Quasi partnerships. Participation in profits. Dictum of De CHAPTER VI. OF QUASI PARTNERS, OR PERSONS WHO INCUR LIABILITY TO WE have already seen, that while liability for company obligations is inseparable from the partnership relation, many cases continually recur in which persons who have not constituted partnership amongst themselves are still liable to the world as though they had. Such cases are generally classed under the head of quasi partnerships, or partnerships as regards third parties. The use of such phrases is convenient, but it must always be borne in mind that the notion they appear to convey is inaccurate, inasmuch as no one can be called a partner who is not so inter socios; and that the cases under consideration involve liability not in virtue of the partnership relation, but in consequence of something which has taken place with the public, or in which the public creditor is concerned. The first class of cases may be stated to be those in which a person who has never contracted the partnership relation, has made himself liable to the public by participating in the profits of the concern. We have already observed, that sharing profits is an important criterion of partnership. It may now be added, that when it does not confer the privileges, it commonly involves the participant in the liabilities of that relation. The rule of law is generally stated to be, that a party who shares profits shall be liable to third parties as if he were a partner; or, to use the words of Professor Bell, 'Participation of profits will make one a partner to the world, although he should not be so in relation to the persons with whom he is so engaged' (a). The reason of this doctrine is stated by Chief Justice De Grey as follows: That 'every one who has a share in the profits of a (a) Bell's Com. ii. 623. trade, ought also to bear his share of the loss; and if any one takes part of the profit, he takes part of that fund on which the creditor of the trader relies for his payment' (a). In Waugh v. Carver, two ship-agents agreed to allow each other certain portions of each other's profits, but without being affected by each other's acts or losses. The Court held that they were not partners, but that nevertheless they were answerable for the debts of each other, in a question with a creditor who sued both for goods supplied to one (b). In Boulton v. Mansfield, a copartnery was dissolved by the retirement of one of the partners, whose share of stock, etc., was transferred to the partner who continued to carry on the business; but it was provided that the retiring partner should still continue to draw a share of the profits of the concern. It was held by the Court of Session, and affirmed on appeal, that the retiring party was still a partner, and liable as such (c). The same liability was extended to persons who were in the position of servants, but were paid a share of the profits instead of a salary (d); to such as were paid an annuity out of the profits made by others (e); and to the seller of the goodwill of a business, who was to have such share of profit as was in excess of the guaranteed amount (ƒ). Ultimately this doctrine was carried so far, that where the property of a partnership was conveyed to trustees, in order that the trade might be carried on for behoof of creditors, such creditors were liable for debts incurred by the trustees in execution of the trust (g). And it has even been held, that executors and trustees investing trust funds in a copartnery become individually liable to third parties, though they were not partners even qua trustees, and did not individually share any part of the profits (h). But, as in the case of actual partnership, a distinction must here be made between profits and gross returns. It is only the sharer of nett profits who can be made liable as a quasi partner; the partici (a) Grace v. Smith, 2 Wm. Blackst. 998; 3 Ross L. C. 400. (b) 2 H. Bl. 235, and 1 Smith's Leading Cases; 3 Ross L. C. 426. (c) 1787, 3 Pat. App. 70. (d) Ex parte Digby, 1 Deac. 311; ex parte Rowlandson, 1 Rose 89. (4) Re Colbeck, Buck 48; ex parte Hamper, 17 Ves. 412, 3 Ross L. C. 456; ex parte Chuck, 8 Bing. 469. (f) Barry v. Nesham, 3 C. B. 641. (g) Hickman v. Cox, 18 C. B. 617; aff. 3 C. B. N. S. 523. (h) Wightman v. Watson, 1 M. and S. 412; ex parte Garland, 10 Ves. 119. Origin of this kind of lia bility. pator in gross returns incurs no such responsibility. Thus a sailor employed in a whaling ship, was held not liable to third parties, though he received as wages a certain share of the oil brought home (a); and the same was decided in the case of a workman who was paid by a proportion of the gross gains (b), and of a captain who was to receive as wages one-fifth of the profits on an intended voyage (c). When a party incurs liability to the public creditor in respect of his participating in profits, that liability arises not from any presumption that, when he entered into the contract out of which the claim arose, the creditor had the personal responsibility of such party in view, but solely, as already stated, from the equitable consideration that no man shall share that fund out of which the creditor looks for payment, without becoming responsible for the claim. It is of no consequence, therefore, whether at the date when the claim or debt was contracted, the creditor knew that the party in question was a participator in the profits of the concern; it is enough if he discover and can prove this fact when he seeks to render such party liable (d). The same reasoning applies in this case as applies in that of dormant partners, who exercise none of the rights of ordinary partners, except that of sharing the profits, and who yet, when discovered, have always been held liable to the public creditor (e). In concluding our observations on this class of cases, it may be observed that the doctrine which we have been considering, though in the main it has worked well in the interests of substantial justice, is not always capable of being very clearly applied in practice, and may in some cases produce results at least apparently harsh (f). It has been adopted in the American law (g), but was (a) Wilkinson v. Fraser, 4 Esp. 182, 3 Ross L. C. 453. (b) Benjamin v. Porteous, 2 H. Blackst. 590; Dry v. Boswell, 1 Camp. 330, 3 Ross L. C. 455. (c) Mair v. Glennie, 4 Maule and Selw. 239. See Story on Partnership, chap. iv.; see also Bell's Prin. 363-4. (d) Waugh v. Carver, 2 H. Blackst. 235; ex parte Digby, 1 Deac. 341; re Colbeck, Buck 48; ex parte Hamper, 17 Ves. 412; Barry v. Nesham, 3 C. B. 641. (e) Logy v. Durham, 1697, M. 14566; Kinnear v. Cunningham, 1765, 2 Paton 114; M'Leod v. Howden, 1839, 1 D. 1121; M'Kinlay v. Gillon, 1830, 9 S. 90, aff. 5 W. and S. 468. See Bell's Com. ii. 623, and Prin. 363-4. (ƒ) See Lindley, p. 36. (g) Story on Partner. pp. 46 et seq. It does not seem to have been carried unknown to the civilians, and does not appear to have found its way into any continental code (a). More recently, the liability of persons not partners, or not Agency. proved to be partners, to be made responsible for company obligations, has in cases such as those we have just been considering, been referred to the doctrine of agency, express or implied, rather than to that of sharing profits. And this view certainly appears more intelligible in itself, and more in consonance with legal principle. worth's dictum. In the late case of Cox v. Hickman (b), Lord Cranworth stated: Lord Cran'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 participation in the profits. This no doubt is, in general, a sufficiently accurate test; for a right to participate in profits affords cogent, often conclusive evidence, that the trade in which the profits have been made was carried on in part for, or on behalf of, the person setting up such claim. But the real ground of liability is, that the trade has been carried on by persons acting on his behalf. When that is the case, he is liable to the trade obligations, and entitled to its profits, or to a share of them. It is not strictly correct to say, that his right 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 in 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.' Lord Cranworth then took occasion to review some of the more important decisions which have already been referred to, and in relation to them observed: '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, so far in America as in England. By means of legal subtleties, its operation has been apparently confined under that system. (a) Dig. 1. xvij. t. 2, 1. 34; Pothier, Pand. lib. xvii. t. 2, n. 4, Id. Tr. de Société, n. 13; Duranton, Droit Franc. tom. xvii. de Société, n.332; Duvergier, (b) 8 House of Lords Cases 309. Lord Wensleydale's dictum. together with those ostensibly conducting it, and where, therefore, he would stand in the position of principal towards the ostensible members of the firm as his agents.' Lord Wensleydale adopted the same view; and after stating that partnership was merely a branch of the law of principal and agent, and that it would tend to simplify and make more easy of solution the questions which arise on this subject, if this true principle were more constantly kept in view, he proceeded to say: 'A man who allows another to carry on trade, whether in his own name or not, to buy and sell, and to pay over all the profits to him, is undoubtedly the principal, and the person so employed is the agent; and the principal is liable for the agent's contracts in the course of his employment. So, if two or more agree that they should carry on a trade and share the profits of it, each is a principal, and each is an agent for the other, and each is bound by the other's contract in carrying on the trade as much as a single principal would be by the act of an agent who was to give the whole of the profits to his employer. Hence it becomes a test of the liability of one for the contract of another, that he is to receive the whole or a part of the profits arising from that contract by virtue of the agreement made at the time of the employment. I believe this is the true principle of partnership liability. Perhaps the maxim, that he who partakes the advantage ought to bear the loss, often stated in the earlier cases on this subject, is only the consequence, not the cause, why a man is made liable as a partner.' Upon the principle that agency is in such cases the ground of responsibility, and that in the case under consideration it did not exist, the House of Lords reversed the judgment of the Court below. No cases, in so far as we are aware, have yet occurred in which this decision has been either followed or commented on; and it is therefore premature to speculate on its probable effect on this branch of the law of partnership. It is, however, very plain, that while it professes to leave intact the equity of the former decisions, e.g. Waugh v. Carver, Barry v. Nisham, etc., it places them on a new foundation, and seems to inaugurate a principle of decision which is more intelligible in itself, and less likely to mislead or embarrass in the application, than the old doctrine of participation in nett profits being a ground of liability to the public. It cannot, how |