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A TREATISE



ON THE



LAW OF PARTNERSHIP



BY

WALTER A. SHTJMAKER



SECOND EDITION



ST. PAUL, MINN.

KEEFE-DAVIDSOX CO.

1905



Copyright, 1901,

BY

KEEFE-DAV1DSON LAW BOOK CO.



Copyright, 1905,

BY

KEEFE-DAVIDSON CO.






STATE JOURNAL PRINTING COMPANY,
Printers and Stereotypers,
MADISON, wis.



PREFACE TO FIRST EDITION.



The important position which the contract of partnership
has held for more than a century in the commercial affairs of
England and the United States has been such that the law
bearing on it has been subjected to extensive judicial investi-
gation, and after undergoing; many changes, is at the present
rime well settled in most of its phases. This fact appears
to justify the seeming presumption of entering on a field of
jurisprudence embraced by the works of such eminent writers
as Lord Lindley and Theophilus Parsons. What was im-
possible during the formative period in which they wrote
now seems practicable, — the presentation of a complete analy-
sis in general propositions of the law of partnership; in other
words, a substantial codification based not on legislative en-
actment, but on the concensus of judicial decision. Such a
presentation, invaluable to the student, and nearly as much
so to the practitioner, lias been the aim in formulating the
black letter paragraphs in the present work. In the text, the
general statemenl of the law is elaborated, and its history and
growth outlined.

The scope ami theory of the work render alike unnecessary
and impracticable, a complete digest of the cases. The lead-
ing cases illustrating the growth of the law arc fully cited;
on all novel or disputed propositions the authorities have been
exhaustively collated, and on well settled rules sufficient cases
are cited to thoroughly establish and illustrate the doctrine,
including all the late cases of importance. This has required
an examination of authorities greater than would he de-



iv PREFACE.

tnanded by any other plan of presentation. The aim in both
text and citations has been to make a boot \'<>v all the states,
and any apparenl predominence of citations from certain
states will be found due to the prominenl pari played by such
states in establishing the commercial law of the United
States.

Considerable work on this manual has been done by an-
other, lmt nil such T have subjected to rigid scrutiny and re-
vision. W. A. S.



PREFACE TO SECOND EDITION.



In view of the general approval with which the first edi-
tion was received, the preparation of the second has involved
little besides the presentation of the result of the recent de-
cisions. Every decision on the subject since the first edition
was issued has been examined, and not only all that present
novel applications of the law, but all that bear on unsettled
questions, have been added. Moreover a considerable num-
ber of cumulative decisions, selected with special reference to
their exhaustiveness of discussion, have been inserted. Few
changes in the text have been found needful, but such as
might clarify the statement and better present the results of
recent holdings have been made. W. A. S.



TABLE OF CONTENTS.



CHAPTER I.

WHAT CONSTITUTES A PARTNERSHIP.

§ 1. Partnership Defined.

2. Essential Elements.

3. Contract Between Partners.
4-5. Delectus Personarurn.
6-7. Subpartnerships.

8. Sharing Profits.

9. Former Doctrine.

10. Modern Doctrine.

11. Tests of Partnership.

12. Mutual Agency as a Test.

13. Intention the Real Test. -

14-15. What Must be Intended— Common Ownership of
Profits.

16. Sharing Profits and Losses as Evidence of Intention.

17. Sharing Both Profits and Losses.

18. Sharing Profits, With Nothing Said About Losses.

19. Sharing Profits, With Stipulation Against Losses.

20. Sharing Gross Returns.

21. Sharing Losses Only.

22. Common Stock or Capital.

23. Questions of Law and Fact.

24. Contracts for Future Partnerships.

25. Associations Not for Profit.

26. Co-Ownership Distinguished.

27. Corporations Distinguished.

28. Promoters of Corporations or Joint Stock Companies.
29-31. Stockholders in Illegal or Defective Corporations.
32-33. Partnership as to Third Persons.

34. By Sharing Profits.
35-37. By Holding Out.



iii TABLE OF CONTENTS.

CHAPTER II.

CLASSIFICATIONS AND DEFINITIONS.

§ 38-40. Partnerships Classified.
41. Universal Partnerships.
!_'. General Partnerships.
43. Special or Particular Partnerships.
II. Trading and Nontrading Partnerships.

15. Partners Classified.



CHAPTER III.

CONTRACT OF PARTNERSHIP.

§ 46. General Requisites.

47. Formalities.

48-49. Who May Become Partners.

50. Consideration.

51. Purposes of Partnership.

52. Illegal Partnerships.



CHAPTER IV.

FIRM AS AN ENTITY.

§ 53. At Common Law.
54-55. Limited Recognition as an Entity.



CHAPTER V.



FIRM NAME AND GOOD WILL.



§ 56. Necessity of Firm Name.
57-58. Use and Purpose of Firm Name.
59-60. What Name May be Adopted.
60a-60cZ. Use of Firm Name After Dissolution.



CHAPTER VI.

CAPITAL OF FIRM.

§ 61. Definition and Nature.

62. What May be Contributed.
C3-G5. Rights of Partners.



66-68
69-71
72-73

74
75-76
77-78
79-80

81



TABLE OF CONTENTS. ix

CHAPTER VII.

PARTNERSHIP PROPERTY.

What Constitutes.

How Title is Held.

Nature of Partner's Interest.

Sale or Partition.

Proportionate Share of Each Partner.

Attachment or Execution for Individual Debt of Partner.

Conversion of Firm Realty Into Personalty.

Changing Joint Into Separate Property, and Vice Versa.



CHAPTER VIII.

RIGHTS AND LIABILITIES OF PARTNERS INTER SE.

§ 82. Articles of Partnership.

83. Construction of Articles.

84. Right to Participate in Management.

85. Duty to Observe Good Faith.

86. Obtaining Private Benefits.
87-88. Right to Carry on Separate Business.

89. Right to Contribution and Indemnity.

90. Right to Compensation.
91-92. Right to Interest on Balances.

93. Partnership Accounts.

94. Duty to Conform to Partnership Articles.

95. Duty to Exercise Care and Skill.
96-98. Power of Majority.

99-100. Division of Profits.

101. Expulsion of Partner.

102-103. Partner's Lien.



CHAPTER IX.

RIGHTS AND LIABILITIES OF PARTNERS AS TO THIRD
PERSONS.

§ 104. Power of Partner to Bind Firm.
105-106. Actual Authority.
107-108. Apparent or Implied Authority.
109-110. Restriction by Dissent.

111-112. Liability on Contracts.



TABLE OF CONTENTS.

113. Liability for Torts, Frauds and Breaches of Trust.

113a. Liability for Crime.

II ! lir,. Nature of Liability.

116. Extent of Liability.

117. Commencement of Liability.

118. Termination of Liability.

119. For Future Acts.
120-121. Notice of Dissolution.

122. For Past Acts.

L23. Application of Assets to Liabilities.

124. Application by Partners.

125-126. Application by Court.

127-128. Priorities in Firm Property.

129-132. Priorities in Separate Property.



CHAPTER X.

ACTIONS.

§ 133. Actions in Firm Name.

134. Actions by the Firm.

135. Disqualification of One Partner to Sue.

136. Actions against the Firm.

137. Actions Between Partners.

138. Actions Between Firms "With a Common Member.

139. Actions on Individual Obligations.
140-141. Suits in Equity.



CHAPTER XI.

DISSOLUTION.

§ 142. How Effected.

143. By Operation of Law.

144. By Act of Parties.

145. By Decree of Court.

146. Grounds for Dissolution.

147. Rights, Powers, and Liabilities after Dissolution.

148. Of Partners Generally.

149. Of Liquidating Partners.

150. Of Surviving Partners.
151-152. Of Estate of Deceased Partner.

153. Of Creditors.



TABLE OF CONTENTS. XL

CHAPTER XII.

JOINT-STOCK COMPANIES.
§ 154-155. Definition and Nature.



CHAPTER XIII.

LIMITED PARTNERSHIPS.
§ 15C-157. Definition and Nature.



LAW OF PARTNERSHIP.



CHAPTER I.

WHAT CONSTITUTES A PARTNERSHIP.

1. Partnership Defined.

2. Essential Elements.

3. Contract between Partners.
4-5. Delectus Personarum.
6-7. Subpartnerships.

8. Sharing Profits.

9. Former Doctrine.

10. Modern Doctrine.

11. Tests of Partnership.

12. Mutual Agency as a Test.

13. Intention the Real Test.

14-15. "What Must be Intended — Common Ownership of Profits.

16. Sharing Profits and Losses as Evidence of Intention.

17. Sharing both Profits and Losses.

18. Sharing Profits, "With Nothing Said about Losses.

19. Sharing Profits, with Stipulation against Losses.

20. Sharing Gross Returns.

21. Sharing Losses Only.

22. Common Stock or Capital.

23. Questions of Law and Fact.

24. Contracts for Future Partnerships.

25. Associations not for Profit. ,

26. Co-Ownership Distinguished.

27. Corporations Distinguished.

28. Promoters of Corporations or Joint Stock Companies.
29-31. Stockholders in Illegal or Defective Corporations.
32-33. Partnership as to Third Persons.

34. By Sharing Profits.

35-37. By Holding out.

1



WHAT CONSTITUTES A PARTNERSHIP.



PaETNEESHIP 1 >]•: FIXED.

I. Partnership is the relation subsisting between two or
more persons who have contracted together to share, as
common owners, the profits of a business carried on by
all or any of them on behalf of all of them.

Most of the definitions of a partnership to be found in the
books, a few of which arc sel out below in the notes, 1 are
fairly open to the criticism that they either omit entirely, or
fail to give prominence to, the qualification that the profits
must be shared between the contracting parties as common

i Various definitions of partnership:

"Partnership is the association of two or more persons for the pur-
pose of carrying on business together, and dividing its profits be-
tween them." Civ. Code, N. Y., § 1283; Civ. Code, Cal., § 2395; Comp.
Laws Dak. 1887, § 4027; Rev. Code, N. D., § 4370.

"Partnership is the relation which subsists between persons who
have agreed to combine their property, labor, or skill in some busi-
ness, and to share the profits thereof between them." Indian Con-
tract Act, 239.

By the English partnership act of 1890 (53 & 54 Vict. c. 39), which
went into effect January 1, 1891, "partnership" has been defined as
"the relation which subsists between persons carrying on a business
in common, with a view to profit." Business, within the meaning
of the act, includes every trade, occupation, or profession. The act
expressly excludes from its operation joint-stock companies, cost-
book mining companies, and many others which differ from ordi-
nary partnerships in many particulars. This statutory definition,
taken in connection with the other sections of the act, is now, in
England, the ultimate test applicable to the determination of the
question whether, in any particular case, a partnership does or does
not exist.

"Partnership is a contract of two or more competent persons to
place their money, effects, labor, and skill, or some or all of them,
in lawful commerce or business, and to divide the profit and bear
the loss in certain proportions." 3 Kent, Comm. 33. Followed in
Waggoner v. First Nat. Bank, 43 Neb. 84, 61 N. W. 112. A partner-
ship is the relation created by a contract between two or more per-



PARTNERSHIP DEFINED. 3

owners thereof, and not merely because a portion of them is
due to a party as a debt. As will be se en he reafter, this com-
mon ownership of the profits is the decisive test of the exist-
ence of a partnership. 2 This objection has been avoided by de-
fining a partnership as the contract relation subsisting between
persons who have combined their property, labor, or skill in
an enterprise or business as principals, for the purpose of
joint profit. 3 But this definition has, in turn, been criticised
as giving a synonym, rather than a definition, as mutual
agency results from partnership, rather than partnership from
mutual agency. 4 This matter will be more fully considered
in a succeeding section of this work. 5

A partnership is o ften called a contr act, but this_is_inac-
curate. It is the relation or status resulting from a contract,
just as marriage is a status, and not a contract. It should

sons to place their money, effects, labor, or skill, or some or all of
them, in lawful commerce, and divide the profits between them. In
re Gibb's Estate, 157 Pa. 59, 27 Atl. 383.

'•. These definitions certainly justify the statement made in Meehan
' v. Valentine, 145 U. S. 611, Burdick's Cases, 80, Mechem's Cases, 103,
that "the various definitions of a partnership have been approximate,
rather than exhaustive." While it is true that a partnership is all
it is said to be in the above definitions, something more is necessary
to define it, for all the conditions named might be present, and still
no partnership exist, as in the case of a servant or agent sharing in
the profits as compensation, in lieu of salary. The qualification
needed is that the sharing must be by reason of a common owner-
ship in the profits.

^ See infra, § 10, "Modern Doctrine," and infra, §§ 14, 15, "What
Must be Intended — Common Ownership of Profits.

8 1 Bates, Partn., p. 1. "A partnership is a voluntary, unincor-
porated association of individuals standing in the relation of prin-
cipals for carrying out a joint operation or undertaking for the pur-
pose of joint profit." Dixon, Partn. 1. See, also. Cox v. Hickman,
8 H. L. Cas. 268, and Eastman v. Clark, 53 N. H. 276.

* Pooley v. Driver, 5 Ch. Div. 471 et seq.; Meehan v. Valentine, 145
U. S. 611.

t> See post, § 121, "Mutual Agency as a Test."

« In this respect, the definition of a contract given in 3 Kent,



4 WHAT CONSTITUTES A PARTNERSHIP.

also be noted thai the won! "partnership" denotes a combina-
tion of persons, and not merely a combination of capital. 7
" So ^unsatisfactory haw Been Ehe many definitions of a
"partnership," that one classic writer upon the subject, with-
out attempting to define the term, contents himself with point-
ing ou1 the Leading ideas involved \n the term, 8 and this is,
perhaps, after all, the best method tf conveying correct ideas
upon the subject.

Essential Elements.

2. The essential elements of every true partnership are
(a) A contr actbetween the jpartners x and _

\jr \ (b) A sharing of profits.^

Same — Contract Between Partners.

3. A true partnership is always formed by virtue of a con-
tract between all the partners, and never by operation of
law.

A partnership only exists between persons who have con-
tracted together for those things which the law has declared to
constitute a partnership. In the absence of such an agree-
ment, a partnership is never formed by operation of law. 9

Comm. 23, and quoted in a preceding note of this chapter, is inac-
curate.

7 In this respect, the definition of a partnership given in Pars.
Partn. c. 2, § 1, as the combination by two or more persons of capital,
etc., has been criticised as inaccurate. See 1 Lindl. Partn. p. 3,
note 1.

s Lindl. Partn. (15th ed.) p. 1.

b Wilson's Ex'rs v. Cobb's Ex'rs, 28 N. J. Eq. 177; Phillips v. Phil-
lips, 49 111. 437; Bushnell v. Consolidated Ice Mach. Co., 138 111. 67,
27 N. E. 596; Metcalf v. Redmon, 43 111. 264; Bishop v. Georgeson,
60 111. 484; Freeman v. Bloomfield, 43 Mo. 391; Ingals v. Ferguson,
59 Mo. App. 306; Hedge's Appeal, 63 Pa. 273; In re Gibb's Estate,



ESSENTIAL ELEMENTS.



5



Thus, no partnership exists between a father and his son, who
works for him without salary, and without any agreement be-
tween them. 10 So, a husband and wife are not partners,
though they purchase property jointly. 11 The joint prosecu-
tion of a lawsuit does not create a partnership between the
parties as to the subject-matter in dispute, in the absence of
an agreement to that effect, 12 nor does it create a partnership
between the attorneys of a party. 123, A person cannot be
made a partner against his will, by accident, or the conduct of
others. 13

Agreements not Concluded.

Si nce a p axtiisr ship results only from a flont r.net between
the parties, i! follows that there is no partnership unless all
the parties have mutually assented to the same terms, for in
the absence of such mutual assent, there is no contract, 14

157 Pa. 59, 70, 27 Atl. 383. But compare Goddard v. Hodges, 1 Cromp.
& M. 33. Partnerships by estoppel are no exceptions to this rule, for,.
as will be seen, such are not real partnerships-inter se, but individ-
uals are merely held liable to third persons for each other's acts as
though they were partners. See infra, § 35.

io Phillips v. Phillips, 49 111. 437.

ii Ingals v. Ferguson, 59 Mo. App. 299, 306.

12 Wilson's Ex'rs v. Cobb's Ex'rs, 28 N. J. Eq. 177. Where a man
and women living with him as his wife jointly accumulate property,
after his death such woman cannot claim the property as surviving
partner, to the exclusion of the real wife's claim by inheritance.
Estate of Winters, Myr. Prob. (Cal.) 131.

12a Willis v. Crawford, 38 Or. 522, 63 Pac. 985, 64 Pac. 866, 53 L.
R. A. 904.

13 Freeman v. Bloomfield, 43 Mo. 391. The creditors of a partner
who take his interest by assignment or on execution cannot be in-
volved, against their consent, in the responsibilities of a partner-
ship. They are entitled to take it without the risk and burden of
being partners. Marquand v. New York Mfg. Co., 17 Johns. (N. Y.)
525.

1* "In negotiations for a partnership, the parties deal as strangers,
for there is no confidential relation existing between them until the







6 WHAT CONSTITUTES A PARTNERSHIP.

4. Delectus Personarum . — The contract creatinj

nership must have been entered into by all the part-
ners.

5. No person can be introduced as a partner without the
consent of all those who, for the time being, are mem-
bers of the firm, except in the case of — r

Exceptions — / * n 7P"\fl A_ -Vvi^t^Z

(a) Mining partnerships, and J 7 **—— '

(b) Joint-stock companies ^. C^yu^>-n^X — ^ ^

It is a well-established principle that a partnership can

exist only by the voluntary contract of all the persons who are
partners. 15 One partner cannot, without the consent of the
other partners, introduce a third person as partner into the

partnership is actually formed." Uhler v. Semple, 20 N. J. Eq. 288.
See, also, Metcalf v. Redmon, 43 111. 264. Persons who have agreed
to become partners, and have acted as such, will be held to be part-
ners inter se, though they may not have understood the conditions
of the agreement alike. Cook v. Carpenter, 34 Vt. 121.

is Channel v. Fassitt, 16 Ohio, 166; Burnett v. Snyder, 76 N. Y.
344; Elderkin v. Winne, 1 Chand. (Wis.) 27; Kingman v. Spurr, 7
Pick. (Mass.) 235; Central City Bank v. Walker, 66 N. Y. 431; Hay-
ward v. Barron (Com. PI.), 19 N. Y. Supp. 384. See, also, post, §§ 6,
7, "Sub-Partnerships." "To form a partnership, as least so far as
the parties themselves are concerned, the assent of both the con-
tracting parties is required." Bennett v. Pulliam, 3 111. App. 185,
190, holding that an unaccepted proposition of one party is insuffi-
cient. Where, by an article of agreement, two persons agree to carry
on a trade or business of a particular nature, and in the same in-
strument a third party joins with one of the other parties to carry
on another trade or business for their separate account, the relation
of partners is not created between the three, so as to enable a per-
son dealing with either branch of the concern to maintain an ac-
tion against the whole. Elderkin v. Winne, 1 Chand. (Wis.) 27.
Where stock in a joint-stock company is subscribed and paid for by
one person in the name of another, who does not know of or consent
to it, and has not ratified it, the latter is not liable, but the former
is. Wehrman v. McFarlan, 9 Ohio Dec. 400.



ESSENTIAL ELEMENTS. 7

concern. 10 The consent to receive a new member as a part-
ner must be unanimous. A maj ority of the partners can not

ii i -

introduce a ne w member, against t he will of any p artne r. 17

The relations existing between partners are of such an inti-
mate and confidential nature, and mutual trust and confidence
is so essential to the successful prosecution of the partnership
business, that no one can be made the partner of another
without or against his consent. ls This_jDriucipleJ.s__called^
"delectus persona rum ." and is said to be one of the funda-
mental principles of partnership law. The important conse-

16 Murray v. Bogert, 14 Johns. (N. Y.) 318. Every mem ber must
assent to be a partner of all the others. Gray v. Gibson, 6 ''Mien. sOO.
Two of 'five members or^TopaTtnersKTp, in their individual capacity,
entered into an agreement with defendant C. B. S., in which it was
stated that it was for the interest of said firm that C. B. S. should
have an interest, and become a copartner; therefore it was agreed
that he "is a copartner in the firm," and that he shall be entitled to
receive from the other parties to the agreement one-third of the
profits earned and received by each; he agreeing to pay one-third
of any losses sustained by either "by reason of their connection as
copartners, or otherwise, with the firm." In an action by a creditor
of the firm, in which it was sought to charge C. B. S. as a partner,
it was held that the agreement did not constitute him a partner, as
all the partners had not joined or concurred therein. Burnett v.
Snyder, 76 N. Y. 344. One partner cannot, without the consent of
the other, introduce a stranger into the firm, nor can he, without
such consent, make the other partner a member of another firm;
but such consent may be implied from the acquiescence and acts of
the parties; and if such other partner is made acquainted with the
facts, he ought to dissent from the arrangement; otherwise he will
te bound by it. Mason v. Connell, 1 Whart. (Pa.) 381. One mem-
ber of a partnership cannot make such a contract as will involve the
creation of another partnership between his ow r n firm and other
parties, so as to bind thereby his copartners, unless he has other au-
thority than that which is incident to the mere relation of partners.
Buckingham v. Hanna, 2<Hnd. 110. See, to the same effect, Love v.
Payne, 73 Ind. 80, and Tabb v. Gist, 1 Brock. 33, Fed. Cas. No. 13,719.

n Meaher v. Cox, 37 Ala. 201.

ls As to partnerships as to third persons by estoppel or holding
out, see post, §§ 35-37.



S WHAT CONSTITUTES A PARTNERSHIP.

quence of this principle is that the transfer by one partner of
his interest in the firm does not constitute his transferee a
partner with the remaining members unless they consent
thereto. 1 '''

A.S will he seen hereafter, any change in the membership of.
the firm will ordinarily operate as a dissolution ; 20 and even
where the remaining partners consent to the introduction of
a new member, the old firm will ordinarily be considered as
dissolved, and a new one instituted from the date of such
t hange in the membership. 21 Of course, consent to the trans-