COMMERCIAL LAW. No. 12.

PARTNERSHIP.- Continued.

REMEDIES OF PARTNERS AGAINST EACH OTHER.

Ir is seldom that a partner can have a claim against another partner, as such, which can be examined and adjusted without an investigation into the accounts of the partnership, and, perhaps, a settlement of them. Courts of law have ordinarily no adequate means of doing this; and therefore it is generally true that no partner can sue a copartner at law for any claim growing out of partnership transactions and involving partnership interests. But the objection to a suit at law between partners goes no further than the reason of it; and, therefore, one may sue his copartner upon his agreement to do any act which is not so far a partnership matter as to involve the partnership accounts.

If the accounts are finally adjusted, either partner may sue for a balance; and so it would be if the accounts generally remained open, but a specific part of them were severed from the rest, and a balance found on that. The rule is generally laid down, that an action cannot be sustained by a partner against a partner for a balance, unless there is an express promise to pay it. But such promise would, we think, be inferred in all cases in which an account had been taken, and a balance admitted to be due.

In Massachusetts, and perhaps elsewhere, any action at law between partners can be maintained, provided a rendering of judgment in this action will completely terminate all partnership matters, so that no further cause of action can grow out of them.

What a court of law cannot do, however, in this respect, a court of equity can; and, generally, equity has a full jurisdiction over all disputes and clains between partners, and may do whatever is necessary to settle them in conformity with justice.

Whether a court of equity will order an account without decreeing dissolution, may not be quite settled; because, in the great majority of cases, these ought to go together. But we think that an account would be decreed, and a balance struck, without a decree of dissolution, if the circumstances were such as made a dissolution unnecessary or inequitable.

A partner may sue his copartner for money advanced before the partnership was formed, although the loan was made to promote the partnership. And for work done for the firm before he became a member of it, he may sue those who were members when he did the work. And he may sue a copartner on his note or bill, although the consideration was on partnership account; but, in general, no action can be maintained for work and labor performed, or money expended for the partnership.

It is now quite certain that a partner who pays more than his proportion of a debt of the partnership cannot demand specific contribution from his copartners, but must charge his payment to the firm. The reason is, that they may have claims against him on other accounts, and they must be all settled together to strike the balance.

If one of a firm be a member also of another firm, the one firm cannot sue the other; for the same person cannot be plaintiff and defendant of

record. A cannot sue A; and therefore A, B, & C cannot sue C, D, & E. And although the fraud of a copartner, as in negotiating a note, or in any similar transaction, if brought home to the party dealing with him, constitutes a good defence for the firm, they cannot institute an action founded upon the fraud, as, for instance, to recover property or documents fraudulently passed away, because the fraudulent copartner would have to be coplaintiff in the action. In all these cases an adequate remedy may be found in a court of equity.

If a firm have a negotiable note which it cannot sue, because one of its own firm is liable upon it, and must be made defendant, it can indorse the note over, and the indorsee may sue it in his own name, as we have before stated.

The partners are entitled to perfect good faith from each co-partner: and a court of equity will interfere to enforce this. No partner will be permitted to treat privately, and for his own benefit alone, for a renewal of a lease, or to transfer to himself any benefit or interest properly belonging to the firm. And so careful is a court of equity in this respect, that it will not permit a co-partner, by his private contract or arrangement, to subject himself to a bias or interest which might be injurious to the firm, and conflict with his duty to them, but will declare void any contract of this kind.

RIGHTS OF THE FIRM AGAINST THIRD PARTIES.

The principles of agency apply to cases of partnership so far, that, if one borrows money of a person who is a copartner, and who lends the money of his firm, either this copartner or the firm may bring an action for it, although the borrower did not know that the firm lent it; the firm standing in the relation of an undisclosed principal, as stated in the article on Agency. So, if a partner sells the goods of the firm in his own name, they may sue for the price. But the rights of one who deals in good faith with a copartner, as with him alone, are so far regarded, that he may set off any claim, or make use of any other defences against the suit of the firm, which he could have made had the person with whom he dealt sued alone.

Therefore, if A honestly bought goods of a firm from a partner whom he supposed to be sole owner of them, and paid him the price, the firm could not recover this price from the buyer, although the seller sold the goods fraudulently, and cheated the form out of the money.

A guaranty to a copartner, if for the use and benefit of the firm, gives to them a right of action.

A new firm, created by some change in the membership of an old firm, is entitled to the benefit of a guaranty given to the old firm, even if sealed, provided it shall distinctly appear that the instrument was intended to have

that effect.

RIGHTS OF CREDITORS IN RESPECT TO FUNDS.

The property of a partnership is bound to pay the partnership debts; and, therefore, a creditor of one copartner has no claim to the partnership funds until the partnership debts are paid. If there be then a surplus, he may have that copartner's interest therein, in payment of his private debt.

If a private creditor attaches partnership property, or in any way seeks to appropriate it to his private debt, the partnership debts being unpaid, he cannot hold it, either at law or in equity. Such attachment or appropriation is wholly subject to the paramount claims of the partnership creditors,

and is wholly defeated by the insolvency of the partnership, although the partnership creditors have not brought any action for their debts.

Hence, if a creditor of A attaches his interest in the property of A, B, & Company, and a creditor of A, B, & Company attaches the same property, the first attachment is postponed to the second; that is, it has no effect until the debt of the second creditor is fully satisfied, and then it is good for the surplus of property. It seems, however, that, if one partner is dormant and unknown, the creditor of the other attaching the stock is not postponed to the creditor who discovers the dormant partner and sues him with the other; unless the first attaching creditor's claim has no reference to the partnership business, and that of the second attaching creditor has such reference.

Whether the converse of this rule is true, and the partnership creditors are restrained from appropriating the private property of the copartners until the claims of their private creditors are satisfied, is not, perhaps, entirely settled. But this is certainly the rules in courts of equity. And although at law the practice has not been so, and there are strong remarks and decisions against it, yet some recent adjudications indicate that the rule may be established at law.

It seems inequitable that a private creditor of a partner cannot interfere with that partner's interest in the partnership property until all the partnership debts are paid, but that a partnership creditor may attach the private property of partners just as well as he can the partnership property. We think the law ought to be, and that it is now tending to become this. A partnership is a kind of body by itself, somewhat like a corporation. It has its own funds, and its own debts. The individual members may also have each his own funds, and his own debts. The funds of the partnership should first be applied to the debts of the partnership; and if there be any surplus, the members have it, and their creditors get it. So the private funds of each member should first be applied exclusively to the payment of that person's private debts; and when they are wholly paid, the surplus should go to the partnership creditors, because each partner is responsible for the partnership debts. This rule prevails on the continent of Europe very generally.

It is now quite certain that the levy of a private creditor of one copartner upon partnership property can give him only what that copartner has; that is, not a separate personal possession of any part or share of the stock or property, but an undivided right or interest in the whole, subject to the payment of debts and the settlement of accounts; including also the right to demand an account.

As to how such levy and sale of the interest of one copartner shall be made by the sheriff, there is much diversity both of practice and of authority. Upon principle, we think the sheriff can neither seize, nor transfer by sale, either the whole stock or any specific portion of it. He should, we think, without any actual seizure, sell all the interest of the defendant partner in the stock and property of the partnership; much in the same way in which he would sell his right to redeem a mortgage, or any other incorporeal right, subject to attachment. The purchaser would then have a right to demand an account and settlement, and a transfer to him of any balance or property to which the copartner whom he sued would have been entitled.

In those jurisdictions where attachment on the writ is allowed, the

question whether the sheriff may seize and retain possession of the partnership property, upon an attachment issued by a creditor or one partner, presents still greater difficulties. Probably, however, such seizure and retention would be allowed wherever a seizure on execution is allowed. Where such seizure is not allowed, it may be impossible for the creditor to secure his debt by attachment, without the aid of statutory provisions specially adapted to the purpose.

Where the trustee process, or process of foreign attachment, is in use, perhaps the better way would be for the sheriff to return a general attachment of all the interest of the debtor in the partnership property, and summon the other partners as the trustees of the debtor.

It must be stated, however, that the rules of law in regard to the liability of partnership property for the private debts of partners, and as to how any liability may be enforced, are, at present, somewhat obscure and uncertain.

THE EFFECTS OF DISSOLUTION.

If the dissolution is caused by the death of any partner, the whole property goes to the surviving partners. They hold it, however, not as their own, but only for the purpose of settlement; and, therefore, they have, in relation to it, all the power which is necessary for that purpose, and no more. If they carry on the business with the partnership funds, they do so at their own risk, and the representatives of the deceased may require their share of the capital, and choose between calling on them, in addition, for interest, or for a share of the profits.

The survivors are not partners, but tenants in common (joint owners) with the representatives of the decreased of the stock or property in possession; and have all necessary rights to settle the affairs of the concern and pay its debts. After a dissolution, however caused, one who had been a partner has no authority to make or indorse notes or bills with the name of the firm, even if he be expressly authorized to settle the affairs of the firm. There must be a distinct authority to sign for the others who were formerly partners. A parol authority will be sufficient, even if the general terms of the partnership had been reduced to writing. Whether a court of equity will give to partnership creditors a remedy, against the representatives of a deceased partner, when there is no insolvency, may be doubted. Formerly, the creditor could go only against the surviving partners, if solvent, and when they paid, they must look for their indemnity to the representatives of the deceased; but if the firm were insolvent, then the creditors might go at once against the representatives of the deceased, because each partner, and all his property, is bound for the whole debt of the firm. In England it is now settled, by recent decisions, that a court of equity will permit this resort to the representatives of the deceased, even where there is no insolvency, letting them look to the surviving partners for an adjustment of what they pay, in the settlement of their accounts with them. And though we cannot say that this is settled American law, it seems to us more consonant with the principles of the law of partnership, as now administered.

It is common, where a partnership is dissolved by mutual consent, to provide that some one of the partners shall settle up the affairs of the concern, collect and pay debts, and the like. But this will not prevent any person from paying to any partner a debt due to the firm; and if

such payment be made in good faith, the release or discharge of the partner is effectual.

If all the debts were assigned and transferred to any person, as his property, any debtor who had notice of this would be bound to make payment to this person alone. And if he paid anybody else, he would be obliged to pay the money over again.

It is frequently provided, that one partner shall take all the property and pay all the debts; but this agreement, though valid between the partners, has no effect upon the rights of third parties against the other partners; for they have a valid claim against all the partners, of which they cannot be divested without their consent.

This consent of the creditor may be inferred, but not from slight evidence; thus, not from receiving the single partner's note as a collateral security, nor from receiving interest from him on the joint debt, nor from a mere change in the head of the account, charging the single partner and not the firm. Still, as the creditor certainly can assent to this arrangement, and accept the indebtedness of one partner instead of that of the firm, so it must be equally clear that such assent and intention will bind him, if distinctly proved by circumstances.

LIMITED PARTNERSHIP.

These are unknown in England; but have been introduced into some of our States, by statutes, which differ somewhat in their provisions. Generally, they require, first, one or more general partners, whose names shall be known; secondly, special partners, who do not appear as members, nor possess the powers or discharge the duties of actual partners; thirdly, the sum to be contributed by the special partners shall be actually paid in; lastly, all these arrangements, with such other information as may be needed for the security of the public, must be verified under oath, signatures of all the parties, and acknowledgement before a magistrate, and correctly published. When these requisites are complied with, the special partners may lose all they have put in, but cannot be held to any further responsibility. But any neglect of them, or any material mistake in regard to them, even on the part of the printer of the advertisement, wholly destroys their effect; and then the special partner is liable for the whole debt, precisely like a general partner. Thus, in a case in Maine, the stock in trade was purchased with the capital advanced by A, under a contract making him a special partner; and it was held that the stock could be attached for the private debt of the general partner, whether the parties had so conformed to the statute as to form a special partnership or not. In another case in Maine, a sole general partner assigned his property for the benefit of creditors. It was held that the property of the special partnership did not pass. In a New York case, it was held that a mistake in the publication of the names of the partners, as Argale for Argall, would not vitiate the publication, because the mistake was not calculated to mislead. In another New York case, the day of the commencement of the partnership was stated in the public notice to be November 16, while in the original certificate it was October 16. It was held that the special partners were not liable as general partners, as the error was unintentional, and the plaintiff could not have been affected by it. It was held, also, that if a special partner purchase real estate on account of the firm, or if the title be taken in his name and with his con