, an accounting of the firm 
business is essential. This usually involves a suit in equity, 
for the machinery of a court of law is not adequate to deal 
with details of a partnership accounting. Until there has 

Levin, 48 La. Ann. 859, 19 South. 118; Warren v. Raben, S3 Neb. 
380, 50 N. W. 257; Maher v. Bull, 44 lU. 97. See "Partnerahipr 
Dec. Dig, (Key No.) K 84, 85, 87, 101; Cent. Dig. H 1S2, ISS, 185, 155. 

i« Rawlins ▼. Wlckham, 1 GlflP. 355; Newbigging v. Adam, 34 Ch. 
Div. 582; PUlans v. Harknees, CoUee, 442. ' See "Partnership,'* Dec. 
Dig. {Key No.) ^ 84, 85, 87, 88, 101; Cent. Dig. f| 1S2, ISS, 185, 1S6, 
165. 

iBLindL Part p. 878; Betts ▼. Oibbins, 2 Adol. ft E. 57; Smith 
V. Ayrault, 71 Mich. 475, 89 N. W. 724, 1 L. R, A. 311 ; CLAYTON v. 
DAVETT (N. J. Cai.) 38 Ati. 30a See "Partnerahip,** Dec. Dig. (Key 
No.) §§ 88, 101; Cent. Dig. S§ ISO, 155. 

le Ashurst T. Mason^ L. R. 20 Eq. 225; Pollock, Torts, 170, 171. 
See ^^Partnership;* Deo. Dig. {Key No.) § 101; Cent. Dig. 1 155. 



'^2 BIGHTS AND DUTIES OF PARTNERS INTBR SB (Ch. 6 

been a settlement of the firm affairs, it is not possible to 
know definitely the relief to which the complaining partner 
is entitled*^ " *   How can there by any fair or just 
contribution, or any claim to contribution, as between part- 
ners, until after a final settlement and ascertainment of the 
exact state of the account of each partner, and a full set- 
tlement of the partnership affairs ? * * * It might well 
be that appellant was entitled to recover nothing from his 
copartners by way of contribution on account of what he 
had paid ; for, as there is no pretense that the partnership 
accounts have ever been settled, it might appear on such 
settlement that appellant was still indebted to the partner- 
ship in a large sum, and that his partner had actually paid 
for it much more than he had done." *• Moreover, the right 
on contribution should arise only when loss has been ac- 
tually sustained by the person seeking relief ; ^* but it has 
been held that a prospect of immediate loss may justify an 
immediate suit in equity.'^ 



RIGHT TO AN ACCOUNTING 

135, ESach partner is entitled to a complete accounting from 
his copartner, showing the condition of the part- 
nership affairs, in order that the respective rights 
and liabilities of the partners in relation to their 
common business may be known. If such an ac- 
counting is refused, any partner aggrieved may 
bring suit in equity to compel it* 

IT Kennedy ▼. McFadon, S Har. ft J. (Md.) Id^ 5 Am. Dec 434; 
Maxwell v. Jameson, 2 Bam. ft Aid. 51; Spark v. Heslop, 1 BL ft 
BL 563. Bee ^^Partnership,*' Deo. Dig. (Key No.) { 109; Cent. Dig. 
I 171. 

i« WARRING V. ARTHUR et al., 98 Ky. 34, 82 S. W. 221, OU- 
more. Gas. Partnership, 441. See ^'Partnership,'* Deo. Dig. (Key No.) 
I 109; Cent. Dig. § 171. 

!• Maxwell ▼. Jameson, 2 Bam. ft Aid. 51; Spark y. Heslop, 1 El. 
ft BL 868. See "* Partnership/* Deo. Dig. {Key No.) If iOl, 109; Cent 
Dig. §1 155, 111. 

aoLacey v. HHl, L. R. 18 Eq. 182; Hobbs v. Wayet, 36 Ch. Div. 
256. See **Partner8hipr Dec. Dig. (Key No.) 1 109; Cent. Dig. 1 171. 



§ 135) BIGHT TO AN AOGOUNTINO ' 893 

Basis aiid Purpose of Accounting 

We have seen that it is the duly of each partner to keep 
and furnish correct accounts of all things affecting the part- 
nership."* The importance of this duty becomes manifest 
when upon the termination of the partnership, or upon the 
happening of some other event requiring an adjustment of 
the assets and liabilities of the firm, a formal accounting is 
necessary.*' We have also seen that a formal settlement 
of the mutual rights of the several partners in the firm 
property is necessary before an action for contribution can 
be maintained by one partner against the other."* " If all 
the partners can ag^ee, and there are no conflicting claims, 
and no frauds on creditors, there is nothing to prevent the 
partners themselves making a complete settlement of all 
the firm affairs in a private accounting without resort to 
the courts,"* In the absence of fraud or mutual mistake,, 
these private accountings and settlements will be conclu- 
sive upon the partners."* Very frequently, however, dis- 
putes, insolvency, or the existence of conflicting claims pre- 
clude an amicable settlement of their affairs by the part- 
ners themselves. It then becomes necessary to seek the aid 
of the courts. The right of the partners to enforce an ac- 
counting in the courts is considered at length in chapter 

«i Supra, I 127, p. 371. 

22Rels V. Heis, 99 Minn. 446, 109 N. W. 997: Miller ft Go. t. 
Simpson, 107 Va. 476, 59 S. E. 378 (1907) ; Hines v. Dean, 1 White 
ft W. Oiv. Gas. Ot App. (Tex.) § 690; Sprout v. Crowley, 30 Wis. 
187. See '* Partnership,'' Dec, Dig. (Key No.) §| 81, 297-S12; Cent. 
Dig. 18 129, 679-728. 

«• Supra, i 134, p. 387. 

2« Scheuer v. Berrlnger, 102 Ala. 216, 14 South. 640; Sage v. Wood- 
hi, 66 N. Y. 578; Klmberly v. Arms, 129 U. S. 512, 9 Sup. Ct 355, 
82 L. Ed. 764 ; Smith v. Proskey, 177 N. Y. 526, 69 N. B. 1131, re- 
vising 82 App. Dlv. 19. 81 N. Y. Supp. 424; Phillips v. Reynolds, 
236 111. 119, 86 N. E. 193 (1008). See ^^Partnership,'* Dec. Dig. (Kep 
No.) II 81, Sll; Cent. Dig. §§ 129, 718-725. 

25 Howard v. Pratt, 110 Iowa, 533, 81 N. W. 722; Eddy v. Fogg, 
192 Mass. 543, 78 N. E. 549; Comer v. Mackey, 147 N. Y. 574, 42 
N. B. 29; Heath v. Van Cott, 9 Wis. 516; Wlnslow v. Leland, 128 
111. 304,- 21 N. B. 588 ; Fritz v. Fritz (1908) 141 Iowa, 721, 118 N. 
W. 769. See ''Partnership:* Dec. Dig. {Key No.) f§ 81, Sll; Cent. 
Dig. §{ 129, 718-725. 



394 RIGHTS AND DUTIES OF PARTNERS INTER SB (Ch. 6 

VIII, where the general subject of actions between part- 
ners is discussed.*' 



DISTRIBUTION OF ASSETS AMONG PARTNERS 

136. Unless otherwise provided by the partnership agree- 
ment, the assets of a partnership are distributed as 
follows : 

(a) To the pa3rment of all debts and liabilities of the 

firm to third parties. 

(b) The repa3rment to each partner of his advances to 

the firm. 

(c) The return to each partner of his contribution to the 

capital of the firm. 

(d) The surplus, if any, is divided among the partners in 

the proportion provided in the partnership agree- 
ment. 

Having noted the right to an accounting and the property 
subject to it, it becomes material to know how that ac- 
counting is to apportion the rights of those both within and 
without the firm, so as to give to each his due share of the 
partnership property. In a previous chapter *^ the applica- 
tion of partnership property to partnership debts, and the 
paramount rights of the latter, were fully described. For 
the purpose of this discussion, it is necessary, therefore, 
only to repeat that in the accounting the debts of the part- 
nership are first to be paid, and that neither the claims of 
the individual partners against the firm nor their claims 
against each other should be allowed to compete with 
these.*' 

«• See chapter VIII, p. 459. Actions Between Partners. 

aT Chapter III, § 58, p. 179. 

s8 GROTH et al. ▼. KERSTING et aU 23 Colo. 213, 47 Pac. 393, 
GUmore, Gaa Partnership, 484; Jarvls y. Brooks, 27 N. H. 37, 59 
Am. Dea 359; Edison Electric Illuminating Oo. y. De Mott, 51 N. 
J. Bq. 16, 26 Ati. 952; Forsyth y. Woods, 11 WalL 484, 20 K Ed. 
207; Second Nat Bank of Oswego y. Bart, 93 N. Y. 233; Powell 
y. Bennett, 131 Ind. 465, 30 N. B. 518; Blake y. Third NationaJ 
Bank of St Louis (1909) 219 Mo. 644, 118 S. W. 641 ; Lacey y. Cow- 



S 136) DISTRIBUTION OF ASSETS AMONG PABTNBBS 895 

Repaying Advances 

After the obligations to third parties have been satisfied, 
the question is one between the partners themselves. Very 
often one partner has loaned money to the firm over and 
above his contribution to its capital. This loan is called 
an advance, and is treated as a debt due from the firm to 
the partner making it. Next after the firm debts to out- 
siders all advances are to be paid in full.** Suppose, for in- 
stance, after paying its debts, a firm of three equal part- 
ners should have left $16,000, and one of the partners had 
previously advanced to the firm $7,500. Obviously, if each 
partner should take out $5,000, leaving the partner who 
made the advances a judgment merely against his copart- 
ners for two-thirds of the $7,500, he would not only lose 
one-third of his advances, but also have thrown upon him 
the risk of collecting his judgment.** 

It may turn out, however, that the firm assets left after 
paying outside creditors are insufficient to pay advances. 
In this event, unless the partnership agreement provides a 
different method of apportioning losses, the deficiency is to 
be borne in the proportion in which the profits are to be 
shared.** The partner to whom the advance is owing must 
bear his share of the loss like the rest.** It is entirely pos- 
sible, however, to protect the partner making advances by 

an (1909) 162 Ala. 546, 50 South. 281. See '^Partnership,*' Deo. Dig, 
{Key No.) S| 176-189; Cent. Dig. §S SOSSJiS. 

«• WWtney v. Whitney, 115 Ky. 552, 74 S. W. 194; Mason v. Gib- 
son, 73 N. H. 190, 60 AU. 96 ; LESEHMAN ▼. BERNHEIMER, U3 
N. Y. 39, 20 N. E. 869 ; Henderson ▼. Rles, 108 Fed. 709, 47 O. C. 
A. 625; Harman y. Stnart (Ky., 1909) 119 S. W. 210; Capital Food 
Co. v. Globe Coal Co. (Iowa, 1909), 116 N. W. 803, and 142 Iowa, 
134, 120 N. W. 704. See ''Partnership^ Deo. Dig. (Key No.) | 904; 
Cent. Dig. |§ 701, 702. 

80LESERMAN ▼. BERNHEIMER, 113 N. Y. 89, 20 N. B. 869. 
See "Partnership;* Dec Dig. {^ey No.) | 904; Cent. Dig. il 701, 
702. 

•1 Post, note 44, p. 899. See, also, Ramsay y. Meade, 37 Colo. 465, 
86 Pac. 1018; Stark ▼. Howcott, 118 La. 489, 43 South. 61. See 
"Partnership,** Dec Dig. (Key No.) | S04; Cent. Dig. K 701, 702. 

■2 RAYMOND v. PUTNAM, 44 N. H. 160, Gllmore, Cas. Partner- 
ship, 490. See "Partnership,** Deo. Dig. {JBiey No.) §| 30$, 504; Cent. 
Dig. |{ 700-702. 



396 BIOHT8 AND DUTIES OF PARTNERS INTER SB fCh. 6 

an agreement limiting his loss in any event to a certain 
amount. In this case, should his advances to the firm ex- 
ceed this amount, and the business prove a failure, he 
should have a joint and several judgment against his co- 
partners for the difference.'^ 

Same — Interest on Advances 

There is some conflict in the authorities as to whether a 
partner should be allowed interest on these advances. That 
the partnership may be liable for interest, where there is a 
special contract to that effect, or where it may be implied 
from the facts and circumstances that the firm is to pay 
interest on advances, all are ag^eed.'^ In the absence of 
such agreement or implication, what is perhaps the weight 
of authority contends that advances, like overdrafts, are iso- 
lated acts, not constituting items in the. account between 
the lending partners and the firm, and that, it being impos- 
sible to determine, until after an accounting, whether the 
partner is really a debtor or a creditor, interest should not 
be allowed.*" On the other. hand, some courts hold that 
advances are loans, like any others, and, being usually made 
with the knowledge of the other partners, should have in- 
terest at the statutory or customary rate.** 

•• MAGILTON y. STEVENSON, ITS Pa. 560, 84 Atl. 285, GUmore, 
Gas. Partnership, 445. Bee ^'Partnership," Dec. Dig. (Key No,) | 
87; Cent. Dig. | 135. 

•4 Prentice t. Elliott, 72 Ga. 154 ; McCaU v. Moss, 112 IlL 4»3 : 
Emerson v. Dnrand, 64 Wis. Ill, 24 N. W. 129, 54 Am. Rep. 593. 
See ^'Partnership,*' Dec Dig. {Key No.) | 75; Cent. Dig. H 120-12S. 

•• Mmer ▼. Lord, 11 Pick. (Mass.) 11 ; Godfrey ▼. White, .43 Mich. 
171, 5 N. W. 243 ; Prentice v. Blliott 72 Ga. 154 ; In re James, 146 
N. X. 78, 40 N. B. 876, 48 Am. St. Rep. 774. "There is no point dur- 
ing this whole period [of accounting] that can be fixed equitably as 
the time when interest should be charged. ^ • • We announce 
as our conclusion on this subject that the general doctrine is well 
settled that interest in an accounting between partners is not al- 
lowed. The exception is that a court of equity may allow interest 
where. In view of the particular facts of a case, it is Just and equi- 
table to make the allowance.'* LAMB ▼. ROWAN (1903) 83 Miss. 
45, 85 South. 427, 690, Gilmore, Gas. Partnership, 497. See, also. 
Lemma ▼. Blanding (1909) 139 Wis. 156, 120 N. W. 842. See ''Part- 
nership" Dec. Dig. {Key No.) f 75; Cent. Dig. |§ 120-12S. 

i«FOLSOM y. MARLETTE, 23 Ney. 459, 49 Paa 89^ Gilmore, 



§ 136) DISTRIBUTION OF ASSSTS AMONG PARTNBB8 897 

Repaying Capital 

After the firm creditors, including partners who have 
loaned the firm money, are satisfied, the capital of the firm 
is to be repaid. Ordinarily the capital furnished by the 
partners is, in the absence of agreement to the contrary, a 
debt owing by the firm to the contributing partner.*^ If 
there is not sufficient to repay each partner his capital, then 
the balances of capitals remaining unpaid must be treated 
as so many losses, and are to be met like all other debts of 
the partnership ; that is, borne pro rata by the partners in 
the proportion in which profits are to be shared." That 
one partner has contributed all the capital makes no differ- 
ence. If A. contributes the whole partnership capital of 
$1,000, and the firm assets on accounting prove to be $1,- 
500, naturally this $500 should be divided. Should the 
assets prove only $900, A. should be ratably repaid his pro- 
portion of this $100 loss.** 

Such is the usual situation with regard to capital in the 
ordinary mercantile partnership; but it may obviously be 
changed by agreement, as where the partnership articles 
provide that contributions by the partners to the firm stock 
shall not be considered as capital, but as firm assets, to be 
distributed upon settlement, like profits.** It may be, es- 

Cas. Partnership, 486, and cases dted at page 487. See, also, Rodi:- 
ers ▼. Clement, 162 N. T. 422, 56 N. E; 901, 76 Am. St Rep. 342. 
By the English Partnership Act, 1890, i 24(3), interest is allowed 
on advances. 8ee "PartneraMp,*' Deo. Dig. {Key No.) f 75; Cent. 
Dig. i§ 120-12S. 

ST GHOTH ▼. KERSTINQ, 23 Colo. 213, 47 Pac. 393, Gilmore, Gas. 
Partnership, 484; Scutt v. Robertson, 127 111. 135, 19 N. B. 851; 
Jones v. Butler, 87 N. Y. 613. See ** Partnership,** Deo. Dig. (Key 
yo.) i m ; Cent. Dig, | 102. 

88 WHITCOMB V. CONVERSE, 119 Mass. 38, 20 Am. Rep. 811, 
Gilmore, Cas. Partnership. 488; TAFT v. SCHWAMB, 80 111. 289; 
Newell V. Newell, Ia R. 7 Eq. 538; Bee '^Partnership,** Deo. Dig. 
(Key No.) | S04; Cent. Dig. i 702. 

88 Newell V. Newell, supra; Hasbrlnck v. Chllds, 8 Bosw. (N. Y.) 
105 ; Eng. Partn. Act, 1890, | 40 (b), 3. Bee "Partnership," Dec. Dig. 
(Key No.) § S04; Cent. Dig. I 702. 

♦0 GROTH et al. v. KERSTING et al., 23 Colo. 213, 47 Pac. 393, 
Gilmore, Cas. Partnership, 484; MOLINEAUX ▼. RAYNOLDS, 54 
N. J. Eq. 550, 85 Atl. 536, Gilmore, Gas. Partnership, 215; Blnney.y. 



398 BIGHTS AND DUTIES OF PARTNERS INTER SB (Ch. 6 

pecially in a partnership for a single venture, that the mere 
use of the capital is contributed by a partner, and the part- 
nership is in the profits only. In this case "the capital re- 
mains 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 property of 
the partnership, the partnership owes him nothing in con- 
sideration thereof." ** 

With regard to interest on capital, the same general rule 
prevails as stated for the majority holdings with regard to 
interest on advances, namely, that in the absence of agree- 
ment a partner will not be allowed interest on his capital 
in the firm.*' 

Same — Division of Surplus 

Assuming partnership debts, advances, and capital all 
taken care of, the surplus is to be distributed among the 
partners in proportion to their interest in the firm. This, in 
turn, as previously indicated, depends upon the agreement 
of the parties, which, if not a matter of construction of a 
written document, is a pure question of fact.** In the ab- 



Mutrie, 12 App. Gas. 100. Bee ^Partnership,^ Dee. Dig. (Key 2fo,) 
H SOJhSOS; Cent. Dig. H 70^-709. 

41WHITG0MB T. GONVERSB, 119 Mass. 88, 20 Am. Bep. 811, 
OUmore, Gas. Partnership, 488, per Gray, G. J. See, also, SHEA y. 
DONAHUE, 15 Lea (Tenn.> 160, M Am. Rep. 407, GUmore, Gas. 
Partnership, 168; Gonroy y. Gampbell, 45 N. Y. Saper. Gt 826. 
That in some JurlsdictionB it Is held that a partner who furnished 
labor as his part of the capital cannot be required to bear any part 
of his copartner's money contribution, see Meadows y. Mocquot, 110 
Ky. 220, 61 S. W. 28, 22 Ey. Law Rep. 1646; Heran y. HaU, 1 B. 
Mon. (Ey.) 150, 85 Ahl Dec 178; Everly y. Durborrow, 8 PhUa. 
(Pa.) 08; Johnson y. Jackson (1908) 130 Ey. 751, 114 S. W. 260. 
See •^Partnership,'* Deo. Dig. (Key No.) || 72, SOi; Cent. Dig. || 117, 
702. 

4s Hatzfeld y. Walsh (Tex. Gly. App.) 120 S. W. 525 (1909) ; TAFT 
y. SGHWAM'B, 80 lU. 289; Jackson y. Johnson, 11 Hun (N. T.) 509; 
EeUey y. Turner, 81 Md. 269, 81 AU. 700 ; Glark y. Worden, 10 Neb. 
87, 4 N. W. 418. Gf. ligare y. Peacock, 109 IlL 94. See •"Partner- 
ship;' Deo. Dig. (Key JSo.) | 75; Cent. Dig. If 120-129. 

4* Peacock y. Peacock, 16 Ves. 49; McGregor y. Bainbridge, 7 
Hare, 164; Binford y. Doounett, 4 Yes. 756. See ''Partnership,^ 
Deo. Dig. (Key Hfo.) | 906; Cent. Dig. If 706-709. 



§ 136] DISTRIBUTION OV ASSBTS AMONG PABTNEB8 399 

sence of evidence showing a contrary intention, the shares 
of all the partners are presumed to be equal.^^ 

Claims Between Partners 

It has already been noted that valid claims by any part- 
ner against the firm upon firm transactions are credited to 
him; *• but as a general rule claims growing out of individ- 
ual transactions between the partners are not taken into 
account in the adjustment and distribution of their respec- 
tive shares.** Where the debtor partner is insolvent, how- 
ever, a court of equity, in order to protect his copartners, 
may compel a set-off of the claims of the other partners 
against him, though these do not arise out of the firm trans- 
actions. "If, on the accounting and settlement of the part- 
nership matters, anything shall be found due the plaintiff 
from the partnership, and it should be paid over to him, it 
would, apparently, be impossible for the defendants to ob- 
tain satisfaction of their claims against him. Actions at 
law upon these claims would be futile. So it seems that 
justice requires whatever sum may be found due to the 
plaintiff shall be applied to the payment of these claims of 
the defendants." *^ 



««WHITCOMB ▼. CONYEBSE, 119 Mass. 88, 20 Am. Rep. 811, 
GUmore, Cas. Partnership, 488; Ligare t. Peacock, 109 111. ^; 
TAFT V. SCHWAMB, 80 111. 289; Huger v. Cunningham, 128 Ga. 
684, 56 S. B. 64 ; Taylor v. Coffing, 18 111. 422 ; Woelf el v. Thompson, 
173 Mass. 301, 53 N. E. 819. Where two solicitors Joined In the 
conduct of a single case, though paid separately, and doing unequal 
amounts of work. It was held, in the absence of satisfactory evi- 
dence, that they were entitled to share equally tn the fees. Robin- 
son T. Anderson, 20 Beav. 98. Losses, in the absence of agreement 
to the contrary, are to be borne like profits. See ^'Partnership,^ Deo. 
Dig. (Key No.) f 76; Cent. Dig. §| 116, m. 

40 Supra, p. 895. 

«• Caldwell t. Leiber, 7 Paige (N. Y.) 483; Goldthwait t. Day, 
149 Mass. 185, 21 N. E. 359 ; Reid ▼. McQuesten, 61 N. H. 421. See 
**Partner8hip,*' Deo. Dig. {Key No.) | 300; Cent. Dig. | 695. 

4T PENDLETON v. BEYER, 94 Wis. 31, 68 N. W. 415. See, also. 
Nichol v. Stewart, 86 Ark. 612. That as between the partners them- 
selves, when the rights of creditors are not involved, an Individual 
Indebtedness from one partner to another may be deducted ' from a 
partnership balance due from the latter to the former, see Jones v. 



400 BIQHTS AND DnriBS OV PAKTNBBS INTKB SB (Ch. 6 

SAME— PARTNER'S SO-CALLED LIEN 

187. By virtue of the partnership agreement each partner 
has a right to have all the finn assets applied first 
to the pa3rment of firm debts and then to the settle- 
ment of claims inter se. As such right will be en- 
forced in equity, each partner has what is loosely 
termed a lien on the partnership effects to secure 
the accomplishment of these ends. 

Definition and Scope 

The lien of a partner has already been defined in the sec- 
tions discussing the right to have firm property applied in 
payment of firm debts.** While loosely called a lien, it is 
not in reality such. Each party to the partnership relation 
is considered as having agreed that the firm property shall 
first be devoted to the payment of the firm debts and obli- 
gations and to the adjustment of the claims of the partners 
inter se growing out of the relation. A court of equity rec- 
ognizes in each partner a right to have the firm assets thus 
used, and will compel their application for such purposes. 
The lien goes even further than to the mere protection of 
firm obligations. It is attached by equity to the surplus 
assets of the firm for the purpose of having them applied 
in payment of what may be due to the partners, respec- 
tively, after deducting what may be due from them as part- 
ners to the firm.** It will be noted that the statement of 
the rule excludes from the force of the lien debts incurred 
between the firm and its members otherwise than in their 



Jones, 23 Ark. 212; Parker v. Parker, 65 Barb. (N. Y.) 205. See 
"Partnership:* Dec, Dig, (Key Vo,) H SOO, 3SS, 3S4; Cent. Dig. U 
695, 7Si, 79t-t96. 

41 Ante, chapter III, § 58, p. 179. 

*• Kempton v. People, 189 111. App. 563 ; Bardwell v. Perry, 19 Vt 
292, 47 Am. Dec. 687 ; Pearson v. Keedy, 6 B. Mon. (Ky.) 128, 43 Am. 
Dec. 160; WARREN v. TAYLOR, 60 Ala. 218, Gilmore, Cas. Part- 
nership, 446. Bee ** Partnership:* Dec. Dig. (Key No,) |§ 89, 179, 
18t, 246, S09; Cent. Dig. K 197, SU, $18, 522, 715-717. 



§ 137) DISTRIBUTION OF ASSETS AMONG PAHTNEBS 401 

capacity as partners.** Nor does the lien cover individual 
debts owed by one partner to another/^ 

This right or lien of the partners does not become of 
practical importance, nor are its effects felt, until the affairs 
of the partnership have to be wound up, or the share of a 
partner ascertained. It does not give a partner a right to 
insist, as against a judgment creditor of the firm, that he 
has recourse to the assets of the firm before seeking to ob- 
tain payment from the partners individually,** 

To What Property the Lien Attaches 

So long as the partnership lasts, the lien attaches to 
everything that can be considered partnership property, and 
is not, therefore, lost by the substitution of new stock in 
trade for old."* No lien, however, is allowed if the part- 
nership is illegal, unless it be possible to disassociate com- 
pletely the illegality from the transactions or agreement re- 
lied on as the basis of the lien.** Nor does the lien extend 
the property acquired subsequently to dissolution by those 
who are carrying on the business, therein differing from 

»« Doddington v. Hallet, 1 Ves. Sr. 497 ; 1 lindl. Part. 354 ; Uhler 
▼. Semple^ 20 N. J. Eq. 288; Skipp v. Harwood, 2 Swanst 586; 
Scheuer v. Berrlnger, 102 Ala. 216. 14 South. 640. Bee "Partner- 
ship;' Dec, Dig. {Key No,) { 89; Cent, Dig, { 157. 

«i Mack V. Woodruff, 87 111. 570; Mumford ▼. Nicoll, 20 Johns. 
(N. Y.) 611; Lewis v. Harrison, 81 Ind. 278. Notes given by de- 
fendants, with sureties, for the price of a half interest in* prop- 
erty of the plaintiff for the purpose of forming a partnership with 
plaintiff in the property, are not partnership debts for which the 
firm property is liable. Glapp v. Adams, 143 Iowa, 697, 121 N. 
W. 44. 

But see ante, note 47, p. 899. See ** Partnership," Dec. Dig, (Key 
No,) I 89; Cent, Dig. { 1S7. 

02 Clayton v. May. 68 6a. 27; Randolph v. Daly, 16 N. J. Bq. 313. 
See "Partnership^' Dec. Dig, (Key No,) §| 89, S09; Cent. Dig, §§ i57, 
715-717, 

»« Stocken v. Dawson, 9 Beav. 239, 17 Law J. Ch. 282. See, also, 
Hiscock V. Phelps, 49 N. T. 97: Evans v. Hawley, 35 Iowa, 83. as to 
partnership property in the name of one partner. See ''Partner- 
ship," Dec, Dig, (Key No.) § 89; Cent. Dig. § 137. 

54 rryer v. Barker, 142 Iowa, 708, 121 N. W. 526, 23 L. R. A. (N. 
S.) 477 ; Ewlng v. Qsbaldiston. 2 Mylne & C. 88. See ante, chapter 
11, i 30, p. 100. See "Partnership," Dec. Dig, (Key No,) § 89; Cent 
Dig. I 1S7. 

Gii,.Part.— 26 



402 BIGHTS AND DUTIES OF PABTNEBS INTBB SB (Ch. 6 

the lien of a mortgagee on a varying stock in trade." If 
the partnership is one in profits only, the lien can attach 
only to the profits, for the means by which the profits were 
produced were not firm property.'* Since a partner has no 
right to apply the partnership property to his own individ- 
ual uses or debts, the lien will attach to property as trans- 
ferred, unless the transferee is a bona fide holder for 
value.'^ 

Against Whom Available 

The partner's lien exists against a partner or any one 
claiming through him a share in the partnership assets."* 
Accordingly it is available against executors of a deceased 
partner, the trustee of a bankrupt partner, or the assignee 
of a partner's share.** The extent and force of the lien is 
well illustrated in the case of Warren v. Taylor,** where A. 
filed a bill for accounting and settlement against his part- 
ner, B., and against C, to whom B. had given a mortgage 
on his (B.'s) interest in the firm. While B. had given A. 
a mortgage, also, to indemnify the latter for the firm's pro- 
tection against some paper of B.'s, this mortage was not re- 
corded until after the one to C, so that, if A. were to pre- 
vail over C, he must rely strictly on the priority of the 
partner's lien. It was held that C. could claim under his 

»BNerot V. Bumand, 4 Buss. 347, 2 BUgh (N. S.) 215; Payne ▼. 
Hornby, 25 Beav. 280. See *' Partnership,*' Dec. Dig. (Key No.) | 
SOB; Cent. Dig, %% 715-717. 

08 Stevens v. Faucet, 24 111. 483; Voorhees y. Jones, 29 N. J. 
Law, 270; Robblns v. Laswell, 27 111. 365. See ''Partnership,** Dec 
Dig. (Key No.) {§ 89, S09; Cent. Dig. §| 157, 715-717. 

»T Farwell v. St Paul Trust CJo., 45 Minn. 495, 48 N. W. 326, 22 
Am. St Rep. 742; JANNEY v. SPRINGER, 78 Iowa, 617, 43 N. W. 
461, 16 Am. St Rep. 460, Gilmore, Gas. Partnership, 243. See "Part- 
nership r Deo. Dig. (Key No.) §§ 89, 97; Cent. Dig. i§ 1S7, H7. 

B8 Hobbs V. McLean, 117 U. S. 567, 6 Sup. Gt 870, 29 L. Ed. 940; 
Hoyt ▼. Sprague, 103 U. S. 613, 26 L. Ed. 585. See "Partnership,"* 
Dec. Dig. (Key No.) §§ 89, 182; Cent. Dig. §§ Itn, S18. 

00 Klrby v. Shoonmaker, 3 Barb. Gh. (N. Y.) 46, 49 Am. Dec. 160; 
Gavander v. Bulteel, L. R. 9 Gh. 79. See "Partnership** Deo. Dig. 
(Key No.) SI 89, 178-18S, S09; Cent. Dig. S§ 1S7, S10S56, 715-717. 

80 WARREN v. TAYLOR, 60 Ala. 218, Gilmore, Gas. Partnership, 
446. See ''Partnership,** Dec. Dig. (^ey No.) S§ 89, 179. 182; Cent. 
Dig. M 1S7, SU, S18. 



§ 137) DI8TBIBUTION OF ASSETS AMONG PARTNSBS 403 

mortgage only what B. could claim if B. were suing A.; 
that when C. bought or accepted as security B.'s interest in 
the partnership effects, it was Cs duty to inquire of the 
other partner, A., how the account stood between them. 

Same — How Lost 

The lien will be lost if the firm property is converted into 
the separate property of a partner,'^ or is validly sold to a 
stranger with the other partner's assent. Still less is it 
available against a purchaser from a partner of specific 
chattels of the firm.'* Similarly, if on the dissolution of 
the firm its property is divided between the partners in 
specie on the understanding that the debts shall be taken 
care of in some specified manner, the lien is lost, and no 
partner has the right to have the property brought back 
into the common stock and applied in liquidation of the 
firm debts.'* 

«iGlddlng8 ▼. Palmer, 107 Mass. 269; Robertson v. Barker, 11 
Fla. 192 ; Parker ▼. Merrltt, 105 lU. 293 ; ante, chapter III, §i 56-60, 
p. 176 et seq. See ** Partner shdp,*" Dec. Dig. {Key No.) §fi 89, 179, 
182, 809; Cent. Dig. i§ 157, 8H, 518, 715-717. 

«s In re Langmead'B Trusts, 7 De Gex, M. & G. 8531 See **Part' 
nershipr Deo. Dig. (Key 2fo.) §§ 89, 809; Cent. Dig. §§ 181, 7/5-7/7. 

«8 Giddlngs V. Palmer, 107 Mass. 269; Miller v. Esttil, 5 Ohio St 
608, 67 Am. Dec. 305; liingen v. Simpson, 1 Sim. & S. 600; In re 
Langmead's Trust, 7 De Gex, M. & G. 353; Smith y. Edwards, 7 
Hmnph* (Tenn.) 106, 46 Am. Dec. 71. But see chapter III, %% 56-60, 
p. 176 ct seq. See ^^Partnership,** Deo. Dig. {Key No.) || 89, 277-282; 
Cent. Dig. H 137, 622-€il. 



404 BBMsoifis OF ciuBDrroBa (OIl 7 



CHAPTER VII 

REMEn>IES OF CREDITOEtS 

188. Remedies at Law. 

188. Creditors of ttie Partnership. 

140. Creditors of tlie Separate Partner. 

141. Garnishment of Partnership Debtors. 

142. Remedies in Equity — Insolvency or Bankruptcy of FIra. 

143. Firm Creditors Against the Firm Estate. 

144. Separate Creditors Against the Firm Estate. 

145. Partners Agyinst the Firm Estate. 

146. Separate Cifxlitors Against the Separate EiStatea. 

147. Firm Creditors Against the Separate Estates. 

14& Partner Against the Separate Estate of a Oopartner. 

149. Rights of Secured Creditors. 

150. Rights of Joint and Several Creditors — Doable Proof. 

151. Insolvency or Bankruptcy of a Partner. 
162, Rights Against Estate of Deceased Partner. 



REMEDIES AT LAW 



188. The remedies which the creditors of the partnership or 

of the separate partners have against the partner- 
ship property will be considered under the follow- ' 
ing heads: 

(a) Creditors of the Partnership. 

(b) Creditors of the Separate Partners. 

SAME— CREDITORS OP THE PARTNERSHIP 

189. While a firm obligation is joint, the judgment tiiereon 

is several in its effects, and may be satisfied out ol 
the firm property or the separate property of any 
or all of the partners^ at the option of the firm 
creditor. I 

I 

Judgment on a Firm Obligation 

As the law does not treat the firm as an entity, a firm 
debt is the debt of the members composing the firm. While 



I 



§ 1S9) REMEDIES AT LAW 405 

the obligation is joint, and is governed in the main by the 
law relating to joint dbligations, yet when an action is 
brought upon it, and a judgment is procured, the judgment 
is several in its effect. A firm creditor in whose favor it has 
been rendered may satisfy it out of the firm property, or 
out of the separate property of any or all of the partners. 
The judgment becomes a lien upon the firm and separate 
real estate of each partner, and upon execution and levy 
the chattels of the firm and of the partners may be seized.* 
The firm creditor may at his option proceed against either 
the firm or .the separate property, as neither partner has a 
right to demand that he proceed against the firm assets, 
even though ample to meet his judgment.' The judgment 
of the firm creditors takes precedence against the firm prop- 
erty over the judgments of the separate creditors, although 
obtained subsequently. It is not affected by any prior 
mortgage, assignment, lien, or other incumbrance upon the 
separate interest of the partners, as such interest pertains 
to the surplus* only after the firm debts have been paid.* 

Action in the Firm Name 

At common law all the members of a partnership must be 
joined as defendants in an action on a firm obligation, as 
such obligations were regarded as. joint. The nonjoinder 
of all, however, did not defeat the action, but was merely a 
ground for a plea in abatement.* If the partners actually 

1 MEECH V. ALLEN, 17 N. Y. 300, 72 Am. Dec. 465, Gllmore. Cas. 
Partnership, 409; Stelner v. Peters Store Co., 119 Ala. 371, 24 South. 
076 ; Ferry & Go. v. Mattox k Turner, 2 Ga. App. 104, 58 S. E. 291 ; 
McDaffle v. Bartlett, 3 Pa. 317 ; Stout v. Baker, 32 Kan. 113, 4 Pac. 
141; WlBham v. Llppincott, 9 N. J. Eq. 353; Hunter v. Martin, 2 
Rich. Lew (S. G.) 541 ; De Gamp v. Bates (Tex. Glv. App.) 37 S. W. 
644. See "Partnership," Dec. Dig. (Key No.) U 1^5, 219, 220; Cent. 
Dig. K SOI, 429-469. 

2 Louden v. Ball, 93 Ind. 232; HAMSiMITH v. ESPY, 13 Iowa, 
439; Barrett v. Furnish, 21 Or. 17. 26 Pac. 861; Webb v. Gregory, 
49 Tex. GlT. App. 282, 108 S. W. 478. See ^^Partnership,*' Dec. Dig. 
{Key No.) H 165, 187, 219, 220; Cent. Dig. |§ SOI, S40, S42, 429^469. 

s Jones V. Parsons, 25 Gal. 100; Whitmore ▼. Shiverick, 3 Nev. 
288. See chapter III, § 55, pp. 170-175. See '* Partnership,** Dec. 
Dig. (Key No.) §§ 180, 181; Cent. Dig. §| 315^19. 

 Bice V. Shute, 5 Burr. 2611. See '* Partnership,** Dec. Dig. {Keif 
No.) i 200; Cent. Dig. §§ 369-^71. 



406 REMEDIES OF CREDITORS (Ch. 7 

sued did not raise the question of nonjoinder of their co- 
partners, a judgment against those made defendants would 
be binding upon them. In such a case the judgment could 
not, of course, be enforced against those not joined, and 
their obligation, being joint, was extinguished by the judg- 
ment* If, however, the defendants insisted that all the co- 
partners be brought in, the action could not proceed. To 
relieve from the hardships of such a rule, statutory modi- 
fications have been made quite generally in the United 
States, which permit an action against fewer than all the 
promissors.' In some jurisdictions, also, by statute it is 
possible to bring an action against the partnership in the 
partnership name. Under such statutes the judgment is 
only against the common property of the partners and the 
private property of the partner actually served with process. 
A judgment entered in such a name is a lien on the partner- 
ship property only,^ 

Garnishment . 

The partner being liable for the debts of the firm, assets 
of a partner in the hands of a third person may be reached 
by garnishment or trustee process based on a firm obligation. 
"As the debt due from the partners jointly is also due from 
each, it may be enforced against the separate property of each. 
It is immaterial whether the separate property is in the 
form of goods and movable chattels, or goods, effects, and 
credits intrusted and deposited in such a manner that they 
can only be attached upon a trustee process. It is not nec- 

» MASON ▼. ELDRED, 6 Wall. 231, 18 L. Ed. 783, Gllmore, Gas. 
Partnership, 281. See note 6, chapter IV, 9 70, p. 220. See "Port- 
nership,** Dec. Dig. (Key No.) i§ 200, tl9; Cent. Dig. i§ 869^71, 429- 

• Stimson's Am. St Law, | 5015. See, also, ante, chapter IV, | 70l 
p. 220. 

T Baldridge ▼. Eason, 99 Ala. 516, 13 Sonth. 74; Ladiga Saw-MIU 
Ck>. V. Smith, 78 Ala. 108; Fox's Appeal, 8 Sadler (Pa.) 393; Hens- 
ley ▼. Bagdad Sash Factory Co., 1 White & W. Civ. Gas. Gt App. 
(Tex.) I 718. 

In Louisiana the same procedure is possible under the conception 
of the ciTll law which regards the firm as an entity. Martin y. 
Meyer (G. a) 45 Fed. 435. See ^'Partnership^* Dec. Dig. (fey Nc.) 
|§ 197, 200, 219; Cent. Dig. i§ SSO, 569^871, 429-U5. 



§ 139) REMEDIES AT LAW 407 

essary that the principal debtors should have made a joint 
deposit, or that the fund should belong to them jointly. It 
is enough if funds attachable upon a trustee process are 
due from the alleged trustee to either one of the principal 
defendants." • 

Attachment 

A distinction should be drawn between seizure on final 
execution and attachment on mesne process. The latter is a 
statutory remedy of a harsh and extraordinary sort. The 
courts construe the statutes strictly, and will not extend the 
remedy beyond the clear intendment of the law. Such stat- 
utes usually enumerate certain acts of a debtor which will 
constitute a cause for attachment, such as nonresidence, 
secreting or wasting his property, or intending to take it 
out of the jurisdiction. In an action against a partnership, 
the question arises, therefore, whether a firm creditor can 
have the advantage of an attachment. It is held that he 
may, if the grounds for the attachment exist against all the 
partners. If, for example all of the partners are absent 
from the jurisdiction, or all have been guilty of misconduct, 
the firm property may be attached. If, however, only one 
is absent, or if only one has been guilty of misconduct, it 
is generally held that firm property cannot be attached on 
such grounds.* If, however, the other members can be 
shown to have authorized the misconduct of a single part- 
ner, such misconduct becomes theirs, and, if within the 
statutory grounds for attachment, firm property may be at- 
tached because of it.^* 

Same^^eparate Property of a Partner 

While the remedy of attachment on mesne process does 
not, in general, lie against the property of a firm, one of 
whose members only has committed an act which is a stat- 

« STEVENS V. PERRY, 113 Mass. 380. See ''Partnershipr Dec. 
Dig. (Key No.) | 208; Cent. Dig. §§ 888-400- 

9 JAFFRAY V. JENNINGS, 101 Mich. 515, 60 N. W. 52, 25 L. R. 
A. 645, GUmore, Cas. Partnership, 503; YERKES v. McFADDEN, 
141 N. Y. 136, 36 N. E. 7; Evans v. Virgin, 69 Wis. 153, 33 N. W. 
569; HOLLINGSHEAD v. CURTIS, 14 N. J. Law, 402. See "Part- 
nership," Dec. Dig. (Key No.) § 208; Cent. Dig. §§ 888-400. 

10 Winner v. Kuehn, 97 Wis. 394, 72 N. W. 227 ; Keith v. Arm- 



408 BBMEDIB8 OF CREDITORS (Ch. 7 

iitory ground for attachment, it will lie against the prop- 
erty of the partner, who has committed the :act, on a debt 
due from the firm of which he is a member.** Where the 
partnership property cannot be reached on attachment, 
however, it is not permissible to attach the property of inno- 
cent partners.** 

Exemption 

It is usually said that the exemption statutes, which per- 
mit a debtor to hold certain property against his creditor, 
ar6 not applicable to property heid in the partnership rela- 
tion; that these statutes arc designed for single debtors. 
Thus, in Pond v. Kimball,** in construing the Massachu- 
setts statute of exemption, the court said : "We agree with 
the plaintiff's counsel that the* statute is humane and bene- 
ficial in its purpose and operation, and fairly entitled to as 
liberal a construction as can be given it, consistently with 
its true and just interpretation. There are many difficulties, 
however, in the way of applying it to the case of copart- 
ners and joint owners, and these difficulties we find to be 
insuperable. *  * it appears to us th?Lt the statute is 
intended to apply only to the case of a single and individual 
debtor. The exemption which it gives is strictly personal. 
* * * Its apparent object is to secure to the debtor the 
means of supporting himself and his family, by following 
his trade or handicraft with tools belonging to himself." 
The foregoing quotation represents the weight of author- 
ity, so long as there has been no severance of interest by 
the partners.** 

strong. «5 Wis. 226, 26 N. W. 445. See "Partnership,** Dec, Dig, {Key 
No.) § 208; Cent. Dig, §§ 883-400. 

11 In re Ghipman, 14 Johns. (N. Y.) 217; In re Smith, 16 Johns. 
(N. Y.) 102. See "Partnership,** Dec, Dig, {Key No.) ( tOS; Cent. 
Dig. §§ S8S-m- 

i2JAFFRi*Y V. JENNINGS, 101 Mich. 515, 60 N. W. 52, 25 L. 
R. A. 645, Gilmore, Gas. Partnership, 503. See "Partnership,** Dec. 
Dig. {Key No.) § 208; Cent. Dig. §§ S8S-Jt00. 

i«POND ▼. KIMBALL, 101 Mass. 105. ;Sfee "Exemption^/* Dec. 
Dig, {Key No.) % 61; Cent. Dip. §§ 85-^7. 

14 HART V. HI ATT, 2 Ind. T. 24o. 48 S. W. 1038. Gilmore, Cas, 
Partnership, 567; Thurlow v. Warren, 82 Me. 104, 19 Atl. 158, 17 
Am. St. Rep. 472; Scblapback v. Long. DO .Aln. 525. 8 Sonth. 113; 



§ 139) REMEblKS AT LAW 409 

As already noticed/' partnership property is, by virtue 
of the implied agreement of the partners, liable for the pay- 
ment of the firm debts, and no partner may claim a share 
in any specific property until such debts have been dis- 
charged and the firm business wound up. According to this 
doctrine, it should be held, therefore, that one partner can- 
not claim an exemption out of the firm property ; for as a 
result of the partnership agreement he does not own such 
property for his individual uses. If, however, all the part- 
ners mutually sever their interests in the common property, 
it would seem that each partner might claim an exemption 
out of his share, provided, of course, the property was of a 
kind that was subject to exemption. It should be noticed 
that in Pond v. Kimball *• "it does not appear that at the 
time of the attachment the plaintiffs had dissolved partner- 
ship, or had divided their joint property, or had had a gen- 
eral settlement and winding up of their business." Until 
such settlement and decision, clearly no one partner can 
claim an exemption. But the inference is that, if they had 
severed their interests, they might claim the statutory ex- 
emption. It is held, therefore, in some jurisdictions, that, 
if the partners mutually agree to dissolve the relation and 
divide up the property, each may claim an exemption out 
of the share coming to him.^^ Further, it is held that the 
partners may sever their interests and claim their exemp- 
tion, even after the property has been actually levied upon 
by the firm creditors.** A distinction is made in some of 

State ex rel. Peck v. Bowden, 18 Fla. 17. Bee "Eafemptiona,^ Dec. 
Dig, (Key No.) § 61; Cent. Dig. §| 85-57. 

IB See chapter III, | 58, p. 179. 

i« POND V. KIMBALL, 101 Mass. 106. Bee ** Exemptions,** Dec. 
Dig. (Key No.) i 61 ; Cent. Dig. §§ 85-87. 

iTBlanchard v. Paschal, 68 6a. 32, 34, 45 Am. Rep. 474; Scott 
T. Kenan, 94 N. C. 296. Cases of partnership should be distinguished 
from case of mere Joint ownership of chattels. Stewart v. Brown, 
37 N. Y. 350, 93 Am. Dec. 578 ; Radcliff v. Wood, 25 Barb. (N. Y.) 52. 
Bee ^'Partnership;* Dec. Dig. {Key No.) % 61; Cent. Dig. §§ 85-87. 

18 Russell V. Lennon, 39 Wis. 570, 20 Am. Rep. 60; Ladwig v. Wil- 
liams, 87 Wis. 615, 58 N. W. 1103 ; McKlnney v. Baker, 9 Or. 74 ; 
Skinner v. Shannon, 44 Mich. 86, 6 N. W. 108, 88 Am. Rep. 232. 



410 REMEDIES OF CREDITORS (Ch. 7 

the cases between a judgment against individual members 
of the firm and against the firm ; in the former case exemp- 
tion being allowed, but in the latter not.^* Any severance 
of interest, however, which thus converts firm property into 
separate property, would be subject to attack on the ground 
of being fraudulent, according to the principles already dis- 
cussed in a previous chapter.** 



SAME— CREDITORS OF THE SEPARATE PART- 
NER 

140. The creditor of a separate partner, having reduced his 
claim to judgment, may satisfy the same out of 
the interest of his debtor in the partnership. This 
is done in most jurisdictions by a levy and actual 
seizure of all or a part of the partnership property, 
and a sale of the debtor partner's interest therein. 
This interest is the share coming to him after the 
firm debts have all been paid and the claims of the 
partners inter se have been adjusted. The pur- 
chaser at the execution sale acquires a right to 
have the value of such interest ascertained by an 
accounting and settlement of the partnership busi- 
ness, and to have the amount turned over to him 
which may be f oimd due to the debtor partner. 

But in Stout ▼. McNeUJ, 98 N. G. 1, 8 S. E. 915, the right was denied 
. because one partner withdrew his consent to the severance. In 
State V. Day, 3 Ind. App. 155, 29 N. E. 436, the right was denied aft- 
er the levy was made. 

It has also been held that one partner may claim exemption out 
of a balance due him on a settlement of the partnership accounts 
against his individual creditor, who had an execution levied on the 
debtor's Interest in the firm assets prior to dissolution. Southern 
Jellico CJoal CJo. v. Smith, 105 Ky. 769, 49 S. W. 807. See ^'Exemp- 
tionsr Deo, Dig. {Key No,) | 61; Cent, Dig, §§ 88-87. 

x» Wise V. Frey, 7 Neb. 134, 29 Am, Rep. 380; Servantl v. Lusk, 
43 Gal. 238 ; Dennis v. Kass & Go., 13 Wash. 137, 42 Pac. 540. See 
^EtDemptiona,** Deo, Dig, (Key No,) § 61; Cent. Dig. §§ 83-87. 

so Chapter III, §§ 69, 60, pp. 181-194. 



«*] 



§ 140) REMEDIES AT LAW 411 

Rights of Separate Creditors Against Firm Property Uncer- 
tain 

Though the rights of the firm creditors against the in- 
dividual property of a partner are clear, the rights of the 
separate creditor of a partner against the firm property are 
uncertain, both in extent and value. This uncertainty re- 
sults from the varying conceptions of the nature of a part- 
ner's interest in the partnership property. If he holds a le- 
gal title to an undivided part of it, which, in view of the le- 
gal conception of the nature of a partnership, it seems that 
he must, it might seem that a creditor who gets a legal claim 
against the assets of a single partner gets a claim against 
an undivided portion of the partnership property. It may 
well be held, however, that the legal interest which a part- 
ner has in the partnership property is not salable as an un- 
divided interest, and therefore that those having claims 
against the partner cannot reach the share which he owns 
in the partnership. This, in effect, seems to be the view of 
the majority of courts at present. Though many say that a 
partner has no title or interest in any part of the partner- 
ship property, except in the surplus remaining after ac- 
counts are settled, this must be taken as meaning that this 
is his only salable interest. No other explanation of the 
facts, which will be shown later, that an execution purchaser 
of a partner's interest in a partnership gets nothing more 
than a right to an accounting, is adequate. It is not suf- 
ficient to say that this is because a partner himself has 
i>othing more, while at the same time denying that the part- 
nership itself has a legal existence. 

Enforcing Payment Against Partner^s Interest in the Partner- 
ship — In General 

A creditor of a separate partner, who has reduced his 
claim to judgment, may satisfy the same out of any prop- 
erty, tangible or intangible, belonging to his debtor. The 
debtor's property may consist of his individual estate or of 
an interest in a partnership. The right of his judgment 
creditor to reach his separate property is. entirely clear. 
When, however, an attempt is made by the creditor of the 
separate partner to satisfy his judgment out of the interest 



412 REMEDIES OF CREDITORS (Oh. 7 

of the debtor in the partnership, much confusion and diver- 
sity of practice prevails. It has also been recognized that 
such interest should be available for the partner's creditors, 
and courts of law have endeavored to bring it within the 
reach of an execution. 

A writ of execution is the common-law instrument for the 
seizure of tangible property of a debtor. Intangible assets 
could not be taken upon such a writ, but must be reached 
by resort to equity. The property sought to be reached in 
the situation now under consideration is the interest of the 
judgment debtor partner in the partnership. This, then, 
raises the question as to the nature of that interest. The 
subject has been already discussed and frequently referred 
to.** In the language of the law of partnership, it is an in- 
terest in a surplus to be ascertained by an accounting be- 
tween the partners. The surplus will be what is left of the 
partnership property after the firm debts have been paid 
and the accounts of the partners inter se have all been ad- 
justed. Until the surplus or balance is ascertained, there 
is nothing tangible to which the interest can pertain. Pend- 
ing such ascertainment the partner interest is a chose in 
action — a right to compel a settlement of the firm affairs 
and an establishment of the surplus. It is therefore intangi- 
ble property, and logically is not of the sort which a writ of 
execution was designed to reach. 

In the language of the law of property, however, the legal 
title to firm property is in the partners as individuals. They 
severally have a legal estate in tangible- property. There- 
• fore, on this view, a writ of execution is the proper instru- 
ment for reaching such interest. But, as pointed out,** this 
interest is held subject to certain obligations imposed by 
reason of the partnership agreement. A court of equity 
compels the partners to hold their interest in the firm prop- 
erty to discharge the partnership purposes, and forbids the 
use of it for individual purposes. A purchaser of a part- 
ner's interest takes the property subject to the same restric- 
tions as the partner himself. 

«i See chapter III, | 56, pp. 170-175. 
«« Chapter III, §i 59, «0, pp. 181 191 



§ 140) BBMEDIE8 AT LAW 413 

By the law of property, the partner's interest pertains to 
tangible property; by the law of partnership, it is but an 
intangible chose in action. When a creditor of a separate 
partner seeks to satisfy his judgment out of the interest of 
his debtor in the firm, he uses a writ of execution issuing 
from a court of law and proceeding upon the theory of 
seizing tangible property to reach what in a court of equity 
is intangible property. Such a performance can produce 
nothing but confusion. It is not possible to examine in de- 
tail the practice in each jurisdiction. It will be sufficient to 
consider some of the more important questions. 

5*affi^ — Levy — Upon What Property — How Made 

As the execution is used to seize tangible property, the 
sheriff is entitled to seize firm property on an execution 
against one partner.** In fact, there was no other way in 
which he could serve his writ. As the legal title to firm 
property was deemed in law to be in the individuals com- 
posing the firm, as tenants in common, a seizure of a part- 
ner's interest involved a seizure of tangible property.** 
Whether the sheriff must seize all of the property, or need 
seize only a part, is a question on which the courts dif- 
fer. In order to sell a partner's entire interest, some 
courts, proceeding upon the theory of partnership owner- 
ship as a tenancy in common, require that all the property 
be seized. "In an action against one of the partners, the 
officer must seize all the goods, because the moieties are 
undivided; for if he seize but a moiety, and sell that, the 
other partners will have a right to a moiety of that moiety. 
He must seize the entire leviable property of the copartner- 
ship. He must take and retain custody of the property, for 



«« United States v. Williams, Fed. Cas. No. 16,719; Andrews v. 
Keith, 34 Ala. 722; Harris v. Phillips, 40 Ark. 58, 4 S. W. 196; 
Clark V. Cuahing. 52 Oal. 617; White ▼. Jones, 38 111. 159; Wlck- 
ham ▼. Davis, 24 Minn. 167; Lester ex rel. Wright v. Glvens, 74 
Mo. App. 395; Read v. McLanahan, 47 N. Y. Super. Ct 275; Cogs- 
well V. Wilson, 17 Or. 31, 21 Pac. 388. See ''Partnership,'* Dec, Dig. 
(Key No,) | 220; Cent. Dig. H U8, U9. 

a« HBYDON v. HEYDON, 1 Salk. 392, Gilmore, Gas. Partnership, 
507. See '^Partnership,** Dec Dig. (Key No.) | 220; Cent, Dig. Ii 
W, 449. 



414 REMEDIES OF CREDITOBS (Gh. 7 

in no other way can he legally execute the writ and sell as 
much of the interest of his judgment debtor as may be suf- 
ficient to satisfy the execution." *• Other courts, however, 
permit a levy on less than all the chattels as sufficient to 
make a sale of the partner's entire interest.*' Again, other 
courts permit a levy by a constructive seizure only. An 
actual seizure of part or all of the firm chattels is treated as 
a trespass.*^ 

Same — Right of Parties After L^vy-^heriff and Other Part- 
ners 

While in many jurisdictions an actual seizure of a part 
or all of the firm property is necessary to make a levy ef- 
fective to reach a separate partner's interest, the cases are 
conflicting as to the rights of the sheriflf and the other part- 
ners after levy. According to the earlier English cases the 
sheriff proceeded on the theory of seizing and selling the 
interest of a tenant in common, and therefore was entitled 
to possession of the property seized.'® By the later cases 
it was held that, while the sheriff was entitled to seize the 
chattels in order to effect a levy, he could not take them 
out of the possession of the other partners.'* In the United 
States it is held by some courts that the sheriflf may take 
exclusive possession of the property seized.*® Under this 

«»HEYDON V. HEYEMDN, supra; Branch v. Wiseman, 51 Ind. 1; 
Whlgham's Appeal, 63 Pa. 194. See "PartneraMp," Dec, Dig. {Key 
No.) § 220; Cent, Dig. §§ 446-469. 

2« Fogg V. La wry, 68 Me. 78, 28 Am. Rep. 19; Hershfleld v, Claflln, 
25 Kan. 166, 37 Am. Rep. 237; Wiles ▼. Maddox, 26 Mo. 77. See 
"Partnership,** Dec, Dig. {Key No.) § 220; Cent. Dig. |§ 446-469. 

27 SANBORN V. ROYCE, 132 Mass. 594, Gllmore, Cas. Partner- 
ship, 510 ; Hutchinson v. Dubois, 45 Mich. 143, 7 N. W. 714 ; Tucker 
V. Adams, 63 N. H. 361; Vandlke v. Rosskam, 67 Pa. 330. See 
''Partnership," Dec. Dig. (Key No.) i 220; Cent. Dig. i§ 446-469. 

2« HEYDON V. HEYDON, 1 Salk. 392, Gllmore, Cas. Partnership, 
507; BUTTON v. MORRISON, 17 Ves. 193. See ** Partnership,** 
Deo. Dig. (Key No.) § 220; Cent. Dig. §§ 446-469. 

2» Burnell v. Hunt, 5 Jur. 650. See ''Partnership,** Dec. Dig. (Key 
No.) § 220; Cent. Dig. §§ 446-469. 

80 Hasklns v. Everett, 4 Sneed (Tenn.) 531. 

"For what purpose does a sheriff seize property on a fl. fa., If 
not to remove and sell It? * * * Is the law so absurd as to com- 
mand a sheriff, by Its writ, to seize and sell an article, yet forbid 



§ 110) BEMEDIE8 AT LAW 415 

view the other partners cannot bring replevin against the 
sheriff who takes firm assets on an execution against one 
partner,** and they are liable for damages if they take the 
property from him.*^ The property, however, remains lia- 
ble for the firm debts, and no action of the sheriff can de- 
feat this liability,** Other courts hold, however, that, even 
though firm property may be attached at the instance of a judg- 
ment creditor of a single partner, the attaching officer has no 
right to the exclusive possession of the property levied on. 
This view is based on the ground that, the debtor partner not 
being entitled to exclusive possession, no greater rights than 
he had can be secured by virtue of an execution against his 
property.** 



him to remove it, or declare him a breaker of the peace for Belling 
It, because he was resisted, and put to the exercise of force? This 
is a sort of imbecility which the common law has been careful to 
avoid In all cases.*' Oowen, J., In Phillips v. Cook, 24 Wend. (N. 
Y.) 389, 893, 394. See ^'Partnership:* Deo. Dig. {Key No.) | 220; 
Cent, Dig. § 456. 

»i SMITH V. ORSER, 42 N. Y. 132. See '^Partnership," Deo. Dig. 
{Key No.) i 220; Cent. Dig. §§ 446-469. 

«« Hasklns v. Everett, 4 Sneed CTenn.) 531. See ''Partnership,^ 
Dec. Dig. {Key No.) § 220; Cent. Dig. §| 446-469. 

«« JOHNSON V. WINGFIELD (Tenn. Ch. App.) 42 S. W. 203, Gil- 
more, Gas. Partnership, 515; EIGHTH NAT. BANK OF CITY OF 
NEW YORK V. FITCH, 49 N. Y. 639. See "Partnership^* Dec. Dig. 
(Key No.) i 220; Cent. Dig. §1 446-469. 

84 '*I*he sheriff In this case seized and took possession of specific 
articles, and removed them altogether from plaintiff's control. It 
seems probable, though the evidence does not distinctly show, that 
he took possession of the whole livery stock and broke up the plain- 
tiff's business. But whether he took the whole or only part is im- 
material; in either case he seized specific articles when he had a 
right to seize undivided and indefinite Interest only. He did this, also, 
in total disregard of the plaintiff's rights ; for whereas the judgment 
debtor, as partner, could only have had Joint possession with the 
plaintiff, the officer, le^'ying on this right, assumed to take exclu- 
sive possession and remove the property to another place. • • • 
At most, for the purpose of his writ, the officer only takes the debt- 
or's place, and seizes an Interest that can only be measured by final 
account" Cooley, J., in Hutchinson v. Dubois, 45 Mich. 143, 146, 7 
N. W. 714, 715. 

It is sometimes required by statute that the property shall not be 
removed from the possession of the partnership. See Richards v. 



416 REMEDIES OP CREDITORS (Gh. 7 

Same — Sale may be Enjoined 

Some jurisdictions permit an injunction to stay any sale 
whatever under an execution on a judgment against a sin- 
gle partner until an account of the partnership can be taken 
and the interest of the debtor partner determined.** Other 
jurisdictions refuse an injunction in the absence of an al- 
legation that the property is needed to pay the firm debts 
and that the debtor partner would have no interest remain- 
ing after the firm debts were paid.** 

Same — What is Sold 

Proceeding further on the theory of selling the interest 
of a tenant in common, the sheriff sold an undivided inter- 
est in the tangible property seized. This was regarded in 
the earlier cases as carrying with it a right to an account- 
ing to ascertain the interest of the debtor partner in the 
specific property. Later, however, the right to the account- 
ing seems to have ceased to be recognized. An interest in 
tangible property was still sold, and the purchaser became 
a tenant in common with the other partners.** In time the 
sale seems to have been regarded as not passing any inter- 
est in specific property, but an interest in the partner- 
ship,** which was nothing more than "a mere right in 

Haines, 30 Iowa, 574. See '^Partnership** Dec. Dig. {Key Vo.) % 
220; Cent. Dig. §§ -UM^S. 

«B PLACE V. SWEETZER, 16 Ohio, 142, Gllmore, Cas. Pfirtner- 
shlp, 511; Osborn v. McBrlde, 3 Sawy. 590, Fed. Cas. No. 10,593: 
Moore v. Sample, 3 Ala. 319 ; Ralney v. Nance, 54 111. 29 ; Hubbard 
y. Curtis, 8 Iowa, 1, 74 Am. Dec. 283; Thompson v. Lewis, 34 Me. 
167; Crooker v. Crooker, 46 Me. 250; Wiles v. Maddox, 26 Mo. 77; 
Phillips V. Cook, 24 Wend. (N. Y.) 389 ; Meyberg v. Steagall, 51 Tex. 
351; Warren v. Wallls, 42 Tex. 478. See '*Partner8h%p,'* Dec. Dig. 
(Key No.) S 209; Cent. Dig. § m- 

••Brewster v. Hammet 4 Conij. 540; Hubbard v. Curtis, 8 Iowa, 
1, 74 Am. Dec. 283; Mowbray v. Lawrence, 13 Abb. Prac. (N. Y.) 
317 ; MOODY v. PAYNE, 2 Johns. Ch. (N. Y.) 548. See ^'Partner- 
ship,'' Dec. Dig. (Key No.) § 209; Cent. Dig. § 402. 

8 T Holmes v. Mentze, 4 A. & E. 127; Carter v. Roland, 63 Tex. 
640. See '^Partnership:* Dec. Dig. (Key No.) S 220; Cent. Dig. §1 
459, 459%. 

»« JOHNSON V. WINGFIELD (Tenn. Ch. App.) 42 S. W. 203, Gil- 
more, Cas. Partnership, 515; Farley v. Moog, 79 Ala. 148, 58 Am. 
Rep. 585; Lane v. Lanfest, 40 Minn. 375, 42 N. W. 84. Sec ''Part- 
nerahinf.** Dec. Dig. (Key No.) f 220; Cent. Dig. §f i59, 459^. 



S 140) REMEDIES AT LAW 417 

equity to call for an account." *• If the sheriff attempted to 
sell the entire property, he became a trespasser ab initio, 
and could.be sued for trespass or for conversion.*® 

Same — Rights of Parties After Sale — Purchaser and Other 

Partners 

The purchaser on the execution sale, whether of an inter- 
est in tangible property or of a chose in action, acquires no 
greater rights than the debtor partner had. He does not 
become a partner, or acquire any right to participate in the 
partnership business.** The firm property is still subject 
to the payment of the firm debts and to the adjustment of 
the partnership accounts. Whether the purchaser has ac- 
quired anything of value by his purchase will depend upon 
the condition of the partnership affairs. If the firm is in- 
solvent, or if the debtor partner is indebted to his copart- 
ners beyond the value of any share that might be coming to 
him, or if the adjustment of the mutual accounts between 



■•Farley v. Moog, 79 Ala. 148, 58 Am. Rep. 585. Bee ^'Partner- 
ship," Dec, Dig, (Key No.) fi 220; Cent, Dig, |§ J^59, 459%, 

40 RANDALL v. JOHNSON, 13 R. I. 338, Gllmore, Gas. Partner- 
ship, 508 ; Daniel v. Owens, 70 Ala. 297 ; Spalding v. Black, 22 Kan. 
55; Moore v. Pennell, 52 Me. 162, 83 Am. Dec. 500; Walker v. 
Fitts, 24 Pick. (Mass.) 191 ; Waddell v. Cook, 2 Hill (N. Y.) 47, 87 
Am. Dec. 372; Snell v. Crowe, 3 Utah, 26, 5 Pac. 522; White v. 
Morton, 22 Vt 15, 52 Am. Dec. 75 ; Ford v. Smith, 27 Wis. 261. See 
**Partner8hipr Dec, Dig, (Key Wo,) S 220; Cent, Dig {$ 457, 458. 

41 Peck V. Fisher, 7 Cush. (Mass.) 386; Lane v. Lanfest, 40 Minn. 
375, 42 N. W. 84; STAATS v. BRISTOW, 73 N. T. 264, GiJnore, 
Cas. Partnership, 211; Foster v. Barnes, 81 Pa. 377. 

As already pointed out on page 416, the early English cases and 
many cases in the United States hold that the purchaser acquires 
an interest ,in the tangible property of the firm levied upon, and a 
common-law court attempted to ascertain the value of the debtor 
partner's interest in the property thus seized. Heydon v. Heydon, 
1 Salk. 393. This action of account was discontinued in England, 
and until the English Partnership Act of 1890 (see p. 420) the pur- 
chaser was treated as a quasi tenant in common with the other 
partners, and had to ascertain the value of his interest as best he 
could. Holmes v. Mentze, 4 A. & E. 127. See PARKER v. PISTOR, 

3 Bos. & P. 288, Gilmore, Cas. Partnership, 507; TAYLOR v. FIELD, 

4 Yes. 396, Gilmore, Cas. Partnership, 210; Chapman v. Koops, 8 
Bos. & P. 289. See ''Partnership," Deo, Dig, {Key No,) t 220; Cent, 
Dig, H 459, 4591^, 

Gn..PABT.— 27 



418 REMEDIES OF CREDITORS (Ch. 7 

4 

the partners exhausts his share, the purchaser acquires 
nothing.** It has been held that purchaser rights are post- 
poned to a mortgage executed by all the partners after the 
execution sale.** The only effective way of ascertaining 
the value of the debtor partner's interest is by resort to a 
court of equity, where a complete accounting and adjust- 
ment can be had. Accordingly a bill may be maintained by 
the purchaser against the partners, asking that an account- 
ing be had and that the interest of the debtor partner be 
determined.** 



43 Wilson y. Strobach, 59 Ala. 488 ; Wright ▼. Ward, 65 GaL 525, 
4 Pac. 534 ; Chandler v. Lincoln, 52 111. 74 ; Peck v. Fisher, 7 Cnsh. 
(Mass.) 386; WiUiams v. Gage, 49 Miss. 777; STAATS v. BRIS- 
TOW, 73 N. Y. 264, Gllmore, Cas. Partnership, 211 ; Foster v. Barnes, 
81 Pa. 377. See **Partner8Mp;* Dec. Dig. (Key No,) | 220; Cent, 
Dig, K 459, 459% ; *' Execution,*' Cent, Dig. S 754. 

4s Clements v. Jessup, 36 N. J. Eq. 572. Cf. First Nat Bank of 
Cooperstown v. State Sav. Bank of Ionia, 130 Mich. 332, 89 N. W. 
941 ; Cundey v. HaU, 208 Pa. 342, 57 Atl. 761, 101 Am. St Rep. 938. 
See "PartneraTUp,*' Dec. Dig, (Key No.) | 220; Cent. Dig. H 459, 
459%. 

4* JOHNSON V. WINGFIELD (Tenn. Ch. App.) 42 S. W. 203, 
Gilmore, Cas. Partnership, 515; Ticonic Bank v. Harvey, 16 Iowa, 
141 ; ARNOLD v. HAGERMAN, 45 N. J. Eq. 186, 17 Ati. 93, 14 Am. 
St Rep. 712, Gilmore, Cas. Partnership, 223; Hubble v. Perrin, 3 
Ohio, 287; Cogswell v. WUson, 17 Or. 31, 21 Pac. 388; Sterling 
V. Brightbill, 5 Watts (Pa.) 229, 30 Am. Dec 304. The other part- 
ners may file a bill for an accounting of the partnership in case an 
execution is levied upon partnership property on a Judgment against 
one partner. AULTMAN v. FULLER, 53 Iowa, 63, 4 N. W. 809, 
Gilmore, Cas. Partnership, 526. See, also, chapter IX, i 167, note 4, 
p. 499. 

In JOHNSON v. WINGFIELD, supra, where the subject is fully 
considered, both with regard to the law in Tennessee and elsewhere, 
the court lays down the following rules as representing the law of 
Tennessee: "(1) That partnership property may be levied on by 
the creditor for the individual debt of a member of the firm. (2) 
That specific property may be levied on, and it is not necessary that 
the execution be levied upon all the property of the firm. (3) That 
the officer may, and that in fact it is his duty to, take actual posses- 
sion of the property levied on, and retain it until the sale is made. 
(4) That the purchaser only takes the interest of such Judgment 
debtor after the settlement and adjustment of the partnership ac- 
counts, as is the language used in the case of Haskins v. Everett 4 
Sneed, 531, or a mere right to an accounting, as stated in another 



§140) REMEDIES AT LAW 419 

Statutory Modifications 

The use of the writ of execution, designed originally for 
tangible property, to reach partner's interest in the firm, 
which is in reality an intangible right, is a perversion. It 
is anomalous and unsatisfactory. It "tends to embarrass 
and possibly to break up the copartnership business; but 
we do not see how these consequences can be avoided at 
law, even if they can in equity, without remedial legisla- 
tion." *• Various remedial changes have b^en made in dif- 
ferent jurisdictions ; some modifying the procedure under 
the execution, and some abolishing the remedy by execu- 
tion entirely and substituting in its stead a different rem- 
edy. Thus in Texas it is provided that "a levy upon the 
interest of a partner in partnership property is made by 
leaving a notice with one or more of the partners, or with a 
clerk of the partnership," *• thereby making an actual sei- 
zure unnecessary. In some jurisdictions, for instance, in 
Iowa *^ and Kentucky,*® it is provided that the officer levy- 
ing the execution shall be permitted to take possession for 
the purpose of having the property appraised and an in- 
ventory taken. In New York the partners other than the 
debtor may secure the release of the property by making 
an application to the court and giving an undertaking to 
the effect that they will account to the purchaser of the 
debtor partner's interest on the execution sale for the value 
of his interest as found due upon an accounting.** The 

case. (5) That, as stated by Judge Freeman In Lincoln Sav. Bank 
y. Gray, 12 Lea, 459, a levy Is necessary In order to fix a lien so a& 
to authorize the filing of a bUl." See "Partnership" Dec. Dig. {Key 
2fd.) § 220; Cent. Dig, | 452. 

48 Traflford v. Hubbard, 15 R. I. 326, 328, 4 Ati. 762. See "Part- 
nership," Dec. Dig. {Key No.) § 220; Cent. Dig. H U6-469. 

*« Article 2352, Sayles* Ann. Oiv. St Tex. 1897; Adoue v. Wet- 
termark, 36 Tex. Civ. App. 585, 82 S. W. 797. If a levy Is properly 
made under such statute the sheriff may proceed to sell on execu- 
tion; but it has been held that the notice mentioned by the statute 
must be left with some partner other than the debtor partner. 
Adoue V. Wettermark, supra. See "Partnership^** Dec. Dig. iKey 
Ao.) § 220; Cent. Dig. §§ 455, 456. 

*7 Section 3977, Code 1897. 

48 Civ. Code Prac. f 660. 

4 9 Executions, {§ 53, 54, Blrdseye's Rev. St. (3d Ed.). 



4SI0 REMBDIBS OF CREDITORS (Ch. 7 

remedy by execution is abolished entirely in Georg^, and 
a garnishment process substituted in its stead, under which, 
after service of process and answer by the firm, the question 
of the interest of the debtor partner is submitted to a jury.** 
In England, due to the suggestion and advice of Lord Lind- 
ley,** a provision has been placed in the Partnership Act ** 
which provides that, "after the commencement of this act 
a writ of execution shall not issue against any partnership 
property except on a judgment against the firm." In the 
place of the writ of execution, the separate creditor can ob- 
tain an order charging the interest of the debtor partner 
with the payment of the judgment. The charge may be 
enforced by the appointment of a receiver or by a sale of 
the partner's interest. The other partners may on such a 
sale buy the interest of the debtor partner,** or they may 
at their option treat the suffering by the debtor partner of 
his share to be charged as dissolving the firm.** 



SAME— GARNISHMENT OF PARTNERSHIP 

DEBTORS 

14L Debts due a partnership cannot be garnished in the 
hands of a third person in a suit against one part- 
ner for his individual indebtedness. Some juris- 
dictions permit tangible assets of the partnership 
in the hands of a third person to be garnished in 
such case, however; it being held, as on execution, 
' that the interest of the debtor partner only is 
thereby reached. 

••Armand v. Bumim, 69 Oa. 768; Anderson v. Ghenney, 51 Ga. 
872; Branch v. Adam, 51 Ga. 113; WILLIS ▼. HENDERSON, 43 
Ga. 325; Patterson v. Trumbull, 40 Ga. 104; Code 1895, U 2661, 
4705-4729. See ** Partnership;' Dec, Dig, (Key No,) fi 220; Cent. Dig, 
i452, 

Bi Pollock's Digest of the Law of Partnership (8th Bd.) p. 77* 

»« Partnership Act, fi 23, (1). 

5s Partnership Act, | 28, (2) (3). 

•4 Partnership Act, i 33, {2). 



g 141) BEMEDIE6 AT LAW 421 

Debts 

It is usually held that a debt due a partnership cannot be 
garnished in the hands of a third person in a suit against 
one of the partners on an individual debt. The reasons for 
this holding are plainly indicated in Johnson v. King/* 
where it was said: "The question in this case is whether 
an execution creditor of one member of a partnership is 
entitled to a judgment, in a garnishment proceeding, against 
a debtor to such partnership. This question we decide in 
the negative. Such debt belongs to, and is assets of, the 
partnership, primarily liable to the satisfaction of partner- 
ship debts. If a judgment were given at law upon the gar- 
nishment proceeding against the debtor to the partnership, 
to satisfy the separate liability of one of the partners, it 
would unjustly abstract a portion of the fund primarily be- 
longing to the objects and purposes and creditors of the 
concern ; and in such garnishment nothing can be done but 
to give or refuse the judgment. The court has no power to 
impound the debt, until by the adjustment of all the part- 
nership affairs it shall appear whether the separate debtor 
of the executive creditor has any, and what, interest in the 
general surplus, or in the particular debts so impounded. 
Such proceeding cannot take place at law." ■• 

»« JOHNSON V. KING, 6 Humph. (Tenn.) 233 ; Stone v. Dowling, 
119 Mich. 476, 78 N. W. 549 ; Raley v. Smith .(Tex. Civ. App.) 73 S. 
W. 54. See ^'Partnership;* Cent, Dig, S§ SSS-J^OO; "Garnishment;* 
Dee. Dig, {Key No.) | 62; Cent. Dig. H 120-125. 

so PEOPLE'S BANK ▼. SHRYOOK, 48 Md. 427, 30 Am. Rep. 476, 
Gilmore, Gas. Partnership, 513; Ljsmdon v. Gorham, Fed. Gas. No. 
8,640; Ripley v. People's Sav. Bank, 18 111. App. 430; Trickett v. 
Moore, 84 Kan. 755, 10 Pac. 147 ; Thomas v. Lusk, 13 La. Ann. 277 ; 
StilliDgs ▼. Young, 161 Mass. 287, 37 N. B. 175 ; Upham v. Naylor, 
9 Mass. 490; Hawes v. Inhabitants of Waltham, 18 Pick. (Mass.) 
451; Dawson v. Iron Range & H. B. Ry. Co., 97 Mich. 33, 56 N. 
W. 106; Markham v. Gehan, 42 Mich. 74, 8 N. W. 262; Sheedy v. 
Second Nat Bank, 62 Mo. 17, 21 Am. Rep. 407 ; Pnllis v. Fox, 37 Mo. 
App. 592; Barry v. Fisher, 39 How. Prac. (N. Y.) 521; Myers v. 
Smith, 29 Ohio St. 120; JOHNSON v. KING, 6 Humph. (TennO 
233; Bartlett v. Woodward, 46 Vt 100; Towne v. Leach, 32 Vt 
747 ; Singer v. Townsend, 53 Wis. 126, 10 N. W. 365. See *'Oamish- 
ment;' Dec. Dig. {Key Vo.) | 62; Cent. Dig. H 120-125; ^^Partner- 
thipr Cent. Dig. {§ SSS-m^ 



422 BBHEDIBS OF CREDITORS (Ch. 7 

Tangible Assets 

If, however, it is sought to reach tangible assets of the 
partnership in the hands of the garnishee, some courts, 
even those that deny that a debt can be garnished, hold 
that this can be done. In an Ohio case it was said : *'We do 
not assent to the doctrine laid down by the court that part- 
nership demands can be garnished for the separate debt of 
one of the partners.  * * Tangible property of the 
firm stands on a different footing, and we intend in no de- 
gree to qualify the recognized right of the separate credit- 
ors to levy on the interest of one of the partners in such 
property." •' The distinction between the case of the debt 
and the case of tangible property is that the tangible prop- 
erty may be treated in garnishee proceedings as on execu- 
tion; the partnership interest being considered as still ex- 
isting. A debt cannot be so treated. All the court can do 
is to order the debt paid, and this will result in the use of 
the firm assets to pay a partner's separate debt.*' If the 
firm is dissolved and the accounts are settled, the interest 
of each partner becomes certain, and in such case the debt 
may be garnished.** And it is held, in some jurisdictions, 
that if a firm is dissolved by the death of one partner, a 
firm debtor may be garnished on a claim against the sur- 
vivor,*® at least in the absence of a showing: that the dehf 
was needed to pay the firm debts, and of a claim by the per- 
sonal representative of the deceased partner.*^ 

B7 Myers v. Smith, 29 Ohio St 120, 124, 126, citing Nixon ▼. Nash, 
12 Ohio St 648, 80 Am. Dec. 390. 8ee "Oamishment," Dec. Dig. (Key 
yo.) § 62; Cent. Dig. §§ 120-125; ** Partnership,'* Cent. Dig. §§ 38S- 

400. 

B 8 Winston V. Ewlng, 1 Ala. 129, 34 Am. Dec. 768; Trlckett v. 
Moore, 34 Kan. 755, 10 Pac. 147. See "Garnishment," Dec. Dig. {Key 
No.) { 62; Cent. Dig. §§ 120-125; ^^Partnership," Cent. Dig. || SSS- 
400. 

»• Harlan v. Moriarty, 2 G. Greene (Iowa) 486 ; Blrtwhlstle v. 
Woodward, 95 Mo. 113, 7 S. W. 465. See "Oamishment," Dec. Dig. 
(Key No.) § 62; Cent. Dig. §§ 120-125; ^^Partnership," Cent. Dig. 
§1 388-400. 

eo Berry v. Harris, 22 Md. 30, 85 Am. Dec. 639 ; Knox v. Schepler, 
2 Hill, Law (S. 0.) 595. See *' Garnishment," Deo. Dig. {Key No.) § 
62; Cent. Dig. §§ 120-125; "Partnership^" Cent. Dig. K $83-400. 

•1 Thompson v. Lewis, 34 Me. 167. See "Garnishment," Deo. Dig. 



§ 143) BBMSDIE8 IN EQUITT 423 

REMEDIES IN EQUITY— INSOLVENCY OR BANK- 
RUPTCY OF FIRM 

142. A court of equity may acquire jurisdiction of the af- 

fairs of a partnership and of its members either by 
an assignment in trust by the partners for the ben- 
efit of creditors, or by a petition in insolvency, or 
by a bill for the adjustment of the affairs of an in- 
solvent partnership. Whenever equity thus ac- 
quires jurisdiction, it distributes the assets of the 
partnership and of its members according to rules 
which produce essentially different results from 
those obtainable at law. Such rules of distribu- 
tion will be considered under the following heads : 

(a) Firm Creditors Against the Firm Estate (ubi supra). 

(b) Separate Creditors Against the Firm Estate (p. 426). 

(c) Partners Against the Firm Estate (p. 427). 

(d) Separate Creditors Against the Separate Estates (p. 

431). 

(e) Firm Creditors Against the Separate Estates (p. 437). 

(f) Partner Against the Estate of a Copartner (p. 444). 

(g) Rights of Secured Creditors (p. 446). 

(h) Right of Joint and Several Creditors — Double Proof 

(p. 460). 
(i) Insolvency or Bankruptcy of a Partner (p. 453) . 
(j) Rights Against Estate of Deceased Partner (p. 457). 

SAME— FIRM CREDITORS AGAINST THE FIRM 

ESTATE 

143. Firm creditors are entitled to priority of pajnnent out 

of the firm estate, except — 
EXCEPTION: (a) Where there is a dormant part- 
ner, but no ostensible firm. 

Priority of Firm Creditors in Firm Property 

Every partner is deemed to have agreed, on entering into 
a partnership, that the firm property shall be used in pay- 
ment of the firm debts in preference to those of any of the 



424 RBMEDIBS OF CREDITORS (Ch. 7 

partners. It is not necessary that this agreement should be 
expressly stated, because it is implied from the very exis- 
tence of the partnership. It is, moreover, an agreement that 
equity will specifically en