7. Distinguish between partners in general business and partners in common of a tract of land. 8. How may clubs, associations and the like be distinguished from partnerships? 9. Can a person have a share of profits as compensation for services or use of property without becoming liable as a partner? 10. Why does a different legal effect attach to a share of "gross returns" and a share of "net profits"? 11. What determines the liability to third parties? 12. If a man is interested in the profits of a business, is he necessarily a partner therein? Explain answer. 13. A and B were partners. C was a salesman for the firm, and for his services he was paid one-tenth of the net profits of the firm. The firm owed D $1,000 on an open account, and D sued A, B, and C as partners. Is C liable as a partner or not? Why? 14. The president of a non-incorporated club buys some furniture for the club. Will the members be liable for the cost of the furniture? Why? Will any of the members be liable? 15. A was a horse-trainer and B the owner of a race-horse. They made an agreement whereby A was to keep, train, and control the horse, and both A and B were to divide the expenses and the winnings. Was this a partnership arrangement? 16. A makes a loan to the firm of X, Y & Co., who agree to pay him a certain percentage of the profits. Does this arrangement constitute A a partner of the firm? 17. A and B make an agreement whereby A agrees to run B's factory and B agrees to pay A a certain percentage of the profits. Is this a partnership arrangement? 18. B and L make an agreement whereby B furnishes a farm, team, and some labor, and L furnishes the greater part of the labor and agrees to manage the farm. The profits are to be divided as follows: two-thirds to B and one-third to L. Is this a partnership agreement? CHAPTER XLIV THE CONTRACT OF PARTNERSHIP1 $288. Parties As partnership is strictly a contract relation, it is essential that the parties to it be competent to contract. (See under § 38.) If a minor becomes a partner, his acts will bind the firm, since a minor may act as agent. Should the firm become insolvent, however, the minor may take advantage of his infancy, refuse the partnership liability, and leave his associates to bear the entire burden of the partnership obligations, including those which he himself created, but he cannot withdraw any capital he may have invested in the firm. A partnership may be entered into between two firms already existing, or between a firm and an individual, as readily as may any other contract. Under such an arrangement the profits, and in case of dissolution the assets, are divided among the component firms or parties, and then subdivided by the firms among their individual members. The individual members of both firms are personally liable to third parties. A corporation cannot become a partner unless expressly authorized to do so by its charter. It may, however, make itself liable to third persons as a partner if it attempts to enter into partnership relations. Note: 1. Any person who is capable of contracting may become a partner. Corporations, before they may 1 For forms of partnership contract, see Chapter CV, Forms 50, 52. become partners, must be expressly authorized by their charters to do so. $289. Kinds of Partners Partners are of various kinds. There may be general, limited, dormant, and nominal partners. General Partners. A general or active partner is one who takes part in the management of the business, and who is liable for the firm's obligations without limitation as to amount. An active partner who wishes to withdraw from the firm and cut off subsequent liability, must give notice to all those with whom the firm is doing business. Limited Partners. A limited or special partner is one who does not participate to the full in partnership liability. As the price of his limited liability, such a partner must refrain from taking any part in the management. Limited partnerships are formed only where authorized by special statutes. (See § 293.) Dormant Partners. A dormant or sleeping partner is one who has invested as a partner but whose connection with the firm is secret and who has no part in the management of the business. A dormant partner has no exemptions or privileges beyond those of a general partner, except as a result of the secrecy. If this connection with the firm is discovered he is liable in exactly the same way and to the same extent as any general or active partner. Unless prevented by the partnership agreement, he may at any time assert himself as an active partner and take part in managing the firm business. A dormant partner who withdraws without giving notice cannot be held to any subsequent liability of the firm, even though his previous connection with it should become known. His withdrawal, however, does not free him from liability for anything done by the firm during his connection with it. Silent Partners. The term "silent partner" is often used with much the same meaning as "dormant partner.” There is, however, this difference: a dormant partner must be both "secret" and "silent," while a silent partner need not be secret. A silent partner has no voice in the management of the firm business, but may be publicly known as a partner. He is liable for firm obligations just as is any other partner, and if he withdraws, he must give notice to escape subsequent liability. Nominal Partners. A nominal partner is one who, while not really a partner, in that he has no interest in the business or profits, allows his name to be used or to appear as that of a partner. He is held liable to those who give credit to the firm on the faith or with knowledge of his being a member. He is not, however, liable to a creditor who had no knowledge of his being held out as a partner when the credit was given. Subpartners. A partner may agree with an outside party to share his interest in the profits and property of the firm. Such an arrangement is termed a subpartnership. It may be entered into without the consent of the firm, and without affecting in any way its existence or operations. The subpartner is not a member of the original firm, is not liable to its creditors, and, under ordinary circumstances, has no right of accounting against it. Notes: Limited partners should always take care to see that the proper notices and other regulations required 2. A retiring partner should take care to see that all notified of his ceasing to be a member of the firm. ! § 290. Partnership Contracts The customary and the only proper method of forming a partnership is by written articles of partnership signed by all the parties. These articles may be a very simple memorandum of agreement, or they may be expanded into elaborate articles of association, providing for the numerous details and possible exigencies of an extended commercial enterprise. In spite of the dangers of such a course, partnerships are frequently formed by oral agreement. Under the Statute of Frauds, an oral contract of partnership to last more than a year is not valid. If, however, immediately upon making such a contract, the parties thereto enter upon its performance, a partnership at will is thereby formed, which is legal and is governed as to its terms by the contract, but which may be terminated at any time by either party, regardless of the terms of the contract. It must be borne in mind that the Statute of Frauds does not apply to oral contracts that may be performed within a year. Such contracts are binding for the specified length of time, and cannot be dissolved at will without incurring a liability for damages. In many cases of partnership there is neither a written nor a verbal contract which can be proved, but the parties concerned, either intentionally or unintentionally, have acted as partners, have had a common fund in which they exercised a community of interest, and have shared profits and losses. Under such circumstances they will be held to be partners, both as between themselves and as to third persons. This same principle applies to the case of parties who assume to be incorporated when they are not. It does not apply to those who have attempted to incorporate legally, but have failed in some point of procedure; they would be held to be a de facto corporation and as such capable of doing business. Laws Regulating Formation of Partnerships. Most part |