r^"^^^-^^» H , . \ Ws^\\ 1.^^^^^^ A A i I : 5 = 1 I 6 i 3 i 1 i 5 i n ^ t^/9,^. UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW LIBRARY J li'-fc ».vt»»ii^s»\>j«>y,\>;km\)(J»Sls,>8S^ \}m.9tjk %#'*;-M#-l:i?l, 116 Burgess v. Burgess ... ... ... ... ... 60 Burt r. Bull 146 Bury V. Allen ... ... ... ... ... ... ... ... 176 Butchart /•. Dresser ... ... ... 77, 101 c. Caddick '•. Skidmore ... ... ... ... ... ... ... 50 Carpenter, Ux parte ... ... ... ... ... ... ... 175 Central Bank of London, ^a;^ar^e 99,100 Chippendale, JS^s? ^ar^s ... ... ... ... ... 115,116 Churton r. Douglas ... ... ... ... ... 150 Cleather r, Twisden ... ... ... ... ... 89 Clegg V, Edmondson ... ... ... ... ... ... ... 105 Clegg V. Fishwick ... ... ... ... ... 105 Clough, Ee 78, 101 Collins V. Barber ... 146 Colman V. Dry Dock Co. ... ... ... ... 84 Const «. Harris 146 Cook, Kv parte ... ... ... ... 172 Cooke V. Benbow ... ... 115 Court V. Berlin ... ... 78 Coventry v. Barclay ... ... ... ... ... ... ... 106 Cox T. Hickman 9—11,22 Crawshay v. Maule ... 117, 138 Croft r. Day 59 Crutwell V. Lye ... ... 149 D. Dagnall, Re 43 Dale r. Hamilton ... ... ... 50 Darby t'. Darby 124 Davies V, Games 124, 12G,127 Davies v. Vale of Evesham Preserves 146 TABLE OF CASES. XI PAGE Davis f. Davis 9,25,122,126 Daw V. Herring 148 Dear, Uj" parte 163 Delhasse, Ex paHe ... 19,31 Derry v. Peaks lil Doggett V. Cattems ... 37 Dore V. Wilkinson 78 Downs T. Collins 148 Duiidonald r. Masterman 88. 89 Dunue v. English 105 E. Elton, Ex parte 166 F. Farhall v. Farhall ... ., 100 Feathei-stonhaugh v. Fenwick 148 Ferns c. Carr 142 Fordyce's Case 171 Forster r. Hale 50 Forster v. Mackreth ... 79 Fort, Re 28,180 Fox V. Hanbury 101 Foxwell c. Van Grutten 2 de Francesco v. Bamum 42 Frances Handford & Co., Re 43 Franks, Ex pa rte 43 Fromont r. Coupland... 123 Gardner v. London, Chatham, and Dover Rail. Co Ginesi r. Cooper Goode X. Harrison (iraham r. Hope Gray r. Smith ... Greenslade r. Dower Greenwood's Case 146 150 47 97 100 78 34 Xll TABLE OF CASES. H Hamil v. Stokes L* PAGK 176 Hamilton v. Vaughan-Sherrin, etc. Co 47 Harman v. Johnson ... 88 Harris, Ux parte Harris v. Sleep Harrison r. Jackson 17(; 108 79 Havvkesley v. Outram 27 Hayman, Ex parte H;'ail, Re 17H ;)7,175 Hedley v. Bainbridge Hclsl)y, Me 7H IH Hewett, Be 43 Holme r. Hammond ... HO Holroyd v. Griffiths ... H8 Honey, Re Hulton, Re 169 V2\, 120) I. Imperial Loan Co. «. Stone i9 J. J. V. S ... 49 Jaegers, etc. Co. r. Walker ... ... 9(5 Jennings r. Hammond 6 Jennings r, Jennings 150,1.51 Jones, Ex 2>arte 2 7,46,180 Jones V. Lloyd 130), 1H8, ]39 Jones V. Noy ... 49 K. Kendall v. Hamilton Kilshaw r. Jukes 93 30 TABLE OF CASES. XUl L. PAGE Lane r. Williams ... ... ... .. ... ... ... 78 Langmeiul. 7?^... ... ... ... ... ... 148 Laws r. Rand ... ... ... ... ... ... ... ... 79 liCvey. lie ... ... ... ... ... 175 Levy r. Walker ... ... ... ... 58, 61, 151 Lewi.s r. Lewis... ... ... ... ... ... ... ... 61 Limpus I'. General Omnibus Co. ... ... ... ... ... 85 Lodge and Fcndal, E,r 2>(irte 171,176 Lodge r. Prichard ... ... ... 163, 164 Lovell and Christmas r. Beauchamp ... ... ... ... 46 Lyncs, He ... ... ... .. ... 42, 43 Lyon r. Knowles ... ... ... ... ... ... ... 8 Lyon r. Tweddell 143 M. Manchester & Milford Rail. Co., Re Mara r. Browne ... Marsh r. Joseph Martyn IV Gray ... Maude. Ed! parte May r. Thomson McClean t). Kennard Mellersch ?'. Keen Merchant Banking Co. of London v. Merchant Joint Stock Bank 58 Meymott r. Meymott... ... ... ... ... 115 Moore v. Knight ... ... 81, 167 'ii] orley, E.r parte ... ... ... ... ... ... 147,163 Morris r. Barrett 124,126 Mott f. Consumers' Ice Co 84 !Mycock r. Beatson ... 141 N. Neilson /•. The Mossend Co 56 Neimann v. Neimann ... 79 Newbigging r. Adam... ... 30, 141 Newsome r. Coles ... 100 North Cheshire and Manchester Brewery^ Co. v. Manchester Brewery Co. ... ... 59,60 ... 145 ... 86 ...79.86 ... 99 ... 173 ... 150 ... 57 107,155 XIV TABLE OF CASES. 0. Olympia, Limited, Re Oweu V. Cronk TAOE . 105 . U6 P. Padstow, etc. Association, jRe Page V. Eatcliffe Pa wsey -!'. Armstrong... Payne v. Hornberg Pinet et Cie. r. Maison Louis Pinet Pini V. Roncoroni VXo-v^A^eo., Ex parte ... Pooley V. Driver Poppleton, Ex parte Porter r. Taylor Poulton V. London and South-Westem Rail. Co. Powell, ^;r ^;fl /fe Punnet, Ex j^aHe ... 6 107,118 ... 148 ... 147 ... 61 137, 145 175 ...15,19 6 ... 78 ... 85 ... 175 ... 150 R. Rawlins v. Wickham Read v. Bailey Eeid r. Explosives Co Rhodes v. Monies Ridgway -!•. Clare Robinson r. Ashton Rolfe V. Flower Ross V, Parkyns Ross V. White ... Russell V. Austwick ... •• ... 141 ... 162, 163, 167, 171 ■•• ... ... 145 • •• ... 89 ... 164 117, 119 ■ • • • . 97, 163 27, 30 ... 158 • ■• • • ... 105 s. Sargant r. Read 146 Sargood's Claim 115 Saunders r. Sun, etc. Co 61 Scarf v. Jardine 96 Scott r. Brown-Doering, McNab & Co 36 Sheen, E-e paiie 175, 179 TABLE OF CASES. XV She'll. Ex parte Sillitoe, Ex parte Kims v, Briitton PAGE 180 173 91 Singleton v. Knight ... 7!) Smith r. Anderson 5 V. Mules 151 r. Smith 119 r. Winter 95 Stead r. Salt 78, 79 Steward v. Blakeway ... Stewart r. Gladstone ... 123, 128 150, 153 Stockeu r. Dawson ... 108, 155 Strapp V. Bull Swift i\ Jewsbuiy Swire v. Redman 146 87 97 Syers r. Syers 13, 14 T. Taylor r. Neate Tennant, Ex parte ... Thicknesse v. Bromilow Thompson t. Percival... Thwaites r. Coulthwaite Thynne v. Shove Tomlinson r. Broadsmith Trego V. Hunt Turn ell v. Sanderson... Turton r. Turton Tussaud v. Tussaud ... 146, 148 19 ., 78 .. 97 36, 138 .. 100 .. 78 150,151 137 60 60 u. Underwood r. Lewis 78 Vawdrey v. Simpson Vince, Re 137 180 XVI TABLE OF CASES. w Walker r. Hirsch PAGE . 148 Walker r. Mottram ... ... . 150 Waterer r. Waterer 119, 120, 121, l: HI 127 Watson, Ex parte Wattean r. Fenwick . 175 . 74 Waugh r. Carver Wedderbum v, Wedderburn 9 . 154 Wild r. Milne . . ■ . ... . 148 Williams r. Jones • ... ... . 35 Wilson, iZe . ... . 128 Wilson and Co. v. Balcarres, etc. Co. Wood v. Dodgsou Wood J-. Scoles . 93 . 175 . 156 THE LAW OF PARTNERSHIP. LECTURE I. THE ESSENTIAL ELEMENTS OF PARTNEESHIP. (1.) Introductory. There is probably no language which contains more ambiguous words than ours, and among these the word partner ranks high, designating as it does various things, — from the beams which support the masts of a ship to those radiant beings who share our sorrows, double our joys, and are said, by malicious and inaccurate bachelors, to treble our expenses. The traditions of this hall, however, lend themselves neither to nautical or matrimonial disquisitions, and in the course of these lectures I shall have to ask your attention to the unromantic and rather dry subject of that kind of partnership which, in the language of the first section of the Partnership Act, 1890 (by which the main principles of the law of partnership were codified), is the relation L.P. B 2 THE LAW OF PAETNEESHIP. which subsists between persons carrying on a business in common with a view of profit. Now this definition is very neat and epigramatic, and, no doubt, puts the matter in a nutshell; but it is easier to concoct an epigram than to interpret it, and, as a witty and learned lord of appeal recently remarked, it is one thing to put a case in a nutshell and another to keep it there (a) . You must not be surprised, therefore, or think me more prosy than the subject demands, if I devote the whole of this lecture to the consideration of the question — What is a partner? For it is a question of no mere academic interest, because if the relation of private partnership (6) exists, then whatever may be the arrangements between the partners inter se as to how the losses are to be borne, each partner will, as between himself and the creditors of the firm, be liable to the last farthing of his fortune. The foundation of this rule is, in the words of that (a) Per Lord Macnaghten in Foxwell v. Van G-rutten, [1897] A. C. 658. (fe) I say a private partnership because these lectures do not relate to public companies, in which the liability of the share- holders is limited. Such companies are, no doubt, partnerships, but they are partnerships of a very special nature, governed by the provisions of special statutes, and expressly excluded from the provisions of the Partnership Act, 1890. Moreover, they have been already fully discussed far more ably than I could pretend to discuss them by my friend, Mr. Palmer. They are, therefore, not touched upon in this work. THE LAW OF PAKTNERSHIP. 6 great master of partnership law, the present Master of the Eolls, that each individual partner constitutes the others his ag^ents for the_j)urpose of entering] into all contracts for him within the scope of thai partnership concern, and consequently is liable to the performance of all such contracts in the same manner as if entered into personally by himself. Therefore, if once the relation of partners is established between one who actively carries on a business and another who passively participates in the profits, the latter will become equally Hable with the former for the debts and liabilities of the firm. Bearing this in mind, you will not fail to under- stand the immense importance of the subject of this evening's lecture. 'to (2.) Definition of Paetner. Most of you have heard the celebrated defini- tion of an archdeacon, that he is a person who performs archideaconal functions ; and I am afraid that I can give you no better definition of a partner. The present Master of the Eolls gives fifteen definitions, and the Partnership Act carefully abstains from giving one, but it would appear that the only safe definition is that a partner is a person who has entered into the relation of partnership, i.e., (referring once more to the statutory definition of 4 THE LAW OF PARTNERSHIP. partnership,) the relation which subsists between persons carrying on a business with a view of profit. Whether he has done so is a question of fact (and often a very difficult one), depending in each case upon the real intention of the parties, ascertained from the contents of the written instruments (if any) and from their conduct. Let us examine the definition a little more closely. There are three essential facts, without which no partnership can exist according to our law. There, must b e (1) a business (2) carried on with a view of profit (3) by or on behalf of the alleged partners. Let us consider these three essentials separately. (3.) There must be a " Business." And first, — What is a "business"? It is not every occupation which can be said to be a business. For instance, a landowner whose income is derived from the rents of his property, does not carry on a business, although the management of his estate may be his only serious occupation, and may cause him to be an extremely busy man. Consequently, two joint owners of an estate or even of a chattel, such as a ship, are not (as such) partners, although they may use their best endeavours to develop the land and let or use the joint property for their mutual profit, unless they go further and carry on a business with respect to it. On similar principles, THE LAW OF PARTNERSHIP. 5 the members of a society formed to purchase invest- ments for the common benefit of the members (what are sometimes called trust companies) are not partners, because, as was pointed out by James, L.J., in Smith v. Anderson, 15 Ch. D. 247, nothing to be done by such societies " comes within the ordinary meaning of 'business,' any more than what is done by the trustees of a marriage settlement, who have large properties vested in them, and who have very extensive powers of disposing of the investments, changing the investments and selling them, and re- investing in other investments according to their discretion and judgment." If, however, the owners of a ship do not merely let it, but use it in the business of carriers of goods and passengers, they become partners, at all events, qua that business. And so, if a society were formed to speculate in investments, with a view to make profits by seUing and buying again securities whenever, in the opinion of the management, the turn of the market should make it advisable to do so, then, no doubt (as was pointed out by Cotton, L.J., in the case just cited), a partnership would exist, because that would be a business, — a buying and selling of property with a view of profit as distinguished from joint or common ownership. This view of the law has now received statutory sanction by section 2, sub-section (1) of the Act of 6 THE LAW OF PAETNERSHIP. 1890, by which it is enacted that "joint tenancy, tenancy in common, joint property, common property, or part ownership does not of itself create a partner- ship as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof^^ (a) . The refusal by our law to recognise as "partner- ships" any community in property or the profits thereof, unless it be community in the carrying on of -a "business," is peculiar, and is not followed by the laws of France and those other continental states whose laws are founded on the Code Napoleon. By that code, partnership is defined as a contract by which two or more persons agree to bring or put something in common with a view to share in the resulting profit. By Arts. 1837 to 1842, these partnerships are divided into societes universelles and societes particulieres. Societes universelles (which have no counterpart in our law) are partnerships in which the partners bring into community all their existing property real and personal, and make them- selves, as it were, tenants in common of it, or else (a) On the other hand, mutual insurance clubs or mutual loan societies may constitute partnerships if their object is one which is recognised in commercial life as "business," notwith- standing that their dealings are limited to their own members. See and consider Be Padstow, etc. Association, 20 Ch. D. 137 ; Jennings v. Hammond, 9 Q. B. D. 225 ; and Ex parte Poppleton, 14 Q. B. D. 379. THE LAW OF PARTNERSHIP. 7 bring into community all the proceeds of their industry {societes universelles de gains) . Even societes particulieres are not restricted to businesses, for the}^ may be formed for the purpose of bringing into community a particular property, or the profits of it, or even for the purpose of using a particular thing in common, none of which purposes would be recognised by our law as the subject of partnership ; so that the only branch of partnership in the continental sense which we regard as such is that kind of societe particuliere which is formed (in the words of the code) " to carry out a particular enterprise or to exercise a particular trade or profession." Eusinesg , then, being essential to partnership, what is it? The Act of 1890, s. 45, defines it rather vaguely as "including every trade, occupation, or profession." It is obvious, however, that we must take this with a grain of salt. For instance, it could not apply to the profession of a barrister, in which partnership is forbidden ; nor (unless the former cases were intended to be overruled, which is not likely) to the occupation of a landowner, as distinguished from a farmer or a market gardener or the like. In fact, I apprehend that it must be limited to what are recognised among business men as commercial and professional businesses, i.e., callings in which men hold themselves out as willing to sell to all comers goods or skilled assistance or other service. 8 the law op partnership. (4.) The Business must be carried on FOR Profit. Let us now proceed to the consideration of the second essential to partnership, viz., that the business must be one which is carried on *' with a view of profit." Now by profit is meant net profit, — that is to say, the difference between the gross returns and the outgoings of the business. Thus where a pubHsher agrees to pay an author one-third of the gross sales of his book, that is not such a sharing of profits as would ey en. prima facie xqa^q a presumption of partnership ; and the same remark would apply to the letting of a theatre upon the terms of the owner receiving half the amount paid by the audience for their seats {Lyon v. Knowles, 3 B. & S. 556). Here, again, the legislature has confirmed the prior view of the courts by enacting (s. 2 (2) ) that " the sharing of gross returns does not of itself create a partner- ship, whether the persons sharing such returns have, or have not, a joint or common interest in any property from which the returns are derived." (5.) The Business must be carried on by. or ^ on behalf of the alleged partners. »■• — —■■ ■■ m But even where we find that a business is being carried on with a view of profit, and that two or more persons share the net profits, it does not ( THE LAW OF PARTNERSHIP. 9 necessarily follow that they are partners, unless the business is carried on by, or on behalf of both or all of them. Now this was by no means always the view of the courts. It was at one time consid ered thatjbhe_ mere participation in the profits of a business i^so_ facto made the pg it il'^^P '^^^^ liable as a part ner to^ third parties. That rule was laid down positively in WauqJi v. Carver , 2 H. Bl. 235, on the principle that, by taking a part of the profits, a man with- draws from the creditors a part of the fund which is the proper security for the payment of their debts. That rule, however, was an unsound one, and after being whittled away by several fine distinc- tions, was at last practically set aside by the House of Lords in the leading case of Cox v. Hickman, 8 H. L. C. 268. By that case it was decided that, although a right to participate i n profits is a strong test of partnership, and that there may be cases where from such perception alone it will be inferred, yet whether that relation does o r does not exist^ must depend on the real intention a nd co ntrg,(?t of the parties, and not upo n that one term of it which provides for the participation in pro fits. The rule in Cox v. HicJcman, is probably still the law. I say probably, on the authority of Mr. Justice North, in Davis v. Davis, [1894] 1 Ch. 393; but the legislature has so muddled the question by the 10 THE LAW OF PARTNERSHIP. language used in section 2 of the Partnership Act, 1890, that until the matter had been thoroughly- thrashed out, it is impossible to be quite certain. In order, however, that I may throw some light on the meaning of the provisions of the 1890 Act, it is necessary to trace the history of the question from the date of the decision in Cox v. Hickman. (6.) History of the Law as to Profit-sharing SINCE Cox V. Hickman. It would seem, then, that the effect of that decision was not fully appreciated by the profession ; for Mr. (afterwards Chief) Justice Bovill, in the year 1865, introduced a Bill into Parliament, which subsequently became law as the 86th chapter of 28 & 29 Vict., but is better known to the profession as Bovill's Act. By the first section of this Act, it was enacted, that the advance of money by way of loan to a person engaged or about to engage in any trade or undertaking, upon a contract in writing^ with such person that the lender shall receive a rate of interest varjdng with the j)rofits, or shall receive a share of the profits from carrying on such trade or undertaking, shall not of itself constitute the lender a partner, or render him responsible as such. The second, third and fourth sections, contain similar THE LAW OF PARTNERSHIP. 11 provisions with regard to the remuneration of agents by a share of the profits, the payment of annuities to the widows and children of deceased partners, and the receipt of a share of profits by one who has sold the goodwill of a business. The fifth section provided for the postponement of a lender or vendor of goodwill to the other creditors of the business, in the event of the owner of the business becoming insolvent. Now, if I have been so fortunate as to make myself understood in explaining the effect of the decision in Cox v. Hickman, you will see that Eovill's Ac t made but little difference to the common law, except so far as it postponed a lender or a vendor of goodwill to the ordinary trade credi tors. On the other hand, it has been suggested that it had this effect, viz., that whereas at common law, participation in profits was not conclusive evidence of partnership, Bovill's Act made it not even pi-imd facie evidence, if the contract were one of those enumerated in the Act. However, that was not the view taken by the commercial com- munity, or by many of those who advised them. The Act was popularly (but most inaccurately) called the " Limited Partnership Act." The notion spread abroad that it legalised a new species of statutory partnership similar to that which prevails in France, Belgium, Germany, Italy liussia, and 12 THE LAW OF PAETNERSHIP. other continental states, under the name of Societes en Commandite, or fiduciary partnerships, in which there are active and dormant partners, the names of the former alone appearing before the public, and they alone being responsible for the debts and liabilities of the business, while the dormant partner provides capital, to the loss of which his liabihty is limited. It is strange and, perhaps, regretable that this form of partnership has never been adopted by us, as I believe it has been in the United States of America. Probably it would have been, but for the fact that with us, it is now so easy to secure the same results by the formation of a small limited company. Any- how, having regard to its prevalence abroad, the notion entertained by commercial men of the effect of Bovill's Act was, perhaps, natural enough. But however natm-al this view of the Act may have been, it was erroneous; for all that Bovil l's Act did was to declare that in certain cases the receipt of a share in the profits, or of i nterest varying with the profit s, should not of itself constitute the r eceiver ai_ partner. Consequentl}'', it was held that although an agreement was expressed to be an agreement under that Act, and contained a declaration that the receiver of the profits should not be a partner, he would nevertheless be a partner if the result of the agreement, fairly construed as a whole, independently THE LAW OF PARTNEESHIP. 13 of the reference to the Act and the declaration, was to give him the rights, and impose on him the obHga- tions of a partner: i.e., I apprehend, if as between himself and the persons who carried on the business, he got the rights and agreed to accept the obligations usual in partnership agreements, then as between him and third parties he must bear the liabilities. In other words, you cannot be a partner, as between yourself and your co-partners, and at the same time get rid of the liability to third parties which is inseparable from the partnership relation. Qui sensit commodum debet sentire et onus. However, so far as I know, that was not judicially decided for ten years, viz., until the case of jSz/ersjv^ Syers, which went to the House of Lords, and is reported in 1 Appeal Cases, 175. The facts there were, that A. borrowed 250/. from B., and at the same time signed a paper in the following ^words : — " In consideration of 250Z. this day paid to me, I hereby undertake to execute a deed of co-partnership to you, for one-eighth share in the profits of the Oxford Music Hall and Tavern, to be drawn up under the Limited Partnership Act, of the 28 and 29 Vict. c. 86." It was held that notwithstanding the express reference to the statute, it did not apply ; and in giving judgment, Lord Chelmsford, after reading the agreement, with the exception of the reference to the Act, said: " So far 14 THE LAW OF PABTNERSHIP. the contract is perfectly clear in its terms ; but then it goes on to provide that the deed, i.e., the deed of partnership, is to be drawn up under the Limited Partnership Act. This reference to the Limited Partnership Act shows! that the parties have mis- understood its provisions ; they appear to have thought that there might be a deed of co-partnership in terms, but, if expressed to be drawn up under the Limited Partnership Act, that the person advancing the money would not be completely a partner, nor be responsible as such. But in order to bring a case within the Act, there must be a contract in writing, and according to my reading of the Act, the contract must on the face of it show that the transaction is a loan. Now, this contract, so far from stating that the agreement of the parties was for a loan, states the direct contrary. Its terms are in consideration of the sum of 250/. this day, not lent, but paid to me, I undertake to execute a deed of co-partnership, and the deed of co-partnership is to be drawn up under the Limited Partnership Act. But such a deed could not be so drawn, because the Act requires a contract in writing upon the footing of a loan, and there is no such contract between the parties." S]fers v. Syers, as I have said, only incidently decided the construction of the Act, but the question soon afterwards came directly before the THE LAW OF PARTNERSHIP. 15 courts in the well-known and important case of Poolcij V. Driver, 5 Ch. D. 458. In that case a partnership was entered into between two persons named Barrett and Hagen for fourteen years. The capital of the business was to consist of 30,000/., of which Barrett and Hagen were to find 20,000/., and the remaining 10,000/. was to be raised " by way of loan, under the Partnership (Bovill's) Act, 1865, in sums of 500/. each from persons willing to advance the same for the purposes of the partnership." The capital of 30,000/. was to be considered divided into 60 shares of 500Z. each, of which 40 shares v/ere to belong to Barrett and Hagen, and the remaining 20 were "to be appropriated to the persons so advancing by way of loan," in proportion to their advances. Consequently each advancer became entitled to a share in the capital of the business. The profits were to be similarly divided between Barrett and Hagen, and the persons making the advances. On the expiration or sooner determina- tion of the partnership a general account was to be taken, and the two partners were first to repay the sums advanced by way of loan, and were then to divide the residue between them. In pursuance of this deed, several persons advanced money to Barrett and Hagen, and deeds were executed between Barrett and Hagen and the persons respectively making the advances. Such deeds were THE LAW OF PARTNERSHIP. all in the same form, and recited the partnership articles, and the fact that the lender had agreed to advance a sum of money by way of loan to enable Barrett and Hagen to carry on the business. They certainly contained a covenant by Barrett and Hagen to repay the amount advanced at the expira- tion or sooner determination of the partnership, but on the other hand, they also contained a covenant that Barrett and Hagen would in all things conform to the provisions of the partnership deed, and would allow the lender to inspect the accounts, and would pay him the proportion of the profits which his advance bore to the whole capital for the time being employed in the business. They also provided that on the expiration or sooner deter- mination of the partnership, a final account should be taken and the lender paid his advance, together with a share of the profits, according to the above proportion ; but, if on taking the balance of profit and loss on the entire term it should appear that he had been overpaid profits during the continuance of the loan, he should refund them. Barrett and Hagen failed, and the lenders were sued by the creditors of the firm. The late Sir George Jessel, M.E., gave a most elaborate judgment, which I strongly advise you to read. After commenting on various definitions of partnership, his lordship said: "What is the effect of the Act? The Act THE LAW OF PARTNERSHIP. 17 is this, that the advance of money must be by way of loan. Now what does that mean ? I take it to mean this, that the person advancing must be a real lender, that the advance must not only profess to be by way of loan, but must be a real loan ; and consequently you come back to the question whether the persons who enter into the contract of association are really in the position of creditor and debtor, or in the position of partners, or in the only third position which I think could be suggested, that of master and servant. But the Act does not decide that for you. You must decide that without the Act, and when you have decided that the relation is that of creditor and debtor, then all the Act does is this, it says that the creditor may take a share of the profits. But as I understand the law, as laid down by the higher authorities to which I have referred, if you have once decided that the parties are in the position of creditor and debtor you do not want the Act at all, because the inference of partnership derived from the mere taking a share of profits, not being irrebutable, is rebutted by your having come to the conclusion that they are in the position of debtor and creditor." His lordship then proceeded, with what Sir Koger de Coverley would have called " laudable courtesy and pardonable insolence," to flay the author of the Act for his ignorance of the law, and then proceeded L.P. 18 THE LAW OF PARTNERSHIP. to consider the facts. The judgment is far too long for me to quote m extenso, but it practically came to this, that having regard to the fact that Barrett and Hagen covenanted with the lender to observe the partnership deed in every particular (which would have been superfluous if the lenders were not partners), to the fact that the loan was to form part of the capital of the business, and that the lender became entitled to insist upon the capital being employed in the trade, and particularly having regard to the fact that the lenders proportion of profit was not a fixed proportion, but a proportion varying with the capital for the time being employed in the concern, and to a proviso in the deed providing for payment off of the loan if the creditor became bankrupt, and to the proviso for refunding to the firm any profits drawn out by the lender exceeding his proper share, and to the fact of the deed containing an arbitration clause (which is usual in partnership articles, but not usual in a mere loan agreement) ; having regard to all these circumstances, his lordship came to the conclusion that the true relation of the parties was that of dormant and active partners, and not of mere creditors and debtors. He did not rely on one provision or two provisions, but on the whole character of the transaction from beginning to end, which he characterised as an elaborate device and ingenious contrivance which failed to effect the purpose for which it was designed. THE LAW OF PABTNERSHIP. 19 Pooley V. Driver was soon followed by the case of Ex parte Tennant (6 Ch. D. 303). In that case the arrangement was a very special one between a father and a son, who was about to become an underwriter at Lloyds, by which, in consideration of the father making the deposit and giving the guarantee required by Lloyds, the son covenanted to employ a particular agent, and to pay half the net profits to the father. The court considered that this was a simple case of debtor and creditor, and held that the father was not liable. You will not fail to perceive that in this case there were no provisions such as those in Pooley v. Driver usual in partnership deeds, but unusual in loan agreement; and perhaps it may also be added that having regard to the fact of the lender being the father of the borrower, a bond fide loan, without any idea of partnership, was a natural, and by no means extraordinary transaction. This case was shortly afterwards followed by Ex parte Delhasse (7 Ch. D. 511). In that case an agreement was entered into between one Megevand of the first part, Schoeppi of the second and Delhasse of the third, by which it was recited that Megevand and Schoeppi had agreed to become partners upon the terms, conditions, and stipulations with each other, and with Delhasse therein contained. It then set out the provisions of the first section of the statute, and recited that in order to form and carry c2 20 THE LAW OF PARTNERSHIP. on the said partnership business, Megevand and Schceppi had requested Delhasse to lend them the sum of 10,000Z. for the purpose of investing the same in the business, which Delhasse had agreed to do upon the terms thereinafter contained. The agree- ment then contained various stipulations, the most important of which was that Megevand and Schoeppi were not to be personally liable to Delhasse for the 10,000?. which was to be liable for the debts of the firm. In fact Delhasse's only right would have been to have the partnership accounts taken, to have the business wound up, the debts paid, and then to have his 10,000?. paid out of the remaining assets. James, L.J., in giving judgment, after reading the agreement, and pointing out that apart from the declarations as to the application of the statute, the relation of the parties was that Megevand and Schceppi were active partners, each of them having the power of signing the name of the firm, and that Delhasse was the dormant moneyed partner who was to have all the rights against the other members of the firm which a dormant moneyed partner would have in respect of the capital of the business, proceeded as follows: — "But it is said that there are other provisions in the contract which prevent its having this operation, and which show clearly that the parties meant the relation of lender and borrower, and not the relation of partners to subsist THE LAW OF P,\RTNEKSHIP. 21 between them. And for that purpose rehance is placed on the recital of section 1 of the Act — the recital of the agreement for a loan, and the declara- tion in clause 4, that the 10,000Z. is advanced by Delhasse to the other two by way of loan under that section, and that such advance does not and shall not be considered to render Delhasse a partner in the business. Can those words really control the rest of the agreement '? Do they really show that the intention was not in truth that which it appears to be by all the other stipulations '? To my mind it is quite clear that they do not. Wlien you come to look at all the other stipulations, they are utterly inconsistent with the notion of a loan by the one to the other, so as to make the two personally liable in respect of it in any event, or under any circumstance whatever. The loan is said to be made to the two, but when you read the whole of the agreement together, it is impossible not to see that it was not a loan to the two upon their personal responsibility, by the person who is said to be the lender, but that it was a loan to the business which was to be carried on by the two for the benefit of themselves and him, and was to be repaid out of the business, and out of the business only, except in the case of loss, when the loss would have to be borne by the three in the proportions mentioned in the agreement. The use of the word * lend,' and the reference to the Act, are, 22 THE LAW OF PARTNERSHIP. in my opinion, a mere sham — a mere contrivance t evade the law of partnership; and I am of opinion that the agreement was in truth and in substance an agreement for a real partnership between all the parties." Lord Justice Thesiger added : " Apart from the Act, the law applicable to the case has been laid down in tolerably distinct terms by the House of Lords in Cox v. Hickman; and it is perfectly true that the House of Lords in that case laid it down that the proposition that a participation in profits constitutes an invariable test of partnership, is not one that can be maintained. Lord Cranworth gives as the test, that which no doubt must now be taken as the proper test to be applied in all these cases, viz., that the real ground of liability as a partner is that the trade has been carried on by persons acting on behalf of the person whom it is attempted to make liable as partner. But in the very same page in which these words occur, Lord Cramoorth says that the participation in profits is, in general, a sufficiently accurate test, and that the right of participation in profits affords cogent, often con- clusive, evidence of a partnership. If that be so, it follows, as a logical consequence, that if in addition to participation in profits, the arrangement provides for a participation in losses, and also contains stipu- lations tantamount to the ordinary stipulations THE LAW OF PARTNERSHIP. 23 which one would expect to find in the case of a dormant partner, it is an a fortiori reasoning in such a case in favour of a partnership." His lord- ship then went on to show that this conclusion was not negatived by the statute, because the statute only said that an advance of money by way of loan on the terms of sharing profits should not of itself constitute a partnership, whereas here the advance was not by way of loan, and, moreover, did not stand by itself. The next case to which I shall call your attention is Badeley v. The Consolidated Bank, 38 Ch. D. 238. I need not trouble you with the facts of that case, which were very complicated, but I will quote a few lines from the judgment of Lord Justice Cotton, who said : " What we have to consider is, whether the business in respect of which the question arises is or is not the business of the two persons alleged to be partners. , . . It is said that there are dicta of various judges, in various cases, that the participa- tion in the profits may decide the question, or that it is prima facie evidence of partnership. Undoubtedly, if one found that t wo pers ons were particip ating in ^ the profits made b y a business, and knew nothing more, one would say, how is this? If they participate in the profits as being jointly entitl ed to the pro fitg, f.ha.t^ imlpiss explained ^ would jead to the conclusion t.bn t the business is thejoiat^ 24 THE LAW OP PARTNERSHIP. bttsiness of the tw o, and this would be partnership. But when the partici pation in profits arises from a clause in an agreement entered into between the parties, it is wrong to say that this is a primd facie evidence of partnership, because you mu st look not only to that stipulation, but to all the other stipula- tions in the contract, and determine whether, on the stipulations of the contract taken as a whole, you can co me to the conclusion that there is a pa rtner- ship — that there is a j oint business carried on by the two : or wbp.thpr the transaction is one of loan between debtor and creditor — a loan secured by gi ving a certain interest in the profits.'' His lordship then proceeded to comment on the facts, and came to the conclusion that, looking at the whole trans- action, the true nature of the relation between the parties was that of creditor and debtor. Thus the matter stood down to 1890, v/hen the Partnership Act was passed, which, is intituled *' An Act to declare and amend the law of partnership." The main idea of the Act is, undoubtedly, to declare or codify the main principles of the pre-existing law, but at the same time the opportunity was taken to alter and amend the law in several respects. As I have already said, it defines partnership as the relation which exists between persons carrying on business in common with a view of profit, excluding public companies and companies formed for mining THE LAW OF PARTNERSHIP. 25 in the Stannaries. It then proceeds, in section 2, to give certain rules for ascertaining whether or not a partnership exists, the first and second of whicli, as to joint or common ownership and as to the par- ticipation in gross profits, I have ah'eady commented on. The third sub-section, however, containing five rules, is a paraphrase, with additions, of Bovill's Act, which is repealed. Put shortly, the provisions of sub-sectjqn (3)^are as follows : — (3.) " The receipt by a person of a share of the^ I j^cAt-u^jJ'^^'^^^ profits of a business is j^rma facie evidenc^ \ fS^rv^^ ^^ that he is a partner in the business, but the^ iiA^eA t-t y<~r receipt of such a share, or of a payment ^■^-^'^^ co ntingent on or varying^ with the profits of a business, does not of itself make him a partner in the busirLesSil' Stopping here for a moment, we have what seems somewhat of a contradiction. How can a fact be privid facie evidence of partnership and yet be insufficient of itself to prove a partnership? In Davis V. Davis, [1894] 1 Ch. 393, Mr. Justice North, taking a kindly view of the matter, said : " These phrases appear somewhat conflicting, but I do not think there is any real difficulty in under- standing them, because the matter was clearly explained by the Court of Appeal in Badeley v. The Consolidated Bank {ubi sup.). It is true that that 26 THE LAW OF PARTNERSHIP. case was decided before the Act of 1890 was passed, but the Act seems to give effect to what was there laid down." He then read the judgment of Cotton, L.J., in Badeley v. The Consolidated Bank, and con- tinued: " Adopting then the rule of law which was laid down before the Act, and which seems to me to be precisely what is intended by section 2 (3) of the Act, the receipt by a person of a share of the profits of a business is pi'imd facie evidence that he is a partner in it, and if the matter stops there it is evidence upon which the court must act. But if there are other circumstances to be considered, they ought to be considered fairly together, not holding that a partnership is proved by the receipt of a share of profits unless it is rebutted by something else, but taking all the circumstances together, not attaching undue weight to any of them, but drawing an inference from the whole." It appears, therefore, that the effect of sub-section (3) is merely to declare the pre-existing law, viz., that sharing of profits with- out more, implies partnership ; but if it is only one of several facts, then all the facts must be considered together, and no special weight be given to the fact of profit sharing. It seems strange, however, that the collective wisdom of the learned and eminent persons who considered the Bill in the committee stage in both Houses, should have so wrapped up this simple proposition of law that it requires a THE LAW OF PARTNERSHir. 27 knowledge of the cases previously decided on the subject to bring it to light. But sub-section (3) of section 2 of the Act does not end here, neither do its difficulties, for it goes on_ (following the terms of Bovill's Act) to declare that Jn particular, the following facts shall not of them-_ selves constitute partnership, viz. (to put the matter shortly and, for convenience, out of the order adopted in the Act) : (a.) The receipt of a debt out of accruing profits^ (b.) Th e receipt by a servant of a share of th^ profits by way of remuneration (a). (c.) The receipt by the widow or chi ld of a deceased partner of a portion of the profits by way of an an nuity. (d.) The r eceip t of a port ion of the profits by the vendor of the goodwill of the business (6). (e.) Last, and most important of all, the receipt of a share of profits, or of interest the rate of which varies with the profits, by a person who has advanced money to a person engaged in trade or imdertaking under a contract in writing signed by or on behalf of all parties (c). Now here we come to another difficulty, viz., did (a) See Ross v. Parhjns, 20 Eq. 331. (b) See Hawkesley v. Outram, [1892] 3 Ch. 359. (c) See Expade Jones, [1896] 2 Q. B. 484. 28 THE LAW OF PARTNEKSHIP. the authors of the Act intend by the proviso " pro- vided that the contract is in writing, and signed by or on behalf of all parties thereto," to enact or imply that where there is no written and signed contract, a lender who lends on the terms of receiv- ing a share of the profits, or of receiving interest varying with the profits, is to be deemed a partner ? Lord Justice Smith, in the recent case of lie Fort, [1897] 2 Q. B. 495, seemed to assume that this was the result of the Act, saying "if the benefit of the section is desired by the lende r, th en, under the proviso, the contract must be in writing ." That observation was, however, only a dictrnn, and with great respect to the learned lord justice, cannot, it is conceived, be supported. No doubt it is difficult to give any meaning to the proviso unless its effect is such as that indicated by Smith, L.J., but if he be correct, it would follow that a person who never was a partner, but only a creditor, and with regard to whom the only scintilla of evidence of partnership is participation in profits, is, in the absence of a written and signed contract to be deemed a partner not- withstanding the express words of section 2 that the receipt of profits is not of itself sufficient. That, it is submitted, cannot possibly be the correct interpre- tation. "What is the correct meaning to be given to the proviso as to the necessity of a written and signed contract, however, passes my ingenuity. the law of partnership. 29 (7.) Lessons to be learnt from the Decisions ON Profit Sharing. And now having drawn your attention to the statutes and decisions, let us see whether we can deduce from them any practical guidance for advising prudent and acquisitive persons who desire to finance a business, and to receive a share of profits, without thereby becoming liable for the debts. In the first place, it is quite clear that in each case which comes before us, we must put to our- selves the question — Do these persons honestly mean that this advance is to be a true loan, or do they mean that it is to be a contribution to a joint adventure ? To such a question honestly put the answer will generally not be very doubtful. For although the judges warily decline to bind them- selves to any authoritative definition of what will constitute two or more persons partners, yet the broad distinction between a loan and a contribution to a joint speculation is sufficiently marked. In the one case the lender is like a debenture holder in a company, he has no voice in the management of the business. No doubt he is interested in its well-being just as a debenture holder is interested in the well- being of the company whose bonds he holds, because its prosperity is his security ; but the interest is the interest of a mortgagee, and not of a joint owner. 30 THE LAW OF PARTNEBSHIP. In the other case a contributor to a joint speculation is like a shareholder in a tjompany. Even if he has no direct control over details, he has a right to prevent misuse of the business assets in which he has a joint property, and not merely a property in the profits. The question ' is a crucial one, because, as Lord Ualsbury, in language both com- pendious and graceful, said in the case of Adam v. Newhigging, 13 App. Cas. 315, " if a partnership in fact exists, a community of interest in the adventure being carried on in fact, no conceal- ment of name, no verbal equivalent for the ordinary phrases of profit and loss, no indirect expedient for enforcing control over the adventure, will prevent the substance and realty of the transaction being adjudged a partnership . . , and no phrasing of it by dexterous draftsmen will avail to avert the legal consequence of the con- tract " (a). In fact, as the French say, "plus pa change plus 6" est la meme chosen You must therefore first satis fy yourself that there is a bond fide loan ; and in considering that, remember that a necessary consequence of a loan is (a) The student is referred to the following cases as affording examples of participation in profits without partnership, viz., JBullen V. Sharpe, L. R. 1 C. P. 86 ; Holme v. Hammond, L. R. 7 Ex. 218 ; Boss v. Parkins, 20 Eq. 331 ; Eilshaw v. Jukes, 3 B. & S. 847. THE LAW OF PARTNEKSHIP. 31 a 'personal liahiliUj on the 'part of the borrower to pay it. Ad arrangement (such as that in Ex parte Delhasse) by which the lender is only to be repaid out of the business, can therefore never be a loan, but must be a partnership. Again, the lender must not take an interest in, or share of the capital in specie, because thereby he becomes jointly interested in capital and profits, or in other words becomes part owner of, i.e., partner in the business itself. Nor must his share of the profits be in the proportion which his loan shall from time to time bear to the rest of the capital in the business ; for that shows that he is not simply lending his money on the security of a share, i.e., an aliquot and definite share of the profits, but is contributing it to a joint speculation in which he and the other speculators are to take the profits pari passu. A provision for the return by the lender of a proportion of the profits received by him in one year, in case of subsequent losses, would be almost certainly a mark of partnership ; for no bo7id fide lender would ever assent to such a provision. Tried by these tests, you will generally not find it a very difficult task to determine what is the real nature of the contemplated arrangement. But although you' cannot by any amount of dexterity prevent a transaction which is in substance a partnership, having the consequences which are 32 THE LAW OF PARTNERSHIP. incident to the partnership relation, you must never forget that you may very readily, by want of dexterity, make a transaction which is really and bond fide a loan, appear on the face of the document to be a partnership. Be careful, therefore, in drafting such documents, to avoid any reference to words usual in partnership agreements, such as "capital," "concern," "partnership," or the like. Moreover do not be too technical, and introduce clauses taken from partnership precedents, which the parties themselves would never dream of, but which you may think desirable, such as arbitration clauses and the like. All men are apt to be too teclinical, from lawyers down to undertakers, and we are all apt to ride our technicalities to death. For instance, one of the latter fraternity once said to a person who was paying the last tribute of respect, " I beg your pardon, sir, but the brother of the corpse wishes to speak to you." That was tech- nicality carried to the extent of absurdity, but you may easily rival it in the drafting of legal documents. Do not, except under exceptional circumstances (such as those in Badely v. The Consolidated Bank), bind the borrower to employ the loan as part of the capital of the business. Such a proviso is very dangerous, and although where it is necessary in order to preserve the security, it will not of itself constitute the transaction of a partnership, it is (just as the THE LAW OF PABTNERSHIP. 33 mere fact of participation in profits is) a somewhat congent circmnstance, which might, when taken along with other circmnstances, lead the comrt to conclude, as a matter of fact, that a partnership inter se was intended, in which event the liability to creditors of the firm would follow as a legal consequence. By bearing these cautions in mind, you will, I think, avoid finding yourselves in the very mor- tifying position of having landed a client, whose intention was to be a bond fide lender, in the position of an apparently mala fide partner, with all its consequent litigation, worry, and not improbable ruin. L.r. ( 34 ) LECTURE II. THE CEEATION OF A PAKTNEESHIP. (1.) Illegal Paetnerships. At common law there was no limit to the number of persons who might join together to carry on a business. Where, however, partners are numerous, it is obviously impossible that they should all be active participators in the management of the concern : too many cooks would infallibly spoil the partnership broth. It was therefore usual in such cases, long before the Companies Acts were passed, to confide the management to a small body of directors, who alone had the power of binding the firm. This was so, not only as between the partners inter se, but also (contrary to the ordinary rule) as against the creditors of the business, whenever the members were "too numerous to act " (a) as joint participators in the management. The exact meaning of " too numerous," however, remained undeter- mined ; but the question is now practically obsolete, because, by section 4 of the Companies Act, 1862, no partnership is to be formed consisting of more than (a) See Ch'eenwood's Case, 3 D. M. & G., at p. 477. THE LAW OF PARTNEESHIP. 35 ten persons for the purpose of carrying on the business of banking, or of more than twenty persons for the purpose of carrying on any other business having for its object the acquisition of gain, unless it be registered as a company under that Act. As companies so registered become corporations, and are governed by a code of their own, it follows that in private partnerships (to which alone these lectures refer) the number of partners is limited to ten in the case of banking firms, and twenty in the case of other businesses ; and it seems probable that these numbers would not be considered too numerous to rebut the ordinary presumption that each partner (in the absence of express notice to the contrary) is the agent of the firm. Private partnerships being, then, limited to these comparatively small associations, they are absolutely illegal if they exceed the statutory numbers. More- over, a partnership may be illegal if formed for a purpose forbidden by law, or which is contra bonos mores, or against public policy. For instance, by the Solicitors Acts an unqualified person is forbidden to carry on business as a solicitor, and consequently a partnership between a solicitor and one who is not, to carry on sucha business is illegal (6). So a partnership formed for sharing the profits of a (h) Williams v. Jones, 5 B. «fe C. 108 j 29 Rev. Reps. 181. D 2 36 THE LAW OF PAKTNERSHIP. gambling hell or a house of ill-fame, would clearly be illegal. In all such cases the court simply refuses to recognise that the partners have any rights against each other — it will not direct accounts to be taken, nor will it order one partner to contribute to the losses suffered by the other (c) . Of course, however, this does not prevent innocent creditors of the illegal firm bringing an action against the members to recover a debt which is not tainted with illegality to the creditors' knowledge. For instance, a shipbuilder might sue them for the price of a ship which was intended to be used in the Red Sea slave trade, so long as he was not aware of the illegal object. An amusing and instructive case relating to illegal partnerships, is Thwaites v. Coulthwaite, [1896] 1 Ch. 496. There two " bookmakers " entered into partnership. One of them, the plain- tiff, claimed an account of profits from the other, the defendant, who contended that having regard to the nature of the business, the partnership was illegal, and that no such relief could be obtained. Mr. Justice Chitty, in giving judgment, said : — " The second defence, and by far the most important one, is that this partnership is an illegal one, being formed for a purpose forbidden by statute, although (c) Scott V. Broim-Doeriny, McNab db Co., [1892] 2 Q. B. 724. THE LAW OF PABTNERSHIP. 37 independently of the statute there would be no illegality. The statute relied on is the Betting Act, 1853. The first question that arises is this, — Is the business of bookmaking necessarily illegal ? That is to say, must it necessarily be carried on in such a manner as to fall within the provisions of this statute ? The answer to this question appears to me to be in the negative. The Gaming Act, 1845 (8 & 9 Vict, c. 109), did not make betting illegal, this statute, as is well known, merely avoided the wagering contract. A man may make a single bet or many bets, he may habitually bet, he may carry on a betting or book- maker's business within this statute, provided the business as carried on by him does not fall within the prohibition of the Betting Act, 1853. That a betting business may be carried on without con- travening the Betting Act, 1853, is, I think, shown from Doggett v. Catterns {d), where the habitual use of a spot in Hyde Park for the purpose of receiving deposits, to return a larger smu on the contingency of a particular horse winning a race, was held not to be the using of a * place ' for such purpose within the prohibition of the Betting Act, 1853. The next question, is whether the parties intended or contemplated that this partnership business should be carried on in a manner prohibited (d) 19 C. B. (n.s.) 765. 38 THE LAW OF PARTNERSHIP. by the statute. If they did, the partnership was illegal, even though nothing definite might have been said at the time the partnership contract was entered into, as to the mode of carrying on the business. As the partners were not the * oivners, occupiers, or keepers ' of any ' house, office, or room or other place,' it is plain that the case is not within section 1 of the Betting Act, 1853, the case made by the defendant turns on the third section, which prohibits the 2ise of ' any house, office, room, or other place ' for any of the purposes there men- tioned. The plaintiff's evidence came to this : he said, that when he entered into the partnership, he contemplated that the business would be carried on in the ordinary way in which bookmakers usually carry on their business in Tattersall's enclosure at race meetings. He has been cross-examined for the purpose of showing that he had seen bookmakers in the enclosure, standing on boxes, which seem to be ingeniously contrived so as to collapse when the keen eye of authority happens to fall on the book- maker, and he says he has not. The object of the box appears to be to elevate the bookmaker above the heads of ordinary persons, thus making him conspicuous, and also enabling him to be heard in what the defendant and his clerk described as the ' swell's enclosure.' On the plaintiff's evidence, it also appears that, by the rules of Tattersall's THE LAW OF PARTNEESHIP. 39 enclosure, boxes or stools are not permitted to be brought in, and on this point there was no sub- stantial controversy between the plaintiff and the defendant. It is practically admitted, that at English race meetings, the rules are against the bringing into the enclosure of these contrivances; but the defendant says that there are many book- makers, who, by * squaring ' — a euphemistic term for bribing — the gate keeper, do manage to bring these contrivances into the enclosure, or, if this method fails, then they are smuggled in under a mackintosh, or some other article of clothing. The plaintiff's evidence was — and I see no reason to dis- believe him — that as he was previously acquainted with the defendant when he was a clerk to a book- maker he mentioned, a box was not used ; and he said that subsequently, at any rate at Liverpool, where he seems to have attended several meetings, the book- makers do not stand on these boxes in the enclosure. The result of this evidence is, that though the defendant himself might in some instances have smuggled in this box into the enclosure, and used it for the purposes of betting, yet the plaintiff him- self did not anticipate that this would be the mode of carrying on the partnership business. Now, to come back to the question I have to decide, Was it the intention of the parties that this betting business was to be carried on at a * place ' within the meaning 40 THE LAW OF PAETNERSHIP. of the Betting Act, and did the plaintiff contemplate that it would be carried on by means contravening the rules of Tattersall's enclosure? If the defence is to succeed, I must find that the plaintiff did so intend. On this point the materiality of the use of the box is now evident, and the evidence of the plaintiff is important. I am satisfied on the evidence that some of the larger bookmakers, the ' big men ' as the defendant called them, do carry on a bookmaking business in Tattersall's enclosure without violating the statute, though in many cases some other cunning bookmakers carry on their business in the way described by the defendant, so as to bring it within the cases that I have been referred to. On the evidence I hold that it has not been made out that the plaintiff did intend that this business should be carried on illegally, and, consequently, I decide that this second defence fails." (2.) Personal Capacity. Supposing a partnership is formed for a legal purpose, and with a legal number of partners, the next question which arises is as to the personal capacity of the partners. Now, broadly speaking, every one (unless he be a convict or an alien enemy) is capable of being a THE LAW OF PARTNERSHIP. 41 partner. But there are, nevertheless, certain classes of persons who, although capable of being partners, are to some extent exceptions to the general rule that each partner is liable for the debts of the finn. Lawyers have, time out of mind, with brutal frankness, treated of these persons under the one head of " lunatics, infants, and married women." Acting on the maxim " place aux dames,'" let us invert this order, and consider the case of the matrons first. (a.) Married women. — Now with regard to these, perhaps some of you may think that they would be better employed in giving their whole time and atten- tion to that domestic partnership for which nature has eminently fitted them, viz., the management of their homes, and the bringing up of their offspring. However, the law is not so grandmotherly as to restrict people to those callings for which they are best fitted, and it is clear (at all events since 1893) that every married woman is capable of entering into partnership either with her husband or with a stranger. This arises out of the joint operation of the Married Women's Property Acts, 1882 and 1893. By section 1 (2) of the Act of 1882 it was enacted that a married woman (without any limita- tion as to the date of her marriage) should be capable of entering into and rendering herself liable to the 42 THE LAW OF PARTNERSHIP. extent of her separate property on any contract ; but the courts held that this only applied where she had some separate property at the date of the contract . However, by the Act of 1893 (s. l }^his capacity to contract Js no longer conditio nal_upon her having some separate_ property at the date o f the contract. Contractual capacity, therefore, is confer red on all married wo men; but, at the same time, their liability is strictly limited to their separate property, present or future, includ- ing property to which they may be possessed during widowhood. They are, in fact, under no personal liability, and no judgment can be obtained against a married woman personally, but only against her separate property (e) ; and not even against that, during coverture, if she be restrained from anticipa- tion. To put the matter shortly, her property and not herself is liable, and it seems to follow (although so far as I know this has never been judicially decided) that an injunction cannot be obtained to enforce even a negative agreement entered into by a married woman (/). She ^ay, h owever, be made a l^ankrupij, ji sjcie cair ries nn a trRide separately from her (e) Per Lord Esher, M.R., Be Lynes, [1893] 2 Q. B. p. 115. (/) See de Francesco v. Barmim, 43 Ch. D. 165, the case of an infant who had broken her apprenticeship indentures. The reasoning seems to be equally applicable to the case of a married woman who is not personally liable. THE LAW OF PAETNEESHIP. 43 Jmshand, in respect of her separate estate, under_ section 1 (5^ of the Act of 1882. This Hability remains even after the trade is abandoned, if the trade debts are not paid (g). Note, however, that she does not carry on trade " separately from her husband" (and therefore cannot be made bankrupt), where she carries it on in part7iersMp with him (h). Note also, that if a married woman is to be made a bankrupt, it must be by some other form of procedure than a bankruptcy notice; as the statu- tory form of such a notice is not applicable to a judgment against a married woman's separate estate (i). In addition to the powers of contracting conferred upon them by the Acts to which I have referred, there are a few exceptional cases in which a married woman could previously contract. Such cases occurred where the husband was a convict (k) , or an alien enemy living abroad (l), or when, being the (g) Be Dagnall, [1896] 2 Q. B. 407. (/i) Re rnishy, 63 L. J. Q. B. 261. (i) Re Lynes, nbi supra ; Re Rewett, [1895] 1 Q. B. 328. The same objection applies where the married woman trades alone under a firm name, and judgment is obtained against such firm {Re Frances Handford d- Co., reported p. 3 of Times, 13th February, 1899). (k) Ex parte Franlcs, 7 Bing. 762. (I) Barden v. Keverbenj, 2 M. «& W. 61. 44 THE LAW OF PARTNEKSHIP. wife of a freeman of the City of London (n), she carried on trade there separately from him. In these cases it would appear that a married woman could be rendered personally hable. So in equity, where a married woman had property settled to her separate use, she could always enter into valid contracts with regard to it; but such contracts, like the statutory ones, were not enforceable against her personally. On the other hand, after a judicial separation, or after a protection order, a woman is regarded as a feme sole so far as her capacity to contract is concerned, and is therefore personally liable (o). Generally you will see, that although a married woman is capable of entering into other partner- ships besides that of marriage, she is not (unless possessed of large separate estate) a very desirable member of a trading firm ; for while her rights as a_ participator in the profits are unlimited, her liability, both to her colleasfues and to the creditors, are strictly confined to her separate estate which she is not restr ained from anticipating. As a learned but lively member of the Chancery (n) Beard v. Webh, 2 B. & P. 93. (o) 20 & 21 Vict. c. 85, ss. 25, 26, and 21 & 22 Vict. c. 108, ss. 6—10. THE LAW OF PARTNERSHIP. 45 Bar, Mr. Cj'prian Williams, has written in verse at once accurate and pithy : — ' ' Wives are not as single women, nor as men : their plight is better, — For a wife, unless a trader, cannot make herself a debtor. She shall not be sent to prison like a spinster or a man, If she will not pay her judgment creditors, altho' she can. She shall not be made a bankrupt (as may widow, maid, and male). That is, not unless she carry on a separate trade and fail ; Wherefore bless, ye wives, the freedom, which to you tlie Act accords ; Bless the Parliamentary Draftsman, bless the Commons, bless the Lords ; Bless the Judges to whose wit ye owe the statutes' explanation. Bless Lord Thurlow for the clause restraining wives' anticipation." With regard to the effect of a partnership, where one of the partners is a married woman, it is appre- hended that the rights of creditors, and of the other members of the firm, to have the assets of the business applied in payment of debts, is the same as in the case of an infant partner, to which I will now pass on. (B,) Infants. — Now there are infants and infants, and although a child of tender years cannot, in the nature of things, conduct a business, many legal infants of eighteen to twenty-one are perfectly capable of doing so, and, as a matter of fact, there are many of such infant traders. But although infants do often carry on trades, they are dangerous people 46 THE LAW OF PARTNERSHIP. to trust because they cannot be sued for tr ade debts> jior be made bankrupt (^ ). Well, that being so, what is the effect of a partnership between an adult and an infant ? That question was lately discussed in the House of Lords in the case of Lovell d- Christmas v. Beauchamp (q) . It is an important question, because, as Lord Ashbourne dryly observed, " if the adult members of a partnership could evade liability because one of the partners was a minor, minors would be found in many partnerships " ; in fact there would be a premium on minors if such a new career of usefulness were thrown open to them. This, however, is not so. Lord Herschell, in giving judgment, said, " I think it clear that there is nothing to prevent an infant trading or becoming partner with a trader, and that until his contract of partnership be disaffirmed he is a member of the trading firm. But ^jtjj^ equa lly clear that h e cannot contract debts by such trading ; although g^ood s may be order ed for the firm he does not become a debtor in respect of them. JThe adult partner is, however, entitled to insist that the partnership assets shall be applied in payment of the liabilities of the partner- ship, 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 (p) Ex parte Jones, 18 Ch. D. 109. (q) [1894] A. C. 607. THE LAW OF PARTNERSHIP. 47 partner can be made available for the benefit of the ( creditors. It is also clear, that, even if there are circumstances under which an infant can be adjudi- cated bankrupt, or a receiving order may be lawfully obtained as a step towards such adjudication, he cannot be made subject to the bankrupt laws in respect of any debt contracted by the firm of which he is a partner." His lordship then proceeded to point out that, in such cases, the judgment should be either against the adult partner alone, or against the firm excepting the infant partner, and that under a judgment in either of those forms a receiving order might be obtained against the adult partners, and in the proceedings in bankruptcy the partnership assets might be made available for those who may have given credit to the firm. If, on attaining twenty-one, an infant partner wishes to free himself from liability for future debts of the firm, he must determine the partnership at once, otherwise, the shield of infancy having been lost, his position as a de facto partner will make him equally liable with his co-partners. It will not, however, render him liable for debts contracted during his infancy (r). In this respect the Indian (r) Goode v. Harrison, 5 B. & A. 147 ; 24 Rev. Reps. 307. As to an infant's right to recover a premium where he has derived no benefit from the partnership, and has repudiated it on coming of age, see judgment of StirUivj, J., in ll(ii)ullu)i v. Vawjhan -Slier rin, etc. Co., [1894] 3 Ch. 589, 48 THE LAW OP PARTNERSHIP. Contract Act is more severe on an infant than our common law ; for, by section 248, it is enacted that ** a person who has been admitted to the benefit of a partnership under the age of majority, becomes, on attaining that age, Hable for all obligations incurred by the partnership since he was so admitted, unless he gives public notice within a reasonable time of his repudiation of the partnership." In other respects the English law as to infant partners seems to be the same as the law of India. According to the French, and some other con- tinental codes, an infant of the age of eighteen is, with certain consents, able to carry on a trade so as to bind himself as if he were of age (s) , and therefore it is apprehended he may become a partner in such a trade with all its liabilities. In other respects, the French law appears to be substantially the same as our own (t) . (c.) Lunatics. — With regard to lunatics, when a person enters into a contract (such as a contract of partnership) and afterwards alleges that he was insane at the time, and did not know what he was doing, and proves the allegation, the contract is nevertheless as binding on him in every respect, (whether it is executory or executed), as if he had (s) Code de Commerce, Art. 2. (0 See Code Civil, Art. 1124, 1125. THE LAW OP PAKTNERSHIP. 49 been sane when he made it, unless he can prove fm:ther that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about (w). Lunacy is, therefore, not of itself a bar to entry into partnership ; nor does the subsequent lunacy of a partner operate, like death, as an immediate dissolution of the partnership (x), although it is a ground for asking the court to decree a dissolution (y). However, the court will, pending the hearing of such an action, grant an injunction, in a proper case, restraining the lunatic from interfering in the business (z). How necessary this may be, is obvious, when you consider that a lunatic partner is quite capable of binding his co-partners by contracts entered into by him on their behalf, so long as the party with whom he contracts is unaware of his unsoundness of mind. (3.) How FAE A Written Agreement is Kequired, Having now considered the questions of the number of partners, and the exceptional privileges of infant, lunatic and married women partners, I (u) Imperud Loan Co. v. Stone, [1892] 1 Q. B. 599. (x) Jones V. Noy, 2 M. & K. 125. (y) Act of 1890, s. 35. (z) J. V. 5r.,[1894]3Ch. 72. h.p. 00 THE LAW OF PARTNERSHIP. propose to say a few words as to the form of the partnership agreement. Now, with some few exceptions, there is no statute which requires such an agreement to be in writing. It is one of the many anomaHes of our law that, whereas a contract for the sale of a cottage, or for a marriage portion, or for the sale of goods above lOZ. in value where no money passes, must be in writing, and signed by the party to be charged, the agreement regulating a partnership in a business employing 1,000 workmen, and having a capital of 100,000Z., may be merely verbal. Of course, in practice, such contracts, where the business is large, are nearly always reduced into writing, and very generally the terms are embodied in a deed ; but the law requires nothing of the kind, and the terms of a partnership may be proved by parol evidence^ or even inferred from the course of dealing of the parties , and this notwithstanding that the partner- ship property consists of land, or that the object of the partnership is to deal with that land (a). There are two exceptions to this, viz., (1) where the partnership is only to commence at a fu ture date^ exceedin g a year ahead ; and (2) where the partner-^ ship is i ntended to last for more than a year, and (a) Forster v. Hale, 5 Ves. 308 ; 4 Rev. Rep. 128 ; Dale v. Hamilton, 5 Ha. 369 ; 2 Ph. 266 ; Of. Caddick v. Skidmorey 2 D. & J. 52. THE LAW OF PARTNERSHIP. 51 nothing has been done in pursuance of the agree- ment. In both such cases, the fourth section of the Statute of Frauds appHes, which you will remember requires contracts to be in writing and signed where they are not to be performed within a year. Please note, however, that in the case of a partnership exceeding a year in duration, the statute does not apply where the agreement has been partly per- formed. Consequently, when two or more persons have actually carried on a business in partnership under a mere verbal agreement, it is open to one of them to prove that the terms were that it should last for a definite term, notwithstanding that such term may exceed a year. The onus of proof, however, in such cases of course lies in the party who desires to prove the agreement, and where the evidence is conflicting he will presumably be defeated. The point arose in the case of Burdon v. Barkus (b). In that case a colliery lessee entered into partner- ship w^th his manager for working certain seams of coal. Twelve years afterwards, the old pits being useless, new pits were sunk at the partnership expense. Shortly afterwards the parties quarrelled, and the plaintiff (the lessee) gave notice to deter- mine the partnership, treating it as a partnership at will. To this the defendant (the manager) {h) 4 D. F. »fc J. 42. E 2 52 THE LAW OF PARTNEESHIP. objected, alleging that he entered into the partner- ship under a verbal agreement that it was to last during the whole of the term of the lease. It was held that verbal evidence of this was admissible, Lord Justice Turner saying : " The Statute of Frauds is relied upon by the plaintiff in answer to the defendant's case, but whatever the agreement may have been, it has been part performed, and we are bound therefore, as far as may be possible, to ascertain what that agreement was. In considering that question, it is to be observed that the onus probandi rests upon the defendant, not only because the agreement is set up by him, but because the plaintiff has the legal interest in these seams ; and the effect of the agreement alleged being to con- stitute the plaintiff a trustee for the defendant, it must, of course, rest upon the defendant to prove that trust." The evidence being conflicting, the court held that the defendant had not proved his case, and that, consequently, the partnership was one at vdll only. You see, therefore, that whatever latitude the law may allow, no person having any business wisdom would be content with a merely verbal arrangement, the onus of proving which would lie on him ; and, therefore, partnership agreements (or articles of partnership as they are usually called) form a very important branch of conveyancing practice. the law of partneeship. 53 (4.) What Matters should be Settled by THE Agreement. The nature of such a document is a mutual agree- ment (or, if a deed, a mutual covenant) that the parties will carry on business in co-partnership on the terms thereinafter stated. These terms are then set forth in numbered paragraphs, or articles as they are usually called, and no small amount of skill is required in the preparation of these articles when thej'' are (as they frequently are) complicated. Indeed, in no branch of drafting is the wise saying of Solomon, that " without counsel purposes are disappointed," more often justified. Speaking broadly, such a document should provide for the following matters : 1. The nature of the business, the duration of the partnership, and the name of the firm. 2. How the capital is to be provided. 3. The banking account of the firm, and who is to sign cheques. 4. Outgoings and profits. 5. Management of business. 6. Accounts. 7. What is to happen on the death of a partner or the dissolution of the firm. 8. Provisions for the family of a deceased partner. 9. Arbitration clause. 54 THE LAW OF PAETNERSHIP. I shall have occasion to refer to these several points, or some of them, in more detail in subsequent lectures, but it is convenient that I should, at this point, give you some reasons why the foregoing questions should be expressly dealt with by the agreement. In the first place, then, speaking generally, although some of these points might be left to be dealt with by the law, instead of being made the subject of express stipulation between the parties, yet the latter is the better course to adopt even where the express agreement merely states that which the law would imply. As the present Master of the Eolls re- marks (c), "In framing articles of partnership, it should always be remembered that they are intended for the guidance of persons who are not lawyers, and that it is therefore unwise to insert only such provisions as are necessary to exclude the operation of rules which apply when nothing to the contrary is said. Tlie articles should be so drawn as to be a code of directions, to which the partners may refer as a guide in all their transactions, and upon which they may settle among themselves differences which may arise, without having recourse to the court." (c) Lindley on Partnership, 6th ed., p. 412. the law of partneeship. 55 (5.) Eeasons why above Matters should be Dealt With. To descend from generalities to particulars, I will now say a word or two on each of the usual clauses. (a.) Nature of business. — In the first place, then, the nature of the partnership business should be stated, because it is that business, and that only, which the partners agree to carry on, and with regard to which each partner is responsible for the acts of his co-partners. ■ It is therefore in the highest degree desirable that there should be no possibility of dispute as to what constitutes the real business of the firm. (B.) Duration of partnership . — With regard to the duration of the partnership, unless a definite term be named, the general rule (subject to an exception which I shall presently mention) is that the partner- _ship last s only during the will of the part ners. That is an old rule of law, but it is now formulated in section 26 of the Act of 1890. Moreover, where a partnership entered into for a fixed term is continued after that term has expired, and without any express new agreement, the rights and duties of the partners remain the same as they were at the expiration of the term, so far as is consistent with the incidents of a partnership at will. This, again, is now declared by 56 THE LAW OF PAETNEESHIP. section 27 of the 1890 Act ; but it was always the law, as may be seen from the case of Neilson v. The Mossend Co. (d), where Lord Watson &a,id, "When the members of a mercantile firm continue to trade as partners after the expiry of their original contract, without making any new agreement, that contract is held in law to be prolonged or renewed by tacit consent. The rule obtains in the case of many contracts besides that of ]3ai'tnership, and its legal effect is that all the stipulations and conditions of the original contract remain in force, in so far as these are not inconsistent with any implied term of the renewed contract. The main distinction between the old contract and the new in this case is, that the latter is a contract determinable at will. It is an implied term of such a contract, that each partner has the right to instantly dissolve the partnership whenever he thinks proper." The exception to the rule that a partnership is a partnership at will in the absence of express stipulation, is the particular kind of partnership which is usually now called a syndicate. A syndicate is a partnership formed to carry out some one special financial or industrial project, as for instance, to pur- chase, develop, and sell a particular estate, or to erect and sell a particular building. Such partnerships (d) 11 A. C. 298. THE LAW OF PAETNERSHIP. 57 (in the absence of express stipulation) are con- sidered by the court as intended to last until the termination of the adventure which is the subject of the partnership (e). In France, if there be no agreement as to the dm-ation of the partnership, it continues during the joint lives of the partners, unless it is formed for a specific work, when, like our syndicates, it ceases on the completion of such work (/). (c.) Firm name. — With regard to the name under which the business is to be carried on and which is usually called with us the " firm name," and abroad the " raison sociale," partners may trade under any name they please, according to our law, whether it be a combination of their own several names or the names of others, or a name descriptive merely of their business, so long as they do not thereby fraudulently imply that their business is identical with some other competing one. Thus any person may use his own name for the purpose of trade, or may use any fancy name. If a man's name is Brown or Jones he is not com- pelled to carry on trade under the name of Brown (e) See Act of 1890, s. 32, and 3IcClean v. Kennard, L. R. 9 Ch. App. 336. (/) Code Civil, Art. 1844. 58 THE LAW OF PARTNEESHIP. or Jones, but may carry it on under any fancy name he chooses. He may trade as De Montmorentcy if it pleases him, or as the London Egg and Butter Guild. Moreover the mere fact of somebody else having the same name, and carrying on trade under that name, does not prevent another person from doing the same. If John Brown sells coals, another John Brown may sell potatoes, and there is no law to prevent him doing so. Again, nothing can be plainer than that if the first John Brown carried on business under the name not of John Brown, but of John Brown and Co., so might the second (g). Nay, more. Brown may, if so disposed, carry on business under the name, not his own, borne by some other person so long as his doing so is not calculated to deceive the customers of the other jyerson. As James, L.J., said, in Levij v. Walker (h) : It should never be forgotten in these cases that the sole right to restrain anybody from using any name that he likes in the course of any business that he chooses to carry on, is a right in the nature of a trade mark, that is to say, a man has a right to say you must not use a name, whether fictitious or real, you must not use a description, whether true or not, which is intended to represent, or, even (g) Per Jessel, M.R., Merchant Banking Go. of London v. Merchant Joint Stock Bank, 9 Cli. D. p. 563. (h) 10 C. D. p. 447. THE LAW OF PAETNERSHIP. 59 although not intended, is calculated (j) to represent to the world that your business is my business, and so by a misstatement deprive me of the profits of the business which would otherwise come to me. That is the principle, and the sole principle, on which the court interferes. The court interferes solely for the purpose of protect ing the owner of a trade or business from a wro ngful invasion of that busi ness by somebody else. It does not interfere to prevent the world outside from being misled into anything. But where such knavish trick is apparent, the court will interfere to prevent persons trading even under their own proper names. There is the well known case of Croft v. Day {h), the case of Day and Martin, the well known makers of blacking in Holborn, in which there was no longer either a Day or a Martin, both being long since dead. Yet the plaintiffs, who then carried on that business de- riving their title under the original firm, were held entitled to restrain a real "Day" and a real "Martin" from trading under the firm name of " Day and Martin" as makers of blacking; the reason for the injunction being that the name of " Day and Martin " had been adopted by the defendants for the fraudu- lent purpose of representing and holding out to the (i) North Cheshire and Manchester Brewery Co. v. Manchester Brewery Co., [1899] A. C. 83. (k) 7 Bea. 84. 60 THE LAW OF PARTNEESHIP. public that they were the old and well known firm of that name. You will have gathered from what I have said that the fact of a new trader carrying on business in the name of an old trader in the same line, is not of itself illegal, unless he is doing it for the fraudulent purpose of passing off his goods as the goods of his rival, or unless (according to the recent decision of the House of Lords in North Cheshire mid Man- chester Brewery Co. \. Manchester Breioerij Co., [1899] A. C. 83), in the absence of fraudulent intention, it is evident that the effect will probably be that his goods will be purchased in mistake for the goods of his rival. Where the newcomer is not using his own name, that fact, of course, speaks for itself, and goes a long way to prove that he is acting mala fide. Mala fides is not, however, essential in such a case if there is a high probability of the two firms being confounded (Z) . But where he is trading under his own name, and it happens that the old trader has a similar name, then the question becomes more difficult and the law more doubtful. In any case, where the evidence shows that the newcomer is deliberately making a false suggestion, an injunction will be granted (m). But where the evidence shows that (I) North Cheshire, etc. Co. v. MancJiester, etc. Co. ubi supra. (m) Per Turner, L.J., in Burgess v. Burgess, 3 D. M. & G. 896 ; affirmed in Turton v. Turton, 42 Ch. D. 128 ; and Tussaud v. THE LAW OF PARTNEKSHIP. 61 there was no intention to deceive, although the effect will be in all probability to deceive, it seems questionable whether the recent House of Lords case above cited would apply so as to prevent the second comer trading under his own name. Our law as to the freedom allowed in the choice of a firm name, differs widely from that of most continental states. In France the code de commerce recognises three distinct kinds of partnerships, viz., la societi en nom collectif, la societe en commandite and la societS anonyme. The first of these {la societe en nom collectif) most nearly approaches to an ordinary English partnership, being defined by Article 20 as a partnership in which two or more persons agree to carry on business under a firm name {I'aison sociale). This firm name, however, must, by Article 21, be confined to the names of the partners. This rule also prevails in Italy, by section 105 of the Italian commercial code, while section 71 of the Russian commercial code renders it obligatory that the names of all the partners must figure in the firm name. La societe en commandite is a species of partnership prevailing in every European country except our own, being, in effect, a partnership between Tnssand, 44 ib. 678. See also Levy v. Walkei\ 10 Ch. D. 436 ; Levns v. Lewis, 45 Ch. D. 281 ; Saunders v. Sun, etc Co., [1894] 1 Ch. 537 ; Pinet et Gie v. Maison Louis Pinet, [1898] 1 Ch. 179 j and Brinsmead v. Brinsmead, 13 T. L. R. 3. 62 THE LAW OF PARTNEKSHIP. active and dormant partners, in which the latter are only responsible to creditors to the extent of the capital which they have subscribed or agreed to subscribe. In fact, it is very like the " limited partnerships" which (as I mentioned in my first lecture) commercial men erroneously imagined were created by Bovill's Act. These limited private partnerships, by the French, and I believe all other foreign codes, must have a firm name comprising one or more of the active and responsible partners, and excluding the names of the dormant and limited partners. La societe anonynie is the equivalent of our limited joint stock companies, and need not be further mentioned. The German law differs somewhat from the French in this, that although it requires that no other names than those of partners shall in the first instance figure in the firm name of a societe en nom collectif, yet a firm having been once legally constituted, the fact that the partners whose names form part of the firm name retire or die, or sell the business and goodwill to strangers does not necessitate any change in the name (w). (p.) Firm not a distinct legal entitji . — But, although partners are permitted to trade under a firm name, (n) Handelgeotzbuch, 17, 23, 24. THE LAW OF PARTNEKSHIP. OS that does not, according to our law, make the firm a separate and distinct legal persona like a corpora- tion. In Scotland, France, Italy, Germany, Belgium, and Eussia, the firm is a distinct persona ; but with us, I think that the firm name is merely recognised as a convenient symbol or shorthand form for collec- tively designating all the partners regarded as joint creditors or debtors, just as we use " a " and " b" in algebraic computations to designate known quantities, which it would be inconvenient to specify at length. Partners may therefore contract in their firm name, and the contract will be construed, and take effect, as if the individual names of all the members of the firm were substituted throughout for that firm name. At one time this was the only purpose for which the law recognised the firm name at all, so that a firm could not either sue or be sued by it, but all the partners had to be named in their proper names as plaintiffs or defendants (as the case might be). By Order 48a of the Kules of the Supreme Court, this has now been altered, and persons carrying on business within the jurisdiction may^ sue o r be sued in the firm name at the date when the cause of action occurred. Where, however, plaintiffs so sue, they must, on demand in writing, furnish the defendants with the names and addresses of the partners ; and where a firm is sued the partners must (34 THE LAW OF PAETNERSHIP. enter appearance in their individual names. Judg- ment may also be given against the firm as such, and in that case execution may issue against the property of the partnership, or against the individual partners with the exception of any who were out of the jurisdiction when the writ was issued, and who have not appeared or been served with the writ within the jurisdiction, or made co-defendants in their own proper names. These provisions also apply to actions between a firm and one or more of its members, and to actions between firms having one or more members in common, provided they carry on business within the jurisdiction ; but no execution is to be issued in such actions without special leave. From what I have just said, you will see that, although, as a matter of theory, our law still refuses to regard a firm as a distinct legal persona, yet for the practical purposes of contracting, suing, and being sued, the firm is now looked upon as a q2iasi independent entity. (E.) Capital and interest thereon. — The proportions in which the capital is to be subscribed by the partners should be stated in the agreement, and if it is not subscribed equally, provision ought to be made for the payment of interest on capital before the net profits are divided. In the absence of such THE LAW OF PAETNERSHIP. 65 a stipulation interest on capital is not allowed. The necessity of bearing in mind this question of interest on capital is obvious when one considers that there is no necessary inference that partners share profits in proportion to their respective amounts of capital. Suppose, for instance, that A. and B. agree to enter into partnership, A. being a clever and experienced buyer of foreign goods, but having little capital, whereas B., although destitute of technical experi- ence, has the command of large capital. Under these circumstances it may be quite fair and proper although A. brings in only 1,000Z. of capital, while B. subscribes 5,0001., that the net profits should be divided equally. But nevertheless it is also just that before those profits are *" ascertained, each partner should receive interest on his capital, in other words that it should be regarded as a loan to the firm, (F.) Sginature of cheques, etc. — "With regard to the banking account, the articles usually specify the bank, and also state that all cheques and moneys received on account of the firm shall forthwith be paid into the banking account. They generally, also, make some provision as to who is to sign cheques. In the absence of any agreement each partner can sign cheques on behalf of the firm. Where, however, an elderly man takes a young L.P. F 66 THE LAW OF PAETNERSHIP. partner, or, as often happens, promotes a clerk or employee to a share in the business, it is quite usual to stipulate that all cheques shall be signed by the senior partner. (g.) Division of profits. — With regard to profits the inference of law is that they are to be equally jiivided. Where, therefore, this is not the inten- tion, it is very necessary to specify the shares of the various partners. Moreover, as the profits are generally only divided once a year, or once every half year, some provision is usually made enabling the partners to draw out monthly sums for their current private expenses on account of future profits. (h.) Manaaemento f business. — It is usual to specify, in well-drawn articles, whether all or some only of the partners are to have the management, and also that the partner or partners who are to manage the business shall give their whole time to it. In the absence of such stipulations, each partner is entitled to participate in the management, and is bound to attend diligently to business. It is also desirable, in order to prevent disputes, to specify what amount of holiday each shall be entitled to, and how each partner shall be entitled to select the season of his holiday. It is also usual in this part of the deed to insert a stipulation that no partner shall enter into contracts exceeding a THE LAW OF PAETNEESHIP. 67 specified amount without the consent of all the other partners. (l.) Accounts. — Well-drawn articles of partnership always provide for the keeping of regular accounts, and for an annual or sometimes semi-annual balance sheet. As to such provisions the present Master of the Rolls says (_?;) : " The object of taking partnership acj; counts is tw(^f old. viz. {V\ to show how the firm stands^ as regards stran gers, and (2) to show how each partner stands toward the firm. The accounts, therefore, which the articles should require to be taken, should be such as will accomplish this twofold object. The articles should consequently provide not only for the keeping of proper books of account, and for the due entry therein of all receipts and payments, but also for the making up yearly of a general account showing the then assets and liabilities of the firm, and what is due to each partner in respect of his capital and share of profits, or what is due from him to the firm, as the case may be." (j.) Death or retirement of a partner. — In the absence of special stipulation, the death of a partner operates as a complete dissolution of the firm, and necessitates its winding up. A moment's thought, however, will make it clear that this is very {p) Lindley on Partnership, 6th ed., p. 421. F 2 t)8 THE LAW OF PAETNEKSHIP. undesirable in most businesses, and absolutely ruinous in many cases, where a firm have got together a large and valuable connection, and in which that intangible, but very valuable asset called " goodwill," would vanish into air if the firm were liquidated in the usual way. In such cases it is usual and desirable to make provisions for con- tinuing the firm as an artificial entity notwith- standing the death of one or more of the partners. Do not mistake me. I do not mean to suggest that you can make it a distinct legal entity. All that can be done is to provide that the business shall not be wound up, and that, instead, the surviving partner or partners shall continue to carry it on as partners together, the share of the deceased in the assets being ascertained in a specified way, and the amount being paid to his personal representatives in a specified manner. By this means, the continuity of the business is not disturbed, while the sub- stantial interests of the representatives of the deceased partner are preserved. In framing these clauses it is usual and convenient to provide that the last balance sheet, if taken at the date provided by the articles, shall be conclusive as to the amount of the share of the deceased in the assets, but that if from any cause such balance sheet shall not have been taken, then that the omission shall be remedied, the personal representatives of the THE LAW OF PAETNERSHIP. 69 deceased joining with the surviving partners in taking the necessary account. It is also a convenient plan to provide that the personal representatives of the deceased shall be entitled to some fixed allowance, or a rate of interest on capital, in lieu of current profits since the last balance sheet. If this be not done, it will be necessary to take an account of profits from the last balance sheet down to the death of the deceased. What I have just said is merely an outline of the simplest form of arrangement in relation to the death of a member of a firm. There are, however, many other forms. Sometimes the personal representatives succeed to the share of the deceased as dormant partners. Sometimes an annuity is made payable to his widow or personal representatives out of the profits (which you will remember does not make the recipients partners). Sometimes there are provisions enabling the deceased to nominate a successor by his will, but in that case the articles should provide that such successor should be bound to execute a deed agreeing to be bound by the articles. What I have just said in relation to provisions providing for the death of a partner, equally applies to the case of a partner who desires to retire from business. 70 THE LAW OF PAETNERSHIP. (k.) Arbitration. — The final clause in articles of partnership is almost invariably an arbitration clause. Put shortly, the reason for such a clause is the proverbial one, that it is better to vt^ash dirty linen at home. Nothing injures a business so much as the knowledge that the partners are in a state of litiga- tion, and it is, consequently, well recognised that a tribunal of private arbitration is much wiser in the interests of all parties than the pubHc courts. On the continent they lay so much stress upon this, that, by the French commercial code and others founded upon it, partnership disputes must be always referred to arbitration, and if a party declines to name an arbitrator the Tribunal of Commerce will nominate one on his behalf. Such are the clauses usual in English partnership deeds, and on a future occasion I shall draw your attention to the rights of the partners inte7- se so far as the partnership articles are silent. ( 71 ) LECTURE III. THE EELATION OF PAKTNERS TO PERSONS DEALING WITH THEM. It is often said that the law of partnership is a branch of the law of principal and agent. Certainly, so far as the subject of this lecture is concerned, the statement is perfectly true ; for the reason why the partners collectively are liable for the acts or defaults of each of them is that each partner is prima facie the agent of the firm and of each of his co-partners (a) . It must not be imagined, however, that a partner can bind the firm to any engagement into which he may purport to enter on its behalf, any more than an ordinary agent can so bind his principal. In fact, like any other agent, he can only bind his principal (the firm) to the extent of his actual or apparent authority. (1.) Test op Liability is the Apparent as Distinguished from the Actual Authority., Now actual authority does not necessarily mean express authority. It no doubt includes all express (a) Act of 1890, s. 5. 72 THE LAW OF PARTNERSHIP. authorities in cases where there are any, but in every case it includes that general authority with which, in the absence of express prohibition, the law clothes every partner to do all acts necessary or proper for carrying on the firm's business in the way usual in businesses of a like nature. Now in many firms none of these acts are pro- hibited, and in such cases the actual authority of each partner is, at least, as great as his ostensible or apparent authority. But, on the other hand, it is quite common to find partnership agreements in which the indi vidual partners^ or some of them, are_ expressly p rohibited fro m doing cer tain act s. For instance, nothing is more usual than to find a clause prohibiting a partner from buying, ordering, or contracting for any goods or articles for the use of the firm exceeding a certain value without the consent in writing of the other partners. In such cases the actual authority is less than the ostensible or apparent authority, and if a partner does a prohibited act — exceeds his actual authority in fact — the question at once arises whether what he has done was within his ostensible or apparent authority or not. If it was, then, although it was expressly forbidden by the partnership agreement, the firm will be bound, unless the person who dealt with the partner knew of the prohibition ; for if he knew of the prohibition it goes without saying that the firm THE LAW OF PARTNERSHir. 73 will not be bound. In that case, so far from having apparent authority, it would be apparent that he had none. Indeed, section 8 of the Act of 1890 is explicit on this point. Now what is the principle on which this doctrine of ostensible or apparent authority as distinguished from actual authority depends? In my opinion, it is a deduction from the doctrine of estoppel by conduct, viz., that if a man so conducts his business as to mislead others he must bear the consequences. Therefore if one employs another to transact a particular class of business for him, he is estopped from denying that the agent had authority to do any acts which are usually ancillary to the transaction of that class of business. In short, a principal must not blow hot and cold. He must not mislead innocent third parties by holding out another as his agent in relation to the conduct of a business, and then, when a particular transaction does not suit him, repudiate the agency on the ground that in details the agent has exceeded or disobeyed his instructions. For instance, where a man employs an agent to sell goods, he cannot repudiate a sale on the ground that the agent has sold for less than a minimum price in disobedience to his orders, or on the ground that the sale was made for credit contrary to express instructions. Now if (as I apprehend) the principle of the doctrine_ 74 THE LAW OF PARTNEESHIP. as to ostensible authority depends on the third party having been misled, it would follow that where he was not misled (as, for instance, in the case of sleeping partnerships, where the third party thinks that the party with whom he deals is, in fact, the sole principal, and therefore does not give credit to the real principal) the latter will not be liable if the ostensible partner has exceeded his actual authority. I myself believe that to be a correct statement of the law of agency generally, and certainly it now is so with regard to the agency of partners. But I am bound to say that it is inconsistent with a decision of the Queen's Bench Division in the recent case of Watteau v. Femvick, [1893] 1 Q. B. 346, in which Mr. Justice Wills (with the concurrence of the late Lord Coleridge) laid it down that in the case of a dormant partner no limitation of authority as between^ the dormant and the active partner will avail the, dormant partner as to things within the ordinary authority of a partner. His lordship's attention does not seem, however, to have been called to section 5 of the Act of 1890, which, I apprehend, is only declaratory of the previous law. By that section it is declared that " 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 THE LAW OF PARTNERSHIP. 75 firm of 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 beHeve him to be a partner." The dictum of Mr. Justice Wills seems to be quite inconsistent with this section, and, as the decision is questioned by the present Master of the Kolls, I venture to think that it is erroneous. (2.) What Acts are within the apparent Authority of a Partner. The power of a partner to bind the firm being limited to his actual or ostensible authority, the practical result is, that whenever a question arises as to whether the firm is bound by the act of a partner, the question at once arises, was the act one which, in the absence of notice to the contrary, a third person would be ju stified i n regarding as within the ost ensible or apparent authority of each of the_ partners? If that question be answered in ^he affirma tive, then the que stion of ac tual authorit^us immater ial. Let us then consider what acts are within the ostensible authority of a partner. (a.) The Act must be clone in relation to tJie^ partner sliii) business. — Now, in the first place, in 76 THE LAW OF PARTNEESHIP. order to bind the firm, the act must be one done in relation to the partnership business. If A. and B. carry on business as butchers, a contract signed by A. in the firm name to supply furniture would not be binding on B. unless made with his express authority. By the mere fact of taking him as a partner B. never made A. his agent for such a purpose either actually or ostensibly. For the business is actually and also ostensibly that of a butcher, and not that of a furnisher, and a third party cannot reasonably assume that in such a case a partner has authority to pledge the firm to a transaction which is altogether foreign to its ostensible one. This rule of law is summed up in section 7 of the Act of 1890 as follows : " Where one partner pledges the credit of the firm for a purpose apparently not connected with the firm's ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other partners ; but this section does not affect any personal liability incurred by any individual partner." It is appre- hended that this last proviso is intended to meet the case of A., one of several partners. A., B., C, and D. having so acted as to mislead the third party into the belief that B, had the authority of the firm to enter into a contract on their behalf, or of A. having given B. actual authority to bind him (A.). THE LAW OF PARTNERSHIP. 77 (B.) Must be act for carnjing on business in the usual_ ^oaij^ — The matter is fairly simple where the act in question is obviously one foreign to the usual business of the firm. The difficulty arises when the act, although plainly done in relation to the partnership business (for instance, referring a dispute between the firm and the third party to arbitration), is alleged by the firm to be one which was not within the ostensible authority of a single partner. Now the 5th section of the Act of 1890 does not give one much assistance here, for it merely describes the acts which a partner has ostensible authority to do, as acts "for carrying on in the usual loaij business of the kind carried on by the firm." It is therefore necessary still to examine the authorities prior to 1890, to see whether they throw any light on the question, what are acts for carrying on the business in the usual way. The Privy Council case of Bank of Australasia v. Breillat {b), 6 Moo. P. C. 193, is, I think, the leading authority as to this, and it was there broadly laid down that in the absence of express prohibition, the actual authority (and therefore, in the absence of notice of any such prohibition, the ostensible or apparent authority) of a partner in a general commercial partnership, extends to pledging (c) (6) 6 Moo. P. C. p. 193. (c) Ex parte Bonbonus, 8 Ves. 540 ; Butchart v. Dressery 4 De G. M. & G. 542. 78 THE LAW OF PARTNERSHIP. and selling (d) the partnership goods, bujdng goods on account of the firm (e), borrowing money (/), contracting debts, and paying debts on its account, and drawing, making, signing, indorsing, accepting, transfering, negotiating, and procuring the dis- counting of negotiable instruments. In addition to these acts, a partner may engage servants for the firm's business (^), may receive, and give good receipts for debts due to the firm {h), and may (according to the best authorities) probably create an equitable mortgage of the firm's lands or buildings by a simple deposit of deeds (i) . He may also probably retain a solicitor to conduct an action for recovering debts due to the firm (k). Where, however, the business is not of a commercial nature, (e.g., where it is a professional business {I), or even the business of a farmer (in), or a quarry worker (n), (d) Dore v. Wilkinson, 2 Stark. 287. (e) Bond v. Gibson, 1 Camp. N. P. 185 ; 10 Rev. Reps. 665. (/) Lane v. Williams, 2 Vern. 277. {g) Beckham v. Drake, 9 M. & W. 79. (h) Porter v. Taylor, 6 M. «& S. 156 ; 18 Rev. Reps. 338 ; Stead V. Salt, 3 Bing. p. 103 ; 28 Rev. Reps. p. 603. (i) Lindley, 6th ed., 152 ; and see Be aoucjh, 31 Ch. D. 324. (/:) Court V. Berlin, [1897] 2 Q. B. 396 ; and see, also, Under- wood V. Lewis, [1894] 2 Q. B. 306 ; or for defending an action, Tomlinson v. Broadsmith, [1896] 1 Q. B. 386. (I) Hedley v. Bainbridge, 3 A. & E. (n.s.) 316. (m) Greenslade v. Dower, 7 B. & C. 635 ; 31 Rev. Reps. 272. (n) TJiicknesse v. Bromilmv, 2 Cr. & J. 425. THE LAW OF PARTNERSHIP. 79 where there is no buying and selhng of goods) he cannot accept, make, or issue negotiable instruments (other than ordinary cheques) (o), nor borrow or pledge the partnership property. In no case, whether the business be commercial or non-com- mercial, has a partner ostensible authority to do any of the following acts : He cannot execute a deed (p) (e.g., a legal mortgage) on behalf of the firm ; for an agent cannot bind his principal by deed unless his authority to do so is expressly conferred by deed (q) ; nor can he give a guarantee in the finn. name (unless a trade custom be proved) (r) ; nor submit a dispute to arbitration (s) ; nor accept property {e.g., fully paid up shares in a company) (t) in lieu of money in liquidation of a debt due to the partnership ; nor make his partners, partners in another business (u) ; nor authorise a third person to make use of the name of the firm in legal or other proceedings (x) . {<>) Laws V. Rand, 3 C. B. (n.s.) 442 ; Forster v. Mackreth, L. R. 2 Ex. 163. (p) Harrison v. Jackson, 7 T. R. 207 ; 4 Rev. Reps. 422. {q) Berkeley v. Hardy, 5 B. & C. 355 ; 29 Rev. Reps. 261 ; Harrison v. Jackson, 7 T. R. 207 ; 4 Rev. Reps. 422. (r) Brettel v. Williams, 4 Ex. 623. (s) Stead v. Salt, s^ipra ; Adams v. Bankart, 1 C. M. & R. 681. (t) Niemann v. Niemann, 43 Ch. D. 198. (it) Singleton v. Knvjht, 13 A. C, 788. (cc) Marsh v. Josejih, [1897] 1 Ch. p. 213. 80 THE LAW OF PARTNEESHIP. (c.) Must h e an act done qua jpartiier, and not qwl individual. — Well now, assuming that a member of a firm has entered into a contract with a third party, in relation to a matter which is within the scope of the partnership business, and is within the scope of his actual or ostensible authority, does such a con- tract necessarily bind the firm ? The answer is — no, not unless he entered into the contract in his character as a partner. It is conceivable that he may have entered into the contract as principal and not as an agent for the firm, and in such case the firm will not be liable. But, of course, if the partner entered into the contract in the firm name, or in relation to the firm business, no doubt could be entertained that he contracted as agent for the firm. Indeed it is enacted by the 6th section of the Act of 1890, that, " An act or instrument relating to the business of the firm and done or executed in the firm name, or in any other manner showing an intention to bind the firm, by any person thereto authorised, whether a partner or not, is binding on the firm and all the partners. Provided that this section shall not affect any general rule of law relating to the execution of deeds or negotiable instruments." (3.) Liability for Torts. So far we have been considering the liability of a firm for the contracts or engagements entered into THE LAW OF PAETNEBSHIP. 81 by one of its partners on its behalf. However, the habihty does not end there, for a firm, and each of its members, is also liable for the torts of one of the .. partners if committed in the ordinary course of the firm's busines s, but not for torts committed by him outside the scope of his apparent an d jostensible author ity as p artner. The law on this subject is not perhaps very easy to understand, and certainly it is very difficult to explain orally, but I may perhaps make it easier by pointing out that the liability of a firm for the tortious acts of a partner rests on pre- cisely the same principles as the liability of a master for the tortious acts of his servants, inasmuch as both are merely branches of the law of principal and agent. So far as partnership is concerned, the principle is now stated authoritatively in the 10th and 11th sections of the Act of 1890, in the following words : " 10. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business., of the firm, or with the authority of his - ee-partners, loss or in jury 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 (ay. "11. In the following cases; namely — " (a.) Where one partner acting within the scope of "" his apparent authority receives the money (a) See Moore v. Knight, [1891] 1 Ch. 547. L.P. C 83 THE LAW OF PARTNERSHIP. or property of a third person and misapplies_^ it; and " (b.) Where a firm in the course of its business^ receives money or p rop erty of a thi rd person, and the money or property so re ceived is misappHed by one or more of the p artners while it is in the custody of the firm ; *' the firm is Hable to m ake good the loss." (a.) Liahilit u for torts other than f raudulent mis- appropr iations. — Let us consider these in detail. You will perceive that section 10 refers to ordinary torts and section 11 to specific torts in the nature of fraudulent misappropriations of property. With regard to section 10, in order to render the firm liable, the tort must be a wrongful act or omission of a partner— committed or made, either (1) with the authority of his co-partners, or (2) in the ordinary course of the firm's business. If, therefore, it was committed or made without the actual authority of the co-partners, and outside the scope of the partner's ostensible authority, the firm will not be liable any more than it would be for a contract entered into under similar circumstances. Now perhaps some of you may at first fail to understand how any wrongful act, which is not authorised by the other members of the firm, can fall within the scope of a partner's ostensible authority. THE LAW OF PARTNERSHIP. 83 Can the law assume, in the absence of evidence, that an individual partner had apparent or ostensible authority to commit a tort on behalf of the firm of which he is a member, especially where (as some- times happens) the tort is also a crime ? No doubt that view has occurred to many generations of students when studying our law of torts, but the answer is, that. although, no doubt, the firm cannot be assumed to have given one of its members authority to commit a wrong, yet, where it has given him actua l or ostensible authority to do a class of acts_ on its behalf, it is liable for his t ort either in the manner of doing such acts, or in doing them under circumstances in which they ought not to have been done at all. Thus (to take the analogy of the law of master and servant), a master is liable if his coach- man, in the course of his employment, carelessly drives over a pedestrian ; or if his workman negli- gently drops a stone from a scaffold on to a bystander. But, on the other hand, if the coach- man, while his master is away from town, takes his sweetheart for a drive in the park in the master's carriage, and, owing to the charms of the lady, fails to see some unfortunate wayfarer and breaks his leg, the master is not liable, because the servant was certainly not acting in the service for which he was engaged. The fact that he has committed a tort against his master by appropriating his carriage for o 2 84 THE LAW OF PARTNEKSHIP. amatory purposes does not make the master liable for consequent torts to third parties. As was well said in the judgment of an American court in Mott V. Consumers' Ice Co. (73 N. Y. Keps. 543) : " For the acts of a servant, within the general scope of his employment, while engaged in his master's business, the latter is responsible. Whether the act be done negligently, wantonly, or even wilfully, the quality of the act does not excuse. But if the servant, without regard to his service or his duty therein, or solely to accomplish some purpose of his own, acts maliciously or wantonly, the master is not I liable." And again, in Colman v. Dry Dock Co. (69 N. Y. Keps. 170), the rule was thus laid down : *' A master is liable for the wrongful act of his servant to the injury of a third person, where the servant is engaged at the time in doing his master's business, and in acting within the general scope of his authority, although he is reckless in the performance of the duty, or through lack of judgment or dis- cretion, or from infirmity of purpose, or under the influence of passion aroused by the circumstances, goes beyond the strict line of his duty and inflicts unnecessary and unjustifiable injury." Thus, where the driver of an omnibus wilfully, and contrary to express orders, pulled across the road in order to obstruct a rival " 'bus," thereby causing a collision, it was held that the master was liable, THE LAW OF PARTNERSHIP. 85 Willes, J., saying: " Of course one may say that it is no part of the duty of a servant to obstruct another omnibus ; and in this case the servant had distinct orders not to obstruct the other omnibus. I beg to say that in my op inion these instru ctions were perfect ly immateriah If they were disregarded, the law casts upon the master the liability for the acts of his servants in the course of his employment, and the law is not so futile as to allow the m aster. by giving secret ins truction s to his serva nt, to set aside his own liability ." The case of Poulton v. London and South-Western Bail. Co., L. E. 2 Q. B. 534, seems at first sight to be inconsistent with the above case. There a station-master, having demanded payment for the carriage of a horse conveyed by the defendants, arrested the plaintiff and detained him in custody until it was ascertained by telegraph that all was right. The railway company had no power whatever to arrest a person for non-payment of carriage, and therefore the station-master, in arresting the plain- tiff, did an act th at was wholly illegal, not in the mode of doing it, but in the doing of it at all. Under these circumstances, the court held that the railway company were not responsible for the act of the station-master ; and Blackburn, J., said : " In Limpus V. General Omnibus Co., the act done by the driver was within the scope of his authority, though 86 THE LAW OF PAETNERSHIP. no doubt it was a wrongful and improper act, and, therefore, his masters were responsible for it. In the present case, an act was done by the station- master completely out of the scope of his authority, which there can be no possible ground for supposing the railway company authorised him to do, and a thing which could never be right on the part of the company to do. Having no power themselves they cannot give the station-master any power to do the act." Applying these principles to the case of partners, you will see at once that a firm of solicitors would be liable for the professional negligence and unskil- fulness of one of the partners {Blyth v. Fladcjate, [1891] 1 Ch. 337) {a). Similarly, a firm of surgeons would be liable for the unskilful treatment of a patient by a member of the firm. So, a firm of engineers would be liable for the negligence of a partner in the design or construction of works. - But a firm will not be liable for a tort committed by a partner outside the scope of his ostensible authority (6), as, for instance, where he wrongfully commences a malicious prosecution for an alleged theft of partnership property {ArhuckU v. Taylor, 3 Dowl. P. C. 160). For such a proceeding is not within the scope of his ostensible authority, as it has nothing to do with carrying on the business of (o) See also Marsh v. Joseph, [1897] 1 Ch. 213. {h) See Mara v. Browne, [1896] 1 Ch. 199. THE LAW OF PARTNERSHIP. 87 the firm in the ordinary way. Indeed, it is difficult to imagine a case in which (without express authority, or, what is the same thing, subsequent ratification), a firm would be liable for the violent acts of a member against the person or liberty of a third party. On the other hand, it is of course quite easy to see that a firm of newspaper proprietors would be liable for a libel inserted by an editor partner, or that a firm of company promoters would be liable for a fraudu- lent prospectus issued in the course of business by an individual partner. In all these cases the inquiry is simply whether the wrongful act or omission was done or made in the course of the partner's duty as such, or outside of it. There is one tort f rom which the firm is sp ecially exem pted from liability by statute (viz., 9 Geo. 4, c. 14, s, 6), by whic h it is enac ted, that th e firm is_ not to be liable for the false and fraudulent repre^: sentation as to the character or solvency of any person, unless the representation is in writing signed by all the partners. The signature of the firm name is insufficient even although all the partners were privy to the misrepresentation {Stvlft v. Jewshunj, L. E. 9 Q. B. 301). (B.) Liability for fraudul ent misap p ropria tions . — "With regard to the special torts referred to in section 11, viz., the misapplication of money or 88 THE LAW OF PARTNEESHIP. property by a member of the firm, the liabihty arises in two cases, viz., (1) where a partner acting within the scope of his apparent authority receives the money and misappHes it, and (2) where the firm receives the money in the course of its business and one or more of the partners misapply it. Cases under this section mostly occur in the case of solicitors and bankers, and the question almost always resolves itself into this, Was the acceptance of the money or property by the defaulting partner within the scope of his apparent authority or not ?_ Now some of these cases have, I think, laid down certain definite rules of law as to what acceptances are, and what acceptances are not, within the ordinary scope of a solicitor partner's authority, but others, although figuring in the law reports, really turn on evidence of partnership usage tending to prove actual as distinguished from ostensible or apparent authority, and therefore decide no general principles of law at all. The leading cases in which principles of law as to this question have been laid down are, I think, Harmmi v, Johnson, 2 E. & B. 61, and Earl of Dundonalcl v. Masterman, 7 Eq. 504. In the head- note to Harman v. Johnson the law is stated as follows : " T he receipt of money by one of a firm of attor neys from a client, p rofessedly on behalf of the firm, for the general purpose of i nvesting it is as soon -THE LAW OF PARTNEESHIP, 89 as he can meet with a good security, is not a n act within the scope of the ordinary business of an attorney, so as, without further p roof of authority from his pnrt Tiers, to render them hable to account for the mon ey so deposited ; such a transaction being part of the business of a scrivener, and attorneys, as such, not necessarily being scriveners." But though! the law may be so stated, no one will deny that a course of conduct may be pursued which may convert the act of a partner for which the other members of the firm would not be otherwise liable into one for which they will be responsible. In the other case (namely, Earl of Dundonalcl v. Master- Tuan), the head-note is as follows: "Money received by one member of a firm of solicitors in the course of the management and settlement of the affairs of a client of the firm, is money paid to the firm in the course of their professional business, and, conse- quently, the members of the firm are liable to make good any loss occasioned by the negligence or dishonesty of their partner by whom such money was received." In that case the plaintiff being under pecuniary pressure employed the firm in reference to arranging his affairs, and the particular sum received by the partner was received by him in performance of the duties for which the firm was employed. Two other cases, viz., Cleather v. Twisden, 28 Ch. D. 340, and Bhodes v. Monies, [1895] 1 Ch. 236, are 90 THE LAW OF PARTNERSHIP. ^ sometimes cited by text writers as deciding, as a legal principle, that it is not within the ostensible or apparent authority of a partner in a solicitor's business to accept documents for safe custody, but that it is to accept documents in connection with a mortgage transaction which he is carrying through. When carefully examined, however, they decide no question of principle at all, for in the first it was admitted by the plaintiffs that such a transaction was beyond the ordinary scope of the business of solicitors, and therefore any decision on that point would have been superfluous ; and the second case turned on evidence of partnership usage from which the court inferred actual authority. It need scarcely be pointed out that a firm is not liable for the act of a partner who happens to be a trustee, and, who, without the knowledge of his co-partners, brings the trust funds into the business as part of his capital. No one could contend that such a transaction was one within the scope of a partner's authority, and, indeed, out of abundance of caution, Parliament has authoritatively stated the law as to this in section 13 of the Act of 1890. Of course, however, beneficiaries may follow the trust fund into the trustee's share of the assets of the firm if they can trace it, but that is a matter of trustee law and has nothing to do with the law of partnership. THE LAW OF PARTNERSHIP. 91 So much for the first part of section 11. Let us now turn to the second part, viz., the case where a firm, and not merely a partner, receives money or property, and it is afterwards misappHed by one or more of the partners. In such cases no question of partnership authority to receive the property arises, becausc .ea; huvothesi. the firm, as a firm, has accepted the baihnent ; and the only question is. whether, as a matter of fact, it has been misapplied by one or more of the partners. I would, however, warn you, that in order to bring a case within this sub-section, the misapplication must be made while the original bailment continues. Thus, where a firm of solicitors accepts from a client money to be invested on a specific mortgage a7id it is so invested, the subse- quent fraud of one of the partners who induces the mortgagor to repay the money to him and absconds with it, wall not render the firm liable ; for the misapplication is not made while the money is in the custody of the firm (ij). (4.) When Liability Joint, and when Joint AND Several. Having now discussed the liability of the firm for the acts ex contractu and ex delicto of the individual partners, the next question to which I invite your (y) /S'ims v. Brutton, 5 Ex. 802 ; 20 L. J. Ex. 41. 92 THE LAW OF PABTNERSHIP. attention is hoio the members of the firm are liable. The answer to this question is now contained in sections 9 and 12 of the Act of 1890, and is, that every partner is liable jointly with the other partners for all debts and obligations {i.e., contracts) of the firm incurred while he is a partner, and after his death_ his e state is also severally liable, as I shall show in a subseq uent lect ure. But with regard to torts, the partners are liabl e, not o nly jointly, but also severally. The net result of this rule is, that with regard to debts and contractual obligations, the plaintiff can only bring one action, and not several actions, against the members of the firm. He is not, how- ever, bound to join all the members of the firm ; but if he does not choose to do so he loses his rights against those whom he has omitted. The court may, at the instance of any defendant, order the omitted members of the firm to be added as co- defendants. With regard to torts, on the other hand, the plaintiff may issue separate writs against each partner, either contemporaneously or successively; so that if the first one sued, becomes bankrupt, the fact of his having sued him alone, would be no bar to a second action against another of the partners. At common law, where one of two joint con- tractors was sued alone, the defendant had a right to compel the joinder of the other by means of what was called a plea in abatement. But by the statute THE LAW OF PAETNEESHIP. 93 3 & 4 Will. 4, c. 42, s. 8, it was provided that no such plea should be allowed unless the person whose non-joinder was pleaded were stated in the plea to be within the jurisdiction, and his place of residence stated and proved. Then, by the Judicature Acts, pleas in abatement were abolished altogether, but large discretionary powers were given to the court as to ordering the joinder of parties. Consequently, although a defendant can no longer plead the absence of a joint debtor in abatement, he can apply to the court to add him as a co-defendant ; but the court will not do so where he is out of the jurisdiction, "unless it is quite clear that his joinder will not delay or harass the plaintiff (z). ..The rule as to the joint nature of the contractual .claims against a firm, sometimes leads to hardship. Thus, in the leading case of Kendall v. Hamilton, 4 A. C. 504, a creditor sued the ostensible m embers of a firm and got judgment, but was unable to levy sufficient to satisfy his debt. He subsequently discovered that there was a wealthy sle eping partner, and forthwith commenced an action against him. It was, however, held, that the debt w as a joint and not a several one> and that having already recovered judgment against some of the members of the firm, the plaintiff could not commence fresh proceedings (z) WUson dh Co. V. Balcarres, etc. Co., [1893] 1 Q. B. 422. 94 THE LAW OF PARTNERSHIP. against the sleeping partner, it being well settled that a judgment against some of several joint contractors, is, even without satisfaction, a bar to an action against another of them alone. If, however, the claim had been for a tort instead of a debt, th e seco nd action w ould have been main- tainable. This rather absurd distinction does not prevail in Scotland, nor on the continent, where partnership debts and contracts are several as well as joint. With regard to the extent of a partner's liability, each is liable f or the whole of the d ebts and liabilities of the firm, an d even although judgment be obtained against all jointl y, it may be enforced against one only, leaving all questions of c ontribution to be settled afterwards betw een the p artn ers (a ). (5.) Duration of the Liability. "We now come to the duration of a partner's liabihty for the firm and his other partners. In other words, from what date do the firm and his co-partners become his agents, and at what date does that agency cease? Speaking broadly, the agency commences when he becomes a partner, and ceasea as to future acts, when either he retires from the firm (the business being continued by the other (a) Abbott V. Smith, 2 W. Bl. 947. THE LAW OF PAKTNERSHIP. 95 partner or partners) or in the event of a dissolution and winding up of the business, at the date when the liquidation is fully complete and ended (6). But after dissolution the agency is lim ited to aots strictl Y_ necessary for completing the liquidation (c)^ (a.) New partner not liable for old £?e&^s»r7-Thus a new partner, admitted into an old firm, is not liable for the liabilities existing at the date when he joins (d) ; for merely joining an existing firm does not imply that the joining partner adopts and takes over the existing liabilities. No doubt he can do so, and make himself directly liable to the old creditors, by a process called novation, to which I shall presently advert ; but novation implies an agreement with the creditor, either express or inferred from conduct. Other countries do not follow our law in respect to debts incurred before the admission of a new partner. For instance, the Italian Commercial Code (e) renders a new partner liable, equally with the old ones, for engagements contracted by the firm before his admission. (B.) Betiring partner not liable for future debts,-^ So, conversely, a partner who retires from a con- tinuing firm does not thereby cease to be liable for (b) Act of 1890, s. 38. (c) Smith V. Winter, 4 M. & W. pp. 461, 462. (d) Act of 1890, s. 17 (1). (e) Cod ice Commerciale, Art. 78. 96. THE LAW OF PARTNERSHIP. the existing liabilities. As between himself and the continuing partners, there may be (and very often^ 4,s) an agreement that the existing liabilities shall be_ borne by the continuing partners alone ; but that cannot rele ase the ret iring partner from his liabilities,, to third parties. In fact, here again, express release or novation is the only way in which he can be freed. (c.) Novation may negative above rules. — What, then, is novation? It is a tripartite agreement_ between the creditor, the partner who is either joining or retiring, and the other partners, by which a new agreement with the creditor;..Ja.__ substi- tuted for the old one^^ either making a new partner liable for old debts, or releasing a retiring partner, and accepting in his place the credit of the con- tinuing partners either alone or plus any new partners (/). Such an agreement may be express, ■or implied from a course of dealing between the creditor and the firm as newly constituted {g) . The cjuestion is always one of fact, and, in the absence of -express novation, the court is very shy of inferring it from the course of dealing; and the mere adoption by the creditors, of the new firm as their debtor, does not of itself discharge the retired partner. (/) See Scarf v. Jardine, 7 A. C. at p. 351. (g) Act of 1890, s. 17 (2). See Jaegers, d-c. Go. v. Walker ^ '77 L. T. 180. THE liAW OF PARTNERSHIP. 97 On the other hand, a novation is not void for want of consideration (h) ; and where the creditor knows of the change in the constitution of the firm, and continues to deal with the new firm, making no claim on the retiring partner for a long period, a novation vnll be inferred (i), and the acceptance of a bill of exchange or other security for the debt from the new firm, is strong, although not conclusive, evidence of novation (k). The question is always a difficult one, and you will find the cases elaborately discussed by the present Master of the Eolls in his great work on partnership. (d.) Necessity for retiring ;partner to notify his re-^ tirement. — But although, in the absence of novation, a partner who retires from a firm cannot rid himself from the liability for past debts, he ceases to be liable for the future liabilities of the new firm, because, by retiring, he cancels the agency. But (and this is of the utmost importance) he must notify that the agency is cancelled both, publicly, in the Gazette, and also, privately, by actual notice to each of the customers of the old firm (l) . The justice (h) Thompson v. Percival, 5 B. & Ad. 925. (i) See Rolfe v. Flower, L. R. 1 P. C. 27 ; Bilhorough v. Holmes, 5 Ch. D. 255. (k) Swire v. Redman, 1 Q. B. D. 536 ; Be Head, [1893] 3 Ch. 426. (0 Graham v. Hope, 1 Pea. 208 ; 3 Rev. Rep. 671. L.P. K 98 THE LAW OF PARTNERSHIP. of this requirement is obvious, for a person who deals with a firm is entitled in common fairness to treat all apparent members of the old firm as being still members until he has notice of the change, or until any partner dies. This rule as to the necessity of notice is now summed up in section 36 of the Act of 1890. It does not apply to a dormant {i.e., a secret partner), except, of course, with regard to customers who are in the secret ; for cessante ratio?ie cessat lex. (6.) Doctrine of "Holding- out." And this brings me to what is commonly called the doctrine of " holding out." This doctrine is stated in section 14 of the Act of 1890, as follows : "14. — (1.) Every one who by words s poken or_ writt en, or by co nduct, represents himself, or who_ knowingly suffers himself to be represented, as a partner in a particular firm, is liable,,as_aj>artner to_^ any one who^_^has, o n the f aith of any such repre-^ sentation^ given credit to the firm, wh ether the repre sentation has or has not been made or com- municated to t he person so giving credit b y or with the knowledge of th e appare nt partner making Jhe. represen tation or suffering it to be made. " (2.) Pr ovided tha t where after a partner's death the partnership business is continued in the old-firm name, the continued use of that name, or the deceased THE LAW OF PAETNERSHIP. 99 p artner's name as part thereof, shall not of itself make his executors or administrators, estate or effects, liable for any partnership debts contracted after his death^" The doctrine of " holding out " is a branch of the doctrine of estoppel. If a man holds himself out as a partner in a firm, and thereby induces another person to act upon that representation, he is estopped as regards that person from saying that he is not a partner. The representation may be made either by acts or by words ; but the estoppel can be relied upon only by the person to whom the representation has been made in either way, and who has acted upon the faith of it (vi). It is immaterial that the holding out was not communicated directly by the party holding out to the creditor. It is equally fatal to the former if the news was communicated to the latter by a third party (71). It is really on this ground of " holding out " that a retiring partner who does not give notice is liable for the future debts. It is obvious that questions of " holding out " may occur where a partner retires and still permits his late partners to retain his name as part of the firm name. It would seem, however, that where proper notices of the dissolution are given, the mere fact (m) Per Lord Esh^r, M. R. : Ex parte Central Bank ofLondotiy [1892] 2 Q. B., at p. 637 (n) Martyn, v. Gray, 14 C. B. (n.s.) 824. H 2 100 THE LAW OF PARTNEBSHIP, that the retiring partner allows the continuing part- ner to carry on business in the old firm name, is not such a holding out of the former, as a partner, as will render him liable for a debt of the firm contracted after the dissolution, even with a person who had not dealt with the old firm, and who had therefore no express notice of the dissolution (o) ; and this appears to be so, although the name of the retiring partner forms part of the firm name, unless, perhaps, the retiring partner actually authorises the use of his name {p). But, nevertheless, he could, in the absence of agreement, restrain his late partners from using the name in such a manner as to expose him to litigation ; although he is not bound to do so {q) . The use of the name of a deceased partner can in no cfl.RP p.vp9p|p. bis representatives to liability (r). (7.) Continuance of the Agency after Dissolution. Lastly, the mere fact of the dissolution of a part- ners hip does not cancel the agency of each of the partn ers for the other or others of them, until the busin ess is wound up. The reason of this is obvious, for otherwise it would be extremely inconvenient to (o) Ex i^arte Central Baiik, etc., nhi supra. {j)) Newsome v. Coles, 2 Camp. N. P. 617 ; 12 Rev. Reps. 756. (q) Thynne v. Shove, 45 Ch. D. 577 ; Gray v. Smith, 43 Ch. D. 208. (r) Section 14, sub-section (2) of the Act of 1890, and see Farhall v. Farhall, 7 Ch. App. 123. THE LAW OF PARTNERSHIP. 101 wind up the concern at all. The agency is, however, restricted to such acts as may be necessary for winding up the affairs of the partnership, and com- pleting transactions begun but not finished at the time of the dissolution (s) . To sum up the liability of partners for each other, i the broad general principle is this : If you authorise a man to do a class of acts for you, you are liable for his contracts and torts in carrying out your mandate. You are also liable not only in respect of acts which you expressly authorised, but in respect of all such subsidiary acts as would usually be ancillary to the authorised ones, unless you have expressly forbidden them, and the party injured either knows that you have forbidden them, or does not know that you are the principal. And when once you have allowed the agency to be known, you remain liable until you have notified that it is cancelled. (s) Act of 1890, section 38 ; and see Fox v. Hanbury, Cowp. 449 ; Butchart v. Dresser, 4 De G. M. & G. 542 ; Re Clongh, 31 Ch. D. 324. ( 102 ) LECTUKE IV. THE RELATION OF PARTNERS TO ONE ANOTHER. The relation of partners to one another may, of course, be wholly governed by the terms of the partnership agreement. One may agree to do all the work in consideration of the other finding the capital. One may reserve to himself the whole right of signing cheques and bills, or even of expelling his partner if he thinks fit. One may take a fixed sum out of the profits (like a preference shareholder in a company), leaving the surplus, if any, to the other partners ; or the business may be ostensibly carried on by one only, the other taking no active part in its administration, and the partner- ship being unknown to the public. In such case the passive partner is called a sleeping or dormant partner, but qua the creditors, he is as much a partner, and as responsible as such, as if he took an equally active share in the administration of the concern with the person who ostensibly carries it on. the law of partnership. 103 (1.) Utmost Good Faith between Part ners is AN Implied Term of every Partnership Agreement.^ However, whatever may be the terms of the agreement, there is one stipulation which is imposed by law in every such contract, viz., that each partner must observe the utmost fairness and good faith towards his fellows. The foundation stone of the partnership edifice is mutual confidence, and where confidence is reposed equity insists that it shall not be abused. Thus, even where a partnership agree- ment provided that a partner might be expelled for breach of certain specified acts, it was held by Romer, J., that the expelling partners were not entitled to spring a notice of expulsion on a partner committing one of such acts without giving him some preliminary warning of the cause of complaint, and an opportunity of meeting the case alleged against him (a). It seems regretable that the powers of the Act of 1890 did not affirm this broad general principle, and the omission is the more remarkable because section 257 of the Indian Contract Act provides that the partners are " to carry on the business of the partnership for the greatest common advantage, to (a) Barnes v. Youngs, [1898] 1 Ch. 414, 104 THE LAW OF PABTNERSHIP; be just and faithful to each other, and to render accounts," etc. A broad general principle of this kind is just what one would expect to find in a code, but it is not to be found in the English Act, which treats the subject-matter inadequately, by reference to particular circumstances in sections 28 — 30 in the following words : "28. Partners _are bound to rend er true accounts and f ull information of all things affectin g the p artne rsbip to any partner or his legal representa- tives. " 29— (1.) Every partner must account to the firm for any be nefit derived by him, without the consent of th e other partners, from a ny transaction coji- cernin g the par tnership , or from n.ny n s^ by him of the partnership p ropert y, name or b usiness connexion (c). " (2.) This section applies also to transac tions un dertaken after a partnership has bet^n d issnly^ by the d eaih of a, pn.rtnp r. and before the affairs thereof have been completely wound up, eith er by any surviving partner or by the representatives of the deceased partner. " 30. If a partner, without th p. r;nnRFint of f. hp other partners, carries on any business of the same nature as and compet ing with that of the firm, he must (c) Merely declaratory. Aas v, Benham, [1891] 2 Ch. 244, 245. THE LAW OP PARTNEESHIP. lOS account for and pay o ver to the firm all profits made by him in that busin ess "__ (d). In other words, a partner, like a trustee, mu st not make a private gain by reason of his memb ership of the firm . Thus he must account to the firm for all commissions on sales or pm'chases of the firm's property. He must not, without full disclosure to his co-partners, take an interest, as part purchaser^ in a sale of the partnership property (e), nor, as part vendor, in a sale of property to the firm. So where a partner uses his position to get a private agree- ment vnth a customer of the firm, in relation to goods dealt in by the firm, beneficial to himself only, he will have to share the profits with his co-partners ; for he is abusing his position for his own selfish ends and to the detriment of the joint business (/) . On similar principles, a partner, like a trustee, cannot retain the benefit of the renewal of a lease to himself only, of property leased to the firm (g), whether he obtains the renewal secretly or openly (h) , At the same time, unless expressly restricted by the agreement, a partner may carry on another {d) Gf. Indian Contract Act, 259 ; see also per Lindley, L.J., [1891] 2 Ch. at p. 255. (e) Dunne v. English, 18 Eq. 524 ; Re Ohjmjna, Limited, [1898] 2 Ch. 153. (/) See Russell v. AnstAmrJc, 1 Sim. 52 ; 27 Rev. Reps. 157. (g) Clegcj v. Flshvnch, 1 M. & G. 294. {h) Clegg v. Edmondson, 8 D. M. & G. 787. 106 THE LAW OF PAETNERSHIP. business privately, so long as it does not compete with the business of the firm, and so long as he does not represent it to be the business of the firm. In such cases he is not bound to account for the profits of a non-competing business (i) , although he may be enabled to push the private trade better than would otherwise be the case, by reason of his connection with the firm. (2.) Terms as to Management Implied where NOT Expressly Negatived or Modified. Subject however, to what I have said as to good faith, the partners can arrange their respective rights and duties as they may think fit ; and what I am about to say only relates to the legal rights of the partners inter se, so far as these rights are not modified or negatived by express stipulation, or (what amounts to the same thing) by a long course of dealing, amounting to evidence of an implied agreement (k). Now this subject is mainly governed by section 24 of the Act of 1890, by which it is enacted that " the interest o f partners in the partnership property and (^) Aas V. Benham, [1891] 2 Ch. 244. (/;) Section 19 of Act of 1890. Coventry v. Barclay, 3 De G. J. & S. 320. THE LAW OF PARTNERSHIP. 107 their rights and duties in relation to the partnership^^ shall be det ermined, subject to any agre ement express or implied be tween t he partners , by" certai n rules therein set forth. For our purpose it will be con- venient to take these rules in a different order to that in which they appear in the Act. First, then, " Every p artner may take p art in the management of the part nership business" {ly, but he is not entitled to any remuneration for his work (m) . The Act does not add (but the law implies) that each partner shall attend to and work in the business, and if he fails to do so it is ground for a dissolution, and the court may order him to make compensation to the industrious partner for the extra trouble thrown upon him by the other's idleness (n). Moreover, the rule as to the gratuitous nature of a partner's services, being founded on the theory that all the partners will work, does not apply during a winding-up where one of the partners is dead, or retires, or becomes a lunatic. In such cases, all the work being thrown on the other partner or partners, he or they are entitled to some compensation for their trouble out of the profits, if profits there be, but not otherwise (o) . This right has even been (0 Sect. 24 (5). (to) lb. (6). (n) Airey v. Barhaia, 29 Bea. 620. (o) See Be Aldnd). No remuneration will, however, be allowed to partners after the death of a co-partner, where they are also his executors, as it is their duty qua executors to work gratuitously {q) . But although the law is, as I have stated, viz., that the partners must attend to business, and that in the absence of agreement or of idle misconduct on the part of one of the partners, no remuneration will be allowed for work or even for overtime, yet nothing is commoner than to find the rule negatived by express stipulation. A junior partner is very generallj'^ bound by the terms of the contract to attend diligently and exclusively to the business. A senior partner, on the other hand, generally insists on the right of consoling his declining years by indulgence in leisured ease, merely reserving the right, but not conceding any obligation, of attending to business. Moreover, a clause is very common, and, indeed, highly desirable in partnership articles, authorising each working partner to take a salary as {p) Harris \. Sleep, [1897] 2 Ch. 80. {q) Bunden v. Bunden, 1 V. «fc B. 170 ; 12 Rev. Reps. 210 ; Stocken v. Daivson, 6 Bea. 371. THE LAW OF PARTNERSHIP. 109 manager of his department in addition to his share of profits, such salary being paid, Hke clerks' salaries, before the net profits are computed, and being, in fact, treated as an .outgoing of the firm. Now supposing that the partnership articles, or the partnership course of dealing, makes no provision for differences of opinion as to the conduct of the business (and, of course, differences of opinion a re almost certain to occur), how are these differences to be settled? The answe r is, t hat if such differ-> ences relate t o an a lteration of the partnershi p^^ constitution — for instance, to a proposed change in, or addition to, the nature of the business, or the introduction of a new partner (r) , or the expulsion of a partner {s) , or the substitution of a new partner for one who desires to retire and sell his share (t), then ^^ in the absence of express stipu lation, no such alterations can be made w ithout the unanimous consent of all the partners. But if t he difference relates merely to the details of th e busines s — " ordinary matters connected with the partnership business," as section 24 of the Act of 1890 puts it — then the question may be decided by the majority {u). Where the voting is equal (as, for instance, it would necessarily be where there are only two (r) Act of 1890, s. 24 (7). (0 lb- s. 31. (s) lb. B. 25. (u) lb. 8. 24 (8). 110 THE LAW OF PAETNERSHIP. partners), I apprehend (although the Act is silent as to this) that those who negatived the disputed proposition would be entitled to have their view respected, in accordance with the general principle applicable to all voting, viz., that the onus lies on those who a ffirm a prop osition, and not on those wlio nppnRP. it|^ This power of a majority to bind a dissentient minority in matters of detail, is practically new in point of law, whatever it may have been in point of commercial practice, and is founded on the precedent of section 253 of the Indian Contract Act. It must be exercised subject to that general over- riding principle to which I have already drawn your attention, viz., that every partner must act with the utmost good faith. Therefore, a majority cannot bind a minority without notice to them, and without giving them the opportunity of discussion. If this were not so, it would practically put the entire management in the hands of a high-handed majority, and would be in conflict with the rule that every partner is entitled to take part in the administration of the business. It is, of course, incidental to this last-mentioned right, that each partner should have access to the books of account ; and, consequently, sub-section (9) of section 24 declares that " the partnership books THE LAW OF PARTNERSHIP. Ill are to be kept at the place of business of the partner- ship (or the principal place, if there is more than one), and every partner may, when he thinks fit, have access to and inspect and copy any of them." (3.) Terms, as to Capital Profits and Losses, implied where not expressly negatived or modified. Let us now turn from the rules as to manage- ment to the rules which, in the absence of stipula- tion to the contrary, or evidence from which such stipulation can be inferred, govern the relations of the par tners with regard to ca pital and profits and l osses. The general rule, then, is that " all the par tners are entitled to share equally in the capital and pro fits of the busi ness, and must co ntribute equally towards the losses, whether of capital o r otherwis e, sustained by_ the firm " (z/). This broad statutory statement, how- ever, requires, I think, some explanation. There are many partnerships, perhaps the majority, in which the capital is not contributed equally, — nay, is perhaps contributed by one alone. For although, as the French Code Civil has it (z), every (i/) Act of 1890, s. 24 (1). (z) Art. 1833, 112 THE LAW OF PARTNEESHIP. partner must contribute either money or goods or industry to the undertaking, yet "capital" in the legal sense only embraces property, and not mere skill or industry. Consequently, the section does not mean that where of two partners one con- tributes, say, 5,000Z. as capital, and the other contributes no money, but merely great technical skill and knowledge, the assets into which the 5,000Z. has been converted are, on the winding up of the concern, to be divided equally as one common fund. That is not so, as I will show you when I come to deal with the dissolution of a partnership, because the facts negative the idea that the capital was equal, and the section only applies in the absence of a contrary agreement, express or implied. What th pi sf.^.tini] does -mp an is this , that in such a case the profits would be divided equally, because^ in the absence of express agreement, the inference is that the 5,000Z. of the moneyed partne r was con- sjdered to be the equivalent for the skill or know ledge of the other partner. But, per contra, if they divide the profits equally, they must likewise equally bear the losses ; and by losses I mean not only the liabilities of the firm to third parties, but also losses of capital. Therefore, assuming that the 5,000Z. were lost, the partner who brought no capital into the concern, would nevertheless have to bear half that loss in favour of the moneyed partner ; the 5,000Z. being, in THE LAW OF PAKTNERSHIP. 113 fact, treated as a deferred debt due from the firm to him. In short, all that the rule means is that there is no necessary connection between the proportion in which capital is contributed and that of profit and loss, and that, therefore, ;primd facie, partners share profits an d bear losses e qually, notwith- standing th at the capital c ontributed by each may not be equal. In other words, profit and loss are not shared and borne in proportion to the capital contributed by each partner. On the other hand, there is an infe rence that losses are to be borne in the same proportion as profits are shared ; and therefore an agreement to share profits in certain proportions, is, by section 44 of the Act, made prhjid facie evidence that it was intended that losses should be borne in the same proportions and not equally (a). It is a corollary of the rule as to the equality of profit and loss, notwithstanding inequality in contribution of capital, that, in the absence of agreement to the contrary, no partner is entitled to receive interest on the capital contributed by him ; for if he is unwilling to find the necessary capital without receiving interest, he should make it an express condition of his bargain with his (a) Declaratf)ry of the former law ; see Re Albion Life Assvr, ance Society, IG Ch. D. 87. ii.p. I 114 THE LAW OF PARTNERSHIP. co-partner, whose skill has prima facie been accepted by the moneyed partner as an equivalent for his capital. At the same time, however beautiful this may be in theory, nothing is more usual in practice than to find that partnership agreements provide, that, before the profits are ascertained, each partner shall be entitled to receive interest at the rate of five per cent, per annum on the amount of capital standing to his credit, as an outgoing, and in priority to any division of profits. Indeed, in the majority of cases, the omission of such a clause would be most mireasonable, as, for instance, where the old and experienced members of a firm take in the son of a member, who brings little or no capital, there is really no reason why he should have the use of the senior partners' capital for nothing. I may perhaps add, that even where there is a provision for interest on capital, such interest ceases to be payable directly the partnership is dissolved, although months or years may elapse before the assets are completely realized and the capital repaid. But although, in the absence of stipulation, a partner is not entitled to interest on capital con- tributed by him under the partnership agreement, yet if a partner makes, for the purpose of the partnership, any actual payment or advance beyond the amount of capital which he has agreed to THE LAW OF PARTNERSHIP. 115 subscribe, he is entitled to interest at the rate of five per cent, per annum from the date of the payment or advance (b). The reason of this is stated by the present Master of the Eolls to be that such advances are not treated as an increase of capital, but rather as a loan on which interest ought to be paid, and, by commercial usage, is payable. Perhaps I might mention here that, although the firm pays interest to a partner on his advances, the converse does not hold good ; and in the absence of fraud or express agreement, a partner, who is indebted to the firm, pays no interest (c). (4.) Implied Terms as to Indemnification op Partners. Another rule of law is, that, a s each partner is the agent of the firm, the latter, in its character of his principal, "must indemnify every partner in respect of payments made an d persona l liabilities incurred by him in the ordinary and proper conduct of the business of the firm." (h) Ex parte Chippendale, 4 D. M. & 6. 19, last note; Sanjood's Claim, 15 Eq. 43; Lindley, 391 (c) Cooke V. Benbow, 3 D. J. tt S, I., and Meymott v. Meymott, 31 Bea. 445. I 2 116 THE LAW OF PAETNERSHIP. But, in addition to this, the same section also provides that the firm must indemnify every partner in respect of payments made and liabihties incurred in or about anything necessarily done for the preserva- tion of the business or property of the firm. This goes beyond the ordinary law of principal and agent (which only authorises acts in the ordinary course of the business), and is analogous to the maritime law of contribution in cases of general average or salvage. You will note that it only extends to necessary acts, and not to mere voluntary ones which the partner who undertakes the liability thinks maybe advantageous {d). Most of the cases on the subject have occurred in relation to directors of public companies {e), but even before the Act of 1890 there was no doubt that the rule equally applied to private partnerships. (5.) Partnership Property as Distinguished FROM Property of the Individual Partners. We now come to the consideration of the partner- ship property, which is the subject of sections 20 to 23 inclusive of the Act of 1890. Difficult questions (d) See judgment of Turner, L.J., in Burdon v. Barkus, 4 D. F. & J. at p. 51. (e) See Ex parte Chippendale, 4 D. M. & G. 19 ; Ex parte Bujmld, 22 Bea. 143 ; Baker s Case, 1 Dr. & Sm. 55. THE LAW OF PAKTNERSHIP. 117 frequently arise as to whether property is the pro- perty of the firm, or whether it is the property of individual partners ; for property may be us ed fo£ purposes of the partnership and yet may not be part of the partnership property. For instance, the building in which a business is carried on frequently belongs to one partner only, and the firm pays him a rent for the use of it. Moreover, persons may be mere co-owners of property and may yet be partners in the profits made from its use. Thus persons may be co-owners of a coal mine — take the case of two brothers to whom it may have been devised by the will of their father. The mere fact that they work the mine in partnership as a colliery business does not make the mine part of the partnership property (/). The point is often of great i mportance, (1) as between the partners themselves; because a n increase in the value of par tnership property belongs to the firm, whereas if the property be the property of an individual partner the increased value belongs to him only (g) ; (2) as betwee n the creditors o f the firm and the creditors of the individual partners in the event of the firm becoming insolvent, as I shall show in a subsequent lecture ; and (3) as between the persons who take a deceased partner's real estate (/) Crawshay v. Maule, 1 Sw. 495, 518. (, bankruptcy of a spouse enable his or her better or worse half to sever the connection. the law of partnership. 133 (1.) Dissolution without having Kecourse TO the Court. In business partnerships, however, all these things are possible. A partnership is dissolv ed, witho ut the intervention of a court, by any of the fo llo wing^ circumstances (a) : (a.) If entered int o for a fixed term, by the expira- tion ol thiLt ter m (b). (b.) If entered i nto for a single adventure or^ undertaking, by the termination of that_ adventure or undertakings (6) . (c.) If entered into for an undefined time, by any partner giving not ice to the other or others, of his in tention to dissolve the part nership, unless the articles provid e for some other method (6)« ^ (D.) By the death of any partner (b)^ unless the articles provide (as they f requently do) for the continuan ce of th e business by the survivors, either alone, or i n partnership with th e repr esentatives of th e deceased. (E.) By the bankruptcy of any partner (6) . (F.) By the happening of anv event wh ich makes it unlawful for the business of the firm to (n) Act of 1890, s. 32. (6) R. s. 33 (1). 134 THE LAW OF PARTNERSHIP. be carried on, or for the memb ers of the firm to carry it on in partne rship (c). (g.) At the option of the oth er partn ers, if on ft partner suffers his share in the partnership property to be judicially charged for h is separate debt (d) . In none of these cases is there any occasion to have recourse to the court. Moreover, by express agreement in the articles, any other circumstances, such as lunacy, physical incapacity, or even incom- patibility of temper, may be made a cause for dissolution without the intervention of the court. (2.) Judicial Dissolution. In the absence, however, of any such agreement, it is necessary to apply to the Chancery Divisi on of the High Court (by action and not by way of summons), in any of the follow ing cases (e) : (a.) When a partner is found lunatic by inquisi- tion, or is shown to the satisfaction of the court to be permanently of misound mind. (b.) When a partner, other than the pa rtner suing, becomes in any way permanent ly incapable of performing his part of the partnership contract, rn') \Ybfin fl. pfl,rf,r|P.r, other 1;,b an the part ner suing^ .has been guilty of such conduct a s, in the (c) Act of 1890, s. 34. (d) lb. s. 33 (2). (e) lb. s. 35. THE LAW OF PARTNERSHIP. 135 opinion of the cou rt, regard bein g had to the nature of the busine ss, is c alculated to prejudicially affect the carrying on of the business. (d.) Vvlien a partner, other than the partner suing, wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business, that it is not reason- ably practicable for the other partner or partners to carry on the business in partner- ship with him. ( e.) "When the business of the partnership can only be carried on at a los s. (f.) Whenever, in any case, ci rcumstances have_ arisen which, in the opinion o f the court, render it just an d equitable that the partner- ship be dissol ved. (3.) Comments on Both Methods of Dissolution. The law of France is curiously like ours in regard to dissolution, providing for dissolution without the aid of the courts in some events, and requiring that aid in others. Thus, by Art. 1865 of the Code Civil, a sociSti comes to an end automatically, (a) by the expiration of the agreed 136 THE LAW OF PARTNERSHIP. term ; (b) by the completion of the business for which it was constituted ; (c) by the death of one of the partners ; (d) by the renunciation of one or more of the partners where the partnership was constituted for an indefinite period. In other cases, by Art. 1871, the dissolution can only be demanded (in the words of the code translated into English) " for just motives, as when another partner breaks his engage- ments, or a chronic infirmity renders him unable to attend to the business, or in the like cases, the legitimacy and gravity of which are left to the judgment of the court." There is, however, one clause (Art. 1869) which seems to qualify the power of ending a partnership for an indeterminate time, viz., that the dissolving party must act in good faith, and not dissolve " a contre temps, '' which, I take it, means, in plain English, at an awkward moment, or, as Art. 1870 puts it, " at a time when the capital is not intact, and it is important to the partnership that the dissolution should be postponed." Now, of course, in the case of a partnership at will, i.e., for an undefined time, there is no necessity to invoke the aid of the court to dissolve it, although there may be to administer and liquidate the assets ; for any partner can dissolve the firm for himself by a simple notice in that behalf, whether the other partner or partners be sane or of unsound mind (/). (/) Jones V. Lloyd, 18 Eq. 265. THE LAW OF PARTNEESHIP. 137 The function of the court as a dissolving, as distin- guished from an administering, authority, is therefore practically necessary only where a partnership is for life, for a fixed term, or for a single uncompleted adventm-e ; and not even then if the agreement or the Act provides for dissolution under the circumstances. And, perhaps, it is convenient to mention here, that, if the articles of partnership contain a clause referring a.11 ma.tters in difference to arbitration, and the dispute involves a claim for dissolution, the arbitrator is empowered to dissolve ju piff t^ip ^^p. f.nnrt, miyht (a). Moreover, in such a case, if one partner brings an action for dissolution, the court may, in its discretion, stay all proceedings in the action, and refer the matter to the arbitrator (Ji) ; or may refuse to do so (i) , or may appoint a receiver, or receiver and manager, and refer all other matters to the arbitrator (k). Let us consider in a little more detail the circum- stances which entitle a partner to dissolve without the aid of the court. And, first, with regard to the dissolution of a partnership at will, no period of noAice is required. It can be dissolved at once, by (f/) Vmvdrey v. Simpson, [1896] 1 Ch. 166 ; Belfield v. Bourne, [1894] 1 Ch. 521. (h) Ibid. (i) Barnes v. Youngs, [1898] 1 Ch. 414 ; Turnell v. Sanderson, 64 L. T. (n.s.)654. Q:) Pini v. Roncoroni, [1892] 1 Ch. 6.'5.3. 138 THE LAW OF PAETNERSHIP. notification in that behalf given by one partner to the other or others ; or as from the date mentioned in the notice (l). And the notice once given cannot be withdrawn, excep t by the consent of all (m). Upon such a notice being given, if no date is named therein, the dissolution takes effect instanter, the business being thenceforth carried on merely for the purpose of winding it up. With regard to the dissolution of a partnership by the happening of any event which make the business unlawful, examples do not often occur. But if A. and B. became partners in the business of a par- ticular public-house, and the licence was subse- quently withdrawn by the magistrates, so that they could no longer lawfully carry on business, then, no doubt, the partnership would, ipso facto, be dissolved, even although they had agreed to carry it on for a fixed term of which there might be many years unexpired. So, again, partnership between "bookmakers" (I do not mean authors, legal or otherwise) are common, and at the present time are legal (n). But it is conceivable that a decision of the House (I) Act of 1890, s. 32 ; Grawshay v. Mavle, 1 Sw. 495. (m) Jones v. Lloyd, 18 Eq. 265. (n) Thwaite v. Conlthivaite, [1896] 1 Ch. 498. T-HE LAW OF PARTNERSHIP. 139 of Lords, or an Act of Parliament, might at any time make such a business illegal ; and, in that case, there would be an immediate and automatic dissolution. With regard to the circumstances under which the court can decree a dissolution, the lunacy of a partner is not merely a ground for dissolution at the suit of the sane partners, but also at the suit of the lunatic partner, by his next friend or committee (o) . Moreover, a lunacy judge has power to dissolve a partnership when a partner becomes lunatic (p). The justice of this is obvious, for, by reason of his lunacy, he is no longer caj)able of taking part in the management, and keeping a check upon his co-partners ; so that if he were obliged to remain a member of the firm, his capital would, and his remaining fortune might, be exposed to risks which neither he nor his friends and guardians could control. It seems to be a pretty question whether the marriage of a female partner would enable the court to decree a dissolution at the request of her co- partners. Prior to the Married Wom en's Property Act. 1882. it was well settled that suc h a marriage (^isaolve.d th e partnership. Sir Frederick Pollock thinks that that Act made it clear that marriage (t») Jones V. Lloyd, 18 Eq. 265. ip) Lunacy Act, 18!)0, ss. 116 (4), 119, 341. 140 THE LAW OF TARTNEIISHIP. would not now dissolve such a partnership, and I need scarcely say that he is much more likely to be right than I am; but I confess that I think something might be said against this view. It is true that marriage is not an act which makes a lady permanently incapable of performing her part of a partnership contract, nor can it be considered such an act as, regard being had to the nature of the business, is calculated, in point of law (whatever it may be in point of fact), to prejudicially affect the carrying on of the concern. Nevertheless, it may be a circumstance which renders it " just and equitable that the partnership be dissolved." For it must be remembered that the status of a married woman is still widely different from that of a spinster. It is true that she can now contract, but she is not ^er» sonally responsible , and the only relief is a^yf^inst hpr separate property, and not ag^ainst that if she has taken the precfl.ntinn to spttlp it '* wi|,hm it power of fl,nticipatinn." Consequently, in case of losses, the other partners would surely find their, rights for con- tribution and indemnity against her considerably modified to their disadvantage. Moreover, common sense tells us that the inevitable effect would be to introduce the husband as a potential member of the firm. In the absence of judicial decision, therefore, I do not think the case can be considered altogether free from doubt. THE LAW OF PARTNERSHIP. 141 It is impossible to specify all the acts and circum- stances which would enable the coui't to decree a dissolution on the wide ground that it is "just and equitable"; but, of course, fraud or misrepresenta- tion in the course of the negotiations which resulted in the partnership, would be sufficient {q). In that case, in addition to any claim for damages in an action of deceit (r). the defraud ed partner i s entitled : (a) to a lien on. or right of retention of. the surplus of the partnership assets , .atfter satisfying the partnership liabihties, for any sum of money paid by him for the purchase of a share in the partnership, and for any capital contributed by him (s), plus interest and costs {t) ; (b) to a personal order for payment of such sum, together with his capital with interest, and_ posts {u) ; (c) to stand, by way of subrogation, in the place of_ the creditors of the firm for any payments^ made by him in respect of the ])artnership liabilities {v) with interest {w) ; ((/) Lindley, 314. (r) Berry v. Peek, 14 A. C. 337 ; Newhegging v. Adam, 34 Ch. D. 582. (s) Act of 1890, s. 41. (0 Mycock V. Beatson, 13 Ch. D. 384. (u) Adam v. Newbegging, supra. (v) Act of 1890, s. 41. (w) Batvlins v. Wickham, 1 Gifi". 355 ; 3 De G. & J. 304. 142 THE LAW OF PAETNEESHIP. (d) to be indemnified 1) V the person guil ty of the fraudjOr making the representation, against, all the debts and liabilities of the firm. (4.) Eeturn of Premium on Dissolution. Somewhat analogous to this, is the case of a partner who has paid a premium to another on entering into partnership for a fixed term, which partnership is dissolved before the expiration of the term. It would obviously be unjust, in many cases, that the premium thus paid, should be retained. On the other hand, the party who pays it must be taken to have contemplated that the term might be shortened by death, or to have accepted that risk (x). Consequently, the rule is (y), that if the partnership is dissolved before the expiration of the term other- wise than by death, the court may order the repajonent of the premium, or of such part thereof as it thinks just, having regard to the terms of the partnership contract, and to the length of time during which the partnership has continued, unless : (a) the dissolution is, in the judgment of the court, wholly or chiefly due to the misconduct of the partner who paid the premium ; or (x) Ferns v. Carr, 28 Ch. D. 409. (y) Act of 1890, s. 40. THE LAW OF PARTNERSHIP. 143 (b) the partnership has been dissolved by an agreement containing no provision for a return of any part of the premium. It is conceived, on the authority of cases decided before the Act (z), that w^hen part of a premium is ordered to be recouped, it will be the same fraction of the entire premium as the fraction which is still unexpired of the original term. The amount is, however, discretionary, and will seldom be altered on appeal (a) . Where the articles contain the usual arbitration clause the arbitrator has power to order the return of part of a premium (b). (5.) Points after Dissolution. In the event of recourse being had to the court to decree a dissolution, it is not unusual, directly the action is started, for the plaintiff to move for a receiver, or sometimes for a receiver and manager. On such a motion, the judge generally asks whether, the parties being at arms length and in a state of litigation, the partnership can possibly go on; and if counsel agree that it cannot do so, an immediate decree for dissolution, with the usual accounts and (z) Atwood V. Maude, 3 Ch. App. 369. (a) Lyon v. Tweddtll, 17 Ch. D. 529. (/>) Beljkld V. Bourne, [1894] 1 Cli. 521. 144 THE LAW OF PARTNERSHIP, inquiries, is at once made, to the great saving of costs (c). On dissolution, any partner may publicly notify the same, and require the other partners to concur in all proper acts for doing so (d). This latter provision was, no doubt, inserted in the Act, to meet the fact that the publishers of the Gazette refused to insert such notices unless signed by all the partners ; but I believe that, recently, this practice at the Gazette office has been discontinued. Af ter the dissolution o f a partnership for any cause exce pt death or bankruptcy , the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue, notwithstanding the dissolution, as far as may be necessary to wind^ UP th e affairs of the partnership, and to complete transactions begttn but unfinished at the time of the dissolution, but not further. _If^ the dissolution be caused by death or bankruptcy of a pa rtner, this authority to wind up the concern devolves on the surviving or so lvent partners alone, to the exclusion of the personal representatives, or trustee in bank- ruptcy, of the deceased or bankrupt partner. This sanctioned, but limited agency, may neverthe- less be taken away by the court if the parties fall out. (c) At/wood V. Mmide, 3 Ch. App. 369. (d) Act of 1890, s. 37. THE LAW OF PAETNEKSHIP. 145 or if special grounds be shewn by the personal repre- sentatives of a deceased, —or the trustee in bankruptcy of a bankrupt, — partner, either, partially, by the appointment of a receiver to get in the outstanding assets, or, wholly, by the appointment of a receiver and manager, to conduct the entire winding up. A receiver will generally (but not as a matter of course) be appointed, on the application of any partner; even although the disputes between the partners are referred to arbitration, under a clause in that behalf in the articles (e). The appointment of a manager, although more common than formerly (/), requires a stronger case than the appointment of a receiver. A receiver merely takes the income and pays the necessary out- goings. A manager takes over and carries on the entire business. The appointment of a receiver only, practically brings the trade to a dead stop (g). Therefore, if it be desired to continue the trade at all, it is necessary to appoint a manager, or a receiver and manager, as he is generally called. In partnership actions, the court will not, as a rule, appoint a manager, and so take the control out of the hands of the partners, except with the view of (e) Pini V. Roncoroni, [1892] 1 Ch. 633. (/) Per Fry, L.J., Reid v. Explosives Co., 19 Q. B. D. 269. {g) Per Jessel, M.R., In re Manchester ancLMilford R) Be Langmead, 7 D. M. & G. 353 ; Holroyd v. Griffiths, 3 Drew, 428. (g) Featherstonliaugh v. Fenwick, 17 Yes. 298 ; 11 Rev. Reps. 77 ; Wild v. Milne, 26 Beav. 504 ; but see Walker v. Hirsch, 27 Ch. D. 460. (r) Taylor v. Neate, 39 Ch, D. 538 ; Doums v, Collins, 6 Hare, 418. Such an agreement will be carried out even where the original term has long expired and the partnership has been carried on as a partnership at will {Daw v. Herring, [1892] 1 Ch. 284). (s) Pawsey v. Armstrong, 18 Ch. D. 698 ; Page v. Ratliffe^ 76 L. T. 63. THE LAW OF Px\.RTNERSHIP. 149 The word goodwill is one very difficult to define. Lord Eldon said that it was nothing more than the probability of the old customers resorting to the old place jt ). It clearly, however, means more than that, for it often exists quite independently of locality . I think that a good working description of it would be, tha t it is the public a pprobation wh ich ^ has be en won b y the business, and that, co nsidered as a marketable thinjg, it is the probabilit y of the custome rs or clientele of the firm resorting to the persons or person who succeed to the business as a gomg concern. Approbation was one of the originaT meanings of ''goodwill" long before it was used as commercial slang. Thus Shakespeare says: " I hope I have your goodwill," and " Let me have your good- will." I think that probably this is the derivation of the term, and that comfmercial men gradually con- verted the "goodwill" which the public manifested towards the owners of a business, into an asset of the business considered as a figurative entity. In some cases this approbation may depend on the situation of the trade premises (e.g., a public-house). In others, on the quality or cheapness of the goods sold under a firm name (e.g., Whiteley's business). In others, on the reputation of the business for a particular class of articles (as Humber & Co. for (0 Gruttwell V. Lj/e, 17 Ves. 33.5. 150 THE LAW OF PAETNEBSHIP. cycles, or Gunter's for cooked articles). In others, partly on the personal introduction of the new man to the clientele by the vendor of the business (as is the case with regard to a solicitor's or surgeon's business). As Sir George Jessel said in Ginesi v. Cooper, 14 Ch. D. at p. 599 : " It is a connection formed by years of work" {u), or, in the words of the present Master of the Kolls : "A benefit arising from connection and reputation." The value of the goodwill of a dissolved partner- ship is considerably decreased^by the rule laid down in the recent case of Trego v. Hunt, [1896] A. C. 7 {x), namely, that the sale of the g oodwill does no t prevent the partners from c arrying on a competi ng business with the purchaser. It is true that the quondam partners may be restrained by injunction from soliciting any person who was a customer of the old firm (?/),['or from representing themselves as continuing the old business. Still, the mere fact that they may compete is a serious factor in the case, and cannot fail to affect the saleable value of the firm's goodwill. {u) See also Ghurton v Do^ujlas, 28 L. J. Ch. 841 ; Stewart v. Gladstone, 10 Ch. D. 626 ; Ex parte Punnett, 16 Ch. D. 226 ; May V. Thomson, 20 Ch. D. 705. (x) Followed, Jennings v. ^Jennings, [1898] 1 Ch. 378. (i/) Inapplicable where the firm is bankrupt, and the sale of goodwill is made by the trustee in the bankruptcy ( Walker v. Mottram, 19 Ch. D. 355). THE LAW OF PARTNERSHIP. 151 I may perhaps mention, that this principle is equally applicable to the case where a person has been taken into partnership, on the terms that, on the expiration of the partnership, the goodwill shall belong exclusively to the other partner (z) ; and also to the case where, on the dissolution, one partner purchases the assets from the others {a) . If the goodwill be not sold, each partner may not only canvass old customers, but (subject to any question as to endangering the other partners under the doctrine of " holding out ") may also use the firm name (h). It would seem that where (as in some professional partnerships) one of the partners holds an appoint- ment or office, the emoluments of which have been treated as profits of the firm, he must, on dissolution, in the absence of agreement to the contrary, be debited with its value. For although such an office cannot be sold for the benefit of the firm, yet, if one of the partners retains it, he must account for its value (c). {z) Treyo v. Hunt, [1896] A. C. 7. (a) Jennings v. Jennings, [1898] 1 Ch. 378. (6) Lein/ v. Walker, 10 Ch. D. 436. (c) Smith V. Mides, 9 Ha. 556. 152 the law of partnership. (7.) Final Settlement of Accounts and Distribution of Assets. The partnership being dissolved, and the assets reahsed, the next thing that requires notice is the final ac coun t and distribution of the asse ts. Of course, where, by agreement, one or more members of the firm continue the business on the terms of paying off the share of the outgoing or deceased partner or partners, ascertained on a certain agreed basis, no final account and distribution is necessary, because the agreement is substituted for it. But w here there is a true dissolution of the firm, each partner going hi s own way and the partners hip property being sol d, then a general account is necessary, and may be claimed, not only by living partners, but by the representative of deceased ones, and even by the transferees of the shares of living ones. Such an account will start from the last settled account, i.e., in ordinary cases, on the footing that the last balance sheet is correct ; for the court will never (unless for some proved fraud or error) disturb a settled account. Of course there are, occasionally, cases where a partnership has lasted for years without any settled balance sheets, and in such cases it is necessary to take the accounts from the very beginning. However, from whatever date the final account is to begin, it must, in every case, be thence continued THE LAW OF PARTNERSHIP. 153 right down to the date of the dissokition, and then must be kept open so as to let in all transactions occurring in the actual winding up. In taking the accounts, the uniform course of practice of the firm with regard to previous accounts, must (so far as applicable to the final account) be observed. No doubt in complete dissolutions this is not often of much importance ; but where an account is taken to ascertain what is due to a partner who has died or retired on the terms of receiving the value of his share at the date of death or retirement, it may be of the utmost importance. The case of Ex parte Barber, (5 Ch. App. 687,) shews this very clearly (d). There, partnership articles provided for a balance sheet being made out up to the 31st of December in each year, which, after a certain time, was to be binding on the partners, except that manifest errors, when discovered, should be corrected. It was also provided, that a like account should be made out on the 31st of December next after the death of a partner, and that his executors should be entitled to receive, by six instalments, from the surviving partners, the value of his interest as appearing from such balance sheet. The uniform practice of the firm in making out their balance sheets, was to treat the loss occasioned by any asset turning out bad, as attributable to the year in which it was discovered to be bad. In (d) See also Steivart v. Glddstana, 10 Ch. D., at p. 660. 154 THE LAW OF PARTNERSHIP. the year 1864 one of the partners died ; and after the balance sheet had been made out, various assets which had been treated as good were ascertained to be irrecoverable, owing to the failure, since the 31st of December, of debtors to the firm, and depreciation of consignments, which, when the balance sheet was made out, had not been realised. It was held that the executors of the deceased partner were nevertheless entitled to receive the value of his share as appearing by the balance sheet, without any deduction for the losses subsequently ascertained. Difficulties not infrequently arise where the executors of a deceased partner are the same persons as the surviving partners. In such cases it is exceedingly dangerous for them to wind up the concern without the assistance of the court; for, unless they act in strict accordance with the law, their settlement of the affairs of the firm are always liable to be upset by the persons beneficially entitled to the estate of the deceased partner (e) . "Where, however, the surviving or continuing partners have, by the partnership agreement, an option to purchase the interest of a deceased or outgoing partner, section 42 (2) of the Act declares, that if they exercise the option, and comply with the (e) See Wedderhurn v. Wedderhurn, 2 Keen, 722, and £en- inyfield v. Baxter, 12 A. C. 167. THE LAW OF PARTNERSHIP. 155 terms thereof in all material respects, their liability shall be that imposed upon them by the agreement; and they will not be liable to account for subsequent profits, even although one or more of the partners is an executor or trustee of the deceased partner. On the other hand, if the surviving or continuing partners, having such an option, either assume to exercise it, but do not in all material respects comply with its terms, or, having no such option, they neglect to come to a formal settlement of accounts with the retired partner or the executors of the deceased (as the case may be), the latter have the option of claiming either five per cent, interest on the amount of their share in the assets, or such a share of profits, since the dissolution, as the court may consider to be fairly attributable to the use of their share of the assets (/). But, in arriving at this, some allowance ought to be made to the surviving or continuing partners for their services {g) , unless they be the trustees or personal represen- tatives of the deceased (/i) . I may mention here, that, under arrangements for paying out the share of a deceased or outgoing partner, the amount is a debt accruing at the date (/) Act of 1890, s. 42(1), (2). (usiiiess carried on at a, ground for dissolution, 135. of capital must be borne by partners in the same proportions as other losses, 112. LUNACY dissolves partnership even at suit of lunatic, 49. LUNATICS may be partners, and if so are liable to persons without notice of lunacy, 48. injunction restraining, from interfering in management, 49. MANAGEMENT OF BUSINESS.— >Sfee Business. MANAGER. See Receiver. when api ointed, 145, 146. usually oidy appointed for fixed period, 145. personally liable to creditors, 146. [ 12] INDEX. MAJORITY, when minority of partners bound by the decision of, 108. MARRIAGE. See Married Woman. MARRIED WOMAN, capacity of to be partner, 41, et seq. question whether on spinster's becoming, it is ground for dissolution, 139. liability of not personal but restricted to separate estate, which she is not restricted from anticipating, 42. may be made bankrupt if trading separately from hus- band, 42. aliter if in partnership with him, 43. not a desirable partner, 44. rights of creditors against partnership assets where a, is one of the partners, 45. MISCONDUCT of partner ground for dissolution, 135. MISREPRESENTATION. See Fraud. MONEY. See Fraud. MORTGAGE, authority of partner to give equitable, 78. aliter as to legal, 79. NAME. See Firm Name. NEGLIGENCE, liability of firm for, of partner, 81, 82. NEGOTIABLE INSTRUMENTS, authority of partner to issue for firm, 78, 79. N. NOTICE of partner's want of authority, 72. of dissolution essential, 97. parties must join in giving, 144. NOVATION, definition of, 96. effect of in relieving retiring partner from existing liabilities, 96. effect of in saddling new partner with past liabilities, 97. o 2 [ 13 ] INDEX. PARTNER AND PARTNERS. See Authority ; Business ; Dormant Partner ; Partner- ship ; and Partnership Property. definition of, 3. number of, in private partnership limited, 34. capacity of persons to act as, 40, et seq. married women, 41. rights of creditors against, 42, et seq. infants, 45. lunatics, 48. relation of, to one another, 103, et seq. (1) Must observe utmost good faith, 103 — 105. must account for all property received and all benefits derived from partnership transactions, 104. must not compete with the firm, 104. must not use his position for selfish purjjoses, 105. (2) As to management of business. every, must attend to business diligently and gratuitoush- 107. unless duty negatived by express agreement, 108. if all work thrown on one, entitled to compensation, 107. minority bound by decisions of majority, when, 108. partnership books 02:ien to every, 110. (3) As to cajntal, ])rofits and losses. All prima facie share equally in, 111. inequality of shares of capital raises no inference of inequality in sharing profits, 112. but this may be negatived by agreement or by the actual facts, 112. losses borne in same proportion as profits, 112, 113. including losses of capital, 112. interest on capital not allowed, 113. where, lends money to firm, entitled to interest, 114. if, borrows from firm, pays no interest, 115. each, indemnified against liabilities incurred on account of firm, or preservation of business or property, 115, et seq. cannot assign his right to participate in the management except by consent, 129. a, can assign his share in profits and assets, and judgment creditor can get charge on them, 129 ; and see Charging Order. charge under judgment gives other, right to redeem or dissolve, isi, 134. rights of, with regard to dissolution. See Dissolution of THE Firm. [14] INDEX. PARTNEESHIPS, detinition ol', 1. iUegal. See Illegal Partnerships. duration of. See Duration. dissolution of. See Dissolution. essentials to creation of, are (1) a business (2) carried on for gain (3) by or on behalf of alleged partners, 4. (1) Business not synonymous with " occupation or calling," 4. landowners do not carry on a business, nor joint-owners or co-owners, 4. business in fact confined to what are recognised as commercial and professional businesses, 7. French law regards all co-ownerships as partnerships, 6. (2) Carried on for profit means for net profit, and not for gross returns, 8. (3) By or on behalf of alleged partners, 8. formerly mere sharing of profits considered conclusive evidence of partnership, 9. aliter since Cox v. Hickman, 9. participation in profits only prima facie evidence now, 9. Bovill's Act, effect of as to profit sharing, 10. history of law as to profit sharing since Cox v. HichnaUy 10, et seq. construction of Act of 1890, as to, 24 — 28. practical lessons to be learnt from cases as to profit sharing, 29. PARTNERSHIP PROPERTY, 116, et seq. property used by firm not always, 117. whether property is or is not, depends on agreement, 118. difficulty when agreement is imjjlied, 118. when credited in books as capital inferentially it is, 118. provisions of Act of 1890 in relation to, 119, 120. illustrative cases, 120, et seq. real estate part of the, generally (in absence of contrary agreement) is converted in equity into personal estate for purposes of devolution, 128. PREMIUM, when ordered to be returned in case of premature dissolu- tion, 142. power of arbitration to order return of, 143. PROFESSIONAL APPOINTxMENT, held ]jy partner, 151. must be valued and brouglit into account if retained by him after dissolution, 151. [15] INDEX. PROFITS, primd facie divisible equally and not in projiortion to shares of capital held by each partner, 66. drawings on account of accruing, articles should provide for, 66. partner can assign his share in, and judgment creditor can get charge on, 129 — 131. PROFIT SHARING, how far evidence of partnership, 9. societes en commandite, 11. cases relating to, 10—24. provisions of Act of 1890 relating to, 24. difficulty of construing, 25, 28. lessons to be learnt from cases relating to loans, etc., in con- sideration of, 29. must be a real loan repayable in any event, 29. lender must not take a share in the capital, 31. borrower should not be obliged to use loan as capital, 31. share of profits should not vary in proportion which loan bears to the capital, 31. provision should not be inserted for return of profits in case of subsequent losses, 31. words "capital," "concern," "partnership," etc., should be avoided, 31. clauses taken from partnership agreements should not be used, 32. qucere whether agreement for, must be in writing, 28. on bankruptcy of firm, lentler is postponed until the creditors fully paid, 179. but this does not affect any collateral security which he may have, 180. PROOF. See Bankruptcy. PROPERTY. See Partnership Property. R. RATIFICATION, equivalent to prior authorization, 87. RECEIPT, authority of partner to give on behalf of firm, 78. RECEIVER, when appointed, 137, 145. and manager when appointed, 145. See Manager. [16] INDEX. 'RECEIYEU— continued. partner not usually appointed, 146. manager usually only appointed lor fixed period, 146. on a2)pointiiient of a, court frequently makes decree for immediate dissolution, 137. court sometimes appoints and remits all other questions to an arbitrator, 137. REMUNERATION, none allowed to partner unless stipulated for, 107. aliter in case of death, incapacity or bankruptcy of co- partner, 107. RETIREMENT OF PARTNER, proper to provide for in articles, 67. in partnership at will dissolves the firm, 55, 133 — 137. RETURNS, sharing of gross, does not constitute partnership, 8. s. SALE, authority of partner to effect, of partnership property, 78. SALVAGE. See Indemnification. SECURITY, right of realisation of, by a creditor who has lent money in consideration of receiving share of profits or interest varying with profits, 80. SEPARATE ESTATE. See Bankruptcy. SERVANTS, authority of partner to engage, 78. receiving share of profits not thereby made partners, 27. SHARE, assignment by partner of his, in business, 129 — 131. charging order on, in execution of judgment against a partner, 130 — 134. SLEEPING PARTNER. See Dormant Partner, T. TORTS, liability of firm for, of partners, 80, et sej, [17 J INDEX. TRADE NAME. See Firm Name. TRUST, firm not generally liable for breach of, by partner, 90. u. UNLAWFUL. See Illegal Partnerships. w. WIDOW of deceased partner does not become a partner by reason of receiving a share of profits, 27. WINDING UP. See Dissolution, Bankbuptcy, Goodwill, Duration of Liability. WRONGS, See Torts. PRINTED BY SHAW AND SONS, FETTER LANE AND CRANE COURT, B.C. University of California Library Los Angeles This book is DUE on the last date stamped below. MAR 1 8 2000 .:.J ^J 4 /uilO • / LAW LIBRARY XJNIVERSITY OF CALIFORNIA LOS ANGELES UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 516 315 9 I III :