•<»*■; T »\3 THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW /> ^ ^ :2. T vy HORNBOOK CASE SERIES ILLUSTRATIVE CASES ON PARTNERSHIP By EUGENE ALLEN GILMORE Author of Gilmore on Partnership Professor of Law, University of Wisconsih A COMPANION BOOK TO GILMORE ON PARTNERSHIP St, Paul, Minn. WEST PUBLISHING CO. 1913 COPTEIGHT, 1913 BY WEST PUBLISHING COMPANY (Gilm.Pakt.) T 1913 THE HORNBOOK CASE SERIES It is the purpose of the publishers to supply a set of Illustrative Casebooks to accompany the various volumes of the Hornbook Series, to be used in connection with the Hornbooks for instruction in the classroom. The object of these Casebooks is to illustrate the prin- ciples of law as set forth and discussed in the volumes of the Horn- book Series. The text-book sets forth in a clear and concise manner the principles of the subject; the Casebook shows how these princi- ples have been applied by the courts, and embodied in the case law. With instruction and study along these lines, the student should se- cure a fundamental knowledge and grasp of the subject. The cases on a particular subject are sufficiently numerous and varied to cover the main underlying principles and essentials. Unlike casebooks prepared for the "Case Method" of instruction, no attempt has been made to supply a comprehensive knowledge of the subject from the cases alone. It should be remembered that the basis of the instruc- tion is the text-book, and that the purpose of these Casebooks is to illustrate the practical application of the principles of the law. West Publishing Company. (lii)* 729912 TABLE OF CONTENTS WHAT CONSTITUTES A PARTNERSHIP Paga I. Partnership Inter Se — True Partnership 1 II. Partnership the Result of Intention 7 III. Partnership by Operation of Law — Partnership as to Third Par- Ues 10 1. Exceptions 15 IV. Doctrine of Partnership as to Third Parties Overthrown 21 V. Tests of Intention — In General 25 VI. Sharing Gross Returns 30 VII. Sharing Profits 31 VIII. Sharing Profits and Losses 34 IX. Common Ownership of I'roperty 36 X. Joint Enterprise or Business 39 XL Relations Distinguishable from Partnership 44 XII. Contract for a Partnership 54 XIII. Promoters of Corporations — Defective Corporations 58 XIV. Partnership by Estoppel 60 FORMATION AND CLASSIFICATION OF PARTNERSHIPS I. Partnership Arises from a Contract 64 II. Requirements of the Contract 66 1. Competency of the I'arties 66 2. Consideration 72 3. Formalities — Statute of Frauds 73 IIL Subject-Matter 76 IV. Joint-Stock Companies 78 THE NATURE AND CHARACTERISTICS OF A PARTNERSHIP I. Various Conceptions of a Partnership 83 II. The Partnership Name 85 III. Partnership Property 87 1. What is Included in Partnership Property 87 2. Partnership Capital 89 3. Good Will 92 IV. Title to Partnership Property — How Talien and Held 97 V. Conversion of Partnership Realty into Personalty 100 VI. Nature and Extent of I'artner's Interest in Partnership Property 109 VII. Transfer of Partnership I'roperty 112 1. By Act of the Partnership 112 VIII. Firm Creditors' Rights in Firm Assets — Partner's Lien 116 IX. Transfer by Act of a Single Partner 128 X. Successive or Simultaneous Transfers of Each Partner's Interest 135 XL Effect of Death of Partner on Partnership Property 149 XII. Surviving Partner as Quasi Trustee 153 XIII. Agreement of I'artners Controlling Property After Death of Part- ner 154 Gilm.Pabt. (v) VI TABLE OF CONTENTS NATURE, EXTENT, AND DURATION OF PARTNERSHIP LIABILITY Page I. Nature of Liability in Contract 157 11. Partnership Liability and Joint Liability 161 III. Quasi Severable Character of Joint Obligations in Equity 168 IV. Liability of Estate of Deceased Partner 168 V. Extent of Liability in Contract 171 VL Nature and Extent of Liability in Tort 172 VII. Commencement of Partnership Liability in Contract— Liability of an Incoming Partner 174 VIIL Liability of Retiring Partner 177 IX, Termination of Partnership Liability in Contract — Dissolution.. 184 THE POWERS OP PARTNERS I. Origin and Nature of the Partner's Power to Bind the Firm 191 II. Test of Authority — Nature of Question 198 III. Particular Powers Considered 19S IV. Power to Subject Firm to Tort Liability 210 V. Powers of Partners After Dissolution 216 VI. Powers of Surviving Partner 224 RIGHTS AND DUTIES OF PARTNERS INTER SE I. Duty to Conform to the Partnership Agreement 229 II. Right to Participate in the Management 230 III. Control of Majority 231 IV, Right to Information Concerning Business 230 V. Duty to Devote Themselves to the Business and to Exercise Care and Skill 238 VI. Duty to Observe Good Faith 240 VII. Right to Compensation for Services 247 VIIL Right to Indemnity and Contribution 248 IX. Distribution of Assets Among Partners 253 X. Partner's So-Called Lien 257 REMEDIES OF CREDITORS I. Remedies at Law — Creditors of the Partnership 262 II. Creditors of the Separate Partners 265 III. Garnishment of Partnership Debtors 273 IV. Remedies in Equity — Insolvency or Bankruptcy of Firm 270 V. Rights of Secured Creditors 283 VI. Rights of Joint and Several Creditors — Double Proof 280 VII. Insolvency or Bankruptcy of a Partner 288 VIII. Rights Against the Estate of Deceased Partner 293 ACTIONS BETWEEN PARTNERS I. Action on Partnership Claim or Liability — At Law 296 II. Actions Between Firms with Common Member 299 III. Action at Law on Individual Obligation 300 IV. Equitable Actions in General — Jurisdiction 305 V. Accounting and Dissolution 307 VI. Specific Performance 312 VII. Injunction and Receiver 312 TABLE OP CONTENTS Vll ACTIONS BETWEEN PARTNERS AND THIRD PERSONS Page I. In General — Parties to Actions by the Firm 315 II. Parties to Actions Against the Firm 310 III. Effect of Changes in Firm — Admission of New Member 320 IV. Retirement of Old Member 322 V. Death of Member 324 VI. Banliruptcy and Insolvency 326 TERMINATION OF THE PARTNERSHIP I. By Act of the Partners — Mutual Assent 330 II. Dissolution by Operation of Law 332 III. Dissolution by Judicial Decree — Impossibility of Success 334 TABLE OF CASES Page Adams v. Rackett 152, 325 Andrews' Heirs v. Brown ...149, 324 Arnold v. Nichols 176, 320 Ash V. Guie 51 Austin V. Holland 18G Bassett v. Miller 151, 324 Beeclier v. Bush 25 Bigelow V. Gregory 5S Bond V. Gibson 198 Bracken v. Kennedy 305 Briggs, Ex parte 2 Broadway Nat. Bank v. Wood... 282 Brooke v. Washington 316 Buck V. Smith 312 Burgan v. Lyell 208 Burley & Harris v. Harris 297 Burns v. Nottingham 300 Burt V. Lathrop 40 Burton v. Wookey 240 Bush V. Llnthicum 70 Butchart v. Dresser 226 Butler Sav. Bank v. Osborne ... 36 Carter v. McClure 78 Cash V. Earnshaw 334 Central Trust & Safe Deposit Co. V. Respass 76 Clafflin Co. v. Evans 131 Clifton V. Howard 34 Coleman v. Eyre 72 Cook V. Canny 303 Cox & Wheatcroft v. Hickman.. 21 Crosby v. Timolat 299 Darby v. Darby 100 Darby v. Gillipran 116 Davies v. Humphrey 279 Davis V. Howell 278 Dean v. Dean 89 Dewey v. Chapin 153 Doggett V. Dill 169 Doner v. Stauffer 135 Donnell v. Harshe 41 Dow V. State Bank of Sleepy Eye 54 Downs V. Jackson 248 Page Dry V. Roswel! 30 Duncan v. Lowndes 200 Duryea v. Whitcomb 4 Dyer v. Clark lO.'J Fechteler v. Palm Bros. & Co... 31 Finckle v. Stacy 39 Forster v. Lawson 318 French v. Styring 48 Gibbs' Estate, In re 44 Gille V. Hunt 98 Gilruth V. Decell 214 Goodspeed v. Wiard Plow Co.... 217 Grace v. Smith 10 Groth V. Kerstiug 253 Guidon v. Mary Ilobson 319 Hallowell v. Blackstone Nat. Bank 83 Halstead, Appeal of 44 Haney Mfg. Co. v. Perkins 210 Harman v. Johnson 212 Harrison v. Jackson 205 Raskins v. D'P^ste 85 Hawkins v. Mahoney 286 H. B. Clafflin Co. v. Evans 131 Hedlcy v. Bainbridge 202 Hendren v. Wing 97 Hicks V. Wyatt 175, 320 Hoaglin v. C. M. Henderson & Co. 66 Hoare v. Dawes 1 Hughes V. Gross 321 Ilion Nat. Bank, In re 283 Irwin V. Williar 196 Jackson Bank v. Durfoy 119 Januey v. Springer 130 Jeffereys v. Small 149 Jennings v. Rickard 24:'. Johnson v. Wingfield 269 Johnston v. Dutton's Adm'r 231 Judd Linseed & Sperm Oil Co. v. Hubbell 171 Katz V. Brewington 30 Gilm.Part. (ix) TABLE OF CASES Page Kell V. Nainby 315 Kendall v. Hamilton 165 Lambert's Case Ledford v. Emerson Leffler v. Rice Leggett V. Hyde Leserman v. Bernheinier Lindner v. Adams County Bank Lindsey v. Stranahan Lord V. Hull Lyon V. Johnson Lyth V. Ault & Wood McAreavy v. Jlagirl 179, Major V. Hawkes Marsh v. Davis Mason v. Eldred 157, :\rattingly v. Stone's Adm'r Mayberry v. Willoughby Meech v. Allen Menagh v. Whitwell Miller v. Neimerick Mitchell V. Reed Monroe v. Conner Morgan v. Richardson Motley V. Wickoff 177, Murphy v. Crafts Murray v. Murray Newark Coal Co. v. Notley, Ex parte . . . Noyes v. Cushman . Spanglor 128 302 199 IG 255 224 247 .'507 1S4 323 323 216 73 315 238 220 262 139 219 241 233 201 322 229 288. 92 2 43 Preston v. Garrard. Page .181, 323 Ogden V. Arnot 326 Parker v. Pistor Pearce v. Chamberlain Pease v. Cole People V. E. Remington & Sons. People's Bank v. Shryock Phillips V. Phillips Place V. Sweetzer Poole V. Fisher Pooley V. Whitmore Pratt V. McGuinness 265 332 203 283 .273 64 267 62 193 111 Queen, The v. Robson 49, 76 Robinson Bank v. INIiller 87 Rodgers v. Meranda 276 Rollins V. Stevens 200 Rose V. Coffield 188 Rothwell V. Humphreys 202 Ruffin, Ex parte 112 Russell V. Cole 291 Sabel V. Savannah Rail & Equip- ment Co 64 Sadler v. Xixon 296 Sanborn v. Royce 266 Shannon v. Wright 312 Simpson, In re 154 Solomon v. Kirkwood 3.30 Stearns v. Houghton 325 Stewart's Case 293 Straffin's Adm'r v. Newell 206 Tapley v. Butterfield 128 Taylor v. Fields 109 Thayer v. Humphrey 279 Thompson v. First Nat. Bank... 60 Thorpe v. Jackson 163 Voorhis v. Childs' Ex'r 168 Warren v. Taylor 257 Warring v. Arthur 249 Waugh V. Carver 12 Whelan v. Shain 161 White V. Smith 172 Whiting V. Farrand 217 Wiggins V. Blackshear 124 Wilkinson v. Frasier 15 Winship v. Bank of United States 191 Wolf V. Mills 211 WolfC V. Madden 174, 320 Wood V. Braddick 218 Woodward-Holmes Co. v. Nudd.. 107 Yorks V. Tozer 236 HORNBOOK CASES ON PARTNERSHIP WHAT CONSTITUTES A PARTNERSHIP I. Partnership Inter Se — True Partnership * HOARE V. DAWES. (Court of King's Bench, 17S0. 1 Doug. 371.)" Defendants and others employed Contencin, a broker, to purchase a lot of tea, each party, including the broker, taking a certain share of the whole amount purchased, the lots being too large for any one dealer. The practice was for those desiring to join in the purchase to give orders or warrants to the broker for the delivery of the quanti- ty purchased on payment being made. These warrants were often pledged and money raised on them. The broker in this case, having pledged the warrants given him for a loan from plaintiff, became bank- rupt. The price of tea having fallen in the meantime, plaintiff was un- able to realize from the warrants the amount of the loan. He brought the present action against all the defendants, on the ground that all the parties interested in the purchase were to be considered as partners and jointly and severally liable for the whole purchase. Each de- fendant had fully paid for his share of the whole purchase which he had agreed to take. There was no agreement between the parties as to the redisposal of the tea. Verdict for defendant, and rule nisi for a new trial. ^ Lord ]\lANsriELD. I considered this, at first, as a case of dormant partners. The law with respect to them is not disputed, viz., that they are liable when discovered, because they would otherwise receive usurious interest without any risk; but towards the end of the cause the nature of the transaction, and of these loans, was more clearly explained, and I was satisfied with the verdict, and am now confirmed in my opinion. The evidence of Cartony is irrelevant, because he said the broker borrowed the money for him; and, besides, he did not dispute the demand. Is this a partnership between the buyers? I think it is not; but merely an undertaking with the broker by each 1 For a discussion of principles, see Gilmore on Partnerslilp, § 1. 2 Statement of facts rewritten, Gilm.Part. — 1 2 WHAT CONSTITUTES A PARTNERSHIP for a particular quantity. There is no undertaking by one to advance money for another, nor any agreement to share with one another in the profit or loss. The broker undertakes to buy and sell, but makes no advance without the security of the tea warrants, which are consid- ered as cash, and pass by delivery, like East India bonds. These warrants are pawned with the lender, but the broker has no power to pledge the personal security of the principals. He cannot sell the warrants, and borrow more money on such personal security. It makes no difference whether specific tea or the warrants are delivered at the sale. It would be most dangerous, if the credit of a person, who engages for a fortieth part, for instance, should be considered as bond for all the other 39 parts. Non haec in foedera veni. The wit- nesses did not merely speak to opinion, but to matter of fact, and their own dealings. They said the money was lent to the broker alone. Sometimes, indeed, lenders have required to know the principals. They did not trust the broker alone; but all others who do not ask after the principals do. The note is given as a collateral security person- ally by the holder of the warrant, not in the character of a partner with other persons, nor as a broker for them. WiLLES and AsnnuRST, JJ., of the same opinion. BuLLER, J. This is a very plain case. The plaintiffs had no rea- son to consider the broker as a partner with the other persons; for, though he had a share, he did not act or appear as a partner, nor were they partners as among themselves. They had never met or con- tracted together as partners. If this transaction were sufificient to constitute a partnership, a broker would have it in his power to make 500 persons partners, who had never seen nor heard of one another, or might, at his pleasure, convert his principals into partners, or not, without any authority from them, by taking joint or separate war- rants. The rule discharged. Ex parte BRIGGS. Ex parte NOTLEY. (Court of Review and on Appeal before the Lord Chancellor, 1833. 3 Deac. & G. 367.) This was an appeal by Miss Briggs, a petitioning creditor in a bankruptcy proceeding against one Notley, from a decision refusing to admit the proof of her debt, on the ground that it arose out of a partnership between her and the bankrupt. There was also a petition by the bankrupt to annul the bankruptcy proceedings on the same ground. Erskine, C. j,8 ♦ * * The undisputed facts are these: Miss Briggs advanced £230 to the bankrupt, on a bond and warrant of 8 Part of the opinion of Erskine, C J., is omitted and statement of facts rewritten. Opinion of Sir G. Rose omitted. FAETNEKSHIP INTER SE — TRUE PABTNERSHIP 3 attorney for securing the repayment on the 2d November, 1837, with interest at £5 per cent. This money was advanced to the bankrupt for the purpose of enabHng him to estabhsh a manufactory for choco- late. It is said that this is not a good petitioning creditor's debt, as there was, besides the written documents, an agreement that Miss Briggs was to share in the profits of the manufactory, and that the loan, therefore, must be considered as a debt arising out of the part- nership. Now, I have always understood the distinction to be this: If the transaction between two partners is intended to form an item in the partnership accounts, then you cannot say that there is a legal debt owing from one to the other until a balance is struck, after taking the partnership accounts. But after an account has been taken, and a balance struck, then, although the partnership continues, the amount of the balance will be provable under a commission, or be a good petitioning creditor's debt. The cases in which the objection of a partnership has been allowed to prevail are those in which money is actually brought into the partnership account, and where it would depend, upon taking the account, whether the sum was due or not from one partner to the other. But in this case I think there is not sufficient evidence of partnership. Conceding, however, that there was a partnership, the debt here is perfectly distinct from any part- nership accounts. Although Miss Briggs was promised an eighth share of the profits, this engagement appears to have been made after the loan of the money, and was not stipulated for by her previous to the advance of the money. The money was to be repaid at all events, and there is nothing to show that it was intended to form an item in any partnership accounts. It is clear, therefore, that there was no contemplation of a partnership between these parties, but that the real object of Miss Briggs was to obtain, if she was able, more interest than £5 per cent. Sir J. Cross. This is a petition of the bankrupt to supersede the fiat, on the ground that the petitioning creditor was his partner in trade. But, as his honor the Chief Judge has already stated, there was no contemplation of any partnership in fact. It is true that, if B. agrees to give A. a share in the profits of his business, the court may consider them quasi partners for all purposes of responsibility to third persons. But B., after borrowing money of A., cannot turn round upon him and say, "You are my partner, by operation of law, and therefore I will not pay you your debt." This would not be per- mitted by any court, either of law or equity. But, even if there was a partnership between these parties, I think that this debt was independ- ent of any partnership transaction, and is quite sufficient to enable a petitioning creditor to sustain a fiat. It appears to me, however, that there was no partnership in fact. * * * Petition dismissed. 4 WHAT CONSTITUTES A PARTNERSHIP DURYEA et al. v. WHITCOIMB. (Supreme Court of Vermont, ISuS. 31 Vt. 395.) Book account. The auditor reported that on the 20th of August, 1S54, the defendant, the plaintiffs, and Isaac B. Lewis made an agree- ment in the city of New York, where both the plaintiffs and Lewis resided and were engaged in the purchase and sale of potatoes, that the defendant, who resided in Wells River, in this state, should pur- chase potatoes during that season in Vermont and New Hampshire, taking the advice of the plaintiffs and Lewis, from time to time, in regard to the price, amount, and market of such purchases ; that the defendant was to devote his whole time to this business, and was to have 6 cents per bushel to cover the expense of buying and carrying the potatoes, which sum of 6 cents per bushel was to be added to the cost of the potatoes ; that if it should become necessary, in the course of such purchases, for the defendant to visit other parts of the coun- try, the expense thereof should be borne, one-half by the defendant, one-quarter by Lewis, and one-quarter by the plaintiffs; that the de- fendant was to send the potatoes purchased by him to such market as he should think best, advising, however, on this subject, with Lewis and the plaintiffs; that all the potatoes which the defendant should purchase and send to New York were to be taken by Lewis or the plaintiffs, and sold at the highest market price by the one who should receive them, such party charging nothing for selling, and each to be accountable for their own sales; that if the defendant chose to send any of the potatoes purchased by him to any other market than New York he should be accountable for the amount of the sales thereof; that all the expenses of transportation of the potatoes to market were to be paid by the defendant, and added to the general cost of the po- tatoes, and at the close of the season the profit or loss on all the potatoes purchased by the defendant were to be apportioned among the parties as follows: to the defendant one-half, to the plaintiffs one-quarter, and to Lewis one-quarter; and that, if the defendant at any time needed more funds than he had for such purchases, he might draw on Lewis, or on the plaintiffs, in such a manner and to such an extent that the defendant should furnish one-half of the money for such pur- chases, the plaintiffs one-quarter, and Lewis one-quarter. The au- ditor further reported that in pursuance of this agreement potatoes were purchased by Whitcomb and sent to market and sold by the other parties, and that upon an adjustment of the claims of the plaintiffs against the defendant, arising out of such purchases and sales (which were the only matters embraced in the plaintiffs' account), including the defendant's share of a loss in said business, computed according to the terms of the agreement, he found that the defendant was in- debted to the plaintiffs in the sum of $848.45. The auditor further reported that at the time the above-mentioned arrangement was made PARTNERSHIP INTER SE— TRUE PARTNERSHIP O nothing was said between the parties about a partnership, and the au- ditor found from the foregoing facts that neither of the parties at that time supposed they were forming a partnership or intended to form one. The defendant insisted before the auditor, as well as before the county court, that this arrangement constituted a partnership between him, the plaintiffs, and Lewis, and claimed that the affairs of such part- nership could not be adjusted in this action. But the county court rendered judgment upon the report for the plaintiffs for the amount reported by the auditor, to which the defendant excepted. Alois, J.* As this is a case where the rights of the partners inter se merely are concerned, where no question as to third persons is in- volved, the criterion to determine whether the contract is one of part- nership or not must be: What did the parties intend by the contract .which they made as between themselves? If we regard the agreement itself, as set forth in the auditor's re- port, it is clearly a partnership. * * ♦ The parties all furnish a share of the capital— Whitcomb one-half, Lewis one-quarter, the Duryeas one-quarter. They jointly own the property when purchased. It is purchased in order to be sold again for their joint and mutual benefit, thereby negating the idea of sep- arate control and disposition of their interests in the property pur- chased and of separate interests in the proceeds. Each is to share in the final profit or loss. At the close of the season the profits or losses are to be divided, to Whitcomb one-half, to Lewis a quarter, to the plaintiffs a quarter. Each is to aid in selling, and to contribute his aid, skill, and knowledge to get the highest price. * * ♦ The fact that each was to be accountable for his own sales amounts only to this: That each should sell for cash. If either did not, he was to be accountable for his sale as cash. The proceeds of the sales by each would belong to them jointly, not severally. This provision is as consistent with an agreement for a partnership as with any oth- er. Noyes v. Cushman, 25 Vt. 390. So that Whitcomb was to have the control of the potatoes, and to run them to the best market, taking the advice of Lewis and the Duryeas on the subject, is, when we con- sider where the parties resided, where the potatoes were to be bought, and to what markets they might be sent, and that Whitcomb was to buy them, as consistent with a contract of partnership as with any other. I. This agreement does not belong to the class of cases where the parties are jointly interested in certain proportions in the property purchased, but not in the final profits or losses, where each of the part owners has the power of separate disposition of his interest. Such is the case of Coope v. Eyre, 1 H. Bl. 37, a leading illustration of the class. II. It is not of the class where a party receives a portion of the profits as a compensation for his labor as an agent or servant. Each * Part of the opiuion is omitted. 6 WHAT CONSTITUTES A PARTNERSHIP furnished a portion of the capital. Each was a part owner of the prop- erty when purchased, and of the proceeds when sold. Neither could be said to be the servant or agent of the other. An agent who re- ceives a share of the profits as a compensation for his services is not expected to share in losses. If there are no profits, he loses his labor or wages; but he loses no more, though there are further losses to be borne by the partners. Of this class is Kellogg v. Griswold, 12 Vt. 291, and Mason v. Pot- ter, 26 Vt. 722. III. Nor is it a case where a share of the gross or net earnings is to be paid as a compensation for the use of capital, or as rent, and where the party receiving such compensation has no interest in the business, the property, and the proceeds, but only a right of action against the other parties. Here the parties jointly contributed capital, labor, and skill — were joint owners of the property from the time of its purchase till the final division of profits or loss. No severance of their interests could be had. No ascertainment of their respective shares or interests could be made till a final accounting. They must have relied on the property and its proceeds to secure to each his final share, no matter by whom the property might be sold, or its proceeds held. Hence the cases of Tobias v. Blin, 21 Vt. 544, Bowman et al. v. Bailey, 10 Vt. 170, and Ambler v. Bradley, 6 Vt. 119, do not apply. Of the same class are Denny v. Cabot, 6 Mete. (Mass.) 92, Holmes v. R. R. Corp., 5 Gray (Mass.) 58, Loomis v. Marshall, 12 Conn. 69, 30 Am. Dec. 596, and various other cases cited by counsel. It is said, however, that the auditor finds that the parties did not in- tend to form a partnership, and that such intention must govern. It is with contracts of partnership, as with all other contracts, that as between the parties to them their intention must govern. Hence an express stipulation in a contract that the parties thereto shall not thereby become partners is binding and of great significance in giving construction to the instrument, especially if the terms are doubtful, or susceptible of more than one meaning. 1. It is to be noted that in this case there was no such express stip- ulation. The auditor's report says: "At the time of the arrangement in New York, August 20, 1854, nothing was said about a partnership, and neither of the parties at that time supposed they were forming a partnership, or intended to form a partnership." As nothing was said about a partnership, the parties could not have stipulated that their contract should not create one. 2. The report states what was the arrangement of August 20, 1854. That was a contract for a partnership. If their contract was for a partnership by necessary legal construction (which we have found that it was), and they intended to make the contract (and this appears from the report), the legal effect of their contract could not be varied by their not supposing it to be what it was. The further statement in PAETNERSniP THE RESULT OF INTENTION T the report that they did not intend to form a partnership seems incon- sistent with the other facts. One is at a loss to perceive how the au- ditor could discover such an intention, wlien nolhinj^f was said about a partnership, and when the contract which they made was a partner- ship. Probably the fair construction of the report is that the parties were not aware of the legal extent and obligation of the contract into which they entered. As the contract imports a partnership, we must hold, in the absence of any express stipulation and of any other circumstances to show the contrary, that they intended to create the relation which the con- tract expresses. * * * The result is that the iudgrment of the county court is reversed, and judgment rendered for the defendant to recover his costs. 11. Partnership the Result of Intention' PHILLIPS V. PHILLIPS. (Supreme Court of Illinois, 1S63. 49 III. 437.) Caton, C. J.' The only question in this case is one of fact. Was there a copartnership between John Phillips and his four sons, or was he the sole proprietor of the business about which the contro- versy has arisen? It must be remembered in the outset that this is a controversy inter sese, and is not between third parties and the alleged members of the firm. Parties may so conduct themselves as to be liable to third persons as partners when in fact no partnership exists as between themselves. The public are authorized to judge from ap- pearances and professions, and are not absolutely bound to know the real facts, while the certain truth is positively known to the alleged parties of a firm. A partnership can only exist in pursuance of an express or implied agreement to which the minds of the parties have assented. The intention or even belief of one party alone cannot create a partnership without the assent of the others. If John S. Phillips designed and really believed that there was a partnership, but to which his father and brothers never assented, and in the existence of which they did not believe, then there was no partnership, unless, indeed, a copartnership could be formed and conducted without their knowledge or consent. This would be simplv absurd. We cannot B For a discussion of principles, see Gilmore on Partnersliip, §§ 2, 3. « Part of the opinion is omitted. 8 WHAT CONSTITUTES A PARTNERSHIP in this way surprise them into a partnership of which they never dreamed. Over 20 years ago John Phillips emig-rated from Scotland and set- tled in Chicago with his family, consisting of a wife and four sons and two daughters. He was then very poor. He was a wood turner by trade, and commenced that business in a very small way with a foot lathe. He was frugal, industrious, and honest, and prospered as but few men, even in this country, prosper. He labored hard with his own hands, and as his sons grew up they joined their work to his, all except John S., who at a proper age was put as an apprentice to learn the chair maker's trade; but, his health proving delicate, his father made an arrangement with his master by which his time was released when he had but partially learned his trade, when John S. returned home and took a more or less active part in the business of his father. His health was, however, for many years very dehcate, and he was enabled to do but little physical labor. He, however, most- ly took charge of the office and books, for which the testimony shows he was very well qualified, and where he rendered efficient service. In the meantime the business had grown from the smallest beginning, with a single foot lathe, to a large manufactory, with extensive ma- chinery propelled by steam ; and chair making, which was introduced at an early day, had become the principal or largest branch of the business. Thus this business was begun and continued and prospered till 1860, when the complainant left his father and the business, and filed this bill for an account as among partners. The business had always been conducted, as it was begun, in the name of John Phillips, the father, although in a few instances bills were made out to John Phillips & Sons by persons with but a super- ficial acquaintance with them, which were paid without eliciting re- mark or particular attention. The books were all kept in the name of John Phillips, with the exception of a few entries made by a book- keeper in the name of John Phillips & Sons. Indeed, there is, and can be, no question that, if there was a copartnership embracing the father and sons, the firm name adopted was John Phillips. The complainant, to show a copartnership, proves that the sons all devoted their time and attention to the business after they attained their majority, without regular salaries as laborers or servants; that funds which they drew from the concern for their support were charged to each one separately, while neither received a credit for labor or serv- ices; that the father, upon one or two occasions, stated to third per- sons that his sons were interested in the business ; and he also relies upon the appearances to the outside public and the interest which all took in the success of the business. For the defense it is claimed that, following the habits and customs of their forefathers in Scotland, the sons continued to serve the father in the same relation and with the same fidehty after attaining their majority as before, under the distinct and often declared understand- PARTNERSHIP THE RESULT OF INTENTION 9 Ing that all should belong to the father during his life, and at his death the business and property should be left by him to his children, as he should think proper. * * ♦ If such was the understanding and pur- pose of the parties, then there was no partnership. Originally, undoubt- edly, the entire concern belonged to the father, and it so continued, unless by the agreement of the father the sons were admitted into the concern as partners; for, as before intimated, we know of no means by which the sons could become partners with the father, and thus ac- quire a title to his property, without his knowledge or consent. Did the father ever consent that his sons, or either of tiiem, should be ad- mitted as partners with him? Did he ever agree that they should be part owners of this property? On repeated occasions the subject of a copartnership with his sons was presented to him, both in the pres- ence of the complainant and his brothers, and he ever repudiated the suggestion in the most emphatic terms. The very suggestion, even, seemed to excite his indignation. Upon one occasion he expressed himself in this characteristic phrase: "Na, na! I will ha' nae sons for partners as long as I live. Damn them ! they would put me out of the door." On none of these occasions do we find the complainant, or any of his brothers, claiming the existence of a copartnership ; but, on the contrary, they silently acquiesced in the assertions of the father. * ♦ * Had there been ever any agreement, expressed or implied, that there should be a partnership, they, as parties to it, must have been aware of it. If not expressed in words, there must have been at least the mental intention and tacit understanding on the part of the father that they should be admitted as partners, and on their part to assume the benefits and liabilities of partners, and this could not be without their knowledge. Others might be deceived by appearances. Others, ignorant of the customs and traditions of their forefathers, which are so fondly cherished by emigrants from the old country, and particularly from Scotland, might draw erroneous conclusions as to the true relation existing between them as a family, by seeing men in middle life zealously bending their energies under the guidance of their father to the promotion of the success of the business. Whoever should apply customs prevalent among native Americans to this state of facts would unhesitatingly conclude that all were in partnership. And so, no doubt, many were deceived ; nor was it deemed neces- sary by any of the parties, on all occasions, to undeceive them by a full explanation of this family arrangement. But the question here is, what was the actual fact? and not what observers supposed was the fact from appearances. It is the internal truth we are seeking, and these external appearances are only im- portant as they may enable us to arrive at this truth ; and when we so find the truth by indubitable proof in a diflferent direction than that indicated by these external appearances, then these must go for naught. Here we have the positive testimony of every living man who 10 WHAT CONSTITUTES A PARTNERSHIP has the absolute knowledge of the facts, including the complainant himself, all testifying most unqualifiedly that there was no partner- ship. * * * Decree is reversed, and the bill dismissed. IIL Partnership by Operation of Law — Partnership as to Third Parties ' GRACE V. SMITH. (Court of Common Pleas, 1775. 2 W. Bl. 998.) De Grey, C. J., reported : That this was an action brought against Smith alone as a secret partner with one Robinson (vide Abbot and Smith), to whom the goods were delivered, and who became bank- rupt in 1770. That on the 30th of March, 1767, Smith and Robinson entered into partnership for seven years, but in the November after- wards, some disputes arising, they agreed to dissolve the partnership. The articles were not canceled, but the dissolution was open and no- torious, and was notified to the public on the 17th of November, 1767. The terms of the dissolution were that all the stock in trade and debts due to the partnership should be carried to the account of Robinson only ; that Smith was to have back £4,200, which he brought into the trade, and il,000 for the profits then accrued since the com- mencement of the partnership; that Smith was to lend Robinson £4,- 000, part of this £5,200, or let it remain in his hands for seven years, at 5 per cent, interest and an annuity of £300 per annum for the same seven years — for all of which Robinson gave bond to Smith. In June, 1768, Robinson advanced to Smith £600 for two years' payment of the annuity and other sums by way of interest and gratuities, and other large sums at different times, to enable him to pay the partnership debts; Smith having agreed to receive all that was due to the part- nership, and to pay its debts, but at the hazard of Robinson. That on the 1st of August, 1768, the demands of Smith were all liquidated and consolidated into one, viz., £5,200 due to him on the dissolution of the partnership, £1,500 for the remaining five years of the annuity, and £300 for Smith's share of a ship, in all, £7,000, for which Robinson gave a bond to Smith. That on the 22d of August, 1769, an assign- ment was made of all Robinson's effects to secure the balance then due to Smith, which was stated to be £10,000. Soon after the commission was awarded. 7 For a discussion of principles, see Gilmore on Partnership, §§ 4-6. AS TO XniRD PARTIES 11 Davy, for the plaintiff, insisted that the agreement between Rob- inson and Smith was either a secret continuance of the old partner- ship or a secret commencement of a new one, being for the retiring partner to leave his money in the visible partner's hands, in order to carry on his trade, and to receive for it 12\<2 per cent, profit, which could not fairly be done, unless it be understood to arise from the prof- its of the trade, and that he ought therefore to be considered as a se- cret partner; and he relied much on a case of Bloxham and Fourdri- nier v. Pell and Brooke, tried at the same sittings (7th of March 1TT5), before Lord Mansfield in the King's Bench, as in point. "This was also a partnership for seven years between Brooke and Pell, but at the end of one year agreed to be dissolved, but no express dissolution was had. The agreement recited that, Brooke being desirous to have the profits of the trade to himself and Pell being desirous to relinquish his right to the trade and profits, it was agreed that Brooke should give Pell a bond for i2,4S5, which Pell had brought into the trade, with interest at 5 per cent., which was accordingly done. And it was further agreed that Brooke should pay to Pell £200 per annum for six years, if Brooke so long lived, as in lieu of the profits of the trade; and Brooke covenants that Pell should have free liberty to inspect his books. Brooke became a bankrupt before anything was paid to Pell. And, this action being brought for a debt incurred by Brooke in the course of trade, Lord Mansfield held that Pell was a secret partner. This was a device to make more than legal interest of mon- ey, and, if it was not a partnership, it was a crime. And it shall not lie in the defendant Pell's mouth to say: 'It is usury, and not a part- nership.' " Grose and Adair, for the defendant, argued that the present case is very distinguishable from that of Bloxham v. Pell. Pell was to be paid out of the profits of the trade, as appears from the cove- nant to inspect the books, which else would be useless. His annuity was expressly given as and in lieu of those profits. It was contingent in another view, as it depended on the life of Brooke, by whom those profits were to be made. In our case the annuity is certain, not casual. It does not depend on carrying on the trade, nor to cease when that is left oflF, but is due out of the estate of Robinson. It is not a necessary dilemma, but it must be either usury or partnership. It may be, and probably was, a premium for the good will of the trade. Two thousand guineas is no uncommon price for turning over the profits of a trade so beneficial that it appears to have been rated at £1,000 to each partner in the space of less than eight months. Aiid whether that sum is agreed to be paid at once, or by seven installments, it is the same thing. Besides, whether there be or be not a secret constructive partnership is a question proper for a jury, who have de- cided it on consideration of all the circumstances. Dii Gricy, C, J. The only question is, what constitutes a secret part- ner? Every man who has a share of the profits of a trade ought al- so to bear his share of the loss. And if any one takes part of the prof- 12 WHAT CONSTITUTES A PARTNERSHIP it, he takes a part of that fund on which the creditor of the trader rehes for his payment. If any one advances or lends money to a trader, it is only lent on his general personal security. It is no spe- cific lien upon the profits of the trade, and yet the lender is generally interested in those profits. He relies on them for repayment. And there is no difference whether that money be lent de novo or left be- hind in trade by one of the partners, who retires. And whether the terms of that loan be kind or harsh makes also no manner of differ- ence. I think the true criterion is to inquire whether Smith agreed to share the profits of the trade with Robinson, or whether he only re-^ lied on those profits as a fund of payment; a distinction not more nice than usually occurs in questions of trade or usury. The jury have said this is not payable out of the profits; and I think there is no foundation for granting a new trial. Gould, Blackstone, and Nares, JJ., concurred.' Rule discharged. WAUGH V. CARVER et al. (Court of Common Pleas, 1793. 2 H. Bl. 235.) Assumpsit by Waugh against Erasmus Carver, William Carver, and Archibald Giesler, as partners, for goods sold and delivered by the plaintiff to Giesler at his agency at Cowes. The Carvers denied a partnership with Giesler. Verdict for plaintiff, subject to the opinion of the court on a case stated. The Carvers were engaged in the business of shipping agents at Gos- port, and Giesler was engaged in a similar business at Plymouth. These parties entered into a written agreement in substance as fol- lows : The said Giesler will remove from Plymouth and establish him- self at Cowes for the purpose of carrying on a house there in the agency line on his own account; but, in consequence of the assistance and recommendations which the Carvers have agreed to render in support of the agency at Cowes, Giesler agrees to pay to the Carvers one-half of the commission or agency to be received on all the ships or vessels as may arrive or put into the port at Cowes, or remain in the road to the westward thereof, of which the said Giesler may pro- cure the address, and likewise one-half of the discount on the bills of several tradesmen employed in the repairs of such ships or vessels. Gies- ler will also consult and advise with the Carvers respecting ships or ves- sels, and pursue such measures as may be for the best interest of all concerned, and will facilitate the procuring by the Carvers of ware- house facilities at Cowes. And the said Carvers, for the considera- tions hereinbefore mentioned, agree to pay to Giesler three-fifths of 8 Concurring opinion of Blaclistone, J., is omitted. AS TO THIRD PARTIES 13 the commissions to be received by them on account of certain vessels proceeding from Cowes to Portsmouth and vessels stopping at Ports- mouth, and 11/2 per cent, on the amount of bills of tradesmen em- ployed in the repairs of such vessels, and certain percentage of charg- es received for warehouse facilities furnished by the Carvers to ves- sels unloading at Cowes; and also the said Carvers and Giesler will meet yearly for the purpose of examining and settling their accounts concerning the commission business, and that such party from whom the balance shall then appear to be due shall pay the same to the other party on such settlement. And it is hereby likewise covenanted, declared, and agreed, by and between the said Erasmus Carver and William Carver and the said Archibald Giesler, that each party shall separately run the risk of and sustain all such loss and losses as may happen on the advance of mon- eys in respect of any ships or vessels under the immediate care of ei- ther of the said parties, respectively; it being the true intent and meaning of these presents, and of the parties hereunto, that neither of them, the said Erasmus Carver and William Carver and Archibald Giesler shall, at any time or limes during the continuance of this agree- ment, be in any wise injured, prejudiced, or affected by any loss or losses that may happen to the other of them, or that either of them shall in any degree be answerable or accountable for the acts, deeds, or receipts of the other of them, but that each of them, the said Eras- mus Carver and William Carver and Archibald Giesler, shall, in his own person and with his own goods and effects, respectively be an- swerable and accountable for his losses, acts, deeds, and receipts. And it is hereby further covenanted, declared, and agreed by and between the said Erasmus Carver and William Carver and Archibald Giesler that these presents do not, nor shall be construed to, mean to extend to such ships or vessels that may come to the address of ei- ther of the said parties, respectively, for the purpose of loading or delivering any goods, wares, or merchandise ; it being the true intent and meaning of these presents, and the parties hereunto, that the fore- going articles shall not, nor shall be construed to, bear reference to their particular or separate mercantile concerns or connections.* Lord Chief Justice Evre. This case has been extremely well ar- gued, and the discussion of it has enabled me to make up my mind, and removed the only difficulty I felt, which was whether, by constru- ing this to be a partnership, we should not determine that if there was an annuity granted out of a banking house to the widow, for in- stance, of a deceased partner, it would make her liable to the debts of the house and involve her in a bankruptcy. But I think this case will not lead to that consequence. The definition of a partnership cited from PufTendorf is good as between the parties themselves, but not with respect to the world at large. If the question were between A. and B. whether they were » Statement of facts Is rewritten. 14 WHAT CONSTITUTES A PARTNERSHIP partners or not, it would be very well to inquire whether they had contributed, and in what proportions, stock, or labor, and on what agreements they were to divide the profits of that contribution. But in all these cases a very different question arises, in which the defini- tion is of little service. The question is, generally, not between the parties as to what shares they shall divide, but respecting creditors claiming a satisfaction out of the funds of a particular house, who shall be deemed liable in regard to these funds. Now, a case may be stated in which it is the clear sense of the parties to the contract that they shall not be partners ; that A. is to contribute neither labor nor money, and, to go still further, not to receive any profits. But, if he will lend his name as a partner, he becomes, as against all the rest of the world, a partner, not upon the ground of the real transaction be- tween them, but upon principles of general policy, to prevent the frauds to which creditors would be liable if they were to suppose that they lent their money upon the apparent credit of three or four persons, when in fact they lent it only to two of them, to whom, without the others, they would have lent nothing. The argument gone into, how- ever proper for the discussion of the question, is irrelevant to a great part of the case. Whether these persons were to interfere more or less with their advice and directions, and many small parts of the agreement, I lay entirely out of the case, because it is plain upon the construction of the agreement, if it be construed only between the Carvers and Giesler, that they were not, nor ever meant to be part- ners. They meant each house to carry on trade without risk of each other, and to be at their own loss. Though there was a certain degree of control at one house, it was without an idea that either was to be involved in the consequences of the failure of the other, and without understanding themselves responsible for any circumstances that might happen to the loss of either. That was the argecment between themselves. But the question is whether they have not, by parts of their agreement, constituted themselves partners in respect to .other persons. The case, therefore, is reduced to the single point whether the Carvers did not entitle themselves, and did not mean, to take a moiety of the profits of Giesler's house, generally and indefinitely as they should arise, at certain times agreed upon for the settlement of their accounts. That they have so done is clear upon the face of the agreement ; and upon the authority of Grace v. Smith he who takes a moiety of all the profits indefinitely shall, by operation of law, be made liable to losses, if losses arise, upon the principle that, by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts. That was the foundation of the decision in Grace v. Smith, and I think it stands upon the fair ground of reason. I cannot agree that this was a mere agency in the sense contended for on the part of the defendants, for there was a risk of profit and loss. A ship agent employs tradesmen to furnish necessaries for the ship. He AS TO THIKD PARTIES 13- contracts with them and is liable to them. He also makes out their bills in such a way as to determine the charge of commission to the shipowners. With respect to the commission, indeed, he may be con- sidered as a mere agent; but as to the agency itself he is as much a trader as any other man, and there is as much risk of profit and loss, to the person with whom he contracts, in the transactiijns with him, as with any other trader. It is true he will gain nothing but his dis- count ; but that is a profit in the trade, and there may be losses to him, as well as to the owners. If, therefore, the principle be true that he who takes the general profits of a partnership must of necessity be made liable to the losses, in order that he may stand in a just situation with regard to the creditors of the house, then this is a case clear of all difficulty. For though with respect to each other these persons were not to be considered as partners, yet they have made themselves such, with regard to their transactions with the rest of the world. I am therefore of opinion that there ought to be judgment for the plain- tiff. Gould and Heath, JJ., concurred. Rooke, J., gave no opin- ion. 1. Exceptions WILKINSON V. FRASIER. (Court of Common Pleas, 1S03. 4 Esp. 182.) Assumpsit against the defendant, who was the captain of a ship employed) in the southern whale fishery, to recover seamen's wages. The action was brought, and the plaintifif declared on the usual articles for voyages on that fishery, by which the seamen are, by their articles, to receive a certain share of the produce of the cargo in lieu of wages. The plaintiff proved the articles, which were signed by the plaintiflF, as a mariner, and by the defendant as captain ; the sailing of the vessel on the voyage and the plaintiff's service; and that the oil, of which the cargo was composed, had been sold, and produced a certain sum. for the share of which the plaintiff went. These articles stipulated, on the part of the sailors, that they should proceed on the voyage, do their duty, &c. ; and on the part of the captain, that the produce of the voyage should be divided in certain proportions, — viz.. a cer- tain proportion to the owners, a certain proportion to the captain, and the rest to the other oflficers and seamen. The proportion of a com- mon sailor was a one hundred and ninetieth part. Best, Serjt., objected, that the action could not be maintained against the captain, who was the present defendant, because the de- 16 WHAT CONSTITUTES A PARTNERSHIP fendant, as well as the plaintiff, was to be paid out of the profits of the voyage ; that they were therefore partners ; and as one partner could not maintain this action against another, the action was not maintainable. Lord Alvanley said he would not nonsuit the plaintiff on such an objection; that the plaintiff and the other sailors were hired by the defendant and the owners, to serve on board the ship for wages to be paid to him ; and the share was in the nature of wages, unliquidat- ed at the time, but capable of being reduced to a certainty on the sale of the oil, which had taken place ; and that he should not therefore consider them as partners, but as entitled to wages to the extent of their proportion in the produce of the voyage. There was a verdict for the defendant. LEGGETT et al. v. HYDE et al. (Court of Appeals of New York, 1874. 58 N. Y. 272, 17 Am. Rep. 244.) Appeal by defendant George M. Hyde from judgment of the Gen- eral Term of the Supreme Court in the Second Judicial Department, affirming a judgment in favor of plaintiffs entered upon a verdict, and affirming order denying motion for a new trial. This action was brought against defendants, who were alleged to be members of the firm of A. D. Putnam & Co., to recover for goods sold and delivered to that firm. Defendant Hyde denied that he was a partner. At the close of the evidence the counsel for defendant Hyde asked the court to direct a verdict in his favor, which was denied. The court, upon re- quest of plaintiffs' counsel, directed a verdict in favor of plaintiffs, to which defendant's counsel excepted. A verdict was rendered accord- ingly. FoLGER, J." At the trial each party asked the court to direct a ver- dict in his favor. Each thereby conceded that there could be no dis- pute upon any question of fact. Each thereby conceded that there was left for decision only a question of law, and that it arose upon a settled and uncontradicted state of facts. Taking the view of the testimony the most favorable for the appel- lant, the facts are these: In 18G9 one Putnam and one Henneberger were partners in business, under the firm name of A. D. Putnam & Co. In that year the appellant invested or deposited with that firm $1,500. This sum was credited on its books to Fredk. Hyde, the son of the appellant. For this sum the appellant was to share in the profits of the business of the firm. His share was to be one-third, and de- mandable by him at the end of the year. At the end of the year his share of the profits was $500. This sum was also placed to the credit 10 Part of the opinion is omitted and the statement of facts abridged. AS TO THIRD PARTIES 17 of Fredk. Hyde. Then, in 1870, the appellant loaned to the firm for one year the original sum of $1,500 and the $500 of profits, thus mak- ing $2,000. In the consideration of this loan the firm agreed to hire Fredk. Hyde as clerk, at $10 per week, for the year ; to pay the ap- pellant one-third of the profits, which were to be settled half-yearly; and, at the end of the year, to take him in as a partner, if the firm and he should feel satisfied, on his making further investments and putting in more capital. Though it is nowhere in the testimony so stated in terms, yet it is fairly to be inferred that the $2,000 was loaned to be used in the business, and that if at the end of the year the appellant did not become an ostensible partner he was to be repaid, out of the concern, the $2,000, but without interest, strictly as such. The appel- lant never interfered in the affairs of the concern, nor exercised any control in the business. At the end of the first six months there were no profits of the business. The appellant never received anything for his $2,000, nor anything by way of interest money. The prominent and important facts are that he loaned the firm a sum of money to be employed as capital in its business, and that there- for he was entitled to have and demand from it one-third of the prof- its of its business every half year. In my judgment there results from this that Putnam and Henneberger, making use of that money as capital in that business, used it there for the benefit of the appellant, because any return to him, for the loan to them, must come from the use of it. If not used so that profits were made, he got no return. Further: That he had an interest in the profits, which, while they were anticipatory, was indefinite as to amount, but, when they were realized, was measured and specific as to share. Further: That his interest in them was in them as profits: that is, that he had a right on the lapse of every six months, though having no property in the whole capital, to have an account taken of the business, and a division made of the profits then appearing. Ex parte Hamper, 17 Vesey, 403. So it is said in Everett v. Coe, 5 Denio, 182 : "If he is to be paid out of profits made, then he has a direct interest in them. And see Ogden v. Astor, 4 Sandf. 321, 322. That he had this right to an account and a division at other time than at the end of each six months, if at any other time the exigencies of the concern, as the dissolution of the firm by death of one partner, or other reason, required an ac- count to be taken. He had that interest in the profits, as profits, be- cause he could claim a share of them specifically, as they should ap- pear on each six months, or other accounting of the business of the term then ended, and could then have and demand payment of his share. By the terms of his contract with the firm, if it be upheld as made, he was interested in and ailccted by the results only of Uie year, as ascertained at the end of each six months. It would not afi'ect him in the right to account, though the business of a previous year had been disastrous. If either six months' business should Gilm.Pari. — 2 18 WHAT CONSTITUTES A PARTNERSHIP yield a profit, he could insist on payment to him of one-third thereof, and could demand that an account be had of the business of any six months to ascertain if there had been profit. It was one-third of the profits that he was to have, and not a sum in general equal to that one-third. So that he was to take it as profits, and not as an amount due; not as a measure of compensation, but as a result of the cap- ital and industry. The learned counsel for the appellant states the question of law to be this : Does a loan of money, with an agreement for compensa- tion from the profits of the business, per se constitute the lender a partner quoad the creditors of the firm? Is this statement of it cor- rect? Does the phrase "compensation from the profits" fully meet case? Does it fully present the fact that by the agreement the ap- pellant obtains an interest in the profits as such, and a right to in- sist upon an accounting, and a division thereof half-yearly? With this supplement, the question for decision is as stated by him. I am not to say what I think ought to be the answer to it, was this a case of first impression. I am to declare what I ascertain to be the answer already given by the law in this state, as it has been settled and declared by the authorities. The argument of the learned coun- sel is very ingenious, and very forcible when considered in refer- ence to what should be the proper rule, and what the true reasons upon which a rule should be founded. Yet, if it is found that by a long course of decisions, or by long acquiescence in and adherence to, a rule some time ago authoritatively promulgated, there has been established a principle of commercial law upon which the community has acted, it is the duty of the courts to adhere thereto, leaving it to the lawmaking power to find a remedy, if remedy be needed, in a positive alterative enactment. In England this had been done, and by an act of Parliament an important change has been made. St. 28 & 29 Vict. c. 86. In the first place, it matters not that the defendants meant not to be partners at all, and were not partners inter sese. They may be partners as to third persons notwithstanding. Manhattan Brass Co. V. Sears, 45 N. Y. 797, 6 Am. Rep. 177. And this effect may result, though they should have taken pains to stipulate among themselves that they will not, in any event, hold the relation of partners. Among the reasons given is this, whether it be strong or weak : That what- ever person shares in the profits of any concern shall be liable to creditors for losses also, since he takes a part of the fund, which in great measure is the creditors' security for the payment of the debts to them. Waugh v. Carver, 2 H. Bl. 235, citing Grace v. Smith, 2 W, Bl. 998. The doctrine took its rise in the decisions in these cases. And commenting upon them, the text-writers, who have presented most forcible criticisms upon it, say: "The principle laid down by De Grey, C. J., in Grace v. Smith, has served as the foundation of AS TO THIRD PARTIES 19 a long line of decisions which cannot now be overruled by any au- thority short of that of the Legislature. ♦ ♦ ♦ And in all cases in which there is no incorporation, nor limited liability, it must still be regarded as binding on the courts." Lindley on Part. ♦3G. "The doctrine is completely established upon the very ground asserted in Grace v. Smith." Story on Part. § 36, note 3. And so Mr. T. Par- sons, in his book on Partnership, quoting Lord Eldon, Ex parte Hamper: "But if he has a specific interest in the profits themselves, as profits, he is a partner" — adds: "Undoubtedly he is. Every prin- ciple of the law of partnership leads to this conclusion." He con- tends, however, that the specific interest in profits which is to make a person a partner must be a proprietary interest in them, existing before the division of them into shares. See, also, 3 Kent's Commen- taries, *25, note "b," where it is said: "The test of partnership is a community of profit; a specific interest in the profits, as profits, in contradistinction to a stipulated portion of the profits as a com- pensation for services." The courts of this state have always ad- hered to this doctrine and applied or recognized it in the cases com- ing before them. * * * It is not too much to say, that the limited partnership act, 1 Rev. St. (1st Ed.) p. 764, pt. 2, c. 4, tit. 1, is a legislative and practical recognition of this rule of commercial law. Indeed, if it shall be held that such a contract as that of the appellant does not make him a partner as to third persons, there is little or no need of that act. The situation of the special partner is more onerous than that of the appellant under such a ruling. The first may lose his capital invested, as well as profits, by the same being absorbed in the pay- ment to creditors. The latter may lose his anticipated compensation for his money loaned ; but his position is quite as favorable to him as that occupied by creditors for the recovery of his money advanced. Neither may interfere, to transact business, or to sign for the firm, or to bind the same. Both may advise as to the management. Both may examine into the state and progress of the partnership concerns — the special partner, from time to time; the appellant, at the end of every six months. In one respect the special partner is better placed. He may stipulate for legal interest on his capital invested, as well as for a portion of the profits. The appellant, if he bargained for profits in addition to interest, might be in conflict with the usury act. It is evident that most of the conveniences and advantages of the limited partnership act, and some which it does not give, might be obtained by a loan of money, with a stipulation for compensation for its use by a share of the profits, if thereby a partnership is not created as to third persons. This is not decisive as to what the law is ; but it is strongly indicative of the view of the law held by the revisers and by the Legislature. There have been from time to time certain exceptions established to this rule in a broad statement of it; but the decisions by which 20 WHAT CONSTITUTES A PARTNERSHIP these exceptions have been set up still recognize the rule that, where one is interested in profits as such, he is a partner as to third persons. These exceptions deal with the case of an agent, servant, factor, broker, or employe, who, with no interest in the capital or business, is to be remunerated for his services by a compensation from the profits, or by a compensation measured by the profits ; or with that of seamen, on whaling or other like voyages, whose reimbursement for their time and labor is to finally depend upon the result of the whole voyage. There are other exceptions, like tenants of land, or a ferry, or an inn, who are to share with the owners in results, as a means of compensation for their labor and services. The decisions which establish these exceptions do not profess to abrogate the rule — only to limit it. It is claimed by the learned counsel for the appellant that the rule as announced in Grace v. Smith and Waiigh v. Carver has been ex- ploded, and another rule propounded which shields the appellant. He is correct so far as the courts in England are concerned. Cox v. Hickman, 8 H. of L. C. 268, 9 C. B. N. S. (99 E. C. L.) 47, and Bul- len v. Sharp, L. R. 1 Com. PI. 86, affirm that while a participation in the profits is cogent evidence that the trade in which the profits were made was carried on in part for or in behalf of the person claim- ing the right to participate, yet that the true ground of liability is that it has been carried on by persons acting in his behalf. Those cases were very peculiar in their circumstances. After the judg- ments rendered in them, the Parliament deemed it needful to enact that the advance of money by way of loan to a person in trade for a share of the profits should not, of itself, make the lender responsible as a partner. St. 28 & 29 Vict. c. 86, as cited in Parsons on Partri. *92, note "t." If the decisions in the cases cited went as far as is claimed, it would seem that the act was supererogatory. It is sug- gested, however, by Kelly, C. B., in Holme v. Hammond, L. R. 7 Exch. 218, that the effect of the statute is that the sharing in the profits by a lender shall be no evidence at all of a partnership. At all events, those decisions have been accepted in England as settling the rule as above stated. See case last cited and cases therein refer- red to. Without discussing those decisions and determining just how far they reach, it is sufficient to say that they are not controlling here, that the rule remains in this state as it has long been, and that we should be governed by it until here, as in England, the Legislature shall see fit to abrogate it. The references upon the appellant's points do not show that the courts of this state have yet exploded the rule I have stated. I have consulted all the authorities cited (save a few of which I had not the books, or as to which there was a miscitation), and I do not find that the rule is questioned, further than to apply to the facts of the AS TO THIRD PARTIES 21 particular case some one or more of the exceptions to the rule which I have stated to exist. I am of the opinion that the judgment appealed from should be affirmed, with costs. Church, C. J., dissents. IV. Doctrine of Partnership as to Third Parties OverthrowTi " COX AND WHEATCROFT v. HICKMAN. (House of Lords, ISCO. 8 H. L. Cas. 268.) B. and J. T. Smith, as partners under the name of B. Smith & Son, were engaged in business as iron masters and corn merchants. Becoming financially embarrassed, a meeting of creditors was held and a deed of assignment executed by the Smiths, as parties of the first part, certain of the creditors, as trustees, of the second part, and the general scheduled creditors, among whom were the trustees, of the third part. The deed assigned the property of the partnership to trustees, and empowered them to carry on the business under the name of the Stanton Iron Company; to execute all contracts and in- struments necessary to carry it on; to divide the net income derived among the creditors ratably (such income to be deemed the property of the assignors), with the power to the majority of the creditors, assembled at a meeting; to make rules for conducting the business, or to put an end to it altogether; and, after the debts had been dis- charged, the property was to be reconveyed to the Smiths. Cox and Wheatcroft were named among the trustees. Cox never acted. Wheatcroft, after acting for six months, resigned. Afterwards the other trustees, who continued the business, became indebted to Hick- man for goods supplied to the company, and gave him bills of ex- change, accepted by themselves: "Per proc. The Stanton Iron Com- pany." This was an action on the bills of exchange thus given. The cause was tried in 1856, before the late Lord Chief Justice Jervis, when a verdict was found for the defendants; but on motion on leave reserved the verdict was entered for the plaintiff. 18 C. B. 617. The case was taken to the Exchequer Chamber, when three judges (Justices Coleridge, Erie, and Crompton) were for affirming the judgment of the Common Pleas, and three other judges (Barons Martin, Bramwell, and Watson) were for reversing it. 3 C. B. (N. S.) 523. The judgment, therefore, stood, and was afterwards brought up to this House. 11 For a discussion of principles, see Gilmore on Partnership, § 7. 22 WHAT CONSTITUTES A PARTNERSHIP The judges were summoned, and Lord Chief Baron Pollock, Mr. Justice Wightman, Mr. Justice Williams, Mr, Justice Crompton, Mr. Baron Channell, and Mr. Justice Blackburn, attended. [The opinions of the judges summoned are omitted.] Lord Cranworth.^^ In this case the judges in the Court of Exche- quer Chamber were equally divided, and unfortunately the same dif- ference of opinion has existed among the learned judges who attend- ed this House during the argument at your Lordships' bar. Except, therefore, from an examination of the grounds on which their opin- ions are founded, we can derive no benefit in this case from their as- sistance. We cannot say that in the opinions delivered in this House there is more authority in favor of one view of the case than of the other. We must not, however, infer that your Lordships have not derived material aid from the opinions expressed by the judges. These opinions have stated the arguments on the one side and the other with great clearness and force, and what we have to do now is to decide between them. In the first place let me say that I concur with those of the learned judges who are of opinion that no solid distinction exists between the liability of either defendant in an action on the bills and in an action for goods sold and delivered. If he would have been liable in an action for goods sold and delivered, it must be because those who were in fact carrying on the business of the Stanton Iron Company were car- rying it on as his partners or agents ; and, as the bills were accepted, according to the usual course of business, for ore supplied by the plaintifif, I cannot doubt that, if the trade was carried on by those who managed it as partners or agents of the defendant, he must be just as liable on the bills as he would have been in an action for the price of the goods supplied. His partners or agents would have the same authority to accept bills in the ordinary course of trade as to purchase goods on credit. The liability of one partner for the acts of his copartner is in truth the liability of a principal for the acts of his agent. Where two or more persons are engaged as partners in an ordinary trade, each of them has an implied authority from the others to bind all by contracts entered into according to the usual course of business in that trade. Every partner in trade is, for the ordinary purposes of the trade, the agent of his copartners, and all are therefore liable for the or- dinary trade contracts of the others. Partners may stipulate among themselves that some one of them only shall enter into particular con- tracts, or into any contracts, or that as to certain of their contracts none shall be liable except those by whom they are actually made; but with such private arrangements third persons, dealing with the firm without notice, have no concern. The public have a right to assume that every partner has authority from his copartner to bind »« Part of the opinion of Lord Cranworth and all of the opinion of Lord Wensleydale are omitted and the statement of facts is rewritten. A8 TO THIRD PARTIES 23 the whole firm in contracts made according to the ordinary usages of trade. This principle applies, not only to persons acting openly and avow- edly as partners, but to others who, though not so acting, are by se- cret or private agreement partners with those uho appear ostensibly to the world as the persons carrying on the business. In the case now before the House, the Court of Common Pleas de- cided in favor of the respondent that the appellant, by his execution of the deed of arrangement, became, together with the other creditors who executed it, a partner with those who conducted the business of the Stanton Iron Company. The judges in the Court of Exchequer Chamber were equally divided, so that the judgment of the Court of Common Pleas was affirmed. The sole question for adjudication by your Lordships is whether this judgment thus affirmed was right. I do not propose to consider in detail all the provisions of the deed. I think it sufficient to state them generally. In the first place there is an assignment by Messrs. Smith to certain trustees of the mines and all tlie engines and machinery used for working them, together with all the stock in trade, and in fact all their property, upon trust to carry on the business and, after paying its expenses, to divide the net income ratably amongst the creditors of Messrs. Smith, as often as there shall be funds in hand sufficient to pay one shilling in the pound, and, after all the creditors are satisfied, then in trust for Messrs. Smith. Up to this point the creditors, though they executed the deed, are merely passive; and the first question is, what would have been the consequence to them of their executing the deed if the trusts had ended there? Would they have become partners in the concern carried on by the trustees merely because they passively assented to its being carried on upon the terms that the net income — i. e., the net profits — should be applied in discharge of their demands? I think not. It was argued that, as they would be interested in the profits, therefore they would be partners. But this is a fallacy. It is often said that the test, or one of the tests, whether a person not ostensibly a partner is nevertheless in contemplation of law a partner is whether he is entitled to participate in the profits. This, no doubt, is in gen- eral 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. But the real ground of the liability is that the trade has been carried on by persons acting on his behalf. When that is the case, he is Uable to the trade obligations, and entitled to its profits, or to a share of them. It is not strictly correct to say that his ri^ht to share in the profits makes him liable to the debts of the trade. The correct mode of stating the proposition is to say that the same thing which entitles him to the one makes him liable to the other, namely, the fact that the trade has been carried on on 24 WHAT CONSTITUTES A PARTNERSHIP his behalf; i. e., that he stood in the relation of principal towards the persons acting ostensibly as the traders by whom the liabilities have been incurred, and under whose management the profits have been made. Taking this to be the ground of liability as a partner, it seems to me to follow that the mere concurrence of creditors in an arrange- ment under which they permit their debtor, or trustees for their debtor, to continue his trade, applying the profits in discharge of their de- mands, does not make them partners with their debtors or the trustees. The debtor is still the person solely interested in the profits, save only that he has mortgaged them to his creditors. He receives the benefit of the profits as they accrue, though he has precluded himself from applying them to any other purpose than the discharge of his debts. The trade is not carried on by or on account of the creditors, though their consent is necessary in such a case, for without it all the prop- erty might be seized by them in execution. But the trade still remains the trade of the debtor or his trustees. The debtor or the trustees are the persons by or on behalf of whom it is carried on, I have hitherto considered the case as it would have stood if the creditors had been merely passively assenting parties to the carrying on of the trade, on the terms that the profits should be applied in liq- uidation of their demands. But I am aware that in this deed special powers are given to the creditors, which, it was said, showed that they had become partners, even if that had not been the consequence of their concurrence in the previous trust. The powers may be de- scribed briefly as, first, a power of determining by a majority in value of their body that the trade should be discontinued, or, if not discon- tinued, then, secondly, a power of making rules and orders as to its conduct and management. These powers do not appear to me to alter the case. The creditors might, by process of law, have obtained possession of the whole prop- erty. By the earlier provisions of the deed they consented to abandon that right, and to allow the trade to be carried on by the trustees. The effect of these powers is only to qualify their consent. They stipulate for a right to withdraw it altogether, or, if not, then to im- pose terms as to the mode in which the trusts to which they had agreed should be executed. I do not think that this alters the legal condition of the creditors. The trade did not become a trade carried on for them as principals, because they might have insisted on taking possession of the stock, and so compelling the abandonment of the trade, or be- cause they might have prescribed terms on which alone it should be continued. Any trustee might have refused to act if he considered the terms prescribed by the auditors to be objectionable. Suppose the deed had stipulated, not that the creditors might order the discontin- uance of the trade, or impose terms as to its management, but that some third person might do so, if, on inspecting the accounts, he should deem it advisable. It could not be contended that this would make TESTS OF INTENTION — IN GENERAL 25 the creditors partners, if they were not so already; and I can see no difference between stipulating for such a power to be reserved to a third person and reserving it to themselves. I have, on these grounds, come to the conclusion that the creditors did not, by executing this deed, make themselves partners in the Stan- ton Iron Company, and I must add that a. contrary decision would be much to be deprecated. Deeds of arrangement, like that now be- fore us, are, I believe, of frequent occurrence; and it is impossible to imagine that creditors who execute them have any notion that by so doing they are making themselves liable as partners. This would be no reason for holding them not to be liable, if, on strict principles of mercantile law, they are so; but the very fact that such deeds are so common, and that no such liability is supposed to attach to them affords some argument in favour of the appellant. The deed now before us was executed by above a hundred joint creditors; and a mere glance at their names is sufficient to show that there was no intention on their part of doing anything which should involve them in the obligations of a partnership. I do not rely on this; but, at least, it shows the general opinion of the mercantile world on the sub- ject. I may remark that one of the creditors, I see, is the Midland Railway Company, which is a creditor for a sum only of £39, and to suppose that the directors could imagine that they were making them- selves partners is absurd. The authorities cited in argument did not throw much light upon the subject. I can find no case in which a person has been made liable as a dormant or sleeping partner, where the trade might not fairly be said to have been carried on for him, together with those ostensibly conducting it, and when, therefore, he w^ould stand in the position of principal towards the ostensible members of the firm as his agents. This was certainly the case in Waugh v. Carver, 2 H. Bl. 235. * * * None of the other cases cited carried the doctrine farther than those I have referred to, and I therefore think that in this case the judgment appealed against ought to be reversed. V. Tests of Intention — In General ^' BEECHER et al. v. BUSH et al (Supreme Court of Michigan, 18S1. 45 Mich. 1S8, 7 N. W. 785. 40 Am. Rep. 4Gj.) CooLEY, J.^* The purpose of the action in the court below was to charge Beecher as partner with Williams for a bill of supplies pur- 18 For a discussion of principles, see Gllmore on Partnership, § 8. 14 Part of the opinion Is omitted. 26 WHAT CONSTITUTES A PARTNERSHIP chased for the Biddle House in Detroit. Beecher was owner of the Biddle House, and Williams proposed in writing- to "hire the use" of it from day to day, and open and keep it as a hotel. Beecher ac- cepted his proposals and Williams went into the house and began business, and in the course of the business made this purchase. The proposals are set out in full in the special verdict. The question is whether by accepting the proposals Beecher made himself a partner with Williams in the hotel business; and this is to be determined on the face of the writing itself. It is conceded that Beecher was never held out to the public as a partner, and that the bill of supplies was purchased on the sole credit of Williams and charged to him on the books of the plaintiffs below. The case, therefore, is in no way embarrassed by any questions of estoppel, for Beecher has done nothing and suffered nothing to be done which can preclude him from standing upon his exact legal rights as the contract fixed them. Nor do we understand it to be claimed that the parties intended to form a partnership in the hotel business, or that they supposed they had done so, or that either has ever claimed as against the other the rights of a partner. It is perfectly clear that many things which are commonly incident to a partnership these parties meant should be wholly excluded from their arrangement. Some of these were of primary importance. It is plain, for example, that Beecher did not understand that his credit was to be in any way involved in the busi- ness, or that he was to have any interest in the supplies that should be bought, or any privilege to decide upon them, or any legal control whatever until proceeds were to be divided, or any liability to losses if losses were suffered. These are among the common incidents to a partnership; and while some of them, and possibly all of them, may not be necessary incidents, yet the absence of all is very conclusive that the parties had no purpose whatever to form a partnership, or to give to each other the rights and powers, and subject each other to the obligations of partners. In general this should be conclusive. If parties intend no partnership the courts should give effect to their intent unless somebody has been deceived by their acting or assuming to act as partners; and any such case must stand upon its peculiar facts and upon special equities. ♦ * * We have then a case in which the party it is sought to charge has not held himself out, or suffered himself to be held out as a partner either to the public at large or to the plaintiff, and has not intended to form that relation. He is not therefore a partner by estoppel nor by intent; and if he is one at all, it must be by construction of law. What, then, are the indicia of partnership in this case — the marks which force that construction upon the court irrespective of the in- tent of the parties, that in fact control their intent and give to the parties bringing suit rights which they were not aware of when they sold the supplies? In the elaborate and able brief which has been presented in behalf of the defendants in error it is conceded that the fact that Beecher was to receive each day a sum "equal to one- TESTS OF INTENTION — IN GENERAL 27 third of the gross receipts and gross earninc^s" for the day would not necessarily make him a partner. What is claimed is that the fact is "cogent evidence" that Beccher was to participate in the results of the business in a manner that indicated he was a principal in it, and was not receiving compensation for the use of property merely. The view of the law here suggested is undoubtedly correct. There may be a participation in the gross returns that would make the receiver a partner, and there may be one that would not. The question is in what capacity is participation had. Gross returns are not profits and may be large when there are no profits, but it cannot be predicated of either gross returns or profits that the right to participate is con- clusive evidence of partnership. This is settled law both in England and in this country at this time, as is fully shown by the authorities cited for the defendants in error. It was recognized in Hinman v. Littell, 23 Mich. 484; and in New York, where the doctrine that partic- ipation in profits proves partnership has been adhered to most close- ly, it is admitted there are exceptions. Eager v. Crawford, 76 N. Y. 97. But we quite agree with counsel for defendants in error that no case ought to turn upon the unimportant and mere verbal distinction between the statement in the papers that Beecher was to have a sum "equal to" one-third of the gross receipts and gross earnings, and a statement that he was to have one-third of these receipts and earn- ings. It is perfectly manifest it was intended he should have one-third of them; that they should be apportional to him regularly and daily, and not that Williams was to appropriate the whole and pay a sum "equal to" Beecher's proportion when it should be convenient. We can conceive of cases where the difference in phraseology might be important, because it might give some insight into the real intent and purpose of the parties, and throw light upon the question whether that which was to be received, was to be received as partner or only by way of compensation for something supplied to the other, but the intent in this case is too manifest to be put aside by any mere ingenuity in the use of words. Loomis v. Marsliall, 12 Conn. 69, 79, 30 Am. Dec. 596. [The court, after examining numerous cases, continues:] It is needless to cite other cases. They cannot all be reconciled, but enough are cited to show that in so far as the notion ever took hold of the judicial mind that the question of partnership or no partnership was to be settled by arbitrary tests it was erroneous and niischievous and the proper correction has been applied. Except when one allows the public or individual dealers to be deceived by the appearances of partnership when none exists, he is never to be charged a«5 a partner un- less by contract and with intent he has formed a relation in which the elements of partnership are to be found. And what are these? At the very least the following: Community of interest in some lawful commerce or business, for the conduct of which the parties eventually are principals of and agents for each other, with general powers with- in the scope of the business, which powers however by agreement be- 28 WHAT CONSTITUTES A PARTNERSHIP tween the parties themselves may be restricted at option, to the ex- tent even of making one the sole agent of the others and of the busi- ness. In this case we have the lawful commerce or business, namely, the keeping of the hotel. We have also in some sense a community of interest in the proceeds of the business, though these are so divided that all the profits and all the losses are to be received and borne by one only. But where in the eventual arrangements does it appear, that either of the parties clothed the other with an agency to act oh his behalf in this business? We speak now of intent merely, and not of any arbitrary implication of intent which the law, according to some authorities, may raise irrespective of and perhaps contrary to the intent. Could Beecher buy for the business a dollar's worth of provisions? Could he hire a porter or a waiter? Could he discharge one? Could he say the house shall be kept for fastidious guests ex- clusively and charges made in proportion to what they demand, or on the other hand that the tables shall be plain and cheap so as to attract a greater number? Could he persist in lighting with gas if Williams chose something different, or reject oil if Williams saw fit to use it? Was a servant in the house at his beck or disposal, or could he turn off a guest that Williams saw fit to receive or receive one that Williams rejected as unfit? In short what one act might he do or au- thority exercise, which properly pertains to the business of keeping ho- tel, except merely the supervision of accounts, and this for the purpose of accounting only? And how could he be principal in a busi- ness over which he had absolutely no control? Nor must we for- get that this is not a case in which powers which might otherwise be supposed to exist are taken away or excluded by express stipu- lation; but they are powers which it is plain from their contract the parties did not suppose would exist, and therefore have not deemed it necessary to exclude. On the other hand, what single act are we warranted in inferring the parties understood Williams was to do for and as the agent of Beecher? Not to furnish supplies surely, for these it was expressly agreed should be furnished by Williams and paid for daily. Not to contract debts for water and gas bills and other running expenses, for by the agreement there were to be no such debts. Nor was this an agreement merely that expenses incurred for both were to be met without the use of credit, but it was expressly provided that they were to be the expenses of one party only, and to be used by him from his own means. There was to be no employment of credit, but it was the credit of Williams alone that was in the minds of the parties. It is difficult to understand how the element of agency could be more perfectly eliminated from their arrangements than it actually was. Beecher furnished the use of the hotel and. a clerk to super- vise the accounts, and received for so doing one-third the gross re- turns. It was not understood that he was to intermeddle in any way TESTS OF INTENTION — IN GENERAL 29 with the conduct of the business so long as WilHams adhered to the terms of the contract. If the business was manajjed badly Beecher mij2:ht be loser, but how could he help himself? He had reserved no right to correct the mistakes of Williams, supply his deficiencies or overrule his judgments. He did indeed agree to take and account for whatever furniture should be brought into the house by Williams, but the bringing any in was voluntary, and so far was Beecher from undertaking to pay to the sellers the purchase price, that on the con- trary the value was to be offset against the deterioration of that which Beecher supplied ; and it was quite possible that, as between himself and Williams, there might be nothing to pay. And while Williams was not compellable to put any in, Beecher, on the other hand, had no authority to put any in at the cost of Williams. It is plain, therefore, that if there is any agency in this case for Beecher to act for Williams, or Williams to act for Beecher, it is an agency implied by law, not only without having expressed a pur- pose that an agency shall exist, but in spite of the plain intent that none shall exist. If therefore we shall say that agency of each to act for the other, or agency of one to act for both in the common business, is to be the test of partnership, or to be one of the tests, but that the law may imply the agency irrespective of the intent, and then imply the partnership from the agency, we see at once that the test disappears from all our calculations. To imply something in order that that something may be the foundation whereupon to erect an implication of something else is a mere absurdity. The test of partnership must be found in the intent of the parties themselves. They may say they intend none when their contract plainly shows the contrary; and in that case the intent shall control the contradictory assertion; but here the intent is plain. We have not overlooked any one of the circumstances which on the argument were pointed out as peculiar to this case. None of them is inconsistent with the intent that Beecher was to be paid for the use of his building and furniture merely. He retained possession ; but a reason for this appears in the power he reserved to terminate the arrangement whenever the contract was broken by Williams. Being in possession, he might suppose he could eject Williams without suit. He might also think it important to the reputation of the hotel that no landlord should be in debt for supplies or for servants' wages; and for that reason require cash payments. It is easy to see that as lessor he might have had an interest in all the stipulations to which Williams' assent was required. [After deciding that defendant could not be treated as a dormant partner, the opinion concludes:] Our conclusion is that Beecher and Williams, having never in- tended to constitute a partnership, are not as between themselves part- ners. There was to be no common property, no agency of either to act for the other or for both, no participation in profits, no sharing of losses. If either had failed to perform his part of the agreement, the remedy of the other would have been a suit at law, and not a 30 WHAT CONSTITUTES A PARTNERSHIP bill for an accounting in equity. If either had died the obligations he had assumed would have continued against his representatives. We also think there can be no such thing as a partnership as to third persons when as between the parties themselves there is no partner- ship and the third persons have not been misled by concealment of facts or by deceptive appearances. The judgment must be reversed with costs and a new trial ordered. VI. Sharing Gross Relnims** DRY V. BOSWELIv. (Court of Common Pleas, 1808. 1 Camp. 329.) Assumpsit for work and labor, and materials in and about the re- pairs of a lighter. Plea, the general issue. There was no doubt as to the repairs being done; and the only question was, whether the defendant was liable for them. The wit- nesses first stated that the lighter was the sole property of a person of the name of Russell ; that she was let out by him to the defendant, who worked her ; and that the two shared her profits equally between them. Lord Ellenborough said in that case the defendant was to be con- sidered a partner, and was jointly liable for the repairs done to the lighter. There was here a participation of profit and loss, which con- stituted a partnership. But the agreement with Russell subsequently appeared to be this, that the defendant, in consideration of working the lighter, should re- ceive half her gross earnings, and that Russell as owner should re- ceive the other half. Lord Ellenborough observed that this was only a mode of paying the defendant wages for his labor, and was different from a participa- tion of profits and loss ; so that under these circumstances no partner- ship could be considered as existing between him and the owner of the lighter. Evidence, however, was afterwards given of the defendant having himself ordered the repairs to be done, and the plaintiff had a verdict. 16 For a discussion of principles, see Gilmore on Partnership, § 10. eHAHINQ FB0FIT8 81 VII. Sharing Profits »• FECHTELER et al. v. PALM BROS. & CO. (Circuit Court of Appeals of the United States, 1904. 133 Fed. 462, C6 C. C. A. 330.) Bill to obtain an accounting under a contract between the com- plainants, comprising a firm engaged in business in tlie city of New York, under the name of Palm, P'echteler & Co., and the defendant, a corporation of Ohio, doing business at Cincinnati, under tbe corpo- rate name of Palm Bros. & Co. The contract provided in substance the following: The plaintiffs agreed to supply at actual cost all goods in the plaintiffs' line which defendant should select, and to pay to the defendant a sum of money equal to 36 per cent, of the total and entire gross profits made each year in the plaintiff's business. Plaintiffs further agreed to employ at least $100,000 in their business during the life of the contract. The defendant agreed to supply at actual cost all goods in defendant's line which plaintiffs should select, and to pay to plaintiffs a sum of money equal to 64 per cent, of the total and entire gross profits made each year in the defendant's business. The plain- tiffs and defendant were engaged in the same line of business. The agreement was to continue 12 years, and settlements were to be made annually. LuRTON, Circuit Judge.*^ * * * ^y^. ^q^^ ^j^g contract in suit actually create the relation of partners between the complainants and the defendant corporation, assuming the corporation to have the power to enter into such relation? The question here presented is not wheth- er the nature of the agreement is such that liability as a partner might exist as to third persons, but whether this contract provides for an actual partnership. The defendant has repudiated the contract, and defends, when sued, upon the ground that it had no power to enter into a partnership agree- ment. To make good this defense, it must show that the contract is one for a partnership — an actual partnership — and it will not do to say that, although no actual partnership was intended or existed, it is enough to show that third persons might hold both complainants and defendants liable as partners, although in fact no such relation existed. Liability as a partner to third persons misled by appearances may some- times arise, though no actual partnership exists. But this rests upon the doctrine of estoppel. Partnership is a fact — a fact sometimes made out, like other facts, from circumstances, as well as by direct evidence. Evidence may raise a presumption of a partnership so strong as to be 16 For a discussion of principles, see Giluiore on Partnersliip, § 11. 17 I'art of tlje opinion is omitted and tbe statement of facts is rewritten. 32 WHAT CONSTITUTES A PARTNERSHIP conclusive when third persons are involved. And this is the case when one has held himself out as a partner to one ignorant of the actual fact. But this case presents no such question, as the rights of third persons are not involved. Indeed, it would be difficult to imagine a case of liability to third persons upon the ground of holding out, when the supposititious partnership was with a corporation incapable, as matter of law, of entering into such a relation. If the contract sued upon is not one which deprives the stockholders of the corporation of their power and duty to manage the corporate affairs, or subjects the corporation to the domination incident to the aft'airs of a copartner- ship, it is not ultra vires. It devolves, therefore, upon the defendant to establish that the contract into which it has entered is, in substance and legal effect, one of partnership. It is not very prudent to define a partnership. Many definitions have been attempted, and Sir George Jessell, Master of the Rolls, in Pooley v. Driver, L. R. 5 Ch. Div. 458, 471, referred to the fact that no less than fifteen such definitions by different learned lawyers, no two of which he says agree, are given in the third edition of Lindley on Partnership, pp. 2, 3. Concerning these he says, "And I suppose anybody, by reading the fifteen, may get a general notion of what a partnership means." * * * The intent to be partners is made out when we find a business car- ried on for the joint benefit of two or more persons, with an agree- ment for a mutual participation in profits, as profits. The fact that one of the incidents of a partnership — mutual liability for debts — has been eliminated by agreement does not change the essential nature of the relation, which is nevertheless that of a partnership. Fleming v. Lay, 109 Fed. 952, 955, 956, 48 C. C. A. 748. Such a stipulation, though good between the parties, will not be valid as against third persons. This view reconciles the inconsistency of holding that a partnership exists in defiance of the agreement and intention of the parties, as ex- hibited in some of the cases which seem to sanction the notion that there may be a partnership as to third persons, though there had been no conduct to create an estoppel, and none between the parties them- selves. But in every phase of the question as to the cogency of evidence of a participation in profits it has been understood that the person sought to be charged as a partner must have an interest in profits, as profits. Thus it is said by Judge Story in section 49 of his work upon Part- nership, adopting the view of Collier upon Partnerships, "that in order to constitute a communion of profits between the parties, which shall make them partners, the interest in the profits must be mutual ; that is, each person must have a specific interest in the profits as a princi- pal trader." Meehan v. Valentine, 145 U. S. 611, 619, G23, 12 Sup. Ct. 972, 36 L. Ed. 835. Hence it always has been the rule that if you could show that the participation in profits was not a sharing in profits as a principal — in profits as profits of a joint business — but under an agree- ment by which a sum was to be received which should be equal to a SHARING PEOFIT8 33 definite proportion of the profits as a compensation for services or rent, or money advanced as a loan, there will be no liability as a part- ner. Such an arranc^ement would contradict the notion of a partner- ship, for there would be no participation in profits as a principal, no receipt of profits as profits. Upon the contrary, the relation of cred- itor would be made out; the amount of the debt being a sum of money estimated by a certain proportion of the profits, as a mere measure or yardstick. "The way in which the profits are to be parti- cipated in is the essence of the whole matter." Cotton, L. J., in Ex parte Tennant, 6 Ch. piv. 303, 316. This definition of sharing in prof- its as evidence of a partnership is supported by all the cases, and we need cite but a few of the more recent and controlling: Berthold v. Goldsmith, 24 How. (U. S.) 536, 542, 543, 16 L. Ed. 762; Mechan v. Valentine, 145 U. S. 611, 619, 12 Sup. Ct. 972, 36 L. Ed. 835; Story, Part. §§ 33, 34; Burnett v. Snyder, 81 N. Y. 550, 37 Am. Rep. 527. Applying these principles, the case at bar is of easy solution. TJie contract in suit does not in terms provide for a partnership, nor con- template any of the incidents of a partnership, unless the provision in reference to the participation of each in the profits of the business of the other establishes the relation and liability of partners. But it is very clear that the provision for a participation in profits does not contemplate any sharing in profits as a principal or division of profits, as profits. "Profit" implies, without more, the gain resulting from the employment of capital — the excess of receipts over expenditure. Black's Law Dictionary, citing Connolly v. Davidson, 15 Minn. 519, 530 (Gil. 428), 2 Am. Rep. 154; Story on Part. § 36, note 3. The old cases drew a distinction between net profits and gross profits. In discussing the kind of participation in profits which oper- ated to create the relation of partners, it is said that: "The true meaning of the language, an 'interest in profits, as profits,' seems to be that the party is to participate, indirectly at least, in the losses, as well as in the profits, or, in other words, that he is to share in the net profits, and not in the gross profits. If he is to sliare in the net profits, which supposes him to have a participation of profit and loss, that will constitute him a partner; if in the gross profits, then it will be otherwise." Story on Part. §§ 34, 42, and cases cited. Under the contract in suit, the sharing was to be not in the net gains or profits made by the one party in the business carried on by the other, but in the gross profits. That net profits were not meant, they make plain by a definition found in the fifth paragraph, where it is stated, in substance, that "gross profit" means the aggregate sales made, whether collected or not, after deducting the cost, import duties, and carriage, and that "no other charges, expenses or losses of whatever kind or nature shall be deducted from said gross profits." Thus the participation was in the gross amount of sales after the de- ductions above mentioned were made. The losses in bad debts and the cost of business might consume the margin between the cost and Gilm.Part. — 3 34 WHAT CONSTITUTES A PARTNERSHIP sale price, and yet the complainants would be entitled to receive a certain per cent, of the gross profit, though the business had made no actual gains, or had even made a loss. There was, then, no sharing in losses, and, under the old cases, no participation in profits, as prof- its, such as would, without more, raise a presumption of partnership. * * * Thus, though there is to be a sharing in gross profits, it is not to be a participation in profits, as profits, or as a principal in trade. Up- on the contrary, the plain purpose is that each, in consideration of the privilege of picking and choosing the goods or designs made or im- ported by the other, agrees to pay the actual cost of such goods so selected and furnished, and also "to pay" the other at the end of each year "a. sum of money equal to" a definite per cent, of the entire gross sales of the party making the payment, less only the actual cost and carriage of such goods. It is an agreement to pay, not to divide as .principals would do, but to pay a sum of money "equal to" (that is, measured or estimated by) a certain proportion of the gross prof- its. It is evident from these considerations that the character in which the one party would receive a proportion of the gross profit realized from the business of the other would be that of a creditor, rather than that of a principal trader. Unsupported as the claim of a partnership is by any provisions giving either party the slightest control of the business of the other, or any indication that the plan is a mere scheme or device to carry on trade as partners without subjecting themselves to the incidents and liabilities of such an arrangement, we can but reach the conclusion that the learned judge below erred in the view he took of the contract. * * * Decree dismissing the bill reversed, with directions to remand for an answer. VIII. Sharing Profits and Losses *• CLIFTON V. HOWARD. (Supreme Court of Missouri, 1886. 89 Mo. 192, 1 S. W. 26, 58 Am. Rep. 97.) Henry, J.^" This is an action of replevin, to recover of defendant 32 head of fat cattle, taken by him as the property of James K. Estis on an execution againsf Estis in favor of B. S. Walker. The defense was that plaintiff in this case and Estis had fraudulently conspired 18 For a discussion of principles, see Gilmore on Partnerstiip, § 12. 18 Part of tlie opinion is omitted. SHARING PROFITS AND LOSSES 88 to cheat and defraud the creditors of Eslis, who was in fact the owner of the property, and that CHfton's claim was made in furtherance of said frau(hilent scheme. The evidence tended to prove that plaintiff, Clifton, and Estis, both residents of Morgan county, had for years been purchasing and ship- ping cattle to St. Louis, each on his own account, and to different com- mission houses, — Clifton to Irons & Cassidy, and Estis to George R. Taylor & Co. ; that neither was using his own capital ; that they sev- erally had an agreement with their respective commission merchants by which he was to purchase cattle for his commission merchant, and when the cattle were delivered in the stock-yards at Versailles, and billed for shipment in the cars, he could draw a sight-draft on his com- mission merchant for the amount paid for the cattle, he having pre- viously paid for them by his individual checks on banks at Versailles; that when the cattle in controversy were levied upon in the stock yards at Versailles they had been billed by Clifton to Irons & Cassidy, and Clifton had drawn a sight-draft on them in favor of a bank at Ver- sailles for the amount necessary to cover his checks on said bank, to pay for the cattle; that said cattle were purchased by Clifton, and paid for by his individual check on said bank, and that Estis had no interest in said cattle, except under the following arrangement, made by and between him and Clifton about two years before this bunch of cattle was purchased, viz. : In order to avoid conflict and rivalry between them in the cattle trade in that neighborhood, it was agreed that, in all lots of cattle bought in the same neighborhood, and shipped by either, the other should have half of the profits, if any, arising from the shipment, and should pay half the losses of such shipment and sale, if any ; and, in pursuance of said arrangement, they often as- sisted each other in loading stock on the cars, and accompanied each other in purchasing; and when a portion of the cattle in controversy were purchased Estis was present, and was also present when the cattle were seized by Howard, the sheriff; that when either went out of his own neighborhood and bought cattle it was on his own account, and the other did not share in the profits of such purchases ; that be- tween the time these cattle were levied upon and the date at which they were replevied and shipped, cattle declined in St. Louis 40 or 50 cents on the 100 pounds. The demand of Walker against Estis was the individual debt of Estis, with which plaintiff had no connection whatever, and was contracted long before Clifton and Estis had any business connection with each other. * * * The court tried the cause upon the theory, as indicated by the in structions given at defendant's instance, and refused instructions of plaintiff, that a mere participation in the profits and losses of the ven- ture by one who had no other interest in the property was sufficient to constitute him a copartner of the other party in the property itself. This question was elaborately considered in the opinion of this court 36 WHAT CONSTITUTES A PARTNERSHIP delivered by Judge Napton in the case of Donnell v. Harshe, 67 Mo. 170, and the conclusion announced was "that a mere participation in profit and loss does not necessarily constitute a partnership." This case was followed in that of Musser v. Brink, 68 Mo. 242, and again in the same case, reported in 80 Mo. 350. Rapp v. Vogel, 45 Mo. 524, is to the same effect. Alfaro v. De La Torre, decided by the English high court of chancery, in which a brief synopsis of the decision will be found in 3 Cent. Law J. 473, seems to be directly in point on the question, and in harmony with what this court held in the cases supra. In Story on Partnership, § 27, the learned author says : "And ac- cordingly it has been held, at the common law, that if A. is owner of goods, and agrees with B. that B. shall be interested in a partnership portion of the profit and loss of the adventure, or voyage abroad, in which the goods are to be embarked, such an agreement will not alone make A. and B. partners in the goods, as between themselves, but only partners in the profits." As to persons who have dealt with them as partners, this question would be presented. It is not, however, in this record, because the debt for which the cattle were seized was contract- ed by Estis on his own account, long before he and this plaintiff had formed any business connection. As to such a creditor, his debtor must have an interest, not only in the profits and losses, but also in the property the subject of the speculation. In Alfaro v. De La Torre, supra, the ruling seems to have been that an agreement between two persons to divide the profit or loss upon a sale of goods, which are to be bought and paid for by one of them, does not create a joint property in the goods. The judgment is reversed, and the cause remanded. All concur. IX. Common Ovmership of Property ''" BUTLER SAVINGS BANK v. OSBORNE et al. (Supreme Court of Pennsylvania, 1893. 159 Pa. 10, 28 Atl. 163, 39 Am. St. Rep. 005.) Williams, J. The question raised on this record grows out of the following facts: The firm of D. Osborne & Bros, was engaged in drilling oil wells, and producing oil. It was an owner of some leases on which it was operating, and a part owner, as a tenant in common with other part owners, in others. In the same district, the firm of Carruthers & Peters was engaged in the same business, and in the 20 For a dLscussion of principles, see Giliuore on rartnersliip, § 13. COMMON OWNERSHIP OF PROPERTY 37 same manner. Each of these firms bought an undivided one-half of two leases, known, respectively, as the "Cookman Lease" and the "Duncan Lease." Both leases were obtained from the same vendor, who was engaged in drilling a well upon one of them at the time of sale. The sale included tiie drilling tools and machinery in actual use, and it was agreed that Duncan, their vendor, should proceed to com- plete the work of drilling he had begun. When this was done, the two firms proceeded to prepare the well for pumping, each paying one-half of the expenses incurred. As soon as the first well was put in order, the owners entered into an agreement with each other to drill another well on the same lease, and to pay their one-half part of the cost of it. They divided the expenses incurred in pumping and in the care of the leases in the same manner, each paying one-half. The oil produced was run into pipe lines serving the district, and there credited, one-half to Osborne & Bros., and one-half to Carrulhers & Peters. Upon these facts the appellant contends that the tenants in common of the Cookman and Duncan leases became partners. It is not alleg- ed that any contract of partnership was ever entered into between the two firms, or that any new partnership name was adopted to repre- sent them in their operations upon these leases. Their relation to- wards each other, as the result of their purchase of their respective interests in the leases, was that of tenants in common. They were en- gaged in the development and operation of the common property for their individual benefit. They were doing what tenants in cominon may properly do, and in the only way practicable for them, viz. turn- ing the common property to the profit of its owners at their individual cost, and dividing the product between themselves, in the pipe lines, in shares corresponding with their interest in the title. The firm of D. Osborne & Bros, seems to have been badly in debt. The Butler Savings Bank was among its creditors, and was the holder of two judgments against the firm and the individuals composing it, on which writs of fieri facias were issued on 29th of June, 1S93. The appel- lant was also a creditor, having one or more judgments entered against the firm. On the 2d of July, 1892, it caused a special writ of fi. fa. to be issued directing the sheriflf to levy on the interest of D. Osborne & Bros, in an alleged partnership composed of the firms of D. Osborne & Bros, and Carruthers & Peters. The sheriflf seized and sold, at tlie instance of the bank, the title of Osborne & Bros, in both leases. At the instance of the appellant, he seized and sold the interest of Osborne & Bros, in the alleged new firm. Whether the appellant is entitled to come in on the fund raised by the sherif? by means of a sale made upon all tiie writs in his hands depends on whether the alleged partnership between the tenants in common had any existence, if it did, the two leases were partnership property belonging to that partnership. The interest of Osborne & Bros, would, in that case, go to the purchaser at sheriff's sale, subject 38 WHAT CONSTITUTES A PARTNERSHIP to a settlement of the partnership business, and would be simply a right to receive one-half of what might remain after that business was closed up, and the proceeds of such sale would go to the special writ of fi. fa. If, on the other hand, no such partnership existed, then the title of D. Osborne & Bros, was that of a tenant in common own- ing one-half of the leases. The purchaser at sheriff's sale would succeed to their title, and the money raised would go to the bank, as the proceeds of the sale of the property of its debtor. In the case of Dunham v. Loverock, 158 Pa. 197, 27 Atl. 990, 38 Am. St. Rep. 838, we have held, at the present term, that tenants in common engaged in the improvement or development of the common property will be presumed, in the absence of proof of a contract of partnership, to hold the same relation to each other during such improvement or development as before it began. As to third persons, they may sub- ject themselves to liability as partners by a course of dealing, or by their acts and declarations ; but as to each other their relation depends on their title, until, by their agreement with each other, they change it. The act of 25th April, 1850, gives the courts jurisdiction in equity over the settlement of accounts between tenants in common of mines and minerals, and empowers them to "cause to be ascertained the quantity and value of the coal, iron ore or other minerals, so taken respectively by the respective parties, and the sum that may be justly and equitably due by, and from, and to, them respectively therefor, according to the respective portions and interests to which they may be respectively entitled in the lands." This power over the accounts between tenants in common was exercised by the courts of equity in England long before our statute was passed, and, as between the ten- ants in common and third parties, the same controversy frequently arose that exists in this case. The effort of third parties, extending credit to them, was to hold them liable as partners, just as the appel- lant seeks to do here. But the rule in England, as I understand it to be, is that when tenants in common agree to carry on mining opera- tions upon their land, each contributing towards the expenses in pro- portion to his or her respective interest or estate in the land, they will be considered, with respect both to themselves and third persons, as the ordinary owners of land working their respective shares of the mines, responsible only for their own acts, subject to no laws of part- nership whatever, and possessing distinct rights in the property. Bainb. Mines, c. 9, p. 296. The several owners may form a partner- ship for the purpose of operating the common property, if they so agree; but in the absence of an agreement they will be presumed to deal with each other and the common property as part owners, hold- ing as tenants in common, and liable to each other in account render- ed or in equity, as the circumstances may seem to require. In the case now before us, there is no need to rely on the presumption, as the auditor has found, as a fact, that no partnership existed between the two firms owning the Cookman and Duncan leases. From this JOINT ENTERPRISE OB BUSINESS 39 finding of fact the auditor correctly concluded, as a matter of law, that the special writ of fieri facias issued by the appellant against the interest of D. Osborne & Bros, in the alleged partnership had nothing on which it could be executed. The contention of the appellant fails, therefore, on both grounds. The law does not imply a partnership between tenants in common because of the fact that they agree to develop or operate the common property, since they may rightfully do this by virtue of their respective titles as part owners; and, ne.xt, the existence of an express agreement creating a partnership is nega- tived by the finding of the auditor, concurred in by the court below. As it is thus settled that the alleged partnership did not exist, the con- clusion is inevitable that the sale on the writ in favor of the bank pass- ed the title of D. Osborne & Bros, in the two leases to the sheriff's vendee, who thereupon became a tenant in common with the other part owner. The proceeds of the sale were therefore properly dis- tributed in the court below, and the decree of distribution is affirmed. X. Joint Enterprise or Business '* FINCKLE V. STACY. (High Court of Chancery, 1725. MacNaghten's Select Cases, 9.) Joint articles were entered into for the doing of a particular piece of work for the late Duke of Marlborough, on account of which sev- eral sums of money had been jointly received by them, and immediate- ly divided between them ; there being a sum demanded by them in arrear, which the Duke refused to pay, as being unreasonable. Stacy applied to Finckle to join with him in a suit to recover what was in arrear, which he refused to do, declaring he had several advanta- geous works under the Duke which he should lose, should he join in a suit; on which Stacy applied, and got his own half of the money which was due to them two. Bill is now brought for a moiety of the money so received ; and insisted, it should be considered as a part- nership in trade, and this money as so much received on the joint account. But the Court were of opinion, it was not to be considered as a part- nership, but only an agreement to do a particular act, between which there is great difference; and that it is so is plain, for the money which they had received they immediately divided, and did not lay out on a common account. It is pretty extraordinary, that he should come 21 I'or a discussion of principles, see Gllmore on Partnership, § 1-L 40 WHAT CONSTITUTES A PARTNERSHIP here to have the benefit of another's act in which he refused to join ; which refusal was with a corrupt view for his own advantage, and not on the common account, the money due on which he would rather sacrifice, than forego his own particular advantage ; and here is no insolvency in the Duke, if there had, perhaps had deserved considera- tion. Bill dismissed with costs. BURT V. LATHROP et al. (Supreme Court of Michigan, 1S83. 52 Mich. 106, 17 N. W. 716.) Campbell, J. Plaintiff sued a large number of defendants as joint- ly liable to him for his services as attorney in defending some patent suits concerning the rights to use certain hard-rubber material in dentistry. He declared specially and with the common counts for these services, and also set up two judgments rendered in Jack- son county for the same causes of action. Upon trial court below ordered a verdict for defendants. The counts which describe the judgments do not set them out in such a way as to make out any legal liability under them against all these defendants, and the proofs are not any more definite. It appears afifirmatively that no jurisdiction existed to bind more than a part of them, and there can be nothing claimed for them under the issue as presented. They may, therefore, be laid aside. The ground for asserting a claim against the de- fendants jointly is that they are claimed to have become members of an association combined for the purpose of legal resistance to the claims of a patentee, and that plaintiff was employed by their officers. There is no testimony tending to show any immediate personal employment of plaintiff by the defendants, jointly or individually, so as to justify this joint action. But it was claimed that they stood on the footing of partners, bound by the action of their designated managing members. The testimony indicates that several of the de- fendants, at various times, became members of an association which, so far as pertinent to this inquiry, required them to pay five dollars each into the treasury, and to pay such assessments as should be levied pro rata, on pain of being left out of the association and its privileges. The officers were to employ counsel, and money was to be paid on the order of the president and secretary. We can find in this arrangement nothing analogous to a partnership. There was no common business, and nothing involving profit and loss in a business sense. No one was empowered to make contracts binding on the subscribers personally, and no one was to be liable except for assessments, nor even for those except as he saw fit to pay them to keep his membership. It was nothing more than a com- bination which may have made the parties in some respects responsible to each other, but which did not, we think, authorize any contract with third persons which should bind any member personally be- JOINT ENTERPRISE OR BUSINESS 41 yond his assessments. As plaintiff was not only aware of the articles, but showed that he acted under them and in furtherance of them in various ways, no question arises in the nature of an equitable estop- pel. We are not concerned on this record whether plaintiff has any other adequate means of securing^ compensation. The only question now is whether these defendants are his joint debtors. We think they are not. Judgment affirmed. DONNELL V. HARSHE. (Supreme Court of Missouri, 1877. 67 Mo. 170.) Napton, J 22 The principal and decisive question in this case is the propriety of the following instruction given by the court: "The court instructs the jury that a copartnership is an agreement be- tween two or more persons of sufficient capacity to contract to carry on a given business and share the profits of such business; and if the jury believe from the evidence in this case that there was either a verbal or written agreement between the plaintiff and Emeline Harshe, by which the former was to occupy and cultivate the farm of said Emeline Harshe for any given length of time, and that each was to receive a moiety or share of the crops raised or grown thereon under such agreement, then such farming was a copartnership business, and belongs to another adjustment, and must be settled or adjusted in a different form of action, and cannot be made available in this action; and if they find that the matters embraced in defendant's account were connected with or arose out of such business they will exclude all evidence of such account from tlieir minds," etc. The evidence in the case is not stated in the bill of exceptions, but it is stated that evidence was offered tending to prove that plaintiff and defendant entered into an agreement by which plaintiff was to culti- vate a farm of defendant, lying in St. Francis county, on shares ; that plaintiff and defendant were each to defray one moiety of the ex- penses attending such cultivation of said farm, and were to share equal- ly in the profits thereof. The instruction asserts, as a matter of law, that the occupancy and cultivation by one of the farm of another, under an agreement that the owner and occupant will divide crops raised in an agreed proportion, constitutes the owner and occupant copartners. This is probably a very common mode of leasing farms in this state, but the proprietor and occupant might be equally surpris- ed to be informed that they were partners. A definition of partnership, broad enough to embrace all cases and narrow enough to exclude such as ought to be excluded, has been found a very difficult and embarrassing task to those writers who have published books on the subject. The courts have been 22 Part of the opinion Is omitted. 42 WHAT CONSTITUTES A PARTNERSHIP embarrassed, also, in nice refinements about partnerships inter se and partnerships which are only as to creditors. Indeed, Judge Story, after a prolonged examination of these distinctions, seems to conclude that the intention of the parties ought to be the controlling circumstance to determine their relations, and therefore, where the profits and losses are to be shared by the parties in fixed proportions, and, to use his language, "each is intended to be clothed with the pow- ers and rights and duties and responsibilities of a principal, either as to the capital stock or the profits, or both, there may be a just ground to assert, in the absence of all controlling stipulations and circumstances, that they entered a partnership." This, it will be perceived, is quite indefinite. It IS essential to a partnership that there be a community of interest in the subject of it, and this community of interest must not be that of mere joint tenants or tenants in common. When the efifect of the agreement is, as propounded in the instruction, that one should oc- cupy and cultivate the farm, and the crops should be divided equally between the occupant and the owner, no partnership is necessarily intended or created. In the case of Dry v. Boswell, 1 Cham, 329, where there was an agreement between the owner of a lighter and a lighterman that the lighterman should work the lighter, and the gross earnings should be equally divided between him and the owner, Lord EUenborough held that this was only a mode of paying the lighter- man for his wages, and was not a participation in profits and loss, and no partnership existed. So in Ambler v. Bradley, 6 Vt. 119, A. owned a sawmill and agreed with B. that the latter should work it and divide the gross earnings equally. They were held not to be part- ners. In Putnam v. Wise, 1 Hill (N,Y.) 234, 37 Am. Dec. 309, an agreement between the owner of a farm and the occupant that the latter should work it on shares, and a division be made of the gross earnings of the farm, was held not to be a partnership. In Dwinel V. Stone, 30 Me. 384, it was held that a mere participation in profit and loss does not necessarily constitute a partnership. "There must be," said Shipley, C. J., "such a community of interest as empowers each party to make contracts, incur liabilities, manage the whole busi- ness, and dispose of the whole property, a right which, upon the dis- solution of the partnership by death of one, passes to the survivor, and not to the representatives of the deceased." In Caswell v. Dis- trich, 15 Wend. (N. Y.) 379, the court held an agreement between landlord and tenant that the tenant should sow certain kinds of grain and yield a certain portion of each crop to the landlord made them ten- ants in common with the crops. In Denny v. Cabot, 6 Mete. (Mass.) 82, an agreement was made between H. and B., by which H. was to supply B. with stock to be manufactured into cloth at his mill, on H.'s account, and B. was to manufacture the stock into cloth and to deliver the cloth to H. at a certain sum per yard, and H. could pay JOINT ENTERPRISE OR BUSINESS 43 him one-third part of tlie net profits of the business, and this was held not to make A. and B. partners. In Harrovver v. Heath & Cole, 19 Barb, (N. Y.) 331, an agreement similar to the one to establish which proof was offered in the present case was held to constitute the owner and occupiers tenants in common, both of the farm and the crops. And in Johnson v. Hoffman, 53 Mo. 501, a similar contract was held to make the landlord and tenants merely tenants in common of the crops and not the farm. It is useless, however, to multiply authorities on this subject, as hardly any two cases are exactly alike, and very slight shades of distinction lead to different conclusions. The instruction was erroneous, as we think, and the judgment must tliere- fore be * * * Reversed. NOYES V. CUSHMAN et al. (Supreme Court of Vermont, 1853. 25 Vt. 390.) ISHAM, J.2^ The auditors have reported a balance due the plain- tiff, subject to objections which have been taken by the defendants. It is insisted by the defendants that they were not partners when the services were rendered by the plaintiff, and that this joint action against them as such cannot be sustained. We learn from the report that the gristmill and privilege were at first purchased by the de- fendants, Cushman and Noyes, under an agreement to rebuild the same and share equally in its expense, and that afterwards one-sixth of the same was purchased of them by the defendant Morse under an agreement to be at a like proportion of the expense of rebuilding and putting the mill in proper condition for improvement and use. These several purchases vested the title and interest in these premises in the defendants as tenants in common. Their mutual obligation to rebuild and repair does not necessarily constitute them partners, for, as observed by Judge Bronson in Porter v. McClure, 15 Wend. (N. Y.) 192, "they may or may not become partners in carrying on mill- ing business." A mere community of interest in real or personal es- tate does not constitute a partnership. But where a purchase of that character is made, and the premises are rebuilt or repaired for the purpose of prosecuting some joint enterprise or adventure, and under an agreement to share in the profits and loss of the undertaking, the contract then becomes one constituting a partnership, and each mem- ber thereof is liable as a partner, and they are liable jointly for ser- vices performed in perfecting their joint undertaking. The report of the auditors shows this to have been the character of the contract as made by these defendants. After having obtained a joint interest in the gristmill and privilege, they became obligated to »s Part of the opinion and the statement of facts are omitted. 44 WHAT CONSTITUTES A PARTNERSHIP rebuild and repair the same, for the purpose of prosecuting a joint undertaking- in the use of this property for miUing purposes ; and the defendant J\Iorse was to have one-sixth of the toll or profits of the mill and one-half of the remainder for taking charge of the same, and the other defendants, Cushman and Noyes, were to have the remain- ing shares. In this contract are found all the elements of a partner- ship even as between themselves, much more as to third persons ; and whatever agreement may have been made as between themselves, as to the manner in which other persons were to be employed and paid, it can have no effect upon their liability to those who have ren- dered services in promoting their joint undertaking, particularly where, as in this case, the services were rendered under the under- standing that the defendants were jointly liable therefor, and when the plaintiff was ignorant of any different arrangement as between the defendants. We think, therefore, the auditors came to a right con- clusion that the defendants were liable as partners on this account to the plaintiff. * * * The result is that the judgment of the county court is affirmed. XI. Relations Distinguishable from Partnership '* In re GIBBS' ESTATE. Appeal of HALSTEAD. (Supreme Court of Pennsylvania, 1893. 157 Pa. 59, 27 Atl. 383, 22 L. R. A. 276.) Proceedings for settlement of the accounts of E. B. Gibbs, admin- istrator of Henry Gibbs, deceased. From a decree dismissing excep- tions to the report of the auditor disallowing the claims of W. F. Hal- stead, guardian of Mary E. Clapp and Henry Clapp, he appeals. Williams, J.^^ * * * ^^^^ appellant seeks to charge the estate of Henry Gibbs with money deposited by him, as guardian, in the Home Savings Bank, located at South Waverly, on the theory that the bank was a general partnership, and that the decedent was one of the partners. The appellees deny that the Home Savings Bank was a part- nership, and assert that the decedent purchased shares of stock in the bank as and for the shares of stock in an incorporated bank, and not otherwise. At this point it seems desirable to define the words over which the contest extends. 2 4 For a discussion of principles, see Gilmore on Partnership, § 15. 2 5 Part of the opinion is omitted. RELATIONS DISTINGUISHABLE FROM PARTNERSHIP 4o First. What is a corporation? The several answers given by text writers may be reducccl to the following- formula: A corporation is an artificial person created by law as the representative of those per- sons, natural or artificial, who contribute to,* or become holders of shares in, the property intrusted to it for a common purpose. As it is the creature of positive law, its rights, powers, and duties are pre- scribed by the law. Beyond the legitimate purposes which it was cre- ated to serve, and the lines of limitation the law has drawn around it, it is without power to act or capacity to take. Thus a banking cor- poration, while fully competent to do what is usual and necessary in its own business, may not own and operate a railroad, or engage per- manently in any other business than that for which it was created. It has neither the legal capacity nor the right to do so; and if it under- takes to go in any direction beyond its corporate powers its acts are ultra vires. The creation of a corporation is not within the power of the individuals who subscribe to its stock. It is exclusively the work of the laWj and the best evidence of the existence of a corporation is the grant of corporate powers by the commonwealth. Second. What is a corporation de facto? It is an apparent corpo- rate organization, asserted to be a corporation by its members, and actually acting as such, but lacking the creative fiat of the law. In Tayl. Priv. Corp, 145, it is said that a de facto corporation may ex- ist "when a body of men are acting as a corporation under color of apparent organization, in pursuance of some charter or enabling act." Their organization may be imperfect, so that upon a quo warranto they could not show a sufficient compliance with the law to justify the exercise of corporate powers, but as to parties dealing with them, and as to each other, they are estopped to deny that they are what they hold themselves out to be. In a recent case in Minnesota — Finncgan V, Knights of Labor, 52 Minn. 239, 53 N. W. 1150, 18 L. R. A. 778, 38 Am. St. Rep. 552 — it was held that a de facto corporation exists when these three things concur, viz., a law under which the alleged corporation might be created, an attempt to organize under the law, an assumption and exercise of corporate powers under such attempted organization. In Methodist Church v. Pickett, 19 N. Y. 482, only two things were held necessary, viz., "the existence of a charter or law under which a corporation with the powers assumed might be lawfully cre- ated, and a user by the party to the suit of the rights claimed to be conferred by such a charter or law." Where there has been a sub- stantial compliance with the lavv, the corporation is, of course, de jure. Where there has been no substantial compliance, but there has been nevertheless an assumption and exercise of corporate powers in pur- suance of an attempted organization, the alleged corporation is such de facto only. The Minnesota courts hold the correct rule, and three things are necessary to create the liability: A law or charter under which an organization de jure might be elTected; an attempt to or- 46 WHAT CONSTITUTES A PARTNERSHIP ganize, which falls so far short of the requirements of the law or char- ter as to be ineffectual ; an assumption and exercise of corporate powers notwithstanding the failure to comply with the law or charter. Third. Wliat is a partnership? Perhaps the best definition is that given by Story: A relation created by a "contract between two or more persons to place their money, effects, labor, or slcill, or some or all of them, in lawful commerce, and divide the profits between them." Its foundation is a contract, express or implied. It results from the act of the parties, not from the act of the law. Hedge's Appeal, 63 Pa. 273; 17 Amer. & Eng. Enc. Law, 829. See, also, Modde- well V. Keever, 8 Watts & S. 63 ; Channel v. Fassitt, 16 Ohio, 166 ; Murray v. Bogert, 14 Johns. (N. Y.) 318, 7 Am. Dec. 466; Phillips V. Phillips, 49 111. 437. But as to third parties one may be held liable as a partner by implication of law arising upon his own acts, contrary even to his own intention. Thus the officers and acting members of a corporation de facto may be liable as partners if their conduct has led others to trust the concern upon that basis. Stafford National Bank v. Palmer, 47 Conn. 443. But without a contract of partner- ship, or such acts and declarations as lead others to infer its exist- ence, and to extend credit on that basis, there is no foundation on which liability as a partner can rest. The best evidence of the exist- ence of a partnership is the contract creating it. If proof of the con- tract is not within reach, its existence may be inferred from proof of contribution to the partnership stock. If direct proof of contribution cannot be had, it may be inferred from participation in profits. In the absence of all this, the acts and declarations of the parties sought to be charged may be resorted to. Participation in profits is not conclusive proof of the existence of the partnership relation (Edwards v. Tracy, 62 Pa. 374) ; but both in England and in this country it is cogent ev- idence upon the question. It puts the defendant upon his proofs explanatory of the fact. If he is able to show that such participation was referable to some other reason such as compensation for services rendered by him as agent, broker, salesman, or otherwise, the prima facies is overcome. So, if the participation in the profits is referable to some other relation than that of partnership between the partici- pants, such as membership in a joint-stock association or a corpora- tion, the effect of proof of participation will be overcome. In the light of these well-settled rules, let us consider briefly the position of the parties, and the important findings of fact made by the learned auditor in this case. The claimant's right to share in the fund in court rested on the theory that the Home Savings Bank in which the money of his wards had been deposited, was a part- nership, and that the decedent was a partner. The burden of prov- ing the fact that the bank was a partnership was on him; and, as was said in Hallstead v. Coleman, 143 Pa. 354, 23 Atl. 977, 13 L. R. A. 370, "until that proof was given, the defendants were not called upon to enter upon their defense." The proof made upon this subject RELATIONS DISTINQUISnABLE FROM PARTNERSHIP 47 showed the organization of a bank under the name of the Home Sav- ings Bank, with a president, casliier, and a board of directors. This is the mode of organization usually adopted by corporations, and did not tend to prove a partnership. It was then shown that the decedent bought and held certificates of stock in the bank, after its organiza- tion, which recited not the formation of a partnership, but the organi- zation of a bank under the laws of the state, and the division of its capital into shares of $100 each. This is not the usual way in which partnerships are created and partners admitted. It is the usual way in which stocks are issued and transferred in corporations. Proof was then made of the receipt by the decedent of several dividends upon his stock. These did not purport to be shares in the profits of firm business, but dividends, declared in the manner usual among corporations, upon the stock of the bank; and were paid by dividend checks drawn under the authority of a board of directors. The only other evidence was the returns made by the officers of the bank under the tax law of 1879, which threw very little hght upon the character of the organization of the bank. Upon this proof the questions for the auditor were whether the bank was shown to be a partnership, and the decedent a partner. The bank did business for a number of years, and then failed. Its books and papers were in the hands, or subject to the control of, the receiver. The manner of its organiza- tion was not shown. The partnership agreement, if any such existed, was not produced. No proof was given that the officers or stock- holders claimed or held out to the public that the stockholders were partners, or the bank a partnership enterprise. It was not alleged that the decedent participated in any manner in the business, or exercised any control over it. The whole case against him rested on the fact that he had purchased shares in a bank, then organized and doing business, and received dividends declared by the directors, and paid to him in a cashier's check. We are not surprised that the learned auditor was led to ask, "What is there in all this evidence, from the beginning of the business to the failure, tending to prove a partner- ship?" nor that he answered his own question by holding that this proof was insufficient to establish prima facie the existence of the partnership relation. On the other hand, there was much tending to show that Henry Gibbs understood that he was the holder of stock in an incorporated bank, and that the bank assumed and exercised corporate powers, and was dealt with by the public as a corporation. The form of its certificates, the manner of their transfer, the election of directors by the stockholders, the management of the business of the bank by the directors and the officers elected by them, the mode of declaring and paying dividends, were all suggestive of a corpora- tion. They were not suggestive of a partnership. We are unable, therefore, to say that the auditor erred in finding that the bank was not shown to be a partnership. The learned judge who heard the exceptions to this report seems to have concurred with the auditor, 48 WHAT CONSTITUTES A PARTNERSHIP and we require, under such circumstances, to be satisfied that a mis- take was made before interfering with the findings. We are not so satisfied; but are of opinion that the state of the evidence justified the auditor's conclusion. This disposes of the whole case. * * * Decree affirmed. FRENCH V. STYRING. (Court of Common Pleas, 1857. 2 C. B. N. S. 357.) The plaintifif was a trainer of horses at Newmarket; the defendant was a wine-merchant at Huddersfield. In the month of March, 1854, a race-horse, called Census, was jointly purchased by the plaintiff and one Cohen. The latter afterwards sold his share of the horse to one Mallinson ; and it was agreed between Mallinson and the plaintiff that the plaintiff should keep the horse for the purpose of training him, and should have the entire control and management of him ; that 35s. per week should be allowed as the expenses of his keep ; that the plaintiff should pay the expenses of entering the horse and conveying him to the different races ; that each of them should pay one-half of the horse's keep and other expenses; and that the winnings should be equally divided between them. Mallinson having subsequently sold his share of the horse to the defendant, the latter agreed with the plaintiff that he should continue to keep, train, and manage him upon the same terms as had been agreed on with Mallinson. The horse was entered and ran at several races, but never won anything, and, having ultimately broken down, was sold at Tattersall's for £20. The plain- tiff now sought to recover from the defendant il65. lis. lOd., being the moiety of the keep and expenses of the horse since the defendant became possessed of his moiety, allowing in the particulars credit for ilO, the moiety of the sum for which the horse was sold. There had been no previous settlement of accounts between the parties. On the part of the defendant, it was submitted that this community of profit and loss constituted a partnership between the plaintiff and defendant, and therefore that the plaintiff could not recover in a court of law in respect of the claim set up in the second count. The learned judge directed a verdict for the plaintiff for the amount claimed, reserving to the defendant leave to move to reduce the dam- ages by the sum mentioned in the second count, if the court should be of opinion that the transaction created a partnership. WiLLES, J.2® * * * 'j'j^g agreement here amounts to the sort of tenancy in common mentioned in the section of Littleton to which I referred in the course of the argument. The effect of the agreement seems to be this, that the plaintiff should keep and train and have the 2e statement of facts abridged and opinions of Coclvburn, C. J., and Cress- well and Crowder, JJ., and part of the opinion of Willes, J., are omitted. EELATI0N8 DISTINGUISHABLE FROM PARTNERSHIP 49 exclusive management of the horse, entering it and conveying it to the different races, and doing everytiiing necessary to put it in a con- dition to run, and, in the event of the horse winning, paying over to the defendant one-half of the amount of such winnings. It in truth amounts to no more than a contract between two tenants in common, whereby the one agrees, in consideration of certain things to be done by the other, to abstain from exercising his rights in respect of the chattel held by them in common. It is no more a partnership than if two tenants in common of a house agreed that one of them should have the general management, and provide funds for necessary re- pairs, so as to render the house fit for the habitation of a tenant, and that the net rent should be divided between them equally. Even if this were to be looked upon as a contract of partnership, the point at which the partnership would necessarily commence is that at which the horse is put upon the turf in a condition to run for stakes. The payments sought to be recovered here, are, payments made by the plaintiff in the nature of advances on behalf of the defendant anterior to the time at which any partnership could commence. Without expressing any decided opinion upon the first point, upon the second ground I concur with the rest of the court in thinking that the plaintiff is entitled to recover upon the second count as well as upon the first, and therefore that the rule to reduce the damages must be discharged. Rule discharged. THE QUEEN v. ROBSO>T. (Crown Cases Reserved, 1885. L. R. 16 Q. B. Div. 1.37.) The prisoner was tried and convicted at the Autumn Assizes for the county of Northumberland on the 31st of October, 1S85, on an indictment framed under St. 31 & 32 Vict. c. 116, § 1, charging that he, being a member of a copartnership called the Bedlington Colliery Young Men's Christian Association (hereafter called the "associa- tion"), feloniously did in January, March, and IMay, 1SS5, embezzle three several sums of money of and belonging to the said copartner- ship. The object of the association was, to use the language of one of its printed rules, "the extension of the kingdom of the Lord Jesus Christ among young men and the development of their spiritual life and mental powers." It was composed of members and associates. The number of members did not exceed 20. Any person was eli- gible for membership "who gave decided evidence of his conversion to God"; but before he could become a member he must be proposed and seconded by two members of the association and elected by the committee, on their being satisfied as to his suitability. Trustees for Gilm.Part. — 4 50 WHAT CONSTITUTES A PARTNERSHIP the time being, in whom the real property belonging to the associa- tion was vested, became members by virtue of their appointment as trustees. Members were required to subscribe three shiUings per annum. It was not material to consider the qualification or status of associates. The affairs of the association were in the hands of a general committee of management, consisting of a president, two vice presidents, a treasurer, two secretaries, and at least nine mem- bers. The committee had power to suspend or expel any member whose conduct was found inconsistent in their judgment with the Christian character. The agencies for the attainment of the objects ■of the association were, first, the personal efforts of the members; second, devotional meetings; third, social meetings; fourth, classes for Biblical instruction; fifth, the delivering of addresses and lectures; and, sixth, the diffusion of Christian and other suitable literature. Before the first of the offenses charged against the prisoner was committed, the members of the association proposed to build, and afterwards built, a hall or place of meeting for the purposes of the association at a cost of nearly £200, of which about £40 was still owing. To this building every member had the right of entry and was entitled to a latchkey. The prisoner became a member of the association in 1878, and had continued to be a member up to the time of the trial. As and being such a member he solicited and ob- tained for the association from divers persons many sums of money as donations or subscriptions on account of and for the general pur- poses of the association, towards the building fund, and towards the liquidation of the aforesaid debt of £40. Three of these sums it was that the prisoner was charged with and found guilty of embez- zling. If the association was a copartnership within the meaning of St. 31 & 32 Vict. c. 116, § 1, the conviction was to stand affirmed. If on the contrary it was not, the conviction was to be reversed.^ ^ Walton, for the prisoner. The only question is whether this as- sociation is a copartnership. The terms of the statute clearly show that the copartnerships contemplated thereby are copartnerships in the ordinary sense of the term, viz., for the purposes of gain or profit. Lindley, L. J., in his work on Partnership, p. 1, gives an explanation of the term "partnership," which shows that the neces- sary idea of a partnership is that it should have for its object the acquisition and division of gain. He says: "Without attempting to define the terms 'partners' and 'partnership,' it will suffice to point out as accurately as possible the leading ideas involved in these words. 2 7 St. 31 & .32 Vict. c. 116, § 1, provides that "if any person, being a mem- ber of any copartnership, or being one of two or more beneficial owners of any money, goods, or effects," etc., "shall steal or embezzle any such money, goods, or effects," etc., "of or belonging to any such copartnership or to such joint beneficial owners, every such person shall be liable to be dealt with, tried, convicted, and punished for the same as if such person had not been or was not a member of such copartnership or one of such, beneficial owners." RELATIONS DISTINGUISHABLE FEOM PARTNERSHIP 61 The terms in question are evidently derived from to part, in the sense of to divide amongst or share; and this at once Hmits their appHca- tion, although not very precisely, for persons may share almost any- thing imaginable, and may do so either by agreement or otherwise. But, in order that persons may be partners in the legal acceptance of the word, it is requisite that they shall share somefhing 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. * * ♦ To use the word 'partnership' to denote a society not formed for gain is to destroy the value of the word, and can only lead to confusion. Nor is it con- sistent with the modern usage. Lord Hale and older writers use copartnership in the sense of co-ownership, but this is no longer cus- tomary, and, as w^ill be shown hereafter, there are many important differences between the two." This is not an association for the purposes of profit or gain. Lord Coleridge, C. J.^' It seems to me that this conviction cannot be supported. I cannot find any authority throwing any doubt on the accuracy of the passage in Lindley on Partnership, which makes the participation in profits essential to the English idea of partnership, and states that, although in former times the word "copartnership" was used in the sense of "co-ownership," the modern usage has been to confine the meaning of the term to societies formed for gain. A nurqber of definitions given by writers from all parts of the world are appended to the passage, and in all of them the idea involved appears to be that of joint operation for the sake of gain. The association in the present case is not a copartnership in any sense of the word into which the notion of co-operation for the purpose of gain enters. We must construe the word "copartnership" as used in the act accord- ing to the meaning ordinarily attached to it by the decisions and text- books on the subject. This association does not come within that meaning. The only point reserved for us is whether this association is a copartnership within the act. Inasmuch as we are of opinion tliat it is not, the conviction must be reversed. Fields, Hawkins, and Willis, JJ., concurred. ASH et al. v. GUIE. (Supreme Court of Pennsylvania, ISSl. 97 Pa. 49.?. 39 Am. Rep. 818.) Assumpsit by Guie against Ash and over a hundred others alleged to have been "lately trading as \\'illiamson Lodge, No. 309, A. Y. ^L." for money loaned by the plaintiff below to the defendants, as evi- denced by a certificate in writing, which acknowledged that William- »8 statements of facts abridged and opinion of Denman, J., omitted. 52 WHAT CONSTITUTES A PARTNERSHIP son Lodge aforesaid was indebted to plaintiff in the sum of $100, pay- able in two years from Nov. 11, 1870, with interest. The certificate was signed by the worshipful master and wardens of the lodge, who also "caused the seal of the said lodge to be affixed;" and the sig- natures and seal were attested by the secretary of the lodge. The money was borrowed and used for the construction of a temple which was owned by the lodge. Verdict was directed for the plaintiff against the defendants on the theory that the members of the lodge were part- ners. Trunkey, J." One of the defendants, called by plaintiff, testified: "The full title of our lodge is Williamson Lodge, No. 309, F. and A. M. ; F. and A. M. means Free and Accepted Masons ; the purposes of our lodge are charitable, benevolent, and social." This is the evi- dence as to the objects for which the association was formed, and with- out proof of its constitution or rules respecting admission of members and the management of its affairs it was held to be a common part- nership. A partnership has been defined to be a "combination by two or more persons of capital, or labor, or skill for the purpose of busi- ness for their common benefit." It may be formed, not only for every kind of commercial business, but for manufacturing, hunting, and the like, as well as for carrying on the business of professional men, me- chanics, laborers, and almost all other employments. It would seem that there must be a community of interest for business purposes. Hence, voluntary associations or clubs, for social and charitable pur- poses, and the like, are not proper partnerships, nor have their mem- bers the powers and responsibilities of partners. T. Parsons on Part. 6, 36, 42. * * * Here there is no evidence to warrant an inference that when a per- son joined the lodge he bound himself as a partner in the business of purchasing real estate and erecting buildings, or as a partner so that other members could borrow money on his credit. The proof fails to show that the officer or a committee, or any number of the members, had a right to contract debts for the building of a temple which would be valid against every member from the mere fact that he was a mem- ber of the lodge. But those who engaged in the enterprise are liable for the debts they "contracted, and all are included in such liability who assented to the undertaking, or subsequently ratified it. Those who participated in the erection of the building, by voting for and ad- vising it, are bound the same as the committee who had it in charge. And so with reference to borrowed money. A member who subse- quently approved the erection or borrowing could be held on the ground of ratification of the agents' acts. We are of opinion that it was error to rule that all the members were liable as partners in their relation tc third persons in the same manner as individuals associated for the pur- pose of carrying on a trade. 2 9 Part of the opinion is omitted and the statement of facts is rewritten. BELATION8 DISTINGUISHABLE FBOM PABTNERSHIP 53 This unincorporated association had a seal which the officers were authorized to use for certain purposes. Some of those who en^'aged in the business of borrowing money directed it to be affixed to the cer- tificate of indebtedness. All who did, adopted it as their seal for the specific purpose. It was not the seal of a corporation, nor intended as such. The parties borrowed the money in the name of the lodge, and gave the certificate in same name, and adopted a common seal. They cannot repudiate in good faith to the lender. He loaned the money on a sealed instrument, in many respects better than a simple contract. Those who advised affixing the seal should be held the same as their officers who signed the certificate. Were the members part- ners, without evidence of agreement between them that the seal should be affixed to contracts, those not assenting to its use in that way would not be bound by a sealed instrument, though given for a debt for which all were liable. Schmertz v. Shreeve, 62 Pa. 457, 1 Am. Rep. 439. The learned judge was right in ruling that the certificate was a sealed instrument, but not, under the evidence, in holding that it was author- ized by all the members. * * * Without noticing seriatim the two dozen assignments of error, we have endeavored to express our opinion on every material point raised by them. This writ is by all the defendants, and they contend that none are liable. That the money was fairly loaned by the plaintiflf and used by the borrowers, is not disputed. If any of defendants had no part in the borrowing, either by previous assent and procurement. or by subsequent ratification, they have a meritorious defence, and the grounds on which the judgment is reversed will avail them. The ques- tion is one of fact, and must be determined by the jury from the evi- dence. It is difficult to conceive of a meritorious defence in those who actually got the money, some of whom signed the certificate, and oth- ers actively participated in the giving of it. They have a legal right to refuse payment until judgment be recovered according to law. But they cannot complain if the plaintiff fails to include every one in the action who is Hable, or fails to discover proof against every one in- cluded In the nature of the case, it is difficult for the plaintiff to de- termine in advance the precise individuals who are liable, though he be sure of. some of them; and the court below has not been, and will not likely be, slow to allow necessary amendments, authorized by the statutes. Judgment reversed, and venire facias de novo awarded. 54 WHAT CONSTITUTES A PARTNERSHIP XII. Contract for a Partnership '• DOW V. STATE BANK OF SLEEPY EYE. (Supreme Court of Minnesota, 1903. 88 Minn. 355, 93 N. W. 121.) Action by Lorenzo E. Dow against the State Bank of Sleepy Eye. Judgment for plaintiff, and from an order denying a motion for new trial defendant appeals. Collins, J." March 18, 1901, five persons (Whiteside, Farrell, Spence, and Reichenthal, of the city of Chicago, and L. P. Jensen, of Sleepy Eye, in the state of Minnesota) entered into a written agree- ment in which they stipulated that they "have agreed and do hereby mutually agree to form a limited partnership" to engage in a specified line of business in Chicago "for the term of five years, commencing with December 1, 1901, under the firm style of Whiteside, Farrell & Co." Each of the four men first mentioned was to contribute a cer- tain sum of money to the capital fund, to be paid in full on or before December 1st, and were to be general partners. Jensen was to be a special partner, in accordance with the laws of Illinois, contributing $10,000 towards the capital — two-fifths of the whole — which sum was also to be paid on or before December 1st. It was recited that each of the parties, except Jensen, had deposited in bank, and in the name of the firm, on account of his subscription to the capital, the sum of $1,000, and that Jensen had deposited with Farrell his duly certified check for the same amount on account of his subscription, and that the deposit made by each of these parties was "as a guar- anty of his faithful performance on his part of the agreement." This check was made payable to the order of Whiteside, Farrell & Co., the agreed firm name, and was to be held by Farrell personally, instead of being deposited in the bank. It was covenanted that on the fail- ure on the part of any of the persons named to pay over the balance of his agreed contribution on or before December 1st, "and to proceed with and to engage in the partnership business herein, in this agree- ment provided for, as therein provided, then the" amount of the de- posit of the party in default, with all interest, should be forfeited to such of the other parties as might be ready and willing to pay and to proceed with the partnership business ; the amount forfeited to be divided equally between the nondefaulting parties. All interest earned on the amounts deposited by each of the persons not in default was to be paid over to them individually. It was also provided that: 3" For a discussion of principles, see Gilmore on Partnership, § 16. »i Part of tlie opinion is omitted. CONTRACT FOR A PARTNERSHIP 55 "Nothing contained in this paragraph shall be construed as depriving any of the parties to this agreement of any rights which they other- wise have at law or in equity for damages, beyond such sum so for- feited, for a failure on the part of any party or parties hereto to carry out and perform this contract." There were other provisions as to a division of the profits, for a division of the work, the management of the business, the authority of the partners, for the submission of all questions of dispute between them, prohibiting the general partners from engaging in any other business after December 1st, during the five years, and also that, "in case of the death of any of the general partners or the special part- ner, such death shall not work a dissolution of the firm, but the sur- viving general partners shall continue the business in such case for the full time and in the manner provided for herein; and in such case the heirs and legal representatives of such deceased general par- ner shall stand in the same relation to such partnership as a special partner would, subject to no greater liabilities and entitled to the same relative rights." The check bore date of March 13th, a few days prior to the execution of the contract in Chicago, and evidently was made in con- templation of it. On the day of its date it was certified as good by the duly authorized officer of the bank on w'hich it was drawn, at Jensen's request. Before anything further was done under the agree- ment, and on October 9, 1901, Jensen died. From the testimony it appears that on December 1st Farrell delivered the check to White- side, Spence, Reichenthal, and himself, who, it seems, were then act- ing as a partnership under the firm name mentioned in the check and in the agreement. On the 17th of December one of these four men, by authority of his associates, placed this firm name on the back of the check, and at the same time each one of the four indorsed the check individually to their attorneys in Chicago — Heckman, Elsdon & Shaw. It is claimed that on the same day the check was disposed of by Heckman to this plaintifif for value, and that the latter was a bona fide purchaser thereof. At this time it was indorsed by this firm of attorneys and by Wallace Heckman individually, one of the firm. At the trial a verdict for the plaintifif was ordered and return- ed for the full amount of the check, and this appeal is from a denial of defendant's motion, in the alternative, for judgment notwithstand- ing the verdict, or for a new trial. The first question to which attention should be given is the agree- ment made between the five persons, and, as before stated, bearing date and actually executed in Chicago on March 18th. U that was nothing but an executory agreement to enter into a partnership upon the 1st day of December following (an inchoate partnershii> contract). the case must be disposed of upon the ground that the plaintiflF was not and could not be a bona fide holder (a purchaser of the check free from all equities and defenses), because it was never properly indorsed 56 WHAT CONSTITUTES A PARTNERSHIP or put in circulation by the payee. If the partnership had been form- ed as stipulated, then the right of the firm to indorse the check and convert the proceeds into capital funds would have been undoubted. If Jensen had lived, but had refused to proceed, the right of his pro- posed associates to indorse and put the check in circulation would have been implied. Under the agreement the check would have been forfeited to such of the other parties as stood ready to perform. But we are clearly of the opinion that Exhibit A was an executory con- tract entered into on the basis of the continuance of the life of each of the parties thereto. In itself it did not create a partnership, and the persons signing it never became partners, because performance became impossible when Jensen died. Such an event was not provided for in the agreement, and when it occurred the agreement was at once annulled as to all parties. The clause we have quoted, relating to the decease of one of the partners, was not applicable to a death occur- ring before a partnership had actually commenced. It is elementary that partnership relations must always be assumed by mutual con- sent and unanimously, and not otherwise, for they are strictly volun- tary and personal. A third person cannot be introduced into a firm as a partner without or against the consent of a single member. Jen- sen's legal representatives or his heirs at law could not take his place, and force themselves upon the other parties to the agreement. Either one of the survivors could refuse to proceed or to furnish his share of the capital, and could demand a return of the deposit, because Jen- sen had deceased and could not become a partner; nor could any one else, except by unanimous consent. His estate could not be compelled to pay the amount agreed by him to be paid toward the capital funds. It is plain that the other parties to the contract could not and should not be obliged to go into the business with a capital of $15,000, when it had been agreed that it should be $25,000, of which two-fifths ($10,000) was to be contributed by Jensen. And it is obvious from some of the provisions of the agreement that there was no intention to form a present partnership. But if we should hold that a partner- ship was actually entered into in March, when the contract was signed, every person named therein could be compelled to contribute the amount of capital subscribed by him. And Jensen's estate would not be relieved of pecuniary obligation when the check was paid, for there was no agreement that if the check was paid, or if damages were recovered in case of nonfulfillment, Jensen was to be relieved from his written obligation to contribute to the capital. The agree- ment was executory, and there was no partnership in praesenti. Per- sons who have entered into a contract to become partners at some future time, or upon the happening of some future contingency, do not become partners until the agreed time has arrived, or the contin- gency has happened. An executory contract does not create a part- nership. The contract must be executed, and the partnership actu- CONTEACT FOE A PAETNEBSHIP 57 ally "launched," before the relation will arise. Even after the arrival of the stipulated time the parties are not necessarily partners, and in fact they are not partners unless the partnership is launched. Any act, the performance of which is made a condition precedent to the formation of the partnership, must be performed, before a partner- ship will be held to exist. The test is to ascertain from the terms of the agreement itself whether any time has to elapse or any act remains to be done before the right to share profits accrues, for, if there is, the parties will not be partners until such time has elapsed or the act has been performed. Shumaker, Partn. p. 78 et seq. These rules are laid down in every text-book and in all cases where the subject has been discussed. We have found none in which it has been held that an agreement for a partnership to commence at a specified future day created, alone and of itself, a present partnership, even as to third parties. More than this, not one of the provisions of this agreement indicates an intent to create a partnership in prae- senti, and all are opposed to that idea. For illustration, the clause which provided that in case of default by one or more of the parties the amount deposited by him or them should be divided among those who stood ready to fulfill. The amount was not to become an asset of the firm. Also the clause that gave to each of the parties whatever interest his deposit might earn before December 1st, and the clause that gave to each of the general partners full liberty to engage in other business until that day. It is obvious that goods could not have been purchased, nor could any other form of obligation have been in- curred, in the firm name, and a recovery had, as against the part- nership, by any person who knew the contents of, and was obliged to rely upon, Agreement A. * * * As the firm of Whiteside, Farrell & Co., provided for in the agree- ment, and the payee of the check, never came into existence, the paper was never properly indorsed. The partnership was never launched, and the legal title to the check did not pass to his proposed associates when Jensen died. It follows that plaintiff did not derive title, and could not have been a bona fide purchaser, through the in- dorsements made. ♦ ♦ * Order reversed. The verdict will be set aside, and judgment entered for defendant. 58 WHAT CONSTITUTES A PARTNERSHIP XIII. Promoters of Corporations — Defective Corporations BIGELOW V. GREGORY et al. (Supreme Court of Illinois, 1874. 73 111. 197.) This was an action of assumpsit, brought by Bigelow, appellant, against Charles A. Gregory, Franklin H. Watriss, Oramel S. Hough, and Reuben Hatch, as copartners, doing business under the name and style of the Warfield Cold Water Soap Company, to recover for goods sold and delivered. The defendants in the court below pleaded the general issue, and also interposed a further plea denying the partner- ship, verifying the same by affidavit. The cause was tried by the court without a jury, and the issues found and judgment rendered for the defendants. The plaintiff brings the record here by appeal to re- verse the judgment. From the testimony it appears that in November, 1870, the de- fendants, with one Isaac N. Gregory, signed a certain paper, com- mencing: "Articles of Association of Warfield's Cold Water Soap Company, of Milwaukee. We, the undersigned, being desirous of forming a company for the purpose of carrying on a manufacturing business, as hereinafter stated, under authority of the act of the Legislature of the state of Wisconsin relating to joint-stock companies, approved April 2, 1858, and acts amendatory thereof, do hereby agree and certify that the name of the company is and shall be 'War- field's Cold Water Soap Company, of Milwaukee' " — proceeding to state at length the objects of the company, the amount of capital stock, its number of shares, the term of existence of the company, the number and names of the directors for the first year, they being the subscribers themselves, how the capital stock should be paid, the signers sub- scribing for all the stock and agreeing to pay it as required by the directors, and concluding: "We hereby adopt the foregoing as the articles of association of said Warfield's Cold Water Soap Company, of Milwaukee, for the purpose of becoming a body politic and cor- porate under said name. Witness our hands, at Chicago, Illinois, this twenty-third day of November, A. D. 1870. Charles A. Gregory. Franklin H. Watriss. Oramel S. Hough. Reuben Hatch. Isaac N. Gregory." This paper was filed in the office of the Secretary of State of Wis- consin on the 8th day of July, 1871, and in the office of the city clerk of Milwaukee August 23, 1871. It was also published in two news- papers in Milwaukee, the Guide and the Herald, September 13 and 15, 1871. 3 2 For a discussion of principles, see Gilmore on Partnership, §§ 17, 18. PROMOTERS OF COEPOBATIONS — DEFECTIVE CORPORATIONS 50 Sheldon, J.^' The only question here arising is whether the de- fendants were exempt from individual lial)ility by reason of having be- come a corporation. * ♦ * We are of opinion that in this case, as the question here comes up, the right of the defendants to be consid- ered a corporation depends upon their having complied with the re- quirements of their articles of association and the filing of the cer- tificate. These are important acts as affects the public interest, as af- fording means of notice respecting the corporation to such as deal with it, so that they may regulate their action and give or withhold credit accordingly, and we think they are to be regarded as statutory prereq- uisites, essential to corporate existence. The defendants are seeking escape from individual liability. Let them show that they have complied with the statute which enables them to do so, at least substantially, as respects the above-named acts. Such we regard to be the doctrine of the authorities. Unity Insur- ance Co. V. Cram, 43 N. H. 641 ; Mokelumne Mining Co. v. Wood- bury, 14 Cal. 425, 73 Am. Dec. 658; Harris v. McGregor, 29 Cal. 124; Field v. Cooks, 16 La. Ann. 153; Angell & Ames on Corp. § 83. * * * This court has never held that individuals could make themselves a corporation by the mere signing of articles of agreement. And in the language of T. Parsons on Partnership, p. 544, "we do not be- lieve that a joint-stock company, or any other partnership, can limit its own liabilities and become a corporation or limited partnership by its own act and without any regard to the formalities or require- ments of the law." And see Stowe v. Flagg et al., 72 111. 397. * * * Nothing had been done toward incorporation, except the signing of the articles of association, until July 8, 1871, when the articles were filed with the Secretary of State of Wisconsin. They may be re- garded, perhaps, as substantially embracing the particulars required in the certificate. The greater portion of the indebtedness sued for had been contracted prior to that time. The filing of the articles in the office of the city clerk of Milwaukee, in which place the business of the corporation was to be transacted, and the publication in the newspapers, did not take place until after August 19, 1S71, when the whole indebtedness had been contracted. We are -of opinion the defendants were liable as partners, and had not absolved themselves from responsibility as such by having be- come a corporation. Judgment reversed.'* 8« Part of the opinion Is omitted and the statement of facts Is ahrldsod. 84 Contra: Rutherford v. Hill. 22 Or. 218. 20 Pac. 540. 17 L. R. A. MO. 20 Am. St. Rep. 506 (1802). In McLennan v. Hopkins, 2 Kan. App. 200. 41 Pao. 1061 (1S05). the defendants did not attempt to incorporate, but pretended to be a corporation. They were held as partners. 60 WHAT CONSTITUTES A PARTNERSHIP XIV. Partnership by Estoppel" THOMPSON et al v. FIRST NAT. BANK OF TOLEDO, OHIO. (Supreme Court of the United States, 1884. Ill U. S. 529, 4 Sup. Ct. GS9, 28 L. Ed. 507.) Gray, J.^^ This action was brought by the First National Bank of Toledo, Ohio, a national banking association established at Toledo, against William H. Standley, William H. Whiteside, Josephus At- kinson, Edward R. Thompson, and Joseph Uhl, as partners in the business of private bankers at Logansport, Ind., under the name of the People's Bank, upon a draft for $5,000, drawn and accepted by the partnership on August 25, 1877, payable in 90 days after date to the order of the plaintiff's cashier, and taken by the plaintiff in re- newal of a like draft discounted by it for the partnership on May 5y 1877. Thompson filed a separate answer, denying that he was a mem- ber of the partnership, or liable to the plaintiff on the draft sued on. He died pending the suit, and it was revived against his administra- tors. * * * The jury returned a general verdict for the plaintiff, upon which judgment was rendered. The defendants sued out this writ of er- ror. * * * The plaintiff at the trial sought to charge Thompson with liability as a partner upon two grounds : First, that he was actually a partner ; second, that, if not actually a partner, he had held himself out to the world as such. And the case was submitted to the jury upon both grounds. The first and second assignments of error relate to the exclusion of evidence offered by the defendants bearing upon the first ground of action. The third and fourth assignments of error relate to the instructions given and refused as to the second ground of action. [The first and second assignments of error were sustained.] The remaining and the principal question in the case is whether the liability of Thompson, by reason of having held himself out as a part- ner, was submitted to the jury under proper instructions. The court was requested to instruct the jury that if Thompson was not in fact a member of the partnership, the plaintiff could not recover against him. unless it appeared from the testimony that he had know- mgly permitted himself to be held out as a partner, and that the plain- tiff had knowledge thereof during its transaction with the partner- 8 5 For a discussion of principles, see GUmore on Partnership, § 21. 86 Part of the opinion is omitted. PABTNERSHIP BY ESTOPPEL 61 ship. The court dechned to j^ive this instruction, and instead thereof instructed the jury, in substance, that if Thompson permitted himself to be held out to the world as a partner, by advertisements and other- wise, as shown by the evidence, and to be introduced to other persons as a partner, the plaintiff was entitled to the benefit of the fact that he was so held out, and he was estopped to deny his liability as a partner, althou.c:h the plaintiff did not know that he was so held out, and did not rely on him for the payment of the plaintiff's debt, or give credit to him, in whole or in part. This court is of opinion that the circuit court erred in tlie instructions to the jury, and in the refusal to give the instruction requested. A person who is not in fact a partner, who has no interest in the business of the partnership and does not share in its profits, and is sought to be charged for its debts because of having held himself out, or permitted himself to be held out, as a partner, cannot be made liable upon contracts of the partnership except with those who have contracted with the partnership upon the faith of such hokling out. In such a case, the only ground of charging him as a partner is that, by his conduct in holding himself out as a partner, he has induced per- sons dealing with the partnership to believe him to be a partner, and, by reason of such belief, to give credit to the partnership. As his lia- bility rests solely upon the ground that he cannot be permitted to deny a participation which, though not existing in fact, he has assert- ed, or permitted to appear to exist, there is no reason why a creditor of the partnership, who has neither known of nor acted upon the as- sertion or permission, should hold as a partner one who never was in fact, and whom he never understood or supposed to be, a partner, at the time of dealing with and giving credit to the partnership. There may be cases in which the holding out has been so public and so long continued that the jury may infer that one dealing with the partner- ship knew it and relied upon it, without direct testimony to that ef- fect. But the question whether the plaintiff was induced to change his position by acts done by the defendant or by his authority is, as in other cases of estoppel in pais, a question of fact for the jury, and not of law for the court. The nature and amount of evidence requisite to satisfy the jury may vary according to circumstances. But the rule of law is always the same : that one who had no knowledge or belief that the defendant was held out as a partner, and did nothing on the faith of such a knowledge or belief, cannot charge him with liability as a partner if he was not a partner in fact. * * * Mr. Justice Lindley, in his treatise on the Law of Partnership, sums up the law on this point as follows : "The doctrine that a person hold- ing himself out as a partner, 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." "The expression in W'augh v. Carver, 'if he will lend his name as a partner, he becomes as against all the rest of the world a partner,' requires qualification; for the real ground 62 WHAT CONSTITUTES A PARTNERSHIP on which liability is incurred by holding one's self out as a partner is that credit has been thereby obtained. This was put with great clearness by Mr. Justice Parke in Dickinson v. Valpy." "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 ; and, secondly, it must have been known to the person seeking to avail him- self of it. 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 of the second, the person seeking to make him liable has not in any way been misled." Lindl. Partn. (1st Ed.) 45^7, (4th Ed.) 48-50. * * * The result is that both, upon principle and upon authority, the third and fourth assignments of error, as well as the first, must be sustain- ed, the judgment of the circuit court reversed, and the case remanded to that court with directions to order a new trial. POOLE V. FISHER. (Supreme Court of Illinois, 1871. 62 111. 181.) Thornton, J. This suit was brought against appellees, as partners, for goods sold and delivered. They denied the partnership by proper pleas, verified by affidavit. The judgment was rendered against Fisher for the debt, and in favor of Miller for costs. The claim is not dis- puted; and the only question is, was Miller liable, as partner, for the debt incurred? Fisher, a man without means or credit, commenced business in Chicago, and purchased goods of appellants, merchants in New York. The firm name was A. D. Fisher & Co. The reporter of the mercantile agency in Chicago had an interview with Miller as to the parties who comprised the firm of Fisher & Co. Miller informed him that his father and himself were general part- ners of Fisher. Upon this information a report was sent to New York that the firm was responsible, so long as Miller & Son were connected with it. Poole testified that Fisher said to him, when he purchased goods, that Miller was his partner, and the moneyed man of the firm ; that afterward he saw Miller in the store in Chicago; was introduced to him as the partner of Fisher; conversed with him as partner; sup- posed him to be so; sold the goods under that belief; and met Miller at the Sherman House afterward; and he assured the witness that the claim would be paid. McKean testified that both Fisher and Miller told him that Miller was one of the firm; that he was introduced to Miller as the partner of Fisher; and the former admitted that he was a full partner. Fisk testified that he first met Miller and Fisher in the fall of 1867 ; that Fisher spoke of Miller as his particular friend and partner; that Miller remarked that he took no active part in the PARTNERSHIP BY ESTOPPEL 63 business, but allowed Fisher to mana,:je it ; that afterward Miller spoke to him about a bill due by the firm, and said it must be paid. Kelley, a clerk for the firm, testified he had a conversation with Miller, before the store was opened, and he said if the business proved successful, "we will go in on a large scale;" that he would be satisfied if the store paid his spending money; that on one occasion Miller said to him, "do the best you can for us, and we will do well by you ;" that he made inquiries about the business ; and tliat he frequently heard Fisher introduce Miller as his partner, without any denial on the part of Miller. This proof, if it does not show an actual partnership between the parties, is pretty conclusive that one existed as to third persons. The testimony in defense is very slight. Fisher made a positive denial of the partnership, and of all his acts and language indicating this re- lation. He is, however, so flatly contradicted by so many persons that we cannot attach much weight to his evidence. Miller denied the partnership in fact ; but he does not negative the numerous acts and remarks proved which necessarily induced third parties to believe that he was a partner. His reply generally was, "I don't remember." This was manifest evasion ; for it would be passing strange if he could not recollect the interviews with Poole, and McKean, and Fisk. The testimony of the father has no weight in the scale. He said that his son was not a partner. How could he know the exact relation between the parties? He said, however, that he loaned $10,000 to Fisher, and that his son and Fisher spoke to him about furnishing the money. No reason is assigned for this generosity on the part of the father ; no guide afforded to explain this exceeding interest on the part of the son. Wie shall not inquire whether there was an actual partnership or not. The acts and language of Miller most clearly induced appellants to give credit to the firm. The credit was given upon his responsibility. These creditors evidently believed him to be a partner, and acted upon such belief. The belief was honest, and fully justified by the conduct of Miller. The law will therefore hold him liable, upon principles of general policy, and for the prevention of frauds upon creditors. The conduct, as well as representations, of Miller to one of appellants, are sufficient to charge him as partner. He held himself out as such, and cannot escape the consequences. Story on Part. § 64; Fisher v. Bowles, 20 111. 396; Niehoflf v. Dudley. 40 111. 406. The testimony is so overwhelming in favor of appellants that we are constrained to reverse the judgment and remand the cause. Judg- ment reversed. 64 FORMATION AND CLASSIFICATION FORMATION AND CLASSIFICATION OF PARTNERSHIPS I. Partnership Arises from a Contract ' PHILLIPS V. PHILLIPS. (Supreme Court of Illinois, 1S63. 49 111. 437.) See ante, p. 7, for a report of the case. SABEL et al. v. SAVANNAH RAIL & EQUIPMENT CO. (Supreme Court of Alabama, 1903, 135 Ala. 3S0, 33 South. 663.) Tyson, J. The important question presented is whether the agree- ment shown by the bill constituted complainants and respondents part- ners. It is made to appear that respondents called the complainants' attention to the possibility of purchasing on very favorable terms 17 secondhand narrow-gauge locomotives from the Plant System ; and thereupon an agreement was made to purchase the engines, and which- ever party (complainants or respondents) should have the opportunity to buy would do so "upon the best terms possible," and when pur- chased the engines should be sold on joint account. It further appears that respondents did buy, but it does not appear that the purchase was made on joint account. After the purchase, complainants, with- out knowing the terms of the contract of purchase, wrote the respond- ents, saying: "We had an agreement with you to purchase these loco- motives on joint account. Please let us know what you have done in the matter." To this the respondents replied : "We have bought the seventeen narrow-gauge locomotives from the Plant System for $18,- 000, as they are. As we stated to you that we would consider you in the deal, if you desire to be half partners of this material, send us your check for $9,000, and we will consider you in on joint account." It does not appear what, if any, reply was made to this letter. It must be inferred that complainants made no reply, or declined the offer. Complainants allege that they afterwards discovered that re- spondents bought the engines for $17,000, without paying any cash except as the engines were sold by them, and that they received $10,- 000 profit out of the transaction. The purpose of the bill is to make the respondents, as partners, account to complainants for these profits. 1 For a discussion of principles, see Gilmore on Partnership, § 22. PAETNEESHIP ABISES FBOM A CONTEACT 66 It would seem that, from complainants' refusal to reply to the re- spondents' letter, although the latter may have stated the trade with the Plant System differently from that actually made, the complain- ants did not consider themselves bound by the dealing of their alleg- ed partners — conceding that there may be a valid partnership be- tween the two concerns — unless the terms of the trade were favorable. This is not the way partners deal. When a partnership transaction is made, partners are absolutely bound thereby. There is no discre- tion about participating. The respondents' letter also plainly indicat- ed that they did not consider the complainants concerned in the pur- chase until they consented to be bound. Here, then, we have the in- terpretation of the contract by both parties concerned, each indicating to the other and each acquiescing in the view that there was a mere agreement relating to the future, and not an actual partnership. And when we look at the nature of the agreement as detailed in the bill, we see it could mean nothing else. There was nothing contributed ; nothing done at the making of the agreement, except to stipulate that the parties, acting separately, as occasion might offer, would buy (if possible) the engines on "the best terms possible," and that when pur- chased on those terms, as the complainants insist, and not otherwise, they would be partnership property, and be sold as such. Who was to say, and when, that "the best terms possible" had been made? The agreement was not that the purchase should be made at all events, or at the discretion of either party, or by their joint action. But, as we have said, each of the partners was to act separately, and thus on individual account, until the other party acceded to the transaction. Thus it is made evident from the conduct of the parties, and the agree- ment itself, that there was no actual partnership. To constitute a partnership, there must be a "valid agreement to enter into partner- ship, and this contract must be executed." Parsons on Part. p. 6. Unless something is done, or unless the agreement, from its nature, operates in praesenti, the contract is executory, and either party may decline to carry it out, though liable, it may be, to a bill for specific performance or for damages at law in proper cases. 23 Am. & Eng. Enc. Law (2d Ed.) 52, and note 2; Meagher v. Reed, 14 Colo. 335, 24 Pac. 681, 9 L. R. A. 455, 460; Latta v. Kilbourn, 150 U. S. 546, U Sup. Ct. 201, 37 L. Ed. 1169. We feel constrained to hold that the facts alleged in the bill do not show a partnership, and that the motion to dismiss the bill for want of equity should have been granted. In conformity with this conclu- sion, a decree will be here entered reversing the decree below and dis- missing the bill. Gilm.Pabt. — 5 66 FORMATION AND CLASSIFICATION II. Requirements of the Contract* 1. Competency of the Parties HOAGLIN V. C. M. HENDERSON & CO. (Supreme Court of Iowa, 1903. 119 Iowa, 720. 94 N. W. 247, 61 L. R. A. 756, 97 Am. St. Rep. 335.) McClain, J.' The nature of the controversy involved in this case, and the questions of law arising therein, will be better understood from a brief narrative of the facts as shown in the evidence: H. A, Hoaglin had been engaged in business at Mt. Pleasant, and in January, 1900, sold out his business; receiving therefor a sum in cash entirely insufficient to pay the indebtedness contracted by him in conducting his business. Being without other property or resources, he proceed- ed to settle with his creditors, who were pressing for payment of their respective claims, by paying to each a portion of the indebtedness; taking receipts in full for the respective claims. It does not appear that these settlements were made on any uniform basis, or in pur- suance of any agreement for compensation with creditors. In some instances about one-third of the claims were paid; in other instances, more. One of these creditors was the defendant firm, and through their attorney they accepted one-third of their claim, and receipted in full for the entire amount. Thereupon H. A. Hoaglin, with his wife, who had previously been conducting a millinery business in her own name in connection with the business carried on by H. A. Hoaglin, removed to Ottumwa, and, as it is contended, entered into a contract to carry on a partnership business under the name of H. A. Hoaglin. This alleged firm was without other assets than $250 of the wife's money, and $500 borrowed by husband and wife on their joint note from the wife's sister. With this sum of money in hand, H. A. Hoag- lin, without disclosing the fact that he was acting as member of the alleged firm, or that his acts were done otherwise than in his individual capacity, ordered through one Meades, the traveling agent for de- fendant firm, a bill of goods amounting to $1,000; paying $575 by draft delivered to said Meades, and proposing to pay the balance on time. The order contemplated the immediate shipment of the goods from defendants' place of business, in Chicago, to H. A. Hoaglin, at Ottumwa. Meades, having no authority to accept an order forwarded the order to defendants for acceptance and approval, accompanied by the draft, whereupon defendants refused to accept the order, and e For a discussion of principles, see Gilmore on Partnerstiip, §§ 23-28. 8 Part of the opinion is omitted. BEQUIEEMENTS OF THE CONTRACT C7 notified HoagHn that they would retain so much of the money as was necessary to satisfy the balance of their previous indebtedness ap^ainst him, and would pay over to him, or furnish him goods for, the surplus. ThercuiJon Iloaglin and wife, suing as partners, brought this ac- tion to recover from defendants the amount of money represented by the draft delivered by Hoaglin to Meades for defendants, and ap- propriated by defendants to their own use. The suit, as originally brought, was by attachment, and notice was by publication, but de- fendants entered an appearance and secured the dismissal of the at- tachment by giving bond to pay the amount of any judgment remicrcd. The case was presented to the jury in the lower court on the theory that if the evidence showed HoagUn and wife to have been partners, and the money paid by Hoaglin to Meades to have been partnership funds, then the attempted application by defendants of the money re- ceived through Meades to the satisfaction of the individual debt of Hoaglin was improper, and plaintiffs, as partners, were entitled to recover the entire amount so paid; and counsel for appellants pre- sent the question whether husband and wife can be partners, con- tending that there was no lawful partnership, and that the money paid by Hoaglin was his own money, out of which defendants had a right to recoup themselves to the extent of Hoaglin's previous in- debtedness to them. We shall not stop to consider the question whether the acceptance by defendants from Hoaglin of a part of his previous indebtedness, under the agreement that the entire indebtedness should thereby be discharged, constituted an accord and satisfaction, but shall proceed at once to determine whether a legal partnership between husband and wife can exist in this state. The common-law rule that married women cannot enter into a contract of partnership seems to be based on their incapacity at common law to contract for any purpose. CoUyer on Partnership (5th Am. Ed.) § 15; Parsons on Part. § 19; Weisiger v. Wood, 3G S. C. 424, 15 S. E. 597; De Graum v. Jones, 23 Fla. 83, 6 South. 925. The power of a married woman to enter into a contract of partnership, if it ex- ists at all in any of the states in which the common-law system pre- vails, must depend upon statutory authority ; and in several cases the question has been considered as to whether particular statutory en- largements of the powers of married women as to contracting and managing their separate property have rendered them competent to enter into partnership relations. Thus it has been held that authority to acquire, hold, and dispose of property as a separate estate will sus- tain a contract of partnership made by a married woman with a per- son other than her husband. Abbott v. Jackson, 43 Ark. 212. And undoubtedly the general power to contract which is conferred upon married women in some states would support a contract of partner- ship. But on the question whether the statutes extending the powers of married women with reference to the making of contracts and the ownership and disposition of separate property confer the power to 68 FORMATION AND CLASSIFICATION enter into the relation of a business partnership with the husband, the courts seem to be somewhat at variance, not only on account of differ- ences in terms of the statutes in which the power is conferred, but al- so on account of differences of opinion as to the bearing of rules of public policy. In Massachusetts it is said that authority to buy and sell and enter into contract with reference to her personal property, to carry on trade, and to sue and be sued, does not involve power to enter into a partnership with the husband. Lord v. Parker, 3 Allen, 127. To same eft'ect in states where the statutes give a married woman the right to control and contract with reference to her property, see Payne v. Thompson, 44 Ohio St. 193, 5 N. E. 654; Fuller v. Mc- Henry, 83 Wis. 573, 53 N. W. 896, 18 L. R. A. 512; Haas v. Shaw, 91 Ind. 384, 46 Am. Rep. 607; Artman v. Ferguson, 73 Mich. 146, 40 N. W. 907, 2 L. R. A. 343, 16 Am. St. Rep. 572; Gwynn v. Gwynn, 27 S. C. 525, 4 S. E. 229; Gilkerson-Sloss Commission Co. V. Salinger, 56 Ark. 294, 19 S. W. 747, 16 L. R. A. 526, 35 Am. St. Rep. 105. In other states, statutes to substantially the same effect have been held to so far enlarge the legal capacity of a married woman as to authorize her not only to enter into a partnership contract in general, but specifically to enter into such contract with her husband. Toof V. Brewer (Miss.) 3 South. 571; Suau v. Caffe, 122 N. Y. 308, 25 N. E. 488, 9 L. R. A. 593. It has been held, however, that where the statutes not only confer the right to own and contract with reference to her separate property, but also the general power to con- tract, the wife may not only enter into business partnership relations in general, but also specifically with her own husband, and this is said not to be contrary to any dictate of public policy. Burney v. Grocery Co., 98 Ga. 711, 25 S. E. 915, 58 Am. St. Rep. 342; Lane V. Bishop, 65 Vt. 575, 27 Atl. 499. And see Bernard & Leas Mfg. Co. v. Calvin, 12 C. C. A. 123, 64 Fed. 309. The question of public policy involved in these statutory enlarge- ments of the powers and liabilities of married women must be deter- mined with reference to the general tenor of the statutory provisions on the subject as they have been found in the different states. In this state, under the provisions of Code, §§ 3153, 3164, which give to married women the right to acquire, own, and dispose of property in the same manner and to the same extent as their husbands may do, and to make contracts and incur liabilities which may be enforced by or against them to the same extent and in the same manner as if they were unmarried, it is not open to question that a wife may become surety for her husband, and be liable generally on such contract of suretyship, may become the general creditor of her husband, may be joint owner of property with him, and may be his agent, or may make him her agent, in the transaction of business. Citation of au- thorities to support these propositions would be wholly unnecessary. These unquestioned powers of a married woman in this state to deal with her husband would seem to cover all the powers and liabilities REQUIREMENTS OF THE CONTBACT 69 involved in entering into or continuing the relation of partner with her husband. The essential characteristics of a partnership seem to be joint ownership of property, and authority of each partner to bind the other partners by his acts with reference to the partnership property, and also to impose upon the other partnership liability. As these re- lations may be separately sustained between husband and wife, we see no reason why they may not be collectively created by entering into and carrying on the relation involved in the formation of the en- tity known as a partnersiiip. The only objection which occurs to us is that involved in the denial of the capacity of husband or wife to maintain a suit in a court of law or equity against the other, except as such power is expressly conferred, as decided in Heacock v. Hea- cock, 108 Iowa, 540, 79 N. W. 353, 75 Am. St. Rep. 273, in which we have held that the relations of husband and wife to each other are such as to preclude a suit by the one against the other for breach of contract or for tort, unless it be for the preservation or protection of the separate property; and it is argued that this inability of the wife to sue the husband would preclude the existence of a business part- nership arrangement between them. But we do not think that the conclusion follows. The same argument would lead to the result that a valid contract cannot be made between them, such as a contract for the repayment of money advanced by one to the other; and yet, as we have suggested, that is not the law of this state, and there is no intimation in the Heacock Case that it was intended by that decision to declare that such contracts are necessarily invalid. It, no doubt, might at one time have been reasonably argued that, inasmuch as a right of action by the wife against the husband was denied to her, she was not competent to voluntarily enter into contract or joint property relations with him, such as would involve for their protec- tion a general right to sue. But the time for that argument is past. The right to contract with the husband is now so well established that it would be inexcusable to say that its existence is negatived by a holding that public policy forbids a suit by the wife against the hus- band on account thereof. It may well be suggested, also, that there is express authority for a suit by the wife against the husband to recover her property, or any right growing out of the same (Code, § 3155), and therefore that, as the wife may at any time terminate any business partnership relation which may exist with her husband, and thereby become practically a joint owner only with him in the partnership property, there would seem to be no impossibility of sustaining an action by her against him for any right growing out of their joint ownership. In short, we think that, in view of the statutory provisions extending the legal powers and rights of married women, we cannot say that there is any public policy recognized in this state which precludes the existence of a business partnership relation be- tween husband and wife. None of the cases holding that such relation cannot exist are applicable to a condition of affairs as to the wife's 70 FORMATION AND CLASSIFICATION capacity to make general contracts, and own and control her own prop- erty, such as exists in this state, except that of Seattle Board of Trade V. Harden, 4 Wash. 2G3, 30 Pac. 87, 32 Pac. 224, 16 L. R. A. 530, 31 Am. St. Rep. 919, and Haggett v. Hurley, 91 Me. 542, 40 Atl. 561, 41 L. R. A. 362, and we find ourselves unable to indorse the views ex- pressed in these cases. Our conclusions find support not only in the cases already cited, but also in Belser v. Banking Co., 105 Ala. 514, 17 South. 40; Schlapback v. Long, 90 Ala. 525, 8 South. 113; Fuller V. Ferguson, 26 Cal. 546 ; In re Kinkead, 3 Biss. (U. S.) 405, Fed. Cas. No. 7,824; Clark v. Hezekiah (D. C.) 24 Fed. 663; Snell v. Stone, 23 On 327, 31 Pac. 663. * * * After considering all the questions raised in behalf of appellants, we reach the conclusion that the judgment of the trial court should be affirmed.* BUSH V. LINTHICUM. (Court of Appeals of Maryland, 1882. 59 Md. 344.) Bill in equity by Linthicum for the dissolution of a partnership be- tween himself and Wier. Wier set up the defence of infancy. In the Circuit Court Miller, J., said in part: On the part of the defendant, it is strenuously insisted that this plea of infancy is a flat and absolute bar to all the relief asked by the com- plainant in his bill, and) that the same must be dismissed with costs, and the proceedings ended. To this proposition, thus broadly stated and insisted upon, I cannot yield assent. I concede that the law casts its protection and guardianship around infants, as to all their con- tracts except those for necessaries, and that it is not competent for the court in this case to pass any decree which will impose any per- sonal liability upon the infant defendant for the debts of this firm, or enforce upon him any of the terms or conditions of this partnership contract, or even compel him to pay any of the costs of these pro- ceedings. So far I agree that his infancy protects him, but I am clear- ly of opinion that it is perfectly competent for the court to decree a dissolution of the partnership, and to wind up its affairs through the medium of a receiver — that is, to collect the debts due the firm, sell its assets, and apply the same to the payment of its debts. In doing this no wrong is done to the infant, no executory contract is enforced against him, and he is thereby merely restrained from using his in- fancy as a means of doing injustice to, or, perhaps, perpetrating a fraud upon, his co-partner. If the court has not the power to grant relief to this extent, then the adult will, in every case, be placed at the mercy of an infant partner. * As to whether corporations can enter into partnership, see Merchants' Na- tional Bank V. Wehrmann, 69 Ohio St IGO, 68 N. E. 1004 (1903). BEQUIEEMENTS OF THE CONTEACT 71 All the books upon partnership lay down the proposition that an infant may become a partner with an adult. It is a contract not ab- solutely void, but one which the infant may stand to or repudiate, at his election. While he remains a partner he has the rights and powers of a partner. He has equal right with his co-partner to the posses- sion of the assets of the firm, to collect the debts due it, and he has also the power to contract debts in the name of the firm, which, though he may himself subsequently repudiate, and get rid of personal re- sponsibility therefor, are still binding upon his co-partner. Take the case of an adult who has unfortunately entered into a partnership with an infant, who misrepresented himself at the time to be of full age. After a short time, both become dissatisfied, mutual confidence is destroyed, and each becomes odious to the other. The infant then knowing the security from responsibility which his infancy affords him, and at the same time availing himself of his powers as a partner, and seeking to defraud and injure his co-partner, proceeds to get possession of the partnership assets, to sell them, and to put the pro- ceeds in his pocket, and goes on contracting debts which he knows he is not responsible for, but which he also knows will work the absolute bankruptcy of his co-partner. Is it possible that a court of equity has no power, at the instance of the adult partner, to lay its hands upon such a concern, stay the consummation of his ruin, and release the tie which binds him to the body of such a death? In my opinion there is no such lack of remedial power in courts of equity, and infancy cannot be availed of as a bar to such relief. If authority be needed in support of this position, it seems to me that it is abundantly sus- tained by the decision of the chancellor in the case of Kitchen v, Lee, 11 Paige (N. Y.) 107, 42 Am. Dec. 101. Tt is thereupon adjudged and ordered that the plea of infancy filed in this case by the defendant be and the same is hereby overruled and rejectedl in so far as it is sought to be used as a bar to so much of the relief prayed by the bill as asks for a dissolution of the partnership, the granting of the injunction prayed for, and the appointment of a receiver to take charge of and wind up the affairs of the firm by col- lecting the debts due to it, by taking possession of and selling its as- sets, and by applying the same to the payment of its debts. On appeal to the Court of Appeals, the foregoing opinion was ap- proved, and order affirmed. 72 FORMATION AND CLASSIFICATION 2. Consideration COLEMAN V. EYRE. (Court of Appeals of New York, 1871. 45 N. Y. 38.) Rapallo, J.'* The plaintiff was interested to the extent of one- fourth in the profits or losses of a shipment of coffee undertaken by him jointly with other parties. After the adventure had been begun, and before the coffee had) reached its port of destination, it was mutually agreed between the plaintiff and the defendant that the latter should have one-half interest in the plaintiff's one-fourth interest in the ad- venture. The speculation resulted in a loss, and this action was brought to recover one-half of the plaintiff's proportion of such loss. It is now claimed on the part of the defendant that no valid contract was made between him and the plaintiff; that inasmuch as the plaintiff had embarked in the speculation before and without reference to any arrangement with the defendant, and the defendant had not done or contributed anything to aid in the joint enterprise, there was no partnership, and no consideration for the undertaking of the plaintiff to give him one-half of the profits; that therefore the defendant could not have enforced payment of half the profits if the adventure had been successful, and consequently no agreement on his part to con- tribute to the loss can be implied. This argument assumes that the agreement was simply that the de- fendant should have one-half of the profits which the plaintiff might make out of the adventure in case it should prove successful. But such was not the agreement proved. The agreement was that the de- fendant should share with the plaintiff in the adventure, and it seems to have been clearly understood that he should participate in the result, whether it should prove a profit or a loss. That it might result in a loss was contemplated by the parties. There is evidence in the case that the possibility of that event was the subject of conversation be- tween them at the time of making the contract; that the hope was then expressed that the plaintiff would not be compelled to call upon the defendant to contribute to a loss; and that afterward, when they did call upon him to contribute, he did not dispute his liability, but sought to reduce the amount by claiming a portion of the plaintiff's commissions. The evidence fully justified a finding that, in consideration of the agreement by the plaintiff to account to the defendant for half the profits in case of success, the defendant undertook to bear half the loss in the contrary event; and the intendment is that the referee did so find. Indeed, such is a proper construction of the actual find- 6 Part of the opinion is ouiitted. BEQUIREMENTS OF THE CONTRACrT 73 ing. It is a clear case of mutual promises; and the oblip^ation of each party was a good consideration for that of the other. Briggs v. Tillotson, 8 Johns. 304. * * * The agreement was not within the statute of frauds. It was not an agreement for the sale of any personal property or chose in action, but an executory agreement, whereby one party undertook to bear one part of a possible loss in consideration of a share of an expected profit. The judgment of reversal and order granting a new trial should be reversed, and the judgment for the plaintiff entered on the report of the referee should be affirmed, with costs. Order of General Term reversed. 3. FoRMAUTiES — Statute of Frauds MARSH V. DAVIS et al. (Supreme Court of Kansas, 1885. 33 Kan. 32G. 6 Pac. 612.) HoRTON, C. J.* This was an action for the dissolution of a partner- ship, and for an accounting. The evidence conduced to show : That prior to March 12, 1875, there existed at lola, in this state, a firm, com- posed of W. E. Davis, George S. Davis, and Elias Bruner, engaged in the milling business under the name of W. E. Davis & Co. That the firm were then the owners of a grist and saw mill, and certain per- sonal property, and tracts of land, all used for partnership purposes, and in connection with the mill. That on March 12, 1875, it was verbally agreed between the members of the firm that the plaintiff should be taken into the partnership as a member thereof, on the fol- lowing terms: All the property of the partnership was valued at $12,000; each partner was to have an equal share therein; the plaintiff was to pay $3,000, but it was understood "that he was to have his share in the partnership without interest on this sum until such a time as the proceeds of the mill or business made it." That it was further agreed among all the members that the partnership should be consummated by an entry in the journal and ledger books, setting forth that the parties had associated themselves together as partners, and the amounts invested by each member were to be shown by his credits on the ledger. That the entries upon the journal and ledger were made in accordance with this agreement. That on March 13, 1875, the plaintiff was permitted to go in possession jointly with the • Part of the opinion is omitted. 74 FORMATION AND CLASSIFICATION Other parties. That all the parties acted on the agreement until about the middle of November, 1882. That the partnership after March 13, 1875, continued to do business under the firm name of W. E. Davis & Co. That it was the particular duty of plaintiff to keep the books of the firm, and look after such other business as he could. That at the formation of the new partnership on March 12, 1875, the grist- mill was somewhat dilapidated, and was not making good flour. That the sawmill was very old, and pretty well worn out. That W. E. Davis and G. S. Davis were brothers. That the wife of plaintiff was the sister of W. E. and G. S. Davis, and also the sister of the wife of Elias Bruner. That the plaintiff kept the books, and also collected for the firm, borrowed money, brought suits against different parties, and did almost everything that was to be done to further the interests of the firm. That the defendants allowed him to hold himself out to the public as a partner, to sign the firm name to negotiable paper, subscriptions to public enterprises, and officials' bonds, to bring suits, and defend suits, as a partner. That land was condemned for a mill- dam. That plaintiff paid the money therefor from the proceeds of the business. That a dam was constructed across the Neosho river, where the mill is now located. That the old mill was taken down and moved to the new location in the spring of 1880. That a new mill was made out of it ; that is, the old mill was rebuilt, and considerable new machinery put in it. That the expense of doing this was over $4,000. That about $1,500 was borrowed. That the balance of the money was paid from the proceeds of the mill. That the defendants accepted $110 they owed him prior to March 12, 1875, as part pay- ment of the $3,000, and used it in the partnership business. That the plaintiff also paid between $50 and $60 upon the purchase price of his interest in the firm after he became a member thereof. That during the partnership he drew out $1,900. That about the middle of November, 1882, plaintiff was excluded by the defend- ants, without any good reason or excuse, from further partic- ipation in the partnership, and was forbidden by the other partners from exercising any rights or control over the partnership business or property. That at the time of such exclusion the property of the firm was worth about $30,000, having increased from $12,000 in 1875 to $30,000 in 1882. After the introduction of all the evidence, on the part of the plain- tiff, that the court would admit, the defendants interposed, and filed a demurrer thereto, upon the ground that no cause of action was proved. The court sustained the demurrer, and plaintiff excepted. This is the important ruling complained of. To sustain this ruling, the defendants contend that the contract of March 12, 1875, being for an interest in real estate, is, as to such real estate, void, under the statute of frauds; and that, being void as to the real estate, it is also void as to the personal property, and the right to become a part- ner, which, as defendants allege, were parts of an entire and indivis- REQUIREMENTS OF THE CONTRACT 75 ible contract. The proposition is conceded by the defendants, that where real estate is purcliascd with partnership funds, for partnership purposes, after the partnership has been formed, such real estate is to be treated as part of the partnership property, and, as a conse- quence, personal estate. It is also well settled "that parol testimony is admissible to prove a resulting trust in relation to real estate, and that land purchased in the name of one partner, for the use and benefit of the firm, raises a resulting trust which will be enforced." Story, Eq. Jur. §§ 120G, 1207; Scruggs v. Russell, 1 McCahon, 39. These principles are applicable to this case and decisive against the defendants. When the plaintiff was taken into the partnership of W. E. Davis & Co., on March 12, 1875, as the firm was then in existence, and in the possession of real estate purchased for partnership pur- poses, and then appropriated to those purposes, such real estate was partnership property, and the plaintiff, by acquiring an interest in the partnership by verbal contract, and thereafter having acted under the contract as one of the partners, with the consent of all the mem- bers, is not to be deprived of his interest in the partnership, either as to the personal property or real estate, on account of the statute of frauds. The cases establish that a partnership in any branch of trade or business may be shown by parol as an existing fact, and that what- ever real estate is held for the purpose of such business is regarded as an incident thereto, and the law will imply a trust in favor of the partnership, however the lands be held in law. For an illustration: If a mercantile firm carrying on the business of buying and selling goods, and as an incident to the business owning and having in posses- sion the building in which the business is transacted, takes into the partnership another person, who purchases an interest in the partner- ship, and, as a partner, is let in possession of the partnership proper- ty, and all the parties act on the agreement, such person is not to be deprived of his right in the real estate held by the firm at the time he became a member thereof because his agreement with the other part- ners was not in writing. If the partnership be proved, that will suf- fice to establish a partnership trust in the land intended and treated by all the partners as partnership property, however the land be held ; and this will not be incompatible with the conditions of the statute of frauds. Scruggs v. Russell, supra; 1 Lindl. Partn. 87-90; Bird V. Morrison, 12 Wis. 138; Borden v. Whaling Co., 10 Cush. (Mass.) 458 ; Browne, Frauds, §§ 259-263. We think it is immaterial whether the real estate in this case was bought with partnership funds, for partnership purposes, after the formation of the partnership, or whether a part of the real estate was put into the firm as partnership property at the formation of the new firm on March 12, 1875, if the parties have acted on the agreement and become partners. In such case, the statute of frauds ceases to be applicable. Smith v. Tarlton, 2 Barb. Ch. (N. Y.) 336; EisscU v. Harrington, 18 Hun (N. Y.) 81. * * * 76 FORMATION AND CLASSIFICATION The judgment of the district court will be reversed, and the cause remanded for further proceedings in accordance with the views here- in expressed.' III. Subject-Matter » THE QUEEN v. ROBSON. (Crown Cases Reserved, 1885. L. R. 16 Q. B. Div. 137.) See, ante, p. 49, for a report of the case. CENTRAL TRUST & SAFE DEPOSIT CO. et al. v. RESPASS. (Court of Appeals of Kentucky. 1902. 112 Ky. 600, 66 S. W. 421, 56 L. R. A. 479, 99 Am. St. Rep. 317.) Action by Jerome B. Respass against the executors of Solomon L. Sharp for a settlement of partnership accounts. Judgment granting relief sought, and defendants appeal. Du RelIvE, J." Jerome B. Respass and Solomon L. Sharp appear to have formed a copartnership, extending over several years, in the business of managing a racing stable, and, in connection with that business, were engaged in "bookmaking," or making wagers upon race horses. They seem, also, to have had an interest in a pool room at Newport. For the book business a separate account was kept by a cashier employed for the purpose. They had no regular time for mak- ing settlements with each other, but at various times, when requested, the cashier made out statements of the booking business of the firm. It appears from the testimony of Bernard, the cashier, that Sharp in November, 1897, handed him $1,724, and told him to deposit it to his (Sharp's) credit in the Merchants' National Bank of Cincinnati, Ohio, which was done. Sharp appears to have stated at the time that one-half of this fund belonged to Respass. It appears further that T "A contract forming a partnership to be continued beyond one year is within the section of the statute of frauds which provides that every agree- ment which by its terms is not to be performed in one year from the making thereof is void unless it is in writing, and a partnership so formed is a part- nership at will. Morris v. Peckham, 51 Conn. 128 (1883) ; Williams v. Jones, 5 B. & C. 108 (1826) ; Jones v. McMichael, 12 Rich. Law (S. C.) 176 (1859) ; Essex V. Essex, 20 Beav. 442 (18-55); Burdon v. Barkus, 3 Giff, 412 (1861); Id., 4 De G., F. & J. 42, 47, 50 (1862) ; Reed's Stat. Fr. § 191 ; Lind. on Part. (25th Eng. Ed.) 80, 81." Per. Follett, C. J., in Wahl et al. v. Barnum et al., 116 N. Y. 87, 97, 22 N. E. 280, 5 L. R. A. 623 (1889). But see Shropshire v. Adams, 40 Tex. Civ. App. 339, 89 S. W. 448 (1905), contra. 8 For a discussion of principles, see Gilmore on Partnership, §§ 29, 30. » Part of the opinion is omitted. 8UBJECT-MATTEB 77 this was the "bank roll" of the bookmaking concern, in which each partner had an equal interest. At the same time he remarked that Respass had paid out $1,500 for the firm, and that he would see him in a few days and settle with him. Sharp died suddenly, before any such settlement was made. The money in the bank roll was on deposit to Sharp's credit. The racing business of the firm seems to have been almost entirely in the hands of Respass, who attended to the horses, trained them, entered them in races, and at times wagered on them for the benefit of the firm, which divided the profits or shared the losses, as the case might be. Respass brought suit against Sharp's executors for a settlement of the partnership accounts. The horses in the racing stable were sold under order of court, and various claims against the fund in court were made bv Respass for expenses incurred in keeping, shoeing, clipping, training, and caring for the various horses, as well as for entering certain of the horses in stakes, and for wagers paid upon the horses "Fair Deceiver" and "Shannon." The business of breeding, training, and racing horses for purses is legal. The partnership for that purpose can undoubtedly be settled by the chancellor. The only question presented as to this matter is upon the correctness of the settlement made. [After allowing certain items for training and keeping the horses, and entering them for races:] Another item to which exception is taken consists of $700; being the amount of two bets made, lost, and paid by Respass on the horses "Fair Deceiver" and "Shannon." In view of the statutory law of Kentucky (see section 1955 et seq., Ky. St.), we are unable to see how any legal consideration can exist for a promise to reimburse to a partner any portion of any sum lost upon a bet on a horse race. In Lyons v. Hodgen, 90 Ky. 280, 13 S. W. 10T6, it was held, in an opinion by Chief Justice Lewis, that this statute, pro- viding that "every contract, conveyance, transfer or assurance, for the consideration, in whole or in part, of money, property or other thing won, lost or bet in any game, sport, pastime, wager, or for the con- sideration of money, property or other thing lent or advanced for the purpose of gaming or lent or advanced at the time of any betting, gaming or wagering to a person then actually engaged in betting, gam- ing or wagering, shall be void"— applied to dealing in "futures"; that the process by which the money was won or lost was a wager, within meaning of the statute, which was designed to embrace every species of wagering, whether practiced at the time the statute was en- acted, or since devised. And in the opinion by the same judge in Sharp v. Com. (from Kenton county) 98 Ky. 574, 35 S. W. 553, it was held that betting upon horse races was gaming and illegal. We think it is well settled that a man who lends money to another, to be then bet on a horse race, cannot recover it back. And so it would seem that if A. agrees with B. that B. shall advance the money, and himself bet upon a horse race for their joint account, no action will lie by B. to compel A. to respond for his share of a bet which is lost. The statement of this proposition seems to decide it. 78 FORMATION AND CLASSIFICATION It is a contract for an illeg-al venture. The whole contract is illegal. >Jo right of action can arise out of that contract. This is exactly the position of Respass as to the two bets. He advanced the money to make them for himself and Sharp, relying upon Sharp's express or implied agreement to pay half the losses if loss should be incurred. Such a contract cannot be enforced in this state. A closer question is presented by the claim for a divison of the "bank roll." This $4,724 was, as found by the chancellor, earned by the firm composed of Respass and Sharp in carrying on an illegal business— that of "bookmaking"— in the state of Illinois. But though this amount had been won upon horse r^ces in Chicago, it is claimed that, though secured illegally, "the transaction has been closed, and the appellee is only seeking his share from the realized profits from the illegal contracts, if they are illegal." On the other hand, it is claim- ed for appellants that, as to the bank roll, this proceeding is a bill for an accounting of profits from the business of gambling. It does not seem to be seriously contended that the business of "bookmaking," whether carried on in Chicago or in this common- wealth, was legal, for by the common law of this country all wagers are illegal. * * * We conclude that in this country, in the case of a partnership in a business confessedly illegal, whatever may be the doctrine where there has been a new contract in relation to, or a new investment of, the profits of such illegal business, and whatever may be the doctrine as to the rights or liabilities of a third person who assumes obligations with respect to such profits, or by law becomes responsible therefor, the decided weight of authority is that a court of equity will not enter- tain a bill for an accounting. The judgment of the chancellor is therefore reversed, and the cause remanded, with directions to enter a judgment in accordance with this opinion. IV. Joint-Stock Companies *' CARTER et al. v. McCLURE et al. (Supreme Court of Tennessee, 1897. 98 Tenn. 109, 38 S. W. 585, 36 L. R. A. 282, 60 Am. St. Rep. 842.) Beard, J. The bill in this cause was filed by complainants, as credit- ors of McClure, Lucas & Co., seeking to hold the defendants liable for the debts of that concern, upon the theory that it was a commercial firm, of which defendants were members, at the time of the creation of these debts. The facts, so far as they are important in the de- cision of this case, and as they have been found by the Court of Chan- 10 I'or a discussion of principles, see Gilmore on Partnership, § 34. JOINT-STOCK COMPANIES 79 eery Appeals, are: That these defendants, with others who are not sued, all members of an alliance lodge in the town of Huntland, in this state, entered into an agreement among themselves to raise a sum of money which, it was assumed, would be sufficient to establish a co- operative store in that place. This agreement was reduced to writ- ing, and the names of the parties in interest were by them affixed to it, and over against his signature was placed the amount which each subscriber obligated himself to contribute to this joint enterprise. This agreement is in words and figures following, to wit: "Huntland, Tenn., Dec. 21, 18S8. We, the undersigned, agree to pay to the di- rectors, to be elected, the sum annexed to our respective names, by the first of January, 1889, for the purpose of establishing a co-opera- tive store at Huntland, Tennessee. We further agree that the said money remain in the business for at least five years from beginning, unless two-thirds of the stockholders agree to discontinue the busi- ness in a shorter time. We further agree that three of the stock- holders be elected annually as directors, to have full control of the stock hereunto subscribed. It is further agreed that the directors act in conjunction with R. W. McClure, who is a stockholder to the amount of $2,050, and who is to be the principal salesman, and in the transaction of all business between the said ^IcClure and directors, the directors are to be regarded collectively or as a unit, and the said McClure as a unit." After the execution of this paper, the three di- rectors provided for in it were duly chosen, and into their hands the subscribers paid the several sums they had agreed to contribute. These sums, aggregating $590, were turned over by the directors to Mr. McClure, who, adding the amount of $2,050, which he had agreed to place in the venture, purchased a stock of goods, and opened up a co-operative store in the name of R. W. McClure & Co., this being the business name agreed upon by IMcClure and the three directors. No incorporation ever took place, nor was such ever intended by these parties. The main purpose of the defendants, in entering into this business, was to avoid what they deemed to be the extortion there- tofore practiced upon them in the sale of goods by the merchants of the country. While not embodied in their writing, yet one of the terms of the contract, and the one which chiefly, if not altogether, in- duced all the subscribers (save, no doubt, McClure) to become in- terested in this enterprise, was that they were to purchase such goods as they might require from the stock in this store at a profit not ex- ceeding 10 per cent, above cost; and these directors were chosen as their representatives, especially, to look after McClure, who was the largest shareholder, as well as manager, and see that he kept faith with the subscribers in this matter. While the defendants, styling themselves in their written agreement as "stockholders," took no active personal control of the concern, yet they manifested a lively interest in its success. In addition to giving it the benefit of their own patronage, they were zealous in commending it to their neighbors. 80 FORMATION AND CLASSIFICATION At the end of the first year one IMosely desired to purchase an inter- est in the business. lie, however, was not a member of the "alUance," and, organized as this enterprise was, in Hne with or under the in- spiration of that movement, it was necessary that he become such before he could be allowed to make such purchase. In order to qual- ify him to this end, the rules of the "lodge" to which these defendants belonged were suspended, and at one meeting he was admitted to the privilege of full fellowship with them. He contributed $2,000 to the capital of the concern, and its name was changed to McClure, Mosely & Co. At the end of another term of 12 months Mosely sold out his interest to one Lucas and thereafter the enterprise was con- ducted in the name of AlcClure, Lucas & Co., until insolvency over- whelmed it with disaster. The claims of complainants accrued during the existence of and against this latter concern. In addition to these changes in the organization of and style of the business, two deaths occurred among the original subscribers — one of them before, and the other after, the creation of these debts. This latter death, how- ever, can in no way affect this controversy, and will, therefore, not be further noticed. Upon this state of facts, it is insisted for the de- fendants — First, that this undertaking was in no sense a partnership, and that they did not sustain the relation of partners to either R. W. McClure & Co., Mosely, McClure & Co., or McClure, Lucas & Co.; secondly, if however, they are mistaken in this broad proposi- tion, then that they were only partners in the firm of R. W. McClure & Co., and that all partnership relation and liability, on their part, were terminated or dissolved by the various changes already adverted to, and long prior to the creation of complainants' debts. The chan- cellor and the Court of Chancery Appeals held both these contentions against the defendants, and the case is now before us on an appeal from the decree of this last-named court. 1. Were those parties engaged in a partnership enterprise? All of the defendants earnestly disclaim any purpose of entering upon such an undertaking. While, as has been stated, the prime motive of these parties was to organize a mercantile establishment where their various needs would be supplied at reasonable figures, yet they confess that, outside of this, they expected to share in any profits earned by it in proportion to the respective amounts contributed by them. These amounts were small, yet they were to serve as a basis for such distri- bution of profits. It is no doubt true that the defendants did not con- template a partnership, and each supposed that he was simply taking a share in a joint-stock enterprise, in which all he risked was the small sum paid for such share; yet it is for the law to determine, on the facts already given, whether a partnership was created, with all its attending liabilities. In Mallory v. Oil Works, 86 Tenn. 598, 8 S. W. 396, is quoted approvingly the definition of a partnership as giv- en by Judge Story. "A partnership," says the former writer, "is usu- ally defined to be a voluntary contract between two or more competent JOINT-STOCK COMPANIES 81 persons to place their money, effects, labor, and skill, or some or all of them, in lawful commerce or business, with the understanding- that there shall be a communion of the profits thereof between them." Story, Partn. § 2. The facts found by the Court of Chancery Appeals, a gen- eral outline of which is given above, disclose the constituent elements of a partnership as required by this definition. It is a case where these parties have embarked their money "in lawful commerce, * * * with the understanding that there" should be a division of profits earned. In addition to this, they have taken a firm name, and thus have advertised themselves to the world as a commercial partnership. Calling their contributions to the capital of this busi- ness a "subscription for stock," and taking certificates for their pay- ments from the company as a joint-stock company, it not being incorpo- rated, cannot alter their liability. "There is no intermediate associa- tion, or form of organization, between a corporation and a partner- ship, known to the common law, and, unless otherwise provided by statute, as is the case in England and New York, a joint-stock compa- ny is treated and has the attributes of a common partnership." 1 Bates. Partn. § 72. And Judge Story says that, "in joint-stock and other large companies, which are not incorporated, but are a simple, although an extensive, partnership, their liabilities to third persons are gener- ally governed by the same rules and principles which regulate com- mercial partnerships." And such has been the conclusion of the courts wherever the character of joint-stock companies similar to the one in question has been passed upon, so far as our examination has dis- closed. At least such was the holding in Hodgson v. Baldwin, 65 111. 532; Kenyon v. Williams, 19 Ind. 44; Manning v. Gasharie, 27 Ind. 399; Beaman v. Whitney, 20 Me. 413; Farnum v. Patch, 60 N. H. 294, 49 Am. Rep. 313. The Supreme Court of New Hampshire, in this last-cited case, have delivered an able, exhaustive opinion upon tlie law of partnership as it applies to an association like the one in question, and we content ourselves with what we have already said and by making special reference to that opinion. In the light of these authorities, we think there can be no doubt that these parties were partners in the firm of R. W. McClure & Co. 2. We think it equally clear, on the facts of this case, and in view of the legal principles applicable to them, that there was no termina- tion of the partnership enterprise, resulting from the changes oc- curring during its progress, by the introduction and subsequent with- drawal of Mosely, and the accession of Lucas or his capital to it, or the death of one of the original subscribers intermediate between the start of this business and the final insolvency of McClure, Lucas & Co. ; that, through all these changes, the defendants' relations re- mained as fixed by themselves in the beginning; and that they are liable as partners for the debts sought to be enforced in this cause. This conclusion we rest on two grounds: First. It is found by the Court of Chancery Appeals to be a fact tliat these defendants were GiLuM.rAUT. — 82 FORMATION AND CLASSIFICATION members of the alliance lodge that, by a suspension of its rules, hur- riedly qualified Mosely, so that he might bring his capital and his name to the aid of this joint undertaking. They do not claim to have been ignorant of this proceeding, or to have offered any opposition to it, either in or out of their lodge, or that they made any protest against his accession to the business. On the contrary, their zeal for the suc- cess of the movement continued undiminished. And so with regard to the withdrawal of IMosely and the introduction of Lucas in his room and stead. The record shows consultation with quite a num- ber of these defendants as to the advisability of this change, and an agreement with them in regard thereto, and acquiescence, at least by silence, on the part of the remainder. All these parties, through the various changes in the personnel of the organization, by death and purchase, and in the firm name under which the business was carried on, not only stood by and watched the movements of the concern, as one in which they had a part, but they made no claim of dissolution by reason thereof until confronted by the claims of these complain- ants. It was then too late. For, conceding that either one of these acts might have been availed of by the defendants as working a dissolution of their partnership, yet, at their election, they might waive this effect. Second. The nature of this enterprise repels the idea that it was in the contemplation of the parties that either death or any transfer of shares should work a dissolution of the business. Not only was it to continue for five years, "unless two-thirds of the stockholders 'agreed' to discontinue the business in a shorter time," but the shares of the stockholders were transferable. Says Mr. Bates, in his work on Part- nership (volume 1, § 72) : "The fact of transferable shares makes such an association different, not merely in magnitude, but in kind, from ordinary partnerships, because not based upon mutual trust and confidence in the skill, knowledge, and integrity of every other partner. Hence a sale of his shares by a member, the shares being transferable, is not a dissolution. Death of a member is not a dis- solution, if such was the intent and the character of the association, in that the shares are transferable, and it is governed by officers, and is in the form of a corporation, is evidence of such intent." What the text-writers and the opinions of many courts call the "delectus per- sonarum," an element in an ordinary commercial partnership, is lack- ing when a partnership assumes the character of a joint-stock company with transferable shares. 2 Bates, Partn. § 581; Machinists' Nat. Bank v. Dean, 124 Mass. 81; Walker v. Wait, 50 Vt. 668; McNeish v. Oat Co, 57 Vt. 316. It follows that the assignments of error upon the decree of the Court of Chancery Appeals, in the particulars above indicated, must be overruled. The assignments of error upon the court's decree as to the Lipscomb claim are disposed of only. The decree of that court is in ail things affirmed. NATURE AND CHABACTEBISTICS 83 THE NATURE AND CHARACTERISTICS OF A PART- NERSHIP I. Various Conceptions of a Partnership ^ HALLOWELi; v. BLACKSTONE NAT. BANIC (Supreme Judicial Court of Massachusetts, 1S91. 154 Mass. 359, 28 N. E. 2S1, 13 L. R. A. 315.) HoivMES, J. This is a bill to redeem certain stock given by one Smith, the plaintiff's insolvent, to the defendant as collateral security for a loan to Smith, The main question is whether the defendant can hold the stock as security, not only for the loan mentioned, but also for two acceptances of a firm of which Smith was a member, which acceptances the defendant had discounted before the date of the loan in question. The note given by Smith for the loan authorizes the de- fendant to sell the stock "on the nonperformance of this promise, said bank applying the net proceeds to the payment of this note, and ac- counting to me for the surplus, if any." It then goes on, and these are the important words, "and it is hereby agreed that such surplus, or any excess of collaterals upon this note, shall be applicable to any other note or claim against me held by said bank." The counsel for the plaintiff based his argument on the proposition that the right to apply the excess of collaterals to any other note or claim was conditional upon Smith's nonperformance of his promise. We think it doubtful at least whether that is the true construction of the words which we have quoted. We are disposed to read the agree- ment as an absolute pledge or mortgage of the securities for other notes and claims. But if this be not so we are of opinion that Smith did not perform his promise within the meaning of the note. The bank demanded payment of Smith on January 3, 1889, and he made partial payments, but failed to pay the residue and requested the bank to mal-ce the balance a time loan, which the bank refused. This was a nonperformance of his promise by Smith. It is true that the report states that it was understood that the demand should not be pressed without further notice. But this did not take away the effect of the breach. It merely called on the bank to give notice before taking fur- ther steps, such as selling the security, and this it did. We neither construe the report as meaning, nor do we infer from it, that the breach of Smith's promise by his failure to pay on demand was waived by the bank. On January 3d, if not before, the bank's right vested to apply any excess of collaterals upon other claims. 1 For a discussion of principles, see Glluiore on Partnersblp, { 40. 84 NATURE AND CHARACTERISTICS The question remains whether the bank is entitled to hold the se- curity for the bills, which were accepted by Smith's firm and not by him individually. It cannot be denied that the acceptances were "claims against him," and that the words used in his note were broad enough to embrace firm acceptances, unless there is some reason in the contract, the circumstances, or mercantile practice, to give them a nar- rower meaning. Singer Mfg. Co. v. Allen, 123 Mass. 467; Chuck v. Freen, Moody & M. 259. If Smith had had private dealings and a private account with the bank as a depositor, and his firm also had had dealings and an account there, and Smith had given security in the terms of his note in order to be allowed to overdraw or to obtain a discount, it may be that the generality of the language would be re- strained to the line of dealings in the course of which it is used. Ex parte McKenna (City Bank Case) 3 De Gex, F. & J. 629. See Lindl. Partn. (oth Ed.) 119, and note. But we are called on to construe a printed form used by the bank, and presented by it for those who bor- row from it to sign. The question is, what is the reasonable inter- pretation of such words? When insisted on as a general formula to be used by would-be borrowers, irrespective of any special course of business of the particular person who signs it, which, for the matter of that, there does not appear to have been in this case. For all that appears, the note mentioned may have been the only transaction that ever took place between the defendant and the plaintiff alone. The printed form, it may be assumed, would have been used by the bank equally in a case where the borrower was the principal man in his firm, and the only one known to the bank, was borrowing for his firm daily, and had never borrowed for himself but in this instance, and in a case where the borrower's membership in a firm whose notes the bank held was unknown. This being so, in the opinion of a majority of the court there is no sufficient reason for not giving the words their full legal effect. The clause pledging the property for any other claim against the debtor is not inserted with a view to certain specific debts, but as a dragnet to make sure that whatever comes to the creditor's hands shall be held by the latter until its claims are satisfied. Corey on Accounts and Lindley on Partnership have made it popular to refer to a mercantile distinction between the firm and its members. But we have no doubt that our merchants are perfectly aware that claims against their firms are claims against them, and when a merchant gives security for any claim against him, and there is nothing to cut down the literal meaning of the words, he must be taken to include claims against him as partner. Bill dismissed.^ » Compare Bank of Buffalo v. Thompson, 121 N. Y. 280, 24 N. E. 473 (1890), where an opposite result was reached. THE PAETNEE8HIP NAMB 85 II. The Partnership Name * HASKINS V. D'ESTE et al. (Supreme Judicial Court of Massachusetts, 1882. 133 Mass. 356.) W. Allen, J. St. 1S77, p. 519, c. 1G3, provides that "any sig- nature to a written instrument declared on or set forth as a cause of action or ground of defense or set-off, in an action at law, shall be taken as admitted, unless the party sought to be charged thereby shall file in court, within the time allowed for answer, a special de- nial of the genuineness of such signature and a demand that the party relying thereon shall prove the same at the trial." The two defendants were sued in a writ which describes them as "late copartners under the firm name and style of D'Este & Co.," and the declaration alleges that they made a promissory note signed D'Este & Co." One of the defendants, McKenzie, did not appear. The other, D'Este, appeared and filed a general denial. The question is whether the signature is to be taken as admitted to bind D'Este, or whether it is only admitted as the signature of a copartnership of D'Este & Co., and the plaintiff, to hold D'Este, must prove that he was a member of the firm whose signature he admits. The question is precisely what it would have been if both defendants had appeared and filed a general denial in answer. The admission is the same, as to those making it, whether made by both defendants together, or separately, or by one alone. A partnership is not a person distinct from its members, like a corporation. A partnership cannot be sued. A suit must be against the individuals composing it, and each individual stands, as to proof of his liability, as if he were sued alone. In either case his personal liability upon the joint undertaking would have to be made out, and in either case the allegation of partnership would but express the re- lation between the copartners ; and the relation of copartners to each other, as affects their liability to third persons, is simply one of agency. The allegation that a number of individuals as members of a co- partnership made a contract is only the allegation that each of them, personally or by his agent, made it, and the agency is alleged and proved by the copartnership. In the case at bar the substantial allegation is that each of the de- fendants made a joint note in the name of D'Este & Co.; that is, that each of them signed that name to the note. The allegation of copart- nership amounts only to a statement that each of the defendants was authorized to sign that name for both, and that an agent might be • For a discussion of principles, see Gilmore on Tartnership, §§ 41. 42. 86 NATURE AND CHARACTERISTICS authorized to sign for both. This is the whole significance of the firm name. 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. It was simply a convenient abbreviation of their two names, and, when used, had the same effect as if no firm name had been adopted and the name of each partner had been signed in full as a partner; and it bound each only because he had adopted it as his name and authorized its use for the purposes for which it was used. When the defendant D'Este admits the genuineness of the signature, he does not admit it to be a mere name. He admits it to be a sign manual, the name of a person signed, and the only question is : Whose name does he admit it to be? The answer is plain. He admits it to be the genuine signature of the persons whose signature it is alleged in the declaration to be. The declaration does not allege that the firm made the note. It alleges that the defendants, D'Este and McKenzie, in the name of D'Este & Co., made — that is, signed — the note; that it is the genuine signature of both in the name they had adopted for binding themselves jointly. It is said that it is not alleged that the note was signed by the defendant D'Este personally and that he may not have been one of the persons doing business under the name of D'Este & Co. But it is alleged that the two defendants, one of whom is D'Este, made the note in that name. If the allegation had been that the defendant D'Este, doing business in the name of John Doe, had made the note in that name, it would hardly be contended that the genuineness of his signature would not be admitted, because there might have been another person doing business in that name whose signature it might be, nor because the signature might have been made by an agent, and not by the defendant personally. The declara- tion alleges that the defendants made the note. If the writ is taken in connection with the declaration, there is, so far as the question in issue is concerned, only the further allegation, in effect, that the two defendants held such a relation to each other that each had authorized the other to bind him in a joint note by the name of D'Este & Co. We think the signature is alleged to be that of the defendant D'Este, and that its genuineness, not having been denied, must be taken to have been admitted. See Wilkes v. Hopkins, 1 C. B. 737 ; Mahaiwe Bank v. Douglass, 31 Conn, 170. In the opinion of a majority of the court, the ruling of the judge that the plaintiff was not entitled to recover was, for these reasons, erroneous. Exceptions sustained. PABTNERSniP PaOPEBTY III. Partnership Property * 1. What is Included in Partnership Property 87 ROBINSON BANK v. MILLER et al. (Supreme Court of Illinois, 3S94. 153 111. 244. ?,S N. E, 107S, 27 L. H. A. 449, 46 Am. St Rep. 883.) John Newton, John S. Emmons, and Frank O. Miller, having each acquired, with individual funds, a one-third interest in a certain parcel of land containing four acres, entered into an oral agreement of part- nership to engage in the business of milling and of buying and selling grain. The business of the firm was done in a mill on said land. John S. Emmons executed two mortgages on his one-third interest in the land— one to Willis Emmons to secure him as surety on a note of John S. Emmons, and the other to Wiley S. Emmons and William W. Walter to secure them as sureties on another note of John S. Emmons. Frank O. Miller also executed a mortgage on his one-third interest to one Lamport. The Robinson Bank, a creditor of the firm of Newton, Emmons & Miller, claims that the mill property and the land upon which the mill stands was partnership property belonging to Newton, Emmons & Miller as partners; that the individual creditors of Miller and John S. Emmons, such as Willis Emmons, Wiley S. Emmons, and William W. Walter, were only entitled to such surplus as might arise out of the mill property after the payment of the firm debts therefrom. The bank filed a bill seeking to have the mortgages to Wiley S. Em- mons, William W. Walter, and Willis Emmons, and to Lamport, set aside. Said mortgagees filed cross-bills asking for the foreclosure of their respective mortgages. In the circuit court the mortgages by John S. Emmons were held to be valid, and a foreclosure was decreed. The mortgage to Lamport was set aside for fraud. This was an appeal by the bank and by Lamport. The validity of the mortgages depends on whether the land on which they were given was the property of the mortgagors individually or whether it belonged to the partnership. AIagruder, j.5 * * * Whether real estate upon which a part- nership transacts its business is firm property or the property of the individual members of the firm is oftentimes a difficult question to determine, and one upon which the authorities are not altogether uni- form. The mere fact of the use of land by a firm does not make it partnership property. Geopper v. Kinsinger, 39 Ohio St. 429 ; Hat- chett v. Blanton, 72 Ala. 423. Nor is real estate necessarily the in- dividual property of the members of a firm because the title is held 4 For a discussion of principles, see GiUuore on Partnership. §§ 43-51. B Tart of the opinion is omitted and the statement of facts abridged. 88 NATURE AND CHARACTERISTICS by one member, or by the several members in individual interests. 1 Bates, Partn. § 280. Wliether real estate is partnership or individual property depends largely upon the intention of the partners. That in- tention may be expressed in the deed conveying the land, or in the arti- cles of partnership ; but when it is not so expressed the circumstances usually relied upon to determine the question are the ownership of the funds'paid for the land, the uses to which it is put, and the manner in which it is entered in the accounts upon the books of the firm. 1 Bates, Partn. § 280 ; 2 Lindl. Partn. marg. p. 649 ; 17 Am. & Eng. Enc. Law, p. 945, and cases in note. Where real estate is bought with partnership funds for partnership purposes, and is applied to partnership uses, or entered and carried in the accounts of the firm as a partnership asset, it is deemed to be firm property ; and in such case it makes no dififer- ence, in a court of equity, whether the title is vested in all the part- ners, as tenants in common, or in one of them, or in a stranger. T. Pars. Partn. (4th Ed.) § 265; 1 Bates, Partn. § 281; Johnson v. Clark, 18 Kan. 157 ; 17 Am. & Eng. Enc. Law, p. 948, and cases cited. If the real estate is purchased with partnership funds, the party hold- ing the legal title will be regarded as holding it subject to a resulting trust in favor of the firm furnishing the money. In such case no agree- ment is necessary, and the statute of frauds has no application. Park- er V. Bowles, 57 N. H. 491 ; 1 Bates, Partn. § 281. In the case at bar the land was not purchased with partnership funds. The undivided one-third interest bought by John S. Emmons was paid for by him with his own individual money. Miller also paid for the one undivided one-third interest, purchased by him with his individual funds. None of the money of the firm of Newton, Emmons & Miller was contributed towards the purchase of the one-third interest held by Newton. Indeed, the proof shows that the firm of Newton, Emmons & Miller was formed by an oral agreement after Emmons and Miller had bought their interests. Each partner here held the title to an un- divided one-third part of the property. No entries were made upon the books of the firm showing that the real estate was treated as firm assets. The evidence, however, does show that the property was bought for the purpose of being used in the milling business, and that after its purchase it was used for firm purposes, and that the firm gave its notes to pay for repairs, and for placing new machinery in the mill upon the premises. Under these circumstances, was the land partnership property, or the individual property of the partners, hold- ing as tenants in common? It cannot be said that the land is firm property, upon the theory of a resulting trust, because the money of the firm was not used to buy the property. Such a trust might exist in favor of the firm, regarding it as a person, if the partners had taken the legal title, and the firm had advanced the purchase money. The trust must arise at the time of the execution of the conveyance, and when the title vests in the grantee. Such could not have been the case here, under the facts stated. Van Buskirk v. Van Buskirk, 148 111. PARTNERSHIP PROPERTY 89 9, 35 N. E. 383. In view of the fact that the land was bought with individual, and not partnership, funds, and was conveyed in undivided interests to the several partners, and in the absence of any agreement that it should be regarded as firm property, does the conduct of the parties in afterwards forming a partnership, and using the property for partnership purposes, and repairing and improving the mill at the expense of the firm, make the land firm property, in a court of equi- ty? A negative answer to this question is found in many of the au- thorities. ♦ * * The general doctrine of all these cases is that a purchase of the land with partnership funds is necessary to make it firm prop- erty. * * * The weight of authority seems to us to support the position that where persons who afterwards become partners buy land in their in- dividual names and with their individual funds, before the making of a partnership agreement, the land will be regarded as the individual property of the partners, in the absence of a clear and explicit agree- ment subsequently entered into by them to make it firm property, or in the absence of controlling circumstances which indicate an inten- tion to convert it into firm assets. We do not think that an application of this rule to the facts of the present case shows the real estate here in controversy to be firm property. * * * Decree affirmed. 2. Partnership Capitai, DEAN et al. v. DEAN et al. (Supreme Court of Wisconsin, 1SS2. 54 Wis. 23, 11 N. W. 239.) Cole, C. J.^ This action is brought by the plaintiffs, as executors, to obtain a construction of the codicil to the will of N. W. Dean, who died February 28, 1880. The will was dated February 29, 1876, and makes a full disposition of the testator's estate, both real and per- sonal. * * * There is no controversy as to the proper construction of the will, and we need not further give its provisions. The codicil bears date February 23, 1880. On May 1, 1871, the decedent and his brother, Thaddeus Dean, entered into partnership in the business of dealing in lumber in the city of Chicago, which partnership was con- tinued to the death of N. W. Dean. The will makes no express refer- ence to this partnership business. But the codicil, after reciting that this partnership business had hitherto been profitable to the tes- tator, which was largely due to the business capacity and integrity of his brother Thaddeus, contains this language: " * * * I hereby direct my said executors to allow my present • Part of the opinion is omitted. 90 NATURE AND CHARACTERISTICS capital in said business to remain for the period of two years after my decease, collecting and receiving annually, from my said brother Thaddeus, the net profits arising from said business, under my agree- ment with him, belonging to me, for the benefit of my estate. At the expiration of two years it is my will and I direct that my said execu- tors have a full settlement and accounting with my said brother Thad- deus in relation to said business, and that thereupon they collect and receive from him one-half of the net value of my interest therein, and upon the payment by him of the one-half value so ascertained I instruct and direct my said executors to execute and deliver to him all proper and necessary assignments and conveyances so as to vest in him absolutely all my right, title, and interest in the business afore- said; it being my intention, in addition to the bequest heretofore made to him in my said will, to bequeath and devise to him one-half of my entire interest in said business, subject to the limitations and restrictions aforesaid." The articles of copartnership, to which reference is made in the codicil, are quite full and specific. They provide, among other things, that each partner should contribute $15,000 to the capital of the firm, which was to be used in carrying on the copartnership business ; that Thaddeus Dean was to have the management of the business ; that he should be entitled to receive two-thirds of the profits, and N. W. Dean one-third thereof. The losses were to be borne in the same propor- tion. Books of account were to be kept, wherein all of the transac- tions of the firm should be entered, and which books should be open to the inspection of each partner at all times. By the ninth clause it was provided that N. W. Dean was to take out of the cash of the company's funds $125 per month for his own use, and Thaddeus Dean $250 per month, providing these sums could be so drawn out by the respective parties without impairing the capital of the firm, but neither partner was to take a greater sum for his own use during any month without the written consent of the other. The tenth clause provided that Thaddeus Dean, at the end of each year, and oftener, if need be, on request, should make and render to N. W. Dean a just and true account of all the gains and profits, as well as losses, of the business, and of all things done on behalf of the partnership, and this account being so made he was to pay N. W. Dean his proportionate share of the profits, and take to himself his own share. In the? eleventh clause it was provided that during the continuance of the copartnership none of the capital of the firm, nor any of the accrued but undivided gains and profits thereof, should be used or employed by the parties thereto for any other purpose than carrying on said business. In the twelfth, that at the end of the copartnership a final accounting should be had, and all the debts of the firm should be first paid, then each should draw out the amount of capital originally contributed by him, dimin- ished by his proportionate share of losses, if any; the balance, if any, to be divided as provided for dividing profits. These are the material provisions of the copartnership agreement. PARTNERSHIP PROPERTY 91 From three letters which were introduced on the hearing — one writ- ten by Thaddcus Dean; the other two by N. W. Dean— it appears that each party agreed, in July, 1872, to increase its capital to $20,000, and did so. And it further appears, from the annual statement made of the partnership business, that at the end of each partnership year eacli partner was credited on the books of the concern with his share of the profits, and was charged with the amount which he had drawn out during the year. The accumulated but undivided profits of the business consisted almost wholly of real estate, lumber, notes, book accounts, and other personal property belonging to the firm. The amount standing to the credit of N. W. Dean at the time of his death, including his capital of $20,000, was $43,478.16. Or, to speak more accurately, that sum embraced the profits standing to the credit of N. W. Dean on the books of the firm at the time of his death, and also the unascertained profits which had accrued since the last annual state- ment of May 1, 1879, down to that time. The question arising upon the codicil, which the executors request the aid of the court in determining, is what amount they must leave in the partnership business for two years, and which, at the end of that period, they are directed to assign and convey to Thaddeus Dean upon his paying one-half of its ascertained net value; the annual profits having been collected by them in the meantime. On the part of the residuary legatee Thaddeus Dean it is claimed that it was the intention of the testator that his entire interest in the partnership busi- ness should remain in the business, including both his capital of $20,- 000 and all accumulated but undivided profits belonging to him under the partnership agreement; while, on the part of other residuary leg- atees, it is insisted that it was his capital only which was to be left in the business. * * * The intention of the testator must prevail if it is possible to gather it from the language of the entire codicil. That intention was to allow his capital to remain in the business for two years, but nothing more. * * * It results, from the views expressed, that the judgment of the cir- cuit court, placing a construction upon the codicil, and giving direc- tions to the executors in regard to the proper execution of their trust, is erroneous. The judgment must, therefore, be reversed, and the cause be remanded, with directions to enter a judgment in accordance with this opinion. 92 NATURE AND CHARACTERISTICS 3. Good Wili, NEWARK COAL CO. v. SPANGLER. (Court of Chancery of New Jersey, 1896. 54 N. J. Eq. 354, 34 Atl. 932.) Bill by the Newark Coal Company against Alexander F. Spang- ler. Heard on application for preliminary injunction, on bill and af- fidavit, and answer and affidavit. Denied. Emery, V. C. The bill in this case is filed by the complainant, the Newark Coal Company, which is engaged in the business of buying and selling coal in East, Orange, to restrain the defendant, Alexander Frank Spangler, from using the name of the company in any man- ner in the conduct of a similar business, and application is now made for a preliminary injunction pending final hearing. The bill and af- fidavit and the answer and affidavit disclose the following undis- puted facts : The defendant, Spangler, previous to March 18, 1892, had for sev- eral years been carrying on the coal business under the name of the Newark Coal Company, unincorporated, and at that time a compa- ny was organized under the same name. Spangler and two other persons were the incorporators and subscribers, and, on the incor- poration, Spangler, by bill of sale, conveyed to the company the goods and chattels used in carrying on his business, and also the good will of the Newark Coal Company, unincorporated, formerly carried on by A. Frank Spangler, in the city of Newark, county of Essex, and state of New Jersey. Spangler became president and director of the company on its or- ganization, and continued to hold these offices until March 5, 1896, when he ceased to be either a director or officer, but still continued to be a stockholder on the books of the company. After March 5, 1896, Spangler commenced the coal business on his own account, lo- cating his office near the company's office, and, upon the signs at the street and on his office, describes his business, "A. F. Spangler, For- merly of the Newark Coal Company." He has also issued a circu- lar letter describing himself in this, also, as "formerly of the New- ark Coal Co.," in which he appeals for orders to the customers "who have patronized him and his company for the past eleven years"; stating, among other things, "that he originally established, owned, and controlled the Newark Coal Company, since April, 1885, and un- til he incorporated the company, in March, 1892." The circular origi- nally issued on March 13, 1896, described the business as "A. F. Spangler & Co., Formerly the Newark Coal Company," but this cir- cular was withdrawn, and the present form, "formerly of the New- PARTNERSHIP PROPERTY 93 ark Coal Company," adopted ; and his business is now carried on in this manner, his advertisements and circulars stating his connection with the company as "formerly of the Newark Coal Company." The complainant alleges in this bill that the defendant is attempt- ing to deceive customers into the belief that they are dealing with the complainant; but as this allegation is not supported by the affi- davit, and is denied by the answer, which in this respect is also sustained by the form of the appeal in the circular, it cannot be con- sidered as affording any basis for the preliminary injunction. The real question is whether the complainant is entitled to such injunction on the above undisputed facts. The defendant, on the sale of the good will, having made no cove- nant with the company not to engage in the business, it is clear that he cannot be prevented from exercising this right to engage in the business, even as a rival to the company. Richardson v. Peacock (Err. & App. 1881) 33 N. J. Eq. 597. And if the contract of sale, which was the only contract he made with the company, does not, either by its expressed or implied obligations, restrain him, it is also clear that in carrying on such rival business he has the right to state his former connection with the business sold. In Hookham V. Pottage, 8 Ch. App. 91, 95, Malins, V. C. (page 94, note), alludes to what he calls "the well-established rule that a man, having been in the employ of a trader of reputation, is entitled, in a fair manner, to say that he comes from him." Lord Justice James, on appeal (Id. p. 95) in this case, says, "I agree that defendant had a right to state that he was the Samuel Pottage formerly manager and afterwards partner in the firm of H. & P., and that he had a right to avail him- self, by the statement of that fact, of the reputation which he had acquired." He has, however, no right to make the statement in such a way as to represent that he was carrying on the business. This was not a case of sale of the good will by one purchaser to another, but a dissolution of the firm by decree of court, on which the business went to complainant, who continued it, not under the name of H. & P. (the firm name), but under the name of H. & Co. Defendant set up business a few doors off, as "P., from H. & P." In this case it was found, as matter of fact, that the manner of putting up the names was calculated to lead the public to suppose that Pot- tage was still connected with the old firm, and an injunction was therefore ordered. A sale of the business or trade seems to be con- sidered a dift'erent thing from the sale of the good will. See 14 Ch. Div. 600. Whether, on a sale of good will, there is an implied cov- enant not to use the name in any manner, was not decided in this case, or any other to which I have been referred. "Good will" is a term somewhat indefinite, and it may be impos- sible so to define it as to include an application to all cases. In Crut- trell v. Lye, 17 Ves. 346, Lord Eldon said that the good will which 94 NATURE AND CHARACTERISTICS is the subject of sale is nothing more than the probability that the old customers will resort to the old place; but Sir George Jes- sel, in Ginesi v. Cooper, 14 Ch. Div. 596, 601, points out that this definition was one which was applicable only to the facts and situa- tion in that case, and in the same opinion gives the following wider definition of "good will" made by Vice Chancellor Wood in Churton V. Douglas, 5 Jur. (N. S.) 887, 890, a leading case: "It would be tak- ing too narrow a view of what is laid down by Lord Eldon [in Cruttrel v. Lye] to say that good will is confined to that. 'Good will,' I apprehend, must mean every advantage — every positive ad- vantage, if I may so express it, as contrasted with the negative advantage of the late partner, not carrying on the business himself — that has been acquired by the old firm in carrying on its busi- ness, whether connected with the premises on which the business was previously carried on, or with the name of the late firm, or with any other matter carrying with it the benefit of the business." If this definition should be applied to the present case, the question is whether the right to all advantage connected with the name of the company gives, as against the vendor of the good will, the exclu- sive right to use the name of the firm, and prevents the vendor from endeavoring afterwards to acquire business by advertising that he was formerly connected with the firm or company. That such ad- vertisement would, to sortie extent, detract from the value of the good will which he has sold, and that such was the intent, seems to me quite clear. But, even admitting this effect and intent, the ques- tion at issue is not solved. For, if this were the whole test, then the vendor of a good will could not set up a rival business in' the neighborhood at all, as this would almost necessarily affect to some extent the good will sold. The vendor of a good will, who has not expressly restricted him- self against carrying on the business, being permitted by law to carry on a rival business wherever he chooses, may push his busi- ness as any stranger or outsider might, even though this does in- terfere with the business he has sold, and the real question, there- fore, is narrowed down to this : In thus pushing his rival business, what acts, if any, must the vendor be restrained from? As was said by Cotton, L. J., in Pearson v. Pearson, 27 Ch. Div. 145, the real diffi- culty is to draw the line; and in this case, by reason of this difficulty, he refused to hold that direct solicitation of the old customers could be restrained, and on this point overruled Labouchere v. Dawson, L. R. 13 Eq. 322, decided by Lord Romilly, and strongly approved by Sir George Jessel in Ginesi v. Cooper, 14 Ch. Div. 596. But in a very late case the house of lords have considered the whole sub- ject, and in Trego v. Hunt, [1896] App. Cas. 7, have overruled Pear- son V. Pearson, and have finally settled the law in England in ac- cordance with the doctrine in Labouchere v. Dawson, viz. that where PARTNERSHIP PROPERTY 95 the good will of a business is sold, without further provision, the vendor may set up a rival business, but he is not entitled to canvass the customers of the old firm, and may be restrained by injunction from soliciting any person who was a customer of the old firm prior to the sale to continue to deal with the vendor, or not to deal with the purchaser. The doctrine is put upon the ground that these acts are di- rect and intentional dealings with the good will sold, and efforts to destroy it, in which the vendor takes advantage of the business con- nection of the old firm, and his knowledge of that connection. Lord Herschell (pages 20 and 21). In Richardson v. Peacock, 33 N. J. Eq. 597, the case of Labouchere V. Dawson was cited with approval by ]\Ir. Justice Dixon, in deliv- ering the opinion of the court; and I think the doctrine of that case may be taken to be so far settled in this state as to entitle the com- plainant in this case to an injunction against such solicitation, had the injunction been asked for this purpose. But the complainant is not now pressing, or even asking for, such injunction, but for an injunction against any use of the name whatever, even when the use of the name is merely to state the former connection of the vendor therewith. As to this particular act of the vendor, Cotton, L. J., in Pearson v. Pearson, 27 Ch. Div. 157, says, "It is admitted that a person who has sold the good will of his business may set up a sim- ilar business next door, and say that he is the person who carried on such business, although such proceedings manifestly tend to prevent the old customers going to the old place." And even Ivord Herschell. in Trego v. Hunt, supra (page 20), quoting this passage, does not controvert this statement of a vendor's rights. There are, however, no cases cited upon the question, and not- withstanding these intimations of opinion by these distinguished judg- es, arguendo, it now strikes me that this act of the vendor, appealing to tlie public for custom on the ground of this former connection with the company, comes within the principle established by Trego v. Hunt, and, if this were the only question in the case, should be enjoin- ed as a direct and intentional interference with the very thing sold in the good will. The purchaser was entitled to the name, and, as Vice Chancellor Wood says in Churton v. Douglas, supra, to every advantage connected with the same. This would, of course, include any advantage then accruing to the name or to the business by rea- son of the vendor's previous connection with it; and to now base his appeal to the public for business on the ground that he was for- merly connected with the business sold seems to be a direct attempt to appropriate to himself part of that which he has already sold, and received pay for. The permission to conduct a rival business is allowed to the vendor of the good will, in the interest of the pub- lic, and to prevent restraint of trade. But in carrying on this busi- ness he must not, as was said by Lord IMacnaughten in Trego v. 96 NATURE AND CHARACTERISTICS Hunt [1896] App. Cas. 24, 28, "make his approaches from the van- tage ground of his former position, moving under cover of a con- nection which is no longer his. He may not sell the custom, and steal away the customers in that fashion." H, therefore, the only question in this case was whether the de- fendant, having sold the good will of his business, was now entitled to carry on a rival business, stating his former connection with the business sold, I should be inclined, as at present advised, to grant the injunction. But the difficulty with the complainant's case is one which reached beyond this sale of the good will. The business and good will which the defendant, Spangler, sold, was sold in March, 1892, and was the good will of the Newark Coal Company; and, as to the business of this unincorporated company, it might be held that he was under an implied obligation not to attempt to withdraw it to his new business by stating his former connection therewith. But after this sale of the good will the vendee, the Newark Coal Com- pany, the present complainant, assuming the name in which the business had been previously carried on, succeeded to the old busi- ness, and has carried on its own business under the same name for four years ; taking the defendant, Spangler, into its employ as an officer. Upon entering this employment of the complainant, the de- fendant made no contract that on ceasing to be so employed he should not be at liberty to. state his connection with the company which had employed him. Having been with the company, as an offi- cer, for four years, he is entitled, on leaving its employ, and in the ab- sence of any contract, to state truly the fact of his connection ; and, in my judgment, any implied obligation connected with the sale of the good will to the company originally cannot, on any facts now ap- pearing in the case, be extended to prevent his making a statement of his connection with the company of which he was, for four years, director and officer. The injunction against the use of the name for the purpose of stating his former connection with the complainant must therefore be denied, and the fact that the use of the complainant's name for this purpose may also tend to detract from the business which had for- merly belonged to the old good will which he had sold cannot de- prive him of the lawful use of the name. The application here is to prevent the use of the name altogether, and if, for any purpose de- fendant has the right to use the name, it cannot be altogether re- strained. TITLE TO PAKTNERSHIP PBOPEETT 87 IV. Title to Partnership Property — How Taken and Held ^ HENDREN et al. v. WING et al. (Supreme Court of Arkansas, 1895. GO Ark. 561, 31 S. W. 149, 46 Am. St. Rep. 218.) Replevin by D. R. Wing and others, partners as the Arkansas Ma- chine & Supply Company, against G. H. Hendren and others. Judg- ment for plaintiffs. Defendants appeal. The appellees, D. R. Wing, C. E. Stephens, and Joseph Eggleston, are partners doing business under the firm name of Arkansas Machin- ery & Supply Company. In the course of their business as such firm they sold one E. H. Miller the following machinery: One 35 horse power return tubular boiler, with fixtures and fittings; and one 35 horse power C. & T. engine complete, with fixtures and connections. For this property Miller agreed to pay $906.50, and he gave his notes for that amount, payable in installments. Afterwards, to further se- cure the payment of these notes. Miller executed a mortgage to said Arkansas Machinery & Supply Company, including in said mortgage the machinery purchased and also other property. Miller at this time was also indebted to appellants, and to secure the same had previously given them a mortgage on another boiler and engine. He disposed of this machinery without appellants' consent, and replaced it wath the machinery in controversy. Appellants obtained possession of the boiler and engine purchased from appellees and claim the right to hold same in lieu of the boiler and engine wrongfully disposed of by Miller. Appellees brought replevin to recover the same. Their action was resisted on the ground that the mortgage to the Arkansas Machinery & Supply Company, under which appellees claimed, did not contain the name of either a natural or artificial person, and was therefore void. The circuit court held that the mortgage was valid, and gave judgment in favor of appellees. RiDDiCK, J.« The Arkansas Machinery & Supply Company is not a corporation, but it is a business name of a firm of partners. The question for us to determine is whether a chattel mortgage executed to it as such partnership is valid at law. It was said by Mr. Justice Eakin, in Percifull v. Piatt, 36 Ark. 464, that "a partnership as such cannot at law be the grantee in a deed or hold real estate." "The legal title," said he, "must vest in some person, and a partnership is not a corporation. If the title be made to all the partners by name, they hold the legal title as tenants in common. * * ♦ If the deed be 1 For a discussion of principles, see Giluiore on Partnership, § 52. 8 Part of the opinion is omitted. Gilm.Part. — 7 98 NATURE AND CHARACTERISTICS to a name adopted as the firm style, which includes the name of no party, it passes nothing at law." He proceeds, then, to say that in equity the rule is different. A deed or mortgage of real estate to part- ners, describing them only by their firm name, will be enforced in equi- ty, whether such firm name includes the name of one or more of the partners or not. Chicago Lumber Co. v. Ashworth, 26 Kan. 213; Bates, Partn. § 296, and authorities there collated. But, as this is an action at law, it is contended that the strict rule of law with reference to the conveyance of real estate to partnerships must apply. The de- cisions in regard to transfers of real estate to partnerships are based on the old rule stated by Judge Eakin, that "a partnership, as such, cannot at law be the grantee in a deed or hold real estate," This rule does not apply to personal property. On the contrary, a partnership, as such, can at law be the vendee in a bill of sale or other conveyance of personal property. The custom of the country teaches us that this is so. The business of the country is largely carried on by partners under partnership names which frequently do not contain the name of any person. Vast quantities of personal property of all kinds are contracted for, bought, and sold by such firms under their firm names each year, and their right to thus buy and sell goes unchallenged. A consideration of this fact shows that there is a wide distinction be- tween the rights of partnerships at law in regard to the buying and selling of personal property and the restrictions which prevail there- in in regard to transfers of real estate. A mortgage is only a con- veyance for the purpose of securing a debt. If a bill of sale conveying personal property to a partnership by its firm name is valid, we see no reason why a mortgage of personal property to a partnership should not be upheld under like circumstances. It is true that the statute re- quires certain formalities in regard to acknowledging and recording mortgages in order to give notice to third parties. But there is noth- ing in the statute which renders invalid mortgages of personal property executed to a partnership by its firm name. Such a conveyance to a firm is just as effectual as if the name of each partner had been set out in the mortgage. Henderson v. Gates, 52 Ark. 373, 12 S. W. 780'; Kellogg v. Olson, 34 Minn. 103, 24 N. W. 364; Byam v. Bickford, 140 Mass. 32, 2 N. E. G87; Brunson v. Morgan, 76 Ala. 593; Chi- cago Lumber Co. v. Ashworth, 2G Kan. 212. We therefore conclude that the judgment of the circuit court in regard to the validity of the mortgage was correct, and it is affirmed. * * ♦ GILLE V. HUNT et al. (Supreme Court of Minnesota, 1886. 35 Minn. 357, 29 N. W. 2.) GiLFiLLAN, C. J.® Action under the statute to determine adverse claims to real estate, each party claiming the title. July 25, 1856, Jared S. Demman owned the premises, and on that day executed a mortgage » Part of the opinion is omitted. TITLE TO PAETNERSHIP PROPERTr 99 thereon to "D. B. Dorman & Co.," containing the usual power of sale, and which was, on the same day, duly recorded. October 7, 1856, Dcmman conveyed the premises to Peter Poncin, by deed duly record- ed the next day. On the same day, evidently either at the same time of or after the execution of this last deed, D. B. Dorman executed to Poncin a deed of quitclaim and release of the premises, which was recorded October 8, 1856. Plaintiff claims under Poncin. "D. B. Dor- man & Co." was a partnership under that name, composed of D. B. Dorman and Ovid Pinncy, though that fact does not appear to have been stated in the mortgage. April 15, 1857, Dorman executed to Pinney an assignment of the mortgage recorded September 13, 1859. In May, 18G4, Pinney proceeded to foreclose the mortgage under the power of sale, signing his name to the notice of sale, "Ovid Pinney, Mortgagee and Assignee." At the sale he became the purchaser, and received from the sheriff the usual certificate. The defendants claim under the mortgage and foreclosure. The case turns mainly on the question, in whom was the legal title to the mortgage; that is, who was in law the mortgagee? Was it D. B. Dorman, or was it the partnership or the parties doing business under the name D. B. Dorman & Co.? A mortgage of real estate, though it is in effect but a lien or security, is in form a conveyance of an estate or interest in land (Morrison v. Mendenhall, 18 Minn. 232 [Gil. 212]), and must be governed by the same rules as to its execu- tion and validity, and the capacity of the parties, and their proper des- ignation, as are applied to a conveyance. It has been affirmed in sev- eral cases in this court that the legal title to real estate can be held only by a person, or a corporate entity, which is deemed such in law ; and that, therefore, a partnership cannot, as such, take and hold such legal title. Thus, in German Land Ass'n v. Scholler, 10 Minn. 331 (Gil. 260), it was decided that the plaintiff, being only a voluntary associa- tion of persons, unincorporated, had no legal capacity to take or hold real property. The rule was recognized in Morrison v. Mendenhall; and in Tidd v. Rines, 26 Minn. 201, 2 N. W. 497, it was decided that a conveyance to a partnership by its first name did not vest in it any legal title or estate, because a partnership, as such, is not recognized in law as a person; so that even had it been stated in the mortgage ifrat the name inserted as the mortgagee was that of a partnership, it would not have made the partnership mortgagee. Nor, as we think, would the individual partners (other than the one named) be the mortgagee. It is true that the grantee in a conveyance need not be named, pro- vided he be described with sufficient definiteness and certainty, as where he is indicated by a title, or an office, and there is but one such; as in Lady Superior v. McNamara, 3 Barb. Ch. (N. Y.) 375, 49 Am. Dec. 184, where a conveyance to the "Lady Superior" of a designated convent was held good to vest the title in a person then lady superior; but the court referred with approval to Duncan v. Beard, 2 Nott & McC. (S. C.) 400, in which it was held that a conveyance to one and 100 NATURE AND CHARACTERISTICS his "associates" vested title in none but the person named, the term "associates" being too indefinite to carry the title to the persons intend- ed by it. There are some authorities which seem to hold that such a conveyance would be good to the persons so designated, and that it may be proved by parol who they are; but we think these cases go a great way towards holding that a conveyance of real estate may vest partly in parol, and when we consider the infinite confusion in titles to real estate — in which there ought to be great definiteness and cer- tainty — such a rule might let in, we do not hesitate to decide that the proposition that such a designation is too indefinite and uncertain rests in better reason and authority. Where the style of a partnership is inserted as a grantee, and it contains the name or names of one or more of the partners, there is no reason why the title should not vest in the partners so named; and the authorities are to the effect that it would. The legal title to the mortgage in question was, then, in D. B. Dor- man. He was the only person through whom legal title could be made, under the mortgage. ♦ * * Judgment affirmed. V. Conversion of Partnership Realty into Personalty DARBY V. DARBY et al. (High Court of Chancery, 1856. 3 Drew. 405.) Alfred Darby and Abraham Darby embarked in a joint specula- tion as partners in the purchase of real estate, to be laid out in build- ing sites and resold for their joint profit. There was no actual deed or written instrument of partnership. While the arrangement con- tinued, and while a large portion of the land thus bought remained un- sold, Alfred Darby died. This was a bill filed by his administratrix for the administration of his estate. The principal question was whether Alfred Darby's share of the unrealized real estate descended to his heir at law, or whether it passed as personal estate to his personal representative. Sir R. T. KiNDERSi^EY, V. C." [after reviewing the English cases,] The result, then, of the authorities may be thus stated : Lord Thurlow was of opinion that a special contract was necessary to convert the land into personalty; and Sir W. Grant followed that decision. Lord Eldon on more than one occasion strongly expressed his opinion that Lord Thurlow's decision was wrong. Sir J. Leach clearly decided in three cases that there was conversion out and out; and Sir L. Shad- well, in the last case before him, clearly decided in the same way. That is the state of the authorities. 10 For a discussion of principles, see Gilmore on Partnership, §§ 53, 54. 11 Part of opinion is omitted and statement of facts rewritten. CONVERSION OF PARTNERSHIP REALTY INTO PERSONALTY 101 Now it appears to me that, irrespective of authority, and looking at the matter with ix-lercucc to principles well estabhshed in this court, if partners purchase land merely for the purpose of their trade, and pay for it out of the partnership property, that transaction makes the prop- erty personalty, and effects a conversion out and out. What is the clear principle of this court as to the law of partnership? It is that on the dissolution of the partnership all the property belong- ing to the partnership shall be sold, and the proceeds of the sale, after discharging all the partnership debts and liabilities, shall be divided among the partners according to their respective shares in the capital. That is the general rule. It requires no special stipulation. It is in- herent in the very contract of partnership. That the rule applies to all ordinary partnership property is beyond all question, and no one part- ner has a right to insist that any particular part or item of the part- nership property shall remain unsold, and that he shall retain his own share of it in specie. This principle is clearly laid down by Lord Eldon in Crawshay v. Collins, 15 Ves. 218, and by Sir W. Grant, in Feather- stonhaugh v. Fenwick, 17 Ves. 298, and the right of each partner to insist on a sale of all the partnership property, which arises from what is implied in the contract of partnership, is just as stringent as a special contract would be. If, then, this rule applies to ordinary stock in trade, why should it not apply to all kinds of partnership property? Suppose that partners, for the purpose of carrying on their business, purchase out of the funds of the partnership leasehold estate, or take a lease of land, paying the rent out of the partnership funds ; can it be doubted that the same rule which applies to ordinary chattels would apply to such leasehold property? I do not think it was ever questioned that, on a dissolution, the right of each partner to have the partnership effects sold applies to leasehold property belonging to the partnership as much as to any other stock in trade. No one partner can insist on retaining his share unsold. Nor would it make any dif- ference in whom the legal estate was vested, whether in one of the partners or in all. This court would regulate the matter according to the equities. And Sir W. Grant so decided in Featherstonhaugh v. Fenwick. If, then, the rule applies, not only to ordinary stock in trade, but also to a lease for years, suppose, next, that the partnership, instead of purchasing a term of years, were (whether from necessity or choice) to purchase land in fee ; if the land is necessary for the partnership business, and bought with the partnership assets, what difference can it make whether the real estate bought is leasehold or in fee? Let it be once established that the property purchased is partnership property and it then comes under the operation of those principles which arise out of the partnership contract ; and there seems to be no reason why the operation of those principles is to be restricted to any particular class or species of partnership property. The observations of Lord Eldon in Crawshay v. Maule [1 Swanst. 495], show that in his opin- ion the rij^ht to a sale on a dissolution of partnership does not in any 102 , NATURE AND CHARACTERISTICS degree depend on the nature of the property. Nor could it be material in this case, any more than on the purchase of a leasehold interest, in whom the legal estate was vested. I should, therefore, feel no hesitation in coming to this conclusion: That the mere contract of partnership, without any express stipulation, involves in it an implied contract, quite as stringent as if it were ex- pressed, that at the dissolution of the partnership all the property then belonging to the partnership, whether it be ordinary stock in trade, or a leasehold interest, or a fee-simple estate in land, shall be sold, and the net proceeds, after satisfying all the partnership debts and lia- bilities, be divided among the partners, and that each partner, and the representatives of any deceased partner, have a right to insist on this being done. Next, what is the doctrine of this court as to conversion? If a testator seised of real estate devises it for sale, and directs that the proceeds of the sale shall be divided among certain persons, so that each of the cestuis que trustent is entitled to say he will have it sold and will take his share of the proceeds, that real estate is in equity converted into personalty ; and so, if three persons contract that certain real property belonging to them shall be sold, and the proceeds be di- vided among them, so that each one of them has a right to insist that it shall be sold, and that he shall have his share of the proceeds as money, that real property is in equity converted into personalty, and if any one of them dies while the property remains unsold his share is personalty, as between his heir and his personal representatives. Now, if it be established that by the contract of partnership all the partnership property is to be sold at the dissolution of the partner- ship, then any real property which has become the property of the part- nership becomes, by force of the partnership contract, converted into personalty; and that, not merely as between the partners, to the ex- tent of discharging the partnership debts, but as between the real and personal representatives of any deceased partner. That this is so I should, in the absence of all authority, have decided upon the principle ; and when I find, notwithstanding the decision of Lord Thurlow, followed by Sir W. Grant, that Lord Eldon was clearly of opinion that real property purchased by a partnership for the part- nership purposes and with the partnership funds becomes personalty, that Sir J. Leach repeatedly so decided without any doubt, and that Sir L. Shadwell also decided the last case in the same way, I can have no difficulty in coming to the conclusion that, whenever a partnership purchase real estate for the partnership purposes and with the partner- ship funds, it is, as between the real and personal representatives of the partners, personal estate. Now, this case is not the ordinary case where persons carrying on the ordinary business of a commercial or manufacturing partnership have found it necessary to purchase real estate for partnership pur- poses. That is not the case. Here they bought land as the stock in trade, by the sale of which they were to make their profits. The land CONVERSION OF PARTNERSHIP REALTY INTO PERSONALTY IQ'i was not in the nature of plant, but was the very subject-matter of their trade. Does that make any difference? If it does, I think it is in favor of treating it as converted, because the real estate is here clear- ly put in the same position as ordinary stock in trade ; and it appears to me that, if I entertained more doubt than I do on the general ques- tion, that doubt would in this case be very much diminished by the circumstance that here the real estate is itself bought for the very pur- pose of selling it again. The very intention of the partnership was to buy land to resell it. That is their very contract, and without sell- ing the land again there would be no partnership business. The part- nership was for the purpose of buying land to parcel it out in plots, and to sell them again, and each partner had a right to say he would have that contract carried out. We have here what Lord Thurlow wanted in Thornton v. Dixon, an actual contract that the land shall be sold. I must, therefore, decide that the share of A. Darby was personal estate, and passed to his personal representatives. DYER v. CLARK et al. (Supreme Judicial Court of INIassachnsetts, 1843. 5 Mete. 5G2, 39 Am. Dee G97.) Bill in equity. The plaintiff is surviving partner of the firm of Bur- leigh & Dyer, and the defendants are the administrator, the widow, and the minor children of the deceased partner, Stevens Burleigh. The case was heard on the bill, the answer, and a master's report. Spiaw, C. J.^^ This is a suit in equity by the surviving partner of the firm of Burleigh & Dyer, established by articles of copartnership under seal, for the purpose of carrying on the business of distillers. The principal question is one which has arisen in several other cases, and is this: Whether real estate, purchased by copartners from part- nership funds, to be held, used, and occupied for partnership purposes, is to be deemed in all respects real estate in this commonwealth, to vest in the partners severally as tenants in common, so that, on the decease of either, his share will descend to his heirs, be chargeable with his wife's dower, and in all respects held and treated as real es- tate, held by the deceased partner as a tenant in common ; or whether it shall be regarded as quasi personal property, so as to be held and appropriated as personal property, first, to the liquidation and discharge of the partnership debts, and to the adjustment of the partnership ac- count, and payment of the amount^due, if any, to the surviving partner, before it shall go to the widow and heirs of the deceased partner. This is a new question here, and comes now to be decided for the first time. There are some principles, bearing upon the result, which seem to be well settled, and may tend to establish the grounds of equity and 12 The statement of facts Is abridged and part of the opinion is omitted. 104 NATURE AND CHARACTERISTICS law upon which the decision must be made. It is considered as estab- lished law that partnership property must first be applied to the pay- ment of partnership debts, and therefore that an attachment of part- nership property for a partnership debt, though subsequent in time, will take precedence of a prior attachment of the same property for the debt of one of the partners. It is also considered that, however extensive the partnership may be, though the partners may hold a large amount and great variety of property, and owe many debts, the real and actual interest of each partner in the partnership stock is the net balance which will be coming to him after payment of all the part- nership debts and a just settlement of the account between himself and his partner or partners. 1 Ves. Sr. 242. The time of the dissolution of a partnership fixes the time at which the account is to be taken, in order to ascertain the relative rights of the partners and their respective shares in the joint fund. The debts may be numerous, and the funds widely dispersed and diffi- cult of collection ; and therefore much time may elapse before the af- fairs can be wound up, the debts paid, and the surplus put in a condi- tion to be divided. But, whatever time may elapse before the final settlement can be practically made, that settlement, when made, must relate back to the time when the partnership was dissolved, to deter- mine the relative interests of the partners in the fund. When, therefore, one of the partners dies, which is de facto a dis- solution of the partnership, it seems to be the dictate of natural equity that the separate creditors of the deceased partner, the widow, heirs, legatees, and all others claiming a derivative title to the property of the deceased and standing on his rights, should take exactly the same measure of justice as such partner himself would have taken, had the partnership been dissolved in his Hfetime; and such interest would be the net balance of the account, as above stated. Such, indeed, is the result of the application of the well-known rules of law, when the partnership stock and property consist of personal estate only; and, as partnerships were formed mainly for the promo- tion of mercantile transactions, the stock commonly consisted of cash, merchandise, securities, and other personal property, and therefore the rules of law governing that relation would naturally be framed with more especial reference to that species of property. It is therefore held that on the decease of one of the partners, as the surviving partner stands chargeable with the whole of the partnership debts, the inter- est of the partners in the chattels and choses in action shall be deemed so far a joint tenancy as to enable the surviving partner to take the property by survivorship, for all purposes of holding and administer- ing the estate, until the effects are reduced to money and the debts paid, though, for the purpose of encouraging trade, it is held that the harsh doctrine of the jus accrescendi, which is an incident of joint tenancy at the common law, as well in real as in personal estate, shall not apply to such partnership property; but, on the contrary, when the debts are all paid, the effects of the partnership reduced to money, CONVERSION OF PAETNEESIIIP REALTY INTO PERSONALTY 105 and the purposes of the partnership accomplished, the surviving partner shall be held to account with the representatives of the deceased for his just share of the partnership funds. Then the question is whether there is anything so peculiar in the nature an,d characteristics of real estate as to prevent these broad prin- ciples of equity from applying to it. So long as real estate is governed by the strict rules of the common law, there would be, certainly, great difficulty in shaping the tenure of the legal estate in such form as to accomplish these objects. Should the partners take their conveyance in such mode as to create a joint tenancy, as they still may, though contrary to the policy of our law, still it would not accomplish the pur- poses of the parties, first, because either joint tenant might, at his op- tion, break the joint tenancy and defeat the right of survivorship by an alienation of his estate, or (what would be still more objectionable) the right of survivorship at the common law would give the whole estate to the survivor, without liability to account, and thus wholly de- feat the claims of the separate creditors, and of the widow and heirs of the deceased partner. But we are of opinion that the object may be accomplished in equity, so as to secure all parties in their just rights, by considering the legal estate as held in trust for the purpose of the partnership; and, since this court has been fully empowered to take cognizance of all implied as well as express trusts and carry them into effect, there is no diffi- culty, but, on the contrary, great fitness, in adopting the rules of equity on the subject which have been adopted for the like purpose in England and in some of our sister states. And it appears to us that, considering the nature of a partnership and the mutual confidence in each other which that relation implies, it is not putting a forced con- struction upon their act and intent to hold that, when property is pur- chased in the name of the partners out of partnership funds and for partnership use, though by force of the common law they take the legal estate as tenants in common, yet that each is under a conscien- tious obligation to hold that legal estate until the purposes for which it was so purchased are accomplished, and to appropriate it to those pur- poses, by first applying it to the payment of the partnership debts, for which both his partner and he himself are liable, and until he has comF to a just account with his partner. Each has an equitable interest in that portion of the legal estate held by the other until the debts ob- ligatory on both are paid and his own share of the outlay for partner- ship stock is restored to him. This mutual equity of the parties is greatly strengthened by the consideration that partners may have con- tributed to the capital stock in unequal proportions, or, indeed, that one may have advanced the whole. Take the case of a capitalist, who is willing to put in money, but wishes to take no active concern in the conduct of business, and a man who has skill, capacity, integrity, and industry to make him a most useful active partner, but without prop- erty, and they form a partnership. Suppose real estate, necessary to 106 NATURE AND CHARACTERISTICS the carrying on of the business of the partnership, should be purchased out of the capital stock and on partnership account, and a deed taken to them as partners, without any special provisions. Credit is obtained for the firm, as well on the real estate as the other property of the firm. What are the true equitable rights of the partners, as resulting from their presumed intentions, in such real estate? Is not the share of each to stand pledged to the other, and has not each an equitable lien on the estate, requiring that it shall be held and appropriated, first to pay the joint debt, then to repay the partner who advanced the cap- ital, before it shall be applied to the separate use of either of the partners? The creditors have an interest, indirectly, in the same ap- propriation, not because they have any lien, legal or equitable (2 Story on Eq. § 1253), upon the property itself, but on the equitable prin- ciple which determines that the real estate so held shall be deemed to constitute part of the fund from which their debts are to be paid be- fore it can legally or honestly be diverted to the private use of the partners. Suppose this trust is not implied; what would be the con- dition of the parties, in the case supposed, in the various contingencies which might happen? Suppose the elder and wealthy partner were to die. The legal estate descends to his heirs, clothed with no trust in favor of the surviving partner. The latter, without property of his own, and relying on the joint fund, which, if made liable, is sufficient for the purpose, is left to pay the whole of the debt, whilst a portion, and perhaps a large portion, of the fund bound for its payment is withdrawn. Or suppose the younger partner were to die, and his share of the legal estate should go to his creditors, wife, or children, and be withdrawn from the partnership fund ; it would work mani- fest injustice to him who had furnished the fund from which it was purchased. But treating it as a trust, the rights of all parties will be preserved. The legal estate will go to those entitled to it, subject only to a trust and equitable lien to the surviving partner, by which so much of it shall stand charged as may be necessary to accomplish the purposes for which they purchased it. To this extent, and no fur- ther, will it be bound; and subject to this all those will take who are entitled to the property, namely, the creditors, widow, heirs, and all others standing on the rights of the deceased partner. * * * On the facts of the present case, we are of opinion that the real estate in question was a part of the capital stock, purchased out of the partnership funds, for the partnership use, and for the account of the firm. * * * The plaintiff has received a sum in rents and profits that have ac- crued since his partner's death. The defendant Clark, as administrator of Burleigh, the deceased partner, has sold an undivided half of the property as his, under a license, and with the assent of the plaintiff. The widow joined to release her dower, for a nominal sum. But we cannot perceive that the right of the widow is distinguishable from that of the creditors and heirs of the deceased partner. As far as this CONVERSION OF PARTNERSHIP REALTY INTO PERSONALTY 107 estate was held in trust by her deceased husband, she was not entitled to dower. For all beyond that she will be entitled, because he held it as legal estate, unless she is barred by her release, of which we give no opinion. The plaintiff is entitled to a decree charging the amount of rents and profits in his hands, and so much of the proceeds of the sale made by the administrator, as will be sufficient to discharge the balance of the partnership account; and the rest of the proceeds will remain in the hands of Clark, the administrator of Burleigh, to be distributed according to law. WOODWARD-HOLMES CO. v. NUDD. (Supreme Court of Minnesota, 1894. 58 Minn. 236, 59 N. W. 1010, 27 L. R. A. 340, 49 Am. St. Rep. 503.) Mitchell, J. The effect of the findings of the trial court is that the real estate which is the subject of this action was formerly the property of a manufacturing copartnership composed of defend- ant's husband and one Holmes, having been purchased, paid for, and used by the firm as a site for its manufacturing plant, the title being taken in the individual names of the partners ; that, in an action brought by one partner against his copartner to dissolve the partner- ship and wind up its affairs, the property was ordered sold as one parcel, the proceeds to be applied in payment of the firm debts, and the surplus, if any, divided between the partners according to their respective rights ; that at such sale it was sold to plaintiff's grantor for an amount somewhat in excess of the sum required to pay the debts of the firm ; that this surplus was distributed between the partners, no part of it being paid to defendant; that defendant was not a party to the action, and has never joined in any conveyance of the property. The defendant, as wife of one of the partners, claimed an inchoate interest in an undivided half of the premises, and this action was brought to determine this adverse claim. It is well known that the English doctrine was that partnership real estate is considered as personal property for all purposes. The doctrine of the American courts on the subject is more restricted. Some of the earlier decisions in New York and Massachusetts went almost to the length of entirely subverting the equity doctrine preva- lent in England; but, as remarked by Chancellor Kent, the other American decisions are not inconsistent with the more correct and im- proved view of the English law. It is now held with practical una- nimity by the American courts that, if partnership capital be invested in land for the benefit of the company, all the incidents attached to it which belong to any other stock, so far as consistent with the statute of frauds and the technical rules of conveyancing, and that it will be treated as personal estate until it has performed all its functions to the partnership, and thereby ceases to be any longer 108 • NATURE AND CHARACTERISTICS partnership property, and until then it is not subject to either dow- er or inheritance, but that after all the purposes of the partner- ship have been thus accomplished, whatever land remains in specie will be regarded as real estate. The question is, at what precise moment is it reconverted into real estate, or, to speak more accurately, does it resume all the attributes and incidents of real property? We think the answer is, the mo- ment the partnership is terminated and wound up by judgment or agreement, and it is determined that it no longer forms a part of the partnership stock, and is not required for its purposes. When a part- nership is dissolved, and its affairs wound up and completely ended, and any land remains in specie, unconverted, this must be deemed a determination that it is no longer a part of the copartnership stock, and an election to hold it thereafter, individually, as real estate. During the continuance of the partnership the partners can convey or mortgage it, in the course of their business, whenever they see fit, without their wives joining in the conveyance or mortgage, and the wives would have no dower or other interest in it. This is one of the very objects of treating partnership real estate as personal prop- erty ; for otherwise the business of the firm might be stopped, and the partners unable to realize on the assets of the firm, by reason of the wife of one of them refusing to join in the conveyance or mortgage. They have the same power of disposition over it for the purposes of a dissolution of the partnership, the payment of its debts, and the distribution or division of the capital among themselves; for until that is done the property has not fulfilled its functions as personalty, or ceased to be partnership property. And what the partners may thus do voluntarily the court may do for them, in an action brought to dissolve the partnership and wind up its affairs. As the defendant was not a party to the former action, she is, of course, not estopped by it, nor is it evi- dence against her of anything except of the fact of its own rendi- tion. But the material fact remains that in the process of the dis- solution of the firm, and the winding up^ of its affairs, in an action for that purpose, the land was sold and converted into money, and the money distributed among the creditors and partners according to law. Upon these facts, under the rules already announced, the land in the hands of the purchaser is not subject to any inchoate in- terest of the wives of the partners. The error which lies at the foundation of the whole argument of defendants' counsel is in the assumption that, at the time of the pur- chase of this property, it became the individual real estate of the hus- band, and that the inchoate right of the wife under the statute im- mediately attached, subject only to a lien for the payment of part- nership debts. This is not correct, and none of the authorities that we have found so hold. The fact is that only so much of it becomes the individual real estate of the partner as remains in spe- partner's interest in partnership property 109 cie, unconverted, after all the purposes of the partnership have been entirely fulfilled, and it is only to such of it that any inchoate interest of the wife ever attaches. If counsel's contention is correct the partners could never, even during the active life of the copartnership, convey perfect title to partnership land without their wives joining, except to the extent ac- tually necessary to pay existing debts of the firm. This would prac- tically involve, in every case where one of the wives refused to join in a conveyance, the necessity of a suit to which she is made a party, in order to determine whether the sale was necessary to pay debts. Any such rule would hamper the business of the firm to an extent that might practically defeat the purposes of the partnership. The court below seems to have laid special stress upon the fact that it was not made to appear on the trial that it was necessary to have sold all this property to pay the debts of the firm, but this is immaterial, either under the view of the law which we have tak- en, or under that urged by counsel. In fact, we understood counsel to frankly concede this on the argument. Upon the facts found, judgment ought to have been ordered in favor of the plaintiff, ad- judging that defendant has no interest, inchoate or otherwise, in the land. Cause remanded, with directions to the court below to render judg- ment accordingly. VI. Nature and Extent of Partner's Interest in Partnership Property ^' TAYLOR et al v. FIELDS (Court of Exchequer, 1799 4 Ves 39G.) The point in this cause depended upon the general question wheth- er a separate creditor of one partner can hold the partnership effects taken under an execution for his separate debt against the joint cred- itors of the partnership. At the time the execution took place the partnership was insolvent ; but a commission of bankruptcy had not then issued. The court having taken some time to consider, the Lord Chief B.ARON ^* delivered their opinion- The right of the separate creditor under the execution depends up- on the interest each partner has in the joint property. With respect 13 For a discussion of principles, see Gilmore on Partnership, § 55. 1* Part of the opinion is omitted. 110 NATURE AND CHARACTERISTICS to that we are of opinion that the corpus of the partnership effects is joint property, and neither partner separately has anything in that corpus, but the interest of each is only his share of what remains after the partnership accounts are taken. In Skipp V. Harwood, 1 Ves. 239 (sub nom. West v. Skip), we see that, whatever the right of the partnership may be, it is not af- fected by what may happen between the individual partners. There is a distinction between the rights of the partners and the rights of the partnership. As between one partner and the separate creditors of the other, they cannot affect the joint stock any farther than that partner whose creditors they are could have affected it. In Fox v. Hanbury, Cowp. 445, Lord Mansfield was led to the consideration of a point that bears much upon this case; and, adverting to the case of Skipp v. Harwood, he states a passage of Lord Hardwicke's judg- ment from his own note rather stronger than it appears in the report : "If a creditor of one partner takes out execution against the partner- ship effects, he can only have the undivided share of his debtor, and must take it in the same manner the debtor himself had it, and sub- ject to the rights of the other partner." What is the manner in which the debtor himself had it? He had that which was undivided, and could only be divided by first deliver- ing the effects from the partnership debts. He who comes in as his companion, as joint-tenant with him, according to this doctrine of Lord Hardwicke, must take it in the same manner the debtor himself had it, subject to the rights of the other partners. Lord Mansfield having stated what, according to the course of the common law, as far as it respects trade between partners, is the rule, that a creditor taking out execution against a partner is directly in the place of the partner debtor, proceeds to show that by the same rule, where a partner becomes bankrupt, the assignees are put in the place of the partner, in whose right they come in, and by no means, as was argued by Mr. Plumer, by any rule arising out of the bankrupt laws; for nothing is said in any one of those acts as to the creditors of a partnership and the separate creditors of one partner, but they only provide for the case of mutual debts and accelerating a debt upon a security payable at a future day. But the same common law, applied in the case where one partner becomes a bankrupt, provides that the assignee of the bankrupt shall be in the same situation as that in which a creditor taking out execution stood before those acts. This intro- duces all the cases of bankruptcy, which Mr. Plumer wished to ex- clude, as not applicable to a case in which there was no bankruptcy; and this case is to be considered as if no bankruptcy had taken place, as the execution was before the bankruptcy. In law there are three relations: First, if a person chooses for valuable consideration to sell his interest in the partnership trade, for it comes to that; or if his next of kin or executors take it upon his death ; or if a creditor takes it in execution, or the assignees under a commission of bank- ruptcy. The mode makes no difference; but in all those cases the ap- partner's interest in partnership property 111 plication takes place of the rule that the party coming in the right of the partner comes into nothing more than an interest in the partner- ship, which cannot be tangible, cannot be made available, or be de- livered, but under an account between the partnership and the part- ner, and it is an item in the account that enough must be left for the partnership debts. * * * The question, therefore, recurs to the consideration, what it was that partner had, for the creditor cannot be entitled to any more. It therefore argues nothing to say he has the merit of diligence, till we see upon what that merit can attach. If the partner himself, therefore, had nothing more than an interest in the surplus beyond the debts of the partnership upon a division, if it turns out that at common law that is the whole that can be delivered to, or taken by, the assignee of a partner, the executor, the sheriff, or the assignee under a commission of bankruptcy, all that is delivered to the creditor taking out the execution is the interest of the partner in the condition and state he had it; and nothing was due to this part- ner separately, the partnership being insolvent. The whole property was due to the partnership creditors, and not to either partner. PRATT V. McGUINNESS et at. (Supreme Judicial Court of Massachusetts, 1899. 173 Mass. 170, 53 N. E. 3S0.) Morton, J." This case was heard upon the pleadings and the mas- ter's report. There was a final decree and an appeal, and a request to the justice who heard the case to report the same, under St. 1883, c. 223, § 7. The case may be treated as here on appeal, and the report may be regarded as a finding under that statute of all the facts on which the decree was founded, namely, those stated in the master's report and those admitted by the pleadings. It is not necessary, to determine the power of a single justice, independently of the statute of 18S3,, to report a case to the full court after the entering of a final decree. The bill, as brought, alleges that the plaintiff is a half owner as tenant in common of certain personal property, and asks that the property be sold, and the proceeds^ divided, that a mortgage put upon the property by one of the defendants be declared void, and that he be required to account for certain rents and profits received from the property. The master has found that the person from whom the plain- tiff derived his title had only an equitable interest in the property as a member of a firm for which the legal title to it was held by one of the defendants as a part of the assets of the partnership. None of the plaintiff's exceptions to the master's report in regard to his findings of fact can be considered, because the evidence is not reported. It appears that at most the plaintiff has only an equitable interest in such assets of the partnership as may remain, if any, after settlement of the affairs of the partnership. He has nothing but that which he acquired from 18 Part of the opinion is omitted. 112 NATURE AND CHARACTERISTICS one of the partners, and, if the legal title to the chattels had been in the firm, he would not have acquired an ownership in the articles them- selves. The title to personal property of a partnership is not in the individual members of the firm, so that they can convey an undivided share in any specific articles to another ; but it is in the firm as an en- tirety, subject to the equities of the different members, and their right to have it applied to the payments of the debts of the partnership. San- born v. Royce, 133 Mass. 594; Pelletier v. Couture, 148 Mass. 269, 19 N. E. 400, 1 L. R. A. 863; Lovejoy v. Bowers, 11 N. H. 404; Fourth Nat. Bank v. Railroad Co., 11 Wall. (U. S.) 624, 20 L. Ed. 82 ; Menagh v. Whitwell, 52 N. Y. 146, 11 Am. Rep. 683 ; Tarbell V. West, 86 N. Y. 280 ; Beecher v. Stevens, 43 Conn. 587 ; Sirrine v. Briggs, 31 Mich. 443. It is questionable, upon the authorities, whether, upon a conveyance of an interest in only a part of the partnership prop- erty, a plaintiff could maintain a bill in equity for a settlement of the partnership affairs and an accounting. Assuming that he could, this bill was not brought for that purpose. * * * It is plain that this bill cannot be maintained. Decree affirmed. VII. Transfer of Partnership P roperty *• 1. By Act of the Partne;rship Ex parte RUFFIN. (In Chancery, before Lord Eldon, Ch., 1801. 6 Ves. 119.) In June, 1797, Thomas Cooper, of Epsom, brewer, took James Coop- er into partnership. That partnership was dissolved by articles dated the 3d of November, 1798, under which the buildings, premises, stock in trade, debts, and effects were assigned to James Cooper by Thomas Cooper, who retired from the trade. Upon the 2d of April, 1800, a commission of bankruptcy issued against James Cooper, under which the joint creditors attempted to prove their debts, but the commission- ers refused to permit them, upon whij:h a petition was presented to Lord Rosslyn, who made an order that the joint creditors should be at liberty to prove, with the usual directions for keeping distinct ac- counts, and an application of the joint estate to the joint debts and of the separate estate to the separate debts. At a meeting for the purpose of declaring a dividend, the commissioners postponed the dividend, in order to give an opportunity of applying to the Lord Chancellor, in i« For a discussion of principles, see Gilmore on Partnership, §§ 56, 57. TEANSFEE OF PAETNEESHIP PEOPEETY 113 consequence of which, this petition was presented, praying that the partnership effects remaining in specie and possessed by the assign- ees may be sold, and that the outstanding debts may be accounted joint estate. By the articles of dissolution the parties covenanted to abide by a valuation to be made of the partnership property, and James Cooper covenanted to pay the partnership debts then due and to indemnify Thomas Cooper against them, and Thomas Cooper convenanted not to carry on the trade of brewer for 20 years within 20 miles of Epsom. A bond for £3,000, the calculated value of the partnership property as- signed, was given to Thomas Cooper by James Cooper and his father, as surety. In pursuance of the covenant, the partnership property, con- sisting of leases, the premises where the trade had been carried on, stock, implements, outstanding debts, and other effects, were valued by arbitrators at £2,030, after charging all the partnership debts then due. James Cooper, by his affidavit, stated that all the joint creditors knew of the dissolution and the assignment of the property, that ad- vertisements were published, and the deponent, after the dissolution, received many debts due to the partnership, but paid more on account of the partnership. His father, by affidavit, stated that he paid the interest of the bond regularly, and intended to pay the principal when due. Eldon, L. C. This case is admitted, unless Ex parte Burnaby, 1 Cooke's Bank. Law (4th Ed.) 253, applies to it, to be new in its cir- cumstances. Therefore, if I was of opinion that the petition could be supported, I should be very unwilling to express that in bankruptcy, where my opinion would not be subject to review. If the case I have mentioned has decided the point, there is the authority of Lord Hard- wicke upon it, which would weigh down the most considerable doubt that I could be disposed to entertain. I feel great difficulty in comply- ing with the prayer of the petition, and, when I read it, was struck with it as a new case, and as one upon which I do not clearly see my way to the relief prayed. It is the case of two partners who owed several joint debts and had joint effects. Under these circumstances their creditors, who had a demand upon them in respect of those debts, ha4 clearly no lien whatsoever upon the partnership effects. They had the power of suing, and by process creating a demand that would directly attach upon the partnership effects. But they had no lien upon or interest in them in point of law or equity. If any creditor had brought an action, the action would be joint. His execution might be either joint or several. He might have taken in execution both joint and separate effects. It is true that the separate creditors of each, by bringing actions, might acquire a certain interest even in the partner- ship eft'ects, taking them in execution in the way in which separate creditors can eft'ect such property. But there was no lien in either. The partnership might dissolve in various ways: First, by death; secondly, by the act of the parties, that act extending to nothing more Gilm.Part. — S 114 NATURE AND CHARACTERISTICS than mere dissolution, without any special agreement as to the dis- position of the property, the satisfaction of the debts, much less any agreement for an assignment from either of the partners to the others. The partnership might also be dissolved by the bankruptcy of one or both and by effluxion of time. If it dissolved by death, referring to the law of merchants and the well-known -doctrine of this court, the death being the act of God, the legal title in some respects, in all the equitable title, would remain notwithstanding the survivorship ; and the executor would have a right to insist that the property should be applied to the partnership debts. I do not know that the partnership creditors would have that right, supposing both remained solvent. So, upon the bankruptcy of one of them, there would be an equity to say the assignees stand in the place of the bankrupt, and can take no more than he could, and, consequently, nothing until the partnership debts are paid. So, upon a mere dissolution without a special agree- ment, or a dissolution by effluxion of time, to wind up the accounts, the debts must be paid, and the surplus be distributed in proportion to the different interests. In all these ways the equity is not that of the joint creditors, but that of the partners with regard to each other, that operates to the payment of the partnership debts. The joint creditors must of necessity be paid, in order to the administration of justice to the partners themselves. When the bankruptcy of both takes place, it puts an end to the partnership certainly. But still it is very possible, and it often happens in fact, that the partners may have different in- terests in the surplus, and out of that a necessity arises that the part- nership debts must be paid ; otherwise, the surplus cannot be distribut- ed according to equity, and no distinction has been made with reference to their interests, whether in different proportions or equally. Many cases have occurred upon the distribution between the separate and joint estates, and the principle in all of them, from the great case of Mr. Fordyce, has been that, if the court should say that what has ever been joint or separate property shall always remain so, the consequence would be that no partnership could ever arrange their affairs. There- fore a bona fide transmutation of the property is understood to be the act of men acting fairly, winding up the concern, and binds the creditors ; and therefore the court always let the arrangements be as they stand, not at the time of the commission, but of the act of bank- ruptcy. Thomas Cooper is admitted to be solvent. He certainly has no such equity as if the partnership had been dissolved by bankruptcy, death, effluxion of time, or any other circumstance not his own act. But he dissolves the partnership a year and a half ago, and, instead of calling upon these effects according to his equity at the dissolution to pay the partnership debts, he assigns his interest to the other, to deal as he thinks fit with the property, to act with the world respecting it, desiring only a bond to pay a given value in three or four years. Therefore he or his executors could not sue. If it was necessary for the creditors to operate their relief through his equity, he has no equity. It is then TEANSFEK OF PARTNERSHIP PROPERTY Uu said, and the circumstance had struck me, that all the property is not assignable at law — for instance, the debts; but, as between the two Coopers they were the property of the bankrupt, for debts are within the statute of King James, and, if left in the order and disposal of the bankrupt, he is proprietor of the debt. Therefore Thomas Cooper could never set up the insufficiency of the legal operation of the assign- ment against his own deed. The assignment was not made subject to the payment of the debts, but in consideration of a covenant, leav- ing no duty upon the property, but attaching a personal obligation upon the assignee to pay the debts. The creditors, therefore, cannot rest upon the equity of the partner going out. I was struck with the argu- ment of inconvenience. The inconvenience on all sides is great. To say this seems to me a monstrous proposition: That which, at any time during the partnership, has been part of the partnership effects, shail in all future time remain part of the partnership effects, notwith- standing a bona fide act. Suppose, an inprobable case, that tlie partners in Child's house chose to shift their shop from Temple Bar to the west end of town; and that house, now the property of the partner- ship, was bona fide bought by one of the partners, and the money was invested in the purchase of the new house in which they were going to reside ; suppose, a still more improbable case, that a year and a half or ten years afterwards they became bankrupt — would that house be part of the partnership eft'ects? It would be so, if it remained with- out legal interest being passed, or without any equitable claim, taking it out of the reach of a legal execution; but where the effect is a bona fide transaction of this sort, if it were held at any time after- wards to be partnership property, not for the purpose of satisfying demands of the partners, or of any creditor who cannot otherwise be satisfied, but to enable them to undo all the intermediate equities, com- mercial transactions could not go on at all. It would be much less in- convenience to examine the bona fides of each transaction than to say such transactions shall never take place. The case of West v. Skip, 1 Ves. 237, falls within some of the ob- servations I have made. Heath v. Percival, 1 P. Wms. 682, does not apply at all. The bond in that case was not given up; and therefore the creditor keeping the best security, and refusing to part with it, no inference can be made against the conclusion arising from that. Hankey v. Garratt, 1 Ves. 236, is also very different. There the part- nership was dissolved by bankruptcy or by death, and there was no actual transfer of the property to take it out of the reach of legal ex- ecution. I am unwilling to make any observation upon Burnaby's Case. I do not know how to understand it. Whether there was anything special in the assignment, I cannot find out from the report. I shall endeavor to find the papers. It looks very like this case. If it is in specie this case, as an authority I should think myself bound to sub- mit to it. But, if it is not in specie this case, there is so much doubt whether this relief can be given that I am satisfied it ought to be given, if at all, in a jurisdiction where my opinion would be subject to review. 116 NATURE AND CHARACTERISTICS My present Inclination is that the creditors have not this equity. I have considerable doubt, also, whether, if they have it, Thomas Cooper would be benefited by it; and a further subject of grave and serious doubt is, whether, if the joint creditors disturb the arrangement, the separate creditors would not have a right to set the arrangement right at his expense. I now think there is a circumstance which distinguishes Burnaby's Case. The assignment was not by one to the other two, but by one to one of the other two, which may be very different. I think that circumstance distinguishes the case so much that I shall consult the interest of the parties better by saying they may file a bill, if they think proper, than by further delay. The petition was dismissed. VIII. Firm Creditors' Rights in Firm Assets — Partner's Lien*'' DARBY et al. v. GILLIGAN et at. (Supreme Court of Appeals of West Virginia, 1889. 33 W. Va. 246, 10 S, B. 400, 6 L. R. A. 740.) Snyder, P. Appeal from a decree of the circuit court of Taylor county, pronounced March 28, 1887, in the suit of Darby & Co. and others against John J. Gilligan and others. The suit was brought to set aside a trust deed made by said Gilligan to John T. McGraw, trus- tee; to enjoin said trustee from disposing of the property thus con- veyed to him; and to have the same applied to the payment of the plaintiffs' debts. On September 17, 1883, the said Gilligan and James Burns entered into an agreement in writing, whereby they agreed to form a partnership for conducting a general merchandising business in the town of Grafton, Taylor county, Gilligan having prior to that time been merchandising at the same place, and having then on hand a stock of goods, which he put into the firm at the value of $2,000, and Burns paid into the firm $1,000. Upon this capital stock, they agreed that Gilligan should have a two-thirds and Burns a one-third interest in the assets, business, and profits of the partnership. At the time this partnership was formed, Gilligan was indebted to the First National Bank of Grafton and others in the sum of $1,100, for money borrowed and put into the mercantile business while he was conduct- ing it alone. During the carrying on of the business by the firm, the firm contracted debts to the plaintiffs and others, and the partners so managed the business that they and the firm became indebted, to in- solvency. Afterwards, on February 27, 1885, by a contract in writ- 1* For a discussion of principles, see Gilmore on Partnership, §§ 58-61. TEANSFEE OF PAETNEESHIP PEOPEETT 117 ing, the partnership was dissolved, upon the terms that in considera- tion of $1,000, for which Gilligan executed to Burns his note, payable one year from that date, Burns withdrew from the firm, and Gilligan assumed, and agreed to pay, all the then existing indebtedness of the firm. About two months after, on April 24, 1885, Gilligan conveyed to John T. IMcGraw the whole of the assets of the late firm, in trust, to secure all his debts, including the debts due the plaintifTs and others by said firm; but in said conveyance he preferred the aforesaid $1,- 100 due to the Grafton Bank and others, the note for $1,000 given to Burns as aforesaid, which had been assigned by him to Anna Burns, and other individual debts, amounting in the aggregate to more than the value of the assets conveyed. Upon these facts the plaintiffs, the appellants here, contend that this attempt of Gilligan to prefer and pay his individual debts out of the said assets is a fraud upon the firm creditors, which, according to well-settled principles, a court of equity will not permit. Ordinarily the partnership estate is liable for the payment of the firm debts, in preference to the individual debts of the partners. This is the right of the partners inter se. The creditors of the partnership have no such right of priority over the creditors of the partners individually, otherwise than by substitution to the rights of the partners inter se. The partners may release this right, and, if they do so bona fide, the creditors of the partnership cannot complain; for it is not their right, except subject to the proper dis- position and control of the partners themselves, to whom it belongs. This right is generally called the "partner's lien." It differs from a common-law lien in that it is not dependent on possession, and any single partner can convey a good title to specific chattels by a bona fide sale in the course of trade ; and a lien does not involve the right to deal with the property, whereas the partner's equity is a right to have it applied for certain purposes, and the one partner cannot assert the lien as a sole plainti'ff. The existence of this equity may be ex- plained in a variety of ways, as on an impHed contract that the as- sets shall not be used for private purposes; on the doctrine of sure- tyship, since each partner is liable in solido for the debts, and there- fore, inter se, virtually a surety for the copartners for their propor- tions, and entitled to have the assets applied so as to relieve him. The partners have jointly the same right of absolute disposition of their joint property that any individual has. They may sell it, pledge it, convert it into other forms, divide it up among themselves, devote it to the payment of all or part of the debts, or exercise other owner- ship over it, subject only to each other's rights, and to the operation of statutes forbidding voluntary or fraudulent conveyances, to hinder, delay, and defraud creditors. It is clear from what has preceded that while the partnership is solvent and going on the partners may, by unanimous assent or joint act, do what they please with the assets, if the act is bona fide. Where, in such case, one partner sells or assigns his interest to the other, bona fide, for a valuable consideration, or an agreement to pay the debts of the firm, and indemnify against them, 118 NATURE AND CHARACTERISTICS this will change the joint into a separate property. The only question is upon the bona fides of the transaction. If such an arrangement could not be made, a partner never could retire. Bates, Partn. §§ 559, 820, 824; Story, Partn. §§ 97, 3G0. On the other hand, according to the better reason and the weight of authority, if the firm is insol- vent, or on the eve of insolvency, and both of the partners are insol- vent, a purchase by one partner of the interest of the other, in con- sideration of the former's assumption of all the debts of the firm, will be regarded as a purchase upon a consideration which is of no value whatever; and, no equivalent having been given, the transfer is in effect voluntary, and its only effect, if sustained, would be to hinder partnership creditors, and hence is deemed ineffectual to convert the joint property into separate property, as against the firm creditors. Ex parte jMayou, 4 De Gex, J. & S. 664, 11 Jur. (N. S.) 433, 12 Law T. (N. S.) 254; Sanderson v. Stockdale, 11 Md. 563; Phelps v. Mc- Neely, 66 Mo. 554, 27 Am. Rep. 378; Tenney v. Johnson, 43 N. H. 144; Marsh v. Bennett, 5 McLean (U. S.) 117, Fed. Cas. No. 9,110; Roop V. Herron, 15 Neb. 73, 17 N. W. 353; In re Cook, 3 Biss. 122, Fed. Cas. No. 3,150; Conroy v. Woods, 13 Cal. 626, 73 Am. Dec. 605; Ransom v. Van Deventer, 41 Barb. (N. Y.) 307; Menagh v. Whitwell, 52 N. Y. 146, 163, 11 Am. Rep. 683; Shackelford v. Shack- elford, 32 Grat. (Va.) 503; Farmers' Bank v. Smith, 26 W. Va. 541. In the case at bar the firm as well as the individual partners were indebted, to insolvency, at the time the contract of dissolution was made, by the terms of which Gilligan assumed to pay, not only the debts of the firm, but $1,000 to Burns. As the firm and Gilligan were then both insolvent, there was no valuable consideration for either this assumption of the firm debts or said $1,000, Less than two months after this transaction, Gilligan, without paying a single firm debt, so far as the record shows, assigned all the assets in such a man- ner as to devote the whole of them to the payment of his individual debts. It seems to me plain that to uphold this scheme, against the rights of the social creditors, would violate, not only the general principles of equity, but the express provisions of our statute against voluntary and fraudulent conveyances. It is, however, claimed for the appellees that if this transaction is held void as to the firm cred- itors, then, for the like reasons, the act of Gilligan in putting his own stock of goods into the firm must be held void as to his individual creditors. But there is no analogy in the two transactions. It does not appear that either Burns or Gilligan was insolvent at that time, and it does appear that Burns paid into the concern $1,000, and also that the debts due the plaintiffs and others were contracted by the firm on the faith of the social assets. For these reasons the decree of the circuit court is reversed, and the cause remanded. TBANSFEE OF PAETNEESHIP PEOPEBTY 119 JACKSON BANK v. DURFEY et al. (Supreme Court of Mississippi, 1895. 72 Miss. 971, 18 South. 450, 31 L. R. A. 470, 48 Am. St. Rep. 59G.) Cooper, C. J.^^ The appellant, a firm creditor of the appellees, Dur- fey & Ascher, exhibited its bill in chancery, seeking to annul as fraudulent two certain deeds of trust whereby the firm assets were incumbered to secure the individual debts of the partners. The evi- dence, fairly construed, discloses these facts: Durfey, one of the partners, was indebted to the defendant Caldwell in the sum of $5,- 000, and Ascher, the other partner, was indebted to Hart in the sum of $5,550. The firm and the individuals composing it were insolvent. On October 3d, Durfey executed a deed of trust on all property owned by him individually and upon his individual half interest in certain property, specifically described, owned by the firm, to secure the debt due by him to Caldwell. On the same day Ascher executed a deed of trust conveying his individual property and his individual half interest in certain property specifically described owned by the firm, to secure the debt due by him to Hart. The book accounts, and certain horses which had been bought for resale, were not in- cluded in the conveyance; but the stock kept in livery, the carriages, feed, and other appurtenances, wxre all incumbered. Forfeiture of both conveyances was fixed for the same debt, — January 1st follow- ing, — at which time, the secured debts remaining unpaid, the trus- tees were authorized and directed to make sale of the mortgaged property, and out of its proceeds to pay the secured debts. The members of the firm testified that they expected, by the col- lection of the outstanding book accounts, by the sale of the stock not included in the deeds, and from the profits of the business, to pay the firm debts; but a careful consideration of the evidence satisfies us that at the time the deeds were executed the firm and its members were hopelessly insolvent, and that no expectation could reasonably have been entertained that the firm debts could be paid after the firm property had been devoted to the individual debts of the partners. What followed the execution of the deeds was at best the struggle of men hoping against hope, and postponing for a short time the in- evitable end. The issue is thus sharply presented whether it is law- ful for the members of an insolvent firm to convert the joint estate to the individual debts of its members, leaving the firm debts unpaid. The question has never, so far as we are advised, been before the court, though expressions may be found, suggestive of the inclination of some of the judges who have been members of the court, that the dominion of the partners over firm property is not limited by the existence of firm debts and the insolvency of the firm. * » * 18 Part of the opinion is omitted. 120 NATURE AND CHARACTERISTICS The authorities, with practical uniformity, agree that the right of partnership creditors to have the partnership property applied to the payment of partnership debts is a derivative one, resting upon the equities of the partners as between each other. The conflict of de- cision arises with the question whether the partners may, by conven- tion, waive their rights, and convert the joint estate into severalty, thus subjecting it to the debts of the individual members, or, by di- rect appropriation, apply the joint estate to such debts. It is quite generally held that this may be done so long as the partnership is solvent, and a going concern. Some courts seem to hold that if the partnership, though insolvent, is yet engaged in the prosecution of its business it may thus deal with the partnership estate; and oth- ers that this may be done even though the partnership is insolvent, contemplates dissolution, and converts the joint into separate es- tates for the purpose of applying it to the individual debts of its members. In Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370, the insolvent members of an insolvent firm had applied all the partnership property to the payment of their respective individual debts. The firm cred- itors sought to subject it to their demands, but relief was denied up- on the ground that the right of firm creditors was a derivative one, and could not be enforced except so long as the partners themselves retained their liens upon the property. Speaking on the precise point, the court said : "The bill, it is true, charges that the several trans- fers of the partners were illegal and fraudulent, without specifying wherein the fraud consisted. The charge seems to be only a legal conclusion from the fact that some of the transfers were made for the payment of the private debts of the assignors. Conceding such to have been the case, it was a fraud upon the other partners, if a fraud at all, rather than upon the joint creditors; a fraud which those partners could waive, and which was subsequently waived by the act of fusion." The clear effect of this decision is that it is not a fraud upon part- nership creditors for an insolvent firm to devote the joint estate to the payment of the separate debts of the partners, leaving no pro- vision for the firm creditors. In no other case we have seen has the question been presented where the conversion of the whole as- sets into separate estates or the devotion of all of them to indi- vidual debts was involved. The reasoning of other courts, however, in the following cases, would seem to conduct to the same conclusion as that reached in Case v. Beauregard: Sigler v. Bank, 8 Ohio St. 511; Rice v. Barnard, 20 Vt. 479, 50 Am. Dec. 54; Allen v. Center Valley Co., 21 Conn. 130, 54 Am. Dec. 333; Winslow v. Wallow, 116 Ind. 324, 17 N. E. 923, 1 L. R. A. 179; Purple v. Farrington, 119 Ind. 164, 21 N. E. 543, 4 L. R. A. 535; Fletcher v. Sharpe (Win- slow V. Wallace, 116 Ind. 317) 17 N. E. 923. See, also, other cases, TEANSFEB OF PARTNERSHIP PROPERTY 121 probably holding to the same effect, cited in notes to section 5G0, 1 Bates, Partn. But the decided weight of authority is that, while the right of firm creditors to go against the firm property in postponement of the right of creditors of the individual members is a derivative right, and rests on the right of the members of the firm, and while that right is lost by the bona fide waiver of their rights by the partners, it is not lawful for the members of the firm, in contemplation of in- solvency, to divert the firm property, and apply it to the payment of the debts of the individual members, or to convert the joint es- tate into estates in severalty, to prevent its being seized by firm cred- itors. Ex parte Alayou, 4 De. Gex, J. & S. 664; Ex parte Snow- ball, 7 App. Cas. 534; Cron v. Cron's Estate, 56 Mich. 8, 22 N. W. 94; Cribb v. Morse, 17 Wis. 322, 46 N. W. 126; Willis v. Brem- ner, 60 Wis. 622, 19 N. W. 403 ; Menagh v. Whitwell, 52 N. Y. 146, 11 Am. Rep. 683; Phelps v. McNeely, 66 Mo. 554, 27 Am. Rep. 378; Reyburn v. Mitchell, 106 Mo. 365, 16 S. W. 592, 27 Am. St. Rep. 350; Roop v. Herron, 15 Neb. 73, 17 N. W. 353; Arnold v. Hager- man, 45 N. J. Eq. 186, 17 Atl 93, 14 Am. St. Rep. 712; Darby V. Gilligan, 33 W. Va. 246, 10 S. E. 400, 6 L. R. A. 740; Shackelford V. Shackelford, 32 Grat. (Va.) 503; Bank v. Sprague, 21 N. J. Eq. 530; French v. Lovejoy, 12 N. H. 458; Flack v. Charron, 29 Md. 311; Clements v. Jessup, 36 N. J. Eq. 569; Elliott v. Stevens, 38 N. H. 311; Gallagher's Appeal, 114 Pa. 353, 7 Atl. 237, 60 Am. Rep. 350; Patterson v. Seaton, 70 Iowa, 689, 28 N. W. 598: J. Pars. Partn. § 196; Bates, Partn. § 563; Jones, Mortg. §§ 19-23; Beach, Mod. Eq. §§ 707, 788; Hare & W. note to Silk v. Prime, 2 White & T. Lead. Cas. Eq. pt. 1, 353. The principle controlling in these cases is stated with precision by Judge Dixon, delivering the opinion of the court in Arnold v. Ha- german, 45 N. J. Eq. 186, 17 Atl. 93, 14 Am. St. Rep. 712. We quote from that opinion at large, as we adopt and affirm the reason- ing of the court: "In equity, a partnership is for some purposes deemed a single entity. Thus, when a partnership property invested in the business of a partnership is to be applied by a court of equity to the payment of debts, that property is treated as belonging, not to the persons composing the firm, but to a distinct debtor, the part- nership, and it is used first to liquidate the debts, and only the sur- plus, if any, is surrendered to the individual partners. This equi- table practice rests upon the presumed intentions of the partners themselves, and hence is primarily considered as their equitable right against each other. Consequently, since the decision of Lord Eldon in Ex parte Ruffin, 6 Ves. 119, it has been generally held that the partners could put an end to their right, and that if, by their agree- ment, the partnership is dissolved, and its property is assigned to one of their members or to a stranger, as his own, without reserva- 122 NATURE AND CHARACTERISTICS tion of the right, the right to have partnership debts paid out of that property is extinct." "Growing out of this righ<- of partners, has arisen a corresponding equity in partnership creditors to have their debts first satisfied out of the firm property, which is now deemed a substantial element of their demands. Generally, it may be said that this equity ot creditors continues only so long as the right of the partners against each other subsists, and perishes when that ter- minates ; but this is not universally true, for this equity may survive the right to which it is ordinarily attached. In this respect it re- sembles the claim which the general creditors of an individual have upon his prorjerty. It is neither an estate nor a lien. It is ordi- narily but a right, by lawful procedure, to acquire a lien during the ownership of the debtor. Yet, under certain circumstances, that lien may be acquired after the debtor's ownership has ended. This re- sults from the provisions of the ancient statute for the preven- tion of frauds and perjuries, by force of which, when a person has aliened his property, with intent to hinder, delay, or defraud his creditors, the rights of those creditors remain as if no alienation had taken place, except against the claims of bona fide purchasers, for good consideration, without notice." "Equity applies this statute to a partnership, its property and creditors, just as it would in the case of an individual ; and therefore, while it is generally true that a partnership may defeat the equity of its creditors by the alienation of its property, and subsequent extinguishment of the right of its partners inter sese, yet, if the alienation be effected with intent to hinder, delay, or defraud the firm creditors by defeating their equity, the claims of creditors will be unimpaired, and the property will be treated as partnership assets, unless it shall have passed into the hands of those whom the statute protects." In Clements v. Jessup, 36 N. J. Eq. 569, it was said: "Partnership creditors, in equity, have an inherent priority of claim upon partnership property over indi- vidual creditors, and a transfer of partnership property by one part- ner, with the consent of the other partners, or by all of the part- ners, to pay individual debts, is fraudulent and void as to firm cred- itors, unless the firm was then solvent, and had sufficient property remaining to pay the partnership debts." The recognition of this equity in favor of firm creditors does not impair any proper exercise of the power of the partnership over its property or aft'airs, nor bring within the control of a court of equity all partnerships which are insolvent in fact, or in a condition of tem- porary inability to meet their obligations. The apprehension of this result seems to have been influential in leading the court, in Sigler v. Bank, 8 Ohio St. 511, to adopt the opposing view. But the statute against fraudulent conveyances does not operate to control the law- ful dominion of individuals, though insolvent, over their property; nor does mere insolvency confer jurisdiction upon equity to take TEANSFER OF PABTNEESHIP PROPERTY 123 charge of and administer their estates. And yet it cannot be denied that the statute docs restrain the insolvent from disposing of his es- tate for the purpose of withdrawing it from liability to his creditors. Why should a different rule be applied to an aggregation of individ- uals than to them separately? The inquiry must in either case be whether the purpose and effect of the act is lawful, and it may be done by the individual or by a firm ; if unlawful, the act is equally void, as to the creditors injured, whether it be done by the one or the other. But, it is again said that it cannot be a fraud for one to devote whatever right or property he has to the payment of an honest debt. This is true if one devotes his own property to his own debts; but is it not a fraud in law if A. appropriates his property to pay B.'s debt, leaving his own unpaid? Take the case at bar. Durfey & Ascher appropriated one-half of their joint estate to pay Ascher's debt. Now, if this was all that had been done, it would be manifest that the creditors of Durfey could treat the conveyance as fraudu- lent, because it would have been a clear donation by Durfey to the creditors of Ascher, at the expense of his creditors, he being in- solvent. But it is said that Ascher at the same time conveyed his in- terest in the other half of the joint estate to the creditors of Durfey, and so each conveyance became a consideration of the other, and each partner received a full consideration for his release of his right as a partner. The reply is that a full consideration does not make a con- tract otherwise unlawful valid. If A. agrees to do one unlawful act if B. will do another, of what avail is it that each will reap a benefit from such an act of the other? Durfey had a right to have the partnership property applied to the partnership debts, and Ascher had a like right. While these reciprocal rights existed, they were of value as property rights of the debtors to a certain class of creditors ; i. e. firm creditors. Now, it is manifest that for the very satisfaction of their demands the rights themselves were waived, and attempted to be obliterated. We are unable to perceive any just principle up- on which the right of a debtor can be recognized to thus deal with his estate for the very purpose of obstructing his creditors. It is to be noted, also, that neither partner could make a cent by the transaction. Five thousand dollars' worth of property will pav only $5,000 of debts, whether its proceeds be applied to partnership or individual liabilities. The partners would, in either event, after the payment of debts of either class, owe precisely the same sums. To permit the consummation of the scheme would be of no benefit to them. Its sole effect would be to withdraw the property from one class of creditors who had created the joint estate, had given credit on the faith of it, and had a right to resort to it, and to permit its appropriation to another class, who dealt with the individuals com- posing the firm, with a full knowledge that all they could get out of 124 NATURE AND CHARACTERISTICS the partnership assets was what remained after payment of the debts. The complainant is entitled to the relief prayed by its bill. The de- cree is reversed, and cause remanded. WIGGINS V. BLACKSHEAR et al. (Supreme Court of Texas, 1S94. 86 Tex. 6G5, 2G S. W. 939.) Stayton, C. J. This is an action by W. N. Wiggins against the persons composing the firm of Blackshear & Co., and P. C. Baird, sheriff, to recover the value of property seized by the latter under attachment sued out by Blackshear & Co. in an action brought by them against J. T. Wiggins & Co., a firm composed of J. T, Wiggins and S. J. Redman, J. T. Wiggins & Co. owned a 'Stock of drugs, paints, oils, etc., of the value of $1,310, besides accounts and claims amounting to $800. J. T, Wiggins was indebted to W. N. Wiggins in the sum of $445, exclusive of some interest, and S. J. Redman was indebted to F. W. Henderson in the sum of $594. These were not partnership debts, but the money for which they were contracted seems to have been used in the partnership business. The firm was indebted in the sum of $871.63, of which $292.71 was due to Blackshear & Co. On December 24, 1889, Wiggins & Co. were unable to raise money to meet their maturing indebtedness, and in that sense the firm was in- solvent, but it does not appear what property the members of the firm owned at that time. On that day they conveyed to W. N. Wiggins, in trust, all of the partnership property, with power to sell it, collect the debts, and, after paying the expenses, to pay (1) the sums due from J. T. Wiggins to W. N. Wiggins, and the sum due from Red- man to Henderson; (2) the sums due to partnership creditors in full or pro rata, without preferences between them, — any property remaining after these things were done to be returned to J. T. Wig- gins & Co. Before the trust deed was executed, and with view to make them partnership creditors, the notes due from J. T. Wiggins to W. N. Wiggins, and from S. J. Redman to Henderson were indorsed by the firm of J. T. Wiggins & Co., with knowledge of their creditors. W. N. Wiggins took possession of the property at once, in accordance with the trust deed, whereupon Blackshear & Co. brought suit for the sums due them, and seized the property under attachment, and it was afterwards sold as perishable property. That seizure was the basis of this action, and the question arises whether Wiggins & Co. could thus, by way of mortgage, appropriate their partnership prop- erty to payment of individual debts of members of the firm. In the decision of this question, the fact that the money borrowed TEANSFEE OF PAKTNERSHIP PEOPERTT 125 by the persons composing the firm, for which they were only several- ly liable, may have been used in the purchase of property that became the property of the firm, may and will be considered only in so far as it shows that the mortgage given to secure sums so borrowed and used was made without fraudulent intent. That the individual debts so secured were real, and the money obtained through their creation used in the purchase of property which became partnership prop- erty, takes from the case all question of fraud, and leaves the sim- ple question whether the members of a partnership, circumstanced as was the firm of Wiggins & Co., may lawfully mortgage partnership property to secure debts of the several members of the firm, for which the partnership is not liable. There are two theories on which it is sometimes claimed that cred- itors of a partnership have right to have its assets applied to the payment of their claims in preference to creditors of the persons composing the firm. The first of these is that the partnership prop- erty is presumed to have been obtained through credits given to the firm, and that, for this reason, partnership creditors ought to be pre- ferred in the distribution of its assets. But, if courts could enter into such inquiries, the facts of this case would defeat the right to I)rcference on such a ground, for the partnership property in ques- tion was doubtless largely acquired with money borrowed by the sev- eral persons composing the firm from W. N. Wiggins and F. W. Henderson, to whom preference was given in the mortgage. The other theory is that a partnership ought to be treated as a person, in contradistinction to the persons composing it, and therefore its prop- erty ought to be first subject to the payment of partnership debts, without reference to the will of the partners [ but a partnership can- not be so considered, simply because such is not its nature. For partnership debts the members of the firm are jointly and sev- erally liable, and the law recognizes no personality in a partnership otlicr than that of the persons who compose it. As every partner is liable for the debts of his firm, and owns its property in common with other partners, it is his right to have the common property applied to the payment of partnership debts, and all the other partners, with- out his consent, cannot take this right from him. This right is sometimes said to give every partner an equitable lien on firm as- sets, as well to secure him against several liability for firm debts as to secure to liim his proper share of the firm assets on dissolution ; but creditors of a partnership have no lien or other claim on partner- ship assets which can prevent the members of the firm from dispos- ing of those in any manner or to whomsoever they may deem proper, provided that such disposition is not fraudulent. That a partner- ship creditor has no specific lien, either legal or equitable, upon part- nership assets, any more than any individual creditor has upon the estate of his debtor, is so firmly established that citation of author- ity in support of the proposition is useless; but they may acquire 126 NATURE AND CHARACTERISTICS liens by contract, or through the process of a court by which the creditors may acquire liens on specific property. The rule is thus well stated : "A creditor of a partnership has, as a general rule, no direct lien upon the partnership property until he acquires it by legal process, that is, by the levy of an attachment or of an execution. His indirect or quasi lien is derived from the lien or equity of the individual partners. It is practically a subroga- tion to the lien of the individual partners. If the partners are not themselves in a condition to enforce an equitable lien upon the part- nership property, the creditors of the partnership cannot enforce a lien derived from them or from one of them. The equity of the partnership creditor continues so long as the equity of the individual partner continues, and no longer." Jones, Liens, 788. When, how- ever, the property of a partnership passes into the custody of a court for administration, as in cases of bankruptcy or assignment made by an insolvent firm, then the court will administer it as was the right of the several partners to have it administered while controlled by themselves. In such cases, the court's action is based as fully up- on the rights of the partners as between themselves as upon the rights of creditors ; and, when the result of the proceeding is to discharge partners from further liability, then the first theory before refer- red to may have been given weight in establishing an administra- tive rule in such cases. In accordance with the general rule before stated, it has been steadily held that one partner may in good faith convey his interest in partnership assets to another, and that thereby all equities of such partner and of all partnership creditors to subject such assets first to the payment of their claims is thereby lost. White v. Parrish, 20 Tex. 689, 73 Am. Dec. 204; Rogers v. Nichols, Id. 719; Weaver V. Ashcroft, 50 Tex. 442; Swearingen v. Bassett, 65 Tex. 272; Stansell v. Fleming, 81 Tex. 298, 16 S. W. 1033. It has been held that one member of an insolvent partnership, all the members being insolvent, may transfer in good faith, with the concurrence of the other partners, his interest in the partnership property to an individ- ual creditor, and that, after this, a simple contract creditor cannot maintain a bill to subject the property to payment of a debt due to him by the firm. Case v. Beauregard, 99 U. S. 119, 25 L. Ed. 370. As priority of right of partnership creditors over creditors of the individual members of the firm rests on the rights of the partners themselves, can there be any doubt, if an insolvent partnership be dissolved by mutual agreement of its members, and its property be divided between them in accordance with their several interests, that partnership creditors would lose all right to priority of payment out of property so distributed? Members of a partnership having thus voluntarily surrendered their rights so as to have the assets appropriated, each would hold property received in distribution in TRANSFER OF PARTNERSHIP PROPERTY 127 his separate right, subject ahke, however, to the claims of all cred- itors, both individual and partnership. Such a transaction would not be fraudulent as to either class of creditors, unless some further fact intervene, for the property in the hands of each partner would be subject as before to the claims of partnership creditors as well as others. In the case before us, the inference is that the members of the firm of Wiggins & Co. owned equal shares in the partnership prop- erty ; and if they had conveyed or mortgaged the entire property to pay or secure the debt of one of the partners, for which neither the firm nor the other partner was liable, then, on the plainest principles of right, it ought to be held that such a conveyance or mortgage was fraudulent as to firm creditors, and as to creditors of the member of the firm not bound for the debt, for, to the extent of his interest in the property, the conveyance would be voluntary. Such, however, is not the case we have before us. The value of the firm assets, exclusive of accounts and claims, which amounted to $800, was shown to be $1,310, and one-half of this was more than the individual indebtedness of either partner secured by the mort- gage. As partnership creditors had no lien on firm property, no rea- son is perceived why each member might not lawfully permit the other to pay his individual debt out of his own share of the partner- ship property; and the same reasons which would make lawful such a payment would give validity to a mortgage given by both part- ners to secure debts of members of the firm. Conveyances or mortgages given under such circumstances and for such purposes are not voluntary and therefore fraudulent as to partnership creditors. If the sums each partner owed individually had been equal, no one would doubt their perfect right, under agree- ment between themselves to pay or secure their several debts with partnership assets, for this would be simply using by each one what belonged to him for a lawful purpose. That their several debts were not exactly equal is a matter of no importance in view of the fact that the share of each in firm assets exceeded in value the individual debt of each secured by the mortgage. The rule applicable to partnership property and creditors when in the hands of a surviving partner, or when in course of administra- tion in bankruptcy, or under assignment for benefit of creditors, was applied in the district court and in the court of civil appeals, but it is believed to be inapplicable in cases like this, in which although the firm be insolvent, partners by mutual agreement may, within the limit heretofore noticed, prefer individual creditors, if this be done in good faith. This cause was tried without a jury, and, under the findings of the court of civil appeals, judgment will be here rendered in favor of the plaintiff against all defendants for the sum of $1,310, with in- 128 NATURE AND CHARACTERISTICS terest thereon from January 2, 1890, at rate of 8 per cent, per an- num, together with all costs incurred in this litigation. It is so or- dered. IX. Transfer by Act of a Single Partner LAMBERT'S CASE. (Court of Common Pleas, 1614. Godb. 244.) Two men were partners in goods : the one of the partners sold unto J. S., at several times, goods to the value of ilOO, and for the goods at one time bought he paid the money according to the time; after- wards an action was brought by one of the partners for the rest of the money, and the plaintiff declared upon one contract for the whole goods, whereas in truth they were sold upon several contracts made, and the defendant in that case would have waged his law. But the court advised the plaintiff to be nonsuit, and to bring a new action, because that action was not well brought, for it ought to have been a several action upon the several contract. And in this case it was agreed by the court, that the sale of one partner is the sale of them both; and therefore although that one of them selleth the goods or merchandiseth with them, yet the action must be brought in both their names ; and in such case the defendant shall not be received to wage his law, that the other partner did not sell the goods unto him, as is supposed in the declaration. TAPLEY v. BUTTERFIELD. (Supreme Judicial Court of Massachusetts, 1840. 1 Mete. 515, 35 Am. Dec. 374.) Plaintiff claimed title to the goods under a mortgage. Defendant justified his taking of the goods under a writ of attachment in a suit by firm creditors against the firm of A. & W. A. Blaisdell. The mort- gage covered the whole stock of that firm, and was executed in the names of both partners by A. Blaisdell, with one seal attached. It was given in payment of a firm debt of $650 due to plaintiff. On the trial, W. A. Blaisdell testified that if he had been present he should not have executed the mortgage. Verdict for plaintiff subject to the opinion of the full court. Shaw, C. J.^° * * ♦ \Ye are not aware that a mortgage of personal property requires a deed. If an act be done, which one part- is For a discussion of principles, see Gilmore on Partnership, § 62. 2 Part of the opinion is omitted and the statement of facts is abridged. TEANSFEE BY ACT OF A SINGLE PAETNEB 129 ner may do without deed, it is not the less effectual that it is done by deed. * * * Then treating this as an efficient act of one partner in giving a mortgage upon the partnership property for the security of a partnership debt, is it sufficient to bind the property? It is within the scope of partnership authority for one partner to sell and dispose of all the partnership goods, in the orderly and regu- lar course of business. It is also within the scope of partnership au- thority to pay the debts of the firm, and to apply the assets of the firm for that purpose. He, being authorized to sell the goods to raise money to pay their debts, may apply the goods directly to the payment of the debts ; and, according to the exigencies of the occasion, he may pledge the partnership goods to raise money to pay the debts of the firm. To this extent we think each partner has a disposing power over the partnership stock, arising necessarily from the nature of that relation. If it were in the form of a consignment to a commission merchant, or an auctioneer, and an advance of money obtained for the use of the firm, we think there could be no question but that it would be within the scope of partnership authority. And now that the law has given encouragement to mortgages of personal property, which is only another mode of pledging goods, and has substituted an instrument in writing capable of being recorded in the town clerk's book, and has given to such record an effect equivalent to the actual delivery of the goods, Bullock v. Williams, 16 Pick. 33, we cannot perceive why it may not be resorted to by partners as well as individ- ual persons. To what extent one partner can bind another in the dis- position of the entire property of the concern, is a question of power, arising out of the relation of partnership, and does not, we think, de- pend upon the form or manner in which it is exercised. Lands held by partners are considered as lands held by tenants in common ; and as one tenant in common cannot pass any estate of his cotenant, and as land cannot pass without deed, it follows that one partner cannot convey away the real estate of the firm without special authority. But considering that the authority of selling and pledging the per- sonal property is within the scope of partnership power, and may be done by either partner, and considering that it may be done without deed, the court are of the opinion that such a mortgage, made by one partner in the absence of the other, although unnecessarily made by deed, was binding upon the property, and constituted a valid lien upon the property, which the plaintiff may avail himself of. Anderson v. Tompkins, 1 Brock. 456, Fed. Cas. No. 365 ; Deckard v. Case, 5 Watts (Pa.) 22, 30 Am. Dec. 287. * * ♦ Judgment on the verdict. Gii-m.Pabt, — 9 130 NATURE AND CHARACTERISTICS JANNEY V. SPRINGER et al. (Supreme Court of Iowa, 1SS9. 78 Iowa, 617, 43 N. W. 401, 16 Am. St. Rep. 460.) This is an action at law to recover upon an account for ground feed sold to the defendants. There was a trial by jury, and a verdict and judgment for the plaintiff. Defendants appeal. RoTHROCK, J. It appears from the evidence that at the time the ac- count accrued A. A. Paine & Co., a partnership, were the keepers of a feed store, and that the individual members of the partnership were A. A. Paine and J. M. Janney, plaintiff in this action. W. W. Springer and C. F. Willard were at the same time engaged in the business of importing and selling high-bred horses from France under the part- nership style of Springer & Willard. A. A. Paine & Co. furnished the ground feed the value of which is in controversy in this action, which feed was consumed by the said horses. Some time after the account accrued the firm of A. A. Paine & Co. was dissolved, and at the dis- solution of the firm the ground feed account was assigned to Janney in the settlement of the partnership. He brought this action against the firm of Springer & Willard, and against Springer as an individual member of the firm. The defendants claimed that Willard bought the feed of A. A. Paine, and paid him therefor. The real facts relied upon as a defense were that A. A, Paine was indebted to Willard up- on a promissory note, and that Willard bought the feed of Paine un- der the agreement that the price of the same was to be applied on the note and in payment thereof. After both parties had introduced their evidence the plaintiff filed a motion for an order directing the jury to return a verdict for the plaintiff. The motion was sustained upon the ground that an agreement between Willard and Paine that Willard should purchase the feed and pay for the same by the discharge of Paine's individual indebtedness was void as to Janney, the other mem- ber of Paine & Co., unless Janney in some way assented to or ratified the transaction. We do not understand that this proposition is con- troverted by counsel for appellants. But it is contended in behalf of appellants that the question as to whether there was such a partnership as A. A. Paine & Co. should have been submitted to the jury. We do not think this position can be sustained. The existence of the firm was shown by the testimony of these witnesses, and there was no evi- dence to the contrary. It is said there was no firm sign erected at the place of business of the partnership, and that defendants had no knowl- edge of the existence of the firm. This want of knowledge and oriiis- sion to use a sign was in no sense conflicting evidence upon the ques- tion of a partnership in fact. It having been established beyond ques- tion that the feed was partnership property, it was incumbent on the defendants to show that Janney in some way assented to the alleged agreement to pay the individual debt of Paine in partnership prop- erty, or that he (Janney) in some way ratified the act after it was done. TBANSFEE BT ACT OF A SINGLE PARTNER 131 Thomas v. Stetson, G2 Iowa, 537, 17 N. W. 751, 49 Am. Rep. 118. There was no evidence of such assent or ratification. The only other question necessary to be noticed in the case is the claim of counsel for appellants that, as they had no knowledge that Janney was in partnership with Paine, they had the right to deal with Paine as though he were the sole owner of the feed. It may be this position would be sound if there were any evidence that Janney was a dormant or silent partner. But there is no such evidence. The partnership existed for some three years. Janney was personally and publicly engaged in the business, and his daughter was bookkeeper of the partnership. There was no evidence of any act of concealment of the partnership. It is true that for part of the time there was no partnership sign upon the building. But there was no sign of any kind, and therefore no effort to mislead any one as to the true relation of the parties. We think that under the facts of the case the question of knowledge as to the partnership is immaterial. In our opinion the court rightfully directed a verdict for the plaintiff. Affirmed. H. B. CLAFFLIN CO. et al. v. EVANS et al. (Supreme Court of Ohio, 1S96. 55 Ohio St.. 183, 45 N. E. 3, 60 Am. St. Rep. 686.) In the matter of the assignment of Snodgrass Bros. The case orig- inated in the probate court, upon an application for an order direct- ing the assignee of the Snodgrass Bros, to distribute funds in his hands to certain creditors who were asserting priority by virtue of liens alleged to have been acquired previous to the assignment. The appli- cation was resisted by the general creditors, and an appeal taken from the judgment rendered to the court of common pleas, where a special finding was made of the facts, which, so far as they are material to an understanding of the questions upon which the case is reported, are substantially as follows : The Snodgrass Bros, was the name of a co-partnership which, prior and up to the 30th day of June, 1892, had been engaged in carrying on a commercial business in Delaware county. It had become financially embarrassed, and on that day was confessedly insolvent. The firm consisted of John F. Snodgrass, who had the actual charge of the part- nership effects, and the entire management and control of the business, and Samuel Snodgrass, who was a resident of the state of California, where he was engaged in other business not connected with that of the firm, and who at no time had taken any active part in the business of the firm. John F. Snodgrass, becoming aware of the insolvency of the firm, and convinced of the certainty of immediate suspension of business, concluded to make an assignment of the effects of the part- nership for the benefit of its creditors ; but desired, before doing so, to create certain preferences. With that purpose in view, on the 29th 132 NATURE AND CHARACTERISTICS day of June, 1892, he executed, in the firm name, separate promissory notes, making them payable respectively to the creditors whom he de- sired! to prefer, for the amount of the firm's indebtedness to each cred- itor. These notes were dated back, so as to appear to be due, and each had attached a warrant of attorney, authorizing judgment to be taken upon it by confession in any court of record ; and on the same day judgments were obtained on each of the notes in another county, upon which executions were issued to the sheriff of Delaware county, who, early on the morning of the next day (June 30, 1892), received the writs, and at 7 o'clock on that morning levied the same on the partnership property, and made return of the levies of that date. In the meantime, after the writs were received by the sheriff, but before any of the levies were made, John F. Snodgrass, without having con- sulted his co-partner, who was then absent from the state, executed in the name and behalf of the firm an assignment of all the partner- ship property to a trustee for the benefit of the firm creditors, and handed it to the probate judge of Delaware county, with instructions not to file it until after the executions should be levied by the sheriff. From the time the deed of assignment was so handed to him it con- tinued in the custody of the probate judge, who, following the instruc- tions he had received, did not mark it "Filed" until after the levies of the executions were made. This was done in order that the execution creditors might have prior- ity over the general creditors. The assignee qualified, took possession of the property, and sold it, having agreed with the execution creditors that the proceeds should stand in the place of the property, and the rights of the creditors, with respect to it, be determined on distribu- tion. The assignment was adjudged to be valid, but the court held that it did not take effect until it was marked "Filed" by the probate judge, which, being after the levies were made, entitled the execu- tion creditors to priority in the distribution of the fund ; and, as that was insufficient to pay all of them in full, it was ordered distributed among them in proportion to the amount of their respective claims. That judgment was affirmed by the circuit court, and the H. B. Claf- flin Company and others, the general creditors, who were denied par- ticipation in the fund, prosecute error in this court. Williams, C. J. The plaintiffs in error, it is conceded, are entitled to share in the fund for distribution by the assignee ratably with the creditors who were accorded priority by the judgment below, unless the assignment is invalid, or did not take effect until after the execu- tions were levied. The validity of the assignment is questioned on the ground that, though executed in the name of the firm, it was so executed by one of the partners only, and without having obtained the consent of the other. That one member of an insolvent firm cannot make a valid assign- ment of the partnership effects to a trustee for the benefit of its cred- itors, against the expressed will of a co-partner, or without his assent, TRANSFER BY ACT OF A SINGLE PARTNER 133 when he is present or accessible, was held by this court in Holland V. Drake, 29 Ohio St. 441. That decision is placed upon the ground that the appointment of a trustee to dispose of the effects of the firm for the benefit of its creditors is not within the contemplation of the ordi- nary partnership, or the usual course of its business, and therefore be- yond the scope of the agency arising from the partnership relation. The contrary doctrine is maintained by high authority, and with much show of reason. It is not doubted that one partner may sell any part of the partnership property to one or more of the creditors in pay- ment of the partnership indebtedness, or sell all of its effects to all of its creditors ; and, if insufficient to satisfy their debts in full, the sale may be so made to them as to secure a pro rata division ; and it is not surprising that authorities are found which strenuously maintain that the power of the partner to accomplish the same result by an assign- ment to a trustee to make such distribution is included in the agency resulting from the partnership relation. The dissolution of the part- nership ensues not less certainly from a sale of the whole of its ef- fects directly to the creditors than from the transfer to a trustee for their benefit. But we are not disposed to depart from the rule laid down in Hol- land V. Drake, supra, nor are we disposed to extend it. It does not apply where the partner whose assent has not been obtained to the assignment was not accessible in the exigency which seemed to call for immediate action, nor where his authority or assent may be fairly implied from the situation of the parties, or the manner of conducting the business. In the case referred to, the partner whose assent was lacking not only resided in the city where the partnership had its place of business, but he was the active managing member of the firm, hav- ing control and management of its property and business. The cir- cumstances were such as to repel, rather than give rise to, any in- ference of authority or assent by him to a final disposition of the firm effects by his co-partner, who had taken no active part in its affairs. The situation is reversed in the case we have before us. Here the partner who executed the assignment was the active managing member of the firm, having the entire charge and control of the partnership business and custody of its property ; and it is plainly inferable from the permanent absence of the other partner, and his total inattention to the business, that he intended to intrust the affairs of the firm wholly to the resident partner. The absent partner, having withdrawn from participation in the conduct of the partnership affairs, and being inaccessible for consultation and advice, might reasonably expect and be held to intend that the member placed in control should not only exercise the implied powers of agency ordinarily possessed by a part- ner, but, in addition, should have the discretionary power in case of emergency to do wdiat, under the circumstances, should appear to be just and proper in the disposition of the firm property. And where a commercial house so situated is overtaken by financial distress 134 NATURE AND CHARACTERISTICS amounting to obvious insolvency, the authority of the acting partner to appropriate the property to the creditors equally, by placing it in the hands of a trustee for that purpose, may well be presumed, in the absence of express dissent by the co-partner, or of circumstances which would fairly indicate his dissent. Equality among creditors of equal merit is favored in equity, and accords with natural justice; and a disposition of the partnership assets, in case of insolvency, which secures that equality, the courts will not be eager to disturb. The validity of an assignment of the partnership property executed by one partner in the name of the firm, under circumstances similar to those existing in the present case, was sustained in an opinion by Chief Justice Marshall in Anderson v. Tompkins, 1 Brock. 456, Fed. Cas. No. 365, and also by the same learned judge in Harrison v. Sterry, 5 Cranch, 289, 3 L. Ed. 104. And it was held in McCullough v. Som- merville, 8 Leigh (Va.) 415, that, "when a partner resides out of the state where the partnership business is carried on, the managing part- ner in charge of the business may make a valid assignment of the firm effects for the benefit of its creditors." We find no difficulty, there- fore, in sustaining this assignment, both on reason and authority, with- out calling in question the decision in Holland v. Drake, supra. There having been a valid execution of the assignment, the ques- tion is presented, when did it take effect so as to vest the title to the property in the assignee? This question is answered by the statute, which provides that every assignment for the benefit of creditors shall take effect from the time of its delivery to the probate judge of the proper county, and such delivery may be made by the assignor to the probate judge, "either before or after its delivery to the assignee;" and the probate judge shall indorse thereon the exact time of its de- livery and "note the filing on the journal of the court." Rev. St. § 6335. The instrument of assignment in question was delivered to the probate judge of Delaware county when it was handed to him by the assignor on the morning of the 30th day of June, 1892. True, it was so handed to him, as shown by the findings of fact, with in- structions not to indorse upon it the exact time of delivery, but to make the date of its delivery appear to be subsequent to the levies of the executions, and thus enable the execution creditors to secure a lien giving them priority over the other creditors. The assignment was nevertheless delivered to the probate judge when it was placed in his possession, andi there was no condition attached to the delivery. It was the purpose and intention of the assignor that the instrument should become operative as an assignment, and it thereafter remained in the custody of the judge. There was no other delivery of it. The assignee qualified under it, and has proceeded in the execution of the trust. By the positive terms of the statute, the assignment be- came effective from the time of such actual delivery, and the observ- ance by the probate judge of the assignor's instructions to delay mak- ing the indorsement of the filing, and so make it as to show its filing TEANSFEBS OF PARTNER'S INTEREST l''5i5 of a date later than its delivery, could not defeat or postpone its oper- ation, or change the legal consequences which resulted from its de- livery. Upon receiving the instrument, the probate judge had a plain statutory and official duty to perform, which was to indorse thereon the exact time it was so received, and make a corresponding entry on the journal of the court. The presumption of course, is that duty was performed, and the indorsement speaks the truth. The indorse- ment, however, is but prima facie evidence of the time of the filing, and the true date of the delivery of the instrument may be shown. It is established by the finding of the trial court that the deed of as- signment in question was in fact delivered to the probate judge be- fore the executions were levied, but was held by him, and not indorsed "Filed," until after the levies were made, in obedience to the instruc- tions of the assignor ; from which that court concluded— erroneously, as we think — that, as a matter of law, there was not a delivery until the date of the filing was so indorsed thereon. It seems clear that any such understanding or arrangement must be wholly inefifectual to dis- place or interfere with rights which accrued upon the delivery of the assignment. The judgment below must be reversed), the application of the de- fendants in error overruled, and the cause remanded to the probate :ourt for further proceedings. Judgment accordingly. X. Successive or Simultaneous Transfers of Each Partner's Interest ^^ DONER et al. v. STAUFFER et al. :Supreme Court of Pennsylvania, 1829. 1 Pen. & W. 198, 21 Am. Dec. 370.) This was a feigned issue, directed by the court and joined between the defendants in error, who were the plaintiffs below (and for whom the verdict passed), and the plaintiffs in error, who were the defend- ants below. It appeared from the evidence in the cause that Daniel Howry and Benjamin B. Eshelman entered into partnership in a manufacturing es- tablishment, under the firm of Howry & Eshelman. They became con- siderably indebted. Judgments were entered and executions were is- sued against each of them. Abraham Doner, Samuel Herr, John How- ry, and Samuel Howry had severally judgments against Daniel Howry, on each of which an execution issued against him and was levied on the 9th of August, 1825, on the personal property of Daniel Howry and Benjamin B. Eshelman, as partners in trade. 21 For a discussion of principles, see Giluiore on Partnership, § 64- 136 NATURE AND CHARACTERISTICS allv obtained judgments against B. B. Eshelman, on each of which judgments an execution was issued against him and levied on the 11th day of August, 1825, on Benjamin B. Eshehnan's sliare of the person- al property of Benjamin B. Eshelman and Daniel Howry, as partners in trade. By virtue of these and other executions the personal prop- erty of the firm was sold for the sum of $5,070.39, which, after pay- ment of the costs, left a balance of $i,779. This balance was paid into court for distribution. On a rule obtained by the counsel of Stauffer, Breckbill, and Eshel- man to show cause why the one-half of the proceeds of the sale of the firm property should not be applied to the satisfaction of their ex- ecutions against B. B. Eshelman, the court decided that the execution creditors of Benjamin B. Eshelman had a legal right to his share of an interest in the partnership effects of the firm of Howry & Eshel- man as it stood on the 11th of August, 1825, when the executions were levied, and directed this issue to try what that share or interest was. The plaintiffs claimed a moiety or half part of the $4,779 as their share. The plaintiffs having closed their evidence, the defendants, in sup- port of the issue taken in the cause, offered to prove that the firm of Howry & Eshelman was entirely insolvent on the 11th of August, 1825 ; that the debts and claims against the said firm existing on the said 11th of August, 1825, which were then unpaid, greatly exceeded the whole property of the said firm; that Benjamin B. Eshelman on the said day had no interest whatever in the said firm, and that Daniel Howry, the other partner, is greatly interested in the application of the funds of the said firm to the payment of the debts of the said firm, as he is answerable individually and as a partner for the whole of the said debts — which offer being objected to, the court overruled the same, and delivered the following opinion, to wit: "I am satisfied that the authorities cited settle the law as it applies to the cases decided ; that is to say, to cases where there are separate executions against one partner levied on the partnership effects. But this is a case where the whole partnership effects are swept away by separate executions against each partner, where the creditors at large have no lien. I must say that the principal object in directing this issue was, as it was a case of great importance, to give an opportunity of completely considering and reviewing the law on the subject. But I am very clear that Ben- jamin B. Eshelman's interest, or want of interest, cannot be shown by evidence of debts due from the firm, and that the testimony offered relative to the insolvency of the firm, and the interest of Daniel How- ry in the application of the funds of the firm to the payment of its debts, cannot be admitted." To this opinion, overruling the evidence offered, the defendants excepted. Although the issue joined was between the separate execution credit- ors of the respective partners, the counsel for the defense appeared for TEANSFERS OF PARTNER'S INTEREST 137 the joint creditors of the firm to controvert the right of the separate creditors of Eshelman to be paid out of the fund in court before the joint creditors were satisfied, and they alleged that after the executions of the separate creditors were levied Howry & Eshelman had made an as- signment to trustees for the benefit of the creditors of the firm. The only question now raised in this court, upon the charge of the court below and the bill of exceptions, was whether the separate ex- ecution creditors of Eshelman had a right to be paid out of the pro- ceeds of the sales of the goods of the firm before the joint creditors were satisfied out of that fund. Gibson, C. J. It is settled by a train of decisions in the American as well as the British courts that the joint efTects belong to the firm, and not to the partners, each of whom is entitled only to a share of what may remain after the payment of the partnership debts, and, con- sequently, that no greater interest can be derived from a voluntary as- signment of his share, or a sale of it on execution. That a contract which enables the parties to keep a class of their creditors at bay, and yet retain the indicia of ownership, should not have been deemed with- in the statutes of Elizabeth, is attributable exclusively to the disposi- tion universally manifested by courts of justice to encourage trade. But, such as it is, has the contract of partnership been established; and the principle which enables the partners to pledge to each other the joint effects as a fund for payment of the joint debts has intro- duced a preference in favor of the joint creditors, founded on no mer- its of their own, but on the equity which springs from the nature of the contract between the partners themselves. The author of the Commentaries on American Law (volume 3, p. 38) attributes this preference to an inherent equity in the joint creditors themselves, arising from a supposed acquisition of the partnership eflfects from their means. The opinions of Chancellor Kent are so justly entitled to deference that no prudent judge will differ from him without hes- itation. Yet I cannot but adhere to the opinion I expressed in Bell v. Newman, 5 Serg. & R, 92, that in cases of insolvency or bankruptcy, in which alone the question of priority can be material, the joint ef- fects consist of the wreck of the capital originally embarked. Under a joint commission, by which the effects pass to the assignees, while the partners are personally discharged, I admit that the preference of the joint creditors has no other foundation, if it has any at all, than this supposed inherent equity ; and the best elementary writer on the subject so disposes of the difficulty. Cow on Partnership, 341, 342. But in the case of a separate commission Lord Eldon expressly puts it on the particular equity of the partners themselves. Ex parte Ruf- fian, 6 Ves. 119. And in the case of an execution. Chief Baron M'Don- ald does the same. Taylor v. Fields, 4 Ves. 396. To secure the firm from the extravagance of its members, by preventing the capital from being withdrawn from the purposes of the partnership, the stock is pledged for the burden which, from the nature of the connection, is to be borne by all ; but, in molding the law of partnership to its pres- 138 NATURE AND CHARACTERISTICS ent form, the credit gained by giving the joint creditors a preference was, if an object at all, a very remote one. Accordingly, with the single exception of a joint commission, we find that, wherever the partners are not individually involved, the joint creditors have no preference whatever, as in the instance of a bona fide assignment of the effects to one of the partners after the partnership has been dis- solved. In consequence of the rule as I have stated it, a separate execution creditor sells, not the chattels of the partnership, but the interest of the partner, incumbered with the joint debt; and the joint creditors, therefore, have no claim to the proceeds. To allow them the proceeds, and recourse to the property in the hands of the purchaser, would sub- ject it to a double satisfaction. Neither can they take the proceeds or the property at their election. They can interfere at all only on the ground of a preference, which has regard only to the partnership ef- fects ; and these have not been sold, but only the subordinate interest of the partner, which was, strictly speaking, his separate estate. Their recourse, therefore, is necessarily to the property in the hands of the purchaser. Now, had the sheriff sold the interest of but one of the partners, the execution creditor would have clearly been entitled to the proceeds. But although he sold the whole stock at one operation, on separate executions against both, there was, in contemplation of law, a separate sale of the interest of each. What, then, would have been the effect had these sales been made consecutively? The first in the order of time would have passed the interest of the partner, subject to the equity of his copartner, and the execution creditor would have been entitled to the price. But this equity, together with the remaining interest of the other partner, would have passed by the succeeding sale to the same purchaser; the execution creditor, in that instance, also taking the proceeds. Can it make a difference, then, that instead of being consecutive these two sales were simultaneous? A curious question might arise whether separate purchasers of the shares, respectively, would stand in the relation of partners, so as to enable the joint creditors to follow the goods. It seems to me they would not, because not personally involved in payment of the debts. Here, however, where the shares of the partners are united in the same purchaser, every semblance of partnership equities is at an end. As regards the goods in the hands of the purchasers, this is conceded ; but the joint creditors insist that the proceeds are to be substituted for the goods and subjected to the same equities. That might be done if the proceeds belonged to the partners; but it is not easy to imagine how they are to be treated as the owners of money raised by a sale on executions against them. For what purpose should the ownership of it be vested in them, even for an instant? Not to give the joint creditors a preference, for that would make the rights of the partners depend on the claims of the joint creditors, who, on the contrary, can claim nothing but by virtue of the lien, where there is one, of the part- TRANSFERS OF PARTNER'S INTEREST 139 ners. To say that the partners have such a Hen because the joint creditors have an equity, and that the joint cre(Htors have an equity because the partners have a Hen, would be to arj:jue in a circle. Here the partners cannot be prejudiced in respect of their claims on each other; the advantage to be gained from an application of the joint effects to their separate debts being mutual and equal. The conse- quences are precisely the same as if the effects had been sold on an execution against both. We are therefore of opinion that the joint creditors cannot interpose, and, consequently, that the rejection of the evidence, as well as the direction to the jury, was substantially right. I have considered the question on principles applicable to it, in anal- ogy to well-settled parts of the law of partnership, rather than on au- thority bearing directly on the point. But since this opinion was drawn my Brother Huston has directed my attention to the case of Brinker- hoff V. Marvin, 5 Johns. Ch. (N. Y.) 320, which is direct to the point, so that, independent of analogies, we have an authority on which we might safely rule the cause. But both principle and authority are ad- verse to the preference claimed, and the issue, therefore, was correctly found for the plaintiff. Huston, J., dissented. Judgment aflirmcd. ]MENAGH V. WHITWELL et a!. (Court of Appeals of New York, 1S73. 52 N. Y 146, 11 Am. Rep. 683.) Appeal from a judgment in favor of the plaintiff entered upon the report of a referee. This was an action for converting machinery, utensils, lumber, and other chattels formerly belonging to the firm of J. C. Smith & Co. and appertaining to a yeast factory operated by that firm. From the 17th of August to the 22d day of December, 1SG6, the firm consisted of John C. Smith, Hollister E. Goodwin, John Wride, Marietta Huntington, and William B. Rubert, each being interested to the extent of one-fifth. The firm as thus constituted contracted debts to the Geneva National Bank upon which judgments were after- ward recovered against the above-named parties, viz., one judgment for $1,403.83, and one for $237.53, both recovered May 24,^1867. The larger judgment embraced claims to the amount of $330 which ac- crued after the withdrawal of John Wride from the firm. Executions were issued on these judgments on the 25th of May, 18G7, and placed in the hands of the defendant Ringer, who was deputy sheriff of On- tario county, and by virtue of those executions he levied upon the property on the 19th of July, 1867, and sold it on the 29th of July, 1867. The defendant WhitwcU was sheriff, and this action was brought against him and his deputy for that levy and sale. The plaintiff re- covered four-fifths of the value of the property. The plaintiff makes title to this four-fifths as follows: On the 22d 140 NATURE AND CHARACTERISTICS of December, 1866, John Wride assig^ned all his interest in the prop- erty and business of the firm to John C. Smith, who agreed to pay the firm debts, and on the 4lh of February, 1SG7, Marietta Huntington as- signed all her interest in the property of the firm to said John C. Smith, who assumed her place in the firm. After these transfers the same business was carried on by the remaining partners under the same firm name. The referee finds that both of these transfers were made wnth the consent of all the other members of the firm, and in good faith, without intent to defraud the creditors of the firm. On the 28th of February, 1867, the firm then consisting of John C. Smith, William B. Rubert, and Hollister E. Goodwin, and Smith's interest being then three-fifths, he gave to the plaintiff a chattel mort- gage upon his undivided three-fifths interest in the yeast factory, prop- erty, accounts, and other choses in action of the firm to secure his in- dividual debt to the plaintiff of $2,400, payable in installments in two, five, and seven months, with power to take possession and sell in case of default, or whenever she should deem herself unsafe before de- fault. The referee finds that this amount was justly due the plaintiff for money loaned by her to Smith, which he had used for the firm and for which it was indebted to him, and that the mortgage was given in good faith, with the consent of all the persons composing the firm, and without intent to defraud creditors. There is no express finding in respect to the solvency of the firm at the time of the giving of this mortgage. On the 2d of February, 1867, William B. Rubert had given a like chattel mortgage on his one-fifth interest to Samuel E. Rubert to se- cure an individual debt of $500, payable in five days. The referee finds that this was a just debt for money loaned, and that the mortgage was executed in good faith to secure the debt, and without any fraudulent intent. It does not appear that any of the other partners consented to this mortgage. On the 10th day of May, 1867, the plaintiff and Samuel E. Rubert took possession of the property mentioned in their respective mort- gages, and after advertisement it was sold on the 18th of May, 1867; the three-fifths interest of John C. Smith being purchased by the plain- tiff for $1,000, and the one-fifth interest of William B. Rubert being bought in by Samuel E. Rubert for an amount less than his mortgage. On the same day John C. Smith sold and delivered to the plaintiff all his interest in a quantity of lumber, boxes and other material then on the premises, and belonging to the firm, for $200, which was applied in part payment of the plaintiff's mortgage. The referee finds that this sale was in good faith and without any fraudulent intent. This lumber, etc., was levied upon and sold by the defendants and is em- braced in the plaintiff's recovery. On the same day on which the plain- tiff and Samuel E. Rubert took possession under their mortgages, viz., the 10th of May, 1867, Hollister E. Goodwin, the only remaining mem- ber of the firm, transferred his undivided one-fifth interest in the prop* TEANSFEES OF PARTNER'S INTEREST 141 erty and business of the firm to Mary B. Goodwin, who still owns the same, but never became a member of the firm. The referee has not found that there was any consideration for this transfer, or what was its object, or that it was made in good faith. The only findings in respect to the solvency of the firm at the times of these several transactions are that, on the 22d of December, 1866, when John Wride withdrew from the firm, transferring his interest to John C. Smith, tiie firm was somewhat embarrassed, but was not Jcnown or believed to be insolvent by either Wride or Smith, and that on the 4th of February, 1867, when Marietta Huntington transferred her interest, the financial afifairs of the firm were about the same as they were on the 22d of December, 1866 ; that the firm was largely in- debted and somewdiat embarrassed; that the value of its property and assets depended in part upon the continuance of its business, and, in case such business was continued and properly managed, the property and assets of the firm were more than sufficient to pay its debts. The referee further finds that at the time t)f the seizure and levy by the de- fendants the property was in the possession of the plaintiff and Samuel E. Rubert, and was of the value of $2,150; that the plaintiflf was the owner of an undivided three-fifths, and Samuel E. Rubert of one un- divided fifth part thereof; that Mary B. Goodwin was the owner of the other undivided fifth part thereof; and that, on the loth of Au- gust, 1867, and before the commencement of this action, the said Sam- uel duly assigned to the plaintiff all his right to the property and cause of action against the defendants for taking possession thereof. As conclusion of law he finds that at the time of the levy neither of the defendants in the execution had any leviable interest in the prop- erty, but that it belonged, four-fifths to the plaintiff, and one-fifth to Mary B. Goodwin ; that the bank had no lien thereon ; and that the plaintiff was entitled to recover four-fifths of the value, amounting to $1,720, with interest from the time of the conversion. Rapallo, J.^^ The mortgages executed by John C. Smith and Wil- liam P. Rubert appear to have been regarded by the learned referee as transferring an undivided four-fifths of the corpus of the partnership property therein described. He has found, as to the mortgage from Smith, that it was executed and delivered with the assent of the other members of the firm. This mortgage, if such be its true construction, having been given to secure the individual debt of the partner, even if efifectual as to the firm, by reason of the concurrence of all the part- ners giving it, would be a fraudulent misapplication of the partner- ship property, and void as to the creditors of the firm, under the prin- ciple of the cases of Ransom v. Vandeventer, 41 Barb. 307, and Wil- son V. Robertson, 21 N. Y. 587, unless the firm were solvent at the time the mortgage was given, and sufficient property would remain, over and above that devoted by that instrument to the payment of the 22 Part of the opiuion of Rapallo, J., and tlie concurring of Allen, J., are omitted. 142 NATURE AND CHARACTERISTICS individual debt, to pay the debts of the firm. The Supreme Court have considered that the findings of the referee fail to disclose any insol- vency, but, on the contrary, establish solvency of the firm at the time the mort^^ages were .s^-iven. We cannot concur in this view of the ef- fect of the findings, but think that the facts found show that the firm was insolvent when the mortgages were given, and, if there were any doubt upon that point, they clearly establish that the diversion of four- fifths of its properties to the individual debts of two of the partners would make it insolvent. According to these findings the firm was, in February, 1867, and had been from December, 1866, largely indebted and embarrassed, and the value of its property, and its consequent ability to pay its debts, depended in part upon the continuance and proper management of its business. The mortgages were given on the 2d and 28th of Febru- ary, 1867. If they were intended to be liens upon the corpus of the property, as they have been treated by the referee, and not merely liens upon the surplus which should belong to the partners, respectively, after the payment of the firm debts, it is evident, from the facts stated as existing at the time, as well as from the result, that their enforce- ment would prevent the firm creditors from collecting their demands out of the firm property, and that, under the principle of the cases cited, they were fraudulent and void as to such creditors. If so, the mortgagees, by purchasing at the sale under the mortgages, acquired no valid title as against such creditors, and the plaintiff was, conse- quently, not entitled to recover. Assuming, however, that the mortgages were intended to pass mere- ly the individual interests of the mortgaging partners in the common stock, and for that reason were not fraudulent as to the firm creditors, then it becomes necessary to consider their legal effect upon the rights of creditors of the firm. It is clear that the remaining partner was en- titled to the control of the firm property so long as he retained his interest, and to apply it to the firm debts, and that the mortgagees ac- quired only a right to the surplus, if any, which would be found to be- long to the mortgagors on the settlement of the accounts. And so long as any of the partners had this dominion over the firm property it can hardly be questioned that it was subject to levy on ex- ecution at the suit of a firm creditor. Lovejoy v. Bowers, 11 N. H. 404; Coover's Appeal, 29 Pa. 9, 70 Am. Dec. 149; Pierce v. Jackson, 6 Mass. 243. But the point upon which the judgment was sustained in the Su- preme Court, at General Term, was that after the execution of the mortgages PI. E. Goodwin, the only remaining partner, made a sepa- rate transfer to a third party of his individual interest in the partner- ship properties, and on this ground it was held that when the execu- tion was levied none of the defendants in the execution had any levi- able interest in the property levied upon, and it was further held that the plaintiff, who had purchased the interest of S. E. Hubert under his TEANSFERS OF PARTNER'S INTEREST 143 mortgage, was entitled, by virtue of the two mortgages and of the pur- chase at the sale under them, to recover the value of four-fifths of the corpus of the partnership property levied upon by the defendants, with- out regard to the partnership debts. This position is not without authority in its support. It is founded upon the theory that the separate transfers of the individual interests of all the partners divested the title of the firm; that firm creditors have no lien upon the partnership effects, and no direct right to com- pel their application to firm debts in preference to individual debts; that the right to compel this application is an equity vested in the partners themselves, and exists only as between each other; that so long as this equity exists in any of the partners the creditors have an equity to compel its enforcement between the partners, and may by this means obtain the application of the partnership properties to their demands, in preference to the individual debts or separate disposi- tions of any of the partners — in other words, "that the equities of the creditors can only be worked out through the equities of the partners." From these premises the conclusions have been drawn that, if such equities are waived or released by the partners themselves, the cred- itors lose them, and that a transfer of the individual interest of a part- ner in the firm property to a third person extinguishes the equity of the partner, and consequently that of the creditors, which is dependent upon it. This doctrine has been carried to the extent of holding that, if the individual interests of each of the members of a firm are suc- cessively sold under executions against such members, respectively, for their individual debts, the purchasers acquire the corpus of the property free from the copartnership debts, and the equities of the partners and partnership creditors are extinguished. Coover's Appeal, 29 Pa. 9, 70 Am. Dec. 149. The injustice and, it may be said, the absurdities which result from such a view lead to an inquiry into its correctness. A firm may be perfectly solvent, though the members are individually insolvent, and yet in such a case the doctrine that the property of the firm is divested, and the equities of the partners and partnership creditors are extin- guished, by separate transfers of the individual interests of all the part- ners, might result, not only in an appropriation of all the properties of the firm to the payment of the individual debts, to the entire exclu- sion of the firm creditors, but to a most unjustifiable sacrifice and waste of such properties. For instance, suppose a firm to consist of three jnembers, each having an equal interest, and to be possessed of assets to the amount of $300,000, and to owe debts to half of that amount, the interest of each partner, supposing their accounts between themselves to be even, is $50,000. The members of the firm are in- dividually indebted. One of them sells his share, and receives for it $50,000, 'which is its actual value. The share of another of the part- ners is sold under execution, and brings its full value, $5,000. Thus far one partner remains, and he has an equity to have the firm debts paid, and those who have sold out are protected against those debts. 144 NATURE AND CHARACTERlSTICSf The purchasers of the separate interests are entitled to the surplus only. The joint creditors still have their recourse against the partnership property, and the right to levy on such of it as. is subject to sale on execution; but before any levy the remaining partner sells out his in- dividual interest, or it is sold on execution. According to the doctrine applied in the present case, and maintained in the case of Coover's Ap- peal, supra, the firm property is by this last sale relieved from the partnership debts, the two shares first sold are at once changed from interests in the surplus to shares in the corpus of the property free from the debts, their value is doubled, and the fund which should have gone to pay the joint debts is, without any consideration, appropriated by the transferees of the individual interests of the partners. Such is, in substance, the operation performed in the present case. Assuming that the mortgages are intended to convey only separate in- terests of the mortgagors (which, as has been shown, is the only theory upon which they can escape being regarded as fraudulent), the mortgaged property was, at the time the mortgages were given, liable to be taken for the partnership debts. The mortgages were but a slender security, and their value dependent upon the firm debts being paid. This state of afifairs continued so long as Hollister E. Goodwin retained his one-fifth interest in the firm. The firm property was legally under his dominion for the payment of firm debts; and the firm creditors, if they then had their execution, could have rightfully levied upon it, or availed themselves of Goodwin's equity as to any property which must be reached in that form. But on the 10th of May, 1SG7, Hollister E. Goodwin made a transfer of his interest in the property of the firm to one Mary B. Goodwin; and on the same day the plaintiff and Samuel E. Rubert took possession under their mortgages. The referee has not found what was the consideration or purpose of this assignment from Hollister E. to Mary B. Goodwin, nor has he expressly found that it was made in good faith. But the effect claimed for it is that, Hollister E. Goodwin being the only re- maining partner, the transfer of his interest divested him of his do- minion over the partnership property and of his equity to require the application of the partnership property to the payment of its debts, and that, as the partnership creditors could only reach the property through him, he, by this transfer or surrender of his rights, had cut off their access to it, and thrown it into the hands of the transferees of the individual partners, unincumbered by firm debts. Waiving any question as to the bona fides of this transaction, the referee not having found it fraudulent, and treating the sale of Good- win's interest as if it had been made under an execution against him, we come back to the question whether the consequences claimed do legally follow from separate sales of the individual interests of the several partners. It would be a superfluous labor to trace the history of the changes which have, from time to time, taken place in the views of the courts TRANSFERS OF PARTNEE'S INTEREST 145 respecting the nature of the interests of individual partners in the com- mon stock of a firm, and the respective rights of separate and joint creditors; but it is sufficient to observe that they have resuUcd in a general recognition of the doctrine that as between a firm and its creditors the property is vested in the firm, and that no individual partner has an exclusive right to any part of the joint stock until the firm debts are paid and a balance of account is struck between him and his copartners, and the amount of his interest accurately ascertained. The corpus of the effects is joint property, and neither partner sepa- rately has anything in that corpus ; but the interest of each is only his share of what remains after the partnership debts are paid and accounts are taken. West v. Skip, 1 Vcs. 239 ; Fox v, Hanbury, Cowp. 445; Taylor v. Fields, 4 Ves. 396; 15 Ves. 559, note; Pierce v. Jack- son, 6 Mass. 243; Doner v. Stauffer, 1 Pen. & W. (Pa.) 198, 21 Am. Dec. 370; 2 Kent, Com. (11th Ed.) 78, note; Collyer on Partn. (3d Am. Ed., by Perkins) pp. 704 to 710, notes to § 822; Story on Partn. notes to §§ 261, 262, 263; Crane v. French, 1 Wend. 311; Witter v. Richards, 10 Conn. 37. Partnership effects cannot be taken by attachment or sold on execu- tion to satisfy a creditor of one of the partners, except to the extent of the interest of such separate partner in the effects, subject to the pay- ment of the firm debts and settlement of all accounts. 3 Kent, Com. (11th Ed.) 76. Purchasers of the share of an individual partner can only take his interest. That interest, and not a share of the partnership effects, is sold, and it consists merely of the share of the surplus which shall remain after the payment of the debts and settlement of the accounts of the firm. 3 Kent, Com. (11th Ed.) 78, note "b." No more property can be carried out of the firm by the assignee of one partner than the partner himself could extract after all the ac- counts are taken. 1 Ves. 241 (Am. Ed.) note; 15 Ves. 557. No person deriving under a partner can be in a better condition than the partner himself. Fox v. Hanbury, Cowp. 445. A partner has no right, by an assignment of his interest, to take from the creditors or other partners the right to have their claims against the partnership satisfied out of its property. A mortgage made by one partner of his undivided interest cannot avail against the cred- itors of the partnership who attach the partnership property. Love- joy V. Bowers, 11 N. H. 404. These principles have been enunciated in a great number of cases, where some one at least of the partners retained his equity to have the firm debts paid, and the rights of the creditors to assets or pro- ceeds, which have come under the control of a court of equity, have been worked out through the equity of that partner. But I find no case in which the consequences of transfers of the separate interests of all the partners to outside parties has been considered, except the case of Doner v. Stauffer. 1 Pen. & W. (Pa.) 198. 21 Am. Dec. 3T0. Gii.>r.rAr.T. — ]0 146 NATURE AND CHARACTERISTICS and Coover's Appeal, 29 Pa. 9, 70 Am. Dec. 149, before referred to. In neither of these cases is the point adjudicated, for in both cases the joint creditors intervened before the sale of the interest of the last remaining partner, and their right to priority was sustained, though the opinion of the court was expressed as to what the result would have been if all the individual interests had been first sold. There is another class of cases in which the partnership effects have been held to be liberated from liability to be applied to partnership debts in preference to the separate debts of one partner; that is, where a bona fide sale has been made by a retiring partner, in a solvent firm of two members, to his copartner, the latter assuming the debts. In such a case it is settled that the property formerly of the partnership becomes the separate property of the purchasing partner, and that the partnership creditors are not entitled to any preference as against his individual creditors in case of his subsequent insolvency. Ex parte Ruffin, 6 Ves. 119; Dimon v. Hazard, 32 N. Y. 65. But in those cases the joint property was converted into separate property by the joint act of all the members of the firm. They had power to dispose of the corpus of the joint property, and the exercise of that power, when free from fraud, divested the title of the firm as effectually as if they had united in a sale to a stranger. It remained subject to exe- cution for firm debts so long as it continued in the hands of the pur- chasing partner. It is conceded that the creditors have no lien which would affect the title of a purchaser from the firm. But the question now is : What is the effect upon the title of the firm, as between it and its creditors, of transfers by the partners severally of their re- spective interests to third persons? Where the property remains in specie, and no act has been done by the firm to divest its title, but the partners have made separate transfers of their respective individual interests to different persons, is it still to be regarded, as to the firm creditors, as firm property, or has it become the absolute property of the several transferees of the interests of the individual partners? It has been shown that no share in the corpus of the property passed by either of these transfers separately, but merely an interest in the surplus, and which should be ascertained on an accounting after payment of the firm debts. But it is claimed that, when all the part- ners have assigned, their interest in the property is divested, and their equity is destroyed, and therefore the property is released from the debts, and what was at the time of the assignment a share of a con- tingent surplus has been converted into a share of the corpus of the property. Is this position sound? When a partner sells his interest in a firm to a person other than his copartner, or it is sold on execution against him, does he thereby lose all equity to have the firm debts paid out of the assets? When he sells to his copartner he relies upon his assumption of ♦he partnership debts, and unless he stipulates for an application of the assets to that purpose he parts with all lien upon them. But when he sells to a stranger not liable for the debts, or his interest is sole TRANSFERS OF PARTNER'S INTEREST 147 on execution, Is not the right to have the debts paid out of the prop- erty a right of indemnity personal to himself, and which docs not pass by the sale? Could it be tolerated that the interest of a partner should be sold under execution against him, on which sale only the value of his interest in the surplus could be realized, and that the purchaser should be allowed to take the corpus of the property and leave him liable for the debts? If the legal effect of the transfer were set forth in the instrument, it would be seen that all the purchaser ac- quired was a right to an account and to the partner's share in the surplus after payment of debts, when ascertained, and that he had no right to that part of the property which was required for the pay- ments of debts; that the sale was subject to the debts. 3 Kent, Com. 76-78. The partner whose share was sold would manifestly have an interest in the protection and appropriation of that part of the proper- ty in discharge of his own liability to the firm creditors. I do not see how this right can be affected by the question whether the separate interests of all or only one of the partners is thus sold. Each of the purchasers would acquire an interest merely in the sur- plus, and each partner whose interest was sold would have the right to indemnity against the firm debts by the application to such debts of so much of the property as might be necessary for the purpose. These debts must have been taken into consideration in fixing the price of the interest sold, and consequently allowed to the purchaser, and the partnership assets are the primary fund for their payment. The case differs materially from a sale by a retiring copartner to hia copartner, who is personally liable for the debts directly to the cred- itors; but even such a sale is valid only when there is no insolvency at the time. To sell to an insolvent partner Avould be a clear fraud. How much more clearly apparent would be the injury to creditors by a sale to a person not liable for the debts, if such sale had the effect to relieve the property from them. It can hardly be necessary, w'here the firm property remains in specie, and is tangible and capable of being levied upon, to resort to the equities of the partners in case there has been no transfer by the firm and the only adverse claimants are assignees of the individual interests of the several partners for their separate debts. The right of the firm creditor to levy on property thus situated can be sustained on two grounds. If the effect of any of the transfers is to divest the title of the firm, then, if eft'ected by the acts of the partner, they are clearly fraudulent and void as to firm creditors, as is shown in the cases of Ransom v. Vandeventer, 41 Barb. 307, and Wilson v. Robert- son, 21 N. Y. 587. An appropriation to the individual debt of one partner of any part of the firm property, even with the assent of his copartners, is illegal and void, provided the firm is not left with suffi- cient to pay its debts. How absurd it would be to hold that all of the partners, by making separate assignments of their respective shares in the firm property to their individual creditors, could effectually 148 NATURE AND CHARACTERISTICS divest the firm of all its property and apply it to their individual debts, leaving nothing for the partnership creditors. But the simple solution of the question is to hold that the title of the firm, as between it and its creditors, to the corpus of the property, or at least to so much of it as is necessary for the debts, is not divested by these separate trans- fers to strangers. As is stated by Prof. Parsons, in his work on Partnership (pages 356 to 362 [2d Ed.] c. 10, § 1), a partnership, though neither a ten- ancy in common nor a corporation, has some of the attributes of both. The well-established rule which excludes creditors of the several part- ners from the partnership property until that has paid the debts of the partnership is derived from the acknowledgment that a partnership is a body by itself. In its relation to its creditors it is placed upon the basis of having its own creditors and possessing its own property, which it applies to the payment of its debts, and after this work is done there is a resolution of the body into its elements. Until some act is done by the firm to transfer the joint interest, no separate act of either or all of the partners, or proceedings against them individually with reference to their individual interests, should be held to affect the title of the firm, so as to preclude a creditor of the firm, having a judgment and execution, from levying upon the joint property. To hold that separate transfers of their individual shares by the several partners can convey a good title to the whole property free from joint debts would be to return to the doctrine, long since exploded, that partners hold by moieties as tenants in common. In the present advanced stage of the law upon this subject, no established rule is violated by holding that the title of the firm, as between it and its creditors, cannot be divested by the acts of the partners severally, not in the business of the firm, nor by the separate creditors of mem- bers of the firm ( further than such temporary interruption of the pos- session as may be necessary to enable the officers of the law to make an effectual sale of the interest of the debtor partner). This view does not recognize any lien of partnership creditors upon the firm prop- erty. The firm have power to dispose of it without regard to the cred- itors, provided the disposition be not fraudulent. But the individual members or their creditors ought not to have any such power, and all transfers made by them for individual purposes should be held in- operative upon the corpus of the property, so long as there are firm debts unpaid for which the property is required. As against firm creditors, no greater effect should be given to such transfers when made by all the partners separately than when made by a portion of them, but the property should be deemed to continue in the firm until its title has been divested by some act of the firm. My conclusion is that, as between the firm of J. C. Smith & Co. and its creditors, the property levied upon by the defendants remained the property of the firm, and subject to levy on execution against it, notwithstanding the transfers by the several partners of their respective individual interests. * ♦ * EFFECT OF DEATH OF PABTNEE ON PAETNEHSHIP PBOPEETY 149 XI. Effect of Death of Partner on Partnership Property JEFFEREYS v. SMALL. (In Chancery, before Sir Francis North, L. K., 1C83. 1 Vern. 217.) Two persons having jointly stocked a farm, and occupied it as joint tenants, the bill was to be relieved against survivorship, one of them being dead ; and though it was proved in the cause that the deceased was informed what the consequence of law was in case he should die, and that he thereupon replied he was content the stock should survive, yet the Lord Keeper was clear of opinion that the plaintiff ought to be relieved; and said, if the farm had been taken jointly by them, and proved a good bargain, there the survivor should have had the benefit of it ; but as to a stock employed in way of trade, that should in no case survive. The custom of merchants as to bills of exchange is now extended to inland bills, and the custom of mer- chants is extended to all traders to exclude survivorship ; and though it is common for traders in articles of co-partnership to provide against survivorship, yet that is more than is necessary; and he said he took the distinction to be, where two become joint tenants or jointly inter- ested in a thing by way of gift or the like, there the same shall be subject to all the consequences of law; but as to a joint undertaking in the way of trade or tlie like, it is otherwise, and decreed for the plaintiff accordingly. ANDREWS' HEIRS v. BROWN. (Supreme Court of Alabama, 1852. 21 Ala. 437, 56 Am. Dec. 252.) Bill by Thomas Brown, the surviving partner of the firm of E. L. Andrews & Co., against the representatives and heirs of E. L. An- drews and Z. Andrews, the deceased partners, for the purpose of ob- taining control of certain stock and real estate standing in the name of the deceased partners and subjecting it to the partnership debts. The bill alleged that the property, although standing in the names of the defendants individually, was partnership property, and also the insolvency of the firm. The property had belonged formerly to a firm composed of E. L. and Z. Andrews, and when the firm with Brown as a member was formed the land was carried into the new firm and became part of the capital. A supplemental bill was filed, stating that part of the real estate had been purchased by E. L. An- drews for the firm at a foreclosure sale, and the property had been 28 For a discussion of principles, see Gllmore on Partnership, §§ 65, 66. 150 NATURE AND CHARACTERISTICS redeemed, and the money paid to Campbell & Chandler, attorneys for the deceased partners, and prayed that this be decreed to stand in place of the land itself. The chancellor decreed in favor of the com- plainant. Defendant brought error. ^* Dargan, C. J. When a partnership is dissolved by the death of one or more of the partners, the legal title to all the personal property and choses in action belonging to the firm becomes vested exclusively in the survivor; not, indeed, for his own peculiar benefit, but for the purpose of paying the debts, and then dividing the net balance amongst those entitled, giving to the representatives of the de- ceased partner the same interest he would have taken had he been in life, and the firm had been dissolved, not by death, but by mutual consent. But as respects real property the case is different at law ; for the legal title descends to the heir at law of the deceased part- ner, and a court of law, looking to the legal title alone, cannot regard or protect the mere equities of others. In a court of equity, however, real estate belonging to the firm is considered as personal property to this extent, at least: that it is liable to pay the debts of the firm, and then to distribution between the partners in the same manner as If It had been personal instead of real estate. These charges upon the real estate, being prior to the claims of the representatives of the deceased partner, override his wife's title to dower, as well as the title of his heir at law. The consequence is that the heir at law holds the legal title subservient to or in trust for the surviving partner, who is charged with the payment of the debts. These principles of law, in my opinion, are so well settled that they are no longer the subject of controversy. Story on Partn. 127 et seq. ; Coll. on Partn. (Per- kins' Ed.) 183-185; Pugh v. Currie, 5 Ala. 446; Pierce v. Trigg, 10 Leigh (Va.) 406; Delmonico v. Guillaume, 2 Sandf. Ch. (N. Y.) 366; Dyer v. Clark, 5 Mete. (Mass.) 562, 39 Am. Dec. 697; Ripley v. Waterworth, 7 Ves. 425 ; Dale v. Hamilton, 5 Hare, 369. Inasmuch as the real estate is considered as personal for the pur- pose of paying the debts of the firm, and the surviving partner is charged with the duty of paying those debts, it must of necessity fol- low that he has the right in equity to dispose of the real estate for this purpose; for it would never do to charge him with the duty of pay- ing the debt, and at the same time to take from him the means of doing it. Therefore, although he cannot by his deed pass the legal title to the purchaser, which descended to the heir of the deceased partner, yet, as the heir holds the title in trust to pay the debts, and the sur- vivor is charged with this duty, his deed will convey this equity to his purchaser, and through it he may call on the heir for the legal title and compel him to convey. See Delmonico v. Guillaume and Dyer v, Clark, supra. Applying these principles to the facts exhibited by the pleadings and proof in the case before us (but which we will not state in de- 2< The statement of facts Is abridged. EFFECT OF DEATH OF PARTNEE ON PARTNERSHIP PROPERTY 151 tail in this opinion), we can perceive no error in the decree; for the proof, we think, is abundant to show that, although the legal title to the lands was held by E. L. Andrews alone, nevertheless they be- longed to the firm as partnership property, and were so treated by all the members of the firm. They never did belong exclusively to E. L. Andrews, Consequently the claims of the creditors of the firm are superior to his widow's right of dower, as well as to the legal title of his heirs at law. The lands were purchased with the funds of E. L. & Z. Andrews, who were then partners, and stood upon their books as partnership property, and when the new firm was formed, com- posed of E. L. and Z, Andrews and Tiiomas G. Brown, these lands were carried into the new firm as part of its capital, and were there- fore partnership property. As to the stocks purchased with the funds of the new firm, it is very clear that they also are subject to the control and disposition of the surviving partner. Brown, notwithstanding they stand on the books of the bank and the insurance company in the name of E. L. Andrews alone. In reference to the money received by Messrs. Camp- bell & Chandler, growing out of the redemption of one of the lots by Mr. Gliddon, we think it should stand in the place of the lot itself, and consequently subject to the disposition made by Brown of the lot. We are satisfied there is no error in the decree, and it must be af- firmed. I will observe, in conclusion, that we do not intend, by anything said in the foregoing opinion, to hold that a surviving partner is au- thorized to sell real estate for the simple purpose of making distribu- tion amongst the partners themselves and their representatives. That question is not raised in the case, and has not been considered. We only intend to decide this : The firm being insolvent, the surviving partner may dispose of the whole property to pay the debts, whether that property consist of real or personal estate. The decree is affirmed. BASSETT et al. v. MILLER. (Supreme Court of Michigan, 1878. 39 Mich. 133.) Campbell, C. J.^° This case presents, as we think, but one import- ant question, and that is whether surviving partners who sell goods which belong to their firm can recover for their price in their own names, without joining the representatives of the deceased partner. The principle is well settled that the entire legal estate vests in the sur- vivors, and no one else can be regarded as having any legal interest in the assets. Barry v. Briggs, 22 Mich. 201 ; Pfefifer v. Steiner, 27 Mich. 537 ; Merritt v. Dickey, 38 Mich. 4L The court erred in hold- 2 5 Part of the opinion Is omitted. 152 NATURE AND CHARACTERISTICS ing that the survivors could not sue for goods sold by them until they had an assignment or had formerly organized a new firm. * * * Judgment must be reversed, with costs, and a new trial ordered. ADAPTS V. HACKETT. (Supreme Court of New Hampshire, 1853. 27 N. H. 289, 59 Am. Dec. 376.) Eastman, J.^' As we understand the declaration in this case, it is founded upon promises made to the plaintiff as surviving partner of the firm of J. G. Bancroft & Co., and as surviving partner of the firm of G. A. & J. Q. Adams, and also upon promises to the plaintiff in his individual capacity. And the objection is taken by the defendant that these are different causes of action, which cannot be joined in one suit. We suppose the objection is, not that the causes of action are of a different nature, and therefore cannot be joined, but that they ac- crue in different rights ; that is, that here is a cause of action in favor of the firm of J. G. Bancroft & Co., and another in favor of G. A. & J. Q. Adams, and still another in favor of George A. Adams individu- ally, and that the three cannot be united in one suit. It is not disputed that the plaintiff is the surviving partner of the two firms, and it is well settled that where a firm consists of two per- sons, and one of them dies, the rights of action which were vested in the firm survive to the remaining member; not to him as to an ad- ministrator or executor, representing another person, but as the sur- vivor of the partnership representing himself, and being all that is left of the firm. The cause of action is in him ; and hence it has been often held that, in an action at the suit of a surviving partner, he may include a count for a debt due to himself in his own right, as both causes of action are in him. Slipper v. Stidstone, 5 T. R. 493 ; French v. Andrade, 6 Id. 582; Golding v. Vaughan, 2 Chit. 436; Richards v. Heather, 1 Barn. & Aid. 29 ; Smith v. Barrow, 2 T. R. 476. On the death of one of two or more joint obligees, promisees, etc., the action must be brought by the survivor, or, if there be more than one, by all the survivors. Martin v. Krump, 2 Salk. 444; Kemp v. Andrews, Carth. 170; Wilton v. Hamilton, 1 Bos. & Pul. 445; Cabell V. Vaughan, 1 Saund. 291, note 4. The remedy at law survives entire to the surviving obligee or promisee, who receives the share of the deceased in the avails of the suit as trustee to his personal represen- tatives, and must account for it with them. Martin v. Crompe, 1 Ld. Raym. 340 ; West v. Skip, 1 Ves. Sr. 242 ; Id. 456 ; Toller on Execu- tors, 155, 163, 444. As it is clear, upon authority, that a surviving partner may, in an action brought by him as such survivor, include in his declaration a 2 8 Part of the opinion is omitted. SURVIVING PARTNER AS QUASI TRUSTEE 153 count for a debt due to himself in his own riglit, no reason occurs to us why he may not also, in the same suit, join another count for a debt accruing to him as survivor of another firm. The causes of action are all in him, and the principle in the one case must be the same as in the other. This objection of the defendant must therefore fail. * * * Judgment for the plaintiff. XII. Surviving Partner as Quasi Trustee DEWEY V. CHAPIN et al. (Supreme Judicial Court of Massachusetts. Suffolk, 1892. 156 Mass. 35, 30 N. E. 223.) Knowlton, J.2* The master found that the partnership property sold by the defendant Charles E. Chapin, the surviving partner, was worth, at the time of the sale, $4,729, although it brought at auction only $2,571.90. This was a finding of fact to which no exception was taken, and it appears to have been well supported by the evidence. If the sale had been made in good faith, and in the exercise of a sound discretion, the partner making it would have been chargeable only for the proceeds of it. But it was his duty to obtain for the property all that he reasonably could for the benefit of the executor of his deceased copartner, as well as for himself ; and, while he held the legal title, he held it subject to a kind of trust which equity will enforce in favor of those interested in it. About a month before the sale he had obtained a lease of the place where the property was bemg used, which had previously been occupied by the firm, and there was no sale or offer of sale of the good-will at the auction, or of any right to remain on the premises, or to retain the plant and equipment there. He made the sale to his son, and when it was completed entered into partnership with him, and continued to conduct the same business, using the same plant and equipment, at the same place. These facts warranted the finding of the master that the defendant Charles E. Chapin did not exercise good faith and sound discretion in endeavor- ing to obtain for the partnership property as much as he reasonably could, and he is therefore chargeable with what he ought to have got for it. The defendant Charles T. Chapin was not a copartner in the orig- inal firm, and is not accountable for any part of the assets of it, unless he became so through his purchase at the auction sale. The «T For a discussion of principles, see Gilmore on Partnership, § 67. 28 The statement of facts is omitted. 154 NATURE AND CHARACTERISTICS master finds that "neither fraud nor unfair dealing is imputable to him in that purchase" and that "the title passed to him ;" but he also finds "that his relations both to the deceased and the surviving partner subject him to any equity enforceable against the latter, and prevent his claiming to hold the plaintiff's property as a purchaser without notice for the price it was sold to him." This last finding does not enable the plaintiff or the other defendant to recover of him on account of his purchase anything more than the purchase price, and does not put him in the position of the surviving partner, who is accountable for the partnership assets at the price which he ought to have obtained for them. The allegations of the bill put his lia- bility solely on the 'ground of his purchase. The plaintiff, in his case against Charles E. Chapin, seeks to hold him on the ground that by the sale he made a final disposition of the property, and so made him- self accountable for its value. The claim against him is inconsistent with an attempt to pursue the assets beyond him, and to recover them from Charles T. Chapin. If the plaintiff charged an improper and fraudulent sale by Charles E. Chapin, and asked on that account for the appointment of a receiver, and showed that Charles T. Chapin bought with notice of the plaintiff's equities, and that the sale could not properly be made, it might well be that a receiver could be au- thorized to take the property out of Charles T. Chapin's hands, or that he could be compelled to pay over the value of it if he had sold it to an innocent purchaser or otherwise disposed of it. But under this bill we are of opinion that no recovery can be had against him, and that Charles E. Chapin is liable to the plaintiff for the whole amount found due him by the master. Decree accordingly. XIII. Agreement of Partners Controlling Property After Death of Partner ^" In re SIMPSON. (Court of Appeal In Chancery, 1874. 9 L. R. Ch. App. 572.) Walter Simpson, Charles John Simpson, Frederic Simpson, and Arthur Simpson carried on in partnership at Preston the business of cotton-spinners, under the provisions of articles of partnership, dated the 2d of January, 1871. By these articles it was provided that the partnership should continue for fourteen years from the 1st of July, 1867, and each partner was to be entitled to an equal fourth part of 2« For a discussion of principles, see Gilmore on Partnership, § 68. PEOPEBTY ATTER DEATH OF PARTNEB 155 the. profits, and half-yearly general accounts were to be taken. It was further provided that, "in case of the death of either or any of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simp- son, such event shall not dissolve the partnership, but the survivors or survivor of them shall carry on the business, and the share of either or any of them so dying shall be ascertained at the succeeding stock- taking after the death of either of them, and the balance then found to be due to either or any of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simpson, so dying as aforesaid, shall (subject as hereinafter mentioned) as to one half part thereof (except as to the sum of £200) remain in the hands of the survivors or survivor of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simpson, for three years from the decease of either of them, and as to the other half part thereof (except as to the said sum of £200) remain in the hands of the survivors or survivor of them the said C. J. Simpson, A, Simp- son, W, Simpson, and F. Simpson, for five years from the decease of either of them, and the whole of the said balance (except as to the said sum of £200) shall be secured to the representatives of either or any of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simpson, so dying as aforesaid, by the promissory notes of the survivors or survivor of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simpson, such notes bearing interest at the rate of 71/2 per cent, per annum, payable and to be paid to such representa- tives quarterly, and the said sum of £200 shall be paid to the repre- sentatives of each of them the said C. J. Simpson, A. Simpson, W. Simpson, and F. Simpson, dying as aforesaid, within one calendar month after the death of either of them." The capital of the business consisted of money, machinery, and stock. On the 27th of September, 1871, Arthur Simpson died, and the business was thenceforth carried on by the three survivors. On the 15th of January, 1872, C. J. Simpson died, and thenceforth the business was carried on by the two survivors. No half-yearly ac- counts had been taken, and no steps were taken to ascertain the shares of the deceased partners. No promissory note was given by the sur- vivors to the representatives of either of the deceased partners, nor was the £200 in either case paid within the period fixed by the arti- cles. Small sums were, however, from time to time paid by the sur- vivors to the widow of each of the deceased partners, amounting in the case of A. Simpson's widow to £248, and in the case of C. J. Simpson's widow to £60. On the 19th of December, 1872, the two survivors, W. Simpson and F. Simpson, filed a liquidation petition, under which a trustee was afterwards appointed. At the commencement of the liquidation the debts of the firm amounted to £43,627, of which £23,873 consisted of debts which had been contracted when all the four partners were living. The creditors of the four original partners claimed to have 156 NATURE AND CHARACTERISTICS the machinery, or so much thereof as could be distinguished as having belonged to the partnership of the four, applied in payment of their debts, in priority to the creditors of the three and of the two. This claim was disputed by the creditors of the three and the two, and a special case was stated for the purpose of having this question de- termined. The judge of the county court of Manchester decided that the cred- itors of the four were entitled to the priority which they claimed ; and he directed an inquiry to ascertain what part of the machinery could, at the date of the liquidation petition, be distinguished as having be- longed to the four partners. The creditors of the two surviving partners appealed, and the Chief Judge, Bacon, decided that the creditors of the four partners had no priority. The creditors of the four original partners appealed. Sir G. Mellish, L. J.^° * * * The question is really whether, according to the true construction of the articles of partnership, the interest of the deceased in the assets is not to pass immediately on the death of one of the partners. I am of opinion that it is. The articles say, that in case of the death of any of the partners, such event shall not dissolve the partnership ; that is to say, the survivors are to con- tinue to be partners inter se. It clearly does not mean that the exec- utors are to be partners, but that the survivors shall continue to be partners, and may deal with the assets in any way they please — not for the purpose of winding up, as they must have done in the ordinary case — but they may go on dealing with the assets for the purpose of the continuing business. And the share of the partner dying is to be ascertained at the succeeding stock-taking after the death, and the balance then found to be due is to be paid in a particular way. That clearly shows that what is meant by "the share" is the sum to be paid to the executors in respect of the share of the deceased. The con- struction seems to me to be made still more clear by the subsequent part — that £200, part of the purchase-money, is to be paid one month after the decease, whether the stock-taking is made or not, I am of opinion that the whole interest in the assets passed immediately on the death of one partner to the survivors, and the right of the executors was to have the value ascertained in a particular way, and then to re- ceive the amount in a particular way. I am also of opinion that the ascertaining of the value was not a condition precedent to the passing of the property in the assets, and that the assets went to the surviving partners. The appeal must be dismissed. 80 Part of tbe opinion is omitted and the statement of facts abridged. PARTNERSHIP LIABILITY 157 NATURE, EXTENT, AND DURATION OF PARTNERSHIP LIABILITY I. Nature of Liability in Contract * MASON V. ELDRED et a!. (Supreme Court of the United States, 1867. 6 Wall. 231, 18 L. Ed. 783.) On certificate of division between the judges of the Circuit Court of Wisconsin. The plaintiff, Mason, sued in the Circuit Court for Wisconsin Anson Eldred, Elisha Eldred, and one Balcom, trading as partners, upon a partnership note of theirs. Process was served on Anson Eldred alone, who alone appeared and pleaded non as- sumpsit. On the trial, the note being put in evidence by the plaintiff. Eldred offered the record of a judgment in one of the state courts of Michigan, showing that Mason had already brought suit in that court on the same note against the partnership, where, though Elisha El- dred was alone served and alone appeared, judgment in form had been passed against all the defendants for the full amount due upon the note. The evidence being objected to by the plaintiff, because not admissible under the pleadings, and because it appeared on the face of the record that there was no judgment against either of the de- fendants named, except Elisha Eldred, who alone, as appeared also, was served or appeared, and because it was insufficient to bar the plaintiff's action, the question whether it was evidence under the issue in bar of, and to defeat, recovery against Anson Eldred, was certified to this court for decision as one on which the judges of the Circuit Court were opposed. Field, J.» The counsel of the plaintiff suggests that the question presented by the certificate of the judges of the Circuit Court is di- visible into two parts: (1) Whether the record of the judgment re- covered in Michigan was admissible under the pleadings; and (2) whether, if admissible, the judgment constituted a bar to the present action. We think, however, that the admissibility of the record de- pends upon the operation of the judgment. If the note in suit was merged in the judgment, then the judgment IS a bar to the action, and an exemplification of its record is admissible; tor it lias long been settled that under the pleas of the general issue in assumpsit evidence may be received to show, not merely that the alleged cause of action never existed, but also to show that it did not subsist at the commencement of the suit. Young v. Black, 7 Cranch, 1 For a discussion of principles, see Gilmore on Partnership, §§ 69. 70. « Part of the opinion is omitted and the statement of facts is abridsod. 158 PARTNERSHIP LIABILITY 565, 3 L. Ed. 440; Young v. Rummcll, 2 Hill (N. Y.) 480, 38 Am. Dec, 594. On the other hand, if the note is not thus merged, it still forms a subsisting cause of action, and the judgment is immaterial and irrelevant. The question, then, for determination, relates to the operation of the judgment upon the note in suit. The plaintiff contends that a copartnership note is the several ob- ligation of each copartner, as well as the joint obligation of all, and tliat a judgment recovered upon the note against one copartner is not a bar to a suit upon the same note against another copartner ; and the latter position is insisted upon as the rule of the common law, inde- pendent of the joint debtor act of Michigan. It is true that each copartner is bound for the entire amount due on copartnership contracts, and that this obligation is so far several that, if he is sued alone and does not plead the nonjoinder of his copartners, a recovery may be had against him for the whole amount due upon the contract and a joint judgment against the copartners may be enforced against the property of each. But this is a different thing from the liability which arises from a joint and several contract. There the contract contains distinct engagements, that of each contractor in- dividually, and that of all jointly, and different remedies may be pur- sued upon each. The contractors may be sued separately on their several engagements, or together on their joint undertaking. But in copartnerships there is no such several liability of the copartners. The copartnerships are formed for joint purposes. The members under- take joint enterprises, they assume joint risks, and they incur in all cases joint liabilities. In all copartnership transactions this common fisk and liability exists. Therefore it is that in suits upon these transactions all the copartners must be brought in, except when there is some ground of personal release from liability, as infancy or a dis- charge in bankruptcy; and, if not brought in, the omission may be pleaded in abatement. The plea in abatement avers that the alleged promises upon which the action is brought were made jointly with another, and not with the defendant alone, a plea which would be without meaning, if the copartnership contract was the several con- tract of each copartner. The language of Lord Mansfield in giving the judgment of the King's Bench in Rice v. Shute, Burr. 2511, "that all contracts with partners are joint and several, and every partner is liable to pay the whole," must be read in connection with the facts of the case, and, when thus read, does not warrant the conclusion that the court in- tended to hold a copartnership contract the several contract of each copartner, as well as the joint contract of all the copartners, in the sense in which these terms are understood by the plaintiff's counsel, but only that the obligation of each copartner was so far several that in a suit against him judgment would pass for the whole demand, if the nonjoinder of his copartners was not pleaded in abatement. The plea itself, which, as the court decided, must be interposed in NATURE OF LIABILITY IN CONTEACT IJjO such cases, is inconsistent with the hypothesis of a several liabihty. For the support of the second position, that a judgment against one copartner on a copartnership note docs not constitute a bar to a suit upon the same note against another copartner, the plaintiff rehes upon the case of Sheehy v. Mandeville & Jamesson, decided by this court, and reported in 6 Cranch, 254, 3 L. Ed. 215. In that case the plaintiff brought a suit upon a promissory note given by Jamesson for a co- partnersliip debt of himself and Mandeville. A previous suit had been brought upon the same note against Jamesson alone, and judgment recovered. To the second suit against the two copartners the judg- ment in the first action was pleaded by the defendant Mandeville, and the court held that it constituted no bar to the second action, and sus- tained a demurrer to the plea. The decision in this case has never received the entire approbation of the profession, and its correctness has been doubted and its au- thority disregarded in numerous instances by the highest tribunals of different states. It was elaborately reviewed by the Supreme Court of New York in the case of Robertson v. Smith, 18 Johns. 459, 9 Am. Dec. 227, where its reasoning was declared unsatisfactory, and a judgment rendered in direct conflict with its adjudication. In the Supreme Court of Massachusetts a ruling similar to that of Robertson v. Smith was made. Ward v. Johnson, 13 Mass. 148. In Wann v. McNulty, 2 Oilman, 359, 43 Am. Dec. 58, the Supreme Court of Illinois commented upon the case of Sheehy v. Mandeville and declined to follow it as authority. The court observed that, not- withstanding the respect which it felt for the opinions of the Supreme Court of the United States, it was well satisfied that the rule adopted by the several state courts — referring to those of New York, Mas- sachusetts, Maryland, and Indiana — was more consistent wath the principles of law and was supported by better reasons. In Smith v. Black, 9 Serg. & R. 143, 11 Am. Dec. 686, the Supreme Court of Pennsylvania held that a judgment recovered against one of two partners was a bar to. a subsequent suit against both, though the new defendant was a dormant partner at the time of the contract and was not discovered until after the judgment. "No principle," said the court, "is better settled than that a judgment once rendered absorbs and merges the whole cause of action, and that neither the matter nor the parties can be severed, unless, indeed, where the cause of action is joint and several, which, certainly, actions against partners are not." In its opinion the court referred to Sheehy v. Mandeville, and remark- ed that the decision in that case, however much entitled to respect from the character of the judges who composed the Supreme Court of the United States, was not of binding authority, and it was disregarded. In King v. Hoare, 13 Mces. & W. 495, the question whether a judg- ment recovered against one of two joint contractors was a bar to an action against the other was presented to the Court of Exchequer and was elaborately considered. The principal authorities were reviewed, 160 PARTNERSHIP LIABILITY and the conclusion reached that by the judgment recovered the orig-- inal demand had passed in rem judicatam and could not be made the subject of another action. In the course of the argument the case of Sheehy v. IMandeville was referred to as opposed to the conclusion reached, and the court observed that it had the greatest respect for any decision of Chief Justice Marshall, but that the reasoning attributed to him in the report of that case was not satisfactory. Mr. Justice Story, in Trafton v. United States, 3 Story, G51, Fed. Cas. No. 14,135, refers to this case in the Exchequer, and to that of Sheehy v. Mande- ville, and observes that in the first case the Court of Exchequer pro- nounced what seemed to him a very sound and satisfactory judgment, and as to the decision in the latter case that he had for years enter- tained great doubts of its propriety. The general doctrine maintained in England and the United States may be briefly stated. A judgment against one upon a joint contract of several persons bars an action against the others, though the latter were dormant partners of the defendant in the original action, and this fact was unknown to the plaintiff when that action was commenced. When the contract is joint, and not joint and several, the entire cause of action is merged in the judgment. The joint liability of the par- ties not sued with those against whom the judgment is recovered being 'extinguished, their entire liability is gone. They cannot be sued sepa- rately, for they have incurred no several obligation. They cannot be sued jointly with the others, because judgment has been already re- covered against the latter, who would otherwise be subjected to two suits for the same cause. If, therefore, the common-law rule were to govern the decision of this case, we should feel obliged, notwithstanding Sheehy v. Mande- ville, to hold that the promissory note was merged in the judgment of the court of Michigan, and that the judgment would be a bar to the present action. But by a statute of that state (2 Comp. Laws Mich. 1857, p. 1219, c. 133), the rule of the common law is changed with respect to judgments upon demands of joint debtors, when some only of the parties are served with process. The statute enacts that "in actions against two or more persons jointly indebted upon any joint obligation, contract, or hability, if the process against all of the de- fendants shall have been duly served upon either of them, the defend- ant so served shall answer to the plaintiff, and in such case the judg- ment, if rendered in favor of the plaintiff, shall be against all the defendants in the same manner as if all had been served with process," and that "such judgment shall be conclusive evidence of the liabilities of the defendant who was served with process in the suit, or who ap- peared therein; but against every other defendant it shall be evidence only of the extent of the plaintiff's demand, after the liability of such defendant shall have been established by other evidence," Judgments in cases of this kind against the parties not served with process, or who do not appear therein, have no binding force upon them personally. The principle is as old as the law, and is of uni- PAETNEESHIP LIABILITY AND JOINT LIABILITY 161 versal justice, that no one shall be personally bound until he has had his day in court, which means until citation is issued to him, and op- portunity to be heard is afforded. D'Arcy v. Ketchum, 1 How. 1G5, 13 L. Ed. G18, Nor is the demand against the parties not sued merged in the judgment against the party brought into court. The statute declares what the effect of the judgment against him shall be with respect to them. It shall only be evidence of the extent of the plain- tiff's demand after their liability is by other evidence established. It is entirely within the power of the state to limit the operation of the judgment thus recovered. The state can as well modify the conse- quences of a judgment in respect to its effect as a merger and ex- tinguishment of the original demand as it can modify the operation of the judgment in any other particular. A similar statute exists in the state of New York, and the highest tribunals of New York and Michigan, in construing these statutes, have held, notwithstanding the special proceedings which they au- thorize against the parties not served to bring them afterward before the court, if found within the state, that such parties may be sued upon the original demand. * * * Following these authorities, and giving the judgment recovered in Michigan the same eft'ect and operation that it would have in that state, we answer the question presented in the certificate that the ex- emplification of the record of the judgment recovered against the de- fendant Elisha Eldred, offered by the defendant Anson Eldred, is not admissible in evidence in bar of, and to defeat, a recovery against the latter. II. Partnership Liability and Joint Liability ■ WHELAN V. SHAIN et al. (Supreme Court of California, 1896. 115 Cal. 326, 47 Pac. 57.) Action by R. I. Whelan, sheriff, to determine the rights of Joseph E. Shain and J. S. Reid as claimants of a fund arising from execution sale. From a judgment in favor of the defendant Reid, the defend- ant Shain appeals. Belcher, C. On January 5, 1895, the defendant Joseph E. Shain commenced an action against William Binz and L. !Martella upon their joint promissory note, signed: "Wm. Binz. L. Martella" — and caused to be attached certain personal property belonging to a copartnership of which they were the only members. On January 16, 1895, judg- ment was entered in the action that he "have and recover from L. » For a discussion of principles, see Gilmore on Partnership, § Ti. Gilm.Part. — 11 162 PARTNERSHIP LIABILITY Martella and William Binz, defendants," the sum of $1,410.60, as prayed for. On January 8, 1895, the defendant J. S. Reid commenced an action against the same defendants as copartners, doing business under the firm name of Binz & Martella, upon certain partnership obHgations, and caused to be attached the same property that had been attached by Shain. On January 22, 1895, judgment was entered that he "have and recover from William Binz and Lawrence Martella, copartners," the sum of $986.48, as prayed for. Under executions issued on both of the said judgments the plaintiiT, Whelan, as sheriff, sold the said attached property for the sum of $1,200, and, after de- ducting his proper fees and charges, there was left in his hands the sum of $1,059. Shain and Reid each claimed and demanded of the plaintiff that the proceeds of the said sale be applied in satisfaction of his judgment, and the plaintiff, being uncertain as to how the money should be applied, commenced this action, setting forth the facts, and asking that the defendants be required to interplead and set up their respective rights to the money in his possession, and that the matter be determined by the court. And subsequently, with the consent of the parties and under an order of court, plaintiff paid the money into court. The defendants answered the complaint, each setting up his claim and right to the money as against his codefendant. Upon the issues thus framed the case was tried, it being admitted, during the trial, that the property sold was the partnership property of Binz & IMartella. The court found the facts and gave judgment in favor of defendant Reid, from which judgment and an order denying his mo- tion for a new trial defendant Shain appeals. The law is well settled in this state that partnership property must first be applied to the payment of partnership debts. "The debts of a partnership must be discharged from the joint property before any portion of it can be applied to the individual debts of the partners." Chase v. Steel, 9 Cal. 64. "The fact that an individual creditor ob- tains judgment, issues execution, and levies on firm property, gives him no right to the property as against firm creditors who have not obtained judgment." Conroy v. Woods, 13 Cal. 626, 73 Am. Dec. 605. "It has been repeatedly decided by this court that the creditors of a partnership are entitled to a preference over the creditors of the individual partners in the payment of their debts out of the partner- ship property, or moneys arising therefrom, without regard to the priority of attachment liens." Bullock v. Hubbard, 23 Cal. 501, 83 Am. Dec. 130. And see, also, Jones v. Parsons, 25 Cal. 100; Robin- son V. Tevis, 38 Cal. 611; California Furniture Co. v. Halsey, 54 Cal. 315, and Commercial Bank v. Mitchell, 58 Cal. 42. In his answer Shain alleged, on his information and belief, in substance, that the note on which he obtained judgment was executed by Binz & Martella as copartners, and was a partnership contract and obligation, and that the money received thereon from the payee was invested and used in and about the partnership business, and in furtherance of its ob- jects. The court, however, found against him on this issue, to the effect SEVERABLE CHARACTEB OF JOINT OBLIGATIONS 10-3 that the said note was not executed by Binz & Martella as copartners and was not a partnership obligation, and that the money obtained thereon was not invested or used in or about the said partnership busi- ness, or in furtherance of its objects, "but that the obHgation to pay said sum was the obligation of William. Binz and L. Martella as in- dividuals, and not otherwise." There was evidence tending to sup- port this finding; but, if it were otherwise, under the law laid down in Bank v. Mitchell, supra, the result would not be changed. The court below was right, therefore, in adjudging that respondent Reid was entitled to have the said money first applied to the payment of his judgment. The judgment and order appealed from should be affirmed.* III. Quasi Severable Character of Joint Obligations in Equity THORPE V. JACKSON. (Court of Exchequer, 1837. 2 Y. & C. 553.) Alderson, B." This was a demurrer to the plaintiff's bill on two grounds: First, for want of equity; secondly, for want of parties. The first is the only material question. The bill is filed by the pub- lic officer of the Northern & Central Bank of England against four defendants, viz., Thomas Jackson and Luke Trotter, the executors of Edmund Hamer, deceased, and James Lomax and Patrick Magee, two of the surviving partners of the said Edmund Hamer. The facts stated in the bill are that Hamer, Lomax, and Magee, together with one William Dakin, who is stated since to have become wholly in- solvent, opened a banking account jointly with the bank, paid in mon- eys from time to time, and received advances; that at the time of Hamer's death they were indebted to the Northern & Central Bank in a considerable sum on their joint banking account; and that Hamer died, leaving Jackson and Trotter his executors, who were possessed of assets sufficient for the payment of this debt after discharging all their testator's separate debts. The bill prays an account against the defendants, and that the executors of Hamer may pay the same, when ascertained, out of the assets in their hands. To this bill there is a demurrer for want of equity, on the ground that this debt survived at law, and that there is no claim in equity against the representatives of the deceased party. * Contra: Citizens' Bank of Perry v. Williams, 128 N. Y. 77, 28 N. E. 33, 26 Am. St. Rep. 454 (1S91) ; In re Vetterlein (D. C.) 44 Fed. 57 (1890). 6 For a discussion of principles, see Gilmore on Partuersbip, § 72. « Statement of facts is omitted. 164 PARTNERSHIP LIABILITY After looking through all the cases referred to in the argument, I have come to a different conclusion, and think that, as to this point, the demurrer must be overruled. I take the rule to be as laid down by Lord Eldon in Ex parte Kendall, 17 Ves. 525, namely: "That where a man has chosen to take the joint contract of several, though at law his security is wearing out as each of his debtors dies, yet it is fit that the creditor, whose debt remains at law only against the survivors, should resort to the assets of a deceased debtor; and a court of equity will, under certain modifications, constitute that demand." Now, in this proposition, I find no trace of the distinction, set up in the course of the argument, that such debt must be a mercantile debt incurred by joint traders. Nor can I perceive why that should be so. It is true that the question has most frequently arisen in such cases. But this would naturally occur; for courts of equity, as stated in Gray v. Chis- well, 9 Ves. 118, by Lord Eldon, have, in establishing the rule, acted upon the intention of the parties, and in all mercantile transactions such intention is more obvious, for such contracts by the mercantile law are joint and several. But in Cowell v. Sikes, 1 Russ. 191, the two joint debtors were not partners in any trade, and yet the decision there was that the creditor might recover against the deceased partner's effects. It is said that in Sleach's Case, 1 Mer. 564. Sir W. Grant has decided upon the distinction now contended for. I do not apprehend this to have been the case. He says, indeed, that by the mercantile law a part- nership contract was several as well as joint, and then he adds that this may probably be the reason why courts of equity have considered joint contracts of this sort (that is, contracts joint in form) as standing on a different footing from others. I conceive, therefore, that partnership trading debts are only one, and that the most frequent, case of the general rule, which is that, wherever a court of equity sees that in a contract joint in form the real intention of the parties is that it shall be joint and several, it will give effect to such intention. Now, I think that a contract for a loan of money, giving to the creditor the benefit of the security of several persons, is of that description. Here it is a loan of money by bankers to certain persons, their joint cus- tomers. Is it not obviously the intention of both parties that the property of all shall be responsible for the money thus obtained? In the case of Simpson v. Vaughan, 2 Atk. 31, Lord Hardwicke, upon this obvious intention, corrected the mistake in the joint bond. Then the question arises whether this equity exists until after all the sur- viving contractors have been found incapable of paying the amount. I think that question concluded by the case of Wilkinson v. Hender- son, 1 M. & K. 583, to the reasons of which I fully accede. The other question raised upon the present demurrer is whether Dakin ought not to have been joined as a party to this suit. I think he ought. In the first place, it is not sufficiently stated whether his insolvency is of a permanent description ; and, secondly, he is at all events interested in taking the account as to the amount of the joint SEVERABLE CHARACTER OF JOINT OBLIGATIONS 1C5 debt, althoug^h it is true no decree can be made against him, nor against the two solvent partners. Demurrer for want of equity overruled. Demurrer for want of parties allowed. KENDALL et al. v. HAMILTON. (House of Lords, 1879. L. R. 4 App. Cas. 504.) The plaintiffs, Kendall and others, in consequence of contracts made with the firm of Wilson & McLay, accepted certain bills and entered into other transactions, the result of which was that a large sum was owing to them from said firm. They brought several actions against Wilson & McLay to recover this indebtedness and obtained judgments in their favor. These judgments were not satisfied. Wilson & Mc- Lay being in bankruptcy, the plaintiffs proved their claims in the bank- ruptcy proceedings and received a small dividend. The plaintiffs, subsequently learning for the first time that the defendant Hamilton was a partner with Wilson & McLay in the transactions in which they had made their advances, brought action against Hamilton, seeking to hold him jointly liable for said indebtedness. In the trial court judgment was given for plaintiffs. On appeal this judgment was re- versed. From this judgment of the reversal the present appeal was taken to the House of Lords. Cairns, L. C.^ (after disposing of the case against the plaintiffs on the ground of agency). My Lords, if the view which I have taken of the facts and of the law applicable to them is correct, it is not neces- sary to look at Wilson, McLay, and Hamilton in the position of co- contractors ; but, looking at them in this light, I must say that the case of King v. Hoare, 13 M. & W. 494, appears to me to have been decided on satisfactory grounds. It is the right of persons jointly li- able to pay a debt to insist on being sued together. If, then, there are three persons so liable, and the creditor sues two of them, and those two make no objection, the creditor may recover judgment against those two. But, should he afterwards bring a farther action against the third, that third may justly contend that the three should be sued together. It is no answer to him to say that the other two were first sued and made no objection, for the objection is the objection of the third, and not of the other two. Nor is it any answer to him to say that whatevef he pays on the judgment against himself he may have allowed in account with the others, because he may fairly require, with a view to his right of account or contribution, to have the iden- tity and the amount of the debt constituted and declared in one and the same judgment with his co-contractors. If, therefore, when the third is sued, and requires that the other two should be joined as par- ties, the creditor has to admit that he cannot join the other two be- T Part of the opinion is omittod and the statement of facts is rewritten. 166 PARTNERSHIP LIABILITT cause he has already recovered a judgment against them in the same cause of action, this is equivalent to saying that he has disabled him- self from suing the third in the way in which the third has a right to be sued. It has been suggested that, even assuming the case of King v, Hoare, 13 M. & W. 494, to have been rightly decided, the law as laid down in that case has been altered by the judicature acts and by the abolition of the plea in abatement. I am unable to agree to this suggestion. I cannot think that the judicature acts have changed what was formerly a joint right of action into a right of bringing several and separate actions. And, although the form of objecting by means of a plea in abatement to the nonjoinder of a defendant who ought to be included in the action, is abolished, yet I conceive that the application to have the person so omitted included as a defendant ought to be granted or refused on the same principles on which a plea in abatement would have succeeded or failed. In this particular case, indeed, I observe the judgment against Wilson & McLay was obtained before the ju- dicature act came into operation; and if this judgment then became pleadable in bar, according to King v. Hoare, supra, by Hamilton in answer to an action against himself, I cannot see how this defense is taken away from him by the judicature act subsequently coming into operation. * * ♦ If, therefore, this case is to be looked at as a case in which judg- ment has been recovered for a partnership debt against two out of three copartners, it appears to me that, on the principle of King v. Hoare, 13 Mees. & W. 494, the judgment would be a bar at law to a subsequent action against the third copartner; and I know of no prin- ciple on which a court of equity could hold the debt to be several for the purpose of preventing such a result. In any view of the case, therefore, I am of opinion that the judg- ment of the Court of Appeal was correct, and I have to move your Lordships to dismiss the appeal, with costs. ■ Shelborne, L. My Lords, the argument of the appellants was chiefly, if not wholly, founded upon the course of the Court of Chan- cery in the administration of the assets of a deceased person who has been a partner in a trading firm, and upon the language held by several judges of high authority with respect to the equitable position of part- nership creditors. If that language were found to be technically exact, when tested by the practice of courts of equity, upon all occasions when the rights of partnership creditors have come in question, it might (perhaps) be a sound conclusion that its principle ought to be extended to such a case as the present, though no precedent directly in point has been produced. But the fact is otherwise. If every debt of a trading partnership were regarded in equity as, from its commencement, joint and several, in the proper sense of those words, there could be no reason whv, in bankruptcy, where equitable are regarded as much as legal rights, it 8EVEBABLE CHARACTEE OF JOINT OBLIGATIONS 167 should not have been treated in the same way as any other joint and several debt; nor why Lord Eldon should have made such a decree as he did in the case of Gray v. Chiswcll, 9 Ves. 118. Nor do I think it possible that if, in equity, a separate debt due from a creditor of a firm to one of the partners could be set off against the debt of the firm, there would not have been ample authority for that proposition. If no rule had been established in equity, giving partnership credi- tors a remedy against the assets of a deceased partner, it would have seemed clear, on principle, that in all these cases, when there was no mistake to be rectified in any written instrument, the legal contract between the creditor and the debtors was the only contract, and that its construction must be the same in equity as at law. I conclude, therefore, that those expressions of eminent judges in which partnership debts have been spoken of as in equity joint and several were not meant by them to be understood in the proper and technical sense of those words, and that they cannot safely be used to establish any rule or principle extending beyond those limits within which courts of equity have hitherto given to creditors of a partner- ship remedies which they could not have obtained at law. * * * My conclusion is that in the present case there is no equity upon which the appellants can be entitled to be relieved from the legal ef- fect of the judgment obtained by them against Wilson, IMcLay & Co., if (as the equitable argument assumes) that judgment had the effect of extinguishing, in the lifetime of all the partners, the legal liability of the respondent as a partner for the debt previously due from the part- nership of which he was a member. There is no question here of jus accrescendi. The question relates simply to the constitution of the ap- pellants' debt. Before the action it was a joint debt; but by the re- sult of the action (if the decision in King v. Hoare, supra, is right, and is applicable to this case), it became the separate debt of Wilson, McLay & Co. only. If the joint debt, for which alone the respondent was ever liable, was merged and extinguished at law by this judgment (on which the respondent is clearly not liable, either at law or in equity), it seems to me to be impossible that equity should, on that ground, raise or imply against him, out of the original contract, a sep- arate liability to the appellants from which he is free at law, whatever may be the rights, by way of contribution, indemnity, or otherwise, which Wilson, McLay & Co. may possess against him in respect of this judgment. * * * Appeal dismissed, with costs. 168 PARTNERSHIP LIABILITY IV. Liability of Estate of Deceased Partner* VOORHIS V. CHILDS' EXECUTOR. (Court of Appeals of New York, 1S5S. 17 N. Y. 354.) Selden, J.® Prior to the enactment of the Code of Procedure there was a conflict of opinion between the courts of this state and those of England as to the remedy allowed to the creditors of a partnership against the representatives of a deceased partner. It was conceded by both that only the surviving partners could be sued at law; but it was held by the English courts that the representatives of the deceased partner might be immediately proceeded against in equity and com- pelled to pay the entire debts of the firm, without any previous resort to the surviving members, or any evidence that such debts could not be collected from them, while, on the other hand, our courts held either that the remedy against the survivors must first be exhausted or it must appear that they were insolvent and unable to pay. Prior to the case of Devaynes v. Noble, 1 Mer. 397, the decisions of the Court of Chancery in England appear to have been, for a con- siderable time at least, in accordance with those in this state. The precise ground of the change seems to have been this: In the earlier cases it had been assumed that the liability in equity of the estate of the deceased partner was produced by a sort of equitable transfer to the creditor of the right of the surviving partners to insist that the es- tate of their deceased associate should contribute to the payment of the debts of the firm ; but, upon its being afterwards held that the ob- ligations of partners were to be regarded as joint and several, the Eng- lish courts said that in all cases of that kind creditors had a right to pursue their remedies against all or either of their debtors. They there- fore held that they might proceed immediately in equity against the representatives of a deceased partner, without resorting to their legal remedies against the survivors. The courts in this state, however, re- fused, for what appear to be substantial reasons, to adopt the change. Its effect was to apply to a proceeding in equity the strict legal rules applicable to suits at law. It obviously overlooked many equitable con- siderations of great force. The surviving partners succeed primarily to all the rights and interests of the partnership. They have the entire control of the partnership property, and the sole right to collect the partnership dues. The assets of the firm are, of course, to be regard- ed as the primary fund for the payment of the partnership debts, and 8 For a discussion of principles, see Gilmore on Partnership, § 73. 8 Statement of facts and part of the opinion are omitted. LIABILITY OF ESTATE OF DECEASED PAETNEB 1G9 it would seem equitable at least that the parties having the exclusive possession of this fund should be first called upon. The answer given to this by the English courts, that the representatives of the deceased partner have their remedy over, seems hardly satisfactory. The pre- sumption is that the primary fund is sufficient to meet the demands upon it. Why, then, permit in equity a resort to another fund, and thus give rise to a second action for its reimbursement. Besides, these English decisions, permitting the creditor to proceed in the first in- stance in equity against the estate of the deceased partner, are in con- flict with the established doctrine that parties must first exliaust their legal remedies before resorting to courts of equity. But, whether these considerations are sufficient to justify the posi- tion assumed by our courts or not, it may be regarded as having been settled in this state, prior to the Code, that the creditor in such a case could not come into a court of equity without showing either that the surviving partners had been proceeded against to execution at law or that they were insolvent. Grant v. Shurter, 1 Wend. 148 ; Hamersly v. Lambert, 2 John. Ch. 508; Leake & Watts Orphan House v. Law- rence, 11 Paige, 80; Id., 2 Denio, 577. In the last of these cases the English cases referred to were cited and distinctly overruled. There are many American cases, both in the state and United States courts supporting and confirming the doctrine of the courts of this state upon this subject. Pendleton v. Phelps, 4 Day (Conn.) 481, Fed. Cas. No. 10,923; Van Reimsdyk v. Kane, 1 Gall. (U. S.) 385, Fed. Cas. No. 16,871; Sturges v. Beach, 1 Conn. 509; Alsop v. Mather, 8 Conn. 584, 21 Am. Dec. 703; Caldwell v. Stileman, 1 Rawle (Pa.) 212; Hubble v. Perrin, 3 Ham. (Ohio) 287. [After holding that section 118 of the New York Code did not authorize the action, the opinion concludes:] As, therefore, the present action must be regarded as one of a purely legal nature, brought against the surviving partners upon their legal liability, it follows that the executors of the deceased partner, who is liable only in equity, were improperly made parties. * * * jf we are right in our reasoning, the complaint is clearly defective in this respect, and the judgment of the Supreme Court should therefore be affirmed. Judgment affirmed. DOGGETT V. DILL. (Supreme Court of Illinois, 1884. 108 111. 560, 48 Am. Rep. 565.) Craig, J.^° William E. Doggett died April 3, 1876, testate, and Kate E. Doggett, appellant, who was named as executrix, qualified as such in the probate court of Cook county. Doggett, at the time of his death and for many years before, was a member of the firm of Dog- 10 Part of the opinion is omitted. 17a PARTNERSHIP LIABILITY gett, Barrett & Hills. In 1871, T. C. H. and Lucy W. Smith executed their two promissory notes for certain sums of money, payable to Charles H. Dill. The two notes, on the date of their execution, were guaranteed by Doggett, Barrett & Hills, the firm name to the guaranty being executed by Doggett. No effort was made by Dill to collect the amount due on the notes from the firm assets, or from the surviving members of the firm of Doggett, Barrett & Hills ; but after the death of Doggett he presented his claim to the probate court, to be allowed against the estate of deceased. The probate court, upon the evidence introduced, allowed the claim, and the executrix appealed to the cir- cuit court, where a second trial was had, resulting in a judgment against the estate. An appeal was then taken to the Appellate Court, where the judgment of the circuit court was affirmed, and this record is brought here by the executrix for the purpose of reversing the judgment of the Appellate Court. It is insisted by appellant that a partnership demand cannot be al- lowed against the individual estate of a deceased partner until the legal remedy against the partnership assets and surviving partners has been exhausted. * * * But, independent of the authorities, we are satisfied that the rule holding the estate of a deceased partner primarily liable in equity is sound in principle. Doggett, in his lifetime, was individually liable for this debt, and if he had been sued, and a judgment obtained against him, any of his individual property would have been liable to be taken and sold in satisfaction of the debt. It is true, if he had been sued at law in his lifetime, it would have been necessary to join his partners as defendants in the action; but after judgment it was not necessary to exhaust the partnership assets before individual property could be taken, but the creditor could resort to such property in the first in- stance, if he saw proper. Did the death of Doggett in any manner change the liability which existed on this contract before his death? We think not. The liability continued as before, but the remedy to enforce that liability was changed from a court of law to a court ex- ercising equitable powers. Before his death the liability could only be enforced by a joint action against Doggett and his partners. After his death the liability continued, but could only be enforced in the probate court, which in the allowance of claims exercises equitable powers. The death of a debtor may extinguish a legal remedy on a joint contract; but we are not aware that it has ever been held that the death of a debtor could extinguish the debt or discharge the estate of the deceased. In conclusion, we are satisfied, under the facts as disclosed by this record, appellee's claim was a proper one to be allowed against the estate of the deceased, and that it was properly allowed by the probate court. The judgment of the Appellate Court will therefore be affirmed. Judgment affirmed. EXTENT or LIABILITY IN CONTBACT 171 y. Extent of Liability in Contract ^* JUDD LINSEED & SPERM OIL COMPANY v. HUBBELL et al. (Court of Appeals of New York, 1879. 7G N. Y. 543.) Danforth, J. There are appeals in this case from two orders of the General Term of the Court of Common Pleas in the city of New York — one (of January 6th) reversing an order of the Special Term of that court and directing- an amendment of the judgment in this action, and the other (of February 3d) denying a motion made by the plaintiff to amend and resettle the first order. If the court had power to make the order of January, they could amend or refuse to amend it, and their determination is final; and, although many ques- tions have been argued by counsel concerning this matter, one only is properly before us for review. Had the court power to make the order? Evidently it had, unless restrained by that provision of the statute which declares that "no judgment in any court of record shall be set aside for irregularity on motion, unless such motion is made within one year after the time such judgment was rendered." Title 4, pt. 3, c. 6, art. 1, § 2, p. 359 (1st Ed.) 2 Rev. St. As the judg- ment was rendered on the 27th of April, 1872, and the order did in effect set it aside and was made on motion, notice of which was not served until January, 1877, it is apparent that it is necessary to de- termine whether the cause upon which the court acted was or not an irregularity and nothing more. At the outset the plaintiff was called upon "to show cause why the judgment should not be vacated and set aside as irregular, in that a several judgment is entered against the defendant Plubbell for $40,- 950.29, and a several judgment is entered against the defendant Tay- lor for $43,420.70, instead of a judgment against the defendants joint- ly, pursuant to the summons and complaint, also as unauthorized by law." The moving papers establish beyond controversy that the cause of action was a joint liability on the part of Hubbell and Taylor as co- partners. This the complaint alleged, the defendant Hubbell by his default admitted, and the defendant Taylor has had that fact found against him by a referee, and by his silence acquiesces in the finding. Upon that determination the plaintiffs, at the same time and by means of the same record or judgment roll, took judgments against the de- fendants separately, as stated in the order to show cause. This was clearly irregular; but we think it was nothing more. The plaintiffs did not adhere "to the prescribed rule or mode of proceeding," by 11 For a discussion of principles, see Gilmore on Partnership, § 7-L 172 PARTNERSHIP LIABILITY which they were entitled to a joint judgment, and which a due and orderly conduct of the suit required them to take. But this defect was merely technical, and does not affect any substantial right of the adverse party. It does not in any way increase the liability of the defendant, for upon each partner rests an absolute liability for the whole amount of every debt due from the partnership (Parsons on Partnership [2d Ed.] 63) ; and, although originally a joint contract, it may be separate as to its effects. Though all are sued jointly, and a joint judgment obtained, and a joint execution taken out, yet it may be enforced against one only. Each partner is answerable for the whole, and not merely for his proportionable part; and, as the judg- ments were taken against each partner for a partnership debt, the partnership property is bound to the same extent as if there had been but one judgment for the whole against both partners. Brinkerhoff v. Marvin, 5 Johns. Ch. 326. Nor does the form of the judgment in any way affect the debtor's relations with his copartner; for, if he pays the debt or judgment, he will be entitled to contribution, or to a credit for the sum paid, in any accounting respecting the partnership affairs. The order of the General Term, made January, 1879, reversing the order of the Special Term, should be reversed, and the order of Special Term affirmed; and the appeal from the order of the General Term, made February, 1879, should be dismissed, without costs to either party. VI. Nature and Extent of Liability in Tort WHITE V. SMITH. (Court of Appeals and Court of Errors of South Carolina, 1860. 12 Rich. Law, 595.) Wardlaw, J.^^ This is an action on the case to recover damages from the defendant for negligence in the care of a slave committed to his custody on hire, by means whereof the slave was destroyed and wholly lost to the plaintiff. The first ground of appeal insists that there is a variance between the allegation that the slave was hired to defendant and the proof of hiring to defendant and his partner, Moore, fatal to the action against one of the partners, inasmuch as both should have been sued. In actions ex contractu it was formerly the rule that the nonjoinder of one or more joint contractors was fatal on motion for nonsuit, where the general issue was pleaded; but it is settled since Rice v. Shute, 5 Burr. 2G11, in avoidance of the delay and ex- pense of a trial, that this objection is waived by pleading the general 1 2 For a discussion of principles, see Gilmore on Partnership, § 75. 18 Part of the opinion is omitted. NATURE AND EXTENT OF LIABILITY IN TORT 173 issue, and that advantage of it can be taken only by plea in abatement, even where the plaintiff fully knew who were the joint contractors. And whatever may be the form of action, wherever the nonperform- ance of a contract is the basis of the suit and the contract must be proved, as in case for breach of a warranty of sale, the nonjoinder of a joint contractor is fatal on plea in abatement; for the plaintiff will not be allowed, by varying the form of his action, to annul or obviate the rules of legal procedure concerning parties to contracts. 1 Chit. PI. 87; Max v. Roberts, 12 East, 94; Weall v. King, 12 East, 4541; Stockfleet v. Fryer, 2 Strob. 307; Patton v. Magrath, Rice, 1G2, 33 Am. Dec. 98. On the contrary, in actions ex delicto generally, and always where a contract is not the gravamen of suit and is merely a matter of inducement or recital, a plaintiff may, at his option, treat the tort committed by two or more persons as either joint or several, and accordingly sue all or any of the tort-feasors; and if one of the wrong- doers be sued alone, as the tort attaches upon each individually, he cannot plead the nonjoinder of the others in bar or abatement, nor give it in evidence under the general issue. 1 Chit. PI. 87; Atty. Gen. V. Burgess, Bunb. 223; Govett v. Radnidge, 3 East. 62; 6 Taunt. 29, 35, 42; 6 Jno. 31. Now, in this case, the gist of the action is the negligence of the defendant in the safe-keeping of a slave under his charge, and the contract of hiring is merely matter of preliminary statement, to explain that the slave was really under the charge of defendant, and proof of any other process by which the charge re- sulted would have been admissible. In his first ground of appeal defendant also insists that if there were any negligence it was on the part of the agent of the partners, Moore & Smith (and not his individual agent), for the torts of whom he is not separately liable. From the community of interests between partners, each is responsible for the contracts of all or any one of them in the prosecution of the business of the partnership. Jackson was no less the agent of the defendant because he was also the agent of the partner, Moore. Gow, in his treatise on Partnership, 184, 185, and notes there, and IGO, after laying down the doctrine that in such actions as case for malfeasance the tort as between partners attaches upon each of the wrongdoers individually, and that one may be sued alone, proceeds : "Nor in such an action is it material whether the tort was committed by the partners personally, or by their servant in the prosecution of their business, since, in the latter case, the rule 'qui facit per alium, facit per se,' applies, and renders them and each of them responsible for the consequences." To the same effect, other text-writers on partnership express the doctrine. Story, Part. 167; Story, Agency, 308; 3 Collver, Part. p. 414, c. 1, § 6 ; Id. p. 640, c. 6, § 3; Watson, Part. p. 235, c. 4. In Mitchell v. Tarbutt, 5 T. R. 649, in an action on the case, against some of several partners in the own- ership of a ship, for negligence in their servant or agent, in running down a ship of plaintiffs laden with sugar, whereby the sugar was 174 PARTNERSHIP LIABILITY lost, it was held that defendants could not plead in abatement that there are other partners not sued. Carthew, 171, 294; 7 T. R. 257. * * * Defendant's motion for new trial refused. VII. Commencement of Partnership Liability in Contract — Lia- bility of an Incoming Partner ^* WOLFF V. MADDEN et al. (Supreme Court of Washington, 1893. 6 Wash. 514, 33 Pac. 975.) Action by Samuel Wolff against M. J. Madden and Joshua Green on an acceptance of the Midland Lumber Company, a partnership com- posed of AL J. Madden and Wiley J. Brown, of which firm defendant Green became a member after the date of such acceptance. Defend- ant Madden was not served with summons, and did not appear. From a judgment in favor of plaintiff, against defendant Green, the latter appealed. Dunbar, C. J.^° It is not necessary for us to notice appellant's ob- jections to respondent's contention that the relation assumed by appel- lant towards the Midland Lumber Company was that of an incoming partner; for, assuming, for the purposes^ of this decision, that the jury correctly found upon that proposition, we are unable to find any- thing in the record which would bind him as an incoming partner to pay debts of the partnership which were contracted prior to his con- nection with the partnership. * * * Considered, then, as an incom- ing partner, is he responsible for pre-existing debts of the company? It is a universally conceded doctrine that, when a new member is ad- mitted to a firm, he becomes one of the firm for the future, and not for the past. There is not only no presumption that the incoming partner assumes pre-existing debts, but the presumption is that he does not. Without citing authorities, which are uniform on this sub- ject, the rule seems to be briefly and concisely stated by Lindley on Partnership (volume 1, § 208) as follows: "In order to render an in- coming partner liable to the creditors of the old firm, there must be some agreement, express or tacit, to that effect entered into between him and the creditors, and founded on some sufficient consideration. If there be any such agreement, the incoming partner will be bound by it, but his liabilities in respect of the old debts will attach by virtue of the new agreement, and not by reason of his having become a part- ner." In this case there is no showing of anything that was said or done by appellant that could reasonably be construed into a promise 14 For a dlfjcusslon of principles, see Gilmore on Partnership, §§ 76, 77. 16 Part of the opinion is omitted. COMMENCEMENT OF UABILITT IN CONTRACT 175 to become liable for the debt sued upon. The testimony of himself and the creditors proves no more than that appellant, as manager for the company, recognized the company's indebtedness. He could do no less than this, as it was a fact of which he was no doubt cognizant, but this is a dilTerent proposition entirely from acknowledging his personal liability; and, even if there could be any such construction placed upon his acts or words, there is no showing of, or attempt to show, any consideration for the promise. In our judgment, the tes- timony offered by plaintiff was utterly insufficient to sustain the judg- ment, and defendant's motion for a nonsuit should have been grant- ed. * * * The judgment is reversed, and the cause remanded to the lower court, with instructions to grant defendant's motion for a nonsuit, as prayed for. HICKS et al. v. WYATT et al. (Supreme Court of Arkansas, 1861. 23 Ark. 56.) Hicks and Wyatt being partners in the mercantile business. Hicks sold his interest in the firm to one Thompson and retired. Wyatt con- tinued the business with Thompson under the firm name of Wyatt & Thompson. This new firm covenanted with Hicks to pay all out- standing debts of Hicks & Wyatt and to hold said Hicks harmless from all liability. Hicks, Arrington & Co. sued Wyatt & Thompson for a debt due plaintiffs from Hicks & Wyatt. In the trial court judg- ment was rendered in favor of defendants. Plaintiffs appeal. English, C. J.^" * * * Hicks, Arrington & Co. insist that * * * by virtue of the covenant above referred to the firm of Wvatt & Thompson became liable to pay that debt, as well as all other debts of the firm of Hicks & Wyatt. But, if this be conceded to be true, it does not follow that the firm of Hicks, Arrington & Co. had the right of action for the ^GG.GG, or any part of it, against the firm of Wyatt & Thompson. There was no privity of contract between these Uvo firms. Wyatt & Thompson covenanted with Hicks to pay all of the debts of the firm of Hicks & Wyatt, and to save him harni- less on account of said debts, and, if they failed to pay the debt in question. Hicks had his remedy against them for breach of their cove- nant; but Hicks, Arrington & Co., who were not parties to the cove- nant, had no right of action against the firm of Wyatt & Thompson. Their remedy was against the firm of Hicks & Wyatt, and. Hicks be- ing a member of both firms, the remedy was in equity, and not at law. The judgment must be affirmed. 16 Part of the opinion Is omitted and the statement of facts Is abridged. 176 PARTNERSHIP LIABILITY ARNOLD et al. v. NICHOLS. (Court of Appeals of New York, 1S7G. 64 N. T. 117.) Appeal from order of the General Term of the Supreme Court in the First Judicial Department, reversing a judgment in favor of plain- tiff entered upon a verdict, and granting a new trial. This action was brought against the defendants, as members of the firm of J. W. Bowen & Co., to recover an indebtedness of said Bowen to plaintiff's testator, which, as alleged in the complaint, the said firm had assumed and agreed to pay in consideration of the transfer to the firm by said Bowen of the property and assets of his business. Earl, J.^^ For some years prior to the 15th day of August, 1867, the defendant Bowen had been engaged in the city of New York in the business of importing and dealing in fancy goods, and on that day the plaintiff's testator, Hinman, loaned to him to be used in his busi- ness the sum of $2,000. Bowen continued in business alone until Jan- uary, 1868, when he formed a copartnership with the defendant Nich- ols, and Bowen and Nichols, under the firm name of J. M. Bowen & Co., continued to carry on the business until May, 1869, when they dissolved. At the time of the formation of the copartnership, the evidence tends to show, and we must assume that the jury found, that Bowen transferred his business assets to the firm of J. M. Bowen & Co., and that in consideration thereof the firm assumed and agreed to pay certain specified debts of Bowen, among which was Hinman's debt for the money loaned as above stated. It was expected at the time that the assets would exceed the debts assumed by the firm by at least $30,000, and this excess of $30,000 was to be credited to Bowen on the books of the firm as his share of capital to be contributed. The assets were not as large as expected, but were shown to be more than sufficient to pay all the debts assumed. They were first to be used to pay the debts, and the balance, whatever it might be, was to be cred- ited to Bowen. Bowen transferred to the firm the assets to which his creditors had the right to look for the payment of their claims, and hence the prom- ise of the firm to pay such claims must be deemed to have been made for their benefit. It was not made to exonerate Bowen from the pay- ment of his debts, and not primarily nor directly for his benefit, as his property was to be taken to pay the debts, and he was still to re- main liable as one of the principals to pay them. This case is, there- fore, unlike the case of Merrill v. Green, 55 N. Y. 270, and the ac- tion is maintainable upon the principles laid down in the case of Lawrence v. Fox, 20 N. Y. 268, and also recognized in Burr v. Beers, 24 N. Y. 178, 80 Am. Dec. 327, Thorp v. Coal Co., 48 N. Y. 253, and Claflin v. Ostrom, 54 N. Y. 581. Hinman had the right to adopt the promise made expressly for his benefit. ♦ * * 17 Part of the opinion is omitted. LIABUxTTY OF RETIEING PAETNEE 177 The order of the General Term must be reversed, and the judg- ment entered upon the verdict affirmed, with costs. Order reversed, and judgment accordingly. VIII. Liability of Retiring Partner IMOTLEY V. WICKOFF. (Supreme Court of Michigan, 1897. 113 Mich. 231, 71 N. W. 520.) Montgomery, J.^' This case was determined by the circuit court npon an agreed state of facts. The defendant and one Gill, as co- partners, became indebted to the plaintiff in the sum of about $140. In April, 1891, Wickofif retired from the firm of Wickoff & Gill, and Gill, in consideration of the partnership property all being turned over to him, assumed the payment of all the partnership debts. After the dissolution of the firm, and before this action was brought, the amount had been reduced from $140 to $116, by payments to plaintiff made by Gill. It further appears that Gill, shortly after the dissolution, stated to plaintiff that he had assumed, and agreed with Wickoff to pay, all the partnership indebtedness, and that to said statement plain- tiff replied, "All right ; pay as fast as you can ;" that, some time after the dissolution, defendant saw the plaintiff, and stated to him that, according to the terms of the dissolution between himself and Gill, Gill was to pay the sum due and owing to the plaintiff, and asked plain- tiff if he would release him (defendant) from the indebtedness, to which plaintiff replied that he would. Upon this state of facts, the case was submitted to the court, upon a stipulation that the plaintiff was entitled to recover if the court should find that the defendant has not been released from the indebtedness. The court found, as matter of law, that there was no consideration for the promise of the plaintiff to defendant to release him from his liability on the partnership in- debtedness, and entered judgment for the amount claimed with costs. * * * The case must turn upon the question of whether there was a con- sideration to support the promise to look to Gill alone. The authori- ties are not agreed upon the question of whether the agreement of one joint debtor or copartner to pay the debt upon which the two are liable is a sufficient consideration to support a release of his codebtor. The modern English doctrine appears to be that such an undertaking is a sufficient consideration, on the ground that the sole liability of one of two debtors may, under many circumstances, be more beneficial and convenient than the joint liability of two, and that whether it wap 18 For a discussion of principles, see Giliuore on Partnership, 5 78. 19 Part of the opinion is omitted, Gilm.Part.— 12 178 PARTNERSHIP LIABILITY actually a benefit in each particular case will not be inquired into, but that the changed relation will be held to be a sufficient consideration. See Thompson v. Percival, 5 Barn. & Adol. 925, and Lyth v. Ault, 7 Welsh., H. & G. 669. This doctrine has also found support in this country, to the extent stated in Collyer v. Moulton, 9 R. I. 90, 98 Am. Dec. 370, in which it was said: "If, by a mutual arrangement between the plaintiff Collyer and the two defendants, IMoulton had been re- leased from his liability for the work already done, and a new promise made by Bromley, the other defendant, to pay for it, this would have been a release for a valuable consideration ; one debt would have been substituted for the other." See, also, Bantz v. Basnett, 12 W. Va. 772; Bowyer v. Knapp, 15 W. Va. 277; Waydell v. Luer, 3 Denio (N. Y.) 410. Contra, Early v. Burt, 68 Iowa, 716, 28 N. W. 35; Wild V. Dean, 3 Allen (Mass.) 579. In the case of Johnson v. Emer- ick, 70 Mich. 215, 38 N. W. 223, Mr. Justice Champlin, speaking for the court, said: "Such discharge from liability is based upon the ex- press or implied assent of the creditor, upon a sufficient consideration ; and a creditor, knowing of such relation, who goes on and deals with the other partners with reference to the debt, may well be held to have assented to the arrangement, and to have accepted the responsibility and promise of the partner assuming to pay such debt. This considera- tion need not be a money consideration. It may be the obtaining of an additional security, better terms of payment, negotiable securities which the creditor may use in his business, or any other benefit, or it may be the loss of some right or disadvantage suffered by the surety through the act of the creditor." In the present case it will be noted that the transfer of the firm property by defendant to Gill was not induced by any promise of plaintiff, but had occurred before any promise of release was made; nor does it appear, as before stated, that the defendant lost any rights ; nor was any security taken or accepted by the plain- tiff; nor does it appear that the time for the payment of the debt was extended. Plaintiff relies upon Walstrom v. Hopkins, 103 Pa. 118, and Eagle Mfg. Co. v. Jeimings, 29 Kan. 657, 44 Am. Rep. 608. In the latter case it was claimed that the plaintiff had due no- tice of the dissolution of the firm, and the assumption of the liabilities by Whitney, and that they accepted him for the payment of the bill of exchange. The court said: "The dissolution of the partner- ship, the taking of all the partnership property, and the assump- tion of all partnership liabilities by Whitney, in no manner released defendant. The alleged promise of plaintiff was made after the dis- solution, and not as an inducement to or consideration of it. The acceptance has never been paid. * ♦ * No additional security of any kind was furnished. The acceptance was not destroyed, and new paper given. The plaintiff received absolutely no consideration, and, even if it did promise that it would look to Whitney, such promise was entirely without consideration, and in no manner discharged the defendant." In Walstrom v. Hopkins it was held that a promise by I LIABILITY OF RETIRING PARTNER 179 a creditor of a firm to release a partner who had retired from the firm, and to look to the continuing partner only, for the payment of his debt, unless founded upon a legal consideration, is nudum pactum, and can- not be enforced. The weight of authority favors the contention that the promise of the continuing partner may be a sufficient considera- tion to support the release of the outgoing partner. But, in the absence of such concurring or binding promise, we think no well-considered case can be found, holding that the mere agreement between the part- ners will of itself support the agreement of the creditor to release the outgoing partner. Such an agreement does not estaljlish a privity be- tween the continuing partner and the creditor, entitling him to sue such creditor individually. It is only a private executory contract, in- tended to regulate the rights, duties, and obligations of the co-partners between themselves, consequent upon a dissolution of the firm. Wild V. Dean, 3 Allen (Mass.) 579. In the present case there was not only no extension of time, no acceptance of the paper of the individual partner, but the stipulation does not show an express agreement made to plaintiff by Gill to pay the debt. The finding is that Gill stated to plaintiff that he had agreed with Wickoff to pay all partnership in- debtedness, and that to this the plaintiff replied, "All right; pay as fast as you can." It will be noted that this was not simultaneous with the release of Wickoff, nor did it in terms establish a privity between Gill and plaintiff as to the obligation of Gill to pay the debt individu- ally. We think the judgment should be affirmed. I^TcAREAVY v. T^IAGIRU (Supreme Court of Iowa, 1904. 123 Iowa, 605, 90 N. W. 103.) Action in equity to enjoin collection of a judgment. Decree for plaintiff, and defendant appeals. Reversed. Weaver, J.^° The nature of the controversy here presented may be stated as follows: In the year 1SS9 one D, R. IMagirl and the plain- tiff, McAreavy, were partners in business. The firm borrowed the sum of $200 from Julia McEnany (now Julia IMagirl. the defendant herein), and made to her a promissory note for that amount, signed in the firm name. Thereafter, and while said note was still outstanding and unpaid, the partnership was dissolved, D. R. Magirl taking the firm property and agreeing to pay the firm debts, of all which the de- fendant had notice. Later IMagirl married the defendant. On July 28, 1898, about eight years after the maturity of the note, Mrs. Ma- girl brought suit thereon against McAreavy, without making her hus- band a defendant, and obtained judgment thereon in the sum of $416 and costs. The judgment has never been paid. On November 9, 1900, more than 10 years after the maturity of the note, which had ao Part of the opinion is omitted. 180 PARTNERSHIP LIABILITY been put in judgment against McAreavy, the latter began this suit, alleging that by virtue of the terms of dissolution of partnership by which Alagirl assumed and agreed to pay this debt the latter became the principal debtor, and plaintiff thercafler stood in the relation of surety only. He further alleges that, plaintiff having failed to put the note in judgment against her husband, her right of action therein has become barred by the statute of limitations, and, having thus neg- ligently allowed the principal debtor to escape liability, the plaintiff, as surety, is also released, and upon this theory he asks to have the collection enjoined, and the judgment canceled. As members of the partnership, both plaintiff and D. R. Magirl were equally bound as principal debtors to the payee of the note. When ]\Iagirl took the partnership assets and assumed payment of the part- nership debts, then, as between him and the plaintiff, he became lia- ble as the sole principal, and plaintiff became his surety for the pay- ment of said note. This proposition is upheld by all the authorities, and is not denied by the appellant. When we advance the next step, and inquire whether this change in the relations existing between the partners affects in any manner their relation to the holder of the note, we find a marked variance of views. The courts of several states — notably New York and Michigan — hold to the view that, when a partner retires from a firm under such an agreement, and notice thereof is brought home to the creditor, the latter is bound to recognize the new relations between the members of the late partnership, and any indulgence thereafter shown to the partner assuming the debt which would have the effect to discharge an original surety will operate to discharge the retiring partner from further obligation. Millerd v. Thorn, 56 N. Y. 402; Colgrove v. Tallman, 67 N. Y. 95, 23 Am. Rep. 90; Smith v. Sheldon, 35 Mich. 42, 24 Am. Rep. 529. See, also, Leithauser v. Baumeister, 47 Minn. 151, 49 N. W. 660, 28 Am. St. Rep. 336; Brandt on Suretyship (2d Ed.) § 36; Stearns on Surety- ship, p. 24; Baylies on Suretyship, pp. 40, 481; Shumaker on Part- nership, 341, 342. The reasoning by which this view is supported is very forcibly stated by Folger, J., in the Colgrove Case, and by Cooley, C. J., in the Smith Case, and the writer of this opinion would be con- tent to accept it as authoritative. The majority of the court prefers to follow the other line of authorities as announcing the sounder prin- ciple, and the result arrived at cannot be said to be essentially unjust. It is in accord with the views expressed by many courts and law writ- ers, and is bottomed upon the proposition that, the liability of the part- ners as principal debtors being fixed by the terms of the original con- tract, it is not competent for them by any agreement between them- selves to change the nature of that liability, or impose upon the cred- itor, without his consent, any new or additional obligation or duty, a neglect of which may work a discharge of one of such debtors from his obligation to pay. The agreement between the partners by which one of them assumes to pay the entire debt is regarded res inter alios LIABILITY OF RETIRING PARTNER 181 acta as respects the creditor, who is neither benefited nor prejudiced thereby. Barnes v. Boyers, 34 W. Va. 303, 12 S. E. 708 ; Buchanan V. Clark, 10 Grat. (Va.) 164; Rawson v. Taylor, 30 Ohio St. 389, 27 Am. Rep. 464; 2 Collyer on Partnership, c. 24, § 596; 1 Collyer on Partnership, c. 17, § 407; Story on Partnership, § 334; Parsons on Partnership (4th Ed.) §§ 296, 313, 324; Shaplci^h Hardware Co. V. Wells, 90 Tex. 110, 37 S. W. 411, 59 Am. St. Rep. 783; Hall v. Jones, 56 Ala. 493 ; White v. Boone, 71 Tex. 712, 12 S. W. 51. * * * There is a class of cases of which Lauman v. Nichols, 15 Iowa, 161, is an example, in which it is held that a person signing a note or other obligation as a joint maker may, nevertheless, allege and prove that he joined in the execution of the instrument as surety only, and, upon notice of that fact being given to the holder of such obligation, even after it is delivered, he is bound to recognize the true relations of the makers; but until such notice is received he may enforce payment against all makers as principal debtors. At first blush these two lines of cases may seem inconsistent, but they are clearly distinguishable. In the former the debtors seek, by an agreement between themselves alone, to change their relations to the debt without the consent of the creditor; while in the latter the original and true relation of the mak- ers to the debt is unchanged, and the rights and position of the surety are protected and made effectual from the time notice of such relation is brought home to the creditor. This distinction is recognized and explained in Shapleigh v. Wells, supra, and Rawson v. Taylor, supra. Plaving found that plaintifif herein is not entitled to the rights of a surety as against Airs. Magirl, it is unnecessary to consider other matters presented in argument. It is elementary that mere indulgence by the creditor to one joint debtor will not serve to discharge another joint debtor from his obligation to pay. The claim has been put in judgment against the plaintiff, and, save upon the theory of his surety- ship, which we find is unsound, he offers no reason why it should be canceled or annulled. The decree of the district court is therefore reversed. PRESTON V. GARRARD. (Supreme Court of Georgia, 1904. 120 Ga. 6S9, 48 S. E. 118, 102 Am. St Rep. 124.) Garrard brought suit against J. W. Preston and E. M. Brown, as partners, on a promissory note dated February 24, 1899, and due one year after date. Preston filed a plea setting forth that the firm was dissolved on December 27, 1900, all of the debts of the firm being as- sumed by Brown; that the dissolution was known to plaintiff's agent, who acted for her in making the loan for which the note was given, and that the fact that Brown had assumed the debts of the firm was also known to this agent, who recognized Brown as the principal debtor 182 PARTNERSHIP LIABILITY by treating with him as such thereafter ; that on June 18, 1902, plain- tiff, through her agent, agreed with Brown, upon a sufficient con- sideration, that she would extend the time of payment of the note sued on to February 24, 1903 ; that this extension was granted with- out the knowledge or consent of the defendant. The plea alleges that by reason of these facts the defendant became, after the dissolutioji of the firm, merely a surety for Brown upon the debts of the firm which he had assumed to pay; and that the extension of the time of payment of the note sued on without the defendant's knowledge or consent released him from all liability on the debt. The court struck this plea on oral motion, and the defendant excepted. Cobb, J.^i It is well settled that, where a partnership is dissolved by the retirement of one of the members, and the continuing partner as- sumes the payment of the debts of the firm, the retiring partner, as between himself and his copartner, is no longer a principal debtor, but merely a surety for the latter upon the debts of the firm. See 22 Am. & Eng. Enc. L. (2d Ed.) 185; Shumaker on Part. p. 342; 1 Bates on Part. § 532. Some disagreement among the courts has arisen in fixing the rights of creditors after dissolution by the retirement of one member and the assumption of the debts by the other. Of course, if a creditor is a party to the agreement made between the partners, he will be bound by it, and must deal with the retiring partner as a surety. All are agreed as to this. The difficulty has arisen in deter- mining whether mere knowledge by the creditor of the dissolution and the agreement of the partners would require him to deal thereafter with the retiring partner as a surety with reference to past transactions of the firm. The case of Oakeley v. Pasheller, 4 CI. & F. 207, a de- cision made by the House of Lords in 1836, was supposed to have held that mere knowledge of these things by the creditor would re- quire him to treat the retiring partner as a surety, and that, if he ex- tended the time of payment of his debt without the retiring partner's knowledge or consent, he would be released. But in the case of Swire V. Redman, L. R. 1 Q- B. 536, Cockburn, C. J., shows very clearly that the House of Lords did not, in Oakeley v. Pasheller, intend to rule as was supposed, but merely to hold that the retiring partner would be released only in the event the creditor consented to the arrangement between the partners. Some American courts have followed what was supposed to be the ruling in Oakeley v. Pasheller, and others have adopted the decision in Swire v. Redman, which was to the effect that something more than mere knowledge on the part of the creditor is required — that he must expressly consent to the arrangement between the partners before he will be bound by it; and that in the absence of such consent he can deal with the retiring partner as a principal debtor and as an active partner so far as past transactions are con» cerned. Cases like Swire v. Redman proceed on the theory that when a creditor's rights once become fixed by contract no agreement on *i Part of the opinion is omitted, UABILITY OF RETIRING PARTNER 183 the part of the other parties to the contract can affect those rij^hts or change their relation to the creditor so far as he is concerned ; that it is wholly immaterial that the creditor was informed of such an agreement; that the partnership still continues relatively to his debt; and that any arrangement which he makes with the continuing partner in behalf of the partnership will be binding on the other. The other line of decisions holds that whenever the relationship of principal and surety arises between partners after dissolution and the assumption by one partner of the debts of the firm, every one having notice of the dissolution and the agreement between them is bound to take notice of the relationship which the law creates, and act accordingly; that while a creditor holding an obligation of the firm may regard the retiring partner as an active partner, so far as his debt is concerned, as long as he does nothing to affect the status of his claim, the moment he, with knowledge of the dissolution and the agreement, does anything which would release an ordinary surety, the retiring partner will be entirely released from his obligation; that this is no hardship on the creditor, because he can protect himself by granting no indulgence to the continuing partner, who has become alone the principal debtor, or doing anything without the retiring partner's consent which would affect the status of the claim to the prejudice of the surety partner. The following are some of the decisions dealing with the subject: Rawson v. Taylor, 30 Ohio St. 389, 27 Am. Rep. 464; Gates v. Hughes, 44 Wis. 332; Millerd v. Thorn, 56 N. Y. 402; Ridgley v. Robertson, 67 Mo. App. 45 ; Barber v. Gillson, 18 Nev. 89, 1 Pac. 452 ; Maier v. Canavan, 8 Daly (N. Y.) 272; Johnson v. Young, 20 W. Va. 614; WilHams v. Boyd, 75 Ind. 286; Leithauser v. Baumeister, 47 Minn. 151, 49 N. W. 6C0, 28 Am. St. Rep. 336 ; Whittier v. Gould, 8 Watts (Pa.) 485; Wilde v. Jenkins, 4 Paige (N. Y.) 481; Thurber V. Corbin, 51 Barb. (N. Y.) 215; National Cash Register Co. v. Brown, 19 Mont. 200, 47 Pac. 995, 37 L. R. A. 515, 61 Am. St. Rep. 498; Smith v. Shelden, 35 Mich. 42, 24 Am. Rep. 520. * * * Pre- vious decisions of this court have, however, settled that the rule to be followed in this state is the one supposed to have been announced in Oakeley v. Pasheller. ♦ * ♦ The extension of the time of payment, under the circumstances alleged in the plea, had the effect of releasing the defendant ; and the court erred in striking the plea. Judgment reversed. 184 PARTNERSHIP LIABILITY I'X. Termination of Partnership Liability in Contract — Disso- lution -^ LYON et al. v. JOHNSON et al. (Supreme Court of Errors of Connecticut, 1859. 28 Conn. 1.) Assumpsit for coal sold to the defendants as partners. It was jlaimed in defense that the partnership between the defendants had been previously dissolved and sufhcient notice of the dissolution given. The defendants, Johnson and Signor, previous to the 9th day of March, 1857, had been in partnership in the town of Danbury under the name of R. Johnson & Co., and as such partners had in the fall of 1856 purchased coal of the plaintiffs, who also did business in Dan- bury as partners under the name of Lyon & Burr, On the 9th day of March, 1857, the firm was dissolved, and the business was thereafter carried on by Signor alone. Notice of the dissolution was published for three successive weeks in the Danbury Times, a weekly paper pub- lished in Danbury ; but no other notice was given to the plaintififs. In the fall of 1857 Signor bought a quantity of coal of the plaintiffs, which they sold and delivered upon the credit of the firm of R. Johnson & Co., and in the belief that he bought it for that firm. The advertisement of the dissolution of the partnership of the defendants was inserted in the newspaper next after an advertisement of the plaintiffs ; but the plain- tiffs did not take the paper, and had not seen the notice of the dissolu- tion, and had no knowledge that the partnership was dissolved. The sale of coal by the plaintiffs to the defendants in 1856 was the only previous dealing of the firm of Lyon & Burr with the defendants; but for some years before the defendants had bought coal of the firm of Lyon & Bates, a firm of which the plaintiff Lyon was a member, and which was dissolved in the summer of 1856 ; Bates retiring from the business, and Lyon forming a new partnership with Burr, who had been a clerk of Lyon & Bates, and the new firm taking and continuing the business of the former firm. The case was tried in the superior court on an issue closed to the court. The court specially found the above facts and rendered judg- ment thereon for the plaintiffs. The defendants thereupon filed a mo- tion in error and brought the record before this court for revision. Butler, J. There is no error in the judgment of the court below, and this will be apparent from a brief statement of the principles ap- plicable to the case. By the constitution of a general partnership, and as one of the ele- ments of it, each partner is vested by his copartners with power to 22 For a discussion of principles, see Gilmore on Partnership, §§ 79-83. TERMINATION OF LIABILITY IN CONTRACT 185 contract for and bind the firm within the scope of the partnership busi- ness. Each is constituted the agent of all, and each is responsible for the acts of all. Once existing, and publicly known to exist, the continuance of the connection will be presumed by the public till the contrary appears. If a dissolution takes place by operation of law, as by death or bank- ruptcy, no notice is required. The operations of law have a notoriety which all are bound to regard. But a dissolution by limitation, or the voluntary and mutual assent of the partners, is a matter of private ar- rangement, which cannot be presumed to be known to others unless they are informed of it. Until such information is given, actually or constructively, therefore, the continuance of the connection, and of the powers and liabilities of each partner, may well be presumed by every one who has occasion to deal with either on account of the firm. It follows upon the principles of justice and policy, and in conformity with the perfectly well settled rule of law, that upon such a dissolu- tion of the partnership a retiring partner, who wishes to do justice to others and terminate his own responsibility, is under the obligation to give information of the fact to all who have dealt or are dealing with the firm, and to the public at large, with whom new attempts to deal may be made. It is equally clear that the notice so given by a retiring partner should be coextensive with the obligation assumed and as par- ticular and specific as can be reasonably required of him under the circumstances of the case. He knows or may know who the persons are who have dealt with the firm, and he can, without unreasonable effort, give each of them actual notice, and therefore the law requires that he should do so. He cannot, without more effort or expense than can reasonably be demanded of him, give actual notice to every other member of the public, and therefore the law does not require it; but it does require him to discharge his obligation if he would termi- nate his liability, and to give some, and reasonable, notice to the public at large. Ordinarily a publication in one of the newspapers published in the place or county where the partnership business was conducted, as it is the customary mode of giving such information, will, as to all who have not had previous dealings with the firm, be deemed sufficient. That is the least that can be required of him in an ordinary case in respect to the public, and even that may not in all cases be sufficient, and whether it be or not will depend on the circumstances of the par- ticular case. But in relaxing the rule as applicable to those who have not dealt with the firm, and considering a general notice, operating as a constructive notice, to be sufficient as to them, because of the diffi- culty of giving actual notice to everybody, the courts have not intended to relax, and have not relaxed, the rule in respect to those who have dealt with the firm. As to them there is no reason for such relaxa- tion, and a publication is never sufficient, unless, indeed, it can be shown that the publication was seen by them, and therefore that they in fact had actual knowledge. 186 PARTNERSHIP LIABILITY In this case the dissolution of the firm of R. Johnson & Co, was voluntary, and not by operation of law. The plaintiffs had previously dealt \vith the firm, and upon the facts found they may well be consid- ered as regular dealers. No actual notice of the dissolution was given them, and it is found that they had no actual knowledge of it. The publication, unless it came to their knowledge, was not as to them sufficient. The character of their previous dealing and the cir- cumstances attending the publication of the notice, including the con- tiguity of the advertisements, were proper matters of evidence to be taken into consideration by the court in the question whether the plain- tiffs actually knew of the dissolution or not. Doubtless the court con- sidered them. But having found that no actual notice was given to the plaintiffs, and that they did not see the publication, and had no actual knowledge of the dissolution, and that there had been previous dealing between the parties, the court correctly rendered judgment for the plaintiffs. The judgment of the superior court is therefore affirmed. Judgment affirmed. AUSTIN V. HOLLAND. (Court of Appeals of New York, 1877. 69 N. Y. 571, 25 Am. Dec. 246.) This action was on a promissory note made in the firm name of Dil- lon, Beebe & Co., payable to Horace Loveland. Defendant Holland alone appeared and answered. He admitted the making of the note, and that the plaintiff was the holder, but denied that he was a member of the firm. Defendants were copartners under the above firm name prior to the giving of the note. Judgment for the plaintiff on the verdict was affirmed at the General Term of the Supreme Court, and defendant appealed. Andrews, J.^^ The plaintiff was a dealer with the firm of Dillon, Beebe & Co., so as to entitle him to the protection of the rule which makes a retiring partner liable for subsequent engagements made by his former copartner in the firm name with those who had previous dealings with the firm, and who entered into the new transaction with- out notice of the change in the partnership. * * * The principal question in this case is whether Loveland had notice of the dissolution of the firm of Dillon, Beebe & Co., which occurred March 29, 1869, prior to August 31, 1869, when the note upon which the action was brought was made. The firm was engaged in the busi- ness of the purchase, shipment, and sale of lumber, and its principal office was at Toledo, in the state of Ohio. The plaintiff was employed to purchase lumber in the Western States and in Canada, and resided at Detroit. Notice of dissolution was published in the newspapers at Toledo, and a copy was mailed to the plaintiff, addressed to him at Detroit. 2 3 Part of the opinion Is omitted and the statement of facts Is abridged. TERMINATION OF LIABILITY IN CONTHACT 187 Loveland, on his direct examination, testified positively that he never received the notice. On his cross-examination he stated that he had no recollection of receiving or seeing the notice, and that, if he had seen it, he thought he should have remembered it. The judge submitted it to the jury to find whether the plaintiff received the no- tice. The defendants' counsel excepted to the submission of the ques- tion to the jury, on the ground that the jury would not be justified in finding from the evidence that the plaintiff did not receive the notice, and upon the further ground that it was immaterial whether he re- ceived it or not; that the mailing of the notice was all that the defend-' ant was required to do to protect him from liability for the subsequent services of the plaintiff. The publication of notice of the dissolution of a partnership in a newspaper at the place where the business was carried on is notice to all persons who have not had prior dealings with the firm ; and, if there- after one of the partners enters into a contract in the firm name with a new customer or dealer, the other partners will not be bound. The rule is different in respect to persons who have dealt with the firm be- fore the dissolution. The rule in such cases in this state requires that, to relieve a retiring partner from subsequent transactions in the part- nership name, notice of the dissolution must be brought home to the person giving credit to the partnership. If in any way, by actual notice served, or by seeing the publication of the dissolution, or by information derived from third persons, the party, at the time of the dealing, is made aware of the fact that the partnership has been dis- solved, the contract will not bind the firm. It is sufficient to exempt the firm from liability that the person so contracting with a partner in the firm name knew or had reason to believe that the partnership had been dissolved; but this must appear and be found by the jury, or else the contract will be treated as the contract of the partnership. Ketchum v. Clark, 6 Johns. 1-li, 5 Am. Dec. 197; Graves v. Merry, 6 Cow. 701, 16 Am. Dec. 471 ; Vernon v. Manhattan Co., 17 Wend. 52-4; Id., 22 Wend. 183; National Bank v. Norton, 1 Hill, 572; Cod- dington v. Hunt, 6 Hill, 595 ; Clapp v. Rogers, 12 N. Y. 287; City Bank V. McChesney, 20 N. Y. 242 ; Bank of Commonwealth v. ^ludgett, 44 N. Y. 514; Van Eps v. Dillaye, 6 Barb. 244; Mechanics' Bank v. Liv- ingston, 33 Barb. 458. In Vernon v. Manhattan Co., the Chancellor says: "But, to exempt the copartners from liability (on a contract with a previous dealer with the firm), the jury must be satisfied that the per- son with whom the new debt was contracted either had actual notice that the copartnership was dissolved, or that facts had actually come to his knowledge sufficient to create a belief that such was the fact." The same rule is recognized in the other cases cited, and by elementary writers. 3 Kent's Com. 607; Story on Part. § 161; Coll. on Part. § 533; Lindley on Part. 337. LIndley says: "Those who have dealt with the firm before a change took place are entitled to assume, until they have notice to the contrary, that no change has occurred. * * * 1S8 PARTNERSHIP LIABILITY If notice in point of fact can be established, it matters not by what means; for it has never been held that any particular formality must be observed." In this case the jury have found that the plaintiff did not receive the notice sent by mail, and had no information of the dissolution of the firm of Dillon, Beebe & Co. prior to the transaction in question. The mailing of notice properly directed to the party to be charged raises a presumption of notice in fact; for it is presumed that letters sent by post to a party at his residence are received by him in due course. Best on Presumptions, § 403. But this is a pre- sumption of fact, and not of law, and may be repelled by proof; and if the receipt of the letter in this case was disproved, then the defend- ant failed to show the actual notice required in order to exempt him from responsibility, and tiie question whether the letter was received was, we think, upon the evidence for the jury. The learned counsel for the defendant has not referred us to any case which decides that the mailing of a notice of dissolution is in law equivalent to actual notice and exempts a retiring partner from liability to prior dealers on subsequent engagements in the firm name. Notice by mail of the dishonor of commercial paper is in most cases sufficient by the law merchant to charge an indorser. It is a part of the contract that no- tice may be given in this way, and it is not material in fixing the lia- bility of the indorser whether he receives it or not. But we think the rule requiring actual notice of the dissolution of a partnership to prior dealers is a part of the law of this state and should not be departed from. It may subject parties in some cases to inconvenience, but the principle upon which the rule proceeds is that, when one of two parties is to sustain injury from the giving of credit, the one who originally induced it should bear the loss, rather than the one who, without notice of the change, relied upon the con- tinued existence of the partnership. Story on Part. § 160; Wat. on Part. 384. The judgment of the General Term should be affirmed. Judgment affirmed ROSE et al. v. COFFIELD. (Court of Appeals of Maryland, 1879. 53 Md. 18, 36 Am. Rep. 389.) Miller, J.^* This suit was brought by the appellee against the ap- pellants. Rose and Porter, as partners composing the firm of J. B. Rose & Co., upon a check of which the plaintiff was the indorsee and holder. This check was upon the Citizens' National Bank for $430, was dated the 29th of November, 1871, and was payable on the 2d of December following. It was drawn by Eastman & Rogers, to the or- der of J. B. Rose & Co., and bears the indorsement of the payees and also of two other firms. The proof shows that this check was given 24 Part of the opinion is omitted. TERMINATION OF LIABILITY IN CONTRACT 189 in renewal of a promissory note for the same amount, dated the 27th of October, 1871, payable one month after date, drawn and indorsed by the same firms, and also indorsed by another firm. The plaintiff received this note on the day of its date from Rose in good faith, and paid him therefor $130 in cash. He also received the check, in re- newal of the note, on the day of its date, from Rose, who then in- dorsed the name of J. B. Rose & Co. thereon. At the date of the note, and for some years prior thereto, Rose and Porter had been partners, conducting the printing business under this firm name; Rose being the active business manager of the firm. On the 16th of No- vember, 1871, after the date of the note, but before the check was given, the firm was dissolved, and notice of the dissolution published in the newspapers of Baltimore city for several days. But there is no proof that the plaintiff took or read either of the papers in which this publication was made, and there is, therefore, nothing in the case bringing home to him actual notice of the dissolution, or affecting him with notice thereof. Boyd v. McCann, 10 Md. 118. In this- state of the case the question arises whether Porter is liable upon this check ; the firm having been in fact dissolved before Rose indorsed the firm's name thereon. ♦ * * It has been argued with much force that the plaintiff had but a single transaction with this firm before its dissolution, which con- sisted sim.ply of the purchase by him of the note of the 27th of Octo- ber, and that this did not amount to such dealing with the firm as to entitle him to actual notice. So far as our researches have extended, the cases in which this question has been considered are not numer- ous, and those in which the decisions have necessarily turned upon it are very few. It is certain that no inflexible rule or standard of dealing, by which all cases can be governed or measured, has been established. [After reviewing numerous authorities:] The principle, as shown by these authorities, upon which this rule of actual notice is founded, seems to embrace the present case. That principle is that credit al- ready raised on the faith of the partnership is presumed to be con- tinued on the same footing, unless special notice of a change be given ; and as every partner knows, or has the means of knowing, who are the persons with whom his firm has transacted business and from whom it has received credit, public policy and natural justice alike demand that he should give every such party personal and special notice of the withdrawal of his responsibility. As was said by the Chancellor, in Vernon v. Manhattan Co., 22 Wend. (N. Y.) 183, the word "dealing," when used in reference to this rule, "is merely used as a general term to convey the idea that the person who is entitled to actual notice of the dissolution must be one who has had business relations with the firm, by which a credit is raised upon the faith of the copartnership." It may be true, as was most forcibly stated by Senator Verplanck in the same case, that one who merely takes the 190 PARTNERSHIP LIABILITY negotiable paper of a firm from a third hand, and received payment through a bank, or passes it away to another, cannot be called a dealer with the firm ; and it may well be said that it would be to require im- possibilities to insist that the partners of a large commercial house in extensive business should be able to know for years who had been the last holder of their paper, or through whose hands it may have passed, and to send to all of them special notice as dealers. But the case now before us is not of that character, and no such difficulty arises. The plaintiff received the note of October, 1871, with all the subsequent indorsements then upon it, directly from Rose, one of the partners of this firm, then subsisting, and paid him for it its full face value, thus bringing the plaintiff and the firm into a mutual dealing. It cannot be doubted but that by this transaction a credit was raised upon the faith of the partnership, and that the plaintiff gave them credit and relied upon the united responsibility of the two partners. Porter, the other ostensible and known partner, knew, or had the means of knowing, through whom the money upon this note was rais- ed. The plaintiff dealt in this transaction immediately and directly with the firm, and did not receive the note from a third party and merely pass it away to another. Nor is there any proof to show that this firm was a great commercial house, engaged in extensive trade, and constantly issuing their negotiable securities, so as to make it diffi- cult for them to know through whose hands their paper may have passed. We are therefore of opinion this case must be governed by the general rule, and that actual notice of the dissolution should have been given to the plaintiff in order to relieve the defendant, Porter, from responsibility on this check. * * * Judgment affirmed, with costs. THH POWERS OF PARTNERS 181 THE POWERS OF PARTNERS I. Origin and Nature of the Partner's Power to Bind the Firm ' WINSHIP et al. v. BANK OF THE UNITED STATES. (Supreme Court of the United States, 1831. 5 Pet. 552, 8 L. Ed. 210.) Action ag-ainst John Winship, Amos Binney, and John Binney, co- partners trading under the name of John Winship, on several promis- sory notes, signed by John Winship as inclorser. The partnership articles and a bond given by said Winship to the Binneys (construed as a part of the partnership agreement) provided for a partnership be- tween the Binneys and Winship for the manufacture of soap and candles, and, in addition to prescribing the rights and duties of the re- spective parties, expressly provided that the "said John Winship shall * * * v^holly abstain from becoming the surety or indorser of any person." At the trial numerous exceptions were taken to instructions given to the jury. Only that part of the opinion dealing with the ex- ception to the third instruction is given here. A verdict was found for the plaintiffs, and judgment entered there- on, which was brought up for review by writ of error, Marshall, C. j.* * * * The third instruction asked in the Circuit Court goes to the construction of the articles of copartnership. The plaintiff in error contends that those articles gave Winship no authority to raise money on the credit of the firm, or to bind it by his signature for the purpose of borrowing money. The instruction given was that, if the particular terms of the articles were unknown to the public, they had a right to deal with the firm, in respect to the business thereof, upon the general principles and pre- sumptions of limited partnerships of a like nature, and that any special restrictions did not affect them ; that in such partnerships it was within the general authority of the partners to make and indorse notes, and to obtain advances and credits for the business and benefit of the firm, and, if such was the general usage of trade, the authority must be presumed to exist, but that it did not extend to transactions beyond the scope and object of the copartnership; that, in the present arti- cles, Winship was, in effect, constituted the active partner, and has general authority to transact its ordinary business, with persons isfiior- ant of any private restriction, to the same extent that partners in such limited partnerships usually possess. 1 For a discussion of principles, soe Gilniore on Partnership. ?§ S4-90. t Statement of facts abridged and part of the opinion Is omitted. 192 THE POWERS OF PARTNERS The amount of the charge is that if Winship and the two Binneya composed a joint company for carrying on the soap and candle busi- ness, of which Winship was the acting partner, he might borrow money for the business on the credit of the company, in the manner usually practiced in such partnerships, notwithstanding any secret restriction on his powers in any agreement between the parties, provided such restriction was unknown to the lender. The counsel for the plaintiff in error has objected to this instruc- tion with great force of reasoning. He contends, very truly, that in fact scarcely any unlimited partnerships exist. They are more or less extensive. They may extend to many or to few objects, but all are in some degree limited. That the liability of a partner arises from pledging his name if his name is introduced into the firm, or from receiving profits if he is a secret partner. No man can be pledged but by himself. If he is to be bound by another, that other must derive authority from him. The power of an agent is limited by the authority given him; and, if he transcends that authority, the act cannot affect his principal. He acts no longer as an agent. The same principle applies to partners. One binds the others so far only as he is the agent of the others. If the truth of these propositions be admitted, yet their influence on the case may be questioned. Partnerships for commercial purposes, for trading with the world, for buying and selling from and to a great number of individuals, are necessarily governed by many gen- eral prmciples, which are known to the public, which subserve the pur- pose of justice, and which society is concerned in sustaining. One of these is that a man who shares in the profits, although his name may not be in the firm, is responsible for all its debts. Another, more ap- plicable to the subject under consideration, is that a partner, certainly the acting partner, has power to transact the whole business of the firm, whatever that may be, and consequently to bind his partners in such transactions as entirely as himself. This is a general power, es- sential to the well conducting of business, which is implied in the existence of a partnership. When, then, a partnership is formed for a particular purpose, it is understood to be in itself a grant of power to the acting members of the company to transact its business in the usual way. If that business be to buy and sell, then the individual buys and sells for the company, and every person with whom he trades in the way of its business has a right to consider him as the company, whoever may compose it. It is usual to buy and sell on credit ; and, if it be so, the partner who purchases on credit in the name of the firm must bind the firm. This is a general authority held out to the world, to which the world has a right to trust. The articles of copartnership are, perhaps, never published. They are rarely, if ever, seen, except by the partners themselves. The stipulations they may contain are to regulate the conduct and rights of the parties as between themselves. The trading world, with whom the company is in perpetual intercourse, TEST OF AUTHORITY — NATURE OF QUESTION 193 cannot individually examine these articles, but must trust to the gen- eral powers contained in all partnerships. The acting partners are identified with the company, and have power to conduct its usual busi- ness in the usual way. This power is conferred by entering into the partnership, and is perhaps never to be found in the articles. If it is to be restrained, fair dealing requires that the restrictions should be made known. These stipulations may bind the partners, but ought not to affect those to whom they are unknown, and who trust to the general and well-established commercial law. 2 II. Bl. 235; 17 Ves. 412; Gow on Part. 17. * ♦ * The judgment is affirmed. II. Test of Authority — Nature of Question ■ POOLEY et al. v. WHITMORE. (Supreme Court of Tennessee, 1873. 10 Heisk. 633, 27 Am. Rep. 733.) Burton, J.* Pooley, Barnum & Co. sued Edwin Whitmore & Co. on two promissory notes, of $185 each, made by W. A. Whitmore payable at six and nine months, respectively, to the order of "Whit, more Bros.," and indorsed in that name. Whitmore Bros., a firm com- posed of Edwin Whitmore and the said W. A. Whitmore were part- ners in publishing the Public Ledger newspaper in the city of Mem- phis, and also conducted a general job printing office in that city. The notes in suit, however, were drawn and indorsed by W. A. Whitmore in discharge of a private debt that he owed to one Cannon. Edwin Whitmore is the surviving partner of the firm, and puts in a special plea of non est factum, and insists that the firm is not bound to pay, on the ground that it is not a partnership debt. Defendants in error reply that they are bona fide purchasers for value of the note in due course of trade, and therefore are entitled to recover, notwithstanding the wrong or fraud of W. A. Whitmore in using the partnership name in a personal transaction. The court below instructed the jury that "as a general rule one part- ner is not liable for the act of another partner not within the scope of the partnership business; that if one partner sign a promissory note or other negotiable paper in the firm name, without the knowledge or consent of the other partner, and for a matter not within the scope of the partnership business, the other partner will not be liable, unless h< ratify the act, or unless the paper get into the hands of some purchas- er before maturity who had no knowledge or notice of the considera- Uon between the original parties, and who paid a valuable consider?- » For a discussion of principles, see Gilmore on Partnership, §§ 91-93. * Opinion of Sneed, J., is omitted, Gilm.Part.— 13 194 THE POWERS OF PARTNERS tion for the paper ; that such a person would be an innocent holder for value and without notice." The above instructions are not accurate, without important quali- fications, and were certainly calculated, as we think, to mislead the jury, in view of the facts of this case. Every member of an ordinary partnership is its general agent for the transaction of its business in the ordinary way, and the firm is held responsible for whatever is done by any of its partners, when act- ing for the firm, within the limits of the authority conferred by the- nature of the business it carries on. Every person is entitled to as- sume that each partner is empowered to do for the firm whatever is necessary for the transaction of its business, in the way in which that business is ordinarily carried on by other people. But no person is en- titled to assume that any partner has more extensive authority than that above described. It will be observed that what is necessary to carry on the partnership business in the ordinary way is made the test of an authority when no actual authority or ratification can be proved. This is conforming to the most recent and carefully considered deci- sions; but, by adopting it, the liability of a firm for the acts of its co- partners is not so extensive as now lawyers sometimes imagine. The question whether a given act can or cannot be necessary to the transaction of the business in the way in which it is usually carried on must evidently be determined by the nature of the business and by the practice of persons engaged in it. Evidence on both of these points is necessarily admissible, and, as readily may be conceived, an act which is necessary for the prosecution of one kind of business may be wholly unnecessary for the carrying on of another in the ordinary way. Consequently no answer of any value can be given to the ab- stract question, can one partner bind his firm by such an act? unless, having regard to what is usual in business, it can be predicated of the act in question either that it is one without which no business can be carried on or that it is one which is not necessary for carrying on any business whatever. There are obviously very few acts of which such an affirmation can be truly made. The great majority of acts which give rise to doubt are those which are necessary in one business and not in another. Take, for example, negotiable instruments. It may be necessary for one member of a firm of bankers to draw, accept, or indorse a bill of exchange on behalf of the firm, and to require that each member should put his name to it would be ridiculous ; but^ it by no means follows, nor is it in fact true, that there is any necessity for one of several solicitors to possess a similar power, for it is no part of the ordinary business of a solicitor to draw, accept, or indorse bills of exchange. The question, therefore, can one partner bind the firm by accepting bills in its name? admits of no general answer. The nature of the business and the practice of those who carry it on (usage or custom of the trade) must be known before any answer can be given. Lindley on Partnership, 198-200. It is further said by the TEST OF AUTHOEITY — NATURE OF QUESTION 195 same author : "It is clearly settled that any member of an ordinary trading partnership can bind the firm by drawing and indorsing prom- issory notes in its name. But, in respect to partnerships which are not trading partnerships, the question whether one partner has any im- plied authority to bind his copartners by putting the name of the firm to a negotiable instrument depends upon whether the business of the partnership is such that dealings in negotiable instruments are nec- essary for its transaction, or are usual in partnerships of the same de- scription. In the absence of evidence showing necessity or usage, the power has been denied to one of several mining adventurers, quarry vv^orkcrs, farmers, and solicitors." Id. 213, 214. The foregoing principles, as we think, have been fully recognized by this court in Crosthwait v. Ross, 1 Humph. 23, 34 Am. Dec. G13, where the distinction between partners in trade and partners in occu- pation or employment is taken, and the power of the former class to bind the firm by drawing or indorsing notes and bills is sustained, while it is denied to the latter class. It is there held that one partner in the practice of physic could not bind the firm by drawing a bill or making a note on which to raise money, because it was not within the scope of their partnership, and it was distinctly holden that the power to raise money was not one of the implied powers resulting from such an association. By recurring to the instructions given by the court below in this case, it will be seen that this important distinction be- tween strictly commercial or trading partnerships and partnerships in occupation is entirely ignored, and we think it was the duty of the court to point out the distinction, for prima facie it cannot be said that one partner in a printing office would have the implied power to bind the firm by drawing or indorsing a note. In this case, to be sure, there was some evidence of the usage of this firm to deal in commer- cial paper; but there was also evidence tending to the contrary conclu- sion. The consequence of this distinction between trading and non- trading partnerships is very important in reference to the main de- fense to be relied upon in this case. If a partner in a banking firm, for instance, should indorse a bill or note for his private debt, and it should get into the hands of a bona fide holder without notice, his firm, would be bound by it. The indorsing or making of such paper being the usual mode of conducting that business, the public have a right to suppose that each partner is empowered to accept or indorse for the firm, and are not bound to inquire whether in a given instance the act was done with the assent of his copartners. But not so with a part- nership occupation merely, whose business does not ordinarily require dealing in commercial paper. One who becomes a member of such a firm does not confer implied power on his copartners to bind him by dealing in bills or notes. He is not clothed with apparent power so to bind his firm, and no person dealing with tlie firm has the right to suppose that the powers of one member are more extensive than is implied by the ordinary mode of conducting such business. If two persons are associated in the practice of law, and one of them, without 196 THE POWERS OP PARTNERS or against the consent oi the other, should indorse a note or bill for his private purpose, no one buying such bill could succeed on the plea that he was a bona fide holder without notice, for the reason that by forming such an association the several partners do not hold each oth- er out to the world as empowered to use their names as makers or in- dorsers of negotiable paper. The rules in regard to notice to a purchaser are very accurately laid down in our own cases, digested in Heiskell, and contain a much more accurate statement of the law upon the subject than is contain- ed in this charge, and one much more applicable to the facts of the case. Our conclusion is that the charge of the court in reference to the facts of this case, if it does not amount to a positive misstatement of the law, was calculated to mislead the jury, and that the appellant is entitled to a new trial, although he failed to ask further instructions to the jury. On hearing this cause at a former term, the court decided to grant a new trial, and it is now before us on application to reconsider the conclusion at which the court then arrived. On a reconsideration of the case, we adhere to our former opinion, and reverse the judgment of the municipal court, and remand the cause for a new trial in accordance with the principles herein announced. IRWIN V. WILLIAR et al. (Supreme Court of the United States, 1883. 110 U. S. 499, 4 Sup. Ct 160, 28 L. Ed. 225.) The defendants in error were plaintiffs below, and brought this ac- tion against the plaintiff in error, as surviving partner of the firm of Irwin & Davis, to recover a balance alleged to be due, growing out of certain sales of wheat for future delivery, claimed to have been made by the defendants in error for the firm of Irwin & Davis upon their order. The liability of the plaintiff in error was denied on two grounds: (1) That the transactions were made by Davis, the deceased partner, without- the knowledge, assent, or authority of the plaintiff in error, and were not within the scope of the partnership business; and (2) that the sales were wagering contracts and void. [The bill of exceptions, stating the evidence, and the charge given to the jury, is omitted.] Matthews, J.'^ The proposition contained in this charge is that the business of dealing in grain, no matter how much it may be re- stricted by agreement between the partners, and no matter how it may have been qualified by the actual practice of the firm, necessarily au- thorizes each partner to bind the others by unknown contracts in dis- tant markets for unlimited sales and purchases of grain for future de- • Part of the opinion is omitted. TEST OF AUTHOEITY — NATURE OF QUESTION 197 livery. And so the jury must have understood it; for they were told that, "if Irwin permitted Davis to hold himself and Irwin out to the world as partners in the business of dealing in grain, he became li- able with Davis on contracts for the sale and purchase of grain for future delivery, and in that case it is not material that Irwin should have actual knowledge of particular sales or purchases in the firm name," and "if Davis, as partner, did in fact buy and sell grain, and if, in his correspondence with customers and others, including the plaintiffs, he employed printed letter heads or cards representing the firm of Irwin & Davis as grain dealers, this was a holding out of that firm as a partnership engaged in that business," and "if, therefore, you believe from the evidence that Irwin & Davis held themselves out as dealers in grain, as well as in flour, and that the plaintiffs dealt with Davis, supposing they were dealing with the firm," etc., "you should find for the plaintiffs," etc. This was equivalent to directing the jury to find a verdict for the plaintiffs in the action, for the only facts to which their attention was directed as material were not disput- ed, viz., that the firm had been in the habit of buying and selling grain, and had constantly used letter heads describing themselves as dealers in grain. In this, we think, there was error. The liability of one partner for acts and contracts done and made by his copartners, without his actual knowledge or assent, is a question of agency. If the authority is de- nied by the actual agreement between the partners, with notice to the party who claims under it, there is no partnership obligation. If the contract of partnership is silent, or the party with whom the dealing has taken place has no notice of its limitations, the authority for each transaction may be implied from the nature of the business according to the usual and ordinary course in which it is carried on by those en- gaged in it in the locality which is its seat, or as reasonably necessary or fit for its successful prosecution. If it cannot be found in that, it may still be inferred from the actual, though exceptional, course and conduct of the business of the partnership itself, as personally carried on with the knowledge, actual or presumed, of the partner sought to be charged. In the present case the partnership agreement cannot affect the question, because it is not claimed, on the one hand, that it conferred actual authority to make the transactions in dispute, nor, on the other hand, that the defendants in error had any notice of its limitations. And so, too, any implication that might have arisen from a previous course of business of this character, carried on by Davis with the knowledge of Irwin, must be rejected; for it is not claimed that any foundation in proof existed for it. The only remaining ground for the implied authority by which it can be claimed that Irwin was bound by the contracts of his partner is that arising from the intrinsic nature of the business in which the 198 THE POWERS OF PARTNERS partnership was actually engaged, or from the usual and ordinary course of conducting it at the locaUty where it was carried on. What the nature of that business in each case is, what is necessary and proper to its successful prosecution, what is involved in the usual and ordinary course of its management by those engaged in it, at the place and time where it is carried on, are all questions of fact to be decided by the jury, from a consideration of all the circumstances which, singly or in combination, affect its character or determine its peculiarities; and from them all, giving to each its due weight, it is its province to ascertain and say whether the transaction in question is one which those dealing with the firm had reason to believe was au- thorized by all its members. The difficulty and duty of drawing the inference suitable to each case from all its circumstances cannot be avoided or supplied by affixing or ascribing to the business some gen- eral name, and deducing from that, as a matter of law, the rights of the public and the duties of the partners. Dealing in grain is not a technical phrase from which a court can properly infer as matter of law authority to bind the firm in every case, irrespective of its circum- stances; and if, by usage, it has acquired a fixed and definite mean- ing, as a word of art in trade, that is matter of fact to be established by proof found by a jury. * * * As the judgment now under review would have to be reversed for the error just pointed out, it is not necessary, for the purpose of dis- posing of the present writ of error, to proceed further to examine other assignments ; but as the case must be remanded for a new trial, in which the remaining questions may again arise, it seems appropri- ate now to dispose also of them. * * * ^ ^ The judgment of the circuit court is therefore reversed, with direc- tions to grant a new trial ; and it is so ordered. III. Particular Powers Considered* BOND V. GIBSON et al. (At Nisi Prlus, before Lord Ellenborough, C. J., 1808. 1 Camp. 185.) Assumpsit for goods sold and delivered. It appeared that, while the defendants were carrying on the trade of harness makers together, Jephson bought of the plaintiff a great number of bits to be made up into bridles, which he carried away himself; but that, instead of bring- ing them to the shop of himself and his copartner, he immediately pawned them to raise money for his own use. Gazelee, for the defendant Gibson, contended that this could not be considered a partnership debt, as the goods had not been bought on « For a discussion of principles, see Gilmore on Partnership, §§ 94-108. "VAHTICULAB POWERS CONSIDERED 199 the partnership account, and the credit appeared to have been given to Jephson only. He allowed the case would have been different, had the goods once been mixed with the partnership stock, or if proof had been given of former dealings upon credit between the plaintiff and the defendants. Lord E1.LENBOROUGH. Unless the seller is guilty of collusion, a sale to one partner is a sale to the partnership, with whatever view the goods may be bought, and to whatever purposes they may be applied. I will take it that Jephson here meant to cheat his copartner; still the seller is not on that account to suffer. He is innocent ; and he had a right to suppose that this individual acted for the partnership. Verdict for tlie plaintiff. LEFFLER et al. v. RICE. (Supreme Court of Indiana, 1S73. 44 Ind. 103.) Downey, C. J.^ The appellee sued the appellants for work and la- bor, for money loaned, for money had and received, for board and lodging, and for wood, provisions, and merchandise, a bill of particu- lars of which was filed with the complaint. The defendants answered in three paragraphs: (1) A general denial. (3) Payment. (3) Set- off, Reply in denial of the second and third paragraphs of the an- swer. Trial by the court, finding for the plaintiff, motion for a new trial overruled, and final judgment for the plaintiff. * * * It is urged as a question of law that Rice, one of the defendants, could not bind Lefifler, his partner, for the items in question, for the reason that they were foreign to the business of the firm. Two of the items claimed by the appellee were for money loaned, one was for money paid for middlings, and one was for services in the purchase of grain, etc. The business of the defendants w^as that of milling. We do not see that the items of indebtedness are such as might not prop- erly and reasonably have accrued in connection with the business. We are aware of the rule of law, stated by the counsel for appellants, that where a person takes a security from one partner in the name of the partnership, in a transaction not in the usual course of dealing, he takes the security at his peril. Money may properly be borrowed by a partner to be used in the business of milling by the firm. The evi- dence of the plaintiff tends to show that the middlings in question were purchased to be ground over at the mill of the defendants, which would seem to be properly connected with the business of milling; and as to the compensation for purchasing grain for the mill tliere can- not well be any question. * * ♦ The judgment is affirmed. » Part of the opinion is omitted. 200 THE POWERS OF PARTNERS DUNCAN V. LOWNDES et a!. (At Nisi Prius, before Lord Ellenborough, C. J., 1813. 3 Camp, 478.) This was an action on a guaranty alleged to have been given by the defendants for the due payment of a bill of exchange to the plaintiff for £610 15s., accepted by Dickinson & Co., for the price of goods which the plaintiff had sold them. It appeared that the two defendants carried on business together as merchants at Liverpool, and that this guaranty was signed by Lowndes in the partnership firm. Lord Ellenborough.® As it is not usual for merchants, in the com- mon course of business, to give collateral engagements of this sort, I think you must prove that Lowndes had authority from Bateson to sign the partnership firm to the guaranty in question. It is not inci- dental to the general power of a partner to bind his copartners by such an instrument. * * * The plaintiff, however, was not prepared with any evidence to af- fect Bateson, and submitted to be nonsuited. ROLLINS V. STEVENS et al. (Supreme Court of Maine, 1850. 31 Me. 454.) Assumpsit upon a promissory note. The defendants were defaulted by consent, subject to the opinion of the court as to their liabiUty. The note was signed; "John O. P. Stevens, Principal. W. & H. Stevens, Sureties." William Stevens and Hiram Stevens were copartners in navigation and business of commerce, under the style of W. & H. Stevens. Their company name was affixed to the note, in the form above stated, by Hiram Stevens. Wells, J. It appeared by the evidence that Hiram Stevens signed the name of the firm, consisting of himself and William Stevens, to the note in suit as sureties for the other maker. One partner has no authority thus to use the name of the firm, out of the scope of the co- partnership business, unless the consent or subsequent ratification of the other is obtained. The note, on its face, indicates that it was given for the debt of the principal, and not for the debt of the firm. And the burden of proving such consent or ratification rests on the plain- tiff. The plaintiff's intestate could not claim to be an innocent holder, without the knowledge of such want of authority; for the form of the contract was information to him that the firm had no interest in it, they being partners in navigation and the business of commerce. Bayley on Bills, 58; Manufacturers' & Mechanics' Bank v. Winship, 5 Pick. (Mass.) 11, 16 Am. Dec. 369; 3 Kent's Com. 47; Gow on 8 Part of opinion and arguments of counsel omitted. PABTICULAR POWERS CONSIDERED 201 Partnership, 58; Foot v. Sabin, 19 Johns. (N. Y.) 154, 10 Am. Dec. 208. According to the agreement of the parties, the default as to William Stevens is to be taken oil, and the action to stand fur trial. ^lORGAN et al. v. RICHARDSON. (Supreme Court of Missouri, 1852. IG Mo. 409, 57 Am. Dec. 235.) Scott, J. This was a proceeding to set aside a judgment and execu- tion thereon, confessed in vacation, in the name of A. & J. M. Rich- ardson, to the appellants, under the twenty-second article of the new Code of Practice. Achilles and J. M. Richardson were partners in trade, and indebted to the appellants for merchandise. The indebted- ness was evidenced by a promissory note, executed in the name of the firm. The confession was authorized by J. M. Richardson alone, -and after the dissolution of the partnership between him and Achilles Rich- ardson. The execution was levied on goods belonging to A. Richard- son. The court below set aside the judgment against A. Richardson, and quashed the execution. 1. The facts in this case stand admitted by the demurrer to the peti- tion, and we are at a loss to conceive the ground upon which the pro- ceeding can be sustained against A. Richardson. The case of Green V. Beals, 2 Caines (N. Y.) 254, is an authority to show that the judg- ment confessed by J. M. Richardson was void as to A. Richardson. The cases of Motteux v. St. Aubin, 2 W. Bl. 1133, and Denton v. Noyes, 6 Johns. (N. Y.) 296, 5 Am. Dec. 237, are not applicable to the circumstances of this case. It cannot be maintained that a part- ner, either before or after the dissolution of the copartnership, has authority to confess a judgment for his copartner. The authorities are abundant to show that one partner cannot confess a judgment which will bind his copartner. Crane v. French, 1 Wend. (N. Y.) 311; McBride v. Hagan, 1 Wend. (N. Y.) 327. We can see no dif- ference in principle between setting aside the judgment and restrain- ing an execution upon it, as either mode of action is based upon the nullity of the proceeding, which is not permitted to be used as a foundation for any future action against the party for whom it has been unwarrantedly entered. It does not appear that the judgment against J. M. Richardson has been vacated, nor will we interfere with it. The other judges con- curring, the judgment below will be affirmed. 202 THE POWERS OF PARTNERS ROTHWELL v. HUMPHREYS et al. (At Nisi Prius, before Lord Keuyon. C. J., 1795. 1 Esp. 406.) Assumpsit for money lent. Plea of the general issue. The defend- ants were partners, linen drapers, in London. The plaintiff was a fustian manufacturer at Manchester. Howell, one of the defendants, had gone down to Manchester to purchase goods in the way of his trade, and had, in fact, purchased from the plaintiff to the amount of ioOO. Being about to return, he borrowed £10 from the plaintiff to defray his expenses to London; and, having drawn a bill on the house in London for the amount of the goods, he included in it the £10 so borrowed, and the bill was drawn for £510. Before the arrival of the goods in London, Humphreys and Howell, the defendants, became in- solvent, and the plaintiff' stopped the goods in transitu, so that the bill was never presented; and the action was brought to recover the £10 lent only. These facts were proved by a witness called by the plain- tiff". The defense relied upon was that the action was brought against both partners for a loan of money, admitted by the evidence to have been made to one of them, and which, therefore, could not be sup- ported. Lord Kenyon said that, though the loan of money was to one of the partners, it was lent to him while employed on the partnership business and on its account; that as such it was competent to him to bind the partnership to the payment of a debt so contracted, and which, in fact, he had done, by including the money lent in the same bill with that for goods sold clearly on the partnership account. Verdict for the plaintiff. HEDLEY V. BAINBRIDGE et al. (Court of Queen's Bencb, 1842. 3 Q. B. 316.) Assumpsit on a promissory note made by defendant, payable to plaintiff on demand. Defendant denied making the note. Plaintiff nonsuited. A rule nisi granted to show cause why verdict should not be entered for plaintiff. Lord Denman, C. J.* The defendant and a Mr. Spurrier were in partnership as attorneys. A sum of money was deposited with Mr. Spurrier by the plaintiff, a client of the firm, to be laid out on a mort- gage; and he gave the plaintiff the promissory note of the firm for the amount. The question is whether, under those circumstances, Spurrier had power to bind the firm by such note. No doubt a debt was due from the firm; but it does not follow that one partner had authority to give a promissory note for that debt. Partners in trade have authority, as regards third persons, to bind the firm by bills of exchange, for it is in the usual course of mercantile transactions so » Part of the opinion is omitted and statement of facts is abridged. PAETICULAE POWEES CONSIDEKED 203 to do; and this authority is by the custom and law of merchants, which is part of the general law of the land. But the same reason does not api)ly to other parmcrships. There is no custom or usage that attorneys should be parties to negotiable instruments; nor is it necessary for the purposes of their business. * * ♦ Upon the whole we think that the implied authority is confmed to partners in trade, and that the nonsuit in this case was right. ♦ * * Rule discharged. PEASE V. COLE. (Supreme Court of Errors of Connecticut, 1885. 53 Conn, 53, 22 Atl. 681, 55 Am. Rep. 53.) LooMis, J.^" The question involved in this case is whether one mem- ber of a copartnership formed for the purpose of conducting a theater in Hartford could, under the circumstances mentioned in the finding, bind the other member by executing a negotiable promissory note in the name of the firm for money borrowed. The finding, in terms, ex- cludes all express authority of the other partner, and even all knowl- edge of the matter on his part. So that any conclusion that the note is the note of the firm, rather than of the member executing it, must necessarily rest on an authority to be implied. But here, again, the facts found so circumscribe the range of inquiry as to exclude all the ordinary sources of such authority. The circumstances from which an authority may be implied are identical with those involved in a question of ordinary agency, for each partner is regarded as the ac- credited agent of the rest. In many cases the decisive fact is found in the customary course of dealing; but not so here, for it is found that the note in question was the only note ever given in the name of the firm. The copartnership first commenced business in August, 1883, and on the 24th of the same month the note in suit was given. There was therefore very little time for a course of conduct or usage of any sort to grow up, giving any apparent authority. The finding traces the money borrowed only into the hands of McCarthy the partner who signed the firm name, and no fact appears showing, directly or presumptively, that the act was necessary for any of the purposes of the partnership. The only remaining source from which an authority may be derived by implication must be sought in the nature and scope of the partnership and in the nature of the act ; and here, if we examine the legal principles that are applicable, it will be found, not only that all such implication is wanting, but that the presumption is directly against the authority assumed. The weight of authority in the United States, and the uniform tenor of the authorities in England, will be found to establish a controlling distinction in respect to implied au- thority between commercial or trading^ and nontrading partnerships. 10 Part of the opinion is omitted. 204 THE POWERS OF PARTNERS Story, Partn. (6th Ed.) § 102a; 1 Lindl. Partn. (4th Ed., by Ewell), top p. 266, and note 1, and cases there cited; 1 Colly. Partn. 648, 658; JMetc. Cont. 121, and cases cited in the notes. In a commercial partnership each acting partner is its general agent, with implied authority to act for the firm in all matters within the scope of its business ; and the presumption of law is that all commer- cial paper which bears the signature of the firm, executed by one of the partners, is tlie paper of the partnership, for the reason that the giving of such notes would be within the usual course of mercantile transactions. But when we pass to nontrading partnerships the doc- trine of general agency does not apply, and there is no presumption of authority to support the act of one partner. Hence, in order to subject the firm upon a bill or note executed by one partner in its name, a course of conduct, or usage, or other facts sufficient to war- rant the conclusion that the acting partner had been invested by his copartners with the requisite authority, must appear, or that the firm has ratified the act by receiving the benefit of it. That the partnership in question belongs to the nontrading class seems so obvious as to need no discussion. The brief in behalf of the defendant Cole cites many cases, and gives a long list of pursuits and professions which those cases establish as of the nontrading class, and, although the conduct of a theater is not there mentioned, yet the analogies manifestly include it. To show the existence of the distinction contended for, and its application, we select from a multitude of authorities the following, in addition to those previously referred to: * * * ]\Iany more authorities equally pertinent might be cited, but these will suffice to show that the distinction relied upon is strongly sup- ported both in England and in the United States. While we feel con- strained to adopt the distinction between the two classes of partner- ship so far as the presumption of authority or the want of it is con- cerned, we do not deem it necessary for the purposes of this case, or even quite reasonable, to carry its application so far as to deny absolutely, as some of the cases do, the right to recover on a note given by a nontrading firm for money borrowed for the firm and appro- priated to its use, or on a note given in payment of its debts. Some authorities ignore the test of liability referred to, but adopt another, which is equivalent in result. Chancellor Kent, in his chapter on Part- nerships in the third volume of his Commentaries (7th Ed. p. 44), omits the use of the terms "trading" and "nontrading," and makes the distinction between partnerships, in respect to the power of one partner to bind the firm, depend on the single test of the usual scope of the business, in connection with the subject-matter of the con- tract. * * * Many authorities lay down the unqualified proposition, as if it was applicable to all partnerships, that if one partner raises money on a negotiable bill or note signed or indorsed in the name of the firm, and which comes into the hands of a bona fide purchaser, the partnership PAETICULAE POWERS CONSIDERED 205 is bound, although it was in fact for the individual use of the acting partner. * * * The plaintiff, as holder, must stand affected by the nature of the partnership, of which he was fully advised. He purchased the note in the face of the presumption that it was unauthorized. * * * In the case at bar the plaintiff had full and actual knowledge of the nature of the partnership, and the law attributed to him knowl- edge, also, that one partner could not bind the other by bill or note without authority, and knowing, as he did, that the note had been written and signed by McCarthy, who was irresponsible, and that, if he purchased it, it would be upon the credit of Cole alone, and having also actual knowledge of a course of dealing which avoided Mc- Carthy and pointed to Cole alone as the financial representative of the firm, it seems to us the plaintiff took the note at his peril. It was very strange for the plaintiff to inquire of the one who had used the firm name if it was the note of the firm, and omit entirely, when he had ample and easy opportunity, to inquire of the other partner, on "whose sole credit he depended; but the court has found that the fail- ure to inquire of Cole was not owing to a belief that the inquiry would result in finding the note invalid, and this we must accept as true. Ordinarily such a finding would save the rights of a holder in good faith of negotiable paper, but the great difficulty in the present case is that the note was purchased with constructive notice that it was not within the apparent scope of the partnership business, and prima facie was not the note of the firm; and the actual course of business, so far as it was known to the plaintiff, tended to increase rather than allay the suspicion of a want of authority. * ♦ ♦ Judgment as against Cole reversed and new trial ordered. HARRISON V. JACKSON et al. (Court of King's Bench, 1797. 7 Term. R. 207.) This was an action of covenant upon an agreement of three parts, stated in the declaration to have been made on the 10th of July, l?9-i, between the defendants, describing them as merchants and partners, of the first part, W, and J. Harrison, of the second part, and the plain- tiff", of the third part, of one part of which said agreement, as being sealed with the seal of the said W. Sykes for himself and the other two defendants, the plaintiff made a profert in the court. The declara- tion then stated the agreement and covenant of the defendants, the subject-matter of, which agreement and covenant appeared on the agreement to be a partnership transaction on the part of the defend- ants, and to have been entered into on a full and valuable consideration received by them as partners. The declaration then stated tlie breach of covenant, whereby the plaintiff had sustained damage to the amount found by the jury. 206 THB POWERS OP PARTNERS To this declaration the defendants pleaded that the agreement was not the deed of the defendants. Issue being joined, the cause was tried at the sittings after Hilary Term, 1797, before Lord Kenyon, at Guild- hall, when the jury found a verdict for tlie plaintiff damages £477 13s. 9d. and costs, 40s. subject to the opinion of this court on the following case: The defendants were partners. The agreement stated in the declara- tion was produced, and the subscribing witness proved that it was exe- cuted in his presence by the defendant Sykes in the following form: "For Jackson, Self, and Rushforth, W. Sykes." But neither Jack- son nor Rushforth was present at the execution. The question for the opinion of the court was whetlu-r such execution of the agreement by the defendant Sykes was binding on the other defendants, Jackson and Rushforth. Lord Kenyon, C. J.^^ * * * The law of merchants is part of the law of the land ; and in mercantile transactions, in drawing and accept- ing bills of exchange, it never was doubted but that one partner might bind the rest. But the power of binding each other by deed is now for the first time insisted on, except in the nisi prius case cited, the facts of which are not sufficiently disclosed to enable me to judge of its pro- priety. Then it was said that, if this partnership were constituted by writing under seal, that gave authority to each to bind the others by deed ; but I deny that consequence just as positively as the former, for a general partnership agreement, though under seal, does not authorize the partners to execute deeds for each other, unless a particular power be given for that purpose. This would be a most alarming doctrine to hold out to the mercantile world. If one partner could bind the others by such a deed as the present, it would extend to the case of mortgages, and would enable a partner to give to a favorite creditor a real lien on the estates of the other partners. Per Curiam. Postea to the defendants. STRAFFIN'S ADM'R v. NEWELL et al. (Superior Court of Georgia, 1808. T. U. P. Cliarit. 163, 4 Am. Dec. 705.) This was an action of covenant brought upon a charter party, signed and sealed thus : "Thomas and Robert Newell." A verdict has been rendered for the plaintiff, and a motion is now made to arrest the judgment, upon the ground that one partner cannot execute a deed to bind the other. Charlton, J. The point for the decision of the court is, whether one partner can bind another by deed. The general principle of the law is, that all partners are bound by what one of them does in the course of the business ; for quoad hoc, each partner is considered as 11 Part of the opinion is omitted. PARTICULAB POWERS CONSIDERED 207 the authorized agent of the rest, and all are respectively implicated, and each becomes liable to the fullest extent, in such trade or business. Law of Partn. 105 ; Davies' Bank Law, 8. It is said that partnerships embrace only chattel interests, and the free disposition of these requires not the solemnity of deeds or in- dentures. The right of one to bind the interests of all is wisely re- strained within the limits of personal estate, and it is with a view to this, that partners are allowed to bind each other by deed. Amer. Lex Men 437. It is also laid down in the case of Gerard v. Basse, 1 Dal. 119, 1 L. Ed. 63, that "one partner cannot execute a deed for anothei." But the case principally relied on by Davis and Berrien, is Harrison V. Jackson, 7 T, R. 207, where it is said by Lord Kenyon, C. J., "that the law of merchants is part of the law of the land. And in mercantile transactions, in drawing and accepting bills of exchange, it never was doubted, but that one partner might bind the rest. But the power of binding each other by deed is now, for the first time, insisted on ex- cept in the nisi prius case cited, the facts of which are not sufficiently disclosed to enable me to judge of its propriety." I have given to this case, and to all others I have had opportunity of inspecting on this subject, the most attentive investigation ; and whilst I assent to the general propositions of Lord Kenyon and) Shippen, I do not conceive that they apply to the mercantile transaction of a charter party. It does not say in this case of 7 Term. Rep. upon what kind of agreement covenant was brought, and I can find no cases of actions upon charter parties where the question was directly involved, as it relates to the signature of the partners; but there is a case in point as to the liability attached to both or all of the owners of a ship by the signature and seal of one. It is thus stated in Beanes' Lex Mercatoria, who cites 2 Rolle'5 Abr. 22, "If an indenture of charter party be made between A. and B., owners of a ship of the one part, and C. and D., merchants of the other part, but in the indenture it is mentioned that A. and B. cove- nant with C. and D., and C. and D. covenant with A. and B., in this case A, and B. may join in an action vs. C. and D., though B. never seals the deed, for he is a party to the deed, and C. and D. have sealed the other parts to B. as well as to A." Beanes' Lex Merca. 133. If one of the freighters or owners of a ship, who are quoad hoc- partners, can bind the other by his seal, a fortiori, the signature and seal of one merchant then can bind the other in this species of mer- cantile contract ; because in the one case there is only a special, and in the other a general partnership, the principles of which are more liberal and extended. I bottom my decision upon the broad ground that a charter partv is exclusively a mercantile transaction, and always in the course of trade. The general proposition of Lord Kenyon must refer to deeds 208 THE POWERS OF PARTNERS not in the course of trade. I mean a deed so inseparably incidental, so clopjly blended with partnerships and mercantile pursuits, as the contract of charter party is. A charter party is as essential in the course of trade, as the negotiation of bills of exchange ; and I can perceive no difference between the exigencies which would impose a liability in the one case, and destroy it in the other. This contract could not have been in the contemplation of judges when they decided that one partner could not bind the other by deed. The silence of the books, when it is supposed that many cases might have occurred, affords the strongest reason to believe that the deed of charter party is not within the general principle stated by Kenyon and Shippen. The deeds they speak of are those which reach the separate estates of the partners, are unconnected with the partnership, or have no relation to the course of trade. A charter party has so peculiar a view to mer- cantile matters and ideas, that all the parties covenanting become liable in a given extent, as partners according to the law merchant, Law of Partn. 89, and like all mercantile contracts, it ought to have a liberal interpretation. Doug. 277. I have consulted some merchants on this subject, and they inform me, that it is customary either to sign the name of the firm, or for one partner to first sign his own name, and then add "for self and other partners," mentioning their names. Still, however, there is but one seal, and the signature is by one. I have also examined a printed precedent, and I find it is signed and) sealed in the manner of this, which illustrates the understanding of writers on the subject. The motion in arrest of this judgment is therefore overruled. BURGAN V. LYELL et al. (Supreme Court of Michigan, 1856. 2 Mich. 102, 55 Am. Dec. 53.) Pratt, J.^^ This is an action of assumpsit, brought by the plain- tiflf in Wayne county court, for work and labor claimed to have been performed for the defendants in their mining business. The cause was submitted to the court below on a written statement, in which- it is admitted that the defendants impleaded in this suit in- cluded all the members of the company ; that they all signed the orig- inal article of copartnership, and prosecuted the business of mining under them. These concessions, thus made, constitute conclusive evidence, as against the defendants, of a partnership in fact, in which they are all, as partners, engaged in the business of mining. 2 Greenleaf, Ev. § 484. It further appears, from the case submitted, that Andrew Harvie, a member and one of the managers of the company, employed the plain- 12 Part of the opinion is omitted. PAETICULAB POWERS CONSIDEBED 209 tiff to perform the work in question. But whether nis powers, as one of the managers of the company, were general, or special and limited, does not appear; nor is it material to a judicial determination of this cause, as every member, in legal contemplation, without any special powers being conferred upon him by the articles of copartnership, is not only a principal of the firm, but a general agent, for all the co- partners, in the transaction of their legitimate company business ( Story on Part.' 1; Har. Ch. 172), each member being vested with power which enables him to act at once as principal, and all are regarded as being present and sanctioning the engagements and contracts which they may singlv enter into within the scope of their partnership mat- ters (Story on'Part. 158, 159). Harvie, then, being one of the part- ners, was vested with the right of contracting with the plaintiff, and any work performed by him for the company under the contract would legally bind all of the partners for the payment of it. Although Har- vie, as a single member, was inhibited from making such a contract by some express provision of the articles of copartnership, still the rights of third persons, to whom such provision was unknown, would not be thereby affected, nor would it tend in the least to bar a third person, who had by the procurement of a single member, without no- tice, rendered services for the company, in recovering therefor in a suit against all. 2 Greenleaf, Ev. § 481; Story on Part. 193. The plaintiff, by the procurement of Harvie, as appears by the case, labor- ed for the company in their mining operations nine months and two days, at $18 per month. In this labor of the plaintiff all the partners are interested, and in judgment of law all are presumed to have been cognizant of its performance, and to have derived at least some bene- fit from it; hence all are, as they should be by every principle of jus- tice, held equally responsible to the plaintiff for the payment of the services thus rendered. And as regards their joint liability it is a matter of no legal moment whether some of the partners were dor- mant in fact, or whether they subsequently assented to, or dissented from the proceedings of those with whom they had entrusted the man- agement of their company business. They would, nevertheless, be jointly liable to the plaintiff for his work. After the services were rendered, the plaintiff, as appears by the case, made out an account therefor against the company, the balance of which, after deducting some small sums which had been paid and credited, amounted to $147.43, on which John Greenfield, their super- intending agent of the hands employed on the mining location, certified to John Winder, a member and also one of the managers of the com- pany, that the account was correct, and that the balance thereof was due to the plaintiff. Winder afterwards, on presentation of the ac- count and certificate to him, paid to the plaintiff $40, which was in- dorsed thereon. It is a well-settled principle of law "that the acknowledgment by one partner, during the continuance of the partnership, of a debt as GiLir.PART. — 14 210 THE POWERS OF PARTNERS due by the partKcrship, will amount to a promise binding the firm." The certificate of the superintending agent, and the recognition of the account by a member and one of the managers of the company, con- stitute sufficient evidence of such acknowledgment. "And so a part payment of a debt of a firm by one partner, during the continuance of the partnership, will not only extinguish pro tanto the partnership debt, but will operate as an admission of the existence of the residue of the debt, binding on all the partners," Story on Partnership, p. 160 These are rules of law about which there has never been any dis- agreement, either by legal authors or courts of last resort; and by them all the members of this company are equally liable to the plaintiff for the payment of the balance due him on the account. * ♦ * The opinion, therefore, of this court, is that the plaintiff is entitled to judgment for the balance of his account and interest from the time of its liquidation. IV. Power to Subject Firm to Tort Liability i» HANEY MANUFACTURING COMPANY v. PERKINS. (Supreme Court of Michigan, 18S9. 78 Mich. 1, 43 N. W. 1073.) Long, J.^* This action was brought by the plaintiff, a manufacturing corporation, to recover damages alleged to have been caused by reason of the publication, oral, written, and printed, of the statement that the defendants had brought suit in the United States court against the plaintiff for an infringement of a patent, and had secured an in- junction against it, and closed it up, which statements were claimed to be false and malicious. * * * At the close of the trial in the circuit court the court directed the jury to return a verdict in favor of the defendants, on the ground that the testimony offered by the plaintiff did not entitle it to re- cover. * * * Some contention is made that the defendants could not be made jointly liable for these slanders upon the business of the plaintiffs, even if one or two of the partners may have been found guilty. The de- fendants were partners in business, and each of the partners is an agent of the partnership as an entirety, and, if in the course of that business he injures the business of another by slander, the partnership is liable therefor, just as it might be for any other tort by any other agent. Patten v. Gurney, 17 Mass. 182, 9 Am. Dec. 141 ; Lothrop v. Adams, 133 Mass. 471, 43 Am. Rep. 528; Atlantic Glass Co. v. Paulk, 83 Ala. 404, 3 South. 800. In the present case it is claimed that the very purpose of these statements was to aid the business of the defendants 18 For a discussion of principles, see Gilmore on Partnership, §§ 107-113. 1* Part of the opinion is omitted. POWER TO SUBJECT FIEM TO TORT LIABILITY 211 as a partnership, by preventing plaintiff from making sales of an ar- ticle which the defendants were themselves as a partnership selling. If this fact is proven, then, in the course of the partnership business, if any one of the partners made false representations as to the business of another, and for the purpose of aiding the business of his own firm, the partnership must be held responsible for it. * * * For the errors pointed out, the judgment of the court below must be reversed, with costs, and a new trial ordered. WOLF et al. v. MILLS. (Supreme Court of Illinois, 1870. 56 111. 360.) Thornton, J, The appellee brought an action on the case, alleg- ing that appellants sold him a lot of sheep pelts, having on them a large quantity of wool, and, with intent to defraud him, delivered other and inferior pelts in quality, and deficient in the quantity of wool. Appellee recovered a verdict. Wolf & Haber jointly owned the pelts at the time of the sale. The proof is satisfactory that the pelts sold averaged about five pounds of wool per pelt, and the pelts delivered only three pounds. As to the alleged fraud, the evidence is conflicting. One witness testified posi- tively that he saw young Haber, a son of appellant, change the pelts, and that he placed light in place of the heavy pelts, soon after the sale. This was contradicted by the son; but the weight of evidence has been determined by a jury, and we shall not disturb the finding, un- less some principle of law has been violated. Appellants urge that, as there is no evidence to prove the change, if made, was by the direction of Wolf, or by any person in his em- ployment or under his control, therefore he is not liable. The evi- dence does show that Wolf and Haber were partners in the buving and selling of the sheep pelts, and that young Haber was handling them, and throwing them from one pile to the other. The jury was justified in the inference that this was in the scope of the partnership business, as it was connected with the joint property. It is improbable that the son would be thus engaged, unless directed. The father must have given him some instructions in regard to the exchange. There was, then, no error in the following instruction given for appellee: "If the jury believe from the evidence that the defendants sold the plaintiff a certain lot of sheep pelts at an agreed price, and that plaintiff has paid such price, and that the defendants afterward, either in person, by their agents, servants, or employes, delivered to plaintiff a lot of sheep pelts in any respect different from and inferior to those actually sold, intending thereby to have the plaintiff believe they were the same he had purchased, and intending to deceive and defraud the plaintiff, then the jury are instructed to find defendants guilty, and to assess as damages whatever loss the evidence may show the plaintiff sustained through such fraud and deceit.'* 212 THE POWERS OF PARTNERS A tortious act of one partner will often create a liability against the firm. So a fraud committed by one partner in the course of the partnership business binds the firm, even though the other partners have no knowledge of, or participation in, the fraud. The jury might reasonably infer all that was necessary to fix the liability of the firm. Judgment affirmed. HARMAN V. JOHNSON. (Court of Queen's Bench, 1853. 2 El. & Bl. 61.) The first count of the declaration stated that defendant, on, etc., by his promissory note now overdue, promised to pay to plaintiff £1,G70, and interest, at 5 per cent, per annum, two years after date, but did not pay the same. The second count stated that "plaintiff retained and employed defendant, and his partner William Henry Smith, then carrying on their business of attorneys and solicitors in copartnership, to invest certain money on mortgage in a proper manner, and they accepted such retainer and employment, and accordingly took that money from the plaintiff to invest a mortgage in a proper manner; but, though a reasonable time for so investing it had elapsed before this suit, it has never been invested, whereby the plaintiff has lost the whole of it." There were also counts for money lent, money received, and on an account stated. Pleas: (1) To the first count: That defendant did not make the said note, etc. Issue thereon. (2) To the second count: "That the plaintiff did not retain or employ the defendant and the said W. H. Smith, nor did the defendant and the said W. H. Smith accept such retainer or employment, in manner," etc. Issue thereon. (3) To the second count: "That the defendant and the said W. H. Smith did not take said money in the said second count mentioned from the plain- tiff as in that count alleged." Issue thereon. (4) To the residue of the declaration : "Nunquam indebitatus." Issue thereon. On the trial * * * it appeared that defendant and William Henry Smith * ♦ * agreed that they would "become, continue, and be copartners in the * * * profession of an attorney and solicitor, and all matters and things usually connected with, or forming part of, the carrying on of the same, or in any way or manner in- cidental thereto," for twelve years. * * * Subsequently to the ex- ecution of this agreement Smith had, without the knowledge of de- fendant, received from plaintiff, professedly on behalf of the firm, a sum of il,670. According to some of the evidence, plaintiff had given a general direction that this sum should be invested by the firm for her by way of mortgage; but according to other evidence she deposited it in order that it should be advanced on a particular mortgage, if that security turned out to be good. Smith, however, retained the money so deposited for his own private purposes, and prevailed on plaintiff to POWER TO SUBJECT FIRM TO TORT LIABILITY 213 take, as security for it, the promissory note mentioned! in the declara- tion, which, without the knowledge of defendant, he signed in the name of the firm, "Smith & Johnson." Smith afterwards absconded, and plaintiff brought the present action against defendant alone. The Lord Chief Justice, after intimating his opinion that there was not evidence to fix the defendant with any liability on the promissory note, told the jury, with respect to the rest of the declaration, that, if ■;he plaintiff employed Smith as the partner of Johnson, meaning to em- ploy the firm of Smith & Johnson to invest the money for her on mort- gage, or gave Smith the money for that purpose, and Smith repre- sented to her that the firm of Smith & Johnson could invest the money for her on mortgage, the defendant was liable, inasmuch as the receipt of the money by Smith for the purpose of its being laid out on mort- gage would be an act within the scope of authority which Smith had as partner with the defendant; for that attorneys now, as part of their business, acted as scriveners — that is, in laying out money on security — the separate profession of scrivener having fallen into dis- use. Verdict for plaintiff for £1,670. McCauley, in last Easter Term, obtained a rule nisi for a new trial on the ground of misdirection.^" Lord Campbell, C. J. I think there should be a new trial. The action is against Johnson, who is charged in the character of a part- ner with Smith in the calling of an attorney. There is no evidence going beyond the bare -fact of their having jointly carried on the busi- ness of attorneys. I think that an attorney, qua attorney, is not a scrivener; that his business is to act in a court of law, to prepare con- veyances, to examine titles, and so on, but not to act as a scrivener. A scrivener has to hold the money put into his hands until he has an opportunity of laying it out; but this employment of scrivener is not a consequence of' his character of attorney. The question, then, here is whether Smith was acting within the scope of his partnership au- thority. If he received the money generally for the purpose of laying it out, he was not acting within his calling of attorney. Attorneys frequently do act as scriveners in the full sense of the term; but there is no evidence that Smith and Johnson did so, or that the money re- ceived was received for purposes within the object of the partnership. There was strong evidence that Smith received the money to be laid out upon mortgage, and that he induced Mrs. Harman to entrust him with the money by representing that he had a security ready; but I cannot say that this was conclusive. And, when I advert to the terms in which I directed the jury, I think that they were too general; for, if the meaning of Mrs. Harman was that a security should be found, and that the money should be left in order to be invested in some mort- gage that might be found to be an eligible security, then tlie business was not to be performed in the character of an attorney. I think, IB Part of the statement of facts Is omitted. 214 THE POWERS OF PARTNERS therefore, that the question was left too widely to the jury. It should have been left more pointedly to tliem whether the money was placed in Smith's hands for the purpose of being advanced on a particular mortgage, or whether it was deposited with him until he could find a proper mortgage. Had it been so left, the jury should have been told to find for the plaintiff on the first supposition and for the defendant on the second- Rule absolute. GILRUTH V. DECELU (Supreme Court of Mississippi, 1894. 72 Miss. 232, 16 South. 250.) Bill in chancery, reciting that complainant was in 1892 the wife of T. F- Decell, deceased, who was then a member of the firm of Gil- ruth & Decell ; that at that time she was the owner of a house and lot in Jackson, Miss. ; that she sold same, and that $1,600 of the purchase money was placed to her credit in the Capital State Bank of Jackson ; that the amount was withdrawn from said bank on a check drawn January 11, 1892, in favor of the Bank of Yazoo City; that to said check complainant's name and that of T. F. Decell were signed ; that complainant's signature was forged by T. F. Decell; that she was ignorant of the forgery for some months thereafter, and that she left her husband in March, 1893, and that he was killed soon afterwards, and that T. J. Moore was the administrator of his estate; that J. N. Gilruth, as surviving partner, after qualifying as required by law, took charge of the partnership property, and is now administering the same ; that the $1,600 obtained by the forgery was placed to the credit of T. F. Decell in the Bank of Yazoo City, and was checked out by him for his individual use; that on the 16th of February, 1892, he checked on said deposit in favor of Gilruth & Decell for $500, which sum was placed to the credit of T. F. Decell on the books of Gilruth & Decell as capital paid in by him to complete the amount to be contributed by him in the firm of Gilruth & Decell; that said sum of $500 is still in the firm of Gilruth & Decell, and has gone into the hands of the sur- viving partner ; that the removal and conversion of said sum of money by said T. F. Decell was a fraud upon complainant, and that said De- cell held same as trustee ex maleficio; that complainant is entitled to have said sum of $500, mingled with the firm assets of Gilruth & De- cell, repaid to her out of the firm assets in preference to all other claims against said assets, with interest from the date it was with- drawn. The bill makes Gilruth, as surviving partner, the only de- fendant, and prays that the court will decree that the said sum of $500 was her money, and was held in trust for her, and went into the firm of Gilruth & Decell impressed with said trust, and that it be refunded her out of the firm assets. Whitfield, J. It is not alleged in the bill that Gilruth actually par- ticipated in the fraud by which Decell converted the trust fund to his POWER TO SUBJECT FIRM TO TORT LIABILITT 215 own use, and afterwards paid it into the firm in payment of the bal- ance of his subscription to its capital stock; nor that he had any ac- tual knowledge of anything done by Dcccll in connection therewith. The acts and doings of Dcccll throughout were wholly outside the scope of the partnership business. Under the circumstances, while there may be some cases to the contrary as Palmer v. Scott, G8 Ala. 382, and Wclker v. Wallace, 31 Ga. 362, it is well settled in Mississip- pi (Pickcls V. McPherson, 59 Miss. 21G), and generally, that a bill cannot be maintained against the firm to recover from it the trust fund thus put by the guilty partner, without participation or knowl- edge on the part of the others, into the assets of the firm. Knowledge of the guilty partner in such case is not the knowledge of the firm. Liability of the other partners in such case, if it exist, must grow out of participation, as joint wrongdoers, in the fraud, and not out of the fact that they are partners, or their liability as partners. Bates, Partn. § 481 ; Evans v. Bidlcman, 3 Cal. 430; I Lindl. Partn. pp. *142, *143. Jessel, M. R., thus emphatically puts it in Williamson v. Barbour, 9 Ch. Div, 535, 536 ; "When we come to a question of fraud, different considerations arise. It is not true that the knowledge of a fraud by a partner is necessarily the knowledge of the firm. A very obvious in- stance * * ♦ may be shown, and is best shown, by an example Suppose there is a firm with half a dozen partners who have a clerk, and the clerk has been in the habit of receiving presents from one of the sellers to the firm in order to pass goods of short weight, and fur- ther suppose that the clerk, not having been found out, is taken into partnership as a junior partner and continues the practice. Is it to be imagined, under these circumstances, that in a court of equity the other partners could not sue the vendor of the goods for the fraud, and not only sue him but their partners also? ♦ * ♦ I emphatic- ally deny that any such doctrine could by any possibility be laid down by any judge, and I need not say it has never been laid down. Of course fraud must be an exception. I put the case of a clerk knowing it before he became a partner, and not interfering with it afterwards. But it is immaterial that the knowledge was acquired during the part- nership. * * * It appears to me that that kind of notice will not do when it is applied to cases of fraud." And says Lindlcy: "If one partner is a trustee, and he improperly employs the trust funds in the partnership business, 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." It is not within the scope of the bill to subject Decell's interest in the partnership as- sets. Besides, his administrator is not a party. Robertshaw v. Plan- way, 52 Miss. 713, 717. The decree is reversed, demurrer sustained, and bill dismissed. 216 THB POWERS OF PARTNERS V. Powers of Partners After Dissolution *• MAJOR V. HAWKES. (Supreme Court of Illinois, 1850. 12 111. 298.) The defendants in error sued Major, in the McLean circuit court, to recover an indebtedness due to them as copartners. Major proved the payment of his indebtedness to Hawkes, one of the copartners, after the pubUcation of a notice of dissolution by mutual consent. A verdict was found on the circuit against Major, and he brings the cause to this court by writ of error. Trumbull, J. Upon the voluntary dissolution of partnership, each of the partners, in the absence of any agreement to the contrary, re- tains the right to collect debts due the firm, and give discharges there- for. Story on Partnership, § 328. Hawkes had, therefore, just as much right to receive the money from Major, and give the receipt of the firm, as either of the other partners, and the receipt, if honestly obtained, was a defense to the further prosecution of the action. The fact that Major first made an attempt to settle the account by giving Hawkes credit upon a claim which he had against him individually, did not prevent him from afterwards paying the money to Hawkes, when he ascertained that the other partners would not assent to the first arrangement. Major was not responsible for the application which Hawkes made of the money, so that he paid it in good faith ; nor does the insolvency of Hawkes at the time alter the case. The record shows that he was known by the other partners to have beeen insolvent when the partnership was formed. They were willing to trust him notwithstanding, and by be- coming his partners gave to him the same right to receive the debts that should become due the firm which either of them should possess. It is true that without the assent of his copartners he had no right to apply partnership effects in discharge of his individual indebted- ness, and a creditor of his, knowingly receiving such effects in dis- charge, would be responsible for the same to the firm. To deprive Major of the benefit of the payment made to Hawkes it was incumbent upon the plaintiffs below to show that it was not made in good faith. It has been suggested by counsel that the money was returned to Major after being paid over; but there is no evi- dence in the case to justify such a presumption. The witness to the receipt testifies that the money was paid over to Hawkes in his pres- ence, and this is all the evidence in the record about the money. For aught that appears, Hawkes may have accounted with his copartners for the money received from Major; but whether he has or not is quite immaterial to Major, provided he honestly paid the money and 16 For a discussion of principles, see Gilmore on Partnership, §§ 114-121. POWER8 OF PARTNERS AFTER DISSOLUTION 217 has in no way aided or abetted in the misapplication of it. There would be no safety in paying a partnership debt to a single member of a firm, if the debtor was bound to see that the money was properly applied by the partner receiving it. Judgment reversed. WHITING et al. v. FARRAND et al. (Supreme Court of Connecticut, 1814. 1 Conn. GO.) Swift, J.^^ This was an action to recover payment for books con- tracted to be delivered to the defendants. * * * It is further insisted on by the defendants that their copartnership was dissolved prior to the delivery of the books; that the plaintiffs could not afterwards deliver them, and bring this action to recover payment for them ; but that their remedy is by an action for a breach of contract arising from the dissolution of the copartnership. Copartners may dissolve their connection at pleasure, and this is no violation of any subsisting contracts with others ; for they may, and they are bound to, perform them in the same manner as if no dis- solution had taken place. No action can ever be sustained against them, stating a mere dissolution of the partnership as a breach of con- tract; for they can perform it notwithstanding such dissolution. In the present case, the contract being executory, the plaintiffs could have no right of action till they had performed on their part. If, then, a dissolution of the copartnership by the defendants could prevent the plaintiffs from delivering the books, and excuse the defendants from receiving or becoming chargeable for them, it would be in the power of a partnership, by its own act of dissolution, to destroy a previous and subsisting contract. This would be directly subversive of the prin- ciples on which all copartnerships are founded. New trial not to be granted. GOODSPEED V. WIARD PLOW COMPANY. (Supreme Court of Michigan, 1S81. 45 Mich. 322, 7 N. W. 902.) Camtbell, J. Goodspeed and Fales, prior to February 13, 1S79, were partners in business, and on the 21st day of January, preceding the dissolution, Fales, in the name of the firm, but in the absence of Goodspeed, and without his knowledge or authority, gave to an agent of the Wiard Plow Company an order in writing for a large number of articles connected with their business, to be shipped on the 1st day of April thereafter. On the 13th of February the firm was dis- solved, and on the same day the agent was informed of the dissolu- tion. The price of the articles ordered was shown to be above $500. On the 15th of February a portion of the articles were shipped, and the remainder, some earlier and some later than April. All came into 17 Part of the opinion and the statement of facts are omitted. 218 THE POWERS OF PARTNERS the hands of Fales. There was no proof of any other acceptance of the order than the shipment, unless the agent at the time of receiving the order made some arrangement on the subject, which is not shown. On a suit against Goodspeed and Fales the court held that the ship- ment of goods and their reception by Fales bound Goodspeed, and that the fact that the time of shipment was different from that named in the order made no difference. We think this was erroneous, and that there was no ground of re- covery. A retiring partner is bound by all previous contracts made within the line of the business, but after dissolution he is not bound by any new contract made by his copartner. The order given by Fales made no contract until accepted, and un- til acceptance could at any time be withdrawn. Inasmuch as the amount of goods exceeded $50, there could be no binding contract as against the Wiard Plow Company without either a writing or some act done on the faith of the order. Here there was no proof of accept- ance of the order in writing, if at all. The shipment of the goods was not made in accordance with the terms of the order, and was not made until the order had been rescinded by notice of the dissolution. Fales could not waive any of the conditions, so as to bind Goodspeed, after the dissolution. The sale made was not the sale agreed upon, if there was any agreement. The case is therefore doubly defective, in not showing any valid agreement at all, and in showing a departure from the agreement proposed. Either objection is fatal to a recovery. Judgment was reversed, and a new trial ordered. WOOD et al. v. BRADDICIC (Court of Common Pleas, 1808. 1 Taunt. 104.) This was an action brought to recover from the defendant the pro- ceeds of certain linens, which the bankrupts, in the year 1796, had con- signed for sale in America, as the plaintiffs alleged, to the defendant, jointly with one Cox, who was then his partner, but, as the defend- ant contended, to Cox only. The defendant pleaded the general issue and the statute of limitations. At the trial at Guildhall, before Mans- field, C. J., the plaintiffs produced in evidence a letter from Cox, dated the 24th of June, 1804, stating a balance of £919 to be then due to the bankrupts upon this consignment. It was in proof that on the 30th of July, 1802, Braddick and Cox dissolved their partnership, as from the 17th of November, 1800. Cockell and Lens objected that this letter, being written after the dissolution of the partnership, was not admissible evidence to charge Braddick. The Chief Justice overruled the objection, but reserved the point ; and the jury, being of opinion that the agency was undertaken by Cox on the partnership account, found a verdict for the plaintiff. Cockell now moved for a new trial. POWERS OF PAETNERS AFTER DISSOLUTION 219 MansfiKld, C. J. Clearly the admission of one partner, made aft- er the partnership has ceased, is not evidence to charge the other, in any transaction which has occurred since their separation ; but the power of partners with respect to rights created pending the partner- ship remains after the dissolution. Since it is clear that one partner can bind the other during all the partnership, upon what principle is it that from the moment when it is dissolved his account of their joint contracts should cease to be evidence, and that those who are to-day as one person in interest, should to-morrow become entirely distinct in in- terest with regard to past transactions which occurred while they were united? Heath, J. Is it not a very clear proposition that, when a partner- ship is dissolved, it is not dissolved with regard to things past, but only with regard to things future? With regard to things past, tlie partnership continues, and always must continue. Cockell took nothing by his motion. MILLER V. NEIMERICK et al. (Supreme Court of Illinois, 1S57. 19 III. 172.) Skinner, J.^* Miller sued Neimerick and Eckert, as late partners, upon a book account. On the trial Miller offered in evidence a writ- ten statement, made by Neimerick after the dissolution of the part- nership, admitting a balance due from the firm of Neimerick & Eck- ert to Miller. The court rejected the evidence, and judgment was rendered for the defendants. The question is broadly presented whether admission of one part- ner, made after the dissolution of the partnership, relating to partner- ship transactions arising prior to the dissolution, are admissible to charge the several members of the dissolved firm. In the case of Wood V. Braddick, 1 Taunt. 104, such admissions were held compe- tent to charge all the members of the firm, and that ruling seems to have been followed in England until finally avoided by act of Parlia- ment. The same rule has been recognized in several states of this Union, but in many of them the opposite doctrine prevails. In view of the conflict of authority upon the question, we are at liberty to adopt such rule as is most consonant with the reason and analogies of the law and best adapted to the security of private rights. It is true that, during the existence of the partnership, each partner may act for the whole, upon the ground that all have delegated to each authority to act for them in matters of joint concern; but this plenary power of the several members of the partnership continues no longer than the partnership out of which it arises. Therefore, when the part- nership has terminated, the several partners lose their authority to act 18 Part of the opinion and the statement of facts are omitted. 220 THE POWERS OF PARTNERS for the whole, and can no longer bind them by any undertaking in the partnership name; and their powers become limited to the adjust- ment of the partnership affairs and the winding up of the partnership. For such purposes each may receive and release debts due the part- nership, and apply the assets to the liquidation of the firm debts, the pre-existing rights of their persons remaining unaffected by the dis- solution; but the power to bind the several members -of the dissolved firm, by the creation of new liabilities and obligations, falls with the partnership. The admission of one partner of a debt of the partnership, made when the partnership has no existence, if sufficient to establish the Ua- bility of all the partners, involves the power to bind all by the creation of a partnership liability; for it is indifferent to the other partners whether their liability be established by the admission, or the under- taking, written or verbal, of one of their number. The effect in either case is the same. A joint liability is prima facie established and imposed, which may be satisfied, not only out of the partnership property, but out of the separate estates of the former partners. If the several members of a dissolved firm can, by admission or stipulation, charge their former partners, not only may the partnership assets be swallowed up, but the individual members of the late firm may be made bankrupt, by admissions made after the partnership has ceased to exist, by one no longer their agent, without the sanctions of an oath, or any of the ordinary guarantees of truth, and who may be without pecuniary ability to respond in damages, is influenced by ill will or private gain, and has in fact no real concern as to conse- quences of mere legal liability. * * * We hold the written statement or admission incompetent to charge Eck^rt. * * * Judgment affirmed. MAYBERRY et al. v. WILLOUGHBY. (Supreme Court of Nebraska, 1877. 5 Neb. 368, 25 Am. Rep. 491.) Gantt, J.^" In the court below, service of summons was had on C. N. Mayberry only. He pleaded the statute of limitations, and he now brings the case into this court as plaintiff in error. It appears, from the facts admitted, that the plaintiff in error and J. C. Mayberry were formerly partners, doing business in the state of Illinois, under the firm name of J. C. & C. N. Mayberry ; that on the 14th day of January, 1864, the note on which this action was brought was executed by the firm and delivered to the defendant in error; that on the 29th day of March, 1864, the partnership was wholly dissolved, and that on or about the 15th day of July, 1868, the i» Part of the opinion Is omitted. POWEES OF PAETNEE8 AFTEB DISSOLUTION 221 defendant in error had notice of the dissolution of the partnership; that in March, 18G9, the plaintiff in error moved to the state of Nebras- ka, and has ever since resided there. J. C. Mayberry made partial payments on the note, on the IGth day of November, 18G4, on the 1st day of June, 18G8, on the 25th day of July, 1870, and on the 29th day of November, 1871; and of these payments the plaintiff in error had no knowledge whatever, until after the commencement of the suit, on the 18th day of April, 1876. The only question raised in the case is: Do these payments, made by J. C. Mayberry, take the debt out of the statute of limitations as to the plaintiff in error? It is said that the statute is a wise and beneficial law, and should not be viewed in an unfavorable light; and it is now generally conceded that it is not to be construed as merely raising a presumption of pay- ment, but that in its operation it is intended to be emphatically a statute of repose. Therefore, in order to take a debt out of it, there must be an un- qualified acknowledgment, not only of the debt as originally due, but that it continues so, or, if the promise to pay is conditional, the condi- tion must be performed before an action can be maintained on the promise, and the acknowledgment or promise must be made by the per- son to be charged, or by some person legally authorized by him to do so. Again, as the law strictly affects the remedy, and not the merits, it seems well settled that upon the plea of the statute the lex fori must prevail. McElmoyle v. Cohen, 13 Pet. (U. S.) 327, 10 L. Ed. 177; Townsend v. Jemison, 9 How. (U. S.) 413, 13 L. Ed. 194; Bell v. Morrison, 1 Pet. (U. S.) 351, 7 L. Ed. 174. Hence the law must be regarded as designed to protect persons from ancient claims, whether well or ill founded, and its tendency is to produce speedy settlements, and if such settlements are not made within the time limited by the law its effects are such as to extinguish the legal liability upon the debt, unless it be revived by a new promise ; and therefore, if the creditor by his own fault and laches permits the statute to attach, whatever may be the nature or character of his claim, he cannot complain of the operation of the law, since it is by his own negligence that it can be brought to bear against him. But, as J. C. and C. N. Mayberry were partners at the time the debt was contracted, it is contended that, notwithstanding the dissolu- tion of the partnership with notice thereof to the creditor, and not- withstanding the time limited by the statute within which actions can be commenced after the cause of action shall have accrued, had long expired, as to the plaintiff, yet the payments made by J. C. Mayberry, as above stated, and without the knowledge or assent of the plaintiff in error, constitute an admission by both, and in law raise a promise by both to pay the claim; and this proposition is urged upon the ground that, as J. C. Mayberry had authority to discharge the debt or make paynlents thereon, he necessarily had authority, upon the 222 THE POWERS OF PARTNERS theory that a virtual agency existed in each co- contractor, by his in- dividual promise to charge the other with the payment of the debt. This is true as to partners, for it is a familiar and well-established doctrine that during the existence of the partnership the act of one partner within the legitimate scope of the partnership business, will bind the other partners; and this doctrine, no doubt, had its origin in the fact that in a partnership, constituted by voluntary contract, with the understanding that there shall be a communion of profits between them, there must necessarily be in each partner a community of in- terest with the others in the whole property, business, and responsi- bilities of the concern, and therefore each partner is "praepositus ne- gotiis societatis," and in the diverse and multiplied transactions of the business, each must, virtute officii, become the agent of the others, when acting within the scope and objetfs of the partnership. But, upon the dissolution of the partnership, this agency, as well as the relation of partners, ceases to exist, and the authority to create new contracts is revoked, and the rights of the partners thereafter can only extend to the settlement of the partnership concerns and the disbursement of the remaining funds. It is said that, "after dissolu- tion, no valid draft, acceptance, or indorsation can be made by the firm; and it is no authority to do so, if any partner is in the notice empowered to receive and pay the debts of the company. The indorsa- tion, draft, or acceptance must be done by all of the partners, or by one specially empowered to do the act for theni." 2 Bell's Com. 644 ; Story on Part. § 332 ; 1 Smith, Lead. Cases, 730. No new contract can be created in the name of the firm, and no one of the partners can create such contract so as to charge the others, unless they specially authorize him to do so for them. Now, the doctrine seems well settled by p.uthority that an acknowl- edgment is to be considered, not as a continuation of the old promise, but as the evidence of a new promise; and therefore it is alone this new promise which takes the debt out of the statute. This new prom- ise is a new contract, nothing more, nothing less ; and it is a contract to pay a pre-existing debt, which of itself does not bind the party, because by force of the law it was extinguished. Hence, is not the acknowledgment, in essence and in law, the creation of a new con- tract, which gives the creditor a new cause of action, and not simply the enforcement of the old one? It therefore seems clear, both upon principle and authority, that, after the relation of partners has ceased to exist, one of the partners cannot, upon the ground of mutual agency, bind the others by such contract. The relation of the partners to their creditors, then, becomes that of joint debtors. Bell v. Morrison, supra; Hackley v. Patrick, 3 Johns. (N. Y.) 537; Green v. Crane, 2 Lord Raym. 1101; Thompson v. Peters, 12 Wheat. (U. S.) 565. 6 L. Ed. 730; Tompkins v. Brown, 1 Denio (N. Y.) 247; Dean v Hewit, 5 Wend. (N. Y.) 257; Dunham v. Dodge, 10 Barb. (N. Y.) 569. P0WER8 OF PARTNERS AFTER DISSOLUTION 223 It is, however, urg^ed that the acknowledgment relied on in the case at'bar consists of partial payments made on the original debt of J. C. Mayberry, and, as some of these payments were made before the time limited by the statute had expired, the statute of hmitations did not attach as to the plaintifT in error; but it is said "that although a part payment of a debt admits its existence as a subsisting obliga- tion, and will, therefore, be sufficient to take it out of the statute, yet that it has no greater effect than any other unqualified acknowledg- ment, and must consequently be connected by sufficient evidence, both with the parties to the suit and the claim sought to be enforced." 1 Smith's Lead. Cases, 72G. Such payments necessarily prove only the existence of the debt to the amount paid; but from the fact of such payment a promise is inferred to pay the residue. Dunham v. Dodge, supra. And, again, it is said: "The true rule unquestionably is that whether the admission precedes or follows the bar makes no differ- ence, and that, while proof of the continued existence of the debt and of the willingness of the debtor to pay is requisite in all cases, noth- ing more will be requisite in any." 1 Smith's Lead. Cases, 714; Ayers V. Richards, 12 111. 146 ; Fryeburg v. Osgood, 21 Me. 176. And now the question is, can one joint debtor, by an assumed au- thority as the virtual agent of the other, legally charge him with the payment of the debt, when otherwise he would be discharged, and the debt be extinguished as to him, by operation of the statute? The doctrine that a promise or acknowledgment by one joint debtor takes the debt out of the statute, and binds his co-contractor, upon the ground that he who makes the promise virtually acts as the agent of the other, seems to have originated in an unreasoned decision of Lord Mansfield in the case of Whitcomb v. Whiting, Doug. 651. But that case is contrary to the previous case of Bland v. Haselrig, 2 Vent. 151, and it must be regarded as the cause of all the confusion which exists in the decisions, both in England and America, on the subject of the statute, in respect to joint debtors. In England, however, the doctrine enunciated in Whitcomb v. Whit- ing has been somewhat restricted, which has remedied some of the mischief inherent in it. 1 B. & Aid. 467. And its force has been much weakened in the case of Atkins v. Tredgold, 2 Barn. & C. 23, in which Holroyd, J., seems to doubt Whitcomb v. Whiting as law. Story, in his work on Partnership (section 324), says that: "In America no small diversity of judicial decision has been expressed on this subject. In some of the states, the English doctrine has been approved; in others it has been silently acquiesced in, or left doubt-' ful; and in a considerable number it has been expressly overruled." In the Supreme Court of the United States it has been overruled, as unfounded in principle. Bell v. Morrison, supra; Van Keuien v. Parmelee, 2 N. Y. 525, 51 Am. Dec. 322; Dunham v. Dodge, 10 Barb. (N. Y.) 570; Forney v. Benedict, 5 Barr (Pa.) 227. * * * It seems the doctrine that one joint debtor can take a debt out of 224 THE POWERS OP PARTNERS the statute as to all is based exclusively on the theory that there is a virtual agency in each co-contractor, in such case, by which the promise of one binds the rest. But upon what principle can this doc- trine of mutual agency be maintained? It cannot be founded on a communion of profits or a community of interests, as in the case of partnership, for the reason that in fact no such interests exist be- tween the persons who are merely joint debtors ; and it cannot be grounded merely upon a new promise by only one of the parties, for the reason that in fact and in law, as seems now to be well settled, such promise is a new contract, which is necessarily different from the original contract in respect to form, time, and substance, and is the creation of a new cause of action ; and the proposition will not be questioned that one joint debtor can, by such new contract, bind his co-contractors. It is, therefore, certainly difficult to discover any just grounds upon which the doctrine of mutual agency in joint debtors can be founded; hence must it not rest alone upon a mere assump- tion, which is untrue in fact, and unsupported by any reasonable and just interpretation of law? It is not only contrary to the earlier cases in England, but we think it is opposed to the object and spirit of our statute, which, it seems clear, was intended to protect the individual against claims after the time limited by the law for the commencement of the action has ex- pired. The statute is one of repose ; and, when the time limited by it has expired, then in legal contemplation the debt is extinguished, and it can only be revived by a new promise by the person sought to be charged, or by some person lawfully authorized by him for that purpose. * * * We are, therefore, of opinion that the plea of the statute of limita- tions, interposed by the plaintiflf in error, constituted a good defense in this action, under the evidence in the case, and that the judgment of the court below must be reversed, and the cause remanded. Judgment reversed. VI. Powers of Surviving Partner LINDNER v. ADAMS COUNTY BANK et al. (Supreme Court of Nebraska, 1S96. 49 Neb. 735, 68 N. W. 1028.) Irvine, C. The record in this case discloses that the Adams County Bank brought the action against Abraham Loeb and wife, Lindner, the adrninistrator, Rosa Hirsch, the widow, and Benjamin and Jacob Hirsch, the heirs, of Samuel Hirsch, deceased, to foreclose a mortgage 20 For a discussion of principles, see Gilmore on Partnership, § 122. POWERS OF SURVIVING PARTNER 225 executed by Loeb and Samuel Hirsch in favor of the bank. The case proceeded to foreclosure and sale, and after satisfying the bank's debt there remained a lar^^e surplus, one-half of which was afterwards, by the court, ordered paid to the guardian of the heirs of Samuel Hirsch. The present controversy relates to the disposition of the remainder of the surplus, it being claimed on one hand by an assignee of Loeb, and on the other hand by the administrator of Hirsch. The district court made an order directing its payment to William Kerr, the as- signee of Loeb. This order was made on consideration of the application and the record in the case, without evidence ; and the question presented for review is substantially, therefore, whether the administrator's applica- tion, taken in connection with facts established by the record, was suf- ficient, if the allegations contained in the application were true, to en- title him to the unpaid surplus. The application alleges, in brief, that Loeb and Samuel Hirsch were, in the latter's lifetime, partners, and that the real estate sold under the decree of foreclosure was partner- ship property ; that, after the death of Hirsch, Loeb collected the rents and profits of the real estate, and continued to carry on the business and collect debts due the partnership, but failed to pay the debts of the partnership, and had refused to apply moneys coming into his hands for the purpose of discharging such debts, but had converted the partnership property to his own use ; that the partnership owned property largely in excess of its liabilities ; that Loeb is insolvent : that, on an accounting between Loeb and Hirsch's administrator, Loeb would be indebted to the latter in at least $3,000. In the briefs many questions are discussed with regard to the rights of surviving partners, and the propriety of an examination into their transactions, and an accounting, in a proceeding of this character. . We think, however, a single principle controls the decision of the case. The assignment of the surplus arising from the sale from Loeb to Kerr was made before the sale was confirmed. It recites a consideration of $1,250 paid by Kerr to Loeb. Its legal effect was as an assign- ment of a chose in action belonging to a partnership, by the surviving partner, to a stranger. Neither by any averment in the administrator's application for the surplus, nor elsewhere in the record, is the bona fides or consideration of this assignment attacked. On the dissolution of a partnership by the death of one of the partners, the partnership property vests in the survivor, in trust, it is true, for the settlement and winding up of the partnership business, but nevertheless with power of disposition for that purpose ; and the surviving partner may, in such case, convey or transfer the property to a stranger, who will take title by virtue of such conveyance or transfer. Fitzpatrick v. Flannagan, 106 U. S. 648, 1 Sup. Ct. 369, 27 L. Ed. 2n. Not only may tangible property be so transferred by a surviving partner, but also choses in action. Johnson v. Berlizheimer, 84 111. 54, 25 Am. Gilm.Pabt. — 15 226 THE POWERS OF PARTNERS Rep. 427; Roys v. Vilas, 18 Wis. 169; Daby v. Ericsson, 45 N. Y. 786 ; Bohler v. Tappan (D. C.) 1 Fed. 469. It follows from this principle that the assignment by Loeb, the surviving partner, to Kerr of any surplus that might remain after sat- isfying the decree in favor of the bank (such assignment being un- impeached) operated to transfer the right of the partnership to such fund to Kerr, and it remained no longer a partnership asset. So that the question as to whether, in the absence of such an assignment, an accounting might be had in this action between the surviving partner and the personal representative of the deceased partner, and the sur- plus distributed in accordance with the result of such accounting, is not material to the present case. A case much in point is Willson v. Nicholson, 61 Ind. 241. That was an action on a promissory note made to a partnership, which had been assigned by delivery to the plaintiff by the surviving partner. Certain creditors of the partnership had filed counterclaims, alleging insolvency of the firm and of all its members, and that the note in suit constituted the firm's only assets, and that the plaintiff had purchased it with full knowledge of the facts. They prayed that the proceeds of the instrument should be applied to the payment of their claims. The supreme court affirmed the action of the trial court in striking out the counterclaims, on the ground that the surviving partner succeeded to the assets, and had the right to dispose thereof, and that, in the ab- sence of any allegation to the contrary, it would be presumed that the assignment to the plaintiff* was bona fide, and for a valuable consider- ation. Affirmed. BUTCHART v. DRESSER. (In Chancery, 1853. 4 De Gex, M. & G. 542.) This was an appeal from a decree of Vice-Chancellor Wood. The facts of the case are stated in 10 Hare, 453. The following is an out- line of them. Messrs. Butchart & Tempest carried on business in partnership, as share-brokers, till October 11, 1844, when the partnership was dis- solved. Before the dissolution Mr. Tempest had entered into con- tracts for purchases of shares on behalf of the firm. After the dis- solution, Tempest borrowed money of the bankers of the late firm to enable him to complete the purchases, and at the same time de- posited the shares as a security, with a memorandum in the name of the firm, authorizing the bankers to sell the shares. A sale having been made by the bankers accordingly, Mr. Butchart instituted this suit against them, seeking to make them liable for the value of the shares, as at the highest price at which they might have been sold since the deposit, on the ground that the sale was unauthorized. The Vice- POWERS OF SURVIVING PARTNEB 227 Chancellor held that the sale was binding on the plaintiff, who now appealed from tiiat decision. The Lord Justice Turnkr. This is a bill by one of two partners in a dissolved partnership seeking to charge the Yorkshire Banking Company with the value of a number of shares which the dissolved partnership had agreed to purchase before the dissolution, and two points only arise in the case: first, whether the deposit made by Mr. Tempest after the dissolution was or was not valid ; secondly, assum- ing the deposit to have been within his authority, whether a sale by the bank was or not binding on the partnership. Now that a partner has, during the partnership, power to pledge the partnership assets for partnership purposes, cannot be denied. That he has power to sell during the partnership, for partnership pur- poses, is equally clear. The question, therefore, is reduced to this, whether the power to pledge or sell is or is not gone upon the dissolu- tion. The general law is clear that a partnership, though dissolved, continues for the purpose of winding up its affairs. Each partner has, after and notwithstanding the dissolution, full authority to receive and pay money on account of the partnership, and has the same author- ity to deal with the property of the partnership, for partnership pur- poses, as he had during the continuance of the partnership. This must necessarily be so. If it were not, at the instant of the dissolution, it would be necessary to apply to this court for a receiver in every case, although the partners did not dift'er on any one item of the account. Nor is there any inconvenience in this state of the law ; for it is com- petent to any partner to apply, in case of necessity, for a receiver, and to have the aft'airs of the partnership wound up under the direc- tion of this court, and thus to prevent his partner from exercising un- duly any power which he has as a partner. It is, however, contended) that in this case the plaintiff had given notice to the bankers not to pay any check drawn on account of the partnership. But it is not disputed that contracts had been entered into before the dissolution, and the question is how those contracts were to be fulfilled, — it being the duty of each party to fulfil them. One partner considered it expedient that the purchases should not be completed, but that the shares should be thrown back on the hands of the vendors. The other partner considered it right to sell the shares, and settle the contract by completion and realization. Neither partner applied to this court in the matter. What was the necessary consequence? Was it not that the original contracts entered into be- fore the dissolution ought to be completed, and the matter treated as remaining in the state in which it was at the time of the dissolution? It seems to me to be clear that in these circumstances of a difference of opinion between the partners, as to retaining or giving back the purchased property, and of neither of them applying to this court, the proper course was to perform the contracts. 228 THE POWERS OF PARTNERS The question arises whether Mr. Tempest had authority to raise money for the purpose of completing the purchases. If the partner- ship had continued there could have been no doubt on the subject, and I think that there is no doubt that it subsisted after the dissolu- tion for the purposes of the contracts entered into during its contin- uance. The true solution of the question is, that if the plaintiff had reason to complain of the acts of his partner, his proper course was to apply to this court for a receiver. The appeal must be dismissed with costs. The Lord Justice Knight Bruce concurred. BIGUTS AND DUTIES OF PARTNERS INTER SB 229 RIGHTS AND DUTIES OF PARTNERS INTER SE I. Duty to Conform to the Partnership Agreement * MURPHY V. CRAFTS. (Supreme Court of Louisiana, 1858. 13 La. Ann. 519, 71 Am. Dec. 519.) Land, J.' The plaintiff and defendant were commercial partners, transactmg a general commission business under the name and style of Murphy & Crafts in the city of New Orleans. Their contract of partnership was in writing, and the third article thereof was in these words: "We will not indorse any note, draft, or give our signature separately or collectively, except for our legitimate business purposes." Crafts, in violation of this article of the partnership agreement, ac- cepted in the partnership name, for the accommodation of his brother- in-law, John C. Robertson, of the city of Boston, bills of exchange to the amount of $12,500. Robertson failed in business, and the firm of Murphy & Crafts lost, in consequence of these acceptances, the sum of $5,592.90. The principal question in this case is whether Crafts is liable to his partner for the loss. * ♦ * Judge Story, in his Commentaries on the Law of Partnership, says : "One of the most obvious duties and obligations of all the partners is strictly to conform themselves to all the stipulations contained in the partnership articles, and also to keep within the bounds and limitations of the rights, powers, authorities, and acts belonging and appropriate to the due discharge of the partnership, trade, or business. Of course, every known deviation from, and every excess in, the exercise of such rights, powers, authorities, and acts, which produce any loss or injury to the partnership, are to that extent to be borne by the partner who causes or occasions the loss or injury, and he is bound to indemnify the other partners therefor. The same doctrine is recognized by Pothier as existing in the French law ; and it seems, indeed, so clear- ly the result of natural justice as to require no particular exposition" See Story on Part. § 173. According to these rules, the defendant is clearly bound to indemnify the plaintiff for the loss resulting from his breach of the third article of their contract of partnership, unless the same was superseded or waived in the course of their business with the assent of the plaintiff. And this is the defense made by the defendant to the action; but we concur with the district judge that the evidence is insufficient to show that the partners came to a new arrangement in the course of their 1 For a discussion of principles, see Gilmore on Partnership, § 123. * Part of tlie opinion is omitted. 230 RIGHTS AND DUTIES OF PARTNERS INTER SB business, and thereby superseded article 3 of their contract, or that the plaintiff ratified the acceptance in favor of Robertson. * * * Judgment affirmed. II. Right to Participate in the Management KATZ V. BREWINGTON. (Court of Appeals of Maryland, 1SS9. 71 Md. 79. 20 Atl. 139.) Charles Brewington filed a bill of complaint against Louis Katz, alleging that in May, 1887, they had entered into a copartnership un- der the name of L,. Katz & Co., and that the business had been carried on under the firm name until the time of the filing of the bill. It was further charged that the books of the firm were in the possession and control of Louis Katz, who refused to permit complainant to have access to the same, and that Katz had sole control and possession of the goods of the firm, and was disposing of the same in fraud of complainant; that complainant no longer felt safe with the books and assets of said firm in the possession of said Katz, and desired that said copartnership should be wound up under the order and direction of this court; that Katz absolutely excluded complainant from all control of the business, and refused to give him any in- formation in regard to the business of the firm, having carried the books of the firm away from the place of business of said firm, and refused to disclose the place where said books were deposited. * * * The court ordered an injunction, and set down for hearing the application for a receiver, directing that notice should be given to the defendant. The notice was not served in due time, but neverthe- less the parties appeared in court, by counsel, on the day appointed for the hearing; and, after the court had heard their statements on the bill and exhibit, it appointed a receiver. After the appointment of a receiver, an answer was filed by defendant, and an appeal was iaken.* Bryan, J, We are, of course, on this appeal, confined to the state- ments of the bill of complaint. The defendant might have objected to the motion for a receiver on the ground that he had not received .he required notice, but he does not appear to have done so. If he 1-iad filed his answer before the hearing it would have been con- liidered both in the court below and in this court. The time appointed for the continuance of the partnership had expired before the filing of the bill of complaint, and it was then existing only by the mutual consent of partners. The agreement of partnership required Katz tc furnish all the capital, and the profits were to be equally divided 8 For a discussion of principles, see Gilmore on Partnership, § 124. * Part of the statement of facts is omitted. CONTROL OF MAJORITY 231 after payment of debts and expenses. It was not alleged by com- plainant that any profits had been made, or that there were any debts due by the partnership. It was, however, alleged that the defendant had excluded him from all control of the business of the firm, and had refused to give him any information respecting it, and had car- ried away the books from the place of business, and had refused to disclose the place in which they were. Each partner has an equal right to take part in the management of the business of the firm. Al- though one of them may have an interest only in the profits, and not in the capital, yet his rights are involved in the proper conduct of the affairs of the firm, so that profits may be made. So each partner has an equal right to information about the partnership affairs, and to free access to its books. The complainant had a right to learn from the books whether there were profits, and whether there were debts. If he were denied this information, as charged in his bill of complaint, a sufficient reason appears for not alleging that profits had been earned, and that debts existed. In Const v. Harris, 1 Turn. & R. 496, Lord Eldon said: "The most prominent point, in which the court acts, in appointing a receiver of a partnership concern, is the circumstance of one partner having taken upon himself the power to exclude an- other partner from as full a share in the management of the partner- ship as he who assumes that power himself enjoys." This principle seems to be universally approved by the authorities. It is decisive of the present question. The order must be affirmed. III. Control of Majority JOHNSTON et al. v. BUTTON'S ADM'R. (Supreme Court of Alabama, 1855. 27 Ala. 245.) GoLDTHWAiTE, J.' The evidence in this case tended to show that the appellants and one Vanderslice carried on in copartnership a steam sawmill, which by the articles of copartnership was to continue at least five years ; that the note sued on was given with the concurrence of two of the partners, Fogg and Vanderslice, for supplies necessary for the hands engaged in carrying on the mill, which had been ordered by one of them. Upon these facts alone there can be no doubt that the firm would be bound. The furnishing of supplies to those engaged in the immediate direction of the business was essential to the conducting of it, and within the scope of the purpose for which the individuals had associated ; and the authority of either of the partners to purchase such supplies, and give the note of the firm, cannot be questioned. 6 For a discussion of principles, see Gilmore on Partnership, § 125. « Statement of facts is omitted. 232 RIGHTS AND DUTIES OF PARTNERS INTER SH The principal ground of objection, however, is that the evidence proved that, before the goods were furnished and the note given, the appellant Johnston gave notice to the public that he would not be re- sponsible for any future debt contracted on account of the copartner- ship, and that this notice was brought home to the party with whom the debt was contracted ; and it is insisted that its effect was to revoke the authority of the other partners, so far as he was concerned, to bind the firm from that time. It is to be observed that in the present case the contract was con- curred in by two members of the firm ; and the question, therefore, is as to the right of the majority to bind the other partners, against their dissent, as to matters appertaining to the common business, and in the absence of any stipulation conferring that power in the articles of co- partnership. This question is a new one in this court, and, indeed, we have found no case in which it has been expressly decided. Both in England and the United States there are cases which assert the gen- eral proposition that a partner may protect himself against the con- sequences of a future contract, by giving notice of his dissent to the party with whom it is about to be made. Gallway v. Matthew, 10 East, 264; Willis v. Dyson, 1 Stark. 164; Vice v. Fleming, 1 Y. & Jerv. 227, 230; Leavitt v. Peck, 3 Conn. 125, 8 Am. Dec. 157; Feigley V. Sponeberger, 5 Watts & S. (Pa.) 564; Monroe v. Connor, 15 Me. 178, 32 Am. Dec. 148. And where the firm consists of but two persons, and there is nothing in the articles to prevent each from having an equal voice in the direction and control of the common business, the correctness of the proposition cannot be questioned. In such case the duty of each partner would require him not to enter into any contract from which the other in good faith dissented ; and, if he did, it would be a violation of the obligations which were imposed by the nature of the partnership. It would not, in fact, be the contract of the firm; and the party with whom it was made, having notice, could not en- force it as such. So, if the firm was composed of more than two per- sons, and one of them dissented, the party with whom the contract is made acts at his peril, and cannot hold the dissenting partner liable, unless his liability results from the articles or from the nature of the partnership contract. All the cases can be sustained on this principle ; and it is in strict analogy with the civil law, which holds, where the stipulations of the partnership expressly intrust the direction and con- trol of the business to one of the partners, that the dissent of the other would not avail, if the contract was made in good faith. Pothier, Traite du Com. de Soc. Nos. 71, 90. And such, also, we think, is the mle of the common law. Const v. Harris, Turn. & Russ. 496; Story on Part. § 121. Were it otherwise it would be denying to parties the right to make their own contracts. If our views as to the governing force of express stipulations are correct, the effect of such terms or conditions as result by clear implication from the articles, or arise out of the nature of the partnership, must be the same. It is as if they had been expressly provided. CONTEOL OF MAJOBITY 233 Now, whenever a partnership is formed by more than two persons, we think that in the absence of any express provision to the contrary there is always an imphed understanding that the acts of the ma- jority are to prevail over those of the minority as to all matters within the scope of the common business ; and such we understand to be the doctrine asserted by Lord Eldon in Const v. Harris, supra, and such was the opinion of Judge Story. Story on Part. § 123 ; 3 Kent's Com. (5th Ed.) 45. The rule as thus laid down is certainly more reasonable and just than to allow the minority to stop the operations of the con- cern against the views of the majority. We do not say that it would be a bona fide transaction, so as to bind the firm, if the majority choose wantonly to act without information to or consultation with the mi- nority. Story on Part. § 123. But when, as in the present case, the one partner has given notice, and expressed his dissent in advance, there could be no reason or propriety in requiring him to be consulted by the other two. We do not consider the cases to which we have been referred, hold- ing that one partner has the right at pleasure to dissolve a partnership, although the articles provide that it is to continue for a specified term (IMarquand v. Mfg. Co., 17 Johns. [N. Y.j 525; Skinner v. Dayton, 19 Johns. [N. Y.] 513, 10 Am. Dec. 286), as having any bearing on the case under consideration. Conceding they are law — which is doubtful (Story on Partn. § 275, note 3, and cases there cited) — the decision rests solely upon the ground that the limitation on the right of dissolu- tion is incompatible with the nature of the copartnership contract ; and this principle does not militate against the position we have asserted. The dissent, in the present case, cannot be regarded as a dissolution ; for, if effectual, it would not necessarily produce that result, although it might operate to change the mode of conducting the business. In other words, it might be carried on without contracting debts. Our conclusion is that the act, being concurred in by two of the partners, was, under the circumstances, the act of the firm, an^ that the charge, asserting the proposition that the dissent of one partner against the other two would necessarily exonerate him, was properly refused. Judgment affirmed. MONROE V. CONNER et al. (Supreme Judicial Court of Maine, 1838. 15 Me. 178, 32 Am. Dec. 14S.) Assumpsit against James Conner and William Coleman. Conner lived at Gardiner, and owned a carding and fulling mill at Unity. The business of carding wool and dressing cloth was carried on at that mill by Coleman, and the articles charged were furnished by the plaintiff and delivered at the mill. The plaintiff claimed to recover against both, on the ground that Conner and Coleman were partners in the business carried on at that mill. No articles of copartnership 234 RIGHTS AND DUTIES OF PARTNERS INTER SB were produced or proved to have been made, and the plaintiff relied on other evidence tending to prove the partnership. Conner denied the partnership, and offered evidence tending to prove that he had given notice to the plaintiff that he would not be holden on any con- tracts made by Coleman. The counsel for Conner requested the judge to instruct the jury that if Conner notified the plaintiff's agent, who delivered all the articles, before the delivery, that he, Conner, would not be holden for anything unless delivered by his order, then Conner is not holden for anything delivered to Coleman after such no- tice. The judge did not give this instruction, but did instruct them that if, from the evidence in the case, they were satisfied that the defendants were copartners, such notice would not discharge Conner from further liabilities, unless he should show them that by the con- ditions of the copartnership such power was reserved to Conner. At the request of Conner's counsel the jury were directed to find whether such notice was or was not given. The jury found a verdict for the plaintiff, and also found that such notice had been given. Conner filed exceptions. Shepley, J. The question presented in this bill of exceptions is one of no inconsiderable importance in a mercantile community, and there is found to be some difference of opinion respecting it. The general rule is that the contract of one partner binds all in transac- tions relating to the partnership, and this rule prevails when the part- ner making the contract applies the fruits of it to his own private use, if the contract is made in the usual course of business, and the ap- propriation be unknown to the other party to the contract. So one partner can make purchases, and can sell, pledge, and assign the part- nership goods, and in these acts bind all the partners. When a partnership becomes known, and its course of dealing has been established, all are at liberty to regard one as acting Tor the benefit of all the partners in this accustomed course of dealing. If it were not so, there could be no safety in commercial contracts of this character. But the right of one partner to bind all rests upon the principle that all have agreed that he should do so. This agreement is either expressed, or implied by law from the nature of the association or from the customary course of dealing. There is nothing inconsistent with this rule in allowing one of the partners to dissolve the contract of partnership, giving due notice that such power to bind him has ceased to exist. This he may, without doubt, do where there is no special agreement that the partnership shall con- tinue for a definite period, which is yet unexpired. Whether one part- ner may dissolve the partnership before the agreed time expires may admit of doubt. Upon principle, however, it would seem that it was only for the other party to that contract to complain ; it being of no importance to others whether they violate contracts between them- selves, if full notice is given, so that others may understand to whom they are to give credit. Kent evidently inclines to the opinion that the CONTROL OF MAJORITY 235 dissolution may take place. 3 Com. 54. And such is the law in New York (Marquand v. Uig. Co., 17 Johns. 525; Skinner v. Dayton, 19 Johns. 538, 10 Am. Dec. 28G) ; while the law would appear to be different in England (16 Ves. 5G; 1 Swanst. 495). It does not, how- ever, become necessary to express any opinion upon this point, as there is no proof in the present case that the partnership was formed for any definite period. In such cases it is admitted that one partner may by notice dissolve, and thus prevent those having such notice from making further contracts to bind the partnership. If such a power exist as to all persons, it would be difficult to deny that one partner could protect himself against a particular contract by actual notice that he dissented from it before it was concluded. Such a notice re- moves the founrlation upon which the right rests to charge all the partners upon the contract of one. It leaves no longer the presumption that one acts for all, by the consent of all. And if, after such actual notice, a person will give credit, he cannot reasonably complain that he cannot obtain payment from him who has notified him not to give the credit. The only difficulty arises in relieving the partner giving such notice from the payment when the fruits of the contract have been enjoyed by the partnership, of which he still continues to be a member. In Willis v. Dyson, 1 Stark. 1G4, Lord Ellenborough held that "it would be necessary for the party sending goods after such notice to prove some act of adoption by the partner who gave the notice, or that he had derived some benefit from the goods." Gow, Part. 69, states that, "to recover in an action for goods sold after such countermand, he must show that the sale was adopted by the dis- sentient partner, or that he had derived a benefit from the delivery." Kent (volume 3, p. 45) remarks "that the seller must show a subse- quent assent of the other partners, or that the goods came to the use of the firm." Both these jurists refer to the case of Willis v. Dyson as authority. It is quite obvious that there may be a difference between the goods coming to the use of the firm and a benefit derived to the dis- senting partner from their delivery to the firm. The bargain may have proved to be a very losing one, and this may have been fore- seen by the dissenting partner, and have been the very cause of the notice; and why should he be held to pay, perhaps from his private property, for goods the purchase and sale of which may have absorbed the whole partnership stock, when he had provided against such cal- amity by expressing his dissent from the contract before it was con- summated ? In the case of Galway v. Matthew et al., 10 East, 264, one partner, after the otiier partner had given notice of his dissent, signed a note with the name of the partnership, and received the money and applied most of it to the payment of the partnership debts; and the decision was against the right to charge the dissenting partner. In the case of Leavett v. Peck, 3 Conn. 124, 8 Am. Dec. 157, the fruits of the contract went to the partnership, and yet the dissenting partner was held not to be liable. 236 BIGHTS AND DUTIES OF PARTNERS INTER SB Gow states that in negotiable instruments one partner cannot bind another who dissents and gives notice of it, and alludes to no qualifi- cation, where the fruits of the contract are applied to the use of the partnership. Gow, 65. Collyer, 214, says: "It seems, also, that the mere disclaimer by one partner of the future contracts of his copartner will be binding on third persons, whatever be the effect of such an act between themselves, or whether it be or be not in conformity to the partnership agreement." He afterwards also states the case of Willis V. Dyson in the language of the court. Kent, after making the remark before stated, examines the cases, and as the result of it says : "It seems, also, to be the better opinion that it is in the power of any one partner to interfere and arrest the firm from the obligation of an inchoate purchase, which is deemed injurious." This he could not do if he were bound by the goods coming to the use of the firm. It ap- pears to" be more in accordance with the general principles of law, and with good faith and fair dealing, to hold that a partner is not bound by a contract after he has given notice to the party proposing to make it that he would not be bound by it. Exceptions sustained, and new trial granted. IV. Right to Information Concerning Business^ YORKS V. TOZER, (Supreme Court of Minnesota, 1S94. 59 Minn. 78, 60 N. W. 846, 28 L. R. A. 86, 50 Am. St. Rep. 395.) Action by Thomas J. Yorks against David Tozer for an accounting between plaintiff and defendant, as partners, and to recover money paid under the partnership agreement. Judgment for plaintiff, and defend- ant appeals. Canty, J. It is conceded by both parties, and found by the court, that the plaintiff and defendant were partners in the purchase of a tract of land ; that it was agreed by and between them that the title should be taken in the name of defendant; that he should advance the purchase price, and pay the taxes, and plaintiff should sell the land, and, after repaying defendant the money so advanced by him and 7 per cent, interest thereon, the balance of the proceeds of such sale should be divided equally between them. The land was so pur- chased April 23, 1883, for $450, and the title so taken. The land was sold and conveyed by defendant August 6, 1890, for $1,5G0. Said purchase money and the taxes paid by defendant, and interest on all of the same up to the time of said sale, amount to $807.33, leaving $752.68, the balance of the proceeds of said sale, so to be divided be- tween them. This action is brought for an accounting and a recovery T For a discussion of principles, see Gilmcre on Partnersliip, § 126. RIGHT TO INFORMATION CONCERNING BUSINESS 237 of the sum due plaintifT under said agreement, and the trial court awarded plaintiff one-half of said balance of $7o2.G8, and from the judgment entered thereon defendant appeals. There is no settled case, and the error assigned is that the judgment is not sustained by the findings of fact. The court further finds that in July, 1890, without the knowledge of plaintiff, defendant negotiated a sale of said land to said purchaser; that the purchaser procured an abstract of title to said real estate from the register of deeds ; that said abstract was in fact false, as it omit- ted one recorded conveyance, a link in the chain of title, and by such abstract it appeared that the original patentee was still the owner in fee of the land, whereas in fact defendant had a good title of record; that the purchaser submitted the abstract to two different and com- petent attorneys, who each advised him that, according to the ab- stract, the defendant had no title, and defendant was informed by such purchaser of the opinion of said attorneys. Defendant, believing he had no title, at an expense of $526, then procured a conveyance to himself from said original patentee, and claims that this expense should be allowed him in said accountmg as a part of the cost of the land to be deducted from such proceeds of said sale, and that plaintiff is entitled to only one-half of the balance of such proceeds, after this $526 is also deducted therefrom. It is further found by the court that defendant did not inform plaintiff of any of said negotiations, or of the apparent defect in said title, or show him or inform him of said abstract, or consult him as to purchasing the supposed title of said patentee, and that plaintiff had no knowledge or notice of any of these things, or of the sale of said property to said purchaser from de- fendant, until after the deed thereof was recorded, and he discovered it by an examination of the records; "that had said defendant ex- hibited said abstract of title to said plaintiff, or informed him in what respect said title of said defendant was claimed to be defective, said plaintiff could at once have informed said defendant that said abstract was not a true and correct abstract of title to said lands ;" and "that plaintiff was not in any manner ever consulted by defendant in regard to said supposed defect of title." The court further finds that defend- ant acted in good faith in the sale of the land, and in expending said sum of $526 in attempting to cure the supposed defect in his title, but holds that he cannot compel plaintiff to stand one-half or any part of such expense. We are of the same opinion. If defendant did not act in bad faith, he was, to say the least, grossly negligent. It does not appear that the plaintiff was not accessible and could not be com- municated with in a reasonable time. This land was the only partner- ship property, and its purchase and sale was the only partnership busi- ness. It was not an act in the usual course of the partnership busi- ness, but one which went to the very foundation of the partnership. It is found by the court that the plaintiff, and not the, defendant, con- ducted the negotiations for the purchase of this land, and procured the conveyance to defendant; and he should be presumed to have had 238 RIGHTS AND DUTIES OF PARTNERS INTER SB some knowledge of the state of the title. No reason is given by de- fendant why all the negotiations for the sale of the land and the pur- chase of this supposed title by him were kept secret from plaintiff. In every important exigency the partner about to act should consult the other partner, at least if there are no circumstances which excuse him from so doing. The order appealed from should be affirmed. V. Duty to Devote Themselves to the Business and to Exercise Care and Skill » IMATTINGLY v. STONE'S AD^I'R. (Court of Appeals of Kentucky. 1896. 35 S. W. 921, 18 Ky. Law Rep. 187.) Pryor, C. J. By the terms of a written contract between M. P. Mattingly and W. S. Stone, the latter became interested as a partner of the former in two distilleries, — one, the "Old W. S. Stone Dis- tillery"; the other, the "Daviess County Club Distillery." The con- sideration for the interest was the transfer by Stone to Mattingly of the exclusive use of a valuable brand belonging to Stone, and which jMattingly desired to appropriate to his own use, or that of the two distilleries. The interest of Stone was the one-eighth part of the stock ($30,000) in the Daviess County Club Distillery, and an interest of one-eighth in the Old W. S. Stone Distillery, its property and ap- purtenances ; the latter to share in the profits after a certain period, in proportion to his interests. Each party was to render services. Stone running the one distillery, and Mattingly the other. The general control of the business was given to Mattingly. The partners failed to prosecute their business amicably, and certain suits followed, in one of which Stone brought an action to recover for his services, and failed, and Mattingly an action to rescind the con- tract, with like results, neither being entitled to relief. The present action was instituted by Stone for a settlement of the partnership, to which various defenses were made. The appellant insists that there was no partnership, but a mere sale, and that Stone was entitled to rents for his interest, and not profits. Counsel for the appellant in the cases heretofore decided construed the contract as constituting a partnership, but, whether so or not, it is plain the parties were part- ners by its terms, and a settlement should be had. The question of more difficulty than any other arises from the con- tention of the appellant that the partnership was dissolved in March, 1885, when the former suits were instituted, and the parties ceased <;o have any business intercourse ; but assuming, as we shall do, that the 8 For a discussion of principles, see Gilmore on Partnership, § 128. DUTY AS TO THE BUSINESS 239 partnership continued, and that Mattingly had no power to end the partnership at his will or pleasure, it then becomes proper to ascertain the balance due, if anything, by Mattingly to Stone. Mattingly claims that he has sustained damages by reason of Stone's permitting other parties to use this brand after September, 1883, when its exclusive use was with Mattingly. There is nothing in this defense, and the fact that the Owensboro Distilling Company was to use the brand until December, 1887, was known to Mattingly at the time of his contract and the entire defense as to its use by others is an afterthought, with no merit in it. The appellant claims compensation for the management and con- duct of the business, which was disallowed by the chancellor, anc^ this, we think, is an error. The parties, by the terms of the written contract, were each to perform services, and to render that assistance necessary to the proper conduct of the business ; and when Stone stood by and saw the entire management of the distilleries conducted by Mattingly, with his (Mattingly's) own capital, his labor and skill, it is neither just nor equitable that he should be allowed nothing, and Stone awarded his share of the profits, as if he had been an active partner. The report of the commissioner to whom the case was re- ferred is plain, concise, and brief, in which he states that "Mattingly furnished all the capital to carry on the business for repairs, paid tax- es and insurance, and, in fact, all the capital used in carrying on the business at both houses, and the proof shows that to furnish the cap- ital and manage the business w^as worth $5,000 per annum. There was paid to Stone by Mattingly $1,992, or he obtained that much from the business. Stone rendered no service in operating, taking care of, or managing the distilleries." With this report, the chancellor charged Stone with the $1,992 he had received, and credited him by his one- eighth of the profits, which was $5,482.84, leaving due Stone by Mat- tingly $3,490.57, for which judgment was rendered. While we think $5,000 per annum for the six years is too much to allow Mattingly for the management of the business, furnishing capital, etc., he ought to be allowed not less than $3,000 per annum, which for the six years would be $18,000, one-eighth of which should be charged to Stone. The one-eighth would be $2,250, and add to this the $1,992 Stone had received, makes $4,242. This sum taken from Stone's part of the net profits as reported, $5,482.84, leaves Mat- tingly indebted to Stone in the sum of $1,240.84, for which judgment should be rendered after first charging the net profits with the court's cost of the litigation below. Reversed and remanded, that this may be done. 240 BIGHTS AND DUTIES OF PARTNERS INTER SB VI. Duty to Observe Good Faith* BURTON V. WOOKEY. (In Chancery, before Sir John Leach, V. C, 1822. 6 Madd. 367.) The plaintiff and defendant entered into partnership together to deal in lapis calaminans. The defendant, who was a shopkeeper, was to take the active part in the concern, and to purchase the lapis cal- aminaris from the miners, in whose neighborhood he lived. Many of the miners were, betore the partnership, in the habit of dealing at his shop, and continued so for some years after the partnership, re- ceiving from the defendant ready money for the lapis calaminaris, and paying for their shop goods afterwards as they would have done to any shopkeeper; but in the year 1817 or 1818, owing, as the de- fendant alleged, to the distress of the times, a new course of dealing took place between the defendant and the miners. In the place of paymg them for the lapis calaminaris with money, he paid them with shop goods, and in his account with the plaintiff he charged him as for cash paid to the amount of the price of the goods. The question was whether he could justify this charge, or whether he must divide the profit made by him on the sale of the goods with the plaintiff. The Vice Chancellor. It is a maxim of courts of equity that a person who stands in a relation of trust or confidence to another shall not be permitted, in pursuit of his private advantage, to place him- self in a situation which gives him a bias against the due discharge of that trust or confidence. The defendant here stood in a relation of trust or confidence towards the plaintiff, which made it his duty to purchase the lapis calaminaris at the lowest possible price. When, in the place of purchasing the lapis calaminaris, he obtained it by barter for his own shop goods, he had a bias against a fair discharge of his duty to the plaintiff. The more goods he gave in barter for the ar- ticle purchased, the greater was the profit which he derived from the dealing in store goods, and as this profit belonged to him individually, and as the saving by a low price of the article purchased was to be equally divided between him and the plaintiff, he had plainly a bias against the due discharge of his trust or confidence towards the plaintiff. I must therefore decree an account of the profit made by the defendant in his barter of goods, and must declare that the plain- tiff is entitled to an equal division of that profit with the plaintiff. 9 For a discussion of principles, see Gilmore on Partnership, §§ 129-132. DUTY TO OBSERVE GOOD FAITH 241 MITCHELL V. REED. (ConiniissioQ of Ajipeals of New York, 1876. Gl N. Y. 123, 19 Am. Rep. 252.," Appeal from judgment of the General Term of the Supreme Court in the First Judicial Department, afifirming a judgment in favor of defendant, entered upon decision of the court at Special Term. This action was brought to have certain leases, obtained by the de- fendant during the existence of a copartnersliip between him and plaintiff, for terms to commence at its termination, of premises leased and occupied by the firm, declared to have been taken for the partner- ship, and to have it adjudged that the defendant held them as trustee for the partnership. * * * . The court found, as conclusions of law, that the defendant. Reed, was the sole owner of the leases executed to him as aforesaid, and that the plaintiff had no right, title, or interest in or to them, or ei- ther of them, and that the defendant have judgment accordingly, to which plaintiff duly excepted. Judgment was rendered accordingly. m * * EarL; C.^° The relation of partners with each other is one of trust and confidence. Each is the general agent of the firm, and is bound to act in entire good faith to the other. The functions, rights, and duties of partners in a great measure comprehend those both of trustees and agents, and the general rules of law applicable to such characters are applicable to them. Neither partner can, in the business and affairs of the firm, clandestinely stipulate for a private advantage to himself. He can neither sell to nor buy from the firm at a concealed profit to himself. Every advantage which he can obtain in the business of the firm must inure to the benefit of the firm. These principles are ele- mentary, and are not contested. Story, §§ 174, 175 ; Collyer, §§ 181, 182. It has been frequently held that when one partner obtains the re- newal of a partnership lease secretly, in his own name, he will be held a trustee for the firm as to the renewed lease. It is conceded that this is the rule where the partnership is for a limited term, and either partner takes a lease commencing within the term; but the contention is that the rule does not apply where the lease thus taken is for a term to commence after the expiration of the partnership by its own limita- tion, and whether this contention is well founded is one of the grave questions to be determined upon this appeal. It is not necessary, in maintaining the right of the plaintiff in this case, to hold that in all cases a lease thus taken shall inure to the benefit of the firm, but whether, upon the facts of this case, these leases ought to inure to the benefit of this firm. I will briefly allude to some of the promment features of this case. These parties had been partners for some years. They were equal in dignity, although 10 The statement of farts, part of tlie opinion of Earl, C, and the opinion of Dwight, C, are omitted. Gilm.Part.— 16 -i^ RIGHTS AND DUTIES OF PARTNERS INTER SB their interests differed. The plaintiff was not a mere subordinate in the lirm, but, so far as appears, just as important and efficient in its affaii's as the defendant. They procured the exchisive control of the leases of the property, to terminate May 1, 1871, and their partnership was to terminate on the same day. They expended many thousand dollars in fitting up the premises, a portion thereof after the new leases were obtained, and they expended a very large sum in furnish- ing them. By their joint skill and influence they built up a very large and profitable business, which largely enhanced the rental value of the premises. More than two years before the expiration of their leases and of their partnership the defendant secretly procured, at an in- creased rent, in his own name, the new leases, which are of great value. Although the plaintiff was in daily intercourse with the de- fendant, he knew nothing of these leases for about a year after they had been obtained. There is no proof that the lessors would not have leased to the firm as readily as to the defendant alone. The permanent fixtures, by the terms of the leases, at their expiration belonged to the lessors. But the movable fixtures and the furniture were worth vastly more to be kept and used in the hotel than to be removed elsewhere. Upon these facts I can entertain no doubt, both upon principle and authority, that these leases should be held to inure to the benefit of the firm. If the defendant can hold these leases, he could have held them if he had secretly obtained them immediately after the partner- ship commenced, and had concealed the fact from the plaintiff dur- ing the whole term. There would thus have been, during the whole term, in making permanent improvements and in furnishing the hotel, a conflict between his duty to the firm and his self-interest. Large investments and extensive furnishings would add to the value of his lease, and defendant would be under constant temptation to make them. While he might not yield to the temptation, and while proof might show that he had not yielded, the law will not allow a trustee thus situated to be thus tempted, and therefore disables him from making a contract for his own benefit. Terwilliger v. Brown, 44 N. Y. 237, and cases cited. It matters not that the court at Special Term found upon the evidence that the improvements were judicious and prudent for the purposes of the old term. The plaintiff was entitled to the unbiased judgment of the defendant as to such improvements, uninfluenced by his private and separate interest. But, further, the parties owned together a large amount of hotel property in the form of furniture and supplies, considerably exceeding, as I infer, $100,000 in value. Assuming that the partnership was not to be continued after the 1st day of May, 1871, this property was to be sold, or in some way disposed of for the benefit of the firm, and each partner owed a duty to the firm to dispose of it to the best advantage. Neither could, without the violation of his duty to the firm, place the property in such a situation that it would be sacrificed, or that he could purchase it for his separate benefit, at a great profit. Much of this property, such as mirrors, carpets, etc., was fitted for use in this hotel, and it is quite DUTY TO OBSERVE GOOD FAITH 243 manifest that all of it would sell better with a lease of the hotel than it would to be removed therefrom. It is clear that one or both of these parties could obtain advantageous leases of the hotel for a term of years, and hence, if the parties had determined to dissolve their part- nership, it would have been a measure of ordinary prudence to have obtained the leases and transferred property with the leases as the only mode of realizing its value. This was defeated by the act of the defendant, if he is allowed to hold these leases, and thus place him- self in a position where the property must be largely sacrificed or purchased by himself at a great advantage. This the law will not tolerate. The language of Lord Eldon, in Featherstonhaugh v. Fen- wick, 17 Ves. 311, a case in many respects resembling this, is quite in point. He says: "If they [the defendants] can hold this lease, and the partnership stock is not brought to sale, they are by no means on equal terms. The stock cannot be of equal value to the plaintiff, who was to carry it away and seek some place in wiiich to put it, as to the defendants, who were to continue it in the place where the trade was already established; and if the stock was sold the same construction would give them an advantage over the bidders. In effect they would have secured the good will of the trade to themselves in exclusion of their partner." For these reasons, independently of the consideration that the leases themselves had a value to which the firm was entitled, upon other grounds and upon authorities, to be hereafter cited, the plaintiff, who commenced his suit about one year before the term of the partnership expired, was, upon undisputed principles and au- thorities applicable to all trustees and persons holding a fiduciary re- lation to others, entitled to the relief he prayed for. * * * I am therefore of opinion that the judgment should be reversed, and new trial granted; costs to abide the event. . JENNINGS et al. v. RICKARD. (Supreme Court of Colorado, 1SS7. 10 Colo. 395, 15 Pac. 077.) Elbert, J.^^ Charles Rickard, the plaintiff below, on the ISth of December, 18S2, filed his bill of complaint against the defendants, John and Daniel Jennings, claiming a decree against them for $20,200, on account of certain partnership transactions. He alleges that in the fall of 1874 he and the defendants entered into a mining copartner- ship for the purpose of collecting mineral specimens, and also for the purpose of discovering, locating, and developing lodes and mining properties; that by the terms of such copartnership agreement Rickard was to furnish certain moneys, horses, wagons, etc.; that the defend- ants were to do the active work in the field in prospecting and locating mining claims, and that each w^ere to have a one-third interest in all mining claims discovered and located by the defendants; that this 11 Part of the opinion is ouiittod. 244 RIGHTS AND DUTIES OP PARTNERS INTER SB copartnership continued until April, 1878; that during this time tne defendants discovered and located the Mammoth, the Empire, and the Trail lodes, and a certain claim to coal lands, and reported the same to plaintiff as properties belonging- to the copartnership; that they reported the aforesaid lodes as being all that had been discovered, located, and claimed by them during the continuance of the copartner- ship agreement. He alleges that on the 19th of IMarch, 1878, he con- veyed to said defendants, for the sum of $iOO, all his interest in and to the foregoing copartnership properties. Concerning this convey- ance of the 19th of March, 1878, he alleges a distinct and separate fraud upon the part of defendants Jennings, by reason of which he is entitled to a decree against them for $200. This fraud concerns prop- erties admittedly belonging to the copartnership, and will be consid- ered first. Under the terms of the copartnership, the lodes were located for convenience in the names of the defendants, and they were authorized to negotiate and sell them, accounting to plaintiff for one-third of the proceeds. The evidence clearly shows that on or about the 19th of March, 1878, the defendants approached the plaintiff concerning a purchase of his third interest in the foregoing copartnership properties, and that the negotiation resulted in the sale by plaintiff to defendants of -his third interest in the same for the sum of $400, which he then and there conveyed by deed of that date to defendants. It also quite clearly appears that at the time of this sale the defendants were ne- gotiating a sale of the copartnership coal claim to one Smith, for the sum of $1,800. Although this sale to Smith was not consummated until some time thereafter, the deed to Smith, which was placed in escrow, bears date March 19, 1878, the date of the conveyance by the plaintiff to defendants of his one-third interest in the copartnership properties. The one-third interest of the plaintiff in the proceeds of the sale of this coal mine would have amounted to $600, $200 more than the defendants paid him for his entire interest in the four claims. The partnership relation is a trust relation, and the members of a copartnership are held to a strict rule of good faith and fair and open dealing. He who assumes the relation invites the confidence of his copartners, and pledges fidelity to the interests of the copartnership. The requirements of the copartnership relation which the defendants sustained to the plaintiff demanded that, at the time of the negotiation for a sale of his third interest in the copartnership properties, they should have made known to him the negotiation which was then pending with Smith for the sale of the coal claim for the sum of $1,800. Their concealment of this negotiation from the plaintiff was the concealment of an important fact, affecting the value of plaintiff's copartnership interest for which they were negotiating. It enabled them to deal with him on unfair and unequal terms. It was a fraud, and equity and good conscience required that defendants should ac- count to plaintiff for one-third of the proceeds of that sale. DUTY TO OBSERVE GOOD FAITH 24.") The sale by plaintiff to defendants of his one-third interest in the copartnership properties, to wit, the Mammoth, the Empire, and the Trail lodes, and the coal claim, was a sale in gross for $100. The consideration paid for each property respectively, does not appear. As the plaintiff introduced no evidence upon this point, and only prayed in his bill of complaint that the defendants be decreed to ac- count for the sum of $200, the difference between the entire considera- tion paid him for the whole property and his third interest in the pro- ceeds of the sale of the coal claim, the court was justified in limiting its decree in this behalf to that sum. Secondly. The plaintiff alleges another and distinct fraud respecting certain mining properties, which he claimed belonged to the copartner- ship, a claim which the defendants contest. Plaintiff alleges that, during the continuance of said copartnership agreement, the defend- ants discovered and located certain other mining claims, viz., the Cliff, the North Star, the Hiawassee, the Galena, the East Wing, the Buck- eye, and the Sylvanite; that under the terms of their copartnership agreement he was entitled to a one-third interest in the same, but that the defendants fraudulently concealed from him the discovery and lo- cation of said claims, and that he never knew of the existence of said claims, or of his rights therein, until on or about the 27th day of September, 1879, when the defendants sold and conveyed said claims to one Ballentine for the sum of $00,000. By reason of this fraud upon the part of defendants, the plaintiff claims a decree for $20,000, one-third of the proceeds of said sale to Ballentine. The defendants, in their answer, deny the copartnership, except as thereinafter stated, and "thereinafter" they say "that they, the defend- ants, further answering, admit that they entered into an agreement with plaintiff to gather specimens and prospect for lodes, substantially as set out in the complaint, and that such agreement continued until the early part of the year 1878." They set forth the sale and deed of the 19th of March, 1878, by plaintiff to defendants, and say "that, upon the completion of such sale by plaintiff to defendants, it was then and there agreed by and between them that all former associations, agreement, copartnership, and business relations theretofore existing between plaintiff and these defendants should cease, and the same were then and there fully dissolved and terminated." In view of the testimony, as will be seen, this is an important admission. They deny any fraudulent concealment of lodes discovered and located as alleged in the complaint, but claim that the Mammoth, the Empire, the Trail lodes, and the claim to coal lands, reported by them to plaintiff as copartnership properties, were all the lodes discovered and located bv them during the continuance of the copartnership, from the fall of 1874 to the spring of 1878. Upon the admissions of the defendants in their answer and testi- mony, the Cliff, the Hiawassee, the Galena, and the North Star must be treated, without hesitancy, as oroperties belonging to the copartner- 24C RIGHTS AND DUTIES OP PARTNERS INTER SE ship. Tlie defendants, in their answer, admit that the copartnership formed in 1874 continued until the spring of 1878. The copartner- ship must be treated as extending to all mining properties discovered and located by the defendants during that period, in the absence of any limitation. John Jennings admits in his testimony that the four lodes named were discovered and located in 1876 and 1877. The defendant, Daniel Jennings, while he does not testify upon this point, does not in any way controvert or disclaim it. It is true that they both claim in their testimony that they understood that the copartner- ship was dissolved in the spring of 1876, when the copartnership "specimen store" was sold; but this testimony does not support the allegations of the answer, the admissions of which, upon this point, must be held to control. It appears from the testimony that these four mines belonged to the group of ten which were sold to Ballentine for the sum of $13,000. There is no evidence fixing the separate value of the mines which constitute this group. In the absence of any evidence upon this point, the respective mines constituting the group must be treated of equal value. In so far, therefore, as the decree of the court below was based upon the right of the plaintiff to recover one-third of the pro- ceeds arising from the sale of the Cliff, the Hiawassee, the North Star, and the Galena is concerned, we think it is justified by the plead- ings and the evidence. It appears that three other mines which plaintiff claims belong to the copartnership, viz., the Sylvanite, the Buckeye, and the East Wing, were at the same time, namely, on the 27th of September, 1879, con- veyed to Ballentine by a separate deed, and that the true consideration therefor was $48,000. This sum, together with the $12,000 for which the other group sold, constitutes the $60,000 for the one-third of which plaintiff claims a decree. It remains, therefore, to determine whether, upon the evidence, these three mines belonged to the copartnership. The two Jennings and other witnesses testify positively to their discovery and location in 1879, after the copartnership had been admittedly dissolved. It ap- pears that the Sylvanite was by far the most valuable of the three; that the other two were not regarded as of much value. There was an effort upon the part of the plaintiff to show that, while the Sylvanite was not located until 1879, it was really discovered by the Jennings during the existence of the copartnership, and its discovery fraudu- lently concealed from the plaintiff. Daniel Jennings admits in his testimony that some years prior to 1879, while prospecting, he dis- covered some "float" upon the mountain side some four or five hun- dred feet from where the Sylvanite was afterwards discovered, and that he stuck a stake there to indicate the locality, with a view of re- turning at some future day to prospect for the vein from which it came, but that he never did return to renew his search until 1879. Other witnesses testify to substantially the same admission on his RIGHT TO COMPENSATION FOR SERVICES 247 part. At the worst, this was but a neglect upon his part to pursue a search that might have terminated beneficially to the copartnership. His failure to do so, however, does not appear to have been fraudu- lent. It is not shown that at the time he stuck the stake .where he found the "float," that he discovered the vein from which it came, or that he had any knowledge respecting it that would render his failure to make further search for the mine fraudulent. Such and other indications of the existence of mineral veins are frequent in the path of the prospector. All that can be required of him is that he pursue his search with diligence and good faith. His failure to folloA' up a particular "float," or other indication of a lode, is not a fraud as of course. It will not do to say, under the circumstances of this case, that Jennings, after the dissolution of the copartnership, could not return to and prospect in Elk Mountain district for other lodes, ex- cept at the peril of having to yield to plaintiff a one-third interest in their discoveries, upon the proposition that by proper diligence they might have discovered such lodes during the existence of the copart- nership. The evidence does not show the fraudulent concealment of a discovery, as in the case of the other group of mines. In so far, therefore, as the decree of the court below was based upon the rights of the plaintiff to recover one-third of the proceeds arising from the sale of these three mines, we do not think it justified by the evidence. * * * The decree of the court below is reversed, and the cause remanded. VII. Right to Compensation for Services ^'' LINDSEY V. STRANAHAN. (Supreme Court of Pennsylvania, 1889. 129 Pa. 635, 18 Atl. 524.) Per Curiam. There is but a single question in this case : Is J. R. Lindsey, the plaintiff', entitled to compensation for his services as a partner? It is conceded that there was no express contract that he should be paid for such services, and there is no principle better set- tled than that the law will not imply a contract in such cases. The reason is that the partner is but attending to his own affairs. This rule is inexorable; as much so as that between parent and child. Were it otherwise, we might have a contract between the partners upon the settlement of every partnership account as to the value of their respective services. It is true this principle may work hardship in particular cases — almost every general rule does ; but that is a weak argument against the soundness of the rule. When the copart- nership agreement contemplates that one partner shall manage the 12 For a discussion of principles, see Gilniore on Partnership, § 133. 248 RIGHTS AND DUTIES OF PARTNERS INTER SB business, or do more than his share of the work, it is easy to provide for his compensation in the agreement itself; and if no such stipula- tion is then made, as before said, the law will not imply one. Even where a liquidating or surviving partner settles up the business, it has been repeatedly held that he is not entitled to compensation for doing so, although, in such case, he performs all the services. Beatty v. Wrav, 19 "Pa. 516, 57 Am. Dec. 677; Brown v. McFarland, 41 Pa. 129. 'so Am. Dec. 598; Gyger's Appeal, 62 Pa. 73, 1 Am. Rep. 382; Brown's Appeal, 89 Pa. 139. Judgment affirmed. VIII. Right to Indemnity and Contribution** DOWNS V. JACKSON. (Supreme Court of Illinois, 1864. 33 111. 465, 85 Am. Dec. 289.) Beckwith, J.** This was a bill in chancery for contribution and set-off. The parties were partners, sharing profits and losses equally in the manufacture and sale of furniture for one year, ending No- vember 22, 1860, when the copartnership was dissolved, and the plain- tiff in error bought the interest of the defendant in error in certain furniture belonging to the firm, and gave his notes therefor, a part of which were paid, but upon the remainder there was due at the commencement of the suit about $200. At the time of said dissolu- tion the firm was indebted to Roundy, Chabin & Co. in the sum of about $400, upon which indebtedness a judgment was rendered in April, 1861. An execution was afterwards isssued thereon and sat- isfied by a sale en masse of certain lands belonging to the parties sev- erally. On the 1st day of January, 1862, the plaintiff in error redeem- ed from the sale by paying to the purchaser the amount of his bid, with interest, for which he gave a receipt upon the back of the cer- tificate of sale, which he delivered to the plaintiff in error. In the spring of 1863 the parties had a settlement of all their copartnership matters, except the claim of the plaintiff in error to be repaid one- half of the amount paid by him to redeem said lands and the balance due upon said notes. The plaintiff in error by the present suit seeks contribution for a moiety of the sum paid by him and a set-off of the same against the amount due upon his notes. The liability of the par- ties to Roundy, Chabin & Co. was a joint one, and it was the duty of each party to exonerate the other from a moiety of it. No act falling short of a complete exoneration of the one party and his property from 13 For a discussion of principles, see Gilmore on Partnership, § 134. 1* I'urt of tiie opinion is omitted. RIGHT TO INDEMNITY AND CONTKIBDTION 249 SO much of the habihty as he was entitled to be exonerated from will operate as a discharge of the other party from his obligation in that re- gard. The sale en masse of the lands of the defendant in error with those of the plaintiff in error did not discharge any part of the prop- erty sold, nor the parties from their respective duties. Neither party could obtain a discharge of his property without paying the whole amount of the purchase money and interest, and each of them had the same right after the sale, within the time allowed by law, to re- deem the lands for that purpose as he had before that time to pay the debt to discharge himself from personal liability. The sale may have been irregular, and for that reason might have been set aside; but setting aside the sale would have revived the debt, and we are unable to discover any satisfactory reason for requiring the plaintiff in error to make the charge upon his property a personal debt against the de- fendant in error and himself before satisfying it. The law does not require acts to be done where there is no conceivable object to be gained by doing them. In the present case the right to contribution is founded upon the duty of exoneration. The plaintiff in error has been compelled to pay money to exonerate his property from a lia- bility, a moiety of which he ought to have been exonerated from by the defendant in error. The lands were discharged from the sale by the purchasers accepting the redemption money. The statute, pro- viding a mode of evidencing the redemption, may be enforced by an appropriate remedy ; but a compliance with its provisions is not a con- dition precedent to the assertion of the right of plaintiff in error to contribution. The court below should have rendered a decree in favor of the plaintiff in error for the one-half of the sums paid by him, with interest thereon from the time of its payment. The plaintiff in error was not entitled to the set-off claimed by the bill. There was no proof of the insolvency of the defendant in error, nor of any special equity requiring the set-off to be made. * ♦ * The decree of the court below will be reversed, and the cause re- manded. Decree reversed. WARRING V. ARTHUR et al. (Court of Appeals of Kentucky, 1S95. 98 Ky. 34, 32 S. W. 221.) Eastin, J. This action was brought by appellant in the Bell cir- cuit court, alleging the existence of a partnership between himself and appellees, and seeking to enforce an alleged right of contribution from appellees of certain sums which he claimed to have paid in excess of his proportion of the partnership indebtedness. It is charged in the petition that this partnership relation arose by operation of law out of the fact that appellant and some of the appellees had, in the year 1890, signed articles of incorporation, and undertaken to organize a corporation in the town of ]\Iiddlesborough, under chapter 56 of the 250 RIGHTS AND DUTIES OF PARTNERS INTER SB General Statutes of Kentucky, and that all of the appellees had sub- scribed for and become the owners of stock in this proposed corpora- tion, which had never, in fact or in law, become a corporation, by rea- son of the failure of the projectors thereof to comply substantially with the requirements of the statute regulating the formation of cor- porations in Kentucky. It is alleged, however, that this abortive cor- poration commenced business and incurred liabilities which it was un- able to pay, and that, the defects in its organization being discovered, and the fact that it had no legal corporate existence becoming known to some of its creditors, suits were brought against appellant to charge him individually, as one of the incorporators and stockholders thereof, and that he had thus been compelled to pay on its account the sum of $1,327.68. It is further alleged that by reason of the failure to become legally incorporated the relation between appellant and his associates became that of partners, and that they all became equally liable to creditors for said indebtedness, and that he was entitled to contribu- tion from the others for their respective proportions of the amount paid by him individually. It is stated, however, that of his several associates only two, to wit, the appellees John M. Brooks and R. H. Fox, were, at the time of the filing of the petition, either solvent, or within the jurisdiction of the court, and appellant therefore asked that they be required to contribute equally with him the amount he had so paid out, and asked judgment against each of them for an amount equal to one-third thereof, or $442.56. To this petition a general de- murrer was sustained by the court, and, leave being given to amend, appellant, at a subsequent term of the court, filed an amended peti- tion, in which he alleged for the first time that the company or part- nership referred to in his original petition was insolvent at the time of the filing thereof ; that it never had any invested capital ; that its business had been done on credit ; that it had long since ceased to do business; that all the property it ever had had been sold by order of court; that from the time of the attempted organization it had been insolvent, and had long since been dissolved. To the petition as thus amended appellees Fox and Brooks again demurred, but, their de- murrers being overruled, they excepted, and were given time to answer. Separate answers were afterwards filed by these appellees, to which ap- pellant filed replies, and also general and special demurrers, which were not then passed upon by the court, and separate rejoinders were then filed by Fox and Brooks, thus making up the issues on the plead- ings. Appellant testified in his own behalf. Brooks gave his deposi- tion ; and a written statement by Fox, which was agreed to be read as his deposition, was filed, and these, with the exhibits attached to them, constituted the evidence heard upon the trial. Upon the hear- ing the court below overruled the demurrers filed by appellant to the answers of Brooks and Fox, respectively, but on the merits adjudged that appellant take nothing by his petition, and dismissed the same with costs, to all of which appellant excepted, and prayed an appeal. The record before us presents some questions of more than ordinary EIGHT TO INDEMNITY AND CONTRIBUTION 251 interest, especially that arising on the merits of the case as prepared, and pertaining to the mutual obligations to each other of parties stand- ing in the relation of the parties to this action; but, interesting as a consideration of that question might be, it is unnecessary, in our view of the case, and the decision of the court will be based entirely upon the sufficiency of appellant's petition to sustain the action against ap- pellees. It is to be observed that the liability sought to be fixed by appellant on appellees is that of partners. The very foundation of the cause of action rests upon the assumption that the failure of these parties to pursue substantially the course pointed out in and required by the statute for the organization of a corporation made them part- ners in this business, and, a partnership being thus established by op- eration of law, this action for contribution as between partners was brought to charge each with his proportion of what one member there- of had been compelled to pay on account of partnership liabilities. Yet it is nowhere alleged in the petition as amended, nor is it anywhere claimed in the case, that there had ever been any settlement of the partnership accounts, or any accounting between the parties, whereby a balance had been struck, or whereby the appellees were found to be indebted to the firm in any sum on final settlement. That this is, as a general rule, necessary in order to enable one partner to maintain an action of this kind against his copartners, is too well settled to require discussion. Where the transaction out of which the liability arises is independent of or outside of the partnership business, or where the partnership covers a single venture, or but one transaction, so that no accounting is necessary, the rule is perhaps different ; but in a business such as the one under consideration here, covering a variety of transactions, we know of no exception to the rule as above stated. This rule is recognized by this court in the cases of Lawrence V. Clark, 9 Dana, 259, 35 Am. Dec. 133, Shearer v. Francis (Ky.) 5 S. W. 559, and Stone v. Mattingly (Ky.) 19 S. W. 402, and may be said to be fundamental as to the right of one partner to sue his co- partner. It is true that this action was brought in equity, and that the petition contains a prayer for all general relief; but it does not ask for a settlement of the partnership accounts, or for a winding up of its affairs. It does state that the partnership is insolvent, but it nowhere says anything as to the nature or amount of its indebtedness ; and while it alleges that appellant has made these payments for it, it takes no account of the fact that other members of the firm may also have paid out money for it, as Brooks in his testimony swears that he has done. And this shows the importance of the rule referred to, for how could this one partner have known the state of the account be- tween this firm and each of the other partners when there had been no settlement of the partnership accounts, and how unreasonable it would be to allow him to maintain an action against each of the others for their full proportion of what he might have paid without refer- ence to the question as to what they may have paid? In other words, how can there be any fair or just contribution, or any claim to con- 252 RIGHTS AND DUTIES OF PARTNERS lNTi5U Sfl triDution, as oetwcen partners, until alter a linal settlement and ascer- tainment of the exact state of the account of each partner, and a full settlement of the partnership affairs? Admitting all that is alleged in this petition to be true, it might well be that appellant was entitled to recover nothing from his partners by way of contribution on ac- count of what he had paid, for, as there is no pretense that the part- nership accounts have ever been settled, it might appear on such set- tlement that appellant was still indebteded to the partnership in a large sum, and that his partners had actually paid for it much more than he had done. Indeed, this very claim is here made by his partners. It is charged by them that, though he subscribed for stock to the amount of $2,500, yet he has paid for no part of it; and while he claims that it was agreed that he should not pay for it, still Brooks and Fox deny that there was any such agreement. We only refer to this, however, as illustrating the imperative necessity for and the emi- nent propriety of the rule which forbids that such an action be main- tained in the absence of a full settlement of the partnership affairs which will show the exact state of the account between it and every other person, and especially the other members of the firm, so that the claims and demands of the partners, as between themselves, may be known. Another point to which attention may be called is the fact that this petition fails to state that this alleged partnership was an equal part- nership, or that the appellees, Fox and Brooks, who are each asked to contribute equally with appellant, are equally interested with him in the partnership. It appears from the record that appellant sub- scribed for $2,500 of the stock, while each of the appellees named sub- scribed for $1,000 of the same. The fact that they were stockholders is the fact relied on for holding them liable as partners. Mr. Lindley, in his work on Partnership, lays it down as a general rule "that part- ners must contribute ratably to their shares towards the losses and debts of their firm" (2 Lindl. Partn. p. 386) ; and this, we think, is the accepted doctrine on the subject. Certainly any other rule would be very inequitable in this case, and while we do not care to decide that this must be the basis of recovery in every such case, yet we would call attention to the absence from the petition in this case of any allegation as to the respective interests of the partners among whom this loss is sought to be apportioned. In conclusion, it is clear from the views above expressed that no error was committed by the court below to the prejudice of appellant, and the judgment dismissing his petition with costs is therefore affirmed. DISTEIBDTION OF ASSETS AMONG PABTNEBS 253 IX. Distribution of Assets Among Partners GROTH et al. v. KERSTING. et al. (Supreme Court of Colorado, 1896. 23 Colo. 213, 47 Pac. 393.) Hayt, C. J. The defendants in error, Fritz Kersting and Au.c:ust Wilmsmeier, commenced suit against plaintiffs in error, Louis Groth and Ferdinand B. Becker. This action was numbered 13,115 in the district court. The complaint in the suit, as originally instituted, con- tained two causes of action. The first, which was directed against the defendant Groth alone, is an action by two partners against the third member of the firm for an accounting. The second cause of action was against both of the defendants, upon an account stated. At the time of the institution of this suit, an attachment was issued in aid thereof, and sustained upon final hearing. To the original complaint a demurrer was interposed, and sustained. Thereafter the complaint was amended, and the first cause dropped therefrom. This first cause of action was subsequently made the basis of an independent suit, designated in the district court as No. 13,900. After the issues were joined in the two causes, they were consolidated, and referred to I. E. Barnum, as referee, to take testimony, and report findings. As a result of the proceedings had before the referee, the plaintiffs in both cases were successful. Exceptions to the report were in due time filed, and overruled by the court. In accordance with the findings of the referee, the district court rendered judgment for the plaintiffs for the sum of $8,751.54, against both defendants, and an individual judgment against Groth alone for the sum of $1,936.70. From this judgment a writ of error was sued out from the Court of Appeals, in which court the judgment of the district court was in all things affirmed. See Groth V. Kersting, 4 Colo. App. 395, 36 Pac. 156. From this latter judgment the cause is brought here by error. It is claimed that the referee's report, which formed the basis of the decree in the district court, as well as that of the Court of Appeals, is manifestly erroneous, in that it fails to provide for the repayment to each partner of his contribution to the business. Undoubtedly, the usual order of distribution of the assets of a copartnership upon dissolution is as stated by counsel, to wit: (1) Payment of the debts or liabilities due third persons; (2) repaying to each partner his ad- vances; (3) repaying to each partner his capital; (4) division of the balance as profits. While this is the usual order, it may be altered by agreement of the parties, and in this case we think, from the evidence and the conditions under which the copartnership was formed and the 15 For a discussion of principles, see Gilmore on Partnership, § 136. 254 RIGHTS AND DUTIES OF PAKTXEUS INTER SE firm business transacted, the referee correctly determined that the amount contributed by the several partners was to be considered as assets of the firm, and to be distributed accordingly. In accordance with the terms of the agreement, Kersting and Wilmsmeier were to devote their time and attention to the joint enterprise, and contribute only $3,650.50, while Grolh contributed $8,000, although he had but a one-third interest in the business. This disproportionate amount was, we think, put in by Groth against the lease theretofore secured by Kersting & Co., and as an ofifset to their labor and services in the management of the business, with the further benefit to Groth result- ing from an agreement to furnish brick for his building contracts at a lower price than they could be purchased for in the market. So, we conclude that it was not error for the referee to treat these several items as assets of the copartnership, to be divided between the part- ners according to their interest in the copartnership, without regard to the ratio of the original contributions. Among the credits allowed Kersting & Co. is one for hauling brick. It is claimed that in this there is error, because the bricks were hauled by teams belonging to the copartnership. We do not so understand the evidence. On the contrary, the referee gave credit only for the money paid to others for hauling. Mr. Kersting says : "Brick hauling, $1,242.- 40 ; that is, teams which hauled bricks, and we paid them for hauling." In the complaint it is alleged that the profits of the brick business were $9,731.68, for which the firm of Kersting & Co. is accountable, while the net profits of the business, as found by the referee, were only $7,828.60. It is urged that this is in violation of the rule binding parties by the allegations of their pleadings. This is not so, for the reason that this allegation of the complaint is denied by the answer, and evidence was taken upon the issue thus made. The referee found that the price charged for brick by Kersting & Co. was too high, and reduced the amount, thereby reducing the firm profits correspondingly. There was no error in this, but Kersting & Co. were improperly allow- ed, as part of the expenses of the business paid by them, the sum of $3,650.50, this being the value of the lease, horses, wagons, tools, brick, etc., contributed to the firm by Kersting and Wilmsmeier at the inception of the enterprise. The contribution to the firm, under the findings of the referee, became joint property or firm assets; and neither party should have been given credit for either of the amounts in the final settlement, except as the same may result from a division of the firm assets. The referee acted upon this rule so far as Groth is concerned, but adopted a different rule as to Kersting and Wilms- mrier. This was not called to the attention of the court in any of th-; briefs filed or oral arguments heard prior to writing the first opin- ion, but was first mentioned in the petition for rehearing; but the error is manifest, and the correction will now be made. With this change the account may be stated as follows: DISTRIBUTION OF ASSETS AMONG PARTNERS 255 Kersting & Wllmsmeier in Account with Korsting & Co. To collectlona for firra $ns.805 04 Ey expenses paid fur the lirni (J.j,71G 37 Bahiuce due $ G,0S9 27 Film Assets. Due from Croth & P.cckor $ 8.7.">1 54 Due from Kcrsi in^' iK: Wilnismeier, as above r..(is:t 127 Due from Louis (Jrolh 8,0(X) 00 Total $21,840 81 Of this amount Ker.sting & Wilmsmeler are entitled to two-thirds $14.nOO 54 Less their indebteduess to the firm, as above 5,0SD 27 Balance due Kersting & Wilmsmeier $ 9,471 27 Kersting and Wilmsmeier are entitled to judgment for the amount due them, viz. $9,471.27. It is now conceded that Groth & Becker and Louis Groth may properly be considered as one and the same party so far as the settlement of this business is concerned. We will therefore not interfere with the judgment rendered against Groth & Becker for $8,751.54, but will correct the error by reducing the judg- ment against Groth from $1,936.70 to $719.73. The judgment of the Court of Appeals against Groth & Becker will therefore be affirmed, and die judgment against Groth reduced to $719.73; the costs in this court to be equally divided between the parties. The cause will be remanded to the Court of Appeals for further proceedings in accord- ance with this opinion. Judgment modified. LESERMAN v. BERNHEIMER et al. (Court of Appeals of New York, 18S9. 113 N. Y. 39, 20 N. E. 8G9.) Danforth, J.^* The capital of the firm was $225,000, to which each partner contributed $75,000, under an agreement that each part- ner should share the profits and bear the losses equally with the others, viz., one-third each. No time was fixed for its continuance, and No- vember 25, 1873, Leserman elected to have the business wound up. and notice to his partners required that an account should be taken for that purpose. This was done, an account of stock taken, and bal- ance struck as of the 31st day of December of that year; at which time the referee finds "it was distinctly known and understood by all the parties that the partnership was to be dissolved and wound up in pursuance of the notice already given by Leserman." It was not, however, formally dissolved until March 13, 1874. * * * It was found that Leserman had drawn out of his original capital $10,499.67; that Bernheimer had increased $56,621.39; while Gold- is Part of the opinion and the statement of facts are omittedL 256 RIGHTS AND DUTIES OF PARTNERS INTER SB smith had drawn out the whole of his, and also owed the firm $897.99. After paying all the liabilities of the firm, there remained, according to the report, $128,920 in the hands of the liquidating partner. This sum is carried to the capital account, and whether its disposition by the referee is correct presents the first important inquiry. 1. The interest of each partner in the partnership property is his share in the surplus after the partnership accounts are settled and all just claims satisfied. In this case, by the terms of the partnership, the partners were to contribute equally, and to divide profits and share losses equally, from the beginning of the partnership to its dissolution. There is no evidence which requires or would permit any finding that this arrangement had been changed, nor are we referred to such find- ing. It would seem to follow that the division of profits and charge of losses should be in the proportion of one-third of each to each partner. To carry out that mode of adjustment as the one provided by the agreement of the parties, the advances made by either part- ner beyond the capital called for by that agreement should be treated as a debt due from the firm, and paid out of the surplus before any division is made upon the partnership capital. If that advance was not in strictness to be regarded as a debt during the existence of the firm, nor until the debts of the firm to third persons were satisfied, it came into that relation the moment these debts were paid, and the concern, as regards its business and its outside obligations, wound up. This is an equitable disposition of the matter, for otherwise the larger the advances made for the firm the greater would be the share of losses, or, if profits, the greater the share of profits accruing to the partner making the advance, — in either case, a result entirely opposed to the actual agreement of the parties, which exacted equality in both respects. Nor is the rule opposed to the authorities cited by the re- spondent. * * * Bernheimer was a contributor to capital. He was also in advance of that contribution, and the sum advanced must be repaid before the surplus can be ascertained, and from that surplus alone can there be distribution; then to each partner equally; and, if a loss is incurred, its ratio must be ascertained, as originally agreed by the parties. The learned referee has not dealt with the appellant Bernheimer in accord- ance with these rules. He gives him one-third only of the sur- pus by reason of his original capital, and in accordance with the same theory the learned referee gives one other third of the surplus to Leserman, and the remaining third to Goldsmith. This method would be well enough if the surplus was sufficient to pay all. But it is not, and, moreover, the advance made by Bernheimer is left entirely un- paid. To cover it, therefore, the sum advanced is divided into three parts, and Bernheimer is given a judgment against Leserman for $18,873.72, or one-third, a judgment against Goldsmith for a like amount, or one-third, leaving him to bear a certain loss as to the re- paetner's so-called lien 257 maining third, and imposing on him the risks of collection as against Gold:n-ith. We think this result is inequitable, and not required by any rule or principle of law. The sum advanced by Bernheimer over his $75,000 should be first paid from the partnership surplus, and the residue divided among the partners, according to the partnership agreement. Of course, Gold- smith, having drawn out his whole capital, could be entitled to no part of the surplus, and Leserman's share would be diminished by reason of the sum already drawn by him. The losses entailed upon the firm, by reason of Goldsmith's overdrafts of capital or otherwise, must, of course, be borne equally. * ♦ ♦ Judgment reversed. X. Partner's So-Called Lien ^' WARREN V. TAYLOR et a!. I (Supreme Court of Alabama, 1877, GO Ala. 218.) The original bill in this case was filed by John F. Warren against Joseph W. Taylor and Mrs. Mary C. Benagh, and sought a settlement of a partnership which had existed between Warren and Taylor, the foreclosure of a mortgage which Taylor had given to Warren on his interest in the partnership effects, and the adjustment of the con- flicting liens of Warren's mortgage and a mortgage owned by Mrs. Benagh. The mortgage by Taylor to Warren was given to secure him against any liability on account of certain bills of exchange, drawn by Taylor, in the firm name, for his personal use, with Warren's consent. The mortgage from Taylor to Mrs. Benagh was also given to secure her for a loan to Taylor for his personal use. Both mortgages were on Taylor's interest in the firm of Taylor & Warren. The mortgage to Mrs. Benagh was recorded some time prior to the mortgage to War- ren. The chancellor held that the complainant had no lien as a partner, on account of the said bills of exchange he had been obliged to pay, but must rely only on his mortgage, and that Mrs. Benagh's mort- gage, having been first recorded, was entitled to preference over his mortgage. Decree accordingly. Complainant appealed. Stone, J.^^ Money was borrowed separately from two persons, each transaction having its inception about the same time — January, 1874. The evidence of the indebtedness was in each case renewed from time to time, and mortgages -given as security on the same prop- 17 For a discussion of principles, see Gilmore on Partnership, § 137. 18 Fart of the opinion is omitted and the statement of facts Is rewritten. Gilm.Part. — 17 258 RIGHTS AND DUTIES OF PARTNERS INTER SB erty— the borrower's interest in the Times newspaper and its property. In die case of Mrs. Benagh's loan, the first mortgage was executed di- rectly to her, on the same date as the loan, January 8, 1874. This mortgage was renewed every three months. In the loan by Fitts & Co., bankers, the bill of Taylor & Warren, partners and joint^ owners of the Times newspaper, was taken as security, due at a short interval. This debt was increased during the year, and was renewed every 30 days. A mortgage on Taylor's interest in the Times newspaper was given to Warren to indemnify him against the use of the firm name, Taylor & Warren. This mortgage was also renewed at short intervals. At the request of Taylor none of the mortgages were put on record until March, 1875. Each series of mortgages was renewed within ev- ery three months ; and this, it was believed, would preserve the lien from the date of the several mortgages given in renewal, without ex- pense and notoriety of registration. In other words, it was believed that mortgages on personalty might be recorded within three months after their execution, and this would operate constructive notice to creditors and purchasers from their date. Each of the loans was for the personal use of Mr. Taylor, and no part of the money was applied to the purposes of the partnership of Taylor & Warren. Neither Mrs. Benagh, nor Mr. Warren, knew of the mortgage to the other, or that the other loan had been negotiated. On the 23d of March, 1875, Mr. Taylor being short in the payment of interest, promised quarterly, to Mrs. Benagh, she consulted counsel, and on his advice had her mort- gage recorded on that day. Warren's mortgage was recorded four days afterwards. The question presented is, which has the paramount claim on the mortgaged property? Warren has paid up the bill to Fitts & Co. out of his private funds, and he is the actor in this suit. 1. In settling partnership accounts, each partner is clothed with the right to insist that the partnership effects shall be first applied to the payment of the partnership debts ; and this right will prevail over the claims of an alienee or creditor of the copartner. So clearly de- fined is this right — so necessary to persons engaging in joint ad- ventures of this kind — that it has been long and firmly settled that each partner has a lien on the effects that they shall be applied primarily to the extinguishment of the partnership liabilities. This results, natural- ly and necessarily, from the nature of the enterprise and of the title by which the property is held. The title is in the company or associa- tion of individuals, and no one of the number has a separate owner- ship or right to any part or piece of the property or effects of the partnership. And the lien goes further than this. After the debts are all paid, each partner has a lien on the remaining partnership ef- fects for any balance due him upon a proper accounting together. 1 Story's Eq. Ju. § 677; Moore v. Smith, 19 Ala. 774; Donelson's Adm'rs v. Posey, 13 Ala. 752; Cannon v. Copeland, 43 Ala. 201; McGown v. Sprague, 23 Ala. 524; Reynolds v. Mardis' Heirs. 17 Ala. 32 ; Reese v. Bradford, 13 Ala. 837 ; Lucas v. Atwood, 2 Stew partner's so-called lien 259 378; Emanuel v. Bird, 19 Ala. 59G, 54 Am. Dec. 200; Bridge v. Mc- Cullough's Adm'rs, 27 Ala. 6G1 ; Waldron v. Simmons, 28 Ala. 629 ; Andrews v, Keith, 34 Ala. 722; Coster's Ex'rs v. Bank of Georgia, 24 Ala. 37; Parsons on Partnership, 265, 350, 351, 352, 168, 502; Fourth Nat. Bank v. Railroad Co., 11 Wall. (U. S.) 624, 20 L. Ed. 82; Rodriguez v. Hefferman, 5 Johns. Ch. (N. Y.) 417; Sitler v. Walker, Freem. Ch. 77. 2. The disputed question in this case is whether the claim of War- ren is a partnership demand. There can be no question that it was a partnership debt, so long as it remained unpaid to Fitts & Co. ; and they could have claimed and asserted all the rights against the part- nership and its effects which the law accords to partnership creditors. The bill was executed in the firm name, with the knowledge and con- sent of both partners; and this bound the firm. Even if the firm name had been signed by one, without authority from the other, the bill was made to be used, and was used in borrowing money; and there is no evidence that Fitts & Co. knew the use to which the money was to be applied. We are not prepared to say that the debt would not have been a partnership liability, even if the bill had been executed as last supposed. Knapp v. McBride, 7 Ala. 19 ; Jemison v. Bearing's Ex'rs, 41 Ala. 283; Cullum v. Bloodgood, 15 Ala. 34; 2 Brick. Dig. 306, § 103 ; Sprague v. Zunts, 18 Ala. 382. The relation between partners is one of generous confidence. In the absence of special agreements to the contrary, the law constitutes each the agent of the other, and the representative of the firm in the conduct of all the ordinary business of the partnership. The act of one is the act of all. If it be a mercantile partnership, a sale by one is a sale by all. And a payment to one member of the firm discharges the debt, although that member may misapply or squander the money. It is not unfrequently the case that one partner becomes more in- debted to the firm than another. He may use more of the income and effects in his personal and private affairs, may overdraw his share, or may anticipate future receipts and emoluments, sometimes with and sometimes without his copartner's knowledge or permission. In ei- ther case, his share of the profits, or of the capital, if needed, will stand incumbered by a lien to make good such deficit to his copart- ner ; and that lien will be paramount to the right of any alienee or creditor of his. "In general, when a sum of money is advanced to a partner, or a partner is permitted to take it as a loan, and there are no express terms agreed on, his profits are in the first place answer- able; and, if they are insufficient, his share of the stock goes to dis- charge this balance ; and, if that is insufficient, he becomes a personal debtor for the balance." Parsons on Partnership, 241. See, also, 3 Kent's Com. marg. p. 40 et seq. If, instead of borrowing the firm's credit to raise money on, Mr. Taylor had used its money, or had hypothecated its bills receivable, and thus realized the sum of them on his private account — and this 2G0 RIGHTS AND DUTIES OF PARTNERS INTER SB either with or without Llr. Warren's consent — the rule above de- clared would have applied in all its force, and Mr. Warren would have held a lien. So, if there had been a partnership debt of Taylor & War- ren, and Mr. Warren had paid it out of his private funds, this would have given him a claim and lien against Taylor's interest in either profits or capital of the partnership, paramount to the rights of cred- itors of or purchasers from Taylor. And such creditor or purchaser w^ould have no right to complain ; for he would realize, by the trans- action, all that Taylor could claim. He would be entitled to no more. In other words, Mrs. Benagh, in this suit, can claim what Taylor could claim, if he were suing Warren; no more. She purchased no other right. See Donelson's Adm'rs v. Posey, and other authorities supra. She cannot complain of this; for, purchasing a partner's interest in partnership effects, it was her duty to inquire of the other partner how the account stood between them. It will be seen that we have placed Warren's superior claim on the lien which the law gave him as a partner. Hence it was not neces- sary for him to take a mortgage, or, taking it, to have it recorded. When he incurred the liability for Taylor, by allowing him to pledge the credit of the firm, he had no knowledge or notice of Mrs. Benagh's claim. We need not and do not decide that his claim would prevail over Mrs. Benagh's, if, before the firm became bound to Fitts & Co., he had been notified of the conveyance to her. We hold that, after taking a proper account between the partners, charging Taylor with the sum paid Fitts & Co. and interest as so much paid to and for him by Warren, the business manager, and charging to each partner all proper debits, and allowing to each all proper cred- its, if a balance be found due to Warren, he has a first lien on the partnership effects, income and capital, for its payment. This is his share in the partnership effects, and he is entitled to it, before Mrs. Benagh can take anything by her mortgage ; any balance to be equally divided between Warren and Taylor, and the interest of the latter, as far as necessary, to be applied to the payment of Mrs. Benagh's mortgage and interest thereon from January 1, 1876. Should the bal- ance, on taking the account, be found in favor of Taylor, and against Warren, then such balance to be a first lien in favor of, and applied, as far as necessary, to the payment of, Mrs. Benagh's mortgage debt, computed as above; any balance of partnership effects to be equally divided between the partners, and Taylor's share to go to Mrs. Benagh, so far as necessary to extinguish her mortgage claim. If anything be realized from the mortgaged property in Greene county, the product to be applied to the payment of Warren's claim, if neces- sary, after exhausting the partnership effects. Should any of the part- nership property and effects be used in paying a balance found due to Warren, and should any portion of Mrs. Benagh's claim remain un- paid, and should there remain a surplus of proceeds of the Greene county mortgaged property, after paying Warren's claim, then, to the partner's so called lien 261 extent that Taylor's interest mortgaged to Mrs, Benagh is applied to Warren's claim, she (Mrs. Benagh) is subrogated to the mortgage rights of Warren in the surplus of the proceeds of the Greene county mortgaged property. The decree of the chancery court is reversed, and a decree is here rendered, in accordance with the principles declared above. Costs of appeal to be paid by the appellees. ♦ ♦ * 262 BEMKDIES OF CUEDIT0U3 REMEDIES OF CREDITORS I. Remedies at Law — Creditors of the Partnership * MEECH et al. v. ALLEN. (Court of Appeals of New York, 1S5S. 17 N. Y. 300, 72 Am. Dec. 465.) Appeal from the Supreme Court. The complaint averred these facts: In May, 1847, the plaintiffs recovered a judgment against one Taylor, upon his sole and individual indebtedness, for $8,G50.65, which was duly docketed and became a lien upon his real estate. In 1848 Taylor died, seised of real estate in his own individual right, upon which said judgment was a lien. Taylor and one Hiram Pratt, who died in May, 18-40, were in their lifetime partners in the business of common carriers upon the Erie Canal and the Great Lakes. A demand arose against them as such partners, which was in litigation when Pratt died, and upon which a judgment was recovered in the Supreme Court, and duly docketed on the 13th of May, 1842, against Taylor, as survivor of himself and Pratt, for $9,990.05, which judgment was assigned to and became the property of the defendant Allen after the death of Taylor and the recovery of the plaintiffs' judgment.^ In April, 1850, executions were issued upon both of the above-described judgments to the sheriff of Erie, who in virtue thereof, on the 4th of June, 1850, sold certain parcels of the real estate in the city of Buf- falo, whereof Taylor died seised in his own right. The plaintiffs attended at the sale, and gave notice to the defendant of the facts stated, claiming that their judgment was entitled to priority and that the money raised by the sale should be applied first to its satisfaction. The defendant became the purchaser at the sale. There is no other individual property of Taylor out of which the plaintiffs can obtain satisfaction of their judgment except the land thus sold, and there is sufficient estate of Hiram Pratt, deceased, to satisfy the judgment of the defendant. The complaint prayed that the land might be resold and the pro- ceeds first applied to the payment of the plaintiffs' judgment, or that the defendant pay to them so much of the proceeds of the sale al- ready had as would extinguish their judgment, with the costs of this action. The defendant demurred, and had judgment in his favor, which was, on appeal, affirmed by the Supreme Court at General Term in the Eighth District whereupon the plaintiffs appeal to this court. ^ Selden, J.^ It is a settled rule of equity that, as between the joint and separate creditors of partners, the partnership property is to be 1 For a discussion of principles, see Gilmore on Partnership, §§ 138-139. 2 Part of the opinion is omitted. ! REMEDIES AT LAW — CREDITORS OF THE PARTXERSHII- 203 first applied to the payment of the partnership debts and the separate property of the individual partners to the payment of their separate debts, and that neither class of creditors can claim anything from the fund which belongs primarily to the opposite class until all the claims of the latter are satisfied. This, however, is a rule which prevails in courts of equity in the distribution of equitable assets only. Those courts have never assumed to exercise the power of setting aside or in any way interfering with an absolute right of priority obtained at law. In regard to all such cases the rule is equitas sequitur legem. 1 Story, Eq. Jur. § 553. * ♦ * As there is no doubt that at law the judgment for a partnership debt attaches and becomes a lien upon the real estate of each of the part- ners, with the same effect as if such judgment were for the separate debt of such partner, it is obvious, from the preceding authorities, that the theory upon which the complaint in this case was drawn is erroneous. The principle that the separate property of an individual partner is to be first applied to the payment of his separate debts has, as we have seen, never been held to give priority as to such prop- erty to a subsequent judgment for an individual over a prior judg- ment for a partnership debt. It is true that courts of equity will sometimes give to a mere equitable lien, which is prior in point of time, a preference over a subsequent judgment; but this will be done only where such prior lien is specific in its character, as in the case of White V. Carpenter, 3 Paige, 219. The mere general equity of the separate creditors to have their debts first paid out of the individual property of the partners does not amount to a lien at all, much less a lien of the kind necessary to give it a preference over a judgment for a partner- ship debt. The plaintiffs cannot, under the averments in the complaint, avail themselves of that principle of equity which enables a creditor hav- ing a lien upon one fund only to compel a creditor who has a lien, not merely on the same fund, but also upon another, to resort first to the latter, to the end that both may be paid. If the complaint had averred that there was sufficient partnership property, upon which the defendant's judgment was a lien, to satisfy such judgment, it is pos- sible that, under the principle referred to, the plaintiffs might have been entitled to some relief ; and in that event it would not have been a valid objection to the complaint that it did not ask for relief appro- priate to the case. But the averment in the complaint is simply that there is sufficient estate of the deceased partner, Hiram Pratt, to satisfy the defendant's judgment. This averment brings the case directly within the doctrine laid down by Lord Eldon in Ex parte Kendall, 17 Ves. 520. He says: "If A. has a right to go upon two funds, and B. upon one, having both the same debtor, A. shall take payment from that fund to which he can resort exclusively, that by those means of distribution both may be paid. That takes place where both are creditors of the same person and have demands against funds the property of the same person. 264 REMEDIES OF CREDITORS But it was never said that if I have a demand against A. and B., a creditor of B. shall compel me to go against A., without more, as if B. himself could insist that A. ought to pay in the first instance, as in the ordinary case of drawer and acceptor, or principal and surety, to the intent that all obligations arising out of these complicated rela- tions may be satisfied. But if I have a .demand against both, the creditors of B. have no right to compel me to seek payment from A., if not founded in some equity giving B. the right, for his own sake, to compel me to seek payment from A." The point has also been expressly decided in this state in the case of Dorr v. Shaw, 4 Johns. Ch. 17. The only diflference in principle between that case and this is that there it did not appear that the joint debtors were partners. This, however, is a difference which operates against the claim of the plaintiffs here. Where two individuals, not partners, are jointly indebted, it might seem to be just to presume that each owed one-half, and to that extent, therefore, there might be an equity in favor of the one owing an individual debt to have so much of the joint debt paid by his co-debtor. But in regard to part- ners it is now well settled, upon an analogous question, that no such presumption can be indulged. Formerly a judgment creditor of one of two partners might levy his execution upon property belonging to the firm, and, upon the presumption that the interests of the partners were equal, might proceed to sell and appropriate one-half the avails to the satisfaction of his debt. This, however, was long since over- ruled. In the case of Dutton v. Morrison, Lord Eldon, in discussing this question says: "It may be represented that the world cannot know what is the distinct interest of each (i. e., each partner), and there- fore it is better that the apparent interest of each should be considered as his actual interest. But courts of equity have long held other- wise." He then lays down the rule, ever since acted upon, that the creditor in such a case must wait until the partnership accounts are settled before he can claim anything from the partnership property. The principle here asserted by Lord Eldon is directly applicable to the present case. It is that no inference can be safely drawn, from the mere external relations of partners to the world, as to the situa- tion of their affairs inter se, and that, in all judicial proceedings in- volving the latter, an investigation is first to be made; and such is the variety and frequent complexity of partnership dealings that any other rule would obviously lead to gross injustice. It is impossible, therefore, in this case to assume, without any averments on the sub- ject in the complaint, that the estate of the deceased partner, Pratt, ought, in equity, to pay any portion of the defendant's judgment. Hence, upon the principles laid down by Lord Eldon, and universally acted upon by courts of equity, the complaint is clearly insufficient. The judgment of the Supreme Court, therefore, should be affirmed, with costs. Judgment affirmed. CEEDITOES OF THE SEPAEATE PAETNEE8 265 II. Creditors of the Separate Partners • PARKER V. PISTOR. (Court of Common Pleas, 1802. 3 Bos. & P. 288.) This was a rule calling on the plaintiff to show cause why the sher- iffs of London should not have time to return a writ of fieri facias to the first day of next term. The defendant was one of two partners, and the application was made on the part of several creditors of the partnership, and the ob- ject was to prevent the partnership goods from being sold until an ac- count could be taken of the several claims upon this property. Best, Serjt., who obtained the rule, observed that the sheriff was only entitled to take possession of an undivided, not of a separate, moiety of the partnership goods; that he could only hold that moiety in the same manner as the defendant himself had done; and that, as the defendant was not entitled to sell the partnership goods without the consent of his partner, the sheriff ought not to be obliged to do so by a writ of venditioni exponas. He mentioned a case in the Court of King's Bench, where a similar application had been made, which stood over several times, and the rule was at last made absolute by consent; the plaintiff having been driven to give that consent in con- sequence of Lord Kenyon saying that the court would enlarge the rule from time to time until the parties did consent. He also referred to Eddie v. Davison, Doug. 650, and Taylor v. Field, 4 Ves. Jr. 396, where it was holden that the joint property of an insolvent partner- ship, taken in execution for a separate debt, could not be retained against the joint creditors. Lens, Serjt., contra, insisted that this was merely the common case of partnership goods taken in execution; that, if the defendant had any interest whatever, the sheriff was bound to take the partnership goods and sell them ; if not, he ought to return nulla bona. He ob- served that in Taylor v. Field it was admitted that the above rule would prevail at law, and in Pope v. Haman, Comb. 217, this dis- tinction is pointed at; Holt, C. J., saying: "Upon a judgment against one copartner the sheriff may take the goods of both in execution, and the other copartner hath no remedy at law otherwise than by re- taking the goods if he can ; for the vendee of the sheriff becomes tenant in common with the other copartners." The Court were of opinion that there was no ground for their in- terposition ; that it was a very plain case at law., and that all the riifficvUies were to be encountered in equity; that the safest line of conduct for the sheriff to pursue was to put some person in possession • For a discussion of principles, see Gilmore on Partnership, § 140. 266 REMEDIES OF CREDITORS of the defendant's share as vendee, leaving him and the parties in- terested to contest the matter in equity, where a bill might be filed, stating that he had taken possession of the property, and praying that it might not be disposed of, until all the claims were arranged. Vide Chapman v. Koops, 3 Bos. & P. 289. Rule discharged. SANBORN et al. v. ROYCE. (Supreme Judicial Court of Massachusetts, 1882. 132 Mass. 5^.) Tort, by Charles H. Sanborn and Charles H. Packard, copartners doing business under the firm name of Sanborn & Packard, for break- ing and entering the plaintiffs' close in Boston, and taking and carry- ing away certain articles of personal property belonging to them, with a count in tort for the conversion of the same. The defendant, a con- stable of the city of Boston, justified under a writ against Packard, by virtue of which he attached the property in question. At the trial in the superior court, before Putnam, J., it appeared that the plaintiffs were copartners in the grocery and provision business, and the de- fendant was notified of this fact at the time of the attachment; that on ]\Iay 3, 1879, a creditor of Packard individually sued out a writ against him and delivered it to the defendant, who by virtue of it, on ]\Iay 31, 1879, attached all the property of the partnership, placed a keeper over the same, and afterwards on the same day, by order of the plaintiff's attorney, withdrew the keeper and removed the goods, and on June 3, 1879, released the attachment, and left the goods where he found them; and that the writ against Packard was duly entered in court on June 19, 1879, and is now pending. Upon these facts the defendant contended, and asked the judge to rule, that he was justified, by virtue of said writ, in what he did with reference to the property, and that the plaintiffs could not maintain their action. The judge declined so to rule, and ruled otherwise. The jury returned a verdict for the plaintiffs, and the defendant alleged exceptions.* C. Allen, J. The question presented in this case has been several times alluded to, but has never been decided in Massachusetts, though it has been the subject of much discussion and conflicting opinion elsewhere. It has been declared that the real and actual interest of each partner in the partnership stock is the net balance which will be coming to him after payment of all the partnership debts and a just settlement of the account between himself and his partner. Peck v. Fisher, 7 Cush. 386. This doctrine is in accordance with the great body of modern decisions. It is also declared in Allen v. Wells, 23 Pick. 450, 33 Am. Dec. 757, that a separate creditor can only take and sell the interest of the debtor in the partnership property, being his share upon a division of the surplus, after discharging all demands ■» Part of the statement of facts is omitted. CREDITORS OF THE SEPARATE PARTNERS 267 apon the partnership. This rule, also, is supported by a great weight of authority. It is rather remarkable, in view of the multitude of cases HI which the question has arisen and the conflict of opinion which has existed, that the manner in which a creditor of one member of a firm may apply that member's interest in the partnership to the pay- ment of his debt has not been more often the subject of legislation. The rights of parties, however, in this state,, as in almost all the states of the Union, are still left to be worked out as well as possible by the courts. There is an entire concurrence of opinion among the leading text-writers, in recent times, that courts of law cannot adequately deal with the subject. 3 Kent, Com. 65, note; Story, Part. §§ 2G2, 312; Collyer, Part. (6th Ed.) § 793. Lindley sums up what he has to say with the remark: "The truth, however, is that the whole of this branch of the law is in a most unsatisfactory condition and requires to be put on an entirely new footing." Lindley, Part. (4th Ed.) 694. It is sufficient, for the purposes of the present case to decide, as we do, that the seizure and actual removal of specific chattels of a partnership on mesne process or execution against one member thereof for his private debt, and the exclusion of the firm from the possession of its property, are a trespass. The authorities in support of this proposition seem to us more in accordance with just legal principles than those which are opposed to it. Fourth Nat. Bank v. Railroad Co., 11 Wall. (U. S.) 624, 628, 529, 20 L. Ed. 82; Cropper v. Coburn. 2 Curt. (U. S.) 465, Fed. Cas. No. 3,416; Burnell v. Hunt, 5 Jur. 650, by Patteson, J.; Garvin v. Paul, 47 N. H. 158; Durborrow's Appeal, 84 Pa. 404; Haynes v. Knowles, 36 Mich. 407; Levy v. Cowan, 27 La. Ann. 556. Exceptions overruled. PLACE V. SWEETZER et al. (Supreme Court of Ohio, 1847. 16 Ohio, 142.) This is a bill in chancery, reserved in the county of Delaware. John W. Place, the complainant, Adam Wolf, and Abraham Wolf were partners, carrying on mercantile business in Delaware county, and, while they were so in partnership, Sweetzer, one of the defendants, having two judgments in the court of common pleas of that county against said Adam Wolf, amounting together to somewhat more than $1,400, and the defendant Cone having a judgment in the same court for about $150, took out executions by virtue of which the sheriff levied upon the stock of goods of the firm and took them into his possession. The complainant, then another of the partners, brought this bill, seeking to enjoin the judgment creditors from selling the partnership effects to satisfy the separate debt of one of the part- ners. There is a cross-bill also, filed by the judgment debtor, Adam Wolf, wherein he states that he transferred to Sweetzer a certain quantity of pork and lard, which was to be sold and the proceeds 268 REMEDIES OF CREDITORS thereof applied toward the payment of one of the judgments; that this pork and lard were sold, but the proceeds, through the neglect and misconduct of Sweetzer, were entirely lost, and not so applied; that Sweetzer ought to account for the amount of sales, and give a credit for it upon one of the executions. The cause comes on for hear- ing upon bill, cross-bill, answers, replication, and testimony. Avery, J. The first question arising in this case is whether the original bill, with its m junction, can be sustained. This, of course, must depend upon the rights of a judgment creditor having an exe- cution against one of the partners for his separate debt. The goods of the firm, being personal property, and held always subject to levy under an execution at law against all the partners for a partnership debt, must be deemed to be held by the same title, and the share of each partner to be held likewise subject at law to levy under an execution against him individually. But though this property may be seized, and thus withdrawn from the debtor's con- trol, it does not necessarily follow that it must be sold also under the execution. If the sale could not be restrained, great injustice might very often be the consequence; for in many, perhajis in most, cases neither the sheriff, nor the debtor, nor any other person, could make known at the sale what property the purchaser would take. The in- terest of the partner cannot be ascertained till all the partnership ac- counts are arranged ; and it is well settled that this interest is a cer- tain share of the surplus after all of the demands against the firm, including those of the partners individually, are paid. It is this share of the surplus only which can be sold under execution, and to secure a fair sale of it the value must be known. This can be accomplished through the aid of a court of equity alone, where all the intricate affairs of a partnership may be examined and adjusted. A resort to this court, in cases like the present, may become important to se- cure the rights, sometimes of judgment creditors, at other times of the debtor, and sometimes, as here, to secure the rights of other part- ners. We see no objection to allowing the remedy in either case. The present complainant, when the levy was made, had at once a di- rect interest to bring the concerns of the partnership to a close, to apply the effects of every description to the payment of debts of the firm, and to prevent a sacrifice of the judgment debtor's share, be- cause by such a sacrifice his own share might be burdened. The com- plainant prays that an account be taken between the parties of the amount due by the firm, that the same be first paid out of the property of the firm, and that complainant's interest in the surplus be paid, before execution creditors be permitted to assert their claims on the property and apply it to the payment of the separate debt of Adam Wolf. This prayer of the bill will be granted, the accounts be sent to a master for examination and report, and the injunction in the meantime be continued. The cross-bill will be dismissed, as the al- legations are not sufficiently supported by the proof. CEEDITOfiS OF THE SEPARATE PARTNERS 209 JOHNSON V. WINGFIELD et al. (Court of Chancery Appeals of Tennessee, 1897. 42 S. W. 203.) Barton, J " This cause is before us on bill and demurrer. The de- murrer was sustained, and the bill dismissed. Comjjlainant appealed, and assigns errors. The main question presented in the case is whether in this state specific property belonging to the firm is subject to levy for the individual debt of one of the members of the firm. The case made in the bill substantially is as follows: The complainant shows and avers that he had obtained before a justice of the peace in Ham- ilton county two judgments against the defendant Wingfield, on which executions had been issued and certified, in pursuance of sec- tion 3786 of the Code of Tennessee, to Hamblen county, where exe- cutions had been issued, which were placed in the hands of a con- stable, and by him, on the 2d day of January, 1890, levied on the interest of Nisbet Wingfield in a lot of iron pipe and other material, the property of the firm of J. N. Hazelhurst & Co., a firm composed of J. N. Hazelhurst and Nisbet Wingfield, in which firm, it is alleged, Hazelhurst and Wingfield were equal partners." It is further alleged that the interest so levied on in the partnership property was advertised and sold according to law by the constable making the levy at public sale in the city of Alorristovvn, on the 5th of January, 189G. It is further charged that J. N. Hazelhurst and Wingfield continued as partners, under the firm name of Hazelhurst & Co., until January 7, 1896, when the firm dissolved; upon what terms and conditions, com- plainant does not know, but it is charged that there was no partner- ship settlement had between the partners, and that the purpose and object of the dissolution of the partnership was to embarrass and de- feat the collection of complainant's execution. It is further charged that on January 7, 1896, a new partnership was organized, under the old firm name of J. N. Hazelhurst & Co., composed of J. N. Hazel- hurst and D. R. H. Plant, and that this firm was engaged in the com- pletion of the waterworks for the city of Morristown, under the con- tract made for that purpose by the old company. It is charged that, after the sale was made, the statement was made by one of the attor- neys of Hazelhurst, a member of both firms, who had been present and made a bid at the sale of the property, that Wingfield was no longer a member of the firm, and had no interest in any other property which belonged to the old firm of Hazelhurst & Co. It charged that the new firm, composed of IJazelhurst and Plant, had full knowledge of the complainant's levies; that the property levied on was reason- ably worth in the market, at the time of the levy, $3,000; and that Wingfield's interest in the property was at the time of the sale and purchase by the complainant, who was the purchaser at the execution sale, reasonably worth $1,500; that complainant notified Hazelhurst t Part of the opinion is omitted- 270 REMEDIES OF CREDITORS & Co. not to move or interfere with the pipe until his interest was paid for; that Ilazelhurst & Co. disregarded the notice and complainant's rights in the property, and converted the same to their use, in the construction of the waterworks, a few days after complainant had pur- chased Wingfield's interest in the partnership property; that com- plainant was damaged by the conversion fully $1,500. It is further shown that the new members of the firm of Hazelhnrst & Co. were nonresidents; that they had a fund coming to them in the First Na- tional Bank of Morristown, against which an attachment was prayed and issued. The prayer of the bill is that a partnership account be had and stated between the defendant J. N. Hazelhurst and Nisbet Wing- field, so as to ascertain what interest Wingfield had in the partnership property described in the levies, and the value of that interest at the time the levies were made, at the time of the sale, and also at the time when the property was converted by J. N. Hazelhurst & Co., and for a decree against J. N. Ilazelhurst & Co. and R. H, Plant, or the new firm of Hazelhurst & Co., for the amount so found, and for gen- eral relief. It is also shown in the bill tliat the old firm of Hazel- hurst & Co. had other property at the time of the levies besides that levied on, it appearing that certain property was levied on belonging to the firm, and that was released, and levy made on other property. The proceedings before the justice of the peace, the executions, and the return of the officer, are made exhibits to the bill. The officer's return, in substance, is that he levied on all the right, title, and in- terest which Nisbet Wingfield, as member of the firm of J. N. Hazel- hurst & Co., had in the following personal property, situated and being in Morristown, Tenn., on the Southern Railway's side track, to wit, 25 iron fire plugs, etc., described in the paper. Both executions also show due sale of the property after advertising, the property in each instance being bid in by the complainant, Johnson, for $15. The defendants filed a demurrer and answer, the demurrer being in- corporated in the answer; the substance and point of demurrer be- ing that a levy cannot be made on a certain, specific part of partner- ship property for the individual debt of one of the members of the firm, as the bill shows was done in this case, and that, to reach a part- ner's interest in partnership property, the levy must be made upon all the partnership property. The point is made that the partnership owned as an entirety the particular assets of the partnership, and had a right to use the same in the business of the partnership; that the purchaser would be required simply to take the interest of the debtor partner, and would have no right to maintain this bill for trover or conversion of the specific property levied on. The answer filed denies that the interest of Wingfield at the time of the levy amounted to any- thing, and asserts there was an excess of liabilities at that time over assets. As stated, the demurrer was sustained, and the bill was dis- mi'^sed. * * * These extracts will show into what confusion this subject has fallen by reason of the early decisions in all the states, evidently based, as CREDITORS OF THE SEPARATE PARTNERS 271 stated by the text-writers from whom we have quoted, on an errone- ous conception, or, rather, a failure to recognize tlie true status of part- nership property. It is well settled everywhere that, as to partner- ship property, partners are trustees of the partnership, as to each other and the advantages derived from it inure to the benefit of the firm. And it is undoubtedly true that a firm or its members could, by in- junction, or other appropriate remedy, prevent a partner from divert- ing partnership property to his individual use, to the damage of the firm, and could prevent him from exercising rights of possession and control which would be destructive of the purposes, or an injury to the business, of the firm. It is also well settled, as a general rule, that an execution cannot reach any higher interest in property than the debtor himself has; and yet all these decisions which justify an officer in taking exclusive possession of firm property would seem to ignore these just principles, which are so absolutely necessary to the successful operation of partnership business. It would seem to be a contradiction of terms and principles to hold that the officer only takes and the purchaser only gets the interest which a partner may have in partnership property after a firm has been wound up and liquidated, and the partner's ultimate interest thus ascertained, and that an of^cer may seize partnership property, and retain exclusive possession of it until the sale, he thus being enabled to do what the individual partner would have no right to do. And it also seems a violation of fundamen- tal rights, and the taking of private property without compensation, to hold, as we understand was held in the case of Haskins v. Everett, su- pra, that where a partnership has endeavored to assert its rights of pos- session by a replevin suit as against an officer who had levied on the property for the individual debt of one of its members, it would be liable for damages for the use and detention of its own property. It would seem that many perplexing questions might arise out of this holding. Suppose dift'erent executions were levied on dift'erent ar- ticles or lots of personal property belonging to a partnership for the individual debt of a member of the firm, and on an accounting and liquidation it was ascertained that the interest of the debtor partner was only sufficient to pay one of the claims; what claim would have priority? It seems to be clear that, as long as property has not been converted by a partner, and is being used, or subject to be used, for the legitimate purposes of the partnership, no partner has any certain or exclusive or special interest in any specific partnership property, but it is the property of the entity, the firm. How, then, can a cred- itor or an officer take any specific interest in any particular piece of property belonging to the firm under such an execution, levy, and sale? Let us suppose that a creditor having a debt amounting in the aggre- gate to about $500, as in this case, levies on partnership property worth $3,000, and another creditor, having a debt of $1,500, levies at a subsequent time on another article of partnership property worth $1,500. On an accounting it is ascertained that the debtor partner's 272 REMEDIES OF CREDITORS interest in the firm at the time of the levies amounted to $1,500. The property worth $3,000 was sold, and bid in by the execution creditoi, at $500, in satisfaction of the first debt mentioned. What will be the result? At the time of the first levy, if the debtor partner is to be charged with one-half the property levied on, as taken out in his in- terest, it would absorb all his interest in the firm. In other words, does the levy on specific property appropriate any specific property, Dr only the debtor's interest in the firm ? It would seem that by far the more sensible and enlightened method of reaching a partner's interest in the firm would be by garnishment, as provided by statute in Geor- gia; and, as said in Freem. Ex'ns, it would seem to be a subject de- serving of legislative attention. The hardship that might result from carrying out the rule laid down in this state in the cases in 4 Sneed, 531, and 12 Heisk. 317, could be well illustrated by this case, where the firm had a contract to build an extension system of waterworks. A part of the material necessary to the completion of the contract was levied on and sold by an officer for the individual debt of one of the members, and it is stated in the bill that the purchaser, the complain- ant in this case, notified the other partner that he must not move or do anything with this property until his interest was paid for. It seems that this partner paid no attention to this direction ; and it would clearly appear that, if the complainant had had it in his power to enforce the directions given by him, it would not only have resulted in great damage and ruin to the firm's business, but also to the other partner, who was in no way to blame for Wingfield's indebtedness. But, whatever trouble may arise from these holdings we do not feel at liberty, in this court, to depart from what we understand to be well- settled principles in this state. Nor do we wish to be understood as criticising the holdings of our Supreme Court upon this subject, further than to call attention to the seeming inconsistencies that arise there- from, and which are common to all the earlier cases in almost every state in the Union, as well as in England. But, for the purposes of this case, we may state that we understand the decisions in this state from which we have above quoted to settle the following points: (1) That partnership property may be levied on by the creditor for the individual debt of a member of the firm. (2) That specific property may be levied on, and it is not necessary that the execution Ije levied upon all the property of the firm. (3) That the officer may, and that in fact it is his duty to, take actual possession of the property levied Dn, and to retain it until the sale is made. (4) That the purchaser only takes the interest of such judgment debtor after the settlement and adjustment of the partnership accounts, as is the language used in the case of Haskins v. Everett, supra, or a mere right to an ac- counting, as stated in another case. (5) That, as stated by Judge Freeman in Lincoln Sav. Bank v. Gray, 12 Lea, 459, a levy is neces- sary in order to fix a lien so as to authorize the filing of a bill. These points being settled, it results, in our opinion, that the chan- cellor was in error in dismissing the complainant's bill. While we flABNISHMKNT OF PAKTNER9HIP DEBT0E8 273 think that Hazelhurst had the right to use, and properly, whether by himself, or by the new firm of Hazelhurst & Co., used, the iron which had been levied on, in carrying out the contract and business of the old firm, still it is the logical effect of the decisions which we have quoted that the creditor, Johnson, having the right to have the prop- erty levied on, by the sale and purchase took whatever interest Wing- field had in this property at that time, which could only be ascertained by an accounting, and that this he has a right to do. If it shall turn out on an accounting that at the time of the levy the liabilities of the firm, as claimed in the answer filed with the demurrer, exceeded the assets, and that the firm was insolvent, then Johnson will, of course, take nothing by his purchase ; and it is also clear that Johnson's in- terest could not exceed the value of Wingfield's share in all the part- nership assets after all partnership debts were paid, and all charges against him in favor of Hazelhurst were settled. The logical result of our cases on this subject seems to be that the taking by the officer has practically the same effect as the withdrawal and conversion of that amount of property by the debtor member of the firm, subject to being compelled to return such an amount of the property after the exhaustion of other partnership property as might be necessary to pay all partnership debts, and to secure to the other partner his just share and division of the partnership assets. For these reasons the decree of the chancellor will be reversed, and the cause remanded to be further proceeded with, with directions to refer the cause to the master to take an account, and to ascertain and report the condi- tion of the old firm of Hazelhurst & Co. at the time of the levies made, as shown in the bill; and the complainant will be entitled to a decree for the value of Wingfield's interest in the property levied on, if any, on the lines indicated in this opinion. The decree of the chancellor is reversed, the demurrer overruled, and the cause remanded, as stated. and the defendants will pay the costs of the appeal. III. Garnishment of Partnership Debtors* PEOPLE'S BANK, Garnishee, v. SHRYOCK et al. (Court of Appeals of Maryland, 1877. 48 Md. 427, 30 Am. Rep. 476.) Brent, J.^ The appellees, having obtained a judgment against William H. Trego, issued upon it an attachment by way of execution. This attachment was laid in the hands of the People's Bank of Balti- more, to bind the interest of the defendant, Trego, in a sum of money « Fnr a discussion of principles, see Gilmore on Partuersbip, § 141. T Part of tbe opinion is omitted. Gilm.Part.— 18 274 REMEDIES OF CREDITORS Standing upon the books of the bank to the credit of the firm of Tregc & Kirkland, of which firm Trego was a partner. The question then arises, is a debt due to a copartnership Hable to attachment at the suit of a creditor of one of the partners? If the at- tachment had been laid upon the tangible effects of the firm, there would be no doubt of the right to do so; for all the authorities con- cur that the property of a firm may be sold for the debt of one of the partners. When sold, the vendee purchases and is substituted to nothing more than the interest of the partner, which afterwards be- comes the subject of ascertainment by a proper adjustment of the respective interests of the partners. The rights of copartners and creditors of the firm are not thereby sacrificed or disturbed. But where a debt is the subject of attachment, the judgment, if obtained against the garnishee, changes the right to the fund without any set- tlement of partnership account, and vests in the attaching creditor an absolute claim to the payment over to him of so much money. In Drake on Attachment, § 567, the author says: "The attachment of a debt due to a copartnership in an action against one of the partners is justly distinguishable from the seizure on attachment or execution of tangible effects of the firm for the same purpose." He refers to the case of Winston v. Ewing, 1 Ala. 129, 34 Am. Dec. 768, and this case is a very strong one upon the question now presented for our decision. There it was sought to subject the debt due to a firm to an attachment issued against one of the partners. The court held that this could not be done. The property of the partnership, it was con- ceded, was liable to execution and sale for the separate debt of a partner; the vendee under such sale becoming tenant in common with the other partner. But it was otherwise held in regard to a debt due. The court says: "It has been expressly adjudged that the interest of one partner in a debt due to the partnership cannot be subjected by process of attachment to the satisfaction of the separate debt of that partner, without showing from the state of the partner- ship accounts, as between the partners and with reference to the in- debtedness of the partnership, what the right or interest claimed amounts to." The authorities cited are Fisk v. Herrick, 6 Mass. 272, Lyndon v. Gorham, 1 Gall. (U. S.) 367, Fed. Gas. No. 8,640, Church V. Knox, 2 Conn. 514, and Brewster v. Hammet, 4 Conn. 540; and they conclusively show that an attachment like the present would not be maintained in the courts of either Massachusetts or Connecticut. In Lyndon v. Gorham, 1 Gall. (U. S.) 367, Fed. Cas. No. 8,640, de- cided' by Judge Story, that learned judge says: "In order to ad- judge the trustee responsible in this suit, it must be decided that the funds of one partnership may be applied to the payment of the debts of another partnership upon the mere proof that the principal debtor has an interest in each firm. If this be correct, it will follow that a separate creditor of one partner will have greater equitable as well as legal rights than the partner himself has. The general rule undoubt- edly is that the interest of each partner in the partnership funds is GARNISHMENT OF PARTNEKSIIIP DEBTORS 275 only what remains after the partnership accounts are taken ; and un- less, upon such an account, the partner be a creditor of the fund, he is entitled to nothing." In Johnson v. King-, 6 Humph. (Tenn.) 233, it is said : "The question in this case is whether an execution creditor of one member of a partnership is entitled to a judgment in a garnishment proceeding against a debtor to such partnership. This question we decide in the negative. Such debt belongs to and is assets of the partnership, primarily liable to the satisfaction of part- nership debts. If a judgment were given at law, upon the garnish- ment proceeding against the debtor of the partnership, to satisfy the separate liability of one of the partners, it would unjustly abstract a portion of the fund primarily belonging to the objects and purposes and creditors of the concern. And in such garnishment nothing can be done but to give or refuse the judgment. The court has no power to impound the debt, until by the adjustment of all the partnership affairs it shall appear whether the separate debtor of the execution creditor has any, and what, interest in the general surplus, or in the particular debt so impounded. Such proceedings cannot take place at law." We have quoted at length from this case, because the views there expressed seem to be specially appropriate to the case before us. The proceeding of attachment in this state is essentially a legal pro- ceeding, and in no way appropriate to ascertain and settle the equitable rights between the garnishee and defendant, or to ascertain, by ad- justing the partnership affairs, the true interest of the defendant in the fund attached. The only judgment which could be given against the garnishee would be for a proportion of the money due the partner- ship, that proportion to be measured by the number of the members composing the firm and the amount due the attaching creditor. This would certainly be against the weight of authorities in this country, and in most cases productive of the greatest injustice. In the cases of Sheedy v. Bank, Garnishee, G3 Mo. 18, 21 Am. Rep. 407, and Myers v. Smith et al., 29 Ohio St. 120, both decided in 1876, it was held that partnership demands cannot be garnished for the separate debt of one of the partners. And to the same effect are the decisions in Vermont, New Hampshire, New York, Louisiana, and Mississippi. See Drake on Attachment (4th Ed.) § 570, and notes. The exception to this rule is where equity powers have been conferred by statute upon the common-law courts, and when by virtue of such powers they can compel a settlement of the partnership for the pur- pose of ascertaining whether one of the partners has such an interest in a particular debt due the firm as to justify its appropriation to the payment of his individual indebtedness. As no such powers have been conferred upon the common-law courts of this state, the excep- tion cannot be applied to an attachment here. The only cases in this country in which it is claimed a contrary doctrine is held, and to which we have been referred, are the cases of McCarty v. Emlen, 2 Dall. (Pa.) 277, 1 L. Ed. 380, Knox v. Schep- 276 REMEDIES OF CREDITORS ler, 2 Hill (S. C.) 595, and Wallace v. Patterson, 2 Har. & McH. (Md.) 463.« * * * So satisfied are we, upon the q-round of reason and expediency, and tlie great weight of authority, that the partnership credits of a con- tinuing partnership should not be subjected to the process of attach- ment at the suit of a separate creditor of one of the partners, that we cannot adopt the case of Wallace v. Patterson to the extent which is claimed for it. In our opinion, then, in a case like the present, where the partner- ship is a continuing one, and where there has been no adjustment of partnership affairs, a debt due the partnership cannot be taken by garnishment to pay the individual debt of one of the members of the firm. This judgment will tlierefore be reversed, and judgment entered for the appellant. IV. Remedies in Equity — Insolvency or Bankruptcy of Firm • RODGERS V. TvIERANDA et al. ' (Supreme Court of Ohio, 1857. 7 Ohio St. ISO.) The original proceeding was a petition for an order of distribution of the separate or individual assets of an insolvent debtor, as be- tween separate and partnership creditors. It appears from the record that about the 13th of June, 1854, Peter Murray, an insolvent debtor, made an assignment of all his estate, real and personal, to the plaintiff, in trust for the payment of his individual creditors in proportion to the amount of their respective demands. Though possessed of a large and valuable estate, it had 8 In Stevens v. Perry, 113 Mass. 380 (1873), in holding that a firm creditor may, by trustee or garnishment proceedings, reach the goods or effects of a partner in the hands of a third person, the court said: "It is well settled as matter of law in this commonwealth that, in a suit against two or more co- partners upon their joint debt, the separate property of any one of the part- ners may be attached, and the lien so acquired is not discharged or impaired by a subsequent attachment of the same property upon a suit in favor of a separate creditor of the same partner. Allen v. Wells, 22 Pick. (Mass.) 450, 33 Am. Dec. 757; Newman v. Bagley, 16 Pick. (Mass.) 570. The Supreme Court of New Hampshire has in several cases held otherwise. Jarvis v. Brooks, 23 N. H. 136 ; Bowker v. Smith, 48 N. H. Ill, 2 Am. Rep. 189. But we must con- sider ourselves bound by our own decisions. As the debt due from the part- ners jointly is also due from each, it may be enforced against the separate property of each. It is immaterial whether this separate property is in the form of goods and movable chattels, or goods, effects, and credits intrusted and deposited in such a manner that they can only be attached upon a trustee process. It is not necessary that the principal debtors should have made a joint deposit, or that the fund should belong to them jointly. It is enough if funds attachaV)le upon a trustee process are due from the alleged trustee to either one of the principal defendants." e For a discussion of principles, see Gilmore on Partnership, §§ 143-148. BEMEDIES IN EQUITY — INSOLVENCY OR BANKRUPTCY OF FIRM 277 been found insufificient to pay his separate debts and liabilities in full. At the date of his failure and assignment he was a partner with John W. Dever in a mercantile firm under the name and style of Dever & Murray; which firm had also become insolvent, and likewise Dever; and the firm had made an assignment of the partnership property and assets about the same time to John Meranda, one of the defendants, in trust for the payment of the joint debts or liabilities of the firm. In this condition of aflfairs the partnership creditors, although they have filed their claims with the assignee of the firm for their distribu- tive shares out of the partnership property, claim the right to be ad- mitted to a participation in the dividends of the separate estate of Murray, pari passu with his individual creditors; while the latter deny the right, and insist that his separate estate shall be applied to the satisfaction of his individual debts in preference to his partnership debts. It appears, further, that Murray, besides advancing his part of the capital of the firm, also loaned money to the firm to a large amount, for which he held the obligations of the firm, which obligations, by the assignment of Murray, came into the hands of the plaintiff, who has presented the same to the assignee of the firm, and claims to have the same paid out of the assets of the firm, pari passu with the other partnership debts. The other creditors resist this, and plaintiff asks an order of distribution to that effect out of partnership assets. Defendants demurred to the petition. The court below sustained the demurrer, and gave judgment in favor of the defendants; and this petition in error is filed to review and reverse that judgment. Hartley, C. J.^° Two questions are presented for determination in this case. The first is whether, in the distribution of the assets of insolvent partners, where there are both individual and partnership assets, the individual creditors of a partner are entitled to be first paid out of the individual effects of their debtor, before the partner- ship creditors are entitled to any distribution therefrom. It is well settled that, in the distribution of the assets of insolvent partners, the partnership creditors are entitled to a priority in the partnership ef- fects, so that the partnership debts must be settled before any division of the partnership funds can be made among the individual creditors of the several partners. This is incident to the nature of partnership property. It is the right of a partner to have the partnership property applied to the purposes of the firm, and the separate interest of each partner in the partnership property is his share of the surplus after the payment of the partnership debts. And this rule, which gives the partnership creditors a preference in the partnership effects, would seem to produce, in equity, a corresponding and a correlative rule, giving a preference to the individual creditors of a partner in his separate property; so that partnership creditors can, in equity, only 10 Part of tlie opiuion is omitted. 278 REMEDIES OF CREDITORS look to the surplus of the separate property of a partner, after the payment of his individual debts, and, on the other hand, the individual creditors of a partner can in like manner only claim distribution from the debtor's interest in the surplus of the joint fund after the satis- faction of the partnership creditors. The correctness of this rule, however, has been much controverted ; and there has not been always a perfect concurrence in the reasons assigned for it by those courts which have adhered to it. * * * The remaining matter for determination in this case involves the inquiry whether, in case of an indebtedness for money lent to the part- nership by a partner who afterward becomes insolvent, the separate creditors of the latter shall be entitled therefor to a pro rata dis- tribution Avith the partnership creditors out of the joint fund. It is claimed that the liability of the firm to a partner for money loaned is a partnership debt, and that the individual creditors of that partner are, in equity, entitled to an equal distribution therefor out of the part- nership property. On the other hand, it is claimed that as each part- ner is individually liable for the debts of the firm, and as no partner can be allowed to participate with his own creditors in the distribution of a fund, the separate creditors of a partner, as they can only claim through the rights of their debtor, cannot be allowed such participa- tion with the joint creditors. * * * The separate creditors of Murray, therefore, are not, on account of this claim for money lent by Murray to the firm, entitled to partici- pate with the partnership creditors in the distribution of the joint effects. Judgment of the common pleas reversed, and ordered that the sepa- rate effects of Peter Murray be distributed pro rata, first among his individual creditors, before any application thereof be made to the payment of the partnership debts of Dever & Murray, and that the partnership effects be applied first to the payment of the partnership debts, irrespective of the claim of the partner, Peter Murray, of money loaned by him to the firm. DAVIS V. HOWELL'. (Court of Chancery of New Jersey, 1880, 33 N. J. Eq. 72.) RuNYON, Ch.^^ John C. Bennett and James M. Andrews were, on or about the 10th of February, 1876, partners in business in Phillips- burg. On that day they made an assignment under the assignment act, for the equal benefit of their creditors, to the complainant, Wil- liam M. Davis. Five days after the making of that assignment An- drews made an assignment under the act for the equal benefit of his creditors to the complainant and Joseph Howell, and about the same time Bennett made a like assignment to Sylvester A. Comstock and 11 Part of the opinion is omitted. REMEDIES IN EQUITY — INSOLVENCY OB BANKRUPTCY OF FIRM 279 Charles F. Fitch. The partnership estate will pay a dividend of only about 11 per cent, of the partnership debts. Most of the partnership creditors have put in their claims under the assijjnment of Andrews, and claim and insist upon a proportionate participation with his in- dividual creditors therein as to so much of their claims as may not be paid out of the partnership estate, and they threaten the complain- ant and his co-assignee of Andrews' estate with legal proceedings if their demand be not complied with. The complainant, therefore, comes into this court for protection and instruction as to his duty in tlie premises. His co-assignee, Howell, is a creditor of Andrews' estate, and he is made a defendant. * * * There will be a decree that the joint assets be first applied to the payment of the joint debts, and the separate assets to the separate debts, and that the joint creditors may participate in any surplus of the separate assets, which may remain after payment of the separate debts. The costs of the parties will be paid out of the funds repre- sented by the complainant — the partnership estate — and Andrews' es- tate in equal shares. THAYER V. HUMPHREY. DAVIES V. SAME. (Supreme Court of Wisconsin, 1895. 91 Wis. 276. 64 N. W. 1007, 30 L. R. A. 549, 51 Am. St. Rep. 887.) J. D. Putnam and Alfred G. Goss were partners in the milling busi- ness under the name of J. D. Putnam & Co. The partnership was dissolved by mutual consent ; the business being thenceforward car- ried on by J. B. Goss alone at the same place under the name of J. B. Goss & Co., who assumed all the debts of J, D. Putnam & Co. The firm property of J. D. Putnam & Co. was conveyed to J. B. Goss. Lottie Thayer was a creditor for money lent to J. D. Putnam & Co. After the dissolution she took the note of J. B. Goss & Co. for her claim against J. D. Putnam & Co. She afterwards recovered judg- ment on this note against J. B. Goss and Alfred J. Goss, in form joint and several. The trial court found that Alfred J. Goss was not a partner with J. B. Goss in the firm of J. B. Goss & Co., but that he was liable to Thayer by reason of his being held out to her as a part- ner. Alfred J. Goss, being insolvent, made an assignment for the bene- fit of his creditors to Humphrey. J. B. Goss, likewise, being in- solvent, assigned to one Weld all his property, including the remaining assets of J. D. Putnam & Co. J. D. Putnam was also insolvent. Thay- er filed her claim, based on her judgjnent, with Humphrey, seeking to participate pari passu with the individual creditors of A, J. Goss in the distribution of his separate assets. The court held that she must first go against the partnership assets, and could not go against the individual assets of A. J. Goss until his separate creditors were paid. From this order Thayer appealed. 280 REMEDIES OF CREDITORS Davies was also a creditor of J. D. Putnam & Co., but did not ac- cept J. B. Goss & Co. as a substitute for his original debtor. He is not a creditor of either J. B. Goss or J. B. Goss & Co. He also filed his claim with Humphrey, seeking to participate in the distribution of the separate assets of A. J. Goss. The court held that he must first go against the assets in the hands of the assignee of J. B. Goss. From this order Davies appealed. Marshall, J.^^ * * * Now, in this situation, can the creditors of J. B. Goss, doing business as J. B. Goss & Co., who are so circum- stanced as to be entitled to hold J. B. Goss and A. J. Goss liable as members of an ostensible firm — and all the creditors, at least of the new concern, including those having claims against the old firm that, by arrangement with them, have been assumed and made debts of J. B. Goss & Co., are so circumstanced in fact — prove their claims pari passu with the individual creditors of A. J. Goss in his assign- ment? Also, can the creditors of the firm of J. D. Putnam & Co. so prove? * * * There are several propositions of law that apply which are well es- tablished — too well to need to be more than stated — among which are that the assets of an insolvent partnership, in insolvency proceed- ings, must be applied first to the payment of the partnership debts; that, generally speaking, partnership creditors cannot prove in com- petition with the individual creditors of a partner ; that the fixed rule is that joint estate must go to joint creditors, and separate estate to separate creditors, though the former may prove pari passu with separate creditors, when there is no living solvent partner and no partnership assets. Now, in this case there is no solvent partner. J. D. Putnam, J. B. Goss, and A. J. Goss are all insolvent. So, keep- mg in mind the above-stated propositions of law, the vital question is: Are there any partnership assets to which appellants can resort? If there are such, then the foundation stone, upon which they construct their claim of right to share pari passu with the individual creditors of A. J. Goss, disappears. * * * The reasoning of these cases is, in our opinion, unanswerable, and we deduce therefrom the principle of law that, if a person allows an- other to carry on business in such a way as to amount to a holding out to persons generally that he and such other are partners,^ and credit is given to both on the supposition that they are partners in fact, the property with which such business is carried on, though in law that of such person, in equity will be treated as the joint property of such person and such other; and neither of them, nor the creditors of either, can prove up in insolvency in competition with the creditors who have trusted the two as partners and the business as that of the two. To the same effect is Van Kleeck v. McCabe, 87 Mich. 599, 49 N. W. 872, 12 Pnrt of the opinion and the dissenting opinion of Newman, J., are omitted. EEMEDIE8 IN EQUITY — INSOLVENCY OR BANKRUPTCY OF FIRM 281 24 Am. St. Rep. 182. Applyinj^ the law thus stated to the question under consideration, the concUision is easily reached that, while there are no firm assets at law of the ostensible firm of J. B. Goss & Co., all the property used by J. B. Goss in conducting the business, in equity, is the joint property of such ostensible firm, and to it all the creditors of such ostensible firm can resort, the same in all respects as if there had been a firm in fact. This effectually disposes of the appeal of appellant Lottie Thayer, though it is as effectually ruled by the law applicable to the Davies appeal, as will appear by what follows. Appellant Davies never be- came a creditor of J. B. Goss or of J. B. Goss & Co., by any agreement to which he was a party; and, while his appeal presents the question of whether there is any joint property to which he can resort, such question involves a different question from the one discussed as par- ticularly applicable to the Thayer appeal. We must start the discussion of the Davies appeal with the prop- ositions of law — in respect to which though, there is some conflict, they are too well established by the great weight of authority to be ques- tioned by this court — that partnership creditors have no lien on the partnership assets independent of the equity of the partners, but must work out their preference over the individual creditors of the mem- bers of the partnership through the equities of such members; that, so long as the equity of the individual members of the partnership exists to have the partnership property applied to the partnership debts, the creditors have the equity to compel its enforcement; that if one member sells his interest, bona fide, to his copartner or a stran- ger, without in any way retaining his equity to have the partnership creditors paid out of it, the joint property is thereby converted into the individual property of the purchaser. The question to be determin- ed is, in view of the facts that the sale was made by Putnam in con- sideration of the debts of the partnership being paid; that the firm was insolvent at the time ; that the whole transaction was really made by him to relieve himself from the partnership liability ; that the prop- erty was put into the possession of J. B. Goss for the purpose of con- tinuing the same business with the same assets, and eft'ect a settlement of the old partnership affairs— all of which clearly appears, can it be held that the equitable title to the property was changed, so as to af- fect the equitable right of Putnam to have the creditors of the old firm paid out of it, or were the equitable rights of the outgoing partner and the creditors preserved by reason of the facts, and the assets in the hands of J. B. Goss impressed with a trust to carry out the intention of the parties? * * * [After stating that the two sets of creditors — those of J. D. Putnam & Co. and of J. B. Goss & Co. — can all prove in the insolvency proceed- ings of J. B, Goss, the opinion concludes:] This effectually disposes of all the questions presented, and leads to the conclusion that neither of the appellants can prove pari passu with 282 REMEDIES OF CREDITORS the individual creditors of A. J. Goss in his assignment, but they can both prove pari passu with all the creditors of the ostensible firm of J. B, Goss & Co. in the assignment of J. B. Goss. * * * BROADWAY NAT. BANK v. WOOD et al. (Supreme Judicial Court of Massachusetts, 1896. 165 Mass. 312, 43 N. E. 100.) Bill by the Broadway National Bank against James A. Wood and others to restrain the disposition of property, and to apply so much thereof as may be necessary to the payment of plaintiff's claim, evi- denced by a note made by the ostensible firm of Harry F. Faden & Co. From a decree sustaining a demurrer and dismissing the bill, plaintiff appeals. ^^ Allen, J. On the averments of the bill it must be assumed that Faden was an ostensible, but not an actual, partner, and) that the prop- erty which the plaintiff seeks to reach and apply to the payment of its debt was in fact owned by the two Leatherbees. Assuming that Faden was and is personally liable to the plaintiff, as ostensible partner, on the ground of estoppel, it is contended that this has the effect to entitle the plaintiff, as a creditor of the ostensible firm, to have the property which was in the possession and use of that firm applied to the satis- faction of the creditors of that ostensible firm in priority to creditors whose claims are only against the two Leatherbees. There are some decisions which support or favor this view. Kelly v. Scott, 49 N. Y. 595 ; Hillman v. Moore, 3 Tenn. Ch. 454 ; Whitworth v. Patter- son, 6 Lea (Tenn.) 119. But the weight of authority, and the better reason, as we think, are the other way. The estoppel is a personal one. An ostensible partner cannot be included in insolvency proceed- ings instituted by the actual partners. Hanson v. Paige, 3 Gray (Mass.) 239. He cannot interfere in the management of the partnership busi- ness, and obtain an injunction or a receiver. Nutting v. Colt, 7 N. J. Eq. 539 ; Kerr v. Potter, 6 Gill (Md.) 404. He has no lien on the partnership assets. Stone v. Manning, 2 Scam. (111.) 530, 35 Am. Dec. 119. The long-established equity of joint creditors to be paid in priority out of the joint funds is usually said to be by way of substitution to the rights of the partners inter sese, and, where no such right exists, then the creditors have no such equity. This doctrine is so firmly es- tablished that it is too late now to question it. Story, Eq. Jur. ■§§ 675, 1253 ; Howe v. Lawrence, 9 Cush. (Mass.) 553, 558, 559, 57 Am. Dec. 68; Harmon v. Clark, 13 Gray (Mass.), 114, 121 ; Robb v. Mudge, 14 Gray (Mass.) 534, 539; Case v. Beauregard, 99 U. S. 119, 125, 25 L. Ed. 370; Fitzpatrick v. Flannagan, 106 U. S. 648, 654, 1 Sup. Ct. 369, 27 L. Ed. 211; Huiskamp v. Wagon Co., 121 U. S. 310, 323. 13 Part of statement of facts is omitted. EIGHTS OF SECURED CREDITORS 283 7 Sup. Ct. 899, 30 L. Ed. 971 ; Saunders v. Reilly, 105 N. Y. 12, 19, 20. 12 N. E. 170, 59 Am. Rep. 472; Brown v. Beecher, 120 Pa. 590, 607, 608, 15 Atl. 608; Washburn v. Bank, 19 Vt. 278; Rice v. Barn- ard, 20 Vt. 479, 50 Am. Dec. 54; Couchman's Adm'r v. Maupin, 78 Ky. 33 ; Farley v. Mooj^, 79 Ala. 148, 58 Am. Rep. 585 ; Iron Works V. Davidson, 73 Cal. 389, 392, 15 Pac. 20; Grabenheimer v. Rind- skoff, 64 Te.x. 49. It has also been held in England that when trustees who are authorized to carry on business contract debts, their creditors can only resort to the trust fund when the trustees are entitled to be indemnified therefrom, and that the creditors reach it only by being substituted to the equities of the trustees. See In re Johnson, 15 Ch. Div. 548, and Dowse v. Gorton, 40 Ch. Div. 536, cited in Mason v. Pomeroy, 151 Mass. 164, 167. 24 N. E. 202, 7 L. R. A. 771. In applying the foregoing doctrine to cases where a person is ostensibly, but not actually, a member of a partnership, and is, there- fore, under a personal estoppel to deny his liability, it follows that a creditor who, by reason of this estoppel, can maintain a personal ac- tion against him, cannot extend this estoppel so as to bind the prop- erty which was in the possession and use of the actual partners. The ostensible partner himself has no equity to have this property applied to the payment of the claims upon which he is liable, and therefore the creditors holding those claims who are merely subrogated to his rights and equities have no such equity. Kerr v. Potter, 6 Gill (Md.) 404; Glenn v. Gill, 2 Md. 1 ; Reese v. Bradford, 13 Ala. 846; Scull's Appeal, 115 Pa. 141, 7 Atl. 588; York County Bank's Appeal, 32 Pa. 446; Swann v. Sanborn, 4 Woods, 625, Fed. Cas. No. 13,675. The result is that the decree sustaining the demurrer and dismissing the bill was right. Decree affirmed. V. Rights of Secured Creditors ** PEOPLE V. E. REMINGTON & SONS. In re ILION NAT. BANK. (Court of Appeals of New York, 1890. 121 N. Y. 328, 24 N. E. 793, 8 L. R. A. 458.) Gray, J.^'^ The only question presented for our consideration and determination by this appeal is whether the creditor of this insolvent corporation was entitled to prove and receive a dividend upon the full »< For a discussion of principles, see Gilmore on Partnership, § 149. 15 Part of tlie opinion and the statement of facts are omitted. 284 REMEDIES OF CREDITORS amount of the debt due from the insolvent estate, or whether the re- ceivers, as the personal representatives of the insolvent, could reduce the claim of the creditor, for the purposes of a dividend, by compelling a deduction from the amount of the proved debt of the value of col- lateral securities, or of any proceeds thereof. There are conflicting de- cisions upon this question in the courts of the United States ; and in England, if we look back up the current of opinions, we may find some differences in views. But the preponderance of authority is in favor of the view that the creditor has the right to prove and have dividends upon his entire debt, irrespective of the collateral security. In this state the precise question is without any controlling prece- dent. Two cases decided by the special term of the supreme court are to be found in the Reports which perhaps bear upon the question. They arose under general assignments for the benefit of creditors, and are conflicting. It may be said, therefore, that the field is open to us for review and determination. I think we must conclude that the view which I have mentioned as having the weight of authority in its favor is the one best according with the principles and established rules of equity jurisprudence, to which department of legal science the ques- tion pertains. Some confusion of thought seems to be worked) by the reference of the decision of the question to the rules of law gov- erning the administration of estates in bankruptcy, but there is no war- rant for any such reference. The rules in bankruptcy cases proceed from the express provisions of the statute, and they are not at all con- trolling upon a court administering in equity upon the estates of in- solvent debtors. The bankrupt act requires the creditor to give up his security in order to be entitled to his whole debt; or, if he re- tains it, he can only prove for the balance of the debt after deducting the value of the security held The jurisdiction in bankruptcy is pe- culiar and special, and a particular mode of administration is prescrib- ed by the act. To administer, in cases of insolvency coming within the jurisdiction of courts of equity, by analogy with the modes of bankruptcy courts, is not required; and their precedents are not to be deemed as causing any change in the rules established! by courts of equity for the marshaling and distribution of assets. Suggestion is also made of a principle of equity as controlling upon the question. It is that, where the creditor has two funds of his debtor to which he can resort for payment, and another creditor has a lien on one fund only, equity will compel a resort by the first creditor to that fund to which the lien of the other does not extend. But that is not exactly this case ; nor is the principle, if it were, decisive. The author whose statement of the principle is quoted from has limited its application to such cases where to compel the first creditor to resort to the one fund will not operate to his prejudice, or trench upon his rights. 1 Story, Eq. Jur. § 633. Judge Story assigns as a reason for the application of the principle that, by so compelling the creditor to satisfy his claim out of one of the funds, no injustice is done to him RIGHTS OF SECURED CREDITORS 285 in point of security or payment. The learned author's reason nega- tives the proposition that a secured creditor shall lose or forego any advantage which he may have by reason of his security, and through which the fullest satisfaction of his debt can be obtained. In Evertson v. Booth, 19 Johns. 486, Spencer, C. J., held with refer- ence to the equitable rule invoked by the appellants here, that it is not to be enforced! if it will "in the least impair the prior creditor's right to raise his debt out of both funds," and he emphatically remarked: "I know of no principle of equity which can take from him any part of his security until he is completely satisfied." Where could any such principle have its origin? The agreement between the debtor and the creditor was that a debt should be paid. That debt is a def- inite quantity, and nothing less than its full amount can be said to be the debt. It is not altered or affected in its amount because the cred- itor may hold some collateral security. That is not a factor of the debt, but merely an incident to the debt. The very force and mean- ing of a collateral security are in the idea of a guaranty of the per- formance of the principal agreement, which was to pay the debt. The property which a creditor holds as collateral to the indebtedness of his debtor secures him to that extent in case his debt is not paid in full by the debtor or by his estate. As between the creditor and his debtor, the latter could not compel the former to resort first to his collaterals before asserting his claim by a personal suit. The debtor has no control over the application of the collaterals. It is the general rule of equity that the creditor is not bound to apply his collateral securities before enforcing his direct remedies against the debtor. 1 Story, Eq. Jur. § 640; Lewis v. U. S.. 92 U. S. 618, 23 L. Ed. 513. Then, on what principle can we hold that because the debtor becomes insolvent the contract with his cred- itor is changed, and that the creditor cannot, under those circumstanc- es, enforce his. direct claim against the debtor until he has realized on his securities? Is the rule capable of such inversion? I cannot see any reason in the proposition. I do not see why, in the absence of intervention by positive or statutory law, the engagements of par- ties should be varied. If in bankruptcy another method was prescribed by the statute for the proof and payment of debts, it was a matter purely within the discretion of the federal legislature. Its constitu- tional right to establish uniform laws on the subject of bankruptcies throughout the United States obviously included the power to prescribe the mode of marshaling the insolvent's assets for distribution among creditors ; and, being the law of the country, it becomes a part of ev- ery contract. But this furnishes no reason why the established rules of courts of equity should be changed in the administration of the es- tates of insolvents. * * * But I think that, whether we look at this question in the light of reason or of the adjudged cases, the rule which best commends itself to oar judgment is that which leaves the contractual relations of the 286 REMEDIES OF CREDITORS debtor and his creditors unchanged when insolvency has brought the general estate of the debtor within the jurisdiction of a court of equity for administration and settlement. The creditor is entitled to prove against the estate for what is due to him, and to receive a dividend upon that amount. If the collateral securities are more than sufficient to satisfy any deficiency in the payment of the debt from the dividends, the personal representatives may redeem them for the benefit of the estate. The order appealed from should be affirmed, with costs. All con- cur, (RuGER, C. J., in result,) except Earl and O'Brien, JJ., taking no part. VI. Rights of Joint and Several Creditors — Double Proof ^* HAWKINS et al. v. MAHONEY et al. (Supreme Court of Minnesota, 1898. 71 Minn. 155, 73 N. W. 720.) Start, C. J.^^ Arthur H. Ives and Amos P. Ireland, partners un- der the firm name of Ives, Ireland & Co., duly made an assignment of all of their partnership and unexempt individual property, for the benefit of their creditors, under the insolvent laws of this state. The net assets of the partnership, for distribution, amount to $3,151.65, and the partnership debts are $19,736.34. Ireland's net individual assets are $4,000; and his individual debts, $2,997.47. Ives' net assets are $100, and his personal debts, $415.40. Included in the firm debts proved is that of the Irish-American Bank, for $4,078.89, which is based upon the notes of the firm given to the bank for a loan by it to the firm, in the sum of $4,000, and signed by the firm, and by Ireland in his individual name. There is also included in the firm debts that of the St. Anthony Falls Bank, for $5,512.50, which is based upon notes executed by the firm to it for a loan of $5,500, but none of the notes were signed by either of the individual part- ners. Each of these banks made the loan to the firm in express reliance upon the individual property and credit of Ireland. The trial court, by its order of distribution, directed the assignee to pay the net assets of the firm, pro rata, to the firm creditors, in- cluding the Irish-American Bank; net individual assets of Ireland, pro rata, to his individual creditors, excluding the firm creditors, except the Irish-American Bank, which was included therein to the full amount of its debt, without any deduction for the payment thereon it was to receive by its dividend from the firm assets ; and the net assets of Ives to his individual creditors. The assignee 16 For a discu.ssion of principles, see Gilmore on Partnership, § 1.50. 17 1'art of the opinion and the concurring opinion of Mitchell, J., are omitted. RIGHTS OF JOINT AND SEVERAL CREDITORS — DOUBLE PROOF 287 and certain firm creditors appealed from this order. The appeals present two general questions for our decision. They are, did the trial court err (a) in distributing the firm assets to the firm credit- ors, and the individual assets to the individual creditors? (b) in di- recting a dividend to be paid to the Irish-American Bank from both funds? * ♦ * 2. The claim of the Irish-American Bank was based upon promis- sory notes executed by the firm of Ives, Ireland & Co., and by Ire- land in his individual name; and for this reason the trial court per- mitted the bank to receive a dividend on the full amount of its claim, from both the partnership and individual funds. The trial court's order in this respect is claimed to be erroneous, for the reason that the consideration of the notes determines the character of the debt, which was for money loaned to, and used by, the firm; hence it is immaterial whether or not the individual name of the partner is on the notes, for with or without it they represent a partnership debt, for which he is liable ; consequently the bank has no equities superior to the other firm creditors. The question of double proof in such a case is not a new one. It was at one time the rule in England that a creditor holding a note signed by the firm and an individual part- ner must, in bankruptcy, elect wliich estate he would prove his claim against. The rule is, and always has been, otherwise in this country, and it is settled by a very decided weight of authority that such double proof is permissible. T. Pars. Partn. p. 390; 2 Bates, Partn. § 841; 17 Am. & Eng. Enc. Law, 1210 ; Emery v. Bank, 7 Nat. Bankr. Rep. 217, Fed. Cas. No. 4,446; In re Bradley, 2 Biss. 515, Fed. Cas. No. 1,772; Ex parte Nason, 70 Uq. 363; Roger Williams Nat. Bank V. Hall, 160 Alass. 171, 35 N. E. 666. It is true, as claimed, that the federal bankrupt law provided for double proof in certain cases; but Judge Clifford, in Emery v. Bank, clearly indicates, independent of the statute, that where a creditor has taken the precaution, before parting with his money, to secure an express written contract for its repayment from both the firm and the individual partner, his riglit is clear, in case of bankruptcy, to the benefit of his caution, and to prove his claim against, and receive a dividend from, the fund belonging to the partnership, and also from the estate of the individual partner. This precise question was involved in the cases of Ex parte Nason and Bank v. Hall, supra, and in each the rule as to double proof was maintained on principle. In the last-named case the court, after citing the authorities in support of the rule, concludes thus: "In view of the modern decisions, and the general agreement of opinion, we think it unnecessary to argue elaborately for the right of a creditor who has required two contracts, binding two distinct estates, to in- sist upon both." Our conclusion on this question is that the Irish- American Bank was entitled to receive a dividend on its claim from both funds. The trial court, however, directed a dividend to be paid to it from both funds, concurrently, on the full amount of its debt. 288 REMEDIES OF CREDITORS There are authorities sustaining tliis part of the order but it is mani- festly inequitable to other creditors. When the bank receives a divi- dend" from the firm assets, the primary fund for the payment of its claim, its debt is paid pro tanto; and to permit it to receive a divi- dend from the individual assets, on the part of its debt paid from the firm assets, to the prejudice of other creditors, is not just, and there- fore not leg-al, in the absence of any statute declaring it to be so. It follows that the order appealed from must be modified so as to permit the bank to receive a dividend from the individual assets of Ireland only on the balance of its claim after applying as a payment its dividend from the firm assets, and that this case must be remanded, with direction to the district court to so do. VII. Insolvency or Bankruptcy of a Partner MURRAY V. MURRAY et al. (Court of Chancery of New York, 1821. 5 Johns. Ch. 60.) The plaintiflf, John V. Murray, and Robert Murray, George W. Mur- ray, and John R. Wheaton, were partners under the firm name of Robert Murray & Co. The partnership failed while the plaintiff was in England on firm business. George W. Murray and Wheaton hav- ing gone to Europe, leaving Robert Murray the only partner in this country, the latter, by virtue of a power of attorney from his copart- ners, executed several assignments of the firm property to John B. Murray and Clark for the benefit of certain creditors. Afterwards all the members of the partnership, except the plaintiff, were declared bankrupt under the United States bankruptcy law and received their discharge. The plaintiff, having returned to the United States and never having been adjudged bankrupt in this country, filed this bill, charging that John B. Murray and Clark had, by virtue of the assign- ment to them, received large sums of money, more than sufficient to satisfy the debts directed to be paid, and that they had in their hands a large balance belonging to the partnership, which plaintiff prayed might be turned over to him, as the remaining solvent partner. This cause was brought to a hearing for the purpose of obtaining the opinion of the court whether plaintiff was entitled to an account from the as- signees of the firm and to the payment of the balance in their hands. If the plaintiff was not so entitled, the bill was to be dismissed. Kent, Ch.^^ The question in this case, between the plaintiff and the assignees of his bankrupt partner, relates to the control and distribu- tion of the partnership fund. The plaintiff, in a particular manner, 18 For a discussion of principles, see Gilmore on Partnership, § 151. 18 Part of the opinion is omitted and the statement of facts is rewritten. INSOLVENCY OR BANKEUPTCY OF A PARTNER 289 claims the balance reported to be due from the estate of John I. Clark, deceased, to the house of Robert Murray & Co., and insists that he is entitled, in preference to the assignees, to distribute that balance, and to disrc^^'^ard the settlement which was made by those assignees with the executor of Clark, * * * It is admitted, in all the cases, that the assignees of a bankrupt part- ner and the remaining solvent partner are tenants in common in re- spect to the partnership funds, and, like all tenants in common, one party cannot call the joint property out of the hands of the other. There is no such case. They are entitled equally to the possession in law. This was expressly held in Smith v. Stokes, 1 East, 3G3. Trover will not lie for one against the other. It has also been held that the solvent partner and the assignees of the bankrupt cannot sue alone, and that they must unite in actions at law. Ashhurst, J., in Graham V. Robertson, 2 Term, :i62 ; Eckhardt v. Wilson, 8 Term, 140. What right, then, has the solvent partner to come into this court, to call the entire joint funds out of. the possession of the assignees, who are his co-tenants in common, and as such have an equal control over the joint funds? There is no case giving to either party the absolute, ex- clusive possession and distribution of the entire effects. Neither party is strictly entitled, as against the other, to anything more than his share of the surplus after the partnership debts are paid. Field v. Taylor, 4 Vesey, 39G. In this case there is no justice or equity in the pretension of the plaintiff. He admits that the partnership debts greatly exceed the partnership funds, and that there cannot be any surplus coming to either party. His sole object, then, is to have the partnership funds, which have been or may be under the control of the assignees, pass into his hands for distribution, instead of having them distributed by the assignees; and he denies all right in the assignees to touch or distribute any of the partnership funds and wishes to vacate all that they have done. But it appears that a great majority in interest of the joint creditors, and who have partnership debts due them to nearly $500,000, have come in and proved their debts under the separate com- mission in the case of Robert Murray. These include almost all the debts, except such as were provided for under the assignments to J. B. IMurray and Clark. It also appears that the assignees, after having by suit obtained a liquidation of the balance due from the estate of Clark, and bestowed great care and efforts towards the recovery and security of that debt, settled it upon terms which they deemed prudent and just, under all the circumstances. This settlement and consequent dis- charge of the estate of Clark was in February, 1810; and in October following, due public notice having been given to the creditors, several of them appeared before the commissioners of bankrupts and ratified that settlement. If there was anything wrong in the settlement, it was for the creditors to disturb it; and it would be most unreasonable to permit the plaintiff to set aside all that had been done by the assignee? Gilm.Part.— 19 290 REMEDIES OF CREDITORS under such a sanction from the creditors, merely for the purpose of making his own distribution. There is no charge of misconduct in the assignees. The whole bill is a denial of their competency to act, though every case on the subject admits that assignees of a bankrupt partner are tenants in common with the solvent partner. If the pre- tensions of either party to an exclusive distribution of the "partnership funds were to be examined upon principles of policy and equity, the assignees would have the better pretension, in the view of this court, because the solvent partner has it in his power to give preferences and defeat the equality and equity of the bankrupt system. Assignees, on the other hand, are bound to make a ratable distribution of the assets ; and, being trustees under the control of th?s court, there is no good reason why their equal rights at law as tenants in common should suffer diminution here. They are tenants in common, but with par- ticular equities in them, as Lord Eldon observed, "vastly beyond what tenants in common have where no bankruptcy has occurred"; and their claim to the distribution of the partnership fund has been en- couraged and strengthened by the decisions in chancery. This will appear by a review of some of the leading chancery cases. * * * Upon this review of the cases I am not able to perceive any color- able reason for the pretension set up by the plaintiff to the exclusive distribution of the partnership funds. There would be much more ground, upon the established doctrines of equity, for an exclusive right of distribution on the part of the assignees, since under their com- mission the court is in the practice of directing an account of the joint estate to be taken and a distribution of that estate ratably among the joint creditors. The most that can be said is that the solvent partner upon the dissolution of the partnership by bankruptcy, being a tenant in common, may retain and distribute the funds in his possession, and may, as was held in Fox v. Hanbury, Cowp. 445, sell those partnership eft'ects for a valuable consideration and without fraud. They cannot be called out of his possession by his co-tenants, the assignees, unless under the direction of this court, on a bill filed by them for contribu- tion, or, perhaps, where an account of the joint fund is directed to be taken in bankruptcy. But, on the other hand, there is no foundation in law or equity for the solvent partner to call to account, either the partnership debtors who have bona fide settled with the assignees, or the assignees themselves, for the funds in their possession. They hold those funds by an equal title in law with him as tenants in common, and by a superior equitable title as trustees, charged with the payment of both the joint and separate debts. I shall accordingly declare that the plaintiff has no right or title in law or equity to call the assignees to account for the partnership funds, which have been or are now in their possession as such assignees, in order to obtain by decree the possession of those funds for distribu- tion among the creditors of Robert Murray & Co., inasmuch as those assignees have an equal right and title in law as tenants in common INSOLVENCY OR BANKRUPTCY OF A PARTNER 201 with the plaintiff, and a better right in equity, to the possession of those funds for the same purpose of distribution. * * * And I shall direct the original bill, and bill of revivor and supplement, to be dis- missed, but without costs, considering the special circumstances of the case, and the importance of the points invciligalcd and discussed. Decree accordingly. RUSSELL et al. v. COLE. (Supreme Judicial Court of Massachusetts, 1896. 167 Mass. 6, 44 N. E. 1057, 57 Am. St. Rep. 432.) Action for conversion, brought by one Russell and G. W. Martin against Cole. There were a verdict and judgment for the plaintiffs, and defendant excepts. Knowlton, J. The conveyance by Martin to Russell was, on the part of Martin, fraudulent as against creditors, and in contravention of the statute relating to insolvency. But Russell had no knowledge of this fact, and did not in any way participate in the fraud. The contract, therefore, took effect according to its terms. Russell be- came a co-partner with Martin, and the goods sold became partnership property. The rights of Russell, who bought in good faith, for a val- uable consideration, were not in any way affected by the fraud of Martin, of which he was ignorant. The property which thus became assets of the partnership under the contract could not afterwards be attached on a debt against one of the partners, and the defendant, as attaching officer, acquired no valid title. Sanborn v. Royce, 132 Mass. 594; Pelletier v. Couture, 148 Mass. 269-271, 19 N. E. 400, 1 L. R. A. 863. The action was rightly brought in the name of both members of the firm, notwithstanding the proceedings in insolvency against Martin. Fish V. Gates, 133 Mass. 441; Fay v. Duggan, 135 Mass. 242; Hyde V. Food Co., 160 Mass. 559, 36 N. E. 585. The fact that Martin was guilty of a fraud in forming the partnership before the attachment was made does not prevent the maintenance of the action. The prin- ciple of the decision in Homer v. Wood, 11 Cush. 62. is not to be ex- tended to cases like the present. As, according to the finding of the auditor, the goods became partnership property even as to creditors, notwithstanding the fraud of Martin, the suit against the defendant for attaching it wrongfully does not involve any question in regard to the right of Martin to rescind or repudiate the contract, nor bring his previous conduct within the issue. The defendant's act in attach- ing the partnership property was a trespass, and the owners of the property or parties in possession of it might sue for damages without regard to the question whether one of them, in a previous transaction, had been guilty of a wrong against third parties. Hall v. Corcoran, 107 Mass. 251, 9 Am. Rep. 30; Newcomb v. Protective Department, 292 REMEDIES OF CREDITORS 146 Mass. 596-602, 16 N. E. 555, 4 Am. St. Rep. 354; StilHngs v. Turner, 153 Mass. 534, 27 N. E. 671. The remaining question in the case is whether the defendant is en- titled to show, in mitigation of damages, that he delivered the property to the assignee in insolvency of Martin. After the commencement of the proceedings in insolvency, Russell alone had a right to the pos- session of the property. The assignee of Martin was only entitled to a share in the surplus of the partnership assets, if anything remained after paying the debts. The partnership, being solvent, through the solvency of the partner Russell, was not brought into the court of in- solvency, and that court acquired no jurisdiction to settle its affairs. It is to be remembered that our courts of insolvency are creatures of the statute, and that they have no jurisdiction except that which the statute gives to them. Their only jurisdiction over partnerships is conferred by Pub. St. c. 157, § 120, et infra. It is only ''when two or more persons who are partners become insolvent" — that is, when the partnership is insolvent through the insolvency of all the members of the firm — that a court of insolvency acquires jurisdiction to settle the affairs of the partnership ; and in such a case a warrant is issued upon which the joint stock and property of the firm and the separate estate of each of the partners is taken. Until the enactment of St. 1894, c. 164, courts of insolvency had no jurisdiction in equity, and that statute confers no jurisdiction to in- terfere in the affairs of a partnership which is not brought into the court of insolvency by regular proceedings by or against it, except in cases where incidentally to the proceedings in insolvency there is a ground for equitable relief under the principles which govern other courts of equity. When a- partnership is dissolved by the death or insolvency of one of its members, the surviving partners in case of death, or the solvent partners in case one of the firm is in insolvency, are entitled to the possession of the partnership property, and are bound to pay all of the firm's debts. It is their duty to wind up the affairs of the partner- ship, and to pay over to the representative of the deceased or insolvent partner his share of the assets, if there are any after paying the firm's liabilities. Hanson v. Paige, 3 Gray, 239-242; Dearborn v. Keith, 5 Cush. 224; Fern v. Gushing, 4 Gush. 357; Gunningham v. Munroe, 15 Gray, 471-479; Nutting v. Ashcroft, 101 Mass. 300; Pelletier V. Gouture, 148 Mass. 269, 271, 19 N. E. 400; Amsinck v. Bean, 22 Wall. 395, 22 L. Ed. 801 ; 2 Lindl. Partn. 669 et seq. If they fail to do their duty in these particulars, the executor, administrator, or assignee may have a remedy in a court of equity. So long as the solvent partners are ready and willing properly to settle the business and dispose of the property of the partnership, and properly to account for and pay over the proceeds, an assignee in in- solvency, under our statute, has no right to the possession of the part- nership property. The partnership property and the solvent members BIGHTS AGAINST THE ESTATE OF DECEASED PARTNER 293 of the firm are not within the jurisdiction of the court of insolvency. They can be brought within its jurisdiction only upon proceedings in equity, under St. 1894, c. 164, founded upon facts which would give jurisdiction to a court of general jurisdiction in equity. Some of the dicta in Wilkins v. Davis, 15 N. B. R. 60, 2 Low. 511, Fed. Cas. No. 17,664, are not in accordance with the decisions and practice under the statutes of Massachusetts. It follows that the surrender of the prop- erty by the defendant to Martin's assignee in insolvency was irregular and unauthorized. It cannot avail the defendant as a defense in this action, by way of mitigation of damages or otherwise. In the opinion of a majority of the court, the plaintiff Russell was entitled to have from the defendant all of the property taken under the attachment ; and, it not having been returned to him, he may re- cover the full value of it. Exceptions overruled. VIII. Rights Against the Estate of Deceased Partner '^^ STEWART'S CASE. (Surrogate's Court, New York County, 1S57. 4 Abb. Prac. 408.) The Surrogate. The testator was a member of the firm of J. J. Stewart & Co., and on the distribution of the sale of his real estate a question arises as to the proper mode of marshalling the assets be- tween the individual and the partnership creditors. On the decease of Stewart, his surviving partners settled the affairs of the firm, and dis- tributed the assets among the partnership creditors ; but, the firm being insolvent, a large portion of the joint debts remained unpaid. The surviving partner also being insolvent, the only remedy remaining to the partnership creditors, for the unpaid balances of their claims, is against the estate of the testator, Stewart. The question is, whether the partnership creditors can come in and share ratably with the sep- arate creditors or Stewart, or must be postponed until the separate creditors are paid. It is well settled, both at law and in equity, that the separate cred- itors of a partner of a firm can reach only the interest of their debtor, or his proportion of the surplus of the joint property remaining after payment of all the partnership debts. In re Smith, 16 Johns. 102; Moody V. Payne, 2 Johns. Ch. 548. But in regard to the claims of the partnership creditors, there is a distinction between the legal and the equitable rule. At law, the partnership creditors may pursue both the joint and the separate estate for the satisfaction of their debts which at law are considered both joint and several. On the death of one of the parties the legal right ceases against the deceased partner, and survives only against the surviving partner. A court of equity, how- 2 For a discussion of principles, see Giliuore on Partnership, § 152. 294 REMEDIES OF CREDITORS ever, will decree to joint creditors satisfaction of their claims, as against the representatives of the deceased partner, when by reason of the insolvency of the firm and of the surviving partner, no other remedy exists. Thus far the rule seems plain. But what are the rights of the joint creditors as against the separate creditors of the deceased part- ner, when the estate of the latter is insufficient to pay both classes of claims? Have the individual creditors a prior right to the individual estate, and are they entitled to be paid first, in preference to the joint creditors? The legal claim of the joint creditors against the separate property of the deceased partner is terminable by his death, but a remedy will be afforded in equity, according to equitable principles. The general doctrine is very clearly established in this State, that joint creditors shall not be permitted to reach the individual estate of the deceased partner until all the separate creditors are satisfied. Murray V. Murray, 5 Johns. Ch. 60; Robbins v. Cooper, 6 Johns. Ch. 186; Wilder v. Keeler, 3 Paige, 167, 23 Am. Dec. 781 ; Egberts v. Wood, 3 Paige, 517, 527, 24 Am. Dec. 236; Payne v. Matthews, 6 Paige, 20; Jackson v. Cornell, 1 Sandf. Ch. 348; Burtus v. Tisdall, 4 Barb. 571. The only exception to this rule, according to the English decisions, is where there is no joint estate and no solvent surviving partner, in which case the joint creditors shall not be postponed, but will be al- lowed to come in ratably with the individual creditors. Ex parte Hay- den, 1 Bro. C. C. 454; Ex parte Abell, 4 Ves. 838; Ex parte Pinker- ton, 6 Ves. 814, note; Ex parte Kensington, 14 Ves. 447; Ex parte Kendall, 17 Ves. 521. But this exception does not prevail if the joint estate, though insolvent, be able to pay a dividend, however in- considerable. Gray v. Chiswell, 9 Ves. 124; McCulloh v. Dashiell, 1 Har. & G. (Md.) 96, 18 Am. Dec. 271 ; Gow on Partn. 408. If there be any joint estate or fund, though of trifling amount, the joint debts are attached to that, and cannot receive dividends out of the separate estate pari passu with the separate creditors. It is not easy to per- ceive the ground of distinction upon which this modification of the exception is based. The general principle is, that the joint creditors are attached to the joint fund, and the separate creditors to the separate fund; but where there is no joint fund and no solvent surviving partner, so that the joint creditor is without remedy, then he may come in against the separate estate. The English courts of equity thus recognized both against the representatives of the deceased partner and his individual creditors, the joint and several character of the partnership debts, when other remedies are exhausted, at the time of the death of the deceased partner. The fact that some dividend has been or may be received from the joint effects, does not change the joint and several character of the partnership debts, but only tends to effect the equitable marshalling of the separate assets. After the receipts of the dividend, there remains as to the balance due no remedy against the separate EIGHTS AGAINST THE ESTATE OF DECEASED PAETNEB 29: estate, which, if there were no individual creditors, would be applied to the discharge of the balance. The principle upon which this rule is based would seem to be satisfied if the joint creditors bring in the dividend received from the joint estate, place it in a common fund, out of which all are to share alike, and relinquish the advantage of having claims, joint as well as several in their nature. To say that the joint creditor may resort to the separate estate, when there is no joint fund and no solvent partner, but cannot resort to it if he has happened to realize one mill on the dollar, would appear to establish a distinction more technical than just. If the dividend is brought in, the ground of the distinction ceases, no priority or ad- vantage is gained, and all the demands are placed upon the common ground of equality. In this State, however, the distinction of the English courts of equity on this subject has not prevailed in regard to the general rule. In Wilder v. Keeler, 3 Paige, 167, the chancellor held, that although the joint creditors upon an allegation of the in- solvency of the surviving partners have an equitable right to com- pel a satisfaction of their debts out of the estate of the deceased part- ner, this equity exists only against the heirs and representatives of the deceased, but not against his separate creditors ; that if the joint creditors have received nothing on account of their debts since the death of the decedent, the equities between the joint and separate cred- itors may be equal ; but even in such a case the court has no power to deprive the separate creditors of their former rights and legal as- sets. The same principle was again asserted in Egberts v. Wood, 3 Paige, 517, 24 Am. Dec. 236; in Payne v. Matthews, 6 Paige, 20, 29 Am. Dec. 738; Kirby v. Schoonmaker, 3 Barb. Ch. 46, 49 Am. Dec. 160. The principle that equity will not interfere to destroy or impair the legal preference in regard to legal assets, which appertains to the sep- arate creditors at law, is sound, and it established such a basis of dis- tinctions as admits of a clear and consistent course of reasoning, and prevents any confusion. See Trustees v. Lawrence, 11 Paige, 80; Jackson v. Cornell, 1 Sandf. Ch. 348. Whether, therefore, the assets in the present case are to be treated strictly as legal assets, or ought to be marshalled according to equitable principles, the joint creditors cannot be permitted to have their debts paid out of the separate es- tate of the deceased partner until all the separate debts are paid. If, after such payment be made, any surplus remains, then it may be ap- plied to the payment of the partnership creditors; and in that case those who have received partial payment out of the partnership prop- erty must bring in their dividends, and share ratably with those who have not received dividends, or else be excluded until the latter class of partnership creditors have received a sufficient amount to place them on terms of equality with the former.'^ ^ 21 Read in this connectiou, however, Dogs,'ett v. Dill, ante, p. IGO ; Voorhis V. Child's Ex'r, aute, p. IGS. 296 ACTIONS BETWEEN PAETNERS ACTIONS BETWEEN PARTNERS I. Action on Partnership Claim or Liability — At Law * SADLER V. NIXON. (Court of King's Bench, 1834. 5 Barn. & Add. 936.) Assumpsit for money paid by the plaintiff to the defendant's use, etc. At the trial before Denman, C. J., at the London Sittings after last Michaelmas Term, the following appeared to be the facts of the case: The plaintiff, the defendant, and another person, being co- partners in trade, employed a builder to repair a building which was their joint property and in which they carried on their trade. The builder brought an action against the three copartners for the repairs, and obtained judgment, but took the plaintiff only in execution, who, in order to regain his liberty, paid the whole debt. The present ac- tion was brought to recover one-third of the money so paid. It was contended that the plaintiff, one of the three joint contractors, having been compelled to pay money which his co-contractors were jointly li- able to pay, was entitled to maintain this action. On the other hand, it was said that, the plaintiff and the defendants in the first action being not merely co-contractors, but copartners in trade, one of them could not maintain an action against the other to recover money paid on ac- count of the firm, but that his remedy was by bill in equity ; the rea- son why an action at law in such a case was not maintainable being that it would be useless for one partner to recover what, upon taking a general account among all the partners, he might be liable to refund, and this objection applying as well to a compulsory as to a voluntary payment. The Lord Chief Justice was of that opinion, and nonsuited the plaintiff, but reserved liberty to him to move to enter a verdict. F. Pollock on a former day in this term moved accordingly. It may be conceded that, where one partner voluntarily makes a payment Dn account of the others, he cannot maintain an action at law against his copartners; but it is otherwise where the payment is by compul- sion. * * * The principle on which the plaintiff is entitled to re- cover is that he has been compelled to pay out of his own funds mon- ey which the defendant was jointly liable to pay.^ * ♦ ♦ Lord Denman, C. J., now delivered judgment, and said the court were of opinion that there was no ground for the distinction taken on the part of the plaintiff, and, therefore, there would be no rule. Rule refused. 1 For a discussion of principles, see Gilmore on Partnership, §§ 153-155. 2 Statement of facts is abridged. ACTION ON PARTNERSHIP CLAIM OR LIABILITY — AT LAW 297 EURT.EY & HARRIS v. HARRIS. (Superior Court of Judicature of New Hampshire, 1S40. 8 X. H. 233, 29 Ajn. Dec. 650.) This was assumpsit on an account annexed to the writ. The cause was tried on the general issue, and a brief statement was liled, alleging the causes of defense disclosed in this case. It was admitted that Harris, the defendant, was a partner in the firm of Burley & Harris, in whose name the suit was brought. The defendant had received goods belonging to the firm to the amount of $495.84, for which he was liable to account to the firm ; but it was not admitted or proved that the defendant, on a full adjustment of the partnership affairs, would be found indebted to the firm. The parties offered in evidence the original articles of partnership betwixt them, and an assignment of the partnership demands to Burley, with an agreement that Burley was to account for these demands in payment of certain .company debts, and in payment of Harris's portion of the partnership profits, if there should be any. The partnership business remains unsettled at this time. On the disclosure of these facts the court directed a nonsuit, subject to the opinion of the court; and it was agreed by the parties that, if this ruling of the court should not be sustained, the nonsuit was to be set aside, and judgment rendered for the plaintiffs for the amount of the account annexed. Upiiam, J. The authorities are very clear that an individual can- not stand in the relation of plaintiff and defendant in the same suit. A judgment in such case would avail nothing, as the defendant would have the same right to discharge an execution founded on it as the plaintiff. The question has arisen in numerous instances where an in- dividual has been a member of different firms, in which one firm held claims against the other and attempted to enforce them at law. Judge Story, in his treatise on Equity, says that no suit can be maintained at law in regard to any actions or debts between two firms, where in- dividuals of the firms are partners in each. In such a case, all the partners must join and be joined; and no person can maintain a suit against himself, or against himself with others. The objection is a complete bar to the action. Nay, even after the death of the partner or partners belonging to both firms, no action upon any contract, or mutual dealing ex contractu, is maintainable by the survivors of one tirm against those of the other firm; for in a legal view there never was any subsisting contract between the firms, as a partner cannot contract with himself. 1 Story's Eq. 630 ; Bosanquet v. Wray, 6 Taunt. 597; Mainwaring v. Newman, 2 Bos. & P. 120; Jones et al. V. Yates et al., 9 Barn. & Cres. 532. In Eastman v. Wright, 6 Pick. (Mass.) 316, and May v. Parker, 12 Pick. (Mass.) 39, 22 Am. Dec. 393, are remarks of the court to the same effect. In the case of Holmes V. Higgins, 1 Barn. & Cres. 68, it appeared that a number of persons had associated themselves together and subscribed sums of money for the purpose of obtaining a bill in Parliament to make a railway. It 298 ACTIONS BETWEEN PARTNERS ^•as holden that they were partners, and that a subscriber who acted ds a surveyor in their employ could not maintain an action against all or any of the subscribers. Chief Justice Abbot held that the sub- scribers were partners, and that it was perfectly clear that one partner could not maintain an action against his copartners for work and labor performed, or money expended, on account of the copartnership. But in this case the partnership effects have been assigned to one of the firm, and it is contended that the assignment should be protected and the holder of the partnership property permitted to enforce all :laims in the partnership name. This doctrine is correct. In many instances of dissolution of partnerships the remaining partner is, by igreement, exclusively authorized to arrange the joint affairs and to receive the partnership credits as the fund out of which to discharge the partnership debts. Where this is the case, and notice as well of the dissolution as of the private arrangement between the parties is given, a debtor to the firm cannot, by colluding with the outgoing partner, obtain from him a discharge of the debt. Gow on Part. 275 ; Hender- son V. Wild, 2 Camp. 5G1 ; Skaife v. Jackson, 3 Barn. & Cres. 421 ; Scott V. Trents, 1 Wash. (Va.) 77; Mountstephen v. Brooks, 1 Chit. 390; Arton et al. v. Booth, 4 Moore, 192. The claims of the firm against all persons, other than the partners, may well be enforced under such an arrangement. But until a final adjustment is made of the balance due on all partnership accounts, or at least until some balance is struck, and a specific sum is found due to some one part- ner, no suit can be enforced by one member of a firm against another. Gow on Part. 88; Walker v. Long, 2 Browne (Pa.) 125; Ozeas v. Johnson, 4 Dall. (Pa.) 434, 1 L. Ed. 897; Murray v. Bogert et al., 14 Johns. (N. Y.) 318, 7 Am. Dec. 46G ; Beach v. Hotchkiss, 2 Conn. 425; Bond v. Hays, 12 Mass. 34; Wilby v. Phinney, 15 Mass. 116; Fanning v. Chadwick, 3 Pick. (Mass.) 420, 15 Am. Dec. 233; Brinley v. Kupfer, 6 Pick. (Mass.) 179; Foster v. Alanson, 2 D. & E. 479. No settlement of the partnership claims has been made in this case. The assignment to Burley is in fact a mere power of attorney, au- thorizing him to collect the partnership demands and apply them in payment of the partnership debts, while he was to hold the balance to be adjusted by the partners. The partner who took upon himself die business of collection covenanted to account for all the property received, to pay the debts, and to pay the defendant his share of the profits upon a final settlement, if the firm should be found to have real- ized any profits for division. The partnership business as betwixt the partners was left entirely unsettled, and in case of any difficulty in the settlement betwixt them their claims were to be submitted to the arbitration of individuals designated in the articles of dissolution. There is no pretense, then, for maintaining this suit, on the ground of any adjusted balance made betwixt the parties. It is a mere naked suit brought by a firm against a partner for an indebtedness to the firm. The suit is, therefore, felo de se. The parties on either side ACTIONS BETWEEN FIRMS WITH COMMON MEMBER 299 upon the record are the same. SIiouUI any difficulties arise in tlie final settlement of the concerns of these partners, there is a plain rem- edy in equity, where the objections which occur here would not exist. Suit dismissed, without costs. II. Actions Between Firms With Common Member • CROSBY V. TIAIOLAT et al. (Supreme Court of Minnesota, 1S92. 50 Minn. 171, 52 N. W. 526.) Action by George H. Crosby, as receiver of the partnership prop- erty of Miller & Timolat, against Harry W. Timolat and George W. Stevens, to recover for services rendered by Miller. From an order overruling defendant Stevens' demurrer to the complaint he appeals. Dickinson, J. This is an appeal by the defendant Stevens alone from an order overruling his demurrer to the complaint. It appears that Miller and Timolat were engaged as copartners in the business of buying and selling real estate. At the same time Stevens and the same Timolat were copartners in the enterprise of buying, holding, and selling certain specified tracts of land. That Miller and Timolat, as such copartners, and at the request of the defendants, Stevens and Timolat, as copartners, performed services in selling the land which was the subject of the partnership enterprise of the latter. After that, in an action prosecuted by Miller against Timolat, this plaintiff was appointed receiver of the partnership property of the firm of Mil- ler & Timolat, with power to sue for and collect all debts due to that partnership. He prosecutes this action to recover the value of such services rendered for the defendants. The appellant relies upon the technical rules of the common law. It is true that an action at law for such a cause as that stated in the complaint could not have been maintained by a partnership against another partnership having a common member with the former firm. It was not permitted that one of the parties should thus appear both as a plaintiff and defend- ant, in eflect prosecuting an action against himself, in which, if a recovery were to be allowed, it would be in his favor, and at the same time against himself. Nor, at law, would the contract or agreement between the two firms having a common member be recognized as creating a legal obligation or cause of action. The transaction would be treated as an attempt by a party to enter into a contract with him- self. Bosanquet v. Wray, 6 Taunt. 597; De Tastet v. Shaw, 1 Barn. & Aid. 6G-i, 669; Leake, Cont. 439, 440; McFadden v. Hunt, o 8 For a discussion of principles, see Gilmore on Tartnorsbip, § 156. 300 ACTIONS BETWEEN PARTNERS Watts & S. (i'a.) 4G8; Price v. Spencer, 7 Phila. (Pa.) 179. The remedial system of the common law was too inflexible and restricted to enable it to adjust the complex rights and obligations of the par- ties under such circumstances. But in equity the agreements of the members of firms so related to each other were treated as obligatory, and the fact that one of the parties to the joint contract stood in the position of both an obligor and obligee did not stand in the way of affording such relief or remedy as might be found to be appropriate and necessary to the ends of justice. 1 Story, Eq. Jur. §§ 679, 680; Haven v. Wakefield, 39 111. 509; Chapman v. Evans, 44 Miss. 113; Calvit's Ex'rs v. IMarkham, 3 How. (Miss.) 343; Hayes v. Bement, 3 Sandf. (X. Y.) 394. With the statement of these propositions the objections to the sufficiency of the complaint upon the grounds stated in the demurrer are overcome. There is a cause of action stated of an equitable nature, if not legal — and if it is either the demurrer can- not be sustained — and the plaintiff has legal capacity to sue. The very objections which the appellant urges to the sufficiency of the complaint as setting forth a legal cause of action go to show that re- lief should be afforded in equity at least. If the fact that Timolat is one of the obligors in the contract as well as an obligee renders necessary any apportionment of the amount to be recovered, or any equitable adjustment of the rights of the parties, the court is compe- tent to do what is necessary. At present the question is not how the matter is to be adjusted, or what recovery shall be allowed, but only as to whether the action can be maintained at all. As bearing upon this question may be cited, in addition to the authorities above refer- red to Cole v. Reynolds, 18 N. Y. 74; Schnair v. Schmidt, 59 Hun, 625, 13 N. Y. Supp. 725; Lathrop v. Knapp, 37 Wis. 307; In re Buckhause (Ex parte Flynn) 2 Lowell (U. S.) 331, Fed. Cas. No. 2,086. It is unnecessary to consider whether this plaintiff, as the re- ceiver of the creditor partnership, could maintain a merely legal ac- tion against the members of the other firm. Order affirmed. III. Action at Law on Individual Obligation * BURNS V. NOTTINGHAM. (Supreme Court of Illinois, 1871. 60 111. 531.) Walker, J."* This was an action of assumpsit, brought by defend- ant in error, in the Kankakee circuit court, against plaintiff in error. A trial was had by the court and a jury, resulting in a verdict and * For a discussion of principles, see Gilmore on Partnership, §§ 157-161. 6 Part of the opinion is omitted. ACTION AT LAW ON INDIVIDUAL OBLIGATION 301 judgment of $1,000 against plaintiff in error, to reverse which the rec- ord is brought to this court on error. It appears that the parties to this suit were, for a time, partners as sutlers tor the army, and afterwards took one Robinson into the firm. This action was brought to recover a balance claimed to be due from plaintiff in error on a settlement of the affairs of the firm; but it is urged by plaintiff in error that the evidence fails to show a final set- tlement, the ascertainment of the balance due, and a promise to pay the same. It is the settled law of this court that one partner cannot bring an action in assumpsit against his late partner, unless upon a dissolu- tion of the copartnership the partners account together, and a balance is stated in favor of one, and the other agrees to make payment of such sum. The balance so found must be a final settlement of all the partnership accounts, but balances only struck preparatory to a final account are not sufficient to form the subject-matter of an action at law. Until this is done, the remedy is in equity, Davenport v. Gear, 2 Scam. 495; Frink v. Ryan, 3 Scam. 322; Chadsey v. Harrison, 11 111. lol; Ridgway V. Grant, 17 111. 117. And, as a general rule, such a settlement must be accompanied by a promise to pay by the partner thus found indebted, to confer jurisdiction on a court of law. Ihe question is, then, presented whether, in this case, it appears that there was such a settlement and promise. A written statement signed by the parties was produced and read in evidence, which states that it is a settlement between the parties to this suit, but is not signed by Robinson, the other partner. It states that it shows the profits of the concern. It fails to state in whose hands the funds were, and there is no presumption that one partner has them, rather than another, as each has an equal right to retain them until there is a final settlement. This instrument does not fix any amount that each partner is en- titled to receive out of these profits; nor does it appear whether the partners had each received his share of the capital stock put into the partnership, or what amount, if anything, may have been drawn out by the several partners. Although called a settlement, it is indefinite and wholly unsatisfactory as to the rights and liabilities of the several Dartners. Again, Robinson was not a party to this statement, and, if he were, it fails to appear what portion of these profits belong to him. This written statement is wholly insufficient to fix a liability for any sum on plaintiff in error. * * * In considering all the evidence, we fail to find that there was a final settlement, a balance struck, and a promise to pay the balance. It is not shown by the written instrument, nor is any amount fixed upon by defendant in error, which was admitted by plaintiff in error as being due him; and plaintiff* in error denies that he agreed to any definite amount. This, then, falls far short of the evidence of such a settle- ment of the partnership affairs, and the striking of a balance, as au- thorizes a recovery in an action of assumpsit for money had and re- ceived. On the state of facts disclosed by this record, the only remedy is in a court of equity. 302 ACTIONS BETWEEN PARTNERS The court below erred in overruling the motion for a new trial, and the judsrment of the court below is reversed, and the cause remanded. Jud^ient reversed. LEDFORD V. EMERSON. (Supreme Court of North Carolina. 1905. 140 N. C. 288, 52 S. E. 641, 4 L. R. A. [N. S.] 130.) The principal action was instituted in July, 1903, to recover plain- tiff's share arising from a sale of certain options on land situated in north Georgia, same having been procured by plaintiff in the years 1900, 1901, etc., and sold by defendant in April, 1903, at a price of $10,000. The allegation and testimony of plaintiff tended to show that plaintiff procured a large number of options on land in north Georgia, and took same in the name of defendant, under an agreement that de- fendant was to advance the incidental expenses, sell said options, and divide the profits equally with the plaintiff; that defendant, having sold said options at the price of $10,000, fraudulently concealed the facts from plaintiff and paid plaintiff $250 which plaintiff took under false and fraudulent assurances as to the disposition of the options, giving defendant his receipt in full, and defendant had failed to make any other or further payments to plaintiff by reason of said deal, etc. As ancillary to the principal action, an order of arrest was issued in the cause on affidavits duly made on February 15, 1904, and defend- ant was arrested thereunder and held to bail. There was a motion_ to discharge the order of arrest, heard before Judge Neal, as stated. Motion allowed, and plaintiff excepted and appealed. Hoke, J.® The judge below on the hearing found the facts con- tained in the plaintiff's affidavits to be true, and held, as a matter of law, that on these facts there was no right shown to arrest defend- ant. His honor thereupon discharged the order of arrest and entered judgment exonerating the bail from any and all liability by reason of his suretyship. This, as we understand, was on the idea that the facts disclosed a case of partnership, and in such case there was no legal right in one partner to cause the arrest of another. It is a well- recognized principle that, during the continuance of a partnership, one partner cannot sue another on any special transaction which may be made an item of charge or discharge in a general partnership ac- count. This has sometimes been put on the ground that such a suit would necessitate that the party complained of should be both plain- tiff and defendant. But I apprehend a reason of more moment is that as to such a transaction, till a full accounting is had, it cannot be ascertained or declared what portion of such claims belong to the one or the other; and so it is true that one partner, during the con- tinuance of the partnership, cannot ordinarily bring trover or tres- pass against the other by reason of acts concerning partnership prop- « Part of the opinion Is omitted. ACTION AT LAW ON INDIVIDUAL OBLIGATION 303 erty, unless the same be destroyed or removed entirely beyond the reach or control of the complaining party, for one has no more right to deal with the property than the other. Where, however, the part- nership has terminated, and, all the debts having been paid and the partnership affairs otherwise adjusted, nothing remains to be done but to pay over an amount due from one to the other, to be ascertained by a reckoning as to one special item, or even several items, the mat- ter presenting no complication of any kind, as in Clarke v. Mills, 36 Kan. 393, 13 Pac. 569 ; or where the partnership was for a single venture or special purpose, which has been closed, and nothing remains but to pay over the claimant's share of the proceeds, as in Jacques V. Hulit, 16 N. J. Law, 38 — in either case an action would lie in favor of one against the other. George on Partnership, 301 ; Bates on Partnership, 865, 866; Clarke v. Mills, and Jacques v. Hulit, supra; Musier v. Trumpbour, 5 Wend. (N. Y.) 274; Moran v. Le Blanc, 6 La. Ann. 113 ; Wheeler v. Arnold, 30 Mich. 304. In Clarke's Case, supra, Holt, P. J., for the court, said: "There were no debts to be paid, no money to be collected, no property to be disposed of, and un- der the facts of the case it was purely a pecuniary demand, involving no complications that could not properly be determined in a justice's court. In Wheeler v. Arnold, supra, it is held : "The remedy at law for contribution between two partners after dissolution is admissible, and, when there have been no such dealings with assets and no such private relations with the firm as to make a settlement difficult, there would be no occasion, under our statutes making discovery obtainable at law by an examination of parties as witnesses, for an accounting in equity." In Jacques v. Hulit, supra, it is held: "A mutual cove- nant to divide the proceeds of a certain crop, if it be a partnership, is so only for a special purpose and terminates as soon as the crop is sold; and an action lies by one of the parties against the other for any balance due thereon to the plaintiff from the defendant, without resorting to the action of account render." This being the correct doctrine, and an action at law maintainable, the facts bring the claim within the provisions of our statutes on arrest and bail, no reason occurs to us why the plaintiff should be deprived of this ancillary remedy. * * * There was error in allowing the defendant's motion, and the order to that effect will be set aside. COOK V. CANNY. (Supreme Court of Michigan, 1S93. 9G Mich. 398, 55 N. W. 987.) Action by George W. Cook against Charles C. Canny for breach of contract. On September 5, 1888, complainant filed an application for letters patent of the United States for improvements in underground conduits for electrical conductors. October 12, 1888, plaintiff and de- fendant entered into written articles of agreement for a partnership, 304 ACTIONS BETWEEN PARTNERS by which the plaintiff agreed to assign to defendant an undivided one- third interest in the invention and the patent which might be obtained therefor in consideration of $1,000, which the defendant agreed to pay as follows: $300 in cash as soon as notice was received of the allowance of the patent; a monthly payment of $30 per month for eight months from the date of allowance, and $1G0 on the 1st day of September, 1889, if said conduit should be a practical success, and should perform the duties specified and required for such work. The agreement further provided for carrying on the business after the al- lowance of the letters patent, and defined the duties of each partner. These provisions are not necessary to a determination of the case. The letters were issued, and the assignment duly made to the defendant. Plaintiff admitted payments of $303.75. The defendant claimed to have paid $164. Plaintiff gave evidence tending to show that the con- duit was a practical success. Defendant gave evidence tending to show the contrary, and that the contract was abandoned by mutual consent. The court instructed the jury that, if the conduit was not a practical success, or if the contract was abandoned by mutual consent, the plain- tiff could not recover. At the request of the defendant the following special question was presented to the jury, viz.: Do you find that the conduit was a practical success? which question the jury answer- ed in the affirmative. Verdict and judgment for the plaintiff for $840..- 95. Defendant brings error. Grant, J.'^ It is first insisted by defendant that a suit at law cannot be maintained on account of the partnership relations. The sum sued for does not grow out of their partnership transactions subsequent to the formation of the partnership. It is an independent consideration, which defendant agreed to pay the plaintiff for an interest in the let- ters patent which were to form the basis of their subsequent partner- ship relations and dealings. The sum which the defendant agreed to pay was to launch the enterprise in its very inception. This case, therefore, forms one of the exceptions to the rule that one partner can- not maintain an action at law against his copartner for work done or money expended in the partnership. An agreement to pay money or to furnish stock for the purpose of launching the partnership is an in- dividual engagement of each partner to the other, and the defaulting partner may be sued in an action at law upon his agreement. It is entirely separate and distinct from the partnership accounts, and this forms the true test in determining whether an action at law will lie by one partner against his copartner. 1 Story, Eq. Jur. § 6G5 ; Brown V. Tapscott, 6 Mees. & W. 119 ; Van Ness v. Forrest, 8 Cranch (U. S.) 30, 3 L. Ed. 478 ; Currier v. Rowe, 46 N. H. 72 ; Neil v. Greenleaf , 26 Ohio St. 570 ; Howard v. France, 43 N. Y. 593 ; Crater v. Bining- er, 45 N. Y. 545; Lindley, Partn. 1024. * * * Judgment affirmed. 1 Part of the opinion is omitted. EQUITABLE ACTIONS IN GENERAL — JUEISDICTION 305 IV. Equitable Actions in General — Jurisdiction ' BRACKEN V. KENNEDY et at. (Supreme Court of Illinois, 1842. 4 111. 558.) CaTon, J.* This was a bill in chancery, filed in the La Salle circuit court by the complainant against the defendants, for an account among partners. The bill states that in July, 1837, the complainant and de- fendants entered into partnership as canal contractors, and as such partners contracted with a canal company in Virginia for the con- struction of section 120 of their canal, and that they completed said section 120 in August, 1838; that during the progress of the work the complainant and Brady had the principal management of its con- struction, while most of the time Kennedy was absent; that at the same time Kennedy had an individual contract for the construction of sections 118 and 119 of the same canal, and Kennedy employed the complainant to superintend the completion of these sections ; that this individual contract of Kennedy was unprofitable, and in the course of its progress he became indebted to the copartnership section, 120, to about $8,000 for work and labor expended on sections 118 and 119; that the whole estimate for the company section, 120, was $32,320.90. including the work done on Kennedy's individual sections, and that the costs of the same were $23,738.82, leaving a balance of profits to be divided among the partners of $8,437.08 ; that the complainant has accounted with and paid over to Brady his third of the said prof- its; and that there is now due from Kennedy to the complainant the sum of $3,959.03, arising from said partnership transactions ; that Kennedy has drawn estimates on the works, and has drawn his last on his individual contracts ; that no account has been taken or render- ed between the said partners; and that Kennedy refuses to account. The bill prays that an account may be taken, etc. To this bill a demurrer was filed, which was sustained, and the bill dismissed. The first assignment of error is upon the decision of the court in sustaining the demurrer, and this is the principal question in the case. In matters of controversy or difficulty between partners, it is now most usual, and by far the most convenient, to resort to a court of equity for their final adjudication and settlement. The practice of this court is much better adapted to unravel and definitely settle such complicated questions as frequently arise among partners than a court of law; and it is now one of the most usual proceedings to be me-» 8 For a discussion of principles, see Gilmore on Partnership, §§ 162-165. • Part of the opinion and the statement of facts are omitted. Gilm.Pabt.— 20 306 ACTIONS BETWEEN PARTNERS with in courts of equity. It is not unusual that almost the entire proof of the merits of a case between partners is locked up in the bosoms of the parties themselves, or is contained in books and papers in the possession of one or the other party, and this court can afford the only key to the disclosure of the one or the production of the other. Here either party may compel the other to purge his conscience on oath and declare the truth; and tlie court will compel the production of all such papers and books as may be necessary to elucidate the rights and habilities of the parties. It is for this reason that courts of equity have frequently exercised a concurrent jurisdiction with courts of law in long and intricate accounts, running on both sides, between parties who are not partners and have no interests in common. It is true that courts of lav^ still pretend to afford a remedy, in case of difficulty between partners, by the action of account; but it is so incomplete and unsatisfactory that it is now nearly obsolete, and the complaining partner almost universally lays his complaint before a court of chancery, where he finds a prompt and efficient remedy, from the superior facilities which it possesses of doing complete justice be- tween the parties. In a bill of this character the existence of the partnership, the trans- action of business by the firm, and no account among its members, are prominent features, and where they all appear I am not prepared to say that the bill ought not in all cases to be retained. In this case the bill shows that there was a special and Hmited partnership, the par- ticular object of which is stated in it, as well as the nature and amount of the business transacted by the firm, and that no account has been had between the complainant and the defendant Kennedy, who refuses to account. Here, then, is such a case as requires the interposition of a court of chancery to settle and adjust the rights and claims of the several partners. It is true that the bill states that the complainant and Brady have settled as between themselves, and that the complainant has succeeded to all of the rights and interests of Brady in the part- nership business; but this does not make it the less necessary that an account should be had between the complainant and Kennedy, to settle their respective rights; and to accomplish this it was necessary to make Brady a party to the bill. The bill also states that the partner- ship advanced to Kennedy, one of its members, in work and labor, etc., to the amount of some $8,000, which is nearly the extent of the part- nership profits, thus showing substantially that Kennedy had received nearly all of the profits of the work on section 120. In what way could this be recovered back by the other members of the firm, or in what way could he be compelled to account for these advances, unless by the mode here adopted ? One member of a partnership cannot sue the firm at law for advances made by him to the joint concern; nor can the firm sue an individual partner for anything that he may have drawn out of the joint stock or proceeds, no matter how much more than his share it might have been ; and the reason is that one man can- ACCOUNTING AND DISSOLUTION 307 not occupy the double position of plaintiff and defendant at the same time. 1 Story's Eq. GIO. The aid of this court is just as necessary to settle the account of these advances as it is to settle the accounts arising out of the immediate transactions of the special business of the partnership. The bill, then, being sufficient in substance, although not so par- ticular as might be desirable, the demurrer should have been overruled. * * * The decision of the court below is reversed, and the cause remanded, with directions that the complainant be permitted to amend his bill, if he thinks proper, and with leave for the defendant to answer. Decree reversed. V. Accounting and Dissolution^' LORD et al. v. HULU (Court of Appeals of New York, 1904. 178 N. Y. 9, 70 N. E. 69, 102 Am. St. Rep. 484.) Action by Austin W. Lord and others against Washington Hull and Kenneth M. Murchison, Jr. From a judgment of the Appellate Di- vision (80 App. Div. 194, 80 N. Y. Supp. 321), affirming a judgment for plaintififs and INIurchison (37 INIisc. Rep. 83, 74 N. Y. Supp. 711), defendant Hull appeals. It is alleged in the complaint that in September, 1894, the plaintiffs and the defendant Hull formed a copartnership to carry on business as architects in the city of New York, at first for a definite period, but finallv until certain work was finished, and that the time for the ter- mination thereof was uncertain, owing to the large number of unfinish- ed contracts on hand. The powers, rights, and obligations of the co- partners were in all respects equal. On the 18th of February, 1S9G, a written agreement was made in the name of the firm with Kenneth M. Murchison, Jr., containing a promise "to pay him ten per cent, of the gross commissions for the work on the residence of William A. Clark," not yet completed. The rest of the complaint (Murchison not having been a party when it was drawn) is as follows: "That a disagreement has arisen between the plaintiffs and defendant as to the payments which have been and are still to be made to the said Kenneth M. Murchison, Jr., and as to the obligations of the copartnership to the said Murchison, Jr., under the contract entered into by said co- partners and said Murchison, being the agreement of February 18, 1896 (Schedule B, hereto annexed), hereinbefore set forth; that the defendant has withdrawn from the funds of the copartnership and has appropriated to his own use the sum of $915, which was a sum 10 For a discussion of principles, see Gilmore on Partnership, §§ 1GG-1C9. 308 ACTIONS BETWEEN PARTNERS largely in excess of any and all sums to which he was entitled at the time of such withdrawal, and threatens to withdraw from the funds of the said copartnership from time to time hereafter such sum or sums as he may deem himself entitled to, irrespective of the rights of the plaintiffs ; that the plaintiffs do not desire to dissolve the copartnership existing between them and the defendant, for the reason that the plaintiffs believe that the contracts entered into between such copart- nership and William A. Clark, the owner of one of the works set forth in Schedule C, hereto annexed, and yet incomplete, require the exercise of the professional skill and ability of all the members of the said firm, which could not be secured upon a dissolution of the said copartner- ship, and that loss and damage would be sustained by the plaintiffs if such contracts were broken by the dissolution of said copartnership; that the plaintiffs are without an adequate remedy at law." There was no allegation that Hull was insolvent, or that there was any oc- casion for an accounting, except with reference to the Murchison con- tract. The relief demanded was an accounting as to all copartnership affairs to date, and an adjudication of the rights and obligations of the parties under their copartnership agreement and under the contract with Murchison. There was also a prayer for general relief, but none for an injunction, either temporary or permanent. The defendant Hull alleged in his answer that the agreement with Murchison was made without authority, and was not binding on the firm; that the plain- tiffs had unlawfully paid him thereon large sums of money out of the funds of the firm ; and that they threaten to continue such payments. A few days before the action was tried, Murchison moved at Special Term, on notice to the parties, to be made a party defendant, with leave to serve an answer upon both the plaintiffs and the defendant. The motion, although opposed, was granted, and no one appealed from the order. The answer of Murchison, served on all the parties, after certain denials, set forth, "by way of an equitable counterclaim," the agreement between himself and the firm, and alleged that the firm owed him the sum of $2,100 and upwards thereon. He asked for an accounting to ascertain the amount received by the firm as commissions from said Clark, and for judgment against the plaintiffs and the de- fendant Hull for the amount found due him, with other relief. The last set of copartnership articles provided "that upon completion of the works above mentioned a true and final accounting shall be made by the parties to this agreement each to the others, and all the property of the firm * * * shall be equally divided between them." Upon the trial it appeared from the testimony of the plaintiffs that there was "nothing to have an accounting about, except Mr. Murchison's share of those commissions." The trial judge found the facts as alleged by the plaintiffs and the defendant Murchison, and the decree entered held the Murchison agreement valid and binding upon the firm, inter- preted its meaning in accordance with their contention, and awarded judgment in favor of the plaintiffs and against the defendant Hull for $1,415.27, with costs, and in favor of the defendant Murchison against ACCOUNTING AND DISSOLUTION 309 the plaintiffs and the defendant Hull for the sum of $3,000, besides costs. Upon appeal by Hull to the Appellate Division, the judgment was in all things affirmed — two of the justices dissenting — and he now comes to this court. Vann, J.^* This action was brought by two copartners against the third for an accounting, without a dissolution, and it is not surprising that a challenge is interposed to the jurisdiction of the court. The contract of copartnership has existed as long as the common law, and a vast amount of business has been transacted by persons working to- gether under this relation. The law upon the subject is founded on the custom of merchants, who have thus, in effect, made their own law, yet we find no well-considered case which approves of such an action as the one now before us. While the novelty of an action is by no means con- clusive against it, still it is suggestive, when the history of the law relating to the subject shows many occasions and few efforts. The general rule is that a court of equity, in a suit by one partner against another, will not interfere in matters of internal regulation, or except with a view to dissolve the partnership, and by a final decree to adjust all its aft'airs. Story on Partnership, § 229; Lindley, 567; Gow, 114; Parsons, § 206; Bates, § 910; Collier, § 236. It is not its office "to enter into a consideration of mere partnership squabbles" (Wray v. Hutchinson, 2 Mylne & Keen, 235, 238), or "on every occa- sion to take the management of every playhouse and brewhouse" (Car- lin V. Drury, Vesey & B. 153, 158). If the members of a firm cannot agree as to the method of conducting their business, the courts will not attempt to conduct it for them. Aside from the inconvenience of con- stant interference, as litigation is apt to breed hard feelings, easy ap- peals to the courts to settle the dift'erences of a going concern would tend to do away with mutual forbearance, foment discord, and lead to dissolution. It is to the interest of the law of partnership that fre- quent resort to the courts by copartners should not be encouraged, and they should realize that, as a rule, they must settle their own differ- ences, or go out of business. As a learned writer has said: "A part- ner who is driven to a court of equity, as the only means by which he can get an accounting from his copartners, may be supposed to be in a position which will be benefited by a dissolution ; in other words, such a partnership as that ought to be dissolved." Parsons on Part- nership (4th Ed.) § 206. "If a continuance of the partnership is con- templated," as another commentator has said, "or if an accounting of only part of the partnership concerns is allowed, no complete justice can be done between the partners, and the fluctuations of a continuing business will render the accounting which is correct to-day incorrect to-morrow; and to entertain such bills on behalf of a partner would involve the court in incessant litigation, foment disputes, and need- lessly drag partners not in fault before the public tribunals." 2 Bates on Partnership, § 910. Judge Story declared that "a mere fugitive, 11 Part of the opinion Is omitted. 310 ACTIONS BETWEEN PARTNERS temporary breach, involving no serious evils or mischief, and not en- dangering the future success and operations of the partnership, will therefore not constitute any case for equitable relief. * * * It is very certain that, pending the partnership, courts of equity will not interfere to settle accounts and set right the balance between the part- ners, but await the regular winding up of the concern." Story on Partnership, §§ 225, 229. While a forced accounting without a dissolution is not impossible, it is by no means a matter of course, for facts must be alleged and proved showing that it is essential to the continuance of the business, or that some special and unusual reason exists to make it necessary. Thus, Mr. Lindley, upon whom reliance was placed by the courts be- low, mentions three classes of cases as exceptions to the general rule: "(1) Where one partner has sought to withhold from his copartner the profits arising from some secret transaction; (2) where the part- nership is for a term of years still unexpired, and one partner has sought to exclude or expel his copartner, or drive him to a dissolution ; (3) where the partnership has proved a failure, and the partners are too numerous to be made parties to the action, and a limited account will result in justice to them all." The plaintiffs claim that this case belongs to the second class, and the courts below have so held; but, as we think, it does not come under any head of Mr. Lindley's class- ification, which is correct as far as it goes, and it goes as far in the direction of the plaintiffs' theory as any just classification that can be made. There is neither allegation nor evidence that Hull tried to exclude or expel the plaintiffs, or to drive them to a dissolution, or that he did anything in bad faith or with an ulterior purpose. The controversy was confined to one point of difference — the Murchison contract — which was a matter of internal regulation. There was no dispute about anything else. The 'plaintiffs claimed that the contract bound the firm, and that it included all work done or to be done for Mr. Clark, while Hull claimed that it did not bind the firm, and that, if it did, it embraced only a part of that work. There was no difference in the computation of balances, or claim that the articles had been violated by either side, except with reference to that contract. The plaintiffs insisted that Hull had drawn out more than his share of the profits, because he drew one-third of the income without leaving one- third of the part going to Murchison, and that thus there was a bal- ance against him. Hull claimed that the plaintiffs, in paying anything to Murchison, wasted the assets of the firm, and thus there was a bal- ance against them. When the interlocutory judgment was made, the parties at once stipulated the respective balances on the basis of that decree, and thus obviated a reference, so that final judgment was enter- ed without delay. Neither party desired an accounting, except as an excuse to sustain or defeat the Murchison contract. Exclusion from a smail portion of the profits, paid or withheld in good faith on account ACCOUNTING AND DISSOLUTION 311 of that contract, was not exclusion from the affairs of the firm, yet an accounting was sought only as a means of settling the dispute over that particular subject, which related simply to a detail in the manage- ment of the business. No discovery was asked for. There was no claim that Hull was insolvent, or that he had suppressed any fact, or had made secret profits, or had been guilty of bad conduct, or that the books had not been properly kept, or that the plaintiffs had been denied access to the books. There was no evidence that any partner had re- fused to give an account of all moneys received by him, or that there was error or omission of any kind in the accounts of the firm, except as limited to the Murchison agreement. It was easy to test the valid- ity of that contract by simply withholding payment, forcing Murchison to sue, and raising the question by answer. That was not an equitable, but a legal question. Murchison's claim did not differ from that of any firm creditor, except that the partners were at odds over its va- lidity. "No action can be maintained by one partner against the other in respect to particular items of account pertaining to the partnership business." Thompson v. Lowe, 111 Ind. 274, 12 N. E. 477. An accounting without a dissolution has never been allowed, under the circumstances of this case, by any court in this country or in Eng- land, so far as we can learn from the authorities cited by counsel or discovered by ourselves. * * * A court of equity will not take cognizance of an action for an ac- counting as a mere incident to the settlement of a solitary matter in dispute between partners, when it is not vital to either party or to the business, and dissolution is not sought. Actions to establish a part- nership, the existence of which was denied by the partner in control to give a partner access to the books after persistent refusal, or to per- mit him to take part in the business from which he had been excluded, are founded on intentional and continuous wrongdoing, which, unless arrested, might subvert the partnership. When one party seizes or absorbs the entire business, or usurps rights of his copartner which are essential to his safety or the safety of the firm, or persists in miscon- duct so gross as to threaten destruction to the interests of all, the court may intervene to restore the rights of the innocent party, or to rescue a paying business from ruin. Extreme necessity only, however, will justify interference without a dissolution. There was no sufficient reason for an appeal to a court of equity in the case under considera- tion. There w^as no equity in the bill as filed by the plaintiffs, and none in the case made for them by the evidence. The defendant Mur- chison had an adequate remedy at law, and he can take nothing from his intrusion into the litigation, under the circumstances, for the ques- tionable order admitting him as a defendant did not create a cause of action, nor add to the jurisdiction of the court. All the parties should be put back where they were before the action was commenced, and hence it is our duty to reverse the judgments below and dismiss the complaint, with costs to the defendant Hull against the plaintiffs and the defendant Alurchison. 312 ACTIONS BETWEEN PARTNERS VI. Specific Performance *' BUCK V. SMITH. (Supreme Court of Michigan, 1S74. 29 Mich. 166, 18 Am. Rep. 84.) Graves, C. J.^' Now, what is the real essence of the case made by this bill ? What is the arrangement the court is asked to carry out ? It is an agreement, according to the representation of complainant, be- tween himself and the defendant, by which the latter agreed to convey an undivided interest in real and personal property held by defendant in common with third persons, and that the complainant should, for an indefinite time, become a partner with the defendant and such third persons in operating the property ; that the defendant should advance from time to time the complainant's quota of the funds necessary for the business and the improvement of the property ; that the complain- ant should have the right to manage and direct the business and the improvements ; and that he would employ his time, skill, judgment, and experience in the direction and supervision of the property and business ; and that the purchase price of his proprietary share and the amount advanced for his benefit in carrying on the business should be paid by his skill and services in the concern and the gains obtained in the en- terprise. * * * It is extremely plain that the court cannot assume to enforce the performance of daily prospective duties, or supervise or direct in ad- vance the course or conduct of one who is to control and manage in the interest of a firm in which he is to stand as a member, and where, too, the stipulated arrangement as plainly set forth contemplates that his personal skill and judgment shall be applied and govern according to to the shifting needs of property and business. No court is competent to execute such an arrangement. * * * VII. Injunction and Receiver ** SHANNON et al. v. WRIGHT. (Court of Appeals of Maryland, 1883. 60 Md. 521.) The appellee, together with the appellants, were copartners in the business of manufacturing and dealing in metals in the city of Balti- 12 For a discussion of principles, see Gllmore on Partnership, § 170. 18 Part of the opinion is omitted. 14 For a discussion of principles, see Gilmore on Partnership, §§ 171, 172. INJUNCTION AND RECEIVEB 313 more, under the firm name of Shannon, Wright & Co. A bill was filed by the appellee ai^-ainst the appellants, asking for an injunction and the appointment of a receiver. The case is further stated in the opinion of the court. Ritchie, J.^"^ This is an appeal from an order of the circuit court of Baltimore City appointing a receiver and granting an injunction. * * * Our duty, therefore, is simply to determine whether the case stated by the complainant was one which justified the passage of the order appealed from. Without pausing to dwell upon those averments of the complainant which impute fraudulent misrepresentations to the defendants as to the value of the firm's assets and its business, by which he was induced to enter into a partnership with them, which has dis- proportionately engulfed his means and exposed him to great loss, we find in the specific allegations of clause 10 of the bill ample ground for the equitable interposition he has invoked. That clause is as follows : "And now your orator charges that debts are due by, and suits are pending against, the firm, and that the defendants, having the money of the firm in their possession, refuse to apply it toward the payment of said debts; that they refuse to give any money to your orator; that they refuse to permit your orator's counsel to examine the books of the firm; that they refuse to allow a competent book- keeper, selected by your orator, to examine the books of the firm ; that in order to anticipate debts owing to the firm, and thus get the firm's money in their pockets, they have drawn drafts in the name of the firm upon their customers, and procured the same to be discounted by their lawyer and others at exorbitant rates of interest; that without the knowledge or consent of your orator they have given notes of the firm in settlement of debts not owing by the firm, one of said debts being for clothing purchased by D. R. Shannon and John T. Shannon individually; that without the knowledge or consent of your orator the said D. R. and John T. Shannon have offset their own debts by sales of merchandise of the firm of Shannon, Wright & Co. ; that they have no tangible property outside of their interest in said firm; that they represent themselves to be three stubborn brothers, and ex- press their intention of litigating the matters in controversy by means of the firm's money until they have ruined your orator; that the said D. R. Shannon and John T. Shannon refuse to return the money which has been advanced to pay their debts ; that defendants declare them- selves to be unwilling to continue said partnership, even if your orator was willing, and yet they utterly refuse to dissolve the partnership; that they threaten to make contracts in the name of the firm, knowing they cannot be carried out, which contracts, if made, will render your orator liable in damages; that judgments will shortly be entered against the firm, and your orator damaged, unless the money in the hands of the defendants be applied to the payment of the notes sued on, as above IB Tart of tbe opinion is omitted. 314 ACTIONS BETWEEN PARTNERS Stated ; and your orator charges that unless immediate relief be given by way of an injunction and receiver, which he is advised is the prop- er remedy, he will be reduced from a reasonable competence to pov- erty." ^ There is evidently here set out such a case of alleged fraud and im- minent danger to the complainant's interest in the partnership prop- erty as justifies a receiver and an injunction — proceedings which do not determine the rights of the parties, but simply protect the prop- erty from injury or destruction until those rights can be further in- quired into or adjudicated. The order appealed from must be affirmed. Order affirmed, and cause remanded. ACTIONS BETWEEN PARTNERS AND THIRD PERSONS 315 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS I. In General — Parties to Actions by the Firm * MASON V. ELDRED. (Supreme Court of the United Stiites, 18G7. 6 Wall. 231, 18 L. Ed. 7S3.) See ante, p. 157, for a report of the case. KELL V. NAINBY. (Court of King's Bench, 1S29. 10 B. & C. 20.) Assumpsit for business done as an attorney. Plea, general issue. At the trial, before Gaselee, J., at the summer assizes for the county of Sussex, 1829, it appeared that the action was brought to recover the amount of the plaintiff's bill, for business done for the defendant in the years 1827 and 1828. The plaintiff called his son, WL P. Kell. to prove that the business was done. He stated that he was not in partnership with his father ; that he acted as his clerk, and received a salary in that character. It appeared, however, that "Kell and Son" was on the door of the plaintiff's office; and that, during the time the business mentioned in the bill was in progress, letters relating to the business were addressed to the defendant by the plaintiff, signed "Kell and Son," and that the defendant had always addressed his let- ters to Kell and Son. It was contended, on this evidence, that the son ought to have been made a co-plaintiff with his father. The learned judge told the jury that, if the plaintiff and his son had been sued by the defendant for a debt or for negligence, there was ample evidence to charge the son, on the ground that he had suffered himself to be held out as a partner. Here the plaintiff sued as a creditor of the defendant. It was perfectly immaterial to the debtor that the son had held himself out as a partner, if in fact he was not one, and had no claim upon the defendant. The son had sworn that he was not in fact a partner with his father during the time the business was done for the defendant, and, if they believed the son's testimony, the plaintiff was entitled to a verdict. The jury having found for the plaintiff. Gurney now moved for a new trial. The case was not properly submitted to the jury. It should have been left to them, upon the evi- dence, to consider whether the father and the son were or were not jointly employed by the defendant. There was ample evidence of this 1 For a discussion of principles, see Gihuore on Partnership, §§ 173-lTS. 316 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS being a joint employment. No arrangement between the father and son could alter the nature of that employment. It was wholly immaterial whether the father and son were jointly interested in profit and loss, provided the defendant employed the two. He never knew that they were not in fact partners. The plaintiff, by his letters, represented that they were. It is quite clear that the two would have been liable in an action for negligence. Lord Tenterden, C. J. The question was properly submitted to the jury. If the son of the plaintiff spoke the truth, he was not a part- ner with his father. The effect of the evidence might be to show that both the father and son would have been jointly liable for negligence; but that would be on the ground, not that they were actual partners, but that they held themselves out as such to defendant. Parke, J. A party with whom the contract is actually made may sue without joining others with whom it is apparently made. Here there was no evidence to show that the son was actually employed by the defendant. The son proved that he was not an actual partner; and although he may have appeared to the defendant to have been a partner, unless he were a party to the contract for the breach of which the action was brought, he need not join in such action. Here he was no party to that contract. Rule refused. BROOKE v. WASHINGTON. (Supreme Court of Virginia, 1851. 8 Grat. 248, 56 Am. Dec. 142.) MoNCURE, J.^ The suit in which the decree from which the appeal in this case was taken was rendered was a suit brought to recover of dormant partners a debt for which the ostensible partners had given their bonds, but which the latter became unable to pay by reason of their insolvency. The following appear to be the facts of the case, so far as it is material to state them: In 1841 Perdue, Nichols, Brooke, and Jewell entered into partnership for carrying on the iron- making business in the county of Jefferson, and accordingly carried it on for about two years. Perdue and Nichols resided in the county of Jefferson, and were the ostensible partners. Brooke and Jewell were nonresidents of the state, and their names did not appear in the style of the firm, which was "Perdue, Nichols & Co." It does not ap- pear to have been known to the appellee, nor generally, that Brooke and Jewell were partners; and it was proved that several suits were brought by different attorneys against Perdue and Nichols alone, as constituting the firm of Perdue, Nichols & Co., though it does not ap- pear that there was any designed concealment of the fact that Brooke and Jewell were members of the firm. In May, 1841, the appellee, Washington, sold and conveyed to Perdue and Nichols 843 acres of 2 Part of the opinion is omitted. IN GENERAL — PARTIES TO ACTIONS BY THE FIRM 317 land in Jetferson for $6,200, of which $1,100 was paid at the time, and for the balance they gave their bonds, payable in five annual install- ments, and gave a deed of trust on the land to secure the payment of the same. The cash payment was made by the check of Perdue, Nich- ols & Co., and entries were made on their books, bearing the same date with the deeds and bonds, to wit, the 1st of May, 1841, crediting Washington in account with the firm for $G,200, the purchase money of the land, and debiting him in the same account with $1,100, the cash payment. During the operations of the partnership, for some 18 months after the purchase, about 5,000 cords of wood were cut from the land and used in the said operations. Portions of the land were also rented out, and the rents were received by the firm and entered on their books. Brooke had access to the books and looked into them, though it did not appear that he ever examined any account but his own. In December, 1842, Perdue and Nichols, in their individual names and by the partnership name of Perdue, Nichols & Co., executed a deed of trust to secure the debts of the firm which are enumerated. Three parcels of land, besides other property, were embraced in the deed; but the land bought of Washington was not included, and the debt due to him was not mentioned in the deed. In March, 1843, Washington filed his bill, charging that a large portion of the value of the land consisted in the timber and trees standing on it ; that the ob- ject of the purchasers in buying it was to cut off the timber for fuel to supply their iron works; that they had cut down and carried off the timber and trees on the land, until it was of very Uttle value ; that he had no other security for the purchase money than the land itself, under the deed of trust; that the partnership had become insolvent and made a general assignment of their effects for the benefit of their creditors, and his only mode of redress to recover the balance due him was to charge the same on the individual partners; and that Brooke was a partner at the time of the sale, though he was then ignorant of the fact, the name of Brooke being withheld from the public — and seeking to charge said Brooke as a member of the firm for the bal- ance of said debt. Afterwards an amended bill was filed, charging 'that Jewell also was a secret partner of the firm, and seeking to make him liable. Of all the defendants, Brooke alone filed an answer. He placed his defense upon the ground that the purchase was not made on account or upon the credit of the firm, or by his authority, and was not within the scope of the partnership, and, in the absence of any knowledge on the subject at the time it was made, "presumes it was by Perdue and Nichols, with the view of bringing it into the firm as a part of their share of the capital"; and he also objected to the jurisdiction of the court. The circuit court, being of opinion that Brooke and Jewell were secret members of the firm, that that fact was unknown to the appel- lee at the time of the sale, that the land was purchased for partnership purposes, that the chief value thereof consisted in its timber required 318 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS as fuel for the iron works, and therefore that such purchase was a transaction in the ordinary course of business in conducting the iron works, rendered a decree against all the parties for the balance due to Washington, after crediting the proceeds of the sale of the land. From that decree the appeal in this case was taken. * * * In the case now under consideration the evidence is conclusive that the land was bought for partnership purposes, paid for in part, and intended by the purchasers to be paid for entirely, out of partnership funds, and applied to partnership purposes. The purchase was with- in the scope of the partnership, for the operations of the furnace could not be carried on without fuel ; and the best mode of obtaining it was to purchase land in the neighborhood well covered with wood, as was the land of Washington. All the partners are therefore bound for the purchase money on the authority of the cases before cited. * * ♦ The court is therefore of opinion to afifirra the decree. Decree affirmed. FORSTER et al. v. LAWSON. (Court of Common Pleas, 1826. 3 Bing. 452.) Case for libel. Plaintiffs were bankers in partnership, and the libel complained of was that they had suspended their payments. General demurrer and joinder. Best, C. J.^ An objection has been made to the declaration, that the action has been brought by three persons jointly, and that they could not properly join in such an action. The general rule of law is, as laid down in Smith v. Cooker, Cro. Car. 513, namely, that where several persons are charged with being jointly concerned in a mur- der, each of them must bring his separate action for it, and the rea- son is, that they have no joint interest to be affected by the slander. Wher^, however, two persons have a joint interest affected by the slander, they may sue jointly, and the case of Cooke v. Batchelor, 3 B. & P. 150, is not the first case which has determined this point. * * * It has been said that, notwithstanding the judgment against the defendant in this action, if either of the plaintiffs has sustained any separate damage, he may still maintain a separate action. I can- not see how there can be any separate damage. The business injured is the joint business, and the libel only affects the plaintiffs through their business. If, however, a co-partnership be libelled, and the libel contains something which particularly affects the character of one of that firm, I think a joint action may be maintained against the libeller, who would have less reason to complain of such proceedings than he would have if each partner brought a separate action for the injury done to the firm. 8 Part of opinion is omitted and statement of facts abridged. PARTIES TO ACTIONS AGAINST THE FIRM 819 Another objection raised by the defendant's counsel is that the plain- tiffs have not stated the proportion of interest which each respectively had in their joint business. It is not necessary for them to do so: with their several proportions the defendant has nothing to do. Any compensation they may recover will belong to them generally, and it is nothing to the defendant how it may be divid<2d among them. * * * It appears to me that the declaration is unobjectionable, and that the plaintiffs are entitled to judgment. II. Parties to Actions Against the Firm * GUIDON V. MARY ROBSON. (Court of King's Bench, 1809. 2 Camp. 302.) Action by the drawer and payee of a bill of exchange against the acceptor. The declaration stated that the plaintiff drew the bill by the name, style, and firm of Guidon & Hughes. It appeared that the plaintiff traded under the firm name of Guidon & Hughes, mentioned in the bill ; that he has no partner who participates in the profits of his business ; but that he has a clerk of the name of Hughes, at a fixed salary, who is held out to the world as his partner, and is generally considered as such. The Attorney-General contended that Hughes ought to have been joined as a partner in this action. The defendant contracted, not with the plaintiff singly, but jointly with him and Hughes. She came pre- pared to show that she never accepted any bill drawn individually by Guidon. She might have a good defense to an action on a bill drawn by the partnership ; but she had no reason to imagine that the bill de- clared upon was of that description. Suppose she had a debt due to her from the firm, how could she set it off in this action? Payment to Hughes would clearly have been a good satisfaction of the bill ; and a release from him would have extinguished the debt. He was liable to Guidon's creditors; and as to all those who dealt with Guid- on, he was a contracting party as much as if there had been an equal participation of profit and loss between the two. Park, contra, insisted that the case stood exactly the same as if there had been no such person as Hughes in rerum natura. The names in a firm are quite immaterial. Firms sometimes continue un- changed for generations, and when the names of the real partners no longer correspond with any of those ostensibly used. Persons who deal with the firm, therefore, contract only with those really composing * For a discussion of principles, see Gilmore on Partnership, §§ 179-lSl- 320 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS the partnership. It is very common for men, trading by themselves, to add "Si Co." to their names, and if instead they added the name of another person who had no share in the business, the legal effect must be the same. The plaintiff' alone had the beneficial interest in the bill, and he had, therefore, a right to sue upon it by himself. The defendant was not injured. The declaration gave her full notice of the bill on which the action was brought; and if she had a set-off, ■she might give it in evidence. Lord Ellenborougii. There being such a person as Hughes, I am clearly of opinion that he ought to have been joined as a partner. He is to be considered in all respects a partner as between himself and the rest of the world. Persons in trade had better be very cautious how they add a fictitious name to their firm, for the purpose of gain- ing credit. But where the name of a real person is inserted, with his own consent, it matters not what agreement there may be between him and those who share the profit and loss. They are equally responsible, and the contract of one is the contract of all. In this case, the decla- ration states that the defendant promised to pay the money specified in the bill to the plaintiff only, whereas she promised to pay it to the plaintiff jointly with another person. The variance is fatal. Plaintiff nonsuited. III. Effect of Changes in Firm — Admission of New Member ' WOLFF v. MADDEN et al. (Supreme Court of Washington. 1893. 6 Wash. 514, 33 Pac. 975.) See ante, p. 174, for a report of the case. HICKS et al. v. WYATT et al. (Supreme Court of Arkansas, 1861. 23 Ark. 56.) See ante, p. 175, for a report of the case. ARNOLD et al. v. NICHOLS. (Court of Appeals of New York, 1876. 64 N. Y. 117.) See ante, p. 176, for a report of the case. B For a discussion of principles, see Gilmore on Partnership, §§ 182-185. ErrECT OF CHANGES IN FIRM — ADMISSION OF NEW MEMBEB 321 HUGHES V. GROSS et al. (Supreme Judicial Court of Massachusetts, 189G. IGG Mass. 01, 43 N. E. lOIll, Sli L. R. A. G20, 55 Am. St. Rep. 375.) Holmes, J.** This is an action of contract for refusing to employ the plaintiff a second year. The plaintiff had a verdict, and the case is here on exceptions. The original contract was in writing, and was made with two partners. Gross and Strauss, for one year from April 25, 1892, with a conditional right of renewal on the side of the plain- tiff for one year more. On November 1, 1892, during the first year of the plaintiff's employment, Strauss died, and the business was carried on by Gross. The first question raised by the exceptions is whether Strauss' death ended the contract. At the end of December the plaintiff received a notice from Gross that she would not be employed beyond the first year, stating causes of dissatisfaction. There was an answer from the plaintiff', and a reply by Gross. Exceptions were taken to the admission of the plaintiff's letter in evidence, and to the exclusion of evidence of other causes of dissatisfaction besides those mentioned in the notice. On February 1, 1893, the defendant Sommers became a partner in the business with Gross, the new firm taking the assets and assuming the liabilities of the old one. Thereafter the plaintiff was paid out of the funds of the new firm, and, according to the plaintiff's testimony, was referred to Sommers for further discussion of her re- lations with the firm, and had several interviews with him, in which he wanted to terminate the contract. Another exception is to the re- fusal to direct a verdict for Sommers. We are of opinion that it could not be ruled as matter of law, that the contract of service was dissolved by the death of a partner. We have no occasion to criticise the decisions in some of our states and in England and Scotland, where an opposite result was reached by a majority of the judges with reference to different kinds of business from the present, except to remark that the argument put forward in Scotland and elsewhere, that the only contracting party was the firm, and that the firm had ceased to exist, does not agree with the common law. Tasker v. Shepherd, 6 Hurl. & N. 575 ; Hoey v. MacEwan, 5 Ct. Sess. Gas. (3d series) 814, 815; Griggs v. Swift, 82 Ga. 392, 9 S. E. 1062, 5 L. R. A. 405, 14 Am. St. Rep. 176; Greenburg v. Early, 4 Misc. Rep. 99, 23 N. Y. Supp. 1009. The common law doe? not know the firm as an entity. Hallowell v. Bank, 154 Mass. 359, 363, 28 N. E. 281, 13 L. R. A. 315. A contract with a firm is a contract with the members who compose it. A joint contract to em- ploy the plaintiff is not ended necessarily by the death of one of the contractors (Martin v. Hunt, 1 Allen, 418), and there is no universal « Part of the opinion is omitted. Gilm.Part.— 21 322 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS necessity that death should have a greater effect when the joint con- tractors are partners. Fereira v. Sayres, 5 Watts & S. (Pa.) 210, 40 Am. Dec. 496. If the death naturally would put an end to the business, as it so frequently does, very possibly it might end the em- ployment. We have no need to consider what would be the result if in fact no further business was done, except to wind up the affairs of the firm, as was the case in Griggs v. Swift, supra. But this busi- ness went on without a break, and both parties seemed to have as- sumed that the plaintiff's contract was not ended by the death of Strauss. But the foregoing suggestions are not enough to lay a foundation for the liability of Sommers, even assuming that there was evidence warranting the inference that he was content to be bound unless Gross escaped, and that he made an oral contract on the terms of the writ- ten agreement. The declaration is on the written instrument, and the refusal to direct a verdict for Sommers must be taken as made either with reference to the pleadings, in which case Sommers must be shown to be a party to the instrument, or else on the evidence, irre- spective of the pleadings, in which case, unless he is to be taken to have signed the writing, the statute of frauds would be a defense un- der our decisions. Hill v. Hooper, 1 Gray, 131; Freeman v. Foss, 145 Mass. 361, 14 N. E. 141, 1 Am. St. Rep. 467. It appears to us that this difficulty cannot be answered, except by attributing an over- subtle meaning to the firm signature and to the acts of the new part ners. We cannot read "Gross and Strauss" as not only meaning aR those who then were members of the firm, but also as purporting to name in advance all persons who might become members pending the contract. It follows that a verdict for Sommers should have been directed. But there seems to be no reason why the superior court, if it sees fit, should not allow the plaintiff to discontinue as against Sommers, and to take a judgment against the other defendant. Gross. Ridley v. Knox, 138 Mass. 83, 86; Fifty Associates v. Howland, 5 Gush. 214. * * * Exceptions sustained. IV. Retirement of Old Member ' MOTLEY V. WICKOFF. fSupreme CJourt of Michigan, 1897. 113 Mich. 231, 71 N. W. 520.) See ante, p. 177, for a report of the case. 7 For a discussion of principles, see Gilmore on Partnership, §§ lSG-188. BETIBEMEMT OF OLD MEMBEB McAREAVY v. MAGIRL. (Supreme Court of Iowa, 1904. 123 Iowa, G05, 99 N. W. 193.) See ante, p. 179, for a report of the case. 323 PRESTON V. GARRARD. (Supreme Court of Georgia, 1904. 120 Ga. G89, 48 S. E. 118, 102 Am. St Rep. 124.) See ante, p. 181, for a report of the case. LYTH V. AULT & WOOD. (Court of Exchequer, 1852. 7 Exch. GG9.) Action for goods sold and delivered by plaintiff to defendants. De- fendant Ault pleaded that the goods were sold to defendants as part- ners; that afterwards defendants dissolved their partnership; that Wood continued the business alone ; that it was agreed between plain- tiff and defendants that in consideration of £12 part payment on said indebtedness and the promise by Wood to assume and pay the balance the plaintiff* would release Ault from further liability and look only to Wood. Verdict for defendant on the plea. Motion for rule on de- fendant to show cause why judgment for plaintiff should not be en- tered on the plea non obstante veredicto. Parker, B.® * * * The principle which governs this case is to be found expounded in Thompson v. Percival. It is clear that where there is an accord and satisfaction, by the debtor agreeing to give something totally different in its nature from the debt, and which the creditor agrees to accept in satisfaction of the debt, the court cannot inquire into the value of that which is the subject-matter of the new agreement, and therefore there is nothing to prevent the parties from agreeing that a horse, or bill of exchange, or any other commodity, shall be given in satisfaction of a larger demand. There is a very strong case to be found in Dyer, of Andrew v. Boughey, Dyer, 75a, where, to a declaration for delivering 373 pounds of bad wax upon an assumpsit for 400 pounds of good wax, stating half the price to have been paid in hand, the rest to be paid upon a day agreed, a plea of 20 pounds of wax given and accepted in satisfaction was held good. The court proceeded upon the ground that they were not at liberty to go into the value of the consideration of the new agreement, pro- vided the thing differed from the debt itself. The law leaves the par- ties to their bargain. Now it cannot be doubted that the sole security 8 The opinions of rollock. C. B.. Adderson, B., and part of the opinion of Parker, B., are omitted. The statement of facts Is rewritten. 324 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS of one of two joint debtors may be more beneficial than the joint re- sponsibiUty of both. In the latter case you are not entitled to sue one with safety, for the defendant may plead in abatement the nonjoinder of his co-contractor. In case of the bankruptcy of one of the partners, there would also be a difference. In the case put by my Lord Chief Baron of two debtors, where one is a rich old man and the other is young and without property, it might be much more advantageous to the creditor to have his sole lemedy against the former, for he would have the security of the personal and real estate of the rich debtor, which he would not have at law in case the old man were to die first. Where there is more than one debtor, the creditor's remedy is different. There is, therefore, no doubt that the thing substituted is altogether different from the original debt. In Thompson v. Percival it is said by the Court of King's Bench that in the case of Lodge v. Dicas the difference between the joint liability of two and the separate liability of one does not appear to have been brought under the consideration of the court. The case of Lodge v. Dicas rested upon a totally dif- ferent ground from the present, for there the consideration for the discharge of the one defendant (Dicas) was the allowing the other partner to collect the partnership debts, and the court held that, as there was no evidence that that fact was known to the plaintiffs, there was no consideration whatever for the plaintiffs' promise ; but the point which now arises was not taken by the counsel or acted upon by the court. This point, however, was much considered in Thompson V. Percival, and the decision there was wholly irrespective of the fact that a bill had been given. As I am, therefore, clearly of opinion that the sole responsibility of one of several joint debtors is different from their joint responsibility, the plea discloses a sufficient consideration for the plaintiff's promise to exonerate this defendant from the residue of the debt, and affords a good answer to the action. ♦ * * Rule refused. V. Death of Member* ANDREWS' HEIRS v. BROWN. (Supreme Court of Alabama, 1852. 21 Ala. 437, 56 Am. Dec. 252.) See ante, p. 149, for a report of the case. BASSETT et al. v. MILLER. (Supreme Court of Michigan, 1878. 39 Micb. 133.) See ante, p. 151, for a report of the case. » For a discussion of principles, see Gilmore on Partnership, § 189. DEATH OF MEMBER 325 ADAMS V. HACKETT. (Supreme Court of New Hampshire, 1853. 27 N. H. 280, 59 Am. Dec. 376.) See ante, p. 152, for a report of the case. STEARNS V. HOUGHTON. (Supreme Court of Vermont, ISGG. 38 Vt 584.) PiERPOiNT, C. J.^° This is an action of trover, brought to recover the value of tvi^o notes executed by one Michael Sanford. From the facts reported by the referee it appears that prior to the 15th day of April, 1S58, the plaintiff and one Goodell were copartners in the business of running a line of stages; that on the said 15th of April they sold out their line, with a part of the property they had used in the business, to said Sanford, and that the notes sued for in this action were a part of the consideration given by said Sanford for such property; that, notwithstanding these notes were taken payable to Goodell or bearer, they were the joint property of the plaintiff and said Goodell, as such copartners; that their copartnership business and accounts were never settled between themselves, or the copartner- ship dissolved, until it was dissolved by the death of said Goodell. When Goodell died these notes were in his possession, and afterwards went into the possession of the defendant as his administrator. Sub- sequently the plaintiff demanded the notes of the defendant, who re- fused to deliver them to him, claiming the right to hold them for the benefit of Goodell's estate. It is an elementary principle that on the death of one copartner the right to the possession and control of the partnership effects vests in the survivor. He takes them, subject to the right and duty of settling and closing up the copartnership affairs. He alone has the right of disposing of the property and of collecting and paying the debts. All actions to enforce the claims of the company must be brought in his name as survivor. The right of the survivor to the copartnership effects does not in any respect depend upon the question whether or not, upon a settlement of the business, there will be funds m his hands belonging to the estate of the deceased copartner. If the company is solvent, there necessarily will be. If the representative of the deceased partner has reason to fear that the copartnership funds will be misapplied or squandered, the aid of the court of chancery may be invoked to prevent such a result ; but a court of law has no power to interfere in that respect. It is insisted that the plaintiff ought not to recover, because the said Goodell had agreed that whatever he owed to said Sanford might 10 Part of the opinion is omitted. 326 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS be applied upon said notes. What might have been the effect if the application had actually been made in Goodell's lifetime, it is not neces- sary now to determine. It was an agreement to apply the company effects in payment of his individual debt; but, not having been car- ried out by Goodell, it is quite clear that the survivor is not bound by the arrangement. * * * Upon examining carefully the report of the referee, we are unable to find therein any sufficient reason why the plaintiff is not entitled to recover. The pro forma judgment of the county court is reversed, and judg- ment rendered for the plaintiff for the amount reported by the referee, with interest thereon and his cost. VI. Bankruptcy and Insolvency OGDEN v. ARNOT. (Supreme Court of New York, 1883. 29 Hun, 146.) The firm of William H. Gregg & Co. was composed of William H. Gregg, who conducted the business, and Henry W. Beadle, who was a private banker. On the 22nd of March, 1878, Beadle, being insolv- ent, made an assignment of all his property of every nature to Hall & Gillett, in trust for the payment of his debts. His individual prop- erty was insufficient to pay his individual debts. On the 26th of March, 1878, William H. Gregg, in the firm name, executed a chattel mortgage to the defendant, Arnot, upon all the stock of goods of the firm and the fixtures in their store, to secure $8,070.61 and interest within three months, the mortgages containing a covenant to pay that sum at that time. This sum was for the money loaned to the firm and the goods sold to it. The firm was then in- debted to persons other than Arnot. The inventory and schedule of the assignees were filed about April 21, 1878, and do not include the interest of Beadle in the said firm. In April, 1878, Gregg commenced an action against Hall & Gillett, assignees, alleging the partnership aforesaid, and the assignment by Beadle to them, and asking a dissolu- tion of the partnership, the taking of an account, and the appointment of a receiver. Hall & Gillett, assignees, appeared, and by consent of parties, without making Beadle a party, an order was entered May 11, 1878, appointing the present plaintiff, Ogden, receiver of the part- nership property of the firm with the usual powers. On the 16th of April, 1878, Arnot had taken possession of certain whiskey belonging to the said firm, by virtue of his chattel mortgage, 11 For a discussion of principles, see Gilmore on Partnership, §§ 190-193. BANKRUPTCY AND INSOLVENCY 327 and had sold the same. On the 12th of May, 1878, the receiver took possession of the stock other than the whiskey, and while he was in- ventorying it on the 22d of May, 1878, Arnot took the same under his chattel mortgage and sold it. Thereupon the plaintiff, Ogden, the re- ceiver, in Septcmher, 1878, commenced an action against Arnot, Hall & Gillett, asking for rcHef of various kinds, but substantially seeking to recover for the property taken by Arnot under his chattel mort- gage. Subsequently, on the 10th of January, 1881, upon a stipulation of Beadle appearing by attorney, and on motion of Ogden, the re- ceiver, without, so far as appears, any consent of Gregg, the plain- tiff in the action, an order was made in the action brougiit by Gregg against Hall & Gillett, assignees, making Beadle a party defendant therein, and amending the summons and complaint by naming him as a party defendant, and amending the order appointing the receiver by adding Beadle's name as defendant. Thereafter, on the 10th of May, 1881, the referee, before whom the present action was tried, reported in favor of the plaintiff Ogden against Arnot for $3,437.16 and interest, the value of the stock, not the whiskey, taken by Arnot. On such report judgment was entered and the defendant Arnot appeals. Learned, P. J.^^ It is not necessary to consider the transaction on which the debts to Arnot arose, because it is plain that they were valid debts owing to the firm by him. Nor is it of any consequence that the mortgage was not recorded. The assignment by Beadle is in terms broad enough to convey all his property. This did not transfer the corpus of the partnership property ; but only his share of what would remain after the debts were paid. Menagh v. Whitwell, 52 N. Y. 146, 158, 11 Am. Rep. 683. It does not appear by the appeal papers wheth- er the trust was for the payment of individual debts, or of all his debts. But that is of little moment, under the principle just cited. See, in this connection, Wilson v. Robertson, 21 N. Y. 587, It does not seem to be disputed by either party to this controversy that the act of Beadle in assigning his whole property, including, there- fore, whatever might belong to him in the partnership, worked a dis- solution of the partnership. This must be so; because one partner cannot, against the will of the other, introduce a new member into the partnership. Marquand v. New York Manf. Co., 17 Johns. 525; Story on Partn. § 307 et seq. Where there is a voluntary dissolu- tion and no agreement as to the settlement of the partnership business, it is plain that one partner has the same power as the other in that lespect. But where, as in this case, one partner has broken up the partnership by his assignment in insolvency, it is plain that he has not the right to manage the closing up of the business. That right belongs to the other party, subject of course to the control of the court, if the right is abused. Story, Partn. 341. Gregg, therefore, had the right 12 Part of the opinion is omitted. 328 ACTIONS BETWEEN PARTNERS AND THIRD PERSONS to go on with the closing up of the business. It would be most unrea- sonable if the insolvent partner should, by his insolvency, deprive the solvent partner of the power of closing up the partnership for the pay- ment of the debts of which he is liable. Evans v. Evans, 9 Paige, 178; Robbins v. Fuller, 24 N. Y. 570; Van Doren v. Horten, 19 Hun, 7. The power to close up the business of the partnership includes nec- essarily the power to sell the partnership property, to collect the part- nership accounts, and to pay the partnership debts. Certainly, then, Gregg could have sold Arnot the stock of goods and the whiskey; could have received the price, and with the price could have paid) any partnership debt. The general principle, except as it may be modified by a bankrupt law, is that a debtor may pay one creditor before he pays another ; even that he may pay one creditor to the exclusion of the other. And it seems to be settled by decisions that, on the disso- lution of the partnership by the death of one partner, or by his insol- vent assignment, the remaining partner may exercise that same prefer- ence of one partnership creditor over the other. Egberts v. Wood, 3 Paige, 517, 24 Am. Dec. 236; Loeschigk v. Addison, 4 Abb. Prac. (N. S.) 210. Certainly that must be so, unless the partnership be in- solvent ; and such insolvency is not shown in this case. If, then, the remaining partner, after such a dissolution, may sell the partnership property, and may apply the avails to such partnership debt as he chooses, it follows that he may directly apply the partnership prop- erty to the payment of a partnership debt. The equitable right which the insolvent partner has, or which the representatives of a deceased partner have, is that the partnership property be applied to the pay- ment of partnership debts. That is all ; and that right is not infringed by the turning out of partnership property to pay a partnership debt. In this present case, however, Gregg mortgaged the property to Arnot. Now Gregg had the legal title to the property. He could sell, and convey, and transfer. Why could he not mortgage? Of course a mortgage for his individual and antecedent debt might be invalid ; because it would be paying his own debt out of partnership property for no new consideration. But I do not see why he may not mortgage partnership property for a partnership debt. The learned referee argues that he cannot mortgage, because he cannot create, or renew, a partnership obligation. For, he says, the partner thus impairs the right of the creditors to payment of their debts without delay. But when any debtor mortgages his property to secure a just debt, does he impair the right of the other creditors to the payment of their just debts without delay? Of course a creditor may be unable to collect his debt 'out of mortgage property, and yet it is lawful for a debtor to mortgage his property for a valid debt, and to make the mortgage pay- able at a future time. We must remember that this debt to Arnot was a debt of the solvent Gregg, just as much as it was the debt of the insolvent Beadle. All that Beadle could claim — all that the creditors of the partnership could claim — was that Gregg should use the part- BANKKUPTCY AND INSOLVENCY 329 nership property to discharge the partnership debts, and not to dis- charge his individual debts. That he has done. But it is said that Gregg signed the firm name, and that the mortgage contained a covenant to pay. When Beadle is sued on that covenant, the dissolution of the partnership will be a good defence to the action. But the mortgage is good enough as a transfer of the property, and probably the covenant to pay is binding on Gregg. I think it not accurate to say, in the language of the learned referee, that on the dis- solution Gregg immediately became the trustee of the firm property for the benefit of the firm creditors, or for Beadle and his assignees. He was not a trustee, but was the owner of the property. Only in paying from its avails the debts which he himself owed, it was his duty first to pay those which he owed as partner with Beadle. When we speak of a man as trustee, who is not strictly a trustee, we are often led into deductions from the word which may be erroneous. T. Pars, on Partn. 345. * * * The judgment must be reversed, new trial granted, referee dis- charged, costs to abide event.^' i« Compare with Murray v. Murray, ante, p. 288. 330 TERMINATION Or THE PAKTNEKSHIP TERMINATION OF THE PARTNERSHIP I. By Act of the Partners — Mutual Assent * SOLOMON V. KIRKWOOD et al. (Supreme Court of Michigan, 1SS4. 55 Mich. 256, 21 N. W. 336.) CooLEY, C. J.^ The plaintiffs, who are in the city of Chicago dealers in jewelry, seek to charge the defendants as partners upon a prom- issory note for $791.92, bearing date of November 9, 1882, and signed "Hollander & Kirkwood." The note was given by the defendant Hol- lander, but Kirkwood denies that any partnership existed between the defendants at the date of the note. The evidence given on the trial tends to show that on July 6, 1882, Hollander & Kirkwood entered into a written agreement for a part- nership for one year from the 1st day of the next ensuing month in the business of buying and selling jewelry, clocks, watches, etc., and in repairing clocks, watches, and jewelry, at Ishpeming, Mich. Busi- ness was begun under this agreement, and continued until the latter part of October, 1882, when Kirkwood, becoming dissatisfied, locked up the goods and excluded Hollander altogether from the business. He also caused notice to be given to all persons with whom the firm had had dealings that the partnership was dissolved, and had the fol- lowing inserted in the local column of the paper published at Ish- peming: "The copartnership heretofore existing between Mr. C. H. Kirkwood and one Hollander, as jewelers, has ceased to exist; Mr. Kirkwood having purchased the interest of the latter." This was not signed by any one. A few days later Hollander went to Chicago, and there, on Novem- ber 9, 1882, he bought, in the name of Hollander & Kirkwood, of the plaintiffs goods in their line amounting to $791.92, and gave to the plaintiffs therefor the promissory note now in the suit. The note was made payable December 15, 1882, at a bank in Ishpeming. When the purchase was completed, Hollander took away the goods in his iatchel. The plaintiffs had before had no dealings with Hollander & Kirkwood, but they had heard there was such a firm, and were not aware of its dissolution. They claim to have made the sale in good faith and in the belief that the firm was still in existence. On the other hand, Kirkwood claimed that Hollander and the plaintiffs had con- spired together to defraud him by a pretended sale to the firm of goods which the plaintiffs knew Hollander intended to appropriate exclu- sively to himself; and he was allowed to prove declarations of Hol- 1 For a discussion of principles, see Gilmore on Partnership, §§ 196-198. 2 Part of the opinion is omitted. BY ACT OF THE PARTNERS — MUTUAL ASSENT 331 lander wliicli, if admissible, would tend strongly to prove such a con- spiracy. The questions principally contested on the trial were, first, whether the acts of Kirkwood amounted to a dissolution of the partnership; second, whether sufficient notice of dissolution was given ; and, third, whether there was any evidence to go to the jury of an understanding between Hollander and the plaintiffs to defraud Kirkwood. The trial judge, in submitting the case to tlie jury, instructed them: That Kirk- wood, notwithstanding the written agreement, had a right to withdraw from the partnership at any time, leaving matters between him and Hollander to be adjusted between them amicably or in the courts; and for the purposes of this case it made no difference whether Kirk- wood was right or wrong in bringing the partnership to an end. H wrong, he might be liable to Hollander in damages for the breach of his contract. Also, that when partners are dissatisfied, or they cannot get along together, and one partner withdraws, the partnership is then at an end as to the public and parties with whom the partnership deals, and neither partner can make contracts in the future to bind the partnership, provided the retiring partner gives the proper notice. Also, that if they should find from the evidence that there was trouble between Hollander and Kirkwood prior to the sale of the goods and the giving of the note, that Kirkwood informed Hollander in sub- stance that he would have no more dealings with him as partner, that he took possession of all the goods and locked them up, and from that time they ceased to do business, then the partnership was dis- solved. Further, that whether sufficient notice had been given of the dissolution was a question for the jury. Kirkwood was not bound to publish notice in any of the Chicago papers. He was only bound to give actual notice to such parties there as had dealt" with the partner- ship. But Kirkwood was bound to use all fair means to publish as widely as possible the fact of a dissolution. Publication in a news- paper is one of the proper means of giving notice, but it is not abso- lutely essential ; and on this branch of the case the question for the jury was whether Kirkwood gave such notice of the dissolution as under the circumstances was fair and reasonable. H he did, then he is not liable on the note; if he did not, he would still continue liable. The judge also sul)mitted to the jury the question of fraud in the sale of the goods. The jury returned a verdict for the defendants. We think the judge committed no error in his instructions respect- ing the dissolution of the partnership. The rule on this subject is thus stated in an early New York case: The right of a partner to dissolve, it is said, "is a right inseparably incident to every partnership. There can be no such thing as an indissoluble partnership. Every partner has an indefeasible right to dissolve the partnership as to all future contracts by publishing his own volition to that effect ; and after such publication the other members of the firm have no capacity to bind him by any contract. Even where partners covenant with each other 332 TERMINATION OF THE PARTNERSHII that the partnership shall continue seven years, either partner may dis- solve it the next day, proclaiming his determination for that purpose ; the only consequence being that he thereby subjects himself to a claim for damages for a breach of his covenant. The power given by one partner to another to make joint contracts for them both is not only a revocable power, but a man can do no act to divest himself of the capacity to revoke it." Skinner v. Dayton, 19 Johns. (N. Y.) 513, 53S, 10 Am. Dec. 286. To the same effect are Mason v. Connell, 1 Whart. (Pa.) 3S1, and Slemmer's Appeal, 58 Pa. 155, 98 Am. Dec. 248. There may be cases in which equity would enjoin a dissolution for a time, when the circumstances were such as to make it specially injurious; but no question of equitable restraint arises here. When one partner becomes dissatisfied, there is commonly no legal policy to be subserved by compelling a continuance of the relation, and the fact that a contract will be broken by the dissolution is no argument against the right to dissolve. Most contracts may be broken at pleasure, sub- ject, however, to responsibility in damages; and that responsibility would exist in breaking a contract of partnershijj as in other cases. The instruction respecting notice was also correct. No court can determine for all cases what shall be sufficient notice and what shall not be. The question must necessarily be one of fact. * * * But we think the judge erred in receiving evidence of Hollander's admissions or declarations tending to show fraudulent collusion be- tween him and the plaintiffs. * * * For this error there must be a new trial. II. Dissolution by Operation of Law PEARCE v. CHAMBERLAIN". (In Chancery, at the Rolls, 1750. 2 Ves. Sr. 33.) Articles between Robert Plummer and Daniel Pearce recited that Plummer had carried on the trade of a brewer at Hoddesdon, and had employed Pearce as servant and brewer, who having behaved himself faithfully, etc., and advancing a moiety of the value of the effects, he took him into partnership for 9 years, if Pearce should so long live; but, if he lived to the end of 9 years, the partnership should continue for any further term, not exceeding 21 years, as Pearce should desire, on giving notice, to continue it. It was provided that, notwith- standing the death of Plummer, it should be carried on by his repre- sentatives, and that, if Pearce should give that notice, he should not have it in his option to pay off the representatives of Plummer and carry it on himself, but with them. 8 For a discussion of principles, see Gilmore on Partnership, § 198. DISSOLUTION BY OPERATION OF LAW 333 This bill was by the widow and representatives of Pearce, ag^ainst the representatives of Plummer, for an account, and for liberty to carry on the trade with the defendants.* * * ♦ Strange, M. R. Considering the whole frame and design of the articles, Pearce was only admitted in ease of Plummer, and for his skill in the trade, and, after that end was defeated by his death, it could not be the intent that any representative of him should have an op- portunity to carry it on, as it might fall into such hands as could not be of service, and though it might come to the representatives of one, and not of the other, that is by express provision of the parties. There- fore on the articles the plaintiff is not entitled to a decree to carry on the partnership. But, as a general question, the consequence with regard to trade weighs greatly with me. It would be of ill consequence in general to say that in articles of partnership in trade, where no provisions for the death of either is made, they might subsist for benefit of an execu- tor who may not have skill therein. The plaintiff could be of no use in carrying on the partnership. Plummer wanted one whose knowl- edge he could confide in. The plaintiff, the administratrix, is en- titled to one-third; the infant to the other two shares. Her intestate might be indebted, and the assets wanted to be distributed. It is improper, therefore, to suffer such a construction, unless the parties provide for it. I remember that case in Baxter v. Burfield, 2 Stra. 1266. It was an action against the surety in a bond conditioned for performance of the articles. The master, to whom the youth was bound, died. The executors thought they might have some benefit of his time; and the view, therefore, was not to have him personally their servant, and to instruct him farther in the trade, but to put that bene- fit of the infant's service into their own pocket. The court, considering the inconvenience attending apprentices or trade in general, if infants were obliged to serve executors or administrators for remainder of the term, although not of the same trade with the infant, determined it for the defendant, that the action would not lie. I also remember Huddleston's Case, and am pretty certain (though not very positive) that he was under a great dejection of mind, so that a commission was applied for ; but before that question came before the court he had recovered himself, and was desirous to carry on the partnership. The court said these were accidents which could not be provided for ; but that was no reason, when he had brought all his substance into trade, the other partner should say that a temporary disorder intervening should deprive him during life from going on with the business, and that he should put the whole benefit of the partnership into his pocket, without accounting for it. So that the court held he had not forfeited the benefit under the partnership, but should, notwithstanding that accident, be considered as partner. That case depended entirely on that circumstance ; and there was a prospect of his recovery. * Statement of facts abridged. 334 TERMINATION OF THE PAETNERSHIP III. Dissolution by Judicial Decree — Impossibility of Success CASH V. EARNSHAW et al. (Supreme Court of Illinois, 1S72. 66 111. 402.) Scott, J. This bill was to dissolve a copartnership entered into by the parties to this suit on the 26th day of November, 1869, for the purpose of carrying on the business of quarrying stone, and was to continue through the full period of five years. The ground set out in the bill, upon which the plaintiff seeks re- lief, is the misconduct of the partner Emanuel Earnshaw. No cause of complaint is alleged against any other member of the firm. He is charged with specific acts of wrongful conduct and general mis- management of the business of the firm. On account of the char- ges in the bill, plaintiff in error sought to have the court dissolve the copartnership, appoint a receiver, and close up the affairs of the firm. The court b.elow denied the relief, and plaintiff brings the cause to this court on error. It is not for every act of misconduct on the part of one partner that a court of equity, at the instance of another, will dissolve the partnership and close up the affairs of the company. The court will require a strong case to be made, and it is laid down as a general principle that a court has no jurisdiction to make a separation be- tween partners for trifling causes or temporary grievances involving no permanent mischiefs. 3 Kent, 60. Story, in his work on Partnership, states the rule to be that, to justify such an extraordinary interposition, the court always expects a strong and clear case to be made out of positive and meditated abuse. For minor misconduct or grievances, he says, if they require any redress, the court, ordinarily, will go no further than to act upon the faulty party by way of an injunction. Story on Partnership, § 288, and authorities cited. We have carefully examined the evidence in the record, and we fail to discover that clear and satisfactory proof of the allegations in the bill that the law undoubtedly requires. Indeed, so far as we can see, there is no act on the part of Emanuel Earnshaw that the plaintiff in error can have any just cause of complaint, unless it was the failure to give him a check for $500 on the 12th day of Novem- ber, 1870, when requested. And, if there was no explanation to this fact, we do not think that it is of sufficient gravity to justify the use of the extraordinary power by the court of equity to put an end to the entire contract between the parties. The contract of copartner- ship was deliberately entered into after mature consideration, and 6 For a discussion of principles, see Gilniore on Partnership, §§ 200-203. DISSOLUTION BY JUDICIAL DECREE 335 not without considerable knowledge of each other's characters and fitness, and it ought not to be dissolved on account of any mere tri- fling cause. It is apparent, from what took place at the time, that Earnshaw did not intend any wrong to plaintiff in error by the refusal to give the check. The evidence warrants us in saying that there was an honest dispute as to the amount then due to him. Plaintiff in error, for some reason satisfactory to himself, did not choose to have the accounts passed upon at that time, and hence the check was not giv- en. It turned out, however, upon subsequent investigation, that there was more than the amount demanded due him, and he ought, in fact, to have the check; but Earnshaw may have been honestly in doubt as to the amount. If so, he ought not to be charged with willful misconduct, and his contract for that reason alone dissolved, and his business broken up. The consequences of the dissolution of copartnership are of too serious a character to be justified by so slight a cause. Under the most unfavorable view, it would only work a temporary inconvenience, and it is not pretended that any permanent injury resulted from the refusal to give him a check for the desired amount on that day. His own conduct in the premises is not alto- gether blameless, and he ought not to be allowed to make the mis- taken judgment of his partner the ground for the dissolution of their contract. By the agreement of the parties, Emanuel Earnshaw was made general superintendent of the affairs of the company, and it is in- sisted that he made large sales on credit to the injury of plaintiff in error as a member of the firm. It was not provided by the arti- cles of copartnership that no sales should be made on a credit. It was, however, stipulated that no sales should be made on a credit by one member "against the express wish or consent of two others." The evidence tends to show that the sales that were made on credit, of which complaint is made, were not recklessly done, but were deem- ed reasonable sales at the time. Certainly they were not so improv- idently made as to be regarded as willful misconduct on the part of the superintendent. Losses did occur, but they were through mere error of judgment. The credits given were for short periods, and other parties, considered prudent men, engaged in the same line of business, made similar sales with like disastrous results. In making the sales on credit, he violated no express agreement of the parties, and, inasmuch as it appears that it was in accordance with the cus- tom of the trade, we see no grounds for just complaint against the action of the superintendent in this regard. He seems to have act- ed with reasonable prudence, and certainly no willful conduct can be imputed to him that ought to be visited with any serious conse- quences. The most serious cause of complaint seems to be in regard to makini: the Shannon contract in the first place, and the subsequent 336 TERMINATION OF THE PARTNERSHIP agreement with Steele and McMahan to perform and complete bis contract with them. It is alleged that by reason of the improvident contract with Shannon, and the subsequent agreement to complete the work on Lake street, large losses were incurred through misman- agement of Emanuel Earnshaw. No doubt the contract with Shan- non was an unfortunate one, but it was certainly deemed a good one by all the parties when made, and, if he had been able to perform it, it would have been in the end greatly to their interest. When Shan- non failed, Earnshaw deemed it most advantageous for the interest of all concerned that the company should assume the contract and complete the work. It was thought it would be a great saving to the company. It is true that the superintendent made the contract with Steele and McMahan without having first consulted with any of the partners; but they certainly all consented to the arrangement after it was made. Plaintiff in error says that he protested against the company assuming the contract; but he himself superintended the work for part of the time, and did other acts that cannot but be regarded as a ratification of the act of the superintendent in undertaking to complete the work. It does not appear but that, under all the cir- cumstances, it was the very best thing the company could do, and per- haps prevented heavier losses than would otherwise have been sustained. It is hardly necessary to comment separately on the other charges of misconduct. We do not find in all the record any cause of suffi- cient gravity, proven by clear and satisfactory evidence, that would justify a court of equity to interpose to put an end to the partner- ship relations between the parties. It may be that there were slight errors in judgment on the part of the superintendent; but no evi- dence of willful misconduct appears that would result in serious in- jury to plaintiff in error or any member of the firm. No reason ap- pears that would prevent a profitable and harmonious co-operation between the several partners in the prosecution of the common busi- ness of the firm, and hence no cause for dissolution; and the decree of the superior court is affirmed. Decree affirmed. WZBT FtTBLISHIHG CO., PBINTEBS, BT. FAUL, HIKSU THE UNIFORM PARTNERSIIU' x\CT I'AIlT I. PRELIMINARY PROVISIONS Section I.— Name of Act. This act may be cited as Uniform Partnership Act. Sec. 2.— Definition of Terms. In this act, "Court" includes every court and judge liaviug jurisdiction in the case. "Business" includes every trade, occupation, or profession. "Person" includes individuals, partnerships, corporations, and other asBoci- ations. "Banknipt" includes bankrupt under the Federal Bankruptcy Act or insolvent under any state insolvent act. "Conveyance" includes every assiRnniont, lease, mortgage, or encumbrance. • "Real property" includes land and any interest or estate in land. See. 3. — Interpretation of Knowledge and Notice. (1) A person has "knowl- edge" of a fact within the meaning of this act not only when he has actuaj knowledge thereof, but also when he has knowledge of such other facts as in the circumstances shows bad faith. (2) A person has "notice" of a fact within the meaning of this act when the person who claims the benefit of the notice (a) States the fact to such person, or (b) Delivers through the mail, or by other means of communication, a writ- ten statement of the fact to such person or to a proper person at his place of business or residence. Sec. 4.— Rules of Construction. (1) The rule that statutes in derogation ot the comnjon law are to be strictly construed shall have no application to this act. (2) The law of estoppel shall apply under this act. (3) The law of agency shall apply under this act. (4) This act shall be so interpreted and construed as to effect its general pur- pose to make uniform the law of those states which enact it. (5) This act shall not be construed so as to impair the obligations of any con- tract existing when the act goes into effect, nor to affect any action or proceed- ings begun or right accrued before this act takes efl'ect. Sec. 5.— Rules for Cases not Provided for in this Act. In any case not pro- vided for in this act the rules of law and equity, including the law merchant, shall govern. PART II. NATURE OF A PARTNERSHIP Sec. 6. — Partnership Defined. (1) A partnership is an association of two or more persons to carry on as co-owners a business for profit. (2) But any association formed under any other statute of this state, or any statute adopted by authority, other than the authority of this state, is not a partnership under this act, unless such association would have been a partner- ship in this state prior to the adoption of this act; but this act shall apply to limited partnerships except in so far as the statutes relating to such partner- ships are inconsistent herewith. Sec. 7.— Rules for Determining the Existence of a Partnership. In deter- mining whether a partnership exists, these rules shall apply: (1) Except as provided by section Iti persons who are not partners as to each other are not partners as to third persons. (2) Joint tenancy, tenancy in common, tenancy by the entireties, joint prop- erty, common property, or part ownership does not of itself establish a partner- ship, whether such co-owners do or do not share any profits made by the use of the property. (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or in- terest in any property from which the returns are derived. (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise, (b) As wages of an employee or rent to a landlord, (c) As an annuity to a widow or representative of a deceased partner, (d) As interest on a loan, though the amount of payment vary with the profits of the business. (e) As the consideration for the sale of the good-will of a business or other property bv installments or otherwise. Sec. 8.— Partnership Property. (1) All property originally brought mto the partnership stock or subseiiuently acciuired, by purchase or otherwise, on ac- count of the partnership is partnership property. _ (2) Unless the contrary intention appears, property ac*iuired with partner- ship funds is partnership property. (1) 2 THE UNIFORM PARTNERSHIP ACT (3) Any estate in real property may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (4) A conveyance to a partnership in the partnership name, though without words of inheritance, passes the entire estate of the grantor unless a contrary intent appears. PART III. RELATIONS OF PARTNERS TO PERSONS DEALING WITH THE PARTNERSHIP Sec. 9.— Partner Agent of Partnership as to Partnership Business. (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any in- strument, for apparently carrying on in the usual way the business of the part- nership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular mat<- ter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. (2) An act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership un- less authorized by the other partners. (3) Unless authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: (a) Assign the partnership property in trust for creditors or on the as- signee's promise to pay the debts of the partnership, tb) Dispose of the good-will of the business, (c) Do any other act which would make it impossible to carry on the or- dinary business of the partnership, (d) Confess a judgment, (e) Submit a partnership claim or liability to arbitration or reference. (4) No act of a partner in contravention of a restriction on his authority .«hall bind the partnership to persons having knowledge of the restriction. Sec. 10.— Conveyance of Real Property of the Partnership. (1) Where title to real property is in the partnership name, any partner may convey title to such property, by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the part- nership under the provisions of paragraph (1) of section 9, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority. (2) Where title to real property is in the name of the partnership, a convey- ance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of section 9. (3) Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of paragraph (1) of section 9, unless thie pur- chaser or his assignee, is a holder for value, without knowledge. (4) Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the_ equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of paragraph (1) of section 9. (5) Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such property. Seo. 1 1.— Partnership Bound by Admission of Partner. An admission or rep- resentation made by any partner concerning partnership affairs within the scope of his authority as conferred by this act is evidence agninst the partnership. Sec. 12.— Partnership Cliarged with Knowledge of or Notice to Partner. No- tice to any partner of any matter relating to partnership affairs, anTl the knowl- edge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who rea- sonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of a fraud on the partnership committed by or with the consent of that partner. Sec. 13.— Partnership Bound by Partner's Wrongful Act. Where, by any wrongful act or omission of any partner acting in tlie ordinary course of the business of the partnership, or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner oo acting or omitting to act. Sec. 14.— Partnership Bound by Partner's Breach of Trust. The partnership is bound to make good the lossi- THE UNIFORM PARTNERSHIP ACT 8 (a) Where one pnrtncr acting within the Bcope of his apparent authority receives money or property of a third person and misapplies it; and (b) Where the partJit-rship in the course of its business receives money or property of a third person and the money or property ko received is misapplied by any partner while it is in the cnstoily of the partnershij). Sec. 15.— Nature of Partner's Liability. All partners are liable. (a) Jointly and severally for everything chargeable to the partnerBbiD un- der sections 1.*} and 11. (b) Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnershin con- tract. * Sec. 16.— Partner by Estoppel. (1) When a person, by words spoken or writ- ten or by conduct, represfiits himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representa- tion has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner mak- ing the representation or consenting to its being made. (a) When a parlnershii) liability results, he is liable as though he were an actual member of the partnership. (b) When no partner.ship liability results, he is liable jointly with the oth- er persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. (2) When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. Where all the members of the ex- isting partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. Sec, 17. — Liability of Incoming Partner. A persoti admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligation*} were incurred, except that this liability shall be satisfied only out of partnership property. PART IV. RELATIONS OF PARTNERS TO ONE ANOTHER Sec. 18.— Rules Determining Rights and Duties of Partners. The rights and duties of the partners in relation to the partnership shall be determined, sub- ject to any agreement between them, by the following rules: (a) Each partner shall be repaid his contributions, whether by way of cap- ital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or oth- erwise, sustained by the partnership according to his share in the i)rotits. (b) The partnership must indemnify every partner in respect of payments made and personal liabilities reasonably incurred by him in the ordinary and proper conduct of its business, or for the preservation of its business or property. (c) A partner, who in aid of the partnership makes any payment or advance beyond the amount of capital which he agreed to contribute, shall be paid in- terest from the date of the payment or advance. (d) A partner shall receive interest on the capital coqtributed by him only from the date when repayment should be made. (e) All partners have equal rights in the management and conduct of the partnership business. (f) No partner is entitled to remuneration for acting in the partnership business, except that a surviving p.-irtner is entitled to reasonable compensa- tion for his services in winding up the partnership affairs. (g) No person can become a member of a partnership without the consent of all the partners. (h) Any difference arising as to ordinary matters connected with the part- nership business may be decided by a majority of the partners; but no a<'t in contravention of any ngreeniont between the partners may be done rightfully without the consent of all the partners. Sec. 19. — Partnership Books. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at all times have access to and may inspect and copy any of them. 4 THE UNIFORM PARTNERSHIP ACT Sec. 20. — Duty of Partners to Render Information. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or partner under legal disability. Sec. 21.— Partner Accountable as a Fiduciary. (1) Every partner must ac- count to the partnership for any benefit, and hold as, trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. (2) This section applies also to the representatives of a deceased partner engaged in the liquidation of the affairs of the partnership as the personal rep- resentatives of the last surviving partner. Sec. 22.— Right to an Account. Any partner shall have the right to a formal account as to partnership affairs: , . , (a) If he is wrongfully excluded from the partnership business or posses- sion of its property by his co-partners, (b) If the right exists under the terms of any agreement, (c) As provided by section 21, (d) Whenever other circumstances render it just and reasonable. Sec. 23.— Continuation of Partnership Beyond Fixed Term. (1) When a part- nership for a fixed term or particular undertaking is continued after the ter- mination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such ter- mination, so far as is consistent with a partnership at will. , , , .. (2) A continuation of the business by the partners or such of them as habit- ually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. PART V. PROPERTY RIGHTS OP A PARTNER Sec. 24.— Extent of Property Rights of a Partner. The property rights of a partner are ^1) his rights in specific partnership property, (2) his interest in the partnership, and (3) his right to participate in the management. Seo. 25.— Nature of a Partner's Right in Specific Partnership Property. (1) A partner is co-owner with his partners of specific partnership property holding as a tenant in partnership. (2) The incidents of this tenancy are such that: (a) A partner, subject to the provisions of this act and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners. (b) A partner's right in specific partnership property is not assignable ex- cept in connection- with the assignment of the rights of all the partners in the same property. (c) A partner's right in specific partnership property is not subject to at- tachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws. (d) On the death of a partner his right in specific partnership property vests in the surviving partner or partners, except where the deceased was the last surviving partner, when his right in such property vests in his legal representative. Such surviving partner or partners, or the legal representa- tive of the last surviving partner, has no right to possess the partnership prop- erty for any but a partnership purpose. (e) A partner's right in specific partnership property is not subject to dower, curtesy, or allowances to widows, heirs, or next of kin. Sec 26.— Nature of Partner's Interest in the Partnership. A partners inter- est in the partnership is his share of the profits and sui-plus, and the same is personal property. ..... Sec. 27.— Assignment of Partner's Interest. (1) A conveyance by a part- ner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the as- signee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any infor- mation or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his con- tract the profits to which the assigning partner would otherwise be entitled. (2) In case of a dissolution of the partnership, the assignee is entitled to re- ceive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. Sec. 28.— Partner's Interest Subject to Charging Order. (1) On due applica- tion to a competent court by any judgment creditor of a partner, the court which entered the judgment, order, or decree, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such THE UNIFORM PARTNERSHIP ACT o judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and maiie all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may reciuire. (2) The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court may be purchased without thereby causing a dissolution: (a) With separate property, by any one or more of the partners, or (h) With partnership property, by any one or more of the partners with the consf>nt of all the partners whose interests are not so (harped or sold. (3) Xoihing in this net shall be held to dcr'rivo a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. PART VI. DISSOLUTION ANI) WINDING UP Sec. 29. — Dissolution Defined. The dissolution of a partnership is the change in the relation of tlio partners caused by any partner ceasing to be associated in the carrviiig on as (list int^nished from the winding up of the business. Sec. 30.— Partnership Not Terminated by Dissolution. On dissolution the part- nership is not tenuiuatod, but continues until the winding up of partnership af- fairs is completed. Sec. 31. — Causes of Dissolution. Dis«>olution is caused: (1) Without violation of tlie agreement between the partners, (a) By the termination of the definite term or particular undertaking speci- fied in the agreement, (b) By the e.xpiess will of any partner when no definite term or particular undertaking is specified, (i-) By the express will of all the partners who have not assigned their in- terests or suffered them to be charged for their separate debt.s. either before or after the termination of any specified term or particnilar undertaking. (d) By the expulsion of any partner from the business bona fide in ac- cordance with such a power conferred by the agreement between the partners; (2) In contravention of the agreement between the partners, where the cir- cumstances do not permit a dissolution under any other provision of this sec- tion, by the express will of any partner at any time; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (4) By the death of any partner; (5) By the bankruptcy of any partner or the partnership; (6) By decree of court under section 32. Sec. 32.— Dissolution by Decree of Court. (1) On application by or for a partner the court shall decree a dissolution whenever: (a) A partner bas been declared a lunatic in any judicial proceeding or is shown to be of unsound mind, (b) A partner becomes in any other way incapable of performing his part of the partnership contract, (c) A partner has been guilty of such conduct as tends to affect prejudi- cially the carrying on of the business, (d) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the part- nership business that it is not reasonably practicable to carry on the busi- ness in partnership with him, (e) The business of the partnership can only be carried on at a loss, (f) Other circumstances render a dissolution equitable. (2) On the application of the purchaser of a partner's interest under sections 28 or 29: (a) After the termination of the specified term or particular undertaking. (b) At any time if the partnership was a partnership at will when the in- terest was assigned or when the charging order was issued. Sec. 33.— General Effect of Dissolution on Authority of Partner. Except so far as mav be necessary to wind up partnership affairs or to complete transac- tions begun but not then finislied, dissolution terminates all authority of any partner to act for the partnership. (1) With respect to the partners, (a) When the dissolution is not by the act, bankruptcy or death of a part- ner; or, (b) When the dissolution is by such act, bankruptcy or death of a partner, in cases where section 34 so rei^uires. (2) With respect to persons not partners, as declared in section 35. Sec. 34.— Right of Partner to Contribution From Co-partners After Disso- lu'^ion. Where the dissolution is caused by the act, death or bankruptcy of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless b THE UNIFORM PARTNERSHIP ACT (a) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution, or (b) The dissolution being by the death or bankruptcy of a partner, the partner acting for the partnership had knowledge or notice of the death or bankruptcy. Sec. 35.— Power of Partner to Bind Partnership to Third Persons After Dis- solution. (1) After dissolution a partner can bind the partnership except as provided in paragraph (3) (a) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution. (b) By any transaction which would bind the partnership if dissolution had not taken place, provided the othtr party to the transaction (I) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (II) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on. (2) The liability of a partner under paragraph (lb) shall be satisfied out of partnership assets alone when such partner had been prior to dissolution (a) Unknown as a partner to the person with whom the contract is made; and (b) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. (3) The partnership is in no case bound by any act of a partner after dis- solution , (a) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or (b) "Where the partner has become bankrupt; or (c) Where the partner has no authority to wind up partnership affairs, ex- cept by a transaction with one who (I) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (II) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in paragraph (lb II). (4) Nothing in this section shall affect the liability under section 16 of any person who after dissolution represents himself or consents to another repre- senting him as a partner in a partnership engaged in carrying on business. Sec. 36.— Effect of Dissolution on Partner's Existing Liability. (1) The disso- lution of the partnership does not of itself discharge the existing liability of any partner. (2) A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agree- ment may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business. (3) Where a person agrees to assume the existing obligations of a dissolved partnership, the partners whose obligations have been assumed shall be dis- charged from any liability to any creditor of the partnership who, knowing of the agreement, consents to a material alteration in the nature or time of pay- ment of such obligations. (4) The individual property of a deceased partner shall be liable for all ob- ligations of the partnership incurred while he was a partner but subject to the prior payment of his separate del)ts. Seo. 37.— Right to Wind Up. Unless otherwise agreed the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not bankrupt, has the right to wind up the partnership af- fairs; provided, however, that any partner, his legal representative, or his as- signee, upon cause shown, may obtain winding up by the court. Seo. 38.— Rights of Partners to Application of Partnership Property. (1) When dissolution is caused in any way, except in contravention of the partner- ship agreement, each partner, as against his co-partners and all persons claim- ing through them in respect of their interests in the partnership, unless other- wise agreed, may have the partnership property applied to discharge its liabil- ities, and the surplus applied to pay in cash the net amount owing to the re- spective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement, and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under section 86 (2), he shall receive in cash only the net amount due him from the partner- ship. THE UNIFORM PARTNERSHIP ACT 7 (2) When dissolution ia caused in contravention of the partnership agreement the rights of the partners shall he as follows: (a) Each partner who has not caused dissolution wrongfully shall have, (I) All the rights specified in paragraph (1) of this section, and (II) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the agreement. (b) The partners who have not caused the dissolution wrongfully, if they nil desire to continue the business in the same name, «'iiher by themselves or jointly with others, may do so, during the agreed terra for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damagrs recoveraiile under clause (2a II) of this section, and in like manner indemnify him against all present or future part- nership liabilities. (c) A partner who has caused the dissolution wrongfully shall have: (I) If the business is not continued under the provisions of paragraph (2b) all the rights of a partner under paragraph (1), subject to clause (2a II), of this section, (II) If the business is continued under paragraph (2b) of this section the right as against his copartners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damages caused to his co-partners by the disso- lution, ascertained and paid to him in cash, or the payment secured by bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. Sec. 39.— Rights Where Partnership is Dissolved for Fraud or Misrepresen- tation. AN'here a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled, (a) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; and (b) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and (c) To be iudemnilied by the person guilty of the fraud or making the rep- resentation against all debts and liabilities of the partnership. Sec. 40. — Rules for Distribution. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agree- ment to the contrary: (a) The assets of the partnership are: (I) The partnership property, (II) The contributions of the partners necessary for the payment of all the liabilities specified in clause (b) of this paragraph. (b) The liabilities of the partnership shall rank in order of payment, aa follows: (I) Those owing to creditors other than partners, (II) Those owing to partners other than for capital and profits, (III) Those owing to partners in respect of capital, (IV) Those owing to partners in respect of profits. (c) The assets shall be applied in the order of their declaration in clause (a) of this paragraph to the satisfaction of the liabilities. (d) The partners shall contribute, as provided by section 18 (a) the amount necessary to satisfy the liabilities; but if any, but not all, of the partners are insolvent, or, not being subject to process, refuse to contribute, the other partners shall contribute their share of the liabilities, and, in the relative proportions in which they share the profits, the additional amount necessary to pay the liabilities. (e) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in clause (d) of this paragraph. (f) Any partner or his legal representative shall have the right to enforce the contributions specified in clause (d) of this paragraph, to the extent of the amount which he has paid in excess of his share of the liability. (g) The individual property of a deceased partner shall be liable for the contributions specified in clause (d) of this paragraph. (h) When partnership property and the individual properties of the partners are in the possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors as heretofore. (i) Where a partner has become bankrupt or his estate is insolvent the claims against his separate property shall rank in the following order: (I) Those owing to separate creditors, 8 THE UNIFORM PARTNERSHIP ACT (TI) Those owing to partnership creditors, (.III) Those owiug to partners by way of contribution. Sec. 41.— Liability of Persons Continuing the Business in Certain Cases. (1) "When any new partner is admitted into an existing partnership, or when any partner retires and assigns I, or tiie representative of the deceased partner as- signs) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs, creditors of tlie tirst or dissolved partnership are also creditors of the partnership so continuing the business. , . , (2) AYhen all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remain- ing partner, who continues the business without liquidation of partnership af- fairs, either alone or with others, creditors of the dissolved partnership are also creditors of the person or partnership so continuing the business. (3) "When anv partner retires or dies and the business of the dissolved part- nership is continued as set forth in paragraphs (1) and (.2) of this section, with the consent of the retired partners or the representative of the deceased part- ner, but without any assignment of his right in partnership property, rights of creditors of the dissolved partnership and of the creditors of the person or partnership continuing the business shall be as if such assignment bad been made. (4) "When all the partners or their representatives assign their rights in part- nership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership, creditors of the dissolved partnership are also creditors of the person or partnership continuing the business. (5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of section 38 (2b), either alone or with others, and without liquidation of the partnership affairs, cred- itors of the dissolved partnership are also creditors of the person or partner- ship continuing the business. (tj) When a partner is expelled and the remaining partners continue the busi- ness either alone or with others, without li(iuidation of the partnership affairs, creditors of the dissolved partnership are also creditors of the person or part- nership continuing the business. (7) The liability of a third person becoming a partner in the partnership continuing the business, under this section to the creditors of the dissolved partnership shall be satisfied out of partnership property only. (8) When the business of a partnership after dissolution is continued under any conditions set forth in this section the creditors of the dissolved partner- ship as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or de- ceased partner's interest in the dissolved partnership or on account of any con- sideration promised for such inteiest or for his right in partnership property. (9) Nothing in this section shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. (10) The use by the person or partnership continuing the business of the part- nership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. Sec. 42.— Rights of Retiring or Estate of Deceased Partner When the Busi- ness is Continued. When any partner retires or dies, and the business is con- tinued under any of the conditions set forth in section 41 (1, 2, 3, 5, 6), or section 38 (^2b), without any settlement of accounts as between him or his es- tate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such persons or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his inter- est in the dissolved partnersliip with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the nse of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim aris-ing under this section, as provided by section 41 (8) of this act. Sec. 43, — Accrual of Actions. The right to an account of his interest shall accrue to any partner, or his legal representative, as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. PART VIT. MTRCET.LANEOUS PROVISIONS Sec. 44. — When Act Takes Effect. This act shall take effect on the day of one thousand nine hundred and Sec. 45. — Legislation Repealed. All acts or parts of acts inconsistent with this act are hereby repealed. University of California 30S n^ J"^"n ■"^°'°^'^'- LIBRARY FACILITY 305 De Neve Drive - Parking Lot 17 . Box 951 -^ar LOS ANGELES, CALIFORNIA 90095 IsS ill 242 LAW LreRARY UNIVERSITY OF CALIFX)mJEr LOS ANGELES UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 682 639 o