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active partner, who manages the business, and appears to the world to be solely interested.
The same consequences would follow, if, instead of a partnership of two persons, a company of 200 were formed; in other words, by the rules of the common law, no association can be formed for purposes of profit, without creating the relation of partnership between all its members (a).
the cases cited in support of the doctrine that participation in the profits constitutes the true criterion of partnership; but nothing was said in explanation of the cases in which agents, annuitants, and servants have been held liable as partners towards third parties-cases entirely irreconcilable with the doctrine enunciated in Cox v. Hickman, and recognized in the later cases of English v. Irish Church Assurance Society, 1 H. & M. 85; Bullen v. Sharp, L. R., 1 C. P. 86, and Holme v. Hammond, L. R., 7 Ex. 218.
A word in conclusion. Had the decision in Cox v. Hickman been given a hundred years ago, and been fairly acted on by the courts, the Partnership Law Amendment Act might have been spared, and partnerships with limited liability would long since have been as common in England as partnerships en commandité are in France. Coming when it did, that case disturbed the supposed settled principle of law that participation in profits involves the liabilities of partnership, and has made uncertain the degree of reliance to be placed on the Partnership Act itself, which, adopting the doctrine of the earlier decisions, has treated participation in profits as being of itself sufficient to create a partnership, instead of dealing with it merely as a piece of evidence, from which a partnership might generally be inferred, in the absence of countervailing testimony. See Holme 7. Hammond, L. R., 7 Ex. 218.
(a) Burnes v. Pennell, 2 H. L. C. 497. That there is no substantial difference between a partnership at common law and a
Unlimited liability of partners.
Another species of dormant partner, who for the sake of distinction may be called an ostensible partner, is a man who holds himself out to the world as a partner without having any actual interest in the profits.
For example, a retired member who allows his name to be used in the firm, still, as respects third persons, is subject to the liabilities of a partner, although he has withdrawn all his capital from the firm, and ceased to participate in its profits.
In this case, the law proceeds on the intelligible principle that if a person conduct himself so as to lead another to think he fills a particular character, it ! would be unjust if he were afterwards allowed to turn round and say that he does not fill it (a).
The fact of the law creating the relationship of partners between the active parties and the passive or dormant partners, would be of comparatively little moment, if, in the case supposed, John Jones could have stipulated with Robert Brown that the latter
joint stock company at common law, except what results from the transferability of shares, see Cape's Executors, 2 De G., M. & G. 562; Mayhew's Case, 5 De G., M. & G. 837. As to winding up of companies established at common law, see the above cases and Blakeley's Executors, 13 Beav. 133, 3 M. & G. 726. As to winding up of scrip companies, or companies whose shares pass by delivery, see Barclay's Case, 26 Beav. 177; Lund's Case, 27 Beav. 465; Aston's Case, 4 De G. & J. 320; Madrid and Valencia Co., 5 De G. & S. 276; Hyam's Case, 8 W. R. 52; 6 Jur. N. S. 181; Grisewood and Smith, ex parte, 4 De G. & J. 544.
(a) Ness v. Angas, 3 Exch. 805.
should not enter into any contracts without the consent of the former, or that, in the event of Robert Brown becoming bankrupt, John Jones should be liable only to the amount of the sum lent by him.
Any such condition, however, entered into between the partners, would be ineffectual, as a creditor has no notice of the terms of partnership, and looks only to the nature of the business carried on by the firm as a test by which to judge of the capacity of the firm to make contracts. He does not even ask for the concurrence of a majority of the partners in cases where they are numerous, as he relies on the second leading principle of partnership law, that each member of a complete (a) partnership is the agent of the rest, and binds his co-partners in all matters within the scope of the ordinary business of the partnership (b).
(a) Ernest v. Nichols, 6 H. L. C. 401, per Lord Wensleydale. The introduction of the term "complete" is material, "as the want of due attention to this rule in applying it to conditional partnership, and to other associations, such as that of provisional committees, has been productive of frightful loss of property in our own time, until corrected by the decisions of the courts below and of this house; ibid, p. 418. See next chapter.
(b) Examples of acts not within the scope of the partnership business are the following: “the execution of a deed,” Harrison v. Jackson, 7 T. R. 207; "undertaking by an attorney to pay debts and costs for client," Hasleham v. Young, 5 Q. B. 833; "guarantee by railway contractors," Brettel v. Williams, 4 Exch. 623; money borrowed to increase capital of firm," Fisher v. Taylor, 2 Hare, 218; "money borrowed by co-adventurer in mine," Ricketts v. Barnett, 4 C. B. 686; "promissory note by an attorney," Hedley v. Bainbridge, 3 Q. B. 316; Ricketts v. Barnett, 4 C. B. 686.
Rule of unlimited
Adopting then the same names as before, if Robert Brown had agreed with James Smith to purchase goods to the amount of 10,000l., the agreement would bind John Jones, unless previously to its being made he had given James Smith notice of the restriction that he had placed on Robert Brown; nay, more, Robert Brown might borrow 10,000l. on promissory notes, and spend it in payment of his private debts, and yet John Jones would be bound, if the notes were made in the name or style of the partnership.
The combined effect, therefore, of the above rules liability ex- of partnership is to expose every shareholder in a trading association to the evils of unlimited liability.
tends to joint
Contribution between partners.
Example in illustration
It must not, however, be imagined that a partner can violate the regulations of the partnership with impunity. Another rule of the law here steps in and declares that the right of one partner to be indemnified by another is co-extensive with the right of one partner to bind another. So long, therefore, as a partner contracts for the purpose of and in accordance with the regulations of the partnership, he is entitled to require from the other partners a rateable contribution towards payment of the debts contracted. On the other hand, if he exceed the authority vested in him by the terms of his partnership, his co-partners may compel him, as between themselves, to bear the whole burden of such excess, and to repay them any moneys they may have been obliged to pay by reason of his misconduct.
Recurring to the foregoing example, Robert Brown
having borrowed 10,000l., which the terms of the of the right partnership did not authorize him to borrow, must tion between make good any moneys that John Jones may have paid on account of the promissory notes, A different result would have ensued if Robert Brown and John Jones had been traders together as merchants, and the produce of the promissory notes had been expended for the purposes of the partnership. In that event John Jones must have contributed his due proportion of the 10,000Z.
lation to its
bers and in
It will readily appear, from the foregoing observa- Difference in tions, how complex a thing a partnership is in con- of partnertemplation of law: presenting a very different aspect, viewed in renay more, in many cases presenting a different body own memof persons, according as it is viewed in relation to third parties, or in relation to its own members. In the latter case, it constitutes a firm or society bound together by internal regulations which all the members must obey; in the former it consists of a number of individuals, upon whom the law, drawing certain conclusions from their mode of dealing with third parties, imposes the liabilities of partners in their individual capacities, whilst it refuses altogether to acknowledge them as a firm or as acting in a collective capacity. Take for example the firm of Brown & Co. Mr. Example illustrative Brown has long ago retired, and has no interest in the of foregoing business and no capital invested in it, but allows his name to continue in the partnership for the benefit of the active partners. Mr. Smith has also retired from the active duties of the firm, but allows his capital to remain in the business, and receives as compensation