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Theophilus Parsons.

Laws of business for all the states of the Union : with forms and directions for all transactions. And abstracts of the laws of all the states and territories on the various topics online

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borrowing for the firm, and the lender without any want of due
care gave credit to the firm, and the transaction was a fair business
transaction on the part of the lender, the firm will be liable, although
the money is fraudulently appropriated by the partner to his own
use.

In the absence of evidence showing to whom the credit was given,
the fact that money lent to one partner was applied to the use of the
firm will make the firm liable for the payment ; but not if the part-
ner employed it as his contribution to increase the capital of the
firm.

If the purchaser of goods or the borrower of money have a dor-
mant and secret partner, and the goods were bought or the money
borrowed for partnership purposes, the seller or lender may look to
both partners for payment, unless the seller or lender, knowing all
the partners, gave credit to one only.

The firm is liable only to one who deals with a partner in good
faith. Thus, if one receives negotiable paper bearing the name of
a firm, knowing that it is not in the business of the firm, and is
given for no consideration received by the firm, he cannot hold the
firm. And if a creditor of one partner receive for his separate



224 PAKTNERSHIP.

debt a partnership security, this would be a fraud, unless the part-
ner had, or was supposed by the creditor to have, the authority of
the rest.

If he supposed the partner had this authority, he cannot hold the
partnership if the partner had not the authority, unless the partner-
ship had caused him to believe it. And if the partnership security
be transferred for two considerations, one of which is private and
fraudulent, and the other is joint and honest, the partnership is
bound for so much of it as is not tainted with fraud, and only for
that.

The partnership may be liable for injury caused by the criminal
or wrongful acts of a partner, if these were done in the transaction
of partnership business, and if it was the partnership which gave to
the wrong-doer the means and opportunity of doing the wrong. But
an illegal contract will not bind the copartners, for the parties enter-
ing into it must be presumed to know its illegality ; and the law
enforces no bargain that is contrary to law.

The acknowledgment of one who had been a partner, after the
dissolution of the partnership, may take the debt out of the statute
of limitations as to him, but not so as to restore the liability of all
the partners without their assent.



SECTION VI.
REMEDIES OF PARTNERS AGAINST EACH OTHER.

IT is seldom that a partner can have a claim against another
partner, as such, which can be examined and adjusted without an
investigation into the accounts of the partnership, and, perhaps, a
settlement of them. Courts of law have "ordinarily no adequate
means of doing this ; and therefore it is generally true that no part-
ner can sue a copartner at law for any claim growing out of partner-
ship transactions and involving partnership interests. But the ob-
jection to a suit at law between partners goes no further than the
reason of it ; and, therefore, one may sue his copartner upon his
agreement to do any act which is not so far a partnership matter as
to involve the partnership accounts.



REMEDIES OF PARTNERS AGAINST EACH OTHER. 225

If the accounts are finally adjusted, either partner may sue for a
balance; and so it would be if the accounts generally remained
open, but a specific part of them were severed from the rest, and a
balance found on that. The rule is generally laid down, that an
action cannot be sustained by a partner against a partner for a
balance, unless there is an express promise to pay it. But such
promise would be inferred in all cases in which an account had
been taken, and a balance admitted to be due.

In general, any action at law between partners can be maintained,
only when a rendering of judgment in this action will completely ter-
minate all partnership matters, so that no further cause of action
can grow out of them.

What a court of law cannot do as to actions between partners a
court of equity can ; and, generally, a court of equity has a full
jurisdiction over all disputes and claims between partners, and
may do whatever is necessary to settle them in conformity with
justice.

A partner may sue his copartner for money advanced before the
partnership was formed, although the loan was made to promote the
partnership. And for work done for the firm before he became a
member of it, he may sue those who were members when he did
the work. And he may sue a copartner on his note or bill, although
the consideration was on partnership account ; but, in general, no
action at law can be maintained for work and labor performed, or
money expended for the partnership.

A partner who pays more than his proportion of a debt of the part-
nership cannot demand specific contribution from his copartners,
but must charge his payment to the firm. The reason is, that they
may have claims against him on other accounts, and they must be
all settled together to strike the balance.

If one of a firm be a member also of another firm, the one firm
cannot sue the other ; for the same person cannot be plaintiff and
defendant of record. A cannot sue A ; and therefore A, B, &
cannot sue C, D, & E. In all these cases an adequate remedy may
be found in a court of equity.

If a firm have a negotiable note which it cannot sue, because one
of its own firm is liable upon it and must be made defendant, it can



226 PABTNEKSHIP.

indorse the note over, and the indorsee may sue it in his own name,
as we have before stated.

The partners are entitled to perfect good faith from each copart-
ner ; and a court of equity will interfere to enforce this. No partner
will be permitted to treat privately, and for his own benefit alone,
for a renewal of a lease, or to transfer to himself any benefit or
interest properly belonging to the firm. And so careful is a court
of equity in this respect, that it will not permit a copartner, by his
private contract or arrangement, to subject himself to a bias or inter-
est which might be injurious to the firm, and conflict with his duty
to them, but will declare void any contract of this kind.



SECTION VTL
BIGHTS OF THE FIRM AGAINST THIRD PARTIES.

IF a partner sells the goods of the firm in his own name, the firm
may sue for the price. But the rights of one who deals in good
faith with a copartner, as with him alone, are so far regarded, that
he may set off any claim, or make use of any other defences against
the suit of the firm, which he could have made had the person with
whom he dealt sued alone.

Therefore, if A honestly bought goods of a firm from a partner
whom he supposed to be sole owner of them, and paid him the
price, the firm cannot recover this price from the buyer, although
the seller sold the goods fraudulently, and cheated the firm out of
the money, but must charge the price to the selling partner.

A guaranty to a copartner, if for the use and benefit of the firm,
gives to them a right of action.

A new firm, created by some change in the membership of an old
firm, is entitled to the benefit of a guaranty given tc the old hrm,
even if sealed, provided it shall distinctly appear that the instrument
was intended to have that effect, and extend to the new firm.



EIGHTS OF CREDITORS IN RESPECT TO FUNDS. 227

SECTION VIH.
BIGHTS OF CREDITORS IN RESPECT TO FUNDS.

THE property of a partnership is bound to pay the partnership
debts ; and, therefore, a creditor of one copartner has no claim to
the partnership funds until the partnership debts are paid. If there
be then a surplus, he may have that copartner's interest therein, in
payment of his private debt.

If a private creditor attaches partnership property, or in any way
seeks to appropriate it to his private debt, the partnership debts
being unpaid, he cannot hold it, either at law or in equity. Such
attachment or appropriation is wholly subject to the paramount
claims of the partnership creditors, and is wholly defeated by the
insolvency of the partnership, although the partnership creditors
have not brought any actions for their debts.

Hence, if a creditor of A attaches his interest in the property of
A, B, & Co., and a creditor of A, B, & Co. attaches the same
property, the first attachment is postponed to the second ; that is, it
has no effect until the debt of the second creditor is fully satisfied,
and then it is good for the surplus of property. If, however, one
partner is dormant and unknown, the creditor of the other attach-
ing the stock is not postponed to the creditor who discovers the
dormant partner and sues him with the other; unless the first
attaching creditor's claim has no reference to the partnership busi-
ness, and that of the second attaching creditor has such reference.

The partnership creditors are restrained from appropriating the
private property of the copartners until the claims of their private
creditors are satisfied in courts of equity. And some recent adju-
dications indicate that the rule will become established at law.

I think the law ought to be, and that it is now tending to
become, this. A partnership is a kind of body by itself, somewhat
like a corporation. It has its own funds, and its own debts. The
individual members may also have each his own funds and his own
debts.

The funds of the partnership should first be applied to the debts
of the partnership ; and, if there be any surplus, the members have it,



228 PAKTNEBSHIP.

and theii creditors get it. So the private funds of each member
should first be applied exclusively to the payment of that person's
private debts ; and, when they are wholly paid, the surplus should
go to the partnership creditors, because each partner is responsible
for the partnership debts. This rule prevails on the continent of
Europe very generally.

It is now quite certain that the levy of a private creditor of one
copartner upon partnership property can give him only what that
copartner has ; that is, not a separate personal possession of any part
or share of the stock or property, but an undivided right or interest
in the whole, subject to the payment of debts and the settlement cf
accounts ; including also the right to demand an account.

As to how such levy and sale of the interest of one copartner shall
be made by the sheriff, there is much diversity both of practice and
of authority. Upon principle, we think the sheriff can neither seize,
nor transfer by sale, either the whole stock or any specific portion of
it. He should, we think, without any actual seizure, sell all the
interest of the defendant partner in the stock and property of the
partnership ; much in the same way in which he would sell his right
to redeem a mortgage, or any other incorporeal right, subject to
attachment. The purchaser would then have a right to demand arj
account and settlement, and a transfer to himself of any balance or
property to which the copartner whom he sued would have been
entitled.

Where the trustee process, or process of foreign attachment, is in
use, the better way would be for the sheriff to return a general at-
tachment of all the interest of the debtor in the partnership property,
and summon the other partners as the trustees of the debtor.

It must be stated, however, that the rules of law in regard to the
liability of partnership property for the private debts of partners, and
as to how any such liability may be enforced, are, at present, some-
what obscure and uncertain.



THE EFFECTS OF DISSOLUTION. 229

SECTION IX.
THE EFFECTS OF DISSOLUTION.

IP the dissolution is caused by the death of any partner, the whole
property goes to the surviving partners. They hold it, however, not
as their own, but only for the purpose of settlement; and therefore
they have, in relation to it, all the power which is necessary for that
purpose, and no more. If they carry on the business with the
partnership funds, they do so at their own risk ; and the represen-
tatives of the deceased may require their share of the capital, and
choose between calling on them, in addition, for interest, or for a
share of the profits.

The survivors are not partners, but tenants in common (joint
owners) with the representatives of the deceased of the stock or pro-
perty in possession ; and have all necessary rights to settle the affairs
of the concern and pay its debts. After a dissolution, however
caused, one who had been a partner has no authority to make new
contracts in the name of the firm, as to make or indorse notes or
bills with the name of the firm, even if he be expressly authorized*
to settle the affairs of the firm. There must be a distinct authority
to sign for the others who were formerly partners. A parol autho-
rity will be sufficient, even if the general terms of the partnership
had been reduced to writing.

It is common, where a partnership is dissolved by mutual consent,
to provide that some one of the partners shall settle up the affairs of
the concern, collect and pay debts, and the like. But this will not
prevent any person from paying to any partner a debt due to the
firm ; and, if such payment be made in good faith, the release or
discharge of the partner is effectual.

If all the debts were assigned and transferred to any person, as
his property, any debtor who had notice of this would be bound to
make payment to this person alone ; and, if he paid anybody else,
he would be obliged to pay the money over again.

It is frequently provided, that one partner shall take all the prop-
erty and pay all the debts ; but this agreement, though valid between
the partners, has no effect upon the rights of third parties against



230 PARTNEKSHIP.

the other partners ; for they have a valid claim against all the
partners, of which they cannot be divested without their consent.

This consent of the creditor may be inferred, but not from slight
evidence ; thus, not from receiving the single partner's note as a
collateral security, nor from receiving interest from him on the joint
debt, nor from a mere change in the head of the account, charging
the single partner and not the firm. Still, as the creditor certainly
can assent to this arrangement, and accept the indebtedness of one
partner instead of that of the firm, so it must be equally clear that
such assent and intention will bind him, if distinctly proved by
circumstances.



SECTION X.

LIMITED PARTNERSHIPS.

THESE have been introduced into some of our States, by statutes,
which differ somewhat in their provisions. Generally, they require,
first, one or more general partners, whose names shall be known ;
secondly, special partners, who do not appear as members, nor
possess the powers or discharge the duties of actual partners ;
thirdly, the sum to be contributed by the special partners shall be
actually paid in ; lastly, all these arrangements, with such other
information as may be needed for the security of the public, must be
verified under oath, signatures of all the parties, and acknowledg-
ment before a magistrate, and correctly published. When these
requisites are complied with, the special partners may lose all they
have put in, but cannot be held to any further responsibility. But
any neglect of them, or any material mistake in regard to them, even
on the part of the printer of the advertisement, wholly destroys their
effect; and then the special partner is liable for the whole debt,
precisely like a general partner.

In a New- York case, the amount contributed by the special part
ner was, by mistake of the printer, stated at $5,000, instead of
$2,000, and it was held that the associates were liable as general
partners, although the plaintiff did not show that he was actually
misled by the error. In another New- York case, it was held that an



ARTICLES OF COPARTNERSHIP, 231

assignment of the partnership property, providing for the payment
of a debt due to the special partner, ratably with the other creditors
of the firm, or before all the other creditors are satisfied iii full for
their debts, is void as against the creditors ; but it would be valid as
against the assignor and those creditors who think proper to affirm
it.

(83.)
Articles of Copartnership between two Tradesmen*

Articles of Agreement, Had, made, concluded, and agreed upon, this

day of A.D. between

of trader, and of trader.

First of all, the said and have

agreed, and by these presents do agree, to become copartners together in the art
or trade of and all things thereto belonging, and also, in

buying, selling, vending, and retailing all sorts of wares, goods, and commodities
belonging to the said trade of which said copartnership,

it is agreed, shall continue from for and during, and unto

the full end and term of years, from thence next ensuing, and fully

to be complete and ended. And to that end and purpose he the said

hath the day of date of these presents, delivered in as stock, the sum
of and he the said the sum of

to be used, laid out, and employed, in common trade between them, for the manage-
ment of the said trade of to their utmost benefit and
advantage. And it is hereby agreed between the said parties, and the said
copartners, each for himself respectively, and for his own particular part, and for
Lis executors and administrators, that each doth covenant, promise, and agree, to
and with the other of them, his executors and administrators, by these presents, in
manner and form following (that is to say) that they the said copartners shall not
nor will, at any time hereafter, use, exercise, or follow the trade of
aforesaid, or any other trade whatsoever during the said term, to their private
benefit and advantage ; but shall and will, from time to time, and at all times,
during the said term (if they shall so long live), do then- and each of their best and
utmost endeavors, in and by all means possible, to the utmost of their skill and
power, for their joint interest, profit, benefit, and advantage, and truly employ, buy,
sell, and merchandise, with the stock aforesaid, and the increase thereof in the
trade of aforesaid, without any sinister intentions or
fraudulent endeavors whatsoever. And also that they the said copartners shall and
will, from time to time, and at all times hereafter, during the said term, pay, bear,
and discharge, equally between them, the rent of the shop, which they the said
copartners shall rent or hire, for the joint exercising or managing of the trade



232 PARTNERSHIP.

aforesaid. And that all such gain, profit, and increase, as shall come, grow, or
arise, for or by reason of the said trade, or joint business as aforesaid, shall be from
time to time, during the said term, equally and proportionably divided between
them the said copartners, share and share alike. And also that all such losses
as shall happen in the said joint trade, by bad debts, ill commodities, or otherwise
without fraud or covin, shall be paid and borne equally and proportionably between
them. And further, it is agreed by and between the said copartners, that there
ehall be had and kept from tune to time, and at all limes during the said term and
joint business and copartnership together as aforesaid, perfect, just, and true books
of accounts, wherein each of the said copartners shall duly enter and set down, as
well all money by him received, paid, expended and laid out, in and about the
management of the said trade, as also all wares, goods, commodities, and merchan-
dises, by them or either of them bought and sold by reason or means or upon
account of the said copartnership, and all other matters and things whatsoever, to
the said joint trade, and the management thereof, in any wise belonging or apper-
taining, which said books shall be used in common between the said copartners, so
that either of them may have free access thereto without any interruption of the
other. And also that they the said copartners, once in three months, or oftener if
need shall require, upon the reasonable request of one of them, shall make, yield,
and render, each to the other, or to the executors or administrators of the other, a
true, just, and perfect account of all profits and increase, by them or either of them
made, and of all losses by them or either of them sustained, and also of all pay-
ments, receipts, and disbursements whatsoever, by them or either of them made or
received, and of all other things by them or either of them acted, done, or suffered
in the said copartnership and joint business as aforesaid ; and the same account
being so made, shall and will clear, adjust, pay, and deliver, each unto the
other, at the time of making such account, their equal shares of the profits so made
as aforesaid ; and at the end of the said term of or other

sooner determination of these presents (be it by the death of one of the said part-
ners or otherwise), they the said copartners, each to the other, or in case of the
death of either of them, the surviving party to the executors or administrators of
the party deceased, shall and will make a true, just, and final account of all things
as aforesaid, and divide the profits aforesaid, and hi ah 1 things well and truly adjust
the same, and that also upon the making of such final account, ah* and every the
stock and stocks, as well as the gains and increase thereof, which shall appear to
be remaining, whether consisting of money, wares, debts,

shall be equally parted and divided between them the said copartners, their exec-
utors, or administrators, share and share alike.

In Witness Whereof, &c.

(Signatures.)



ARTICLES OF COPARTNERSHIP. 233

Various Covenants and Clauses which may be introduced in Articles of Copart-
nership according to circumstances,

Not to trust any one whom the Copartner shall forbid.

And that neither of the said parties shall sell or credit any goods or merchan-
dise belonging to the said joint trade, to any person or persons, after notice in
writing from the other of 'the said parties, that such person or persons are not to
be credited or trusted.

Not to release any Debt without Consent, &c.

And that neither of the said parties shall, without the consent of the other,
release or compound any debt or demand, due or coming to them on account of
their said copartnership, except for so much as shall actually be received, and
brought into the stock or cash account of the said partnership.

Not to be bound, or indorse Bills, &c., for any one without Consent, &c.

And that neither of the said parties shall, during this copartnership, without
the consent of the other, enter into any deed, covenant, bond, or judgment, or
become bound as bail or surety, or give any note, or accept or indorse any bill of
exchange for himself and partner, without the consent of the other first had and
obtained, with or for any person whatsoever.

Neither Party to assign his Interest, &c.

And it is agreed between the said parties, that neither of the said parties shall,
without the consent of the other, obtained in writing, sell or assign his share or
interest in the said joint trade, to any person or persons whatsoever.

Principal ClerJe to be Receiver of Moneys, fto.

That the principal clerk for the time being shall be the general receiver of all
the money belonging to the said joint trade, and shall thereout pay all demands
ordered by the said parties, and shall from time to time pay the surplus cash to
such banker as the said partners shall nominate.

Parties to draw quarterly, &c.

That it shall be lawful for each of them to take out of the cash of the joint
stock the sum of quarterly, to his own use, the same to be

charged on account, and neither of them shall take any further sum for his own
separate use, without the consent of the other hi writing ; and any such further
sum, taken with such consent, shall draw interest after the rate of per

cent, and shall be payable together with the interest due, within
days after notice ir writing given by the other of the said parties.



234 PARTNERSHIP.

i

(84.)
Shorter Form of Articles of Copartnership.

Articles of Agreement, Made the day

of one thousand eight hundred and between

(the names and residence of the two parlies)

as follows : The said parties above named have agreed to become copartners in
business, and by these presents do agree to be copartners together under and by
the name or firm of in the buying, selling, and

vending all sorts of goods, wares, and merchandise to the said business belonging,
and to occupy the their copartnership to commence

on the day of and to continue



Online LibraryTheophilus ParsonsLaws of business for all the states of the Union : with forms and directions for all transactions. And abstracts of the laws of all the states and territories on the various topics → online text (page 24 of 70)