iiiliif«fl REG,0NALL AA 000 728 187',. A TREATISE LAW OF PARTNERSHIP. jfiftb EMtion. BY THE RIGHT HONOURABLE SIR NATHANIEL LINDLEY, Knt., ONE OF THE LORDS JUSTICES OF HER MAJESTY'S COURT OF APPEAL. ASSISTED BY WILLIAM C. GULL, M.A., OF LINCOLN'S INN, ESQ., BARRISTER-AT-LAW, VINERIAN SCHOLAR IN THE UNIVERSITY OF OXFORD, 1883, WALTER B. LINDLFA^, M.A., OF LINCOLN'S INN, ESQ., BARRISTER-AT-LAW. Mit\) American Wotrs BY ALONZO B. WENTWORTH, LL.B. IN TWO VOLUMES. Vol. I. BOSTON : CHARLES H. EDSON & CO., PUBLISHERS. 1888. Copyright, 1888, By Charles H. Edson & Co. T Typography by J. 8. Cushing and Co., Boston. EDITOR'S PREFACE. The conviction with which this work was under- taken, that the less it was edited the better, .has been confirmed as the labor upon it progressed. The original plan of simply collecting and citing the American cases has been changed by the altera- tion of the work by the Author in the fifth edition, reducing it from two volumes to one by the omission of the law pertaining to Companies and Corporations under English legislation. This change, occurring just before this edition was announced to appear, has rendered necessary a re-examination of the cases to meet the altered method of treatment. No attempt is made to write a book upon the Law of Partnership already so thoroughly covered by Story and by Bates, but the plan is to give the full text of Lord Justice Lindley's last edition, with such additions of American authorities as will make it serviceable to the American student and practitioner in subordination to the masterly plan and treatment of the Author. Nor is any attempt made to present the conclusions of the forty-five separate jurisdictions into which the American courts are divided, in the methodical man- ner of the Author, who deals only with a single jurisdiction, and speaks with the authority of a jurist and the learning of a special student. A short chapter on Joint-Stock Companies is added to supply the elimination of that branch of the Law IV EDITOK S PREFACE. of Partnership by the Author from the fifth edition, and to meet the expectations of the Profession on this important part of the subject. Mv obligations to Mr. S. W. Hatheway, of the Bos- ton Bar. for his assistance in preparing and correcting the notes and citations should be acknowledged in this connection. Imperfectly, as I am impressed the task set for me has been done, it is satisfaction to have been able to help the American lawyer to obtain in this Series the best modern English text-book. ALONZO B. WENTWORTH. Boston, May 22, 1888. AUTHOR'S PREFACE. The present volume is the Fifth Edition of a portion of the author's former "Treatise on the Law of Partnership, including its application to Companies." When that Treatise was first published, viz., in I860, the Law of Companies was being developed by legisla- tive enactment and judicial decision out of the Law of Partnership ; and it appeared to the author desirable to trace that development, and to endeavour in one treatise to investigate the Law of Partnership and to determine the extent to which its principles were applicable to Companies. But in the course of the last quarter of a century, Company Law has been developed to such an extent as to justify, if not to require, separate treat- ment ; and with a view to convenience and expense, advantage has been taken of the opportunity afforded by the demand of a Fifth Edition, to divide the former treatise into two parts, each of which shall be complete without the other, viz., the Law of Partnership proper, and the Law of Companies, in so far as it has any con- nection with the former. This volume is devoted to the first of these parts, viz., the Law of Partnership proper. The volume relating to Companies is in course of preparation and will be published shortly. In arrangement, the order of treatment previously adopted has been retained with the exceptions, that the causes of dissolution, the right to retire, and the right to expel, have been transferred to the Chapter on VI AUTHOR S PREFACE. Dissolution in Book IV. This modification will, it is hoped, be considered an improvement. Great pains have been taken to render this edition deserving of the favourable reception accorded to those which have preceded it. Several very important cases, and especially Kendall v. Hamilton, Scarf v. Jardine, and the Yorkshire Banking Company v. Beatson, have been decided since the publication of the last edition. There lias also appeared the Digest of the Law of Partnership by Mr. Frederick Pollock, which is full of observations of the greatest value ; and the third edition of which the author has constantly consulted. In the Appendix to it will be found the draft of a bill to con- solidate and amend the Law of Partnership. It is much to be regretted that this branch of the law should not be put into shape and codified by legislative author- ity. Mr. Pollock's remarks on this subject in the Preface to the 3d and 4th editions of the Digest deserve the serious attention of the Legislature. But this is not the place to enlarge on the many advan- tages which would accrue to this country if its laws were gradually revised on the model of the Indian codes. The whole of the present treatise has once more been carefully revised throughout ; whatever is obsolete has been omitted, or if retained as being still useful, has been printed in small type. The author's increased experience has suggested additions and alterations; and many portions have .been re-written and adapted to the most recent decisions. Notwithstanding, however, the labour bestowed upon AUTHOR S PREFACE. Vli the work, and the anxiety of the author to render it a trustworthy guide to the subject to which it relates, the multiplicity and difficulty of the questions with which he has had to deal are such, that he dare not venture to hope that he has always avoided error, or that his work is free from serious faults ; and although it has engaged his unremitting attention for more than thirty years, he is painfully aware that it is even now but an imperfect production. The author's thanks are due to Mr. W. C. Gull and Mr. W. B. Lindley, for their assistance in revising the sheets, and to the former gentleman also for his aid in preparing materials, in examining American and Irish reports and authorities on doubtful points, and for the preparation of the indexes. Royal Courts of Justice, 1st March, 1888. ANALYSIS OF CONTENTS. [The references are to the star pages.] PAGE Preface v Authorities Cited xxiii Introductory 1 Book I. — Of Contracts of Partnership 7 Book II. — Of the Rights and Obligations of Partners as regards Non-Partners 124 Book III. — Of the Rights and Obligations of the Members of Partnerships between themselves . . 301 Book IV. — Of the Dissolution and Winding-up of Part- nerships 570 Index 757 INTRODUCTORY. 1. Meaning of the word partnership 1 2. Distinction between partnerships, corporations, and companies . 4 BOOK I. OF CONTRACTS OF PARTNERSHIP. CHAP. I. — The Nature of the Contract determined . 7 Preliminary observations 7 Sect. 1. — Of true partnerships 10 1. Partnership is the result of an agreement to share profits and losses 10 2. Partnership is prima facie the result of an agreement to share profits although nothing may be said about losses, and although there may be no common stock .... 12 X ANALYSIS OF CONTENTS. [The references are to the star pages.] PAGE 3. Partnership is prima facie the result of an agreement to share profits although com- munity of loss is stipulated against . . 15 4. Partnership is not the result of an agreement to share gross returns ..... 17 5. Partnership is not the result of an agreement which is not concluded ..... 10 6. Partnership is not the result of an agreement to share profits so long as anything remains to be done before the right to share them accrues 20 Application of this principle to Ordinary partnerships ... 20 Promoters of companies ... 23 Sect. 2. — Of . — Effect of the form of a contract on the liability of partners in respect of contracts not entered into on behalf of the firm, or not so in proper form 1. Contracts under seal 2. Ordinary contracts not under seal 128 128 128 129 129 129 129 131 131 133 134 134 136 137 137 138 139 139 139 139 139 141 143 143 144 145 145 146 146 147 147 147 149 150 150 162 167 176 177 177 ANALYSIS OF CONTENTS. Xlll [The references are to the star pages.] PAGE 3. Bills of exchange and promissory notes . 180 Bills in the name of the firm . . . 180 not in the name of the firm . .184 Promissory notes 187 Sect. 6. — Liability of partnerships in respect of contracts not binding on them, but of which they have had the benefit 180 CHAP. II. — Of the Nature, Extent, and Duration of the Liability of Partners to Creditors . . 192 Sect. 1. — Nature of the liability, and herein of joint and sev- eral liability 1. As regards contracts 2. As regards torts and frauds 192 198 200 Sect. 2. — Extent of the liability Sect. 3. — Duration of the liability 201 1. Commencement of liability .... 201 liability of firm for acts preceding its for- mation 202 liability of incoming partners for debts con- tracted before they join the firm . . 205 2. Termination of liability 210 A. As to future acts 210 1. without notice of dissolution * .211 Death 211 Bankruptcy . . . .212 Retirement of dormant partners 213 2. by notice of dissolution or retirement . 213 the effect of such notice . . .215 when there is a continued hold- ing out notwithstanding the notice 216 with reference to the doctrine that a partnership, though dis- solved, subsists so far as is nec- essary for the winding up of its affairs . . . .217 what amounts to notice . . . 221 and herein of the distinction be- tween old customers and other people 221 B. As to past acts 223 and especially by 1. Payment 225 of the appropriation of payments . 226 where there is a single current ac- count ...... 228 xiv ANALYSIS OF CONTENTS. [The references are to the star pages.] PAGK Payment where there are several dis- tinct accounts .... 231 2. Release 237 3. Substitution of debtors and securities . 239 (k) by agreement .... 239 A. Where a retired partner has not been discharged a. no new partner having been introduced .... 242 b. although a new partner has been introduced . . . 245 B. Where a retired partner has been discharged . . . 247 Discharge of the estate of a de- ceased partner . . . 249 (b) by merger and judgment . . 254 and herein of the effect of taking fresh securities for an old debt 254 4. Lapse of time and the Statutes of Lim- itation 257 CHAP. III. — Of Actions between Partners and Non-Part- ners. Sect. 1. — Of actions by and against partners .... 264 1. General observations 264 2. Where no change in the firm has occurred since the right accrued .... 273 A. Actions in respect of legal rights . . 273 a) Actions by the firm .... 273 Actions ex contractu . . . 273 Actions ex delicto . . . 278 6) Actions against the firm . . . 280 Actions ex contractu . . . 280 Actions ex delicto . . . 283 B. Actions in respect of equitable rights . 283 3. Where a change in the firm has occurred since the right accrued .... 284 Sect. 2. — Of set-off 290 Skct. 3. — Of execution against partners for the debts of the firm 298 BOOK III. OF THE PvIGHTS AND OBLIGATIONS OF THE MEMBERS OF PARTNERSHIPS BETWEEN THEMSELVES. CHAP. I. — Of the right to take Part in the Manage- ment of the Affairs of the Firm . . 301 ANALYSIS OF CONTENTS. XV [The references are to the star pages.] PAGE CHAP. II. — Of the General Duties of Partners to ob- serve Good Faith 303 Sect. 1. — Preliminary remarks 303 Sect. 2. — Of the obligation of partners not to benefit themselves at the expense of their co-partners . . . 305 Sect. 3. — Of the powers of a majority of partners . . . 313 1. in matters arising in the ordinary course of business 314 2. in matters involving a change in the nature of the business 315 CHAP. III. — Of the Capitals of Partnerships . . . 320 CHAP. IV. — Of Joint and Separate Property . . . 322 Sect. 1. — Of joint estate . . . . . • • • 323 Sect. 2. — Of separate estate 327 Sect. 3. — Of the conversion of joint estate into separate, and vice versa 334 CHAP. V. — Of Shares in Partnerships 339 Sect. 1. — Of the nature of a share and the rules which govern its devolution in case of death .... 339 of the doctrine of non-survivorship between partners . 340 of the doctrine that shares are personal estate . . 343 Sect. 2. — Of the amount of each partner's share . . . 348 the presumption in favour of equality . . . 348 Sect. 3. — Of the lien which each partner has on the property of the firm, and on the shares of his co-partners . 351 Sect. 4. — Of the mode in which a share is taken in execution for the separate debts of its owner . . . 356 1. The duty of the sheriff 356 2. The position of the purchaser from the sheriff . 358 3. The position of the execution debtor . . . 359 4. Modifications introduced by the Judicature Acts . 361 Sect. 5. — Of the transfer of shares 363 [N.B. — As to the relinquishment and forfeiture of shares and as to the right to retire and expel, see infra, Bk. IV., Chap. I., §!•] CHAP. VI. — Of Contribution and Indemnity . . . 367 Sect. 1. — General observations 368 1. Foundation of the right to contribution . . . 368 2. Of the right of agents and trustees to indemnity from their principals and cestuis que trustent . . 369 3. Of some former differences between contribution at law and in equity 374 4. Of contribution between wrongdoers ■ . . 377 XVI ANALYSIS OF CONTENTS. [The references are to the star pages.] Sect. 2. — Of compensation for trouble Sect. 3. — Of outlays and advances Sect. 4. — Of debts, liabilities, and losses . Sect. 5. — Of interest CHAP. VII. — Of the Division of Profits CHAP. VIII. — Of the Accounts of Partnership Sect. 1. — Of the mode of keeping partnership accounts Sect. 2. — Of the duty to keep and the right to inspect them CHAP. IX. — Of Partnership Articles Sect. 1. — General observations . 1. Partnership articles are not intended to define all the rights and duties of partners 2. Partnership articles are to be construed with reference to the objects of the partners . 3. and so as to defeat fraud 4. and to prevent unfair advantages .... 5. Any clause, however express, is capable of being- abandoned by the tacit consent of all the partners 6. Articles of partnership are presumed to apply so long as the parties to them remain partuers Sect. 2. — On the usual clauses in articles of partnership, and especially of those relative to 1. The nature and place of the business 2. The time of the commencement of the part- nership ..... 3. The name or style of the firm . 4. The duration of the partnership 5. The premium ..... 6. The capital and property of the firm 7. Interest, allowances, &c. . 8. Conduct and powers of the partners U. Partnership books .... 10. Accounts ...... 11. Retiring ...... 12. Dissolving ..... 13. Expelling 14. Valuation of shares . . ... 15. Transmission of shares and introduction of new partner .... 10. Annuities to widows 17. Prohibitions against carrying on business 18. Good-will 19. Getting in debts .... 20. Assignment of share by retiring partner 21. Indemnities PAGE . 380 . 381 . 385 . 389 . 393 396 396 404 406 406 406 407 407 408 408 410 412 412 413 413 413 414 418 418 420 420 422 425 426 429 433 435 436 439 448 449 450 ANALYSIS OF CONTENTS. xvii [The references are to the star pages.] 22. Arbitration clauses . 23. Penalties and liquidated damages PAGE 451 454 CHAP. X. — Of Actions between Partners .... 456 Sect. 1. — General observations ...... 456 1. Law before the Judicature acts . . . 456 2. Effect of the Judicature acts .... 458 Sect. 2. — Parties to actions between partners .... 459 1. General rule as to partnership actions . . 459 2. Where some partners may sue or be sued on behalf of themselves and others . . . 461 Sect. 3. — Cases in which Courts will not interfere between partners ....... 464 1. Of the rule not to interfere except with a view to a dissolution ...... 464 2. Of the rule not to interfere in matters of in- ternal regulation ...... 466 3. Of the rule not to interfere at the instance of those who have been guilty of laches . . 466 Sect. 4. — Actions for specific performance .... 475 Sect. 5. — Actions for misrepresentation and fraud . . . 479 1. General observations ..... 479 2. Actions for damages ..... 481 3. Actions for rescission of contract . . . 482 Sect. 6. — Actions for dissolution, account, &c 491 1. Of account and discovery .... 492 a) Of account and discovery generally . . 492 as to account ...... 492 as to discovery and production of docu- ments 501 as to payment into Court . . . 505 b) The defences to an action for an account and discovery ...... 506 1. Denial of partnership . . . 507 2. The Statute of Limitations . . 508 3. Account stated . . . .512 4. Award 514 5. Payment. Accord and satisfaction 515 6. Release 516 c) The judgment for a partnership account . 516 m Just allowances 519 The period over which the account is to extend ....•• 519 Account of profits since dissolution . 521 The evidence upon which the accounts are to be taken .... 536 2. Of injunctions , 538 XV1U ANALYSIS OF CONTENTS. [The references are to the star pages.] PAGE 3. Of receivers 545 4. Of the sale of partnership property under the order of the Court 555 Sect. 7. — Other miscellaneous actions 559 1. Between persons who have agreed to become partners .... . . 559 2. Between partners ...... 560 Note on the law as it stood before the Judi- cature acts 562 BOOK IV. OF THE DISSOLUTION AND WINDING UP OF PART- NERSHIPS. CHAP. I. — Causes of Dissolution 570 Sect. 1. — The will of any partner ...... 571 1. Of the right to dissolve 571 2. Of the right to retire 573 3. Of the right to expel 574 Sect. 2. — The impossibility of going on; in consequence of — 1. The hopeless state of the partnership business 576 2. Insanity 577 3. Misconduct and destruction of mutual confi- dence 580 Sect. 3. — The transfer of a partner's interest .... 583 [X.B. — As to Death and Bankruptcy, see below.] Sect. 4. — The occurrence of some event which renders the continuance of the partnership illegal . . . 585 CHAP. II. — Consequences of Dissolution .... 586 1. As regards the creditors of the firm . . 586 2. As regards the partners themselves . . . 587 CHAP. III. — Of Death and its Consequences . . . 590 Sect. 1. — As regards the surviving partners and the executors of the deceased ....... 590 Sect. 2. — As regards joint creditors 594 1. With reference to what occurred before death 594 And herein of actions against executors of deceased partners by creditors of the firm 599 2. With reference to what has occurred since death 604 And herein of the effect of a trust to employ assets in the business of the firm . . 607 ANALYSIS OF CONTENTS. xix [The references are to the star pages.] PAGE Sect. 3. — As regards the separate creditors, legatees, and next of kin of the deceased ..... 610 1. Of the rights of the separate creditors and legatees, &c, generally 610 2. When the share of the deceased is not got in . 614 3. Of shares specifically bequeathed . . . 619 CHAP. IV. — Of Bankruptcy 622 Preliminary observations ..... 622 Sect. 1. — Adjudications of bankruptcy against partners . . 625 1. Acts of bankruptcy 625 And herein particularly of fraudulent con- veyances ....... 627 2. The petitioning creditor's debt . . . 633 3. Of joint and separate adjudications . . 637 And herein of annulling and consolidating adjudications 640 4. Choice of trustee 644 And herein of inspectors to protect special interests ....... 645 Sect. 2. — The property which vests in the trustee and the con- sequences of such vesting ..... 646 1. Generally ....... 646 2. Property divisible amongst the creditors . . 650 3. Of set-off and mutual credit .... 654 4. Of the time from which the title of the trustee dates ....... 663 And herein of the consequences of the doc- trine of relation back as regards (a) transactions with the bankrupt part- ners 666 (6) transactions with the solvent partners 669 (c) execution creditors .... 674 Sect. 3. — Of the doctrine of reputed ownership . . .676 1. generally ........ 676 2. particularly as regards partners . . . 683 where there has been a change in the firm . 685 where there is a dormant partner . . . 689 Sect. 4. — The administration of the bankrupt's estates . . 691 1. General principles ...... 691 2. Of joint estate and of separate estates . . 697 3. Of joint, separate, and joint and separate debts 701 4. Of the proof and payment of partners' debts generally ....••• 707 of secured creditors and the rule in Ex parte Waring 709 XX ANALYSIS OF CONTENTS. [The references are to the star pages.] A. Proof against the joint estate the joint creditors . the partners .... the separate creditors B. Proof against the separate estates the separate creditors the joint creditors . . ; the partners .... C. Proof against both estates . General rule as to election Cases in which double proof is allowed Cases where a secured creditor may split his demand .... Sect. 5. — The bankrupt's order of discharge Sect. 6. — Arrangements with creditors 720 720 721 728 729 780 7:30 737 74:1 743 747 749 751 754 INDEX THE LAW OF PARTNERSHIP. INTRODUCTORY. 1. Meaning of the word partnership. Partnerships. — To frame a definition of any legal term which shall be both positively and negatively accurate, is possible only to those who having legislative authority, can adapt the law to their own definition. Other persons have to take the law as they find it; and rarely indeed is it in their power to frame any definition to which exception may not justly be taken. All that they can usefully attempt is to analyse the meanings of the words they use, and to take care not to employ the same word in different senses, where so to do can possibly lead to confusion. Without attempting, then, to define the terms partners and partnership, it will suffice to point out as accurately as possible the leading ideas involved in those words. The terms in question are evidently derived from to part, in the sense of to divide amongst, or share, and this at once limits their application, although not very precisely : for persons may share almost anything imaginable, and may do so either by agreement amongst themselves or otherwise. But in order that persons may be partners in the legal accepta- tion of the word, it is requisite that they shall share some- thing by virtue of an agreement to that effect, and that that which they have agreed to share shall be the profit arising from some predetermined business engaged in for their common benefit. An agreement that something shall be attempted with a view to gain, and *that the [*2] gain shall be shared by the parties to the agreement, 1 *3 PARTNERSHIPS. [Introd. is the grand characteristic of every partnership, and is the leading feature of nearly every definition of the term (a). Partnership, although often called a contract, is in truth the result of a contract ; the relation which subsists between persons who have agreed to share the profits of some busi- ness rather than the agreement to share such profits. By some writers associations which have not gain for their object are occasionally termed partnerships; and even in the Companies act, 1862, partnerships having gain for their object are referred to, and the reader is thereby led to suppose that there may be partnerships of some other kind (5). But to use the word partnership to denote a society not formed for gain is to destroy the value of the word, and can lead only in confusion (c). Nor is it consistent with modern usage. Lord Hale and older writers use co-partnership in the sense of co-ownership, but this is no longer customary ; and as will be shown hereafter, there are many important differ- ences between the two (d). Although for the reasons already stated the writer has not attempted to give a definition of the term partnership, he appends for the consideration of the reader the following definitions taken from works of celebrity : — Civil Code of New York. — Partnership is the association of two or more persons for the purpose of carrying on business together, and dividing its profits between them (e). Code civil. — La societe est un contrat, par lequel deux ou plusieurs personnes conviennent de mettre quelque chose en comrrmn, dans la vue de partager le benefice qui pourra en resulter (/). Dixon. — A partnership is a voluntary unincorporated association of individuals standing to one another in the relation of principals for car- rying out a joint operation or undertaking for the purpose of joint profit {<)). Domat. — La societe est une convention entre deux ou plusieurs per- sonnes, par laquelle ils mettent en cornmun entre eux ou tous leurs biens ou une partie, ou quelque commerce, quelque ouvrage, ou quelque [*3] autre affaire, pour *pai*tager tous ce qu'ils pourront avoir de gain ou Bouffrir de perte de ce qu'ils auront mis en societe (/*). Kent. — Partnership is a contract of two or more competent persons to (a) Mollwo, March & Co. v. Court (e) Civil Code of the State of of Wan!-, L. B. I P. C. 436 j K. v. New York, § 1283. BobBon, L6 Q. B. I). L37. (/) Code Civil, § 1832. C. t of the act. (g) Dixon's Law of Partnership, 1. (<-j See as to clubs, infra, chap. (/<) Domat, les Lois Civiles, liv. i. 1, § 5. tit. 8, § 1. (jl) See infra, chap. 1, § G. Introd.] DEFINITIONS. *4 place their money, effects, labour, and skill, or some or all of them, in lawful commerce, or business, and to divide the profit and bear the loss in certain proportions (i). Indian Contract act. — Partnership is the relation which subsists between persons who have agreed to combine their property, labour, or skill in some business, and to share the profits thereof between them (k). Parsons. — Partnership is the combination by two or more persons of capital, or labour, or skill, for the purpose of business for their common benefit (I). Pollock. — Partnership is the relation which subsists between persons who have agreed to shai-e the profits of a business carried on by all or any of them on behalf of all of them (ni). Pothier (1). — Le contrat de societe est un contrat par lequel deux ou plusieurs personnes mettent, ou s'obligent de mettre, en commun quelque chose, pour faire en commun un profit honnete, dont ils s'obligent recip- roquement de se rendre compte (n). Pothier (2). — Societas est contractus de conferendis bona fide rebus aut operis, animo lucri quod honestum sit ac licitum in commune faciendi (o). Prussian code. — Ein Vertrag durch welchen mehrere Personen ihr Vermogen oder Gewerbe oder auch ihr Arbeiten und Bemiihungen ganz oder zum Theil zur Erlangung eines gemeinschaftlichen Eudzwecks vereinigen, wird ein Gessellschaftsvertrag genannt (p). Pufendorf. — Le contrat de societe se fait lorsque deux ou plusieurs personnes mettent en commun leur argent, leurs biens, ou leur travail, a la charge de partager entr'eux le gain et de supporter les pertes qui en arriveront, chacun a proportion de ce qu'il contrihue du sien ( necessarily community both of profit and of loss: community of profil if the returns exceed the advances; community of loss if the advances exceed the returns. Distinction between sharing profits and gross returns. — The above remarks \\.\\^ appeared necessary in order to explain the reasons for the distinction made by English lawyers between agreements to share profits (i.e., net profits and profits as such) on the one hand, and agreements to share gross returns (sometimes called gross profits) on the other: and in order to accounl for the rule that whilst an agree- 8 I. Ch. 1. S. 1.] SHARING PROFITS AND LOSSES. *9, *10 merit to share profits creates a partnership, an agree- ment to share gross * returns does not. The reason- [*9] ableness, however, of the above distinction is very questionable, at least where there is any community of capi- tal or common stock ; and the rule itself is probably attribu- table less to the difference which exists between net profits and gross returns than to the doctrine which so long con- fused the whole law of partnership in this country, and according to which all persons who shared profits incurred liability as if they were really partners. When this doctrine was rife, the distinction between sharing net profits and gross profits (i.e., returns) had considerable practical value ; but, as will be seen hereafter, the doctrine in question is now wholly exploded, and the distinction alluded to is of little importance. Quasi-partnerships. — The doctrine to which reference has been made renders it necessary to caution the reader against an ambiguity in the word partnership as used by English lawyers. Partnerships are by them divided into partner- ships (properly so called), and partnerships as regards third persons, which are not in fact partnerships at all, and should never be so styled. What is called a partnership as regards third persons (^^-partnership), is nothing more than a number of persons, who, in consequence of certain acts done by them, are held liable for each other's conduct, as if they had entered into a contract of partnership amongst them- selves. What these acts are will be considered hereafter: but the reader is requested to bear in mind that for the present, partnerships properly so called, and not quasi-ipartr nerships, are intended to be spoken of. Having made these preliminary observations, it is proposed to consider what agreements do, and what do not, result in a partnership in the proper sense of the word. * SECTION I. — OF TRUE PARTNERSHIPS. [*10] 1. — Partnership is the result of an agreement to share profits and losses. Agreements to share profits and losses. — Whether an agree- ment creates a partnership or not depends on the real inten- 9 *10 CONTRACTS OF PARTNERSHIP. [I. Ch. 1. S. 1. tion o( the parties to it ((f)- 1 If the agreement is not in writ- ing the intention of the parties must be ascertained from their words and conduct. It' the agreement is in writing, its true construction must be determined; but, as will be more (a) Mollwo, Maivh. & Co. r. Court Hirsch, 27 Ch. D. 460; Ross v. Par- of Wards, L. R. 4 P. C. 419; Pooley kyns, 20 Eq. 331, and other cases v. Driver, 5 Ch. D. 400; Walker v. cited infra, p. 13, note (?-). 1 In Ryder v. Wilcox, 103 Mass. 24, the court sustained a demurrer to an action for damages for breach of a contract by which plaintiff was to have ball the net profits of the business in payment of his services as superin- tendent and manager of the business, and held that it was the intent of the parties to become partners, and this intent was to be gathered from the con- tract. To this rule, that the intention of the parties controls in the determination of the question see Stoiy on Part. 49 ; Bates on Part. 17. Where two persons bought a horse, which they intended to sell at a profit, and by agreement the owner having the possession of the horse should pro- vide for his keeping, but neither should sell without the concurrence of the other, they were held to be tenants in common and not partners. Goell v. Morse, 126 Mass. 480. Where the purpose of the parties is that no partnership shall exist, per- sons cannot be made to assume that relation. London Assurance Co. v. Drennen, 116 U. S. 401 ; Burnett v. Snyder, 81 N. Y. 550. See Adams Bank v. Rice, 2 Allen, 480. In Thayer v. Augustine, 55 Mich. 188, the plaintiff rented a saloon to defendant, agreeing to take as rent therefor one-half of the profits of the busi- ness. Plaintiff maintained assumpsit for rent, the court saying that the agreement did not constitute the parties partners, and that their intention should prevail. In Farnum v. Patch, 60 N. H. 294, an association called the "Oak Hill Grange " by written agreement established a country store, taking "shares" at $25 each. Upon bill in equity for contribution as between partners it was held that the members were partners, and that their belief or understanding that they were not partners was a mistaken and immaterial view of the law. Where a mail contractor agreed with a sub-contractor that he should have one half the compensation for one-half the service, it was held that there was no partnership. Wilkinson v. Jett, 7 Leigh. 115. And by an agreement to divide the gross earnings of a boat, which was to be furnished by one party and sailed by the other, no partnership is constituted. Bowman v. Bailey, in Vt. 170. A joint interest in a patent does not constitute the owners partners. Park- hir-t r. Kinsman, 1 Blatchf. 488. In IlilT '■. Brazill, 27 Iowa, 131, two farmers bought a threshing-machine, giving therefor a note signed by both of them, the machine to be used in com- mon, and it was held that they were joint owners and not partners. Voluntary consent t'i tin- relation and obligation of partnership is neces- sary. Hedge's Appeal, 63 Pa. St. 27:!. The lender of capital to be put at risk in business is not thereby a partner. Adams v. Funk, •",;; 111. 219; Owens v. Mackall, 33 Md. 382; Manhattan Co. v. Sear-, 1 Sweeney, 126; Buck v. Dowley, 10 Gray, 555; Pleasants v. Fant, 22 Wall. 110. Where a laborer agreed with a land-owner to cultivate his land for a fixed time and receive half the crop, no partnership was created. Holloway v. Brinklev, 12 '.a. 220 ; Donnell ,-. Ilarshe, 67 Mo. 170. 10 I. Ch. 1. S. 1.] SHARING PROFITS AND LOSSES. *11 fully shown in a subsequent chapter, even a written contract may be departed from and modified by a new verbal agree- ment between all the partners proved by conduct inconsist- ent with the written document (J). But an agreement to share profits and losses, may be said to be the type of a partnership contract. Whatever differ- ence of opinion there may be as to other matters, persons en- gaged in any trade, business, or adventure upon the terms of sharing the profits and losses arising therefrom, are neces- sarily to some extent partners in that trade, business, or ad- venture ; nor is the writer aware of any case in which persons who have agreed to share profits and losses have been held not to be partners (c). But it does not follow that each of several persons who share profits and losses has all the rights which partners usually have. For example, a per- son may share profits and losses and yet have no right ac- tively to interfere with the management of the business (d~) ; or he may have no such right to dissolve as an ordi- nary partner has (e) ; or he may have no right * to [*H] share the goodwill of the business on a dissolution ; and other instances of restricted rights may be suggested. What in any given case the rights of a particular partner are depends on the agreement into which he has entered ; but unless the word partner is to be deprived of all definite meaning its proper application to persons who share profits and losses can hardly be questioned (/). Accordingly, in Green v. Beesley (#), a partnership was (b) Infra, Book III. c. 9. (e) See as to this Moore v. Davis, (c) Iii Mair v. Glennie, 4 M. & S. 11 Ch. D. 261 ; Pawsey v. Armstrong, 240, the expression profit or loss seems 18 Ch. D. 698, in both of which the to have been used for gross returns. right to dissolve was held to exist. And in Geddes v. Wallace, 2 Bligh, But qu. whether Pawsey v. Armstrong 270, the arrangement as to profit and did not go too far. loss did not apply to the person as to (/) See however the judgment of whom the question of partnership or Cotton, L. J., in Walker v. Hirsch, 27 no partnership was raised. Ch. D. 460. (d) As in Walker v. Hirsch, 27 (g) 2 Bing. N. C. 108. Ch. D. 460. Compensation of an employee measured by a portion of the profits does not make him a partner. Miller v. Chandler, 29 La. Ann. 88; Chaffraix v. Price, Id. 176; Bell v. Hare, 12 Heisk. 615. But where persons without a legal organization undertake to act as a cor- poration they become liable as partners to those with whom they deal, even if their intention and the belief of persons dealing with them is that they con- stitute a corporation. Jessop v. Carnegie, 44 N. Y. Sup. Ct. 260; see Mar- seilles Co. v. Aldrich, 86 111. 504. 11 *l2 CONTRACTS OF PARTNERSHIP. [I. Ch. 1. S. 1. held to result from an agreement that the plaintiff should horse a mail cart and be paid by the defendant iU. per mile per annum for so doing, and that the plaintiff and the de- fendant should share the expenses of repairing and replacing the carts and the moneys received for the conveyance of par- eels and the losses occasioned by their loss or damage. So in Brett v. Beckwith (A), a partnership was held to exist between underwriters, one of whom had agreed to take a joint share of the underwriting risks of the other, paying or receiving sums according to the result of the accounts. These authorities are sufficient to show that an agreement to share profit and loss, is an agreement for a partnership, although the words partners or partnership do not occur in the agreement ( /). Partnership not intended. — Cases which present most diffi- culty are those in which persons agree to share profits and Losses and at the same time declare they are not to be part- ners. 1 The question then arises, what do they really mean? If they have in fact stipulated for all the rights of partners, an agreement that they shall not be partners is a useless pro- test against the consequences of their real agreement (&). But a clause negativing a partnership may throw light on other clauses, and rebut inferences which might be drawn from them alone. In practical life such questions do not arise in any abstract form. Some definite dispute has [*12] to be determined, e.g., liability to creditors *or the right of one party to the agreement to some particu- lar thing or to some particular relief as to which the agree- ment itself is the true guide. 2. — Partnership is prima facie the result of an agreement to share profits, although nothing may be said about losses, a,,, I although, there may be no common stock. Agreements to share profits only. — Except in cases spe- cially provided for by statute, an agreement to share profits, (A) :; Jut. N. S. 31, in the Rolls. (k) See Ex parte Delhasse, 7 Ch. (i) See, too, (In-iil, am v. Gray, 4 D. 511; Moore v. Davis, 11 Ch. D. Ir. Com. L. Rep. 601. 261. See also Pooley v. Driver, 5 Ch. D. 400. 1 Postponement of division of profits does not alter the character of the agreement Beauregard v. Case, 1 Otto, L34, 23 L. ed. 263; Beckwith v. Tal- bot, 95 l". s. 289, 24 L. ed. 496. 12 I. Ch. 1. S. 1.] AGREEMENTS TO SHARE PROFITS. *12 nothing being said about losses, amounts primd facie to an agreement to share losses also (1 1 ;) for it is but fair that the chance of gain and of loss should be taken by the same persons; and it is natural to suppose that such was their intention if they have said nothing to the contrary (m). It follows from this, that where no statute interferes, an agree- ment to share profits is prima facie an agreement for a part- nership; and accordingly it has been held, that unless an intention to the contrary can be shown, persons engaged in any business or adventure and sharing the profits derived from it, are partners as regards that business or adven- ture O). See L. 25, n. 2. Community of profit as a test of partnership. — Indeed, it has often been said, that community of profit is the test of partnership (o). 2 This, however, is not accurate. Whether persons are really partners or not is a question of intention, to be decided by a consideration of the whole agreement into which they have entered, and ought not to be made to turn on one or two only of the clauses in it (j?). A good instance of this is afforded by the Irish case of Barklie v. Scott (•) Ex parte Tennant, 6 Ch. D. ing on business together. See also, 303, where a father claimed to be a Geddes v. Wallace, 2 Bligh, 270. In partner with his son; Ross v. Par- R. v. Macdonald, 7 Jur. N. S. 1127, kyns, 20 Eq. 331; Rawlinson v. a servant, paid by a share of profits, Clarke, 15 M. & W. 292; Stocker v. was convicted of embezzlement, which Brocklebank, 3 Mc. & G. 250; Shaw he could not then have been if he had v. Gait, 16 Ir. C L. 397 ; Radcliffe v. been a partner. In Withington v. Rushworth, 33 Beav. 484, where there Herring, 3 Moo. & P. 30, an agent was a holding out and a deed exe- paid by a salary and a share in the cuted by the alleged partners, in profits was thought to be a partner, which they were described as carry- but the question was not decided. 1 Paying a salesman or other employee a percentage or share of profits does not make him a partner. Vinson v. Beveridge, 3 MacArthur, 597; s. c. 36 Am. Rep. 113; Sodiker v. Applegate, 24 W. Va. 411; s. c. 49 Am. Rep. 252; Benson v. Ketchum, 14 Md. 331 ; Boardman v. Keeler, 2 Vt. 67; Kerr v. Pot- ter, 6 Gill. 404 ; Muzzey v. Whitney, 10 Johns. 225; Holden v. French, 68 Me. 241 ; Coffin v. Jenkins, 3 Story, 108 ; Baxter v. Rodman, 3 Pick. 435 ; Christian v. Crocker, 25 Ark. 325; Handle v. State, 49 Ala, 14; Parker v. Canfield, 37 Conn. 250; Commonwealth v. Bennett, 118 Mass. 443; Burton v. Goodspeed, 69 111. 237 ; Meserve v. Andrews, 104 Mass. 360; Norment v. Hull, 1 Humph. 320; Voorhees v. Jones, 29 X. J. L. 270; Bradley v. White, 10 Met. 303; Blanchard v. Coolidge, 22 Pick. 151 ; Smith v. Bodine, 71 N.Y. 30; Smith v. Perry, 29 N. J. L. 74; Bull v. Schubert, 2 Md. 38 ; Taylor v. Sotolingo, 6 La. Ann. 154 ; Reed v. Murphy, 2 G. Greene, 574; Mason v. Ilackett, 4 Nev. 420; I Iton, 1 1 X. II. 452 ; Nutting v. Colt, 7 N. J. Eq. 539 ; Burckle v. Eckhart, 1 Den. 338; s. c. 3 N.Y. 132; Mterwin v. Playford, 3 Robt. (N.Y.), 702; Shropshire v. Sheperd, 3 Ala. 733; Banna v. Flint, 14 Cal. 73; Hodges v. Dawes, 6 Ala. 215; .Miller -■. Chandler, 29 La. Ann. 88; Chaffraix v. Price, 29 La. Ann. 176; Bell v. Hare, 12 II.-i.-k. 615; Butler v. Finck, 10 N. Y. Weekly I>i'j. 163; Shepard v. Pratt, L6 Kan. 209; Ilodgman v. Smith, 13 Barb. 302; Dunham v. Rogers, 1 Pa. St. 255; Brockway v. Burnap, 16 Barb. 209; Goode v. McCartney, in Tex. 193; Amble v. Bradley, 6 Vt. 119; Loomis v. Marshall, 12 Conn. 69; Webb v. Leggett, 6 Mo. App. 345; Clark v. Gilbert, 32 Iiarlj. 570 ; Hall v. Edson, 40 Mich. 051 ; Price v. Alexander, 2 G. Greene, 14 I. Cn. 1. S. 1.] AGREEMENTS TO SHARE PROFITS. *13 on agreements to share profits and losses (ante, p. 10) are applicable to agreements to share profits only ; but with this difference, viz., that in the latter case it is easier than in the former to come to the conclusion that a partnership was not intended to be formed. If the servant sharing profits has also an interest in the 427 ; Whitehall v. Shickle, 43 Mo. 538 ; In re Blumenthal, 18 Bk. Reg. 555 ; Bidwell v. Madison, 10 Minn. 13; Braley v. Goddard, 49 Me. 115; Hitchings v. Ellis, 12 Gray, 449; Denny v. Cabot, 6 Met. 82; Fawcett v, Osborn, 32 111. 411; Ruddich v. Otis, 33 Iowa, 402; Berthold v. Goldsmith, 24 How. 542; Bowyer r. Anderson, 2 Leigh. 550; Chapline v. Conant, 3 W. Va. 507 ; Dils v. Bridge, 23 W. Va. 20 ; Morgan v. Stearnes, 41 Vt. 397 ; Hamper's Appeal, 51 Mich. 71 ; Pond v. Cummins, 50 Conn. 372; Rushing v. People, 42 Ark. 390; Pleasants v. Fant, 22 Wall. 116; Sangston v. Hack, 52 Md. 173; Bull v. Sehu- berth, 2 Md. 56 ; Crawford v. Austin, 34 Md. 49 ; Miller v. Smith, 10 L. C. R. 305 Q. B. No partnership unless community of interest. Beckwith v. Talbot, 95 U. S. 289 ; 24 L. ed. 496 ; Ward v. Thompson, 22 How. 330. Taking a share of the profits for rent or use of property does not make the owner a partner. Donnell v. Harshe, 67 Mo. 170 ; Thayer v. Augustine, 55 Mich. 187; s. c. 54 Am. Rep. 361; Hayden v. Crawford, 3 Ont. K. and Q. B. R. (O. S.) 583; England v. England, 57 Tenn. 108; Perrine v. Hankinson, 11 N. J. L. 131; Putnam v. Wise, 1 Hill, 234; McDonnell v. Battle House Co., 67 Ala. 90 ; s. c*. 42 Am. Rep. 99 ; Beecher v. Bush, 45 Mich. 188 ; s. c. 40 Am. Rep. 465 ; Brown v. Jaquette, 94 Pa. St. 113 ; Christian v. Crocker, 25 Ark. 327 ; Holmes v. Old Col. R. R., 5 Gray, 58 ; Dwinell v. Stone, 30 Me. 384; Jeter v. Penn. 28 La. Ann. 230; s. c. 26 Am. Rep. 98. Association of carriers to form a continuous line for transportation of freight and a proportionate division of profits does not constitute them partners. Hotsprings Railroad Co. v. Trippe, 42 Ark. 465 ; s. c. 48 Am. Rep. 65; Nashua Lock Co. v. W. & N. R. R. Co., 48 N. H. 339; s. c. 2 Am. Rep. 242; Irwin v. Nashville &c. R. R., 92 111. 103; s. c. 34 Am. Rep. 116; Gt. Western Ry. Co. v. Preston & B. Ry. Co., 17 Ont. Q. B. 477; McCallum v. Buffalo & Lake Huron Ry. Co., 19 Ont. C. P. 117. There must be the intention. Salter v. Ham, 31 N. Y. 321; Hazard v. Hazard, 1 Story, 371 ; Drake v. Ramey, 3 Rich. 37. Or rather — as against creditors — there must not be an intention inconsist- ent with and excluding the partnership relation. Owens v. Mackall, 33 Md. 282; Parker v. Canfield, 37 Conn. 250; Eastman v. Clark, 53 N. H. 276; Leg- gett v. Hyde, 58 N. Y. 272; Claflin v. Hirsch, N. Y. S. C, (March, 1884). The interest of each in the profits must be as a principal in the joint busi- ness with a community of interest in the profits as such. Where one pur- chased one-fourth of the net profits of a partnership to be ascertained, that did not make him a partner. Parchen v. Anderson, 5 Montana, 438 ; s. c. 51 Am. Rep. 65. The principle upon which sharing net profits has been held to constitute a partnership as to third persons, as stated in Story on Part. § 58, is "because by taking a part of the profits he takes from the creditors a part of that fund which is security for the payment of their debts." See Coll. Part. § 31 ; Bates, Part. § 30. But in point of fact losses are no more payable out of profits than out of capital. Boston and Colorado Smelting Co. v. Smith, 13 R. I. 27 ; s. c. 43 Am. Rep. 3. 15 *14 CONTRACTS OF PARTNERSHIP. [I. Cn. 1. S. 1. partnership capital or stork, this additional circumstance goes far to show that a partnership was, in fact, intended (*). Partnerships in profits only. — It is not, however, essential to the existence of a partnership, that there shall be any joint capita] or stock. If several persons labour together for the sake of gain, and of dividing that gain, they will not be part- ners the less on account of their labouring with their own tools. Thus in Fromont v. Coupland(^), two persons *14] who horsed a coach and divided the profits * were In 'lil to be partners, although each found his own horses, and the other had no property in them. So, in French v. S tyring (V), where two co-owners of a race-horse agreed to share its winnings and the expenses of its keep, although there was some doubt as to whether they were partners or not, the Court had no hesitation in admitting that they might have been partners in the profits although not in the horse itself (x). The ordinary agreement between publishers and authors, to the effect that the author shall contribute the manuscript, and the publisher shall, in the first instance, defray the expenses of publication, and repay himself out of the proceeds of the sale 6i the work, and that then the profits shall be divided, furnishes another instance of a partnership confined to profits only GO- Again, it frequently happens that one person has property and another skill, and that they agree that the latter shall have the control of the property for the benefit of both, and that the profits shall be divided. In such cases it may be diilicult to say whether a partnership is or is not created. 1 (.s) See Reid v. Holinshead, 4 B. are made is by no means universally & C. 867; Ex -parte Chuck, 8 Bing. true. See infra, note (b). 469; Gilpin v. Enderby, 5 B. & A. (y) See Gardiner v. Childs, 8 C. 954. & P. 345; Reade v. Bentley, 3 K. & i Bing. 170. See, too, Love- J. 271, and 4 ib. 656; Wilson v. Nelson, 3 M. & K. 1. Whitehead, 10 M. & W. 503; Gale 2 C. B. N. S. 357; noticed v. Leckie, 2 Stark. 107; Venables v. nfra, p. 18. Wood, 3 Ross L. C. on Com. Law, ih i Steel v. Lester, 3 C. 529. This last case is an authority P. D. 126. The dictum in Syers v. for the proposition that authors and 1 App. Ca. 181, to the effect publishers are not partners at all, and partnership in profits is a part- qu. whether this is not the correct nership in the assets by which they doctrine. • Where one person furnished a farm with the outfit and funds to carry it on, nnd another furnished the labor and management under an agreement to ■• one-half the advances and expenses of feeding the stock, and to divide 16 I. Ch. 1. S. 1.] AGREEMENTS TO SHARE PROFITS. *15 In Stocker v. Brocklebank (z), it is clear that no partnership was intended and none was created; in the Irish case of Greenham v. Gray (a), it was thought that the whole agree- ment could only receive a reasonable construction by holding a partnership to exist, and a partnership was held to exist accordingly, although the * mills, and machinery [*15] and buildings, by means of which the business was carried on, clearly belonged to one partner only. Other instances of partnership in profits, although there is no community of interest in the capital or stock producing them, will be noticed when the subject of partnership prop- erty is examined (6). 3. — Partnership is prima facie the result of an agreement to share profits, although community of loss is stipulated against. Sharing profits but not losses. — Persons who agree to share the profits of an adventure in which they engage, are prima facie partners, although they stipulate that they Avill not be liable for losses beyond the sums they engage to subscribe (c). 1 (2) 3 Mc. & G. 250. The servant partnership, whilst the defendant did claimed a right to take an active part not. in the management of the business. (b) In Meyer v. Sharpe, 5 Taunt. So in Walker v. Hirsch, 27 Ch. D. 74, the distinction between an in- 460. In Pawsey v. Armstrong, 18 terest in profits and an interest in Ch. D. 698, the clerk shared losses as the goods by the sale of which those well as profits, but qurere whether he profits were to be produced was held was entitled to all he got. to be clear and manifest. See, too, («) 4 Ir. Com. L. Rep. 501. The Smith v. Watson, 2 B. & C. 401. real truth here seems to have been (c) Brown v. Tapscott, 6 M. & W. that the plaintiff intended to create a 119. the profits, it was held that there was a partnership. Reynolds v. Pool, 84 N. C 37 ; s. c. 37 Am. Rep. 607 and note 609. And in Holt v. Kernodle, 1 Md. 199, where a blacksmith agreed with the proprietors of a blacksmith's shop, whereby they were to provide everything for the business and support for his family, and, after payment of all advances, the residue was to be divided equally, it was held a partnership. See also Lewis v. Wilkins, Phil. 303; Pratt v. Langdon, 12 Allen, 544 ; s. c. 97 Mass. 97 ; Ambler v. Bradley, 6 Vt. 119; Autrey v. Frieze, 60 Ala. 587 ; Pettee v. Appleton, 114 Mass. 114; Leg- gett v. Hyde, 58 N. Y. 272, 17 A. R. 244 ; Stroher v. Elting, 97 N. Y. 102 ; s. c. 49 A. R. 515 ; Beauregard v. Case, 91 U. S. 134 ; Seymour v. Freer, 8 Wall. 202. 1 Where there is community of profits there may be a partnership even if community of loss is stipulated against. Berthold v. Goldsmith, 24 How. 536, 16 L. ed 762 ; Pollard v. Stanton, 7 Ala. 761 ; Consolidated Bank v. State, 5 La. Ann. 44 ; Richards v. Grinnell, 63 Iowa, 44 ; s. c. 50 Am. Rep. 727 ; Priest v. Chouteau, 85 Mo. 398 ; s. c. 55 Am. Rep. 373. But as between lender and borrower the question turns on what is the real agreement. Rosenfield v. Haight, 53 Wis. 260; s. c. 40 Am. Rep. 770 ; Gallop 17 *16 CONTRACTS OF PARTNERSHIP. [I. Ch. 1. S. 1. Stipulations against community of loss. — The inference that where there is community of profit there is a partnership is so strong that, even if community of loss be expressly stipu- lated against, partnership may nevertheless subsist. In Coope v. Eyre (d), Lord Loughborough is reported to have said, •• In order to constitute a partnership, communion of profits and Loss is essential." But there is nothing to prevent one or more partners from agreeing to indemnify the others against loss, or to prevent full effect from being given to a contract of partnership containing such a clause of indem- nity (/)• Contracts of loan compared with contracts of partnership without community of loss. — The true effect of such a com- plex agreement would, it is apprehended, be to entitle each of the partners to a share of the excess of the returns over the advances, while some of the partners would be entitled to be indemnified by the others for all losses beyond the advances. If this were not the result of the agreement, and if the persons indemnified were indemnified not only [*16] against losses beyond the advances, but also * against the loss of the advances themselves, the contract would lose its character of a contract of partnership, and become a contract of loan (/). Usurious loans confounded with partnerships. — Whilst the laws against usury were in force, a tendency was sometimes manifested to treat what was in truth a loan at usurious interest and therefore illegal, as a contract of partnership and therefore legal (#). This view of the transaction had (d) 1 H. Blacks, 48. v. Driver, 5 Ch. D. 458, noticed (e) See Bond v. Pittard, 3 M. & infra, § 2. W. 357 ; Geddes v. Wallace, 2 Bligh, (s. Option to become a partner. — It is not unusual for a person who contemplates joining another in business to agree that such business shall be carried on upon certain terms [*21] 1 1 < 1 1 themselves creating a partnership, * and to stipu- late for an option to become a partner either at a specified time, or at any time the person having the option may choose. Such agreements, if bond fide, and not mere Per Parke, J., in Dickinson v. Co., 6 Davis Sup. Ct. Rep. 25; 116 Valpy, 10 Ii. & C. 1 H, 2. I'. 8. 461 ; Osborne v. Jullion, :: Drew, 3ee in addition to the cases 590, where the partnership (?) de- cked below Drenncn V. London Ass. pended on the result of experiments. i See note, p. 22. 24 I. Ch. 1. S. 1.] CONTEMPLATED PARTNERSHIPS. *22 colourable schemes for creating a partnership, and at the same time concealing it (c), do not create a partnership until the person having the option has exercised it, and elected to become a partner. 1 A strong illustration of this is afforded by JEx parte Davis (t?), where a creditor had a right to nominate himself as a partner with his debtor but had not exercised the right. Again, in Gabriel v. Evill (e), it was agreed between the defendant and two others that the defendant should enter into partnership with them, and bring in 1000?. in cash, and 1000/. in goods, and that the partnership should date retro- spectively from the 1st of January : but the defendant re- served to himself the option of determining at any time within twelve months from that day whether he would be- come a partner or not. The defendant advanced the 2000?., and several other acts were done in execution of the agree- ment ; but within the twelve months the defendant declared his option not to become a partner, and it was held that he never did in fact become one, and that he had not incurred any liability as if he had (/). In Price v. Groom ( Mac. & G. virtue of any implied promise to pay 287; Tanner's case, 5 De G. & S. him. 182. (r) 15 M. & W. 517. (w) Wood v. Argyll, 6 Man. & Gr. (s) 1 Sim. X. S. 178. 028; Hamilton v. Smith, 5 Jur. N. S. (t) e.g. Batard v. Ilawes, and Bat- 62; Hutton v. Thompson, 3 H. L. C. ard v. Douglas, 2 E. & B. 287 ; 101 ; Bright v. Hutton, ib. 308. 28 I. Ch. 1. S. 2.] BY SHARING PROFITS. *25 Conditional contract. — It also follows from the same prin- ciples, that if persons enter into an agreement to take shares in a company formed for certain purposes and upon certain conditions, those persons are not bound to take shares in a company formed for different purposes or upon other condi- tions ; and are not partners in such a company, un- less they have accepted shares therein and * precluded [*25] themselves from objecting to the variation of their agreement. A leading case on this subject is Fox v. Clif- ton (V), which, with other cases of the same class, will be found in the volume relating to companies and contributories. SECTION II.— OF QUASI-PARTNERSHIPS. Quasi-Partnerships. — Having now examined the nature of those agreements which are, properly speaking, contracts of partnership, it is necessary to advert to the doctrines by virtue of which persons who are not partners at all, are nevertheless made subject to liabilities as if they were part- ners. In other words, it is necessary to explain what it is that creates a <7?^m'-partnership, or, as it is usually called, a partnership as regards third persons. This will involve an examination of the liability which a person incurs : 1. By sharing profits. 2. By holding himself out as a partner. 1. By sharing profits. 1 In the year 1775, De Grey, C. J., laid down the proposition in G-race v. Smith (j/), that "every man who has a share of O) 6 Bing. 776. (y) 2 Wm. Blacks. 998. 1 In Berthold v. Goldsmith, 24 How. 537, which was decided by the Supreme Court of the United States at the December Term, 1860, Judge Clifford in delivering the opinion of the court says: "Participation in the profits, how- ever, will not create a partnership between the parties themselves as to the property, contrary to their intention. Actual participation in the profits as principal, we think creates a partnership as between the parties and third per- sons, whatever may be their intentions in that behalf. In Eastman v. Clark, 53 N. H. 276, the court held that while an agreement to share profits of a business is competent evidence to show that the person receiving them is a partner, it is not a conclusive legal test, unless the recipient shares them as a principal. And his liability depends upon the question whether he is a prin- 29 *25 QUASI-PARTNERSHIP. [I. Ch. 1. S. 2. the profits of a trade, ought also to bear his share of the loss." Eighteen years afterwards, viz., in 1793, this doctrine was cipal and bound by his own acts or those of his agent, or whether by his acts be is estopped to deny that he is a principal. Referring to Lord Cranworth's opinion in Cox v. Hickman, 9 C. B. 92, that 'a right to participate in profits no doubt is in general a sufficiently accurate test; for a right to participate in profits affords cogent, often conclusive, evidence that the trade in which the profits have been made, was carried on in part for, or on behalf of, the person setting up such a claim,' Doe J. says (p. 340), 'By a sufficiently accurate test' he meant satisfactory evidence. His remark suggests how easily a piece of evidence could be transformed into a legal test sub modo, by tribunals accustomed to declare their judgments on questions of fact. When Lord Cranworth said sharing-profits afford cogent evidence of a partnership, he expressed his opinion on a question of fact, and the evident soundness of such an opinion tends to obliterate the distinction between the law and the fact of the subject. Sharing-profits, in the absence of all other evidence, would, as a matter of fact, be cogent evidence of a partnership; but every item of cogent evidence is not a legal test ; moreover, it is generally impossi- ble to have no other evidence in a case than sharing-profits ; whether it is cogent or weak depends upon its character explained by other circumstances; in this jurisdiction, the judge does not give the jury his opinion of the strength of the evidence." In the recent case of Parchen v. Anderson, 5 Montana, 438, Wade C. J. in an elaborate opinion discusses the whole subject and reviews the authorities, both English and American. In this case two partners sold to N. one-fourth of the profits of their mill. There was no claim that N. held himself out as a partner, or that the plaintiffs were induced to give credit to the firm by rea- son of his being a member of it, or by reason of any act or representation of his. It was accordingly held that N. was not liable as a partner. A partnership is not conclusively established by participation in the prof- its, but such participation must be considered as evidence tending to show a partnership, and, in the absence of other proof, is to be regarded as sufficient to make out a partnership. Meehan v. Valentine, 29 Fed. Rep. 27G (U. S. C. Ct E. D. Penn. 1886). In Cassidy v. Hall, 97 N. Y. 159, the Court of Appeals say, "The question was distinctly presented in Richardson v. Hughitt, 76 N. Y. 55, and it was there held that a person who has no interest in the business of a firm, or in the capital invested, save that he is to receive a share of the profits as com- pensation for services or for money loaned for the benefit of the business, is not a partner, and cannot be held as such by a creditor of the firm. That was upheld and approved in Curry v. Fowler, 87 N. Y. 33, and the prin- ciple decided is fully sustained in Eager v. Crawford, 76 id. 97, and Burnett v. Snyder, id. 344." In Buzard v. Bank of Greenville, 67 Tex. 89, the court reviews the previ- >ns in that State, and holds that where one furnishes money to an- other, under an agreement that he who receives it as agent for the owner, is to use it in a designated business, and receive a part of the net profits as compensation for his services, he who thus receives the money is not thereby made a partner. These cases and the following fairly exhibit the state of the decisions in the United States upon this question, showing that the doctrine of Cox v. Hickman is the correct principle for determining the relation of partners where there is a share of profits by one who does not sustain the position of principal. Boston Smelting Co. o. Smith, 13 R. L3. See also Lee v. Bullard, 3 La. Ann. 462 ; Smith r. Knight, 71 111. 148; Holmes v. Old Colony R. R. Co., 5 Gray, 58; Heckert v. 30 I. Ch. 1. S. 2.] BY SHARING PROFITS. *25 discussed and approved in the celebrated case of Waugh v. Carver (z) '■> an ^ ever since tnat time until 1860 ** was con " (z) 2 H. Blacks. 235. Fegely, Watts & S. 139; Polk v. Buchanan, 5 Sneed, 721 ; Jones v. O'Farrel, 1 Nev. 354 ; Turner v. Bissell, 14 Pick. 192 ; Hill v. Bellhouse, 19 Q. B. 268 (( )nt.) ; Pomeroy v. Sigerson, 22 Mo. 177 ; Cutler v. Winsor,6 Pick. 335; Denis v. Saun- ders, 3G Mich. 309 ; Ford v. Smith, 27 Wis. 201 ; Bowyer v. Anderson, 2 Leigh, 550; Dale v. Pierce, 85 Pa. St. 474; Gibson v. Stevens, 7 N. H. 352; Darling v. McClelland, 2 Russell & C. 104 (N. S.). And see particularly the following cases : Eastman v. Clark, 53 N. H. 270 (1873) ; s. c. 16 Am. Rep. 192 ; Camp- bell v. Dent, 54 Mo. 332 (1873) ; Harvey v. Childs, 28 Ohio St. 321 (1870) ; Wood v. Vallette, 7 Ohio St. 172 ; Leggett v. Hyde, 58 N. Y. 272 ; s. c. 17 Am. Rep. 244; Burnett v. Snyder, 81 N. Y. 550; s. c. 37 Am. Rep. 527; Beecher v. Bush, 45 Mich. 193 (1881) ; s. c. 40 Am. Rep. 405; Beauregard v. Case, 91 U. S. 134; Thompson v. First Nat. Bank of Toledo, 111 U. S. 540 (1883); Hinnman v. Littell, 23 Mich. 484; Uhl v. Harvey, 78 Ind. 20 ; Cook v. Penrhyn Slate Co., 30 Ohio St. 135; Hefner v. Palmer, 67 111. 161; Kirk v. Hartman, 63 Penn. St. 97 ; Sherrod v. Langdon, 21 Iowa, 518 ; Wood v. Pennell, 51 Me. 52; Hicks v. Cram, 17 Vt. 449; In re Ward, 8 Fed. Rep. 136; Be Francis, 2 Sawy. 286 ; Poillon v. Secor, 61 N. Y. 456 ; Central Savings Bank v. Walker, 60 N. Y. 424 ; Shaw v. Gait, I. R. 10 C. L. 375 ; Osborne v. Brennan, 2 Nott. & McC. 427 ; Reynolds v. Pool, 84 N. C. 37 ; s. c. 37 Am. Rep. 007 ; Colwell v. Britton, 59 Mich. 350; Darrow v. St. George, 8 Colo. 592; Holbrooke v. Oberne, 56 Iowa, 324 ; Nicolaus v. Therlges, 50 Wis. 491 ; Beecher v. Bush, 45 Mich. 188 ; Richards v. Grinnell, 03 Iowa, 44 ; Ruddick v. Otis, 33 Iowa, 402. Where a percentage of profits is adopted simply as a mode of measuring the amount of wages or salary of a clerk, the fact that it is contingent upon profits does not create a partnership. Sangston v. Hack, 52 Md. 173. Where two rival cattle dealers, to avoid conflict, agreed that they would divide the profits on cattle bought in the same neighborhood, and to this end assisted each other in purchasing and shipping cattle, but each furnished his own capital, an individual creditor of one cannot hold stock bought and shipped by the other under this agreement. Clifton v. Howard, 89 Mo. 192; s. c. 58 Am. Rep. 97. See also learned note by reporter, 58 Am. Rep. 99, in which in addition to the authorities cited supra, he cites among other cases, Loomis v. Marshall, 12 Conn. 09; Hanna v. Flint, 14 Cal. 73; Higgins v. Graham, 51 Mo. 17; Pond v. Cummins, 50 Conn. 372; and Le Fevre v. Casagnio, 5 Colo. 504, to the point that the participant in profits as compensation for services is not liable as a partner of his principal or master, and McDonnell v. Battle House Co., 07 Ala. 90; s. c. 42 Am. Rep. 99;. Christian v. Crocker, 25 Ark. 327 ; Jeter v. Penn, 28 La. Ann. 230 ; s. c. 20 Am. Rep. 98 ; and Day v. Stevens, 88 N. C. 83 ; s. c. 43 Am. Rep. 732, that a lessor of property for a share of the profits as rent is not a partner; and Hart v. Kelly, 83 Penn. St. 280; Boston &c. Smelting Co. v. Smith, 13 R. I. 27; s. c. 43 Am. Rep. 3 ; Cully v. Edwards, 44 Ark. 423; s. c. 51 Am. Rep. 614 ; and Slade v. Paschal, 07 Ga. 541, that a lender of money for a share of the profits of a business is not liable to credi- tors as a partner. A creditor agreed to give the debtor firm five years in which to pay him their debt out of the profits of the business, with the right for him at any time when the interest of each of the two partners should by reason of addi- tions of capital to be made by them have become equal to the debt and in- terest at that time remaining due him, to become at his election a partner holding a third interest or to receive instead a bonus by way of compensation for his right to claim such third interest and in discharge of the debt so due him, such bonus to be a subject of arbitration; meanwhile, until such election, 31 • 26 QTJASI-PAETNERSHIP. [I. Ch. 1. S. 2. sidered as clearly established, that by the law of England, all persons who shared the profits of a business incurred the liabilities of partners therein, although no partnership be- tween themselves might have been contemplated. Subtle distinctions were drawn between sharing net profits and gross returns: and between sharing net profits and payments varying with them; but it was taken for granted, [*26] both by judges and * text-writers, that where there was no statutory enactment to the contrary, if net profits were shared, it necessarily followed that liabilities w ere incurred. Moreover, there were many persons of ability who maintained that this rule was based upon principles which were satisfactory and morally just. Other persons, however, took a different view of the propriety of the rule (a), and were unable to understand why a person lending money it a fixed rate of interest should be treated as a creditor, and (a) See the report on the Law of ticularly the evidence of the late Partnership, printed by order of the Commissioner Fane. I i,,ii-. • of Commons, in L851, and par- he to act as agent for the firm with fixed annual compensation therefor paya- ble quarterly (such compensation and interest to cease when the partner's mi. rests each equalled the debt), and balance sheet showing the firm's condi- tion and business to be struck at regular intervals and submitted for his inspection. Held, this did not make him a partner. Hill & al v. Bellhouse, 10 Ont. C. P. 122; Darling v. Bellhouse, Id.; Darling v. Bellhouse, 19 Ont. Q. B. 268. See Crappen v. Patterson, 19 Ont. Q. B. 100. The rule that participation in the profits of a business was the test of part- nership as to liability to creditors has been abandoned in England and gener- ally in America, and now the test is whether the business has been carried on in behalf of the person sought to be charged as a partner; i.e. did he stand in the relation of principal towards the ostensible traders by whom the lia- bilities were incurred, and under whose management the profits have been .< as between the parties themselves, the test has always been their actual intent. Culley v. Edwards, 44 Ark. 424. Participation in profits has been held to constitute partnership as to third parties in many cases. In Rosenfield v. Haight, 53 Wis. 260; s. c. 40 Am. Rep. 770, where II. 1 to loan and advance money, for not more than five years nor less than one year, for three-fifths the annual profits of the firm's business, guaranteed to be ii"! less than $3000 annually, ami II. was given a lien on all the partner- ship property with a right to extend the time of the loan to ten years, and any violation of the contract on the firm's part was to he "an end of the . ; ll. could the,, seize the firm's property to satisfy his advances, H. held a partner; distinguishing Cooper v. Tappan, 9 Wis. 361; Ford v. Smith, 27 id. 261; Richardson v. Hughitt, 70 X. V. 55; s. c. 32 Am. Rep. 267; and Eager v. Crawford, 7) 3 C. B. 32. See further as to return-. this case, infra, § 2 (2). (u) 4 Esp. 182. See ante, p. 19, note (x). 36 I. Ch. 1. S. 2.] COX V. HICKMAN. *31 The defendant Eyton was concerned in a colliery, and the defendant Jones kept a shop for supplying the workmen at the colliery. Eyton built the shop; licenses to sell tea, &c, were taken in his name, and he paid for the goods supplied to the shop. Jones managed the shop busi- ness. Eyton received first seven and afterwards five per cent, on the amount of all sales to the workmen, and Jones had all the rest of the profits of the shop from whatever source derived. The question was whether Eyton and Jones were partners or <^asi-partners. The jury found that there was no agreement to share profit and loss, and the Court of Common Pleas acted on the distinction taken in Ex parte Ham- per, and on the distinction between profits and gross returns, and held that no partnership or ^ucm'-partnership existed. Loans. — A loan of money to be repaid with interest, however exorbi- tant, did not constitute a ^wasi'-partnership between the borrower and the lender (c) unless profits were expressly pointed at as the fund for pay- ment (d). 2. Modifications introduced by the House of Lords in Cox v. Hickman. Such was the state of the law when the case of Cox v. Hickman came before the House of Lords ; and that tribu- nal, in effect, decided that persons who share the profits of a business do not incur the liabilities of partners unless that business is carried on by themselves personally or by others as their real or ostensible agents (e). The question in Cox v. Hickman (/) was substantially whether the scheduled creditors to a deed of arrangement, who were to be paid their debts out of the profits of their debtor's business, were liable to debts contracted by the * trustees in carrying on that business pursuant [*31] to the deed (7/) ; and it was ultimately decided that they were not. 1 (c) Grace v. Smith, 2 Wm. Blacks. subject of partnership created by 998. creditors' deeds ; and as to the non- (d) Gilpin v. Enderby, 5 B. & A. liability of inspectors for debts not 954; Fereday v. Hordern, Jac. 144; contracted by them as principals, see Bloxam v. Pell, ante, p. 27. See as Redpath v. Wigg, L. R. 1 Ex. 335; to the two first cases, ante, p. 16. Easterbrook v. Barker, L. R. 6 C. P. 1. (e) Cox v. Hickman, 8 H. L. C. (g) The defendants actually sued 268. were two trustees, who were also (/) Hickman v. Cox, 18 C. B. 617, scheduled creditors; one of them and 3 C. B. N. S. 523 ; Cox v. Hick- never acted as trustee, and the other man, 8 H. L. C. 268. See, also, The had retired from the trusteeship be- Stanton Iron Co., 21 Beav. 164 ; fore the debts in question were con- Price v. Groom, 2 Ex. 542, and ante, tracted. But all the judges agreed p. 21. Owen v. Body, 5 A. & E. 28; that there was no difference between and Janes v. Whitbread, 11 C. B. the liability of the defendants and 406, may also be referred to on the that of the other scheduled creditors. i See Davis v. Patrick, 122 U. S. 138, 30 L. ed. 1090. 37 *32 QUASI-rARTNERSHIP. [I. Ch. 1. S. 2. Thf Lords were unanimous in treating the matter before them as a mere question of agency, and in holding that tire circumstances that the profits of the business were to be shared by the scheduled creditors was by no means sufficient to show that the trustees were their agents and authorised to act as such on their behalf (A). Observations on the decision of the House of Lords. — In Cox v. Hickman, the persons whose liability was in question were only entitled to share profits to the amount of their respective debts, and this circumstance was greatly relied upon as distinguishing the case from Waugh v. Carver, and others of that class, in which the profits were shared to an indefinite extent. But it is plainly not consistent with the reasoning in Cox v. Hickman to hold that the mere fact that profits are shared indefinitely, raises an irrebuttable presump- tion thai those who share them are the principals of those who make them. The circumstance that one person shares all the profits made by another, is no doubt an important element to be considered in determining the true relation in which those persons stand to each other; but it no more conclusively shows such relation to be one of agency, than it conclusively shows that the persons in question are truly partners inter se. In fact, although the House of Lords in deciding Cox v. Hickman, professed to overrule no previous authority, the effect of that decision has unquestionably been to put a great branch of partnership law on a substantially new footing. The following more recent decisions conclu- sively show this. More recent decisions. — In Kilshaw v. Jukes (i) it was held that a person who advanced money and supplied goods to two others on the terms of being repaid the advances and price of the goods out of the profits of a building specula- tion, if such profits should be sufficient for the purpose, was not liable to debts contracted by them for the purposes of the speculation. [*32] *In The English and Irish Church and University Insurance Society (A;) it was held that the holders of policies of insurance who were entitled to be paid out of the funds of an insurance society not only the sums orig- (h) Baron Bramwell had taken the (k) 1 Hem. & M. 85. Compare same ground. See 3 C. B. N. S. 552. lie Albion Life Assur. Soc., 16 Ch. D. (t) 3 Best & Sm. 847. 83. 38 I. Ch. 1. S. 2.] CASES FOLLOWING COX V. HICKMAN. *33 inally insured but also such bonuses as by the rules of the society might be added thereto out of the profits of the society, were not liable as partners with the members of the society either to the holders of other policies issued by it, or to its other creditors. In Bullen v. Sharp (Z), the whole profits of a son's business were assigned over to his father and another person upon trust, first to pay the father 500?. a year, to be increased to a sum equal to one-fourth of the profits when one-fourth thereof amounted to more than 500?. a year; secondly, to pay an annuity to the son ; thirdly, to form a reserve fund for the benefit of the son ; and fourthly, to pay the residue of the profits to the son. The Court of Common Pleas held the father liable for the engagements of the son upon the ground that the profits having been assigned to him, he had a direct interest in the business. On appeal, however, this decision was reversed, on the ground that the business was really the son's, and that the father's interest in it was not such as to render the son his agent for carrying it on. In Shaw v. Gait (w), it was held that a clerk, entitled to a fixed salary, and in addition thereto to one-third of the net profits of the business of his employers, was not liable to their creditors. The salary and share of profits were only intended as a remuneration for his services, and the profits were to be ascertained from balance-sheets prepared by the employers upon the principle theretofore adopted by them. In Holme v. Hammond (?&), five persons agreed to become partners for seven years, and to share profits and losses equally, and they further agreed that if any partner died within the seven years, the survivors should continue the business and pay to the executors of the deceased partner the same share of profits which he would have had if living. One of the partners died ; he had no capital in the firm, but on his * death the firm was indebted to him [*33] in respect of undrawn profits and other matters. After his death the business was carried on by the survivors ; his executors took no part in the management of the business, but they claimed one-fifth of the profits made since his death, (/) L. R. 1 C. P. 86, reversing 18 (m) 16 Ir. Com. Law Rep. 357. C. B. N. S. 614. (n) L. R. 7 Ex. 218. 39 *34 QUASI-PARTNERSHIP. [I. Ch. 1. S. 2. and they were furnished with accounts in which they were credited with such profits. The plaintiff sued the executors in respect of a contract made by the surviving partners after tlu' death of the deceased partner, but it was held that the executors were not liable; for the surviving partners were not their agents, and although the case did not fall within the provisions of 28 & 29 Vict. c. 86, it was governed by the principles laid down in Cox v. Hickman. Again, in Mollwo, March, & Co. v. Court of Wards (0), a person advanced large sums of money to merchants, and took as a security a charge on their business, with extensive powers of control, and stipulated for a large commission on tlnir profits whilst anything remained due to him and for payment of his principal and twelve per cent, interest. The Lender had not, in fact, taken any profits, and the above arrangement was afterwards varied by his taking a mortgage for his principal and interest. He was held not liable for debts contracted by them whilst the above agreement was in force. The Court held that the transaction was really a loan. It was urged in vain that even if there was no part- nership the debtors were the agents of the creditor to earn the principal, interest, and commission to which he was enti- tled. But this contention very properly failed; there being no more reason for inferring agency than partnership from an agreement to share profits. Observations on these cases. — There can be no doubt that in all these cases the decisions would have been the other way had they occurred before Cox v. Hickman; and they are particularly valuable as showing that the principles on which that ease was decided by the House of Lords may now be safely relied upon, in opposition to the old rule which, before that important decision, was considered too firmly settled to be questioned. In fact, the strong tendency of the above [*34] decisions is to establish the doctrine that no * person who does not hold himself out as a partner is liable to third persons for the acts of persons whose profits he shares, unless he and they are really partners inter se, or unless they are his agents ( />); and, in the author's opinion, this is now the law ('i). At the same time, persons may find that they I.. B. 1 1'. C. 410. Compare O) As in Steel v. Lester,:; C. P. Pooley v. Driver, 5 Ch. Div. 458, I). 121. noticed *'» >d and 5th by older authorities, not touched by those decisions ; the 7th is probably the most correct mode of expressing the effect of Cox v. Hickman and Mollwo, March, & Co. u. Court of Wards on Waugh v. Carver, and other cases of that class : the 8th speaks for itself, and is illustrated by Pooley v. Driver and Ex Parte Delhasse, which will be noticed presently. 3. The act of 28 8f 20 Vict. c. 86. Ill order to amend the law by which persons sharing profits were held liable to losses, the act of 28 & 29 Vict. c. 86 was passed. This act (commonly called Bovill's act) is entitled •• An Act to amend the law of Partnership." It received the Royal assent on the 5th of July, 1865, and enacts as fol- lows : — 1. 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 varying with the profits, or shall receive a share of the profits arising from carrying on such trade or undertaking, shall not, of itself, constitute the lender a partner with the person or the persons carrying on such trade or under- taking, or render him responsible as such. 2. Xo contract for the remuneration of a servant or agent of any person engaged in any trade or undertaking by a share of the profits of such trade or undertaking, shall, of itself, render such servant or agent responsible as a partner therein, nor give him the rights of a partner (s). *3. No person being the widow or child of the deceased partner of the trader, and receiving by way of annuity a portion of the profits made by such trader in his business, shall, by reason only of such receipt, be d<-"med to be a partner of or to be subject to any liabilities incurred by such trader. 4. Xo person receiving by way of annuity or otherwise a portion of the profits of any business, in consideration of the sale by him of the goodwill of such business, shall, hy reason only of such receipt, be deemed to be a partner of or be subject to the liabilities of the person carrying on such business. (sj Quaere if tins deprives him of deprive the servant of his rights a right to an account 1 See Harring- against his master, but to protect ton v. Churchward, 6 -fur. \. S. 576. each from liability to third parties The object of the act was not to by reason of the acts of the other. 42 I. Ch. i. s. 2.] 28 and 29 vict. c. 86. *37 5. In the event of any siich trader as aforesaid being adjudged a bank- rupt, or taking the benefit of any act for the relief of insolvent debtors, or entering into an arrangement to pay his creditors less than twenty shillings in the pound, or dying in insolvent circumstances, the lender of any such loan as aforesaid shall not be entitled to recover any portion of his principal, or of the profits or interest payable in respect of such loan, nor shall any such vendor of a goodwill as aforesaid be entitled to recover any such profits as aforesaid until the claims of the other creditors of the said trader for valuable consideration in money or money's worth have been satisfied (/). 6. Interpretation of " person. " — In the construction of this act the word "person" shall include a partnership firm, a joint-stock company, and a corporation. Upon the foregoing enactment it is to be observed — 1. Effect of the statute. — That it applies to an extremely limited number of cases, and leaves wholly untouched a large number of agreements of common occurrence, e.g., all such as had to be dealt with in Waugh v. Carver, Smith v. Watson, Cheap v. Cramond, and Cox v. Hickman. All such cases, however, must now be dealt with on the principles laid down by the House of Lords in the last-named case (w). 2. That it in no way modifies the doctrine by which per- sons who hold themselves out as partners incur the liabilities of partners. 3. That to entitle a person lending money to the benefit of the act, there must be a contract in writing ; and it seems that such contract must be signed (x). 4. That in the case of servants, agents, widows, and children, *and of persons selling a goodwill, [*37] there is no necessity for any contract in writing. 5. That unless a retiring partner is brought within the 1st, 2d, or 3d section, he is in no better position than other persons. 6. That the persons within the 2d and 3d sections are not within the 5th. 7. That persons who lend money or sell a goodwill in con- sideration of a share of profits cannot, in respect of such (t) See Ex parte Mills, 8 Ch. 569, («) See Holme v. Hammond, L. and Re Stone, 33 Ch. D. 541 But a R. 7 Ex. 218; Mollwo, March, & Co. secured creditor can sell or foreclose, v. Court of Wards, L. R. 4 P. C. as the case may he, even to the pre- 410. judice of other creditors. Badeley v. (x) Pooley v. Driver, 5 Ch. D. 458, Consolidated Bank, 34 Ch. D. 436, where, however, there was only a infra, p. 38. draft contract. 43 *38 QUASI-PARTNERSHTP. [I. Ch. 1. S. 2. loan or profits, compete with any other creditors upon a distribution of their debtors' assets (j/). 8. That the 3d section only applies to widows and chil- dren of deceased partners of traders: i.e., it is presumed, of persons formerly liable to be adjudicated bankrupt as traders. 9. That the 5th section does not deprive the lender of his right to retain any security he may take for his money (V) : nor to foreclose such security (job). 10. That the act may be made an instrument of fraud, if a person is allowed to lend to the same person a small surd in consideration of a large share of profits, and a large sum in consideration of fixed interest. In such a case if a fraud were intended it would probably be defeated by holding the lender liable as a partner, or at least by holding him to be within the 5th section as to both loans. But where there is no fraud, a person who has advanced money under the act, and has also bond fide made other advances not under it, can on the bankruptcy of the borrower prove for the latter advances, although not for the former (b~). A person, how- ever, who lends money on the terms of sharing profits and then agrees to take a fixed rate of interest instead of them, is within the 5th section of the act and cannot prove in com- petition with other creditors (. The judgment in this case is very impor- tant, and well deserves attentive study. It proceeded upon ground that partnership is prima facie the result of par- ticipation in profits; and that the true result of the whole arrangement was that the advances were not real loans, but were in truth contributions of capital under colour of loans. Observations on Pooley V. Driver. — One of the most re- markable features of this case was that, when the time 46 I. Ch. 1. S. 2.] BY HOLDING OUT. *40 arrived for the repayment of the advances it might be found that not only was there nothing to repay, but that the so-called lenders might have to refund part of what they had already received, even to the extent of their so-called loans (A). This practically amounted to a possible loss of their advances, and distinguished the case at once from a true * contract of loan; for in such a contract [*40] the money lent is to be repaid intact, and the only risk run is the insolvency of the borrower (T). 2. By holding ones self out as a partner. 1 Persons who hold themselves out as partners, incur the liabilities of partners. The other mode in which a person not a partner becomes liable as if he were one, is by so conducting himself as to (h) See the clauses, 5 Ch. D. 463, («') See ante, p. 10. 466, and the comment on them at p. 492. 1 One who is not a partner, and who has no interest in a partnership, cannot, by reason of having held himself out to the world as a partner, be held liable as such on a contract made by the partnership with one who had no knowl- edge of the holding out, Thompson v. First Nat. Bank of Toledo, 111 U. S. 530. In Central City Savings Bank v. Walker, 66 N. Y. 424 ; s. c. 5 Hun, 34, it was sought to charge the defendants as makers of a promissory note under the name of a corporation whose charter had expired, and of which defendants were stockholders. Defendants had received dividends after the expiration of the charter. It was held that the legal title vested in the trustees in office at the expiration of the charter, in trust for the creditors and stockholders, and that receiving a part of the earnings did not make a stockholder liable for the act of the agent of the supposed corporation in contracting debts, and that where neither a trustee or simple stockholder contracted or author- ized the debt there was no distinction in respect to their liability. An advertisement published in a newspaper by A. and B., partners as A. & Co., " Notice ! C. has an interest in our establishment from the 1st instant. We trust with his additional aid, etc., we shall be able to offer further induce- ments in our business. A. & Co.," is not in itself sufficient to bind C. as to any one who may have dealt with the firm after seeing the advertisement. It affords no proof that C. is a member of the firm even if the language necessarily implies a participation in profits and, if it were a holding out, a creditor of A. & Co. could not recover against C. without proof that prior to giving the credit, he, the creditor, was apprised of it, Vinson v. Beveridge, 3 MacArthur, 597 ; s. c. 36 Am. Bep. 113. R. and S. had been for years bookkeeper and superintendent respectively of the firm of D. S. B. & Co. T., one of the partners, bought out the interest of the other partner in accordance with arrangements made some time before and discussed with R. and S. in connection with their remaining and the terms 47 *40 Ql" ASI-l'AKTXEllSHIP. [I. Ch. 1. S. 2. lead other people to suppose that he is willing- to be regarded by them as if he were a partner in point of fact. The prin- on which they were to do so. He then handed to R. a paper stating the dis- solution of the old firm and his purchase, and that "I will continue the busi- ness under the firm of II. D. T. & Co., admitting R. and S. to interests from this date'*; and directed R. to make a copy of it and publish it, which R. did on the following day. About same time T. and R.and S. signed and sealed in triplicate a paper which stated an employment of R. and S. at an annual salary with a contingent interest of a percentage in the net proceeds of the business above a certain amount. R. acted as bookkeeper and correspondent, signing firm name to letters without using "per" or "by," so signing and endorsing checks for deposit only by express direction of T., given not in each instance, but at the commencement of the business as a general direction applicable to all cases. T. alone signed checks, notes, bills, or acceptances. S. acted as superintendent of the mills and signed H. D. T. & Co. without "per" or "by" to wagoners' receipts when goods were delivered at the mills. Neither R. nor S. contributed any money or merchandise to the business. 11 11, that R. and S. were not partners of T. and could prove for their wages against his estate in insolvency. Appeal of Scull, 115 Penn. St. 141 (188G) ;. York ('<>. Hank's Appeal (32 Penn.), 8 Casey, 446. Where 15. was the active manager of the partnership, in wdiich capacity he bought goods from the plaintiffs, and repeatedly signed the partnership name to notes without adding anything to indicate that he did so as agent, and never told the plaintiffs he was not a partner, and all his letters and cor- respondence was signed in the partnership name, and nowhere in his trans- actions with the plaintiffs was there anything from him indicating that he was an agent, and he had signed notes in the body of which his name was inserted by the plaintiff's agent as a partner; but as he claimed in error and without noticing the recital of his name therein, held that plaintiff should recover on the notes which were signed by B. in the name of the partnership " in liquidation " after its dissolution and without authority, B.'s wife being a member of the partnership. Dodd v. Bishop, 30 La. Ann. 1178 (1878). Those of the surviving members of a commercial partnership who con- tinue the business become thereby partners as to the world. Those who do not are not bound in solido with those who do; but in case of a partnership in a Bteamer the two part owners who continued to run her after the death of • in.- and in opposition to the wishes of a third, bound the latter by so doing. Cooper v. Burns, 6 La. Ann. 739. An instruction that if the jury believed from the evidence that H. and I). proved to have given such receipts and to have spoken of the business in terms that implied he was jointly interested with his father, and he kept the accounts and took a leading- part in the business conneeted with the boats. Held liable for a loss of goods delivered to their charge, which occurred on a vessel owned only by one of them, while T. M. was only acci- dentally in charge of her as captain on the trip when the loss occurred. Mershon v. Hobensack, 22 N. J. L. 372. The ordinary arrangement between several connecting transportation lines, by which each pays what is due for freight on the goods to the point where it receives them, and the last collects the whole bill of consignee — the ac- counts being between the earners being settled periodically, and each stipu- lating tn charge only certain rates over its own line — does not create a partner- ship or joint liability. Darling v. Boston & Worcester R. R., 11 Allen, 295. A- t<> declarations and admissions to prove partnership, see note to Teller o. Patten, L5 U. S. L. ed. 831. Not partners by indorsing firm notes. Hunt ;•. Oliver, 118 U. S. 211. See Sun Mutual Ins. Co. v. Kountz Line, 122 U. S. 583, 30 L. ed. 1137. Whatever may have been the private understanding between the owners of the respective boats composing the Barnett Line of Steamers as between themselves, in relation to the freights carried by the respective boats, could not affect the rights of third persons contracting with them in the name of the firm which was ostensibly running that line of steamers and receiving freights as the Barnett Line of Steamers. The law will imply a partnership engagement when parties hold themselves out to the world as doing a partic- ular business in a firm name as to third persons who contract with them in that firm name, whatever may be the real nature of their connection as be- tween themselves. Barnett Line of Steamers v. Blackmar, 53 Ga. 98. .Members of the "Nebraska State Grange of the Patrons of Husbandry," composed of delegates elected from the subordinate "Granges," are not part- ners as to members of such subordinate granges, and so liable to an individual member of the latter for a breach of warranty in a sale of a Werner Har- \. Bter by one who was "State Agent of the Patrons of Husbandry," and appointed by the State Grange. Edgerly v. Gardner, 9 Neb. 130. A member <'t" an unincorporated joint-stock company, who with the com- pany*.- assent lends money from the joint fund to another member, and takes his note therefor running to himself, can recover on the note. Comer v. Thompson, 4 Out. K. & Q. B. 250 (Old Series). Si also White v. Whaley, 1 Tex. App. Civ. § 101 ; Lewis v. Wade, 1 Tex. App. Civ. S 697 ; Hinman v. Littell, 2:5 Mich. 484; Moss v. Gerome, 10 Bosw. 220; Copley v. Lawhead, 11 La. Ann. 015; Tarns v. Hitner, 9 Penn. St. 441 ; Irvin v. Conklin, 36 Barb. 04; Burns v. Rowland, 40 Barb. 308; Burbank v. II a as, 9 I. a. Aim. 528; Cowand v. Pulley, 11 La. Ann. 1 ; Rogers v. Nichols, 20 Tex. 719; Benson u.McBee,2 McMull.91 ; Barrett r.Swann, 17 Me. 180; Mears . James, 2 Nev.342; Felichy v. Hamilton, 1 Wash. CC. 491 ; Beall v. Lowndes, 1 S. ( . 258 : Cook p. Carpenter, 34 Vt. 121 ; Smith v. Hill, 45 Vt. 90 ; Getchellt-. .-, 106 M;i>s. 12; Noblit v. Bonaffon, 81 Penn. St. 15; Smith v. Smith, 27 X. H.244; Hunn v. McKee, 4 [red. L.475; Ganzer v. Fricke, 57 Penn. St. 316; o. Davis, 2H Mo. 94; Glenn v. Gill, 2 Md. 1; Wood v. Penned, 51 Me. _ McCarthy v. Nash, 14 Minn. 127; Lycoming Ins. Co. v. Barringer, 73 111. 52 I. Ch. 1. S. 2.] BY HOLDING OUT. *41 The doctrine that a person holding himself out as a part- ner and thereby inducing others to act on the faith of his representations, is liable to them as if he were in fact a partner, is nothing more than an illustration of the general principle of estoppel by conduct (/). It is therefore wholly immaterial whether the person holding himself out as a part- ner, does or does not share the profits or losses (m). Effect of knowledge that a person who holds himself out as a partner is not a partner. — Nay more, even if it *be known that he does not share either, still he may [*41] be liable. For although a person who lends his name may stipulate for an indemnity from those who use it, it by no means follows that he ought not to be liable to third par- ties merely because they are aware of such stipulation. His name does not induce credit the less on account of his right (7) As to which, see Picard v. Fos. & Fin. 798, where A. was B.'s Sears, 6 A. & E. 4G9; Freeman v. agent, and A. held himself out as Cooke, 2 Ex. 654; Carr v. L. & N. W. B.'s partner; both A. and B. were Kail. Co., L. R. 10 C. P. 310. decided to be liable for goods sup- (>«) Ex parte Watson, 19 Ves. 401. plied to A. for B. Compare Hard- See also Kirkwood v. Cheetham, 2 man v. Booth, 1 Hurls. & Colt. 803. 230 ; Wyman v. Chicago & Alton E. K. Co., 4 Mo. App. 35 ; Dwight v. Brew- ster, 1 Pick. 50 ; Cobb v. Abbot, 14 Pick. 289 ; Champion v. Bostwick, 18 Wend. 175; Fay v. Davidson, 13 Minn. 523; Ellsworth v. Tartt, 26 Ala. 733; Briggs v. Vanderbilt, 19 Barb. 222 ; Darling v. Boston &c. R. K., 11 Allen, 295 ; Mer- rick v. Gordon, 20 N. Y. 93; Mohawk K. E. Co. v. Niles, 3 Hill, 162 (N. Y.) ; Edgerly v. Gardner, 1 N. W. Eep. N. S. 1004; s. c. 9 Neb. 130; Gales v. Wat- son, 54 Mo. 585 (1874) ; Eimel v. Hayes, 83 Mo. 200 (1884) ; Maxwell v. Gibbs, 32 Iowa, 32 ; Peck v. Lusk, 38 Iowa, 93 ; Brown v. Kains, 53 Iowa, 81 ; Buck- ingham v. Burgess, 3 McLean, 364, 549 ; Benedict v. Davis, 2 Id. 347 ; Bowie v. Maddox, 29 Ga. 285 ; Gumbel v. Abrams, 20 La. Ann. 568; Crozier 4. Kirker, 4 Tex. 252; Eice v. Barrett, 116 Mass. 312 ; Cottrill 'v. Vanduzen, 22 Vt. 511 ; Hicks v. Cram, 17 Vt. 449; Walrath v. Viley, 2 Bush. 478 (Ky.) ; Markham's Exr. v. Jones, 7 B. Mon. 456 (Ky.) ; Kritzer v. Sweet, 24 N. W. Reporter, 704 (Mich. 1885) ; Smith v. Gerow, 2 Pug. 425 (N. B.) ; Jenkins v. Barrows, 35 N. W. Reporter, 510 (Iowa, 1887) ; Miller v. Stone, 34 N. W. Reporter, 907 (Wis. 1887) ; Sculthope v. Bates, 5 Ont. Q. B. 318; Cleveland Paper Co. v. Courier Co., 34 N. W. Reporter, 550 (Mich. 1887) ; Piano Mfg. Co. v. Fraw- ley, 32 N. W. Reporter, 768 (Wis. 1887) ; Cirkel v. Ellis, 31 N. W. Reporter, 513 (Minn. 1887); Garofalo v. Errico, N. Y. S. C. (1887, March), 26 N. Y. Weekly Digest, 500. In re Jewett, 15 Bank. Reg. 135 (W. D. Wis. 1887 ; Carmichael v. Greer, 55 Ga. 116; Wright v. Powell, 8 Ala. 560; Hefner v. Palmer, 67 111. 161 (1873); Palmer v. Pinkham, 37 Me. 252; Craig v. Alver- son, 6 J. J. Marsh. 609 (Ky.) ; Wood v. Cullen, 13 Minn. 394; McStea v. Matthews, 50 N. Y. 167; Reed v. Kremer, 5 Atlantic Reporter, 237 (Penn. 1886); Bloch v. Price, 32 Fed. Rep. 562 (1887); Brundell v. Alexander, 12 Victorian L. R. 908; Elterson v. Leeds, 97 Ind. 336; s. c. 49 Am. Rep. 458; Pringle v. Leverich, 97 N. Y. 181; s. c. 49 Am. Rep. 522; Bank v. Smith, 26 W. Va. 541. 53 *42 QTJASI-PABTNERSHIP. [I. Cn. 1. S. 2. to be indemnified by others against any loss falling- in the first instance on himself; and although, in the case supposed, he cannot lie believed to be a partner, the lending of his name does justify the belief that he is willing to be respon- sible to those who may be induced to trust him for pay- ment (n). However, in Alderson v. Pope (o), Lord Ellenborough held, •■that where there was a stipulation between A., B., and C, who appeared to the world as co-partners, that C. should not participate in the profit and loss, and should not be liable as a partner. ('. was not liable as such to those who had notice of this stipulation, and that notice to one member of a firm was notice to the whole partnership." The report of this case states no more than what is here extracted, and the reader is Left in doubt as to the meaning of the words "should not be liable as a partner." If these words meant that C. was to be indemnified by A. and B., the observations already made show, it is conceived, that the decision was erroneous. But if they meant that C. would not be liable at all to third parties for the arts of A. and B., then the question would arise whether this was not altogether inconsistent with C.'s conduct, and whether t In- maxim protestatio facto contraria non valet would not apply. In any point of view, the reported note of the case is unsatis- factory. Effect of fraud. — Moreover, if a person has been induced by promises of irresponsibility or by fraud to hold himself -nit as a partner with others, this circumstance does not re- lieve him from liability to third parties who have been [ • 12] induced by his conduct to trust * him as well as them, and who have had nothing to do with the promises or fraud practised upon him (jj). Observations on the phrase holding out. — The expression ill Waugh r. Carver, -if he will lend his name as a partner he becomes as against all the rest of the world a partner," re- quires qualification; for the real ground on which liability is incurred by holding one's self out as a partner is, that credit See ace. Brown v. Leonard, 2 Ex parte Broome, 1 Rose, 69. It will Chitty, 120. be seen in the volume relating to 1 Camp. 404, note. Companies that persons induced to Si I ollingwood v. Berkeley, join companies, by the false and 15 C. B. N. S. 145; Maddick '-. .Mar- fraudulent statements of directors, -hall, 16 C. B. N. S. 387, and 17 ib. cannot on that ground escape from Ellis v. Schnueck, 5 Bing. 521; liability to creditors. 54 I. Ch. 1. S. 2.] BY HOLDING OUT. *43 lias been thereby obtained. This was put with great clear- ness by Lord Wensleydale in Dickenson v. Valpy (5-), in which he said, — "If it could have been proved that the de- fendant had held himself out to be a partner, not to the world, for that is a loose expression, but to the plaintiff himself, or under such circumstances of publicity as to satisfy a jury that the plaintiff knew of it and believed him to be a partner, he would be liable to the plaintiff in all transactions in which he engaged, and gave credit to the defendant, upon the faith of his being such partner. The defendant would be bound by an indirect representation to the plaintiff arising from his conduct as much as if he had stated to him directly and in express terms that he was a partner and the plaintiff had acted upon that statement" (r). What constitutes a holding out. — Further, a person may hold himself out or permit himself to be held out as a partner, and yet conceal his name. He may be referred to as a person who does not wish to have his name dis- closed; and if he is so referred to by his authority he will incur liability as a quasi-p&Ttnev (s). But it follows, from the principles above explained, that a person cannot be liable on a contract, on the ground that he held him- self out as a partner, unless he did so before the contract was entered *into(£). It also follows that [*43] no person can be fixed with liability on the ground that he has been held out as a partner, unless two things concur, viz., first, the alleged act of holding out must have been done either by him or by his consent (w), and secondly, it must have been known to the person seeking to avail himself of it (a-). In the absence of the first of these requisites, whatever may have been done cannot be imputed to the person sought to be made liable ; and in the absence (7) 10 B. & C. 140. See, also, 824. See, also, Maddick v. Marshall, Ford v. Whitmarsh, Hurls. & Wal- 10 ib. 387, and 17 ib. 829. mesley N. P. Reports, 53. Lord (0 Baird v. Planque, 1 Fos. & Blackburn, in Scarf v. Jardine, 7 Fin. 344. App. Ca. 357, expressed the same (w) In Fox v. Clifton, 6 Bing. 776 ; idea in different words. Edmundson v. Thompson, 2 Fos. & (r) See, too, Vice v. Anson, 7 B. Fin. 504, and 8 Jur. N. S. 235, the & C. 409, where the defendant held actions failed on this ground. See, herself out as a partner, but not to also, Cornelius v. Harrison, 2 Fos. & the plaintiff. Fin. 758. (s) Martyn v. Gray, 14 C. B. N. S. 0) Pott v. Eyton, 3 C B. 32, failed on this ground. 55 *44 QUASl-PAUTXERSHIP. [I. Cn. 1. S. 2. of the second, the person seeking to make him liable lias not in any way been misled (y). Continued use of old name after retirement of partner. — An instructive ease on this head is Newsome v. Coles (z). There a firm of four partners carried on business under the name of Thomas Coles and Sons. Thomas Coles died, but the ilivec sons carried on business in the old name for a few vears: they then dissolved partnership, two of them estab- lishing a new business and the other continuing the old business alone, but in the old name. The dissolution was advertised in the Gazette. The plaintiff, who did not know of the dissolution, but had had no dealings with the firm before its dissolution, sought to make all three brothers liable on a bill accepted after the dissolution by the one brother, who continued to trade under the old name, and had accept. '(1 the bill in that name. The two other brothers, however, had never held themselves out to the plaintiff that they were partners in any firm of the name of Thomas Coles and Sons : they had done nothing to authorise the use of that name after the dissolution ; at the same time they knew that the old name was still used, and they had taken no steps to prevent such use. This, how- ever, it was held they were not bound to do, and the plaintiff failed. The ease would have been decided differently if the plaintiff had been a customer of the firm before its [*44] dissolution, for in that * case he would have been justified in supposing that there had been no change in the firm ( a ). Application of doctrine to inchoate partnerships, &c. — - A person who holds himself out as willing to become a partner does not incur liability by so doing. Although a person who represents himself to be a partner, is properly held liable as :t partner to persons who have acted on the faith of his being 90, it would be in the highest degree unjust to confound a representation by a person that he intended to become a partner, with ;i representation that he was one in point of fact, and to hold him as much liable to third parties for the one representation as for the other. This distinction was also, the American case, (~) 2 Camp. 017. Thompson v. First National Bank of («) See the note in 2 Camp. 620. lo, \ Davis Sup. Ct. Rep, 531, Sec, also, farter v. Whalley, 1 B. & 111 U. 8. 629. Ad. 11, infra, Bk. 11, c. 2, § 3. 56 I. Ch. 1. S. 2.] BY HOLDING OUT. *45 recognised and acted on in Bourne v. Freeth (J), where the defendant who had signed a prospectus containing the terms on which it was proposed to form a company, was held not to have held himself out as a shareholder therein. Holding out, a question of fact. — Whether a defendant has or has not held himself out to the plaintiff is in every case a question of fact, not a question of law, and the consequence is, that there is great apparent conflict in the cases on this head. In Wood v. The Duke of Argyll (c), and in Lake v. The Duke of Argyll (VZ), the very same acts were relied on as a holding out, viz., being advertised as president of a society, acting as president at a meeting, and signing some resolutions then agreed upon ; in the first case, this was con- sidered not sufficient and the defendant had a verdict ; whilst, in the last, it was considered to be sufficient and the plaintiff had a verdict. The jury was asked whether the defendant had held himself out as intending to pay for the work charged, and the question was answered in the affirma- tive in the one case, and in the negative in the other, and the Court in each case refused to disturb the verdict. Defendant held out by others. — The most difficult cases of this class occur where the defendant has not held himself out, but where he has been held out by others, and he alleges that they had no authority to do so. If they had no such authority he is not liable (e). But express * authority is not necessary ; authority may be in- [*45] ferred from his conduct (/) ; and if a person has by signing prospectuses or allowing his name to be put to them (#), or by being party to resolutions (7i), or by his own statements, though not intended to be repeated (*'), or has in any other way so conducted, himself as in fact to have authorised the holding out which he repudiates, he will not escape liabilit} r . Observations on the liabilities of promoters of compaziies, &c. — It cannot be too carefully borne in mind in all cases of this description that a person who is neither a partner nor a (b) 9 B. & C. 632. See, too, Rey- (/) See the last two cases. nell v. Lewis, 15 M. & W. 517, and (g) Collingwood v. Berkeley, 15 Wyld v. Hopkins, ib. Compare Mar- C. B. N. S. 145. tyn v. Gray, 14 C. B. N. S. 824. (h) Maddick v. Marshall, 16 C. B. (c) 6 Man. & Gr. 928. N. S. 387, and 17 ib. 829. (d) 6 Q. B. 477. (0 Martyn v. Gray, 14 C. B. N. S. (e) Ante, p. 43, note (u). 824. 57 *46 QTTASI-PABTNERSHIP. [L Ch. 1. S. 2. ywast-partner, is liable on the general principles of agency, for acts done by others with his authority express or implied. [f therefore, directors, members of committees, managers of clubs, or any other persons not in partnership, pass resolu- tions that work shall be done or goods supplied, they authorise whatever may be done in pursuance of such resolutions, and they are the persons naturally looked to, and primd facie lia- ble to pay for what may be so done (F). The question in these rases is simply one of agency, and the question of partnership or no partnership is immaterial, save that if a partnership can be established, the liability of one member for the acts of the others in the prosecution of their common object, follows almost as a matter of course. Holding out by retiring partner. — In cases where partners carry on business under a name which does not disclose who the partners are, the doctrine of holding out must be applied with care. Suppose A. and B. carry on business under the name of X. & Co. Neither A. nor B. holds himself out as a member of that firm to any one who does not know their connection with it (0- It therefore, A. retires from the firm, and gives no notice of his retirement, he will still be liable to old customers who knew of his connection with X. & Co., and who continue to deal with it on [*4C] * the faith that A. is still a member of it ; but A. will incur no liability to new customers of X. & Co. who never heard of him (m). Further if on A.'s retirement C. joins 1').. and I), and C. carry on business as X. & Co., even an old customer of X. & Co. who goes on dealing with it without notice of A.'s retirement or C.'s admission, cannot truly say that A. ever held himself out as a partner with ('.. or with both lb and C. : and, consequently, even an old customer cannol maintain an action against A., B. and C. jointly, for a debl contracted by X. & Co. after A.'s retire- ment. '1"1h- old customer can, in the case supposed, sue A. and B. on the ground that lie dealt with X. .V Co. on the faith of A. and lb being still the members of that firm: or he can sue lb and C. on the ground that they are his real See the cases in the last five Braithwaite v. Skafield, 9 B. & C.401; and Chapleo <■. Brunswick Burls v. Smith, 7 Bing. 705. Build. Soc, 6 Q. B. D. 696 ; Firhank's (/) See Newsome v. Coles, ante, . Humphreys, is Q. B. I). 64; ]>■ 43. Douhleday v. Muskett, 7 Bing. 1 10; (wi) See Newsome v. Coles, ante, ]>. 43. 58 I. Cm. 1. S. 2.] BY HOLDING OUT. *47 debtors ; but he must elect between A. and B. on the one hand and B. and C. on the other; he cannot (in the case supposed), sue A., B. and C. on the ground that B. and C. are in truth X. & Co., and that A. is estopped from denying that he is a member of that firm. This was decided in Scarf v. Jardine (n). The case would be otherwise if A. and B. carried on business in their own names, and A. retired and C. came in, and if B. and C. carried on business with A.'s consent under the name of A., B. and C. In such a case A. would hold himself out as in partnership with both B. and C, and would be estopped from denying it as against any one dealing with the new firm on the faith of A. being a member of it. Further, if the old customer did not know of A.'s retire- ment, but did know that C. had become a member of X. & Co., such customer would, it is apprehended, be entitled to sue A., B. and C. jointly for a debt contracted by X. & Co. after A.'s retirement and C.'s admission (o). Holding out by surviving partner. — If a partner dies, and the surviving partners continue the old business in the old name, this will not have the effect of rendering the estate of the deceased liable, even to old * customers [*47] or correspondents of the firm, for acts done by the survivors after the death of their late co-partner. The doc- trine of holding out has never been applied to such a case, and the executor of the deceased incurs no liability by the continued use of the old name (p). Even if the executor is the surviving partner using the old name, that will not make any difference ; for although as executor he can give a lien on his testator's estate, ordinary debts contracted by him do not charge it ( knowledge of the holding out, although he had held himself out to the world a- a partner. Thompson v. First Nat. Bank of Toledo, 111 I'. S. 529. - Burnett r. Snyder, 76 N.Y. 344; 81 N. Y. 550; Fitch v. Harrington, 13 Gray, 168; Reynolds v. Hicks, 19 Ind. 113; and see Shearer v. Paine, 12 289. 60 I. Ch. 1. S. 4.] SPECIAL PARTNERSHIPS. *49 Sir Chas. Raymond, a banker in the city, a Mr. Fletcher agreed with Sir Chas. Raymond that he should be interested so far as to receive a share of his profits of the business, and which share he had a right to draw out from the firm of Raymond & Co. But it was held that he was no partner in that partnership ; had no demand against it ; had no account in it; and that he must be satisfied with a share of the profits arising and given to Sir Chas. Raymond "(x). Liability to creditors. — Since the decision of the House of Lords in Cox v. Hickman (ante, pp. 30-35), a sub-partner cannot be held liable to the creditors of the principal firm by reason of his participation in the profits thereof (j/), * SECTION IV. — OF GENERAL AND PARTICULAR PARTNERSHIPS. [*49] Universal Partnerships. — It is customary for writers on partnership law to divide partnerships into universal, 1 gen- eral, and particular (or special or limited), according to the extent of the contract entered into by the members. The classification is traceable to a passage in the Digest — " So- cietates eontrahuntur sive universorum bonorum, sive negotia- tionis alicujus, sive veetigalis sive etiam rei unius " (z) — and (a:) See, too, Bray v. Fromont, 6 case of Fairholme v. Marjoribanks, 3 Madd. 5; Ex parte Dodgson, Mont. Ross, L. C. on Com. Law, 697. & M'Ar. 445. (2) Dig. xvii. tit. 2 {pro socio), 1. (y) See on this subject the Scotch 5 pr. 1 " Such contracts are within the scope of the common law, but they are of very rare existence." Story on Part. 72. Jn Rice v. Barnard, 20 Vt. 479, two persons put into a common stock all their property real and personal, under an agreement to share equally all expenses and profits, and that all debts due from them, or either of them, should be paid out of the partnership property. It was held that instead of being strictly partners, they became, more strictly speaking, tenants in common in all present and future posses- sions. In Lyman v. Lyman, 2 Paine, 11, two brothers entered into a partner- ship in 1784, which continued until 1820, and during its continuance extended their business in different states, entering into navigation, importing goods, buying, selling and building vessels, and acquiring real estate, taking deeds and evidences of title, to either or both, without discrimination. It was held to be impracticable to fix limits to the partnership, that it must be considered general and unlimited, and all their property held in common, and that the separate acts of each were partnership transactions. Houston v. Stanton, 11 Ala. 412, was a similar case. See Gray v. Palmer, 9 Cal. 610 ; Quine v. Quine, 9 Smede & M. 155 ; Waite v. Merrill, 4 Greenleaf, 102. 61 *-i t , 1 SPECIAL PARTNERSHIPS. [I. Ch. 1. S. 4. is not worth enlarging upon, except for the purpose of dis- tinguishing cases in which persons are partners in some trade or business generally, from those in which they are partners in some particular transaction or adventure 011I3-. Partnership in one particular transaction only. — If persons who are not partners agree to share the profits and loss, or the profits, of one particular transaction or adventure, they become partners as to that transaction or adventure, but not as to anything else (a). 1 For example, if two solicitors, who are not partners, are jointly retained to conduct litiga- tion in some particular case, and they agree to share the profits accruing therefrom, they become partners so far as the business connected with that particular case is concerned, but no further (5). So a partnership may be limited to the working of some particular patent (c) ; or to the working of it in some particular place or district (VZ). In all such cases as these, the rights and liabilities of the partners are gov- erned by the same principles as those which apply to ordi- nary partnerships (e) ; but such rights and liabilities are necessarily less extensive than those of persons who have entered into less limited contracts. The extent to which persons can be considered as partners depends entirely on the agreement into which they have entered and upon their conduct. (a) See De Berkom v. Smith, 1 (c) As in Lovell v. Hicks, 2 Y. & Esp. 29; Beyhoe v. Burge, 9 C. B. C. Ex. 481. 431 ; Smith v. Watson, 2 B. & C. 401 ; (d) As in Ridgeway v. Philip, 1 see as to partnerships in profits only, Cr. M. & R. 415. ante, pp. 13, 14. (e) See Reid v. Hollinshead, 4 B. (ft) Robinson v. Anderson, 20 Beav. & C. 867, and the cases cited in notes 98, and 7 De G. Mac. & G. 239; (a) and (ft). M'Grtgor v, Bainbrigge, 7 Ha. 1G4. 1 In re Warren, Daveis (U. S. Dist. Ct.), 320, two attorneys in partnership ulated in lands. Upon the bankruptcy of one of them, it was held that each and every purchase made with a view to a joint sale on joint account, was a partnership transaction, and that a partnership may exist in a single as well as in a series of transactions. A joint-stock company, formed for the purpose of dealing in lands, held a partnership in Clagett v. Kilbourne, 1 Black, 346. Sec Cramer v. Arthurs, 7 Penn. St. 1G5. An association of sepa- rate owners of steamboats into a joint concern, to run their boats and collect and ive til- earnings in a common fund, from which the expenses of all the boats is to lie paid, is no more than a co-partnership in a particular business or transaction. Connolly v. Davidson, 15 Minn. 519. And though the parties contemplate only a single transaction, there maybe a partnership. Kayser v. Maugham, 8 Colo. 232. 62 I. Cii. 1. S. 5.] CLUBS, ETC. *50 * SECTION V. — OF CLUBS AND SOCIETIES NOT HAVING r ^r ni GAIN FOR THEIR OBJECT. L J Societies not having gain for their object. — It follows from the propositions established in' the foregoing pages, that no partnership or ^/l] * Societies in which each member acts for himself only. — Upon the ground that there is neither com- munity of profit nor community of loss, it has been held that no partnership subsists between the members of a mutual insurance society, in which each, in consideration of a payment made to him, underwrites a policy for a stipu- lated sum. A policy so underwritten is neither more nor 5S than a number of separate contracts, whereby each un- derwriter agrees, on a given event, to pay the whole or a proportionate part of the sum written against his name. In such a society there is no joint stock ; the members of it enter into no joint contract; but each is alone liable for any Loss which may happen to the insured, according to the terms of the contract into which each for himself has entered (w)- With respect to industrial and provident societies, see 39 ,V 40 Vict. c. 45. SECTION VI. -OF CO-OWNERSHIP. Co-owners not co-partners. — No partnership necessarily subsists among persons to whom property descends, or is given jointly or in common ; and even if several persons agree to buy property, to hold jointly or in common, al- launey v. Strickland, 2 Stark. 416, (to) See Strong v. Harvey, 3 Bing. where the agency was established. 304; Redvvay v. Sweeting, L. R. 2 Ex. In Luckombe v. Ashton, and Burls v. 400; Gray v. Pearson, L. R. 5 C. P. Smith, the defendant was a member 508; Andrews' & Alexander's case, of the managing committee. This 8 Eq. 176; and as to suits between not the case in Cockerell v. Au- the members of such societies, Brom- compte, or Delauney v. Strickland. ley v. Williams, 32 Beav. 177; Har- too, Thomaa v. Edwards, 2 M. & vey v. Beckwith, 4 N.R. 90 and 298; W. 216. and 12 W. R. 819 and 896. property in the members of a Masonic lodge ; there was no intimation that they w.-re partners. Ash v. Guie, 97 Penn. St. 493; 39 Am. Rep. 818. See Babb v. Reed, •"- Rawle, 151. A stipulation in the by-laws of a charitable society that a given sum shall be paid to the next of kin of a deceased member, will not sustain an action against surviving members. Payne v. Snow, 12 Cush. 443. See Sproat v. Porter, 9 Ma> Mo. Ap. 465; Blakely v. Bennecke, 59 Mo. 193; Eichbaum v. Irons, w. .. 8. 67. 64 I. Ch. 1. S. 6.] CO-OWNERS. *52 though, by the purchase they become co-owners (n), they do not become partners unless that also was their inten- tion (o). * Co-ownership and co-partnership compared. — [*52] Speaking generally, and excluding all exceptional cases, the principal differences between co-ownership and partnership may be stated as follows : 1. Co-ownership is not necessarily the result of agreement. Partnership is. 2. Co-ownership does not necessarily involve community of profit or of loss. Partnership does. 3. One co-owner can, without the consent of the others, transfer his interest to a stranger, so as to put him in the same position as regards the other owners as the transferer himself was before the transfer. A partner cannot do this. 4. One co-owner is not as such the agent real or implied of the others. A partner is. 5. One co-owner has no lien on the thing owned in com- mon for outlays or expenses, nor for what may be due from the others as their share of a common debt. A partner has. 1 6. One co-owner of land is entitled to have it divided between himself and co-owners, but not (except by virtue of a recent statute) to have it sold against their consent. A partner has no right to partition in specie, but is entitled, on (n) As to whether joint purchas- (o) See Kay v. Johnston, 21 Beav. ers become tenants in common, or 536. Whether they intended to be- joint tenants, see Lake v. Gibson, 1 come partners or not may of course Eq. Ca. Ab. 290; Aveling v. Knipe, be doubtful, as in Sharpe v. Cum- 19 Ves. 441 ; Crossfield v. Such, 8 Ex. mings, 2 Dowl. & L. 504, where two 825 ; Harris v. Fergusson, 16 Sim. persons hired a field wherein to graze 308 ; Robinson v. Preston, 4 K. & J. their cattle. This subject will be 505 ; Bone v. Pollard, 24 Beav. 283 ; adverted to hereafter when treating Harrison v. Barton, 1 J. & H. 287, in of partnership property. Pothier has which the admissibility of parol evi- an appendix on the subject at the dence on the point was much dis- end of his essay on partnership ; but cussed. In French v. Styring, 2 C. the appendix is omitted from Mr. B. N. S. 357, ante, p. 18, the race- Tudor's translation of that essay, horse was clearly held in common, See further on this subject the last the owners having become such at chapter in Story on Partnership, different times and by different titles. 1 Where a horse is owned by two persons, neither party has a lien upon the share of the other, for expenses incurred, either for labor done upon the horse, as by shoeing, or for advertising him for sale. They are not partners, but tenants in common. Goell v. Morse, 126 Mass. 480. And see Oliver v. Gray, 4 Ark. 425 ; Goodrich v. Willard, 7 Gray, 183 ; Chapman v. Eames, 67 Me. 452 ; Quackenbush v. Sawyer, 54 Cal. 439. 65 *53 CO-OWNERS. [I- Ch. 1. S. 6. a dissolution, to have the partnership property, whether land or not, sold, and the proceeds divided. 7. As between the real and personal representatives of a deceased co-owner of freehold land, the equitable as well as the Legal interest in his share is real estate; whilst as be- tweeD the real and personal representatives of a deceased partner, the equitable interest in his share of partnership freehold property is treated as personal estate, although the Legal interest in it is real estate. ,s. ('..-ownership not necessarily existing for the sake of gain, and partnership existing for no other purpose, the remedies by way of account and otherwise which one [*53] co-owner * has against the others are in many impor- tant respects different from, and less expensive than, those which one partner has against his co-partners (^). Co-owners sharing profits. — When, however, co-owners of property employ it with a view to profit, and divide the profit obtained by its employment, the difference if any between them and partners becomes very obscure. The point to be determined is whether from all the circumstances of the case, an agreement for a partnership ought to be inferred ; but this is often an extremely difficult question. 1 If each owner does nothing more than take his share of the gross returns obtained by the use of the common prop- erty, partnership is not the result. On the other hand if the owners convert those returns into money, bring that money into a common stock, defray out of it the expenses of obtain- ing the returns, and then divide the net profits, partnership (p) See infra, as to this. i In Woodward v. Cowing, 41 Me. 9, subscribers to an agreement to erect a meeting house, to be owned in proportion to their subscriptions, were held nol to be partners. And where several parties agree in writing to contribute for the purchase of lands and building of mills, they are not parties, and those who proceed and carry out the undertaking, can recover the sum sub- scribed by a party who has not contributed. Pillsbury v. Pillsbury, 20 N. H. .99. On.- joint-owner of a chattel sold it to a person who knew of the joint- ownership. The purchaser was held to be a co-owner only, and accordingly when the purchaser bad resold it, the statute of limitations began to run at the last sale. Browning v. Cover, L08 Penn. St. 595. In the absence of an m . nt to the contrary, ship-owners are tenants in common. Story on Part. H7 : Coursin - Appeal, 79 Penn. St. 220. And the agreement or inten- tion of joint-owners to become partners must be clear, otherwise community of goods make the owners tenants iii common only. Chisholm v. Cowles, 42 Ala. 179 Downey, 15 Wis. 408; Seeley v. Albrecht, 41 Mich. 525; Thurston v. Horton, 16 Gray, 274. 66 I. Ch. 1. S. 6.] CO-OWNERS. *54 is created in the profits if not also in the property which yields them. Many perplexing cases may be imagined in- termediate between those here put as examples, but the fol- lowing illustrations will, it is hoped, enable the reader to appreciate the distinction in question. Joint purchasers of goods for re-sale. — If several persons jointly purchase goods for re-sale, with a view to divide the profits arising from the transaction, a partnership is thereby created (5). But persons who join in the purchase of goods, not for the purpose of selling them again and dividing the profits, but for the purpose of dividing the goods them- selves, are not partners and are not liable to third parties as if they were. Coope v. Eyre (r) is a leading case in support of this proposition. There an agreement was come to that one person should purchase oil and then divide it amongst himself and others, they paying him their propor- tion of the price. The oil was bought accordingly, and the purchaser becoming bankrupt, the seller sought to make the other parties to the agreement pay for the oil. But it was held that the purchaser purchased as a principal and not as an agent, and that as there was no community of profit or loss, the persons amongst whom the oil was to be divided could not be * made liable as partners or [*54] ^wasi'-partners. In Hoare v. Dawes (s) there was a similar agreement, and Lord Mansfield thought at first that there was a ^Mtm-partnership, but he and Willes, Ashhurst, and Buller, JJ., ultimately decided that there was not, there being no agreement to share profit or loss, and there being no pretence for holding the purchasers liable for the acts of each other by reason of their holding themselves out as part- ners. So in Gibson v. Lupton (£), two persons joined in the pur- chase of some wheat with the intention of dividing and pay- ing for it equally, and it was held that as there was no joint interest in profit or loss they could not be considered part- ners, either as between themselves or as regarded third parties. Part-owners sharing the produce of their property. — More- over, part-owners who divide what is obtained by the use or employment of the thing owned, are not thereby constituted partners. For example, if two tenants in common of a (?) Reid v. Hollinshead, 4 B. & C. 867. 0) 1 Doug. 371. (?•) 1 H. Blacks. 37. (0 9 Bing. 297. 67 *55 CO-OWNERS OP MINES. [I. Ch. 1. S. 6. house let it and divide the rent equally amongst them, they arr aot partners, although they may pay for repairs out of the rent before dividing it (it)- So two persons who are truants in common of a race-horse, and share his winnings on the one hand, and the expenses of his keep on the other, are no; partners, but co-owners only (x). So part-owners of ships are not usually partners (j/), although they may be partners as well as part-owners, as was the case in Campbell r. MuUett 0). Co-owners of mines. — So again with respect to mines and quarries. Tenants in common or joint tenants of a mine or quarry may or may not be partners; and the mine or quarry itself may or may not be part of a common stock. 1 But it is highly inconvenient, if not altogether impossible, for co- owners of a mine or quarry to work it themselves \_*hb~\ without becoming partners, at least in the * profits of the mine ; and persons who work a mine or quarry in common are regarded rather as partners in trade than as mere tenants in common of land (a). Three cases have here to be considered : — 1. Co-owners partners in profits and in mine. — The C0-0W11- ers may lie partners not only in the profits but also in the mine Itself. The co-owners are then partners to all intents and purposes, and their mutual rights and obligations are de- termined by the law of partnership as distinguished from the law of co-ownership (6). 2. Co-owners not partners at all. — The CO-OWliers may not be partners at all; neither in the profits nor in the mine. («) S. e per Willes, J., in the case (z) 2 Swanst. 551. See ib. p. 575. cited in the next note. See, also, («) See Jefferys v. Smith, 1 Jac. Lyon v. Knowles, 3 B. & Sm. 556, & W. 298; Crawshay v. Maule, 1 win-re tip ipts of a theatre Swanst. 495; Fereday v. Wightwick, divided; and London Financial 1 R. & M. 45. Assoc, v. Kelk, 26 Ch. 1). 107. (b) There is no authority for say- (x ) French v. Styring, 2 C. B. N. ing that in this case one of the part- 8. 357; quaere, whether there was in ners can in the absence of a special this case a partnership in the profits? agreement or custom, assign his share It would seem not; the- agreement without the consent of the other part- being to divide the winnings as gross ners. That in this case the right is returns. See anti , |>. 18. to a sale, and not to a partition of the !!■ -hue v. Smith, 7 I'.ing. 700; mine, see Wild v. Milne, 26 Beav. / parte Young, 2 V. & B. 242; Ex 504; Crawshay v. Maule, 1 Swanst. Harrison, 2 Rose, 7<; ; Green v. 495; Lees v. Jones, 3 Jur. N. S. 954. 6 Bare, 396 1 Mining partnership defined in Kahn w. Smelting Co., 102 U.S. 641; see also Taylor v. Castle, 12 CaL ^*J7. 68 I. Ch. 1. S. 6.] CO-OWNERS OF MINES. *56 Their mutual rights and obligations are then determined by the law of co-ownership as distinguished from the law of partnership. In this case each owner is entitled to an account of what the others have got from the mine more than their share (e?) ; and to transfer his share in the mine without the consent of the other owners (tZ) ; and to have a partition made of the mine between him and them. But the writer conceives that in the case now supposed no owner is entitled to have the mine sold against the consent of the others (e). Whether, if the co-owners cannot agree as to the mode of working the mine, an action will lie for the appointment of a receiver and manager, is not settled. Lord Eldon in Jefferys v. Smith (/), is generally understood to have intimated that it will ; but the case before him was not of the description now under discussion, being one in which the mines were worked in partnership ; and in a recent and carefully * considered case the contrary rule was treated as [*56] more correct (#). 3. Co-owners partners in profits only. — The CO-OWners of a mine may work it together, bring the produce into a common fund, and be partners in the profits of the mine but not in the mine itself. In this case the mutual rights and obligations of the owners are determined partly by the law of partnership and partly by the law of co-ownership, and some curious anomalies are the consequence. The most important of these are as follows : — 1. Each co-owner may transfer his interest in the mine and in the partnership working it, without the consent of the other owners (Ji). 1 (c) Denys v. Schuckburgh, 4 Y. & cumstances of the case are not snf- C. Ex. 42. ficiently known. (d) Bentley v. Bates, 4 Y. & C. (g) Roberts v. Eberhardt, Kay, Ex. 182. 148. Where the mine has been (ft) /. ft., except under the Act 31 worked in partnership, and the part- ed 32 Vict. c. 40, enabling a sale to be nership has been dissolved, and the made in lieu of partition. See Stew- mine ordered to be sold, an interim ard v. Blakeway, 4 Ch. 603, and 6 receiver and manager will, if neces- Eq. 479. sary, be appointed, Lees v. Jones, 3 CO 1 J. & W. 302. Wynget v. Jur. N. S. 954. Heathcote, cited in 4 Y. & C. Ex. 187, (/*) Bentley v. Bates, 4 Y. & C. Ex. supports the same view, but the cir- 182 ; Crawshay v. Maule, 1 Swanst. 517-9. 1 Owners of a mine, who co-operate in working it, constitute a mining partnership ; such a partnership is not dissolved by the death, bankruptcy, or alienation or mortgage of the share of one of its members. Such a partnership 69 *5T CO-OWNERS OF MINES. [I. Ch. 1. S. 6. 2. Each co-owner is entitled to maintain an action for an account against the others without seeking for a dissolution of the partnership (i). 8. Upon a dissolution of the partnership, the mine itself, not being partnership property, must be divided between its several owners and not be sold (/c) : unless under the statute enabling salt's to be made in lieu of partition (7). 4. As between the real and personal representatives of a deceased partner, his share of the mine will be real and not persona] estate (pn). 5. With a view to a dissolution the court will, if neces- sary, appoint a receiver and manager to cany on the mine for the benefit of all parties interested (n). 6. The obligation of each co-owner to account to ['">"] the * others, is the same as that of one partner to account to his co-partners, and much more extensive therefore than the obligation which exists in a case of mere co-ownership. The lien which each partner has on the shares of his co-partners for what is due from them to the partner- ship extends to cases of this 3d class (o) ; as does also the obligation which one partner is under to account to his co- put ners for benefits he may have received in respect of the common property. It has been decided that where two ten- ants in common of a mine construct a shaft at their own ex- pense in land belonging to one of them exclusively, money (0 Bentley v. Bates. 4 Y. & C. Jefferys v. Smith, 1 J. & W. 302; Ex. 182. Rowe v. Wood, 2 ib. 553; Wynget v. (/.-) Steward v. Blakeway, 4 Ch. Heathcote, cited 4 Y. & C. Ex. 187. 603, and 6 Eq. 479. A sale was de- Whether a receiver and manager will creed in the cases referred to, ante, be appointed if no solution is sought, note '>, I, but in them the mine was a see the judgment in Roberts v. Eber- partnership asset. Consider the anal- hardt. ogous case of a ship. (o) Fereday v. Wrightwick, 1 R. (/) 31 & 32 Viet. c. 40. & M. 45; Roberts v. Eberhardt, Kay, Stewards. Blakeway, ubi sup. 148; Crawshay v. Maule, 1 Swanst. Roberts v. Eberhardt, Kay, 495. 1 1- ; L< es v. Jones, 3 Jur. X. S. 954; •. erned by some of the rules of ordinary partnership, and by some peculiar - li. Halm v. < ientral Smelting Co., 102 U. S. 641, 20 L. ed. 206. There u qo delectus personarwn, ib.; and no relation of trust or confidence to prevent a sale or assignment to a stranger, or another partner. Bissell v. Foss, 114 9 252,29 L. ed. L26. And in the absence of an express agreement, one partner cannot share in a purchase by another of the interest of a co-partner, il). One co-owner of a mine cannot bind his co-tenants by a license to mine. Tipping v. Bobbins, 64 Wis. 540. And a mining partner may buy or sell other shares without consulting his co-partner. Bissell v. Foss, supra. 70 1. Ch. 1. S. G.] REMEDIES OF CO-OWNERS INTER SE. *58 paid by a stranger for the use of that shaft belongs to both tenants and not exclusively to him in whose land the shaft is constructed (jp). Note on the remedies available by one co-owner against the others. In order still further to understand the differences between co-owner- ship and co-partnership it is necessary to compare the rights and remedies of co-owners against each other with the corresponding rights and reme- dies of partners. The rights and remedies of partners inter se, will be fully investigated hereafter ; but as there is no compendious summary of the rights and remedies of co-owners inter se, the following note is here appended. The obligation of a partner to account with his co-partner arises ex contractu, and this obligation is not confined to the partners themselves, but devolves, with its correlative right, upon their respective representa- tives. The obligation of one co-owner to account with the other for the profits which may have arisen from the common property cannot be based upon contract where no contract has been entered into; but it by no means follows, that because there is no contract, express or tacit, to share profits, each co-owner ought to be entitled to get what he can and to keep what he may get, This was seen plainly enough by the Roman lawyers, who properly held an obligation to arise quasi ex contractu, and who found no difficulty in declaring that every co-owner ought to account to the others for the profits received by himself, and to contribute with them to the expenses properly incurred for the common benefit (//). Our ancestors, however, seem to have taken a different view of the matter. * By the strict rule of the common law, one co-owner of land [*58] was entitled to no account from another unless the former had made the latter his bailiff, or had been actually ousted from the land (?•) ; and one co-owner of a chattel had no remedy against another, unless he had destroyed the common property (s). The statute 4 Anne, c. 16, § 27, has placed co-owners of land in a somewhat better position than they were in before, by enacting that an action of account may be maintained by one co-owner against another for receiving more than his share: but nothing has been done to improve the law as to co-owners of chattels except by the introduction by Equity Judges of rules founded on the principles of the Roman law. 1 O) Clegg v. Clegg, 3 Gift 322. and tit. 3, 1. 4, § 3, and lib. xvii. tit. (?) See Inst. lib. 3, tit. 27, §§ 3- 2, 1. 34. 5 ; and Dig. lib. x, tit. 2, 1. 25, § 16, (r) See Co. Lit. 200. (s) Ibid. 1 The statute 4 & 5 Anne, c. 16, is a remedial one, and ought to receive a liberal construction. It was enacted to provide a relief which could not be had at common law; and the mode pointed out by an action of account, ought to be considered as put by way of example, not of limitation. It was accord- 71 *59 REMEDIES OF CO-OWNERS INTER SE. [I. Ch. 1. S. 6. The inadequacy of the remedies available by one co-owner against another at common law is justified by early writers upon the ground that each tenant in common has it in his own power to enter on the common property, it' it be land, and to get possession of the common property, and retain it. it' it be an ordinary chattel; and according to the writers in question, it is only when one co-owner prevents the other from entering in the firsl case, and. by destroying the chattel, from getting possession of it in the other, that there is any necessity for having recourse to an action (/). The unsatisfactory nature of this reasoning is too apparent to require comment ; for admitting its force in the case of land, it is plainly in the highesl degree unjust to allow one co-owner of a valuable chattel to keep it exclusively in his own possession, and to tell the other that his only remedy is to take it peaceably when he sees his time, and having gol it to be careful not to part with it. Unsatisfactory, however, as the reasoning is, it affords the only explanation of the actual state of the law upon the subject under consideration. In order to understand accurately the remedies, which by the law of this country are available for one co-owner against another, it is neces- sary, in the first place, to distinguish land from chattels. 1. With respect to land. Co-owners of land. — 1. If land is owmed by several persons, jointly or in common, each is entitled to enter upon and occupy it (u). 2. If any one of them is actually excluded by the others he can bring an action for the recovery of his undivided share (x) ; and having recov- ered lie can sue for mesne profits (y) ; and in an action for them the jury are not bound to confine the damages to the value of the actual profits made by the defendant (z). In case of actual exclusion or de- [*59] struct ion an action for * damages will also lie by one co-owner against the other (a) ; and now an injunction and a receiver can be obtained, even although there is no actual exclusion (b). (t) See Lit. § 323. (y) Goodtitle v. Tombs, 3 Wils. (u) Lit. S :vi-). One is not entitled 118. to a receiver as against the others if (z) Ibid. they do not exclude him, Sandford '•. («) Cresswell v. Hedges, 1 H. & C. Ballard, 30 Beav. 109. See infra, 421, where the defendant paid money note into court in respect of the damage Lit. §§322 and 323 and Coke's to the plaintiff's share. Com. upon them. As to evidence of (l>) See Jud. Act, 1873, § 25, cl. 8. actual exclusion, see Doe r. 1'rosscr, Porter v. Lopes, 7 Ch. I). 358; Sand- Cowp. 217 ; Jacobs v. Seward, L. R. ford v. Ballard, 33 Beav. 401. 6 II. L. 4 Ma--. 638. 8ee also Munroe <-. Luke, 1 Met. 459; Shepard v. Richards, 2 Cray, 421 ; and Badger /•. Holmes, 9 Gray, 118. 72 I. Ch. 1. S. 6.] REMEDIES OF CO-OWNERS INTER SE. *60 3. Subject to the provisions of the act of 31 & 32 Vict. c. 40, one co- owner of land is entitled to have it divided between himself and the other owners, although they may not desire a partition (c). 4. If one co-owner makes the other his bailiff or receiver, the latter can be compelled to account, not only for what he has received, but also for what he might have received without his own wilful default (7/). 5. And by the statute of Anne (4 Anne, c. 19, § 27) one co-owner who receives more than his share can be made to account to the other owners for what he has received more than he ought (e). 1 6. But it has been decided, since the passing of this statute, that one co-owner of land, who merely occupies the whole, is not liable to pay any rent to the other owners (/). 7. And it has also been decided that if one co-owner not only occupies the whole land, but expends his own industry and capital upon it, and thereby realises profit {e.g. by farming), he is not liable to account to his co-owners for any share of such profit () ; and 3, these rules applied as well to the produce of the thing, as to the thing itself (c). Whether, if one tenant in common of a chattel sold it, the other had any remedy at law for his share of the money produced by the sale, was doubtful (d), unless the sale had conferred a good title to the entirety upon the purchaser, when a remedy clearly existed (e). The obligation of a co-owner of a chattel to account for the gain which he might have derived from its use may therefore be said to have been hardly, if at all, recognised at law. In equity the case was otherwise, but it is surprising how little direct authority there is upon the subject of co-ownership, if the decisions relating to ships and the winding-up of partnerships are excluded from consideration. The principles, however, upon which these decisions are based, may safely be applied to other cases if the anomalies introduced by the ship registry acts, and the fact that the rights of partners and those claiming under them depend upon contract, are borne in mind. When the profits derived by one part-owner of a chattel are not attrib- utable to his own industry and exertions, but are simply what he receives from others in respect of it {e.g. dividends of stock, or shares, or money paid for hire) — or where the profits are produced in the ordinary * course of nature {e.g. by breeding) — there is no difficulty in [*62] coming to the conclusion that his co-owners are entitled to make him account to them for their shares of what their property may have produced. Further, when one co-owner of a chattel derives gain from («) Green v. Briggs, 6 Ha. 395; (6) Co. Lit. 200; Jacobs v. Se- Lindsay v. Gibbs, 22 Beav. 522, and ward, L. R. 5 H. L. 464. 26 ib. 51, and 3 De G. & J. 690 ; Alex- (c) See Fennings v. Grenville, 1 ander v. Simms, 18 Beav. 80, and 5 Taunt. 241, where a whale had been De G. M. & G. 57. converted into blubber and oil. • (.r) Doddington v. Hallet, 1 Ves. {d) gee Heath v. Hubbard, 4 East, S. 497, and see A.-G. v. Borrodaile, 1 110; Mayhew v. Herrick, 7 C. B. Price, 148, and per Lord Eldon, 2 V. 229; Morgan v. Marquis, 9 Ex. 145; & B. 243. Barton v. Williams, 5 B. & A. 395; (y) Ex parte Young, 2 V. & B. and Williams v. Barton, 3 Bing. 139. 242 ; Ex parte Harrison, 2 Rose, 76. ( Ila. reversing S. C. 34 Beav. 170. The 395, and Strelley v. Winson, f Vern. same point was discussed, but not 297. See, also, 1 Story's Eq. Jur. § decided in Hancock v. Bewley, Johns. 166. 601. See, also, Russell's Patent, 2 De Si ■ Dunnicliff v. Mallett, 7 C. G. & J. 130; Horsley v. Knighton's !;. N. S. 209, and Walter ,-. Lavater, Patent, 8 Eq. 475. 8 ih. 162. As to tenants in common (k) Powell v. Head, 12 Ch. I). of trade-mark-, gee Dent v. Turpin, 666. See some observations on the •i J. & II. 139. indivisibility of copyright in 4 EL L. (I,j Sheehan v. Great East. Rail. C 992. [,. \). 59. (0 See Jud. Act, 1873, § 25, cl. 8. 76 I. Ch. 2.] CONSIDERATION OF CONTRACT. *63 * CHAPTER II. [*63] OF THE CONSIDERATION OF A CONTRACT OF PARTNERSHIP. Consideration for a partnership. — Agreements to share profits, like all other agreements, require to be founded on some consideration in order to be binding. Any contribution in the shape of capital or labour, or any act which may result in liability to third parties, is a sufficient consideration to support such an agreement («). A bond fide contract of partnership is not invalidated by the unequal value of the contributions of its members, for they must be their own judges of the adequacy of the con- sideration of the agreement into which they enter. 1 As observed by Vice-Chancellor Wigram, " If one man has skill and wants capital to make that skill available, and another has capital and wants skill, and the two agree that the one shall provide capital and the other skill, it is per- fectly clear that there is a good consideration for the agree- ment on both sides, and it is impossible for the Court to measure the quantum of value. The parties must decide that for themselves " (h). Profits to be shared, but losses not. — It often happens that persons agree that all profits shall be shared rateably, and, (a) See The Herkimer, Stewart's (b) Dale v. Hamilton, 5 Ha. 393. Adm. Rep. 23; Anderson's case, 7 Ch. D. 75. 1 In McCord v. Field, 27 Ont. C. P. 391, Field was to allow the use of his name only to secure an interest in a macadamized road contract. A ruling that an agreement in a contract of partnership to pay one partner 6200 " if he should withdraw from the contract without having shared the benefit of the business at all," at any time at his election, was not a contract without con- sideration in law, held erroneous. Frothingham v. Seymour, 118 Mass. 489. And where there is no mutuality, the agreement is void. Mitchell v. O'Neale, 4 Xev. 504. In Belcher v. Conner, 1 So. Car. 88, although the business of the partnership was the buying and selling of slaves, yet it was held that the pur- chase of slaves was not the consideration of the contract. By an agreement to become stockholders in specified shares in a partner- ship, and pay the amount subscribed, signed by a number of persons, with their respective and aggregate shares stated against their name, each party promises to pay, and the promises of the others are a consideration for the promise of each. Kimmins v. Wilson, 8 W. Va. 584. 77 »64 CONSIDERATION OF CONTRACT. [I. Ch. 2. nevertheless, that all losses shall be borne by some one of them exclusively. Such an agreement is not necessarily in- valid as a nudum pactum : for it is nothing more than an agreement, providing, amongst other things, that some or one of the partners shall indemnify the others against losses; and the very fact that these latter become, or agree to be- come, partners is quite sufficient consideration to give validity to a contract that they shall be indemnified. Such agreements appear, moreover, to be reasonable, where the partners [*04] * indemnified leave the whole management of the concern to their co-partners ( i: 1 ; AT10X OF COXTEACT. [I. Ch. 2. Apportionment of premium when partnership ceases sooner than was expected. — On the other hand, if a person receives a premium for taking another into partnership, which is to endure for a certain time, and then himself does anything which determines the partnership before that time has elapsed, he may be fairly considered as having precluded himself from insisting on his strict right to retain or be paid his whole pre- mium. Moreover, where there has been no misconduct, a premium paid for a partnership for a term of years has been held apportionable in the event of a premature determination of the partnership by an unforeseen occurrence. The fact that the consideration for the premium has partially failed has been considered sufficient to render it inequitable to retain or obtain payment of the whole premium (Y). [*66] * The principles applicable to cases of this descrip- tion are not even yet well settled; nor are the deci- sions upon them easy to reconcile. The following rules are, however, submitted to the reader as guides on this subject: — 1 . Partnerships at will. — Where a partnership is entered into for no specified time, and there is no agreement for a return or an apportionment of the premium in the event of an un- expected determination of the partnership, no part of the pre- mium is returnable on the happening of such event. A case of fraud must be dealt with on its own demerits; and a per- son taking another into partnership for no definite time can- not, as soon as he has received the premium, dissolve the partnership and retain what has been paid as the considera- tion for it (k). But laying aside fraud, and supposing there to be nothing except a partnership created for no specified time and determined soon after its creation, it is difficult to hold thai it was in fad entered into for a longer time, and thai the person who came in, paying a premium, has not got ;ill for which he stipulated (J). (I ) Similar views have been taken L. R. C. P. 78, and Ferns v. Carr, with respect to what is right in cases 28 Ch. D. 409. of a similar kirn!, arising on the death (£) Featherstonhaugh v. Turner, of a solicitor who has bet a paid a 25 Bear. 382. Sec, also, Ilamil v. premium by an articled clerk. See Stokes, Dan. 20, and Burdon v. Bar- Hirsl v. Tolson, 2 Mac. G. 1-1; Ex kus, 4 De G. F. & J. 42, per L. J. Bayley, 9 B. & C. 691. But Turner. cases have been since disap- (/) See per Lord Eldon in Tatter- proved. See Whincup v. Hughes, sail v. Groote, 2 Bos. & P. 134. 80 I. Ch. 2.] RETURN OF PREMIUMS. *67 2. Partnerships for a time. — Where a partnership is entered into for a specified time, and is determined prematurely, the first matter for consideration is whether the parties have come to any agreement on the dissolution. Agreements to dissolve. — If they have, and if they have also provided for the premium, it must be dealt with accord- ing to the agreement ; but if the agreement on dissolution is silent with respect to the premium, the inference is that the parties did not intend to deal with it, nor to vary their rights to it under the original agreement for its pay- ment (m). * Where, however, no agreement is come to on the [*67] dissolution, then the cause of dissolution must be con- sidered. Premature termination. (a) By death. — Death is a contin- gency which all persons entering into partnership know may unexpectedly put an end to it. If, therefore, they do not expressly guard against this risk, they may reasonably be treated as content to incur it ; and if death should unexpect- edly happen, no return of premium not expressly provided for can, it is apprehended, be demanded (ri). But even in this case, if a person knows himself to be in a dangerous state of health, and conceals that fact, and induces another to enter into partnership with him, and to pay him a pre- mium, and shortly afterwards dies, the fraud so practised will entitle the partner paying the premium to a return of part of it; and he can obtain such return in an action for a partnership account; he need not rescind the contract in toto (o). (b~) By bankruptcy. — Bankruptcy of the partnership as distinguished from the bankruptcy of one of the partners cannot, it is apprehended, be a ground for apportioning a premium ; for it is a contingency which every one may fairly be taken as contemplating Qt?). But the bankruptcy of a partner receiving a premium is a ground for its apportion- ment if he was embarrassed when the partnership colla- te »i) See Lee v. Page, 30 L. J. Ch. (m) See Whincup v. Hughes, L. 857, and 7 Jur. N. S. 768. A mere R, C. P. 78 ; Ferns r. Carr, 28 Ch. consent to dissolve may leave all D. 409. questions of this sort open, as in (o) Maekenna r. Parkes, 36 L. J. Astle v. Wright, 23 Beav. 77; Wil- Ch. 366, and 15 W. R. 217. son v. Johnstone, 16 Eq. 606; Bury (/?) See Akhurst v. Jackson, 1 v. Allen, 1 Coll. 589. Swanst, 85. 81 *68 CONSIDERATION OF CONTRACT. [I. Cir. 2. menced, and tins fact was not known to his co-partner (■. Xishet, ;">0 (z) See Bluck v. Capstick, 12 Ch. L. J. Ch. 588, where the party dis- I). 803; Wilson??. Johnstone, 10 Eq. solving was in fault, and was the 606; Airey v. Borham, 29 .Beav. 620; party to receive the premium. Atwood v. Maude, 3 Ch. 309. O) Atwood v. Maude, 3 Ch. 309, (a) 10 Eq. GOG. 82 I. Ch. 2.] RETURN OF PREMIUMS. *69 he did not lay down any rule for determining what miscon- duct amounts to such a repudiation, and the statement in the text is in accordance with the latest decision on the sub- ject (J). _ 3. Amount to be returned. — There is no definite rule for deciding in any particular case the amount which ought to be returned. The time for which the partnership was en- tered into, and the time for which it has in fact lasted, are the most important matters to be considered; but other circumstances must often be taken into * ac- [*69] count in order to decide what is fair between the parties (c). At the same time the rule generally adopted is to apportion the premium with reference to the agreed and actual duration of the partnership (d). The proper time for obtaining the decision of the court upon the question whether any part of a premium is return- able or not, is the hearing of the action. An inquiry on this point will not be added afterwards except under special cir- cumstances (e). 1 (6) Bluck v. Capstick, 12 Ch. D. Astle v. Wright, 23 Beav. 77 ; Pease 863 v. Hewitt, 31 Beav. 32. Compare (c) Lyon v. Tweddell, 17 Ch. D. Bullock v. Crockett, 3 Giff. 507; 529, which shows that the court has Freeland v. Stansfeld, 1 Sm. & G. a wide discretion in this matter. 479 ; Hamil v. Stokes, Dan. 20, where (d) See Wilson v. Johnstone, 16 this rule was not adhered to. Eq. 606 ; Atwood v. Maude, 3 Ch. (e) Edmunds v. Robinson, 29 Ch. 369; Bury v. Allen, 1 Coll. 589; D. 170. 1 See upon the subject of damages and rescission of contract for fraud Book III. Chap. 10, Sect. 5 (pp. 479 et seq.). As to allowances to an in-coming partner in respect to misrepresentations by his co-partners, in regard to the liabilities of the concern before he joined it, see Davidson v. Thirkell, 3 Ont. Ch. 330. See also Duff v. Maguire, 99 Mass. 300 ; Smith v. Everett, 126 Mass. 304 ; Ward v. Brigham, 127 Mass. 27 ; Richards v. Todd, id. 167; Perry v. Hall, 143 Mass. 540. 83 NUMBER OF PARTNERS. [L Ch. 3. S. 1. [*70] * CHAPTER III. OF THE PERSONS CAPABLE OF ENTERING INTO PARTNER- SHIP. The parties to a contract of partnership may be considered with reference to 1. Their number. 2. Their capacity. SECTION I. — OF THE NUMBER OF PARTNERS. Number of partners. — By the common law of this country there is no limit to the number of persons who may be asso- ciated together in partnership (a). 1 Statutes regulating the number of persons who may be part- ners. — But from time to time various statutes have been passed, declaring that certain partnerships shall be either altogether illegal, or, at all events, deprived of some impor- tant rights, or exposed to serious penalties, if their members exceed a prescribed number. Of these statutes the Compa- nies act, 1862, is the only one of present practical importance. This act, by § 4, limits the greatest number of persons who can carry oil business as partners otherwise than under its provisions to ten, if the business is that of bankers, and to twenty in other cases (J). But this enactment does not apply to partnerships formed before the 2d November, 1862 (see § 2), nor to those formed in pursuance of some other act of Parliament, or of letters patent, nor to companies . . _ i ■_■ - • r | iii \ in l.iiej mines within and subject to the jurisdic- tion of the Stannaries. (a) As to the supposed illegality (li) See on this subject the vol. on of partnerships so large as to be inca- Companies. pable of practically suing and being sued, see the vol. on Companies. 1 See chapter on Joint-Stock Companies, pp. 757 et seq. 84 I. Ch. 3. S. 2.] PERSONS WHO CANNOT BE PARTNERS. *71 All the other statutes relating to this subject, except the Banking act of 7 Geo. IV. c. 4G, have been repealed («) Holmes v. Blogg, 8 Taunt. (0 See Lon. & N. W. Rail. Co. v. 508 ; Ex parte Taylor, 8 De G. M. & McMiehael, 5 Ex. 114, and other G. 254. Compare Mann's case, 3 Ch. cases of that class, in the vol. on 459,_ and Curtis's case, 6 Eq. 455, Companies. where the infant had sold some (A-) Co. Lit. 380 b. Newry & En- shares, but not the rest, niskillen Rail. Co. v. Coombe, 3 Ex. (n) 37 & 38 Vict, c. 62, § 2. 1 The infant's ratification or avoidance must be complete. Miller v. Sims, 2 Hill. 479 (So. Car.) ; Dana v. Stearns, 3 Cush. 372. The privilege of avoid- ance is strictly personal to the infant or his privies in blood or estate, and cannot be availed of by an adult with whom he deals. Field's Law of Infants, etc. (1888), p. 8; Hastings v. Dollarhide, 24 Cal. 195. Emancipation of Infant. — In several states (Alabama, Arkansas, Dakota, Kansas, Louisiana, Mississippi and Texas) there is a process hy which any minor may obtain a decree of court, rendering him of age for all purposes of property and contract. An indebted or insolvent father's consent to his minor son's becoming a partner is a release of the son's services. Penn v. Whitehead, 17 Gratt. 503. 91 *76 LUNATIC PARTNERS. [I. Ch. 3. S. 2. partnership cannot retain it without its incidental obliga- tions Co) ; and the doctrine of holding out, is itself sufficient to impose liability upon an adult, although he may not long- have attained his majority. Holding out after attaining twenty-one. — This is well exem- plified in Goode v. Harrison (jp). There an infant was a member of a firm, and he was known to be a member. After he had attained twenty-one, he did not expressly either affirm or disaffirm the partnership. He was held liable for debts incurred by his co-partners subsequently to that time. A person who, before he comes of age, represents himself as a partner, must, when he comes of age, take care to notify thai he has ceased to be a partner if he desires to avoid liability. 4. Lunatics. Lunatic partners. — -If a lunatic enters into a contract with a person who acts bond fide, and who does not know of the incapacity under which the lunatic labours, the lunatic is so Ear bound by the contract, that if it has been executed he cannot avoid it (q~). So if a person bond fide contracts with a lunatic, without knowing him to be so, and performs the contract, lunacy affords no defence to an action for remunera- fciorj for what has been done (>•). It is not, therefore, possi- ble to lay down as a universal proposition that contracts entered into by persons who are lunatic are void, nor con- sequently that such persons are incapable of being part- ners (o) See Lon. & N. W. Rail. Co. v. 487, and 4 ib. 17 ; Beavan v. M'Don- McMichael, 5 Ex. 114; Cork & Ban- nell, 9 ib. 309, and 10 ib. 184. don Rail. Co. v. Cazenove, 10 Q. B. (r) See Drew v. Nunn, 4 Q. B. D. 035, per Coleridge and Erie, 33.; 001; Baxter v. The Earl of Ports- Ebbett's case, 5 Ch. 302. Compare mouth, 5 B. & C. 170; Brown v. Baker's ease, 7 Ch. 115. Jodrell, 3 C. & P. 30. See, as to the 5 B. & A. 1 IT. onus of proof where the lunatic has See Molton v. Camroux, 2 Ex. been so found by inquisition, Snook v. Watts, 11 Beav. 107. 1 A lunatic- may be a partner. Story on Part. § 7, n. 1 (7th ed.). Ibid. 15 297; Creswick v. Creswick, 4 A. J. R. 23, 93 (Victoria). That a lunatic may avoid his contract, though the contract is executed: Farnam v. Brooks, 9 Pick. 212; Seaver v. Phelps, 11 Tick. 304; Leonard v. Leonard, 14 Pick. 280. That he is bound bo Ear as the contract has been executed : Mc- Connick v. Littler, 85 111. 62; Ballard v. McKenna, 4 Rich. Eq. 358; Person v. Warner, 11 Barb. 488, and cases cited; Wilder v. Weakley, 34 Ind. 81; Young v. St.vcns, 48 N. II. 133. That insanity does not, per se, work a disso- 92 I. Ch. 3. S. 2.] MARRIED WOMEN PARTNERS. *77 * Any doubt, however, which might exist upon this [*77] subject in point of principle is removed by those decisions which have settled that an existing partnership is not dissolved by the mere fact that one of its members has become lunatic, and that, notwithstanding his lunacy, he is entitled to share the profits made subsequently by his co- partners^). To these authorities, which will be examined hereafter, may be added the case of Sadler v. Lee (t), in which it was held that if a member of a going partnership becomes imbecile, he is nevertheless responsible for the sub- sequent misconduct of the other members. It seems, there- fore, that by the law of this country, a lunatic is capable of being a partner : but all dealings and transactions with him when his lunacy is known are liable to be impeached. 5. Married women. 1 Married women partners. — A married woman who has no separate estate is incapacitated from entering into any con- (s) Jones v. Noy, 2 M. & K. 125. (0 6 Beav. 324. lution: Raymond v. Vaughan, 17 111. App. 144; Reynold v. Austin, 4 Del. Ch. 24; Griswold v. Waddington, 15 Johns. 57; Gregory v. Welch, 2 Victorian R. Eq. 129 ; Re Anderson, 4 Victorian L. R. Eq. 103 ; Re Joseph Wilkie, 3 A. J. R. 12 (Victoria). That it does : Isler v. Baker, 6 Humph. (Tenn.) 85; Griswold v. Waddington, 15 Johns. 57 ; Davis v. Lane, 10 N. H. 161 ; Cape Sable Co. v. Case, 3 Bland. 606 ; Story on Part. § 296. 1 The "community " of husband and wife is a species of partnership. Pack- ard v. Arellanes, 17 Cal. 537. Such community was a partnership under Mexi- can law. Fuller v. Ferguson, 26 Cal. 547. A wife cannot form a valid partnership with her husband under a power given her by statute to carry on business on her sole and separate account. Haas v. Shaw, 91 Ind. 384; s. c. 46 Am. Rep. 607. Married woman living with her husband may not form a mercantile partnership with others so as to subject her separate estate at law to its obli- gations. Carey v. Burruss, 20 W. Va. 571 ; s. c. 43 Am. Rep. 790 ; Radford v. Carwile, 13 W\ Va. 572. In a few states, the wife is by statute at liberty to contract with third per- sons as if she were sole, — New Hampshire, Massachusetts, Vermont, New York, New Jersey, Indiana, Illinois, Iowa, Minnesota, Oregon, Colorado, Mis- sissippi, and New Mexico, — except that in Illinois she may not enter into a partnership without her husband's consent, unless he has deserted her or is idiotic, or insane, or confined in the penitentiary. In some states the legal incapacity is only partially removed ; in others wholly. It is wholly removed in Maine, by Acts of 1866, c. 52. Mayo v. Hutch- inson, 57 Me. 546. In Mississippi, by Code of 1880, c. 42, § 1167, "the Common Law as to the disability of married women is totally abrogated." Howard v. Stephens, 52 Miss. 239 ; Newman v. Morris, 52 Miss. 402. 93 *77 MARRIED WOMEN PARTNERS. [I. Ch. 3. S. 2. tract binding on herself (») except 1, when the husband is a convicted felon (as) : 2, when the husband and wife are Marshall v. Rutton, 8 T. R.545. (.r) See Ex parte Franks, 7 Bing. 762. And in Pennsylvania. Silveus v. Porter, 74 Penn. St. 448. But not in Texas, even with lier husband's consent. Miller v. Marx, 05 Tex. 131; Bradford v. Johnson, 44 Tex. 381; Brown v. Chancellor, 61 Tex. 437; Tibbatts i>. Tibbatts, 6 McLean, 80. She cannot as partner with her husband make herself liable to third per- Montgoinery v. Sprankle, 31 Ind. 113; Wallace v. Finberg, 40 Tex. 35. It the partnership is entered with husband's consent and does not relate to wife's separate property, it is the husband's partnership so far as his creditors are concerned. Swasey v. Antram, 24 Ohio St. 87. Where a woman held herself out to the public as partner, she is liable as such to creditors of the firm, and has the right as against her husband and her partner to be protected out of the share which would belong to her in her capacity as trustee for her husband, and can maintain a suit for a dissolution and an accounting against her co-partner. Bitter v. Rathman, 01 N. Y. 512. In South Carolina married women were allowed to trade as feme sole, after the manner of the custom of London. Wallace v. Rippon, 2 Bay, 112; New- biggin v. Pillans, id. 162 ; Surtell i>. Brailsford, id. 333; Ross v. Lindor, 12 S. C. •V.M ; Long v. Schmidt, 18 S. C. 604; Reid r. Lamar, 1 Strob. Eq. 27; Witsell . Charleston, 7 S. C. 88; Pilzer v. Campbell, 15 S. C. 581; Clinkscales v. Hall, id. 602. The last two cases arose after the adoption of the Act of 1870, - .hap. ('. § 3, p. 482. In consequence of these decisions, the act was amended at the next session, so as to limit the wife's power to contract to contracts " as to her separate property.'" And Habenicht v. Rawls, 24 S. C. 405, construes this amend- ment to mean such contracts as relate to, have reference to, and are intended to bind her separate property. Statutes which merely give the wife a separate legal estate instead of her former separate equitable estate, do not by implication invest her with the power to make contracts generally. Carey v. Burruss, 20 W. Va. 571 ; s. c. ,i. Rep. 790; Stockton v. Farley, 10 W. Va. 171; Howe v. Wildes, 34 Me. 566; Yah- v. Dederer, 18 N. Y. 205; Barnett v. Lechtenstein, 39 Barb. 184; 1 >raper v. Stouvenel, 35 N. Y. 507 ; Ogden v. Blydenburgh, 1 Hilton, 182 ; Ballen v. Dillaye, 37 N. Y. 35; Switzer v. Valentine, 4 Duer, 90; Wooster v. Nbrthrup, 5 Wis. 245; Jones v. Crosthwaite, 17 la. 303; Parker v. Lambert, a. 89; O'Daily v. Morris, 31 Ind. Ill; Fuller v. Bartlett, 41 Me. 241; Stevens v. Parish, 29 Ind. 260; Tracy v. Keith, 11 Allen, 214; Bauer v. Bauer, l'> M.i. 'it ; Pond v. Carpenter, 12 Minn. 430; Pollen v. James, 45 Miss. 129; Whipple v. Giles, 55 X. II. 139; Ames v. Foster, 42 id. 321 ; Johnson r. Cum- 10 X. J. Eq. '.'7 ; Kavanaugh v. Brown, 1 Tex. 481. A reputed partnership consisting in fact of S. only, who was a married woman, can be sued as such; and the coverture of its members is no defence to the action, and S. is estopped to deny the partnership. Le Grand v. Eufaula N. Bk., 81 Ala. 12:1; s. c. 60 Am. Rep. 1 10. In an action on a note signed " J. I'. K. & Co.," F. M. K. alone answered, and her sole defence was that at the time stated she was a married woman, and that the note was executed and delivered by her husband; but there was no allegation that it was made without her knowledge and consent. The note was given for the price of mirrors placed in houses built on her land, and unpaid for; and the consideration was delivered upon the represen- tation by the husband that the wife was the sole owner of the property, and that the name of J. P. K. & Co. was used as a mere matter of convenience in tg business. Plaintiff recovered. Xoel v. Kinney, 100 X. Y. 74; 94 I. Ch. 3. S. 2.] MARRIED WOMEN PARTNERS. *77 judicially separated (j/) ; 3, where the wife is protected from her husband by an order obtained under the divorce acts (2) ; 4, when the husband is an alien enemy and abroad (a). In these cases the wife is as capable of contracting as if she were unmarried. By the custom of London, moreover, a married woman may be a trader, and contract, as if she were (y) 20 & 21 Vict. c. 85, §§ 25, 26. (a) Deny v. Mazarine, 1 Ld. (~) 20 & 21 Vict. c. 85, § 21, and Raymd. 147 ; Barden v. Keverberg, 21 & 22 Vict. c. 108, §§ 6-10. 2 M. & W. 61. s. c. 60 Am. Rep. 423; Bitter v. Rathman, 61 N. Y. 512; Coleman v. Burr, 93 N. Y. 17 ; s. c. 45 Am. Rep. 160 ; Rogers v. Union Centl. Ins. Co., Ill Ind. 343 ; s. c. 60 Am. Rep. 701. M. entered into a co-partnership under written articles with R.by which R. was to furnish capital to buy stock, tools, &c, with the assistance of M.'s hus- band, " who is to represent M. as her agent " and devote all his time and atten- tion to said manufacturing ; " and the said M., by her husband, is to draw at the rate of," &c. Held, that M. was bound by a settlement of the partnership affairs made by her husband. Murphy v. Ross, N. Y. Supt, Ct. Feb. 1887, 26 N. Y. Weekly Dig. 124 ; Story on Partnership, § 12, 7th edit. In Massachusetts, a woman may be a member of a commercial partner- ship of which her husband is not a member. Pub. Stats, c. 147, §§ 1, 2, 3, 4, 10 ; Plumer v. Lord, 5 Allen, 460 ; s. c. 7 Allen, 481 ; s. c. 9 Allen, 455 ; Lord v. Parker, 3 Allen, 127 ; Lord v. Davison, id. 131 ; Edward v. Stevens, id. 315 ; Fowle v. Torrey, 135 Mass. 87 (dissent, op. JJ. Field and Allen) ; Todd v. Clapp, 118 Mass. 495 ; Major v. Holmes, 124 Mass. 108 ; Kenworthy v. Sawyer, 125 Mass. 28 ; Goodnow v. Hill, id. 588. This coverture of members at time of contract may be put in evidence to defeat action against firm. Brown v. Jewett, 18 N. H. 230. Under the laws of New York, the husband may lawfully use the firm name of J. Z. and Co., the " Co." representing the wife ; and so doing does not offend the provisions of 1833, c. 281, requiring that " & Co." shall represent an actual partner. Zunmer v. Erhard, 58 How. Pr. 11. Husband's civil death enables the wife to contract as feme sole. Gregory v. Paul, 15 Mass. 31 ; Clancy on Married Women, c. 4, 2 Kent, 154-164. Im- prisonment for life is not civil death. Willingham v. King, Fla. Sup. Ct. 1887. Woman living here whose husband "has never been in this country may contract as feme sole. Abbott v. Bayley, 6 Pick. 89. Other cases in which the powers of married women are considered are : Howard v. Stephens, 52 Miss. 239 ; Rittenhouse v. Leigh, 57 Miss. 697 ; Howard v. Shaw, 91 Ind. 384 ; s. c. 46 Am. Rep. 607 ; Kutcher v. Williams, 40 N. J. Eq. 436; Mayo v. Hutchinson, 57 Me. 547 ; Derring v. Boyle, 8 Kan. 529; Wicks v. Mitchell, 9 Kan. 88 ; Manhattan Co. v. Thompson, 58 N. Y. 84 ; Rouillier v. Wernicki, 3 E. D. Smith, 310 ; Williams v. Urmston, 35 Ohio St. 296 ; s. c. 35 Am. Rep. 611; Wieman v. Anderson, 42 Penn. St. 311 ; Craig v. Chandler; 6 Colorado, 543 ; Merchants' Nat. Bk. v. Raymond, 27 Wis. 569 ; Atwood v. Mere- dith, 37 Miss. 635; Brasfield v. French, 59 Miss. 632; Dupuy v. Sneak, 57 Iowa, 361; Bradstreet v. Baer, 41 Md. 19; Frank v. Anderson, 13 Lea, 695 (Tenn.) ; Edwards v. Thomas, 66 Mo. 468. No more noteworthy confusion "than the discordant and ever-shifting utterances of the judicial mind on the subject of the power of a married woman and her separate estate." 1 Bish. Married Worn. § 847. And the stat- utes of the several states differ to such an extent that nothing short of a care- ful examination of them will suffice in each case. 95 *7S MLARRIED WOMEN PARTNERS. [I. Cii. 3. S. 2. not married (7>). Neglecting these exceptions, it seems clear thai a married woman without separate estate, having no capacity to contract, cannot be a partner. She may however be tin' agent of other people, and bind them although not her- self. Moreover, as in the case of infants, so in the case of married women having no separate estate, holding themselves out as partners docs not subject them to the responsibilities which are inclined by other persons who act in a similar way(c). *7SJ * Position of married women -with separate estate. — But a married woman who has separate estate, which she is not restrained from anticipating, is as to such estate regarded as a feme sole: and debts and obligations incurred by her either expressly or impliedly on the credit of that estate can be enforced against it, although not against her personally (tZ). Supposing, therefore, that a married woman partner has such separate estate, it will be liable for the debts of the partnership ; and to that extent she will be a part- ner (e). But her husband will not. A married woman hav- ing separate estate may lend money to her husband, but if lent to him for purposes of trade and he becomes bankrupt she is postponed to his other creditors (/) ; but a loan by her to a partnership of which her husband is a member is payable out of its assets like any other joint debt ( Vict. c. 75, §§ 1, 12, Ex parte Gilchrist, 17 Q. B. D. 521 ; ]'■>: /:. Shakespear, 30 Ch. D. 169; Ex parte Coulson, 20 Q. B. 1). 249. Pallisi I I Q. B. I). 519. (i) See Butler v. Butler, 10 Q. B. (e) See Matthewman • case, '■'• Eq. D. 374. 781, where she was held a contribu- (k) A husband is liable for his tory. See - to a married woman's wife's torts, Seroka v. Kattenburg, separate trade, Ashworth v. Outrain, 17 Q. B. D. 177. 5 Ch. D. 923. 96 I. Ch. 3. S. 2.] CORPORATIONS PARTNERS. *78 6. Corporations and Companies. 1 Corporations, &c, may be partners. — There IS no general principle of law which prevents a corporation from being a partner with another corporation or with ordinary individuals, except the principle that a corporation cannot lawfully em- ploy its funds for purposes not authorised by its consti- 1 Whether a corporation can be a member of a partnership. Marine Bank v. Ogden, 29 111. 248 ; Angell & Ames on Corp'ns, § 272 ; Van Keuren v. Tren- ton Co., 2 Beasl. 302, 13 N. J. Eq. 302 ; Conkling v. Washington University, 2 Md. Ch. 497; French v. Donohue, 29 Minn. Ill; Bissell v. M. S. & N. I. R. R. Cos., 22 N. Y. 258; Gunn v. Central R. R., 74 Ga. 509; Railroad Co. v. Bixby, 55 Vt. 235; Catskill Bank v. Hooper, 5 Gray, 574; Catskill Bank v. Gray, 14 Barb. 471, 582 ; Jones v. Parker, 29 N. H. 31 ; Ontario Salt Co. v. Merchants' Salt Co., 18 Ont. Chy. 540. Where a manufacturing corporation and an individual had held them- selves out as partners and had actually made a contract of partnership, it was held that the alleged firm could not be put into insolvency on the petition of the individual as a partnership, — that they were not partners inter sese. Whittenton Mills v. Upton, 10 Gray, 582 ; Hanson v. Paige, 3 Gray, 239. A manufacturing corporation has no power to make a contract of partner- ship. Whittenton Mills v. Upton, 10 Gray, 582 ; Commonwealth v. Smith, 10 Allen, 448. An agreement between a manufacturing company and an individual con- cerning a particular business was styled " a lease," but it stipulated for a fair rent which was to come only from the net profits of the business and not exceed a certain proportion of them. Held that they were in law partners. Dalton City Co. v. Dalton M'f'g Co. & al., 33 Ga. 243. The charter of the J. & E. S. Company by necessary intendment author- ized that corporation to constitute itself a member of the partnership known as the American Toy Company. Butler v. American Toy Co., 46 Conn. 136. Dissenting opinion of JJ. Carpenter and Loomis. The W. Co. was created a corporation by the legislature. Nothing in the act of incorporation specified the business to be done, nor did corpo- rate name suggest it. All its stock was held by a single stockholder. It entered into a copartnership with A., to be terminated at will of corporation. Held, that the partnership was not ultra vires. Allen v. Woonsocket Co., 11 R. I. 288. A corporation can only be bound by the acts of its officers, and not by acts of a partner. Hackett v. Multnomah R. R. Co., 12 Or. 124. A railroad corporation cannot form a partnership with an individual unless specially authorized so to do by its charter. Ledsinger v. Central Line Steamers, 75 Ga. 567 ; Gunn v. Central R. R. & B'k'g Co., 74 Ga. 509. Pooling or running arrangements of railroads are sustained, as not being partnerships. Hotsprings R. R. v. Trippe, 42 Ark. 465 ; s. c. 48 Am. Rep. 65 ; Pratt v. O. & L. C. R. R., 102 Mass. 557 ; Briggs v. Vanderbilt, 19 Barb. 222; Converse v. N. & N. Y. Transp. Co., 33 Conn. 166. One firm may be a partner with another firm. In re Hamilton, 1 Fed. Rep. 800; Mallon v. Craig, 3 Ont. Rep. Ch. D. 546; Mullins v. Miller, 1 Low. Can. J. 121; Smith v. Wright, 5 Sandford, 113; s. c. 1 Abbott, Pr. 243; Bullock v. Hubbard, 23 Cal. 495; Raymond v. Putnam, 44 N. H. 160; Re Warner, 7 Bankr. Reg. 47. 97 *79 CORPORATIONS PARTNERS. [I Ch. 3. S. 2. [*79] tution(0- Having regard, however, to this * prin- ciple, it may he considered as primd facie ultra vires for an incorporated company to enter into partnership with other persons (i»). (I) See Gill r. Manchester, Shef- ron Coal Corp. r. Fulton Bank, 7 field &c Rail. Co., L. R. 8 Q. B. 186, Wend. 412; Catskill Bank v. Gray, as to one company being the agent 14 Barb. 479. As to holding out, of another, if not its partner. see Holmes v. Old Colony R. R. Co., (m) See the American cases, Sha- 5 Gray, 58. 98 I. Ch. 4.] EVIDENCE OF PARTNERSHIP. *80 * CHAPTER IV. [*80] OF THE EVIDENCE BY WHICH A PARTNERSHIP OR QUASI PARTNERSHIP MAY BE PROVED. Evidence by which a partnership or quasi-partnership may be proved. — The contract of partnership is one of those which does not require to be entered into with any particular for- malities. By the common law of this country, a partnership may be constituted without any official act, such as registry, without any instrument under seal, and even without any writing whatever ; and this is the law at the present time, except so far as it has been altered by the Statute of Frauds, by the acts relating to marine insurance (a), and by the various statutes relating to companies. But although a partnership may be constituted without any deed or writing, still a person who has entered into a mere verbal agreement for "a partnership with another, will not be able to sustain an action for its breach, unless he can prove the terms upon which the partnership was to be entered into (5). Statute of Frauds. — The only statutory enactment appli- cable to ordinary partnerships is the Statute of Frauds, the 4th section of which enacts, amongst other things, " That no action shall be brought whereby to charge any person upon any contract or sale of lands, tenements, or hereditaments, or any interest in or concerning them, or upon any agreement that is not to be per- formed within the space of one year from the making thereof, unless the agreement upon which such action shall be brought, or some memoran- dum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorised." Future partnerships, &c — This enactment applies as well to an agreement for a partnership to commence more than a (a) By 30 Vict. c. 23, § 7, agree- which infringes these enactments is ments for marine insurance must an illegal society. See infra, book i. be in writing and stamped ; and a c. 5, § 1. mutual marine insurance society (6) Figes v. Cutler, 3 Stark. 139. 99 *81, *82 EVIDENCE OF PARTNERSHIP. [L Ch. 4. [*81] year from the date of the * agreement (c), as to an agreement for a present partnership to last more than a rear from its commencement (cZ). But if in either case the parties have acted on the agreement and become partners, they must be treated as such, and the statute will not be applicable (e\ Partnerships in land. — With respect to that part of the 4th section of the Statute of Frauds which relates to lands, it is held, — 1, that a partnership constituted without writing is as valid as one constituted by writing (/) ; and 2, that if a partnership is proved to exist, then it may be shown by parol evidence that its property consists of land. This was first clearly laid down in Forster v. Hale (y evidence upon which a partnership may be found, the premises necessary for the purposes of that partnership are by operation of law held for the purposes of that partnership." The principle here stated was carried to its extreme limit by the Vice-Chancellor Wigram, in Dale v. Hamilton (K). He held that an agreement to form a partnership for the purpose of buying and selling land might be proved by parol; that it might then be shown by parol, that certain [ *82] Land had been * bought for the purposes of the part- nership, and, consequently, that the plaintiff was (c) See per Holroyd, J., in Wil- signed memorandum, continuing a liams v. Jones, 6 B. & C. 108. partnership for seven years. See, -/' li'iil.; and see Britain ?-. Itos- also, Williams v. Williams, 2 Ch. 294, siter, 11 Q. B. ]). 123. But see as to and per Turner, L. J., in Burdon v. this McKay v. Rutherford, 6 Moore, Barkus, 4 De G. F. & J. 47. pc.c. hi, a nd L3Jur.21. (/) Essex v. Essex, 20 Beav. 449. (?) See Baxter v. West, 1 Dr. & (J) 5 Ves. 309. Sin. 173, where the partners had acted (/<) 5 Ila. 309; s. c, on appeal, 2 on, and were held bound by, an an- Ph. 206. 100 I. Ch. 4.] EVIDENCE OF PARTNERSHIP. *83 entitled to a share of the profits obtained by its resale. The Vice-Chancellor directed an issue as to the fact of partner- ship, but his decision is an authority for the proposition that the Statute of Frauds does not preclude a person from estab- lishing by parol an agreement to form a partnership for the purpose of buying and selling land at a profit (T). This is certainly going a long way towards repealing the Statute of Frauds. Dale v. Hamilton was appealed from, and the plaintiff obtained a decree without any issue as to the fact of partnership. Both in Forster v. Hale and in Dale v. Hamilton, there was a signed writing showing a trust in the plaintiff's favour ; and this circumstance was relied on by Sir William Grant in the former case (j), and by Lord Cottenham in the lat- ter (/c) ; but, curiously enough, the signed writing was not made the foundation of the decision of Lord Rosslyn in Forster v. Hale, and was not considered sufficient by Vice- Chancellor Wigram in Dale v. Hamilton. His decision is difficult to reconcile with sound principle, or with the more recent decision of Cacldick v. Skidmore (T). There the plaintiff alleged that it had been agreed between him and the defendant, that they should become partners in a colliery and share the profits equally. The plaintiff sought to enforce that agreement. The defendant denied the alleged agreement, and asserted that the true agreement was that the plaintiff and the defendant should share the royalties obtained from the colliery. The defendant also set up the Statute of Frauds as an answer to the plaintiff's claim. In this case no partnership in fact was proved : and there was no agreement for a partnership as distinguished from the agreement to share the profits of the colliery in question. The terms of that agreement were hot in writing and were in dispute. Under these circumstances the Statute of Frauds was properly held to be a defence to the action. * Part performance. — In. considering cases of this [*83] description the equitable doctrines of part perform- ance must be borne in mind. They may enable a plaintiff to prove a parol agreement for sharing the profits arising from land notwithstanding the Statute of Frauds (m). (/) See, too, Cowell v. Watts, 2 H. (&) Dale v. Hamilton, 2 Ph. 266. & Tw. 224. (0 2 De G. & J. 52. (j) Forster v. Hale, 3 Ves. 696. (m) See Cowell v. Watts, 2 H. & 101 *83 EVIDENCE OF PARTNERSHIP. [I. Ch. 4. Question of partnership or no partnership, a mixed question of law and fact. — The question whether a partnership does nidges not subsist between any particular persons is a mixed question of law and tart, and not a mere question of fact. It it comes before a jury the question must be decided by them : they, taking their own view of the effect of the evi- dence before them, are bound to apply to the facts established to their satisfaction, those legal principles which the Court may lay down for their guidance ('0- 1 In considering the evidence which it is necessary to adduce in order to establish the existence of a partnership, two per- fectly distinct questions immediately suggest themselves, viz.: — 1. What is to be proved? 2. How is it to be proved ? T\v. 224, where the plaintiff succeeded (k) See Fox v. Clifton, 9 Bing. on this point, although by reason of 117. Formerly the Court of Chan- his laches he failed to ohtain a de- eery used to direct an issue to try a cree. disputed question of partnership, or 1 What constitutes a partnership is a question of law to he charged hy the judge to the jury, leaving to the jury whether there is sufficient evidence to establish the facts so charged by the judge to he necessary to the existence of the partnership. It is an inference of law from the facts. Dulany v. Elford, 22 S. C. 308; Dwinel v. Stone, 30 Me. 384; Gilpin v. Temple, 4 Harr. 190 (Del.) ; Everett v. Chapman, 6 Conn. 347; Doggett v. Jordan, 2 Fla. 541 ; Terrill v. Richards, 1 Nott. & McCord, 20; Drake v. Elwyn, 1 Cai. 184, overruled 1 X. Y. 242 ; McGrew v. Walker, 17 Ala. 824 ; Kingsbury v. Thorp, ill Mich.216; Bates, Partn. § 1135. In McGrew v. Walker, supra, it was held that a witness who knew the facts nol as a mere opinion, might testify that the parties were partners. When the question is a matter of doubt to be decided by inferences to be drawn, it is one of fact for the jury. Butler v. Finck, 21 Hun, 210; McDuffie v. Bartlett, 3 Penn. St. 317; Smith v. Hollister, 32 Vt. G95; Dulany v. Elford, 22 S. C. 308. Sufficiency of proof varies with nature of demand and residence of the parties, l'ollok v. Cunard, 2 Kerr, 291 (N. B.) ; McPherson v. Hoskins, 1 Kerr, 130 N. B.) ; Scullthope v. Bates, 5 Ont. Q. B. 318. To prove partnership inter sese requires stronger evidence than to prove partnership as to third persons. Walker v. Matthews, 58 111.196: Banchor v. Cilley, 38 Me. 553; Robinson v. Green, 5 Harr. 115 (Del.); Bates, I'artn. § 1136. Partnership books are competent only in connection with other evidence tending to prove the partnership and that the partner sought to be charged bad access to and knowledge of the books. Bryce v. Joynt, 63 Cal. 375; s. c. !'' Am. Rep. 94; Frich v. Barbour, 64 Penn. St. 120; Shelmire's Appeal, To Penn. St. 281. In Shelmire's Appeal, supra, one partner bought the other's interest worth $20,000 at sheriffs sale for $110, and thereafter kept the books as before and divided the profits with him. Held, evidence of partnership in action for an account. 102 I. Ch. 4.] EVIDENCE OF PARTNERSHIP. *84 1. What has to be proved in order to establish the existence of a partnership. — With reference to the first question, the distinction between partnerships and ^wast-partnerships is all- important ; for it by no means follows, that persons who are not partners are not liable as if they were ; nor does it follow that persons who are liable as if they were partners are part- ners in reality. This has been already explained: and, in fact, the answer to the first of the above two questions will be found in that portion of the present work in which the nature of the contract of partnership was discussed (o). Proof of such a state of things as is sufficient to establish a quasi-j>3bTtneTshxp is primd facie evidence of a real * partnership (j>), but evidence which is insufficient [*84] to establish a gwast-partnership must, a fortiori, fail to establish a real partnership between the same persons. Sharing profits is only evidence of gw). (s) Baxter v. West, 1 Dr. & Sm. Fin. 564, and 8 Jur. N. S.235; Grant 173 ; Worts v. Pern, 3 Bro. P. C. 548 v. Jackson, Peake, 268. (vol. i. p. 270, in folio edit.) ; Wil- (2) Tinkler v. Walpole, 14 East, Hams v. Williams, 2 Ch. 294. See, as 226; Flower v. Young, 3 Camp. 240; to mutual insurance societies, ante, and see Mclver v. Humble, 16 East, p. 80, note («). 174. (t) As in Dale v. Hamilton, 2 Ph. (a) Strother v. Willan, 4 Camp. 266. See, also, Murray v. Flavell, 25 24 ; Weaver v. Prentice, 1 Esp. 369. Ch. D. 89; Page v. Cox, 10 Ha. 163. (6) See Drouet v. Taylor, 16 C. B. (u) Fox v. Clifton, 6 Bing. 797, 8. 671 ; Burnside v. Dayrell, 3 Ex. 224; O) Dickinson v. Valpy, 10 B. & Watson v. Charlemont, 12 Q. B. 856. C. 140, ante, p. 42. This will be again alluded to in a (y) See 1 Tay. Ev. § 753, edit. 8 ; subsequent chapter. Edmundson v. Thompson, 2 Fos. & 105 *8ti EVIDENCE OF PARTNERSHIP. [I. Ch. 4. [*86] *I1 need scarcely be observed that the principle now under discussion does not apply to exclude the testimony of a person deposing to the existence of a partner- ship between himself and another. Such testimony was not excluded even before the alteration of the law relating to the competency oi witnesses (■ admissible; for, before the document was put in, evidence <.f ;i partnership had been given, and the document tended to confirm that evidence. So in Nicholls v. Dowding (/), primd facie evidence of a partnership having been given, the declarations of one of the defendants were inquired into for tin' purpose <>f binding the others, and it was held that such evidence was admissible, a foundation for it having been pre- viously laid ((f). Hall v. Curzon, 15. & C. 646 ; 0) 3 C. B. 792. Blackett <•. Weir, ■> il». 385. (/) 1 Stark. 81. Ewer v. Ambrose, 3 B. & C. (g) See, too, Alderson v. Clay, 1 Stark. 405. 106 I. Ch. 4.] EVIDENCE OF PARTNERSHIP. *87 * Proof of articles, &o, not necessary. — A person [*87] may be made liable as if he were a partner without the proof of any partnership articles or deed which he may have executed (A). And although in order to prove an actual partnership it may be necessary by the law of some other country to show that some formality has been observed, the non-observance of that formality will not prevent persons who in fact trade as partners, from being so treated in this country in questions arising between them and third par- ties (T). Admissions. — An admission made by any one that he is a member of a particular partnership is evidence of that fact against him (&) ; and such an admission renders it unneces- sary for the purpose of fixing him with the liabilities of a partner, to show that he executed any document whereby he became a partner (Z). Admissions, however, are not necessarily conclusive, and little weight ought to be attached to them if it is shown that they were made under erroneous suppositions. This seems to have been the true ground of the decision in the much debated case of Vice v. Anson (?/?). There the defendant supposed herself to be a shareholder in a mine ; she had in private letters and in private society, written and spoken of herself as a shareholder ; she had received certificates stating that her name was registered in the act-book of the mine, and that she was entitled to share the profits of it; and lastly, she had paid deposits on her shares. But Lord Ten- terden held that she had not in point of fact any interest in the mine, and that as she never represented to the plaintiff that she was a shareholder therein, she could not be made liable to him simply because of her erroneous suppositions and admissions. (/*) Alderson v. Clay, 1 Stark. 405, Ralph v. Harvey, 1 Q. B. 845 ; and where a person was proved to be a see Tredwen v. Bourne, M. & W. member of a company without the 461. production of the company's deed. (m) 7 B. & C. 409, and Moo. & M. (0 Shaw v. Harvey, Moo. & Mai. 98. See, on this case, Owen v. Van 526; Maudslay v. Le Blanc, 2 C. & Uster, 10 C. B. 318, and qu. if it is P. 409, note. law ; for though the defendant had (k) Sangster v. Mazarredo, 1 Stark. no legal interest in the mine, was she 161 ; Studdy v. Saunders, 2 D. & Ry. not entitled as a partner to share the 347; Clay v. Langslow, 1 Moo. & profits obtained by working the mine ? Mai. 45. and what more was necessary to make (I) Harvey v. Kay, 9 B. & C. 356; her liable to the supplier? 107 *88 EVIDENCE OP PARTNERSHIP. [I. Ch. 4. [-\sS] * The inconclusive nature of an admission was dis- tinctly recognised in Ridgway v. Philip (w), where Parke, B., said. " It frequently happens in cases where the liability of persons as partners comes in question, that juries are induced to give too much effect to slight evidence of admissions. An admission does not estop the party who makes it; he is still at liberty, as far as regards his own interest, to contradict it by evidence." In that case, one of tlif defendants was allowed to explain an admission made by him to the effect that he was in partnership with the others (t>). So where the freighters of a ship addressed a letter to the captain instructing him on his arrival at the Cape to call upon their managing partner, Mr. W. G. Ander- son, it was held competent to the freighters to show that Mr. Anderson was not a partner of theirs (j->). Even where a person has executed a deed describing him as a partner, the admission is not necessarily conclusive against him (//). An admission by one person that he and another are partners, may be open to the explanation that they are partners to some limited extent, or with respect to some particular transaction, but not to the extent or with re- spect to the business necessary to sustain the ease made against him (r). Retrospective articles, &c. — Again, persons may agree that as between themselves, the partnership between them shall be deemed to have commenced at some time before its actual riiiniiH-iicement. Proof of such an agreement as this would not enable a stranger to make the parties to it liable to him as partners for what took place before the partnership in point of fact began. As to third parties, such an agree- ment is res inter alios acta, which does not affect them in any way (.s) ; and it is obvious that an admission of (n) 1 Cr. M. & R. 415. Mainwaring, 8 Taunt. 139; Brown v. {uj See, too, Newton v. Belcher, 12 Brown, 4 ib. 762. Q. B. 921; Newton v. Liddiard, ib. (7) See Radcliffe v. Rushworth, 33 925, as to the admissions made by Beav. 485; Empson's case, 1) Eq. 597. promoters of companies as to their (»•) See Ridgway v. Philip, 1 Cr. liabilities. M. & R. 415; and De Berkom v. Brockbank v. Anderson, 7 Man. Smith, 1 Esp. 29. & (.r. 295. The real question was (s) Wilsf ord v. Wood, 1 Esp. 182; whether Anderson was an interested Vere v. Ashby, 10 B. & C. 288. This witness, which lie would have been subject will be more fully examined had he been a partner. See Mant v. in book ii. ch. 2, § 3. 108 I. CH. 4.] EVIDENCE OF PARTNERSHIP. *89, *90 * the existence of a partnership might be explained [*89] as true only in this limited sense ; in which case the admission might be worth nothing. Usual evidence of partnership. — The following is the kind of evidence usually had recourse to for the purpose of proving the existence of an alleged partnership or quasi- partnership : — Agreements in writing and deeds, showing the right to share profits. If the signature to a deed is proved, its due execution is inferred (/). To prove who constituted a firm of A. and Co., the attorney of B. and Co. cannot be compelled to produce an agreement made between A. and Co. and B. and Co., if he objects on the ground of professional confidence (u). Admissions (x~), as to which see ante, pp. 87, 88. Advertisements, Prospectuses, &c, containing the names of the alleged partners (//). and names over doors (z), and on carts (a). Answers in Chancery containing admissions (6). Bills to customers \ Circulars [- containing the names of the alleged partners (c). Invoices ) Bills of Exchange. — The mode in which these have been drawn, ac- cepted, or endorsed, has frequently been relied on with success (d). Drafts of Agreements, which have been acted upon (e). Letters and Memoranda, showing an intention to give a person a share of profits, coupled with evidence that such intention was acted on (/). * Meetings. — Attending and taking part in them (g) ; requir- [*90] ing them to be called (h) . Payment of money into court. — When in an action against two persons .as partners they pay money into court, this does not amount to an admis- (0 Grellier v. Neale, 1 Peake, 198. (b) Studdy v. Saunders, 2 D. & Ry. (m) Harris v. Hill, Dowl. & Ry. N. 347 ; Grant v. Jackson, 1 Peake, 208. P. Ca. 17. (c) Young v. Axtell, 2 H. Blacks. (x) Sangster v. Mazarredo, 1 Stark. 242; Norton v. Seymour, 3 C. B. 792. 161 ; Harvey v. Kay, 9 B. & C. 356 ; (c/) Spencer v. Billing, 3 Camp. Ralph v. Harvey, 1 Q. B. 845; Clay 310; Guidon v. Rohson, 2 ib, 302; v. Langslow, 1 Moo. & M. 45. Duncan v. Hill, 2 Brod. & Bing. 682 ; (//) Lake v. Argyll, 6 Q. B. 477; Gumey v. Evans, 3 H. & N. 122. Bourne v. Freeth, 9 B. & C. 632; (e) Worts v. Pern, 3 Bro. P. C. 558. Maudslay v. Le Blanc, 2 C. & P. (/) Heyhoe v. Burge, 9 C. B. 431 ; 409, note; Reynell v. Lewis, 15 M. Baxter v. West, 1 Dr. & Sm. 1-73, & W. 517 ; Wood v. Argyll, 6 Man. where a partnership for seven years & Gr. 928. In Ex parte Matthews, 3 was proved by an unsigned memoran- V. & B. 125, an advertisement of dis- dum on which the parties had acted, solution was relied on. (?) Lake v. Argyll, 6 Q. B. 477, O) Williams v. Keats, 2 Stark. 290. and Wood v. Argyll, 6 Man. & Gr. See, too, Pott v. Eyton, 3 C. B. 32, 928; noticed ante, p. 44. See, also, ante, p. 30. Peel v. Thomas, 15 C. B. 714. (a) Stables v. Eley, 1 C. & P. 614, (A) Tredwen v. Bourne, 6 M. & W. as to which, see ante, p. 47. 461. 109 *90 EVIDENCE OF PARTNERSHIP. [I. Ch. 4. sion of the partnership alleged to exist between them; but only of a joint liability to the extenl of the amount paid in (i). Recitals in agreements (fc). R< gisU rs. — These do not affect a person whose name is in them unless he can be proved to have authorised the use of his name (/) ; or unless there is some statute applicable to the case. An entry in custom house books mad.' by one of three alleged partners, to the effect that he and the other two were jointly interested in certain goods, though conclusive as between them and the Crown, is not so as between them and other persons (m). Release executed by all the alleged partners (n). Verdict. — A verdict of a jury finding the existence of a partnership upon the trial of an issue directed out of Chancery, was held by Lord Kenyon conclusive evidence against the partners in a subsequent action brought against them by a creditor (o). I ~.). * 1. Grounds of illegality. — A partnership may be [*92] illegal upon the general ground, that it is formed for a purpose forbidden by the current notions of morality, relig- ion, or public policy. A partnership, for example, formed for the purpose of deriving profit from the sale of obscene prints, or of books reviling or ridiculing the established religion, or (a) See Armstrong v. Armstrong, Ex. case, 1 De G. F. & J. 17. See 3 M. & K. 64 and 65 ; Sharp v. Tay- the Judgment of Lord Campbell, lor, 2 Ph. 818; Brett v. Beckwith, 3 (6) See R. v. Stainer, L. R. 1 Cr. Jur. N. S. 31, M. R.; Longworth's Ca. Res. 230; General Co. of Land Credit, 5 Ch. 363. Ill *92 ILLEGAL PARTNERSHIPS. [I. Ch. 5. S. 1. for the procurement of marriages, or of public offices of trust, would be undoubtedly illegal (c). Public policy. — In the time of Charles II., it seems to have been held that a contract for sharing the profits derived from the public exhibition of a human monster was illegal (t7) ; but the writer is not aware of any modern case to the same effect, and the derision alluded to would not probably now be followed upon grounds of public policy. War. — Whilst two countries are at war it is, by the law of each country, illegal for persons resident in either to have dealings with persons resident in the other. 1 A partner- (c) See the title, Illegal Contracts, (d) See Herring v. Walround, 2 in Chitty's and Pollock's treatises on Ch. Ca. 110. The thing exhibited the Law of Contracts; ami as to the was a pair of female children, having Bale of offices, Sterry v. Clifton, 9 C. " two heads, four arms, four legs, and B. 110; and as to associations for but one belly where their two bodies promulgating irreligious opinions, see were conjoined." Pare v. Clegg, 29 Beav. 589; Thorn- ton r. Howe, 8 Jur. N. S. 663. 1 Pfetrffer v. Maltby, 54 Tex. 454; s. c. 38 Am. Rep. 631, was an action for accounting of a partnership to carry on an illegal trade with Mexico during the American civil war. The partnership enterprise had been com- pleted, and it was held that the defendant could not refuse to account on the ground of the illegality of the business of the partnership. And in De Leon v. Trevino, 49 Tex. 89; s. c. 30 Am. Rep. 100, it was held that it does not follow because a contract may be illegal that it is illegal or immoral, after its- completion, to fairly settle the profits and losses which have resulted from it. Brooks v. Martin, 2 Wall. 70, 17 L. ed. 732, was a partnership for the purchase and sail of bounty land warrants, issued under an act of Congress, which provided that any sale or contract made prior to the issue of such warrant should be null and void. 9 U. S. Stat. 125. Martin was to furnish the money, and Brooks was to conduct the business. Martin advanced the money, and Brooks invested it in the purchase of warrants which were sold or located ; and Brooks received into his hands money, notes, mortgages, and land, the fruits of the business the original capital of which had been fur- nished by .Martin. Martin thereupon sold his interest to Brooks for a small and utterly inadequate consideration, being induced to do so by the frauds, concealment, and misrepresentation of Brooks, as to the value of the property in hi> hand-; and the suit was to set aside the sale on the ground of fraud. It was not to enforce the original contract which was unlawful, but to set aside a subsequent agreement entered into between the parties, whereby one partner fraudulently obtained possession of the whole property; and it was decided that Brooks could not set up the original illegality, arising out of the purposes for which the partnership was first formed, as a defence; that Brook- was the Bpecial agent of Martin in the conduct of the business as well as hi- partner; that the law governing such fiduciary relations must apply, and the sale be set aside. In Snell v. Dwight, 120 Mass. 9, and Dunham v. Presby, id. 285, the court refused to sustain bills for an account of profits resulting from illegal trading with inhabitants of states in insurrection against the United States. In the latter case the court citing Cardoze v. Swift, 113 Mass. 250, Bay, "Nor i^ it material that the defendants do not set up the 112 I. Ch. 5. S. 1.] ILLEGAL PARTNERSHIPS. *93 ship, therefore, formed between persons resident in this coun- try for the purpose of trading with an enemy's country is illegal; and a fortiori is such a partnership illegal if one of the members of it is resident in that country, and is there- fore an alien enemy (e). But a partnership in this country for running a blockade established by one belligerent nation in the ports of another is not illegal ; for subject to the risk of capture a neutral may lawfully trade with a bellige- rent (/). Trading under an assumed name. — In this country a person may legally carry on business under a name not his own ; and when a firm has an established reputation and one of its members dies, it is not deemed wrong for the survivors to continue the business under the old name, although, perhaps the reputation of the firm may have been due mainly, if not entirely, to the ability and integrity of * the [*93] deceased partner. The legal view of such conduct is in accordance with established usage, and it has been ac- cordingly held not to be illegal for surviving partners to continue to carry on business under the old name (, note citing Europ. Mag. 17^7, vol. '1, p. 360 . i- -aid to have been a suit in- Btituted by one highwayman against another for an account of their plun- der. The i-ill stated that the plaintiff was skilled in dealing in Beveral com- modities, such as plate, rings, watches, &c. ; that the defendant applied to him to become a partner; that they entered into partnership, and it was agreed that they should equally pro- vide all sorts of necessaries, such as horses, saddles, bridles, and equally bear all expenses on the roads and at inns, taverns, alehouses, markets, and fairs ; that the plaintiff and the de- fendant proceeded jointly in the said business with good success on Houn- slow Heath, where they dealt with a gentleman for a gold watch ; and afterwards the defendant told the plaintiff that Finchley in the county of Middlesex, was a good and con- venient place to deal in, and that commodities were very plenty at Finchley, and it would be almost all clear gain to them; that they went accordingly, and dealt with several gentlemen for divers watches, rings, swords, canes, hats, cloaks, hoists, bridles, saddles, and other things; thai about a month afterwards the defendant informed the plaintiff that there was a gentleman at Blackheath, who had a good horse, saddle, bridle, watch, sword, cane, and other things to dispose of which he believed might l.c had for little or no money; that they accordingly went and met with the said gentleman, and after some 114 I. Ch. 5. S. 1.] ILLEGAL PARTNERSHIPS. *95 occurred. Real or fictitious, it is a good illustration of an illegal partnership of the class in question (o). 3. Partnerships illegal by special statutes. — A partnership is also illegal if formed for a purpose forbidden by statute, although independently of the statute, there would be no illegality. At one time a distinction was taken between mala prohibita and mala in se ; but this distinction has very prop- erly long ceased to be recognised as of any value for legal purposes. What judicial tribunals have to regard is the law they are called on to administer ; and what is forbidden by that law, is illegal, whether it is also forbidden by the laws of morality and religion or not (jp). Observations on such acts. — Whether a partnership is ille- gal by virtue of any particular statute obviously depends upon the construction of the statute in question. With ref- erence however to those statutes which prohibit un- qualified persons from carrying on certain trades *or [*95] businesses, it may be observed, that such statutes are not infringed by an unqualified person who does nothing more than share the profits arising from those trades or busi- nesses, if they are in fact carried on by persons who are duly qualified. The unqualified person is not within the mischief of the statutes in question, and the partnership of which he is a member is not therefore illegal (<£). Prohibitory and penal acts. — Again, although a statute may in terms apparently prohibit an act or omission, and affix a penalty in case of disobedience, it does not neces- sarily follow that all transactions to which the penalty attaches are illegal. They are so if the statute is really prohibitory (r) ; but they are not so if the true construction small discourse they dealt for the apiece. The plaintiff and the defend- said horse, &c. ; that the plaintiff and ant were, it is said, both hanged, the defendant continued their joint and one of the solicitors for the plain- dealings together until Michaelmas, tiff was afterwards transported. See and dealt together at several places, 20 Eq. 230, note. viz., at Bagshot, Salisbury, Hamp- (o) The case was referred to by stead, and elsewhere to the amount Jessel, M. R., in 11 Ch. D. 195. of 2000/., and upwards. The rest of (p) See Aubert v. Maze, 2 Bos. & the bill was in the ordinary form for P. 371. a partnership account. The bill is (y) See Raynard v. Chase, 1 Burr, said to have been dismissed with 2, and infra, under the heads of Med- costs to be paid by the counsel who ical Practitioners, Solicitors, signed it ; and the solicitors for the (r) Melliss v. Shirley Local Board, plaintiff were attached and fined 50/. 16 Q. B. D. 446 ; Cope v. Rowlands, 115 *96 ILLEGAL PARTNERSHIPS. [L Ch. 5. S. 1. of the statute is that the penalty is, as it were, the price of a licence Eor doing what the statute apparently forbids (s)- Therefore, it was held in Brown v. Duncan (*), that a firm of distillers was not illegal, although one of the firm carried on business as a retail dealer in spirits within two miles of the distillery (contrary to 4 Geo. 4, c. 94, §§ 132, 133), and was not registered as one of the firm in the excise books (as re- quired by 6 Geo. 4, c. 81, § 7). It may, however, be doubted whether the statutes in question were properly construed by the Conn (» The most important instances of partnerships rendered illegal by statute are as follows (x) : — Attorneys and Solicitors. — See infra, Solicitors. Bankers. — By 7 & 8 Vict. c. 32, § 21 («/), all bankers are required on the 1st day of January, in every year, to make a return to the stamp office of their names, residences, and occupations, or in the case of a company or partnership, of the name, residence, and occupation of every mem- [".Hi] ber of the * company or partnership, and in default a penalty of 507. is inflicted. Upon this act a question might arise as to the legality of a banking partnership, or company, composed in part of members whose names are not returned. By two statutes, which have since been considerably modi- fied, it was made unlawful for banking firms of more than six members, to issue in London or within sixty-five miles thereof, notes payable on demand, or within six months after date (z). 2 M. & W. 149; Bartlett v. Vinor, Geo. 4, c. 46. See further as to the I th. -1W1 ; Taylor v. The Crowland issue of notes, 9 Geo. 4, c. 23 ; 3 & 4 • oke Co., 10 Ex. 293. Wm. 4, c. 83, and c. 98 ; 7 & 8 Vict. Smith v. Mawhood, 14 M. & c. 32; A.-G. v. Birkbeck, 12 Q. B. D. W. 452 ; Swan v. The Bank of Scot- 605; Broughton v. Manchester & Sal- land, 'J. Moii. & Ayr. 661 ; Johnson ?;. ford Waterworks Co., 3 B. & A. 1 ; Hudson, 11 East, 180. Bank of England v. Anderson, 3 Bing. - 10 B. & C. 9,3, ana s.c Smith N.C.589; Bank of England v. Booth, v . Mawhood, L4 M. & W. 462. 2 Keen, 466 ; and on appeal, Booth v. (u) See Pawnbrokers, infra. Bank of England, 6 Bing. N. C. 415; O) For a list of trades, &c, regu- and 7 CI. & Fin. 509. The joint effect lated by statute, see Pollock on Con- of the above enactments seems to be •-, edit, 4, App. K., note. that: (1.) The Bank of England can (y) §§ 8 ami 29 of this act ami alone issue, in London, or within parts of §§9 and 23 are repealed by three miles of it, notes payable to 37 & 38 Vict. c. 96. bearer on demand. (2.) Beyond that '- 39 & 40 Geo. 3, c. 28, § 15; 7 limit such notes may be issued by 116 I. Ch. 5. S. 1.] BROKERS. *9T Upon these statutes, it was held, that a banking company of more than six persons associated for the purpose of issu- ing notes payable on demand, or within six months after date, was not illegal unless it was proved that the company issued such notes within sixty-five miles of London (a ). Upon a similar statute relating to Ireland (6) it was held that in order to establish the illegality of a banking company upon the ground that its houses of business had been, from the time of the formation of the company until the com- mencement of the suit, and then were, at places in Ireland within fifty miles of Dublin, it was necessary to prove the existence of a place of business * within [*97] that limit for the whole time alleged (c). The stat- utes in question, moreover, have been held only to affect partnerships formed for the purpose of carrying on the busi- ness of a banker, and not to interfere with the issue of notes by firms not carrying on such business. Brokers. — The statutes imposing penalties upon brokers who acted as such in the city of London without being duly admitted so to do by the mayor and aldermen, have been repealed by 47 Vict. c. 3. Although unqualified brokers could not recover their commission (fT), yet they could re- cover from their principals money paid for them by their directions or in conformity with the usages of the share market (e). Discovery by unlicensed brokers. — Liability to penalties under the repealed statutes did not protect a broker from answering interrogatories relating to his dealings and trans- bankers who were lawfully issuing district more than sixty-five miles them before May, 1844, under a from London, in which the monopoly licence ; but by no other bankers ; is divided between the Bank of Eng- and not, therefore, by any banking land and banking firms of six or firm of more than six persons carry- more or less members, lawfully issu- ing on the business of bankers within ing notes before May, 1844. sixty-five miles of London. In other (a) Ransford v. Copeland, 6 A. & words, there are three limits : (1.) E. 482. London and three miles round, in (i) 6 Geo. 4, c. 42, § 10. which the Bank of England has an (c) Hughes v. Thorpe, 5 M. & W. exclusive monopoly. (2.) The dis- 656. trict more than three, but within six- (c?) Cope v. Rowlands, 2 M. & W. ty-five miles of London, in which the 149. monopoly is divided between the Bank (e) Smith v. Lindo, 4 C. B. N. S. of England and banking firms of less 395, and 5 ib. 587 ; Pidgeon v. Burs- than six members, lawfully issuing lem, 3 Ex. 465 ; Jessopp v. Lutwyche, notes before May, 1844. (3.) The 10 Ex. 614. 117 *l.tN ILLEGAL PARTNERSHIPS. [I. Ch. 5. S. 1. actions if he was sued m respect of them by his princi- pal (/)■ Marine insurers. — By a statute now repealed, it was made unlawful for any society or partnership (except the two cor- porations mentioned in the act) to carry on the business of maritime insurance or to lend money on bottomry (■>. (k) See Edwards v. Aberayron 6 Geo. 1, c. 18, repealed by 5 Mutual Soc, 1 Q. B. D. 563; Ex t, c. 114, § 1, as to insurances. parte Hargrove, 10 Ch. 542; Fisher v. I he following are the decisions Liverpool Marine Insur. Co., L. R. 9 on the above enactment: Mitchell v. Q. 15.418; Smith's case, 4 Ch. 611; Cockburn, :.' II. Blacks. 379; Booth Brett v. Beckwith, 3 Jur N. S. 31; Hodgson, <; T. R. 405; !><■>•* v. Bromley v. Williams, 32 Beav. 177. Smith, 7 ib. 338 ; Harrison v. Millar, With these cases compare Martin's ib. 340, note ; Everth '■. Blackburne, case, 14 Eq. 148. 2 Stark. 00; Ex parte Bell, 1 M. & S. (/) 21 & 22 Vict. c. 90. As to 701 : Auhert v. Maze, L' Bo-. .\ 1'. chemists and druggists, see 31 & 32 :;71 ; Watt- v. Brooks, 3 Ves. 612; Vict. c. 121, and Pharmaceutical Soc. Knowles v. Hanghton, 11 Lb, L68. v. Lort. Supply Assoc, 5 App. Ca. They '-an now lie stamped 857. after their execution on payment of 118 I. Ch. 5. S. 1.] PAWNBROKERS. *99 name or title of a physician, doctor of medicine, licentiate in medicine and surgery, bachelor of medicine, surgeon, general practitioner, or apothecary, or any name, title, addition, or description implying that he is registered under the act, or is recognised, by law as a physician, &c. Upon the above acts it has been decided that agreements contrary to 55 Geo. 3, are illegal and cannot be enforced (w) ; but that a medical practitioner may maintain an action for attendances, &c, although not registered when they took place, it being sufficient that he should be registered at the time of trial (w) ; and there is nothing illegal in one mem- ber of a firm being registered in one character and another in another ; nor in their respectively attending to their ap- propriate branches of the profession ; nor in their jointly suing in respect of the services rendered by each in his own branch (o). It has also * been intimated [*99] by high authority, that if only one member of a firm is duly registered, the requisitions of the statute are complied with ( j?) ; but the unregistered partner cannot lawfully act as a physician, surgeon, or apothecary (jf). Newspaper proprietors. — By 44 & 45 Vict. C. 60, § 8, the titles of newspapers, and the names, occupations and resi- dences of their proprietors, are required to be registered with the Registrar of Joint Stock Companies, and penalties are payable on default. Patentees. — Prior to 1852 a patent for an invention con- tained a proviso to the effect that the patent should be void if more than twelve persons became interested in it as part- ners (/'). But now there is no limit placed upon the number of persons who may be interested in a patented invention. Pawnbrokers. — By 35 & 36 Vict. c. 93, § 13, every pawn- broker is required to have his name legibly printed over the (m) Davies v. Makuna, 29 Ch. D. 222. The cases decided upon the 596. Apothecaries acts, 55 Geo. 8, c. 194, (n) Turner v. Reynall, 14 C. B. and 6 Geo. 4, c. 133, will be found in N. S. 328. 1 Chitty's Statutes. (o) Ibid. (r/) Howarth v. Brearley, 19 Q. B. (p) Per Erie, C. J., ib. Compare D.303; Davies v. Makuna, 29 Ch. D. the cases in the next note. See, fur- 596 ; Pharmaceutical Soc. v. Lon. ther, De la Rosa v. Prieto, 16 C. B. N. Supply Assoc, 5 App. Ca. 857. S. 578 ; and as to pretending to be a (r) Hindmarch on Patents, 66. legally qualified practitioner, see Ped- See Duvergier v. Fellowes. 5 Bing. grift v. Chevallier, 8 C. B. N. S. 240 248, and on appeal, 10 B. & C. 826, and 246; Ellis v. Kelly, 6 H. & N. and 1 CI. & Fin. 39. 119 *100 ILLEGAL PARTNERSHIPS. [I. Ch. 5. S. 1. door of every shop or place where lie carries on his business. Under the previous act, o'J ov 40 Geo. 3, c. 98, an agreement to carry on a pawnbroking business in partnership was illegal if it was part of the agreement that the names of some of the partners should be concealed, or, in other words, if it was part of the agreement that some of the partners should be dormant (*). Whether these decisions apply to the present act is open to some doubt (see § 51), but they prob- ably do. It is conceived, however, that pawnbroking may be legally carried on by a registered company, if the name of the company is properly painted up. *100] * Solicitors. — - By several statutes it has long been unlawful for any person, not duly qualified, to act by himself or another as a solicitor, or to suffer his name to be made use of upon the account, or for the profit of an unqualified person (Y). Upon these statutes questions have arisen as to how far it is lawful for a qualified solicitor to share the profits of his business with a person who is not qualified; and it lias been held that there is no illegality in this where the non-qualified person does not share the profits in consideration of his acting in any manner as a solici- tor (?t). For example, there is nothing illegal in an agree- ment that a surviving partner of a firm of solicitor shall share his profits with the widow of a late partner (x). Hut an agreement for a partnership in the ordinary sense of tin- word between a person duly qualified and one who is not. is clearly illegal Qy) ; and if the agreement is in writing, and is for a present partnership, parol evidence cannot be admitted to show that it was not to take effect until both parties were qualified (z). But an agreement between a solicitor and his articled clerk that the latter, when a solici- ts) See Lewis v. Armstrong, :'. M. by partners of clerks of the peace, 53 : Armstrong v. Lewis, 2 Cr. see 5 & Will. 4, c. 76, § 102, and R. &M. 274; Gordons Howden, 12 CI. v. Fox, 1 E. & E. 729. & Fin.237; Fraserv. Hill. 1 M'^ueen, (n) Scott v. Miller, Johns. 220, is 392. Compare Brown <•. Duncan, 10 a strong case on this head. B. & C. 93, where one of a firm of (x) Candler v. Candler, Jac. 225, < 1 i - 1 i 1 1 < • r s was not licenced as required and Madd. 141 ; Sterry v. Clifton, by the excise law. 9 C. B. 110; and see Aubin v. Holt, ). But an illegal partnership can prosecute a person stealing its property (). But if there has been no account settled, it would seem that the executor may in his character of partner rely on illegality, and decline to come to any account in respect of the gains in question (?/). illegal trusts. — But notwithstanding Tenant v. Elliott, Sharp v. Taylor, and other cases of that class, illegal trusts will not be enforced. Sykes v. Beadon (z), already referred to, is a clear authority for this proposition. Another author- ity is Ottley v. Browne («). There A., who was a share- holder with B. and others in two companies, wished to become a hanker; and in order to evade a statute which ren- dered it illegal for a banker to be a partner in commercial undertakings (J), A. assigned his shares to B. in trust for himself. B.. who carried on a separate trade, was made bankrupt, and his assignees sold all his shares in the above companies, and also the shares held by him in trust for A. A. then filed a bill against B.'s assignees, praying that they might be declared trustees of these last shares for him, A., and that they might be ordered to pay the value [*109] * thereof to him, or that he might be at liberty to See Joy v. Campbell, 1 Sch. & & Bea. 360; and compare Sharp v. Lef. 339; Hale v. Hale, 4 Beav. Taylor, 2 Ph. 801. 0) 11 Ch. 1). 170, ante, p. 105. O) See Joy v. Campbell, 1 Sch. & (a) 1 Ball. & Bea. 360, and see Lef. 328. Ex parte Mather, 3 Ves. 373. Si • I >ttley v. Browne, 1 Ball. (//) 29 Geo. 2, c. 16 (Irish). 128 I. Ch. 5. S. 2.7 CONSEQUENCES OF ILLEGALITY. *109 prove for such value against B.'s estate ; but the bill was dismissed with costs, on the ground that it sought to en- force a secret trust, which was directly against a positive law (c). Indictment. — Before quitting the subject of the conse- quences of the illegality of a partnership, the risk of crimi- nal prosecution ought to be mentioned. Persons engaged in an illegal business, whether partners or not, and whether incorporated or not, are liable to be punished criminally (77) ; and even where the object of a society is not illegal, its directors and managers will do well to bear in mind, that if they wilfully A r iolate the provisions of an act of Parlia- ment they are guilty of a misdemeanour, and are liable to be indicted accordingly (/). (c) The same principle is illustrated Russell on Crimes, and Archbold's by Thomson v. Thomson, 7 Ves. 470, Criminal Law. which, however, was not a partner- (e) See Lord Campbell's observa- ship case. tions in Longworth's Ex. case, 1 De (d) See the title Conspiracy in G. F. & J. 31. 129 *110, *111 NATURE OF A PARTNERSHIP. [I. Ch. 6. S. 1. [*110] * CHAPTER VI. OF THE GENERAL NATURE OF A PARTNERSHIP. SECTION I. — OF THE MERCANTILE AND THE LEGAL NOTION OF A FIRM. Mercantile view of a firm. — Partners are called collectively a firm. Merchants and lawyers have different notions re- specting the nature of a firm (a). Commercial men and accountants are apt to look upon a firm in the light in which lawyers look upon a corporation, i.e., as a body distinct from the members composing it, and having rights and obliga- tions distinct from those of its members. Hence, in keeping partnership accounts, the firm is made debtor to each partner for what he brings into the common stock, and each partner is made debtor to the firm for all that he takes out of that stock. In the mercantile view, partners are never indebted to each other in respect of partnership transactions ; but are always either debtors to or creditors of the firm. Owing to this impersonification of the firm, there is a tendency to regard its rights and obligations as unaffected by the introduction of a new partner, or by the death or retirement of an old one. Notwithstanding such changes among its members, the firm is considered as continuing the same ; and the rights and obligations of the old firm are regarded as continuing in favor of or against the [*111] new firm as if no changes had * occurred. The part- ners are the agents and sureties of the firm : its agents for the transaction of its business; its sureties for the liquidation of Lts liabilities so far as the assets of the (a) See on this subject Cory's cantile notion of the firm, and the Treatise on Accounts (2d ed. 1839, need of its legal recognition," in the Pickering), a valuable work, but, it 2d Vol. of the Papers read before is believed, not so widely known as the Juridical Society, p. -40. To both it should be. See, too, a paper by of these the writer desires to acknowl- J. M. Ludlow, Esq., "On the nier- edge his obligations. 130 I. Ch. G. S. 1.] LEGAL VIEW OF A FIRM. *112 firm are insufficient to meet them. The liabilities of the firm are regarded as the liabilities of the partners only in case they cannot be met by the firm and discharged out of its assets. Legal view of a firm. — ■ But this is not the legal notion of a firm. The firm is not recognised by lawyers as distinct from the members composing it (&). In taking partnership accounts and in administering partnership assets, Courts have to some extent adopted the mercantile view, and actions may now be brought by or against partners in the name of their firms (■. Whitlock, SS 111. 514; Bank of Rochester v. Monteith, 1 Den. 402 ; ( mtario Bank v. Hennessey, 48 N. Y. 545 ; Crawford v. Collins, 45 Barb. - C. 30 How. l'r. 398 ; Ottoman Cahvey Co. v. Dane, 95 111. 204 ; Palmer 7-. Stevens, 1 Den. 471 ; Getehell v. Foster, 100 Mass. 42; Lill v. Eagan, 89 111.609; Kaskins v. D'Este, 133 Mass. 350; Markham v. Hazen, 48 Ga. 570 ; I.e Boy v. Johnson, 2 Pet. 180, 198, 7th L. edit. 391 ; Mifflin v. Smith, 17 S. & R. L65; b. S. Bank v. Binney, 5 Mason, 170; s. c. 5 Pet. 529; Manuf. & Mech. Bank v. Winship, 5 Pick. 11 ; Etheridge v. Binney, 9 Pick. 272; Michael v. Workman, 5 W. Va. 391 ; Crocker v. Colwell, 40 N. Y. 212; Moffat v. McKis- siek, 8 Baxter, 517 ; Tilford v. Ramsay, 37 Mo. 563; Miner v. Donner, 20 Vt. 461; Mershon v. Hobensach, 22 X. J. L. 372; West v. Valley Bank, 6 Ohio St. L68-J Elkin r. Green, 13 Bush. 662 ; Fosdick v. Van Horn, 40 Ohio St. 459. Notes payable to Chas. & Wm. P., sold by Charles F. to plaintiff and pur- porting to be assigned to plaintiff by Chas. & Wm. P., represented by Chas. F. to be partners, are not prima facie payable to a firm. There is no conclu- 1 in law that Chas. & Wm. F. are a firm. Ryhener v. Feickert, 92 111. 305 ; s. c. 34 Am. Rep. 130. 132 I. Ch. 6. S. 2.] NAME OF A FIRM. *li^ no doubt of their validity, although some of the executing parties may be described as A. & Co. (7a). So partners (/i) See Maughan t>. Sharpe, 17 v. Waley, Hayes & Jones (Ir. Ex.) C. B. N. S. 443, a mortgage; Brutton 43. How far the firm is bound by v. Burton, 9 Charity, 707, a warrant instruments on which its true name of attorney ; Evans v. Curtis, 2 C. & does not appear, will be seen here- P. 296, an agreement for a lease; after; and see as to the parties to Moller v. Lambert, 2 Camp. 548, a sue on a covenant with a firm, Met- bond; Gorrie v. Woodley, 17 Ir. Com. calf v. Rycroft, M. & S. 75, noticed L. Rep. 221, a guarantee ; Latouche infru, book ii. ch. 3. " The whole significance of the firm name " is " it is a name which the partners adopted by which each could, in certain matters, bind the other with himself, or another agent might bind both." Haskins v. D'Este, 133 Mass. 356. And see Bolckow v. Foster, 25 Ont. Ch. 476, defining " firm " to mean partner- ship, so that a mortgage to secure the firm can be foreclosed by the surviving member. There is no presumption that the firm name includes more than one. Rob- inson v. Magarity, 28 111. 423 ; Chinic v. Gervais, 2 Low. Can. Rev. de Leg. 334 K. B. ; but see Fulton v. Maccrackeh, 18 Md. 528, 544. Several states — New York, Ohio, California, Dakota, Arizona, Pennsyl- vania, and New Hampshire require registration of some kind; and Missis- sippi, Virginia, and West Virginia — regulate the use of the firm name in the sign, and in several there are statute restrictions upon the use of certain firm names. In three, no partner may transact business in name of a partner not interested in the firm, — New York, Georgia, and Louisiana. Two — New York and Louisiana — forbid the use of "& Co." or "and company," unless repre- senting an actual partner. " & Co." creates a rebuttable presumption of an unnamed partner. Whit- lock v. McKechnie, 1 Bosw. 427; Lunt v. Lunt, 8 Abb. New Cas. 76. The New York statute being highly penal, has been held not to apply where A.'s wife was his only " & Co.," nor to prevent partner recovering from carrier for negligence in transporting goods shipped in the illegal name, and in similar cases. Zimmerman v. Erhard, 83 N. Y. 74; Wood v. Erie R. R. Co., 72 N. Y. 196 ; s. c. 28 Am. Rep. 125 ; Adams v. Adams, 7 Abb. New Cas. 292 (see note) ; Sparrow v. Cohn, 109 Penn. St. 359; Thompson v. Gray, 11 Daly, 183; Crawford v. Collins, 45 Barb. 269; Gay v. Seibold, 97 New York, 472; s. c. 49 Am. Rep. 533; Wright v. Hooker, 10 N. Y. 51 ; Kent v. Mojonier, 36 La. Ann. 259; Lane v. Arnold, 13 Abb. New Cas. 73. Nor does it apply to co-partnerships located and doing business in other counties or states. Stod- dart v. Key, 62 How. Pr. 137; Succession of Bofenschen, 29 La. Ann. 711. Nor to the use of a fictitious name ending in " company," e.g. Union Towing Co., Eureka Co., &c ; Gay v. Seibold, supra. In Mississippi, Virginia, and West Virginia, by statute " & Co." must be used, or the partnership property in the hands of one dealing in his own name only will be deemed his, and liable for his debts. Gumbel v. Koon, 59 Miss. 264. In Massachusetts there must be consent to the use of a deceased or retired partner's name ; and in New York there must be publication of the intent to use name of deceased partner. See Sohier v. Johnson, 111 Mass. 238. Notwithstanding the adoption of a firm name proceedings by and against the firm must be by and against the partners as individuals. Crawford v. Col- lins, 45 Barb. 269; s. c. 30 How. Pr. 398; Lanier v. The Mayor, 59 Ga. 187 ; Marlen v. Johnson, 8 Daly, 541 ; Haskins v. D'Este, 133 Mass. 356. The partnership business must be done under the firm name or one of the firm names if a firm name has been adopted. Uhler v. Browning, 28 N. J. L. 133 *113 LEGAL VIEW OF A FIRM. [I. Ch. 0. S. 2. may be registered as shareholders in the name of their firm (7) : and under the Copyright act, 5 & 6 Vict. [*113] e. 45, *and Engravings act, 8 Geo. II. c. 13, § 1, it is sufficient to register a book in the name of the firm O). or to print the name of the firm of proprietors under the engravings (£). Effect of change amongst the partners. — But as the name of a firm is only a conventional mode of designating the per- sons composing it, any variation amongst these persons is productive of a new signification of the name. Legacy to a firm. — If, therefore, a legacy is left to a firm, the legacy is payable to those who compose the firm at the time the legacy vests (7) ; and if a legacy is left to the repre- sentatives of an old firm, it will be payable to the executors (0 Weikersheim's case, 8 Ch. 831. berry v. Brooking, 7 De G. M. & G. (/) Weldon v. Dicks, 10 Ch. D. 673, a legacy of a debt due to A. 247. was held to pass A.'s interest in a (A-) Rock v. Lazarus, 15 Eq. 104. debt due to him and his co-partners. (/) See Stubbs v. Sargon, 2 Keen, See also Ex parte Kirk, 5 Ch. D. 255, and 3 M. & Cr. 507. In Mav- 800. 7'.': Drake v. Ehvyn, 1 Caines, 184; Mershon v. Hobensack, 22 N. J. L. 372; Haskell v. Champion, 30 Mo. 136. In case of slight variations from the true firm name, the jury are to decide whether the difference is substantial. Winship v. Bank of U. S., 5 Pet. 529; Tilford v. Ramsey, 37 Mo. 563 ; Moffatt v. McKissick, 8 Baxter, 517 ; Mifflin v. Smith, 17 S. & R. 165. The presumption of partnership from a firm name indicating it is very slight and will not be allowed to defeat an action by B., an attorney, for ser- vices and disbursements, brought in his own name only, by showing that the services were rendered in the joint names of the attorney and E., an alien, and evidence of a single declaration, not giving the language used, by the plaintiff that such other person was his partner. In one of the cases in which the services sued for wire rendered it appeared that the writ was in B.'s hand- writing, the attorney's certificate and directions to the office were signed by 15., the writ was indorsed by B. & E. and was entered in the names of B. & E. In the other case the answer was signed by J. P. B. & Wm. E. as attorneys for the defendant and certified by J. P. B. & Wm. E., the certificate being in the handwriting of Iv, and an agreement for reference of the action was signed by J. 1'. B. and B. & E., and it appeared that the charges in the Clerk of the Court's account against B. were against B. & E. Bishop v. Hall, 9 Gray, 430. Mode of signing firm name. A. & Co. by A. Jr. imports to be the signature of the firm by A. Jr., not that A. Jr. is a partner. Dowling ?•. Eastwood, 3 Ont. Maxwell v. Hogg, 2 Ch. 307. I Hallett v. Cumston, 110 Mass. 29; Sohier v. Johnson, 111 id. 238. 136 I. Ch. 6. S. 2.] LEGAL VIEW OF A FIRM. *115 so to bind them (z). Moreover, a mistake in the name of a firm may be important, e.g., under the Copyright act, if the owners of a copyright cany on business in partnership and are not registered properly, they cannot sue for an infringe- ment (a). 2. In legal proceedings. Actions by and against firms. — The non-recognition of the firm, in a mercantile sense, was very apparent when it had to sue or be sued at law : for, 1. A firm could neither sue nor be sued otherwise than in the names of the partners composing it (F). 1 2. Consequently, no action could be brought by the firm against one of its partners, nor by one of its partners against it ; for in any such action one person, at least, would appear both as plaintiff and as defendant, and it was considered absurd for any person to sue himself even in form ( Ont. R. ls'.i, that the death of P. C. dissolved the said firm of C. & Sons and put an end to the contract of suretyship. Starrs v. The Cosgrave Brewing & M. Co., 12 Duval, 571, C. S. C, 1886. 140 I. Ch. 0. S. 2.] AS REGARDS SECURITIES. *118 the time he became surety (7) ; but if no such intention can be shown, then a contract of suretyship entered into with a firm will be deemed to be binding so long only as the firm remains unchanged (see 19 & 20 Vict. c. 97, § 4, on the next page) ; * and consequently any change in it [*118] whether by the death (m) or the retirement (n) of a partner, or by the introduction of a new partner (o), imme- diately puts an end to the surety's liability so far as subse- quent events are concerned. In all such cases the surety's position and risk are altered, and whether he has in fact been damnified by the change or not, he has a right to say non in hcee foedera veni. Sureties for a firm. — Similar doctrines apply to cases where a person becomes surety for the conduct of a firm (p) 1 (7) Pease r. Hirst, 10 B. & C. 122 ; v. Oakes, 4 Russ. 154; Simson v. Metcalf v. Bruin, 12 East, 400, and Cooke, 1 Bing. 452 ; Chapman v. 2 Camp. 422; and see Barclay v. Beckington, 3 Q. B. 703; Backhouse Lucas, 1 T. R. 291, note ; Kipling v. v. Hall, 6 N. R. 98, Q. B. Turner, 5 B. & A. 261. In Pariente (n) Myers v. Edge, 7 T. R. 254; v. Lubbock, 8 De G. Mc. & G. 5, an Dry v. Davey, 10 A. & E. 30 ; and authority to a firm of consignees, to see Solvency Mutual Guarantee Co. recognise the consignor's son as his v. Freeman, 7 H. & N. 17. agent, was held to continue, notwith- (o) Wright r. Russell, 2 Wm. standing changes in the firm, as long Blacks. 934. as the consignor continued his busi- (p) Bellairs v. Ebsworth, 3 Camp, ness connection with the firm. 53 ; University of Cambridge v. O) Holland v. Teed, 7 Ha. 50; Baldwin, 5 M. & W. 580; Simson v. Strange v. Lee, 3 East, 484 ; Weston Cooke, 1 Bing. 452 ; 19 & 20 Vict, c. v. Barton, 4 Taunt. 673 ; Pemberton 97, § 4. i Liability of sureties for the default of H. does not extend to defaults of the firm of H. & Co. subsequently formed. White Sew. Mch. Co. v. Hines, 61 Mich. 423; Brandt Sur. § 338 ; 3 Kent Comm. 124; Dobbin v. Bradley, 17 Wend. 422 ; Leeds v. Dunn, 10 N. Y. 469 ; Equit. Life Assur. Soc. v. Coats, 44 Mich. 260 ; Peck v. Miller, 39 id. 595 ; Johnson v. Township of Kimball, 39 id. 187; Todd v. School Dist., 40 id. 294; Detroit Sav. Bk. v. Ziegler, 49 id. 157 ; Parham Sew. Mch. Co. v. Brock, 113 Mass. 194; Boston Hat Mfy. v. Messinger, 2 Pick. 223; Palmer v. Bagg, 56 N. Y. 523. A person became surety for another for the due discharge of his duty as agent in the purchase of wheat for a mercantile firm. Afterwards the agent and his principals entered into an agreement of partnership, and during the continuance thereof he became indebted to his co-partners in the sum of £750 ; and the surety having been called upon executed a confession of judg- ment for the amount of his principal's indebtedness, in ignorance, as he alleged, of the fact that the agency had ceased and a partnership been formed. Upon a bill filed to enforce the judgment against the surety the court, under the circumstances, directed a reference to ascertain what, if any, portion of the debts for which the assignment was given arose in respect of dealings during the agency, reserving further directions and costs ; or if the plaintiffs should decline this reference then that the bill should be dismissed with costs. Gooderham v. The Bank of Up. Can., 9 Ont. Ch. 39. 141 *119 LEGAL VIEW OF A FIRM. [I. Ch. 6. S. 2. Moreover, a person who becomes surety for another is not necessarily surety for his conduct as a partner, and obviously not tor the conduct of himself and his co-partner (^). Effect of incorporation. — Again, if a person becomes surety to several people for the conduct of a servant in their em- ploy, and those people are afterwards incorporated, the surety is discharged: for the person created by the act of in- corporation is different from the persons in whose employ the servant was, and with whom the surety contracted (r). ( )n precisely similar grounds it is conceived that a person who becomes surety to a corporation for the conduct of one of its servants would be discharged by the amalgamation of that corporation with another; for the two together would he a different body from either of its amalgamated mem- bers (.*). But a mere change of name consequent on regis- tration with limited liability has not this effect (£). [*119] * Mercantile Law Amendment Act. — The doctrines established in the foregoing cases have been expressly sanctioned by the legislature ; it being enacted by the Mer- cantile Law Amendment Act (m), that: — ' ; Xo promise to answer for the deht, default or miscarriage of another made to a firm consisting of two or more persons, or to a single person trading under the name of a firm, and no promise to answer for the deht, default, or miscarriage of a firm consisting of two or more persons, or of a single person trading under the name of a firm, shall be binding on the person making such promise in respect of anything done or omitted to be done after a change shall have taken place in any one or more of the per- sons constituting the firm or in the person trading under the name of a firm, unless the intention of the parties that such promise shall continue to be binding notwithstanding such change shall appear either by express stipulation or by necessary implication from the nature of the firm or otherwise." Effect of change in firm on its securities. — Questions nearly akin to those just alluded to, arise where securities have n deposited with bankers to secure future advances, and (f/) The London Assurance Co. v. surety was not discharged; but the Bold, Q. J'». 514; Montifiore v. statute amalgamating the two eom- Lloyd, 1". ('. B. N. 8. 203, where the panics contained an express pro- partnership was known to the surety. vision on the subject. f,j Dance o. Girdler, 1 Bos. & (/) Groux's Soap Co. v. Cooper, 8 Pull. X. II. 34 C. B. N. S. 800. In The Eastern Onion Rail. (u) 19 & 20 Vict. c. 07, § 4. See Co. v. Cockrane, 9 Ex. L97, and The on this section, Backhouse v. Hall, 6 London, Brighton, and South Coast 13. & Sm. 507, and X. K. 1)8, Q. B. Bail. Co. r. Goodwin, 3 Ex. 320, the 142 I. Ch. 6. S. 2.] AS REGARDS SECUKITTKS. *120 a change has occurred in the banking firm before the making of some of the advances. Primd facie, the securities extend only to those advances which are made by the firm whilst its members continue the same as when the securities were de- posited (x). And similarly, if a partner pledges his separate property for future advances to be made to his firm, and he afterwards dies, an advance made after his death to his sur- viving partners will not be chargeable against the property pledged (y/). It has even been held that if a person deposits deeds as a security for advances to be made to him, the security does not cover advances made to him and his part- ners (z). Equitable mortgages. — However, it is established that an equitable mortgage by deposit of title deeds may be ex- tended, even by parol, to cover advances made after a change in the firm with which the deeds are lodged (a). And although a legal mortgage to a firm * cannot be con- [*120] verted into an equitable mortgage merely by parol (6), it may be so converted by a written agreement, and may as an equitable mortgage become available as a security for ad- vances made after a change in the firm to which the legal mortgage was originally given (c). Owing to these doc- trines a security given to a firm for advances to be made by it, is, upon a change in the firm, readily made a continuing security ; and a slight manifestation of intention on the part of the borrower that it should so continue, will enable the new firm to hold the securities until the advances made by itself as well as those made by the old firm, have been re- paid (c7). Lien of solicitors. — The lien which a firm of solicitors has on the deeds, &c, of its clients, is not lost by a mere change in the firm (e). But a solicitor's lien only attaches where O) See per Lord Eldon in Ex 389; Ex parte Lane, De Gex, 300; parte Kensington, 2 V. & B. 83. and see Ex parte Nettleship, 2 M. D. (y) Bank of Scotland v. Christie, & De G. 124. 8 CI. & Ein. 214. (b) Ex parte Hooper, 2 Rose, 328. 0) Ex parte Mackenna, 3 De G. (c) Ex parte Parr, 4 D. & C. 426. F. & J. 629 ; Ex parte Freen, 2 Gl. (d) See Ex parte Kensington, 2 & J. 246. See, too, Chuck v. Freen, Ves. & B. 79; Ex parte Marsh, 2 1 Moo. & M. 259. These cases turn Rose, 239; Ex parte Loyd, 3 Deac. on the terms of the memoranda of 305; Ex parte Alexander, 1 Gl. & J. deposit, and on the circumstances 409. under which the securities are given. (c) Pelly v. Wathen, 7 Ha. 351, (a) Ex parte Lloyd, 1 Gl. & J. affirmed 1 De G. Mc. & G. 16. 143 *120 LEGAL VIEW OF A FIRM. [I. Cu. 6. S. 2. the papers on which the lien is claimed to have come to the possession of the very persons to whom the elient is legally indebted : whence it follows that papers which come into the possession of a firm after the introduction of a new part- ner (/' ) or the retirement of an old one (,v) cannot be re- tained for a debt due before the change in the firm took place. The death of a partner is not, however, it is con- ceived, equivalent to retirement, for the survivors become the legal creditors; and there is, therefore, no reason why they should not have a lien for a debt due to them and their deceased partner on papers coming into their possession after his death. A dissolution of a partnership between solicitors operates as a discharge by them of their client ; and any lien they may have on his papers is subject to his right to have them handed over to a fresh solicitor, for the purpose of enabling him to finish business of the client pending at the time of dissolution (Ji). (/) Re Forshaw, 16 Sim. 121; (A) Griffiths v. Griffiths, 2 Ha. 587; Pelly r. Wathen, 7 Ha. 351. Rawlinson v. Moss, 7 Jur. N. S. (g) Vaughan v. Vanderstegen, 2 1053, V.-C W. Drew. 409. 144 I. Ch. 7.] DURATION OF A PARTNERSHIP. *121 * CHAPTER VII. [*121] OF THE DURATION OF CONTRACTS OF PARTNERSHIP — OF PARTNERSHIPS AT WILL AND FOR A TERM. Partnerships at will and for a term. — A contract of partner- ship is determinable at the will of any one of the persons who have entered into it, provided it has not been agreed that the contract shall endure for a specified time. 1 Prima facie, partnerships are at will. — In other words, the result of a contract of partnership is a partnership at will, unless some agreement to the contrary can be proved (a). Such an agreement may be established as well by direct evidence as by implication from the acts of the partners; and it is not possible to lay down any rule by means of which the intention of the partners on this head can be certainly ascertained, where no express agreement has been come to. One or two points, however, on the subject have been de- cided, and demand notice. Effect of existence of debts. — The mere fact that a firm has incurred debts, and charged its assets for their payment, is no proof of an agreement that the firm shall continue until its debts are paid, for those debts may be paid as well after as before a dissolution (b*). Effect of taking a lease. — Again, the fact that the partners have, for partnership purposes, taken land on lease for a (a) See per Parke, J., in Heath v. (b) See King v. The Accumulative Sanson, 4 B. & Ad. 175; Frost v. Assurance Co., 3 C. B. N. S. 151. Moulton, 21 Beav. 596, and the cases cited in the following notes. 1 A partnership for an indefinite period is in law a partnership at the will of the partners, and either partner may withdraw when he pleases, and dis- solve the partnership, if he acts without any fraudulent purpose. Carlton v. Cummins, 51 Ind. 478; McElvey v. Lewis, 76 N. Y. 373; Berry v. Folkes, 60 Miss. 576; Fletcher v. Reed, 131 Mass. 312; Pearce v. Ham, 113 U. S. 585, 28 L. ed. 1067 ; Howell v. Harvey, 5 Ark. 270; Walker v. Whipple, 58 Mich. 4/6 ; Lawrence v. Robinson, 4 Colo. 567 ; Sharpe v. Johnston, 59 Mo. 557 ; contra Morris v. Peckham, 51 Conn. 128, where reasonable time was allowed, and Gates v. Fraser, 6 111. App. 229, where a partnership was construed to be tor the term of a patent. 145 *122 DURATION OF A PARTNERSHIP. [I. Ch. 7. term of years, is not proof of an agreement that the partner- ship between them shall subsist for the same period. This has been decided on several occasions (V), and the reasons are thus given by Lord Eldon in Crawshay v. Maule, a lead- ing rase upon the subject. ••Without doubt, in the absence of express there maybe an implied contract as to the duration of a partnership, but I must contra- L22] diet all authority *if I say that -whenever there is a partnership, the purchase of a leasehold interest of longer or shorter duration, is a circumstance from which it is to be inferred that the partnership shall continue as long as the lease. On that argument the Court, holding that a lease for seven years is proof of partnership for seven years, and a lease of fourteen of a partnership for fourteen years, must hold that if the partners purchase a fee simple, there shall be a partnership for ever. It has l.een repeatedly decided that interests in land purchased for the pur- pose of carrying on trade are no more than stock in trade" (rf). Partnerships continued after their terms are expired. — Further, where a partnership, originally entered into for a certain number of years, is continued after their expiration, and there is no evidence as to the additional time for which the partnership was to last, it is treated as having become a partnership at will, and not as having been renewed for another definite period (e). 1 Duration of sub-partnerships. — So, if one of several partners forms a sub-partnership with a stranger, the fact that the principal partnership has been entered into for a certain number of years is no proof that the sub-partnership was intended to last for the same number of years, or for as (c) Featherstonhaugh v. Fenwick, (e) Neilson v. Mossend Iron Co., IT Ves. 307; Jefferysv. Smith, 1 Jac. 11 App. Ca. 298; Featherstonhaugh & W. 301 ; Alcock v. Taylor, Taml. v. Fenwick, 17 Ves. 307; Booth v. 506; Bunion v. Barkus, 3 Giff. 412, Parkes, 1 Moll. 465. See, also, Cuff e and on appeal, 4 De G. F. & J. 42. v. Murtagh, 7 Ir. L. R. 411. (hio St. 422; King v. Barbour, 70 Ind. 35; Cottrell v. Vanduzen, 22 Vt. 511 ; Cleghorn v. Johnson, 11 Iowa, 292 ; Levy v. McDowell, 45 Tex. 220 ; Thurston v. Horton, 16 Gray, 274 ; Fenn v. Timpson, 4 E. D. Smith, 276 ; Lee v. Mc- Donald, (', Out. K. & ank v. Greely, L6 Me. 419; Farrell v. Lovett, 68 Me. 326; s. c. 28 Am. Rep. 59; Kellogg v. Curtis, 69 Me. 212; s. c. 31 Am. Rep. 273; Hobart v. Penny, 70 Me. 248 ; Smith v. Livingston, 111 Mass. 342; Freeman's National Bank v. Savery, 127 Mass. 79 ; 8. c. 34 Am. Rep. 345; Murray v. Lardner,2 Wall. 110; Cromwell v. Sac Co., 96 U. S. 51 ; New York Fire Ins. Co. v. Bennett, 5 Conn. :,71 ; -. c. 13 Am. Dec. in!); Henderson v. Carveth, 16 Ont. Q. 15.324; McLeod .. Carman, 1 Han. 592 (N. B.). But one partner cannot bind the firm by a note in the firm name for his private debt in the absence of express authority, or necessity, or custom. One 160 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *131 General power to borrow. — The sudden exigencies of com- merce render it absolutely necessary that such power should who sues on such a note must show affirmatively the special authority or rati- fication. Mechanics' and Traders' Insurance Co. v. Richardson, 33 La. Ann. 1308 ; s. c. 30 Am. Rep. 280 (see note) ; Levi v. Latham, 15 Neb. 509 ; s. c. 48 Am. Rep. 3(31 (stable-keepers) ; Deardorf v. Thatcher, 78 Mo. 128 ; s. c. 47 Am. Rep. 95 (insurance agents) ; Friend v. Duryee, 17 Fla. Ill ; s. c. 35 Am. Rep. 89 (attorneys) ; Pease v. Cole, 53 Conn. 53 ; s. c. 55 Am. Rep. 53 (theat- rical) ; Priest v. Chouteau, 85 Mo. 398; s. c. 55 Am. Rep. 373 (theatrical) ; Smith v. Sloan, 37 Wis. 285 ; s. c. 19 Am. Rep. 757 (attorneys) ; Pooley v. Whitmore, 10 Heisk. 029 ; s. c. 27 Am. Rep. 783 (publishers) ; Judge v. Bras- well, 13 Bush. 0'J; s. c. 26 Am. Rep. 185 (mining); Ulery v. Ginrich, 57 111. 531 (farming) ; Crosthwaite v. Ross, 1 Humph. 23; s. c. 34 Am. Dec. 613 (medicine) ; Coche v. Branch Bank of Mobile, 3 Ala. 175 (tavern-keeper). In Deardorf v. Thacher, supra, the court use the words " consent and ratifi- cation " instead of " authority." In the United States the onus to show authority or ratification is on the creditor seeking payment ; in England it is on the partner sought to be held. Dob v. Halsey, 16 Johns. 34 ; see Rogers v. Bachelder, 12 Pet. 221 (Story, J.) ; Stewart v. Parker, 2 P. &. B 223 (N. B.) ; Royal Canadian Bank v. Wilson, 24 Ont. C. P. 362 ; Canadian Bank of Commerce v. Wilson, 36 Ont. Q. B. 9 ; Beals v. Sheldon, 4 Ont. K. & Q. B. 302 (old series). The authority of one partner to sign for the partnership is limited to mat- ters within the scope of the business, and will not be extended to transactions out of the usual scope, nor to things done by the firm, but of unusual or rare occurrence. Fraser v. McLeod, 8 Ont. Chy. 268 ; Union Bank v. Bulmer, 2 Manitoba, 380 ; Federal Bank v. Northwood, 7 Ont. R. 389. A partner's agency to sign for the partnership does not allow him to in- dorse another partner's name without his knowledge or assent on third parties' paper payable to that partner and owned by the partnership. Certainly not so as to make it proper to insert the words " or bearer " in the note without the consent of the makers. McCauley v. Gordon, 64 Ga. 221 ; s. c. 37 Am. Rep. 68. One of two illiterate partners, unable after search to find his partner on the day of the maturity of a partnership note, and so have him join in renewing the same, gave his own note for a sum to cover the old note and an account for goods furnished to the firm by the holder. This note being unpaid, the maker was sued and a small portion realized by the sale of his goods on exe- cution. Subsequently he brought a suit to wind up the partnership, and the holder of the note was allowed, on appeal, to recover the balance due out of the partnership assets. Carruthers v. Ardagh, 20 Ont. Ch. 579. See dissent- ing opinion of Blake V.-C. See also Goldie v. Maxwell, 1 Ont. Q. B. 424 ; and see Annis v. Lowes, 5 Ont. K. & Q. B. 198 (old series). An acceptance not infirm name, but by one partner only, of a cheque drawn on the firm by one who had no available funds in the firm's hands, does not bind the firm. Hovey v. Cassels, 30 Ont, C. P. 230. When the bill was drawn and accepted, the firm name was " J. S. W. & Co." It was accepted by one partner in the name of " W. M. & Co.," and J. S. W. & Co. were not bound. Royal Canadian Bank v. Wilson, 24 Ont. C. P. 362. That the private debt of the partner for which he gave the firm note was for money, part of which was used for the partnership business, does not help the matter. McCord v. Field, 27 Ont. C. P. 391. One partner purchased lands from debtor of firm in his own name and gave notes in the firm name to discharge incumbrances, without knowledge of his co-partner. It was alleged that this was done to more effectually secure a debt due the firm. 161 *132 DOCTRINES OF AGENCY. [IT. Ch. 1. S. 2. exist in the members of a trading partnership, and accord- ingly in a comparatively early case this power was clearly recognised (<>)• It has been already seen that one partner can bind the firm by a bill or note, upon which money [*lo-] may be obtained, by the * every-day process of dis- counting : and the power of one partner to pledge partnership goods for advances is equally well established (jo). At the same time, the power of borrowing money, like every other implied power of a partner, only exists where it is nec- essary tor the transaction of the partnership business in the ordinary way; and consequently if money is borrowed by one partner for the declared purpose of increasing the part- nership capital (2), or of raising the whole or part of the capital agreed to be subscribed in order to start the firm (r), or if the business is such as is customarily carried on on ready money principles, e.g., mining on the cost-book princi- ple (*), or without borrowing, as in the case of solicitors (£), the firm will not be bound unless some actual authority or (0) See Lane v. Williams, 2 Vern. (p) See infra, Mortgage and 277, 292; Rothwell v. Humphries, Pledge. 1 Esp. 406 ; Denton v. Rodie, 3 Camp. (9) Fisher v. Taylor, 2 Ha. 218. 493 ; Lloyd v. Freshfield, 2 Car. & P. (r) Greenslade v. Dower, 7 B. & C. 333; Ex parte Bonbonus, 8 Ves. 540; 635. Bee, too, De Kiheyre v. Barclay, 23 (s) Hawtayne v. Bourne, 7 M. & Beav. 125; Gordon v. Ellis, 7 Man. & W. 595; Burmester v. Norris, 6 Ex. Gr. 607 ; Brown v. Kidger, 3 H. & N. 79(3 ; Ricketts v. Bennett, 4 C. B. 686. 853. (0 Plumer v. Gregory, 18 Eq. 624, as to the 1,700/. Held, that the firm was not bound by the notes. Fraser v. McLeod, 8 Ont. Chy. 268. H. made a note payable to L. or order. M., a partner of L., indorsed it in the name of the firm, but without L.'s sanction or knowledge. L. afterwards indorsed it " without recourse." Plaintiff took it with knowledge. Held, that L. was not bound. Harris r. McLeod, 14 Ont. Q. B. 164. The tact that money borrowed by one partner has been applied to part- ner-hip purposes is not sufficient of itself to render the firm liable at law to repay it, there being no actual or implied authority to borrow, and no ratifica- tion. The test of liability is whether the partner had authority to borrow. Rob- ert-oil v. .Jones, 20 X. 15. 267. Sec dissenting opinion of Weldon and Fisher, .1.1. Where plaintiff's money was received by one partner and by him handed to cashier of firm, who deposited it in bank to firm's credit, plaintiff was entitled to recover it of firm irrespective of private agreement of partners. lb. That a partner had for six months previously used firm cheques to pa}- his private debts, gave his creditor reasonable ground for believing that he had authority to make a promissory note in the firm name for his private debt, and so use it. London Chartered Bank v. Kerr, 4 Victorian L. R. (L.) 330. 162 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *133 ratification can be proved. Still less will the firm be bound where borrowing is prohibited and the person advancing the money is aware of the prohibition (u). Overdrawing banking account. — Overdrawing a banking account is borrowing money (x). Increasing capital. — Connected with the subject of borrow- ing money, is that of increasing capital. A sole trader who borrows money for the purpose of his trade, cannot with pro- priety be said to increase his capital ; but if two or more persons are in partnership, and each borrows money on his own separate credit, and the money is then thrown into the common stock, the capital of the firm, as distinguished from the separate capitals of the persons composing it, may with propriety be said to be increased. But, in this case, the firm is not the borrower, nor is it debtor to the lender for the money borrowed. If a firm borrows money so as to be itself liable for it to the lender, the capital of the firm is no more increased than is the capital of an ordinary individual in- creased by his getting into debt. When, therefore, * it is said that one partner has no implied power to [*133] borrow on the credit of the firm for the purpose of increasing its capital, what is meant is, that one partner, as such, has no power to borrow, on the credit of himself and co-partners, money, which each was to obtain on his individ- ual credit, and then to bring into the common stock (?/). Unless the expression means this, it means nothing (z). Difference between borrowing and obtaining goods, Sec, on credit. — There is a practical difference between borrowing money and procuring works and materials on credit, which requires notice. The difference consists in this, that he who possesses power to borrow on the credit of another, has a much more extensive, and therefore 'more easily abused, trust reposed in him than one who is empowered only to pledge the credit of another for value received, when the pledge is (?<) Worcester Corn Exchange Co., (y) See Greenslade v. Dower, 7 B. 3 De G. M. & G. 180. See, also, the & C. 635 ; Fisher v. Taylor, 2 Ha. cases in the next note. 218, as to the power of one partner (.r) Blackhurn Building Soe. v. to do this. Cunliffe, Brookes & Co., 22 Ch. D. (s) See Bryon v. Metropolitan 61, and 9 App. Ca. 827 ; Waterlow v. Saloon Omnibus Co., 3 De G. & J. Sharp, 8 Eq. 501 ; and Re Cefn Cilcen 123. Mining Co., 7 Eq. 88, contra, must be considered as overruled. 163 *134 DOCTRINES OF AGENCY. [II. Ch. 1. S. 2. given. A power, therefore, to incur debt, which is necessa- rily incidental to almost every partnership, by no means in- volves a [>o\\er to borrow money; and the cases which show that adventurers in cost-book mint's are liable for supplies furnished to the mine (a), but not for money borrowed for the purposes of the mine (6), show that the difference here alluded to is judicially recognised. The effect of having had the benefit of money improperly borrowed will be noticed hereafter. See infra, § 6. See further as to borrowing money, infra, Mortgages and Pledges. '.'. Cheques — One partner has implied power to bind the firm by cheques, not post dated (c 1 ), drawn on the bankers of the firm in the partnership name (d); and if one partner di- rects the bankers of the firm not to pay a cheque of 1*13*4] the firm, the * bankers incur no liability to the firm if they follow such directions (e). 10. Contracts. — One partner can bind his co-partners by varying a contract made with both in the ordinary course of business (/). 11. Debts. Payment to one partner. — If a debt is owing to a firm, payment by the debtor to any one partner extin- guishes the claim of all, each partner being ostensibly the agent of all the rest to get in debts owing to the firm (V). After a dissolution, payment to any one of the partners discharges the debtor (A), even though a third person is appointed to collect the debts owing to the firm, and the creditor is aware of that fact (i). But if on a dissolution a Tredwen v. Bourne, 6 M. & W. been brought in the names of .all the 4'U ; H.iwken v. Bourne, 8 ib. 703. partners, and in the case supposed Hawtayne v. Bourne, 7 M. & such an action could not have been W. 595; Burmester v. Xorris, 6 Ex. sustained. See infra, book ii. c. 3. 7'."'.; Ricketts v. Bennett, 4 C. B. It is conceived that the statement in 686; Brown v. Byers, 16 M. & W. the text is correct, notwithstanding 252. See, also, Beldon v. Campbell, the modern rules as to parties, 'i Ex. 886. (/) Leiden v. Lawrence, 2 N. R. Si ■ I orster v. Mackreth, L. R. 283,'Ex. -' Ex. I':::; Bull v. O'Sullivan, L. E. (■. Charlton, 8 Ch. Sim. 1. See Phillips v. Phillips, 3 D. 111. A- t<> cheques drawn by Ha. 281, as to the receipts of a sur- directors, Bee /.'- Gloucester, Aheryst- viving partner. with, &c, Rail. Co., 18 Jur. 815, L. J. (/) Bristow v. Taylor, 2 Stark. 50; (e) Before the .hid. Arts, an action Porter i>. Taylor, M. & S. 156; King for dishonoring the cheque must have v. Smith, 4 Car. & P. 108. 164 II. Cii. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *135 debt due to the partnership is assigned to one of the part- ners, and the debtor has notice of the assignment, he can only pay the assignee (F). If there are two firms with one common partner, and a bill of exchange is given to one firm and is indorsed by it to the other, payment to the first firm is an answer to an action brought on the bill by the second (7). Payment to one partner of debt not due to firm. — Moreover, when it is said that payment to one partner is payment to all, it is supposed that the payment is made in discharge of a debt due to the firm. If it is due, not to the firm, but to one of the partners, the rule does not hold. Therefore, if an owner of goods sells them, the purchase-money must be paid to him or his agent; and payment to a person interested with him in the profits accruing from the sale will not do : for though the two may be liable as if they were partners by reason of their community of interest in the profits, it does not * therefore follow that he who is to share the profits [*135] is entitled to receive the proceeds of the sale of the goods themselves which belong exclusively to the other (m). So, where a court orders payment to be made to one partner by name, the order must be strictly obeyed, and payment to the partner of the person named in the order will not suffice, though both are defendants in the action in which the order is made (n). Receipts given by one partner. — As one partner can ac- cept payment of a debt due to the firm, so he can effectually release (o) and give a valid receipt for such debt (jp). It is, however, to be remembered that although one partner has implied authority to get in debts owing to the firm and to give discharges for them, still a receipt is not conclusive evi- dence of payment ; so that if one partner gives a receipt in fraud of his co-partners, it will not preclude the firm from recovering the money () Henderson v. Wild, 2 Camp. C. 401. 501. . (n) See Showier ?•. Stoakes, 2 Dowl. (7) Farrar v. Hutchinson, 9 A. & & L. 3. As to payments hy the E. 641 ; Henderson v. Wild, 2 Camp. Paymaster-General to one of several 561. 165 *13G DOCTRINES OF AGENCY. [II. Cn. 1. S. 2. partner bind the firm if the releasing partner acts in fraud of his co-partners and in collusion with the debtor (r). Assent to creditors' deed. — If one of several partners as- sent to a deed executed by a debtor of the firm in favour of his creditors, the firm is bound by the deed (s) ; and the doc- trine, that one partner has no implied authority to bind his co-partners by an instrument under seal, has no application to such a case (O- Assent to transfer of debt. — One partner can bind the firm by assenting to a transfer of a debt due to it, as for example, to a transfer of the firm's account from their banker to his successor in business (u). So, where a creditor of [*136] the firm assigns the debt due to him, and * one of the partners recognises the transfer and promises to pay the transferee, the firm is bound by this promise (x). Taking bill in payment. — Again, one partner may receive a hill iii payment of a debt due to the firm, and so preclude the firm from suing for the debt so long as the bill is run- ning (//). Payment to an agent of a firm of a bill drawn in his own name and payable to his own order in respect of a debt due to the firm, is not payment to the firm unless he has author- ity to draw in that way, or the firm gets the money (2). Settling debts. — Although each partner has power to re- reive payment of a partnership debt, and to give a discharge for it on payment, it does not follow that he has power to compromise or settle the debt in any way he likes without payment. As a general proposition, an authority to receive payment of a debt does not include an authority to settle it in some other way (ji) ; and a partner has no implied author- ity to discharge a separate debt of his own by agreeing that it shall be set against a debt due to his firm (&). (r) Aspinwall v. The London & N. (x) Lacy v. McNeile, 4 Dow. & W. Rail. Co., 11 Ha. .'325, and see By. 7. post, Release. (//) See Totnlins v. Lawrence, 3 (*) See Morans v. Armstrong, Moo. & P. 555. Arms. M'Art. & Ogle, Ir. N. P. Rep. (z) See Hogarth v. Wherley, L. R. 1', : Dudgeon r. O'Connell, 12 Ir. Eq. 10 C. P. 630. 566. («) See the last note, and Pearson (0 Dudgeon v. O'Connell, 12 Ir. v. Scott, 9 Ch. D. 198 ; Young v. Eq. 566. White, 7 Beav. 50G ; Underwood v. Beale v. Caddick, 2 II. & N. Nichols, 17 C. B. 239; Story on - , also, Backhouse v. Charl- Agency, § 98. ton, 8 Ch. D. 444. (b) Piercy v. Fynney, 12 Eq. 69. 166 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *137 Promise by one partner to pay a debt of the firm. — A prom- ise by one partner to pay a debt owing by the firm, undoubt- edly binds the firm (). There the defendants, who were railway contractors, made a sub-contract for the performance of part of some work they had undertaken. The sub-con- tractor required a quantity of coal, and one of the defend- ants in the name of the firm, guaranteed to the plaintiffs, who were coal merchants, payment for coals to be supplied (m) Bowker v. Burdekin, 11 M. & (/>) 4 Ex. 623. See, also, Hasle- W. 128; Cumberledge v. Lawson, 1 ham v. Young, 5 Q. B. 833; Craw- C. B. X. S. 709; and compare Latch ford v. Stirling, 4 Esp. 207; Duncan v. Wedlake, 11 A. & E. 959, and v. Lowndes, 3 Camp. 478. The dictum Lascaridi v. Gurr.ey, 9 Jur. X. S. of Lord Mansfield in Hope v. Cust, 1 .302, ('. 1'. East, 53, and the decision of Lord (n) See Robinson v. Hofman, 4 Eldon in Ex parte Gardom, 15 Ves. Bing. 562, and the cases there cited. 280, are opposed to these authorities, (o) Ante, pp. 1^1 et seq. but cannot be relied on after the de- cision in Brettel v. Williams. 1 And a promise by all the partners in their individual names does not create firm liability. Forsyth v. Woods, 11 Wall. 484, 20 L. ed. 207. 108 II. Cu. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *139 by them to the sub-contractors. It was held that this guar- antee did not bind the partners of the contractor signing it. In Sandilands v. Marsh () See ante, heading Deed. In formance was decreed against the Juggeewundas Keeka Shah r. Ram- firm, the contract having been rati- das Brijbooken Das, 2 Moo. In. Ap. fied by the other partners. 487, a mortgage by one partner was (a) Doe v. Hulme, 2 Man. & Ry. under peculiar circumstances held to 433 ; Doe v. Summersett, 1 B. & Ad. bind the firm. 1 Though a partner may employ an attorney to represent the firm in judi- cial proceedings (Bennett v. Stickney, 17 Vt. 531; Wheatley v. Tutt, 4 Kan. 240; Phelps '•. Brewer, 9 Cush. 390), lie cannot bind his partner individually thereby (Phelps v. Brewer, supra ) ; and one partner has no power to confess judgment against his co-partners or the firm. Hall v. Lanning, 91 U. S. 1(50, 23 L. ed. 261; Atchison Savings Bank v. Templar, 2G Fed. Rep. 581; Christy v. Sherman, 10 Iowa, 535; Rhodes v. Amsink, 38 Md. 345; Richard- son v. Fuller, 2 Ore. 179; Hoskinson v. Eliot, G2 Penn. St. 393. 2 A sealed lease, made in the name of the firm by one partner, though for a term requiring no seal, does not pass the estates of the other partners, unless authorized or ratified (Dillon v. Brown, 11 Gray, 179); and an entry under a lease made by one partner for the firm is a ratification. Holbrook v. Cham- berlain, 116 Mass. ]~>~ ; Penn 0. Kearney, 21 La. Ann. 21. 170 II. Cii. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *141 fore only venture to submit, that such a mortgage ought to be held valid in all cases in which it is made by a partner having an implied power to borrow on the credit of the firm (c). Pledges of chattels. — The implied authority of a partner who has power to borrow, to pledge the personal property of the firm for money borrowed, is beyond dispute (d) ; and the power is not confined to cases in which ihere is a general part- nership ; for, if several join in a purchase of goods to be sold for their common profit, a pledge of those goods by one of the persons interested is binding on them all (V). The im- plied power to pledge, moreover, extends to pledges for antecedent debts (/)• Redemption. — Any partner may, on behalf of the firm, redeem a pledge of the firm ; but he alone is not the proper person to bring an action to recover the thing pledged (#). Factors' acts. — A question of some importance arises as to the effect, if any, of the Factors' acts (A) on the power of one partner to sell and * pledge the goods [*141] of the firm. The writer is not aware of any author- ity upon this subject, but he conceives that those acts neither extend nor abridge the power in question. The Factors' acts do not apparently render valid any sale or pledge by one partner of partnership goods, which is not valid, independently of the acts, upon the principles of the common law. (c) In Re Clough, 31 Ch. D. 324, v. Williams, 5 B. &. A. 395, p. 405, an equitable mortgage by a surviving per Best, J., and note that there the partner for a partnership debt was goods pledged were not partnership held valid. See, further, Ex parte property when the pledge was made. National Bank, 14 Eq. 507 ; Patent In Ex parte Copeland, 2 Mont. & Ayr. Pile Co., 6 Ch. 83 ; Ex parte Lloyd, 1 177, 'it was questioned whether a Mont. & Ayr. 494. Compare 7 T. R. pledge by one partner was valid if 210, per Lord Kenyon. the pledgee had notice that the (d) See Ex parte Bonbonus, 8 Ves. pledgor was not the only owner, but 540 ; Butehart v. Dresser, 10 Ha. 453, this it is conceived could only be ma- and 4 De G. M. & G. 542 ; Brownrigg terial where the pledge is not made v. Rae, 5 Ex. 489 ; Gordon v. Ellis, 7 for ostensible partnership purposes. Man. & Gr. 607. See, also, Lang- (/) Patent File Co., 6 Ch. 83 ; lie mead's trusts, 20 Beav. 20, and 7 De Clough, 31 Ch. D. 324; and see Story G. Mac. & G. 353, and as to ships, Ex on Partn. § 101. parte Howden, 2 M. D. & D. 574. (g) See Harper v. Godsell, L. R. 5 (e) Reid v. Hollinshead, 4 B. & C. Q. B. 422. 867 ; Re Gellar, 1 Rose, 297 ; Raba v. (A) 4 Geo. 4, c. 83 ; 6 Geo. 4, c. 94 ; Ryland, Gow N. P. 133; Tupper v. 5 & 6 Vict. c. 39; 40 & 41 Vict. c. Havthorne, ib. 135; but see Barton 39. See, upon them, Navulshaw v. 171 *142 DOCTRINES OF AGENCY". [II. Cii. 1. S. 2. (M To partners. — One partner lias implied authority to accept, in the ordinary course of business, security for a debt due to his firm ; and where one member of a firm of bankers accepted as security for money due to the bank, shares in a company, and caused them to be registered in the name of the bank, it was held that he had implied authority so to do, although the consequence was that he thereby rendered him- self and his co-partners liable as eontributories of the com- pany (t). 21. Notice. — Questions frequently arise as to whether notice to one partner is notice to all. General rule. — As a general rule, notice to a principal is notice to all his agents (k) ; and notice to an agent of mat- ters connected with his agency is notice to his principal (/). ( lonsequently, as a general rule, notice to one partner of any matter relating to the business of the firm is notice to all the other members (m) ; and if two firms have a common part- ner, notice which is imputable to one of the firms is imputa- ble to the other also, if it relates to the business of that other (n). [*14.n * Firm affected by its agent's knowledge. — 111 con- formity with these principles, if a firm claims the benefit of a transaction entered into by one of its members, it cannot effectually set up its own ignorance of what that member knew, so as to be in a better position than he him- self would have been in had he been dealing on his own ac- count as a principal (o). Coiiinson v. Lister. — Thus in Collinson v. Lister (jj), it was Brownrigg, 2 De G. M. & G. 441; in that character, is perhaps scarcely Kaltenbach v. Lewis, 10 App. Ca. yet settled. Dresser v. Norwood is a <;17. strong authority that in commercial (i) Wcikcrsheim's case, 8 Ch.831. transactions he is. See Mayhew v. Eames, 1 Car. (?«) Alderson v. Pope, 1 Camp. & 1'. .-,:,(), and 3 B. & ( !. 601 ; Willis v. 404; Porthouse v. Parker, ib. 82 ; Big- Tile Bank of England, I A. & E. 21. nold v. Waterhouse, 1 M. & S. 259; Dresser v. Norwood, 17 ('. I>. and see Salomons v. Nissen, 2 T. R. X. S. 466, reversing the decision be- 047. Low, 14 C. B. N. S. 574. Per Ashhurst, ■ (n) See Steele v. Stuart, 2 Eq. 84 : J., Fitzherbert v. Mather, 1 '1'. I!. Hi; Porthouse v. Parker, 1 Camp. 82, Le Neve v. Le Neve, 1 Ves. S. 64; Worcester Corn Exch. Co., 3 De G. Collinson v. Lister, 7 De G. M. & G. M. & G. 180; Jacaud v. French, 12 and -jo Beav. 356. See, gener- East, 317 ; Powles v. Page, 3 C. B. 16. ally, on this maxim. Blackburn, Low (o) See ante, p. 116, and the cases v. Vigors, 17 Q. B. 1). 553. below. Whether a principal is affected by (p) 7 De G. M. & G. G34, and 20 notice acquired by the agent, hut not Beav. 356. 172 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *143 held that a banking company was not entitled to the benefit of a mortgage given to it by its own manager, in his charac- ter of an executor. For the mortgage was given as a secu- rity for money borrowed by the manager as executor, and advanced by himself as manager for improper purposes, and in breach of the trusts which, as executor, he had to per- form ; and the company, in taking the mortgage, knew that their manager was giving a securhy on his testator's estate for money previously taken by him from the funds of the company, and which monies he had been requested to re- place, or give security for. Under these circumstances it was treated as clear that the bank could stand in no better position than the manager would have done had he advanced the money himself and taken a mortgage for it from himself. Meaning of phrase, notice to one is notice to all. — - When it is said that notice to one partner is notice to all, what is meant is (1.), that a firm cannot, in its character of princi- pal, set up the ignorance of some of its members against the knowledge of others of whose acts it claims the benefit, or by whose acts it is bound ; and (2.) that when it is neces- sary to prove that a firm had notice, all that need be done is to show that notice was given to one of its members as the agent and on behalf of the firm. The expression means no more than this ; and although every person has notice of what he himself does, it would be absurd to hold that a firm has notice of everything done by each of its members. Where one member is acting beyond his powers, or is com- mitting a fraud on his co-partners, or is the person whose duty it is to give his firm notice of what he himself has done, in all such cases notice on his part is not equivalent to notice by them (^). * Bignold v. Waterhouse. — In Bignold v. Water- [*143] house (r) one of a firm of carriers entered into an agreement to carry valuable parcels free of charge, but un- der such circumstances as to render the agreement not bind : ing on the other partners. A parcel known to the partner who made the agreement to be of value, was sent, but was not entered or paid for as a valuable parcel. The other partners were held to be unaffected with the notice which (?) See the judgment of Jessel, (r) 1 M. & S. 255. M. R., in Williamson ?>. Barbour, 9 Ch. D. 535 et seq. 173 *144 DOCTRINES OF AGENCY. [II. Ch. 1. S. 2. their co-partner had of the nature of the parcel, and were held not to be liable for its loss. Breaches of trust. — So, if one partner is a trustee, and he improperly employs the trust funds in the partnership busi- ness, his knowledge that he is so doing is not imputable to the firm; and therefore, to affect the other partners with a breach of trust, further evidence must be adduced (s). Notice to clerks. — Moreover, in cases of this kind, notice on the part of the clerks of the firm of what the fraudulent partner is doing is no more than notice to him: it is not suf- ficient to affect his co-partners (f). Ratification. — These cases show what indeed is obvious of itself, viz., that if a partner exceeds his authority, and it is contended that the firm is bound by what he has done, on the ground that it has ratified his acts, evidence must be given to prove that at the time of the alleged ratification his co-partners knew of those acts. It would be absurd if, in such a case, knowledge by him was equivalent to knowledge by them («). A retired partner is not affected with notice on the part of the continuing partners of what has occurred since the partnership, if the agency subsisting between them has been dissolved (x). Nor is an incoming partner affected with notice of what occurred before he joined the firm (y). 22. Payments. — See ante, under the head Debts. 23. Penalties. — One partner may bind the firm *144] under a * penalty to observe a contract Avhich he is authorised to enter into on its behalf (z). 24. Purchases. — It has long been decided that every member of an ordinary trading partnership has implied power to purchase on the credit of the firm such goods as are or may be necessary for carrying on its business in the usual way (a). This cannot be more strongly exemplified than by the case of Bond v. Gibson Qi). Bond v. Gibson. — There two persons carried on business as harness maki rs ; one of them bought on the credit of the (s) S< Beaton, Buck.386. (y) See per Jessel, M. R., in Wil- (*) See Lacey v. Hill, 4 Ch. I). 537, liamson v. Barbour, 9 Ch. D. 536. and Williamson v. Barbour, 9 Ch. D. (z) Beckham v. Drake, 9 M. & W. 536. 79. . the last note. (a) Hyatt v. Hare, Comb. 383. Or) Adams v. Bingley, 1 M, & W. (6) 1 Camp. 185. 192. 174 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *145 firm a number of bits to be made up into bridles ; but instead of using the bits for the partnership business he pawned them for his own use. The seller of the bits was nevertheless held entitled to recover their price in an action against both partners. Goods supplied to one partner. — The firm is liable although the goods may have been supplied to one only of the part- ners, and no other person may have been known to the sup- plier as belonging to the firm (?), the plaintiffs Barker and Owen had been partners, but they had dissolved partnership, and it was agreed that Barker should get in the debts owing to the tii in. and if necessary sue for the same. The defendant was indebted to the firm and had notice of the above agreement. He was also a creditor of Owen on a private account, and Owen, against Barker's consent, gave a receipt for the part- nership debt, mid after the commencement of the action by (k) 7 Moore, 356. (m) 11 M. & W. 84. 1 Moore, L92. See, too, Jones (n) 1 Y. & J. 362. See, too, Aspin- v. Herbert, 7 Taunt. 421, and com- all v. The London and N. W. Rail, pare Barker v. Richardson, 1 Y. & J. Co., 11 Ha. 325; Phillips v. Clagett, 362, stated lower down. 11 M. & W. 84. 176 II. Ch. 1. S. 2.] IMPLIED POWERS OF PARTNERS. *146 Barker for the recovery of that debt, gave the defendant a formal release. The evidence showed that the release was given to defeat the action, to prevent Barker from recover- ing the debt due tc the firm, and as part of a scheme for dis- charging Owen's private debt to the defendant. Under these circumstances the release was not allowed to be pleaded. 27. Representations and statements. — The firm is bound by all representations made by a partner whilst acting within the scope of his real or implied authority, and having refer- ence to the business of the firm (o) ; but not by statements made by him as to his authority to do that which the nature of the business of the firm does not impliedly warrant (jo). The liability of partnerships for false and fraudulent repre- sentations will be discussed in the next section of this chap- ter. See further on this subject ante, under the head Admis- sions. 28. Sales [and assignments]. — Any partner can dispose of any of the partnership goods (. 104. 1 Express malice of one newspaper owner binds all. Lothrop v. Adams, 133 Mass. 471; s. c. 43 Am. Rep. 528. And see Perret v. New Orleans Tin,.- Newspaper, 25 La. Ann. 170; Story v. Wallace, 60 111. 51; Reed v. Home Savings Bank, 130 .Mass. 443; s. c. 39 Am. Rep. 468. Contra, Wood- ling v. Knickerbocker, 31 Minn. 268. Partners an- liable in civil actions, upon the principle of agency, for the fraudulent or malicious conduct of one of their number, done without the knowledge of the others, for the benefit of the partnership, and within the scope of it- business. Locke v. Stearns, 1 Met. 500; White v. Sawyer, 16 Gray, 586; Wolf v. Mills. 56 111. 360; Durant v. Rogers, 87 id. 508; Chester v. Dickerson, 54 N. V. 1; Guillon v. Peterson, 89 Penn. St. 163; Lothrop v. Adams, supra; Robinson v. Goings, 63 Miss. 500; Vanderburg v. Basset, 4 Minn. 212 ; Strang v. Bradner, 114 U. S. 555, 29 L. ed. 248. Where A. furnished a team and equipments and took care of them, and B. 180 II. Ch. 1. S. 3.] LIABILITY FOR TORTS AND FRAUDS. *150 ingly been held that a firm of coach proprietors is answer- able for the negligent driving of a partnership coach by one of the firm, the coach being driven for the firm in the ordinary course of business (7) ; and that two partners are liable for not keeping the shaft of a mine in proper order, although one of them only actually superintended it (m). So, a part- nership is liable for the negligence of its servants acting in the course of their employment by the firm (n). Breach of revenue laws. — If one partner, in conducting the business of the firm, is guilty of a breach of the revenue laws, all the partners are jointly and severally answerable for the consequent penalties, although they may not them- selves have authorised or been parties to the illegal conduct of their co-partner (c). 1 Wilful torts. — As a rule, however, the wilful tort of one partner is not imputable to the firm. For example, if one partner maliciously prosecutes a person for stealing partnership property, the firm * is not answerable, [*150] unless all the members are, in fact, privy to the malicious prosecution (p). But a wilful tort committed by a partner in the course and for the purpose of transacting the business of the firm may make the firm responsible ( Minn. 166. 1U8 II. Ch. 1. S. 4.] UNAUTHORISED ACTS. *168 imputed to the firm, unless the partner in question had express authority to seek for a new partner, or unless the other members of the firm ratify the fraud when made aware of it. If, however, the incoming partner has brought in money to the firm, a retention of the money by the firm, with knowl- edge of the fraud, would amount to a ratification thereof, and would be equivalent to a fraud by all the partners in the first instance. Hence they cannot retain the money, as has been already seen (x). SECTION IV. — LIABILITY OF PARTNERS IN RESPECT OF ACTS WHICH ARE UNAUTHORISED AND ARE KNOWN SO TO BE. Excess of authority. — By law every .member of an ordinary partnership is the agent of the firm, so far as is necessary for the transaction of its business in the ordinary way, and to this extent his authority to act for the firm may be assumed by those who know nothing of the real limits of his authority. If his co-partners have restricted his authority to narrower limits (which they are perfectly at liberty to do 0/)), still they will be bound to all persons dealing with him bond fide without notice of the restriction, so long as he acts within the wider limits set by law, as above explained. 1 On the other hand, if a person seeks to fasten upon the firm liability in respect of some act of one of the members which does not fall within the limits of his authority as set by law, a more extensive authority must be shown to have been actually conferred upon him by the other partners ; and if no sufficient authority can be shown, the firm will not * be liable, even though the person seeking to charge [*168] it had no notice of the real authority possessed by the partner with whom he dealt. 1 (.r) See Lovell v. Hicks, 2 Y. & C. (y) See infra. Ex. 46 and 481, noticed ante, p. 164. 1 Stimson v. Whitney, 130 Mass. 595; Warren v. Truck, 6 Allen, 317; Blodgett v. Weed, 119 Mass. 215; United States Bank v. Binney, 5 Mason, 176; Winship v. Bank of United States, 5 Pet. 551, 560; 8 L. ed. 216; Kim- bro v. Bullitt, 22 How. 256, 16 L. ed. 317. 1 See Brent v. Davis, 9 Md. 217 ; Langan v. Hewett, 21 Miss. 122 ; Selden v. Bank of Commerce, 3. Minn. 166; Chazournes v. Edwards, 3 Pick. 5; East- man v. Cooper, 15 Pick. 276. 199 *169 nOCTKINES OF AGENCY. [II. Ch. 1. S. 4. Notice of want of authority. — The immateriality of notice of want of authority in the last case, and its materiality in the former, is a necessary consequence of the law of agency. A firm can only be made liable for what is done by one of its members on the supposition that the act in question was authorised by the other members. Now, as by law they are held primd facie to authorise all acts necessary for carrying on the business of the firm in the usual way, they cannot escape liability for any act of this character unless they can show that the apparent authority to do it did not exist, and was known not to exist. But when it is sought to make the firm liable for some act not primd fade authorised by it, an actual authority by it must be shown; and if this cannot be done, no case is made out against the firm, however ignorant tlif person seeking to charge it may have been of what was authorised and what was not. In the case now supposed the firm did not mislead him; and if he was misled by the repre- sentations of the partner with whom he dealt, his remedy is against that partner (z) ; just as when an agent untruly repre- sents his authority, a person, dealing with him, acquires no right against the principal, but must look to the agent for indemnity (a). From the above observations it follows that actual notice of excess of authority becomes important only where the firm seeks to escape liability for some act done by one of its mem- bers, with the apparent, but without the real authority of the < ithers. So long as one partner does nothing beyond the scope of his apparent authority, as determined by the principle already explained, so long is the firm responsible for his con- duct, although he may have acted beyond or in direct viola- tion of the authority within which his co-partners may have attempted to confine him. Restrictions placed by the partners upon the powers which each shall exercise do not [*169] affect * non-partners, who act bond fide and without notice of the restriction (6). If, for example, the business of a linn requires a subdivision of labour, and it is Ante, pp. 164 et seq.; see, too, (6) As regards such porsons,it is Lloyd r. Fre8hfield, 9 Dowl. & Ry. 19. of no use for one partner to tell the See, as to the liability of the others lie will not be bound by their agent in such a case, Collenw. Wright, aets. See Gleadon v. Tinkler, Holt, 7 1. & B. 301, and 8 ib. 647 ; and ante, X. 1'. Ca. 586. It is otherwise where p. 163, note (/fc). there is notice. See Ex parte Holds- worth, 1 M. D. & 1). 475. 200 II. Ch. 1. S. 4.] UNAUTHORISED ACTS. *169 agreed between the partners that one shall attend to one department and another to another, the firm will nevertheless be bound by the acts of one of the partners out of his depart- ment, provided they are such as, on the principles already explained, would be binding- on the firm (e). Cases of fraud on firm, but no notice of it. — So, if one part- ner acts in fraud of his co-partners, still they will be bound, if he has not exceeded his apparent authority, and if the person dealing with him had no notice of the fraud. 1 Thus. in Bond v. Gibson (tf), where one partner ordered goods on the credit of the firm, and immediately pawned them for his own benefit, the firm was held liable for the price of the goods. So, if one member of an ordinary trading partner- ship draws, accepts, or indorses a bill in the name of the firm, but for some private purpose of his own, and in fraud of his co-partners, they will be liable upon the bill at the suit of any holder for value, without notice of the fraud (e). 2 (c) Morans v. Armstrong, Arm. (e) Ex parte Bushell, M. T). & D. McArt. & Ogle, Ir. N. P. Rep. 25. 615 ; Ex parte Meyer, De Gex, 632 (d) 1 Camp. 185. (an accommodation bill) ; Lane v. 1 A broker, in fraud of his partner, after a dissolution not communicated to the plaintiff, indorsed the firm name on notes which had been left with the firm by the plaintiff to get discounted, and applied the proceeds of the notes to his own use. Held, that both partners were liable. Hammond v. Heward, 11 Ont. C. P. 261. Plaintiff took bond fide for value before due the note of his debtor to order of a third person, and indorsed by that person and by the firm of J. & J. C, knowing nothing of the circumstances under which it was indorsed by the firm. Held, that it was no answer to the plaintiff's claim that the partner who indorsed the note with the firm name had no authority. Henderson v. Car- veth, 16 Ont. Q. B. 324. If one partner dissents, having the right so to do, the person contracting with the others, with notice of the dissent, cannot look to the dissenting partner. Yeager v. Wallace, 57 Perm. St. 365 ; Pollock v. Williams, 42 Miss. 88. The president and managing partner of the Limited Liability Coal Com- pany, assuming to act for the firm, agreed with L. that L. should buy B.'s (a retiring partner's) share, and pay into the partnership a sum of money, being the balance due on B.'s share, and should thereby have one-fourteenth inter- est in the partnership property free from all liens. The money was so paid; but the other partners had no knowledge of the agreement for an unincum- bered title. Afterward the partnership property was all sold under a prior mortgage. Held, that L. had no remedy against the firm. Love v. Payne, 73 Ind. 80 ; s. c. 38 Am. Rep. Ill ; Brent v. Davis, 9 Md. 217 ; Urquhart v. Pow- ell, 54 Ga. 29 ; Monroe v. Conner, 15 Me. 178 ; Johnston v. Dutton, 27 Ala. 245. 2 A person who takes the paper of the firm for the private debt of a mem- ber of the firm, or for a transaction outside the business of the firm, must show that he took it for value and without notice of the fraud, and also the 201 *170 DOCTRINES OF AGENCY. [II. Ch. 1. S. 4. So. as has been already soon, if one partner fraudulently misapplies money for which the firm is answerable, the firm is liable to make it good, although the other partners may ha ye been grossly deceived, and may themselves have been morally blameless (/ ). *170] * Liability of retired partner in the absence of notice. — Upon the same principle, if a person known to be a partner retires, and does not notify his retirement, he will continue to be bound by the acts of his late partners as if his partnership with them continued (^/). Cases of restricted authority and notice of it. — On the other hand, a person who has notice that the authority of a partner is restricted, cannot hold the firm liable if he chooses to deal with that partner in a matter beyond his authority as restricted (/<). Therefore, where the defendant, who was in partnership, sent the plaintiff a circular telling him not to supply goods to the firm without the defendant's written order, and the plaintiff, notwithstanding, supplied goods to the defendant's partner, it was held that the defendant was not liable for the goods (e). So, the authority of any part- ner to accept bills in the partnership name may be deter- mined by a public notice, and such notice will affect those whom it reaches, subject to the qualification that an indorsee Williams, 2 Vern. 277 ; Wintle v. See, also, Bailey v. Bidwell, 13 M. & f rowther, 1 Cr. & J. 316 ; Thicknesse W. 73; Smitli v. Braine, 15 Jur. 287, v. Bromilow, 2 ib. 425 ; Ridley v. Q. B., and 1(3 Q. B. 244 ; Harvey v. Taylor, 13 East, 175; Sanderson v. Towers, 6 Ex. 056; Berry v. Alder- Brooksbank, 4 Car. & P. 286; Lewis man, 14 C. B. 95; Heath v. Sansom, r. Reilley, 1 Q. B. 34!); Sutton v. 2 B. & Ad. 201. Gregory, 2 Peake, 150; Swan v. (/') Ante, pp. 151 ft seq. Steele, 7 East, 210. See, as to the (7) This subject will be alluded to plea of non accepit, Jones v. Corbett, hereafter, see c. 2, § 3. 2 <,>. B. 828. It is now settled that if (h) Alderson v. Pope, 1 Camp. a bill is drawn or accepted by one 404, stated and observed upon here- partner in fraud of the firm, the after. holder cannot recover against the (i) Willis v. Dyson, 1 Stark. 164; firm unless he can show that he gave Minnit v. Whitney, Vin. Ab. Partn. value for the bill. Hogg v. Skene, A. pi. 12, and 5 Bro. P. C. 480. See, 18 C. B. N. S. 426, explaining Mus- too, Vice v. Fleming, 1 Y. & J. 227 ; grave v. Drake, 5 Q. B. 185, which Ex parte Holdsworth, 1 M. D. & D. was supposed to be to the contrary. 475. authority of the partner to thus use the name of the firm. Chazournes v. Edwards, 3 Pick. 5; Eastman v. Cooper, 15 Pick. 276 ; Commonwealth Bank >■. Law, 127 Mass. 72; Royal Canadian Bank v. Wilson, 24 Ont. C. P. 362; Selden V. Bank of Commerce, 3 Minn. 166; Himelright v. Johnson, 40 Ohio St. 40. 202 II. Ch. 1. S. 4.] UNAUTHORISED ACTS. *171 with notice may avail himself of the ignorance of his in- dorser (/c). In Galway v. Mathew (?) the defendants, Mathew and Smithson, were partners ; Smithson caused an advertisement to be published warning all persons not to give credit to Mathew on his, Smithson's, account, and stating that he would not be liable for any bills or notes issued by Mathew in the name of the partnership. The plaintiff had seen this advertisement, but he was nevertheless prevailed upon by Mathew to accept a bill for the accommodation of the firm, taking in exchange a promissory note drawn by Mathew in the name of the firm. Mathew got the bill discounted, and bond fide applied almost all of the money thus procured in payment of the debts of the firm. The plaintiff paid his acceptance at maturity, and * then brought an [*171] action against the firm on the note. But it was held that, having seen the advertisement, he could not recover. Restricted powers not inconsistent with continuance of part- nership. — It will be observed that in these cases the notices were effectual though the partnership was not determined. The continuance of the partnership is not inconsistent with a notice by one partner that as to some particular matter he will not be bound by the acts of his co-partner (m). Bills accepted in name of firm for private debt. — Again, a person who knows that a partner is using the name or assets of the firm for a private purpose of his own, knows that he is primd facie committing a fraud on his co-partners. There- fore, notwithstanding the implied power of a member of an ordinary trading firm to accept bills or make notes, if one partner accepts a bill or makes a note in the name of the firm, and gives the bill or note in payment of a private debt of his own, the creditor who takes the bill or note, knowing the circumstances under which it has been accepted or made, will not be able to enforce it against the firm, unless it was, in fact, given with the authority of the other partners, which (F) Rooth v. Quin, 7 Price, 193. (m) See, in addition to the cases (/) 1 Camp. 402, and 10 East, 264. cited in the last few notes, the judg- See, too, Ex parte Holdsvvorth, 1 M. ment of L. J. Bramwell in Bullen v. D. & D. 475, where the drawer of Sharp, L. R. 1 C. P., pp. 125-6, and bills accepted by the firm had notice the judgment in Vice v. Fleming, 1 that they were accepted without au- Y. & J. 227. thority. See, further, on this point, infra, p. 174. 203 *17:2 DOCTRINES OF AGENCY. [II. Ch. 1. S. 4. it is for the creditor to prove (»)• And if a bill is drawn by one partner in the name of the firm in fraud of bis copart- ners, and is accepted by the drawee, and is afterwards in- dorsed by the drawer in the name of the man, the acceptor may successfully deny the indorsement, although be cannot deny the drawing (0). A.gain, although a partner may be a bond fide bolder, for liis own separate use, of the paper of bis firm, yet if be gives such paper in payment of a separate debt of bis own, tins is primd facie an irregular proceeding and a fraud on bis co-partners. Consequently, the creditor taking the [*1T2] paper * must rebut tins prima for',,' inference before he can compel the firm to pay Q>). A bond fide bolder for value without notice is of course in a different position (7 )•' (n) Leverson v. Lane, 13 C. B. N. 8 Ves. 540; Frankland v. M'Gusty, 1 S. 278, ami 3 Fos. & Fin. 221; Re Knapp, 274 ; and see post, p. 173. Riches, 4 De G. J. & S. 581, and 5 (o) Garland v. Jacomb, L. R. 8 Ex. N. i;. 287. See, also, Ellston v. 210. Deacon, L. R. 2 C. P. 20. Older O) See Leverson v. Lane, 13 C. cases to the same effect are Wells B. N. S. 278, and Re Riches, 4 De G. v. Masterman, 2 Esp. 731; Green v. J. & S. 581, and 5 N. R. 287, quali- Deakin, 2 Stark. 347; Ex parte fying Ex parte Bushell, 3 M. 1). & D. Thorpe, 3 M. & A. 710; Ex parte 615, and Ridley v. Taylor, 13 East, Austen, 1 M. 1). & 1). 247; Arden v. 175, in which the contrary doctrine Sharpe, 2 Esp. 524; Ex parte Agace, was countenanced. 2 Cox, 312; .Miller v. Douglass, 3 (a) See ante, p. 169. Ross, L. C. 500 ; Ex parte Bonbonus, 1 See ante, cases collected in note 1, p. 129. See also King v. Faber, 22 Penn. St. 21 ; Cooper '•. McClurkan, id. 80; Hickman v. Reineking, G Blackf. 388; Bailey 0. Clark, 6 Pick. 372; Hickman v. Kunkle, 27 Mo. 401; Board- man /■. ' tore, L5 Mass. 330; Baird v. Cochran, 4 S. & R. 397 ; Brent v. Davis, 9 Mil. 217; Lanier v. McCabe, 2 Fla. 32; Coleman v. Bellhouse, 9 Ont. C. P. :;i ; Wilson v. Williams, 11 Wend. 140; Nolan v. Lovelock, 1 Montana, 224 j Burleigh v. Parton, 21 Tex. 585; Baxter v. Clark, 4 Ired. L. 127 ; Williams v. G lirist, 11 X. H. 535; Dow v. Sayward, 12 id. 271; Bromley v. Elliott, 38 id. 2-7, 303; Mason v. Partridge, 66 N. Y. 033; Hastings v. Hopkinson, 28 N't. 108; Chapman v. Devereux, 32 id. 016; Anthony v. Wheatons, 7 R. I. 190 Pollock v. Williams, 12 Miss. 122. A. & B., partners, agreed to sell C. a lot of flour, to be paid for on each hundred barrels delivered. A.'s son produced a voucher to C. for delivery of the first hundred barrels, and received from C. check in favor of A. & 15. in payment, and then his attention was called to the fact that C. held A.'s note for £40 for a private debt. He took up this note out of the proceeds of the check. B. tlien refused to deliver more Hour on the agreement unless the £40 was repaid to the firm. C. sued the firm for breach of contract ami re- covered, there being no evidence of any understanding between C. and A.'s son that when the former paid for the hundred barrels the private note should be taken out of it. Brunskill v. Chumasero, 5 Ont. Q. B. 474. 204 II. Ch. 1. S. 4.] UNAUTHORISED ACTS. *172 Pledge of partnership goods for private debt. — As a partner has no implied authority to pledge the partnership name for purposes of his own, so neither has he, for similar purposes, any implied power to pledge its goods. Therefore, if two firms are jointly interested in consignments, and one of them pledges the hills of lading with its bankers as a security for advances on its separate account, the bankers cannot hold those goods against the other firm, if they knew when the goods were pledged what the real facts were respecting them (r). So, if one partner pays a separate debt of his own with money of the firm, and the creditor who is paid is aware of the facts, he cannot retain the money as against the firm, unless he can prove that the payment was authorised by the other partners ; or unless they have estopped themselves from denying the authority (s)- 2 Private bargain by one partner. — ■ Another case, illustrating the want of authority of one partner to bind the firm by (r) Snaith v. Burridge, 4 Taunt. 243 ; Heilbut v. Nevill, L. R. 4 C. P. 684. 354, and 5 ib. 478. See further as to (s) Kendal v. Wood, L. R. 6 Ex. such cases, ante, pp. 165, 166. That part of the debt for which partner gives note in the firm name was for money that went into the business of the firm does not cure its irregu- larity. McCord v. Field, 27 Ont. C. P. 391. But otherwise if he gives firm note to replace his individual note, the whole proceeds of which went into the partnership. Union Bank v. Eaton, 5 Humph. 490. B., a member of a firm of which he and A. were partners, fraudulently made a promissory note in the name of the firm, and delivered to C, who had knowledge of the fraud. C. delivered it to D., an innocent holder, for value. The firm was afterwards dissolved, and a receiver appointed. D. brought an action at law upon the note. A. then brought a bill in equity against B. & ('., the prayer of which was that C. might be ordered to pay, take up, and cancel the note, and be restrained from enforcing it. Held, that the bill could not be maintained. Fuller v. Percival, 126 Mass. 381. If it is within the ordinary course of a partnership business for one partner to borrow money on the credit of the firm, proof that a loan was made to the firm at their place of business through one of the partners at six per cent upon a statement by the latter that the firm could use the money to advantage at that rate ; that the lender took a transfer of bank stock as collateral security, and that he knew that the partner with whom he trans- acted the business owned real estate in which the firm was not interested, is not sufficient to affect the lender, if he acted in good faith, with constructive notice of fraud in such partner in procuring the money for his own personal use. Warren v. French, 6 Allen, 317. And see Onondaga Co. Bk. v. I)e Buy, 17 Wend. 47 ; Church v. Sparrow, 5 id. 223. 2 Fuller v. Percival, 126 Mass. 381. In this case a bill was maintained against a partner and one who took a note with notice of fraud to compel them to cancel the note and restrain them from enforcing it. And see Peir- sall v. Elliott, 6 Bet. 95, 8 L. ed. 332 ; Story, Eq. 694. 205 *173 DOCTRINES OF AGENCY. [II. Ch. 1. S. 4. transactions enuring only to his advantage, is afforded by Bignold v. Waterhouse (£). There the defendants were proprietors of a coach running between London and Nor- wich, and they, by notice affixed in their office, stated that they would not be accountable for any parcel above the value of ">/.. unless the same was entered and paid for accordingly. The plaintiffs were hankers at Norwich, and one of the defendants, for a consideration moving to him alone, agreed that the plaintiffs' parcels should always go free by the coach. This agreement was acted on for some time, but it did not appear that the other defendants were aware of its existence, or of the fact that the plaintiffs were treated differently from other people. A parcel of the plaintiffs' sent by the coach being lost, it was held that the contract entered into [*1 73] by * the one defendant was not binding on the others, and that they were not liable for the loss of the parcel, its value not having been declared as required by the notice. Fraud on incoming partners. — -The same principle was acted upon in the important and well-known case of Shirreff v. Wilks ( it). There the plaintiffs sold some porter to Bishop and Wilks, who were partners ; and the porter was entered in the plaintiffs' books in the names of Bishop and Wilks. Afterwards, Robson became a partner with Bishop and Wilks, and the plaintiffs, knowing this, drew a bill on all three part- ners tor the price of the porter, and Bishop accepted the bill in the name of the three. It was held that Robson was not liable on this bill, there being no evidence to show that he knew anything of it. Lord Kenyon went so far as to say that the transaction was fraudulent on the face of it ; but that is going rather far, as it is not uncommon for in-coming part- ners to agree to take upon themselves the existing liabilities <>!' the firm. When such an agreement is entered into, the Ln-coming partner can hardly say he has been defrauded, if a bill in the mime of the new firm is accepted for a debt of the old firm without any specific authority on his part. But if the creditor cannot show an authority on the part of the in-coming partner for the acceptance of a bill in his name for a debt of the old firm, the principle acted on in Shirreff v. Wilks will apply, for that case is clear law, and has often been followed as such (#). (t) 1 M. & S. 255. (ar) See ante, p. 171, and Ex parte (u) 1 East, 48. Goulding, 2 Gl. & Jam. 118; Wilson 206 II. Ch. 1. S. 4.] UNAUTHORISED ACTS. *174 Liability of retired partners after notice. — The doctrine that a person who deals with a partner, knowing that he is exceed- ing his authority, cannot impute the acts of that partner to the firm, is further illustrated by the decisions establishing the non-liability of a retired partner for acts done by his co- partners after notice of his retirement. These decisions will be examined at length hereafter. Notice of private stipulations of partners. — Granting that a person, knowing the limits of a partner's authority as set by his co-partners, cannot hold them responsible for an act done by him in excess of his authority, it still remains to deter- mine the effect of notice by non-partners of stipulations en- tered into between the partners themselves. * In Gal way v. Mathew (*/), Lord Ellenborough is [*174] reported to have said, " It is not essential to a part- nership that one partner should have power to draw bills and notes in the partnership firm to charge the other : They may stipulate between themselves that it shall not be done ; and if a third person, having notice of this, will take such a security from one of the partners, he shall not sue the others upon it in breach of such stipulation. Again, in Alderson v. Pope (2), the same judge held " that where there was a stipulation between A., B., and C, who appeared to the world as co-partners, that C. should not par- ticipate in profit and loss, and should not be liable as a part- ner, C. was not liable, as such, to those who had notice of this stipulation." Principle examined. — These dicta appear to authorise the statement that if partners stipulate amongst themselves that certain things shall not be done, no person who is aware of the stipulation is entitled to hold the firm liable for what may be done by one of the members contrary to such stipulation. But it is submitted that this proposition is too wide. A stranger dealing with a partner is entitled, to hold the firm liable for whatever that partner may do on its behalf within certain limits. To deprive the stranger oi this right, he ous-ht to have distinct notice that the firm will not be answer- able for the acts of one member, even within these limits (a). v. Lewis, 2 Man. & Gr. 197, and 9 0) 1 Camp. 404. Dowl. Pr. Ca. 18, sub nomine Wilson (a) See, as to the sufficiency of v. Bailey. such notices, Vice v. Fleming, 1 Y. ((/) 10 East, 264. & J. 227. 207 *JJ5 DOCTRINES OF AGENCY. [II. Cji. 1. S. 4. Now notice of an agreement between the members that one of them shall not do certain things is by no means necessarily equivalent to notice that the firm will not be answerable for them it he does. For there is nothing inconsistent in an agreement between the members of a firm that certain things shall not be done by one of them, and a readiness on the pari of all the members to be responsible to strangers for the aets of each other, as if no such an agreement had been entered into. It is immaterial to a stranger what stipulations partners may make amongst themselves, so long as they do not seek to restrict their responsibility as to him; and it is only when knowledge of an agreement between partners essarily involves knowledge that they decline to be responsible for the acts of each other within the [*175] * ordinary limits, that a stranger's rights against a firm can be prejudiced by what he may know of the private stipulations between its members. 1 Observations on Galway V. Mathew ; and on Alderson V. Pope. — In Galway v. Mathew (/;), the plaintiff's knowledge of want of authority was derived, not from notice of any agreement between the partners, but from an advertisement published by one of them, warning all persons that he would no longer be liable for drafts drawn by the others on the partnership account (c). The passage, therefore, in the judgment ex- tracted above, was by no means necessary for the decision of the case. With respect to Alderson v. Pope (c7), if all that was (b) 1 Camp. 403, and 10 East, 264, Vin. Ab. 244, and 5 Bro. P. C. 489 ; and ante, p. 170. Willis v. Dyson, 1 Stark. 161. (c) Distinct notice to the same ef- (d) 1 Camp. 404. dated in Minnit v. Whitney, 16 1 Transactions by one partner in the name of the firm within the scope of the partnership business will be sustained as to third persons dealing in good faith, although contrary to a private agreement between the partners. Cuvil- licr v. Gilbert, IS Low. Can. J. 22. Secret restrictions on the powers of the partners in the articles, or agreed upon for the particular transaction, do not affect the public, which continues leal with the partnership according to the ordinary course of the business in which the partnership is engaged. Maltby v. N. W. Va. Et. R., 16 Md. 422 ; Brenl v. Davis, 9 Md. 217; Stimson v. Whitney, 130 Mass. 591; Cargell Corby, 15 Mo. 425; McNeish v. Hulless Oat Co., 57 Vt. 316; Nichols v. Cheairs, 4 Sneed, 229 Tenn. ; Everitt v. Chapman, 6 Conn. 347 ; Seybold v. Greenwald, 1 Disney, 425; Tillier v. Whitehead, 1 Dall. 209; Churchman Smith, 6 Whart. 146; Boskinson v. Eliot, 62 Penn. St. 393; Lomme v. 'Kintzing, 1 .Mont. 290; Devin v. Harris, 3 G. Greene, L86 i Iowa), Otherwise, of course, if the third party dealing with the partnership is 208 II. Cn. 1. S. 4.] UNAUTHORISED ACTS. *176 meant was that a person knowing that C. did not authorise A. or 15. to act on his behalf, could not hold C. liable for their a.ts, the ease presents no difficulty; but if anything more than this was meant, the authority of the decision becomes at least doubtful: for it has been held in another case that a person who holds himself out as a partner with others with whom he lias no concern, is liable for their acts, even to persons having notice of the true state of affairs ; and the decision was based upon the very ground that a person, who holds himself out as a partner with others, expresses his readiness to incur the responsibilities of a partner as regards strangers, whatever he may intend shall be the case between him and those with whom he associates his name (e). Private stipulations restrictive of liability. — Against the gen- eral proposition in question it may be further urged, that if partners agree not to be liable beyond a certain amount, and a stranger has notice of that agreement, the notice avails nothing against him. Such an agreement, coupled with notice of it on the part of a person dealing with the firm, is by no means equivalent to a contract between him and it, that he shall not hold the members responsible beyond the amount which they may have agreed between themselves to contribute respectively^/"). * Contracts on the basis of such stipulations. — The [*176] writer is not acquainted with any case in which it has been decided that persons who are aware of the terms upon which partners have agreed together to carry on busi- ness are deemed to contract with them upon the basis of the agreement come to amongst the partners themselves. In all cases of this description, the real question to be determined seems to be whether there was distinct notice that the firm Avould not be answerable to strangers for acts which, without such notice, would clearly impose liability upon it ; and when- ever there is any doubt upon this point, the firm ought clearly (e) Brown v. Leonard, 2 Chitty, (/*) See Greenwood's case, 3 De 120. G. M. & G. 476. affected by notice of the private agreement, and also notice that the firm would not be answerable for acts in themselves proper. It might well be that the firm took the risk of a partner's breaking his private agreement with his co-partners by acting in the forbidden matter, and was content to be bound to the third party, and settle with its partner for his violation of the agreement. 209 *177 DOCTRINES OF AGENCY. [II. Cii. 1. S. 5. to be liable, the onus being on it to show sufficient reason why liability should not attach to it ( •). Examples. — Tims, where persons work a coach in partner- ship, each having his own horses, and one of them orders fodder on his own account, he alone is liable for it (s). So, in the ordinary case of an agreement between an author and (o) City of Lond. Gas Lt. and (r) See in addition to the cases ( - (,k. •(',,. v. Xieholls, 2 Car. & P.365; cited below, Ex parte Eyre, 1 Ph. WMtwell v. 1'errin, 4 C B. N. S. 227. 4U (s) Barton v. Hanson, 2 Taunt. 49. (/>) Ruppell v. Roberts, 4 Nev. & Mr. Collyer treats this as an excep- Man. 31; Robinson v. Wilkinson, 3 tion depending on particular custom, Price, 638; Bottomley v. Nuttall, 5 but this view is not correct. The law C. B. X. S. 122. is the same in Scotland; see Jardine Brett v. Beckwith,3 Jur. N. S. v. M'Farlane, 3 Ross. L. C. on Com. 31, M. R. Law, 576. 214 II. Ch. 1. S. 5.] FORM OF CONTRACT — BILLS. *180 a publisher, to the effect that the publisher shall pay for the paper, printing, and other expenses of publication, and that after reimbursing himself and deducting a commission, the profits shall be divided equally, the author is not liable for the paper or printing which may have been supplied and executed for the publisher (t). Form of written contracts. — With respect to contracts in writing it is to be observed that a contract or other instru- ment required by statute to be in writing and signed by the party to be charged, only binds those partners who actually sign it (u) ; but if signature by the party to be charged, or his agent, is sufficient, the signature of one partner, in the name or on behalf of the firm, will bind all the partners (V). It is often a matter of difficult}' to determine whether a particular contract is entered into by the firm through one of the partners or by that one partner only. There is nothing to prevent one person from entering into a contract as a principal, and yet for and on behalf of another (#) ; and when A. enters *into a contract for B., it may [*180] not be easy to say whether it is B. who contracts, or whether it is A. for B.'s benefit. And yet the true answer to this question determines whether B. is or is not liable on the contract. The cases on this subject relate principally to bills of exchange and promissory notes, to which it is now proposed to pass. 3. Bills of exchange and promissory notes. Bills and notes. — Although an ordinary contract not under seal, entered into by an agent for an undisclosed principal, is binding on that principal when discovered, and he can be sued upon it, the same rule does not apply to bills of ex- (t) See the Scotch case of Ven- and also those who signed it sepa- ables v. Wood, 3 Ross. L. C. on Com. rately. Law, 529; Wilson v. Whitehead, 10 O) See, in addition to the cases M. & W. 503; but see Gardiner v. cited hereafter, Gadd v. Houghton, Childs, 8 C. & P. 345, where the paper 1 Ex. D. 357 ; Hough v. Manzanos, was supplied for the specific book. 4 Ex. D. 104 ; Southwell v. Bowditch, (u) Swift v. Jewsbury, L. R. 9 Q. 1 C. P. D. 374; Paice v. Walker, L. B. 301, reversing Swift v. Winter- R. 5 Ex. 173. See, also, Kay v. botham, 8 Q. B. 244. Johnson, 2 Hem. & M. 118, where an O) See Duncan v. Lowndes, 3 agreement for a lease entered into by Camp. 478. In Ex parte Harding, directors was enforced against them 12 Ch. D. 557, a letter of guarantee individually. See, also, Odell v. Cor- was so framed as to bind the firm mack, infra, p. 185. 215 *181 DOCTRINES OF AGENCY. [II. Ch. 1. S. 5. change and promissory notes. For, subject to the qualifica- tion that the name of a firm is equivalent to the name of all the persons liable as partners in it (//), no person whose name is aot on a hill or note is liable to he sued upon it (2). In order, therefore, that a bill or note may be binding on a firm, the name of the firm or the names of all its members must be upon it; and if the names of one or more of the partners only art' upon it, the others will not be liable to he sued upon the instrument, whatever may be their liability as regards the consideration tor which it may have been given {<( 1. (a) Bills in name of firm. — First, as regards bills having the name of thr Jinn upon them. A bill drawn, indorsed, or accepted in the name of the firm is considered as bear- ing the names of all the persons who actually or ostensibly compose the firm at the time its name is put to the [*181] hill: 1 and consequently all those persons, * includ- ing as well dormant as ^wasi-partners, may be sued upon the bill (6). Thus, where A. employed B. to carry on his business, and such business was carried on by B. for A. under the name of B. & Co., a bill accepted by B. in the name of B. & Co., for the purposes of the business, was held to be the acceptance (//) 45 & 46 Vict. c. Gl, § 23 (2) ; Bills may be made payable to the and infra, note (b) et seq. holder of an office for the time being, [b. § 23 ; and Lloyd v. Ashby, 45 & 40 Vict. c. 61, § 7 (2). •J C & P. 138; Ducarry v. Gill, 4 ib. (6) 45 & 46 Vict, c. 61, § 23 (2). L21; Eastwood r. Bain, 3 H. & N. See, as to dormant partners, Swan i\ 738. Steele, 7 East, 210; VVintle v. Crow- a Bottoinley v. Nuttall, 5 C. B. ther, 1 Cr. & J. 316; and as to quasi- N. S. 122; Miles' claim, 9 Ch. 635. partners, Gurney v. Evans, 3 H. & N. As to the difference between an ac- 122. A clerk who affixes the name ceptance in the form A. for B., and of the firm is not liable on the bill. 15. p< r proc. A.. Bee O'Reilly v. Rich- Wilson v. Barthrop, 2 M. & W. 863. ardson, 17 Ir. Cum. Law Hep. 74. 1 Where a partner drew a note in the name of the firm, payable to himself, and then indorsed it to a third person for a personal consideration, an action may in- sustained by an innocent second indorsee, though the note was ante- dated, and tie- first indorsee knew it. Smyth '•. Strader, 4 How. 404, 11 L. ed. 1031. In Richardson v. French, 1 Met. 517, a member of the partnership applied to the business of the firm, money belonging to an estate of which he was administrator, and gave a note in the name of the partnership, to a cred- itor of tie' estate of which he was administrator, to pay his claim against the te, and the firm was held liable on the note, although the money was not in the hands of the firm when the note was given. See also Foster v. Andrews, _' Penn. L60 ; Freeman's National Bank ?;. Savery, 127 Mass. 75. 216 II. Ch. 1. S. 5.] FORM OF CONTRACT — BILLS. *182 of A. ; although B. had positive instructions not to accept bills, and the holder of the bill, who was an indorsee for value, knew nothing of A. or B. or of the business (e). Moreover, if two partners, A. & B., cany on business in the name of A., a bill accepted by B. in the name of A. for the purposes of the partnership will bind both partners, although addressed to A. at a place where he carries on a separate business (cT). Two firms with one name. — If there are two firms with one name, a person who is a member of both firms is liable to be sued on all bills bearing that name, and binding on either firm. But if a member of only one of the two firms is sued on the bill, his liability will depend first on the authority of the person giving the bill to use the name of the firm of which the defendant is a member ; and, secondly, on whether the name of that firm has in fact been used. If both these questions are answered in the affirmative, he will be liable, but not otherwise. Thus in Swan v. Steele (e) there were two firms of Wood & Payne, one a cotton firm, the other a grocer's firm. The defendant Steele was a partner in the cotton firm only. A bill was paid to the cotton firm for a debt due to it, and was made payable to its order. This bill was indorsed in the name of " Wood & Payne " by Steele's co-partners, for a debt owing to the plaintiff by the grocer's firm, to which Steele did not belong. Steele was nevertheless held liable on this bill, *the plaintiff being a bond fide [*182] holder for value, without notice that any fraud on Steele was being committed. In this case the bill was prop- erly indorsed " Wood & Payne," and the only question was who constituted that firm. The bill could only have been indorsed by the cotton firm. Steele was a member of it, though he was not a member of the firm for whose debt his partners paid it away. Lord Ellenborough held Steele's lia- bility too clear for argument: for Steele was a member -of the indorsing firm, and his co-partners in that firm were guilty of a fraud on him, of which the plaintiffs had no notice. (c) Edmunds v. Bushell, L. E. 1 bill was drawn on Reynolds at Wooi- Q. B. 97. wicli, not at Walworth, as stated in (d) Stephens v. Reynolds, 5 H. & 1 Fos. & Fin. 740. N. 513, and at Nisi Prius, 1 Fos. & (e) 7 East, 210. Fin. 739, and 2 ib. 147. N.B. — The 217 *183 DOCTRINES OF AGENCY. [II. Ch. 1. S. 5. Name of firm same as that of individual. — Again, persons may carry on business in partnership in the name of one of themselves, and if they do, they expose themselves to serious liability. Prima facie his acceptances will bind them, even although dishonestly given (/). At the same time if they ran show that he gave the bills as his own and not as the bills of the firm, they will not be liable even to a bond fide holder for value. 1 This was decided by the Court of Appeal in The Yorkshire Banking Co. v. Beatson (^7), in which the law on this subject will be found exhaustively examined. In that case an accommodation acceptance given by one partner in his own name was held not binding on his dormant part- ner, as the acceptance was not intended to bind him, and was, in truth, a private transaction, and was not entered in the books of the firm. The fact that the plaintiffs took the bill as the bill of the persons, whoever they were, who might be associated with the partner whose name was on the bill, was held immaterial. The plaintiffs never knew of or gave credit to any one else. If A., B. & C. are partners, and A. draws a bill of exchange on B., and he accepts the bill, A., B. & C. cannot be sued upon it : and this is so whether A., B. & C. have a business name or not (A) ; and even although the bill may have been used for the joint benefit of the three partners (/). Even if it is agreed that the business of the three shall be [*183] carried on in the name *of one of them, it will not follow that all bills accepted by him will bind all the three partners. The question remains whose bill is it? This was decided by the Court of Appeal in Chancery in Miles' claim (y). There four firms, F. & Co., M. & Co., M. (/) See 5 C. P. 1). 123 and 124. Carolina Bank v. Case, 8 B. & C. 427 ; (g) 5 C. P. 1). 109, affirming s. c. Ex parte Law, 3 Deac. 541. 4 ib. 204, but on different grounds. (/<) See Nicholson v. Eicketts, 2 E. \ ii. — The court set aside the ver- & E. 497, and Miles' claim. 9 Ch. 035. diet of the jury. See, also, South (/) Ibid. (J) 9 Ch. 035. 1 Where business is carried on in the name of one of the partners, his sig- nature to negotiable paper is presumptively his own act, and does not indicate that it was given on the partnership account. The holder is accordingly bound t'i show that the paper was given on partnership account. Manufac- turers' & Mechanics' Bank *•. Winship, 5 Pick. 11 ; United States Bank v. Binney, 6 Mason, 170; Strauss v. Waldo, 25 Ga. 041 ; Oliphant v. Matthews, 16 Barb. 00s : Burroughs Appeal, 26 Penn. St. 204 ; National Bank of Che- mung v. Ingraham, 5b Barb. 290 ; .Mercantile Bank v. Cox, 38 Me. 500. 218 II. Ch. 1. S. 5.] FORM OF CONTRACT — BILLS. *184 & L., and A. & Co., engaged in a joint adventure, and agreed to carry on business under the name of F. & Co., and to divide profits and losses in equal shares. They also agreed that funds for the adventure should be raised by the drafts of any one of the four firms on the others: bills were drawn by M. & Co. on A. & Co., on M. &. L., and on F. & Co., and were duly accepted. It was held that none of these bills bound all four firms jointly. As regards the bills drawn on A. & Co., and on M. & L., the case presented no difficulty, for it is plain that these bills were not drawn or accepted in the name in which the joint adventure was carried on. As regards the bills accepted by F. & Co., which was the name under which the joint adventure was carried on, there was an ambiguity ; but the court held that this name, used as it was, really meant the separate firm F. & Co., and not the four firms engaged in the adventure, and that there was no sufficient reason for holding it to mean anything else. Again, in Hall v. West (&), three brothers of the name of Dawson carried on in partnership under the name of Dawson & Sons, the business of millers, farmers, coal and corn dealers, and bone crushers. The defendant was a dormant partner in the bone crushing business only. Dawson & Sons over- drew their account with their bankers, who knew nothing of 'West, nor of his connection with the bone business. Having, however, discovered this, they sued him for the amount of the overdrawn account. He was held not liable; for in point of fact the balance due to the bankers was not in re- spect of any debt contracted by Dawson & Sons in connec- tion with the bone crushing business ; it was not, therefore, as between the partners themselves a debt of the firm of which the defendant * was a member; and there [*184] was no apparent as distinguished from real authority on which the bankers could rely as against West. In the same case bills were drawn by West on and ac- cepted by Dawson & Sons. With one exception these bills were drawn for purposes unconnected with the bone busi- ness. On the facts stated (but which it is unnecessary here to detail) the court held that all these bills had in fact been paid: it became unnecessary, therefore, to consider whether (jfe) A special case decided in the The above note of the case is taken Exchequer, and afterwards in the from shorthand-writer's notes of the Exchequer Chamber, in June, 1875. judgments. 219 *185 DOCTRINES OF AGENCY. [II. Ch. 1. S. 5. West could have been sued as an acceptor. It was con- tended, on the authority of Baker v. Charlton (l), that he was Liable; but the Court of Exchequer (m) dissented from that case and expressed a clear opinion that West could not have been liable as an acceptor of the bills, with the excep- tion of the one which had been given for the purposes of the bone business in which he was a partner. The Court of Exchequer Chamber expressed no opinion on this point, it being unnecessary to do so. {/>') Bills not in name of firm. — Secondly, as regards bills not drawn, accepted, or indorsed by the firm in proper form. In the absence of evidence to the contrary, a partner has no authority to use for partnership purposes any other name than the name of the firm(w); and if he does, and there is any substantial variation which cannot be shown to be authorised by his co-partners, the firm will not be liable. If, however, there is no substantial variation, the firm will be bound. 1 In Faith v. Richmond (o), persons carrying on busi- [*185] ness in * partnership under the name of The New- castle and Sunderland Wallsend Coal Company, were held not liable on a note issued in the name of The New- castle Coal Company; and in Kirk v. Blurton (p), where, (/) In Baker v. Charlton, Peake, & Co.," the defendant was liable on 111 (ed. 3), two firms carried on busi- bills drawn by them in that name, ness under the name of J. King & Co. See, also, Davidson v. Robertson, 3 The defendant was partner in one of Dow, 218: McNaire v. Fleming, 1 them only, but his copartners were Mont. Part. 37, and 3 Dow, 220. But m< mbers of both linns ; the defend- Baker v. Charlton cannot now be ant was sued by an indorsee on a bill relied on. drawn by his co-partners in the name (m) i.e. Kelly, C. B., and Am- id "J. King & Co.;" the defendant phlett, B. n - Jted the action on the ground that (m) Kirk v. Blurton, 9 M. & W. the lull was not drawn by the firm to 284; Hambro' v. Hull and London which he belonged, but by the other; Fire Insur. Co., 3 H. & N. 789. but Lord Kenyon declared the de- (o) 11 A. & E. 339. invalid. Having traded with (/>) 9 M. & W. 284. This case persons under the style of "J. King was decided on the right principle; 1 "If a partner, intending to use the name of the firm, make a slight and unimportant variation in it, the firm is still hound ; but not if the variation be material." 1 Pars. Notes & Bills, 135. It was accordingly held in Tilford v. Ramsey, 37 Mo. 563, that the jury might well find that a note signed "('has. <;. Ramsey & Co.," by a member of the firm of "Charles Directors (i). Midland Counties Building Society. We jointly and severally promise to pay, &c. W.R. Heath, | Directo , s . S. B. Smith, J W. D. Fisher, Secretary (£). 5. Promise for self and co-partners. — If a partner promises for himself and co-partner, this amounts to a promise by the firm (7). Accordingly the firm has been held liable on notes in the following form : — Sixty days after sight I pay A. or order £200, value received. For J. Matthew, T. Whitsmith, T. Smithson, J. Matthew (?b) ; and, contrary to an older decision (w), the firm has been held liable on notes in the form following: — [*1891 * Leicester and Leicestershire Bank. I Promise to pay the bearer on demand £5, value received, For John Clarke, Richard Mitchell, Joseph Phillips, Thomas Smith, Richard Mitchell (o). (fi) Healey v. Story, 3 Ex. 3, in 292; Smith v. Jarves, 2 Lord Ray- which Story and Ware were sued inond, 1484. jointly. ("0 Galway v. Matthew, 1 Camp. (i) Penkivil v. Council, 5 Ex. 381, 403. m which Connell only was sued. O) Hall v. Smith, 1 B. & C. 407, (Jc) Bottomley v. Fisher, 1 II. & where the form was "I promise to 311, in which Fisher only was pay for A. B., C. D., and E. F., sued. signed A. B." and which was held to Smith v. Bailey, 11 Mod. 401 ; bind A. B. separately. Lane v. Williams, 2 Vera. 277 and (o) Ex parte Buckley, 14 M. & W. 224 II. Ch. 1. S. 6.] LIABILITY OF CONTRACTS. *190 SECTION VI. — LIABILITY OF PARTNERSHIPS IN RESPECT OF CONTRACTS NOT BINDING ON THEM, BUT OF WHICH THEY HAVE HAD THE BENEFIT. Effect of having had the benefit of a contract. — It is an er- roneous but popular notion that if a firm obtains the benefit of a contract made with one of its partners, it must needs be bound by that contract. Now, although the circumstance that the firm obtains the benefit of a contract entered into by one of its members tends to show that he entered into the contract as the agent of the firm (jt?), such circumstance is no more than evidence that this was the case, and the ques- tion upon which the liability or non-liability of the firm upon a contract depends is not — ■ Has the firm obtained the bene- fit of the contract ? but — Did the firm, by one of its partners or otherwise, enter into the contract? (#). A leading case on this head is Emly v. Lye (r). There a partner drew bills in his own name, and sent them to an agent of the firm in order that he might get them discounted. They were discounted, and the money obtained was remitted by the agent, and was paid to the account of the firm. It was held that the firm was neither liable for the amount of the bills on the bills themselves, nor for their proceeds on the common counts. There was no loan to the partnership ; no contract with it ; and no liability attached to the firm by the fact that the partner who alone was liable had applied the money after * he got it for the benefit of his co- [*190] partners as well as for the benefit of himself. Again, in Be van v. Lewis (s), one partner borrowed money, and executed warrants of attorney to confess judg- ment. The money which he obtained .was applied by him for the benefit of the partnership, and was obtained in part with the knowledge of his co-partner, in order that it might be so applied. But it was held that the partnership was not liable for the money; the loan having been clearly made to the 469, and 1 Ph. 562; and Ex parte 718; Ernest v. Nicliolls, 6 H. L. C. Clarke, De Gex, 153, reversing Ex 423. Similarly, the fact that one parte Christie, 3 M. D. & D. 736. partner only has obtained the benefit (p) Per Rolfe, B., in Beckham v. of a contract, does not show conclu- Drake, 9 M. & W. 99, 100. sively that the firm is not bound, Ex (q) Per Rolfe, B., ubi supra. See, parte Bonbonus, 8 Ves. 544. too, Kingsbridge Flour Mill Co. v. (r) 15 East, 7. The Plymouth Grinding Co., 2 Ex. (s) 1 Sim. 376. 225 *191 DOCTRINES OF AGENCY. [II. Ch. 1. S. 6. one partner against whom alone judgment was to be entered, and not to the firm through him. Money borrowed by one partner. — So, in ordinary cases, when one partner borrows money without the authority of his co-partners, the contract of loan is with him and not with the firm ; and the nature of that contract is not altered by his application of the money. The lender of the money has, therefore, no right to repayment by the firm, although the money may have been applied for its benefit (£), unless he can bring himself within the equitable doctrine referred to below. Goods supplied to one partner. — The same rule applies to goods, services, and works supplied to or done for one partner, either on his own account, or if for the firm, at the request of one of its members acting beyond the lim- its of his apparent as well as of his real authority. The firm does not, in any case of this sort, enter into any con- tract, express or implied, with the person dealing with the partner in question, and does not incur any obligation town ids that person by reason of the circumstance that it gets the benefit of what he has done (V). The principle of these decisions governs those cases in which one partner in breach of trust, but without the knowledge or con- [*191] sent of his co-partners, * applies trust money over which he has control as a trustee, to the purposes of the firm. The fact that the firm has been benefited by the money in question does not necessarily render it liable to the owners of the money (x). Equitable doctrine in these cases. — Where, however, money borrowed by one partner in the name of the firm but without the authority of his co-partners has been applied in paying off debts of the firm, the lender is entitled in equity to See Smith v. Craven, 1 Cr. & Co. v. Plymouth Grinding Co., 2 Ex. J 500; Hawtayne v. Bourne, 7 M. & 718; Lloyd v. Frcshficld, 2 Car. & P. W. 595; Burmester v. Norris, 6 Ex. 325, and 9 Dowl. & R. 19 ; Galway v. 796; Ricketts v. Bennett, 4 C.B. 686; Matthew, 10 East, 264; Kilgour v. The Worcester Corn Exchange Co., 3 Einlyson, 1 H. Blacks. 155; Ex parte ]>. '.. M. & C. 180 ; Fisher v. Tayler, Wlieatly, Cooke's Bank. Law, 534, ed. 2 Ha. 218. In all these cases the 8; Ball v. Lanesborough, 5 Bro. P. C. firm got the benefil of the money bor- 480 ; Ex parte l'eele, 6 Ves. 603, 604 ; rowed, and yet was held not liable to Ex parte Hartop, 12 ib. 352. r.pay it. (x) Ex parte Apsey, 3 Bro. C. C. See, in addition to the cases 265; Ex parte Heaton, Buck, 386. already cited, Kingsbridge Flour Mill See ante, p. 160. 226 II. Ch. 1. S. 6.] LIABILITY OF CONTRACTS. *191 repayment by the firm of the amount which he can show to have been so applied : and the same rule extends to money bond fide borrowed and applied for any other legitimate pur- pose of the firm (y). This doctrine is founded partly on the right of the lender to stand in equity in the place of those creditors of the firm whose claims have been paid off by his money ; and partly on the right of the borrowing partner to be indemnified by the firm against liabilities bond fide in- curred by him for the legitimate purpose of relieving the firm from its debts or of carrying on its business (»• The equi- table doctrine in question is limited in its application to cases falling under one or other of the principles above indicated (a). (y) The leading cases on this sub- ject are Ex parte Chippendale (The German Mining Co.'s case), 4 De G. M. & G. 19; The Cork and Youghal Rail. Co., L. R. 4 Ch. 748 ; Blackburn Building Soc. v. Cunliffe, Brooks & Co., 22 Ch. D. 61, and 9 App. Ca. 857, and 29 Ch. D. 902; Baroness Wenlock v. River Dee Co.,19 Q. B. D. 155. The case of infants is analo- gous : an infant is liable for neces- saries ; but he was not liable at law for money lent, though applied in the purchase of necessaries. Darby v. Boucher, 1 Salk. 279. But otherwise in equity, Marlow v. Pitfield, 1 P. W. 558. So, a husband was not at law liable for money lent to his wife to enable her to obtain necessaries, and applied by her for that purpose. Knox v. Bushell, 3 C. B. N. S. 334. But see in equity, Jenner v. Morris, 1 Dr. and Sm. 218, and 3 De G. F. & J. 45 ; Deare v . Soutten, 9 Eq. 151 ; and observe that in the last case the plain- tiff had no ground for suing in equity except his inability to recover at law. See, also, Baroness Wenlock v. River Dee Co., 36 Ch. D. 674, under ap- peal. (z) See infra, book iii. c. 6, § 3, p. 381 et seq. (a) See, in addition to the cases cited in note (//), National Permanent Benefit Building Soc, 5 Ch. 309; Magdalena Steam Nav. Co., Johns. 690 ; Athena?um Life Ins. Soc. v. Pooley, 3 De G. & J. 294. 227 *192 NATURE OF LIABILITY [II. Ch. 2. S. 1. [*192] * CHAPTER II. OF THE NATURE, EXTENT, AND DURATION OF THE LIA- BILITY OF INDIVIDUAL MEMBERS OF PARTNERSHIPS TO CREDITORS. Nature and extent of a partner's liability. — Having exam- ined in the preceding pages the liabilities of a firm for the acts of its members, it is proposed in the present chapter to investigate the liability of the individual partners in respect of such obligations as upon the principles already discussed are binding on them all. SECTION I. — NATURE OF THE LIABILITY. 1. As regards contracts. No several liability on contracts binding the firm. — An agent who contracts for a known principal, is not liable to be himself sued on the contract into which he has avowedly en- tered only as agent. Consequently, a partner who enters into a contract on behalf of his firm, is not liable on that con- tract except as one of the firm: in other words, the contract is not binding on him separately, but only on him and his co-partners jointly (a). 1 One partner may render himself separately liable by holding himself out as the only member of the firm (J) ; or by so framing the contract, as to bind («) See Ex parte Buckley, 14 M. & (6) Bonfield v. Smith, 12 M. & W. W. 40!) ; Re Clarke, De Gex, 153; Ex 405 ; De Mautort v. Saunders, 1 B. & parte Wilson, 3 M. D. & D. 57. Ad. 398. 1 Partnership contracts are joint in law, and this seems to follow from the nature of the partner's power as agent to contract for the firm but not for each partner severally. Thornton v. Bussey, 27 Ga. 302; Sager v. Tupper, 38 Mich. 268; Crosby v. Jeroloman, 37 [nd. 264; Mason v. Eldred, 6 Wall. 231, 18 L.ed. 783; Scotl v. Colmesnill, 7 J. J. Mar. 410; ffalliday v. McDougal, 20 Wend. 81 ; s. c. 22 Wend. 264 ; Irby v. Graham, 40 Miss. 425; Washburn v. Goodman, 17 Pick. 519; Marvin v. Wilber, 52N.Y. 270; Balliet v. Fink, 28 I'eiin. St. 266l Davifl v. Willis, 47 Tex. 164; Harrison v. McCormick, 00 Cal. GIG; Bowen v. Crow, 16 Neb. 550; Washburn v. Bank of Bellows Falls, 228 II. Ch. 2. S. 1.] IN RESPECT OF CONTRACTS. *193 himself separately from his co-partners as well as jointly with them (<>.",, 10 L. ed. 073. In Mason ?•. Tiffany, 45 111. 392, which was a proceeding in chancery by a creditor of a firm, to enforce payment of a firm debt against T., a deceased member of the firm, it was held that every partnership debt being joint and several, it follows necessarily that resort may be had in the first instance for the debt to the surviving partner or to the assets of the deceased partner. 'I'h i s was followed in Silverman v. Chase, 00 111. 37. See supposed contra, Moline Water Power Co. v. Webster, 26 111. 233; Pahlman v. Graves, id. 405. See Story, Partn. § 362. See Id., Eq. Jur. § 676; Collyer, Partn. § 580; Dixon, Partn. 113; Nelson v. Hill, 5 How. 127 ; Lewis v. U. S., 92 U. S. 622 ; Camp '. Grant, 21 Conn. 41; Weyer v. Thornburgh, 15 Ind. 124 ; Dean v. Pliillips, 17 id. 406; Hardy v. Overman, 36 id. 549; Freeman v. Stuart, 41 Miss, 111 ; Irby v. Graham, 46 id. 425; Saunders v. Wilder, 2 Head. 579; McLain v. Carson, 4 Ark. 465; Wisham v. Lippincott, 1 Stockt. Eq. 353; Travis >■. Tartt, 8 Ala. o74 ; Fillyau v. Laverty, 3 Ela. 72 ; Gaut v. Peed, 24 16; Bowker v. Smith, 48 X. H. Ill; Doggetl v. Dill, 108 111.565; s. c. 48 Am. Rep. 665. In this last ease, Walker, Judge, dissents if the doctrine i- to he extended to cases where there are individual creditors of the deceased partner. And a different rule would seem to prevail in New York, Georgia, Wiscon- sin, and Bome other states. Lawrence v. Trustees, 11 Paige, 80; Voorhis v. Childs, 17 X. V. 364 ; Bennett v. Wbolfolk, 15 Ga. 213 ; Sherman v. Kreul, 42 Wis. 33. 230 II. Ch. 2. S. 1.] IN RESPECT OF CONTRACTS. 193 payment of his debt out of the estate of a deceased part- ner (#) ; but the judgment which such a creditor obtains is quite different from that which a separate creditor is entitled to (A) ; and it is a mistake to say that the joint creditor of the firm is also in equity a separate creditor of the deceased partner (T). In Bankruptcy the joint debts of a firm are never treated as joint and several ; and yet in Bankruptcy equitable as well as legal principles are always recognised. In Kendall v. Hamilton (&) two out of three partners were sued for a partnership debt, and judgment was recovered against them. Afterwards the plaintiffs having discovered that the defendant Hamilton was a member of the firm, sued him for the same debt which was still unsatisfied. But it was held that the action could not be maintained ; for the liability of Hamilton was a joint liability only, and the judg- ment obtained against his co-partners was a bar to another action against him. (g) See the next note. Hoare v. Contencin, 1 Bro. C. C. 27, shows that this was not always the ease. (70 See Re Barnard, 32 Ch. D. 447 ; Hills v. M'Rae, 9 Ha. 297 ; Re Hodgson, 31 Ch. D. 177; Re McCrae, 25 ib. 16 and post, book iv. c. 3. (/) Except in partnership cases the liability in equity on a joint contract is the same as at law; Other v. Iveson, 3 Drew. 177 ; Jones v. Beach, 2 De G. M. & G. 886; Raw- stone v. Parr, 3 Russ. 539. (7c) 4 App. Ca. 504, and 3 C. P. D. 403. This case arose after the Jud. Acts came into operation, and de- cided two points, viz., 1, that ordinary partnership debts are not joint and several; 2, that a judgment by a joint creditor of a firm against one partner in an action brought against him only, discharges his co-partners, although the judgment is unsatisfied and although the co-partners were unknown to the creditor when he re- covered judgment. This last rule, although now settled to be law, rests on technical reasoning, and if not carefully limited in its application will lead to unexpected and unjust results. In Cambefort v. Chapman, 19 Q. B. D. 229, the rule was, how- ever, extended very considerably. In that case the facts were as follows : Wilson fr Chapman carried on busi- ness under the name of Wilson Sp Co., and became indebted to the plaintiff for goods sold and delivered. The plaintiff only knew Wilson ; Chapman was a dormant partner. Wilson §• Chapman dissolved partnership, but the plaintiff was ignorant of this. After the dissolution the plaintiff drew a bill on Wilson $ Co., and Wil- son accepted it in that name. The bill was given for the partnership debt, and was dishonoured. The plaintiff sued Wilson §• Co. on the bill and obtained judgment against Wilson 10; Lane v. Wil- respect between them and other part- liams, 2 Vera. 2'.)U ; and Bee Sleech's nerships. case, 1 Mer. 539; Devaynes >-. Noble, (m) 2 Ves. S. ion and 371. Simp- ■l K. & M. 4!i"». and the cases there son v. Vaughn, 2 Atk. 31, is a very commented on; Smith v. Smith, 3 similar case. II. Ch. 2. S. 1.] IN RESPECT OF CONTRACTS. *195 a simple contract debt, as would have been the case without the bond («). In Beresford v. Browning (o), four partners agreed that on the death of any of them the survivors should nofbe bound to * pay out his capital at once, but should pay [*195] it by certain instalments, as ascertained at the last preceding stock-taking. The agreement did not purport to bind the survivors jointly and severally. But it was held that, even if they were at law bound only jointly, they were liable in equity severally as well as jointly ; and that the ex- ecutor of the partner first dying was entitled to be paid the amount due to him out of the estate of a surviving partner, who had himself died, and was not restricted to suing the ultimate surviving partner. Effect of judgment. — Nor, if the creditor sues the surviv- ing partners and obtains judgment against them, he will be therefore precluded from proceeding to enforce his origi- nal claim against the estate of the deceased partner (p). In the case here supposed the judgment does not affect his estate. So, if the creditor of the firm first seeks payment out of the estate of a deceased partner, he is not precluded from afterwards suing the surviving partner (^). Effect of rule on creditors inter se. — The doctrine acted Oil in Bishop v. Church and other cases of the same sort, is ap- plied not only for the benefit of creditors against the part- ners and their representatives, but also as between competing creditors. This was settled in Burn v. Burn (r). In that case, partners being indebted to a large amount, gave to their creditor a joint bond; one of the partners died; the others afterwards became insolvent : and a bill was filed by the bond creditor for payment out. of the estate of the de- ceased partner. Two questions then arose between the plaintiff and the simple contract creditors of the deceased partner, viz., first, whether the plaintiff could rank as a creditor at all against the assets of the deceased? and, sec- (n) The following cases are to the (p) Liverpool Borough Bank v. same effect as Bishop v. Church, viz., Walker, 4 De G. & J. 24 ; Jacorab Simpson v. Vaughn, 2 Atk. 31 ; v. Harwood, 2 Ves. Sen. 265. Thomas v. Frazer, 3 Ves. 399; Burn (q) Re Hodgson, 31 Ch. D. 177. v. Burn, ib. 573 ; Orr v. Chase, 1 (r) 3 Ves - &73 > and see Simms v - Mer. 729, Appendix. Barry, there cited. 0) 20 Eq. 504, and 1 Ch. D. 30. 233 *196 NATURE OF LIABILITY [II. Ch. 2. S. 1. ondly, whether, if he could, he should rank as a specialty or only as a simple contract creditor? The Court decided both questions in favour of the plaintiff, and held that he was entitled to* rank as a specialty creditor, although the conse- quence was, that after satisfying his demand, little remained for payment of the other creditors. *196] * Cases where the equitable and legal liabilities are the same. — But even in administering the estate of a deceased partner it must not be supposed that every joint debt contracted by the firm is payable out of his assets. It is a question of intention on the part of the firm and on the part of those with whom it deals. If, therefore, partners enter into a contract binding themselves jointly and not erally, and if such contract is not a mere security for the payment of a debt, or for the performance of a joint and several obligation, and if it has not been made joint in form by mistake, the effect of the contract will be in equity as in law to impose a joint obligation and no other (s). 1 A leading case on this head is Sumner v. Powell (£). There one of a firm of partners died, the firm being at the time of his death liable for a breach of trust committed by one of its members. A new partner was admitted into the firm, and a deed was executed between the executors of the deceased partner and the surviving partners and the new partner, whereby, in consideration of certain payments by tin- executors and of a release by them of all demands, the surviving partners and the new partner covenanted jointly to indemnify the executors from the debts and liabilities of the old firm. A suit was afterwards instituted in respect oi the breach of trust, and the executors were ordered to make good tin- same out of the assets of their testator. The executors then filed a bill to be indemnified out of the estate of the new partner, and contended that the covenant into which lie had entered, though joint in form, ought to be con- sidered as joint and several. Jiut it was held otherwise, for (s) Sec, in addition to the cases Iveson, 3 Drew. 177; Rawstone v. not lf(.p. Ca. 345. 649; 1 Wins. Saund. 291/, and g\ ; App. Ca. 350, per Lord Com. Dig. Abatement, F. 8. i White v. Smith, 12 Rich. L. 595; Howe v. Shaw, 56 Me. 291; Head v. Goodwin, '■'.! id. 181; McCrillis v. Hawes, 38 id. 566; Wood v. Luscomb, 23 Wi~. 287 : Br< wing v. Berryman, 15 N. B. 515; Strang v. Bradner, 111 V. S. 555, 29 L.ed.248; Stockwell t. United States, L3 Wall, r,:), 20 L. ed. 491; mond v. Heward, 11 Ont. C. P. 261; Id., 20 Ont. Q. B. 36 ; Re Zincke, II. Ch. 2. S. 1.] IN RESPECT OF TOUTS AND FRAUDS. *199 an action ex delicto is brought against several persons in respect of their ownership in land, for then they are liable jointly, and not jointly and severally (e). Distinction between torts and breaches of contract. — Al- though for general purposes it may be convenient to distribute, acts and forbearances which give rise to obligations under the heads breach of contract and tort, it would not be difficult to show the impossibility of always distinguishing between the two(/). And yet if a breach of a contract binding * on the firm imposes a joint liability only on its living [*199] members (as to which see ante, pp. 192, 193), whilst a tort imputable to the firm imposes a joint and several lia- bility, the importance of being able accurately to distinguish between a breach of contract and a tort becomes apparent. The difficulty, however, of doing so is increased by the doc- trine that there are cases in which the same breach of an obligation may be regarded from two different points of view; and may at the option of the person injured, be made the foundation either of an action ex contractu or of an action ex delicto (,. Jonte, 17 id. 9. To the general rule that the partnership property, and each partner's prop- erty, is liable for the partnership debts to the full extent of the debt, there is an exception in the statutory exemptions of those states where the courts have decided that such exemptions may be claimed out of partnership prop- erty. There are sixteen states whose constitutions provide for homestead exemptions, and three more provide other exemptions, and the courts are not in harmony as to their application. In Massachusetts it was decided in Pond v. Kimball, 101 Mass. 105, that the provisions of the Gen. Stats, c. 123, § 32, and c. 133. § 32, cl. 5, 6, exempt- ing a certain amount of tools and implements, stock and material, employed in trade or business, from attachment and execution, do not apply to partner ship property. In Wisconsin and Georgia, by consent of one's co-partners, one may have a separate exemption of partnership property seized on execution against the firm. O'Gorman v. Fink, 57 Wis. 649 ; s. c. 46 Am. Rep. 58 ; Blanchard v. Paschal, 68 Ga. 32 ; s. c. 45 Am. Rep. 474. The same exemption which the partner would have had out of his severalty. Wicker v. Comstock, 52 Wis. 315 ; Spade v. Bruner, 72. In O'Gorman v. Fink, supra, the court discriminate West v. Ward, 26 Wis. 579, in which a married man residing on real estate owned by him in common with others, claimed a homestead exemption in an undivided interest (this 239 *'201 EXTENT OF LIABILITY. [II. Ch. 2. S. 2. [*201] * Attempts to limit liabilities. 1 — Various attempts have been made from time to time to form partner- ships without exposing their members to ruin in the event of loss. But the only effectual method of accomplishing this object is to stipulate with each creditor that he shall only be paid out of the funds of the partnership, and that he shall not be entitled to require the individual partners to pay more than a certain amount of those funds. Such stipulations, was done in Hunnicutt v. Summer, 63 Ga. 586), and Wright v. Pratt, '31 Wis. 99, in which it is intimated that a tenant in common of an indivisible chattel, cannot have an exemption out of his interest in it, and Russell v. Lennon, 3D Wi>. 570; s. < . - () Am. Rep. 60, in which the partners claimed a joint exemp- tion. In Burns v. Harris, 67 N. C. 140, and 'fill's Case, 3 Neb. 261, the court holds that the separate exemption will not be allowed unless all the partners consent thereto ; but this the Ohio court, in Gaylord v. Imhoff, 26 Ohio St. 317 ; s. c. 20 Am. Rep. 762, say has the effect of making a positive statutory right depend for its enforcement upon the mutual consent of partners. Citing also as contra, Pond v. Kimball, supra, and Bonsall v. Conly, 44 Penn. St. 442. " We have said there was no evidence in this case which tended to prove that each partner for himself claimed his exemption in the partnership property ; that each made a demand for it of the defendant. Consequently it must be assumed that each consented that the others should individually exercise his right of selection. Should the jury find these facts established by the evidence, the plaintiff should be allowed his exemption. It is said he made no proper demand for it, and did not notify the defendant that he had made a selection from the general stock. We do not suppose any other demand was necessary than that the plaintiff should inform the defendant that he claimed his exemption, and that the other partners did the same, and asked that he be permitted to make his selection." O'Gorman v. Fink, supra. In Blanchard v. Paschal, 68 Ga. 32, the consent of the co-partners was after tin- levy, and the court say that not to allow the exemption would be to over- ride the constitution. In Skinner v. Shannon, 44 Mich. 86; s. c. 38 Am. Rep. 232, the court held that where execution is levied on the goods of a partnership, every member of the firm is entitled to his individual exemption. "That the several mem- bers of a co-partnership come within the language of the statute and consti- tution, there should be no question ; and that they by becoming members of a firm do not place themselves beyond the pale of the reason of the law, would seem clear." " The whole object of the law is to prevent a person from being stripped of all means of carrying on his business, and in this respect no dis- tinction can be made between those who are members of a firm and those who are not." See Rosenthal v. Scott, 41 Mich. 632; Stewart v. Welton, 32 id. 56; Barber v. Rorabeck, 36 id. 399; Bayne v. Patterson, 40 id. 658; Lozo v. Sutherland, 38 id. 168 ; Orr v. Shraft, 22 id. 260 ; Bunker v. Paquette, 37 id. 70; Vanderhorst V. Bacon, 38 id. 669; s. C. 31 Am. Rep. 328; Stewart v. Brown, 37 N. V. 350. See contra, Spiro v. Paxton, 3 Lea, 75; s. c. 31 Am. Rep. 630; White v. Heffner, 30 La. Arm. 1280; s.c. 31 Am. Rep. 238; West v. Ward, supra; Rus- gell v. Lennon, supra ; Pond v. Kimball, supra ; Wright v. Pratt, supra ; Wise v. Frey, 7 Neb. L34 ; s. c. 29 Am. Rep. 380. 1 The rule of the liability in solido, of the partner, prevails, no matter how numerous the partners. See the cases on joint-stock companies and associa- tions, in/ra. 240 II. Ch. 2. S. 2.] EXTENT OP LIABILITY. *201 however, are never made in practice except where the part- ners are numerous; and in modern times they are practically confined to Insurance and other companies formed before the passing of the Companies Act, 1862. The cases on this sub- ject will be found collected in the volume relating to com- panies (n). 1 The statute under which a person may share (n) The leading cases on this sub- dall, 18 Q. B. 2 ; Durham's case, 4 K. ject are Halket v. Merchant Traders' & J. 517; Be Athenaeum Soc, Johns. Loan Assoc, 13 Q. B. 900; Hassell 80, and 3 De G. & J. 600. v. Same, 4 Ex. 525 ; Hallett v. Dow- 1 The rights and liabilities of partners under the English statutes were dis- cussed by Justice Lindley in this connection in the 4th ed. of his work, pp. 383 et seq. This relation is wholly of statute creation, and is provided for by the laws of all the states. These statutes are substantially alike, and have been construed by the courts of the various states with such general uniformity as their special features would admit. The cases upon this branch of the Law of Partnership have been collected and classified by Mr. Bates in his excellent treatise on Limited Partnership. The principles which govern limited part- nerships may be generally stated as follows : that while it is debatable whether these statutes are in derogation of the Common Law and to be con- strued strictly or otherwise, it may be said there must be a substantial com- pliance with the statutes of the state where the partnership is located. It must be confined to the business permitted by the statutes ; and if it engage in a branch of business not provided for, it becomes a general partnership. The special partner contributes to the fund a fixed sum either in cash, as re- quired by the statutes of most of the states, or in kind, at a valuation specially allowed and provided for. The terms of the partnership must be published as provided by the local statute and remain unchanged during the period for which the partnership was formed. Any change in the style of the firm, the persons who constitute it, the business, the capital or shares thereof work a dissolution or change the partnership to a general partnership. The busi- ness is to be carried on by the general partners; and interference by the special partner, except in the manner allowed by statute, renders him liable as a general partner. Henkel v. Heyman, 91 111. 9G ; Pierce v. Bryant, 5 Allen, 91 ; Vandike v. Rosskam, 67 Penn. St. 330 ; Foquet v. Hoadley, 3 Conn. 534 ; Barrows v. Downs, 9 R. I. 446 ; Hutchinson v. Bowes, 15 Ont. Q. B. 156; Farnswortli v. Boardman, 131 Mass. 115. The contributions of the special partner must be in cash ; and payments in goods or notes are not a compliance with the statute requiring cash payment. Whittemore v. Macdonell, 6 Ont. C. P. 547 ; Benedict v. Van Allen, 17 Ont. Q. B. 234; Van Ingen t: Whitman, 62 N. Y. 513; Richardson v. Hogg, 38 Penn. St. 153 ; Haggerty v. Foster, 103 Mass. 17 ; Pierce v. Bryant, 5 Allen, 91 ; Durant v. Abendroth, 69 N. Y. 148; Patterson v. Holland, 7 Ont. Chy. 1. The special partnership may be renewed or continued, but in the same conditions as at its inception. Haddock v. Grinnell Mfg. Co., 109 Penn. St. •372. There must be a new certificate, or the partnership becomes general. Andrews v. Schott, 10 Penn. St. 47. If dissolved for any cause during the term for which it is formed, the statutory notice must be given, and published, and recorded. Beers v. Reynolds, 11 N. Y. 97; s. c. 12 Barb. 288. But see Ker v. People, 110 111. 627. Dissolution by death, bankruptcy, by limitation, and otherwise seems to be governed by the same rules as general partnership on time ; and courts of equity may appoint, a receiver to wind up the concern and distribute the assets 241 *201 EXTENT OF LIABILITY. [II. Cn. 2. S. 2. pro tits without incurring the liability of a partner has been already alluded to ^t>). (o) 28 & 29 Vict. c. 86, ante, book i., ch. 1, § 2. as a trust fund on the application of a creditor, either general or special, a partner, or the representative of a deceased partner. Wilkins v. Davis, 2 Lowell, 511; Snyder v. Leland, 127 Mass. 291. See Perth Amboy xMfg. Co. Condit, 21 N.J. Law. 659. In Dehon v. Foster, 4 Allen, 545, and 7 Allen, 57, a creditor was enjoined in equity from pursuing an attachment in another state against an insolvent in the state of his residence ; hut when the assignee of a general partner in insol- vency sought to recover of a creditor the amount obtained by him in another state by attachment after the known insolvency of the firm, the court said, "Courts of law will not afford a remedy in damages where a court of equity might interfere to prevent a wrong. Lawrence v. Batcheller, 131 Mass. 504." Removal from the county where the certificate was filed renders this partnership general. Riper v. Poppenhausen, 43 N. Y. 68. Consulting with one of the firm, and telegraphing to parties in New York who desired information that the firm was all right, would not make a special partner (i« commendam) liable as a general partner. Any stranger could have done so without implicating himself. Ulman v. Briggs, 32 La. Ann. 657. Indorsing for, lending money or notes to, or going security for the firm will not make a special partner liable as holding himself out a general partner. These are things any stranger might do and not be liable; they are not active participants in the business. Rayne v. Terrell, 33 La. Ann. 812 (1881). Defendant being described as general partner of the firm of D. B. & Co., and evidence that the steamer was owned by D. B. & Co., held sufficient to charge defendant, there being no plea in abatement. Ilowland v. Bethune, 13 < int. Q. B. 270. Building and running steamships may properly be the subject of a limited partnership under the Act. Bowes v. Holland, 14 Ont. Q. B. 316. An intended special partner in a large partnership can, by interfering and exercising control, through a committee of which he is chairman, render him- self liable as a general partner. Bowes v. Holland, 14 Ont. Q. B. 316. An intended special partner made liable as general partner and therefore bound by the partnership signature as maker of a note cannot recover against the endorsers. Bowes v. Holland, 14 Ont. Q. B. 316. Where a special partner has once rendered himself liable as a general partner under § 14 by interference, he so continues after he has ceased to intermeddle. Hutchinson v. Bowes, 15 Ont. Q. B. 156. Where defendants are charged as general partners, having become so liable by intermeddling, it is not necessary for plaintiff to show that the limited partnership was regularly formed under the statute. Davis v. Bowes, 15 I >nt. Q. II. 280. 'I 'iii special partners elected a board of directors to advise the general partner, the members of which board interfered in the transaction of the busi- ness of the firm, especially during the absence of the sole general partner in England. Held, that the members of the board became liable for the debts of the firm. Whittemore '■• Macdonell, 6 Ont. C. 1'. 547. The Art requires actual cash payments ; and in ease of any false statements in certificate, all the partners are liable. Whittemore v. Macdonell, supra. In forming a limited partnership under the Act of 1836, the object of the .\et being information to creditors, strict compliance with the essential re- quirements of the statute is necessary, as well on a renewal as on the original formation; and the affidavit of a general partner on a renewal that a sum f-pecified and stated to have been paid by a special partner in former articles 242 II. Ch. 2. S. 3.] DURATION OF LIABILITY. *201 SECTION III. — DURATION OF LIABILITY. In a preceding chapter it was shown that every member of an ordinary partnership is the general agent of the firm for the purpose of carrying on its business in the ordinary way. In the present section it is proposed to ascertain the duration of such agency, or in other words, when it begins and when it ends. The mode whereby a partner becomes discharged from liabilities incurred by him will then be considered, and thus the liabilities of incoming and outgoing partners to cred- itors will be determined. of co-partnership has been so contributed and remains in the common stock without stating in what condition it so remains is insufficient. Haddock v. Grinnell Mfg. Co., 109 Penn. St. 372. In order to obtain the benefit of the Limited Partnership Act by renewal of the original agreement as far as the special capital is concerned, it must appear that such capital is in the same condition as when the partnership was originally formed, unimpaired and available for creditors ; and these facts must appear from the affidavit of the general partner. Haddock v. Grinnell Mfg. Co., supra. During any period intervening between the expiration of a limited partner- ship and the date of its renewal such partnership is general, and the special partners of the old firm are liable for all debts incurred during that period. Haddock v. Grinnell Mfg. Co., supra. Whether the occurrence of an interval between the expiration of a limited partnership and the renewal thereof between the same parties will of itself operate so as to prevent the renewal from inuring to the benefit of the special partner not decided. Id. S. gave his certified check for 810,000 deposited to credit of H. M. & Co., in payment of his special capital. Afterwards, same day, H. M. & Co. gave him their check for §6500 on same bank, to be paid out of that §10,000 on account of sum due S. from old firm of same name, limited to expire the day before. S. held liable as general partner. Lineweaver v. Slagle, 64 Md. 465; 54 A. R. 775. (See note by Reporter, 781.) Several of a large number of intending special partners paid in their capi- tal by promissory notes. Upon a bill by certain partners for contribution to make up a large deficiency ascertained on dissolution, Held, that the circum- stance had rendered the parties general partners inter se and as to third per- sons. Esten, V.-C, in Patterson v. Holland, 7 Ont. Chy. 1. One of the members of a limited partnership appointed manager of the business, and so acting, furnished from his shop goods for the partnership upon which he charged the usual trade profits. Held, that prima, facie such trans- actions could not be sustained. Patterson v. Holland, 7 Ont. Chy. 1. One of the special partners paid by bills of exchange the sums specified in the certificate as cash. Held, the special partner became in consequence liable for the debts of the firm. Whittemore v. Macdonell, 6 Ont. C. P. 547. W r here W., a special partner in T. & Co., a limited partnership when he gave the note signed T. & Co., represented to the payee that he was a partner and had an interest in the business. Held, sufficient to warrant a jury in finding W. equally liable with T. Watts v. Taft, 16 Ont, Q. B. 25(3. B., special, paid in £750 by releasing to A. A.'s note for the amount. Held, not a payment in money. Benedict v. Van Allen, 17 Out. Q- B. 234. A description of the business as " general dealers " held not sufficient. Benedict v. Allen, 17 Ont. Q. B. 234. 243 *202 COMMENCEMENT OF LIABILITY [II. Ch. 2. S. 3. 1. Commencement of Liability. Commencement of agency. — The doctrine that each partner has implied authority to do whatever is necessary to carry on the partnership business in the usual way, is based upon the ground that the ordinary business of a firm cannot be [ *202] carried on either to the advantage * of its members or with safety to the public, unless such a doctrine is recognised. The existence of a partnership is, therefore, evidently presupposed; and although persons negotiating for a partnership, or about to become partners, may be the agents of each other before the partnership commences, such agency, if relied on, must be established in the ordinary way, and is not to be inferred from the mere fact that the persons in question were engaged in the attainment of some common end. or that they have subsequently become partners. This is shown by the eases already referred to, when the difference between partnerships and inchoate partnerships was being discussed. Almost all those cases, in fact, arose in conse- quence of attempts made to fasten liability on the defendants, by reason of some act done by other persons, alleged to be their partners; and each of those cases in which the plaintiff failed is an authority for the proposition that so long as there is no partnership there is no implied authority similar to that which exists after a partnership is formed (p). Liability of partners who defer the execution of articles. — But, although this is undoubted law, still if persons agree to become partners as from a future day, upon terms to be em- (/*) See the cases, ante, pp. 19 et Fin. 564 ; Gabriel v. Evill, 9 M. & seq., and 4:J et seq.; and especially W. 297. Edmundson v. Thompson, 2 Fos. & To an action on a note signed by die firm the plea was "non fecit." Quaere if defendant was entitled to show a limited partnership. But being allowed to do 80, Held, thai plaintiff might in answer object to the description of the business, and semble, that he might also object that special partner had n a ratification by him of what his now partners may have done before he joined themQ/). But it must be borne in mind that no person can be rendered liable for the act of another on the ground that he has ratified, confirmed, or adopted it, unless, at the time the act was done, it was done <>n his behalf (A). Therefore, in Young v. Hunter (T), where (/) See Young ?•. Hunter, 4 Taunt, (h) Wilson r. Tumman, 6 Man. & ne judgment of Gibbs, J. Gr. 236. See Horsiey v. Bell, 1 Bro. 0. (»') 4 Taunt. 582. C. 101, note, per Gould, J. 1 The knowledge by M., intending partnership with G., that the real estate to purchase which the partnership was being formed, and for which G. was negotiating, was being sold to defraud the vendor's creditors, does not affect G., unless communicated to him. Driffill v. Goodwin, 23 Ont. Chy. 431. Incoming partner entered into a joint Liability with his co-partners (with notice to creditors), for prior and subsequent debts. Held liable for debts contracted before he became a partner of the firm. Iline r. Beddome, 8 Out. C P. ■:-!. But where, by an oral agreement of partnership, W. undertook to be liable for M.'a d( ibta incurred in the particular business prior to the partnership, and this agreement was not communicated to M.'s creditors, it was held that W. was liable only for goods supplied after the partnership. McKeand v. Morti- more, 11 (int. Q. B. 428. 248 II. Ch. 2. S. 3.] INCOMING PARTNERS. *207 Hunter & Co. had ordered goods of the plaintiff for sale in the Baltic, and afterivards it was agreed between Hunter & Co. and Hoffham and Co. that the latter should join in the adventure, and share the profit and loss, it was held to be clear that Hoffham & Co. were not liable to the plaintiff to pay for the goods. So in Ex parte Jackson (/), a person who was indebted by bond for money borrowed to carry on a trade, took two other persons ostensibly into partnership. After two years a joint commission of bankruptcy issued against the three ; and it was held that the bond debt was not provable as a partnership debt against the joint estate, but remained what it was originally, the separate debt of the obligor. Application of principle to promoters of companies. — Again, in Beale v. Mouls (&), the members of a provisional com- mittee of a company entered into a special agreement with the plaintiff for the manufacture of a steam carriage. After- wards, but before the contract was completed, the defendant Mouls became a member of the committee, and interested himself in the completion of the carriage. Several altera- tions and payments on account were also made whilst he was a member, and with his knowledge. The carriage was completed, but the committee then refused to take it or to pay for it. In * an action brought against [*207] Mouls and the other members of the committee, it was held that Mouls was not liable. He was not liable on the special contract, for he was no partjr thereto, by himself or any agent ; and he could not be made liable on any im- plied contract, for the existence of a special agreement excluded any implied contract relative to the same subject matter. It follows from the principles on which this case was determined, that if the carriage had been accepted by the committee, Mouls would not have been liable to pay for it. The delivery and acceptance in such a case would have been in pursuance of the contract, to which ex hypoihesi he was no party ; and no liability could attach to him by virtue of any implied contract to pay that which became payable by virtue of an express contract made with other people. It has, indeed, been expressly decided, that if several mem- 0) 1 Ves. J. 131. 569; Kerridge v. Hesse, 9 C. & P. (k) 10 Q. B. 976. See, too, Brem- 200. ner r. Chamberlayne, 2 Car. & Kir. 249 ►208 COMMENCEMENT OF LIABILITY. [II. Cii. 2. S. 3. bers of a committee order goods, and then a new member joins the committee, he is not liable to pay for the goods, though they are delivered after he joined it (T). New contract. — Cases, however, of this kind must not be confounded with those in which a new though tacit contract is made after the introduction of a new partner. Dyke v. Brewer (m) illustrates the distinction alluded to. In that case the plaintiff agreed with A. to supply him with bricks at so much per thousand, and the plaintiff began to supply them accordingly. B. then entered into partnership with A., and the plaintiff continued to supply bricks as before. It was held that both A. and B. were liable to pay, at the rate agreed upon, for the bricks supplied to both after the part- nership commenced. The ground of this decision was, that as A. had not ordered any definite number of bricks, each delivery and acceptance raised a new tacit promise to pay on the old terms: although if all the bricks delivered had been ordered by A. in the first instance, he alone would have been liable to pay for them (n ). ["208] * Incoming partner taking debts on himself. — If an incoming partner chooses to make himself liable for the debts incurred by the firm prior to his admission therein. there is nothing to prevent his so doing. Rut it must be borne in mind, that even if an incoming partner agrees with his co-partners that the debts of the old shall be taken by the new firm, this, although valid and binding between the partners is. as regards strangers, res inter alios aeta, and docs not confer upon them any right to fix the old debts on the new partner (<>). In order to render an incoming partner liable to the creditors of the old firm, there must be some agreement, express or tacit, to that effect entered into be- tween him and the creditors, and founded on some sufficient consideration. If there be any such agreement the incoming partner will be bound by it. latt his liabilities in respect of (/) Newton v. Belcher, 12 Q. B. (n) Helsby v. Mears, 5 B. & C. 504, '.'l\ ; Whitehead r. Barn»n, 2 Moo. is another case turning on the same & Rob. 248- In Beech *•. Eyre, •"< principle as is explained by Lord Man. & Gr. 41"», the <_">o) ; and they seem formerly to have inferred it whenever the incom- ing partner agreed with the other partners to treat such debts as those of the new firm (^). But this certainly is not enough, for the agreement to be proved is an agreement with the creditor; and of such an agreement an arrangement between the partners is of itself no evidence (>•). As an instance where an incoming partner made himself liable for debts contracted by the firm before he joined it, reference may be made to Ex parte Whitmore (s). In that *case Warwick and Clagett became partners. [*209] Warwick, who had had dealings with merchants in America, informed them that he had taken Clagett into part- nership, and requested them to make up their accounts, and transfer any balance due to or from him (Warwick) to the new firm. These instructions were repeated and confirmed (7>) Ex parte Jackson, 1 Ves. J. (?•) Ex parte Peele, 6 Ves. 602; 131; Ex parte Peele, 6 Ves. 602. Ex parte Parker, 2 M. D. & D. 511. See, also, Rolfe v. Flower, L. R. 1 P. See, also, Ex parte Freeman, Buck, C. 27. 471 ; Ex parte Fry, 1 Gl. & J. 90; Ex (7) See Cooke's Bank. Law, 534 parte Williams, Buck, 13. (8th ed.), citing Ex parte Bingham (s) 3 Deac. 365. See, also, Rolfe and Be Staples ; Ex parte Clowes, 2 v. Flower, L. R. 1 P. C. 27, which Bro. C. C. 595. was a stronger case. 1 Though an incoming partner is not liable for the debts of the firm prior to his admission, there are many cases in which the new partner and the new firm are held liable from their dealings with creditors for the obligations of the old firm. Shoemaker Piano .Manufacturing Co. v. Bernard, 2 Lea, 358; Silverman v. Chase, 90 111. 37 ; Updike v. Doyle, 7 R. I. 446 ; Parmalee ?■. Wiggenhorn, Neb. 322; Osborn v. Osborn, 36 Mich. 48; Preusser v. Hen- shaw, 49 Iowa, 41 ; Smith v. Ledyard, 49 Ala. 279 ; Shaw v. McGregory, 105 Mass. 96 ; Morrison v. Blodgett, 8 N. H. 238. An incoming partner who succeeds an outgoing partner by purchase, or who joins with the survivors on the death of one partner, is liable only by agreement for the prior debts of the old firm ; and such agreement can only be enforced by the old firm. Serviss v. McDonnell, 107 N. Y. 260. And an agreement by a third person to indemnify an outgoing partner, when no con- sideration passed to the promissor cannot be enforced against him by a cred- itor. Berry v. Brown, 107 N. Y. 659. 251 *;210 TERMINATION OF LIABILITY [II. Ch. 2. S. 3. by Warwick and Clagett, and were acted on. A debt owing fr.un Warwick was placed to the debit of the new firm, and a bill was drawn on the firm for the amount of the debt and was accepted, but was dishonoured. On the bankruptcy of the firm it was held, that the debt in question had become i he joint debt of Warwick and Clagett; and not only so, but that the joint liability of the two had been accepted in lieu of the sole liability of Warwick. Bills by old partners for old debts a fraud on new partner. — Before leaving this subject, it may be as well to observe that, as an incoming partner does not, by the fact of entering the firm, take upon himself the then existing liabilities thereof, if after he has joined the firm his co-partners give a bill or note in their and his name for a debt contracted by them alone, this is primd facie a fraud upon him, and consequently he will not be liable to a holder with notice (f). Account stated in respect of old debt. — For similar reasons, an incoming partner will not, it is apprehended, be liable to pay a debt contracted before he became a partner, merely because his co-partner has afterward stated an account with the creditor, and thereby admitted that the debt in question is due from the firm (w). But, as will be seen hereafter, an incoming partner, unless he takes care, may find himself lia- ble to pay the balance of an open running account com- meucing before he joined the firm and continued afterwards, although payments have been made since he joined the firm sufficient to liquidate that part of the account for which he is directly responsible (x). [*210] *2. TERMINATION OF LIABILITY. When a partner's liability ends. — Before examining the circumstances which put an end to a partner's liability to creditors of the linn, it is necessary to draw attention to the distinction between a partner's liability for what may be done after his co-partners have ceased to be his agents, and his liability for what may have been done whilst their agency (0 See Shireff v. Wilks, 1 East, (r) See Beale v. Caddick, 2 II. & 48, ante, \>. IT:;. N. 320, and Scott v. Beale, 6 Jur. N. See as to accounts stated, S. 559, noticed infra, under the head French <•. French, 2 Man. & Or. 014, of Appropriation of Payments. , Lemere v. Elliott, (i II. & X. 656. II. Ch. 2. S. 3.] AS TO FUTURE ACTS. *211 continued. It is obvious that there may be many circum- stances which have no effect upon a liability already accrued, but which, nevertheless, may prevent any liability for what is not yet done from arising ; and in order to determine with accuracy the events which put an end to a partner's liability to creditors, it is necessary to distinguish his liability for the future from his liability for the past. A. Termination of liability as to future acts. A partner's agency ends by notice. — The agency of each partner in an ordinary firm, and his consequent power to bind the firm, i.e., himself and his co-partners, may be deter- mined by notice at any time during the continuance of the partnership (j/) ; for his power to act for the firm is not a right attaching to him as partner independently of the will of his co-partners, and although any stipulations amongst the partners themselves will not affect non-partners who have not notice of them, yet if any person has notice that one member of the firm is not authorised to act for it, that person cannot hold the firm liable for anything done in the teeth of such notice (V). With one or two exceptions, which will be mentioned pres- ently, the agency of each partner and his consequent power to bind his co-partners, can only be effectually determined by giving notice of its revocation. The authority imputed to each partner must continue until some event happens to put an end to it, and this event ought to be as generally known as that which conferred the authority upon *him. The same reason which leads to the imputa- [*211] tion of the power to act for the firm at all, demands that such power shall be imputed so long as it can be exer- cised and is not known to have been determined (a). To this principle there are exceptions which may be con- veniently disposed of before the princixDle itself and its ap- plication are discussed. (y) See Vice v. Fleming, 1 Y. & J. (a) As to the liability of an out- 227 ; Willis v. Dyson, 1 Stark. 1(34 ; going partner for the acts of his late Rooth v. Quin, 7 Price, 193 ; Galway v. partners and a new partner, see Scarf Mathew, 1 Camp. 402, and 10 East, 264. v. Jardine, 7 App. Ca. 345, noticed (z) This subject has been already ante, pp. 46 and 197. discussed, see ante, p. 170 et seq. 253 *-\2 TERMINATION OF LIABILITY [II. Ch. 2. S. 3. 1. Effect of death. — When a partner dies. Notice of death is not requisite to prevent liability from attaching to the estate of a deceased partner, in respect of what may be done by his co-partners after his decease (i). For, by the law of England, the authority of an agent is determined by the death of his principal, whether the fact of death is known or not ( c). 1 The death of one partner does not, however, determine an authority given by the firm through him before his death; and consequently, if after his death such an authority is acted on, the surviving partners will be liable for it. In Usher v. Dauncev( Man. (r) 10 Ba. •!•">::, and 4 De G. M. & Gr. 541,and in Smith v. Winter, 4 G. 542. Re Clough, :il Ch. J). 324, M. &W. 401, 40l'; Pollock Dig. 83, was a similar case, only the pledge ed. -j. was for an old debt. 2fr> II. Ch. 2. S. 3.] NOTICE OF DISSOLUTION. *221 general a proposition as that until the affairs of a partnership are wound up, the agency of each partner continues to be as extensive as if no dissolution had taken place. At the utmost, the case under consideration decides, that in the event of a dissolution, it is competent for one partner to dispose of the partnership assets for partnership purposes (s). But neither Butchart v. Dresser nor any other case shows that a person who knows that a partnership is dissolved, can hold one part- ner liable for acts of his late co-partners done subsequently to the dissolution, and without authority ; and if in Butchart v. Dresser the money to pay for the shares had been raised by a bill, it could not, consistently with prior decisions, have been held that the dissolved firm was liable, either upon the bill itself, or for the money raised by its means. Before leaving this subject it is necessary to notice Ault v. Goodrich (£), which is sometimes supposed to go much further than it really does. In that case, two persons, Wilcox the elder and Wilcox the younger, partners as timber merchants, entered into a joint speculation with the plaintiff and another in the purchase and sale of some trees. Wilcox the younger had the chief management of the affair, and before the ad- venture was closed, the two Wilcoxes dissolved partnership. Wilcox the younger seems to have misapplied some of the monies received by him on the joint account, and it was con- sidered clear that Wilcox the elder was responsible for the * dealings and transactions of Wilcox the [*221] younger during the continuance of their partner- ship. It was also considered that as there was no evidence of any new agreement between any of the parties upon the dissolution of partnership between the Wilcoxes, the other parties to the adventure were to be treated as having con- tinued to rely on the joint responsibility of the two Wil- coxes, in respect of the dealings of Wilcox the younger. Wilcox the elder was accordingly declared to be responsi- ble for the conduct of Wilcox the younger after the dissolu- tion. Observations on Ault v. Goodrich. — Upon this case it may be observed ; first, that the facts are not satisfactorily stated ;. (s) Qu. if Lewis v. Reilly, 1 Q. B. on it. But see Smith v. Winter, 4 M. 319, and ante, p. 216, can be supported & W. 454. on this principle 1 Lord Denman's (t) 4 Russ. 430. judgment seems to have proceeded 263 *222 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. and, secondly, that the judgment leads to the inference, that the responsibility of Wilcox the elder for the conduct of Wil- cox the younger, did not turn upon the circumstance that they were partners, but upon the circumstance that they were jointly entrusted with the management of the tree specula- tion. In this view of the case it was obviously immaterial whether the Wilcoxes had dissolved partnership or not. Notice in case of retirement of dormant partner. — What amounts to notice of dissolution. — It has been already seen that when a dormant partner retires, he need give no notice of bis retirement in order to free himself from liability in respect of acts done after his retirement (w). The reason is that, as he was never known to be a partner, no one can have relied on his connection with the firm, or truly allege that, when dealing with the firm, he continued to rely on the fact that the dormant partner was still connected therewith. Notice in case of retirement of ostensible partner. — But when an ostensible partner retires, or when a partnership between several known partners is dissolved, the case is very di tic lent ; for then those who dealt with the firm before a change took place are entitled to assume that no change has occurred until they have notice to the contrary (V). And even those who never had dealings with the firm, and who only knew of its existence by repute, are entitled to assume that it still exists until something is done to notify publicly that it exists no longer (?/). Old customers entitled to special notice. — An old [*222] customer, however, is entitled to a more *specific notice than a person who never dealt with the firm at all (z): and in considering whether notice of dissolution or retirement is or is not sufficient, a distinction must be made according as the person sought to be affected by notice was or was not a customer of the old firm. 1 (uj Ante, p. 212. (y) Parkin v. Carruthers, 3 Esp. (x) See per Lord Selborne in Scarf 348. v. Jardine, 7 App. Ca. 349. (z) Graham v. Hope, Peake, 154. 1 Notice need not necessarily lie given by publication to protect a retiring partner. Notice in any other public or notorious manner may be considered on the question of notice. Love joy v. Spafford, 3 Otto, 430, 23 L. ed. 851 and note. And where notice was so generally communicated to the business men of the place where claimant resided as to be likely to come to his knowledge, evidence of that fact is admissible. Lovejoy v. Spafford, supra. Acts of a partner in the name of the firm after dissolution, within the ■it ;4 II. Ch. 2. S. 3.] NOTICE OF DISSOLUTION. *222 When a known partner retires, or a partnership is dis- solved, notice of the fact is usually given to the world at scope of the business of the firm, will bind the firm as to customers of the old firm who had no knowledge of the dissolution, or of the powers of the retiring partner under special arrangement for a dissolution, or a settlement by the partners. Price v. Towsey, 3 Litt. 423 ; s. c. 14 Am. Dec. 81 ; Little v. Clarke, 36 Penn. St. 114 ; Zollar v. Janvrin, 47 N. H. 324 ; Simonds v. Strong, 24 Vt. 642 ; Martin v. Searles, 28 Conn. 43 ; Davis v. Keyes, 38 N. Y. 94; Tudor v. White, 27 Tex. 584; Williams v. Bowers, 15 Cal. 321; Uhl v. Harvey, 78 Ind. 26. And the retiring partner is himself liable for contracts made with customers, unless they had notice of his withdrawal. Southern v. Grim, 67 111. 106 ; Pope v. Risley, 23 Mo. 185 ; Pecker v. Hall, 14 Allen, 532 ; Buffalo City Bank v. Howard, 35 N. Y. 500 ; Speer v. Bishop, 24 Ohio St. 598 ; Denman v. Dosson, 19 La. Ann. 9. Where a firm held property as bailee, a retiring partner who gave notice to the bailor to remove it relieved himself from liability for subsequent loss. Winston v. Taylor, 28 Mo. 82. Otherwise where goods had been consigned to the firm. Briggs v. Briggs, 15 N. Y. 471 ; Holden v. McFaul, 21 Mo. 215. A note given in the name of a firm to a new customer does not bind a retired partner, though no notice was given. Farmers' Bank v. Green, 30 N. J. L. 316 ; Dickinson v. Dickinson, 25 Gratt. 321. Notice by publication held sufficient as to persons who had not previously dealt with the firm in Lansing v. Gaine, 2 Johns. 300; National Bank v. Norton, 1 Hill, 572; Vernon v. Manhattan Co., 22 Wend. 183; Prentiss v. Sinclair, 5 Vt. 149 ; Nott v. Douming, 6 La. 680. Where members of a partnership, believing the firm to be solvent, agreed to pay a retiring member a fixed sum for his interest, and the new firm bor- rowed money on its notes to pay that sum and debts of the old firm, it was held on the failure of the new firm that the holders of these notes could not charge the retiring partner or the old firm with the money loaned on their notes. Penn. National Bank, 114 U. S. 376, 29 L. ed. 168. The liability of partners for future acts or contracts within the scope of the partnership business terminates at the dissolution of the partnership, however effected, as to all who are duly notified of the dissolution or have actual knowledge of it. Such notice or knowledge is necessary in all cases except when the partnership is dissolved by death or by operation of law, as by war or bankruptcy, and except as to dormant partners, not known to the particular creditor to be partners. A tax is not a contract that a retiring partner need give notice against. Washburn v. Walworth, 133 Mass. 499. Nor need he notify against the giving of a guaranty by one of the firm. Spurck v. Leonard, 9 111. App. 174. Nor against continued occupation of premises after termination of lease during the partnership. James v. Pope, 19 N. Y. 324. See also Whitman v. Leonard, 3 Pick. 177 ; Ellis v. Bronson, 40 III. 455 ; Lansing v. Gaine, 2 Johns. 300; Hicks v. Russell, 72 111. 230 ; Cham- berlain v. Dow, 10 Mich. 319; Gale v. Miller, 54 N. Y. 536; Cregler v. Dur- ham, 9 Ind. 375; Birks v. French, 21 Kan. 238; Taylor v. Young, 3 W T atts, 339 ; Maier v. Canavan, 8 Daly, 272 ; King v. Barbour, 70 Ind. 35 ; Gardner v. Conn, 34 Ohio St. 187; Turnbow v. Broach, 12 Bush, 455; Elterson v. Leeds, 97 Ind. 336; s. c. 49 Am. Rep. 458, Thurber v. Corbin, 51 Barb. 216; Preston v. Foellinger, 24 Fed. Rep. 680; Nussbaumer v. Becker, 87 111. 281; Bristol v. Sprague, 8 Wend. 423; Chemung Bank r. Bradner, 44 N. Y. 680 ; City Hall National Bank v. Phelps, 16 Hun, 158 ; Pratt v. Page, 32 Vt. 13; Benton v. Chamberlain, 23 id. 711; Whitesides r. Lee, 1 Scam. 548 ; Lane v. Tyler, 49 Me. 252; Robb v. Mudge, 14 Gray, 534; Phillips v. Nash, 47 Ga. 218 ; Kelley v. Hurlburt, 5 Cow. 534 ; Deford v. Rey- 265 *222 TERMINATION OF LIABILITY. [II. Cii. 2. S. 3. large by advertisement, and to old customers by some special communication. nolds, 36 Penn. St. 325 ; Scott v. Colmesnil, 7 J. J. Marsh. 416; Park v. Wooten, 35 Ala. 242; Kennedy u. Bohannon, 11 B. Mon. 118; Merrit v. Pollys, K'> ill. 355; Schorten v. Davis, 21 La. Ann. 173; Grady v. Robinson, 28 Ala. 289; Woodruff v. King, 47 Wis. 261; Princeton &c. Turnpike Co. v. Gulick, It', X.J. L. 161. Most of the cases of notice of dissolution by retiring partners arise with reference to former customers of the firm. Davis v. Allen, 3 N. Y. 168; Nicholson v. Moog, 65 Ala. 471 ; Holdane v. Butterworth, 5 Bosw. (N. Y.) 1; Brisban v. Boyd, 4 Paige, 17; Van Eps v. Dillaye, 6 Barb. 244; Pringle v. Leverich, 97 N. Y. 181 ; s. c. 49 Am. Rep. 522 ; Williams v. Bowers, 15 Cal. 321 ; Huntington v. Potter, 32 Barb. 300; Ranson v. Loyless, 49 Ga. 471; South- wick v. McGovern, 28 Iowa, 533 ; Reilly v. Smith, 16 La. Ann. 31 ; Amidown v. Osgood, 24 Vt. 278; Schlater v. Winpenny, 75 Penn. St. 321; Strecker v. Conn, 90 Lnd. 469. In White v. Tudor, 24 Tex. Gd9, there was nothing in the evidence from which the inference could be drawn that the plaintiff Tudor did not know of the dissolution before the execution of the note sued upon. Laird v. Ivens, 15 Tex. 621. The notice may be implied from circumstances, but as to per- sons who have been in the habit of dealing with the firm it is requisite that actual notice be brought home to them. Collyer, Partn. §§ 533, 534; 3 Kent's Comm. 66, 67. In Rose u. Coffield, 53 Md. 18, it seems to be decided that a single trans- action with a co-partnership giving it credit is a sufficient dealing with it to entitle the party to special notice of the dissolution before his right to trust the Jirm on the representation of one of its members or its regular agent is terminated. In Wardwell v. Haight, 2 Barb. 549, two previous transactions w.re sufficient, one of them cash and the other a credit, paid prior to disso- lution. In Clapp v. Rogers, 2 Kern. 283, two previous very small credits paid before dissolution were held sufficient, and in this case the Court of Appeals by Demo, J., said "the rule requiring actual notice proceeds upon a general presumption that one giving credit to a mercantile firm does so upon the responsibility of the individual partners, and we cannot annex to it a distinction based upon the amount of credit without destroying that certainty which is essential to its utility." The rule requiring actual notice to former customers of the firm does not extend to requiring such notice to be given to agents, clerks, and salesmen of those with whom firm dealt for the protecticn of such agents in their individual capacity. Richardson v. Snider, 72 Ind. 425 ; s. o. 37 Am. Rep. 168. Upon the question whether a promise to pay, or payment on account, by one partner after dissolution of a note barred by the statute of limitations, will take the debi out of the statute, is decided differently in different states. In Cronkhite v. Herrin, 15 Fed. Rep. 888 (U. S. C. C. W. 1). Wis. 1883), it is held that after dissolution one partner has no power to create or continue a debt as against his co-partners, either by express agreement or by partial payments. The only evidence offered in this case appears to have been that of a par- tial payment ; none that the payee was ignorant of the dissolution. See WilleyV. State, 5 X. E. Rep. 881 "(Ind. March, 1886). Until tin payee knows of the dissolution, any contract made by one part- ner within the scope of the partnership business, binds the other partners also. Pratt >-. Page, 32 Vt. 15; Pecker v. Hall, 14 Allen, 532; Dickinson v. Dick- inson, 25 Gratt. 321 ; Page v. Brant, 18 111. 37; Lovejoy v. Spafford, 93 U.S. 430; Sage >■. Ensign, l' Allen, 245. 266 II. Ch. 2. S. 3.] NOTICE OF DISSOLUTION. *222 Public notices by advertisement. — Public, notice given by advertisement in the " Gazette " is sufficient, not only against A note made by one partner in the name of the firm, after dissolution, binds all partners, unless payee had notice of the dissolution. ' Clement v. Clement, 69 Wis. 599 ; Reppert v. Colvin, 48 Penn. St. 248. But see Marlett v. Jackman, 3 Allen, 287. So a promise to pay, or an acknowledgment of a firm note, if made within the period of limitation. Clement v. Clement, supra ; Gates v. Fisk, 45 Mich. 522. See contra, that a promise does not. Tates v. Clements, 16 Fla. 339. For the Massachusetts doctrine, see Peirce v. Tobey, 5 Met. 168 ; Faulkner v. Bailey, 123 Mass. 588 ; Sage v. Ensign, 2 Allen, 245; Marlett v. Jackman, 3 id. 287. "After the dissolution of a partnership, one of the partners gave to a creditor of the firm a note in the firm's name, for a debt contracted before the dissolution in the ordinary course of business of the partnership. The cred- itors accepted the note before they had any notice of the dissolution, either actual or constructive. The presiding judge ruled that if the giving of notes had been in the ordinary course of their business while the partnership ex- isted, and this note was given to the plaintiffs in the course of such business, and before they had any notice of the dissolution, it bound both partners. As the dissolution was by the voluntary act of the partners, this ruling was strictly accurate." Pecker v. Hall, 14 Allen, 532. After a dissolution of a partnership, no partner can create a cause of action against the other partners, except by a new authority communicated to him for that purpose. Bell v. Morrison, 1 Pet. 351. The notice may be direct actual notice, such as by one of a firm of 1 ilees to a bailor, that he might come and remove his property, as the part- ner was retiring, and would not be held responsible further. Winston v. Taylor, 28 Mo. 82. Or it may be constructive, such as results from the insertion of a proper notice in the newspapers. Vernon v. Manhattan Co., 22 Wend. 183, and see Mauldin v. Branch Bank of Mobile, 2 Ala. 501, in which it was held that notice published in one of the usual advertising gazettes of the place where the business was carried on, and in a fair and usual manner, is not only presumptive, but conclusive evidence of notice. Where defendant offered to prove that plaintiff was a customer of the firm of S. W. & Co., was frequently in their store, and lived in same neighborhood, and that an advertisement was posted up at the house lately occupied by V. & W., and then by S. W. & Co., stating that the partnership of V. & W. had dissolved, as showing that plaintiff had notice of the dissolution of V. & W. prior to the making of the note sued on. Held, that the evidence should have been received. Irby v. Vining, 2 McCord, 379 (S. C). That a person dealing with one partner of a dissolved firm, in the name of the firm, knew facts which ought to have put him upon his inquiry as to whether the firm was dissolved, is constructive notice to him. Smith v. Van- derburg, 46 111. 34 ; Dickinson v. Dickinson, 25 Gratt. 321 ; Robinson v. Worden, 33 Mich. 316 ; Spaulding v. Ludlow Woollen Mill, 36 Vt. 150 ; Speake r.. Bar- rett, 13 La. Ann. 479 ; Zollar v. Janvrin, 47 N. H. 324 ; Holt v. Simmons, 16 Mo. App. 97. Dropping his name from published list of directors of a firm called the Titusville Savings Bank, is not such a fact. Clark v. Fletcher, 96 Penn. St. 416. A new change of firm's name, which leaves F.'s name in it, is not a fact from which F.'s withdrawal is to be presumed. Howe v. Thayer, 17 Pick. 91. Mailing a statement of dissolution to a former customer of the firm is evidence of notice to him, but is not actual notice. Eckerly v. Alcorn, 62 Miss. 228; Austin v. Holland, 69 N. Y. 571 ; s. c. 25 Am. Rep. 246; Kenney v. Altvater, 77 Penn. St. 34. 267 *222 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. all who can be shown to have seen it, but also as against all who had no dealings with the old firm, whether they saw it That one was a regular subscriber for a paper in which the notice of dissolution appeared, and during the whole period in which it appeared, is not conclusive in law of notice to him. See Mauldin v. Branch Bank of Mobile, •_' Ala. 501 : Treadwell v. Wells, -1 Cal. 200. Notice of the dissolution may be inferred from its notoriety, and if the severance of the partnership is made as notorious as its existence was, it would seem, upon principle, that this is all that can be required. Mauldin v. Branch Bank of Mobile, 2 Ala. 501 ; Mitchum v. Bank of Kentucky, 9 Dana, L66 : Solomon v. Kirkwood, 55 Mich. 25(5; Lovejoy v. Spafford, 93 U. S. 430; 23 L. ed. 851; Holdane v. Butterworth, 5 Bosw. (N. Y.) 1; Treadwell v. Wills, 4 Cal. 260; Clapp v. Upson, 12 Wis. 492; Shaffer v. Snyder, 7 S. & R. .".it:'.; llixon c Pixley, 15 Nev. 475. In Clapp v. Upson, supra, there was a lapse of time, a mob, and a change of locus of the business, and these com- bined were held to put the creditor on his inquiry. Southwick v. Allen, 11 Vt. 75; contra, Goddard v. Pratt, 16 Pick. 412; Pitcher v. Barrows, 17 Pick. 361. Change of name is usually an important factor in proving notice of dis- solution. In Goddard v. Pratt, 16 Pick. 412, an important and carefully con- sidered case, the Court by Shaw, C. J., decide that where the co-partners in a firm obtained an act of incorporation and transferred all their partnership property to the corporation whose name was not that of the partnership and it made a by-law providing that its business should be carried on in the name of the partnership, if the co-partnership was thereby dissolved, yet the mem- bers of it wire liable as partners upon contracts subsequently made in the partnership name with third persons having notice of the dissolution. See case of same corporation, Willey v. Thompson, 9 Met. 329; Newcomet v. Brotzman, 09 Penn. St. 185; Holdane v. Butterworth, 5 Bosw. (N. Y.) 1; lrl>y v. Vining, 2 MeCord, 379; American Linen Thread Co. v. Wortendyke, 24 X. Y. 550 ; Coggswell v. Davis, 65 Wis. 191 ; Simonds v. Strong, 24 Vt. 642. Lapse of time is a circumstance from which it may be found that a third person bad notice of the dissolution. A note made in the firm name by one partner will not bind a partner who retired eleven years before the note was issued. Farmer's Bank i\ Green, 30 N. J. L. 316. That the partnership had been dissolved for over two years before the note BUed on was given, during which time the defendants had been separately in business in different streets, each under his individual name, would justify the jury's finding that plaintiff had notice of the dissolution. Coddington v. Hunt, 6 Hill (X. V.) 595. In Simonds v. Strong, 24 Vt. 642, two years were not sufficient. In Princeton &c. Co. v. Gulick, 16 N. J. L. 161, one year was insufficient. In Treadwell v. Wells, 4 Cal. 260, four months was considered long enough to pul a reasonable man on his guard. See also Hixon v. Pixley, 15 Nev. 475; Boltgreve '■• Wintker, 85 111. 470. Partnership regularly dissolved in June, 1882. Retiring partner gave no notice. Continuing partner K. used the old firm name of G. A. & Co. For a time in 1**2 A., the retiring partner, helped K. in his business and took his place during an illness. K. gave cheques in name of G. A. & Co., and 'ints were so made up, and he gave one or more cheques in 1883 in his own name. The name of ('• . A. on sign had been there for thirty years. During tin- interval from .June, L882, to September, 1886, the plaintiff had several times pressed K. for payment, and never applied to G. A. until Sep- tember, 1886, The account sued for was .£301 16s. id. for meat delivered to I .liter the dissolution. Eeld, that plaintiff could recover. Brundell v. r, 12 Victorian L. R. 908. 268 II. Ch. 2. S. 3.] NOTICE OF DISSOLUTION. *223 or not (a). But an advertisement in any other paper is no evidence against any one who cannot be shown to have seen it (6). If, however, it can be shown that he was in the habit of taking the paper (c), that is evidence to go to the jury of Ins having seen not only the particular paper containing the advertisement, but also the advertisement itself (J) ; and if the jury are satisfied that he saw the advertisement, that will be sufficient, although no advertisement was inserted in the " Gazette " (e). Such notice not indispensable. — An advertisement, more- over, is not indispensable ; its place may be supplied by some- thing else. Thus a change in the name of a firm painted on its counting-house, accompanied by a removal of the busi- ness of the old firm (for the purpose of winding up), and coupled with announcements of the change by circulars sent to the old customers, was held to be sufficient without any advertisement as against a person who had not been an old customer, and who was not proved to have had any distinct notice (/). * Special notices. — As against persons who dealt [*223] with the firm before any change in it took place, an advertisement without more is of little or no value, whether it be in the " Gazette " or elsewhere (^). But if notice in point of fact can be established, it matters not by what means ; for it has never been held that any particular for- mality must be observed. If an old customer can be shown to have seen an advertisement, that will be sufficient; and evidence that he took in a certain paper is some evidence that he knew of a dissolution advertised therein (7i). Again, general notoriety, a change in the name of the firm, and advertisements, coupled with the execution of powers of attorney to the new firm, were held (Bolland, B. dissentiente') > to warrant the jury in finding knowledge by an old customer (a) Godfrey v. Turnbull, 1 Esp. nothing alone. Norwich and Lowes- 371 ; Wrightson v. Pullan, 1 Stark. toft Co. v. Theobald, M. & M. 153. 375 ; Godfrey v. Macauley, 1 Peake, (c?) See Jenkins v. Blizard, 1 Stark. N. P. 209 ; Newsome v. Coles, 2 418, where, however, the plaintiff had Camp. 617. a verdict ; Rowley v. Home, 3 Bing. 2. (6) Leeson v. Holt, 1 Stark. 186; (e) Rooth v. Quin, 7 Price, 193. Boydell ;;. Drummond, 2 Camp. 157, (/) M'lver v. Humble, 16 East, and 11 East, 144 n. 169; but see Gorham v. Thompson, (c) Showing that the paper circu- 1 Peake, N. P. 60. lated in his neighborhood goes for (g) Graham v. Hope, Peake, 154. (A) Ante, note (cQ. 269 *224 TERMINATION OF LIABILITY [II. Ch. 2. S. 3. of a change in the old firm (i). So, in the case of bankers, a change in the name of the firm appearing on the face of the cheques used by their customers, has been held sufficient notice to an old customer who had drawn cheques in the new form ( /•). Stamp on advertisements. — With respect to advertisements, it may be here remarked, that an advertisement of an agree- ment to dissolve is not admissible in evidence unless stamped ; but that an advertisement of an actual dissolution is admissi- ble without a stamp (7). B. Termination of liability as to past acts. Termination of partner's liability in respect of past trans- actions. — When once it can be shown that liability has attached to any partner, the onus of proving that such lia- bility has ceased is upon that partner, or those representing him (m). The events which have to be considered with refer- ence to this subject may be reduced to four classes, viz. : — 1. Events over which his creditor has no control, e.g., the death or bankruptcy of the partner. 2. Dealings and transactions between the creditor and the partner whose liability is in question. [*224] * 3. Dealings and transactions between the creditor and the other members of the firm ; and, 4. Lapse of time. The second of these classes of events does not require special notice. The effect of bankruptcy and death will be examined in a subsequent part of this work. There only remain, therefore, to be considered here the third and fourth classes of events alluded to. Termination of joint obligations. — The nature of an obliga- fcion which is joint, or joint and several, is such that although each person subject to the obligation is responsible for its performance, yet each is not bound to perforin it without reference to the question whether it has already been per- formed by the others. Whether the obligation be joint, or joint and several, it has only to be performed once; and per- (») Hart v. Alexander, 2 M. & W. (I) May v. Smith, 1 Esp. 283; 484; 7 G. & P. 746. Jenkins v. Blizard, 1 Stark. 418. (k) Barfoot v. Goodall, 3 Camp. (m) See 3 Mer. 619. 147. 270 II. Ch. 2. S. 3.] AS REGARDS PAST ACTS. *225 formance by any one of the persons obliged is available as a defence to a second demand made against the others (n). And not only is a joint, or joint and several, obligation at an end when performed by one of the persons in whom it resides, but whatever extinguishes the right to demand performance of that obligation extinguishes the obligation itself, and dis- charges all the persons in whom it resided (o). But an event which merely disables a creditor from suing one of several persons jointly, or jointly and severally, indebted to him, does not necessarily extinguish the debt. For example, if one of the persons indebted becomes bankrupt and obtains his discharge, although his liability is thereby at an end, yet the other persons indebted are not discharged from their obligation to pay (y-?). So a covenant by the creditor not to sue one of several persons liable jointly, or jointly and sev- erally, does not extinguish the creditor's right to obtain payment; its effect only being to give the covenantee a right to be indemnified by the creditor against the * consecpviences of an exercise of his right (gO- So, [*225] if the creditor receives from one of several debtors part of the debt, this does not discharge the others from their liability to pay the residue (r). In order to show the application of these principles to the discharge of a partner from liability already incurred by him, it will be convenient to consider the effect of 1. Payment. 2. Release. 3. Substitution of debtors and securities. 4. Lapse of time. An examination of these subjects will involve an inquiry into the mode in which retired partners and the estates of deceased partners cease to be liable to creditors of the firm to which they belonged. (a) See, as to payment by one, (/>) 46 &47 Vict. c. 52, § 30, el. 4. Watters v. Smith, 2 B. & Ad. 889 ; Crosse v. Smith, 7 East, 256 ; Noke v. Thorne v. Smith, 10 C. B. 659 ; Ingham, 1 Wils. 89 ; 1 Wms. Saund. Beaumont v. Greathead, 2 ib. 494. 207, a. (o) See Cheetham v. Ward, 1 Bos. (7) See Lacy v. Kinaston, 1 Ld. & P. 630; Ex parte Slater, 6 Ves. Raym. 688; Dean v. Newhall, 8 T. 146; Ballam v. Price, 2 Moo. 235; R. 168; Walmesley v. Cooper, 11 A. Cocks v. Nash, 9 Bing. 341 ; Wallace & E. 216. v. Kelsall, 7 M. & W. 264 ; Nicholson (r) See Watters v. Smith, 2 B. & v. Revill, 4 A & E. 675. Ad. 889. 271 *226 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. 1. Payment. Payment by one partner of partnership debts. — Payment of a partnership debt by any one partner discharges all the others, if the object of the partner paying was to extinguish t!u' whole debt, or if he made the payment out of the part- nership funds (s). But if a firm is unable to pay a debt, and one partner out of his monies pays it, but in such a way as i" show an intention to keep the debt alive against the firm for his own benefit, this payment by him will be no answer to an action brought against the firm by the credi- tor suing on behalf of the partner who made the pay- ment (t). Imputation of payment made by one partner with money of firm. — If a partner is indebted on his own account to a per- son to whom the firm is also indebted, and that partner, with the monies of the firm, makes a payment to the creditor without specifying the account on which it is paid, the pay- ment must be taken to have been made on the partnership account, and must be applied accordingly (w). 2 *226] * Payment by new firm discharges old firm. — Inas- much as a payment by A. of B.'s debt on behalf of B., enures to the benefit of B. if the creditor accepts the money and B. does not repudiate the payment (x) it follows (s) See the cases cited, ante, p. ard, 2 CI. & Fin. 379, affirming Prich- 224, note («)■ ard v. Draper, 1 R. & M. 191. (0 Mclntyre v. Miller, 13 M. & W. (x) Co. Litt. 207, a. See Belshaw Tl'", ; infra, note (y). v. Bush, 11 C. B. 191 ; Jones v. Broad- (;/) Thompson v. Brown, Moo. & hurst, 9 C. B. 193, &c; Kemp v. Balls, .M. 10. See, also, Xottidge v. Prich- 10 Ex. 007 ; Lucas v. Wilkinson, 1 H. &N. 420. 1 The cases upon this point are conflicting, and the exceptions to this gen- eral principle that payment hy one's partner of a partnership debt extinguishes the debt are sufficiently numerous to require discrimination in applying the rules to any given cases. See to the effect that the debt is extinguished. Mason v. Eldred, Wall. 231, 18 L. ed. 783; Dana v. Conant, 30 Vt. 246 ; Pope v. \ance, 1 Stew. 354; Watts v. Robinson, 32 Ont. Q. B. 362. That it is not: Sheehy v. Mandeville, 6 Cranch, 253, 3 L. ed. 215; Coleman v. Coleman, 78 Ind. 344 ; Kipp v. McChesney, 66 111. 400; Sells v. Hubbell, 2 Johns, Ch. 394; Fulton /.Williams, 11 Cush. 108; Fitch v. McCrimmon, 30 Ont. C. P. 1 B3 ; Jewell v. Ketchum, 63 Wis. <'>2K ; Sinsheimer v. Tobias, 53 X. Y. Sup. Ct. 508. 2 See St. Louis Type Foundry Co. v. Wisdom, 4 Lea, 695 ; Wiesenfeld v. Byrd, 17 S. C. 106; Brown v. Brabham, 3 Ohio, 275; Gale v. Miller, 44 Barb. 4^0. 272 II. Ch. 2. S. 3.] APPROPRIATION OF PAYMENTS. *227 that if a firm is indebted, and, by the retirement of the original partners and the introduction of other partners, a wholly new firm is called into existence, a payment by the new firm expressly or impliedly on behalf of the old firm, of the debts contracted by the old firm, will extinguish its debt as between that firm and its creditor. But if there are circumstances showing that the money was paid, not on be- half of the old firm and in discharge of its liability, but as the consideration for a transfer to the new firm of the credi- tor's right against the old firm, the right of the creditor to sue the old firm will not be extinguished, but can still be exercised for the benefit of the new firm (?/). As regards discharge by payment, it is important to bear in mind the general rules relating to the appropriation of payments, and especially the rule in Clayton's case. The general rules upon this subject are as follows (2) : — 1. General rules as to appropriation of payments. — Where one person is indebted to another on various accounts, the debtor is at liberty to pay in full whichever debt he likes first (a). 2. But a debtor has no right to insist on paying a debt partly at one time and partly at another (ft) ; although if he does pay a debt in part and the creditor accepts the pay- ment, the debt is extinguished to the extent of the payment thus made and accepted (e). 3. The right of a debtor to appropriate a payment to whichever of several debts he prefers, can only be exercised at the time of payment, not afterwards (eT). * 4. An appropriation by a debtor at the time of [*227] payment need not be express, but may be inferred from the nature of the debt and from the mode and circum- stances of payment (e). 5. Where the debtor, having the opportunity so to do (/), (y) See Lucas v. Wilkinson, 1 H. (a) Peters v. Anderson, 5 Taunt. & N. 420; Mclntyre v. Miller, 13 M. 596; Mitchell v. Cullen, 1 McQ. 190. & W. 725, where one partner paid a (6) Dixon v. Clark, 5 C. B. 365. debt due from the firm, but had the (c) As to payments of so much in debt transferred to a trustee for him- the pound, see infra. self. (. not amount to an admission by the (s) See infra, rule 8 (c/). debtor that the barred debt is due, (t) Bower v. Marris, Cr. & Tie and consequently does not take that 351; Thompson v. Hudson, 10 Eq. debt out of the statute; sic the last 497; Warrant Finance Co.'s Case, 4 tliree cases. Ch. <; 13. (7) Peters >■. Anderson, 5 Taunt. («) Clayton's case, 1 Mer. 585, no- ticed infra. 274 II. Ch. 2. S. 3.] APPROPRIATION OF PAYMENTS. *229 (f) Money coming to the hands of a creditor by the real- isation of a particular security is presumed to be appropri- ated to the debt thereby secured (x). () ; the estates of sole traders if their businesses have been carried on by others with any break (c) ; and retired partners, whether known (d) or dormant (e). Moreover, the discharge of the deceased or retired partner being the consequence of the payment of his former creditor, the discharge does not depend on the knowl- edge of the creditor of the change which has taken place in the firm (e). It is true that if the creditor had known of the change he might have objected to continue to deal with the continuing or surviving partners unless the old and new accounts were kept distinct ; but this circumstance does not entitle him to treat his old debt as still unpaid when he has in fact dealt on the footing of there being only one continu- ous account, and when on this footing he has been paid his old debt (/). [*230] * Application of rule to all single running accounts. — The rule in Clayton's case applies to all accounts of the nature of one entire debit and credit account, without (6) As in Clayton's case, 1 Mer. Bing. 70 ; Newmareh v. Clay, 14 East, 572. 239. (c) Sterndale v. Hankinson, 1 Sim. (/) See the last note. The credi- 393 ; Smith v. Wigley, 3 Moo. & Sc. tors in those cases did not know of 174 the changes in the firms with which (d) Hooper v. Keay, 1 Q. B. D. 178. they dealt. See, also, Merriman v. (e) Brooke v. Enderby, 2 Brod. & Ward, 1 J. & H. 371. 1 Where nearly all the partners in a firm that had become largely indebted to the plaintiffs became stockholders in a corporation that took over their property and business and assumed their debt, and the plaintiffs transferred to the account of the corporation their claim against the firm, and continued dealing with the corporation, in the course of which it paid the plaintiffs large Bums of money, exceeding the balance due from the partnership, and the business so continued for over two years with unusual notoriety and no pretence of fraud, and then the corporation failed, held that the plaintiffs could not revive their claim against the partnership. Whitwell r. Warner, 20 Vt. 420. See also Allen v. Frumet Min. & Smelt. Co., 73 Mo. 688. In Birk.tr v. McGuire, 7 Ont. App. It. 53 (reversing 31 Ont. C. P. 430), the retiring partner was held liable for partnership debts to plaintiffs who had for three years dealt only with the continuing partner, and after the retiring partner had refused to renew partnership notes, claiming that he was not liable. 276 II. Ch. 2. S. 3.] APPROPRIATION OF PAYMENTS. *231 reference to any question of partnership, and is available not only by a firm against an old creditor, but also against a firm for the benefit of its debtors. Discharge of surety. — For example, where a person be- comes surety to a firm guaranteeing a debt owing to it by a third party, then, if the debt is an item in an account between this third party and the firm, and is liquidated by general payments with which he is credited, the debt guaranteed will be extinguished, and the surety will be discharged, although upon the whole account there may always have been a bal- ance owing to the firm ((/~). On the other hand if the guar- anteed debt is not extinguished by the rule in question, the surety will not be discharged (/j). Moreover, the rule applies even as between persons who do not know that they are being affected by it, and who, if they did, might take care to exclude its operation (i). Rule applies against the debtor as well as against the credi- tor. — Further, as a creditor has no right to take the account subsisting between him and his debtor backwards, so as to make himself appear a creditor in respect of the earlier rather than of the later items of the account, so, on the other hand, a debtor, after making general payments in respect of one entire account, is not at liberty to have those payments ap- plied in liquidation of the subsequent rather than* of the earlier items (F). Effect on incoming partner. — This has an important bearing on the position of incoming partners ; for although they are not liable for debts contracted before they joined the firm, still if such debts and others subsequently contracted are allowed by an incoming partner to * form one [*231] single running account, and payments are made gen- erally in respect of it, those payments, although made with the money of the new firm, will be applied to the old debt, (g) See Kinnaird v. Webster, 10 692, where, notwithstanding the mode Ch. D. 139; Bodenham v. Purchas, in which the books were kept, the real 2 B. & A. 39 ; Field v. Carr, 5 Bing. intention was to keep the second debt 11 ; Pemberton v. Oakes, 4 Russ. 154; separate from the others. Toulmin v. Copland, 3 Y. & C. Ex. (h) Re Sherry, 25 Ch. D. 692; 625, and Copland v. Toulmin, 7 CI. & Williams v. Rawlinson, 3 Bing. 71. Fin. 350 ; Bank of Scotland v. Christie, (7) Ante, note (/) ; Merriman v. 8 CI. & Fin. 214 ; Medewe's Trust, 26 Ward, 1J. & H. 371 ; Scott v. Beale, Beav. 588. Compare Ex parte Whit- 6 Jur. N. S. 559. worth, 2 M. D. & D. 164 ; City Dis- (/t) Beale v. Caddick, 2 H. & N. count Co. v. Maclean, L. R. 9 C. P. 329. 977 *232 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. and a balance will be left for which the incoming partner will be liable (Z). But the rule in Clayton's case cannot be insisted on to the prejudice of a new partner without his consent, express or tacit. Without such consent a creditor of the "Id firm who goes on dealing with the new firm has no right to appropriate a payment made by a new partner to a debt owing by his co-partners, nor to run two distinct ac- counts together, and treat a general payment as made in respect of the earliest items. Burland v. Nash (m) may be referred to as an illustration of this. In that case A. suc- ceeded B. in business, and agreed with him to take his debts upon himself: A. then contracted debts of his own to one of B.'s creditors, and A. afterwards made such creditor a gen- eral payment on account ; it was held that the creditor could not. without A.'s consent, apply this payment in discharge of the debt owing by his predecessor B. Rule inapplicable -where there are distinct accounts. — The rule in Clayton's case, however, applies only to an entire unbroken account, and has no application to cases where one person is indebted to another in respect of several matters, each of which forms the subject of a distinct account. Right of appropriation in such a case. — 111 such a case, if the debtor does not appropriate the payment when he makes it, tli-' creditor is at liberty to apply the payment to which- ever account he thinks proper (n). Moreover, when a change takes place in a firm by the retirement or death of a member, a creditor of the firm is under no obligation to assent to a rallying over of his debt, so that it shall form the first item in a fresh account with the new firm. He is at liberty to keep the accounts with the two firms distinct, and if he does so, payments made generally by the new firm will not [ ' 232] necessarily * go by virtue of the rule in Clayton's case, in liquidation of the debt owdng by the old firm. A remarkahle illustration of this is afforded by the well- See the last case, and also Scott ies received by the defendants after Beale, 6 Jur. N. S. 559. This case the partnership between them was is badly reported, but it is tolerably created. plain that the incoming partner was (m) 2 Fos. & Fin. G87. Quajre held liable to pay, not the debt due whether thr evidence did not warrant to the plaintiff when the partnership the inference that the two accounts commenced, but the balance of mon- had been run into one with the con- bim on his whole account, sent of the defendant, and which balance consisted of mon- ( n) Ante, p. 227. 278 II. Ch. 2. S. 3.] APPROPRIATION OF PAYMENTS. *233 known case of Simson v. Ingham (o). There two country bankers, Benjamin and Joshua Ingham, gave a bond to a London bank, as a security for advances, which it might make on account of the persons constituting the country bank, or either of them, associated or not with any other persons. Benjamin died, and at his death a considerable sum was due to the London bank for advances made to the country bank. The London bank was in the habit of send- ing in monthly accounts to the country bank. In the month following Benjamin's death the London bank received and paid considerable sums on account of the country bank, and the sums were entered by the London bank in its own books in continuation of the former account between it and the old country bank. No account, however, was sent to the country bank until two months after Benjamin's death ; and then two accounts were sent, one of them being an account of receipts and j)ayments prior to his death, and the other being an account of receipts and payments made subse- quently thereto. A considerable balance was due to the London bank on the first of these accounts, and to recover this balance an action was brought against Benjamin's repre- sentatives. It was contended that his estate was discharged, by virtue of the rule in Clayton's case, the London bank hav- ing received since his death much more than sufficient to liquidate that balance ; but it was held that the rule in ques- tion did not apply. The judgment of Mr. Justice Bayley contains such an admirable statement of the principles appli- cable to such cases that no hesitation has been felt in setting it out at length. " The general rule is, that the party who pays money has a right to apply that payment as lie thinks fit. If there are several debts due from him, he has a right to say to which of those debts the payment shall be applied. If he does not make a specific application at the time of pay- ment, then the right of application generally devolves on the party 'who receives the money. But there is a third rule, viz., that where one of several partners dies, and the partnership is in debt, and the surviving partners continue their dealings with a particular creditor, and the latter joins the transactions of the *old and new firms in one [*2oo] entire account, then the payments made from time to time by the surviving partners, must be applied to the old debt. In that case, it is to be presumed that all the parties have consented that it should be consid- ered as one entire account, and that the death of one of the partners has (o) 2 B. & C. 05. 279 *234 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. produced no alteration whatever. Tn this case, the partner died in Sep- tember, 1814. Ef in the ordinary course of business a monthly account had been sent in. stating the transactions l>efore and after the death of the partner, as forming part of one entire account, and the balance is due from the survivors, in thai case the creditor would have been precluded, and would have had no right to have said that the payments made subse- quently to the death of the partner should be applied to any hut the old account. In fact, the hankers in London did not send in any account after the death of the partner until November, and then they sent in two distincl accounts, one made up to the day of the death of the partner, and the other commencing from that period. At that time, therefore, the bankers in London expressed their dissent from making the whole one entire account. It has been insisted that at that period of time they had no riu'lh so to do. because they were precluded by the entries which they had already made in their own books in the intermediate space of time. It', indeed, a hook had heen kept for the common use of both parties as a pass-book, and thai had heen communicated to the opposite party, then thf party making such entries would have heen precluded from altering that account: but entries made by a man in hooks which he kept for his own private purposes, are not conclusive on him until he has made a communication on the subject of those entries to the opposite party. Until that time he continues to have the option of applying the several payments as he thinks fit. For these reasons, I am of opinion that the plaintiffs were not precluded from applying the payments to the new ant, and therefore this award is right." Right to blend accounts. — The case of Simson v. Ingham was decided upon the principle that a creditor of a firm has a right, when a change occurs in the firm, to decide for him- self whether the sum due to him from the old firm shall or shall not form an item in his account with the new firm. This principle is further illustrated by the case of Jones v. Maund ( />). There, three persons, A., B., and C. were part- ner-., and I), was indebted to them in a sum secured by a covenant and a mortgage. A. and B. died, C. retired, and ;t^Mgned her interest to E. who, with F., continued the busi- ness of the old firm under the old name. D. continued to deal with the new firm, and he made it several payments, more than sufficient to liquidate the debt above mentioned if appropriated thereto. The mortgage had been realised, and the sum arising from it had been applied in part dis- [*234] charge of * the debt secured by it. There was noth- ing to show that D.'s debt had been made an item in tin- account between him and the new firm, and it was con- sequently held that I), had no right to insist that the pay- (p) 3 Y. & C Ex. 347. 280 II. Ch. 2. S. 3.] APPROPRIATION OF PAYMENTS. *235 ments made by him generally to the new firm should be applied to the balance due from him on his covenant (y). Transfer of debt from one account to another. — It should be borne in mind with reference to cases of this description, that one partner can bind the firm by assenting to a trans- fer of a debt, due to or by it, from one account to an- other (s). Rule in Clayton's case inapplicable where it defeats the inten- tions of the parties. — -The rule in Clayton's case, viz., that in current accounts it is presumably the sum first paid in that is first drawn out, or in other words, that presumably it is the first item on the debit side of the account which is dis- charged or reduced by the first item on the credit side, is a rule based on the presumed intention of the parties (£). It is not, as is sometimes represented, a rule of law obtaining independently of their will ; and consequently, if it can be shown that some other appropriation was intended, the rule ceases to be applicable. An intention to appropriate a pay- ment to a later rather than to an earlier item in the account, may be inferred from the usual course of business between the parties (u) ; from the source from which the money was obtained (V) ; from the security to meet which the payment was made (j/) ; from the fact that the earlier item was se- cured and intended to be kept separate from the * others (2) ; from the fact that the payment was a [*235] dividend on all debts (a) ; from the representations of the parties (6) ; and from other circumstances (c). (9) The case was decided on de- Toulmin, 7 CI. & Fin. 349, there was murrer, and according to the report, evidence to show an agreement for a it was held that the balance due on different appropriation, but it was not the covenant could not be consid- deemed sufficient to exclude the rule, ered as liquidated, unless it could be (m) Taylor v. Kymer, 3 B. & Ad. shown that it had, with C.'s assent, 320; Lysaght v. Walker, 5 Bli. N. S. 1. been made an item in the account (x) Stoveld v. Eade, 4 Bing. 154; between D. and the new firm. But Thompson v. Brown, Moo. & M. 40. quaere what C. had to do with it, she (y) Newmarch v. Clay, 14 East, having assigned all her interest in 240. the debt to the new firm 1 Did she (2) City Discount Co. v. Maclean, not thereby authorise the new firm L. R. 9 C. P. 692. See ante, p. 230. to deal with the debt as it liked 1 (a) Ante, p. 228. See Pemberton v. Oakes, 4 Russ. 154. (&) Wickham p. Wickham, 2 K. (s) Ante, pp. 230, 231 ; Beale v . & J. 478 ; Merriman v. Ward, 1 J. & Caddick, 2 H. & N. 326. H. 371. (0 Be Hallett's estate, 13 Ch. D. (c) See Henniker v. Wigg, 4 Q. 696; Wilson v. Hurst, 4 B. & Ad. 767, B. 792. Compare Be Boys, 10 Eq. per Lord Denman. In Copland v. 467. 281 *236 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. An instructive case on this head is Wickham v. Wick- ham^), which in substance was as follows: — A firm of Finch and Sons, as agents of the plaintiffs, supplied goods to the firm of Smith and Willey upon the terms that the latter should become debtors to the plaintiff in respect of such goods. Finch and Sons also supplied Smith and Willey with other goods on their own behalf. In the accounts between Finch and Sons and Smith and Willey, no distinction was made be- tween goods supplied by Finch and Sons on their own behalf, and those which they supplied as agents of the plaintiffs. Smith and Willey made payments generally on account; and applying the rule in Clayton's case, nothing was clue from Smith and Willey in respect of the goods supplied to them on behalf of the plaintiffs. However, Edward Finch was a partner in both firms, and representations were made to the plaintiffs by the firm of Finch and Sons to the effect that a large debt was due to the plaintiffs from the firm of Smith and Willey, and Finch and Sons undertook that Edward Finch should use his influence as a partner in the firm of Smith and Willey, to secure the reduction of such debt. Upon the faith of this representation and undertaking, the plaintiffs forebore to sue Smith and Willey. It was held, that the firm of Smith and Willey was precluded from treat- ing its debt to the plaintiffs as liquidated by the payments made by it to the firm of Finch and Sons ; for it was not competent to the two firms so to arrange their accounts as to liquidate a debt which a person who was a partner in both lirms represented to the plaintiffs as still owing to them. Application of the rule in cases of fraud. — Upon the same principle, viz., that the rule in Clayton's case is founded on the presumed intention of the parties, it follows that it cannot be applied as against a person who is a [*23 tlmse dealings extinguish the original debt not only as against B. but also as against A. (p). Class A b. — Casks in which a retired partner has NUT BEEN DISCHARGED, ALTHOUGH A NEW PARTNER HAS BEEN INTRODUCED INTO THE FIRM. Effect of introduction of new partner on the liability of a retired partner. — The introduction of a new partner has no effect on the liability of a retired partner, unless the liability (<•) 1 Hem. & M. 182. O) Robinson v. Wilkinson, 3 Price, 538. 292 II. Ch. 2. S. 3.] SUBSTITUTION OF DEBTORS. *246 of the former is substituted by the creditor for that of the latter, which cannot be the case unless the creditor can, as of right, hold the new partner liable for the old debt. This, moreover, he cannot do by virtue of any agreement between the partners themselves ; and even if the new firm adopts the old debt and pays interest on it, this is prima facie only in pursuance of some agreement between the partners them- selves ; and a creditor who does no more than allow the partners to carry out that agreement, does not debar himself of his right to look for payment to those originally indebted to him. * A leading case on this head is Kirwan v. Kir- [*246] wan (cf). There, three partners, C, M., and N., were indebted to the plaintiff. G. retired, and M. and N. contin- ued in partnership together and agreed to discharge the debt of the old firm. M. afterwards retired, and N. took in a new partner. The plaintiff's account was transferred from the books of the old to the books of the new partnership, and interest was paid, and accounts were rendered to him as before. The plaintiff was informed of the dissolution, and had stated to one of the retired partners that he was aware he had no further claim upon him. But it was held, that the three original partners remained liable, as there was nothing to show that the security of the new firm had been substi- tuted for that of the old, and the statement above referred to could not be regarded as an agreement to discharge the retired partner. In Gough v. Davies (r), three persons were partners as bankers, and were indebted to the plaintiff. One of the partners retired ; a new partnership was formed between the continuing partners and other persons ; the plaintiff's debt was transferred to the books of the new firm, and he assented to such transfer. Moreover, the plaintiff continued to deposit money with the new firm, and was paid by it interest on the old debt and new deposits, as if they all formed one debt. But it was held, that there was nothing in all this to show any agreement by the plaintiff to discharge the retired partner, and he was consequently held liable for the old debt. Blew v. Wyatt (s) is another case to the same effect. A clerk lent money to his employers, who were in partnership (q) 2 Or. & M. 617. (s) 5 Car. & P. 397. (>) 4 Price, 200. 293 *'247 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. as brewers, and took an acknowledgment for it. Several changes took place in the firm, one of the original partners retiring and other persons from time to time coming in and going out. The clerk remained in the employ of the firm notwithstanding these changes, and was aware of them, and was always paid interest by the firm for the time being. He was nevertheless held entitled to sue the two original part- ners for the money he had lent them. Right to sue new firm not inconsistent with right to sue the old firm. — Whether in these cases of Kirwan v. [*247] Kirwan, Gough v. * Davies, and Blew v. Wyatt, the creditor could have sued the new firm, may perhaps be open to doubt (£)• H he could not, it would be absurd to contend that the liability of the new firm was substituted, for that of the old ; whilst if he could, the evidence was not sufficient to show an intention on his part to deprive him- self of the security afforded by the undoubted liability of the original firm before any change in it took place. It by no means follows that a creditor who assents to an arrange- ment by which a new person becomes liable to him, con- sents to abandon his hold on another person clearly liable to him already ; and unless a substitution of liability can be established, the old liability remains (w). Class B. — Cases in which a retired partner has BEEN DISCHARGED. In all these cases it will be found that the Court or a jury has come to the conclusion that the creditor has in fact, either expressly or impliedly from his course of dealing with the continuing partners, adopted them as his sole debtors, and thereby in fact discharged the retired partner (x). Retired partner may be discharged though no new partner comes in. — That a retired partner may be discharged by the creditor's adoption of the other partners as his sole debtors, although no new partner has been introduced into the firm,. (i , See per Bolland, B., 2 Cr. & there is nothing to prevent a firm M. 628; Daniel v. Cross, 3 Ves. 277 ; from stipulating with any creditor Fergusson v. Fyffe, 8 CI. & Fin. 121. that he shall look only to the mem- See B . Farwell, 15 Beav. bers of the firm for the time being. 31. Dig. 30, ed. 3. See Hort's case and (x) Mr. Pollock says truly, that Grain's case, 1 Ch. D. 307. 294 II. Cii. 2. S. 3.] SUBSTITUTION OF DEBTORS. *248" is clear from the case of Thompson v. Percival (j/) already noticed. 1 In Evans v. Drummond(z), a firm of two partners gave a partnership bill for goods supplied them. One of the partners retired, and the bill when due was not paid, but was renewed by another bill given by the partner who continued the busi- ness. The creditor took this bill knowing of the change in the firm. Lord Kenyon held, that by so doing the creditor had relied on -the sole security of the continuing part- ner, and had * discharged the other. Reed v. White (a) [*248] is a similar case and to the same effect. Effect of introduction of new partner. — The inference that a retired partner has been discharged is greatly facilitated by the circumstance that a new partner has joined the firm and become liable to the creditor in respect of the debt in ques- tion (6). But this is not necessarily conclusive; for there may be circumstances showing that such was not the inten- tion of the parties (c). At the same time, in the absence of any such evidence, the acceptance by the creditor of the lia- bility of a new partner will practically preclude him from afterwards having recourse to the retired partner (d). In Hart v. Alexander (e), the plaintiff, an officer in the East India Company's service, had in 1813 opened an account with the house of Alexander and Co. of Calcutta, which failed in 1832. The defendant retired from the firm in 1822, when a new partner was introduced, and since that time other changes had taken place, some of the old partners retiring and new ones coming in. The defendant's retirement was advertised, and there was evidence to show that the plaintiff was aware of the fact. The new firms from time to time O) 5 B. & Ad. 925 ; ante, p. (d) As to the effect of taking a 242. new security when no new partner (z) 4 Esp. 89. Compare Bedford comes in, see ante, p. 244. v. Deakin, 2 B. & A. 210, noticed (e) 7 C. & P. 746, and 2 M. & W. ante, p. 244. 484. See, also, Wilson v. Lloyd, 16 (a) 5 Esp. 122. Eq. 60; Oakeley v. Pasheller, 4 CI. (b) See as to this, ante, pp. 205 & Fin. 207, noticed infra, p. 251. e t seq. Compare Commercial Bank Corp. of (c) See infra, p. 254, and Keay v. India and the East, 16 W. R. 958, Fenwick, 1 C. P. D. 745. and Ex parte Gibson, 4 Ch. 662. 1 See ante, p. 222 and note. In Penn National Bank v. Furness, 114 U. S. 376, 29 L. ed. 178, a retiring partner was discharged from liability on notes given to pay to him the capital withdrawn on his retirement by the new firm. 295 *249 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. accounted with the plaintiff and paid him interest, sometimes at one rate and sometimes at another. On the bankruptcy of the firm in 1832, the plaintiff proved the amount of his debt against its joint estate. The plaintiff afterwards sued the defendant ; and the case was tried before Lord Abinger, who is reported to have said to the jury: — •• To ask you if there was an agreement by the plaintiff to discharge the defendant, is to put the case upon a false issue, the agreement, if any, being an agreement raised by construction of law: the true question being whether the plaintiff did not go on dealing with the new firm, and making up fresh accounts with them, so as to discharge the defendant. I take the law in be this : Where a debtor who is a partner in a firm, leaves that firm, and any person trading with the firm has notice of it, [*2 la] and he goes on dealing * with the firm and making fresh contracts, that discharges the retiring partner, though no new partner comes in. So it is if the creditor draws for part of his balance and sends in more goods; so, if the creditor strike a fresh balance with the new part- ners for a different rate of interest; so, if a new partner comes in and the creditor accept an account in which the new partner is made liable for the balance — that discharges the old firm, as both firms cannot be liable at once for the same debt. This is the law as laid down in several cases in which indeed there is some contradiction : however, I believe that what I have stated is the result of them " (/). The jury found for the defendant. A new trial was moved for on the ground that there was no evidence to go to the jury to show that the plaintiff had agreed to discharge the defendant from his liability, but the Court (//) thought that there was abundant evidence to show that the plaintiff knew of th ■ defendant's retirement, and a new trial was refused. To this as illustrating this doctrine. In Oakeley /•. 1 'asheller ( / ) two partners, A. and B., exe- cuted three joint and several bonds, to the plaintiff to secure (p) Sleech's case, 1 Mer. 570; the firm. Compare Bilborough v. Harris v. Farwell, 15 Beav. 31. But Holmes, 5 Ch. D. 255, a somewhat compare Brown v. Gordon, 16 Beav. similar case, where the estate of the 302, and Bilborough '-. Holmes, 5 deceased partner was held to be dis- Ch. 1>. 255, infra, note («). charged. The proof, however, there, (r/) As in Plumer v. Gregory, IS was for money lent to the new firm. Eq. 621. (0 10 Bli. N. S. 548, and 4 CI. & (r) Daniel v. Cross, 3 Ves. 277. Fin. 207. See on it, Swire r. Red- (s) 15 Beav. 31. It does not ap- man, 1 Q. B. I). 543. In Wilson v. pear from the report when the cus- Lloyd, 16 Eq. 60, this ease was fol- tomer fir^t knew of the change in lowed, though no new partner joined 298 II. Ch. 2. S. 3.] ESTATE OF DECEASED PARTNER. *252 repayment of money lent. A. died, and B. took in C. as a partner with him. An agreement was come to between A.'s executors and B. and C, that the latter should take the assets and liabilities of the old firm, and indemnify A.'s estate from those liabilities. Of this the plaintiff had notice (u). He was paid interest on his bond by the new firm, and received accounts from it in which the old debt and the debts contracted by the new firm were blended together. On two occasions the plaintiff * had agreed [*252] to give, and had given, the new firm considerable further time to pay the bonds, but A.'s executors had no notice of this. Ultimately the plaintiff took from B. and C. an assignment of some policies as a collateral security for pay- ment of the bonds expressly reserving his rights against A.'s estate. It was, however, held that A.'s estate had been dis- charged from its liability from what had previously taken place. The Court thought that A.'s estate had become, as it were, surety only for payment of the debt, and that it had been discharged by the long indulgence granted by the plain- tiff to the other debtors (x). The true ratio decidendi, how- ever, was that the plaintiff had accepted B. and C. as his sole debtors. In Brown v. Gordon (?/), the plaintiff deposited money with a banking firm consisting of three partners, A., B., and C. ; D. afterwards became a partner. A. died, having made a will containing a trust for payment of his debts. After A.'s death his son, Avho was also his executor and residuary devisee and legatee, became a partner in the bank. Some time afterwards B. and C. died. The bank had been continued, first, by B., C, D., and A.'s son ; then by D., C, and A.'s son, and lastly by D. and A.'s son ; but it ultimately-stopped payment, and the two surviving partners were adjudged bankrupts. Interest had been paid to the plaintiff by the successive firms, and the plaintiff's debt was proved in the Bankruptcy Court. On a the firm, but Wilson v. Lloyd cannot debtor's position. See, on this point, be relied upon. See Simpson v. Oakford v. European, &c, Ship Co., Henning, L. R. 10 Q. B. 406. 1 Hem. & M. 182, ante, p. 244 ; Swire O) See 4 CI. & Fin. 212. The v. Redman, 1 Q. B. D. 537. See, also, marginal note states that he had Rodgers v. Maw, 4 Dowl. & L. 66. not. (//) 16 Beav. 302; Bilborough v. (.r) This quasi suretyship is surely Holmes, 5 Ch. D. 255, a similar case, a false analogy, unless the creditor but not so strong. See ante, note (s). has assented to such a change in .his 299 ►253 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. bill filed for the purpose of obtaining payment out of A.'s estate, it was held that the plaintiff, by neglecting for sixteen years to make any claim against the assets of the deceased, and by treating the successive firms as his debtors, had discharged the estate of the deceased, and that he could not be considered as a creditor of the deceased, so as to avail himself of the trust in the will for payment of debts. Cases of fraud. — In whatever way a creditor may [*253] have dealt with the surviving * partners, he cannot be held to have adopted them as his sole debtors in respect of a demand arising out of a fraudulent transaction, of which he lias been constantly kept in ignorance (2). Recapitulation. — Before leaving this subject, it may be useful shortly to review the effect of the numerous cases which have been noticed in the preceding pages. Those cases establish that : — 1. An express agreement by the creditor to discharge a retired partner, and to look only to a continuing partner, is not inoperative for want of consideration; for Lodge v. Dicas (a) has, as to this point, been overruled by Thompson v. Percival (7>) ; 2. An adoption by the creditor of the new firm as his debtor does not by any means necessarily deprive him of his rights against the old firm either at law (<") or in equity (o?) ; 3. And it will certainly not do so if, by expressly reserv- ing his rigl its against the old firm, he shows that by adopting the new firm he did not intend to discharge the old firm (e) ; 4. And by adopting a new firm as his debtor, a creditor cannot be regarded as having intentionally discharged a per- son who was a member of the old firm, but was not known to tin- creditor so to he (/) ; ."). But the fact that a creditor has taken from a continuing partner a \irw security for a debt due from him and a retired (z) See Clayton's ease, 1 Mer. 579; (//) Oakford v. European, &c, Ship antf, pp. 235, 236. Co., 1 Hem. & M. 182; Sleech's case, (a) ■■', B. >!i A. 'ill. 1 Mer. 5:50; Clayton's case, ib. 579; 5 I'., .v Ad. 925. Palmer's case, ib. 623; Braitewaite v. David v. Ellice, 5 B. & C. 196 ; Britain,] Keen, 206; Winter v. Innes, Thompson v. Percival, ■ > 15. & Ad. 4 M. & Cr. 101. '.'_'.-.; Heath v. Percival, 1 P. W. 682, (e) Bedford v. Deakin, 2 B. & A. and 1 Str. 403; Kirwan v. Kirwan, 2 210; Jacomb v. Ilarwood, 2 Ves. S. Ct. & M. 617 : Gough v. Davies, 4 365. I 'rice, 200 ; Blew c. Wyatt, 5 ('. & 1*. (./') Robinson v. Wilkinson, 3 397. Price, 538. 300 II. Ch. 2. S. 3.] MERGER OF SECURITIES. *254 partner jointly, is strong evidence of an intention to look only to the continuing partner for payment (#) ; 6. And a creditor who assents to a transfer of his debt from an old firm to a new firm, and goes on dealing with the latter for many years, making no demand for paj- ment against the * old firm, may not unfairly be in- [*254] ferred to have discharged the old firm. If a jury finds that he has done so, the Court will not disturb the ver- dict (Ji) ; and if the question arises before a Judge, e.g., in bankruptcy or in the administration of the estate of a de- ceased partner, the Court will consider all the circumstances of the case, and will infer a discharge if, upon the whole, justice to all parties so requires (i). But the small number of cases in which relief has been refused, compared with those in which it has been granted, shows that the leaning of the Court is strongly in favour of the creditor. (b.) Of the effect of merger and judgment recovered. Merger of one security in another. — Having now examined the mode in which a partner may be discharged from liabil- ity, by reason of a substitution of some other person in his place with the creditor's assent, it is necessary to advert to a doctrine by which a partner occasionally finds himself dis- charged, simply because his creditor has obtained a security of a higher nature than that which he previously possessed. 1 Bills, &c, create no merger. — If a person solely indebted enters into partnership with another, and the two give a joint note or bill for the debt of the first, and the note or bill is not paid, the creditor is not precluded from demanding (g) Evans v. Drumraond, 4 Esp. (/) Ex parte Kendall, 17 Ves. 89; Reed v. White, 5 ib. 122. 522-5; Oakeley v. Pasheller, 4 CI. (h) Hart v. Alexander 2 M. & W. & Fin. 207 ; Wilson v. Lloyd, 16 Eq. 484. 60 ; Brown v. Gordon, 10 Eeav. 302. 1 A bond given by an agent of the owners of a ship who is himself a part- owner, for a debt due from the owners, merges their obligation. Banorgee v. Hovey, 5 Mass. 11. See also Bond v. Aitken, 6 W. & S. 165; McXaughten v. Partridge, 11 Ohio, 223. And the acceptance of a higher security or obtaining a judgment on a claim, merges the debt in the specialty or judgment. Smith v. Blush, 9 Serg. & R. 142; Mason v. Eldred, 6 Wall. 231, 18 L. ed. 783; Sessions v. Johnson, 95 U. S. 347, 24 L. ed. 596; United States v. Ames, 99 U. S. 35, 25 L. ed. 295; Cowley v. Patch, 120 Mass. 137. But a judgment is not merged in a bond. Bennett v. Caldwell, 70 Penn. St. 253. 301 ♦255 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. payment from his original debtor (A"), unless it can be shown that the bill or note Mas taken in satisfaction of the original demand (T). S°> if two partners are indebted on the part- nership account, and one of them gives a bill or note for tlu' debt, and that bill or note is dishonoured, the creditor who took it will not be precluded from having recourse to both partners for payment (w*)i unless it can be [*255] * shown that he intended to substitute the liability of the one for the joint liability of the two (ri). Securities of a higher nature do. — But when a creditor ob- tains from his debtor a security of a higher nature than he had before, and does not take care to accept it as a collateral security (o), the original debt is merged in the higher secur- ity, and can no longer be made the foundation of an action, or of proof in bankruptcy (j?) ; and this doctrine is as much applicable to joint as to several obligations. And there is no mean authority for saying that if two parties are jointly in- debted by simple contract, and one of them gives his bond for payment of the debt, the joint debt is at an end (q) ; but there are recent decisions to the contrary (r), and the ques- tion cannot be considered as yet settled. Judgment recovered. — If a joint creditor obtains judgment against one of the partners only, he loses his remedy against the others even if not known to him (s). But this rule does not apply when the other partners are abroad, and cannot (£) Ex parte Seddon, 2 Cox, 49 ; (o) As in Ex parte Hughes, 4 Ch. Ex parte Lobb, 7 Ves. 592 ; Ex parte D. 34, note. Meinertzbagen, 3 Deac. 101 ; Ex parte (p) Ex parte Oriental Financial Hay, 15 Ves. 4; Ex parte Kedie, 2 Corporation, 4 Ch. D. 33; Higgen's D. & C. 321. case, Co. 44 b; Owen v. Homan, 3 (0 As in Ex parte Whitmore, 3 Mc. & G. 378; Price v. Moulton, 10 Deac. 365; Ex parte Kirby, Buck, C. B. 561; Shack v, Anthony, 1 M. 511; Ex Jackson, 2 M. D. & & S. 573. A judgment on a cove- D. 146. nant in a mortgage does not affect (m) Keay v. Fenwick, 1 C. P. D. the right of the mortgagee to fore- 745; Bottomley v. Nuttall, 5 C. B. close; Popple v. Sylvester, 22 Ch. D. N. S. 122; Whitwell v. Perrin, 4 C. 98; Ex parte Fewings, 25 Ch. D. 338. B. X. S. 112; Ex parte Hodgkinson, (q) Bassett v. Wood, 11 Vin. Ab. 19 Ves. 291. See, too, Ex parte Exting. B. 8; and see Owen v. Ho- Raleigh, 3 M. & A. 670; Bedford v. man, 3 Mc. & G. 407; Ex parte Deakin, 2 B. & A. 210, noticed ante, Hernaman, 12Jur. 042, and 17 L. J. p. 244 Bk. 17. (n) As the jury found was the (r) Sharpe v. Gibbs, 16 C. B. N. S. case in Evans v. Drummond, 4 Esp. 527; Ansell v. Baker, 15 Q. B. 20; 89, and Reed v. White, 5 ib. 122. and infra, note (<•). Compare the cases in the last note. (s) Kendall v. Hamilton, 4 App. Ca. 504, ante, pp. 193 et seq.; King v. 302 II. Ch. 2. S. 3.] MERGER OF SECURITIES. *256 therefore be sued here with effect (0- If one partner only is sued, and judgment is given for him, the creditor is not precluded from afterwards suing the others, unless the first action failed for a reason which applies equally to the sec- ond (u). It has been already seen that a judgment recovered against continuing partners and an incoming partner is a de- fence to an * action against a retired partner who [*256] might have been sued with the continuing partners in the first instance (a-). Merger of joint and several obligations. — With respect to obligations which are joint as well as several, there is more difficulty. A joint and several obligation, arising ex delicto, is extinguished by a judgment recovered against any one of the persons obliged (j/) ; but, as regards joint and several obligations arising ex contractu, although a joint judgment against all the persons obliged extinguishes the separate lia- bility of each, for nemo debet bis vexari pro eddem causa, yet a judgment obtained against one of them only does not ex- tinguish the separate liability of the others (z). In order that this effect may be produced the judgment must be satis- fied (a)'. As regards joint and several liabilities arising from breaches of trust, a joint judgment does not preclude proof in bankruptcy against the separate estates of the judgment debtors (7>). Further, if several persons are jointly liable, and one of them afterwards gives a separate collateral security on which judgment is recovered against him, this will not merge the prior joint liability (7] tract debtor gives a bond or * confesses a judgment to a trustee for his creditor (e), in neither of these cases will there be any merger. Estates of deceased partners. — It must also be borne in mind that as regards the liability of the estate of the deceased partner, at law when a partner died his liability on contracts survived to his co-partner, who alone could be sued in respect of them. Hence a judgment recovered against the surviving members of a firm does not preclude the judgment creditor from obtaining payment of his original debt from the estate of the deceased partner in equity (/) ; nor does proof against his estate afford a defence to an action against the surviving partners (//). Merger not an extinction of the debt. — Further, it is to be observed that merger does not, properly speaking, extin- guish a debt ; for, notwithstanding the fact that a debt is merged in a higher security, the merged debt is sufficient to support an adjudication of bankruptcy against the debtor (]i). Proof in bankruptcy. — Again, proof in bankruptcy against the estate of one partner in respect of a partnership debt does not preclude the proving creditor from afterwards suing the solvent partners, and recovering from them what he may have failed to obtain in the bankruptcy (i). too, Re Clarkcs, 2 Jo. & Lat. 205; Liverpool Borough Bank v. 212; Ex parte Hate, 3 Deac. 358. Walker, 4 De G. & J. 24. See, also, Compare Cambefort /■. Chapman, 19 Rawlins v. Wickham, 3 De G. & J. Q. B. D. 229, noticed ante, p. 193, 304, ante, pp. 195, 250. note (/-;. (nd the seas of one of several Bli. N. S. 352; Forbes v. Skelton, 8 joint creditors did no1 enlarge their Sim. 335. See Webber v. Tyvill, 2 time for suing under the old law. Wms. Saund. 124, and the note there. Perry v. .Jackson, 4 T. R. 516. ('/) See The British Linen Co. v. (m) 4 & 5 Amu-, c. 16, § 19, and 3 Drummond, 1<> B. & C. 903; Hubert'. & 4 Wm. 4, c. 42, § 4. Steiner, 2 Bing. N. C. 202. L9 & 20 Vict. c. 97, § 11. See, (r) See Rhodes v. Smethurst, 4M. beyond the s< as, § 12, & W. 42, and ib. 351; Goodall v. and as to the old law, Fannin --. Skerratt, 3 Drew. 216 ; Wych v. East Anderson, 7 Q. 15. 811; Towns v. India Co., 3 P. W. 309. There is, Mead, 16 C. B. 123. however, an exception to this rule, (o) 19 ,t 20 Vict. c. 97, § 9. where an action brought in time be- - . 1'.' & 20 Vict. c. 97, § 9, comes abated, and another is after- 30G II. Ch. 2. S. 3.] STATUTES OF LIMITATION. *260 except where a defendant dies and there is no representa- tive to sue (s). 3. When time begins to run. — Time begins to run from the moment the right to sue arises (£) ; but in a case of concealed fraud, from the moment *when the [*260] person acquiring the right first becomes aware of it (u). 4. Cases of trust. — The claim of a cestui que trust against his trustee in respect of a breach of an express trust is not barred by mere lapse of time (x) ; although it is otherwise if the trust is only constructive (j/). In consequence of the first branch of this rule, if a partner dies, having made a will containing a trust for payment of his debts, his estate will be liable to the demands of creditors of the firm much longer than if there were no such trust in the will (z). 5. Revival of debts. — After time has begun to run, and even after it has run, a debt may be revived by a written promise to pay it; or by an acknowledgment in writing, from which a promise to pay it may be inferred (a) ; or by a payment on account of the principal or interest due (6), from which a similar promise may be implied (c). wards commenced. See Sturgis v. 206 ; Brown v. Gordon, 16 Beav. 302. Darrell, 4 H. & N. 622, and 6 ib. 120. See, also, Pare v. Clegg, 29 Beav. See, as to how far merely landing at 589, where a society's property was an English port is a return, so as to on its dissolution subjected to a trust make time begin to run, Gregory v. for the payment of its creditors. Hurrill, 5 B. & C. 341, and 1 Bing. 324. (a) See Tanner v. Smart, 6 B. & C. (s) Swindell v. Bulkeley, 18 Q. B. 603. The cases upon the question, D. 250. what is a sufficient acknowledgment? (<) This was so at law, even in are innumerable. The following are cases of concealed fraud; The Im- selected for reference: — Green v. perial Gas Co. v. The London Gas Humphreys, 26 Ch. D. 474; Mitchell's Co., 10 Ex.39; Hunter v. Gibbons, 1 claim, 6 Ch. 822, a letter without H. & N. 459. See Bree v. Holbech, prejudice ; Bourdin v. Greenwood, 13 Dougl. 655. But see now, Jud. Act, Eq. 281, a mem. on prom, note; Bush 1873, § 24; Jud. Act, 1875, § 10, cl. v. Martin, 2 H. & C. 311, entry by a 11, and the cases in the next note. committee in their minutes; letter (m) Gibbs v. Guild, 9 Q. B. D. 59; asking for an account, or admitting a South Sea Co. v. Wymondsell, 3 P. liability to account; Banner v. Ber- W. 143; Blair v. Bromley, 2 Ph. 354, ridge, 18 Ch.D.254; Quincey v.Sharpe, and 5 Ha. 542 ; Petre v. Petre, 1 1 Ex. D. 72 ; Prance v. Sympson, Kay, Drew. 397. The fraud in Urquhart v. 678. A letter from one partner to Macpherson, 3 App. Ca. 838, was not another will not avail a creditor whose alleged to have been concealed. debt is mentioned and recognised in O) See Jud. Act, 1875, § 10, cl. 2. it, Re Hindmarsh, 1 Dr. & Sm. 129. (y) Banner v. Berridge, 18 Ch. D. (b) See Whitcomb v. Whiting, 1 254; Beckford v. Wade, 17 Ves. 87. Smith, L. C, and the note there. (?) See Ault v. Goodrich, 4 Buss. (c) See Morgan v. Rowlands, L. R. 430; Braithwaite v. Britain, 1 Keen, 7 Q. B. 493. 307 *261, *262 TERMINATION OF LIABILITY. [II. Ch. 2. S. 3. Application of these rules to partners. — 111 order that the application of these general rules to partners may be fully understood, it becomes necessary to consider the extent to which one partner can affect the other by acknowledging ami promising to pay, or by making payments on account of a partnership debt. Old Law. — The old law upon this subject was materially altered by the Mercantile Law Amendment Act, [*261] * but in order to understand its provisions a short allusion to the law as it previously stood is neces- sary. Prior to the act in question, it was held that : — 1 . Admissions by one partner. — An admission by one of several joint debtors that their debt was still due, was not sufficient to take the case out of the statutes as against the others ; nor even as against the person making the admis- sion, unless it were in writing signed by him ((/). 2. Promise by one partner. — An actual promise by one of several joint debtors that the debt should be paid, was of no validity against any person except him who made it, and not even against him unless it were in writing and signed by him (e). 3. Payment by one partner. — But as regards payment (/), it was held that if one of several joint debtors paid any money on account of the principal or interest due from them all, such payment was sufficient to take the debt out of the statute, not only as against the person making the payment, but as against all the others jointly liable [*262] with him (#). But even before the Mercantile * Law Amendment Act payment b}^ a surviving partner did (rl) 9 Geo. 4, c. 14, § 1 ; Hyde v. of the statute as against all, was gen- Johnson, -J. Ming. X. ('. 777; Bristow erally rested on the ground that the v. Maxwell, 11 Ir. Law Rep. 461. It partner making the payment acted was otherwise before 9 Geo. 4, c. 14. virtually as the agent for the rest. See Manderston v. Robertson, 4 Man. But the right of one of several co- & Ry. 1 10. A- to admissions by one debtors (whether they are partners or partner, see ante, p. 128. not) to make a payment on account (e) See the last aote. of the joint debt, is not derived from (_/") As to payment by bills, see any authority conferred by the other Gowan '■. Forster, 3 B. & Ad. 507; debtors, for they have no right to pre- Irving '•. Veitch, •'! M. & W. 90; Tur- vent their co-debtor from relieving ncy v. Dodwell, 3 E. & B. 136. himself from a liability to winch he ( ij ) Sec Whitcomb '■. Whiting, 2 is subject as much as they. More- Dougl. 652, and 1 8m. L. C. ; 9 Geo. over, admitting that the doctrines of 4, c. 14, § 1. The doctrine that pay- agency arc applicable to payments ment by one partner took a debt out made by one of several co-debtors, it is 308 II. Ch. 2. 8. 3.] STATUTES OF LIMITATION. *262 not prejudice the estate of a deceased partner (Ji) any more than a payment by the executors of the deceased prejudiced the partners who survived (/) ; for the executors of a de- ceased partner are not liable jointly with the surviving part- ners. But if one of the surviving- partners was an executor of the deceased, then a question of a different nature arose, turning not only on the effect of the payment as such, but on whether it was made by the survivors as surviving part- ners only, or as to one of them in his character of executor also (/r). Liability in equity of estate of deceased partner. — The effect of the Statutes of Limitation upon suits in equity against the executors of a deceased partner was not well settled. In Winter v. Lines (J) Lord Cottenham expressed a doubt whether the executors could set up the statute where the surviving partner continued liable and had a right of contri- bution against them : but in Way v. Bassett (w) the statute was successfully relied upon as a defence by the executors of a deceased partner, although the surviving partners had by various payments kept the debt alive as against them- selves. The law now is in accordance with the latter de- cision (n). Alterations introduced by 19 & 20 Vict. c. 97. — By the Mer- cantile Law Amendment Act, 19 & 20 Vict. c. 97, it is en- acted as follows : — § 13. In reference to the provisions of the acts of 9 Geo. 4, c. 14, §§ 1 and 8, and 16 & 17 Vict. c. 113, §§ 24 and 27 (Irish), an acknowledgment or promise made or contained by or in a writing signed by an agent of impossible to justify, on that ground, Bell v. Morrison, 1 Peters, 351, set the decisions which have just been no- out in "Story on Part, § 824, note. ticed. They were all, it is said, based (k) Atkins v. Tredgold, 2 B. & C. upon this, that a part payment is evi- 23. dence of a new promise to pay more (i) Slater v. Lawson, 1 B. & Ad. (Bateman v. Pinder, 3 Q. B. -574). 396. But upon what principle can it be (k) See Braithwaite v. Britain,- 1 held, that after a partnership is dis- Keen, 206, where the payment pre- solved, one partner lias any implied vailed; Way v. Bassett, 5 Ha. 55; authority from his late partners, to Brown v. Gordon, 16 Beav. 302, where bind them by a fresh promise to pay it did not. See, further, Griffin v. an old debt ? Assuming the debt to Ashby, 2 Car. & Kir. 139 ; Atkins v. be already barred, the question can Tredgold, 2 B. & C. 23. admit of no satisfactory answer, and (7) 4 M. & Cr. 101. yet the decisions went the length of (m) 5 Ha. 55. binding the firm even in this extreme [n) 19 & 20 Vict. c. 97, § 14, infra. case. See the excellent judgment in 309 • l!b"> TERMINATION OF LIABILITY. [II. Cn. 2. S. 3. the party chargeable thereby, duly authorised to make such acknowledg- . ment or promise, shall have the same effect as if such writing had been d by such party himself. Payments by one of several co-debtors. — § 14. In reference to the provisions of the acts 21 Jac. 1, c. 16, § 3; 3 & 1 Wm. 4, c. 42, § 3, and bi and 17 Vict c. 1 13, § 20 ( Irish), when there shall be two or more co-contractors or co-debtors, whether bound or liable jointly only or jointly and severally, or executors or administrators of any co-contractor, no such co-contractor or co-debtor, executor or administrator, shall lose the benefit of the said enactments or any of them, so as to be [*•_>(>:!] * chargeable in respect or by reason only (o) of payment of any principal, interest or other money, by any other or others of such co-contractors, or co-debtors, executors or administrators. Effect of above statute on partners. — The above statute, it will be observed, lias materially altered the law as regards the effect of acknowledgments and part-payments. An ac- knowledgment by an agent being now sufficient to affect his principal, acknowledgment by one partner will, it is ap- prehended, be regarded as an acknowledgment by the firm: and notwithstanding § 14, a part-payment by a partner will probably be regarded as a part-payment by the firm (jo). Bui after a dissolution a part-payment by a continuing or a surviving partner will not prevent a retired partner (^), or the executors of a deceased partner (V), from availing them- selves of the statute; and the same is true of an acknowledg- ment (s). (o) Sec, as to this word, Cockrill however, was a mistake. In every v. Sparkes, 1 II. & C. fi'.''.*. other respect the case is good law. (/*) See Goodwin v. Parton, 42 L. As to the non-retrospective operation T. 568 : Watson v. Woodman, 20 Eq. of § 14 of the statute, see Jackson v. p. 730. Wooley, 8 E. &. B. 778; Flood v. (>,) Ibid. 721. Patterson, 29 Beav. 295. (r) Thompson v. Waithman, 3 (s) If in any case it could he Drew. 628, in which the surviving shown that a continuing or surviving partner was the sole executor of the partner was in point of fact author- deceased. In this case, § 14 of the ised to act for the late partner or his act in question was treated as having executors in making acknowledg- .i retrospective operation, and as de- ments or payments, the case would gtroying the effect of a payment he different. made before the act passed. This, 310 II. Ch. 3. S. 1.] ACTIONS BY PARTNERS. *264 * CHAPTER III. [*264] OF ACTIONS BETWEEN PARTNERS AND NON-PARTNERS. General observations. — 111 Older to complete the subjects discussed in the preceding chapters it is necessary to ex- amine the remedies by which rights and obligations between partners and non-partners can be enforced. It is unnecessary to dwell upon criminal prosecutions, for although partners may be prosecutors or prosecuted in re- spect of criminal offences, the fact that they are partners has little, if any, effect on their position in a criminal point of view. The remedies which alone are of sufficient importance to require consideration in a treatise like the present are actions, defences by way of set-off, proceedings to enforce judgments, and proceedings in bankruptcy. The subject of bankruptcy will be discussed hereafter, and the present chapter will therefore be confined to actions, set-off, and execution. SECTION I. —ACTIONS BY AND AGAINST PARTNERS. General observations. The Judicature Acts, 1873 and 1875, and the rules of the Supreme Court, 1883, have materially altered and improved legal proceedings by and against partnerships and unincor- porated companies. 1 1 In Massachusetts (Pub. Stat. chap. 183, sec. 7), when partners are sum- moned as trustees (garnishee process), in a writ from the inferior courts, service of the writ on one of the partners is sufficient, if the partnership is properly described in the writ. And in Iowa (Code, sec. 2553), Gregory v. Harmon, 10 Iowa, 444; Mark- ham v. Buckingham, 21 Iowa, 494, and New Mexico (Code, sec. 1886), actions may be brought against a partnership as such, or against all the individual members of it. And a new action may be brought upon this same cause against the partners not sued. Nebraska (Code, sec. 24) : Burlington & Missouri River R. R. v. Dick, 7 Neb. 242. Statutes held not alternative. 311 *265 ACTIONS BY PARTNERS. [II. Ch. 3. S. 1. 1. There is now no distinction between legal and equitable rules as regards parties to sue and be sued (a). ■2. No action ran be defeated by reason of the misjoinder or non-joinder of parties (5); and pleas in abatement are abolished (c). It' too many or too few persons join [*265] as plaintiffs, and the defendant ran show that he is thereby prejudiced, he can apply to have the im- proper plaintiffs struck out, or the proper plaintiffs joined, as the rase may be (//). 3. All persons may be joined as plaintiffs, or as defendants, in or against whom the right to any relief claimed is alleged to exist, whether jointly or severally, or in the alternative (e). 4. A plaintiff may at 'his option join, as parties to the same action, all or any of the persons severally, or jointly and severally liable on any one contract, including parties to bills of exchange and promissory notes (/). 5. Claims by plaintiffs jointly may be joined with claims by them or any of them separately against the same defend- ant (;/ ), pro\ ided no inconvenience is thereby occasioned (A). 6. Parties required by a defendant to be joined for his indemnity or relief by way of contribution may be brought before the Court (i). 7. Where t here are numerous parties having the same interest in one action, one or more of them may sue or be sued on behalf of all (&). (a) See Supreme Court Rules, (e) Orel. xvi. rr. 1 and 4. 1883, Order xvi. (/) Ord. xvi. r. 6. (b) Ord. xvi. r. 11 ; Pilley v. Rob- (. L55 ; and see Kendall (h) lb. r. 7. v. Hamilton, ante, p. 193, note (k). (i) Ord. xvi. r. 48 et seq. See Ird. xxi. r. 20 ; Pilley v. Rob- Birmingham Land Co. v. L. & N. W. inson. supra. Rail. Co., 34 Ch. D. 2(51. (d) < >rd. xvi. r. 11. (&) Ord. xvi. r. 9. In other states modifications arc liberally construed: as, — Ohio: lla^kin.- /•. Alcott, 13 Ohio St. 210 ; Whitman v. Keith, 18 Ohio St. 134. Alabama: Sims v. Jacobson, 51 Ala. 186. Michigan: Mason v. Eldred, 6 Wall. 231, is L. ed. 783. / ois: United States Exp. Co. v. Bedbury, 34 111. 459. Mi ppi: .Morris v. Hilery, 8 Miss. 01 ; Amis v. Smith, 1(5 Pet. 303, 10 L. ed. 973. /. mia: McFadden v. Hunt, 5 W. & S. 468; McConkey v. Rogers, Brightley, X. P. 150. New Yorl : D'Arcy v. Ketchum, 11 How. 165, 13 L. ed. (548. But a judgmenl againsl an absent partner, where the lex loci allows ser- vice on one partner to hind the firm, cannol be enforced against him out ot the local jurisdiction. Phelps v. Brewer, 9 Cush. 390. 312 II. Ch. 3. S. 1.] ACTIONS BY PARTNERS. *266 8. Any two or more persons claiming or being liable as co-partners may sue or be sued in the names of the firms of which they were members when the cause of action ac- crued (7) ; and provision is made for the discovery of the individuals so suing or being sued (m). Actions in the mercantile name. — With reference to this last rule, it is to be observed that the firm's name, when used in any action, is merely a convenient method of expressing the names of those who constituted the firm when the cause of action accrued. The rule does not incorporate the firm (n) ; so that if A. is a creditor of a firm, B., C. and D., and D. re- tires and E. takes his place and the name of the firm continues unchanged, A. cannot maintain an * action [*266] against B., C. and E. in the name of the firm, unless B., C. and E. have become or are content to be treated as his debtors. In the case supposed, an action against the firm would mean an action against B., C. and D., i.e., A.'s real debtors. Where there have been no changes in the firm. — Where there have been no changes amongst the members of a firm since the cause of action accrued, there is no difficulty in following the rules. The writ may be served either upon any one or more of the partners, or at the principal place of business of the firm, upon any person having the control or management of the partnership business there () Ord. xii. r. 15. 103. (jq) lb. Jackson v. Litchfield, 8 0) See per James, L. J., in Ex Q. B. D. 474. parte Blain, 12 Ch. D. 533. As to (r) Adam v. Townend, 14 Q. B. D. the Scotch law from which the rule 103 ; Jackson v. Litchfield, 8 Q. B. D. was taken, see Bullock v. Caird, L. 474; Munster v. Cox, 10 App. Ca. R. 10 Q. B. 276. 680, affirming Munster v. Railton, 11 0) Ord. ix.r. 6. See, as to foreign Q. B. D. 435. As to execution, see firms, Pollexfen v. Sibson, 16 Q. B. D. infra, § 3. 792; Baillie v. Goodwin, 33 Ch. D. 313 •267 ACTIONS, BY PARTNERS. [II. Ch. 3. S. 1. curred amongst the members of the firm since the cause of action accrued little, if any, advantage is derived from using the name of the firm. If an action is brought against a firm which the plaintiff knows has been dissolved before the com- mencement of the action, the writ must be served upon all the persons sought to be made liable (s). If, as sometimes happens, the plaintiff sues a firm and obtains judgment against it, without having discovered that any changes have occurred in it since the cause of action accrued, he may find himself in a difficulty when he seeks to enforce his judgment. In such a case it may well happen that the person against whom he seeks to enforce it is not one of those mentioned in Ord. XLIL, r. 10, and is, in fact, not liable to execution without further proceedings, if at all (£). A debt due from a firm under a judgment re- [*267] covered against * it in its mercantile name cannot be attached under the garnishee orders (w). It frequently happens that there are reasons which prevent the joinder as plaintiffs of all who primd facie ought to be joined: in such a case those who cannot be so joined may be made defendants. Thus if a firm has a cause of action, and one member has improperly released it, the other members can nevertheless maintain the action, joining him as a de- fendant, so that justice may be done both to the plaintiffs and to their opponents (x). Two firms with common partner. — Again, there appears to be no reason why an action should not now be maintained for the recovery of a debt due from one partner to the firm ( //) : nor why, if two firms have a common partner, an action should not be maintained by one firm against the other: not. perhaps, in their mercantile names, but by those members of one firm which are not common to both against the members of the other firm; e.g., if there are two firms, A., B. and C. and A., I), and E. an action may, it is con- (s) Orel. xvi. r. 14. 287, and 8 H. L. C. 751, show that (i j Sec Minister v. Cox, 10 App. suits in equity would lie in these Ca. 680, and infra, § 3, as to execu- cases in aid of legal rights. See, ti„n. also, Luke v. South Kensington Hotel («) Walker v. Booke, 6 Q. B. I). Co., 11 Ch. I). 121; Williamson v. 631. Barbour, 9 Ch. D. 536, per Jessel, M. (x) See the cases in the next R.; Palmer v. Mallet, 3(5 Ch. 1). 411, no te. a case of a contract by an assistant (y) Piercy v. Fynney, 12 Eq. 69 ; not to carry on business without the Taylor v. Midland Kail. Co., 28 Beav. consent of the partners. 314 II. Cn. 3. S. 1.] ACTIONS BY PARTNERS. *268 ceived, be now maintained by A., B. and C. against D. and E. or by B. and C. against A., D. and E. or vice versa (2). Defences to actions by partners founded on the conduct of one of them. — As a general principle, what a person has no right to do himself, he cannot acquire a right to do by as- sociating others with him (a). Thus, it being a rule that a trustee cannot claim from his cestui que trust compensation for trouble, or loss of time in the execution of the trust, it has been held that if one * of a firm of solic- [*268] itors is a trustee, and the firm acts as solicitors in the matter of the trust, the firm cannot claim payment for its services ; the disability of one of its members thus extending to them all (/>). So if one member of a firm is guilty of fraud in entering into a contract on behalf of the firm, his fraud may be relied on as a defence to an action on the contract brought by him and his co-partners ; for their inno- cence does not purge his guilt (c). So if one partner resi- dent abroad sells partnership goods, and he knows they are to be smuggled into this country, and he is privy to their be- ing so smuggled, then although his co-partners are innocent, the firm cannot recover the price of such goods ((f). So if one of several partners draws a bill in his own name, and the bill is accepted upon condition that he will provide for it when due, he cannot, by indorsing that bill to the firm to which he belongs, entitle himself and his co-partners to sue upon it (Y)- I n Astley v. Johnson, one of three partners purchased a bill in the partnership name, and undertook to pay for it at the end of a month. He remitted the bill to (2) Before the Judicature Acts (/>) See Broughton v. Broughton, such actions could not be maintained, 2 Sim. & G. 422, and 5 De G. M. & Bosanquet v. Wray, 6 Taunt. 598; G. 160; Christophers v, White, 10 1 Wms. Saund. 291 h. But suits in Beav. 523; Collins v. Carey, 2 ib. equity could. See the cases in the 128; Matthison v. Clark, 3 Drew. 3. last note. See as to the non-applica- See the exception in cases of litiga- tion of this rule at law to companies, tion, Cradock v. Piper, 1 Mc. & G. Bosanquet v. Woodford, 5 Q. B. 310. 664, and Re Corsellis, 34 Ch. D. 675. As to estimating damages sustained (c) See Kilby v. Wilson, Ry. & by one firm by reason of being pre- Mood. 178. vented from completing a contract (d) Biggs v. Lawrence, 3 T. R. made with another firm, some mem- 454. bers being common co both, see (e) Sparrow v. Chisman, 9 B. & C. Waters v. Towers, 8 Ex. 401. 241; and see Richmond v. Heapy, 1 («) See, in addition to the cases Stark. 202. cited infra, ante, pp. 116, 117, and Salomons v. Nissen, 2 T. R. 674. 315 *269 ACTIONS BY PARTNERS. [II. Cn. 3. S. 1. his co-partners in England, and they sued upon it. The bill, however, had not been paid for as agreed, and it was held that the plaintiffs were not entitled to recover, and were in no better position without their co-partner than they would have been had he been a co-plaintiff in the action (/). Surviving partners prejudiced by conduct of deceased part- ner. — In siu-li c;!m'> as these the inability of the firm to sue is not removed by the death of the partner who has created the inability. Tims in Ex parte Bell (//), one of a firm ad- vanced money of the firm to a stranger for an illegal pur- pose ; and it was held, after the death of the partner [*269] who advanced the * money, that the survivors could not recover it from the person to whom it was lent. So if a firm has become bankrupt, its trustee is in general in no better position than the partners themselves would have been in. and is therefore frequently liable to be defeated on similar grounds (K). But the trustee of a bankrupt partner can disaffirm and avoid such of his acts as are fraudulent as against his creditors, and consequently acts of this nature afford no defence to an action by the trustee and the solvent partner. Thus in Heilbut v. Neville (i), a solvent partner and the assignees of a bankrupt partner successfully main- tained an action for a bill of the firm, given by the bankrupt to a creditor of his own, under circumstances which amounted to a fraudulent preference. Frauds by one partner on the firm. — Owing to the old tech- nical rules relating to the joinder of parties to actions, the principle above discussed was, moreover, applied at law to cases where it produced great injustice; viz., to cases where one partner acted in fraud of his co-partners. For example, where a partner pledged partnership property, and in so doing clearly acted beyond the limits of his authority, still, as he could not dispute the validity of his own act, it was held at law that he and his co-partners could not recover the property so pledged (/:). So although a partner has no right to pay his own sep, mile debt by setting it off against a debt due from his creditor to the firm, yet if he actually agreed that Astley '•. Johnson, •"> II. & N. compare limes v. Stephenson, 1 Moo. 137. ' & Rob. 1-17. 1 M. x s. 751. Sec. also, (A) Jones v. Yates, 9 B. & C. 532. Brandon v. Scott, 7 E. & Ii. 237, and (/) L. R. 4 C. ]'. 354. (A.) Brownrigg v. Kae, 5 Ex. 489. 316 II. Ch. 3. S. 1.] ACTIONS BY PARTNERS. *270 such set-off should be made, and it was made accordingly, it was held at law that he and his co-partners could not after- wards recover the debt due to the firm (7). So where a firm of three partners deposited goods upon the terms that they were not to be parted with except on the joint authority of all three partners, and they were nevertheless given up to one of them, it was held at law that the firm could sustain no action for the recovery of the goods (m). In such cases, as observed by Lord Tenterden, in Jones v. Yates («), there is no instance *"in which a person has been [*270] allowed as plaintiff in a court of law to rescind his own act, on the ground that such act was a fraud on some other person ; whether the party seeking to do this has sued in his own name only, or jointly with such other person." In such cases as these, however, relief might have been had in equity (o) : and it is apprehended that the cases at law above referred to can no longer be relied upon ; the Judica- ture Acts having removed the technical difficulties which led to their decision. 1 (/) See Wallace v. Kelsall, 7 M. & (n) 9 B. & C. 532, and see Rich- W. 264; Gordon v. Ellis, 7 Man. & mond v. Heapy, 1 Stark. 202. Gr. 607. Compare Kendal v. Wood, (o) Piercy v. Fynney, 12 Eq. 69; L. R. 6 Ex. 243, where the technical Midland Counties Rail. Co. v. Taylor, difficulty did not arise. 8 H. L. C. 751, affirming Taylor v. (m) Brandon v. Scott, 7 E. & B. Midland Counties Rail. Co., 28 Beav. 234. 287. 1 Except as modified by statutes in some of the states (ante, p. 264, note 1) the common-law rule is rigidly adhered to, that all partners must join as plaintiffs and be joined as defendants respectively, in actions to sustain claims in favor of the firm, and in actions against the firm for obligations of the firm. " The law looks beyond mere names and firms, and sees who are the real parties, and treats them as the persons who are to enforce or defend their con- tracts." Gage i'. Rollins, 10 Met. 354. In this 'case four persons carried on the ice business under the name of " G. H. & Co." in one port, and by written articles afterwards formed a partnership with a fifth person under a different firm name, in another port, in the same business, the net profits of which were to be equally divided between the old firm and the partners in the new firm. The defendant made an agreement through a broker, acting as agent for "G. H. & Co.," to transport a cargo of ice from one port to the other, and the four members of the old firm brought an action for damages for breach of that agreement, and it was held (Shaw, C. J., dissenting) that the action could not be maintained without joining the other partner as plaintiff. See ante, p. 115, note 1. And in addition to cases there cited, see, to the effect that all partners must be joined in actions at law either as plaintiffs or defendants, Armstrong v. Johnson, 5 G. & J. 412 ; Mexican Mill v. Yellow Jacket Mine, 4 Nev. 40; Vinal v. West Virginia Oil Co., 110 U. S. 215, 28 L. ed. 124; Mason r. Eldred, 6 Wall. 231. 18 L. ed. 783; Page v. Wolcott, 15 Gray, 536 ; Exchange Bank v. Ford, 7 Colo. 314. 317 *271 ACTIONS BY PARTNERS. [II. Cn. 3. S. 1. If a partner in collusion with a debtor to the firm gives him a receipt for his debt although no payment or anything equivalent to payment is made, an aetion for the recovery of the debt is nevertheless maintainable by the firm, i.e., by the partner giving the receipt and his co-partners (j>). For a receipt dues not preclude the person giving it from showing that the money therein expressed to be received, was not in fact received {) ; or by giving a cognovit to pay the debt and costs (c). But a warrant of attorney executed by one partner in the name of the firm with the consent of the other partners, is not invalid, simply because the others have not executed it (d). Costs. — If in an action costs are ordered to be paid to one partner, payment to another partner is not sufficient (e). Service on one partner. — One partner is not the agent of his co-partner, except as to partnership matters: and if one partner is sued in respect of some private affair of his own, he must be proceeded against like any other individual, and service of writs, &c, must be made accordingly, and they must not be left at the place of business of the firm, to be served on the other partners (f). And even in proceedings relating to partnership matters, although service on one part- ner is sometimes held equivalent to service on all, tins is not the ease where the service is relied on as the foundation of process of contempt, or of any proceedings of a penal na- ture '(#). [*273] * Having made these general observations, it will be convenient to consider, in the first place, the gen- eral rules which apply to actions by and against partners, when there has been no change in the firm between the time when the right sought to be enforced accrued, and the time when proceedings are taken to enforce it; and then to consider how far those rules apply or have to be modified when a change has taken place. (i) Hambridge v. De la Croue'e, 3 1020; Grant v. Prosser, Smith & ('.15.742. Set-, also, Minister v. Cox, Batty, 95; Murray v. Moore, 1 Jo. in App. Ca. 680. Ir. Ex. 129; Nolan v. Fitzgerald, 2 Ir. -i Rathfcone i>. Drakef ord, 4 Moo. Com. Law It. 79; Kitchen v. Wilson, & P. 57, and 6 Bing. 375. 4 C. B. N. S. 483. In Leese v. Mar- Bruttonu. Burton, IChitty, 707. tin, 13 Eq. 77; Carrington v. Can (e) Showier v. Stoakes, 2 Dowl. & tillon, Bunb. 107; and Coles v. Gur- I.. :;. Bui as to payment out of ney, 1 Madd. 187, service of a hill on money in Court, see the Sup. Ct. one partner was allowed, the other be- Funda Rules, 1886, r. 63. ing abroad; and in ejectment against See Petty < . Smith, 2 Y. & J. a firm, service on an acting partner 111; Fairlie v. Quin, 1 Smythe, 189. is sufficient, Doe v. Roe, 9 Dowl. - to substituted service, Leese 1039, and in an action against a firm >-. Martin, 13 Eq. 77, and as to deliv- on its promissory note, the order to ering a solicitor's bill of costs, Eg- compute (after judgment by default), ton v. Cumberledge, 1 Ex.271. need only be served on one of the < [I ) Young v. Goodson, 2 Russ. defendants. Eiggins v. Ward, 2 Cr. 255; and see Moulston v. Wire, 1 & M. 424; Carter v. Southall, 3 M. & Dowl. & L. 527; /,'< Boliday,9 Dowl. W. 128. 320 II. Ch. 3. S. 1.] ACTIONS EX CONTRACTU. *274 2. Actions by and against partners where no change in the firm has occurred. A. Actions in respect of legal rights. (a.) Actions by the firm. Actions ex contractu. In order to determine who ought to sue on behalf of a •firm upon a contract made with it, it is necessary to distin- guish between 1. Contracts under seal. 2. Bills of exchange and promissory notes. 3. Other contracts. 1. Actions by partners on contracts under seal. — As regards contracts under seal, the old rule was that if such a contract was entered into with one partner only, he alone could sue upon it ; and that if it was entered into with more than one partner, ail those with whom it was expressly entered into must sue upon it, and no others could, whatever their interest in its performance might be (/i)- 1 But their joinder will now be of no consequence, unless the defendant is prejudiced by it(*> * Covenant with A. & Co. — It is apprehended that [*274] a covenant entered into with A., B. & Co., may be sued upon by the persons who, when the covenant was made, constituted that firm. 2. Actions by partners on bills and notes. — As regards bills of exchange and promissory notes. 1 (A) See the note to Cabell v. Jefferys, 2 Str. 1146; Palmer v. Mal- Vaughan, 1 Saund. 291, i ; Metcalf let, 36 Ch. D. 111. v. Rycroft, 6 M. & S. 75; Scott v. (f) Ord. xvi. r. 11. Godwin, 1 Bos. & P. 67 ; Vernon v. 1 One of several joint obligees cannot bring suit on the obligation. Calvert v. Bradley, 16 How. 580, 14 L. ed. 1066; Farni v. Tesson, 1 Black. 309, 17 L. «d. 67 ; Seymour v. Western R. R. Co., 106 U. S. 320, 27 L. ed. 103 ; Arm- strong v. Robinson, 5 G. & J. 412; ante, p. 177, note 1 ; Trott v. Irish, 1 Allen, 481. 1 The rule in regard to notes and bills differs from that in reference to ■other simple contracts, in that the actions must be by or against the parties to the paper, as makers, acceptors, drawers, indorsers, or sureties. Mynderse v. Snooks, 53 Barb. 234; Farmers' Bank v. Bayless, 35 Mo. 428; Re Waite, 1 Lowell, 207 ; National Bank of Chemung v. Ingraham, 58 Barb. 290. But the holder may sue when indorsed in blank. 321 *275 ACTIONS BY PARTNERS. [II. Cii. 3. S. 1. Blank indorsements. — If they have been indorsed in blank any person holding them may sue upon them (/r). Special indorsements. — When a bill or note is not indorsed in blank, the proper persons to sue upon it are those named in the instrument as drawers, payees, or indorsees, as the case may be (I). Whether they are partners or not is of no conse- quence; and therefore if a bill is drawn in the name of two persons as it' they were partners, they ought both to join in an action on the bill, although one of them has no interest in it ( m'). So it is immaterial whether the bill or note relates to partnership matters or not, for if a debtor to a firm makes his promissory note payable to one of the partners only, such one is the proper person to sue on the note(w). Bills in name of A. & Co. — If a bill is drawn by or in favour of a firm in its commercial name the persons who composed the firm when the bill was drawn ought to be plaintiffs (0). But they can now sue in their mercantile name (j/). Bills accepted for honour. — If one partner in his own name accepts a bill drawn on a stranger for his honour, and pays the bill when due out of the funds of the partnership with the consent of his co-partners, the partner who accepted the bill is the proper person to sue the drawee for indemnity (0/). 3. Actions by partners on ordinary contracts. — - With [*275] respect to other simple contracts, whether written * or verbal, where a contract is entered into with several persons jointly, they should all join in an action upon it(r). 1 (k) See Ord v. Portal, 3 Camp. (/) See Pease v. Hirst, 10 B. & C. 239 ; Attvvood v. Rattenbury, 6 Moore, 122. .".T'.<; Lowe v. Copestake, 3 Car. & P. (m) Guidon v. Robson, 2 Camp. 300. See, also, Law v. Parnell, 7 C. ^302. Sed quaere now. See Ord. xvi. I!. N. S. 282, in which the manager (») Bawden v. Howell, :J Man. & of a joint-stock bank was held en- Gr. 638. titled t<» sue, in liis own name, on a (0) McBirney v. Harran, 5 Ir. Law bill indorsed in blank and given to Rep. 428; Phelps v. Lyle, 10 A. & E. him by a customer of the bank on 113. account of advances made by it to (p) Ante, p. 265. him; Machell /'. Kinnear, 1 Stark. (?) Driver v. Burton, 17 Q. B. 989. rendered unimportant by Ord. (r) 1 Wins. Saund. 201 k, and 1 xvi. rr. 1 and II. Chitty on Plead. 10-15. Formerly 1 One partner cannol recover his share of a debt due to the firm in an action at law, prosecuted in his own name against the debtor. Vinal v. West Vir- ginia Oil (•<»., 110 l'. S. 215, 28 L. ed. 124. See also Fourth Nat. Bk. v. New Orleans and Carrollton R. R. Co., 11 Wall. 624, 20 L. ed. 82. All must join. Reed v. Hanover Branch R. R., 105 Mass. 303; Fish v. 133 Mass. 441. Ante, p. 27<», note 1. 322 II. Cii. 3. S. 1.] ACTIONS EX CONTRACTU. *276 But if a simple contract, written or verbal, expressed or implied, has been entered into with an agent, it may be sued upon by his principal, even if undisclosed, provided he can show that in point of fact the agent contracted on his behalf 0). All may sue, though not named. — This doctrine is con- stantly applied in partnership cases ; it happens every day that a firm sues on a contract entered into on its behalf by one of its members, and it is not by any means necessary that the person dealing with him should have been aware that the one partner was acting on behalf of himself and other people. The question is, With whom was the contract made in point of law? And the true answer to this question does not by any means entirely depend on the answer to be given to the more simple question, With whom was the contract made in point of fact ? Thus in Garrett v. Handley (f) all the members of a firm were held entitled to sue on a written guarantee given to one of the partners only, there being evidence to show that the guarantee was intended for the benefit of the firm. So, where a member of a firm of bankers was asked for a loan, and he made it out of the funds of the bank, it was held that an action for the recovery of the money lent was properly brought by all the members of the firm, although the bor- rower had not requested any loan from the bank (u). So, where one partner * sells goods belonging to the [*276] firm (#), or does work (j/) of the kind he and his co- partners undertake, an action for payment may be maintained by him and them jointly, although the person to whom the goods were sold, or for whom the work was done, knew noth- mistakes in this respect were fatal, L. R. 8 Q. B. 313 ; Hutton v. Bulloch, but see now Ord. xvi. r. 11. L. R. 8 Q. B. 331, and 9 ib. 572. (s) See Phelps v. Prothero, 16 C. (0 4 B. & C. 664. See the same B. 370; Sims v. Bond, 5 B. & Ad. 389. case, 3 B. & C. 4fi2, where an action See, also, Beckham v. Drake, 9 M. & by the one partner failed. See Hop- W. 79, and 11 ib. 315, noticed ante, kinson v. Smith, 1 Bing. 13, as to p. 178, and Trueman v. Loder, 11 A. actions by attorneys not retained by & E. 589, as to suing undisclosed the defendant. principals on written contracts. For- (m) Alexander v. Barker, 2 Cr. & eign principals, as a rule, do not J. 133; Sims v. Britain, 4 B. & Ad. enter into contracts in this country 375, and Sims v. Bond, 5 ib. 389. through agents. The agents here (x) Skinner v. Stocks, 4 B. & A. themselves contract as principals, 437. though acting for others. See El- (//) Townsend v. Neale, 2 Camp, binger Actien Gesellschaft v. Claye, 189 ;' Arden v. Tucker, 4 B. & Ad. 817. 323 *277 ACTIONS BY PARTNERS. [II. Ch. 3. S. 1. ing- of the other partners. In Cooke v. Seeley (z), a partner had an account at a bank in his own name, but there was evidence to show that it was a partnership account, and was known to the bankers to be so, and under these circum- stances it was held that all the partners were entitled to sue the bankers for dishonouring a cheque drawn on them by the one partner for partnership purposes. Dormant partners. — It follows from the principle on which these cases were decided, and although formerly doubted (a), it is qow clearly established, that dormant partners may join as plaintiffs in an action on a contract entered into on behalf of the firm of which they are members (5). 1 But a dormant partner never need be joined as a co-plain- tiff in an action on a contract entered into with the firm or with one of its members (c). Position of nominal partners. — Nominal partners, i.e., per- sons who are not entitled to share the profits of the firm, but whose names appear and are used as if they were, never need join as plaintiffs in an action on an ordinary contract not under seal (d)? If a partner retires, and leaves his name in the firm, it is not necessary that he should be a co-plaintiff in an action brought by the continuing partners in respect of what has happened since the retirement (e). Where nominal partners must sue. — But if a nominal part- ner's name is on a bill of exchange or promissory note, [*277] he ought to be a party to the action brought * upon it ; and the same rule applies to actions on contracts under seal (/). Actions by one partner. — One partner may sue alone on a written contract made with himself if it does not appear from the contract itself that he was acting as agent of the (z) 2 Ex. 746. Phelps v. Lyle, 10 A. & E. 113, as to See Mawman v. Gillett, 2 contracts with the "directors" of a Taunt. 025 ; Lloyd v. Archbowle, ib. company. 324. (.) Actions against the firm. Actions against partners. — In considering who ought to be sued in respect of a breach of contract committed by a firm, or some or one of its members, regard must be had in the first instance, to the persons upon whom that contract is Legally binding. This matter has been already discussed at length in the first and second chapters of the present book, and it is needless to repeat what has there been said. As- suming, therefore, the question of liability to be determined, it remains only to consider whether all the persons who are liable ought t«> he sued jointly, or whether any and which of them may he sued without the others. If there is any doubt on this question the proper way is to sue them all; for this is now expressly authorised to be done (c). In order, how- ever, i" save expense, the following rules will be found use- ful. Actions ex contractu. Actions against partners on contracts. — All persons who are jointly liable on a contract ought to be sued jointly (d), unless some of them are abroad (e). This rule applies to actions against partners for the recovery of penalties imposed upon them by statute (/), and to actions in form ex delicto, but founded in substance on a breach of contract express or implied Qg) ; but it is subject to certain real or apparent exceptions which require notice. 1 Actions against infant partners. — 111 the first place an infant I Ird. jcvi. rr. 1, 4. Honduras (e) See 3 & 4 Win. 4, c. 42, § 8; Rail. Cn. v. Tucker, 2 Ex. D. 301. .Toll v. Lord Curzon, 4 C. B. 249. - . also, Ord. xxi. r. 20, abolishing See before this statute, Sheppard v. plea- in abatement. Baillie, T. R. 327. Sei the note to Cabell v. (/) Bristow v. James, 7 T. R. 257. lan, 1 Win-. Saund. 291 b ; (y) Powell v. Layton, 2 Bos. & P. Byer> v. Dobey, 1 H. Blacks. 236; N. R. 365; Buddie v. Willson. 6 T. 11. Bonfleld v. Smith, 12 M. & W. 405;' 369. Rilley V . Robinson, 20 Q. B. 1). 155. 1 See, for authorities to sustain the general rule, ante, pp. 115 and 270, and not'--. See also note 1, ]>. 264, as to statutory modifications of the rule in some of -, and that where the firm name may lie used as plaintiff an action will lie against the partnership by its firm name. See also Shapard v. Lightfoot, 56 Ala. 506; Burlington & Missouri River R. R. Co. r. Dick, 7 Neb. 242; Newlon .-. Beaton, 42 Iowa,593; White v. Tudor, 32 Tex. 758 ; Hicks v. Bran- ton, _'l Ark. 186; Snow v. Howard, :!.". Barb. 55; Way v. Fravel, 61 Ind. 162. 328 II. Ch. 3. S. 1.] ACTIONS EX CONTRACTU. *281 partner, not being bound by any * contract entered [*281] into by or on behalf of the firm, ought not to be joined as a defendant in an action on any such contract (7t). Actions against dormant partners. — Secondly, as regards dormant partners. It has been seen that they are liable on all contracts entered into on behalf of the firm to which they belong, and whether such a contract is written or unwritten, express or implied, it is clear that a dormant partner may be sued upon it (/). Dormant partners, moreover, ought to be made co-defendants in an action on a contract binding the firm (&). 1 But a person who holds himself out to another, as the only person with whom that other is dealing, cannot be allowed afterwards to say that such other was also dealing with somebody else (/). One partner liable if others are not disclosed. — If, therefore, a person carries on business in his own name, and incurs debts in so doing, he may be properly sued alone for such debts (m). The, same rule holds whenever a partner enters into a written contract in which he does not disclose the fact that he is acting for other people ; for although they may be sued, he cannot insist that they shall be' sued (»)• Statutory exceptions to general rule. — Thirdly, to the gen- (/*) See 1 Wms. Saund. 207 a ; partner ought to be joined. See ante, Chandler v. Danks, 3 Esp. 76; Bur- Kendall v. Hamilton, p. 193, note (A). gess v. Merrill, 4 Taunt. 468 ; J affray (/) See De Mautort v. Saunders, 1 v. Frebain, 5 Esp. 47. Formerly it B. & Ad. 398; Stansfeld v. Levy, 3 was thought that an infant partner Stark. 8. Whether a defendant has ought to be made a co-defendant. so held himself out is a question for See Ex parte Henderson, 4 Ves. 164; the jury. Compare the cases in the Gibbs v. Merrill, 3 Taunt. 307. last note. (/) Robinson i\ Wilkinson, 3 Price, (m) See, in addition to the cases 538; Beckham v. Drake, 9 M. & W. cited in the last note, Mullett v. 79, and 11 ib. 315, overruling Beck- Hook, Moo. & Mai. 88; Baldney v. ham v. Knight, 4 Bing. N. C 234, and Ritchie, 1 Stark. 338 ; Doo v. Chip- see ante, p. 178. Of course if a per- penden, Abbott on Shipping, 84 ; Col- son is sued on the ground that he is son v. Selby, 1 Esp. 452. Dubois v. a dormant partner, that fact must Ludert, 5 Taunt. 609, is the otlier be proved, for otherwise no case will way, but cannot, it is conceived, be be made against him. See Hall v. supported. Bainbridge, 8 Dowl. 583. (») See Higgins v. Senior, 8 M. & (k) See Bonfield v. Smith, 12 M. W. 834, where the plaintiff knew the & W. 405 ; Dubois v. Ludert, 5 Taunt. defendant was acting as agent. 609, where it was held that a dormant 1 A dormant partner may be joined as defendant or not. Leslie v. Wiley, 47 N. Y. 648; Wood v. Cullen, 13 Minn. 394 ; Chase v. Deming, 42 N. H. 274 ; Wright v. Herrick, 125 Mass. 154 ; Hatch v. Wood, 43 N. H. 633 ; Hopkins v. Kent, 17 Md. 72 ; Carey v. BrighJ, 58 Penn. St. 70 ; Blin v. Pierce, 20 Vt. 25. 329 *282 ACTIONS AGAINST PARTNERS. [II. Cii. 3. S. 1. era! rule that all persons jointly liable on a contract ought to be sued jointly, there are a few statutory exceptions. Thus, 1>\ the Carriers act, a person sued as a common car- [*282] rier, and not on any special agreement, cannot * re- quire his co-partners to be joined (0) ; and by the Companies act. 1862, members of a registered company, who know that h lias carried on business for more than six months with less than seven members, are severally liable for the debts of the company contracted after such six months, and cannot require the other members to be joined (jt>). Actions on joint and several contracts. — With respect to joint and several contracts, the rule now is that all persons liable on them may be sued jointly or separately, or in the alternative in one action (y). Actions on contracts not binding on firm. — The previous re- marks have been addressed to the case of actions on contracts binding the firm. But a contract may be entered into by a partner and not hind the firm, either because it was not en- tered into on behalf of the firm, or because if it was, the partner entering into it exceeded his authority express and implied. In such cases the old rule was that the partner contracting, and no one else, ought to be sued. If he con- tracted as a principal, he ought to be sued on the contract; whilst, if he contracted as an agent, he ought to be sued as hiving done so without authority (r). If a partner entered into a contract on behalf of the firm, but exceeded his author- it v. and the contract did not bind the firm, and the firm repudiated it, the partner contracting, and not the firm, onght to have been sued for money paid to him under it, and sought to be recovered back (x). But now in cases of this description, whenever there is any doubt as to who ought to be sued, the prudent course is to sue all the partners, and so to frame the statement of claim as to be able to obtain judg- ment againsl the right persons according to the evidence on the trial < / >. - 11 Geo. t & 1 Will. 4, c. G8, see Came v. Legh, 6 B. & C. 124; .'., ft. Nesbit v. Howe, 8 Ir. Law Rep. -7:!. (p) ■!', 26 Vict. c. 80, § 48. (?•) See Lewis v. Nicholson, IS <,>. \q) Ord. xvi. rr. 1, t. »;'. Sec, as B. 503. to the old law, the note to Cabell v. (s) See Hudson v. Robinson, 4 M. Vaughan, 1 Wms. Saund. 291 ra ; Pierce v. Wood, 23 N. H. 519 ; Vanderburg r. Bassett, 4 Minn. 242 ; Lothrop v. Adams, 133 Mass. 471; Strang v. Bradner, 114 U. S. 561, 29 L. ed. 250; Stockwell v. United States, 13 Wall. 531, 20 L. ed. 491. 2 It is every-day practice for courts of equity to entertain jurisdiction for the settlement of partnership affairs by receiverships and suits for account, 331 284 ACTIONS AGAINST PARTNERS. [II. Ch. 3. S. 1. As a general rule an action in the Chancery Division by or against an ordinary partnership will be defective for want of parties, unless all the partners are before the Court. But it was early held, that where some partners are abroad, a suit against those who remain maybe prosecuted with effect* and a decree be obtained against them for payment of the whole of the amount due from the firm (/»). All the members of a firm ought to be parties to [*284] an action *for a general account (c) ; 1 and in an action for payment of a partnership debt out of the assets of a deceased partner the surviving partners ought to be parties () ; but the propriety of this decision is more than questionable. Whether, however, it is now necessary to join as a plaintiff a retired partner against whom the defendant has no claim and who has no beneficial interest in what is sought to be recovered admits of some doubt. Sometimes one partner retires and a new partner comes in, and an agent of the firm, in ignorance of the change which has occurred, enters into a contract on behalf of the firm ; in such a case the members of the new firm may sue on the contract, unless the defendant is prejudiced by their so doing (g). The liability of the retired partner on such a contract, will, however, cease if the creditor sues the new firm and recovers judgment against it (r.). Fresh contract. — And a new firm may sue or be sued in respect of a fresh contract entered into by or with it to pay a debt owing to or by an old firm. Thus, where A. was in- debted to B., and afterwards C. entered into partnership with B., and A. contracted a further debt with both, and then settled an account with both, as well upon what was due to B. before his partnership with C, as upon the debt contracted afterwards, it w r as held that B. and * C. [*287] might join in an action of assumpsit on an account stated, and recover the whole debt (s). Change in firm may prevent it from suing. — Although a change in a firm, whether by the introduction of a new part- ner or the retirement of an old one, cannot, except as already (o) See Dobbin v. Foster, 1 Car.- P. Ca. 253. But see Boulton v. Jones, & K. 323. 2 H. & N. 564. (p) Atkinson v. Laing, Dowl. & (r) See Scarfe v. Jardine, 7 App. Ky. N. P. Ca. 10. Ca. 345, noticed ante, pp. 4(5 and 197. (q) Mitchell v. Lapage, Holt, N. (s) Moor v. Hill, Peake, Add. Cases, 10. 335 *288 ACTIONS r.V OE AGAINST PARTNERS [II. Cn. 3. S. 1. mentioned confer upon the partners any new right of action against strangers, or vice versd, as regards what may have occurred before the change took place, it may, nevertheless operate so as to discharge a person from a contract previously entered into by him. Thus, as was pointed out in the sixth chapter of the first book (t), a person who is surety to a firm is discharged from his suretyship, for the future, by a change amongst its members, and cannot, therefore, be sued either by the old or by the new partners for any default of the principal debtor occurring subsequently to the change. Again, if a person enters into a contract with a firm, and that contract is of a purely personal character, to be per- formed by the individuals who have entered into it, and not by any one else, a change in the firm may operate as a dis- solution of the contract, so that neither the new nor the old partners can sue in respect of any alleged breach which may have occurred since the change took place. An illustration of this is afforded by Robson v. Drummond(w). In that case A. and B. were partners as coachmakers. C, who knew nothing of B., entered into a contract with A. for the hire of a carriage for five years, at so much a-year, and A. undertook to keep the carriage in proper order for the whole five years. Before the five years were out, A. and B. dis- solved partnership, and A. assigned the carriage and the benefit of the contract relating to it to B. B. gave C. notice of the dissolution and arrangement respecting the carriage; but C. declined to continue the contract with B., and re- turned the carriage. An action was then brought by A. and B. against C, for not performing the contract; but it was held that the action would not lie, the contract having been with A. alone, to be performed by him personally, and he having disabled himself from continuing to perform ( ■■1**] it on his " part. In Stevens v. Benning (#), the same principle was applied to a contract between an author and a firm of publishers; and it was held that the contract was one of a personal character, and that consequently the author was discharged from it by a change in the firm, and ■ | nU , p. 1 17. C<) 1 K. & J. 168, and 6 De G. M. 2 B. wl. 303. Compare & G. 223. See, also, Hole v. Brad- British Wagon Co. v. Lea, 5 Q. B. bury, L2 Ch. D. 886. D. 149. II. Ch. 3. S. 1.] WHERE CHANGE IN FIRM OCCURRED. *289 an assignment of the benefit of the contract to persons of whom the author knew nothing. Effect of death. — Secondly, with respect to changes caused by death. Before the Judicature acts, when a partner died in the lifetime of any one or more of his co-partners, all actions brought in respect of any contract entered into by or on behalf of the firm before his death, must have been brought by or against the surviving members of the firm, and by or against them alone; for the representatives of the deceased partner could neither sue nor be sued at law in respect of any such contract Q/). So an action for the con- version of partnership goods must have been brought by the surviving partners (e). Actions by and against surviving partners. — It followed from the above rule that the last surviving partner, or if he was dead his legal personal representative, was the proper person to sue and be sued at law in respect of the debts and engagements of the firm (a). These rules, however, can be no longer relied upon, except where the obligation sought to be enforced is joint in equity as well as at law. Wherever it is several as well as joint (6), an action may, it is apprehended, be brought by or against the surviving partners and the executors or administrators of the deceased partner () As to which, see ante, p. 194. see the authorities collected in Buck- (c) Ord. xvi. rr. 1, 4, 6, 8. ley v. Barber, 6 Ex. 178. (d) Eckhardt v. Wilson, 8 T. R. (*) Kemp v. Andrews, Carth. 170 ; 140 ; Thomason v. Frere, 10 East, but see Buckley v. Barber, 6 Ex. 164. 418 ; Graham v. Robertson, 2 T. R. An indictment for stealing them may 282. be preferred by the surviving part- 337 *290 ACTIONS BY OR AGAINST PARTNERS. [II. Ch. 3. S. 1. names upon indemnifying them against the costs of the action (e) If all the partners were bankrupt, any action which it would have been necessary to bring in the names of all the partners, if bankruptcy h;nl not intervened, must have been brought by their assignees (/). But this was subject to the qualification that bankrupts, whether partners or not, might sue in their own names as trustees for other people (0). By the liankruptcy act, 1883, a bankrupt partner is not required to join the solvent partners in suing on a joint con- tract made with the than (A): and it is presumed that the trustee <>i the bankrupt partner need not be joined in such a case. Bui the trustee may join in the action if authorised to do so by the Bankruptcy Court (t) ; and his joinder is nec- ;v where an act of the bankrupt is sought to be im- peached (A-). Actions against bankrupt. — As regards actions against a linn, one or more of the members of which have become bankrupt, it need hardly be observed that there is no remedy by action against trustees in respect of liabilities of the bank- rupt they represent. The only remedy is by proof against his estate or by proof and by an action against him if he has not obtained his order of discharge, or if his order of dis- charge is no bar. When, therefore, it is desired to recover a debt due from a firm, and all the partners are bankrupt, an action is not the remedy unless the partners have not obtained their discharge, or unless the debt could not have been proved in bankruptcy. If, however, some only [ *290] of * the partners are bankrupt, the solvent partners only need be sued (7) ; and the Court of Bankruptcy can restrain an action against the bankrupt partner (w). . Whitehead v. Hughes, 2 Cr. & E. & B. 66; Winch v. Keeley, 1T.R. M.318. 619. Sei i v. Davies, 8 Taunt. (/<) See 46 & 47 Vict. c. 52, § 114. ;..! The trustee of a firm may (i) Ibid. § 113. sue for debts owing to the membi rs (k) Sec Heilbut v. Nevill, L. R. 5 thereof individually. Stonehouse v. C. P. 478. lva,3 Camp. 399; Hancock v. (/) 40 & 47 Vict. c. 52, § 114. Haywood, 3 T. R. 433; Scott v. Hawkins w. Ramsbottom, 6 Taunt. 178. Franklin, 15 East, 428. f» 4fi & l7 Vict - c - 52 > § 10 ( 2 )- See Castelli v. Boddington, 1 See Ex parte Mills, Ch. 5'J4. II. Ch. 3. S. 2.] SET-OFF. *291 SECTION II. — OF SET-OFF. Closely connected with the subjects discussed in the pre- ceding section, is the right of a defendant to set up, in opposition to the claim made against him, a counter claim, which the defendant might himself make the subject of a cross action against the plaintiff. The power of a defendant to do this is much more extensive than it was ; for by Order XIX. rule 3, a defendant may set off or set up by way of counter-claim any right or claim, whether to a definite amount or not ; but provision is made for disallowing a cross claim if it cannot be conveniently disposed of in the particular action in which it is set up. A short account, however, of the law as it stood before this alteration may still be useful. 1. Set-off at law. — The right of setting off one claim against another appears only to exist at common law, where a person seeks to avail himself of a lien on goods in his pos- session, but of which he is not the owner. But, by statute 2 Geo. 2, c. 22, where there were mutual debts between the plaintiff and the defendant, one debt might be set against the other (n). The statute, however, only applied to debts in the narrow sense of the word, i.e., definite and ascertained sums of money, owing by each party to the other (o) ; and to debts owing to and by each party in the same capac- ity O)- * 2. Set-off in equity. — Courts of equity, although [*291] governed in questions of set-off by principles similar to those which governed courts of law, went further than courts of law in applying those principles ; admitting set-off in some cases where courts of law did not, and disallowing it in others where they did (ebts not "\\ ing to and by the same persons in the same right cannot be set off either at law or in equity. 1 But before the Judicature ads and in considering whether debts were so owing, courts of Law regarded the legal right, whilst courts of equity regarded the equitable right; and this led to the following amongst other important practical and different results ( r). Set-off by and against surviving partners. — For example, if a surviving partner was sued at law for a non-partnership debt, he could set off a partnership debt owing by the plain- tiff to him and his late co-partners (s) ; and in an action by a surviving partner lor a debt due to himself separately, the defendant could set off a debt due to himself from the plaintiff and his late partners (£). 2 In equity, however, this (r) See Fletcher ;;. Dyche, 2 T. R. 493 ; Golding v. Vaughan, 2 Chitty, 32, and the cases in the next two 436. (t) French v. Andrade, 6 T. R. (s) Slipper v. Stidstone, 5 T. R. 582. 1 " The decisive objection to a set-off by the defendant, of a debt due to him from oik- (if the firm, against a debt which he owes to the insolvent co-part- ai i -. i- that it contravenes the rule of distribution of the property of insolvent debtors among their joint and several creditors." ... "A debt due to a linn constitutes a part el' their joint assets, and to allow a private debt due from one of tie- co-partners to lie set off against it, would be to appropri- ate a pari of the joint estate to pay a private debt. The effect of it would be not only to give a private creditor of one of the firm, who happened to be a debtor of the co-partnership, a preference over other creditors, but, in many cases, to absorb a large amount of the joint assets for the benefit of separate creditors." Williams v. Brimhall, 13 Gray, 462. See, also, Sloan v. McDowell, 71 X. ('. 356; Ward v. Newel!,:;? Tex." 261; Collins v. Butler, II Cal. 223; r __ .. Plank, 3 Ont. C. P. 398; Thomas v. Stetson, 62 Iowa. 537; s. c. 49 Am. Rep. 1 18. 'lb' same reasoning applies to the Bet-off where the partner- ship is debtor. Wilson v. Amhel, 35 Wis. 526; Houston v. Brown, 23 Ark. 333; Reed v. Whitney, 7 Gray,533; Beauregard v. Case, 1 Otto, L34,23 L. ed. 263; Whytcrose v. Anderson, 3 Australian J. 1!. Ii'l (Victoria). - Debt due to or from surviving partners only may be set off. Lord v. ■.in, 6 Pick. :;">2 ; Lewis v. Culbertson, II Serg. & R.48; Johnson v. Kaiser, 40 N. J. L. 286; Holbrook v. Lockey, 13 Met. 132; Marterson v. Good- 102. 340 II. Ch. 3. S. 2.] SET-OFF. *292 could not have been done. When a creditor of a firm seeks to obtain payment of his debt out of the estate of a deceased partner, that creditor cannot set off a debt due from himself to the deceased on a separate account: the creditor must pay this last debt in full, and then, as regards the debt in respect of which he sues, rank as any other creditor of the firm against the assets of the deceased (u). It is obvious that if in such * a case the two debts were set against [*292] each other, the separate creditors of the deceased would be paying a joint creditor of the firm, unless the assets of the deceased were sufficient to pay both classes of creditors in full. On the other hand, debts which were really debts owing to and by a firm could be set off in equity although not at law. Thus in Smith v. Parkes (V), a firm of three partners cove- nanted to pay a certain sum of money to the defendant Parkes, who was indebted to the firm in certain other sums on another account. By the death of two of the members of the firm, the plaintiff Smith had become the sole surviving partner, and he was sued by Parkes on the covenant, and judgment was obtained. It was held that, notwithstanding the judgment and its effect at law, Smith was entitled in equity to set off against the judgment debt the amount of what was due from Parkes to the late firm ; and it was also held that Smith had this right not only as against Parkes, but also against persons to whom he had assigned the debt due to him. 4. Setting off joint debts against separate, and vice versa. — Except under special circumstances a debt due to or from several persons jointly cannot be set off against a debt due from or to one of such persons separately (?/). This rule, which is really involved in the last, also prevailed before the Judicature acts both at law and in equity (z), and was of great importance to partners. It scarcely requires to be pointed out that to allow a set-off of such debts would be to enable a creditor to obtain payment of what is due to him from persons (w) Addis v. Knight, 2 Mer. 117. and West India Dock Co., L. R. 10 (.r) 16 Beav. 115. C. P. 300. (//) See Kinnerley v. Hossack, 2 (z) It cannot be done in equity Taunt. 170 ; Cheetham v. Crook, even in cases of fraud, see Middleton McLel. & Y. 307 ; Vulliamy v. Noble, v. Pollock, 20 Eq. 515. 3 Mer. 618. See, also, Jebsen v. East 341 *293 PARTNERS AND NON-PARTNERS. [II. Ch. 3. S. 2. in qo way indebted to him. 1 As ;i rule, therefore, a debt owing by one of the members of a firm cannot be set off at law against a debt owing- to him and his co-partners (a) : nor can a dilii owing to one of the members of a firm be set off against a debt owing by him and his co-partners (6). And this rule applies even where one partner only has [*293] been dealt with, and * the debts sought to be set against cadi other arc a debt owing by him, and a debt owing to him and others, but arising out of transactions with him alone. This last point is well illustrated by Gordon v, Ellis (c). There, an action was brought by three partners, for the re- covery from the defendant of money received by him for goods of the plaintiffs sold by the defendant on their account. The defendant pleaded in effect, that he had been employed by A. only, that A. sent the goods for sale as if they were his own, and that the goods were sold by the defendant as A.'s goods, and that A. was indebted to the defendant in a larger amount than that sought to be recovered in the action. It was admitted, that if B. and C. had by their conduct induced the defendant to believe that A. was the sole owner of the goods in question, and to deal with A. on that supposition, the defendant would have had a good defence to the action ; but it was held that, as the defendant did not allege that such bad been the case, his plea was a mere attempt to set off a debt due from one member of the firm against a debt due to the firm itself, and was bad. In stricf analogy of the above rule it has been decided in equity that if the members of a firm have separate private accounts with the bankers of the firm, and a balance is due to the bankers from tin- linn on the partnership account, the bankers have no lien for such balance on what may be due from themselves to the members of the firm on their respec- tive separate accounts; and that the debt due to the bankers i i < .iii the partners jointly cannot be set off against the debts due from the bankers to the partners separately (d). Gordon v. Ellis, 2 C. I'.. 821; (c) 2 C. B. 821 ; and see the same Prance v. White, 8 Scott, 2.">7. case, 7 Man. & Gr. 007, where it will Arnold -'. Bainbridge, '•> Ex. be observed the plea was materially 153; McGillivray v. Simson, 2 Car. different. & 1'. 320; Boswell v. Smith, »; C. & ( (ji; 546 ; Cavendish v. Geaves, 24 ib. 173. 1 See antt , \>. 291, note 1. 342 II. Ch. 3. S. 2.] SET-OFF. *294 Effect of Judicature acts. — The Judicature acts have ex- tended the equitable principles of set-off to all actions in the High Court (e) ; and notwithstanding the rules relating to joint and to several claims (/), the old rule precluding the set-off of a joint against a separate debt, or vice versd, is still in force (#). * Exceptions to general rule. — To the general rule [*294] which precludes the set-off of a debt due to a firm against a debt owing by one of its members, and vice versd, there are, however, a few exceptions. Agreement. — If it can be shown that all parties concerned have expressly or impliedly agreed that a debt owing by one of them only shall be set off against a debt owing to them all or vice versd, effect will be given to that agreement, and the application of the general doctrine in question will there- by be precluded. Regard, therefore, must be had to any agreement which the parties themselves may have come to, and to their course of dealing with each other (A). So if a joint and several promissory note is made by partners, and one of them sues the payee for some separate demand, the defendant can set off the note ; for, ex hi/pothesi, it is the several note of the partner suing him (i). An agreement by one partner that a debt due from himself separately shall be set off against a debt due to him and his co-partners jointly is primd facie a fraud on them ; and a set- off founded on such an agreement cannot, it is apprehended, be maintained in the absence of special circumstances, render- ing such an agreement binding on the other partners (&). Another exception occurs where one partner has been allowed by his co-partners to act as if he were a principal and not an agent of the firm. (e) See §§ 24 and 25 (6) (11) of Ch. 580 ; Cheetham v. Crook, McLel. the Judicature act, 1873. & Y. 307 ; Kinnerley v. Hossack, 2 (/) Ord. xvi. rr. 1, 4, 6, ante, p. Taunt. 170. 282. (i) See Owen v. Wilkinson, '5 C. (g) Bowyear v. Pawson, 6 Q. B. D. B. N. S. 526. 540. However, in Manchester, Shef- (£•) Wallace v. Kelsall, 7 M. & W. field & Line. Rail. Co. v. Brooks, 2 264, is the other way, but is to be Ex. P. 243, a separate debt was al- explained by the old technical rules lowed to be pleaded by way of set-off of pleading, which are now abolished, to an action for a joint debt. This see ante, p. 269; Piercy v. Fynney, can hardly have been right. 12 Eq. 69 ; Nottidge v. Pritchard, 2 (A) See Vulliamy v. Noble, 3 Mer. CI. & Fin. 379. 593 ; Downam v. Matthews, Prec. in 343 *-95 PAi;rxi:i;s and non-paetnees. [II. Ch. 3. S. 2. Set-off where there is a dormant partner. — It has been seen that dormant partners may join their co-partners in suing on contracts entered into in form with the latter only. But dor- mant partners cannot, by coming forward and suing on such contracts, deprive the defendant of any right of set-off of which he might have availed himself if the non-dormant partners only had been plaintiffs. 1 This was held by [*295] : Lord Kenyon in Stracey v. Deey (7), where the plain- tiffs, Stracey, Ross, and others, were in partnership as grocers, and Ross was the only person who appeared to the public as concerned in the partnership business. The defend- ant had dealt with Ross, and had become indebted for grocery supplied by him. On the other hand, the defendant had ex- pended money for Ross, and had done so on the supposition that the monies thus expended could be set off against what was due for the grocery. The plaintiffs, however, contended that this set-off could not be made ; but Lord Kenyon held that as the defendant had a good defence by way of set-off against Ross, and had been by the conduct of the plaintiffs led to believe that Ross was the only person he contracted with, they could not pull off the mask and claim payment of debts supposed to be due to Ross alone, without allowing the defendant the same advantages and equities in his defence as he would have had in an action brought by Ross solely (m). In this case, all the partners except Ross were dormant, and by the terms of the agreement into which all had entered, Ross alone was to be the apparent trader. His co-partners were therefore simply in the position of undisclosed princi- pals, and were treated accordingly by the Court. Cases where one partner only has been dealt with. — In Gordon >'. Ellis (n), which has been before referred to, an attempt was made to extend the principle on which Lord. Kenyon decided Stracey v. Deey, to all cases in which one (/) 7 T. R. 361, note-, and 2 Esp. (m) See Cooke y.Eshelby, 12 App. 169. See, too, Teed v. Elworthy, 14 Ca. 271; George v. Clagett, 7 T. R. East, 21:;, ami Do Mautort '-. Saun- 359; Borries v. Imperial Ottoman 1 B. & Ad. 398, overruling Bank, L. R. !) C. P. 38. Dubois <'. Ludert, r> Taunt. 609. (n) 2 C. B. 821, ante, p. 293. 1 In an action by ostensible and dormant partners the defendant may set off a debl dm- from the ostensible partner only Lord v. Baldwin, (3 Tick. See, also, Chandler p. Drew, 6 X. H. 469] Bryant v. Clifford, 27 Vt. 664; Sloan --. McDowell, 71 X. C. 356. 344 II. Ch. 3. S. 2.] SET-OFF. *296 partner only transacts the business of the firm, and becomes himself indebted to the person with whom he deals. But it was held, and rightly, that a person liable to be sued by a firm cannot set off a debt due from oik; only of its members, on the ground that he only was dealt with by the defendant, unless it can be shown that the other members of the firm induced the defendant by their conduct to treat their co-partner as the only person with whom the defendant had to do (o). * But here again it is to be observed, that if the debt [*296] due from one partner can be treated as due from the firm, that debt may be set off against another debt due to it. This is illustrated by the same case of Gordon v. Ellis ( p), where in an action by a firm for money due to it from the defendant for goods of the firm sold by him, the latter was held entitled to set off a debt due to him for an advance made by him to one of the partners on account of those goods. The Court thought that although the money was advanced to one partner only, the defendant had a right to treat it as an advance to the firm made on that partner's requisition, whilst acting within the scope of his apparent authority as agent of the firm. In point of fact, the defendant, instead of waiting until he had sold the goods, and then handing over the money produced by their sale, made a payment on account; and he sought nothing more than to have the amount so prepaid deducted from the sum for which he sold the goods. Attempt to avoid set-off by suing one partner. — It sometimes happens that in order to avoid a defence of set-off, a plaintiff who is indebted to a firm sues one of its members alone for a debt owing to the plaintiff by the firm. In such a case, the defendant may require his co-partners to be joined (). Moreover, if two persons are in partnership, and one of them mortgages all his share and interest therein to the other, the latter will not be permitted, during the continuance of the partnership, to avail himself of his rights as a mortgagee and to exclude bis co-partner from interference in the partnership (c). Indeed, speaking generally, it may be said that nothing is considered as so loudly calling for the interference of the Court between partners, as the improper exclusion of one of them by the (a) Per Lord Eldon in Peacock 558; see, too, Lloyd v. Loaring, 6 v. Peacock, 16 Ves. 51. Ves. 777. (6) Rowe v. Wood, 2 Jac. & W. (c) Rowe v. Wood, 2 Jac. & W. 558. 351 *302 EIGHTS OF PARTNERS INTER SE. [III. Ch. 1. others Erom taking part in the management of the partner- ship business (jO- 1 [ • : 1 ,i 12] * Unless otherwise agreed. — It need, lio we ver, hardly be observed that it is perfectly competent for part- ners to agree that the management of the partnership affairs shall he con tided to one or more of their number exclusively of the others : and that where such an agreement is entered into, it is not competent for those who have agreed to take no part in the management, to transact the partnership busi- ness without the consent of all the other partners. 1 But, as was seen in an earlier part of the treatise, every member n( an ordinary firm is primd facie its agent for carrying on its business in the usual way (V) ; and persons dealing with a partner within the limits of his apparent authority, are entitled to hold the firm answerable for his conduct, unless such persons had distinct notice that his real authority was less extensive than they had a right to assume it to be.. (d) See. in addition to the cases Jac. & W. 589; Marshall v. Colman, last cited, Goodman v. Whitcomb, 1 2 ib. 266. (e) Ante, book ii. ch. 1. 1 Four partners got an injunction and receiver against the fifth for " dicta- torial conduct." Barrett v. Snowball, 1 Australian J. R. 8 (Victoria). When plaintiff by "dictatorial conduct" had begun the strife, dissolution \\;i- refused. Mitchell v. Welsh, 4 Australian J. R. 183 (Victoria). Injunction refused to restrain partner from carrying off property and put- ting it aboard ship, where it was not shown that the defendant himself was about to leave the colony, or was insolvent, while the nature of the property was nut such that its removal would cause irreparable damage, but was capa- ble of remuneration by equitable damages. Hickey v. Moore, Argus Reports, June 23, 1859 (Victoria) ; Kerford & Box, Dig. 336. On dissolution and a bill for exclusion attempted to be justified by parol agreement. Held, plaintiff entitled to a receiver for his security until the hearing, Steele v. Grossmith, lit Ont. Chy. 141. Storv, Part. § 181 ; Coll. Part. B. 2, ch. 2, § 1. Pearce v. Ham, 113 U. ,. 28 I. ed. 1067 ; Ambler v. Whipple, 20 Wall. 546, 22 L. ed. 403; Rut- land Marble Co. v. Ripley, 10 Wall. 339, 19 L. ed. 955. ' See Upham v. Hewitt, 42 Wis. 85; Anthony v. Wheatons, 7 R. I. 49; McFerran ■•. Filbert, 102 Penn. St. 73; Winship v. Bank of United States, 5 Pet. 529, 8 L. ed. 216. 352 III. Cu. 2. S. 1.] DUTY TO OBSERVE GOOD FAITH. *303 * CHAPTER II. [*303] OF THE GENERAL DUTY OF PARTNERS TO OBSERVE GOOD FAITH. SECTION I. — PRELIMINARY REMARKS. High standard of honour requisite among partners. — In SOCieta- tis contractibus fides exuberet (a). The utmost good faith is due from every member of a partnership towards every other member ; and if any dispute arise between partners touching any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only that he has law on his side, but that his conduct will bear to be tried by the highest standard of honour (ft). Thus, if one partner knows more about the state of the partnership ac- counts than another, and concealing what he knows, enters into an agreement with that other, relative to some matter as to which a knowledge of the state of the accounts is material, such agreement will not be allowed to stand (c). High standard of honour requisite among those about to become partners, and among those who have ceased to be partners. — This obligation to perfect fairness and good faith, is, more- over, not confined to persons who actually are partners. It extends to persons negotiating for a partnership, but between whom no partnership as yet exists (d) ; * and also to persons («) Cod. iv. tit. 37, 1. 3. (c) See Maddeford v. Austwick, 1 (6) See Blisset v. Daniel, 10 Ha. Sim. 89. 522, 53(3. Compare Cassels v. Stewart, (d) See Hichens v. Congreve, 1 R. 6 App. Ca. 64, noticed infra, which & M. 150; Fawcettu. Whitehouse, ib. shows how difficult it is to apply this 132. general principle. 1 One induced to become partner by misrepresentation as to previous losses is entitled to be relieved from his agreement and indemnified against liabili- ties incurred prior to his discovery of the untruth of the misrepresentation. Merchants' Bank v. Thompson, 3 Ont. R. Ch. D. 541 ; Mallon v. Craig, 3 Ont. R. Ch. D. 541. 353 *304 DUTY TO OBSERVE GOOD FAITH. [I£L Ch. 2. S. 1. who have dissolved partnership but who Lave not completely wound up arid settled the partnership affairs (V); 2 and most especially is good faith required to be observed when | *304] one ' partner is endeavouring to get rid of another, or to buy him out (.O- 1 Each must do his duty. — Notwithstanding the universal application to partners of the rule requiring perfect good faith, if one partner repudiates the contract of partnership and will not perform his duty towards his co-partners, he cannot justly complain if they in return decline to treat him on a footing of equality with themselves (//). As observed by Lord Eldon in Const v. Harris: "A partner who com- plains that the other partners do not do their duty towards him, must be ready at all times and offer himself to do his duty towards them" (A). But if a partner has been set at defiance by his co-partners; if they have denied that he is a partner, and that he has any right to interfere in the partner- ship, they can derive no advantage from the circumstance that he has not performed his duty to them (i). A partner whose rights are denied should be prompt in asserting them, or he may be seriously prejudiced. This (e) See Lees v. Laforest, 14 Beav. to withholding information, see Mc- 250; < legg v. Fishwick, 1 Mac. & G. Lure v. Ripley, 2 Mac. & G. 274. 294 ; Perons v. Johnson, 3 Sm. & G. (y) See McLure v. Ripley, 2 Mac. 419; Clements v. Hall, 2 De G. & & G. 274 ; Reilly r. Walsh, 11 Ir. Eq. J. L73. 22. (/) Blissel v. Daniel, 10 Ha. 493; . (h) Turn. & R. 524. Maddeford v. Austwick, 1 Sim. 89; (t) See Dale v. Hamilton, 2 Ph. Perena v. Johnson, 3 Sm. & G. 419; 270. Chandler v. Dorsett, Finch, 431. As Having become a partner on the faith that the firm intended to form a syndicate with another firm, which was not done for want of concurrence of some members of such other firm, M. was, on this account, also entitled to be relieved from his agreement to become a partner. Mallon v. Craig, 3 Ont. R. Ch. 1). ")41 ; Dunlop and Richards, 2 E. I). Smith, 181 ; Simmons v. Vulcan Oil & M. Co., 61 Penn. St. 202; Densmore Oil Co. v. Densmore, 64 id. 43; Emery v. Parrott, 107 Mass. 95. Allowances will be made to an incoming partner in respect to misrepre- tions made to him by his co-partners as to the liabilities at the time he joined. Davidson v. Thirkell, 3 Ont. Ch. 330. - Surviving partner in dealing with executor of deceased partner is bound to give full information and conceal nothing purposely or carelessly, (lark I irk, 8 Victorian I.. R. Eq.303; Hewartl v. Slagle, 62 111.336; White v. Gardner, 37 Tex. W7 ; Heath v. Water,. 10 Mich. 457. 1 In Pearce v. Ham, 113 I . S. 585, 28 L. ed. 1067, P. undertook, without good cause, to exclude EL, his partner, from a share in a valuable contract belonging to the firm, and to take in K. in his stead, K. knowing and conspir- ing with P. to that end. It was held that these acts did not affect the rights 354 III. Ch. 2. S. 1.] DUTY TO OBSERVE GOOD FAITH. *304 subject will be further adverted to in that part of the work which relates to the defences to actions between partners (7c). (k) Infra, ch. 10, § 3. of H., and that he was entitled to one-half of the profits of the contract. See also Chapin v. Streeter, 124 U. S. 400, 31 L. ed. 475. Defendants induced plaintiff to consent to a dissolution before end of term. Defendants thereupon made a valuation of the assets, and a settlement was had founded on such valuation, under the erroneous impression on plaintiff's part that one of the defendants was to retire, and that the other's interest in the valuation was identical with plaintiff's. The fact was, defendants had privately agreed that, after settling with plaintiff, the stock should be sold for their joint benefit, that they should share equally in the proceeds, and carry on the business. Held, transaction not binding on plaintiff. O'Connor v. Naughton, 13 Ont. Ch. 428. One of two brothers, partners, persuaded the other, who was ill and mentally enfeebled, to sell out to him, and made out a false balance sheet, which represented the interest as worth much less than it really was, and so the retiring brother was induced to accept for his share much less than its value. Held, that the sale should be set aside. Piatt v. Piatt, 2 Th. & C. 30 (N. Y.). R. acted as U.'s agent or partner in the fur business, and was to have one- half the net profits of each year's transactions, and assume one-third the losses, not to exceed £3000. S., acting for U.-, procured a settlement with P. on false representations, and P. successfully impugned its bona fides, and was allowed a decree for an account and costs to the hearing. Rogers v. Ullmann, 27 Ont. Ch. 137. Fraudulent representation by one partner at commencement of partner- ship, uncorrected and influencing the other in a bargain at close of partner- ship, has same effect to vitiate bargain as if then repeated. Longstaff v. Keogh, 3 Victorian L. R. Eq. 175. Partner entrusted with control of business by co-partner, who is ignorant and inexperienced, is held to strict account for faithfulness as partner and accountant, and a settlement based upon a few meagre items furnished by experienced to inexperienced partner a few days after dissolution, will not bar suit for accounting the equity rule as to correction of mistakes applying to partnership settlements. Martin v. Smith, 11 Cent. Rep. 748, N. J. 1888. In Sexton v. Sexton, 9 Grat. 204, the selling partner attempted to make out for his own guidance a list of debts due from the firm; and estimated them at only half what they were, but it did_ not appear to have been relied on by his partner in purchasing, and he offered to sell or buy at a specific price, and the partner bought at that price. Held, that if he had perceived that his partner was laboring under incorrect views in reference to the amount of the firm's indebtedness, by which he might have been misled to make too high an offer for the interest to be sold, it was his duty to furnish all the data he might have, whereby said views might be corrected before the bargain was con- eluded, and in this case he does not appear to have violated his duty. See also Pomeroy v. Benton, 57 Mo. 531 ; s. c. 77 Mo. 64 ; Hopkins v. Watt, 13 111. 298; Kintrea v. Charles, 12 Ont. Chy. 117; O'Connor v. Naughton, 13 Ont. Chy. 428; Heath v. Waters, 40 Mich. 457; Longstaff v. Keogh, 3 Victorian L. R. Eq. 175; Baldey v. Brackenridge, 39 La. Ann. 600. The bill alleged that the partnership, at the time of its dissolution in 1861, owned a share in the whaling barque " Ocean Rover," then at sea, and in her outfits and catchings, and that, in 1802, upon the voyage the vessel and her cargo were destroyed by the insurgent cruiser "Alabama," and this share was 355 *304 DUTY TO OBSEBVE GOOD FAITH. [III. Ch. 2. S. 1. Principle of good faith the basis of the internal law of partner- ship. — The foregoing general principles may be regarded as tin' basis of the law of partnership, so far as it relates to the rights and obligations of partners as between themselves, and they will be found to be more or Less illustrated through- out the whole of the present book. Those cases, however, which more especially relate to the obligation of partners not to benefit themselves at the expense of their co-partners, and to the rights of majorities, require to be specially noticed. not insured; and that, pursuant to a decision of the Court of Commissioners of Alabama claims, the sum of §1564 had been paid to D., in respect of his and the plaintiffs share in the vessel and outfits, and the sum of §55,068 to the other two defendants, in respect of her total earnings and catchings, to be by them distributed among her owners; and prayed for an injunction, an ac- count, and further relief. After the former decision, 12-5 Mass. 469, the de- fendant D. answered that the partnership was dissolved in 1801; that in 1865, after the plaintiff's insolvency, D., in order to close up all outstanding accounts of the firm, as the solvent partner, advertised for sale by auction all the remaining assets of the firm, consisting of the interest of the firm in the barque "Ocean Rover," and all other notes and accounts; that the plaintiff and his assignee were present at said sale, and the plaintiff made a bid for said interest in the " I Icean Rover," and that the same was struck off to one LeB. as the highest bidder; " that subsequently, at the request of said defendant, who had previously requested said LeB. to bid on said interest at said sale, the said Ltd!, agreed to transfer said interest to the said defendant, at the price at which it had been knocked off to him," and that transfers of said interest wire made by the firm to LeB., and by him to the defendant. LeB. bid S 12 for the interest, and sold it to D. at same price, which was paid by D. The conveyance to LeB. was dated July 20, 1805, signed by D. in firm name, but was written about Sept. 11, 1805, at the same time as the transfer from LeB. to I). Neither the plaintiff nor his assignee in insolvency knew of the arrangement between 1). and LeB. Held, that the rule that a trustee will not be permitted to make a profit out of the trust property, and that if he pur- chases it. even at public auction, he will hold it for the benefit of the cestui que trust, applies, and there must he a decree against the defendants. Jones v. Dexter, 130 Ma--. 383 : -. c. 39 Am. Rep. 459; Perry on Trusts, § 427; Story Eq. Jur. § 323; Wyman v. Hooper, 2 Gray, 141. 356 III. Ch. 2. S. 2.] BENEFIT BELONGS TO FIRM. *305 * SECTION II. — OF THE OBLIGATION OF PARTNERS [*305] NOT TO BENEFIT THEMSELVES AT THE EXPENSE OF THEIR CO-PARTNERS. No partner allowed to benefit himself at the expense of the firm. — Good faith requires that a partner shall not obtain a private advantage at the expense of the firm. He is bound in all transactions affecting the partnership, to do his best for the common body, and to share with his co-partners any benefit which he may have been able to obtain from other people, and in which the firm is in honour and conscience entitled to participate; Semper enim own id quod privatim interest unius ex sociis servari solet, sed quod societati ex- pedit (T). There are two modes in which, more especially, partners attempt unfairly to acquire gain at the expense of their co- partners, viz., 1, by directly making a profit out of them ; and 2, by appropriating to themselves benefits Avhich they ought to have acquired, if at all, for the common advantage of the firm. It will be convenient to advert to each of these modes in turn. 1. Deriving profit from dealings with the firm. — 111 the first place, then, it may be laid down as a general rule, that one partner is not allowed to derive profit at the expense of the firm from any dealings between him and the partnership, unless it is clearly agreed that he is to have such profit. 1 Sale to firm. — For example, if a partner is buying or sell- ing for a firm, he cannot sell to it or buy from it at a profit to himself. In Bentley v. Craven (to), one of the several partners was employed to purchase goods for the firm. He, unknown to (/) Dig. xvii. tit. 2, pro socio, !. 65, § 5. (m) 18 Beav. 75. 1 C, the defendant's intestate, and plaintiff's assignors were partners in the stove business at Troy. C. purchased for the firm from B. the right to use, a patented improvement on payment of one dollar on each stove manufactured by them, and the firm were authorized to sell the right to use this improve- ment to other stove manufacturers at Troy. Under this agreement the firm paid B. $11,000. C. had a secret agreement with B. to use his influence to bring the improvement into general use at Troy and elsewhere, in consideration of which service he was to have one-half the moneys paid to B. It did not appear that he rendered any services, but B. paid him half the 811,000. After the dissolution the partners learned of the secret agreement, and brought an action against C. for an account. 357 *305 DUTY TO OBSERVE GOOD FAITH. [III. Ch. 2. S. 2. lus co-partners, supplied them, at the market price, with goods previously bought by himself when the price was lower, and he so made a considerable profit. But it was held that the transaction could not be sustained, and that he was account- able to the firm for the profit thus made. The Master of the Held, that C, by entering into this agreement with B., engaged in a busi- n. — which necessarily conflicted with the interests which he held in common with his associates, and which, if the agreement had been fulfilled, might have seriously affected their profits, that such business thereby became part of the business of the firm, and that he was liable to account to his co-partners for their proportionate share of the profits he realized. Manuf. Nat. Bk of Troy v. Cox. 2 Hun, ".72; affirmed 50 N. Y. 659. Every partner is under obligation to exercise due diligence and skill, and devote his services for promotion of common benefit of the concern without compensation unless stipulated for. Denver v. Roane, 99 U. S. 355, 25 L. ed. 476. In a partnership where each had a right to convey and sell his rights there- in whenever he chose. Held, that transferee of one could not act in such a manner as to injure the business, and that if he did, the others had a personal and direct action against him for damage for breach and rescission for the future. Lalouette v. Delisle, 8 Low. Can. R. 174 Q. B. On a joint purchase of debentures one partner succeeded in inducing the bank to pay out to him more than his share of the margin which belonged to him jointly with the plaintiff, and the Court of Chancery and the Ontario ( 'ourt of Appeal and the Supreme Court of Canada held that the payment by the bank was not authorized, and that the defendant should reimburse the plaintiff lor the excess drawn out. Walker v. Cornell, Canada S. C, Feb. 12, 1881. Cassell's Dig. p. 328. See also Stoughton v. Lynch, 1 Johns. Chy. 467; Kent. Chanc; Marsh's Appeal, 69 Penn. St. :J0; Looney v. Gillenwaters, 11 Hi isk. 133; McAdams v. Hawes, '.» Bush, 15 (Ky.). It is the duty of a partner, in possession of partnership property, and in use of it at the time, to pay the taxes thereon, which are a joint liability upon the property of the linn. Where one partner rented of his co-partner his undivided half of the partnership property,and paid his own half of the taxes thereon, and suffered the undivided half of the property of his co-partner to 1„- BOld for the taxes, and afterwards rented the half so sold from the pur- chaser at the tax sale, he cannot he allowed the amount he has paid to such purchaser for rent, in an action by the co-partner on the original lease to recov t the rent due thereon. And the co-partner's statements that he would not allow the amount to him which he might pay as taxes did not discharge him from the obligation to pay them. Chapin v. Streeter, 124 U. S. 360, 31 L. ed. 17".. K.. M. & W. and A. 1*. M. associated themselves as M., W. & Co. to ten- der, contract for and execute extensive public works advertised by the Quebec Harbor Commissioners, each to do his best to secure the contract for the whole work or any portion or BUb-COntract, and they made tenders in linn name. M. & \V. found that their tender was not likely to he accepted, hut that S. l'.'s ten- der would In-, and they privately made a sub-contract with S. 1'. at such low rate that it enabled him to lower his tender for the whole work, and he secured it. M ■: \\\ withdrawing the tenders of M., W. & Co., and the contract was 1 to the new firm of P., M. & W., M. & W. to have the performance of and tie- profits resulting from the larger portion of said work, and particularly the dredging. 358 III. Ch. 2. Si 2.] BENEFIT BELONGS TO FIRM. *305 Rolls in delivering judgment, observed : " The case is this, — Four partners established a partnership for refining sugar; one of them is a wholesale grocer, and from his business is peculiarly cognizant with the variations in the sugar-market* and has great skill in buying sugar at the right and proper The principal contention was whether the partnership obligation of M. & W. was limited to the tenders put in by them in conjunction with K. and A. P. M. The Superior Court so held. The Court of Queen's Bench (1 Quebec App. 297) held that the agreement was that they should be jointly interested, not only in the profits of the entire work, but in any portion of it that they could secure, and that the defendants had, in fraud of the plaintiff, procured the contract for the execution of a large proportion of the works in conjunc- tion with P. On appeal this judgment was affirmed. Wright v. Kane, Can- ada S. C, April 28, 1882 ; Cassell's Dig. p. 329, and mentioned in Berger v. Metivier, 1 Quebec App. 327. Partners in supplying iron to a railway made no division of the profits, and one of them went on investing receipts in other contracts, and the other claimed a like interest therein also. Held, the onus of negativing such inter, st was on the defendant, and the court directed a reference to take the accounts. Cameron v. Bickford, 11 Ont. App. 52. Reversed by Privy Council — not reported. A conspiracy between a partner and a third person, whereby they under- took to exclude the other partner from an interest in a valuable contract in which the partnership was concerned, and succeeded in obtaining and appro- priating all the profits of the contract, cannot affect the rights of such part- ner, and he is entitled to recover his share of the profits of such contract from the others. Pearce v. Ham, 113 U. S. 585, 28 L. ed. 1007. A Court of Equity may interfere by injunction to restrain one partner from violating the rights of his co-partner, even when a dissolution of the co-part- nership is not contemplated. Rutland Marble Co. v. Ripley, 10 Wall. 339, 19 L. ed. 555 ; Ambler v. Whipple, 20 Wall. 516, 22 L. ed. 403. C, in partnership with the plaintiff in mining, bought the privilege of dig- ging for gold on Elzevir lot in his own name, and formed a company by whom that lot was purchased. The plaintiff was entitled to a share of all the profits and advantages made by C. in this transaction. Burn v. Strong, 14 Ont. Ch. 651. Where the partnership hired property, and one partner purchased it during the partnership, all were interested in the purchase on payment of their shares of the purchase money. Laffan v. Naglee, 9 C % al. 662 ; Anderson v. Lemon, 8 N. Y. 236. See also Forrer v. Forrer, 29 Gratt. 134. See also the numerous cases of purchases by one partner of outstanding titles or rights, patent and other, in which the firm is interested. American Bank Note Co. v. Edson, 56 Barb. 84; 1 Lans. 388; Kinsman v. Parkhurst, 18 How. 289, 15 L. ed. 385 ; Washburn v. Washburn, 23 Vt. 576 ; Weston v. Keteham, 39 Jones & S. (N. Y.) 54 ; Gillett v. Gaffney, 3 Colo. 351 ; Eakin v. Shumaker, 12 Tex. 51 ; Forrer v. Forrer, 29 Gratt. 134; Warren v. Schainwald, 62 Cal. 56. But see Wheeler v. Sage, 1 Wall. 518; Bissell v. Foss, 114 U. S. 252, 29 L. ed. 126. Partnership funds in the hands of a partner are in trust. Property bought by a partner with such funds is taken in trust for the firm. Shaler v. Trow- bridge, 28 N. J. Eq. 595; Reis v. Hellman, 25 Ohio St. 180; Evans v. Gibson, 29 Mo. 223; Love v. Carpenter, 30 Ind. 284; Lefever v. Underwood, 41 Penn. St. 505; Wheatley v. Calhoun, 12 Leigh, 264; Smith v. Ramsey, 1 Gilm. 373; Re Clap, 2 Lowell, 168; Raiguel's Appeal, 80 Penn. St. 234; Kelley v. Greenleaf, 3 Story, 93 ; Coder v. Iluling, 27 Penn. St. 84 ; Klotz v. Macready, 359 *306 DUTY TO OBSERVE GOOD FAITH. [III. Cn. 2. S. 2. time for the business. Accordingly the business of "306] selecting and 'purchasing the sugar for the sugar refinery is entrusted to him. He being the person to buy, it is his duty and business to employ his skill in buy- ing for the sugar refinery at the time he thinks most benefi- cial. Having according to his skill and knowledge bought sugar at a time when he thought it likely to rise, and it hav- ing risen, and the firm being in want of some, he sells his own sugars to the firm without letting the partners know that it was his sugar that was sold." Beino- the ao-ent for the firm for buying sugars, he sold his own sugars to the firm and made a profit, and the firm was held entitled to that profit accordingly. 39 La. Ann. 638; Croughton v. Forrest, 17 Mo. 131; Catron?'. Shepherd, 8 Neb. 308 : McRenzie v. Dickinson, 43 Cat. 119; Farmer v. Samuel, 4 Litt. 187 ; Baird v. Baird, 1 Dev. & Bat. Eq. 524 ; Phillips v. Crammond, 2 Wash. C. C. 1 il ; Swift r. Dean, (i Johns. 523; Brown v. O'Brien, 4 Neb. 11)5; Partridge v. Wells, 30 X. J. Eq. 176; Coddington v. Idell, id. 540. But see Whitsides v. Dafferty, '■'> Humph. 150. The plaintiffs, sisters, started a little business, helped their brothers and sis- ters, the defendants, to immigrate, and took them into partnership. All lived to- gether and used proceeds indiscriminately ; but the elder brother assumed man- agement and conducted outdoor business as if solely interested. Molesworth, J., held that the acquiescence of the others in one acting as sole owner for a con- siderable time would deprive them of any rights as partners. Marriage of one Bister dissolved the partnership. Elder brother had offered at that time to give each sister a certain sum for her interest. Court made a decree as to rights of each up to such dissolution. On appeal, held, that partnership still subsisted a- to the unmarried ones, and allowed appeal of the sister who re- in ained after the others had been bought out; also that the buildings were part of the partnership assets; but as to other land bought by elder brother with partnership funds, he should be charged the amount expended and eight per cent, interest. Johnson v. Colclough, 4 Australian J. R.53, 131 (Victoria). If process be served on one partner in an action against the firm, and judg- ment recovered and execution levied against firm property, it is the duty of Buch partner to give notice of it to his co-partners, and neglect to do so sub- jects him to an action. Devall v. Burbridge, 6 Watts & S. 529. < >ne of the members of a limited partnership, appointed manager of the business and so acting, furnished from his shop goods for the partnership, upon which he charged the usual trade profits. Held, that prima facie such transactions could not be sustained. Patterson r. Holland, 7 Ont. Chy. 1. See al.-o McMahon r. McClernan, 10 W. Va. 411) ; Lockwood v. Beckwith, 6 Mich. L68; Fanning v. Chadwick, 3 Pick. 420 ; Dunlop v. Richards, 2 E. D. Smith, 181; Bast's Appeal, 70 Penn. St. 301; Chandler v. Sherman, 16 Fla. 99 a accordance with this rule of good faith that one partner in an ille- gal enterprise completed cannot refuse to account to the other for profits on the ground of the illegality. Pfeuffer v. Maltby, 54 Tex. 454; s. c. 38 Am. Rep. 631 : De Leon v. Trevino, 4.9 Tex. 89; s. c. 30 Am. Pep. 101 ; Brooks v. Martin, 2 Wall. 70, 17 L. ed. 732; Anderson v. Whitlock, 2 Bush, 398. 360 $ III. Ch. 2. S. 2.] BENEFIT BELONGS TO FIRM. *307 Purchase from firm. — Tn Dunne v. English («), the plaintiff and the defendant had agreed to buy a mine for 50,000/., with a view to re-sell it at a profit. It was ultimately arranged that the defendant should sell it to certain persons for 60,000/., and that the profit of 10,000/. should be equally divided between the plaintiff and the defendant. The defend- ant, however, in fact sold the mine for much more than 60,000/. to a company in which he himself had a large inter- est. The plaintiff was held entitled to one-half of the whole profit made by the resale. Full disclosure necessary. — There was in this case some evidence that the plaintiff knew that the defendant had some interest in the purchase beyond his share of the known profit of 10,000/. ; but the plaintiff did not know what that interest was, and the real truth was concealed from him. It was held that the defendant being the plaintiff's partner, and expressly entrusted with the conduct of the sale, was bound fully to disclose the real facts to the plaintiff, and not having done so, could not exclude him from his share of the profits which the defendant realised by the sale (o). Authority to sell at a given price no waiver of share of higher price. — This case also shows, what indeed is obvious enough without authority, that one partner who authorises another to sell partnership property at a given price, does not thereby deprive himself of his right to share a higher price if a higher price should be realised (^t>). * 2. Obtaining benefits which in honour belong to the [*307] firm. — - The same principles apply to attempts made by partners to secure for themselves benefits which it was their duty to obtain, if at all, for the firm to which they belong ((/). Thus in Carter v. Home (r), the plaintiff and the defend- ant agreed for the purchase of an estate in moieties between (n) 18 Eq. 524. lease which was held to belong to (o) See, also, Imp. Merc. Credit one partner only. Assoc, v. Coleman, L. R. H. L. (?) 1 Eq. Ab. 7. See, also, De 189. Bussche v. Alt, 8 Ch. D. 286 ; Mori- (p) See, also, Parker v. McKenna, son v. Thompson, L. R. 9 Q. B. 480, 10 Ch. 96, and De Bussche v. Alt, 8 as to the right of a principal to profits Ch. D. 286 ; and see ib. p. 317, as to made by his agent or sub-agent. Com- a custom authorising such a practice. pare Great Western Insur. Co. v. Cun- (7) Parker v. Hills, 5 Jur. N. S. ' liffe, 9 Ch. 525, and Baring v. Stanton, 809, is not opposed to these cases, 3 Ch. D. 502, where the agent's profits for there the money was paid for a were a part of his remuneration. 361 *308 DUTY TO OBSERVE GOOD FAITH. [III. Ch. 2. S. 2. them. The estate was subject to several incumbrances, which were to be discharged out of the purchase money. The defendant had abatements made to him by some of the incumbrancers o( several sums due for interest and other- wise, which they in consideration of services and friendship agreed should be to his own use. However, on a bill brought against him by his co-purchaser for an account of the rents and profits, the Court would not allow the defendant the exclusive benefit <>f these abatements, but held that he must account for them; the purchase being made for the equal benefit of both parties, and on a mutual trust between them. Renewing leases. — It has been decided more than once, that if one partner obtains in his own name, either during the partnership or before its assets have been sold, a renewal of a lease of the partnership property, he will not be allowed to treat this renewed lease as his own and as one in which his co-partners have no interest. 1 Clandestine renewal. — This was laid down and acted on by Sir Wm. Grant in the celebrated case of Featherstonhaugh v. Fenwick (x), where two partners having obtained in their own names a renewal of the lease of the partnership prem- ises, immediately dissolved the partnership, and sought to exclude the plaintiff, their co-partner, from all interest in the new lease : but in taking the accounts of the partnership, the new lease was held to be part of the assets of the firm. C'legg v. Fishwick (t) is another case to the same [*308] effect. * There the plaintiff was the administratrix (s) Featherstonhaugh r. Fenwick, treat the lessee as a trustee for the 17 Ves. 298. In Mich cases the other firm, Alder v. Fouracre,3 Swanst. 489. partners cannot restrain the landlord (/) 1 Mac. & G. 294. See, too, from granting the lease to the one Clements v. Hall, 2 De G. & J. 173, partner only. Their remedy is to and 24 Beav. 333. 1 That one partner cannot secretly take to himself a lease, during the part- nership, of the premises where the husiness is carried on, Leach v. Leach, 18 Pick. 68; Struthers v. 1'carce, 51 N. Y. 357; Mitchell v. Reed, 61 N. Y. 123; Chamberlain v. Chamberlain, 44 N. Y. Supr. Ct. 110(12 Jones & S. 110); Dougherty v . Van Nostrand, Hoff. 08; Lacy v. Hall, 37 1'enn. St. 360; Seibert - . Si-iliert, 1 Brews. (Penn.) 531 , Johnson's Appeal, 115 1'enn. St. 129. See, however, Otis v. Sill, 8 Barb. 102. Where the license to work a coal area had issued to one partner for the benefit of the firm and had not expired, but the partnership was dissolved and that partner, after the dissolution, had taken a lease of the area, held, that the other partner was interested in the lease and the defendant took the lease as trustee for the two. Eaton v. Weatherbee, Russell's Eq. Rep. 48 (N. S.). 362 III. Ch. 2. S. 2.] BENEFIT BELONGS TO FIRM. *309 of one of several partners in a coal mine, and she filed a bill, some years alter the death of the deceased, against the surviving partners, for an account and a dissolution, and for a declaration that a renewed lease, which had been obtained by the defendants, might be declared subject in equity to a trust for the benefit of the partnership. A twofold defence Avas set up, viz., first, that the old partner- ship ended with the old lease, and that the plaintiff could not therefore claim any interest in the new lease ; and sec- ondly, that she had some time before the filing of the bill, assigned all the share of the deceased to his children ; and that she, therefore, at any rate, had no right to insti- tute proceedings respecting such share. It was, however, decided first, that the old lease was the foundation for the new one, and that parties interested jointly with others in a lease, could not take the benefit of a renewal to the exclu- sion of those others ; and secondly, that what had been assigned by the plaintiff, was the share of the deceased in the partnership, which share had never been ascertained ; and that the effect of the assignment was merely to consti- tute her a trustee of the share for the assignees after she had got it in, and not to deprive her of her power to call for a realisation of the partnership property. Open renewal. — In both of these cases the renewal of the lease was clandestine. But that is not an essential feature. In the more recent and very important case of Clegg v. Edmondson (u), the partnership was at will ; the managing partners gave notice of dissolution and of their intention to renew the old lease for their own benefit. They afterwards did so, the other partners protesting, and there was evidence to show that the landlord objected to renew to any persons except the managing partners (x). It was held, however, that it was not competent for the managing partners thus to acquire for themselves alone the benefit of the renewed lease (?/). Right to reject renewed lease. — A partner by renew- ing a lease against the will of his co-partners, * can- [*309] (m) 8 De G. Mc. & G. 787. laches and delay on the part of the (z) See as to this, Fitzgibbon v. plaintiffs. On this point the ease Scanlan, 1 Oow. 269. will be noticed hereafter. See book (y) At the same time relief against iii. c. 10, § 3. them was refused on the ground of 363 *310 DUTY TO OBSERVE GOOD FAITH. [III. Ch. 2. S. 2. not force it on them and compel them to treat the prop- erty comprised in it as acquired for the firm, unless there Is some agreement binding them so to do (.?). Benefits derived from use of partnership property. — The principle which precludes a partner from retaining for him- self benefits which he ought to share with his co-partners, is applied to cases in which unfairness and misconduct are by no means so apparent as in those just cited. A high standard nt' honour requires that no partner shall derive any exclusive advantage by the employment of the partnership property, or by engaging in transactions in rivalry with the firm. Profits of tally shop. — Thus, in Burton v. Wookey (rt), the plaintiff and the defendant were partners as dealers in lapis calaminaris. The defendant who was a shopkeeper, lived near the mines in which the ore was got, and he purchased it of the miners. Instead, however, of paying them with money, he paid them with shop goods, and in his account with the plaintiff charged him as for cash paid to the amount lit' the selling price of the goods. The plaintiff contended that the juice of the ore ought, as between himself and the defendant, to be considered as being the cost price of the goods given in exchange for it, and that the profit made by the exchange ought to be accounted for to the partnership. The Court adopted this view; holding that it was the duty of tin' defendant to buy the ore at the lowest possible price, and to charge the partnership with no more than he actually grave for the goods bartered for the ore. An account of the profit made by the defendant in his barter of the goods was decreed accordingly. Part-owners of ships. — Again, in Gardner v. McCutch- enii . 37">. Two years' dissent, &c, not a case of laches. Heine v. Klein, Argus Re- ports, March TS. 1861 ( Victoria) ; Kerford & Box, Dig. p. 480. And see Faw- son '•. Noonan, Russell's Eq. Rep. 377 (X. S.) ; Harvey v. Varney, 104 Mass. 436; Johnson v. Colclough, supra, 4 Australian J. R. 53, 131 (Victoria); Clarke v. Gouge, 5 Victorian L. I!. L. 408. Hut the rule of utmost good faith will not he carried beyond its proper limits and receive a strained construction, requiring partners to account for transactions wholly outside the partnership, and not within the scope of the partnership business. B. & M. were partners. M. associated himself with two others in building a warehouse outside the partnership. B. & M. as a firm prepared certain parts of the work for the warehouse, and sold such ■ to the other (inn engaged in building, but these parts at time of dissolu- tion of B. & M. wire inconsiderable. Held, that B. had no claim against M. tor a -hare of the profit- made in the building outside partnership. Berger v. Metivier, 1 Quebec App. 327. 368 III. Cir. 2. S. 2.] BENEFIT BELONGS TO FIRM. *313 Partnership not yet formed. — The same obligation to act with good faith exists between persons who have agreed to become partners ; and if one of them in negotiating for the acquisition of property for the intended firm, receives a bonus or commission, he must account for it to the firm A. agreed with B. to furnish funds to work mines, and after securing title give B. an undivided third. B. sold his interest in the agreement to C. for $100, and one-half the future profits of the undivided third. C. sold half- interest to D. for 8112.".. Held, that B. could not claim any portion of this sum. Loucks v. Wallbridge, 31 Ont. Q. B. 32. Where one of two partners in a purchase of real estate sold " his interest " to a syndicate, of which he was one, and realized a large profit thereon, held, that the other had no interest in that profit. Mitchell v. Gormley, 9 Ont. 139; affirmed, 14 Out. App. 55. Co-adventurers in the purchase of a mine may purchase singly after the expiration of the contract time within which they were given an opportunity to purchase. Before the expiration of the time, two of them negotiated with the offerer to purchase for themselves, after the expiration of the time of the offer which the three had associated to accept. Held, that the two were not guilty of any breach of partnership confidence toward the third. Pokorney v. Ditehburne, 6 W. W. & A'B. Eq. 281 (Victoria). Plaintiff was a sleeping partner in a block-mining claim. Defendant was his working substitute, paid by "half the gold obtained for plaintiff's share." Defendant discovered a new lead, and obtained a " prospector's claim " on it. Held, that plaintiff took no interest in it. Perry v. Morton, Argus Reports, Nov. 26, 1858 (Victoria) ; Kerford & Box, Dig. p. 560. There is nothing to prevent each partner from continuing the same kind of business in another place, or from soliciting a continuance of the business to himself, and no obligation to so conduct the business to the end of the term as to preserve the good-will, provided neither untruly allege that the other will not continue (case of bonded storekeepers unable to agree, &c.) ; Corn- wall v. Hicks,, 5 Australian J. R. 61 (Victoria). J. & T. dissolved, and amongst other terms of arrangement J. promised that he would not again start in the same business in the same place, but he refused to sign any writing to that effect. Held, that J.'s breaking his word would not excuse T. from carrying out the other terms of the agreement. .Jennings v. Tivey, 6 W. W. & A'B. Eq. 152 (Victoria). Where the plaintiff and defendant had agreed to be partners for the catch of two schools of mackerel, and after each had in his berth caught one school and divided, and the plaintiff moved off to another berth, and defendant re- maining in his own berth made a very large catch, 250 barrels, held, that plaintiff was not entitled to a share of it, especially as being present when the large catch was made, and seeing defendant's seine in danger, he neither offered his services, nor the use of his seine. Fawson v. Noonan, Russell's Eq. Rep. 377 (N. S.). An honest over-estimate of the firm's indebtedness by selling partner, not shown to have been relied upon except by himself in making an offer to buy or sell at a specific price, at which offer the other bought, was held not to vitiate the sale. Sexton v. Sexton, 9 Gratt. 204. On a bill by an administrator of a partner against the remaining partners for an account they should be charged only with what by reasonable care and diligence they should have realized from the partnership property ; charging them with everything at the date of the decedent's death at its value at that 369 *313 POWEB OF MAJORITY. [III. Ch. 2. S. 3. when Eormed (i). He cannot retain it for himself on the ground that it was paid him for personal services rendered to the vendor before any partnership existed. Having ob- tained the benefit, whilst negotiating for himself and his- future partners, he must share such benefit with them (&). SECTION III. — OF THE POWERS OF A MAJORITY OF PARTNERS. Disputes between partners. — In the event of a difference arising between partners, it becomes necessary to consider whether there is any method of determining which of them is to give way to the other. It is not uncommonly supposed that the minority of the partners, if they are unequally divided, must submit to the majority. But this is by no means the case; for, as will be seen presently, the majority cannot oblige the minority except within certain limits. How to be settled. — The first point to determine is, whether the partnership articles do or do not contain any (i) Fawcett v. Whitehouse, 1 R. & Congreve, 1 R. & M. 150, and other M. L32. cases of that class, relating to pro- (&) Ibid. See, also, Hichens v. moters of companies. time, is not the true rule. Moore v. Huntington, 17 Wan, 417, 21 L. ed. 642 ; but Bee Klotz v. Macready, •">!> La. Ann. 038. Where a partnership settlement was made on the basis that one partner was liable to pay certain obligations incurred on partnership account, and the of Buch partner was afterwards relieved from the liability, the settle- ment could not be impeached in consequence, having been made with a full knowledge of all the facts. Bispham v. Price, 15 How. 162, 14 L. ed. 644. Where on a bill for an account one of the firm was appointed receiver, and as Buch U-' 'I the money received and made a profit on it, held, that the other partner was not entitled to share in this profit. Whitesides v. Lafferty, •'» Humph. 150. One partner with his partner's knowledge sold partnership coal at its full market value to another firm, of which he was also a member, and which 'it to fill contracts at an advanced price, held, that he was not required to account for his profit in the second firm. Freck v. Blackeston, 83 Penn. St. 171. See also King v. Whiton, 15 Wis. 684; Wheeler v. Sage, 1 Wall. 518; McKenzie v. Dickinson, 13 Cal. 119; Drew ,-. Heard, in; Mass. 64; Parneilw. Robinson, 58 Ga. 27; Lowry v. Cobb, 9 La. Ann. 592; Cobb y. Parham, ! id. 11-: Parham v. Cobb, 7 id. 157; Nicholson v. Janeway, 16 X. J. Eq. 285. Geddes' Appeal, 80 Penn. St. 482; Bradbury v. Barnes, L9 Cal. 120. 370 III. Ch. 2. S. 3.] POWER OF MAJORITY. *314 express provision applicable to the matter in question ; for if they do, such provision ought to be obeyed (7). If they do not, then the nature of the * question at [*314] issue must be examined ; for there is an important distinction between differences which relate to matters in- cidental to carrying on the legitimate business of a partner- ship, and differences which relate to matters with which it was never intended that the partnership should concern itself. Disputes on matters arising in ordinary course of business. — With respect to the first class of differences, regard must be had to the state of things actually existing ; for, as a rule, if the partners are equally divided, those who forbid a change must have their way : in re communi potior est conditio prohi- bentis (m). Upon this principle it is that one partner cannot either engage a new or dismiss an old servant against the will of his co-partner (w) ; nor, if the lease of the partnership place of business expires, insist on renewing the lease and continuing the business at the old place (o). Power of majority in such cases. — If, however, in a case of this description, unprovided for by previous agreement, the partners are unequally divided, the minority must, the au- thor apprehends, give way to the majority (jp). 1 This is the (/) As to the construction of (o) Clements v. Norris, 8 Ch. D. partnership articles, see infra, c. 9. 129. N.B. — The partnership had not (m) But see as to the employment expired, of a ship, Abbott on Shipping, p. 82, (p) See Gregory v. Patchett, 33 ed. 9, and p. 58, ed. 12; and as to Beav. 595; Const v. Harris, T. & R. completing contracts already entered 518; Robinson v. Thompson, 1 Vern. into, Butchart v. Dresser, 4 De G. M. 4G5 ; as to opening accounts, Morgan's & G. 545. case, 1 M. & G. 235. (>i) See Donaldson v. Williamson, 1 Cr. & M. 345. 1 The power of the majority to bind the firm is restricted to transactions within the scope of the partnership business and in furtherance of its objects, or, at least, not inconsistent with them nor with the continuance of the firm's existence for those purposes for which it was formed. Southern Steam Packet Co. v. McGrath, McMull. 93 (So. Car.) ; Lamalere v. Caze, 1 Wash. C. C'435; Abbott v. Johnson, 32 N. II. 9; Livingston v. Lynch, 4 Johns. Ch. 573 ; Gan- sevoort v. Kennedy, 30 Barb. 279 ; Cooke v. Allison, 30 La. Ann. 963 ; Zabriskie v. Hackensack &c. R. R. Co., 18 N. J. Eq. 178, 183: Moore v. Knott, 12 Ore- gon, 260; Chadsey v. Harrison, 11 111. 151 ; Bun v. Morris, 1 Caines, 54 ; Harter v. Wrigley, 48 Ga. 495. In Kirk v. Hodgson, 3 Johns. Ch. 400, the majority retained a clerk who bad appropriated money of the firm, and he thereby became entitled to an increased compensation contemplated by his agreement of hiring. The act of the majority was held to bind the firm, being in good faith. 371 *315 POWER OF MAJORITY. [III. Cn. 2. S. 3. rule applicable to companies whether incorporated or unin- corporated (7): it is the rule adopted in the Indian contract act (r) ; and it is practically reasonable and convenient. The only alternative is to hold that if partners disagree, even as to trifling matters of detail, the minority can forbid all change, and perhaps bring the business of the firm to a dead- lock, for which the only remedy is a dissolution. At the same time the author is not aware of any clear and distinct authority in support of the proposition that even in such matters a dissentient partner must give way to his co-part- ners (^.v). However, a majority cannot against the will of the [ *315] minority * delegate to a manager the right to sign the partnership name (f) ; and it is doubtful whether a majority can decide where the partnership business shall be carried on when the lease of its place of business ex- pires (u). All partners entitled to be heard. — A very important rule respecting the powers and votes of majorities is, that a (q) See Stevens v. South Devon author's view, but apparently on his Rail. Co., 9 Ha. 320; Simpson v. authority. Westminster Palace Hotel Co., 2 De (<) See Beveridge v. Beveridge, L. I . I". & J. 141 ; Kent v. Jackson, 2 De R. 2 Sc. App. 183. <;. M. v* uttbn, --'7 Ala. 245 ; Waterbury v. Express Co., 50 Barb. 157, s. c. 3 Abb. Pr. \ s 163; Western Stage Co. v. Walker, 2 Iowa, 504; Steele v. First Nat. Hank, 60 111. 'S-); Noyes v. New Haven, New Lond. & Ston. R. R. Co., 30 Conn. 1 ; Feager v. Wallace, 57 Penn. St. 365; Livingston v. Lynch, 4 Johns. Chy. 573; Peacock v. Cummings, 5 Phila. 253, 46 Penn. St. 434; Rhea v. Vannoy, 1 Jones Eq 282,290; Gansevoort v. Kennedy, 30 Barb. 279 ; Nolan v. Love- lock, 1 Mont. 224; Dougherty v. Creary, 30 Cal. 200; Faulds v. Yates, 57 111. U6; Carrithers v. Jarrell, 20 Ga. 842; C. B. & Q. R. R. Co. v. Hoyt, 1 111. A],],. 374 ; Zabriskie v. Hackensack &N. Y. R. R. Co., 18 N.J. Eq. 178; Gow. Partn. 3d ed., c. 2, § 2, p. 52, and note of Ingraham, American editor. When two out of three partners concurred in giving, during the partner- ship, th<' firm note for necessary supplies ordered by one of them for the hands engaged in carrying on the business, that of running a steam saw-mill, the partnership ie bound by it —notwithstanding the third partner gives notice of his dissent before the contract is made. Johnston v. Dutton, 27 Ala. 245. Consent of a majority to sale of share is obtained when the one who sells gets another of the three to consent. Re Anderson, 5 Victorian L. R. Eq. 133. 372 III. Ch. 2. S. 3.] POWER OF MAJORITY. *316 majority, to have any weight, must act and be constituted with perfect good faith ; for every partner has a right to 1 »e consulted, to express his own views, and to have those views considered by his co-partners. 1 In the language of Lord Eldon, "that is the act of all which is the act of the majority provided all are consulted, and the majority are acting bona jide, meeting not for the purpose of negativing what any one may have to offer, but for the purpose of negativing what, when they are met together, they may after due considera- tion think proper to negative. For a majority of partners to say, We do not care what one partner may say ; we, being the majority, will do what we please, is, I apprehend, what a court of equity will not allow' 1 (x). Majorities at meetings. — Moreover, where powers are con- ferred on a majority present at a meeting of not less than a certain number of persons, unless such meeting be duly con- vened and the requisite number be present at the meeting the powers in question cannot be exercised ; and although it may be true that the required number of persons was sum- moned, and that the absentees could not have turned the scale, this will not render valid the acts of the majority of those actually present, for that is not such a majority as was originally contemplated (j/). 2. Disputes on matters involving a change in the nature of the business. — Passing now to the second class of differ- ences, viz., those which relate to matters with which the partnership was never intended to concern itself, it has been over and over again decided that no majority, however large, can lawfully engage the partnership in such matters against the will of even one dissentient partner. One dissentient can forbid a change. — Each partner is entitled to say to the * others, " I became a part- [*316] ner in a concern formed for a definite purpose, and O) Const v. Harris, Turn. & R. 525, Counties Freehold Land Co., 31 Ch. and see ib. 518, and Blisset v. Daniel, D. 223 ; Howbeach Coal Co. v. 10 Ha. 493 ; Great Western Rail. Co. Teague, 5 H. & N. 151 ; Ex parte v. Rushout, 5 De G. & Sm. 310. Morrison, De G. 539. (//) See Re London and Southern 1 When a contract made by a majority of a firm is not made in good faith as to the other partners, the interest of the partners making it alone passes to the purchaser, and he becomes a joint owner with the partners whose interest ■did not pass. Western Stage Co. v. Walker, 2 Iowa, 504. 373 *816 POWER OF MAJORITY. [HI. Ch. 2. S. 3. upon terms which were agreed upon by all of us, and you have no right, without my consent, to engage me in any other concern, nor to hold me to ;vny other terms, nor to get ii.l of me, it' I decline to assent to a variation in the agree- ment by which you are hound to me and I to you." Nor is it at all material that the new business is extremely profit- able c : ). In companies as well as in partnership. — This principle is applicable to all partnerships and companies, whether great or small, and is evidently one which requires only to be stated to be at once assented to as being just. No cases upon this subject can be referred to with greater advantage than Natusch v. Irving and Const v. Harris, both of which were decided by Lord Eldon («). Fire and Life Insurance Company turning into a Maritime Insurance Company. — In Natuseh v. Irving (6), a company was formed in the early part of the year 1824 for granting tire and life assurances. The capital was 5,000,000/., divided into fifty thousand 100Z. shares. The plaintiff was one of the original subscribers, and held fifteen shares, in respect of which be had paid the required deposit, but he had not exe- cuted the company's deed of settlement. In conformity with the rules of the company he had effected a policy with it on his life for 1500c. In the summer of 1824, the act of 6 Geo. 1, prohibiting companies from carrying on the business of marine insurance, was repealed, and shortly afterwards advertisements appeared in the newspapers, stating that the company would commence the business of marine insurance. The plaintiff, in answer t<> an inquiry whether this announce- ment was authorised by the directors, was informed that it was, and that it' he objected to the course about to be pur- sued he mighl receive hack his deposit with interest, and. have his policy cancelled and the premium returned. In reply to this, the plaintiff stated that he was ready to execute any deed which was in conformit} with the prospectus; that he conceived ii competent for him to insist that the business in which he was a partner should be carried A..-G. v. Great Northern Rail. ville, 1 Taunt. 241; Glassington v. Co., 1 It. & Sm. l">t. Thwaites, 1 Sim. ,v Stu. 131. - . n,.,, Davies <•. Hawkins, (b) Gow on Partnership, App. 3 M. S. 188; Fenninga v. Gren- .'508, ed. 3. See, also, The Phoenix Life Insur. Co., 2 J. & II. 441. 371 III. Ch. 2. S. 3.] POWER OF MAJORITY. *31T * on according to the agreement which united the [*317] partners together : that he could not think his doing so would entitle the managers of that partnership to pay him out his capital, and deprive him of a share in a concern of which he had the highest opinion ; that he therefore required the directors to abstain from any contracts or engagements relating to marine insurance, as not being contemplated by himself and those who joined the company upon the terms of the prospectus, and that he required an undivided ' atten- tion on the part of the directors to the objects defined there- in. The plaintiff afterwards attended at the office of the company, to execute its deed of settlement, but finding that it contained provisions enabling the company to carry on the business of marine insurance, he refused to execute it, as not being conformable to the terms on which the company was formed. In pursuance of the advertisements, the company had commenced, and it was carrying on, the business of marine insurance ; but there was no evidence to show acqui- escence on the part of the plaintiff, and there was evidence to show continued opposition by him to the carrying on of such business. The plaintiff applied for an injunction to restrain the directors from effecting marine insurances, and an injunction was granted (c). The judgment of Lord Eldon, as far as it relates to the power of a majority, is par- ticularly valuable, and the following extracts from it are constantly referred to. Answer to objection that dissentient can retire. — With respect to the liberty given to the plaiutitt' to retire, his lordship said : " An offer is made to the plaintiff that he may receive back his deposit, with in- terest from the date of the payment, and he is desired to consider himself as having received notice thereof. But it is not, I apprehend, competent to any number of persons in a partnership (unless they show a contract rendering it competent to them) formed for specified purposes, if they propose to form a partnership for very different purposes, to effect that formation by calling upon some of their partners to receive their sub- scribed capital and interest and quit the concern ; and in effect, merely by compelling them to retire upon such terms, so to form a new company. This would, as to partnership, be a most dangerous doctrine. (c) The bill was filed by the to restrain the defendants from plaintiff on behalf of himself and effecting marine insurances in the all others the shareholders of the name and on account of the corn- company against the directors, and pany, and from using the name, prayed a dissolution, and, if neces- and from applying the capital of sary, a receiver, and an injunction the company for such purposes. 375 *318 POWER OF MAJORITY. [III. Ch. 2. S. 3. [*318] * Dissentient need not accept an offer of indemnity. — Where a partnership is dissolved (even where it can be in a sense dis- solve! the instant after not ire to dissolve is given, it' there be no contract to the contrary), it must still continue for the purpose of wiuding-up its affairs, of taking and settling all its accounts, and converting- all the property, means, and assests of the partnership, existing' at the time of the dissolution, as beneficially as may he, for the benefit of all who were partners, according to their respective shares and interests; and the other partners cannot say to him to whom they have given an offer of his de- posit and interest. Take that, and we are a new company, keeping the effects, means, assets, and property of the old, as the property of the new partnership. The company will indemnity the plaintiff against loss by its transactions already had. or hereafter to be had, not for the specified purposes of the institution. But the right of a partner is to hold to the ified purposes his partners whilst the partnership continues, and not to resl upon indemnities with respect to what he has not contracted to ige in. A dissatisfied partner may sell his shares for double what he originally gave for them. But he cannot be compelled to part with them for that reason ; it maybe his principal reason for keeping them, having the partnership concern carried on according to the contract. The original contract and the loss which his partners would suffer by a dissolution, is his security that it shall be so carried on for him and them beneficially, and with augmented improvement in the value of his shares and their shares." Answer to argument that the change was warranted by statute. — With respect to the alteration of the law enabling companies to carry on the business proposed, his lordship observed: "The repeal of the act 6 Geo. 1, which merely made it lawful for societies or partnerships, howr ever numerous their members might he, to insure against marine risks, could not make it lawful for companies or societies, which were formed Eor specified purposes of insurances upon lives and against fire, to insure against marine risks, unless the contracts by which such companies were formed, either expressly or impliedly (where individual partners did not consent to embarking in new projects, either originally, or subsequently to the formation of the companies), created an authority in some part of the body to bind all the body to the adoption of such new undertak- Observations on powers of majorities. — With respect to the power of a majority, his lordship laid it down that, "If six persons joined in a partnership of Life assurance, it seems clear that neither the majority nor any select part of them, nor five out of the six. could engage that partnership in marine Insurances, unless the contract of partnership expressly or impliedly gave thai power: because if this was otherwise, an individual or Individuals, by engaging in one specified concern, might be implicated in an. other concern whatever, however different in its nature, againsl his consent. But if a part of the sis openly and publicly professed their intention to engage the partnership in another concern. clearly and distinctly brought this to the knowledge of one or more of the other partners, and such one or more of the other partners could be clearly shown to have acquiesced in such intention, and to have per- 376 III. Ch. 2. S. 3.] POWER OF MAJORITY. *319 mitted the other partners to have entered upon, and to have engaged themselves and the body in such new projects, and thereby to have placed their partners so engaged in difficulties and embarrassments un- less they were permitted to proceed in the farther execution of such pro- jects, if a court of equity would not go the length of holding that such conduct was * consent, it would scarcely think parties so [*319] conducting themselves entitled to the festinum remedium of in- junction." * * * * " Courts must struggle to prevent particular members of those bodies from engaging other members in projects in which they have not consented to be engaged, or the engaging in which they have not encouraged, assented to or empowered, or acquiesced in, expressly or tacitly, so as to make it not equitable that they should seek to restrain them. The principles which a Court would act upon in the case of a partnership of six, must, as far as the nature of things will admit, be applied to a partnership of GOO." * * * " They who seek to embark a partner in a business not originally part of the partnership concern, must make out clearly that he did expressly or tacitly ac- quiesce." Altering principle on -which profits should be dealt with. — In Const v. Harris (r?), the proprietors of Covent Garden Theatre agreed that the profits should be exclusively appro- priated to certain definite purposes. Afterwards, the pro- prietors of seven out of eight shares, entered into an agree- ment to apply the profits in a different manner, but they had not consulted the owner of the other eighth share, and he disapproved of the alteration. It was held by Lord Eldon, that the majority had no power to depart from the terms of the original agreement ; and upon a bill filed by the one dis- sentient partner for a specific performance of that agreement, a receiver of the profits was appointed. In a long and elaborate judgment, Lord Eldon distinctly recognised the principle, that articles which had been agreed on to regulate a partnership, cannot be altered without the consent of all the partners (e). In modern times the same principle has been constantly recognised and followed. Indeed it is never now disputed, although its application frequently gives rise to controversy. The decisions bearing on this subject relate, however, to companies, and are not, therefore, further noticed in the present treatise (/). (//) Turn. & R. 496. v. Irving, the writer has not felt it (e) See Turn. & R. 517, 523. The necessary to make extracts from it. whole judgment is well worthy of (/) Aukl v. Glasgow Working attentive perusal ; but being much to Men's Building Soc, 12 App. Ca. the same effect as that in Natusch 197, is one of the most recent cases. 377 *320 CAPITAL OF PARTNERSHIPS. [III. Cii. 3. [*320] * CHAPTER III. OF THE CAPITAL OF PARTNERSHIPS. Capital of partnerships. — By the capital of a partnership is meant the aggregate of the sums contributed by its mem- bers for the purpose of commencing or carrying on the part- nership business, and intended to be risked by them in that business. The capital of a partnership is not therefore the same as its property : the capital is a sum fixed by the agree- ment of the partners ; whilst the actual assets of the firm vary from day to day, and include everything belonging to the firm and having any money value. Moreover, the capi- tal <>t' each partner is not necessarily the amount due to him from the firm; for not only may he owe the firm money, so that less than his capital is due to him; but the firm may owe him money in addition to his capital, e.g., for money ad- vanced by him to the firm by way of loan, and not intended to be wholly risked in the business. 1 The distinction be- 1 Postponement of division of profits until capital advanced by one of the partners is repaid with interest is immaterial. Beaureguard v. Case, 91 U. S. 134, 23 L. ed. 263. An ural agreement whereby one is to contribute his inchoate interest in an invention, and the other to furnish the necessary funds to make the invention available in the form of a patent, and both to contribute their services to make it remunerative, is an agreement for a partnership, and when obtained tin' patent is in equity partnership property, in whosesoever name the letters- patent are taken out. Sumerhy v. Buntin, 118 Mass. 279. In Topping '•. Paddock, U-J, 111. 92, the amount due to a book-keeper was placed to his credit on the hooks of a new firm of which he was a member. This was held to be a loan to be repaid to him with his share of the profits, and not capital. See also Sexton v. Lamb, 27 Kan. 420; Mathers v. Patter- gon, 33 Penn. St. 485; Stafford v. Fargo, 35 111. 481; Nutting v. Ashcroft, 101 Mass. 300. The partnership formed is a moral being distinct from its members; it is a civil person with peculiar rights and attributes; the partners are not owners of the partnership property, but only of the residuum. The partnership prop- erty belongs to this ideal being, with which it may fulfil its obligations, and the partner-' interest is subordinate to the interest of the creditors. Succes- sion of Pilcher, 39 La. Ann. 362. Partner-hip proved, the presumption is equal shares. Kilpa trick v. Mackay, 4 Victorian L. It. Eq. 28; Gould v. Gould, G Wend. 2G3; Harrison v. Sterry, 5 Cranch, 289. 378 III. Ch. 3.] CAPITAL OF PARTNERSHIPS. *321 tween a partner's capital and what is due to him for ad- vances by way of loan to the firm, is frequently very material : e.g., with reference to interest ; with reference to clauses in partnership articles fixing the amount of capital to be advanced and risked, and prohibiting the withdrawal of capital ; and above all with reference to priority of pay- ment in the event of dissolution and a deficiency of assets(a). The amount of each partner's capital ought, therefore, al- ways to be accurately stated, in order to avoid disputes on a final adjustment of accounts ; and this is more important where the capitals of the partners are unequal, for if there is no evidence as to the amounts contributed by them, the shares of the whole assets will be treated as equal (6). * Increase and diminution of capital. — When the [*321] agreed amount of capital of a partnership has been exhausted, and the business cannot be carried on to a profit, the partnership may be dissolved, as will be pointed out here- after (c). A partner cannot be compelled to furnish more capital than he has agreed to bring in and risk ; although he cannot, by limiting the amount of his capital, limit his liabil- ity for debts incurred by the firm (t?). On the other hand, a partner who has agreed to furnish a certain amount of cap- ital, is bound not only to bring it into the firm, but also to leave it in the business until the firm is dissolved. It follows from these considerations that the agreed capi- tal of a partnership cannot be either added to or withdrawn except with the consent of all the members of the partner- ship (e) ; and this rule is perfectly consistent with the obvi- ous fact, that the assets and liabilities of a partnership are necessarily liable to fluctuation, and that the value of each partner's share of such assets constantly fluctuates also. Borrowing money and increasing capital. — ■ The difference between borrowing inoney on the credit of a firm and increas- ing its capital, has been already adverted to (/) ; and it has been seen that although each member of an ordinary trading partnership can pledge its credit for money borrowed in (a) See on this subject, infra, book (e) See Heslin r. Hay, 15 L. R. iii. ch.8, § l,on partnership accounts. Ir. 431, where an attempt was made (b) See as to the equality of shares, to violate this rule; and see the infra, book iii. ch. 5. § 2. obs. of Lord Bramwell in Bouch v. (c) Infra, book iv. ch. 1, § 2. Sproule, 12 App. Ca. 405. (d) Ante, p. 200. ( /') Ante, pp. 132, 133. 379 *321 CAPITAL OF PARTNERSHIPS. [III. Ch. 3. order to carry on its business, lie cannot render it liable to repay money borrowed by him to enable him to furnish the amount of capital which he has agreed to bring in (). SECTION II. — SEPARATE ESTATE. 2. Property of the individual partners. — The preceding en- quiry into what constitutes the property of the firm, has rendered it unnecessary to enquire at length into what con- stitutes the separate property of its members. A few addi- tional observations, pointing out the danger of relying too much on circumstances which are often regarded as decisive, may, however, be usefully added. * That which produces partnership profits may belong [*328] to one partner only. — It by no means follows that per- sons who are partners by virtue of their participation in profits, are entitled as such to that which produces those prof- its. For example, coach-proprietors who horse a coach and divide the profits, may each make use of horses which belong to himself alone and not to the firm of proprietors (g). 1 So, where a merchant employs a broker to buy goods for him and to sell them again on his account, although it may be agreed that the profits are to be divided, the goods themselves, and the money arising from their sale, are the property of the merchant, and not the joint property of himself and the broker (r) ; and it not unfrequently happens that dormant partners have no interest in anything except the profits ac- cruing to the firm to which they belong (s). Property used for partnership purposes not necessarily part- nership property. — Again, it by no means follows that prop- (-/?) See infra, book iii. ch. 9, § 2. (r) Smith v. Watson, 2 B. & C. (q) As in Fromont v. Coupland, 2 401 ; Meyer v. Sharp, 5 Taunt. 74 ; Bing. 170 ; Barton v. Hanson, 2 Burnell v. Hunt, 5 Jur. 650, Q. B. Taunt. 49, and see Wilson v. White- (s) See Ex parte Hamper, 17 Ves. head, 10 M. & W. 503, as to an 404, 405; Ex parte Chuck, Mont, author's interest in paper supplied 373. for his work to the publisher. 1 See, contra, Sun Mutual Ins. Co. v. Kountz Line, 122 TJ. S. 583, 30 L. ed. 1137 ; Elliot v. Stevens, 38 N. H. 311. 387 *329 PARTNERSHIP PROPERTY. [III. Cn. 4. S. 2. erty used by all the partners for partnership purposes, is partnership property. For example, the house and land in and upon which the partnership business is earned on, often belongs to one of the partners only, either subject to a lease to the firm, or without any lease a) all (.). So it sometimes happens, though less frequently, that office furniture (V), and even utensils in trade (.r), are the separate property of one of the partners, subject to the right of the others to use them as long as the partnership continues. If, however, a partner brings such property into the common stock [*329] as pari of his capital it becomes * partnership prop- erly, and any increase in its value'will belong to the firm (,//). Property bought with the money of the firm. — It does not even necessarily follow that property bought with the money of the linn is the property of the firm. For it sometimes happens that property, although paid for by the firm, has been, in fact, bought for one partner exclusively, and that he has become debtor to the linn for the purchase-money^). 1 Agreement of the partners the true test. — It is obvious, (t) See Bunion v. Barkus, 3 Giff. Swanst. 489, n. ; Hawkins v. Hawkins, 412, aff. on appeal, 4 De G. F. & J. 4 Jur. N. S. 1044, V.-C. Stuart. 42, as to a lease of a coal mine; Ex («) Ex parte Owen, 4 De G. & Sm. parte Murton, 1 M. D. & D. 252 ; 351. See Ex parte Hare, 1 Deac. 16 ; Bahnain v. Shore, 9 Ves. 500; Row- Ex parte Murton, 1 M. D. & D. 252. ley v. Adams, 7 Beav. 548; Doe v. (x) Ex parte Smith, 3 Madd. 63. Miles, 1 Stark. 181, and 4 Camp. 373. (y) Robinson v. Ashton, 20 Eq. 25. If there is no lease and the firm is (z) See Smith v. Smith, 5 Ves. dissolved, the owner can eject his 193; Walton v. Butler, 29 Beav. 428 ; late partners without notice to quit. Ex parte Emly, 1 Rose, 64. Com- Doe r. Bluck, 8 C. & P. 461; Benham pare the case of the Bank of Eng- n-, 5 C. 15. 138 (an action of land, 3 De G. F. & J. 645, noticed trespass). As to an injunction in infra, p. 330. such cases, see Elliot v. Brown, 3 1 In Richards v. Manson, 101 Mass. 482, plaintiff, a creditor of the separate estate of 1'., Bought to compel the assignee in insolvency of the joint and sep- arate estate of F., and his co-partner V. to appropriate the net proceeds of certain real estate towards the payment of the separate debts of F., in whose name the title Btood. Though it was conceded that the money paid towards the purchase was largely drawn from the partnership funds, and F. was largely indebted to the firm, it was held that in the absence of had faith there was no implied trust in favor of the partnership. In Gordon v. Gordon, 49 Mich. 501, three persons in partnership in farming carried on business on a farm owned by two of them, with a right in the third to become owner of one-third when he had paid one-third of the cost of the farm. In a .-suit for account between them it was held that it was not partner- property until such payment of one-third of the cost. See also Reno v. Crane, 2 Blackf. 217 ; Snyder v. Lunsford, 9 W. Va. 223. 388 III. Ch. 4. S. 2.] SEPARATE PROPERTY. *330 therefore, that the only true method of determining as between the partners themselves what belongs to the firm, and what not, is to ascertain what agreement has been come to upon the subject. If there is no express agreement, atten- tion must be paid to the source whence the property was obtained, the purpose for which it was acquired, and the mode in which it has been dealt with. The following cases, in which there was very little evidence to show what agree- ment had been made, may be usefully referred to on this subject. Stock in trade and furniture. — 111 Ex parte Owen («) one Bowers, who was a grocer, provision dealer, and wine mer- chant, and who possessed stock in trade and household fur- niture at his place of business, took two partners, without any agreement except that they were to participate in the profits of the concern. They brought in no capital and paid no premium, and no deed or agreement was executed. Bowers bought with his own money, but in the name of the firm, new stock required for the business. Upon the bank- ruptcy of the firm, the question arose to whom the stock in trade and furniture belonged. The Court, coming to .the best conclusion it could from such materials as were before it, held that there was an agreement between the three, expressed or implied, that all the stock in trade should be- come the property of the three, subject to an account, in * which the partnership would be debited in favour [*330] of Bowers for the value of the articles which belonged to him or for which he paid. But the Court thought there was not the same ground for such an inference as to the household furniture, and that therefore was held to have con- tinued and to remain the separate estate of Bowers. Outlays on property. — Sometimes a firm lays out money on property which belongs exclusively to one partner; or some of the partners lay out their own monies on the property of the firm ; and in such cases the question arises whether • the money laid out can be considered as a charge on the prop- erty on which it has been expended, or whether the owners of the property obtain the benefit of the outlay. The agree- (a) 4 De G. & Sm. 351. See, also, became the property of the firm, Pilling v. Pilling, 3 De G. J. & S. 162. Parker v. Hills, 5 Jur. N. S. 809, and As to a lease of saltworks belonging on appeal, 7 ib. 833. originally to one partner, but which 389 *331 PARTNERSHIP PROPERTY. [III. Ch. 4. S. 2. ment of the partners, it' it can be ascertained, determines their rights in such cases. But where, as often happens, it is extremely difficult, if not impossible, to ascertain what was agreed, the only guide is that afforded by the burden of proof. It is for those claiming an allowance in respect of the outlay to establish their claim. On the other hand an intention to make a present of a permanent improvement is not to be presumed. Houses built on partnership property. — In Re Streatneld, Lawrence, & Company (6), two partners bought an estate with partnership money. The land was conveyed to them in undivided moieties to uses to bar dower, and each partner built a house on the land with money of the firm, but charged to him in his private account. An account was opened in the partnership books, and in this account the purchased estate was debited with all monies of the partnership ex- pend. •(! in the purchase. At the time of the purchase the land was in lease, but the tenant surrendered to the partners those portions which they wanted, they reducing his rent. The rents, viz., both that paid by the tenant for what he held, and that paid to him for what he gave up, were treated in the hooks of the firm as paid to and by it. There was evi- dence to show that the partners intended to come to some arrangement respecting the division of the estate, [*331] but *the\ became bankrupt before doing so. It was held that both the land and the houses on it were the joint property of the firm, and not the separate properties of the partners. Appointments. — In Collins v. Jackson () Faraday v. Wightwick, Taml. 003, and 6 Eq. 479. 1 See contra, Cameron v. Cameron, 1 N. Zea. App. 24 ; Ware v. Aitken, 2 W. & W. Eq. 152 (Victoria). 393 *335 PARTNERSHIP PROPERTY. [III. Ch. 4. S. 3. does not become partnership property unless there is some evidence to show that it has been treated by them as ancil- lary to the partnership business, and as part of the common slock of the lirni (/•). SECTION III. — CONVERSION OF JOINT ESTATE INTO SEPA- RATE ESTATE, AND VICE VERSA. 3. Agreement sufficient to alter the ownership of property. — It is competent for partners by agreement amongst them- selves to convert that which was partnership property into the separate property of an individual partner, or vice versd (*). And the nature of the property may be thus altered by any agreement to that effect ; for neither a deed nor even a writing is absolutely necessary (£) ; but so long as the agreement is dependent on an unperformed condi- tion, so long will the ownership of the property remain un- changed (w). Creditors not entitled to be consulted. — Moreover, as the ordinary creditors of an individual have no lien on his prop- erty, and cannot prevent him from disposing of it as he pleases, so the ordinary creditors of a firm have no lien on the property of the firm so as to be able to prevent it from parting with that property to whomsoever it [*335] * chooses. Accordingly it has frequently been held, that agreements come to between partners converting the property of the firm into the separate estate of one or more of its members, and vice versd, are, unless fraudulent, binding not only as between the partners themselves, but <,) See Steward v. Blakeway, 4 these cases, however, turned on the Ch. 603, and 6 Eq. 479, and cases effect of an unwritten agreement ante, p. 332. relating to land. See, as to a trans- (s) Ex parte Ruffin, 6 Ves. 110; fer by a partner of his shares in the Ex parte Williams, 11 ib. 3; Ex partnership property when it consists parte Fell, 10 ib. 348; Ex parte Row- wholly or in part of land, post, ch. Landson, 1 Rose, 410. 6, § 5. (ij See Pilling v. Tilling, 3 De G. («) Ex parte Wheeler, Buck, 25; •J. & Sm. 162; Ex parte Williams, Ex parte Cooper, 1 M. I). & D. 358; 11 Ves. 3; Ei parte Ciarkson, 4 1). Hawkins v. Hawkins, 4 Jur. N. S. & C. 56, per Sir G. Rose; Ex parte 1044. Owen, 4 De G. & Sm. 361. None of 394 III. Cn. 4. S. 3.] CONVERSION OF PROPERTY. *336 also on their joint and on their respective several creditors ; and that, in the event of bankruptcy, the trustees must give effect to such agreements (x). 1 A conversion of joint into separate property, or vice versa, most frequently takes place when a firm and one of its part- ners carry on distinct trades ; or when a change occurs in a firm by the retirement of some or one of its members, or by the introduction of a new partner. Dealings between one partner and the firm. — When a firm and one of its members carry on distinct trades, property passing in the ordinary way of business from the partner to the firm, ceases to be his and becomes ' the property of the partnership, and nice versd, just as if he were a stranger to the firm. This was settled in the great case of Bolton v. Puller (#), in which there were two banking firms, one carrying on business at Liverpool and one in London. All the partners in the latter firm were partners in the former. Some bills of exchange came in the ordinary course of busi- ness into the hands of the Liverpool firm, to be placed to the general account of its customers. These bills were re- mitted by the Liverpool firm to the London firm, to be placed to the credit of the former in the general account between the two houses. Both houses afterwards becoming bankrupt, it was held that the bills were the property of the London firm and not of the Liverpool firm, or of its cus- tomers. Lord C. J. Eyre, in delivering judgment, adverted to the question now under consideration in the following terms : — "There can be no doubt that as between themselves a partnership may have transactions with an individual partner or with two or more of the partners having their separate estate engaged in some joint con- cern in which the general partnership is not interested; and that they may by *their acts convert the joint property of the general [*336] partnership into the separate property of an individual partner, or into the joint property of two or more partners, or e conrerso. And their transactions in this respect will, generally speaking, bind third per- sons, and third persons may take advantage of them in the same manner (x) See Ex parte Ruffin, and the D. & Ch. 56 ; Ex parte Peake, 1 other cases cited in the last two Madd. 358. notes, and Campbell v. Mullett, 2 (■'.< parte Clarkson, t D. & Ch. 56; without the consent of ■>•. Ex parte Gurney, 2 M. D. & D Corporate tol v. West- 541; Ex parte Peake, 1 Madd. 346, 12 Ch. 1). 161; Varley v. Cop- Ex parte Fell, 10 Ves. 348. pard, I.. B. 7 C. P. 505. (&) H Ves. 3. Compare Ex parte Vea. I 19. > e, too, Ex parte Cooper, 1 M. D. & D. 358. Walker, 1 D 509 ; Ex 396 III. Cii. 4. S. 3.] CONVERSIONS OF PROPERTY. *338 dissolution no assignment was made. There was not even any written agreement showing the terms on which the dis- solution took place. But it was sworn that the partner who continued the business was to take all the stock and effects of the old firm; and it was held that they had become his separate property, and could not be considered as the joint property of the dissolved partnership. These decisions have always been regarded as settling the law upon the subject of conversion of partnership property, and have been constantly followed. They were not, it will be observed, decided with reference to the doctrine of reputed ownership, but with reference only to the real agreement come to between the partners. They apply as much to cases of a change of interest on death as on retirement (rleans & Carrollton R. R. Co., 11 Wall. 624, 20 L. ed. 82; Succession of Pilcher, :!'•» La. Ann. .'Hi-'. A creditor of a partner cannot by garnishee process attach a debt due to the firm, of which the debtor is a member. Hawes v. Waltham, 18 Pick. 451 ; v. Hunkins, 14 Allen, 15; Tobey v. McFarlin, 115 Mass. 98. The only property or interest of a partner which can be applied to the payment of his private debts is the balance due to him on the adjustment of the accounts of the firm. Tohey v. .McFarlin, supra. See Commercial Bank v. Mitchell, 58 400 III. Ch. 5. S. 1.] NON-SURVIVORSHIP BETWEEN PARTNERS. *341 habet (&). This is a common law, and not only an equitable maxim ; but whilst its application in equity was subject to few, if any, exceptions (7), it was not at law so universally applicable as the generality of its terms might lead one to suppose. * Devolution of legal estate in land. — Rule as to the [*341] equitable estate. — As regards real property and chattels real, the legal estate in them is governed by the ordinary doctrines of real property law; and, therefore, if several partners are jointly seized or possessed of land for an estate in fee, or for years, on the death of any one, the legal estate therein will devolve on the surviving part- ners (jri) ; and they can mortgage it for partnership debts Qi) and sell it for the purpose of winding up the affairs of the partnership (o). 1 But the surviving partners are, as regards (k) Co. Lit. 182 a. executors were entitled to half the (/) In Nelson v. Bealby, 4 De G. assets from A. P. &. J. 321, affirming s. c. 30 Beav. (m) Jefferys v. Small, 1 Vera. 217; 472. articles of partnership provided Elliot v. Brown, 3 Swanst. 489, n. that on the death of A. his executors (n) Re Clough, 31 Ch. D. 224, and should receive one-half of the assets ante, p. 218. from B. ; but they were silent as to (o) Shanks v. Klein, 15 Otto, 18 what was to be done on the death (Amer.). See, also, West of Eng- of B. It was, however, held that his land, &c. Bank v. Murch, 23 Ch. D. 138. Gal. 12 ; Filley v. Phelps, 18 Conn. 294; Smith r. Evans, 37 Ind. 526; Hall v. Clagett, 48 Md. 223; Menagh v. Whitvvell, 52 N. Y. 140; s. c. 11 Am. Rep. 683^ Jarvis v. Brooks, 27 N. H. 37; Moody v. Vincent, 5 Low. Can. R. 388; Campbell v. Peder, 3 U. C. L. J. 08. Defendant, a sheriff, levied an execution against G. on some gold taken out of G.'smine by the plaintiff, who was working it under an oral agreement with G., by which plaintiff got two-thirds of the profits after paying all ex- penses. Plaintiff brought trover. Held, that sheriff should have sold only the execution debtor's share, leaving the purchaser to settle with plaintiff. McDonald v. Geldert, 3 Nova Scotia Dec. 551. 1 In Shanks v. Klein, 104 U. S. 18, 26 L. ed. 635, a surviving partner, under pressure from creditors of the firm, conveyed all the property of the firm to a trustee for the creditors, with remainder, if any, to the use of the partners and their heirs or devisees. The conveyance included large quantities of real estate. The deceased partner had devised all his estate to his executor under various trusts. The grantee from the surviving partner brought suit to com- pel the executor to convey to him the legal title of the deceased partner which vested in him under the will, and the court decreed the conveyance and held that the equitable title vested in plaintiff by the conveyance from the surviving partner. An administrator of a partner may bring a bill in equity to settle the part- nership affairs without making the heir at law of the deceased partner a party. Moore v. Huntington, 17 Wall. 417, 21 L. ed. 042, and note ; Jones v. Hardesty, 10 G. & J. 404 (Md.). Surviving partner takes firm property as trustee for the creditors of the 401 *341 SHAKES. [III. Ch. 5. S. 1. the interest of the deceased partner, deemed to be trustees thereof for the persons entitled to his estate, and are com- pel la Me to account with them accordingly (/>). This, how- ever, is only the case on the assumption that the property in question is partnership property, and forms part of the com- mon stock in which the deceased had an interest as a part- ner ( y )• Devolution of choses in action. — As regards choses in ac- til m. the right to sue for a debt owing to the firm, as well as the liability to be sued for a debt owing by it, also, at law, devolved, in the event of the death of one partner, upon (/>) Jeff erys v. Small, 1 Vern. 217 ; ing for his separate debt, and the Lake v. Craddock, 3 P. W. 158 ; mortgagee having notice of the equi- Lake v. Gibson, 1 Eq. Ca. Ab. 290 ; table interest. As to part of the Eliot v. Brown, 3 Swanst. 489, n. ; property there was no sucli notice, Lyster v. Dolland, 1 Ves. J. 435; and as to that the mortgagee's title Jackson '•. Jackson, 9 Ves. 596, 597. prevailed. See, also, Re Ryan, L. R. Ir. 3 Eq. (y) Morris v. Barrett, 3 Y. & J. 222, where tin- title of persons claim- 384; Reilly v. Walsh, 11 Ir. Eq. I'-'. ing under a deceased partner pre- A case of a lease acquired for the vailed against a mortgagee of the purpose of a partnership which was surviving partner; the mortgage be- never formed. See ante, p. 331. firm and representative of the deceased partner. Murray v. Murray, 5 Johns. Ch. 60 j Case v. Abeel, 1 Paige, 293 ; Marlett v. Jackman, 3 Allen, 287. Ik- may free real estate from incumbrances and carry out firm contracts as to same, and control it till firm affairs are settled. Shearer v. Shearer, 98 Mass. 107; Cobble v. Tomlinson, 50 Ind. 550. But cannot purchase the partnership property. Nelson v. Hayner, 66 111. 487; Renfrew v. Pearce, 68 111. 125. Surviving partners have exclusive right to management, control, and pos- session of property and business of firm for the purpose of closing it up as soon as they can without sacrifice. Gleason v. White, 34 Cal. 258 ; Loeschigk v. Addison, 1'.' Abb. Pr. 169; Evans v. Evans, 9 Paige, 178; Gannett v. Cun- ningham, 31 Me. 56 ; Peters /•. Davis, 7 Mass. 256; Miller v. Jones, 39 111. 54; Andrews '■. Brown, 21 Ala. 437. If profits are made by continuing the business to wind it up, he must account lor them. Washburn v. Goodman, 17 Pick. 519; Waring v. Cram, 1 Pars. Sel. Eq. Cas. 516 | Penn.). If articles of partnership fix duties of survivor, he will be bound by them. Suydam --. < >wen, 1 I Gray, 195. He may make valid assignments of partnership effects for the benefit of creditors. White v. Union Ins. Co., 1 Nbtt & McC. 556; s. c. 9 Am. Dec. 726. Must account to representatives of deceased partner for his share of part- nership funds. Dyer v. Clark, 5 Met. 562; s. c. 39 Am. Dec. 697. Without special agreement is not entitled to compensation for services in ig up or continuing business. Ames v. Downing, 1 Bradf. 321 ; Patton ,-. Calhoun, 1 Gratt. 138; Beatty v. Wray, 19 Penn. St. 516; Brown v. McFar- land, 11 Penn. St. 129. Coni . Griggj v. 'Mark, 23 Cal. 427; Bite v. Hite, 1 15. Men. 177. I impensation for extra services. Schenkl. v. Dana, 118 Mass. 236- Newell v. Humphrey, 37 \'t. 265. 402 III. Ch. 5. S. 1.] NON-SURVIVORSHIP BETWEEN PARTNERS. *842 the surviving partner exclusively (»•)• In equity, * however, the legal personal representatives of a cle- [*342] ceased partner were entitled to have a debt due to the partnership brought into account by the surviving part- ners (s), and were liable to be proceeded against by a credi- tor of the firm (£)• The Judicature Acts have not materially altered the law in this respect (u). Devolution of ordinary chattels. — As regards ordinary chat- tels, it w^s held in Buckley v. Barber (y~), that the interest of a deceased partner in chattels belonging to the firm did not devolve upon the surviving partners, so as to enable them to give a good legal title to the chattels as against the executors of the deceased ; and that consequently such chat- tels might be seised under a fi. fa. issued on a judgment ob- tained against the executors by a separate creditor of the deceased partner (x). 1 (?•) Kemp v. Andrews, Carth. 170 ; (s) The receipt of the survivors Dixon v. Hammond, 2 B. & A. 310 ; for a debt due to the firm is a good Martin v. Crompe, 1 Lord Raymond, discharge to the debtor, Brasier v. 340, and 2 Salk. 344; and see Slip- Hudson, 9 Sim. 1 ; Philips v. Philips, per v. Stidstone, 5 T. R., 493 ; French 3 Ha. 281 ; and the surviving part- v. Andrade, 6 T. R. 582. There ner can, without making the execu- is indeed an old case in which an tors of the deceased parties, sustain action of assumpsit for a partner- an action for an account against a ship debt was held to be properly debtor to the firm, Haig v. Gray, 3 brought by the executors of a de- De G. & Sm. 741. ceased partner, and the surviving (t) Ante, book ii. ch. 2, § 1. partners jointly ; Hall v. Huffam, («) See ante, book ii. ch. 2 and 3. alias Hall v. Rougham, 2 Lev. 188 («) Buckley v. Barber, 6 Ex. 164 ; and 228, and 3 Keble, 798 ; but this and see per Dampier, J., in R. v. The case is in direct opposition to the Collector of Customs, 2 M. & S. 223. last cited, and is contrary to what (.r) This case was certainly per- was clearly settled before the Judica- plexing. It made a useless dis- ture Acts. tinction between land, debts, and. Appointed receiver at his own instance, not entitled to compensation as receiver. Berry v. Jones, 11 Heisk. 20G ; s. c. 27 Am. Dec. 742. Action will lie against representative of deceased partner after recovery of judgment against survivor and return of execution unsatisfied, notwith- standing survivor has property not discovered by sheriff. Pope v. Cole, 55 N. Y. 124 ; s. c. 14 Am. Rep. 198. Sole survivor may transfer note payable to late firm. Johnson v. Berliz- heimer, 84 111. 54 ; s. c. 25 Am. Rep. 427. 1 A sole surviving partner of an insolvent firm, who is insolvent personally, may make a valid assignment of the partnership assets for the benefit of firm's creditors, with preferences where there is no statute forbidding it. Emerson v. Senter, 118 U. S. 3, 30 L. ed. 49. See Hoyt v. Sprague, infra; White i'. Union Ins. Co., 1 Nott & McC. 556. And a surviving partner may hold the assets of the firm in his possession until the firm debts are paid, including indebtedness to himself. Clay v. Freeman, 118 U. S. 97, 30 L. ed. 104. 403 *343 SHAKES. [III. Ch. 5. S. 1. Goodwill. — The extent to which goodwill survives will be noticed hereafter (_//). Before quitting the present subject, it may be observed thai the doctrine of non-survivorship amongst partners is not confined to merchants nor even to traders, but extends in partners generally (.?). But it does not apply to societies not having gain for their object, and the members of which are merely joint tenants of the property they hold («). [ ' 343] * Of the doctrine that shares are personal estate. Shares personal estate. — From the principle that a share of a partner is nothing more than his proportion of the partnership assets after they have been turned into money and applied in liquidation of the partnership debts, ordinary chattels : it logically in- V.-C. Wickens, expressed his disap- volved the consequence that a sur- proval of Buckley v. Barber. All viving partner could only properly this is, however, of little consequence sell his share of a partnership chat- now. tel : and it was inconsistent with the (//) See book iii. ch. 9, § 2. principles which induced courts of (s) See Buckley v. Barber, 6 Ex. equity to decline (except under spe- 164; Aunand v. Honiwood, 2 Ch. Ca. cial circumstances) to grant a re- 129; Jefferys v. Small, 1 Vern. 217; ceiver at the instance of the executors Lake v. Gibson, 1 Eq. Ca. Ab. 290; of a deceased against a surviving Lake v. Craddock, 3 P. W. 158. partner. In Taylor v. Taylor, 7 Mar. («) As an instance, see Brown «. 1873, Lord Justice James, sitting for Dale, 9 Ch. D. 78. Where the representative of a deceased partner and the beneficiaries of the estate allow the surviving partners to carry on the business without with- drawing the share of the estate, they lose their lien as against subsequent creditors of the concern. Iloyt v. Sprague, 13 Otto, 613, 26 L. ed. 585. For the purpose of closing up the affairs of the firm, surviving partners have exclusive right to the management, control, and possession of the property of the firm. Peters v. Davis, 7 Mass. 256; Andrews v. Brown, 21 Ala. 437; Evans v. Evans, 9 Paige, 178; Moore v. Huntington, 17 Wall. 417, 21 L. ed. 642 and note; Gannett v. Cunningham, 34 .Me. 56; Gleasonw. White, 34 Cal. 258. He must account for profits if any are made. Washburn v. Goodman, 17 Pick. 519; Waring v. Cram, 1 Pars. Sel. Eq. Cas. 522 (Penn.). And be controlled by articles if they fix duties of survivor. Suydam v. Owen, H Gray, 195. I- not ordinarily entitled to compensation for closing up business. Beatty v. Wray,19 Penn. St. 516 ; Brown v. McFarland, 41 Penn. St. 129. Contra, Hue v. Hite, 1 B. Men. 179; Griggs v. Clark, 23 Cal. 430. See also Schenkl v. Dana, 1 L8 Mass. -J:)';, and Newell v . Humphrey, 37 Vt. 265, where allowances made. Sole- BUrvivor may transfer notes payable to firm. Johnson v. Berlizheimer, -l [11.54; b. < .25 Am. Rep. 427. Action will lie against representatives of deceased partner for unsatisfied judgment against BUrvivor on firm debt, though surviving partner has undis- closed property. Pope v. Cole, 55 X. Y. 124; s. c. 14 Am. Rep. 198. 404 IILCh. 5. S 1.1 SHARES ARE PERSONAL ESTATE. *343 it necessarily follows that, in equity, a share in a part- nership, whether its property consists of land or not, must, as between the real and personal representatives of a de- ceased partner, be deemed to be personal and not real estate, unless indeed such conversion is inconsistent with the agree- ment between the parties (V')- 1 And although the decisions (6) See, as to this, Steward v. Blakeway, 4 Ch. 603, and 6 Eq. 479. 1 The nature of real estate as dealt in and owned by partnerships, with the rights of each partner to bind the firm in relation to it, and of the representa- tions of each partner in the firm real estate, forms one of the most interesting features of the law of partnerships. That partnerships may be formed to deal in real estate there are abundant authorities. Williams v. Gillies, 75 N. Y. 197 ; Clagett v. Kilbourne, 1 Black, 346, 17 L. ed. 213 ; Porter v. Graves, 104 U. S. 171, 26 L. ed. 691 ; Thompson v. Bowman, 6 Wall. 316, 18 L. ed. 736 ; Bird v. Morrison, 12 Wis. 152; Foster v. Chaplin, 19 Ont. Chy. 251; Driffill v. Good- win, 23 Ont. Chy. 431; Page v. Thomas, 43 Ohio St. 38; s. c. 54 Am. Rep. 788 and note. And where the firm does not deal in real estate, but acquires it in the course of business, or it is purchased with partnership funds, or for partnership pur- poses, it becomes partnership property though the title be in individual mem- bers of the firm, or in persons outside the firm. Hoyt v. Sprague, 103 U. S. 613, 26 L. ed. 585 ; Hewitt v. Rankin, 41 Iowa, 35; Flanagan r. Shuck, 82 Ky. 617; Davis v. Smith, 82 Ala. 198; Lindley v. Davis, 6 Mont. 453 ; Fairchild v. Fairchild, 64 NY. 471; Shafer's Appeal, 106 Penn. St. 49; Shanks v. Klein, 104 U. S. 18, 26 L. ed. 635 ; Williams v. Shelden, 61 Mich. 311. A contribution to the partnership of an interest in land by one partner, the owner in possession, is good as against his heirs without deed, but does not cut off dower, which however does not attach to partnership buildings erected by the other partners on this land. Grissom v. Moore, 106 Ind. 296; s. c. 55 Am. Rep. 742. Real estate purchased by a partnership with its funds, and used in its busi- ness is partnership property, though the legal title is in the names of the in- dividual partners, and it is subject to partnership liabilities in preference to a judgment in favor of a separate creditor, although such liabilities accrued subsequent to the attaching of the judgment lien. Page c. Thomas, 43 Ohio St. 38 ; s. c. 54 Am. Rep. 788. (See full note 792 of 54 Am. Rep.) Parol evidence is admissible to show whether land used by the firm, and in part patented to one member alone, was separate or joint property. Newton v. Doran, 3 Ont. Chy. 353. Surviving partner's equitable title in lands does not require a demand of possession on part of heir of deceased partner, suing in ejectment on his ancestor's legal title. Atkinson v. McLeod, 8 Ont. Q. B. 344. Shanks v. Klein, 104 U. S. 15, 26 L. ed. 635, is authority for the proposition that a surviving partner may sell real estate belonging to the partnership, and equity will compel the. holder of the legal title to convey it to the purchaser. See also Solomon v. Fitzgerald, 7 Heisk. 552; Murphy v. Abrams, 50 Ala. 293; Andrews v. Brown, 21 Ala. 437; Buffum v. Buffum, 49 Me. 108. So, too, creditors of the firm have priority over individual creditors in real estate of the firm as in the personal estate. For this purpose it is treated as personalty. Dupuy v. Leavenworth, 17 Cal. 262 ; Messer v. Messer, 59 N. H. 375 ; Mauck v. Mauck, 54 111. 281 ; Bopp y.Fox, 63 111. 540 ; York v. Clemens, 41 Iowa, 95. 405 *343 SHAKES. [III. Ch. 5. S. 1. upon this point are conflicting', the authorities which are in favour n( the above conclusion certainly preponderate over the others. Land acquired for partnership purposes is deemed to be partnership prop- erty though deeded to the partners iii their individual names. The individual partner in such ease holds in trust for the firm. Paige v. Paige, 71 Iowa, 318; 3. i . 60 Am. Rep. 799; Page v. Thomas, 43 Ohio St. 38; s. c. 54 Am. Pep. 788 and note, 792. The mere fact of the purchase of the real property with partnership funds, directly or indirectly, is sufficient, in the absence of anything to the c intrary, to raise a presumption that the real estate is intended to be partner- ship property, and is in equity personalty so far as needed to pay partnership liabilities. See Paige v. Paige, 71 Iowa, 318; s. c. 60 Am. Rep. 709; Collumb v. Read, 24 X. V. 505.; Evans v. Ilawley, 35 Iowa, 83; Sigourney v. Munn, 7 Conn. 11; Allen v. Withrow, 110 U. S. 119, 28 L. ed. 90; Clagett v. Kil- bourne, 1 Black, 346, 17 L. ed! 213 ; Forde v. Herron, 4 Munf. 316; .Shanks v. Klein, 104 O. S. 18, 26 L. ed. 635 ; Deloney v. Hutcheson, 2 Rand, 183 ; Baird o. Baird, 1 Dev. & Bat. Eq. 524; Uhler v. Semple, 20 N. J. Eq. 288; Richard- Bon u. Wyatt, 2 Desau. Eq. 471 ; Hunt v. Benson, 3 Humph. 459; Ross v. Hen- derson, 77 X. C. 170; Wooldridge v. Wilkins, 3 How. 360 (Miss.); Thayer v. Lane, Walk. Ch. 200; Bryant v. Hunter, 6 Bush, 75; Buchan v. Sumner, 2 Barb. Ch. 165; Bopp v. Fox, 63 111. 540; Price v. Hicks, 14 Fla. 505; Corn- wall v. Cornwall, 6 Bush, 369; Ludlow y. Cooper, 4 Ohio St. 1 ; King v. Weeks, 70 X. C 372 ; Holmes v. Moon, 7 Heisk. 506 ; Clark's Appeal, 72 Penn. St. 142; Shafer's Appeal, 106 id. 49. The leading cases are Collumb v. Read, supra, and Buchan v. Sumner, supra. i >il lands purchased for partnership purposes are to be treated as personal property. Sanborn v. Sanborn, 11 Ont. Chy. 359. < >ne of four partners in a land purchase bought the shares of two, and tried to make the fourth contribute to make up difference in money to cover loss on re- sale. I >n demurrer, the bill was dismissed. Luster v. Chaplin, 19 Ont. Chy. 251. W. and L.'becanie partners in grazing as a result of being part-owners of land, and did not become part-owners of land in order to become partners in grazing; hence the lands were to be treated as real estate, not personal prop- erty. Ware v. Aitken, 2 Wyatt & Webb, Eq. 152 (Victoria); see Johnson v. Colclough, 4 Australian J. R. 53, 131 (Victoria); Colonial Bank v. Buckland, 9 Victorian L. R. Eq. 29. Where rive sons inherited land and sheep thereon and bought other and I all in common for sheep-raising ; held, that the devised land was real estate and the purchased land was personal property. Cameron v. Cameron, 1 New Zea. C. A. 24. Partnership in land selection being illegal under statute, the administrator of one partner was precluded from claiming share in land, but might claim share of the farming partnership property on the land. Wesjbey v. Church- man, 10 Victorian I.. R. Eq. 214. In a case of a partnership in a speculation in land it was held that the divisible profits might be ascertained either by resale or by a valuation after deducting cost and incidental expenses. Proudfoot v. Bush, 7 Ont." Chy. The loss on a real estate speculation was directed to be •shared by the partners in same proportion as they shared profits and losses of their other bush ; in v. Cumberland, 18 Ont. Chy. 245. Managing partner has power to sell or mortgage partnership lands stand- ing in his name. Reid v. Smith, 2 Ont. R. Chy. D. 69; Mason v. Parker, 16 406 III. Ch. 5. S. 1.] SHAKES ARE PERSONAL ESTATE. *343 In Thornton v. Dixon (c), the Court recognised the rule that partnership property must be considered as personal (c) 3 Bro. C. C. 199. Ont. Chy. 230; White v. Colonial Bank, 2 Australian J. R.; s. c. 2 Victorian R. Eq. 96; Glass v. Higgins, 2 Australian J. R. 10 ; s. c. 2 Victorian R. Eq. 28. It must be clearly shown that the land purchased is for partnership pur- poses, and with the knowledge and authority of the firm, or else the partners will not be liable on notes given for the purchase. Eraser v. McLeod, 8 Ont. Chy. 268. Surviving partner can sell partnership real estate for partnership purposes, although legal title in another. His conveyance gives grantee a right in equity to compel the heirs of him who held the legal title to convey it to the purchaser. Allen v. Withrow, 110 U. S. 119, 28 L. ed. 90; Andrews v. Brown, 21 Ala. 437 ; Bird v. Morrison, 12 Wis. 138 ; Ludlow v. Cooper, 4 Ohio St. 1 ; Dupuy v. Leavenworth, 17 Cal. 262 ; Murphy v. Abrams, 50 Ala. 293 ; Shanks v. Klein, 104 U. S. 18, 20 L. ed. 635; Delmonico r. Guillaume, 2 Sandf. Ch. 366. And although sale not necessary to pay firm debts. Solomon v. Fitzgerald, 7 Heisk. 552; McAlister v. Montgomery, 3 Hayw. 94 (Tenn.). But sale will not be ordered unless interests of all partners require it. Pierce v. Carey, 37 Wis. 232. Best course is to obtain leave of court to sell. Buffon v. Buffon, 49 Me. 108; Shearer v. Paine, 12 Allen, 289. After such a sale for partnership purpose and settlement, the surplus is real estate and goes to the heirs. Foster's Appeal, 74 Penn. St. 391 ; Wiegand v. Copeland, 14 Fed. Rep. 118. The English rule so carefully stated by the author and sustained by the strong current of authorities in that country does not obtain in the United States beyond the necessity of considering realty as personalty in winding up the partnership affairs. And as between the real and personal representatives of the deceased partner, the balance not needed for the settlement of the lia- bilities of the partnership goes to the real representatives by devise or inheri- tance. And this character attaches to the proceeds as well as the realty itself. Collumb v. Read, 24 N. Y. 505; Buchan v. Sumner, 2 Barb. Ch. 165, summing up the American cases. See also Wilcox v. Wilcox, 13 Allen, 252 ; Dyer v. Clark, 5 Met. 562; Foster's Appeal, 74 Penn. St. 391; Fairchild v. Fairchild, supra; Black v. Black, 15 Ga. 445; Scruggs v. Blair, 44 Miss. 456; McGrath v. Sinclair, 55 Miss. 89; Lowe v. Lowe, 13 Bush, 688. And a widow takes dower in her Husband's share of the residue. Smith v. Jackson, 2 Edw. Ch. 28 ; Huston v. Neil, 41 Ind. 504 ; Shearer v. Shearer, 98 Mass. 107. And see Grissom v. Moore, 106 Ind. 296. In Canada the English rule is followed. Sanborn v. Sanborn, 11 Ont. Chy. 359 ; Wylie v. Wylie, 4 Ont. Chy. 278. Partnership realty descends to the heirs or devisees subject to payment of partnership debts. Rice v. Barnard, 20 Vt. 479; Holland v. Fuller, 13 Ind. 195; Scruggs v. Blair, 44 Miss. 406; Gray v. Palmer, 9 Cal. 639; Shearer v. Shearer, 98 Mass. 111. One of the tests of the character of partnership real estate is the right of dower therein of widows of deceased partners, and it may be said that dower is generally postponed until the liabilities of the firm have been satisfied, when it attaches to the residue. Grissom v. Moore, 106 Ind. 296; s.c.55 Am. Rep. 742; Willett v. Brown, 65 Mo. 138; s. c. 27 Am. Rep. 265; Conger v. Piatt, 25 Ont. Q. B. 277 ; Cobble v. Tomlinson, 50 Ind. 550. 407 *344 SHARES. [HI. Ch. 5. S. 1. estate : but held that thi> lands which were there in question, could not he so considered, as they had heen conveyed to all the partners in common, and there was no agreement for a sale. In Bell w. Tlivn ((7). partners in trade purchased with the funds of the firm a share in a plantation, and kept the ac- counts relating to the estate in the partnership hooks; and it was held upon the authority of the last case, that assuming the land to have become partnership property, it ought not to be regarded as personal estate. In Randall r. Randall (e), the partners were farmers, malt- sters, and biscuit-makers. They bought land for the farming business, and it was hold that as it was not acquired for the purpose of any partnership in trade, the land could not he t .rated as personalty. In Cookson v. Cookson (,f), a father who was seised in fee of land (in which he carried on business as a bottle-manufac- turer, took his son into partnership, and conveyed a share in the land to him. The land was declared by the articles of partnership to be partnership property. But on the [*344] death of the * father, it was held that his share in the land was to be treated as real estate, no sale being required for the payment of the partnership debts for any other purpose. These are the cases which militate against the rule under discussion. The following are those which support it: — In Ripley v. Waterworth (_(/), partnership land was con- veyed to trustees upon trust, upon a dissolution of the part- nership, to sell and pay the partnership debts, and divide the residue of the money arising from the sale amongst the part- ners; ami it was held, upon the death of one of them, that his share in the land was personal estate, although the land was not in fart >n\<\. and the deceased's share in it was pur- chased by the surviving partners under a clause enabling them so to do, and contained in the conveyance to the trustees. In Townshend v. Devaynes (A), two persons in partner- ship as paper-makers, purchased paper mills for the use of the linn, and paid for them out of its funds. It was agreed 7 Vea. 153. (g) 7 Ves. 426. (e) 7 Sim. 271. (A) 1 Mont. Tart, note 2 A. Appx. (/; 8 Mm. ',29. p. 00; see, too, 11 Sim. 498, n. 408 III. Cn. 5. S. 1.] SHARES ARE PERSONAL ESTATE. *345 that on the death of either, the survivor should have the option of purchasing his share. One of the partners died, and his share was purchased by the survivor. It was held that the whole of the purchase-money formed part of the personal estate of the deceased, although most of the money was paid in respect of the interest of the deceased in the mills. In Phillips v. Phillips (f), two persons in partnership as brewers purchased public-houses for the purposes of their trade, and had them conveyed to both in fee. On the death of one of them, it was held that his share in the houses was to be treated as personal estate. Broom v. Broom (&) is a decision to the same effect as the last, and decided on its authority. In Morris v. Kearsley (7), a partnership of brewers was possessed of real estate conveyed partly to the partners as tenants in common, and partly to one or more of the partners in trust *for the firm; and it .was decided [*345] that the several lands, hereditaments, and premises belonging to the partnership, ought to be considered as per- sonal estate. In Houghton v. Houghton (w), two brothers, A. and B., were partners as soap-boilers. They purchased land for the purposes of their trade, took a conveyance to themselves as tenants in common, and mortgaged the land for the purchase- money. They then built on the land, insured the buildings, and paid the expenses and the interest on the mortgage debt out of the partnership funds. A. died intestate, and B. took another brother, C, into partnership. B. and C. paid off the mortgage, and took a reconveyance to themselves as joint tenants in fee, and expended mone}^ in building and insur- ance, defraying the expense, as well as providing the mort- gage money, out of the funds of the partnership. On B.'s death it was held that the lands and buildings had clearly become partnership propert}', and that it ought, therefore, to be treated as personal estate. In Darby v. Darby (w), two brothers embarked in joint speculations in land. Their scheme was to buy land, con- (0 1 M. & K. 649. See ante, p. (I) 2 Y. & C. Ex. 139. The re- 332, note (k), as to the estates which port does not state how, when, or for were devised, and which were held what purpose, the property was origi- not converted into personalty. nally acquired. (£) 3 M. & K. 443. O) 11 Sim. 491. (n) 3 Drew. 495. 409 *346 SHARES. [III. Ch. 5. S. 1. vert it into building sites, and then sell it at a profit. This was done on several occasions, the land being generally con- veyed to one of them only. On the death of that one it was held thai his interest in all the land bought by both, and still unsold, was personal and not real estate. In Kssrx v. Essex ("). two brothers were, under the will of their father, seised of freehold lands. They agreed to be- come partners as curriers and tanners for fourteen years, and to carry on their business on those lands. It was stipulated that if either died during the co-partnership term, the other should take his share in the freeholds, and that the entirety thereof, including the plant and tan-pits, should be valued at 5,00<)/. The fourteen years expired, but the partnership was continued as before. On the death of one of the partners, it was held that his share in the freeholds was to be regarded as personal estate ; they having been converted by the agree- ment for sale. [*:U6] *In Waterer v. Waterer (p), the property of a nurseryman, devised by him, with the goodwill of his business, to his sons as tenants in common, was on the death of one of them treated as personal and not as real estate. There are also various dicta of Lord Eldon in favour of the broad principle that partnership property is to be regarded as personal and not as real estate (5-). Result of the cases. — ■ Upon the whole, therefore, it is sub- mitted, 1. That notwithstanding Thornton v. Dixon, Bell v. Phyn, -and Randall v. Randall, the true rule is, as stated by the Vice- Chancellor Kindersley, in Darby v. Darby (r), " that when- ever a partnership purchases real estate for the partnership purposes, and with the partnership funds, it is, as between the real and personal representatives of the partners, per- gonal estate " (s). 2. That, notwithstanding Cookson v. Cookson, no satisfac- tory distinction, with reference to the question of conver- sion, can be drawn between land purchased with partnership monies, and land acquired in any other way, provided such (0) 20 Beav. 442. Kindersley, in Darby v. Darby, 3 ( V ) 15 Kq. 102. noticed ante, p. 333. Drew. 4IK), &c. See, also, Murtagh v. Costello, 7 L. (r) 3 Drew. 506. R. Ir. 428. 00 See, in addition to tbe cases (7) See the judgment of V.-C referred to above, Holroyd v. Hol- royd, 7 W. R. 426. 410 III. Ch. 5. S. 1.] SHARES ARE PERSONAL ESTATE. *347 land is in the proper sense of the expression an asset of the partnership (Y). 3. That the general rule may, nevertheless, he excluded by an agreement express or implied to the effect that the land shall not be sold. The reason of the rule excludes its application in such a case (u). Upon this ground it was held in a recent and difficult case, that a farm and quarry worked by co-owners in partnership, and additional lands bought by them out of their profits for the purposes of their business, were not to be treated as con- verted into money. The Court held that no partner could *have enforced a sale, either of the original [*347] farm and quarry or of the subsequent additions to it (,:). The rule only applies to partnership property. — It is well settled that the doctrine of conversion does not apply to co- owners as distinguished from co-partners ; nor to property owned by persons, who, although they may be partners in profits, are only co-owners of the land which yields them. Thus, where two out of three partners were owners of land occupied by the firm, and for which the firm paid a rent, and the land was in fact kept distinct from the joint property of the three partners, it was properly held, on the death of one of the two partners to whom the rent was paid, that his in- terest in the land was not to be considered as personal, but as real estate (j/). So, if land belongs to all the partners as tenants in common, but not as partners, and that land is used by them for partnership purposes, but is nevertheless in- tended to remain vested in them as tenants in common, and not to form part of the assets of the firm, the share of each partner will be real and not personal estate (z). In the case now supposed, co-owners of land are partners, but the co- ownership continues unaffected by the partnership. But it is not possible on this ground to uphold Thornton v. Dixon, Bell v. Phyn, Randall v. Randall, or Cookson v. Cookson. (f) See per Lord Eldon in Jackson (w) Steward v. Blakeway, 4 Ch. 603, v. Jackson, 9 Ves. 593. " It is very and 6 Eq. 479. difficult to make a distinction between (.r) Ibid. a joint tenancy by will, by a gra- (y) Rowley v. Adams, 7 Beav. 548; tuitous deed, or a purchase. The law Balmain v. Shore, 9 Ves. 500. See, of merchants, if it applies to one, too, Phillips v. Phillips, ante, p. 332. must apply to all." (r) Steward v. Blakeway, 4 Ch. 603, and 6 Eq. 479. 411 ■ 348 SHAKES. [III. Cii. 5. S. 1. Iii each of these four cases the land had become part of the assets of the firm, or it had not; if it had, these four cases are in direct conflict with those which have been alluded to above ; whilst, if it had not, they are in no kss direct con- flict with other eases which art 1 authorities on the question what is and what is not property of the firm. Doctrine of conversion has only a restricted application. — The doctrine of conversion which has just been considered, merely amounts to this, that on the death of a partner his share in the partnership property is to be treated as money and not a.s land. It follows, however, from this doctrine that probate duty and Legacy duty are payable in respect of the share of a deceased partner in partnership real es- [*348] tate (a) ; and a * partner's share in such estate is clearly within the Charitable Uses Act, 9 Geo. 2, c. 36(6) Qualification for vote. — Whether a partner's share in part- nership real estate can give him a qualification for voting on i ions of members of Parliament has been much discussed of late. It is settled that if a partner has no interest in partnership realty as distinguished from the money arising from its sale, his interest in it does not confer a qualifica- tion (/■) ; but unless this is the case the equitable doctrine of conversion, which has no practical operation until his death, does not deprive him of the qualification which he would otherwise have as a joint tenant or tenant in common (c?). A share in a cost-book mining company is not an interest in land within the 4th section of the Statute of Frauds (V) ; nor is it goods or chattels within the 17th section (/). (a) See, as to probate duty, A.-G. (6) Ashworth v. Munn, 15 Ch. D. v. Hubbuck, 13 Q. B. I). 275, and 10 363. ib. 488; A.-ii. ,-. Marquis of Ailes- (c) Watson v. Black, 16 Q. B. D. bury, 12 App. Ca. 672, reversing 8. c. 270; Bennett v. Blain, 15 C. B. N. S. LG Q. B. D. H)8, and restoring the 518; Freeman v. Gainsford, 18 ib. judgment of the Divisional (Hurt in 185. See, also, Spencer v. Harrison, 11 Q. B. D. 895; A.-G. v. Brunning, 5 C P. D. 97; Wadmore v. Dear, 8 Ho. Lo. Ca. 24:i : Matson v. Swift, L. R. 7 C. P. 212. - Beavan, 368, musl betaken as now (<7) Baxter v. Brown, 7 Man. & Gr. overruled, see Lord Macnaghten's 198; Rogers v. Harvey, 5 C. B. N. judgment, 12 App. Ca. 696; as to S. 3. legacy duty, Forbes v. Steven, 10 Eq. •<) Watson v. Spratley, 10 Ex. 17-. Custance v. Bradsbaw, 4 Ha. 222. Compare Vice v. Anson, 7 B. & 315, is to the contrary, but it cannot C. 40!); Boyce v. Green, Batty, 608. now be relied upon. (f) Watson v. Spratley, 10 Ex. 222." 412 III. Cii. 5. S. 2.] EACH PARTNER'S SHARE. *349 SECTION II. — OF THE AMOUNT OF EACH PARTNER'S SHARE. The proportions in which the members of a firm are enti- tled to the property of the firm, or in other words, the amount of each partner's share in a partnership, depends upon the agreement into which the partners have entered. Shares are prima facie equal. — 111 the event of a dispute between the partners as to the amount of their shares, such dispute, if it does not turn on the construction of written documents, must be decided like any other pure ques- tion of fact (//) ; and if there is no evidence * from [*349] which any satisfactory conclusion as to what was agreed can be drawn (/i), the shares of all the partners will be adjudged equal (i). 1 Observations cm this rule. — This rule no doubt occasionally leads to apparent injustice; but it is not easy to lay down any other rule which, under the circumstances supposed, could be fairly applied. It is sometimes suggested that the. shares of partners ought to be proportionate to their con- tributions ; but without in any way denying this, it may be asked, how is the value of each partner's contribution to be measured ? Certainly not merely by the capital he may have brought into the firm. His skill, his connection, his command of the confidence and respect of others, must all be taken into account; and if it is impossible to set a money value on each partner's contribution in this respect, it is obviously impossible to determine in the manner suggested, the shares of the partners in the partnership. Nor can it be said to be unreasonable to infer, in the absence of all evidence to the contrary, that the partners themselves have agreed to con- sider their contributions as of equal value, although they may have brought in unequal sums of money, or be themselves unequal as regards skill, connection, or character. Whether. (g) See Peacock v. Peacock, 16 Copland v. Toulmin, 7 CI. & Fin. 349. Ves. 49; McGregor v. Bainbridge, 7 (/') Robinson v. Anderson, 20 Beav. Ha. 164 ; Binford v. Dommett, 4 Ves. 98, and 7 De G. M. & G. 239 ; Pea- 756. cock v. Peacock, 16 Ves. 49 ; Webster (A) Stewart v. Forbes, 1 Mac. & G. v. Bray, 7 Ha. 159; Farrar v. Bes- 137; Webster v. Bray, 7 Ha. 159; wick, 1 M. Rob. 527. 1 Henry v. Bassett, 75 Mo. 89; Whitcomb v. Converse, 119 Mass. 38; Ligare v. Peacock, 109 III. 94; Griggs v. Clark, 23 Cal. 427; Kilpatrick v. Mackay, 4 Victorian L. R. Eq. 28. 413 *350 SHARES. [III. Ch. 5. S. 2. therefore, partners have contributed money equally or un- equally, whether they are or are not on a par as regards skill, connection, or character, whether they have or have not Laboured equally for the benefit of the firm, their shares will be considered as equal, unless some agreement to the contrary can be shown to have been entered into(F). Meaning of equality. — When it is said that the shares of partners arc primd facie equal, although their capitals are unequal, what is meant is that losses of capital like other losses must be shared equally; but it is not meant [*850] that on a final settlement of accounts, * capitals con- tributed unequally are to be treated as one aggregate fund which ought to be divided between the partners in equal shares (/). Evidence showing inequality. — An agreement for inequality may be conclusively inferred from the mode in which the partners have dealt with each other, and from the contents of the partnership books (m). 1 Moreover, if an agreement for inequality clearly at one time existed, no presumption of any liberation in this respect will arise from the mere fact, that some of the original members have retired. In the absence of evidence to the contrary, the inference is that the shares of the retiring members have been taken by the continuing parties in the proportions in which these last were originally interested in the concern (n). Rule as to presumptive equality applies to partnerships in sin- gle transactions. — The rule that the shares of partners are equal, unless they have otherwise agreed, applies not only to persons who are partners in business generally, but also to those who are partners as regards one single matter only. Thus in Robinson v. Anderson (o), where two solicitors, not (k) See the last three notes. Pea- (m) As in Stewart v. Forbes, 1 cock )•. Peacock, 2 Camp. 44, and Mac. & G. 1.37. Sharpe v. Cummings, ~l Dowl. & L. (w) liobley v. Brooke, 7 Bli. N. S. 504, which was apparently decided 90; and see Copland v. Toulmin, 7 on its authority, cannot be supported. CI. & Fin. 349. See, as to Scotch law, Thompson v. (o) 20 Beav. 98, and 7 De G. M. & Williamson, 7 Bli. X. S. 432 ; 3 Ross, G. 239. See, too, Webster v. Bray, L. C. on Com. Law, 381. 7 Ila. 159, and McGregor v. Bain- (7) See infra, ch. 8, § 1, on partner- bridge, ib. 104, note; Hanslip v. ship accounts. Kitton, 8 Jur. N. S. 835, V.-C. S. Moore v. Trie her, 31 Ark. 113, where partners were held bound by practice of crediting payments. 414 III. Ch. 5. S. 2.] EACH PARTNER'S SHARE. *351 in partnership, were jointly retained to defend certain actions, and there was no satisfactory evidence to show in what pro- portions they were to divide their remuneration, it was held that they were entitled to share it equally, although they had been paid separately and had done unequal amounts of work. The Master of the Rolls, after observing on the importance in such cases of attending to the onus probandi, said : " Now I should entertain no doubt, even if I had not been confirmed by the two cases of Webster v. Bray, and McGregor v. Bainbridge, that where two solicitors undertake a matter of business on behalf of a client, the same rule would follow in that, as in any other undertaking where two persons carry on a business jointly on behalf of themselves, or as agents of other persons. It is, in point of fact, a limited partnership for a particular sort of business. Assuming nothing to have been said as to the manner in which the profits were to be divided, it appears to me to follow as a necessary consequence of law, that they are to be divided equally between them. And, although one may do more business and have exerted himself more *than the other, yet if nothing is [*351] said upon the subject of profits, the presumption is that they are to be equally divided between them. It appears to me, that if the clients had gone to Mr. Robinson and Mr. Anderson, and said — We wish you to undertake the business for us, and thereupon Mr. Robinson and Mr. Anderson had both said, We agree to do so, and nothing had taken place between them as to the manner in which they were to be paid, the neces- sary consequence would have been that after payment of the costs out of pocket, the net profits made by the business would have been divisible, equally between them, and that neither of them could say to the other — I have done more business than you have, and am therefore entitled to a larger share of profits. It was the duty of the party who intended that this should not be a partnership transaction, and that he should be paid for the amount of business which he did without participating in that of the other, so to express himself." Applications of rule where one firiii comprises another A question of some difficulty arises when a firm, say of two partners, engages in a partnership speculation with a third person not a member of that firm. Is the interest of such person in the speculation to be treated as one half, the other two persons being treated as one? or is the interest ot each of the three to be treated as equal, each taking one-third? The answer to these questions must depend upon whether the two partners entered into the speculation as a firm or as two individuals. If the former, there will in substance be only two parties interested in the speculation, and the profits thereof must be divided into two equal parts; whilst if the 415 *352 SHAKES. [III. Cii. 5. S. 3. hater is the case, there will be three parties interested, and the profits must be divided into three equal parts (p). 1 SECTION III. — OF THE LIEN WHICH EACH PARTNER HAS <»N THE PROPERTY OF THE FIRM, AND ON THE SHARES OF BIS CO-PARTNERS. In order to discharge himself from the liabilities to which . person may be subject as partner, every partner has a right to have the property of the partnership applied in payment of the debts and liabilities of the firm. And in order ['•">."> -J] to secure a * proper division of the surplus assets, he has a right to have whatever may be due to the firm from his co-partners, as members thereof, deducted from what would otherwise be payable to them in respect of their shares in the partnership. Foundation of partner's lien. — In other words, each partner may be said to have an equitable lien on the partnership property for the purpose of having it applied in discharge of the debts of the firm; and to have a similar lien on the sur- plus assets for the purpose of having them applied in payment of what may be due to the partners respectively, after deduct- ing what may be due from them, as partners, to the firm(^). 1 Consequences of the lien. — This right, lien, quasi-lien, or whatever else it may be called, does not exist for any practical purpose until the affairs of the partnership have to be wound up, or the share of a partner has to be ascertained; nor has (/;) See Warner v. Smith, 1 De G. see upon it the observations of Lord J. & S. 337, where the profits were Tenterden, in 8 B. & C. 618. As to held to be divisible into two and not the right of a minority of partners to three parts. insist on the payment of a partnership ^esl v. Ski]). 1 Ves. S. 2:59; debt out of the partnership assets, see skip]) v. Earwood, 2 Swanst. 586; the observations of Turner, V.-C, in Doddington v. Hal let, 1 Ves. S. 498 Stevens v. The South Devon Rail. Co., and 499; Ex parte Ruffin, 6 Ves. 110; 9 Ha. 326. Any member of an or- /. parte Williams, II Lb. 3; Holder- dinary firm is at liberty to pay any D sa y.Shackels,8 B. & 6.612. Smith debt of the firm, and to charge the . De Silva. Cowp. 469, can hardly be firm with the amount paid, reconciled with the other cases, but 1 Turnipseed v. Goodwin, '■> Ala. 372; Conwell v. Sandidge, 5 Dana, 210. Hoyl v. Sprague, 103 I'. S. 613, 20 L. ed. 585; Clay v. Freeman, 118 C. S. '.17, :;o L. ed. 104. and see note mite, pp. . J 1 2 , .'14:!; Dyer v. Clark, 5 Met. 662; Pennybacker v. Leary, 65 Iowa, 220; People v. Roy, 3 Nebraska, 261, case; Hobba v. McLean, 117 U. S. 567, 20 L. ed. 940. 416 III. Cii. 5. S. 3.] PARTNER'S LIEN. *353 any partner a right to insist as against a judgment creditor of the firm, that he shall have recourse to the assets of the firm before seeking to obtain payment from the partners individu- ally (r). But when partnership accounts have to be taken, and the shares of the partners have to be ascertained, the lien of the partners on the assets of the partnership, and on each other's shares, becomes of the greatest importance. To what property it attaches. — Whilst the partnership Lists, the lien attaches to everything that can be considered partner- ship property, and is not therefore lost by the substitution of new stock in trade for old (s). Further, on the death or bankruptcy of a partner, his lien continues in favour of his representatives or trustees, and does not terminate until his share *has been ascertained and provided [*353] for by the other partners (£). But after a partnership has been dissolved, the lien is confined to what was partner- ship property at the time of the dissolution, and does not extend to what may have been subsequently acquired by the persons who continue to carry on the business. In this respect the lien in question differs from the lien of a mort- gagee on a varying stock-in-trade assigned to him as a security for his loan (u). Lien exists only on partnership assets. — It follows from the principle on which the lien of a partner is founded, that it only extends to the property of the firm, and to the separate interest of each partner in such property. In those cases, therefore, where there is a partnership in profits only, but that which produces those profits belongs exclusively to one of the partners, the lien of the others is confined to the profits, and does not extend to that which produces them (x). More- over, if two persons engage in a joint adventure, each con- signing goods for sale upon the terms that each is to have the produce of his own goods, neither of them will have a lien on the goods of the other, nor on the produce of such (?■) See ante, p. 299. («) Payne v. Hornby, 25 BeaV. (s) See West v. Skip, 1 Ves. S. 280. See, too, Nerot v. Burnand, 4 239 ; Skipp v. Harwood, 2 Swanst. Russ. 247, and 2 Bli. N. S. 215, ante, 586; Stocken v. Dawson, 9 Beav. p. 326 ; Ex parte Morley, 8 Ch. 1026. 239, and 17 L. J. (Ch.) 282. Com- Compare the cases in the last note pare the cases in the next note but but one. one. (z) See infra, as to the lien of co- (?) See Stocken v. Dawson, 9 owners. Beav. 239, affirmed 17 L. J. (Ch.) 282, and the cases cited in note (s) . 417 *354 SHARES. [III. Ch. 5. S. 3. goods, although cadi may have raised the money to pay for his own goods by a bill drawn on himself by the other, and ultimately dishonoured (j/). Lier. exists as against all persons claiming a share in the assets. — The lien of each partner exists not only as against the other partners, bui also against all persons claiming through them or any of them; and it is therefore available against their executors, execution creditors, and trustees in bankruptcy (z). 1 To hold, however, that this lien could be enforced against persons purchasing partnership property, would be in effect to prevent any sale of that property with- out the consent of the whole firm, and would practically stop all partnership trade. Whilst, therefore, a person who pur- chases a share of a partner takes that share subject to [*354] the liens of the other partners (a), a * person who bond fide purchases from one partner specific chattels belonging to the firm, acquires a good title to such chattels, whatever liens the other partners might have had on them prior to their sale (6). In Re Langmead's trusts a partnership between A. and B. was dissolved. A. retired, and by deed agreed to execute an assignment to B. of the partnership assets (part of which consisted of a policy of which the partners were assignees), and B. agreed to covenant to pay the partnership debts, and indemnify A. against them. No further instrument was executed. A. died, and B. afterwards assigned the policy by way of mortgage to a person who had notice of the deed. A.'s executors were afterwards compelled to pay partnership debts, which ought to have been discharged by B. and B. became bankrupt. The policy being adversely claimed by the mortgagee, by A.'s executor, and by a purchaser from I>.\s assignees, it was held that, even if A. and his executors had been entitled to pursue any portion of the partnership property in the hands of !>.. and to have it applied in pay- ment of the partnership debts, yet that they had no such right as against the purchaser from B., though with notice, Ex parte Gemniel, :) M. I). & (a) Cavander v. Bulteel, 9 Ch. D. 198. -'.>. (z_) V Skip, and other cases (6) See lie Langmead's Trusts, 20 cited, anU , mot, («). Beav. 20, and 7 De G. M. & G. 353. 1 Boyt '■. Sprague, supra; Moure*'. Huntington, 17 Wall. 417,21 L. ed. 842, and note ; Hobbs v. McLean, 117 t". S. 567, 29 L. ed. 940. 418 III. Ch. 5. S. 3.] PARTNER'S LIEN. *355 for lie was not bound to see to the application of the pur- chase money ( No lieu if partnership is illegal. — If a partnership is illegal its members have no lien upon their common property, or upon each other's shares therein (//) ; unless it be by virtue of some agreement not affected by the illegality. Lien of co-owners. — Mere co-owners have no such lien as is enjoyed by co-partners (/?). But a part owner of a ship lias a right to have the gross freight applied in the first place in payment of the expenses incurred in earning it (0. [*356] * SECTION IV. — OF THE MODE IN WHICH A SHARE IS TAKEN IN EXECUTION FOR THE SEPARATE DEBTS OF ITS OWNER. Execution against a partner for a separate debt. — The nature of a partner's share in partnership property, and the effect of the lien noticed in the preceding sections, are well seen when a separate judgment creditor of a partner seeks to levy execution upon that partner's share in the partnership. Such a creditor has always been at liberty to execute his judgment, not only against his debtor's separate property, but also against the property of any firm in which the debtor may be a partner. This at first sight seems extremely unjust ; inas- much as it looks like taking one man's property for another man's debt; but in truth the creditor gets only what belongs (/) See Holroyd v. Griffiths, 3 (/) See Green v. Briggs, 6 Ha. Drew. 428. En Holderness v. Shaekels, 395; Alexander v. Simms, 18 Beav. - B. C. 012, the transfer to each 80, and 5 De G. M. & G. 57; Lind- partner was subject to the lien, which say v. Gibbs, 22 Beav. 522, and 3 De was not therefore lost. G. & J. 690. See, as to the lien of (g) See Ewing v. Osbaldiston, 2 M. the master on freight, Bristow v. Whitmore, 4 De G. & J. 325, revers- & Leslie, S-'> Ch. 1). 552; Kay ing s. c. Johns. 96; Smith v. Plum- Johnston, 21 Beav. 536; ante, book mer, 1 B. & A. 582. i. ch. 1, § 6. 420 III. Ch. 5. S. 4.] UNDER FIERI FACIAS. *357 to his debtor, although it must be confessed that executions of the nature in question put the debtor's partners to no small inconvenience. In order to explain the consequences of an execution against the partnership propeity for a separate debt of one of the partners, it will be convenient to examine the law as it stood before the Judicature acts with reference to 1. The duty of the sheriff. 2. The position of the purchaser from him. 3. The position of the execution debtor. The position of the execution creditor and of his debtor's co-partner will appear in the course of this examination. The effect of the Judicature acts will then be noticed. 1. Of the duty of the sheriff. 1. Of the duty of the sheriff. — There has been considerable doubt as to the proper mode of levying execution against- the property of a firm upon a judgment recovered against one of its members only (&). Sheriff seizes the partnership property. — Before the time of Lord Mansfield it seems that the sheriff was in the habit of acting upon the supposition that each partner was entitled to an undivided share of every article belonging to the firm, without reference to the state of the partnership accounts : and in executing a fi. fa. against a partner for his * separate debt, the sheriff seized the whole of the [*357] partnership effects (or of so many of them as were requisite), and sold the undivided share of the judgment debtor therein (7). The sheriff seized the whole of every chattel which he sold, because he could not otherwise seize the share of the execution debtor. But he did not sell the whole of what he seized, because his authorhvy was limited by the writ to the goods and chattels of the debtor, and an undivided share can be sold though it cannot alone be seized. As stated by Lord Holt in Heydon v. Heydon (m) (where there were two part- (£•) Burton v. Green, 3 Car. & P. 1 Show. (K. B.) 109; Pope v. Ha- 306. man, Comb. 217; Mariott v. Shaw, (/) See Heydon v. Heydon, 1 Salk. Comyn, 277 ; Dutton v. Morrison, 17 392; Jackey v. Butler, 2 Ld. Ray-' Ves. 205; Be Wait, 1 Jac. & W. 608. mond, 871 ; Backhurst v. Clinkard, (m) 1 Salk. 392. 421 *358 SALE OF SHAKES IN PARTNERSHIPS. [III. Ch. 5. S. 4. tiers, against one of whom a judgment had been obtained), " the sheriff must seize all because the moieties are undivided; for if he seize but a moiety and sell that, the other will have a right to a moiety of that moiety; but he must seize the whole and sell a moiety thereof undivided, and the vendee will be tenant in common with the other partner" (n). Lord Mansfield's innovation. — Lord Mansfield endeavoured to introduce what at first sight appears to be a more equitable practice. In his time the sheriff seems to have seized and sold the whole of a sufficient portion of the partnership goods (instead of selling only an undivided share thereof), and then an account was directed to be taken of the judgment debtor's share of the proceeds of the sale, and that share, or a sufficient part of it, was handed over to the execution cred- itor (<>). This, however, was a very imperfect mode of pro- ceeding ; for it was impossible to ascertain the share of the debtor partner in the goods seized, without taking all the partnership accounts, and this a court of law had no power to do. Modem rule. — Lord Mansfield's innovation was therefore discontinued (jp); audit was finally settled, in conformity with the older cases, that the sheriff's duty was, and [*358] it still is * to seize the whole of the partnership ef- fects (seizable under a fi.faJ), or of so much of them as may be requisite, and to sell the undivided share of the debtor partner therein, without reference to the state of the accounts as between him and his co-partners (q). 1 O) See, too, per Tindal, C. J., in E. 127 ; s. c. 5 Nev. & Man. 563, and Johnson v. Evans, 7 Man. & Gr. 249, 4 Dowl.Pr. Ca. 300; Johnson v. Evans, 250. 7 Man. & Gr. 240. In Holmes v. - i Eddie v. Davidson, 2 Mentze, it was held that a sheriff, who Dougl. 650. for the debt of one partner executed Parker v. Pistor, 3 Bos. a fi. fa. against the property of the P. 288; Chapman v. Koops, ib. firm, was not entitled to make the 289; Morley v. Strombom, 3 Bos. &. execution creditor and the co-partner P. 254. Lord Eldon greatly disap- of the debtor interplead ; but that if proved of it, Bee Waters v. Taylor, the execution creditor denied the part- j. V. & B. 301. nership he was bound to indemnify the (, n See Helmore v. Smith, 35 Ch. sheriff. ■■; Holmes v. Mentze, 4 A. & i .\ judgment creditor against an individual member of a partnership for a separate debt or a firm debt may levy upon the interest of his judgment debtor. And this interest is in the balance or equity of the judgment debtor after satisfaction of the liabilities of the firm. Wilson v. Strobaeh, 59 Ala. 422 III. Ch. 5. S. 4.] UNDER FIERI FACIAS. *359 Sale of execution debtor's share. — The sheriff, having seized the property of the firm, proceeds to sell the interest of the judgment debtor in the chattels seized, and to assign the same to the purchaser (r). Formerly the sale had to be by auction, but now it may be by private contract (s). Rights of the other partners. — It is to be observed that the sheriff seizes, sells, and assigns ; but he has no business to take the goods of the firm out of the possession of the solvent partners (Y) ; and if the sheriff sells not the share of the exe- cution debtor, but the goods themselves, he is accountable to the solvent partners for so much of the proceeds of the sale as is proportional to their share in the partnership (u). 2. Of the position of the purchaser from the sheriff. Of the purchaser from the sheriff. — If the purchaser is a stranger unconnected with the firm, he acquires for his own benefit all the judgment debtor's interest in the property comprised in the bill of sale, and becomes, as regards such property, tenant in common with the judgment debtor's co- partners (a;). 2 The next step, therefore, is to adjust the conflicting rights of the purchaser, and these partners. Now it is clear from the nature of the lien which each partner has on the partnership property, that a partner holds a part- nership chattel with his co-partner, subject to all * the equities which that co-partner has upon it (j/), [*359] and subject therefore to his right to have all the (?•) See Habershon v. Blurton, 1 (u) Mayhew v. Herrick, 7 C B. De G. & Sm. 121. 229. 00 See Ex parte Villars, 9 Ch. 432. (.r) See Helmore v. Smith, 35 Ch. (7) See per Patteson, J., in Burnell D. 436. v. Hunt, 5 Jur. 650, Q. B. Q/) Baker v. Goodair, 11 Ves. 85. 488 ; Daniel v. Owens, 70 Ala. 297 ; Weaver v. Ashcroft, 50 Tex. 428 ; Atwood v. Meredith, 37 Miss. 635 ; contra, Fogg v. Lawry, 68 Me. 78. Cannot be reached by garnishee process. Bulfinch v. Winehenbach, 3 Allen, 161 ; Tobey v. McFarlin, 115 Mass. 98. But see Treadwell v. Brown, 43 N. H. 290 ; Barrett v. McKenzie, 24 Minn. 20; Howard v. McLaughlin, 98 Penn. St. 440. 2 The purchaser at an execution sale takes the interest of the partner whose share has been sold, that is, the tight to the surplus, if any, after the payment of the partnership debts, with the right as incident to an accounting to ascertain the amount. He takes an undivided and unascertained interest. Wilson v. Strobach, 59 Ala. 488 ; Clagett v. Kilbourne, 1 Black. 346, 17 L. ed. 213 ; Randall v. Johnson, 13 R. I. 338 ; Cox v. Russell, 44 Iowa, 556 ; Carter v. Roland, 53 Tex. 540. 423 *860 SALE OF SHARES IN PARTNERSHIPS. [III. Cii. 5. S. 4. creditors of the firm paid out of the assets of the firm, and consequently, pro tanto, out of the chattels seized by the sheriff (z). It is equally clear thai in this respect the pur- r from Hie sheriff is in no better position than the partner whose undivided share has been sold(a). Before the Judicature arts, therefore, a suit in equity became neces- sary, in order that the partnership accounts might be taken, and the partnership property duly applied (7>). injunction. — The right of the partners of the judgment debtor being of the nature described, and it being incompati- ble with that right that the partnership property seized by the sheriff should be removed or sold by him, the Court of Chancery would, before the Judicature acts, on a bill filed by the judgment debtor's co-partners against the judgment debtpr and his creditor and the sheriff, direct the partnership accounts to be taken, and restrain the sheriff from selling the property and appoint a receiver (c). 3. Of the position of the execution debtor. Of the execution debtor. — With respect to the execution debtor, it is to be observed that, in the first place, the execu- tion generally ( more; and as, under a fi.fa., the sheriff may not have power to sell everything which, as between the partners, is to be considered partnership property, it by no means follows that the assignment has transferred to the creditor all the judgment debtor's share and interest in the (z) See the nexl note. 10 Jur. 670; and sec Story on Partn. Skipp v. Harwood, 2 Swanst. §264; and as to making the sheriff a 586; Taylor v. Field, 1 Ves. 396; party, see Lord Eldon's obs. in Frank- JToungw. Keighly, 15 Ves. 557; Dut- lyn v. Thomas, 3 Mer. 235, and Hawk- ton v. Morrison, 17 Ves. 205-6; Ex shaw v. Parkins, 2 Swanst. 549. I! irnp.-r, ill. 40}-.",; /,', Wait, 1 () See Heath v. Sansom, 4 B. & Ad. 172. 1 The ri no reason why they should not; nor why, having so agreed, they should not be bound by the agreement ( i y). Persons who enter into such an agreement consent pro- spectively and once for all to admit into partnership any per- son who is willing to take advantage of their agreement, and to observe those stipulations, if any, which may be made conditions of his admission. Such an agreement as this is the basis of every partnership the shares in which are trans- ferable from one person to another. Those who form such partnerships, and those who join them after they are formed, assent to become partners with any one who is willing to comply with certain conditions (s). As observed in Lovegrove v. Nelson (a), " To make a per- son a partner with two others their consent must clearly be had, Inn there is no particular mode or time required for giving that consent; and if three enter into partnership by a contract which provides that on one retiring, one of the re- maining two, or even a fourth person who is no partner at all, shall name the successor to take the share of the one retir- iner, it is clear that this would be a valid contract which the Court must perform, and that the new partner would come in as entirely by the consent of the other two as if they had adopted him by name." Effect of transfer where there is a right to assign. — • Where a partner has an unconditional right to transfer his share, he may transfer it to a pauper, and thus get rid of all liability as between himself and Ins co-partners in respect of transac- tions subsequent to the transfer and notice thereof given to them (6). But even in this case the transfer alone does not render the transferee a member of the partnership, and liable (x) See ante, p. 48 ; and Brown (//) Lovegrove v. Nelson, 3 M. & v. De Tastet, Jac. 284, where the K. 20. hill was dismissed against the other (z) See Fox v. Clifton, 9 Bing. 119. partners. («) 3 M. & K. 1. (6) Jefferys v. Smith, 3 Russ. 158. 430 III. Ch. 5. S. 5.] IN PARTNERSHIPS. *366 as between himself and the other members to any of the debts of the firm (V). In order to render him a partner with the other members, they must acknowledge him to be a partner, or permit him to act as such (cT). Effect on continuity of firm. — As an ordinary partnership is not distinguishable from the persons composing it, and as every change amongst those * persons creates [*366] a new partnership, it follows that every time a part- ner transfers his stock to a non-partner the continuity of the firm is broken. In this respect such companies as are not mere partnerships on a large scale differ from ordinary firms, their continuance not being interrupted by changes amongst their members (e). Mining partnerships. — An apparent exception to the rule that a share in a partnership cannot be transferred without the consent of all the partners exists in the case of mining partnerships. Mines are a peculiar species of property, and are in some respects governed by the doctrines of real prop- erty law, and in others by the doctrines which regulate trad- ing concerns. Regarding them as real property, and their owners as joint tenants or tenants in common, each partner is held to be at liberty to dispose of his interest in the land without consulting his co-owners ; 1 and a transfer of this in- terest confers upon the transferee all the rights of a part- owner, including a right to an account against the other owners (/). But even here, if the persons originally inter- ested in the mine are not only part-owners but also partners, a transferee of the share of one of them, although he would become a part-owner with the others, would not become a partner with them in the proper sense of the word, unless by agreement express or tacit (g~). Ships. — Similar observations apply to transfers of shares in ships. (c) Ibid. C. Ex. 182; Redmayne v. Forster, (d) Ibid. 2 Eq. 467. (e) See Mayhew's case, 5 De G. (g) As in Jefferys v. Smith, 3 Russ. M. & G. 837. 158; Crawshay v. Maule, 1 Swanst. (/) See Bentley v. Bates, 4 Y. & 518. 1 Bissell v. Foss, 114 U. S. 252, 29 L. ed. 126. No delectus personce, Duryea w. Burt, 28 Cal. 569; Settembre v. Putnam, 30 Cal. 490; Taylor v. Castle, 42 €al. 367; Kahn v. Smelting Co., 102 U. S. 641, 26 L. ed. 266. 431 *3G7, *368 CONTBIBUTION AND INDEMNITY. [III. Ch. 6. [*367] * CHAPTER VI. OF CONTRIBUTION AND INDEMNITY WITH REFERENCE TO PARTNERSHIPS. Subject of present chapter. — In this chapter it is proposed to consider the nature of those expenses and losses which, as between the members of a firm, are chargeable to the firm, and also the nature of those which are properly charge- able against some one or more of the members exclusively of the others. In other words, it is proposed to investigate the principles upon which, in taking the accounts of a firm, a given expense or loss is to be placed to the debit of the firm, or to the debit of one or more of its members sepa- rately. In connection with this subject it must always be borne in mind that every member of an ordinary firm is, to a cer- tain extent, both a principal and an agent. He is liable as a principal to the debts and engagements of the firm, and in respect of them he is entitled to contribution from his co-partners; for they have no right to throw on him alone the burden of obligations which, ex hypothesis are theirs as much as his (a). Again, each member as an agent of the firm is entitled to be indemnified by the firm against losses and expenses bond fide incurred by him for the benefit of the firm, whilst pursuing the authority conferred upon him by the agreement entered into between himself and his co- partners. On the other hand, a partner has no right to charge the firm with losses or expenses incurred by his own negligence or want of skill, or in disregard of the authority reposed in him ( 6). The above general principles are the basis of the whole of this blanch of partnership law; but in order to apply [*368] them * correctly to the infinite variety of circum- stances which occur in the ordinary course of life, it See Robinson's case, 6 Do G. (l>) Thomas v. Athorton, 10 Ch. D. M. & <.. 572 ; Spottiswoode's case, ib. 185, Bury v. Alton, 1 Coll. G04. 345 ; Lefroy v. Gore, 1 Jo. & Lat. 571. 432 III. Ch. 6. S. 1.] CONTRIBUTION AND INDEMNITY. *368 will be convenient to notice the leading doctrines on the subject of contribution and indemnity generally, and then to allude more particularly to the rights of partners with respect to compensation for trouble ; outlays and advances ; debts, liabilities, and losses and interest. SECTION I. — GENERAL OBSERVATIONS. Foundation of the right to contribution. The right of contribution. — Whether a person who has suffered loss is entitled to be indemnified wholly or partly by others, is a question which cannot be decided in the negative merely upon the ground that no agreement for contribution or indemnity has been entered into. An agree- ment may undoubtedly give rise to a right to indemnity or contribution ; but the absence of an agreement giving rise to such a right, is by no means fatal to its existence. The general principle which prescribes equality of burden and of benefit, is amply sufficient to create a right of contribution in many cases in which it is impossible to found it upon any genuine contract, express or tacit. The common feature of such cases is, that one person has sustained some loss which would have fallen upon others as well as upon himself, but which has been averted from them at his expense ; for ex- ample, where one tenant in common repairs the common property, and so saves it from destruction (t-) ; where one of several sureties pays a debt for which all are liable (JT) ; where one person has his goods thrown overboard in order to save the ship and the rest of its cargo ( id. 420; Capen v. Barrows, 1 Gray, 376; White v. Harlow, 5 Gray, 403; Downs ,. Jackson, 33 111. 464; Dakin v. Graves, 48 N. II. 4-.: Pirn r. Cuyas, 47 Cal. 174; Fletcher v. Brown, 7 Humph. 385 ; Mickle v. Peet, 43 Conn. 65; Noel v. Bowman, 2 Litt. 40; Cook v. Jenkins, 35 Ga. 113; John- son v. Wilson, 54 111.419; Hodgson v. Baldwin, 05 111. 532; Buckmaster v. Gowen, si id. 153; Olleman v. Reagan, 28 Ind. 109; Hinkle v. Reid, 43 Ind. 390; Vanness v. Dubois, 64 id. 338; Dale v. Thomas, 07 id. 570; Clouch v. Mover, 23 Kan. 404; Ganger v. Pautz, 45 Wis. 449; Maginnis v. Crosby, 11 La. Ann. 400; Sewell v. Cooper, 21 id. 582; Conrad v. Callery, 22 id. 428; Stanton v. Buckner, 24 id. 391 ; Radovich v. Frigerio, 27 id. 68 ; Seelye v. Tay- lor, 32 id. 1115; Evans v. Clapp, 123 Mass. 165; Farrar v. Pearson, 59 Me. 501 ; Wrighl v. Troop, 70 id. 346; Wheeler v. Arnold, 30 Mich. 304; Foulks v. Rhodes, 12 Nov. 225; Savage v. Putnam, 32 N. Y. 501 ; Kelly v. Kauffman, 18 Penn. St. 351; Grubb v. Cottrell, 62 id. 23; Klase v. Bright, 71 id. 186; Scott's A]. peal, 88 id. 173; Fessler v. Hiekernell, 82 id. 150; Forbes v. Web- ster, 2 Vt. 58; Hobbs v. Wilson, 1 W. Va. 50. Wlnre a partnership consisting of two persons was formed for a single transaction in real estate, and no questions were involved in regard to the rights of creditors, and money was advanced by one partner, it was held that assumpsit could be maintained to enforce contribution by the other partner of his share. Finlay v. Stewart, 56 Penn. St. 183 ; Meason v. Kaine, 63 id. 335 ; Cleveland v. Farrar, 4 Brew. 27. So where there was an express promise by one partner to pay another a compensation for personal attention to the firm's business. Paine v. Thacher, 25 Wend. 150. Wlnre one partner converted the whole capital to his own use, actions at law for contribution wen- sustained. Reis v. Hellman, 25 Ohio St. 180. And where there [g hut one unadjusted item. Farwell v. Tyler, 5 Iowa, 535: Purvines <\ Champion, 67 111. 45!); Whetstone v. Shaw, 70 Mo. 575. Where one partner paj s judgment rendered against the firm on its debt, he cannot keep the judgment alive and enforce it against his co-partners, either in lii< own name or that of a third person to whom he may cause it to be - perhaps under special circumstances disclosing some equity entitling him to hold it as security to the extent of the sum which may be found dm- to him from his co-partners on an accounting. Booth v. Farmers' & Mech. N. Hk. of Rochester, 74 X. Y. 228 affirming 11 Hun, 258; Ilinton v. • H' nheimer, 1 Jones Eq. 406. One partner paid a judgment against the firm and took execution against hi- co-partner for half. The partnership accounts being unsettled it was held under 26 Vict. c. 15, i; 1, execution was improperly issued, and it was set aside. S'-ripture v. Gordon, 7 Out. I'. ]\. 101. The remedy of a partner who, after dissolution, has paid a judgment against the firm and seeks contribution is not by an action of debt but by an 434 III. Ch. 6. S. 1.] CONTRIBUTION AND INDEMNITY. *369 Exclusion of right by agreement. — But although a right to contribution may exist where there is no contract upon which it can be founded, it cannot exist if excluded by agreement; and it is so excluded whenever those who would otherwise be contributories have entered into any contract, express or tacit, amongst themselves, which is inconsistent with a right on the part of one to demand contribution from the others Qi). This is too obvious to require comment, but it must be borne in mind as qualifying the common saying that the right to contribution is independent of agreement. Exclusion of right by fraud. — Again, a right to contribu- tion may be excluded by fraud, as is the case where a person induces another by false and fraudulent representations to join him in partnership. In such a case the person de- frauded has a right to rescind the contract of partnership, and, as between himself and co-partner, to throw all the part- nership losses upon the latter alone (i). (h) As in Gillan v. Morrison, 1 De Colles, 442 ; Rawlins v. Wickham, 1 G. & S. 421 ; Re The Worcester Corn Gift'. 355, and 3 De G. & J. 301, no- Exchange Co., 3 De G. M. & G. 180. ticed hereafter under the head Rescis- (i) See Newbigging v. Adam, 34 sion of Contract. See, too, Carew's Ch. D. 582 ; Pillans v. Harkness, case, 7 De G. M. & G. 43. action pro socio. Lydon v. Casey, 13 Quebec L. 237. But see Sells v. Hub- bell, 2 Johns. Ch. 394. But when the partnership is dissolved and the accounting had and balance struck, assumpsit will lie. Or where only one item is in dispute. Lockwood v. Bates, 1 Del. Ch. 435 ; Whetstone v. Shaw, 70 Mo. 575 ; Fanning v.-Chadwick, 3 Pick. 420 ; Garven v. Allan, 3 Ont. Chy. 238 ; McColl v. Oliver, 1 Stew. 510; Maguire v. Brady, 1 Rev. de Leg. 367, Quebec Law Dig. 927; Robinson v. Reiffenstein, id. 352, Quebec Law Dig. 27 ; Thurber v. Pilon, 4 Low. Can. J. 37. But see Marcoux v. Morris, 3 R. L. 441, S. C. R. 1871, where at termination of partnership on a settlement of the accounts, one partner acknowledged that he owed the plaintiff -$272, and the plaintiff brought assumpsit, and it was held that the proper action was pro socio, and his action was dismissed. When on dissolution a partner has admitted a balance to be due from him to his co-partner, assumpsit will lie although there be no promise to pay. McNicol v. McEwen, 3 Ont. K. & Q. B. 485 (old series) ; Hall v. Lannin, 30 Ont. C. P. 204. Osh-r, J.; Gibson v. Moore, 6 N. H. 547; Feurt v. Brown, 23 Mo. A pp. 332. Where each partner was to contribute money, and the enterprise proves a failure, the partner who has failed to comply with his engagements, and has brought in nothing, should make good his proportional share. Sangston v. Hack, 52 Md. 173 (1879). Misconduct of a partner, rendering firm liable, and concealed from the other partner until after dissolution, gives him right of action although at dissolution he gave the retiring partner a bond of indemnity. Kintrea v. Charles, 12 Ont. Ch. 123. 435 *370 CONTB I BUTTON AXD INDEMNITY. [III. Ch. 6. S. 1. Of the right of agents and trustees to indemnity from their principals and eestuis que trustent. Agent's right to indemnity. — Iii order to clear the way for the discussion of the right of a partner to be indemnified by his firm, it is necessary to advert shortly to the right of agents and trustees to be indemnified by their principals and ds <{"<■ trustent. With respect to agents the following cases have to be con- sidered. 1. When the agent having instructions executes them : [•'.7* 1 ] *2. When the agent having instructions does not follow them; 3. When the agent having no instructions acts neverthe- less for his principal. 1 . When he obeys his instructions. — With respect to the first of these three classes of cases, nothing is clearer than that an agent who has instructions to act in a certain manner, is entitled to be reimbursed by his principal for all outlays made in pursuance of these instructions, and to be indemni- fied for any loss sustained by executing them (Ji). Even if what the agent does is unlawful he is entitled to indem- nity (7) ; unless, indeed, the act be one which the agent must have known his principal could under no circum- stances justify; for then the maxim in pari delicto melior est posifio defendentis applies, and the agent can obtain no indemnity from a court of justice (>h). 2. "When he disobeys his instructions. — It is equally clear that, speaking generally, an agent who acts contrary to his instructions is not entitled to any indemnity or reimburse- ment for losses or expenses incurred whilst so acting (n). (k) Story on Agency, § 335 et Q. B. 830. See, as to conforming to Paley on Agency, ch. 2 ; Smith, an illegal custom unknown to the Merc. Law, pp. 1 19, 120, ed. 9; Curtis principal, Perry v. Barnett, 15 Q. B. D. v. Barclay, 5 B. & C. 141. See, also, 338. [reland v. Livingstone, I>. R. 5 Ho. (m) See Mcrryweather v. Nixan, Do 116, as to ambiguous instructions. 2 Sm. L. C. ; Collins v. Blantern, 1 ,\- to costs of actions unsuccessfully ib. ; Josephs r. Pebrer,3B. & C. 639; defended, see Broom v. Ball, 7 C. B. Shackell v. Hosier, 2 Bing. N. C. 634. N. S. 603. («) See Stokes v. Lewis, 1 T. R. (/) Adam8orj v. Jarvis, 4 Bing. 66; 20; Galway v. Mathew, 10 East, 2(54; v. Gibbins, 2 A. & E. 57; per Child v. Morley, 8 T. R. 010; War- Tindal, C. J., in Collins v. Evans, 5 wick v. Slade, 3 Camp. 127. 436 III. Ch. 0. S. 1.] CONTRIBUTION AND INDEMNITY. *371 Even although the instructions may have been given by the principal under a misapprehension of facts, and the agent, being aware that such was the case, may have acted bond fide for the benefit of his principal (o), still the agent will not be entitled to indemnity ; for it is the duty of an agent to obey and not to disregard his orders. But if the prin- cipal chooses to ratify the agent's conduct, the latter ac- quires a right to be considered as having acted in pursuance of instructions, and to be entitled to reimbursement and indemnity * accordingly ; for the principal can- [*371] not, whilst ratifying the agent's conduct so far as it is beneficial, repudiate it so far as it is onerous (j>). Effect of revocation of authority. — The position of an agent who has already acted on his instructions, and has thereby incurred a legal obligation to third parties, is different. The better opinion is that in this case he is not bound on the command of his principal to stop short and refuse to perform the obligation incurred. There is no doubt that, as between himself and his principal, an agent is entitled to obey the counter order, and to obtain a full indemnity from the con- sequences of so doing. But it is apprehended that he is at liberty so far to carry out the instructions on which he has begun to act, as may be necessary to relieve himself from all the legal liabilities incurred before the notice of the countermand, and having done so, to insist upon indemnity and reimbursement as if the principal had not changed his instructions. Nemo potest mutare consilium suum in alterius injiiriam is the maxim of the civil law, and expresses the correct principle for the decision of these cases ( Beav. 449, (rf) See Oriental and Commercial where this rule was applied in favor Bank,:! Ch. 7!»1 ; Balsh v. Hyham, 2 of a trustee tor a company against P. W. 4.")."]; Phene v. Gillan, 5 Ha. its debenture-holders. See, as to 1; and tt.r parte Chippendale, 4 De 1m--.-- which may never arise, Hughes- (i. M. & G. 52. Hallett v. Indian Mammoth Gold (e) If there is an express covenant Mines Co., 22 Ch. I). 561 ; Hobhs '•. to indemnify, the obligation will be Wayet, 36 Ch, I). :.'•">< '. ; and as to the limited by the covenant. See Sel- right of indemnity where trustees wyn v. Harrison, 2 J. & H. 334; Gil- hold two funds for different sets of Ian v. Morrison, 1 De G. & Sm. 421. people, but under the same instru- '/) See Lewin on Trusts, pp. 642 ment, Fraser v. Murdock, App. and 910, ed. 8. Ca. 855. 440 III. Ch. 6. S. 1.] CONTRIBUTION" AND INDEMNITY. *375 only enforceable at law by a person who could prove that he had already .sustained a loss Q/). But in equity it was very reasonably held, that even in the absence of any * special agreement, a person who was entitled to [*3To] contribution or indemnity from another could enforce his right before he had sustained actual loss (/*) provided loss was imminent (■«') ; and this principle will now prevail in all divisions of the High Court (&). Therefore a person who is entitled to be thus indemnified against loss is not obliged to wait until he has suffered, and perhaps been ruined, before having recourse to judicial aid. Thus, in the ordinary case of principal and surety, as soon as the creditor has acquired a right to immediate payment from the surety, the latter is entitled to call upon the principal debtor to pay the amount of the debt guaranteed, so as to relieve the surety from his obligation (7) ; and where one person has cove- nanted to indemnify another, an action for specific perform- ance may be sustained before the plaintiff has actually been damnified (m) ; and the limit of the defendant's liability to the plaintiff is the full amount for which he is liable ; or if he is dead or insolvent the full amount provable against his estate, and not only the amount of dividend which such estate can pay (w). In strict conformity with these princi- ples, partners and directors who are individually liable to be sued on bonds and notes, which as between them and their co-partners are to be regarded as the bonds and notes of the firm or company, are entitled to call for contribution before these bonds or notes have been actually paid (0). So a trus- (7) See Maxwell v. Jameson, 2 B. (m) See Eanelagh v. Hayes, 1 & A. 51. Compare Spark v. Heslop, Vern, 190, and Lloyd v. Dimmack, 1 E. & E. 563, and the judgment of 7 Ch. D. 398, where Rarielagh v. Crompton, J., in Randall v. Raper, Hayes was disapproved. Lloyd v. E. B. &. E. 84. Dimmack is, however, not opposed to (h) See Hohbs v. Wayet, 36 Ch. the statements in the text nor to the D. 256; Lacey v. Hill, 18 Eq. 182. cases cited on p. 375, notes (A),.(0» (i) lb; Hughes-Hallett v. Indian and (/). See the last direction in the Mammoth Gold Mines Co., 22 Ch. D. order, 7 Ch. D. 402. 561. 0) Cruse v. Paine, 6 Eq. 641, and (k) See Jud. Act, 1873, §§ 24 and 4 Ch. 441. 25. (o) See, for example, The Norwich (/) Wooldridge v. Norris, 6 Eq. Yarn Co.'s case, 22 Beav. 143 : the 410; Nesbit v. Smith, 2 Bro. C. C. money borrowed by the directors in 582. As to the right of one surety that case was secured by their own to contribution from another, see Ex notes, but these notes had not been parte Snowdon, 17 Ch. D. 44. actually paid when the call on the 441 *376 CONTRIBUTION AND INDEMNITY. [III. Cii. 6. S. 1. tee of shares liable to calls is entitled to be indemnified by his cestui que trust against them before the}* are paid(p). [*376] * -. As to the amount payable by each contributory. — Another difference between law and equity which humeri v prevailed, and to which it is necessary to advert, affects the mode in which the amount to be paid by each of several eontrihntories was ascertained. Rule at law. — At law, before the Judicature acts, if several persons had to contribute a certain sum, the share which each had to pay, was the total amount divided by the number of contributors; and no allowance was made in the event of the inability of some of them to pay their shares (q). Rule in equity. — But in equity, in the absence of agree- ment to the contrary (r), those who could pay were com- pellable not only to contribute their own shares, ascertained as above, but also to make good the shares of those who were unable to furnish their contributions. This rule also now prevails in all divisions of the High Court (s). For example, if A., B., C, and D. are liable to a debt, A. can compel B. and C. to contribute one-third each, if D. can con- tribute nothing; and this, as between A., B., and C, is evidently only fair and just (£). In Wadeson v. Richardson (V), one of four partners as- signed property to trustees upon trust, inter alia, to pay his proportion or share of all such debts as were or should be owing by him and his three co-partners. He and they after- wards became bankrupt ; and it was held that the share and proportion of debts which the trustees were to pay was, not tin' share and proportion which, as between the assignor and his co-partners, he ought to contribute to the funds of the firm, but the share and proportion which, as between him and the creditors of the firm, it was necessary for him to pay, in order that they might receive twenty shillings in the shareholders was made. This does (r/) See Cowell v. Edwards, 2 Bos. not appear very clearly from the & P. 2G8; Batard v. Hawes, 2 E. & report referred to, hut the writer has B. 287. been informed by persons conversant (r) McKewan's case, G Ch. D. 447. with the case that the above state- The agreement, if any, determines mint is correct. the extent of the right. (j>) Oriental Commercial Bank, 3 (s) .hid. Act. 187:3, §§ 24 and 25. Ch. 791 ; Cruse v. Paine, Eq. 041, (/) Dering v. Winchelsea, 1 Cox, and 4 Ch. 441. See also Hobbs v. 318 ; Hole v. Harrison, 1 Ch. Ca. 246 ; Wayet 36 Ch, D. -'•"><;, where the Peter v. Rich, Rep. in Ch. 19. calls were not yet made. («) 1 V. & B. 103. 442 III. Cn. 6. S. 1.] CONTRIBUTION AND INDEMNITY. *377 pound. The creditors were therefore held entitled to come in under the deed for so much as they could not recover from the estates of the other partners. Rule applies -where one partner ought to indemnify the rest and to the -winding up of companies. — So, where a loss has been incurred under circumstances * Avhich [*377] render it wholly chargeable to the account of the partner who caused it, yet, so far as he is unable to make it good, it must be borne rateably by the other partners (x). Upon the same principle, when a company is being wound up, the solvent shareholders must, if their liability to credi- tors is not limited, contribute whatever may be necessary to pay all the creditors in full ; and must make up rateably amongst themselves what ought to have been contributed by those shareholders who are insolvent (*/) ; and this holds even where the creditors are themselves shareholders, and where the liability of the .shareholders is as between them- selves proportionate to their shares (2). Of contribution between ivrong-doers. Of contribution amongst wrong-doers. — There is a saying that there is 110 contribution amongst wrong-doers (a) ; but this doctrine is certainly inapplicable to partners in the gen- eral form in which it is enunciated. It is true, that if a partnership is itself illegal, no member of it can, in respect of any transaction tainted with the illegality which infects the firm, obtain relief against any other member ; l but there (x) See Oldaker v. Lavender, G (z) Professional Life Ass. Co., 3 Sim. 239; Cruikshank v. McVicar, 8 Eq. 0G8, and 3 Cli. 107. Beav. 117, 118. (a) Merry weather v. Nixan, 8 T. (y) Robinson's Ex. case, 6 De G. R. 186, and 2 Sm. L. C. ; Colburn v. M. & G. 572. Patmore, 1 Cr. M. & R. 73 ; A.-G. v. Wilson, Cr. & Ph. 1. 1 When the partnership is wholly illegal, as for gambling, equity will not enforce contribution. Watson v. Fletcher, 7 Gratt. 1. Nor will it interfere to declare a partnership to exist and order an account on the instance of one partner when the immediate consequence would be to show that both partners were living in crime, although the partnership itself was not criminal. Forder v. Brown, 2 New Zea. S. C. 303. But partner in an illegal enterprise completed has a right to an account. Pfeuffer p. Maltby, 54 Tex. 451; 38 Am. Rep. 631. Agreement of two that partnership business should be carried on in name of one, the other being in debt and wishing by this means to keep the property 443 *3i8 CONTRIBUTION AND INDEMNITY. [III. Ch. 6. S. 1. is no authority for saying that if one of the members of a tii in sustains a loss owing to some illegal act not attributable to him, but nevertheless imputable to the linn, such loss must be borne entirely by him. and that he is not entitled to contribution in respect thereof from the other partners (7>). Application of doctrine to partners. — The claim of a part- ner to contribution from his co-partners in respect of a part- nership transaction cannot be defeated on the ground of illegality, unless the partnership is itself an illegal partner- ship (V) ; or unless the act relied on as the basis of [*3T8] the * claim is not only illegal, but has been com- mitted by the partner seeking contribution, when he knew or ought to have known of its illegality (d). In any of these eases he can obtain no assistance against his co- partners and must abide the consequences of his own wilful breach of the law. Upon this ground it was often held ( before it became lawful for partners to carry on the business of marine insurance) that if one of a firm of marine insurers paid money in respect of a loss insured against by the firm, he could not recover any part of the payment -from his co- partners (7; Adamson v. Jarvis, 4 Bing. 66; Betts v. Gibbins, 2 A. & E. Bing. 66, and see in equity, Ramskill 57. v. Edwards, :;i Ch. I). LOO; Lingard (e) Aubert v. Maze, 2 Bos. & P. v. Bromley, i V. & B. lit; Baynard 371. v. Woolley, ^ Beav. 583; Ashurst v. (/) 7 CI. & Fin. 166. See, too, Mason, 20 Eq. 225. Thomas v. Atherton, 10 Ch. D. 185; (c) As to which, see ante, p. 91. Woolley v. Batte, 2 Car. & V. 417; (erWigram,V.-C.,mWeb- 25 Beav. 382; Brown v. De Tastet, Bter v. Bray, 7 Ha. 179. In that case Jac. 284; Crawshay ;•. Collins, 2 an allowance for trouble was made to Buss. 347. See, also, Mellersli v. the defendant, but it was offered by Keen, 27 Beav. 242, where one part- the plaintiff. In Robinson v. Ander- ner became lunatic, and the business .-on, 20 Beav. 98, which was a similar was continued by the others, case, no allowance was offered, nor (t) Burden v. Burden, 1 V. & B. was any given by the Court. 172; Stocken v. Dawson, 6 Beav. 371. (r) Airey v. Borham,29 Beav. 620. (m) Cockerell v. Barber, 2 Buss. (*) Featherstonhaugh v. Turner, 585, and 1 Sim. 23. 1 Surviving partner continuing the business at his own peril, being under no obligation to do so, the deceased partners' representatives, if they elect to share the profits, must consent to a reasonable allowance for compensation for the Bervices. Osrnent v. McElrath, 68 Cal. 400; Griggs v. Clark, 23 id. 127; Cameron v. Francisco, 26 Ohio St. 190; Hite v. Hite, 1 B. Mon. 177 ; Royster v. Johnson, 73 N. C. 474; Frazier v. Frazier, 77 Va. 775; Wilby v. Phinney, 15 Mass. 110; Washburn v. Goodman, 17 Pick. 519; Schenkl v. 448 III. Cn. G. S. 3.] OUTLAYS AND ADVANCES. *382 SECTION III. — OF OUTLAYS AND ADVANCES. Outlays and advances made by one partner. — In taking a partnership account, each partner is entitled to be allowed against the other everything he has advanced or brought in as a partnership transaction, and to charge the other in the account with what that other has not brought in, * or has taken out more than he ought ; 1 and nothing [*382] is to be considered as his share but his proportion of the residue on the balance of the account (x~). Although, therefore, a partner is not entitled to compensation for trouble, he is entitled to charge the partnership with sums bond fide expended by him in conducting the business there- of (?/). 2 Thus, where the managing director of a cost-book mining company advanced money for the purpose of enabling (.r) Per Lord Hardwicke in West charge expenses actually incurred, v. Skip, 1 Ves. S. 242. but not time and trouble. Compare (y) Burden v. Burden, 1 V. & B. Hutcheson v. Smith, 5 Ir. Eq. 117, 172, where a surviving partner, who ante, p. 380, note (?*)• •was also executor, was allowed to Dana, 118 Mass. 236; Newell v. Humphrey, 37 Vt. 265. Contra: Brown v. McFarland, 41 Penn. St. 120 ; Shelton v. Knight, 68 Ala. 598; Lyman v. Ly- man, 2 Paine C. C. 102 ; Dayton v. Bartlett, 38 Ohio St. 357 ; Patton v. Cal- houn, 4 Gratt. 138; Utley v. Smith, 24 Conn. 290; Denver v. Roane, 99 U. S. 355 ; but see dictum of Strong, J. 1 Hobbs v. McLean, 117 U. S. 567, 29 L. ed. 940. 2 Allowance will be made to partners for actual proper outlays and ad- vances for benefit of firm, duly authorized, and on proper proof. Beaver v. Lewis, 14 Ark. 138 ; Nichol v. Stewart, 36 id. 612 ; King v. Hamilton, 16 111. 190 ; Savage v. Carter, 9 Dana, 408 ; Tomlinson v. Ward, 2 Conn. 396 ; Til- lotson v. Tillotson, 34 id. 335; Pond v. Clark, 24 id. 370; Pratt v. McHatton, 11 La. Ann. 260 ; Harvey v. Varney, 104 Mass. 436 ; Meserve v. Andrews, 106 Mass. 419 ; Godfrey v. White, 43 Mich. 171, 188; Clement v. Mitchell, Phill. Eq. 3: Boyd v. Foot, 5 Bosw. 110; Hutchinson v. Onderdonk, 6 N. J. Eq. 277, 632 ; Coddington v. Idell, 29 id. 504, 30 id. 540 ; Wilson v. Lineberger, 83 N. C. 524; Richardson v. Wyatt, 2 Desau. 471 (So. Car.); Chandler v. Allen, 20 Hun, 424 ; Burleigh v. White, 70 Me. 130 ; Stegman v. Berryhill, 72 Mo. 307 ; Newell v. Humphrey, 37 Vt. 265 ; Porter v. Wheeler, id. 281. Allowance for them even when the contracts on account of which they were made were in the claiming partner's name but for use of the firm, he being bound to show they were so for its use. Rodes v. Rodes, 6 B. Mon. 400. K. bought of J., F. & Co., for the account of himself and W., certain stage property for $53,000, paying $10,600 cash and notes for the balance indorsed by W. The business was continued by K. & W., and afterwards M. purchased one-third interest, being admitted as partner from the date of the purchase, and signing his name to the notes previously given W., J., F. & Co. W. paid one-third of the §53,000 to «L, F. & Co., and K. paid the balance. Subse- quently K. sold to W. & M. all his interest in the firm. Held, that if the excess paid by K. over and above his just proportion was an advance to the firm, his claim for it against the firm had been released by 449 *382 co x t 1; i r. i "r i < • x and indemnity, [ill. Ch. g. s. 3. the business ot the company to be carried on, he was held entitled to be reimbursed by the company, there being no question as to his authority to carry on the business on credit (2). So, where the directors of a mining company advanced money to keep the mine at work, and it would otherwise have beeD drowned, they were held entitled to be reimbursed, although they had no power to borrow money on the credit of the company (a). Payments on account of debts. — So a partner is clearly entitled to charge the firm with whatever he may have been compelled to pay in respect of its debts (5) ; or in respect of (r) Ex parte Sedgwick, 2 Jur. N. (b) Prole v. Masterman, 21 Beav. S .949. 01. A partner who negligently pays («) Ex parte Chippendale, 4 De G. a debt claimed, but not due, cannot M. X: G. 19. See ante, book ii. ch. 1, charge the payment to the firm, Re j 6. This case, and others of the Webb, 2 B. Moore, 500; Mcllreath same class, will be noticed more at v. Margetson, 4 Doug. 278; noticed Length in the vol. on Companies. in the next section. the sale of bis interest to W. & M. If it was an advance to M. alone, he must look to M. and not to W. & M ; Kimball v. Walker, 30 111. 482. Partnership contract reformed so as to entitle one partner to credit for the plant in taking the partnership accounts. Macdonald v. Worthington, 7 Ont. 4pp. 531. But see Worthington v. McDonald, Duval, 327. By the law of Quebec, if nothing were provided by the articles as to the ownership of the plant, it would be taken out of the partnership at the con- clusion of the same by the party who had contributed it, before division of profits. Macdonald v. Worthington, 7 Ont. App. 531. Partner entitled, on taking the partnership accounts, to a credit for the plant inventoried at $40,000, is to have that credit less the amount of $24,000 pre-exi-tim_ r liens on plant paid off with partnership moneys. Worthington v. MctJonald, 9 Duval, 327; varying Macdonald v. Worthington, 7 Ont. App. 531. In Mumford v. Murray, 5 Johns. Ch. 1, the court thought that where one partner staid at home and conducted the partnership business, and the other went abroad on his own and the firm's business, receiving from the firm as compensation $5000, that he might not also charge up for his expenses. Where oik- furnishes capital and the other experience and services, and they share profits and losses equally, the latter is not entitled on dissolution to any part of tin- original capital. Shea v. Donahue, 15 Lea, 100 (Tenn.) ; - i 54 Am. Rep. I 1 *;. Where equal partners divided profits equally, and one had contributed 5.75 more capital than the other, this should be treated as a loan to the firm on interest and not as capital stock. Emerson v. Durand, 64 Wis. Ill; B.< . 54 Am. Rep. 593. Where partners in banking agreed that each should be allowed ii'. per cent inter.-r annually on average of deposits, and should be charged 10 per cent on amount of his overdrafts, held, not usurious; in such a case the overdraft is not a loan. Payne ,-. Freer, '.'1 N. Y. 43; 43 Am. He]). 040. Could the firm, as such, have sued the partner even in equity for amount of hi- overdraft ? 450 III. Ch. G. S. 3.] OUTLAYS AND ADVANCES. *383 obligations incurred by him alone at the request of the firm, as where he is compelled to pay a bond given by himself but for the benefit of the firm and as a trustee for it (Y), or where he sacrifices a debt due to himself in order to enable the firm to obtain a debt due to it (JT). Useless outlays. — It need hardly be observed, that an out- lay made by one partner with the approbation of his co- partners and for the benefit of the firm, must be made good by the firm, however * useless the outlay may [*383] have been. For example, if a firm purchases a patent which is paid for by one member individually, he is entitled to charge the purchase-money to the firm, however worthless the patent may ultimately prove to be (e). On the other hand, if a partner makes an improper outlay or advance on behalf of a firm, he cannot charge it to the firm, unless his conduct is ratified by it ; or unless the firm's assets have been increased or preserved by such outlay or advance. Useful but unauthorised outlays. — This last qualification is rendered necessary by The German Mining Company's Case (/). An outlay which may have been very proper and even necessary for the conduct of the partnership business, cannot be charged to the partnership account, if so to do would be inconsistent with the agreement into which the partners have entered. In Thornton v. Procter (#), the plaintiff and the defendant had become partners as wine-merchants, and the plaintiff, who for some time had principally conducted the business, had expended considerable sums of money in treating customers, and this was found to be necessary in that trade. The plaintiff had for several years kept the ac- counts of the partnership, and in such accounts he never made any charge for entertaining customers, or demanded any allowance on that account. He, nevertheless, afterwards contended that he ought to be allowed, in taking the accounts of the partnership, to debit the firm with 50/. a year for en- Co) Croxton's case, 5 De G. & S. (e) Gleadow v. The Hull Glass Co., 432 ; Sedgwick's case, 2 Jur. N. S. 13 Jur. 1020. 949, V.-C. W\; Gleadow v. The Hull (/) 4 De G. M. & G. 19. See Glass Co., 13 Jur. 1020, V.-C. E. anh ,' book ii. ch. 1, § 6. (d) Lefroy v. Gore, 1 Jo. & Lat. (g) 1 Anstr. 94. See, too, Hutche- 571, where one partner released a son v. Smith, 5 Ir. Eq. 117; East witness whose evidence was essential India Co. v. Blake, Finch, 117. to the firm. 451 CONTRIBUTION AND INDEMNITY. [III. Cii. 6. S. 3. tertainments, and this was proved to be a reasonable sum. But it was shown to be usual, in cases of this sort, to insert some special clause in the articles if an allowance was intended to be made, and the articles into which the partners had entered contained nothing more than a general stipula- tion, that all losses and expenses should be borne equally. It was accordingly held that the plaintiff was not entitled to any allowance, for he could only claim it as being a gross article of expenditure, and he was precluded from charging it in that way by not having included it in the yearly ac- counts. [ *38 4 ] *No allowance for expenses unless proved to have been incurred. — A partner is not entitled to charge the firm with any monies alleged by him to have been laid out for the benefit of the firm if he declines to give the par- ticulars of his outlays ; he cannot charge for secret service money (A), nor for general expenses (i). Nor can a partner charge the firm with travelling expenses unless they have been bond ti•). So, where the promoters of a company agree with the shareholders that certain preliminary expenses to be incurred in obtaining surveys, reports, &c, shall not exceed a certain sum, and the promoters spend more than that sum, they cannot require the shareholders to make good the differ- ence : although the extra expenditure may have been caused by circumstances which were unforeseen and over which the promoters had no control (s). [ ' :'»Sr) ] * General obligation of partners to contribute to losses. — The general principle, however, that part- ners must contribute ratably to their shares towards the losses and debts of the firm, is not open to question. Their obligation to contribute is not necessarily founded upon, although it may be modified and even excluded altogether by, agreement (£). For example, where there is no agreement to the contrary, it is clear that if execution for a partnership debt contracted by all the partners, or by some of them when acting within the limits of their authority, is levied on any one partner, who is compelled to pay the whole debt, he is entitled to contribution from his co-partners (u). So, if one partner enters into a contract on behalf of the firm, but in such a maimer as to render himself alone liable to be sued, he i< entitled to he indemnified by the firm, provided he has not, as between himself and his co-partners, exceeded his (> n Wright v. Hunter, 5 Ves. 792; Co., 3 De G. M. & G. 180. See, too, and see Robinson's Executors' case, Mowatt and Elliott's case, 3 De G. •; I >e (>. M. & (•■ ">72 ; Lefroy v. Gore, M.& G.254, and Carew's case, 7 ib.43. 1 Jo. & I- .'it. 571, and Hamilton v. (t) Ante, p. 368. Smith, 7 W. i;. 17-';, as to promoters (?<) McOwen v. Hunter, 1 Dr. & of companies. Walsh. 347; Evans v. Yeatherd, 2 --. Wallace, 2 Bli. Bing. 132 ; Robinson's Executors' l'7o. case, De G. M. & G. 572. See, too, (s) Gillan v. Morrison, 1 De G. & Lefroy v. Gore, 1 Jo. & Lat. 571, as S. 421 ; lie The Worcester Corn Ex. to provisional directors. 454 III. Ch. 6. S. 4.] LIABILITIES AND LOSSES. *387 authority in entering into the contract (x) ; and if, in such a case, he with their knowledge and consent defend an action brought against him, he is entitled to be indemnified by the firm against the damages, costs, and expenses which he may be compelled to pay(j/). Losses attributable to one partner more than to another. — Even if a loss sustained by a firm is imputable to the conduct of one partner more than to that of another, still, if the former acted bond fide with a view to the benefit of the firm, and without culpable negligence, the loss must be borne equally by all. 1 Thus, where A. represented to his co-partner B. that shares in a certain company rendered the holders only liable to the engagements of the company to a limited extent, and B. thereupon, and at A.'s request, authorised him to take shares on the partnership account, and it ultimately turned out that the liability of the shareholders was not limited, and A. and B. were made contributories, it was held that, as between * themselves, B. could not throw the loss [*387] on A. alone (z). Again, in Cragg v. Ford (a), the plaintiff and the defendant were partners, and the defendant was the managing partner. The partnership was dissolved, and the winding up of its affairs devolved on the defendant. Part of the assets consisted of bales of cotton, and the plaintiff requested that these might be immediately sold. The defend- ant, however, delayed to sell them, and they were ultimately sold at a much lower price than they would have fetched if they had been sold when the plaintiff desired. The plaintiff contended that the loss sustained by the postponement of the (x) Gleadow v. The Hull Glass (z) Ex parte Letts and Steer, 26 Co., 13 Jur. 1020 ; Sedgwick's case, 2 L. J. Ch. 455. See, too, Lingard v. Jur. N. S. 949. Bromley, 1 V. & B. 114. O) Browne v. Gibbins, 5 Bro. P. C. '(«) 1 Y. & C. C. C. 280. 491 ; Croxton's case, 5 De G. & S. 432. 1 Losses not to be borne by the managing partner only. Roberts v. Totten, 13 Ark. 609 ; McCrae v. Robeson, 2 Murph. 127 ; Campbell v. Stewart, 34 111. 151. Otherwise when the partner causing the loss is to blame, and his act caus- ing it was in violation of the articles. Haller v. Williamowicz, 23 Ark. 566 ; Bohrer v. Drake, 33 Minn. 408 ; Richardson v. Wyatt, 2 Desau. 471 (So. Car.) ; Bonis v. Louvrier, 8 La. Ann. 4 ; Smith v. Loring, 2 Ohio, 440; Smith i\ Hazleton, 34 Ind. 481 ; Grove v. Miles, 85 111. 85; Cockrell v. Thompson, 85 Mo. 510; Looney v. Gillenwaters, 11 Heisk. 133; Pratt v. McHatton," 11 La. Ann. 260; Pierce v. Daniels, 25 Vt. 624; Honore v. Colmesnil, 1 J. J. Mar. 506 (Ky.) ; Lefever v. Underwood, 41 Penn. St. 505 ; Reis v. Hellman, 25 Ohio St. 180. 455 *388 CONTRIBUTION AND INDEMNITY. [III. Cii. 0. S. 4. sale ougrht to be borne by the defendant alone. But the Court held that the plaintiff, if he had chosen, might himself have sold the cotton; and that, as the defendant, in delaying the sale, had acted bond fide and in the exercise of his discretion, the Loss oughl no1 to be thrown on him alone, but ought to be shared by the plaintiff. Losses attributable to one partner's misconduct or negligence. — But it' a partner is guilty of a breach of his duty to the firm, and loss results therefrom, such loss must fall on him alone. As was said by the Court in Bury v. Allen (ft), "Suppose the case of an act of fraud, or culpable negligence, or wilful default by a partner during the partnership to the damage of its property or interests, in breach of his duty to the partnership: whether at law compellable or not com- pellable, he is certainly in equity compellable to compensate or indemnify the partnership in this respect "(e). In con- formity with this rule, the justice of which cannot be dis- puted, it lias been decided that if a claim is made against a firm for payment of a debt alleged to be due from it, but which is not so in point of fact, and one partner chooses to pay it, he cannot charge such payment to the account [*388] of the firm (6 III. C.r. (i. S. 5.] INTEREST. *389 treated by the partners themselves as a partnership loss. A loss which is properly chargeable to the account of one part- ner only, becomes chargeable to the firm if the partners have knowingly allowed it to be so charged in their accounts, and have thus taken it upon themselves. A strong instance of this is afforded by the case of Cragg v. Ford (^), already referred to on another point. There the plaintiff and the defendant were partners ; the defendant had engaged in adventures not authorised by the partnership articles. The plaintiff protested against this, but although the adventures ended in loss, and that loss was charged against the firm in the partnership books, the plaintiff did not at the time ob- ject, or insist that the loss should be borne by the defendant. When, however, the partnership was dissolved, and its ac- counts were made up, the plaintiff refused to allow the losses in question to be charged against the firm. But the Court held that, under all the circumstance of the case, the Master who had charged the losses against the partnership had not done wrong ; and exceptions which had been taken to his report by the plaintiff were overruled. * SECTION V. — OF INTEREST. [*389] Interest in accounts between partners. — The principles upon which, in taking partnership accounts, interest is allowed or disallowed, do not appear to be well settled. The state of the authorities is, in fact, not such as to justify the deduction from them of any general principle upon this important subject. 1 General rule as to interest. — By. the common law, ill the (g) 1 Y. & C. C. C. 285 ; but see as Watts v. Brook, in Aubert v. Maze, 2 to losses arising from illegal acts, Bos. & P. 371. tbe observations of Lord Eldon on 1 Interest is not allowable as a matter of course in advances of capital made to a partnership for partnership purposes. Jardine v. Hope, 19 Ont. Chy. 76. An agreement to purchase goods on joint account and joint risk, one party to furnish the funds in the first instance. Held, interest not to be charged on funds so furnished. lb. Where defendant at dissolution was to receive £150 more than plaintiff, and was cause of delay of settlement of accounts, he was not entitled to interest from date of dissolution. O'Lone v. O'Lone, 2 Ont. Chy. 125. Parties contemplating partnership in Canada agreed each to pay in $8000 457 "389 CONTRIBUTION AND INDEMNITY. [III. Ch. G. S. 5. absence of a special custom or agreement, a loan does not bear interest (K) ; and, notwithstanding- man)- dicta to the contrary, the same rule appears to have prevailed in equity (i). Tins rule is. no doubt, attributable to the old notions on the subject of usury; but although the usury Laws are abolished the rule remains, and the consequence is that interest is frequently not payable by law when in jus- tice it ought to be. At the same time, by the custom of merchants interest has long been payable in cases where by the general law it was not ; and mercantile usage and the course of trade dealings are held to authorise a demand for interest in cases where it would not otherwise be payable (£). In applying therefore the general rule against the allowance of interest to partner- ship accounts, attention must be paid not only to any express agreement which may have been entered into on the subject, but also to the practice of each particular firm, and to the custom of the trade it carries on. (A) See Calton v. Bragg, 15 East, (f) See Tew v. The Earl of Winter- 223 : Biggins v. Sargent, 2 15. & C. ton, 1 Ves. J. 451 ; Creuze v. Hunter, 349 ; Shaw v. Pit tun, 4 ib. 723 ; Page 2 ib. 157 ; Booth v. Leycester, 1 Keen, ,-. Newman, » 15. & C. 378 ; Gwyn v. 247, and 3 M. & Cr. 459. Godby, 4 Taunt. 340. (£) See Ex parte Chippendale, 4 De G. M. & G. 3(3. capital. One omitted to pay any portion of it. Held, that this omission was no ground for charging interest. Wilson v. McCarty, 25 Ont. Chy. 152. Interest is not chargeable after dissolution in favor of one partner against the other, lb. The Bame partner drew hills in the name of the firm, and used the proceeds for his individual purposes. Held, that he was chargeable with interest on these. Ib. .Master has discretion in taking partnership accounts to charge partners guilty of misrepresentation to incoming partner, with either interest or trade profits on advances which such misrepresentations made it necessary for the incoming partner to make. Davidson v. Thirkell, 3 Chancery, 330 (Ont.). Interest allowed to and against each partner on advances by and to him during partnership. Davidson v. Thirkell, 3 Chancery, 330 (Ont.). One partner was allowed for advances made by him for the purposes of the business, during :i time when lie and his co-partner both claimed, on different grounds, that partnership did not exist, but court held that it did. Davidson v. Thirkell, :) Chancery, 330 (Ont.). I- - contrary to usual course to charge partners with what, but for their wilful default, they would have received. Davidson v. Thirkell, 3 Chancery, Ont.). See Cameron v. Watson, 10 Rich. Eq. <>4 ; Emerson v. Durand, • it Wis. Ill ; s.C. 51 Am. Hep. 593; Tirrellv. Jones, 39 Cal. 655; Jardine v. Hope, 19 Ont. Chy. 7«; : Desha v. Smith, 20 Ala. 747; Ligare v. Peacock, 109 111. 94 : Hartman v. Woehr, 18 X. J. Eq. 383; Clark v. Warden, 10 Neb. 87; Wilson v. .McCarty, 25 Out. Chy. 152. 458 III. Ch. 6. S. 5.] INTEREST. *390 Interest on capital. — As a general rule partners are not entitled to interest on their respective capitals unless there is some agreement to that effect, or unless they have them- selves been in the habit of charging such interest in their accounts (7) ; and even where one partner has brought in his stipulated capital and the other *has not, the [*390] former will not be entitled to interest on the winding; up of the partnership if it has not been previously charged and allowed in the accounts of the firm (m) ; and where a person is paid for his services by a share of profits, interest on capital cannot be charged against him, unless there is some agreement to that effect (w). Moreover, where inter- est on capital is payable, the interest stops at the date of dissolution unless otherwise agreed (o) ; and undrawn prof- its are not necessarily to be treated as bearing interest like the capital (jo). Interest on advances to the firm. — An advance by a part- ner to a firm is not treated as an increase of his capital, but rather as a loan on which interest ought to be paid ; and by usage, interest is payable on money bond fide advanced by one partner for partnership purposes ; at least when the advance is made with the knowledge of the other part- ners («?-te Bignold, 22 Beav. 1(57; interest. Troup's case, 29 ib. 353. See, also, (o) Barfield v. Loughborough, 8 Hart v. Clarke, 6 De G. M. & G. 254. Ch. 1; Watney v. Wells, 2 Ch. 250; (s) As to compound interest in the Pilling v. Pilling, 3 De G. J. & Sm. case of bankers, see Bate v. Robins, 162, contra, on this point is practically 32 Beav. 73; Fergusson v. Fyffe, 8 overruled. As to the calculation of CI. & Fin. 121. interest where the capital is payable (l) As in Re Magdalena Steam 459 *391 CONTRIBUTION AND INDEMNITY. [III. Cn. 6. S. 5. Interest on overdrawings and balances in hand. — Inasmuch as what is fair for out' partner is so for another, and the firm when debtor is charged with interest, it seems to follow that if one partner is indebted to the firm either in respect of money borrowed, or in respect of balances in his hands, he ought to he charged with interest on the amount so owing, even though on the balance of the whole account, a [*391] *sum might he due to him (//). Except, however, where there has been a fraudulent retention (.r), or an improper application (//) of money of the firm, it is not the practice of the Court to charge a partner with interest on money of the firm in his hands (Y) ; for example, under ordinary circumstances a partner is not charged with interest on sums drawn out by him (a). In a case (5), A. and B. were partners : A. died, and his son and executor C. suc- ceeded him in partnership with B. B. afterwards retired in favor of his own son D. At the time of B's retirement, a considerable sum was due to him from A's estate in respect of monies drawn out by A. This sum was treated as a debt of the new firm of C. and D., and had not been paid off. B. having died, his executors claimed interest from the time of his retirement ; but the claim was disallowed on the ground that no agreement to pay interest had been entered into, and the claim was opposed to the course of dealing between the partners themselves. Interest -where firm claims what has been obtained by one partner. — Where one partner claims a benefit obtained by his co-partner and succeeds in establishing his claim, the claimant is charged, as the price of the relief afforded, not only with the amount actually expended by his co-partner in obtaining the benefit, hut with interest on that amount at the rate of •"»/. per cent. (c). On the other hand, if one part- Nav. Co.. Johns. 690, where per the hands of the defendants was cent was allowed. asked for but not given. See, too, ('/) See Beecher v. Guilburn, Mose- Stevens v. Cook, 5 Jur. N. S. 1415; l.v. :;. Turner o. Burkinshaw, 2 Ch. 488. As in Hutcheson v. Smith, .", (a) Cooke <•. Benbow, 3 De (I.. I. Ir. Eq 117, where, however, the part- & Stn. 1; Meymott v. Meymott, 31 mr retaining the money was also a Beav. 145. See the ease in the next receiver appointed by the Court. note. A- in Evans v. Coventry, 8 I >> (>>) Rhodes v. Rhodes, Johns. ''>•">.",. (, M. & <;. *■;•",. hut better reported in 6 Jur. N. S. '■'■'■ i -•■ r v. Bray, 7 Ha. 600. 159, where interest on balances in (c) See Hart v. Clarke, 6 De G. 460 III. Ch. 6. S. 5.] INTEREST. *392 ner has, in breach of the good faith due to his co-partners, obtained money which he is afterwards compelled to account for to the firm, he will be charged with interest upon the amount at the rate of 4Z. per cent. (cT). * Confused accounts. — Where a partnership has been [*392] dissolved by the death of one partner, and the sur- viving partner keeps the accounts in such a way as to render it impossible, until after the lapse of a considerable time, to ascertain the balances due to himself and his deceased partner, neither the surviving partner nor his representa- tives can claim interest on the sum ultimately found due to him or his estate (e). M. & G. 254. See, too, Perens v. (e) Boddam v. Ryley, 1 Bro. C. C. Johnson, 3 Sm. & G. 419. 239; 2 ib. 2; and 4 Bro. P. C. 561. (//) See Fawcett v. Whitehouse, 1 R. & M. 132. 461 '393, *394 division of profits. [in. Ch. 7. [*393] * CHAPTER VII. OF the division of profits. Division of profits. — The realisation and division of profit is the ultimate object of every partnership ; and the right of every partner to a share of the profits made by the firm to which he belongs, is too obvious to require comment. Where there is no right to share profits, there can be no partnership, and almost all the other rights possessed by partners may be said to be incidental to the right in question. Times, &c., of division. — The times at which the profits are to be divided, the quantum to be divided at any one time, the sums, if any, which are to be placed to the debit of the firm in favour of any particular partner for salary, interest on capital, &c, before any profits are to be divided, these and all similar matters are usually made the subject of ex- press agreement; but where no such agreement has been made, and no tacit agreement relative to them can be in- ferred, the principles laid down in the preceding chapter must be applied (a). With respect to the times of division and quantum to be divided at any given time, it is conceived that the majority must govern the minority where no agree- ment upon the subject has been come to (6) ; for these are matters of purely internal regulation, and with respect to such matters a dissentient minority have only one alterna- tive, viz., either to give way to the majority, or, if in a position so to do, to dissolve the partnership. [*394] * What is divisible as profit. — Profit is the excess of receipts over expenses ( his rights and account to him accordingly (i). (. has advanced 100?. There are, then, three cases to be considered. Case 1. — Where there are no profits or losses. The accounts will then stand thus (/») : — 1. Partnership Account . Dr. to stock .... 3000 Cr. by A.'s sum with- to B. for advance . 100 drawn .... 500 by balance .... 2600 £3100 £3100 (a) See Cory on Accounts, ed. 2, (b) In this case no notice is taken p. 71 el of interest. In cases 2 and 3 interest is supposed to be calculated. 466 III. Ch. 8. S. 1.] PARTNERSHIP ACCOUNTS. *398 *2. A.'s Account. Dr. to sum withdrawn, 500 Cr. by capital to balance .... 500 £1000 [*398] . 1000 £1000 3. B.'s Account. Dr. to balance . . . 1100 Cr. by capital by advance . £1100 . 1000 . 100 £1100 Dr. to balance . 4. C.'s Account. . 1000 Cr. by capital £1000 . 1000 £1000 Dr. to balance as above (from 1) . . 5. Balance Sheet. Cr. by balance due as . 2600 above to A. . . . 500 B. . . . 1100 C. . . 1000 £2600 £2600 Case 2. — Where there is a profit to be divided. The accounts will then stand as under, if the profit is sup- posed to be 1000Z., and interest at 5 per cent, is charged on all sums brought in and taken out by each partner, and on his capital. 1. Partnership Account. Dr. to stock .... 3000 Cr. by A.'s sum with- to interest on ditto drawn with inter- one year .... 150 est for one year . 525 to B. for advance with interest for one year .... 105 to profit 1000 by balance . . £4255 3730 £4255 .0 467 *399 PARTNERSHIP ACCOUNTS. [III. Ch. 8. S. 1. [*399] Dr. to sum withdrawn with interest for one year . . . to balance .... * 2. A.'s Account. Cr. by capital . . . 1000 by interest on ditto . 50 525 by i share of profit . 333 6 8 858 6 8 £1383 8 £1383 6 8 Dr. to balance 3. B.'s Account. . 1488 6 8 Cr. by capital £1488 6 8 . . 1000 by interest on ditto . 50 by advance and in- terest thereon . . 105 by i share of profits, 333 6 8 £1488 6 S Dr. to balance 4. C.'s Account. 1383 G 8 Cr. by capital . . . 1000 by interest on ditto . 50 by i share of profits, 333 8 £1383 6 8 1383 6 8 Dr. to balance as above (from 1) ... 3730 5. Balance Sheet. * Cr. by balance due as above to A. ... 858 6 8 B. . . . 1488 6 8 " C. . . . 1383 6 8 £3730 £3730 Case 3. — Where there is a loss to be made good. Then if the loss is supposed to be 5000/., and interest is calculated as in the last example, the accounts will stand thus : — 1. Partnership Account. Dr. to stock .... 3000 Cr. by loss . . to interest on ditto for one year . . to B. for advance with interest for one year .... to balance . . 150 by A.'s sum with- drawn with inter- est for one year . 5000 525 105 q o 2270 £5525 £5525 468 III. Ch. 8. S. 1.] PARTNERSHIP ACCOUNTS. *400 *2. A.'s Account. [*400] Dr. to sum withdrawn Cr. by capital . . . 1000 with interest for by interest on ditto . 50 one year .... 525 by balance .... 1141 13 4 to | share of loss . 1663 13 4 £2191 13 4 £2191 13 4 3. B.'s Account. Dr. to | share of loss . 1666 13 4 Cr. by capital . . . 1000 by interest on ditto . 50 by advance with in- terest 105 by balance .... 511 13 4 £1666 13 4 £1666 13 4 4. C's Account. Dr. to i share of loss . 1666 13 4 Cr. by capital . . . 1000 by interest on ditto . 50 by balance .... 616 13 4 £1666 13 4 £1666 13 5. Balance Sheet. Dr. to balance due as Cr. by balance as above above from A. . 1141 13 4 (from 1) . . . . 2270 B. . 511 13 4 « C. . 616 13 4 £2270 £2270 Effect of each partner being his own creditor or debtor. — The balances ultimately arrived at in the foregoing accounts are the sums payable — in the first two cases by the firm to the individual partners, and in the last case to the firm by them — in order to wind up the affairs of the firm. But it must not be imagined that the balances in question are debts owing to.each partner by his co-partners. The balances are owing by and to the firm, and each partner being included in the firm is, to the extent of his share, his own debtor and his own creditor. In what sense a partner is debtor to or creditor of the firm. — Accountants are quite right in debiting each partner in his account with the firm with the whole of whatever he draws out, and in crediting him with the whole of whatever he brings in. 469 *401. *402 PARTNERSHIP ACCOUNTS. [III. Ch. 8. S. 1. [*401] *" But," as observed by Lord Cottenham, "though these terms 'debtor' and 'creditor' are so used, and sufficiently explain what is meant by the use of them, nothing ran be more inconsistent with the known law of Partnership, than to consider the situation of either party as in any degree resembling the situation of those whose appellation has been so borrowed. The supposed creditor has no means of obtain- ing payment of his debt; and the supposed debtor is liable to no proceedings either at law or in equity — assuming always that no separate security has been taken or given (V). The supposed creditor's debt is due from the firm of which he is a partner : and the supposed debtor owes the money to himself in common with his partners" ( + c partners, A., B., and C. ; that their A «> xb and Q wiU owe stive capitals are a, b, c, and a + ^ + c that they share profits and losses in a' x c So if B. is in- proportion to those capitals. Then ' a + h -j. c „ + ', + >■ will be the joint capital of debted to the firm in a sum b' ; B. the three partners ; ami if M repre- w jh owe bimsclf in respect of this >*"* ,l "; "T* " f T °l f^ t0 debt b ' Xb; he will owe be shan-d, A. - share of such loss or u _j_ fr ^_ c gain will be — Xa; B.'s share A. X«; and will owe C. a + b + c a + b + c 3 a 470 be - — X b ; and C.'s - t X c a + b + c a+ b + c III. Ch. 8. S. 1.] PARTNERSHIP ACCOUNTS. *402 of the firm, or even on the retirement of one of its mem- bers (e). A similar observation applies to the mode in which the partners themselves have been in the habit of keeping their accounts : that which has been done for the purpose of sharing annual profits or losses is by no means necessarily a precedent to be followed when a partnership account has to be finally closed (/). Bearing these observations in mind, the following rules are submitted as those which ought to be followed upon a final settlement of partnership accounts, where there is nothing else to serve as a guide. Rules to be observed. — In adjusting the accounts of part- ners, losses ought to be paid, first out of assets excluding capital, 1 next out of capital, and lastly by having recourse to the partners individually (J) ; and the assets of the partner- ship should be applied as follows : 1. In paying the debts and liabilities of the firm to non- partners ; 2. In paying to each partner ratably what is due from the firm to him for advances as distinguished from capital (K) ; 2 3. In paying to each partner ratably what is due from the firm to him in respect of capital ; 4. The ultimate residue, if any, will then be divisible as profit between the partners in equal shares, unless the con- trary can be shown. If the assets are not sufficient to pay the debts and liabili- ties to non-partners, the partners must treat the difference as a loss and make it up by contributions inter se. If the (e) See, for examples, Lawes v. stone, 10 Ch. D. 626, 659; Wade v. Lawes, 9 Ch. D. 98 ; London India Jenkins, 2 Gift". 509. Rubber Co., 5 Eq. 519; Blisset v. (g) See Binney v. Mutrie, 12 App. Daniel, 10 Ha. 493 ; Wade v. Jen- Ca. 160 ; Crawshay v. Collins, 2 Russ. nings, 2 Gift. 509 ; Wood v. Scoles, 1 347, and Richardson v. Bank of Eng- Ch. 369 ; and as to interest, ante, land, 4 M. & Cr. 173. p. 390, note (o) ; compare Be Barber, (h) These come before costs of 5 Ch. 687. winding up, see Potter v. Jackson, 13 (/") For example, the value of Ch. D. 845 ; Austin v. Jackson, 11 ib. goodwill seldom, if ever, appears in 942, note, annual accounts, see Stuart v. Glad- 1 Leach v. Leach, 18 Pick. 68; Young v. Clute, 12 Nev. 31. Where by articles an employee was to have " ten per cent, on the business," it was held that " ten per cent, on the business " meant ten per cent, of the profits of the business. Funck v. Haskell, 132 Mass. 580; see Weaver v. Upton, 7 Ired. L. 458 ; Brown v. Haynes, 6 Jones Eq. 49. 2 Hobbs v. McLean, 117 U S. 567, 29 L. ed. 940; Currier v. Rowe, 46 N. H. 72. 471 *408 PARTNERSHIP ACCOUNTS. [III. Ch. 8. S. 1. assets are more than sufficient to pay the debts and [*403] Liabilities of the * partnership to non-partners, but are not sufficient to repay the partners their respect- ive advances, the amount of unpaid advances ought, it is conceived, to be treated as a loss, to be met like other losses. In such a ease the advances ought to be treated as a debt of the firm, but payable to one of the partners instead of to a stranger (/). If after paying all the debts and liabilities of the firm and the advances of the partners, there is still a surplus, but not sufficient to pay each partner his capital, the balances of capitals remaining unpaid must be treated as so many losses to be met like other losses (&). 1 Equality of loss and inequality of capital. — The only case which practically gives rise to difficulty, is when partners have advanced, or agreed to advance, unequal capitals and to share profits and losses equally. If nothing more than this is agreed, a deficiency of capital must be treated like any other loss ; and the assets remaining after payment of all debts and advances must be distributed amongst the partners so as to make each partner's loss of capital equal ; and if the assets are not sufficient, there must be such a contribution amongst the partners, or some of them, as to put all on an equality (7)- But, if the true meaning of the partners is that all debts shall be paid out of the assets, and that any surplus assets remaining after payment of debts shall be divided between the partners in proportion to their interests tin rein or to their capitals, effect must be given to such an agreement, and those partners who agree to bring in most capital will lose most (m). (0 See Wood v. Scoles, 1 Ch. 309. 379, and 1 Ch. 555; Ex parte Maude, (k) See the next two notes. 5 Ch. 51. Compare Holyford Mining (/) Binney v. Mutrie, 12 App. Ca. Co., Ir. Rep. 3 Eq. 208. 160. See the form of order there; O) Wood v. Scoles, 1 Ch. 369, is see, also, NoweU v. Nowell, 7 Eq. an instance of such a case. 638; Anglesea Colliery Co., 2 Eq. 1 In Savery v. Thurston, 4 111. App. 55, A. was to furnish the capital of the firm, and have credit on the books for it. A portion having been destroyed by fire, the other partners claimed that the firm was liable only for such loss as arose from, or was incident to, the business, but it was held that the loss be born* by the firm. See Taylor v. Coffing, 18 111. 422; Stoughton v. Lynch, 1 Johns. Ch. 467. 472 III. Ch. 8. S. 2.] PARTNERSHIP ACCOUNTS. *404 * SECTION II. — OF THE DUTY TO KEEP AND THE [*404] RIGHT TO INSPECT PARTNERSHIP ACCOUNTS. Duty to keep proper accounts, arid to allow them to be ex- amined. — It is one of the clearest rights of every partner to have accurate accounts kept of all money transactions relat- ing to the business of the partnership, and to have free access to all its books and accounts (n). So important is it to every partnership that proper accounts shall be kept and be accessi- ble to all the partners, that whenever any written articles of the partnership are entered into, clauses are inserted for the purpose of removing whatever doubts there might otherwise be upon the subject. The usual nature and the general effect of such clauses will be adverted to in the next chapter, and the right to discovery in an action, will also be discussed hereafter. In the present place it will be sufficient to ob- serve, that it is the duty of every partner to keep precise accounts and to have them always ready for inspection (o). One partner has no right to keep the partnership books in his own exclusive custody, or to remove them from the place of business of the partnership (p). In the absence of an express agreement to the contrary, every partner has a right, without the permission of his co-partners, to inspect, examine, and make extracts from all the books of the firm (g) ; and no partner can deprive his co-partners of this right by keeping the partnership accounts in a private booK of his own, con- taining other matters with which they have no concern (r). At the same time, if a person entitled to a share of the profits of a business expressly agrees that he w T ill accept the balance sheets prepared by others as correct, and will not investigate the books or accounts himself, he will be bound by that agreement (s). O) See per Lord Eldon in Rowe Sim. 460; Taylor v. Rundell, 1 Ph. v. Wood, 2 Jac. & W. 558-9, and in 222, and 1 Y. & C. C. C. 12S. This Goodman v. Whitcomb, 1 ib. 593. right was not enforceable at law even (o) Rowe v. Wood, 2 Jac. & W. in an action by one partner against 558. See, too, Goodman v. Whit- another, Ward v. Apprice, 6 Mod. 264. comb, 1 ib. 593, and 3 V. & B. 36. (r) See Freeman v. Fairlie, 3 Mer. (p) See Taylor v. Davis, 3 Beav. 43; Toulmin v. Copland, 3 Y. & C. 388, note ; Greatrex v. Greatrex, 1 De Ex. 655. G. & S. 692 ; Charlton v. Poulter, 19 (s) See Turney v. Bayley, 4 De G. Ves. 148, note. J. & S. 332. (7) See Stuart v. Lord Bute, 12 473 *405 PARTNERSHIP ACCOUNTS. [III. Cii. 8. S. 2. [*405] * Effect of keeping no books or of destroying them. — It no books of account at all are kept, or if they are so kept as to be unintelligible, or if they are destroyed or wrongfully withheld, and an account is directed by a court, everj presumption will be made against those to whose negligence or misconduct the non-production of proper ac- counts is due (t). 1 If all the persons interested in the account are in pari delicto, this rule cannot be applied; but it is the duty of continuing or surviving partners so to keep the accounts of the firm, as at any time to show the position of the firm when a change among its members occurred (u). (0 See Walmsley v. Walmsley, 3 right to interest by keeping the ac- Jo & Lat. 550; Gray v. Haigh, 20 counts improperly, see Boddam v. Beav 219. Ryley, 1 Bro. C. C. 239, and 2 ib. 2; O) See Ex parte Toulmin, 1 Mer. and 4 Bro. P. C. 501, noticed ante, p. 598, note ; Toulmin r. Copland, 3 Y. 392. & C Ex. 055; and as to losing all 1 Failure to keep books renders partner liable to the strictest account of profits. Pierce v. Scott, 37 Ark. 308. 474 III. Ch. 9. S. 1.] PARTNERSHIP ARTICLES. *406 * CHAPTER IX. [*406] OF PARTNERSHIP ARTICLES. SECTION I. — GENERAL OBSERVATIONS. The rights and obligations of partners inter se, are gener- ally, to a certain extent, regulated by special agreement, the true meaning of which is to be ascertained by the ordinary rules of construction (a). 1 In considering the effect, however, of partnership articles, the following principles are to be borne in mind : — 1. Partnership articles are not intended to define all the rights and duties of partners. — In the first place, partnership articles are not intended to define, and are not construed as defining all the rights and obligations of the partners inter se. A great deal is left to be understood. The maxim expressum faeit cessare taciturn naturally applies to partner- ship articles as to other agreements; but the rights and obligations of partners, so far as they are not expressly de- clared, are determined by general principles, which are always applicable where not clearly excluded. In the lan- guage of Lord Langdale, in Smith v. Jeyes (6), (a) See Chapter X. of Story on (b) 4 Beav. 505. See, too, Nelson Part. ; Collyer on Part. 137, &c. See, v. Bealby, 30 Beav. 472, and Brown- also, the head Partnership in Jarman ing v. Browning, 31 Beav. 316, as to and Bythewood's Conveyancing and the non-application of the maxim ear- Davidson's Conveyancing. pressio unius est exclusio alterus. 1 No articles necessary if to take effect immediately. Smith v. Tarlton, 2 Barb. Ch. 336. Conditional partnership not annulled unless it is a condition precedent. Murray v. Johnson, 1 Head, 353. Where any part of its stock is to consist of real estate a particular part- nership must be in writing. Dunbar v. Bullard, 2 La. Ann. 810. Articles may provide that as between themselves one of the partners shall not be liable for debts of the firm. Pollard v. Stanton, 7 Ala. 761; Consoli- dated Bank v. State, 5 La. Ann. 44. 475 *407 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 1. "The transactions of partners with each other cannot be considered merely \\ ith reference to the express contract between them. The duties and obligations arising from the relation between the parties are regulated by the express contract between them, so far as the express contract ex- tends and continues in force; but if the express contract, or so much of it as continues in force, does not reach to all those duties and obligations, they are implied and enforced by the law; and it is often matter to be collected and inferred from the conduct and practice of the parties, whether they have held themselves, or ought or ought not to be [*407] held, bound by the particular * provisions contained in their ex- press agreement. When it is insisted that the conduct of one partner entitles the other to a dissolution, we must consider not merely the -pecific terms of the express contract, but also the duties and obliga- tions which are implied in every partnership contract " (c). 2. Articles to be construed with reference to the objects of the partners. — The attainment of the objects which the part- ners have declared they had in view is always regarded as of the first importance. All the provisions of the articles are to be construed so as to advance and not to defeat those ob- jects ; and however general the language of partnership arti- cles may be, they will be construed with reference to the end designed, and, if necessary, receive a restrictive interpreta- tion 'accordingly ( change the terms of the original writ- ten agreement, thej may be held to have changed those terms by conduct. For instance, if in a common partnership the parties agree that no one of them shall draw or accepl bills of exchange in his own name, without the concurrence of all the others, yet, if they afterwards slide into a habit of permitting one of them to draw or accept hills without the concur- [*409] renceof the others, this « Court will hold that they have varied the terms of the original agreement in that respect" (k). Examples. — This principle was acted on by Lord Eldon in a case where the partners had agreed that annual accounts should he taken, and that in case of the death of a partner, his representatives should be paid an allowance instead of profits; for it appeared that for some years no accounts had been taken, and that the partners had engaged in transactions of such a nature, that it would have been unfair to have applied the original agreement (I). So a practice treating losses as had when disc, voted so to be, was held to apply as hot worn the executors of a deceased partner and the surviv- ing partners, although the effect was to give the executors much nioit' than they would otherwise have been entitled to (m). So, where articles contained a stipulation that the partners should contribute to losses and share profits in a certain proportion, and it appeared that a person who man- aged the affairs of the firm had always received a share of the profits, hut had never been called upon to contribute to Losses, it was held, that assuming him to be a partner in the proper sense of the term, and to have been originally bound by the articles to contribute to losses, the articles, so far as they obliged him so to contribute, had been varied by the conducl of the parties, and Avere no longer binding on him ( a ). Varying articles.- — If it is proposed to make an alteration (k) Const >■. Harris, T. & R. 523. (/) See Jackson v. Sedgwick, 1 See, alM,, Coventry /•. Barclay, :;:; Swanst. 460; Pettyt v. Janeson, G Beav. 1, and on app. 3 De G. J. & Sm. Madd. 140; Simmons v. Leonard, 3 320; Pilling v. Pilling, ■> In- G. J. & Ha. 581. Compare Lawes v. Lawes, Sm. 102; England v. Curling, 8 Beav. 9 Ch. 1). 98, where the day for mak- L33 and L37 ; Somes <-. Currie, 1 K. & ing up the accounts had been altered. J. 605, and the ca^es in the next three (m) /'.'< parte Barber, 5 Ch. 687. notes. (») Geddes v. Wallace, 2 Bli. 270. 478 III. Ch. 0. S. 1 .] GENERAL RULES OF CONSTRUCTION. *410 in the articles by an agreement which shall be binding on all parties, notice of the proposed change and of the time and place at which it is to be taken into consideration, ought to be given to all the partners (o). 1 For, even if the change is one which it is competent for a majority to make against the assent of the minority, all are * entitled [*410] to be heard upon the subject; and unless all have an opportunity of opposing the change, those who object to it will not be bound by the others (jt?). 1 Reverting to original rules. — It seems that a person who comes into a firm through another who has acquiesced in a variation of the terms of the partnership articles, is bound by that acquiescence, and cannot revert to the original articles (^) ; and this principle has been applied to com- panies (r). 6. Original articles apply to partnership continued under them. — The last general rule which it is necessary to notice is this : if a partnership, originally entered into for a definite time, is continued after the expiration of that time, without any new agreement, the articles under which the partnership was first carried on continue, so far as they are applicable to a partnership at will, to regulate the rights and obligations of the partners inter se (s)- 2 Thus, in King v. Chuck (£), three partners, A., B., C, agreed that if either of them should die, his capital, as appearing by the last account, should be paid to his representatives by the surviving partners, on whom the trade was then to devolve. A. died, and this agreement was acted on, and B. and C. continued in partnership without coming to any fresh agreement. Then B. died, and it was (o) See Const v. Harris, T. & R. 524. Co., 11 App. Ca. 298, where a new (p) lb. 525; see, also, ib. 518. agreement was contemplated, but not (q) See Const v. Harris, T. & R. 524. concluded; Crawshay i-. Collins, 15 (r) Ff ooks v. South-Western Rail. Ves. 228 ; Featherstonhaugh v. Fen- Co., 1 Sm. & G. 142; Peek v. Gurney, wick, 17 Ves. 307; Booth v. Parkes, 18 Eq. 79. 1 Molloy, 405. (s) See Neilson v. Mossend Iron (7) 17 Beav. 325. 1 A tacit understanding not admitted to modify articles of partnership. Thomas v. Lines, 83 N. C. 191. Contra, Robbins v. Laswell, 27 111. 305. Part- ners may modify, alter, or dissolve the co-partnership contract, as between themselves, either wholly or in part. Solomon v. Solomon, 2 Ga. 18. 1 If agreement altered, dissenting partners may withdraw. Abbott v. John- son, 32 N. H. 9. 2 Sangston v. Hack, 52 Md. 173; Whitehead v. Howard, 2 Russell & C. 423 (N. S.) ; Troutbeck v. Richardson, New Zea. App. 80 ; Evans v. Guth- aridge, 1 W. W. & A'B. Eq. 119 (Victoria). 479 *411 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 2. held thai B. and C. had in fact continued in partnership on the old terms, and that l).*s executors were therefore to be paid the amount appearing to be his capital in the last account cohie to between him and C. Provisions applicable during the term of partnership. — Even where a partnership is entered into for a term of years, and ilu' articles provide for events happening during the term, or during the partnership, the above rule has been still applied. Thus, where two persons agreed to become partners for four- teen years, and stipulated that if either died during this co- partnership term, his share should be taken by the other at a certain sum, and the fourteen years expired, and the two persons continued in partnership together without [*-±ll] coming to * any fresh agreement, and then one of them died : it was held that the above stipulation was binding, and that the share of the deceased belonged to the survivor upon payment of the sum mentioned (u). The expression, -the partnership term," was held ecpuivalent to the time during which the partners continue in partnership without coming to any fresh agreement. But the authorities on this head are not uniform (x). In their | .resent state it is doubtful whether a clause giving a right of pre-emption is one of those which is operative after the termination of the partnership originally contemplated, unless the articles are clear upon the subject (j/). A right of expulsion has been held not to apply to a partnership con- tinued after the expiration of the time for which it was orig- inallv entered into (z). But an arbitration clause has been held to apply (a). SECTION II. — ON THE USUAL CLAUSES IN ARTICLES OF PARTNERSHIP. Usual clauses in partnership articles. — Having now alluded to the more important general rules which require to be Essex v. Essex, 20 Beav. 442; loughby v. Cox, but the former case Cox v. Willoughby, II' Ch. D. 863. is very shortly reported on this point. (x) Compare the two last cases (z) Clark v. Leach, -V2, Beav. It, with Yates v. Finn, L3 Ch. I). 839, and 1 De G. J. & Sm. 409. See Neil- and Cookson v. Cookson, 8 Sim. 529. son v. Mossend Iron Co., 11 App. Ca. See the two last notes. Yates 298. v. Finn was not referred to in Wil- (a) Gillett v. Thornton, 19 Eq. 599. 480 III. Ch. 9. S. 2.] USUAL CLAUSES. *412 borne in mind in considering the effect of special agreements between partners, it is proposed to notice shortly the pro- visions usually met with in partnership articles, and the in- terpretation which has been put upon them by the courts. Tn framing articles of partnership, it should always be re- membered, 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 applica- tion of rules which apply where nothing to the contrary is said. The articles should be so drawn as to be a code of directions, * to which the partners may refer [*412] as a guide in all their transactions, and upon which they may settle among themselves differences which may arise, without having recourse to Courts of Justice. 1. The nature of the business should always be stated. Upon it depends the extent to which each partner is to be regarded as the implied agent of the firm in his dealings with strangers ; and upon it also in a great measure depends the power of a majority of partners to act in opposition to the wishes of the minority (/>). The place of business should also be stated ; and if the place is held on lease which will expire during the partner- ship, provision should be made for the renewal of the lease, or for the acquisition of another place of business. Other- wise the business may come to a premature end (e deemed personal estate. It should be declared that apprentice fees and other casual payments belong to the firm, and form part of its profits. [f the firm is to spend money on the separate property of one t<{ the partners, the right of the firm to a lien for its outlay should he expressly stipulated for or expressly ex- eluded ( a ). Official appointments. — A kind of property which is diffi- cult to i\rw\ with, and which should always be made the subject of an express agreement, is the benefit accruing from an office or appointment obtained by one of the partners. 2 0) Ante, pp. 330 and 384. And whore one contributed money and the other a patent, and the owner of the patent granted an exclusive right to sjell under the patent, the other was held entitled to one-half the royalty. Norris v. Rogers, 107 111. 148. See Jones v. Butler, 87 X. Y. 613 ; aff. 23 Hun. 367. While, in general, a partnership imports a communion of profits and losses among its several members as between themselves, a disproportionate interest in profits and losses may lie agreed upon, and if the articles fairly bear this construction it will be enforced. Welsh v. Canfield, 00 Md. 409. In Adams v. Gordon, 08 111. 598, the articles provided that two partners with a nominal >toek of 820,000 should share equally in all stock profits and losses, ami that upon final settlement everything should be equally divided. During five years neither was credited with an excess of capital, nor was any charge made to cither. Upon the death of one it was held that nothing war- ranted a settlement on the basis of the original nominal stock. See Jones v. Butler. 23 Hun. : J* J 7 ; Fulmer's Appeal, 90 l'enn. St. 143; Conroy v. Campbell, 40 X. V. Super. Ct. 326 : Schulte v. Anderson, 45 N. Y. Super. Ct. 489. In Hayes <•. Fish,;;*; Ohio St. 498, A. sold to four persons four-fifths of quarry Lands lor $10,000, and entered into partnership with them in quarrying stone on the lands, for tin- purpose of realizing the purchase money, with an tnenf that, after defraying the expenses of the business, the balance of profits to be applied to said *! o,000, and thereafter to share profits equally, and have an equal interest in the lands and all property of the firm. Held, that the net profits to amount of 810,000, including A.'s share, were appro- priated to the purchase money,and to re-imburse any part thereof paid with other mean-, and no part of the purchase money to be remitted by A. on ac- count of deficiency of profits. - Where articles allowed partner to hold office with the consent of his co- partner-, it was held that the individual partner alone was entitled to the income of such office. Starr v. Case, 59 Iowa, 491. 484 III. Cn. 9. S. 2.] USUAL CLAUSES. *415 For example, in the case of a firm of solicitors, one of them may be a clerk to some turnpike trust, or to a poor law- board, or he may hold some other appointment yielding a salary. Care should always be taken to specify whether the salary is to belong solely to the partner holding the appoint- ment, or whether it is to form part of the partnership as- sets (o) ; and if the latter, provision should be made for the payment of a sum by the partner holding the appointment in the event of the dissolution of the firm, whilst the appoint- ment continues. If the profits of the office are * partnership assets, and the firm is dissolved whilst [*415] the office is held by one of its members, the Court in winding up the partnership, will leave him in the enjoyment of the office, but charge him with its value in his account with the firm (_p). Trade secrets, patents, &c. — When a partnership is formed for working some secret and unpatented invention, the arti- cles should specify to whom exclusively the right of working such invention shall belong in the event of dissolution. For if there be no agreement on the subject, all the parties will have a right to work it, in opposition to each other, there being no ground upon which any of them can be prevented from so doing. If, however, it can be proved by the inven- tor that his secret was to be kept from his co-partners, or that they, if they discovered it, were not to make use of their discovery, they will not be allowed to violate the agree- ment into which they have entered, or the trust reposed in them ; and the circumstance that the invention has not been patented will not be material (5). Good-will. — G-ood-will is a kind of property which ought also to be expressly provided for ; but this is most conven- iently done in connection with the dissolution clauses (/•). Contributions of capital. — The proportions in which the capital is to be contributed by the partners, and the propor- tions in which they are to be entitled to it when contributed, ought also to be carefully expressed. It by no means fol- lows that the partners are to be entitled to the assets in the (o) See Collins v. Jackson, 31 Beav. (p) See Smith v. Mules, 9 Ha. 556 ; 645, noticed ante, p. 331, where profits Ambler v. Bolton, 14 Eq. 427. arising from appointments of this (q) See Morison v. Moat, 9 Ha. sort were held to belong to the part- 241. nership, although prima facie they do (V) See as to this, infra. not. 485 *416 PARTNERSHIP ARTICLES. [III. Cn. 0. S. 2. proportions in which they contribute to the capital. Indeed, it* no express declaration upon the subject is made, the primd facie inference is, that all the partners are entitled to share the assets (minus the capital) equally, although they may have contributed to the capital unequally (s). Capital should be money. — The capital should be expressed to be so much money: and it one of the partners is to con- tribute lands or goods instead of money, such lands or goods should have a value se1 upon them, and their value in money should be considered as his contribution. If this be [*41<1] not done, the articles and accounts *and the propor- tions in which profits and losses are to be shared will be less perspicuous and free from doubt than will otherwise be the case: and the partner who contributes land will gen- erally be inclined to look upon such land as his, and not as part of the common stock. Rules as to conditions precedent. — When the articles pro- vide that each partner shall bring in so much capital, or do some oilier specified thing, the question sometimes arises how far the fulfilment by each of his obligations is a condition pre- cedent to his right to call for fulfilment by the others of their obligations. The rules laid down in the well-known note to Pordage v. ( Sole (i ). must be applied to all such cases. These rules are as follows : — "1. [fa day be appointed for payment of money, or part of it, or for doing any other act, and the day is to happen, or may happen, before the thing which is the consideration of the money or other act is to be per- formed, an action may be brought for the money or for not doing such other act before performance; for it appears that the party relied upon his remedy, and did not intend to make the performance a condition prece- dent; and so it is where no time is fixed for performance of that which is the consideration of the money or other act. •••_'. When a day is appointed for the payment of money. &c, and the day is to happen after the thing which is the consideration of the money. &C.j is to be performed, no action can be maintained for the money, &c, before performance. ••:;. Where a covenant goes only to part of the consideration on both . and a breach of such covenant may be paid for in damages, it is an independent covenant, and an action may be maintained for a breach oi the covenant on the part of the defendant, without averring performance in the declaration. •• 1. But where the mutual covenants go to the whole consideration on (s) Ante, pp. 348 et seq., and 402-3. (t) 1 Wins. Saund. 820, a. III. Cii. 9. S. 2.] USUAL CLAUSES. *417 both sides, they are mutual conditions, and the performance must he averred. " 5. Where two acts are to be done at the same time, as where A. cove- nants to convey an estate to B. on such a day, and in consideration thereof B. covenants to pay a sum of money on the same day, neither can main- tain an action without showing performance of, or an offer to perform, his part, though it is not certain which of them is obliged to do the first act ; and this particularly applies to all cases of sale." In conformity with these rules, it Avas held, in Stavers v. Curling Qui), that the plaintiff who had covenanted to pro- ceed on a whaling voyage, and to obey the instruc- tions of the * defendants, but who had not obeyed [*417] them, could nevertheless maintain an action against them for the share of the profits which they had covenanted to pay him, although they had only covenanted to pay him on the performance by him of his covenants. So in Kemble v. Mills (x), where two persons had agreed to become partners, and one of them was to bring in 2000 1., and do certain things, and the other was to bring in 5000 L, it was held that an action lay for non-payment of the 5000/., although the plaintiff did not state that he had brought in his 2000/., or had done any other of the acts which he had agreed to do. Bringing in so much in good debts. — - Capital is sometimes- agreed to be brought in in the shape of good debts. Where, on the formation of a partnership, it was agreed that one of the partners should bring in 40,000 1, of good debts, and that sum was owing to him by persons who continued customers of the firm after its formation, and became indebted to it, and who in time paid it 40,000 I. and more, it was held that this sum had been brought in as agreed. For nothing having been said as to the accounts on. which the payments were made, and each customer's account having been kept in such a way as to form one single continuous account, the 40,000 1. was treated as having been paid in discharge of the earliest items in their respective accounts ; or, in other words, in discharge of the debts owing to the partner who undertook to bring; in that amount of good debts, and not in discharge of the subsequent dsbts contracted with the firm Qy). («) 3 Bing. N. C. 355. (.'/) Toulmin v. Copland, 2 CI. & (x) Kemble v. Mills, 9 Dowl. 446. Fin. 681 ; s. c. 3 Y. & C. Ex. 636. Compare Marsden v. Moore, 4 H. & N. 500. 487 *418 PARTNERSHIP AJRTICLES. [III. Ch. 0. S. 2. In Cooke v. Benbow, a father, -who was in business, took his sons into partnership, and agreed to bring into the busi- 3S all the capital, plant, and stock in trade then and usually employed by him in the business. In estimating the capital, the book debts due to the father were valued at twenty per cent, below their nominal amount, but they, in tart, realized more; and it was held that the surplus [*418] constituted part of *the father's capital, and not part of the profits of the partnership (z). Guarantee against debts. — When a person is about to enter a firm, lie sometimes requires a guarantee that its debts do not exceed a certain sum. If such a guarantee is given, and it turns out that the debts of the firm exceeded the sum mentioned at the time in question, the guarantor is liable to an action : and the amount of damages which the plaintiff is entitled t«» recover is the loss he has sustained in eonse- .pience of the excess of debts above the sum mentioned; but not the loss he may have suffered by having joined the firm (a). 7. interest, allowances, &c. — The allowance of interest on capital and on advances should be made the subject of special agreement. The interest should be made payable before the profits to be divided are ascertained, and the interests on advances should be made payable before interest on capital (7'). Monies to be drawn out. — Most articles of partnership con- tain a clause authorising each partner to draw out of the partnership funds a certain sum per month for his own private purposes. Such a clause should provide for the repayment with interest of whatever maybe drawn out in excess of I lie sum mentioned. Expenses to be charged to the firm. — The articles should also specify what expenses are to be borne by the firm; 1 and particular notice should be taken of allowances of an un- usual kind, but which the partners may intend shall be 0) Cooke v. Benbow, 3 De G.J. & (b) See, as to interest, when there g m ] is no agreement to allow it, ante, (a) Walker -'. Broadhurst, 8 Ex. p. 389. * i Provision thai each shall pay Ins expenses, means when at home, and not when travelling on firm's business. Withers v. Withers, 5 Pet. 355; see Poster v. Goddard, 1 Black. 506. 488 III. Oh. 9. S. 2.] USUAL CLAUSES. *419 made, e.g., an allowance for treating customers, for manage- ment, for rent, maintenance of servants, &c, &c. (c). 8. Conduct and powers of the partners. — It is the practice to insert in partnership articles an express covenant by each partner to be true and just in all his dealings with the others. This, however, is always implied ; and the clause in question is of little use in a legal point of view, although it may serve to remind the partners of their mutual obligations to good faith. The effect of the clause in creating a specialty debt is very * limited. In Powdrell v. Jones (d) two [*419] partners covenanted that they respectively would be true and just to each other in all their contracts, reckonings, receipts, payments, and dealings ; and each bound himself to the other in the penal sum of 5000 1, for the due perform- ance of the covenants in the articles. One of the partners became greatly indebted to the firm in respect of receipts by him on its account. It was contended that the debt was a specialty debt by reason of the covenant above referred to ; but it was held that the debt was only a. specialty debt to the extent of 5000 Z., the amount of the penalty in which each partner was bound to the other, and that the residue of the debt was a simple contract debt only. Hiring servants, &c — It is useful to state who is to have the power of hiring and dismissing servants («?). Amount of attention to be given to the affairs of the firm. — The time and attention which the partners are to give to the affairs of the firm should be expressly mentioned; especially if one of them is to be at liberty to give less of his time and attention than the others. Inattention to business by reason of illness is, however, no breach of an agreement to attend to it (/). Stipulations that one partner shall not do certain things without the consent of the others. — It is usual to insert in partnership articles a clause prohibiting any partner from doing certain things without previously obtaining the consent of the others ; e.g., becoming surety, releasing debts, speculating in the funds, drawing, accepting, or indorsing bills, otherwise than in the usual course of business, &c, &c. (c) Ante, p. 383. 0) See ante, p. 313. (d) Powdrell v. Jones, 2 Sm. & G. (/) Boast v. Firth, L. R. 4. C. P. 1 ; 305. Robinson v. Davison, L. R, Ex. 269. 480 *420 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 2, Agreement not to carry on any other business. — An agree- ment not to carry on any other business is binding and can be enforced; but a breach of it does not necessarily involve a liability to account to the firm for the profits derived from the business carried on in violation of the agreement (//). Majority. — If the number of partners exceeds two, the majority should be expressly entrusted with the power of deciding what shall be done as regards any matter in dispute between the partners, and relating to the business [ *420] of the partnership, as * denned by the articles (A). It is difficult to lay down a general rule for the deter- mination of what is to be done if the partners are equally divided. Articles of partnership, as usually drawn, are silent upon this question; but if it were declared that in such a case matters should be left in statu quo, probably some little assistance would be given to the preservation of peace and good will. 9. Partnership books. — In order to prevent any disputes as to the custody of the partnership books, it is advisable to declare that they shall be kept at the office of the partnership, and that each partner shall have free access to them. A Court will restrain the removal or detention of the partner- ship books contrary to an express agreement entered into by the partners (/) ; and even in the absence of any special agreement, the Court would probably interfere, for it is an implied obligation on the part of every partner not to exclude his co-partners from access to the books of the firm (&). 10. Accounts. — The object of taking partnership accounts is two-fold, viz., 1. To show how the firm stands as regards strangers; and ± To show how each partner stands towards the firm. The accounts, therefore, which the articles should require to be taken, should be such as will accomplish this two-told object. The articles should consequently provide, not only for the keeping of proper books of account, and for the due eiitn therein of all receipts and payments, but also (). Nor does it follow that because profits and Losses are annually divided equally, the losses on a final winding up arc fco be divided equally, without reference to the capitals of the partners (//). A most important and instructive case on this subject is ( loventry v. Barclay (r). There it was provided that [" ti'2] accounts * should be taken and signed yearly, and not be afterwards disputed, and that on the death of a partner the survivors should be at liberty to take his share at its value, according to the last annual account preceding his death. The partners Mere accustomed in their annual accounts to put a nominal value on their plant and stock in trade, and to carry over a portion of their profits to a sepa- rate account, in order to form a reserve fund to answer unforeseen losses. Shortly before the death of one of the partners, the others bond fide made up an annual account in the usual way. and sent him a copy of it, which he never signed, but never in any way disapproved. It was held (both by Lord Romilly and Lord Westbury) that the executors of the deceased partner were bound by the nominal valuation of the stock. &c, but (by Lord Westbury, reversing the decis- ion below) that they were entitled to a share of the surplus of the reserve fund after paying the losses, &c, to meet which it was created. Accounts not signed. — The accounts having, in tins case, been taken bond fide and in the usual wa}^ and no errors being suggested, the absence of the deceased partner's signa- ture was treated as of no importance, for he could not properly have refused to sign them (s). 11. Retiring. — In the absence of a special provision en- abling a partner to retire, there is no method by which he .nil do so without a general dissolution and winding up of the linn: unless, of course, some agreement can be made between all the partners at the time of retirement. More- over, as will be seen hereafter (f), a partnership which has been entered into for a definite time, cannot be dissolved at the will of any member. It is obviously, therefore, in many ( V ) Wade v. Jenkins, 2 Giff. 509! (r) 33 Beav. 1, and on appeal, 3 Compare Steuart »•. Gladstone, 10 De G. J. & Sm. 320. See, also, Ex Ch. I). 626. parte Barber, ■> Ch. (387. Binney <■• Mutrie, 12 App. Ca. (s) The same thing occurred in 160; Wood v. Scoles, 1 Ch. 369. Ex parte Barber, •". Ch. ). Signing notices of dissolution. — When power is given to retire or dissolve the firm, or to expel a partner from it, power should also be given to any partner to sign, in the name of himself and co-partners, a notice of dissolution for insertion in the " Gazette " (^). Powers of expulsion. — In order that an objectionable part- ner may be summarily got rid of, clauses are sometimes in- serted providing for expulsion in certain events. The Court cannot control the exercise of a power to expel if it is exer- cised bond fide (r). But all clauses conferring such a power are construed strictly, on account of the abuse which may be made of them, and of the hardship of expulsion; and the Court will never allow a partner to be expelled if he can si io\v that his co-partners, though justified by the wording of the expulsion clause, have, in fact, taken advantage of it for and unworthy purposes of their own, and contrary to that truth and honour which every partner has a right to de- (m) Robertson v. Lockie, 15 Sim. (7) See Troughton v. Hunter, 18 285. Beav. 470. The Court will, how- (n) Jones v. Lloyd, 18 Eq. 265. ever, compel a partner to do this on Watson v. Kales, 23 Beav. 294. a dissolution, Hendry v. Turner, 32 ButchinBonw. Whitfield, Hayes Ch. 1). 355. Ir. Ex.;, 78. (r) Russell v. Russell, 14 Ch. D. 471; Steuart v. Gladstone, 10 ib. 626. 496 III. Ch. 9. S. 2.] USUAL CLAUSES. *427 mand on the part of his co-partners. In Blisset v. Daniel (s), the expulsion clause was as follows : — " That it shall he lawful for the holders of two-thirds or more of the shares for the time being, from time to tune to expel any part- ner, by giving *to, or leaving for him, at his then or last place [*427] of abode in England or Wales, a notice in writing under their hands of such expulsion, which, in such event, shall operate from and at the time of the giving or leaving such notice, and shall be in the follow- ing form, namely, ' We do hereby give you notice that you are hereby ex- pelled from the partnership carried on under the firm of John Freeman and Copper Company. Witness our hands this day of .' " The power, therefore, was in the most general terms ; no reasons for its exercise were required to be given, no meet- ings or deliberations were declared to be necessary, before serving the notice. The holders of two-thirds of the shares signed a notice in the form prescribed, and served it on the partner whom they desired to expel. They gave no reasons, and relied upon the clause set out above. But it appeared that they desired to get rid of their co-partner, not because so to do was in any sense for the benefit of the firm in a mercantile point of view, but because he objected to the appointment of one of his co-partner's sons as co-manager with his father. It further appeared that the offended father had complained to the other partners behind the back of the expelled partner, and had prevailed upon them to sign the notice, intimating that either the expelled partner or himself must leave the firm. The expelling partners having resolved to exercise the power, induced the expelled partner to sign certain accounts, in order that he might be bound by them when expelled. Their intention to expel him was, however, concealed until after the. accounts were signed; and the notice of expulsion, which gave him the first intima- tion of any design to get rid of him, was not served until he had signed the accounts. Under these circumstances, the Court declared that the notice of expulsion was void, and restored the expelled partner to his rights as a member of the firm. Opportunity for explanation. — Having regard to the prin- ciples acted upon in cases of this description, it is conceived that a power to expel for misconduct cannot be safely acted (s) Blisset v. Daniel, 10 Ha. 493. See, also, Wood v. Woad, L. R. 9 Ex. 190. 497 *428 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 2. upon until the delinquent partner has had an opportunity of explaining bis conduct (*)• All must concur. — A power of expulsion cannot be [*428] exercised without the * concurrence of all those whose concurrence may be required by the articles (u). Notice of expulsion. — A notice of expulsion under one clause, cannot, if invalid, operate as a notice of dissolution under some other clause (x). In Smith v. Mules it was provided, in effect, that if a part- ner should do or omit to do certain tilings, the others should be al liberty to dissolve the partnership, by giving notice to the partner who should offend; and that upon giving such notice the partnership should cease and be dissolved in the same manner, and with the same consequences, as if it had been determined by the voluntary retirement of the offend- ing partner. The firni consisted of three partners, A., B., and C, who was B.'s son. B. was guilty of conduct for which he might have been compelled to retire. A. gave B. and C. notice that he dissolved the partnership under the clause above referred to. C, however, had done nothing rendering it competent for A. to expel him. It was there- fore decided : 1, that A. had no right to expel B. without C.'s concurrence; 2, that A. had no right to dissolve the firm, so far as ('. was concerned; 3, that C. having adopted the notice after it was given, A. could not treat the partner- ship as continuing; and 4, that the dissolution actually broughi about was not a dissolution provided for by the articles, and did not, therefore, entail the consequences of a dissolution under them (#). Power to expel in case of omitting to do things. — When a power of expulsion is given in the event of a partner omit- ting i" '1" certain things, e.g., entering in the partnership book all monies he may receive on account of the partner- ship, the power will not, as a rule, be exercisable, unless the omission was a studied omission (z). As to power to expel, in ease a partner becomes insolvent, see ante, p. 425. (tj See the judgment in Blissel v. (x) See Smith v. Mules, 9 Ha. 556 ; Daniel, and (oopcr v. Wandsworth Bart v. Clarke, 6 De G. M. & G. 232, Board of Works, 1 I C. B. X. S. L80. and Clarke v. Mart, 6 H. L. C. 633. (u) See Steuart v. Gladstone, 10 (//) Smith v. Mules, 9 Ha. 556. Ch. I ). 626 : Smith v. Mules, 9 Ha. 556. (?) See Smith v. Mules, 9 Ha. 556. 498 III. Ch. 9. S. 2.] USUAL CLAUSES. *429 A power to expel contained in articles for a partnership for a term of years is not exercisible after the term has expired, * although the partnership may have [*429] been continued on the old footing (a). 14. Valuation of shares. — Having provided for the events upon which a partnership is to cease, the next point is to specify the method in which its affairs are to be wholly or partially wound up. General rule -where the articles cannot be acted on. — Where the articles have prescribed no method of winding up, or where the method prescribed cannot be carried into effect, then, unless the partners can come to some agreement as to what is to be done, there must, as a general rule, be a con- version of all the partnership property into money ; and this money, after payment of the partnership debts, must be divided amongst the partners in the shares in which they may be entitled to it (5). Agreements for fair division. — An agreement that on a dis- solution the partnership property shall be fairly and equally divided, after payment of its debts, has been held to mean that the property shall be sold, and that the money produced by the sale shall be divided after the debts have been paid (c). Methods of avoiding sale. — In order to prevent the ruin consequent on a sale when a partnership happens to be dis- solved, several devices are had recourse to. The simplest is to specify in the articles a sum at which the share of an outgoing or deceased partner may be taken by his co-part- ners (rf). But it is seldom possible to fix a sum beforehand, and consequently such a provision is not common. It is more usual to stipulate that the share shall be taken to be of the value appearing in the last-signed account, and be paid with the addition of subsequent profits, or with interest at a certain rate, in lieu of such profits. If a stipulation to this («) Clark v. Leach, 32 Beav. 14, Janeson, G Madd. 146, and Simmons and 1 De G. J. & Sm. 409. See Neil- v. Leonard, 3 Ha. 581, noticed infra, son v. Mossend Iron Co., 11 App. Ca. p. 431. 298. (c) Bigden v. Pierce, 6 Madd. 353 ; (6) See Cook v. Collingridge, Jac. Cook v. Collingridge, Jac. 607. 607 ; Kershaw v. Matthews, 2 Buss, (d) Effect was given to such a 62 ; Wilson v. Greenwood, 1 Swanst. provision in Essex v. Essex, 20 Beav. 482. That this rule is not to be 442. rigorously applied, see Pettyt v. 499 *4o0 PARTNERSHIP ARTICLES. [III. Cii. 9. S. 2. effect is made, and the accounts have been regularly taken and signed, or regularly taken but not signed (e), [*430] *so that the shares of the partners ajjpear from the accounts as intended, all parties must abide by the stipulation (/). although difficulties may arise as to the true construction of the articles^). Effect of not keeping accounts as agreed. — But if, as fre- quently happens, the accounts intended to be taken and signed have not been taken, or have been taken irregularly, so that the last-signed account is not so late a one as is con- templated by the articles, in such a case the account must be made up to the latest date at which it ought to have been made up, regard being had to the articles and the practice of the partners; and the share of the outgoing or deceased partner must be taken at its value, as the same appears by the account so taken. Thus in Pott yt v. Janeson (A), the articles provided that the partnership accounts should be taken every 25th of March, and that if either partner died during the continu- ance of the partnership, his interest should be regulated by the last yearly settlement, and what should then appear to be due to him should be paid to his executors, with five per cent, interest, instead of subsequent profits. For some time the partnership accounts were regularly settled every 25th of March; but afterwards they were made up very irregu- larly, and often not for sixteen or eighteen months. A part- Der died in February, 1813. The last account prior to his death was settled on the 5th of November, 1811. The ex- ecutors insisted thai as there had been no annual settlement, as contemplated by the articles, they were entitled to a share of the profits calculated to the time of their testator's death. The surviving partner, on the other hand, contended that all A.8 in Ex partt Barber, 5 Ch. Coventry v. Barclay, ante, p. 421 ; Ex Coventry v. Barclay, ;; De <;. parte Barber, ubi supra; and Brown- .!. & Sin. 320. ing v. Browning, 31 Beav. 316, as to (/) King r. Chuck, 17 Beav. 325; interest and subsequent drawings Gainsborough v. Stork, Barn, all'; out. As to the calculation of inter- and the cases in the lasl note. est where the share is to be paid provision that a share shall out, with interest, by instalments, be paid for as the same stood ;it the see Ewing v. Ewingj 8 App. Ca. 822. of the Last account, means as it As to goodwill, Steuart v. Gladstone, I in the partnership books. See i0 Ch. D. 626, and infra. Blisset v. Daniel, 10 Ha. 493, p. ">1 1. (A) 6 Madd. 146. • to clauses of this description, 500 III. Ch. 9. S. 2.] USUAL CLAUSES. *431 they were entitled to was the amount of their testator's share, as appearing by the account settled in November, 1811, with interest thereon. But the Vice-Chancellor ob- served : *"That the articles had two plain intentions — that there [*431] should be an annual settlement, and that the estate of a deceased partner should receive no profits for the fraction of the year since the last annual settlement. That the settlement of the 5th November, 1811, was to be considered as a settlement substituted by the agreement of the parties in the place of the settlement stipulated for in the articles. That if the testator had died on the 1st October, 1812, it could not have been contended that his estate was to take profits subsequent to the 5th November, 1811, being the last settlement within a year of the death ; and if this were to be treated in that case as a settlement, within the spirit of the articles, against the testator's estate, it must be ecpially con- sidered as a settlement for the testator's estate as a settlement on the 5th November, 1811, which bound each party to come to the next annual set- tlement on the 5th November, 1812. That the Court must act upon that which ought to have been done as if it had been done, and must declare the testator's estate entitled to a share in the profits up to the 5th Novem- ber, 1812, being the day which ought to have been the last annual settle- ment before the testator's death." The same principle was acted upon by V.-C. Wigram, in Simmons v. Leonard (T), although no account having ever been taken between the parties, and the day mentioned in the articles for taking the account not being apparently con- sidered of much importance, the account directed to be taken did not stop at the day at which the last account would have been taken if the articles had been acted on. In Simmons v. Leonard, the articles provided that a general account and rest should be taken every 31st of December, or on such other day as the partners should agree upon ; and that if a partner died during the term his executors should receive payment of his share as ascertained at the last annual rest, with interest thereon, in lieu of subsequent profits ; and that his executors should have no right to look into the partner- ship books. The provision relative to the annual settlement of an account was never acted upon at all. One of the part- ners died, and the Vice-Chancellor held that the primary ob- ject of all parties was, that the death of one of them should not cause a general dissolution and winding up ; that this object might be attained, although no such account as was (i) 3 Ha. 581. 501 *432 PAKTXERSHIP ARTICLES. [III. Ch. 9. S. 2. contemplated had been taken; that it was absolutely neces- sary to take an account of some sort, and to let the executors, therefore, look into the partnership books; and that, [*4oi!] having regard to the omission of * the partners to settle any account at all, the only account which could be taken was a general account of what was due to the testator at the time of his death for his share of capital and profits. In Lawes v. Lawes (£) the articles provided for taking half-yearly accounts, and that on the death of a partner his share should he taken at the amount settled by the last half- vearlv account. The accounts were in fact settled once a year only ; but on the death of a partner it was held that his share was not to be taken at the amount shown by the last animal account actually taken, but at the amount shown by an account to be taken at the end of the half-year next be- fore his death as stipulated by the articles. These cases not only afford good illustrations of the rule that in construing partnership articles regard must be had to the conduct of the partners, even where a circumstance has arisen of which the partners had no previous experience (7), Inn they also show that this rule will not be applied unfairly, and further that the rule that there must be a sale of the partnership property whenever there is a dissolution, unless the articles provide for some other method of dealing with it. and tin 1 provisions in the articles are capable of being rigorously carried out, must be taken with considerable qual- ification ( in ). Taking share at a valuation. — It is not unusual to Stipulate that the share of an outgoing or deceased partner shall be taken by the continuing or surviving partners at a valuation ; and although as a rule specific performance of an agreement for sale at a valuation will not be decreed " unless the valua- tion has been made (n) ', yet where persons enter into part- nership upon certain terms, one of which is, that on a disso- lution one partner shall take the share of another at a valua- (/.) 9 Ch. I). 98. O) See Vickers v. Vickers, 4 Eq. l.i'kson v. Sedgwick, 529, a case between partners and the 1 Swanst 160; Coventry v. Barclay, authorities there cited. The rule and Ex parte Barber, ante, note (<■). does not apply to a valuation of See, as to the rule referred to, things which are accessories to the ante, p. 4-!!). main purchase. See .Jackson v. Jack- son, 1 Sin. & G. 184. 502 III. Ch. 9. S. 2.] USUAL CLAUSES. *433 tion, the Court will, on a dissolution under the arti- cles, enforce such a stipulation, and if necessary * it- [*433] self ascertain the value of the share (o). It has, however, been held, that an agreement for a sale at a price to be fixed by valuers, one to be appointed by the seller and the other by the purchaser, or in case the valuers differ, by an umpire, does not enable the Court to appoint an umpire if the valuers will not do so, and are yet themselves unable to fix a price Qp). Moreover, Wilson v. Greenwood (cf), throws considerable doubt on the validity, in the event of a bank- ruptcy, of an agreement that the share of a bankrupt partner shall be taken at a valuation by his co-partners. 15. Transmission of shares and introduction of new paitners. — It is a common provision in partnership articles that on the death of a partner his executors, or his son, or some other person, shall be entitled to take his place. The effect of any such provision must of course depend on its words ; but speaking generally it may be said, — 1. That clauses of this kind, although they bind the sur- viving partners to let in the person nominated (r), do not bind him to come in, but give him an option whether he will do so or not (s) ; 2. That before making up his mind he is entitled to make himself acquainted with the state of the partnership affairs, although he is not entitled to have its accounts formally taken (t) ; 3. That if he is desirous of coming in, he must comply strictly with the terms upon which alone he is entitled to do so (u) ; (o) Dinham v. Bradford, 5 Ch. liken v. Milliken, 8 Ir. Eq. 16, it was 519. See, as to contracts to sell at a held that a person who is to be let in, fair valuation, as distinguished from provided he conducts himself to the a valuation to be made by particular satisfaction of the survivors, is with- individuals, Fry on Spec. Perf. 154, out remedy if they will not admit 2d ed. him. O) Collins v. Collins, 26 Beav. (s) Pigott v. Bagley, McCl. & Y. 306; and see Vickers v. Vickers, 4 569; Madgvvick v. Wimble, 6 Beav. Eq. 529. 495 ; Downs v. Collins, 6 Ha. 418 ; (?) lSwanst.471. See, also, Whit- Page v. Cox, 10 Ha. 163. See, too, more v. Mason, 2 J. & H. 204. Pearce v. Chamberlain, 2 Ves. S. 33. 0) In Wainwright v. Waterman, (t) Pigott v. Bagley, McCl. & Y. 1 Ves. J. 311, a person was declared 569. entitled to be admitted, although (») Holland v. King, 6 C. B. 727 ; those with whom that question rested Brooke v. Garrod, 3 K. & J. 608, and were divided in opinion. But in Mil- 2 De G. & J. 62 ; Milliken v. Milli- 503 t3 i partnership articles. [in. Cn. 9. s. 2. [*434] *4. Thai if he declines to come in, and there is no provision as to what is then to be done, the partner- ship must be dissolved and wound up in the usual way (v). Persons entitled to succeed will be assisted in equity. — As a general rule, and excluding cages of agency, an agreement between two persons cannot he enforced against either of them by a third person, even although such third person was intended to derive a benefit from the agreement (x). In Page v. Cox it was attempted to apply this rule to an agree- ment between two partners, that on the death of one his widow should succeed him. One of the partners was dead ; it was contended that his widow had no right to suc- ceed. But it was held that the rule in question had no ap- plication to such a case; that the articles had created a valid trust in favour of the widow; and that she was en- titled to come to the Court for a decree for the execution of such trust (//). Cases of settled share. — In a case where articles provided that in the event of the death of a partner during the term for which the partnership was intended to last, his share should go to his widow for life, and after her death to his children, and in default of children to his widow's executors, administrators, or assigns; it was held that the children of a pa liner who had died leaving a widow, did not take any vested interest in the partnership assets during her life (z). Appointment of successor. — In another case partnership articles provided that on the death of a partner the survivor should carry on the business for the benefit of himself and such person a- the oilier should by will appoint, and in defaull of appointment, for the benefit of his widow, or (if she should lie dead) for the benefit of his children, and in defaull of children for the benefit of his executors or ad- ministrators; and that such person, or the said widow, chil- dren, executors, or administrators, should stand in the place of the deceased, ami he entitled to the same share in, and have the same control over, the partnership trade and its, as the deceased would himself have been entitled to ken, supra, note (r). Sec Ex parte of Mulgrave, 2 Keen, 81 ; Re Empress Marks, 1 1). ,v Ch. 4!)'.). Engineering Co., l(i Ch. I). 125. (v) Kershaw >:. Matthews, 2 Russ. (//) Page v. Cox, 10 Ha. 163. See, 62; Downs v. Collins, 6 Ha. 418; also, Murray v. Fla veil, 25 Ch.D. 89; nek v. Wimble, 6 Beav. 195. Dale v. Hamilton, 2 Ph. 266. (x) See Colyear v. The Countess (z) Balmain v. Shore, 'J Yes. 500. 504 III. Ch. 9. S. 2.] USUAL CLAUSES. *435 if * living. It was held that this was not, techni- [*435] cally speaking, a power of appointment, and that consequently a partner could bequeath his share by a will which did not allude either to the power or to the part- nership (a). Position of incoming partner. — When a person has been admitted into an existing firm, and no express agreement has been made as to his rights and liabilities, the inference is that as between themselves his position is the same as that of the other partners. If they are bound by existing articles he will be bound by the same articles, if his conduct justifies the conclusion that he has assented to them; and if any special agreement is made with him, it will be regarded as incorporated with any previous agreement between the older partners, although so far as the two agreements may be inconsistent, the latest will prevail (5). If, indeed, the in- coming partner has no knowledge of any prior agreement between the others, he cannot be bound thereby (c) ; for nothing that he can have done can be regarded, under these circumstances, as evidence of any assent thereto on his part ; and it is upon such presumed assent that the rule in ques- tion is founded. 16. Annuities to widows. — Sometimes it is agreed that if a partner dies the survivor shall pay an annuity, or a share of the profits, to his widow. There is now no difficulty in framing a clause of this sort without making the widow a partner or a quasi-partner by virtue of her participation in profits ((7) ; and after her husband's death she can enforce payment of the provision intended for her (V). Annuity payable out of profits and none made. — If the an- nuity is made payable out of the profits, and the business is carried on and no profits are made, no annuity will be pay- able. So, if the surviving partner has an option to pay either an annuity or a share of the profits, and there should be no profits, he will not be bound to pay anything; for ex hypothesi, it is competent for him to elect to pay out («) Ponton v. Dunn, 1 E. & M. (b) See Austen v. Boys, 24 Beav. 402. See, also, Beamish v. Beamish, 598, and 2 De G. & J. 626. Ir. Rep. 4 Eq. 120, where a bequest (c) Ibid. of a share of residue was held not to (//) See, as to this, ante, p. 35. amount to a nomination of a sue- (e) See Murray v. Flavell, 25 Ch. cessor. D. 89 ; Page v. Cox, 10 Ha. 163, ante, p. 434. 505 *436 PARTNERSHIP ABTICLES. [III. Ch. 9. S. 2. [*436] of the *profits, and his right to make this election in no way depends on their amount (/). Moreover, in construing a pro"* ision giving a widow of a deceased part- ner a share of the profits, the partnership which, strictly iking, determined when her husband died, is regarded as continuing, and the profits which she is to share must be ascertained on that principle. They ought not to be cal- culated as if the returns yielded by the new business had n«u to he applied in liquidating the demands on the old firm (//). Annuity payable until eviction. — 111 Holyland V. De Men- dez ( // ) a continuing partner gave a bond conditioned to be void on payment of annuity, or on being without his own default dispossessed of the partnership property assigned to him. It was held that the annuity did not cease on the bankruptcy of the continuing partner; dispossession by his assignees not being such a dispossession as was contemplated in the bond. Effect of discontinuing business. — An agreement to pay an annuity out of profits involves an obligation not wilfully to prevent the earning of profits; and if, therefore, the person who lias to pay the annuity wilfully ceases to carry on busi- ness he becomes liable to an action for damages (i). In order, however, to provide as far as possible against any attempt to defeat the annuity by discontinuing the business, it is desirable that the partner continuing the business should covenant not only that he will carry on the busi- ness and pay the annuity, but that he will not transfer the business, or take in any fresh partner, without procuring from the transferee or new partner a similar covenant on his pari (Jr). 17. Prohibitions against carrying on business. — A subject upon which it is always desirable to make some express agreement is the extent to which a retiring partner shall be restrained from commencing business on his own account, and in opposition to the continuing partner. CO i:r l"" 1 ' Harper, 1 De G. &. v. McLean, 8 Ch. 658. Compare j. 180. Rhodes v. Forwood, 1 App. Ca. 256. (^) Ibid. {!•) A purchaser of the business (/,) '■) Mer. 184. with notice of such a covenant would [clntyre v. Belcher, 14 C. B. take subject to it, see Werderman v. N. S. 654 Telegraph Dispatch Co. Societe' Generale d'Electricite, 19 Ch. D. 246. 506 III. Oh. y. S. 2.] USUAL CLAUSES. *437, *438 Rule where there is no prohibition. — In the absence of any * agreement upon the subject, a retiring part- [*437] ner is as much at liberty to set up for himself, in opposition to the firm he has quitted, as he would be if he had never belonged to it ; and on a general dissolution of partnership, all the partners are at liberty to commence business in oppo- sition to each other, as freely as if they had never been part- ners, unless they have entered into some agreement not to do so. A dissolution per se obliges no partner to retire from business, or to refrain from seeking a livelihood in the man- ner in which he has been accustomed so to do, and in the neighbourhood where he is known (7). After sale of good-will. — As will be seen presently, even a sale by an outgoing partner of all his interest in the partner- ship business, including the good-will thereof, does not pre- clude him from setting up a new business in opposition to the continuing partners ; but it does preclude him from so doing in the name of the old firm and from representing him- self as continuing the business sold (m~). But an agreement by an outgoing partner not to carry on business in rivalry with his late co-partners may be implied even where not distinctly expressed (nj. Agreement not to carry on business enforced. — All agree- ment by- a retiring partner not to commence business in oppo- sition to his late partners, will be enforced, if the restriction imposed upon him is not unlimited, both as regards time and distance, and is not unreasonable, having regard to the nature of the partnership business (o). Thus, in Williams v. Wil- liams (jo), the defendant, who had been in partner- ship * with the plaintiff's, in running coaches between [*438] Reading and London, sold his share in the business (0 See Dawson v. Beeson, 22 Ch. see Davies v. Davies, 36 Ch. D. 359, D. 504 ; Farr v. Pearce, 3 Madd. 78 ; where the covenant was unlimited Davies v. Hodgson, 25 Beav. 177; "so far as the law allows," and was and the next head, No. 18, Good-will. held to be too uncertain to be en- (m) Churton v. Douglas, Johns. forced, and also to be personal to 174, noticed infra, p. 441. the covenantees. In Palmer v. Mallet, (n) See infra, p. 442. 36 Ch. D. 411, the covenant was joint (o) See, generally, as to covenants in form, but was held to be joint and not to carry on business, Mitchell v. several as regards the covenantees. Reynolds, 1 Smith's L. C. ; also the Distances are measured as the crow useful table appended to Avery v. flies, Duigan v. Walker, Johns. 446 ; Langford, Kay, 663. As to whether Mouflet v. Cole, L. R. 7 Ex. 70, and such covenants can be reasonable, if 8 Ex. 32. unlimited both as to time and space, (/>) 2 Swanst. 253. 507 *439 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 2. to them, and covenanted not to run any coach between Read- mo- and London, or so as to injure the business of the plain- tiffs; and this covenant was enforced in equity. So, in Tallis v. Tallis ('/). the Court of Queen's Bench upheld a covenant entered into by a retiring member of a firm of booksellers not to carry on the canvassing trade in London, nor within 150 miles of the General Post-Office, nor in, nor within fifty miles of Dublin or Edinburgh, nor in any town in Great Britain or Ireland in which the continuing partner or his successors might at the time have an establishment. Consideration. — An agreement entered into when a part- nership is formed, to the effect that a retiring partner shall not carry on the business carried on by the firm, cannot be invalid for want of consideration (r). An agreement with a bankrupt to take his son into partner- ship, and to employ the bankrupt, is a sufficient consideration tor an agreement by him not to carry on business in competi- tion with the firm (s). Solicitors' papers, &c. — Iii framing articles of partnership between solicitors, provision should always be made respect- ing the deeds and documents in their possession, but belonging to their clients. It need hardly be observed that no agreement which the solicitors may make between themselves, will prejudice their clients. Subject to any cpuestion of lien, the clients are enti- tled to have their deeds and documents, and all drafts and copies thereof, paid for by them, delivered up on request(£). They have, moreover, a right to the joint assistance of all the members of the firm employed by them; and although, if the firm is dissolved, a client cannot insist that the partners shall continue to ad as his solicitors, it is clear that they cannot, without his consent, turn him over to one of them- [*439] selves (u)\ * nor act against him as if he had never been a client (./). The dissolution operates as a dis- charge of the client by the solicitors; and the client is there- upon entitled, subject to any question of lien, to have his and papers delivered up to him (//). (q) 1 E. & 15. 391. S.c, to.,, At- (t) Exparte Horsfall, 7 B. & C.528. . Shinier, t Ex.776; Reynolds («) Cook v. Rhodes, 19 Ves. 272, v. Bri Ige, 6 E. B. 528. note. (r) T'l-r Lord Cnmuorth, in Austin (») Cholmondeley v. Clinton, 19 -. 2 \h '-. .\ .1. 626. Ves. 261. (s) Clark-. o - . Edg( ,33 Beav. 227. (•. Hodgson, 25 Beav. 177, and & Co., 14 Ch. D. 596; and Leggott v. f'hurton v. Douglas, Johns. 174. In Barrett, 15 Ch. D. 306. N.B. — The Johnson v. Helleley, 34 Beav. 63, order against soliciting the old cus- notice of this right was directed by tomers was not appealed against in tin- Court to lie given in the particu- this last case. See, also, Walker v. lars of the sale of the good-will. Mottram, 19 Ch. D. 355; Dawson v. & e Kennedy v. Lee, 3 Mer. Beeson, 22 ib. 504. 152; Mellersh v. Keen, 27 Beav. 236 ; (h) Churton v. Douglas, Johns. Bradbury v. Dickens, ib. 53; Smith 174; Hookham v. Pottage, 8 Ch. 91, v. Everett, ib. 446, and the next note. where the defendant described him- ( f ) Hookham v. Pottage, 8 Ch. self as P. from II. & P., the old firm, 91 ; Labouchere v. Dawson, 13 Eq. but in a way calculated to deceive. 322, and see Cruttwell v. Lye, 17 (i) See ib. and ante, book i. ch. 6, Ves. 335. § 2. (Z-) Johns. 174. 510 III. Cn. 9. S. 2.] USUAL CLAUSES. *442 late John, Bow/las ) Pawsey v. Armstrong, 1« Ch. 1). 008; Bradbury v. Diekens, 27' (n) See Davies v. Hodgson, 25 Beav. 53, and the cases cited infra. 512 III. Ch. 9. S. 2.] USUAL CLAUSES. *444 every partner to carry on business himself, the Court will, on a dissolution, interfere to protect and preserve the good- will until it can be sold (q ) : 3. That if a partner has himself obtained the benefit of tlic good-will, he can be compelled to account for its value, i.e., for what it would have sold for, he being himself at liberty to compete in business with the purchaser (/■). Good-will in cases of death. — In the event of dissolution by death, it has been said that the good-will survives, and there is a clear decision to this effect (s). But this is not in ac- cordance with modern authorities ; they are wholly opposed to the notion that the value of, the good-will, as such, belongs to the survivor (£). It undoubtedly may happen that the survivor may obtain the benefit of the good-will with- out paying for it ; for he is at liberty (* unless re- [*444] strained by agreement) to carry on business on his own account (it~), and possibly in the old place of business and in the name of the late firm (V). Under these circum- stances, if, on the death of a partner, the good-will is put up for sale, it will produce nothing if it is known that the sur- viving partner will exercise his rights. He will therefore acquire all the benefit of the good-will ; but he does not ac- quire it by survivorship, as something belonging to him exclu- sively, and with which the executors of the deceased partner Tiave no concern ; for if he did, he might sell the good-will for his own benefit, and this he cannot do (j/). When, therefore, it is said that on the death of one partner the good-will of the firm survives to the other, what is meant is, that the survivor is entitled to all the advantages incidental ( preclude its exercise, then each partner cannot only carry on business in competition with the others, but each can represent himself as late of, or as successor to. the old firm: and each may use the old name without qualification (?i) ; at all events if he does [*447] * n ot hold out the other partners as still in partner- ship with himself (o). Good-will in connection with trade marks. — The use of a partnership trade mark is another very important element in the good-will of its business. A partnership trade mark is an asset ^( the linn, salable on a dissolution like any other asset ( /' ). 'Idie partnership name may be a trade mark (q~). Valuation of good-will. — Good-will is generally valued at so many years' purchase on the amount of profits. Agreements as to paying for good-will on retirement, &c. — In framing articles of partnership, too great care cannot be taken to express as clearly as possible what is intended to be done with respect to good-will; and in order to avoid all ambiguity, the word itself should be made use of. There are cases which show that an agreement to take a retiring partner's share in the property and effects of the partner- ship^), or in the partnership premises (s), do not entitle Note in the first of these, Miss Char- J. & Sm. 352; Hall v. Barrows, 4 bonne! having married and changed De G. J. & Sm. 150. Trade marks her name, was nol in fact held out as registered under 46 & 47 Vict. <•. 57, a partner. § 70, are only assignable with the See Banks r. Gibson, :U Beav. good-will of the business, see Well- and the cases Cited in the last come's Trade mark, 32 Ch. D. 213. four note-. See, as to describing (7) 40 & 47 Vict. c. 57, § 04. See late with or from another, ante, book i. ch. 0, § 2. Glenny v. Smith, 2 Dr. & Sm. 476. (r) See Hall v. Hall, 20 Beav. 139; Even this qualification isdoubt Kennedy v. Lee, 3 Mer. 452. ful. SeeLevyv.Walder.lOCh.D 136. (s) Burfield v. Eouch, 31 Beav. 241. f /v See Bury v. Bedford, 4 De G. Compare Blake v. Shaw, Johns. 732. 516 III. Ch. 9. S. 2.] USUAL CLAUSES. *448 him to anything in respect of good-will. But in another case a clause authorising a surviving partner to take the stock of the partnership at a valuation was held to entitle the execu- tors of a deceased partner to a share of the value of the good-will of the partnership, and of a trade mark belonging to it (0- When an agreement is entered into, to the effect thai a retiring partner shall be entitled to be paid for his interest in the good-will of the firm, it is material to determine whether the firm is to be regarded as of definite or indefinite duration. For upon this will depend the amount to be paid to the retiring partner. In Austen v. Boys («), a partnership was entered into for seven years, with power for any partner to retire. In case of * retirement the retiring partner was to be [*448] paid by the continuing partners the fair market value of his interest and share in the partnership business, and in the good-will thereof. Two days before the expiration of the seven years, one of the partners retired, and the question arose, whether in ascertaining the value of his interest in the good-will of the business, the partnership business was to be considered as continuing, or as ending at the expiration of the seven years. It was held that the good-will to be valued, was the good-will of a business ending with the seven years, and that therefore the retiring partner's interest in it was nominal merely. In Wade v. Jenkins (#), partnership articles stipulated that the good-will should be deemed to be of the value of 6000?. and should belong to the partners in the proportions in which they were entitled to the capital, but that the value of the good-will should not be taken into account in any of the accounts between the partners. On the death of one of the partners it was held that he was entitled to a share of the good-will ; and that the last-mentioned stipulation only applied to the accounts taken during the continuance of the partnership. In Turner v. Major (j/), partners agreed to dissolve and to (0 Hall v. Barrows, 4 De G. J. & (.r) 2 Giff. 509. Compare Steuart Sm. 150. v. Gladstone, 10 Ch. D. 626, where (m) 24 Beav. 598, affirmed 2 De there was no clause specially appli- G. & J. 626. cable to good-will. (y) 3 Giff. 442. 517 *449 PA EtTNERSHTP ARTICLES. [III. Ch. 9. S. 2. have the assets and good-will sold by two persons selected by them; an injunction was granted to restrain one of the partners Erom violating tins agreement, by carrying' on busi- ss on his own account before the good-will of the partner- ship had been disposed of. 19. Getting in debts on dissolution. — When a firm is dis- solved, ii is usual to appoint one of the partners, or some third person, to collect and get in the debts of the firm. But notwithstanding any such arrangement and notice thereof, a debtor to the firm will he discharged if he pays to any one o( the partners (z). Effect, however, will be given h\ the Court to an agreement of the nature in question, by appointing a receiver, and. if necessary, granting an injunc- tion (a). If the agreement is under seal and is [*44 ( ,l] broken, an action for damages may he * brought upon it (J). But it has been held that an agreement not under seal entered into between two members of a dis- solved partnership, fo the effect that one of them shall get in the debts of the firm, and pay what he shall receive in respect thereof to his co-partner, is not an agreement on which the latter can maintain any action for damages in case the del its are got in, and the money received on account of them is not paid over; for it is said there is no consideration for such an agreement ( arbitration, and any one or more of the parties so agreeing, or any person or persons claiming through or under him or them, shall nevertheless commence any action at law or suit in equity against the other party or parties, or any of them, or against any perlpn or persons claiming through or under him or them, in respect of matters so agreed to be referred, or any of them, it shall be lawful for the court in which action or suit is brought, or a judge thereof, on applicationfcy the defend- ant or defendants, or any of them, after appearance, and before plea or answer, upon being satisfied that no sufficient reason exists why such matters cannot be or ought not to be referred to arbitration according to such agreement as aforesaid, and that the defendant was at the time of the bringing of such action or suit and still is ready and willing to join and concur in all acts necessary and proper for causing such matters so to be decided by arbitration, to make a rule or order staying all proceed- ings in such action or suit, on such terms, as to cost and otherwise, as to such court or judge may seem tit ; Provided always that any such rule or order may at any time afterwards be discharged or varied as justice may require." The section does not apply where a submission to refer has been revoked before action (£). [*453] * The ( !ourt will decide whether the matters in dis- pute arc or arc not within the arbitration clause (u). But even if they arc the section is not imperative; and the Court in the exercise of its discretion has declined to inter- fere where there were several matters in dispute, some only of which wore within the agreement to refer (v) ; where one of the parties had become bankrupt (x) ; where there was a bond fide suggestion of fraud (//) ; where there was really (s) In Blyth v. Lafone, 1 E. & E. Deutsche Springstoff Actien Gesell- 435, it was held that the agreement schaft v. Briscoe, 20 Q. B. D. 177. to refer musl be contained in the («) See Piercy v. Young, 14 Ch. instrument on which the dispute I). 200. arises. But this has been overruled. (u) Wheatley v. Westminster, &c, Randell, Saunders, and Co. v. Coal Co., 2 Dr. & Sm. 347. Thompson, 1 Q. B. D.748,and Mason (.r) Pennell v. Walker, 18 C. B. v. Baddan, 6 C. B. \. S. 525. 651. I Randell, Saunders, and Co. v. (//) Wallis v. Hirsch, 1 C. B. N. S. mpson, 1 Q. B. D. 748. See, also, 316. Compare Russell v. Russell, 14 522 III. Ch. 9. S. 2.] USUAL CLAUSES. *454 no question in dispute, and the defendant's only object was delay (z) ; where the object was to stop a suit, and not really to settle a dispute, which the defendant desired to refer before the suit was commenced («). Where, however, there is a bond fide dispute within the meaning of an agreement to refer, and there is no satisfac- tory reason why such dispute should not be settled by arbi- tration, legal proceedings will be stayed (6) ; even although the agreement to refer is contained in articles of partnership for a term of years which has expired (c). In one case the Court refused to interfere where the plain- tiff sought to have a partnership dissolved, and to have a receiver appointed, on the ground of the defendant's miscon- duct ((7) ; but this case has not been followed (e) ; nor is there any reason why the Court should not appoint a re- ceiver, if necessary, pending the arbitration (/). * Power of arbitrator. — Under a general submission [*4o4] by partners of all matters in difference between them, an arbitrator may dissolve the partnership (#) ; and may order one partner to pay or give security for the payment of a certain sum to the other (A) ; and apportion the assets between them (i) ; and order conveyances to be made (Jc) ; and direct one partner to sue in the name of himself and others, and give them a bond of indemnity (I) ; and restrain one partner from carrying on business within certain lim- Ch. D. 471, where the party com- (d) Cook v. Catchpole, 10 Jur. N. plaining of fraud resisted arbitra- S. 1068. tion. (e) Plews v. Baker, 16 Eq. 564 ; 0) Lury v. Pearson, 1 C. B. N. S. Gillett v. Thornton, 19 Eq. 599. ■639. The true grounds of this (/) See as to this, infra, note (o) . decision appear to have been those (g) Green v. Waring, 1 W. Blacks, stated above, but the report is obscure. 475; Hutchinson v. Whitfield, Hayes, (a) Corcoran v. Witt, 8 Ch. 476 n., Ir. Ex. 78. Simmonds v. Swaine, 1 explained in 16 Eq. 571. Taunt. 549, shows that a dissolution (b) As in Russell v. Russell, 14 need not be awarded. Ch. D. 471, where notice to dissolve (/*) Simmonds v. Swaine, 1 Taunt. had been given ; Law v. Garrett, 8 549. Ch. D. 26, where the agreement was (/) Lingood v. Eade, 2 Atk. 505 ; to refer to a foreign tribunal ; Plews Wood v. Wilson, 2 Cr. M. & R. 241 ; v. Baker, 16 Eq. 564 ; Willesford v. Wilkinson v. Page, 1 Ha. 276. Watson, 8 Ch. 473, and 14 Eq. 572 ; (k) Wood v. Wilson, 2 Cr. M. & Randegger v. Holmes, L. R. 1 C. P. R. 241. 679 ; Seligmann v. Le Boutillier, ib. (/) Burton v. Wigley, 1 Bing. N. 681 ; Russell v. Pellegrini, 6 E. & B. C. 665 ; and see Goddard v. Mans- 1020; Hirsch v. Im Thurn, 4 C. B. field, 19 L. J. Q. B. 305; Philips v. N. S. 569. Knightley, 2 Str. 903. (c) Gillett v. Thornton, 19 Eq. 599. 523 *455 PARTNERSHIP ARTICLES. [III. Ch. 9. S. 2. its (m) ; and direct mutual releases to be executed (n). It seems, however, that the arbitrator cannot appoint a receiver to collect and gel in the partnership assets and credits (0) ; nor direct one of the partners to pay money to him (the arbi- trator) in order that he may apply it in payment of certain specified debts (jp). It has also been held that an arbitrator cannot enter into the question whether any part of a pre- mium paid on entering into the partnership shall be refunded, unless the submission pointedly raises that question for deter- mination ( y ). 23. Penalties and liquidated damages. — The last clause in a partnership deed is often one by which each partner binds himself to pay, either by way of penalty or by way of liqui- dated damages, a certain sum in case of the infringement by him of any agreement contained in the previous clauses. A stipulation that on the breach of any agreement in [ ' 4f>5] the articles, a sum * shall be paid by way of penalty is of little real use. and is sometimes worse than use- less, for the sum mentioned will not be payable unless dam- age to its amount can be proved {/) ; and on the other hand the penalty generally limits the compensation which can be obtained, even although damage to a greater extent has been sustained (s). Moreover, if there are several covenants, and if for any breach, however trivial, of any of them involving the payment of a small sum of money, it is stipulated that a Large sum shall he paid by way of liquidated damages, the stipulation is always construed as a, stipulation for payment of the Larger sum by way of penalty (t). An agreement to pay a definite sum as liquidated damages in certain specified its, <'.//., on carrying on business within prescribed limits. may no doubt prove useful (//) ; but even in these cases care Morley v. Newman, •", 1). ,t R. (;>) Re Mackay/2 A. & E. 356. ::17. !n Burton v. Wigley, I Bing. (7) See Tattersall w. Groote, 2 Bos. X. ('. 665, tin- award permitted a & P. 131. partner to carry on business, al- (r) See the note to Gainsford v. though tin' article- provided for his Griffith, 1 Wms. Saund. 57. not doing BO. (s) See Clarke v. Ld. Abingdon, Lingood v. Eade, ^ Atk. 505, 17 Ves. 106. where the arbitrator directed such (t) See Wallis v. Smith, 21 Ch. D. releasee to be Bettled by a Master in 24.'3, where all the older cases arc re- Chancery, viewed. Sec, also, Elphinstone v. . ngood v. Eade, 2 Atk. 505; Monkland Iron and Coal Co., 11 App. //. Mackay, 2 A. 0; B. 356. Bui a Ca. 332. receiver was appointed in Routb v.