Section 16.—(Partner by estoppel.)—(1) When a person by words spoken or written or by conduct, represents himself, or consents to another representing him to any one, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such person to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner, he is liable to such person, whether the representation has or has not been made or communicated to such person * * *.
FOR WHAT PURPOSES MAY A PARTNERSHIP BE CREATED.—A partnership may be created to carry on any lawful business, and whatever the individuals may do lawfully as such, two or more may do together in a group as a partnership. Professional occupations may be carried on in the partnership form advantageously. This is one case where a partnership has an advantage over a corporation. A group of lawyers may form a partnership and do business under a partnership name. But a group of lawyers seldom or never form corporations to practice law. The reason for this is that the corporation is a separate entity, and the corporation as such cannot pass a bar examination and be admitted to the bar. In fact, in a few States, there are statutes prohibiting a corporation from practicing law. There is, therefore, very little advantage in creating a corporation which cannot itself do the thing for which it was created.
ILLEGAL OBJECT.—A partnership which is formed to carry on any illegal purpose is, of course, not recognized by law. Thus, if A, B, and C form a partnership to engage in the gambling business and they elect C as treasurer and have a successful business so that they have a large amount of money on hand, A and B may not be able to reap the profits of the venture. C has the money. The agreement was that all were to share equally, but C insists on keeping it all. The law will allow him to do so, because it is beneath the dignity of the court to order an accounting in a transaction where all parties are equally guilty. The maxim is "in pari delicto, condicio defendentis potior est", that is, where the parties are in equal fault, the position of the defendant is the stronger. C, the guilty party, has the money; he is the defendant, therefore, he keeps it.
WHO MAY BE PARTNERS.—At common law, a married woman was incapable of becoming a member of a partnership because of her general incapacity to enter a contract. Statutes removing the disability of married women have been passed in practically all the States, and a married woman is generally free to become a partner, except, and this is true in many States still, husband and wife may not become partners. An infant may be a member of a firm on the same general principles as applied to ordinary infant's contracts. His entering the partnership agreement is not void, but voidable. When he becomes of age, if he affirms the contract of partnership, he will be liable the same as an adult. He has, however, the right to disaffirm his partnership agreement within a reasonable time after becoming of age, and if he does so, he will be absolved from all personal liability for the debts of the firm. It is very generally held that a corporation may not enter into a copartnership with another corporation or an individual. The reason for this is a general rule of public policy that in a partnership the corporation would be bound by the acts of persons who are not its duly appointed agents and officers. There may be any number of members in a firm, such matters being left to the choice and wisdom of those operating the business.
DELECTUS PERSONARUM.—While the foregoing is true, one must not reach the conclusion that an objectionable person may be forced into a firm. I am a member of a firm of three persons. I decide to withdraw, and tell my two fellow partners that I have transferred all my interest in the firm to John Jones. He will take my place. My two fellow partners believe Jones to be a crook, and do not wish to be in partnership with him. They would not be obliged to accept him. In other words, the doctrine of delectus personarum, or the choice of the person, is strictly applied in partnership, because a partnership relation is a very confidential relationship. Ordinarily the business cannot be conducted satisfactorily unless all of the partners have the confidence of each other. It is for this reason, that we have the rule, heretofore referred to, that the sale by a partner of his interest in the business works a dissolution of the partnership. John Jones, who purchased my rights in the firm, could not compel the other members to take him in, but the firm would have to be wound up and he would simply be able to recover what my share of the assets was. It is true that Section 27 of the Act does read that a sale by a partner of his interest does not of itself work a dissolution, but the doctrine of delectus personarum is fully preserved. That section reads: (1) A conveyance by a partner of his interest in the partnership does not of itself dissolve the partnership, nor, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
(2) In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners.
ARTICLES OF PARTNERSHIP.—We have learned that parties need not expressly declare themselves partners, or enter into an express contract, in order to become partners. So the framing of written partnership articles—a written contract of partnership—is not essential, though it is the ordinary and advisable course. We may note here a few rules governing the use and construction of such articles where they have been adopted. They should, of course, provide for as many contingencies as can be foreseen, such as the nature, name and place of business, when the relation is to commence and when to terminate, what capital shall be contributed by each, what the share of each in the profits and losses shall be, what the powers of the partners as between themselves shall be, whether the business shall be continued after the death of one or more of the partners and how it shall be wound up. But the important thing to note is, that if provision be not made, the general law, and particularly that part governing the powers and duties of partners to each other and to third persons, applies. In other words, the partners may, by their contract, determine what their rights as between themselves shall be; but if they do not, the rules of law will determine them. Thus they may determine that of two partners one shall have two-thirds and the other one-third of the profits; in the absence of such a clause the law determines the profits shall be divided equally. When articles have been once adopted they can be changed only by the consent of all the partners; this consent need not be formally expressed in words, but it may be implied from a long-continued course of conduct. The law provides no means to force a partner to live up to his contract except in a very few cases; the most it gives is a right of action for the breach caused by his failure to do as agreed.
FIRM NAME.—The adoption of a firm name is not an essential to a partnership, but is customary and advisable. The names of the partners may be combined, or a single name used, or a fictitious name, or any name, so long as the rights of other persons are not violated. In some States, notably New York, the use of the name of a person not a partner is forbidden, as is also the use of the expression "& Co.," unless a partner is represented by it. Ordinarily, contracts may be made in the firm name and by one partner, but contracts under seal should be made in the names of the partners "doing business as," etc., and cannot be made by one partner without authority from the others. Conveyances of real property should be made to or by the individual partners "doing business as," etc., for the law does not generally recognize the firm as a separate person or entity sufficiently to enable it as such to take or give a conveyance. If the deed ran to "John Doe & Co.," the title would be in John Doe only, though he would be said to hold it in trust for the firm, for if the partnership name is given as the grantee, the title goes only to those whose names appear, and if the partnership were doing business under a fictitious name, the deed would convey to no one. Whether land, the title to which is in the name of one partner, is held in trust by him as partnership property, is a question of intention, and that question is determined by asking with what money was the land bought, what use has it been put to, has it been carried on the books of the firm, with what money have the taxes, insurance, and other charges been paid, etc. If found to have been treated as partnership property, the fact that the title is in one person counts for little, as he will be said to hold it in trust for the firm; but the careful business man will avoid trouble by having the property conveyed to the firm in the manner indicated, if it is actually partnership property.
THE POWERS OF A PARTNER.—As a general agent, a partner has almost unlimited authority to bind the firm. Because of this, we have here one reason for not recommending the partnership form of doing business unless all the members of the firm have the utmost confidence in each other. These powers of the partners are so general that it is impossible for us to go into them in any detail. They are summarized in the most compact form in the Uniform Partnership Act. Sections 9 to 17 of that act are as follows:
9. (1) Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member, binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.