to the terms of the partnership contract and to the length of “(b) the partnership has been dissolved by an agreement What are the rights of a person who has obtained rescission of a partnership contract? This question is answered by the Partnership Act, 1890, sect. 41, as follows where partner solved for fraud or "Where a partnership contract is rescinded on the ground of Rights the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other ship disright, entitled“(a) to a lien on, or right of retention of, the surplus of the misreprepartnership assets, after satisfying the partnership sentation. liabilities, for any sum of money paid by him for the purchase of a share in the partnership and for any capital contributed by him, and is “(b) to stand in the place of the creditors of the firm for any payments made by him in respect of the partnership liabilities, and "(e) to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm." Though a partner has left the firm a right to share profits may still continue in him or enure for the benefit of his estate on his death. This subject is dealt with in the Partnership Act, 1890, as follows (1) :— partner in certain cases to share pro fits made after dis Where any member of a firm has died or otherwise ceased Right of to be a partner, and the surviving or continuing partners out-going carry on the business of the firm with its capital or assets without any final settlement of accounts as between the firm and the outgoing partner or his estate, then, in the absence of any agreement to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since the dissolution as the Court may find to be attributable to the use of his share of the partnership assets, or to interest at the rate of five per cent. per annum on the amount of his share of the partnership assets. Provided that where by the partnership contract an option (1) 53 & 54 Vict. c. 39, s. 42. solution. Retiring or deceased partner's share to be a debt. Rule for distribution of assets on final settlement of accounts. is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section. Is a surviving or continuing partner a trustee for an outgoing partner or the representatives of a deceased partner in respect of the amount (if any) which may be due, or is the relationship merely that of debtor and creditor? This question is answered by the Partnership Act, 1890, as follows: "Subject to any agreement between the partners, the amount due from surviving or continuing partners to an outgoing partner or the representatives of a deceased partner in respect of the outgoing or deceased partner's share is a debt accruing at the date of the dissolution or death." (1) The Partnership Act, 1890, also prescribes certain rules with regard to the settlement of accounts after dissolution. "In settling accounts between the partners after a dissolution of partnership, the following rules shall, subject to any agreement, be observed: “(a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profits: "(b) The assets of the firm including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in the following manner and order: "1. In paying the debts and liabilities of the firm to persons who are not partners therein : "2. In paying to each partner rateably what is due from the firm to him for advances as distinguished from capital: "3. In paying to each partner rateably what is due from the firm to him in respect of capital: 66 4. The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible." (2) (1) 53 & 54 Vict. c. 39, s. 43, and sec Lindley on Partnership, 5th ed. p. 510; Knox v. Gye, L. R. 5 H. L. 656; Noyes v. Crawley, 10 Ch. D. 31. (2) 53 & 54 Vict. c. 39, s. 44. and re The Court will sometimes interfere between partners to Injunction prevent the breach of agreement or conduct contrary to good ceiver. faith by granting an injunction, or by appointing a receiver, or receiver and manager. The effect of the appointment of a receiver is to take the affairs of the partnership out of the hands of all the partners, and to prevent any one, except the official of the Court, from dealing with them. A receiver cannot carry on the business unless he be appointed manager. The appointment of a receiver always operates as an injunction, but there is a broad difference between the appointment of a receiver and the granting of an injunction. An injunction only excludes from the management of the partnership business the partner against whom it is granted. The appointment of a receiver excludes all the partners. The Courts, as Lord Justice Lindley says, being by no means anxious to take upon themselves the management of partnership business, will not interfere in this way except under the most exceptional circumstances, unless with a view to a winding-up of the partnership (1). partnership. The law with regard to the nature of partnership and the cir- Nature of cumstances under which the contract will be rescinded was very recently considered in a case which came before the House of Lords (2). The respondent had been induced by misrepresentations made without fraud by the appellants to become a partner in a business which either belonged to them or in which they were partners, and which was in fact insolvent. The business afterwards, owing to its own inherent vice, entirely failed with large liabilities. The House of Lords decided that the respondent was entitled to rescission of the contract and repayment of his capital, though the business which he restored to the appellants was worse than worthless, and that the contract being rescinded the appellants could not recover against him for money and goods sold by them to the partnership. "If," said the Lord Chancellor, "a partnership in fact exists, a community of interest in the adventure being carried on in fact, no concealment of name, no verbal equivalent for the ordinary phrases of profit or loss, no indirect expedient for enforcing control over the adventure will prevent the substance and reality of the transaction being adjudged to be a partnership; and I think I should add, as applicable to this case, that the separation of different stipulations of one arrangement into (1) Lindley on Partnership, 5th ed. p. 545; Kerr on Injunction, 3rd ed. p. 517. (2) Adam v. Newbigging, 13 App. Cas. 308, 315. Reference to authorities. different deeds will not alter the real arrangement, whatever in fact that arrangement is proved to be. "And no 'phrasing of it' by dexterous draftsmen will avail to avert the legal consequences of the contract." The great rule to be observed in determining whether a partnership exists or not is that regard must be had to the true contract and intention of the parties as appearing from all the facts of the case. (1) The reader who desires further information on the interesting and difficult subject of the law relating to Partnership, independent of the Partnership Act, 1890, is referred, in the first place, to Lord Justice Lindley's celebrated work on the subject. Valuable information will also be obtained in the notes to Waugh v. Carver, Smith's Leading Cases, vol. i.; Tudor's Leading Cases in Mercantile Law. See also Pollock's Digest of the Law of Partnership, and notes to Brett's Leading Cases, which deal with the law of partnership. See also Niemann v. Niemann, 43 Ch. D. 198; Gray v. Smith, 43 Ch. D. 208; Farrar v. Cooper, 44 Ch. D. 323 (Arbitration Clause). (') Cox v. Hickman, 84 L. C. 268; Badeley v. Consolidated Bank, 38 Ch. D. 238, 258. CHAPTER XI. COMPANIES. Having thus considered the subject of ordinary partnership, we pass on next to the law relating to joint stock companies. "An ordinary partnership," said Lord Justice James, "is a Companies partnership composed of definite individuals bound together by and part. nership contract between themselves to continue combined for some contrasted. joint object, either during pleasure or during a limited time, and is essentially composed of the persons originally entering into the contract with one another. A company or association is the result of an arrangement by which parties intend to form a partnership which is constantly changing, a partnership to-day consisting of certain members and to-morrow consisting of some only of those members along with others who have come in, so that there will be a constant shifting of the partnership, a determination of the old and a creation of a new partnership, and with the intention that so far as the partners can by agreement between themselves bring about such a result, the new partnership shall succeed to the assets and liabilities of the old partnership." (1) "A company," says Lord Justice Lindley (2), "which is neither incorporated nor privileged by the Crown or the legislature is substantially a partnership; and although the transferability of its shares considerably modifies the application to it of the ordinary law of partnership, still the company, like an ordinary firm, is not in a legal point of view distinguishable from the members composing it." (3) The 4th section of the Companies Act, 1862, provides that Registra (1) Smith v. Anderson, James, L.J., 15 Ch. D. 247; and see as to the statutory definition of what is and what is not a partnership, 53 & 54 Vict. c. 39, s. 1 (ante, p. 614.) (3) Lindley on Partnership, 5th ed., p. 1. (3) Corporations exist by common law or prescription (in which cases they are presumed to have been originally created by the Crown) or else by the express consent of the Crown, by Act of Parliament or Royal Charter. One of the principal divi- tion of companies. |