LECTURE VIII. THE LAW OF PARTNERSHIP. Read before the Northern Institute of Chartered Accountants, 15th March, and the Leeds and District Chartered Accountants' Students' Association, 16th March, 1893. Lecture VIII. It is only natural that as a profession increases in importance and recognition that heavier responsibilities Chartered Education. and their Legal are attached to it, rendering necessary a higher education on the part of those who aspire to join it. A quarter of a century ago a knowledge of book-keeping and the method of the analysis of accounts was all that was expected of professional accountants, but the class of work undertaken by them gradually widened, and it became necessary that, in addition to being experts in accounts, they should be familiar with the principles and practice of certain branches of law. When the Institute of Chartered Accountants established its intermediate and final examinations for pupils serving under articles to its members, a knowledge of commercial law was considered an important part of its curriculum, and the law of partnership, on which I have to address you to-night, is a branch of this legal portion of your examinations. Roman Law of Partnership has been recognised from the earliest times, but the law at present in force in England differs very considerably from the Roman law, upon which so much of our English law is based. The Roman law of partnership dealt only with the claims of partners as Lecture VIII. between themselves, every transaction by a partner being considered as his private business, so far as regarded the persons he entered into business transactions with, and third parties had no direct remedy except against the individual partner with whom they contracted, he merely having his rights against his co-partners. Inasmuch as there are many varieties of partnership, Definition of Partnership. no one, so far as I am aware, has been able to define the term so as to include all these. But for the purposes of this address it can be considered as the relation which subsists as the result of a contract, usually a duly executed deed of partnership, but not necessarily so, between persons who have agreed to share the profits of some business, or profession, or speculation. In order to constitute a partnership between two or Constitution of a Partnership. more persons, there must be an agreement between them, but not necessarily in writing, and in either case special arrangements can be made as to the nature of the partnership. For example, one partner, although sharing profits and losses, may have no right to interfere with the management of the business, or he may have no right to dissolve as an ordinary partner has, or he may not be entitled to share in the goodwill of the business on a dissolution. In the event of there being no deed of partnership, or any agreement in writing, the question as to whether a partnership exists, or any dispute between the partners, must be ascertained from their words and conduct, and, even where a written contract has been entered into, it may be modified by a verbal agreement between all the partners. Unless an intention to the contrary can be shown, persons engaged in any business or adventure, and sharing the profits derived therefrom, are partners as P Lecture VIII, regards that business or adventure. In fact, as regards the question as to whether persons are really partners or not, it is really answered by deciding their intention on the consideration of the agreement into which they have entered. Joint Capital not necessary. Agreement to become Partners. It is not essential to the existence of a partnership that there shall be any joint capital or stock. When two persons horsed a coach and divided the profits between them, each finding his own horses, the other having no property in them, they were held to be partners. An agreement to share gross returns does not constitute a partnership. Where two persons joined in the purchase of wheat with the intention of paying for it and dividing it equally, it was held that they were not partners. Again, where the lessee and the manager of a theatre shared the gross receipts equally, the manager paying the expenses out of his share, it was held there was not a partnership. A partnership also is not created between persons who are only contemplating a future partnership, or who have only entered into an agreement that they will at some future time become partners, until the arrival of the time agreed upon between them. When one person contemplates joining another who is already in business, and agrees that the business shall be carried on upon certain terms not themselves creating a partnership, stipulating for an option to become a partner either at a specified time or at any time he may choose, a partnership is not created until the person having the option has exercised it. Persons who agree to become partners may be partners, although they contemplate signing a formal partnership deed and never sign it; but, if they are not to be partners until they sign the formal deed, and they do not so act as to waive the performance of such condition, they will not be partners until it has been Lecture VIII. performed. Cox v. Until 1860 it was held that all persons who shared The case of the profits of a business incurred the liabilities of Hickman. partners, although a partnership between them might never have been contemplated, but in that year the case of Cox v. Hickman was taken to the House of Lords, who decided that those who share the profits of a business do not incur the liabilities of partners unless the business is carried on by themselves personally, or by others as their real or ostensible agents. In 1865, an Act of Parliament was passed, which is Bovill's Act. usually known as Bovill's Act, enacting that the advance of money by way of loan to a person engaged, or about to engage, in any trade or undertaking, upon a contract in writing with such person that the lender shall receive a share of the profits arising from carrying on such undertaking, shall not, of itself, constitute the lender a partner. The lender, however, cannot recover his loan, or his share of the profits, or his interest, until the claims of the other creditors are satisfied. The Act also provided that a contract for the remuneration of a servant or agent by a share of the profits shall not of itself constitute a partnership, and it also exempted from partnership a widow or child of a deceased partner receiving, by way of annuity, a portion of the profits. The Partnership Act, 1890, has put the law on a Partnership Act, 1890. clear basis by enacting that "the sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have, or have not, a joint or common right or interest in any property from which, or from the use of which, the returns are derived," but "the receipt by a person of the share of the profits of a business is primâ facie evidence that he is a partner in the business." All the circumstances, however, must be regarded, Lecture VIII. and an inference drawn from them as a whole. Holding-out. Co-Owners not necessarily Partners. The case of Coope v. Eyre. In a case where partners borrowed money on the security of freeholds of which they were tenants in common, and expended the money in improving part of the freehold in which the business was carried on, it was held that none of the freehold had become partnership property. Whatever may be the private arrangement between persons carrying on an enterprise, anyone who holds. himself out as a partner is liable to those he thus represents himself as though he were a partner, although they may know he does not share the profits or losses. A person may be interested in the share of a member of a partnership; this is called a subpartnership, and the parties to it are partners inter se, but it in no way affects the other members of the principal firm, and a sub-partner cannot be held liable to the creditors of the principal firm because he participates in the profits. Persons may become partners in one single transaction only, such as for the working of a particular patent, in which case their rights and liabilities are governed by the same principles as those which apply to ordinary partnerships. It is quite possible for two or more persons to become co-owners of property without their becoming partners, if such be their intention. There are many differences between co-ownership and partnership; for example, co-ownership is not necessarily the result of agreement, which partnership is. Partnership necessarily involves community of profit or of loss; coownership does not. One partner cannot, without the consent of the others, transfer his interest; a co-owner can. Co-ownership does not necessarily exist for the purpose of gain; partnership does. If several persons jointly purchase goods for re-sale with the object of dividing the profit they create a |