CHAPTER XX.

PARTNERSHIP.

SECTION I.

GENERAL INFORMATION.

Partnership defined.—A partnership is a contract relation between persons who have combined their property, labor and skill in one enterprise or business, as principals, for joint profit.

Distinguished from co-ownership and corporation.--It is distinguished from a corporation, among other things, in that the latter is a fictitious being created by authority of law, while the partnership relation exists between persons by virtue of a contract. A stockholder in a corporation has only a limited liability, usually the amount of his subscription, while partners are each liable for the whole amount of the firm debt. Partners may change the firm name themselves, but a corporation can only do this by consent of the State, which is usually given by a general law. Suits against or by a partnership must be in the name of the partners, as the law does not recognize them as a legal entity, while a corporation sues and is sued in the corporate name. Corporations may be, and usually are, created in perpetuity, while a partnership exists during the life of the members or for a limited period only.

A partnership is also to be distinguished from a co-ownership in property. No absolute test can be given. The common ownership of property does not of itself create a partnership between the parties. Where co-ownership of property is coupled with a division of profits, the difference between it and a partnership becomes very obscure. The usual test of partnership is the joint ownership of net profits. Whether from all the circumstances of the case a partnership

should be inferred, is the vital point. What constitutes a partnership, is a question of law, but whether a partnership exists is a question of fact.

Kinds of partnerships.-There are many kinds of partnerships each having its distinguishing features.

With reference to the character and extent of the business, partnerships are universal, general, special and limited. A universal partnership would exist if the parties agreed to bring into the firm all their property and to employ all their skill, labor and services in business for their mutual benefit, so that there would be an entire community of interest between them. Such partnerships are very rare, in fact, are hardly known to exist at the present time, as none of the partners can have a personal estate under it. A general partnership is one created for the purpose of some general kind of business, while a special partnership is one created for a single transaction or venture. In a limited partnership the liability of some members to bear losses is restricted to a certain amount. See "Limited Partnerships" in this chapter.

With reference to the class of business in which they are engaged, a partnership is either a trading or non-trading partnership. A trading partnership is one engaged in the business of buying and selling as a business, while a nontrading partnership is one engaged in the prosecution of an occupation or calling not of a commercial character. Partnerships for the purpose of carrying on mining are called "Mining Partnerships". Where tenants in common of a mine work it together and divide the profits in proportion to their interests, they are mining partners. These partnerships differ from ordinary partnerships in that the share of a partner therein can be assigned without dissolving the partnership.

Different kinds of partners.-The distinction between the different kinds of partners is of little legal importance, except as to limited and general partners. However, in order to have an intelligent understanding of terms, it will be useful to define the different kinds of partners. A general partner is one whose liability for the firm debts is unlimited, while the liability of a special or limited partner is limited to a definite amount. The latter is the case only in a limited partnership. An ostensible partner is one who is held out to the world as one and whose connection with the firm is openly avowed,

while a secret partner is one whose connection with the firm is not made known to the public. A silent partner is one who takes no active part in the management of the partnership business, and exercises none of the rights of a partner beyond receiving his share of the profits, while a dormant partner is one who takes no active part in the business and whose name does not appear in the name of the partnership and is unknown to those who give credit to the firm. If a person leads others to believe that he is a partner in a given firm, or is held as such with his consent, even though he does not participate in the profits, he is called a nominal partner and becomes liable for the firm's debts as such.

SECTION II.

FORMATION OF PARTNERSHIPS.

As between the parties.-As between the parties, a partnership exists only by virtue of the contract relation between the persons who form the partnership. It is never created by operation of law. Our supreme court says: "It is not essential to the existence of a partnership that it be so denominated in the contract of the parties, nor is it necessarily fatal thereto if the parties declare in such contract that they do not intend to become partners. The real inquiry always is: Have the parties by their contract combined their property, labor or skill in an enterprise or business, as principals, for the purpose of joint profit? If they have done so, they are partners, no matter how earnestly they may protest they are not. The terms of their contract given, the law steps in and declares what their relations are to the enterprise or business and to each other." The contract of partnership, when reduced to writing, is called the "Articles of Partnership." It may be stated that any party competent to enter into an ordinary contract, is competent to form a partnership. (See title Contracts). In this state a husband and wife cannot become partners in business. If the partnership be a complicated one and the amounts involved large or the relation is to exists for a long period, it is always best to execute written articles of partnership.

As between the partners and third parties--estoppel. -Persons may not be partners as between themselves, and still be liable as such to third persons. One who by his acts

and declarations, or conduct generally, holds himself out or allows himself to be held out as a member of a certain firm, and induces third person to believe that he is a partner, and they incur liability acting on that belief, will be liable as though he were a member of the firm, to the extent of the liability thus incurred. His liability attaches through the operation of the principles of estoppel by conduct.

Defective corporations.-The statute provides that the original articles of incorporation, or a true copy thereof verified as such by the affidavits of two of the signers thereof, shall be filed with the Secretary of State. A like verified copy and certificate of the Secretary of State, showing the date when such articles were filed and accepted by the Secretary of State, within thirty days of such filing and acceptance, shall be recorded by the register of deeds of the county in which such corporation is located, and no corporation shall, until such articles be left for record, have legal existence. Until the provisions of this statute are complied with, the incorporators are liable as partners. However, creditors dealing with the corporation as such are estopped to deny its corporate existence.

The articles of agreement.-The agreement may be oral, except that when an agreement for a partnership for dealings in real estate, or when the partnership is not to commence until after the expiration of a year, or when the partnership relation is to continue for longer than one year, the contract should be in writing, otherwise it is void under the statute of frauds. Thus, an oral agreement between two persons to purchase land together, each to furnish one-half of the purchase money, and to take the title in the name of one for their joint use and benefit, is void. The articles should specify the name of the firm, who constitute the firm, the duration of the partnership, the amount to be contributed by each and the proportion of the profit each member is to receive and when the profit may be drawn out. It should define the scope of the business, and the special duties of the partners, if any. It is usually also desirable to have other provisions, depending upon the circumstances of each case, among which are restrictions on the power of the majority of partners, stipulation to refer disputes to arbitration and for buying or selling out each other's interest; provision for

a renewal of the partnership agreement or for a dissolution on notice, etc. There must be a consideration for the contract and its object must be legal.

SECTION III.

PARTNERSHIP PROPERTY.

A partnership may hold all kinds of property. What is or is not partnership property depends largely on the intention of the parties as manifested by their acts and the general circumstances surrounding the transaction. A firm may hold real estate, but being neither a natural nor artificial person, no legal title to real estate can vest in it as such. If the deed is made to all the members of the firm, or one or any of them, they take the legal title, but the property is held by them as trustees for the partnership. The firm has the equitable title and a court of equity will compel the parties to dispose of the land as the interests of the partners and the creditors of the firm require. For the purpose of adjusting the affairs of the partnership, real estate purchased for partnership purposes and with partnership funds is considered personal property. A partner's real interest in firm realty and personal property is the same: namely, the right to share in the net balance which remain after all firm liabilities have been satisfied and the equities between the partners adjusted. In case of the death of a partner, the surviving partner winds up the affairs of the firm, and accounts to the personal representative of the deceased partner for the firm assets. When the firm debts have been paid and the equities between the partners settled, the surplus arising out of the real estate is regarded as real estate and not as personalty, and is distributed as such among the heirs. A partner's widow has the right of dower in the surplus real estate even though it has been converted into money. A partner may sell his interest in the firm to a third person, but such third person cannot become a partner with the remaining partners without their consent. Such sale dissolves the partnership, but if the remaining partner or partners consent to receive the new party as a partner, a new partnership is created. An incoming partner is not liable for the previous debts of the old firm, but he may assume the same. A parol contract is sufficient for this purpose. A creditor of the old firm may