QJnrnpll ICatu ^rl^nol Hibrary Cornell University Library KF 1375.L74 3 1924 019 247 067 The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019247067 A TREATISE LAW OF PARTNERSHIP, INCLUDING ITS APPLICATION TO COMPANIES. FOURTH EDITIOE". BY THE ffON. SIR NATHANIEL LINDLEY, KNT. 0?tE OF THE JUDGES OF 11J:K MAJESTY'S IIIu'u cUUliT Oi JUSTICE. ASSISTED BY SAMUEL DICKINSON, OF LINCOLN'S IXN, ESQ., BARKIS PER-AT-LAW. EDITED AND ANNOTATED BY MARSHALL D. EWELL, LL. D. 11^ TWO VOLUMES. VOL. II. CHICAGO: CALLAGIIAN & COMDANY. 1881. Entered according to Act of Congress, In the year 1881, BY CALLAGHAN & COMPANY, In the Office of the Librarian of Congress, at Washington, D. C. Stereotyped and Printed by The Chicago Legal News Compant LAW OF PARTNERSHIP, ETC. SECTION III, CHAPTER III, BOOK II. OF SET-OFF. Closely connected with the subjects discussed in the two preced- ing sections, is tlie right of a defendant to set up, in opposition to the claim made against him, a counter-claim, which the defendant might himself make the subject of a crocs-action against the plaintiff. The power of a defendant *todothis is much *503 more extensive than it was; for by Order XIX, rule 3, a defendant may set off or set up by way of counter-claim any right or claim, whether to a definite amount or not; but provision is made for disallowing a cross-claim if it cannot be conveniently disposed of in the particular action in which it is set up. A short account, however, of the law as it stood before this alteration, may still be useful. 1. Of set-off hy and against partnerships. The right of setting off one claim against another appears only to exist at common law, where a person seeks to avail himself of a lien on goods his possession, but of ' ® ° ^ ^'^^ which he is not the owner. But, by statute 2, Geo. 2, c. 22, it is enacted " that where there are mutual debts between the plaintiff and the defendant, or if either party sue or be sued, as executor or administrator, where there are mutual debts between the testator or intestate and either party, one debt may be set against the 703 *504 SET-OFF. [book II. other." \v) The statute, it will be observed, only mentions mutual debts, and this expression has been held to be confined, first, to debts in the narrow sense of the word, i. e., definite and ascertained sums of money, owing by each party to the other {x); and, secondly, to debts owing to and by each party in one and the same capacity, (y) Courts of equity, although governed in questions of set-ofiF by principles similar to those which governed courts equity. *504 01 law, * went further than courts of law in ap- plyingthose principles; admitting set-off in some cases where courts of law did not, and disallowing it in others where they did. (s) The combined effect of the rules at law and in equity on the sub- Rules as to i^^^ °^' set-off so far as it is necessary to allude to them set-off. ^jj |.j^g present treatise was, as follows : 1. Joint debts owing to and by the same persons in the same right could be set off both at law and in equity. 2. Se]")arate debts owing to and by the same person in the same right could also be set off both at law and in equity. 3. Debts not owing to and by the same persons in the same right could not be set off either at law or in equity. But in considering wliether debts were so owing, courts of law regarded the legal right, wliilst courts of equity regarded the equitable right; and this led to the following amongst other important practical and different results. If a covenant was entered into by one partner only, and he was sued on the covenant, he could at law set off a debt due from the plaintiff to himself alone ; or if he sued on the covenant, a debt due from him alone could be set off against his demand, {a) But (j;) 2 Geo. 2, c. 22; and see 8 Geo. 2, not belonging to it in different charac- c. 24, as to setting off simple contract ters, so as to preclude it from setting off debts against specialty debts. what was due from it to its bankers on (x) See Castelli v. Boddington, IE. one account against what was due to it & B. 66 an 1 879; AttwooU j;. AttwoU, by its bankers on the other accounts, ib. 23; Luckier. Bushby, 13 C. B. 864; (2') See, generally, as to set-off in and Hutchinson v. Sydney, 10 Ex. 438. equity, Rawson v. Samuel, Cr. & Ph. (t/) See Hutchinson r. Sturges, Willes, 161 ; Clark v. Cort, ib. 1-54 ; Freeman ij. 261; Watts v. Rees, 9 Ex. 696,''and 11 Lomas, 9 Ha. 109. See, also. Hunt i'. ib. 410; Mardall v. Thelusson, 6 E. & Jessel, 18 Beav. 100, as to set-off be- B. 97G. In Pedder v. Mayor of Pres- tween creditors and trustees of credi- ton, 12 C. B. N. S. 535, moneys belong- tors' deeds. See, also, Agra & Master- ing to a corporation, but raised for dif- man's Bank v. Hoffman, 5 N. R. 214, ferent purposes, and kept in its name sed gu. this case, at diffoient accounts, were treated as 704 CHAP. III.J BETWEEN PARTNERS AND NON-PARTNERS. *505 in equity this would not have been allowed if he was really suing or being- sued as a trustee for the firm. Again, if a surviving partner was sued at law for a non-partner- ship'debt, he could set off a partnership debt owing by set-offby and the plaintiff to him and his late co-partners (5)'; andiu ing partners. an action by a survivingpartner for adebtdue to himself separately, the defendant could set off a debt due to himself from the plaintiff and his late partners, (c)" / In equity, however, this could not have been done ; for although, on the principle that a debt due from a firm is due ,^^. ^ ^ Addis V. from all the partners severally as well as jointly, a Ku'siit. creditor of the firm was in equity regarded as a creditor of its deceased *members, yet when a creditor of a firm sought *505 to obtain payment of his debt out of the estate of a deceased partner, that creditor could not set off a debt due from him to the deceased on a separate account, but must pay this last debt in full, and then, as regards the debt in respect of which he sued, rank as any other creditor of the firm against the assets of the deceased, (d) It is obvious that if in such a case the two debts were set ao^ainst each other, the separate creditors of the deceased would be paying a joint creditor of the firm, unless the assets of the deceased were sufficient to pay both classes of creditors in full. On the other hand, debts which were really debts owing to and by a firm could be set off in equity although not at law. Thus in Smith V. Parkes {e) a firm of three partners covenanted g^^^j^ ^ to pay a certain sum of money to the defendant Parkes, Parkes. who was indebted to the firm in certain other sums on another account. By the death of two of the members of the firm, the plaintiff Smith had become the sole surviving partner, and he was sued by Parkes on the covenant, and judgment was obtained. It («) See Fletoter v. Dyche, 2 T. R. 32. Tivor,stating that deceased was indebted (6) Slipper v. Sidstone, 5 T. R. 493 ; to the firm more than the amount of the Golding V. Vaughan, 2 Chitty, 436. mortgage, and that it was agreed that 'Harrisw.Pearce,5Bradw. (III.) 622. it should be applied to the use of the A.S to set-off between the surviving firm, and that he had so applied it; the partner and the administrator of the de- administrator was injoined from pro- ceased partner, see Mack v. Woodruff, ceeding in the suit. WUliams v. Stev- 87 111. 570. ens, 5. N. J. Eq. 119. One of two partners assigned a morf> (c) French v. Andrade, 6 T. R. 582. gage to the other, and died. His admin- 2jja,j.jig ^_ Pearce, 5 Bradw. (111.) 622. istrator sued the survivor.for the amount {d) Addis v. Knight, 2 Mer. 117. of the mortgage, on a bill by the sur- (e) 16 Be. 115. « 705 *505 SET-OFF. [book II. was held that, notwithstanding the judgment and its effect at law, Smith was entitled in equity to set off against the judgment debt the amount of what was due from Parkes to the late firm ; and it was also held that Smith had this right not only as against Parkes, but also against persons to whom he had assigned the debt due to him. 4. Except under special circumstances, a debt due to or from pcftiiisoff several persons jointly could' not be set off against a against separ- debt due from or to one of such persons separately. (_/) ' versa. This rule, which is really involved in the last, also (/) See Kinnerly v. Hosack, 2 Taunt. 170; Cheatham ». Crook, McLel. & Y. 307; VaUiamy v. Noble, 8 Mer. 618; See, also, Jebsen v. East a.nd West In- dia Dock Co. L. R. 10, C. P. 300. ' The private debt of one co-partner cannot be set off against a co-partner- ship demand. Powrie v. Fletcher, 2 Bay, 146; Ladue v. Hart, 4 Wend. 583. The holder of a claim against an in- dividual member of a firm, who pur- chases from such member what he knows to be partnership goods, cannot, in an action by the partners or their assignee for the amount of such goods, plead such claim either in payment or set-off against the partners, unless, by their assent, the co-partnership property was delivered in payment of the indi- vidual partn^er's debt. Wise v. Copley, 36 Ga. 608. See, also. Warder v. New- digate, 11 B. Mon. 174; ante, 277, note. Partners may set off claims held jointly, but not individually. Sager ». Tupper, 38 Mich. 259. See, however, Jones v. Jones, 12 Ala. 244. A member of a firm may, with the assent of his co-partners, set off, in an action against them individually, a debt due to the firm by the plaintiff in the action. Proof of the account and of the assent of partners to its use are all that is required; it is not necessary that the account should be assigned to the de- 706 fendant. Montz v. Morris, 89 Pa. St. 392. According to the construction placed upon the statute of Alabama, allowing partners to be sued severally, it does not authorize a demand due by the finn to be set off against a separate debt due to one of the partners. Hoyt v. Mur- phy, 18 Ala. 316. In an account between the adminis- trator of a partner deceased, insolvent, and a surviving partner, the individual claim of the survivor against the de- ceased cannot be taken into the account and deducted from the balance in the survivor's hands. Berry v. Powell, 18 ID. 98. By operation of law a partnership debt is not extinguished or compensated by the indebtedness of the creditor to one of the partners; although such part- ner may, by way of defense or by excep- tion, as it is termed in the practice of Louisiana, offset or oppose the compen- sation of his demand to that of the cred- itor. Beauregard v. Case, 91 U. S. 134. Defendant purchased certain cattle of plaintiff, supposing that they were the property of E. and the plaintiff as co- partners. At the request of E. he sub- sequently took up a note signed by both E. and the plaintiff as makers, although in fact plaintiff was but a surety, as a matter of fact there was no co-partner- ship existing between E. and the plain- tiff: Held, 1. That E. and tiie plain- CHAP. III.J BETWEEN PAETNEES AND NON-PAETNEES. prevailed both at law and in equity (g), and was of £,rreat import- ance to partners. It scarcely requires to be pointed ont that to allow a set-off of such debts would be to enable a creditor to ob- tain payment of what is due to^him from persons in no way ^indebted to him. As a rule, therefore, a debt owing by one *506 of the members of a firm could not be set off at law against a tiff were not bound to join in an action for the purchase price of the cattle. 2. That the defendant should have made inquiry whether in fact the plaintiff was priucipal on the note. 3. That there being no partnership in fact, defendant could not set off his payment of the debt of E. against the claun of plain- tiff. Euix V. Hays, 48 Iowa, 86. It has been held that a defendant may set up in his defense, under the general issue, that the plaintiff is one of a partnership, and that the firm is indebted to him in a larger sum than that which the plaintiff demands, it be- ing a part of the same transaction. Buckingham, v. Burgess, 3 McLean, 364. A, the partner of B, assigned all his interest in the partnership effects to B, with power to settle and compromise: Held, that B might set off a debt due to the firm against a debt due by him- self alone. Craig v. Henderson, 2 Pa. St. 261. Where one partn'er executed a bond in the name of the firm, under seal, for a debt due by the firm, in an action by the obligee on such bond: Held, that a debt due by the obligee to the firm was a good set-off, notwithstanding the plaintiff was allowed to enter a nol. pros, as to one of the firm, and proved that only the paiiner, retained as de- fendant, signed the instrument. Sellers V. Streator, 5 Jones L. 261. The plaintiff, one partner of a firm, upon, a dissolution thereof, sold all his interest in the property and debts due the firm to the defendant, the other partner; and the defendant gave the plaintiff a promissory note and a bond of indemnity against the Habihties of the firm: Held, that the defendant could not set off against said note an ac- count due from the plaintiff to the firm, at its dissolution. Lesure f . Norris, 11 Cush. 328. Where a partner retired from the firm, and a new firm was formed, which undertook to pay the debts of the old firm, but failed, leaving debts of the old firm unpaid wliich the retiring part- ner had to pay: Held, that he might set ofi such payment against a bond which he had given to the new firm, and which they had assigned to A for value. Hupp v. Hupp, 6 Graft. 310. Action by two, as partners, for goods sold and delivered. The defendant showed that both had boarded together with him, and each had told him that "what one might call for would be the same as if both should order it, ' ' and filed his counter claim for liquors and cigars, furnished each while they were boarding with him, and it was allowed in defense, pro tanto. Hartung v. Sic- cardi, 3 B. D. Smith, 560. In Jones v. Blair, 57 Ala. 457, the court disapproves the intimation in Tay- lor V. Bass, 5 Ala. 110, that the mere assent of the other partners, to the ex- clusive use and appropriation of a debt due the firm by one of the partners, may convert such debt into a proper subject of set-off by him, when sued alone on an individual liability. [g) It cannot be done in equity even in cases of fraud, see Middleton v. Pol- lock, 20 Eq. 515. 707 '■'■^(iT SET-OIT. [book II. debt owing to him and his co-partners (A) : nor conM a debt owing to one of the members of a firm be set off against a debt owing by liim and his co-partners, (i) And this rule applied even where one partner only had been dealt with, and the debts sought to be set against each other were a debt owing by him, and a debt owing to him and others, but arising out of transactions with him alone. This last point is well illustrated by Gordon v. Ellis, (k) There, an action was brought by three partners for the recov- ery from the defendant of money received by him for goods of the plaintiffs sold by the defendant on their account. The defendant pleaded in effect that he had been employed by A. only, that A. sent the goods for sale as if they were his own, and that the goods were sold by the defendant as A.'s goods, and that A. was indebted to the defendant in a larger amount than that sought 'to be i-ecovered in the action. It was admitted that if B. and C. had by their conduct induced the defendant to believe that A. was the sole owner of the goods in question, and to deal with A. on that supposition, the defendant would have had a good defense to the action ; but it was held that, as the defendant did not allege that such had been the case, his plea was a mere attempt to set off a debt due from one member of the firm against a debt due to the firm itself, and was bad.- In strict analogy to the rule which obtained at law, it has been decided in equity that if the members of a firm have separate private accounts M'itli the bankers of the firm, and a balance is due to the bankers from the firm on the partnership account, the bank- ers have no lien for such balance on what may be due from them- selves to the members of the firm on their respective separate ac- counts; and that the debt due to the bankers from the part- *507 ners jointly cannot be set off *against the debts due from the bankers to the partners separately. (I) The Judicature acts have extended the equitable principles of Effect of Judi- set-off to all actions in the High Court (m); and not- catureacts. withstanding the rules relating to joint and to several {h) Gordon v. Ellis, 2 C. B. 821; 7 Man. & Gr. 607, where it will be ob- Franoe v. White, 8 Scott, 257. served the plea was materially different. (i) Arnold V. Bainbridge, 9 Ex. 153; (Q See Watts ». Christie, 11 Beav. McGillivray v. Simson, 2 Car. & P. 320; 546 ; Cavendish v. Geaves, 24 ib. 173. Boswell V. Smith, 6 C. & P. 60. (m) See §§ 24 and 25 of the Judica*- {k) 2.C. B. 821 ; and see the same case, tore act, 1873. 708 CHAP. HI.] BETWEEN PAETNEES AND NON-PAETNEES. *50S claims (n), it is apprehended that the old rule precluding the set- off of a joint against a separate debt, or vice versa, is still in force, (o) To the general rule which precludes the set-off of a debt due to a firm against a debt owing by one of its members, Exceptions to and v/ce versa, there are, however, a few exceptions. generairuie. If it can be shown that all parties concerned have expressly or impliedly agreed that a debt owing by one of them only shall be set off against a debt owing to them all ' ^™®™®° ' or vice versa, effect will be given to that agreement, and the appli- cation of the general doctrine in question will thereby'- be precluded. Eegard, therefore, must be had to any agreement which the parties themselves may have come to, and to their course of dealing with each other, [p) So if a joint and several promissory note is made by partners, and one of them sues the payee for some separate demand, the de- fendant can set off the note; for, ex hypothesi, it is the several note of the partner suing him. {q) An agreement by one partner that a debt due from himself sep- arately shall be set off against a debt due to him and his co-part- ners jointly {& pi'imd facie a fraud ou them ; and a set-off founded on such an agreement cannot, it is apprehended, be maintained in the absence of special circumstances, rendering such an agreement binding on the other partners, {r) * Another exception occurs where one partner has been *608 allowed by his co-partners to act as if he were a principal and not an agent of the firm. It has been seen that dormant partners may join their co-part- ners in suing on contracts entered into in form with the set-off where latter only. But dormant partners cannot, by coming mant partner, forward and suing ou such contracts, deprive the defendant of any right of set-off of which he might have availed himself if the non- (w) Ord. xvi. rr. 1, 3, 5, ante. p. 484. 307 ; Kinnerly v. Hosack, 2 Taunt. 170. (o) However, in Manchester, Shef- [q) See Owen v. Wilkinson, 5 C. B. field & Lino. Rail. Co. t. Brooks, 2 Ex. N. S. 526. D. 243, a separate debt was allowed to (r) Wallaoe ». Kelsall, 7 M. & W. be pleaded by way of set-ofF to an ac- 264, is the other way, but is to be ex- tion for a joint debt. This can hardly plained by the old technical rules of have been right. pleading, which are now abolished; see (p) See VuUiamy v. Noble, 3 Mer. ante, p. 471 ; Piercy v. Pynney, 12 Eq. 593 ; Dowman v. Matthews, Free, in Ch. 69 ; Nottidge v. Pritchard, 2 CI. & Pin. 680 : Cheetham v. Crook, McLel. & Y. 379. 709 *509 SET-OFF. [book II. dormant partners only had been plaintiffs. This was held by Lord Kenyon in Stracey v. Decy(s), -where the plaintiffs Stracey v. Decy. „ t-, -, •, J \ J^ ' Stracey, Eoss and others, were in partnership as grocers, and Eoss was the only person who appeared to the public as con- cerned in the partnership business. The defendant had dealt with jRoss, and had become indebted for grocery supplied by him. On the other hand, the defendant had expended money for Ross, and had done so on the supposition that the monies thus expended could be set off against what was due for the grocery. Tlie plain- tiffs, however, contended that this set-off could not be made; but Lord Kenyon held that as the defendant had a good defense by way of set-off against Ross, and had been by the conduct of the plain- tiffs led to believe that Ross was the only person he contracted with, they could not pull off the mask and claim payment of debts supposed to be due to Ross alone, without allowing the defendant the same advantages and equities in his defense as he would have had in an action brought by Ross solely, (t) In this case, all the partners except Ross were dormant, and by the terms of the agree- ment into which all had entered, Ross alone was to be the apparent trader. His co-partners were therefore simply in the position of undisclosed principals, and were treated accordingly by the Court. In Gordon v. Ellis (u), wliich has been before referred to, an attempt was made to extend the principle on which Lord Cases where one ^ ^ ^ partner only has Kcnyon decided Stracey v. Decy, to all cases been dealt witn. ^ j j j Gordon!) Ellis *^09 in wliicli ouc *partner only transacts the busi- ness of the firm, and becomes himself indebted to the person with whom he deals. But it was held, and it is con- ceived rightly, that a person liable to be sued by a firm cannot set off a debt due from one only of its members, on the ground that he only was dealt with by the defendant, unless it can be shown that the other members of the firm induced the defendant by their conduct to treat tlieir co-partner as the only person with whom the defendant had to do. (xf (s) 7 T. R. 361, note, and 2 Esp. 469. («) 2 C. B. 821, ante, p. 506. See, too. Teed v. Elworthy, 14 East, 213, {x) See Ramazotti v. Bowring, 7 C. and De Mautort v. Saunders, 1 B. & Ad. B. N. S. 851 ; Bonfield v. Smith, 12 M. 398, overruling Dubois v. Ludert, 5 & W. 405 ; ante, p. 482 ; and Baring v. Taunt. 609. Corrie, 2 B. & A. 137. {t) See George v. Clagett, 7 T. R. 359; ' Where an action is brought by one Borries v. Imperial Ottoman Bank, L. of two partners of a law firm for busi- R. 9 C. P. 88. ness which has uniformly been done in 710 CHAP. III.j BETAVEEN PARTNERS AND NON-PAETNEES . *510 But here again it is to be observed, that if the debt due froni one partner can be treated as due from the firm, that debt m.iy be set off against another debt due to it. This is illustrated by the same case of Gordon v. Ellis (y), where in an action by a firm for money due to it from the defendant for goods of the firm sold by him, the latter was held entitled to set off a debt due to him for an advance made by him to one of the partners on account of those goods. The Court thought that although the money was advanced to one partner only, the defendant had a right to treat it as an advance to the firm made on that partner's requi- sition, whilst acting within the scope of his apparent, authority as agent of the firm. In point of fact, the defendant, instead of wait- ing until he had sold the goods, and then handing over the money produced by their sale, made a payment on account; and he sought nothing more tlian to have the amount so prepaid deducted from the sum for which he sold the goods. It sometimes happens that in order to avoid a defense of set-off, a plaintiff who is indebted to a firm sues one of its Attempt to members alone for a debt owing to the plaintiff by the suSgone"*'^^ firm. In such a case, the defendant may require his p^'^"^'^'^- co-partners to be joined, (s) Again, if a firm holds the note of a person to whom it is itself indebted, and in order to deprive him of his right of set-off, indorses the note to one of its mem- bers, and he alone sues on * it, a defense disclosing the facts *510 and setting off the debt owing to the defendant by the firm will be good, (a) The provision of the Judicature acts relating to the assignment of debts (ante, p. 487) has greatly facilitated defenses set-osfwhere there has been. by way of set-off where there has been a change in a an assignment, firm. The principles applicable to such cases are well illustrated by the following decision. . In Cavendish v. Geaves (b), the plaintiff was indebted on bonds to a firm of bankers. Many changes in tlie firm took cavendish « place, and tlie bonds in question were on each change leaves. the name of the party suing, a setoff so doing ; the old practice was to plead will be allowed of a demand against in abatement. See Stackwood v. Dunn, the firm. Piatt v. Halen, 23 Wend. 3 Q. B. 823, and Bonfield v. Smith, 12 456. M. & W. 405. (//) 7 Man. & Gr. 607. (a) Puller v. Eoe, 1 Peake, N. P. 260. (z) Ord. xvi. r. 13. But see 23 & 24 {h) 24 Beav. 163. See, also, Jefferys Vict. c. 126, § 20, as to the necessity of v. Agra and Masterman's Bank, 2 Eq. 711 *511 SET-OFF [book II. assigned by the old to the new firm. The plaintiff had an account with tlie bank as one of its customers, and when the bank stopped pajnnent a balance was owing to him on that account; but tlie bonds had been previously assigned to third parties, without notice however to the plaintiff. The question then arose, whether, not- withstanding tiie various changes in the firm, and the assignment of the bonds, the plaintiff was entitled to set-off against the debt due from liim on the bonds, the amount due to him as a customer of the bank, and it was held that he was. The judgment in this case is peculiarly instructive, and the following extract from it is submitted to the reader without apology. " If a customer borrow money from his bankers and give land to secure it, and Effect of assisn- ^ft6i"'''ards On tbe balance of his general banking account, a balance ments and of is due to the customer from the same bankers who are the obligees on right of of the bond, a right to set oflP the balance against the money due on set-off. (;jjg ijond will exist both at law and iu equity. " If the firm were altered and the bond assigned by the original obligees to the new firm, and notice of that assignment were given to the debtor, and if after this a balance were due to him from the new firm (the assignees of the bond), then no right of set-off would exist at law, because the assignment of the chose in action would be inoperative at law, and the obligees of the bond, and the debtor on the general account would be different persons ; but as in equity the persons entitled to the bond, and the debtors on the general account, would be the same persons, a right to set-off would exist ia this Court, and the customer would iu equity be entitled to set off the balance due to him against the bond debt due from him. *511 * " If after the bond had been given it had been assigned to strangers, and no notice of the assignment had been given to the original debtor ^the obhgor of the bond), then his rights would remain the same. Thus, if the assignment had been made to the stranger before any alteration of signments and the firm, then the right of set-off would stiU remain at law, where on'rilM ofTeV ^^^ obligees of the bond and the debtors on the general account off- would be the same persons, and in equity also if the matter on ac- count were brought here, as the assignees of the chose in action would be bound by the equities affecting their assignors. " But if notice of the assignment had been given to the original debtor, no right of set-off would exist in this court for the balance subsequently due by the bankers to the obligor; because the persons entitled to the bond would, as the obligor knew, be different persons from the debtors to him on the general account, with whom he had coutinued to deal. " If the assignment of the bond had been made to the new firm with notice to the obligor they would, if debtors on the general aocomit, be hable to the same rights of set-off in equity as if they had been the obligees. "If, after the alteration of the firm, and after the assignment of the bond to 674 ; and as to set-off at law as against assignment, Watson v. Mid-Wales Rail, the assignee of a debt after notice of the Co. L. R. 2 C. P. 593. " 712 CHAP. III.j BETWEEN" PAETNEES AND NON-P 4.ETNEES. *512 the new firm, with notice to the debtor or obligor of that assig'nment, an assign- ment had been made of the bond to strangers, and no notice of that second assign- ment given to the obligor, then the rights of set-off would still remain to him in equity as against the first assignees, of whose assignment he had notice, and the second tissiguees would iu equity be bound by it, because,' as I have stated, the assignees of the bond take it subject to all the equities which affect the assignors." The court, after laying down these general propositions, came to the conclusion on the evidence in the case, that the plaintiff was informed that the successive firms with which he dealt as customers, were his creditors in respect of the bonds, but that he had no notice of then- assignment by the firm which stopped payment to the holders of them, and that therefore he was entitled, even as against such holders, to set off what was due to him as a customer of the bank when it stopped payment. The above decisions are sufScieut to show that in allowing debts to be set off against each other, courts of equity went far beyond courts of law, although they did not introduce any new principle of set-off. The truth of this was still more apparent from the cases in which set-off was not allowed, one of the debts being joint and the other several only. ' 2. Of set-off hy and against companies. In actions between companies on the one hand and non- members on the other, there is little to be said upon set-off when a the subject of set-off, except that the ordinary rules a member. are applicable. *It is only when a company sues, or is sued by, one of its *512 own members, or by some person claiming under him, or when one member of a company, having obtained judgment against it, seeks to enforce such judgment against a co-member, or when a company is being wound up, that questions of set-off present peculiar difBculties. These are matters, however, which will be more conveniently discussed hereafter, and the only obser- vation which requires to be made here is, that in actions between a company on the one hand and one of its own snembers on the other, the member is so far treated as a stranger to the company, that cross debts existing between him and the company may be set off against each other (c), but that cross demands between himself and other members individually cannot be gone into. As regards incorporated companies, this follows from the circumstance that (c) Garnet Mining Co. v. Sutton, 3 B. & Sm. 321. 713 '^513 SET-OFF BY AND AGAIXST COMPANIES. [BOOK II. tliey are distinct from the members composing them; and as regards unincorporated companies, it follows from the doctrine that a debt dne from or to several persons jointly cannot be set off against a debt due to or from some or one of them only. Moreover, if a member of an unincorporated joint-stock com- set-off where V^^J ^^ ^ Creditor of the company, and is in a position suesMShlr ^'^ ^'^^ ^^'^ Other members or any of them, it is no de- Sgbytheci^- fense that if the company were wound up, and its ac- '""^^' counts taken, the plaiutiif would be found indebted to the companj'- as a shareholder thereof. In such a case as that now supposed, the plaintiff sues as a non-member; and if his demand is one capable of being enforced, he will not be prevented from en- forcing it, simply because in his character of member Jie is indebted to his co-shareholders. This is well illustrated by a case before Lord Cottenham, which may be conveniently noticed here, although it will have to be referred to again in connection with another sub- Eheamt) J^^*- ^^ ^^^® ^^^® ^° question, Eheam v. Smith (d), Smith. ^-^Q plaintiff and one of the defendants were mem- bers of an unincorporated joint-stock company; the defendants were the bankers of the company, and had sued the plaintiff for a debt due by the company to the defendants as bank- ers. The plaintiff thereupon filed a bill against the bankers and the company, upon the ground that he ought not, *513 *as between himself and the bankers (one of whom was a shareholder), to pay more than what, on taking the ac- counts of the company, would be found to be due from the plain- tiff in respect of the debt in question. The bill accordingly prayed that the accounts of the company might be taken, and its affairs wound wp, and that provision miglit be made for due payment of the debts of the company, and that in the meantime the action, and all proceedings therein, might be stayed. A de- murrer to the bill was overruled by the Yice-Chancellor, who, it is said, treated the case as one in which a partnership of A. and B. was suing a partnership of A., C, and D., in which case it would be contrary to equity to allow the debt to be recovered without first ascertaining for what proportion of it A. was himself liable, (e) But on appeal to the Lord Chancellor, the decision below was (d) 2 Ph. 726. in tlie report. But it is clear that al- («) The fact that such an action could though one partner might under certain not he maintained at law, is not noticed circumstances sue another at law A. 714 CHAP. III. J SET-OFF BY AND AGAINST COMPANIES. *614 reversed, and the demurrer was allowed; the Lord Chancellor ob- " It really seemi? to me that, if the prmciple on which this demurrer is said to to have been overruled by the Vice-Chancellor were admitted, it would lead to the most frightful consequences; for it comes to this, that if a railway company, or any company carrying on great works, and who may have become indebted to some contractor in half-a-miUion of money for work done, upon that contractor applying for payment of his debt, can find out that he, or any one connected with him in business, holds a single share in the company, they may say. No. v/e cannot pay our debt; you must iirst break up the company, and ascertain whether its assets are sufficient for the payment of its debts, for if not, you or the persons connected vidth you will be liable to contribute to the very sum which you seek to recover. It is impossible to stop short of that if the principle be once admitted. After some difficulty a nile has been established at law, enabhng creditors of these gTeat com- panies to enforce their claims against individual shareholders, leaving them, of course to their right to contribution against their co-partners. The rule, no doiibt, leads sometimes to hardship upon the party sued, but the balance of convenience is in its favour, and for that reason it has been adopted: because it would be a still greater hardship upon parties dealing with such companies, if the enforcement of their claims were to be embarrassed by the necessity of treating all the members of the company as jointly responsible. This suit, however, is an attempt to induce a court of equity to interfere with that rule for the plaintiff, by his bill, asserts in effect nothing short of this proposition: — If I can find *out that you who *514 are suing me at law have a single share in the company against whom the claim is made, then there is an end to your legal right; equity will interfere, and though your money may have contributed to the establishment of the company, you shall not be permitted to recover a single farthing against any member of the company untU the concern is altogether wound up." It must not, however, be inferred from this case, that if a mem- ber of a compaay has a demand against it, and seeks to enforce that demand against some member of it, he may not be met by some defense based on the rights of the members inte7' so. This subject will be examined in the third book, when the rights of partners inter se are discussed, (f) The general rule that an assignee of a debt is in no better posi- tion than his assignor, is undoubted; and, as a general set-off against ^ ' '^ , holders of rule, where a debt due from a compaay is assigned, the securities. assignment cannot defeat the right of the company to set off against and B. could not possibly have sued A. (/) See Woodhams ?'. Anglo-Austral- & C. ian Co. 2 DeG. J. & Sm. 162. 715 ■■'4:15 EXECUTION AGAINST PAKTXEES. [BOOK II. the assignor, and also against tlie assignee, what may Be dne from the assignor to the company before the company has notice of the assignment, and when payment by the company is demanded, {g) At the same time, it is possible for a company to deprive itself of this right of set-off ; and if, being indebted, it gives to its creditor a document ■which shows that the debt is to be paid without refer- ence to the state of other accounts which may exist between him and the company, the company cannot, when sued for such debt, set off demands which it may have against him for other matters. The decisions on tliis subject will however be more conveniently referred to hereafter. (A) *515 *SECTION IV.— OF EXECUTIONS AGAINST PARTNERSHIPS AND COMPANIES AND THEIR MEMBERS FOR THE DEBTS THEREOF. After a creditor of a partnership or company has succeeded in establishing his demand, and has obtained iudgment, Execution. . ,° „,. ,p, it may become necessary tor him to take further pro- ceedings to enforce that judgment before he can obtain actual pay- ment. These proceedings are very different when judgment lias been obtained against a company, from what they are when judg- ment has been obtained against the members of an ordinary part- nership; although now a judgment may be entered up against part- ners in their mercantile name, (i) 1. Execution against paetnees. If a judgment has been obtained against several persons sued Execution jointly, the writ of execution founded oh the indement against part- •> •/' j a ners. must be against all of them, and not against some or one of them only; for the judgment does not warrant such a writ, (k) But, although the writ of execution on a joint judgment ((?) Ashworth's case, 10 W. R. 771, 593. V.-C. W.; and see Athensaum Life As- {h) See infra, book iv. c. 3, div. 1, § 9, surance Society v. Pooley, 1 GiS. 102, and Aslatt v. Farquharson, 10 W. R. and 3 DeG. & J. 294. See, also, Wat- 458. kins V. Clark, 12 C. B. N. S. 277; Wat- (J) Ord. xUi. r. 8, set out below, son V. Mid Wales Rail. Co. L. R. 2 C. [k) See Penoyer v. Brace, 1 Lord 716 CHAP. III.J EXECaTION AGAINST PAETNEES. *0l5 must be joint in form, it may be levied upon all or any one or more of the persons named in it; for eacli is liable to the jndginent cred- itor for the whole, and not fur a proportionate part of the sum for which judgment is obtained. (Jf The consequence of this is that Raymond, 244; Clarke v. Clement, 6 T. R. 526; 2 Wms. Saund. 72 I; Bac. Ab. Exec. G. 1. [1) deeper DeGrey, C. J., in Abbot V. Smith, 2 Wm. Blacks. 949; and Her- ries V. Jamieson, 5 T. K. 556, per Lord Kenyon. ^ See Foster v. Bai-nes, 81 Penn. St.' 377; Randolph v. Daly, 15 N. J. Eq. 313. So long as the legal title of the part- nership property remains in the co-part- ners, a creditor of the firm may pursue his remedy against it, in an action at law, in the same mamier as against an individual debtor. But if the legal ti- tle has been conveyed to a third person hond fide, the creditor can pursue the property only by a bill in equity to mar- shal the assets and enforce his equit- able hen. Stokes v. Stevens, 40 Cal. 891. Judgment was obtained and execu- tion issued against an individual doing business in his own name, but who had at the time a secret partner; afterwards, a judgment was obtained and an exe- cution issued against both partners: Held, that the property of the partner- ship was liable to pay both debts, but that the creditor whose execution was first in the hands of the sheriff had priority. Brown's appeal, 17 Pa. St. 480. A judgment was recovered against a partnership on confession of one of the partners. Execution was issued there- on, and the partners paid the amount to the sheriff after a levy on partner- ship property. Afterwards, the judg- ment was reversed as to the party who was not a party to it: Held, that the plaintiff in execution was entitled to re- cover of the sheriff the amount received by him on the execution. Harper v. Fox,- 7 Watts & S. 142. S. and T., trading as partners, made several assignments, each of his private property and interest in the firm, on successive days, to the same assignees, who accepted both trusts. Afterward a firm creditor issued execution and levied upon the partnership property: Held, that, in the absence of proof to the con- trary, the assignment of the firm prop- erty to assignees by one of the firm was assented to by the other, and that the partnership property vested in the as- signees, and could not be levied upon by the sheriff, after the assignments had been made and accepted. MoNutt v. Strayhom, 89 Pa. St. 269. The mere insolvency of a partnership does not, of itself, work such a legal or equitable appropriation of its effects, in the absence of any proceedings for a pro rata distribution, as to prevent a a judgment creditor from maldng his debt out of the effects by execution, or to prevent him from removing fraudu- lent obstructions or assignments intend- ed by the debtor to hinder the execution. Greene v. Breck, 32 Barb. 73. A, residing in the country, and B in the city of New York, both produce dealers, made an arrangement by which they carried on their business iu connec- tion, the profits at both places to be divided between them, intentionally concealing the arrangement made. B incurred a debt to C in the course of his business, confessed a judgment, and the execution was levied on the property used in the business carried on by B. A claimed the property as partnership property: Held, that the levy was just and legal, the creditor C having a right to look to the property of A to pay his 717 516 EXECUTION AGAINST PARTNERS. [rook II. the sheriff may cxccnte a "writ issued against several partners jointly, either on their joint property, or on the separate property of any one or more of them, or both on their joint and on tlieir res])eciive separate properties; and so long as there is, within the sheriff's bailiwick, any property of" the partners, or any of them, a return of nulla bona is improper, (m) Of course, if the judgment creditor has liad execution and satisfaction against one of the part- ners, he cannot afterwards go against any of the others (n); "•■516 but the *important point to observe is, that the sheriff is not bound to levy on the goods of the firm before having recourse to the separate properties of its members, and that they cannot require the sheriff to execute the writ in one way rather than another. Similar rules are applicable to attachments of debts under the Common law procedure act, 1854 (17 & 18 Vict. c. 125, §61), it having been determined that a judgment creditor of three persons debt. Van Valen v. Russfell, 13 Barb. 590. M. and K., in tlieir articles of partner- ship, agreed that K should furnish at first all the necessary capital, and have the exclusive ownership of it, until M. should contribute certain sums as agreed on. Before M. had contributed any funds, T. obtained a judgment against K., which was levied on the whole prop- erty constituting the capital stock ; and afterward the York County Bank obtained a judgment against M. & Co., which was levied on the same property. The property was sold for less than T.'s debt, and the money paid into court for distribution: Held, that T. was entitled to the whole of it. Appeal of York County Bank, 32 Pa. St. 446. Where, by articles of dissolution of a partnership between A and B, A took the property of the partnership, and agreed to pay the debts of the finn, and a creditor of the partnership having obtained a judgment against the firm for a debt, levied his execution upon the real and personal estate of both A and B, and afterward assigned the judg- 718 ment to C, the father-in-law of A, and A afterward sold his personal estate so levied on, to D, and C, by writing under seal, released his interest therein to D, with fuU knowledge of the terms of dissolution: Held, that the judgment could not be enforced against B. Bell V. Hall, 5 N. J. Eq. 477. A judgment obtained by one firm against another, each of which is con - stituted in part of members belonging to both firms, thus being both plaintiff and defendant, cannot be executed by a levy upon the separate property of an individual member of the defendant fliTn. Tassey ». Church, 6 Watts & S. 465. An attorney holding moneys belong- ing to a late firm of three persons is chargeable on trustee process in a suit against a new firm comprising two members of the old firm and another person, unless some interposing claim be made by the creditors of the old firm. Bumell v. Weld, 59 Me. 423. {in) See Jones v. Clayton, 4 M. & S. 349. (w) See Com. Dig. Execution, H. CHAP. ni.J EXECUTIOM" AGAINST COMPANIES. *517 can, under the act in question, attach debts owing to any one or more of .his judgment debtors, (o) The extent to which the right to levy execution against the ef- fects of afirna is affected by bankruptcy will be examined hereafter. The procedure on a judgment against a firm is regulated by Order XLII., Eule 8, which is as follows: — Where a judgment is against partners in the name of the firm, execution may issue: Execution (a) Against any property of the partners as such. against part- (6) Against any person who has admitted on the pleadings that ment against he is or has been adjudged to be a partner. ™' (c) Against any person who has been served as a partner with the writ of sum- mons and has failed to appear. If the party who has obtained judgment claims to be entitled to issue execution against any other person as being a member of the firm, he may apply to the court or a judge for leave to do so; and the court or a judge may give such leave if the lia- bility be not disputed, or, if such liability be disputed, may order that the liability of such person be tried and determined in any manner in which any issue or ques- tion in an action may be tried and determined. It is not clearly said in this rule that execution must first be levied against the joint estate of the firm before having recourse to the separate estates of the members; and, having regard to the pre- vious well-established practice, the rule would probably be con- strued as not rendering such a course necessary. Such a construc- tion of the rule, or a new rule to this effect, would, however, be eminently just; and would be strictly analogous to the course adopted by the legislature respecting the issue of execution against a shareholder on a judgment against a company governed by the Companies clauses consolidation act. (jp) *The mode of taking in execution the share of one partner *5r7 on a separate judgment against him will be examined here- after (see Bk. III. c. 5, § 4). 2. Execution against companies and theie shaeeholdees. By the law of this country, a judgment against an incorporated company cannot by common law be executed except Jud ments ' -^ /.I 1-1 against com- ac^ainst the property of the company ; and a judgment panics. (o) MUler v. Mynn, 1 E. & E. 1075. {2:1) See infra. 719 *0l8 EXECUTIOSr AGAINST COilPANIES. [uOOK II. against an individual cannot by common law be executed against any person or property, except the person or property of tlie indi- vidual named in the judgment. In order, however, to give creditoi'S a more extensive remedy than they would have at common law upon a judgment obtained against companies, either in their corporate names or in the names of their public officers, the legislature lias rendered such judgments enforceable against the individual mem- bers of the companies. For this purpose three schemes have been liad recourse to. The first in point of time was applicable to companies empowered Modes' fcxe- to sue and be sued, and was as follows: — A creditor cuting such . . , . , „ judjjments having obtained nudgmeiit against the public officer, aKainst ihe ^ J o o _ r > members. -nras allowed to procccd upou that judgment by scire First mode. -facias against any of the shareholders in the ■company at the time the judgment was obtained ; and, if necessary, also against such of the late shareholders as were members of the com- pany when the debt was contracted. The next device was a mere modification of the last, and con- sisted in the apjjlication of it to judgments against com- Seoond mode. • i ^i • .l '" i • i • i panics by their corporate names, whicli judgments were made enforceable against shareholders and former shareholders in substantially the same manner as that above explained: a qual- ification, however, was added, to the eifect that recourse should not be had against individual shareholders until efforts had been made in vain to obtain payment from the company, and as to some com- panies, that recourse should not be had against any shareholder except to the extent of his shares. The third and last device was altogether different, and was the result of the course adopted by creditors, who, when they could not obtain satisfaction from companies, singled TMrd mode. *518 out some *unfortunate shareholder, and com- pelled him to pay the whole amount for which judgment had been recovered. This course was in t!ie highest de- gree cruel; and Parliament was induced, when legislating on joint- stock companies, in 1856, to leave out all those clauses, found in the jjreceding acts, enabling creditors to execute judgments against individual shareholders, and to provide, instead, that creditors should have the power, upon non-payment of the debts due to them from the company, to cause it to be wound up. The same view prevailed when the acts relating to joint-stock companies 720 CHA.'P. III.] EXECUTION AGAINST COMPANIES. *519 were remodeled in 1862. Consequently, a ci-editor of a company registered nnder tbe Companies act, 1862, can only execute a judgment obtained against the company by proceeding against the corporate property, and, if necessary, by having recourse to a pe- tition for winding up the company. Such is a general outline of the manner in which a creditor of a company has been enabled to obtain satisfaction of a judgment re- covered against it. To fill up this outline so far as is possible, without alluding to repealed statutes and to the winding up of com- panies, is the object of the remainder of the present section. First, as to execution against the company. A judgment against a corporation is executed against the cor- porate property in the same way as a judgment against Execution an individual is executed against his property {q); and poration. a judgment against a public ofBcer may, it is conceived, be exe- cuted against him and his property as if he were an ordinary indi- vidual, where the right of the judgment creditor is not in this re- spect modified by statute, (f) A corporation cannot be attached for contempt or for disobedi- ■ ence to an order made upon it. (s) But if an order is *made upon a corporation and its direct- *519 Attachments, ors or officers set the order at defiance, an at- tachment against them personally will, if necessary, be granted, (t) By the Common law procedure act, 1860 (23 & 24 Vict. c. 126, § 33), it is enacted that: — "Writs of injunction against a corporation maybe enforced either by attach- ment against the directors or other officers thereof, as in the case of Executiona mandamus, or by writ of sequestration against their property and p|n™s' ''°™" effects to be issued in such form, and tested and returnable in like Attachments. (g) The rolling stock and plant of tachment. See infra, as to particular railway companies are protected by 30 companies. & 31 Vict. c. 127, § 4, made perpetual (s) Hence an award against a cor- by 38 & 39 Vict. c. 31. poration cannot be enforced by attach- (r) See Harrison v. Timmins, 4 M. ment, Mackenzie v. Shgo and Shannon & W. 510 ; Wormwell v. Hailstone, 6 Rail. Co. 9 C. B. 250. Bing. 668, where the nominal defend- {t) Lacharme v. Quartz Rock Mining ant was held not liable to execution ; Co. 1 H. & C. 134, and see Salman v. and Corpe v. Glyn, 3 B. & Ad. 801, Hamburg Co. 1 Ch. Ca. 204. where he was held not liable to an at- « 721 *520 EXECUTION AGAINST COJIPAXIKS. [BOOK II. manner as writs of execution, and to be proceeded upon and executed in like man- ner as wi-its of sequestration, out of the Court of Chancery." («<) Acts of Parliament are sometimes met with which empower a Underacts compaiij to sue and be sued by a public officer, but ^ompaiv'^smnds which, instead of giving any remedy against him or iiiune liable. ^]^g other shareholders individuallj', render the funds of the company alone liable to its creditors. In such a case no execution against the public officer of the company, or against any of it's shareholders, can be issued («); but an action against the public officer will nevertheless lie, ev^en although tliere may l^e no funds, and the plaintiff may consequently have no means of enforc- ing his judgment after he has obtained it. {y) If there are funds they can be got at; but before the Judicature act it was said that the only mode in which a creditor could get at them was by man- damus, or by a bill in equitj'-. (s) Even before the Common law procedure act of 1854, the 68th Mandamus in section of wlucli Considerably extends the power of cases. courts of law to grant a m^andamus (a), it had been held that a creditor of a company, who by virtue of its act of Par- liament had no remedy against its shareholders, but only *520 against the funds *of the company, was entitled to a m.an- damus to its treasurer and directors, after establishino- his debt in an action, (h) If there are no funds, and the company is not under an obligation to provide any, no mandamus can be grantedi(c); but if the company is under an obligation to provide funds, and it will take no measures to raise them, it seems that a mandamtis will go. {d) It is, however, to be observed that a writ of Tnandamus will not be granted if the only reason why payment cannot be obtained by execution in the ordinary way, is, that there is nothing to seize, {e) (m) See on this, section, Day's Com. {a) See Norris v. The Irish Land Co. Law Proo. Acts. 8 E. & B. 512, correcting Benson v. {x) See Harrison v. Timmins, 4 M. & PauU, 6 E. & B. 273. W. 510 ; Wormwell v. Hailstone, 6 (6) See Corpe v. Glyn, 3 B. & Ad. 801 ; Bing. 668; Corpe v. Glyn, 8 B. & Ad. R. v. St. Katherine Dock Co. 4 ib. 36o! 801. (e) R. V. The Victoria Park Co. 1 Q. {y) See Kendall v. King, 17 C. B. 483. B. 288. {z) See the cases in the last two notes. {d) lb.; and see 17 & 18 Vict. c. 125 Actions have been brought in such cases § 68. as in Cane v. Chapman, 5 A. & E. 647 ; (e) See R. v. The Victoria Park Co. 1 but see Addison v. The Mayor of Pres- Q. B. 288. ton, 12 C. B. 108. 722 CHAP. III. J SCIRE FACIAS AGAINST SHAEEHOLDEES. *521 The effect of winding np a company npon executions against it will be examined hereafter in the Fourth Eook. Secondly, as to proceedings against shareholders upon a judgment obtained against a company or its public officer. By the common law, a judgment against A. cannot be executed against B. without a scire 'facias, which, though a iudi- „ . . ^ «/ ' ' Ci J Sci. fa. against cial writ, is in the nature of an action, and may be shareholders, pleaded to accordingly. So, before a judgment in the Chancery division against a public ofScer can be enforced against Jndgmentin . T . T 1 , T , 1 1 . , the Chancery individual shareholders, an order against them person- Division, ally must. be obtained. (/") The object of the sci.fa. is technically to make the execution conformable to the judgment; but substan- tially its object is to give the person against whom the judgment is sought to be enforced an opportunity of defending himself; for, ex hypothesi, he has not had that opportunity before, (gr) In those cases in which a judgment against a company or a pub- lic officer can be enforced against a shareholder, a scire uecessitvof facias is a necessary preliminary, unless there is some ^''i-f'^- statutory enactment to the contrary (A), and a provision that execution *shall not issue without leave obtained by motion *521 in open court, is not sufficient to dispense with a sci. fa. (i) It has been decided that a sci. fa. is necessary in the case of banking companies governed by 7 Geo. 4, c. 46 (h), pci. fa. under 7. 1 ^ • J T, /l /-I • , ^ 0- 4, c 46, and and 01 companies governed by the Companies clauses s & a vict. c. le. consolidation act. [I) The same rule would probably be held to apply to companies governed by the Letters Patent act, 7 Wm. 4 & 1 Yict. ^I'^fjJt.'^i^.V c. 73. (/) Vigers v. Pike, 8 CI. & Fin. 652 ; L. J. N. S. 102, Q. B. Healey V. Chichester and Midlmrst Rail. («) See the last three oases. Ajudg- Co. 9 Eq. 148. ment obtained in a colony may be sued (g) See, generally, as to sci. fa. Com. upon in this country in an action in the Dig. Pleader, 3 L. ; Bac. Ab. Sci. fa. ordinary form : Bank of Australia v. and the note to Underbill v. Devereux, Nias. 16 Q. B. 717. 2 Wms. Saund. 71. (k) Ransford v. Bosanquet, 2 Q. B. (h) Bartlett v. Pentland, 1 B. & Ad. 972. 704 ; Clowes v. BretteU, 10 M. & W. 506; (?) 8 & 9 Vict. c. 16, § 36 ; Hitchins Winfield v. Barton, 2 Dowl. N. S. 355, v. The Kdkenny Rail. Co. 10 C. B. 160; and 7 Jur. 258 ; Wingfield v. Peel, 12 Devereux v. The Kilkenny Rail. Co. 5 723 *j22 execution against COMPAXIES. [book II. Under the repealed acts 7 & 8 Yict. cc. 110 and 113, leave to is- TnciorV&s sue sxecntion against a shareholder mio-ht be obtained Yii:t. CO. 110 . , ° . ■ ,. -n i.1 • T 1 I. andn3. Without any suggestion or sci.ja. Uut this cliu not render a sci.fa. improper"; and in point of fact it was very com- monly had recourse to for the purpose of executing judgments ob- tained against companies to which these acts applied, (to) A sci. fa., however, did not lie against the executors of a deceased share- holder, in.') The Companies act, 1862, as has been already observed, does not Under the Act -^^^'^ a judgment Creditor of a Company formed under 1*"^- it any remedy against shareholders, except by wind- ing up the company. If a company is incorporated, or if it must be sued by a public officer, a creditor cannot proceed by action against a shareliolder ; Shareholder ^'^^^ must obtain judgment against the company and c""™i^against" *'^^®^^ proceed upon that judgment, (o) It seems agaiiisttl"™* *522 to be *doubtful, whether a county court judg- company. nieut against a company can be executed agaiubt its shareholders ; hence the prudence of suing companies in one of the superior courts. ( p) A judgment against a company or its public officer may be reg- Eesistryof istered like any other judgment; and in those cases in against^om- which it is equivalent to a judgment against all the pames. members of the company individually, and is enforce- able against them by execution, it has been .supposed to affect them as if it had been in form a judgment against them individ- ually and registered accordingly, {q) But against this opinion it may most reasonably be urged that as a judgment against a com- pany or its public officer cannot be executed against an individual shareholder of a company without a sci.fa., it is absurd to make Ex. 834. See, as to enforcing decrees 524 ; Morisse ?;. The Royal British Bank, in equity, Healey v. Chichester and Mid- 1 C. B. N. S. 67 ; Wilde v. Stannar, 1 hurst Rail. Co. 9^Eq. 148. H. & N. 873. See, too, Powis v. But- (m) See as to 7 & 8 Vict. c. 110, Pal- ler, 3 C. B. N. S. 645, and 4 ib. 469; mer T. The Justice Assurance Society, 6 Fry v. Russell, 3 ib. 665. E. & B. 1015 ; Peart v. The Universal [n) Powis v. Butler, ubi supra. Salvage Co. 6 C. B. 478 ; Thompson v. (o) Pell v. Burchett, 7 E. & B. 537 ; The Universal Salvage Co. 3 Ex. 310 ; and see as to public officers, ante, p. 495 Re Weiss, 15 C. B. 331. And as to 7 {p) See Taylor v. The Crowland Gas & 8 Vict. c. 113, see Bendy v. Harding, Co. 11 Ex. 1. 1 C. B. N. S. 551 ; Thompson v. Hard- (g) See Ex parte Ness, 5 C. B. 155. ing, ib. 555 ; Dossett v. Hording, ib. 724 CHAP. III.J SCIEE FACIAS AGAINST SHAEEIIOLDEES. *523 that judgment a charge on his property before execution against him can lawfully be sued out. (r) The writer takes it to be clear that a judgment registered against a company governed by the act of 1862 does not affect the property of its members. In order to enable a creditor who has obtained judgment against a company to discover the persons against whom such Discovery of judgment may be executed, provision has been made shareholders. by the various statutes relating to companies, compelling them to make periodical returns, or to keep registers, of the names and residences of their shareholders, -and directing such returns or reg- isters to be open for inspection, (s) A creditor who has obtained judgment against or to'proceed"' a company, *and is in a position lawfully to *523 yf diSa sSare- execnte such judgment against the individual holder, members of that company, cannot be restrained from proceeding to execute it against any member or members he may choose to select, provided he acts hondjide for the purpose of obtaining paj'- ment of what is due to him. {t) "Bnt, as will be seen hereafter, neither a judgment creditor, nor a purchaser from him, will be allowed to use the judgment for the dishonest purpose of aiding some members of the company against the others. («) The effect of winding up proceedings on executions against members of companies will be noticed in the Fourth Book. Having made these preliminary remarks on the subject of execu- (r) See Harris v. The Royal British mus was obtained. As to examining Bank, 2 H. & N. 535. It has been held the directors, see Dickson v. Neath and in Ireland that a judgment obtained Brecon Rail. Co. L. R. 4d Ex. 87. against a company ought not to be reg- (t) See Morisse v. The Royal British istered against a former shareholder. Bank, 1 C. B. N. S. 67; Greene. Nixon, See Hone v. O'FIahertie, 9 Ir. Ch. 119, 23 Beav. 530. See, also, Hardinge v. where relief against such registration Webster, 1 Dr. & Sm. 101, where it was given. See, also. Ex parte Thorn- was held that a member of a company ton, 2 Ch. 171, as to registering wind- who had obtained judgment against it ing-up orders under § 114 of the Com- could not be restrained from enforcing panies act, 1862, now repealed. that judgment against another membei (s) See 7 Geo. 4, c. 46, §4, et seq.; of the same company. The company 7 Wm. 4 & 1 Vict. c. 78, § 6, etseq.; 8 was governed by 7 & 8 Vict. c. 110, and & 9 Vict. c. 16, §§9, 10, 36; and as had become amalgamated with another to the mode of obtaining inspection, see company in which the defendant was a Meader v. I. of Wight Ferry Co. 9 W. shareholder, but the plaintiff was not- R. 750, Ex., were a madamus was held {u) See Woodhams v. Anglo- Austra not necessary; R. v. The Derbyshire lian Co. 2 DeG. J. & Sm. 162. Rail-Co. 8 E. &. B. 784, where a mandar 725 "■■'52i EXECUTION AGAINST COMPANIES. [BOOK II. tions against shareholders generally, it is proposed to examine more in detail the law relating to sci. fa., and to proceedings against shareholders in companies governed by the Banking act of 9 Geo. 4, the act of 7 Wm. 4 and 1 Yict. c. 73, the Companies clauses con- solidation act, and other companies. Proceedings hy scire facias, {x) A writ of scire facias is a judicial writ, and is the commence- Natureof mont of a new action, founded on a judgment already SCI. fa. obtained. The writ states the recovery of the judg- ment, and whatever facts are necessary to show that the person against whom the writ is issued is liable to be proceeded against on that judgment; and the shareholder against whom the writ is is- sued is commanded to appear to show why the plaintiff ought not to have execution against him. The writ is set out in a decla- ration or statement of claim, which prays that execution *o24 may *issue against the defendant (j/); and which may be pleaded or demurred to, in the ordinary way. {z) Issue having been joined, the cause proceeds to trial, {a) A judgment obtained against a defendant in a sci. fa. is executed like any other judgment. But the Court will compel the creditor to limit the amount for which execution is sued out to what may then be really due to him. Tliis is done by putting the creditor on terms when leave to issue a sci. fa. is granted. (5) {x) The Judicature acts and rules con- 371 ; Bank of Scotland v. Fenwick, tain no provisions specially ai^plicable ib. 792; Ness v. Tenwick, 2 Ex. 598; to these proceedings. But the general Nunn v. Claxton, 3 Ex. 712, in each provisions applicable to all actions, ap- of which the declaration was demurred ply, it is conceived, to them. to. Several matters may be pleaded: («/) See the pleadings in Rioketts v. Philhpson v. Tempest, 8 Jur. 60. Aa Bowhay, 3 C. B. 889, where the writ to the practice and forms, see 2 Chit- and declarations are set out in full. ty's Archbold's Practice, and Chitty's See, too, Bradley v. Eyre, 11 M. & W. Forms thereto. 432; Nunn v. Claxton, 3 Ex. 712. In {a) The jury inust not be sharehold- some of the forms the writ is directed to ers, Esdaile v. Lund, 12 M. & W. 734. the sheriff, but in others it is directed to (&) See Harvey v. Scott, 11 Q. B. 92; the individual shareholder. Green v. Nixon, 23 Beav. 580; Addison {z) See Esdaile v. Tmstwell, 1 Ex. v. Tate, 11 Ex. 250. 726 CHAP. III.J SCIRE FACIAS AGAINST SHAEEHOLDEES. *52o A soi. fa. issned irregularly, e. g., without leave, where leave is required, will be set aside; but a plea to it, alleging jj^g^ia^ merely an irregularity for which it might be set aside, ^'''- **■ is bad. (e) A judgment creditor of a company may issue as many concur- rent writs of sci. fa. against as many shareholders as concurrent he thinks proper; and so long as his demand is unsat- 'wntsofsci.fa. isfied, a defense by any shareholder that the plaintiff is proceeding against others is bad. (d) Even the circumstance that judgments have been already obtained against them on the writs issued against them, affords no ground of defense; for such judgments do not ex- tinguish the right conferred upon the creditor by the prior judg- ment obtained against the company, (e) Even before pleas in abatement were abolished it *was decided that to a sci. fa. *525 against a shareholder the non-joinder of other persons liable to be proceeded against, could not be pleaded in abatement; and if one sci. fa. issued against several shareholders, a declaration upon it against some of them only was not bad on demurrer, even if it were irregular, (y) ITeither is it any objection to a soi. fa. by a creditor against a shareholder that other creditors are suing him or are in a position to issue execution against him {g); although when he has paid the full amount to which he is liable, no other creditor can extract more from him. (A) A rule for a sci. fa. ^ or an application for leave to issue execution (in those cases in which no sci. fa. is necessary) may, Applications , -i IP T (1 1 lor ru,i6 lor sci> it seems, be moved lor, or made, more than once by fa. the same creditor against the same shareholder for the same debt, if the same rule or application has been allowed to drop for any satisfactory reason, or has been refused upon some technical ground (c) Marson v. Lund, 16 Q. B. 344; well, 2 Ex. 312, and Esdaile v. Lund, Bradley v. Warburg, 11 M. & W. 452; 12 M. & W. 647. Kicketts v. Bowliay, 3 C. B. 889; Bank (e) Burmester v. Croflon, 3 Ex. 397. of Scotland v. Fenwick, 1 Ex. 792; {/) Fowler v. Rickerby, 2 Man. & Gr. Bosanquet v. Grraham, 7 Jur. 831, Q'. 760, decided on 7 Geo. 4, c. 46. See the B. See as to suing out a sei. fa, on a argument in Esdaile v. Lund, 12 M. & judgment entered up for costs. Farmer W. 647. ' V. Mottram, 6 Man. & Gr. 684. ((/) Rigby v. Dublin Trunk Rail. Co. {d) See Rigby v. Dublin Trunk RaU. L. R. 2 C. P. 586. Co. L. R. 2 C. P. 586; Nixon v. Brown- (/i) Burke v. Dublin Trunk Rail. Co. low, 1 H. & N. 405; Nunn v. Lomer, 3 L. R. 3 Q. B. 47. Ex. 471. Compare Esdaile v. Trust- 727 '"oiG EXECUTION AGAIXST COMrANIES. [bOOK II. wliieli lias been removed. At the same time tlie maxim, neuio debet his vexari, yro eadem causa is applicable, unless some good reason to the contrary can be shown. (^) A judgment against a compan}', the shareholders of which are sci fa after liable to execution on the judgment, may be exe- eiegit. cuted against them, although the creditor has issued an elegit against the company, and has obtained partial satisfaction by an extent under the writ, ih) The extent does not, in these cases, satisfy the debt. If the creditor has received nothing from the extent, he is entitled to execution for his wliole demand; and if he has obtained any fruits from the extent, he is still entitled to execution for so much as remains due. {J) If the land ex- *536 tended is of small value compared with vdiat is *due to the creditor, he is entitled to execution against the shareholders without delay; but if the land is of such a value that the creditor will in a short time be able to obtain paj'ment without having recourse to the shareholders, the court will not, as a matter of course, let immediate execution against them be issued, {m) Except where judgment has been obtained by fraud, the validity vaiidityof °^' ^ judgment which has been recovered against a notle^ques-^"' "ouipany or its public officer, cannot be imjieached by tionedonsci.fa. ^ shareholder who is proceeded against by sci. fa.,- for, excepting in cases of fraud, nothing is admissible as a defense to a sci. fa. which might have been relied on as a defense to the action on the judgment in which the sci. fa. issues, (w) The judgment is conclusive, and nothing can be set up as a defense to a sci. fa. upon it, except some matter which is consistent with the validity of the judgment itself. Thus in Peddell v. Gwyn -(o), judgment had been obtained Peddeiitt against the official manager of a company completely Gwyn. registered under 7 & 8 Yict. c. 110, upon a bill of ex- (i) See, upon tliis, Corder v. The TJni- should state what has heen done under versal Gas Light Co. 6 C. B. 190 and the elegit, and the amount if any ob- 554; Field v. Mackenzie, ib. 384; Dodg- tained by it. son V. Scott., 2 Ex. 457. Edwards v. (m) See Addison v. Tate, 11 Ex. 250. Cameron's, &c. Rail. Co. 15 Jur. 470. (n) See ^jcr Lord Mansfield in Cook «. Ex., is a strong authority for not allow- Jones, Oowp. 727. ing two apphcations. (o) 1 H. & N. 590.- See, too, Bradley (A:) Addison t). Tate, 11 Ex.260; R.i>. v. Urquhart, 11 M. & W. 546; Phihp- The Derbyshire Rail. Co. 3 E. & B. 784. son v. Egremont, 6 Q. B. .587, and the [l) See Addison v. Tate, 11 Ex. 250, cases in the next note, from which it appears that the sci. fa. 728 CHAP. in.J SOIEE FACIAS AGAINST SHAEEHOLDEES. *527 change accepted for tlie company by two of its directors in the form prescribed by the act. Upon this judgment a sci. fa. was issued against a shareholder, who pleaded in efiect that the direct- ors had no authority'- to accept bills binding on the shai-eholders to a greater extent than the amount unpaid' np of their shares, and that he, the defendant, had paid up his shares in fnll. This plea was on demurrer held bad, inasmuch as, assuming that the bills had been accepted without authority, the judgment which had been obtained precluded the company and all its shareholders from raising that question. The court considered it clear tha^t after judgment against a joint-stock compan}^, a shareholder cannot set up as a defense any matter which would have afforded an answer to the original action. Upon the same principle it seems that if judgment is '"obtained against a person sued as a public officer, a share- *527 holder cannot plead as a defense to a sci. fa., that the person against whom the judgment has been obtained Bradley d. Eyre, was not the representative of the company. (^) In such a case application should be made to set aside the judgment. (^) A judgment obtained by default is, in the absence of fraud, as conclusive against the shareholders as any other judg- judgment by raent. (r) ' '^^^"°""- A judgment obtained by fraud and collusion is always impeach- able by innocent parties affected by it; and however Ej-geptions in high the tribunal in which the judgment has been pro- ofuhc rlXf nounced may be, its invalidity on the ground of fraud tiie creditor. may be examined by any inferior court which may happen to be called upon to give effect to it. (s) If, therefore, a shareholder is proceeded against upon a judgment obtained by fraud on the part of the creditor, the judgment may be impeached; and it seems that the shareholder may at his option either apply to the Court in which the judgment was obtained to have it set aside, or rely on the fraud as a defense to a sci. fa. or to an application for leave to issue execution as the case may be. (f) (p) See Bradley v. Eyre, 11 M. & W. (s) See Shedden v. Patriot, 1 McQu. 432; Fowler v. Rickerby, 2 Man. & Gr. 585: The Duchess of Kingston's case, in 760. 2 Sm. L. C. and the admu'able disserta- {q) Ibid, and Bosanquet v. Graham, tion upon it there. 7 Jur. 832, and 6 Q. B, 601, note. (i) See Dodgson v. Scott, 2 Ex. 457; (r) Green v. Nixonl 28 Beav. 530. Edwards v. The Kilkenny Co. 2 C. B. N. See, also, Ex parte Chorley, 11 Eq. 157. S. 397; Philipson v. Egremont, 6 Q. B. 729 *tl:28 EXECUTION AGAIXST COMPANIES. [bOOK II. Philipson V. Egremont (u) affords a good example of a successfal defense to a soi.fa. on the ground of fraud on the part Philipson J). „ . ■, ,. -f i i- Egremont. oi a judgment creditor, in that case an action was brought against the registered officer of a company formed under the Letters Patent act, upon a bill of exchange drawn and endorsed by the agent of the company, and judgment was recovered against the defendent in that action. A shareholder in the company *528 pleaded to a sci.fa. on the judgment, that the * original ac- tion was for a demand in respect of which neither he, nor the company, nor its registered officer, was by law liable, as the plaintiff knew, and that, the registered officer of the company and the plaintiff knowing the premises, such officer fraudulently and deceitfully and by connivance with the plaintiff, suffered the judg- ment to be recovered in order that the plaintiff" might proceed against and obtain payment from him, the shareholder. Upon demurrer this plea was held good. It is to be observed that the fraud relied upon in the above ca-^e Fraud by com- as a defense to the sd. fa., was fraud on the part of the pany on share- . ^ iiiiii iioidevdoes nudgment creditor. Iraud on a shareholder by the not protect liim . ^ ■ ^ n '^ i ^ fromsci. fa. directors of the company, and to which fraud the cred- itor is not privy, affords no defense to proceedings by him against the shareholder. This was decided in several cases arising out of the failure of the Eoyal British Bank, and is a necessary conse- quence of those principles of the law of partnership which have been discussed in the First Book of the present treatise. In Henderson v. the Eoyal British Bank (»), the plaintiff had Henderson D. obtained iudgment aacainst a company incorporated by Ec.valBritish , i , „ „ ^^ , , , , Bank. letters patent under the 7 & 8 Vict. c. 113, and he had also obtained a rule calling upon a shareholder to show cause why execution on such judgment should not issue against him. The shareholder insisted that no proceedings should be taken against him because he had been induced to become a shareholder 587; Bosanquet v. Graham, 6 Q. B. 601, iell v. the Eoyal Brit. Bank, 1 H. & N. note; Green v. Nixon, 23 Beav. 530. 681; Powis v. Harding, 1 C. B. N. S. The first two of these cases, and Harvey 533. Howard v. Shaw, 9 Ir. Law Rep. V. Scott, 11 Q: B. 92, show that it is not 335, shows that a shareholder sued for a proper to raise the question of fraud debt of the company cannot escape pay- upon a motion for leave to issue a sci. ment on the ground -that the company fa. was concocted in fraud, and that its (m) 6 Q. B. 587. deed of settlement was invalid. {x) 7 B. &. B. 336. See, too, Dan- 730 CHAP. III. J SCIEE FACIAS AGAINST SHAEBHOLDEES. *529 by the false and fraiidnlent statements of the directors of the com- pany, and had repudiated his shares as soon as he had discovered the fraud. But it was held that these were matters with which the creditor had nothing to do. The judgment of Lord Campbell in this case, so far as it bears upon the effect of the fraud relied upon, was as follows: — , " This was an application for leave to taie out execution against a shareholder ; and the proposed answer to the application was, that the shareholder had been induced by fraud to take the shares. He had *remained a share- *529 holder for some time, and received dividends, and acted in all respects as a shareholder, until ^the Royal British Bank stopped pa3rment, and until its bank- ruptcy, and he then gave notice that he was no longer a share- Henderson v holder, and, as far as he could, disaffirmed the contract under which ^°'!^^ British he became a shareholder, as being induced by the fraud of the directors ; he demanded back all the moneys he had paid, and, being a depositor himself, he demanded the deposit, and all the advances. The question is whether, if it were established that this fraud had been practiced upon him, it could be an answer to the application. If there were any doubts about it, we should not make this rule absolute ; but we should direct a scire facias to issue, so that the question might ^be raised on the record. We entertained no doubt on the argument : but being informed that similar applications had been made to the Courts of Common Pleas and Exchequer, and that rules were depending in those Courts, we thought that upon a matter of this sort it would be well if we had a conference with the other judges before our judgment was given. That conference has taken place : and the judges are unanimously of opinion that this can be no answer to the appli- cation either upon principle or authority. This is an appUcation by a creditor, who, upon the faith of the party who then was a shareholder, and who held him- self out to the world as a shareholder, and being one, gave credit to the bank. («/) He has obtained judgment against the bank. There were no assets of the bank as a company, and the appHcation now is that execution may issue against that party individually. It would be monstrous to say that he having become a partner and a shareholder, and having held hhuself out to the world as such, and having so remained until the concern stopped payment, could, by repudiating the shares on the ground that he had been defrauded, make himself no longer a shareholder, and thus get rid of his liability to the creditors of the bank who had given credit to it on the faith that he was a shareholder. It would be monstrous injustice and con- trary to all principle. Whether we could say that, with regard to other share- holders not privy to the fraud, we need not say ; there may be some difficulty about that. But that is not the question we have to determine ; which is simply, whether this is an answer to a creditor who has given trust upon the faith of his being a shareholder. Suppose this were a common partnership, and that there was credit given to the firm : would it be an answer to an action by a creditor against one of (t/) It may well be doubted whether, could be justified ; for there was noth- if the creditor had nothing to rely on, ing to show that the shareholder held except that the shareholder had held himself out as a partner to the plaiatiff'. himself out as a partner, the decision See, ante, p. 50, et seq. 731 ■'■530 EXECUTION AGAINST SHAEEHOLDEES. [BOOK II. the partners that the defendant was fraudulently induced by the other partners to become a partner ? Inter se, that might be considered; but, as between the ikm and a creditor, it is a matter wholly immaterial." A shareliolder in a company cannot escape from the liability to its creditors which is imposed upon him as a share- Creditorpro- '. ^ n i • cceding against holder, cxccpt by Virtue ot some act ot theirs: shareholder after i r> /• ^ induchighimto *530 and nothing sliort of * fraud on their part, or become such. " _ -■■ ' of some contract or conduct of theirs preclud- ing them from treating him as their debtor, will afford him a defense as against them so long as their demand' exists as between them and the company. This is well illustrated by the recent case „.„ ^. of Bill V. Kichards (s). where a shareholder in a rail- BiU V. Richards. n way company pleaded to asn.fa. issued against him by a creditor who had obtained judgment against the company, tlmt he, the shareholder, had at the request of the plaintiff taken shares in the company as a trustee for others, and upon the faith of the plaintiff's statement that by so doing no responsibility in respect of the shares would be incurred. It was not alleged that the plain- tiff had been guilty of any fraud ; his statement did not relate to any matter of fact ; it did not amount to a contract of indemnity, nor to a contract that if he were a creditor of the company he would not endeavor to obtain payment from the defendant. It was quite consistent that all that was meant was, that if the defendant would allow shares to be taken for others in his name they would indemnify him against the consequences, and the defense was there- fore held insufficient, although pleaded as a defense on equitable grounds. The effect which a contract by a company to pay out of its funds No soi. fa. by and those only, has in limiting: the liability of the creditor whose ^ •/ ^ right is limited shareholders, has been already examined, (a) Where tu cmpany's ■' \ / " '^^^ '^ funds. such a contract has been entered into, no execution on the judgment against the company will go against the shareholders at the suit of a person seeking to enforce that contract (6); he must obtain some order against them personally, (o) Having now adverted to those rules and principles which are sci. fa., &c., applicable generally to proceedings against share- under particu- ,,, ., /. ° laracts. holders, upon judgments obtained against the company (z) 2 H. & N. 311. Compare Batty ». (&) Halket v. The Merchant Traders' McCundie, 3 Car. & P. 203 ; Connop v. Ass. 13 Q. B. 960. Levy, 11 Q. B. 769. (c) See ante, p. 382. (o) Ante, p. 377. CHAP. III.] SCIEE FACIAS AGAINST SHAEEHOL DISKS. *531 of which they are members, it is necessary to examine with more minuteness the liability of shareholders in different sorts of com- panies. *Execntion against members of companies governed by 7 Geo. 4 c. 46. *531 The Banking companies act of Geo. 4 requires the public officei's of a company governed by that act to be members of Exeention the company {d), and enacts that execution upon any of^'g? under? judgment obtained against a public officer may be is- g«°-*' '^- ^•'■ sued against any member of the company, (e) From this it fol- lows that a public officer of a company governed by the act in question is personally liable upon every judgment obtained against him; and that writs can issue against him grounded on such judg- ment, and that, so far as he is concerned, no sci. fa. or other in- termediate proceeding is necessary. (/") If, indeed, the public officer named in the judgment has ceased to be a member of the company, then, by the act, he is only liable like other former share- holders; and upon a,n affidavit by him, the court will stay execution against him until after he has been proceeded against by scire facias, (g) The act in question, 7 Geo. 4, c. 46, allows a cred- Li„t,iiityof itor, who has obtained judgment against the public under'T" oea 4, officer to execute that judgment — '^■*^- 1. Against any member for the time being of the company; and in case any such execution shall be ineffectual, then 2. Against any person who was a member of the company at the time the contract sued upon was entered into; or 3. Against any person who became a member at any time after such contract was etitered into, but before it was executed; or 4. Against any person who was a member at the time when the judgment was obtained. But persons who are not members for the time being, and so do not fall within the first class, are only liable for three years after they have ceased to be members. (A) (d) 7 Geo. 4, c. 46, § 4. {g) See Harwood v. Law, 7 M. & W. («) § 13. 203. (/) Harwood v. Law, 7 M. & W. {h) 1 Geo. 4, c. 46, § 13. 203. 733 *533 EXECUTIOIT AGAINST SHAREHOLDERS. [BOOK 11. It appears, therefore, that a creditor must go first of all ag'ainst the members for the time being, and that imtil th'?t?mc'bei'ng. *532 he has *done so he cannot go against late mem- hers (j); and by meml)ers for the time being are meant, not members at the time judgment was obtained against the public officer, but members at the time a sci. fa. on the judgment is issued, (h) Members for the time being in this sense can be ptroceeded against at once, and the statute expressly allows pro- ceedings to be taken against any one or more of them. Their lia- bility, it will be observed, is much more extensive than the lia- bility of ordinary partners; not being confined to debts incurred after they became partners. It is settled that a sci. fa. is the proper mode of proceeding against shareholders under this act. (J) The names of the share- holders can be ascertained from the returns made to the Stamp Office, (to) A creditor is not bound to proceed against all the members for Tr„™o, .„o™ the time being before having recourse to former mem- Former mem- o o ^^^^- bers; but he must make every reasonable effort to ob- tain payment from the first before he acquires a right to proceed against the last. Acting upon this principle, the Court allowed a sci. fa. to issue against a late member, although proceedings against a member for the time being were pending, evidence being given to sliow that nothing was to be got from him, and that evi- dence being uncontradicted. (») So in another case, a late member was allowed to be proceeded against, although some only of the members for the time being had been sued ineffectually, uncontra- dicted evidence being given that inquiry had been made as to the solvency of the others, and that there was reason for believing that payment could not be obtained from any of them, {o) So (i) Hence a late member was a com- 345; Williams v. Aspinall, 7 Scott, petent witness for the public officer. 822, contra, is not to be relied upon. Needham v. Law, 12 M. & W. 560. The rule for a sci. fa. against present {k) See Dodgson v. Scott, 2 Ex. 457. members is absolute in the first in- See, too, Bradley v. Eyre, 11 M. & W. stance, and need not be moved for in 432, which turned on a private act in open court, Harrison v. Tysan, 1 Bail which similar words occurred. Ct. Ca. 111. [1) Ransford v. Bosanquet, 2 Q. B. (m) See 7 Geo. 4, c. 46, § 4, et seq. 972, and Bosanquet v. Ransford, 11 A. (ji) Dodgson v. Scott, 2 Ex. 457. & E. 520, and Cross V. Law, 6 M. & W. (t/) Harvey v. Scott, 11 Q. B. 92; 217; AVittenbury v. Law, 6 Bing. N. C. Field v. Mackenzie, 4 C. B. 705. 734 CHAP. in.J SCIEE FACIAS TJNDEE 7 GEO. 4, C. 46. *y34 it was unnecessary for the creditor to *issue writs of ca. sa. *533 against the existing shareholders before proceeding against former members, (p) Moreover, a mortgagee who has obtained judgment for his debt, and has done his best to obtain pajnnent by executing that judgment against the members for the time being, is, it seems, entitled to proceed against former members, even with- out realizing his mortgage, (q) On the other hand, the Court will refuse a creditor leave to issue a sci. fa. against a late member where there is reason to believe that satisfaction can be eot with diligence from existing members (?■); and a return of nulla hona to a writ of^-. fa. issued against the public officer, together with a loose affidavit as to the insolvency of the members for the time being, will not of itself be sufficient to satisfy the Court that pay- ment from them cannot be obtaiiied. (s) "With respect to late members, the act, as has been seen, makes three classes of them liable, and renders it lawful for classes of the creditor to proceed against any or all of them, not bers. confining him to one class before having recourse to another, (t) The liability of late members is, in some respects, more extensive than the liability of retired partners at common law, inasmuch as these last are not liable to be sued in respect of debts contracted before they became members. But, on the other hand, the statute limits the duration of a late member's liability to creditors to three years after retii'ement. {u) Moreover, there is one class of late members who cannot be proceeded against by a creditor at all, viz., those who did not become members until after his debt had arisen, and who had ceased to be members before he obtained judgment against the piiblic officer. Whether the omission of all members of this class was designed or accidental is not known; but being * omitted, their freedom from liability towards creditors is *5J|4 complete, (cc) {p) Field V. Mackenzie, 4 C. B. 732. be shown to have reached him, Esdaile (2 ) J6. 4 C. B. 725. The mortgage v. Smith, 18 L. J. Ex. 120. in that case could not be reaUzed at once [u] This limitation applies only to without great loss. creditors, and does not prevent a late (r) Eardley v. Law, 12 A. & E. 802. shareholder from being a conti-ibutory. See, too, Cross v. Law, 6 M. & W. 217. although three years may have elapsed (s) Bank of England v. Johnson, 3 since he retired from the company. Ex. 598. Gouthwaite's case, 3 Mo. & G. 187. [t) A rule for a sci. /a. against a late (.r) See Dodgson «. Scott, 2 Ex. 457, member must be served personally, or and Harvey v. Scott, 14 Q. B. 92. /o5 *635 EXECUTION AQAINST SIIAEEHOLDEES. [cOOK II. A creditor, being entitled to issue execution only against mciii- Eviiicnceof ^^^^ ^'^^ ^'""^ tiuie bciTig, Or, if necessary, against certain membcrsiiip. classes of late lueiubers, must, before he can obtain leave to issue a soi. fa. against any particular person, adduce some evidence to show either that such person is a member for the time being, or that he was a member at the time when the contract with the creditor was entered into, or before the same was executed, or at the time judgment was recovered, (y) For this purpose recourse is usually had to the memorial of shareholders, directed to be re- turned to the Stamp Office, which is held to be sufficient if uncon- tradicted, even although it may be in some respects informal (2) or inaccurate as regards the name of the shareholder proceeded against, (a) The memorial is not, however, conclusive, nor is it the only evidence of membership; and it has been decided that a person whose name is omitted from the last return may neverthe- less be proved, aliunde., to have been a shareholder when the return was made, and that, if there is a dispute as to the fact of member- ship, a sci. fa. ought to issue in order that the creditor may have an opportunity of trying that question. (5) As between a creditor and an alleged shareholder, the question _„ , „ of membership or no membership depends entirelv Erlect 01 non- »■ i r « rcquMte^form- "^''P^'^ whether theso requisites which, by the company's ahties. deed, have to be complied with before a person be- comes a member, have been complied with or not; and it may happen that one and the same person is not a member for the pur- pose of being proceeded^against by a sci. fa., although he maj^ be a member for the purpose of being made a contributory on *535 the winding *up of the company. In ITess v. Angas (e), a husband was held not to be liable to be proceeded against by a sci. fa. in respect of shares held by his wife, he not having complied with the terms of the company's deed, so as to make himself a member in respect of such shares. {y) In The Bank of England v. Jolin- 699. Compare Prescott v. Buffery, 1 C. son, 3 Ex. 598, the Court let a sci. fa. B. 41; ante, p. 162. issue against a person, althougli there (a) Clowes v. Brettell, 11 M. & "W. was strong evidence against his having 461, decided on a private act. See, .too, been a member at the time alleged. Thompson i>. Harding, 1 C. B. N. S. 555. (z) See Ex parte Prescott, Mon. & (&) Bank of England v. Johnson, 3 Ch. 611; Harvey v. Scott, 11 Q. B. 92; Ex. 598; Prescott v. BufFei-y, 1 C. B. 41. Field V. Mackenzie, 4 C. B. 705 and (c) 3 Ex. 805. See, too, Dodgson v. 717; Bosanquet v. Shortridge, 4 Ex. BeU, 5 Ex. 967. 736 CHAP. III.J SCIEE FACIAS UNDEE 7 WM. 4 & 1 VICT. C. 73. *536 In Ness V. Armstrong (d), a similar decision was come to with respect to an executor, although he had been paid divi- j^^^^^ j^^^_ dends on the shares to which he was as executor enti- strong, tkd; and in Bosanqnet v. Shortridge (e), it was held that a mem- ber who had sold his shares, and had them transferred goganquetn. to the purchaser, and who thenceforth, ai)d for some shortnage. years, had had nothing to do with the company, continued never- theless, as between himself and creditors, to be liable as an exist- ing shareholder, lie not having duly complied with the requisites of the company's deed, so as to exchange places with the purchaser. Similar decisions have been made upon statutes relating to other companies. Execution against menibers of Companies governed hy tTie Letters Patent act. The Letters Patent act (7 Wm. 4 & 1 Yict. c. 73) does not require the public officers of a company governed by it to be Execution , „ , . -J. ,1 against public members ot the companv : and even it thev are mem- officer under? , ,.,.,.,... , , " . Wm. 4andl bers their liabilities are restricted to the extent speci- vict. c. 73. tied in the letters patent of their respective companies. These cir- cumstances alone, it is conceived, render it improper for a creditor to issue execution against a public officer of a company governed by the Letters Patent act without a 8ci.fa.; for it is clear from the act that he cannot be made personally liable unless he is or has been a member, and in neither case is he liable to the extent to which he would be liable at common law. The act in question appears to empower a creditor who has ob- tained judgment against the public officer of a com- Liability of pany governed by it, to execute that judgment against under? wm. 4 all or any of the shareholders, or late shareholders whom he might have sued for payment at common law ; the only qualifications being : 1. that a shareholder who transfers his shares continues a shareholder for all purposes of liability until the *transfer has been registered; and 2, that the extent of a *536 shareholder's liabilitj'- is limited or unlimited, according to the letters patent granted to the company. (/") This act has not re- {A) 4 Ex. 21. & 24; and see, upon it, PMlipson v. Eg- (e) 4 Ex. 699. remont, 6 Q. B. 587. (/) 7 Wm. 4 & 1 Vict. c. 73, §§ 21 *537 EXECUTION AGAINST SHAEEIIOLDEES, [BOOK II. ceived any judicial interpretation throwing light upon the liabili- ties imposed by it, and it is by no means clear, that the liability of an incoming shareholder is not more extensive than the ordinary liability of an incoming partner. The names of the shareholders can be ascertained from the re- turns made to the Court of Chancery, {g) Execution against memters of companies governed ht/ 8 <& 9 Vict. c. 10. With respect to companies governed by the Companies clauses Under 8&9 Consolidation act (8 & 9 Yict. c. 16), there is one im- itor must first ' poi'taut rulc whicli has no analogy with anything met go against the ., ,,, t tti/ t j_ oomp.iny; With in tlie law applicable to ordinary partner- ships, or in that applicable to companies governed by the Banking act of 7. Geo 4, c. 46, or by the Letters Patent act of 7 Wm. 4 and 1 Yict. c. 73. The rule referred to is, that the credit- ors of a company governed by the Companies clauses act, are not entitled to proceed against the shareholders personally, if payment •can be obtained from the company. In other words, the creditors must have recourse to the assets of the company before they can have recourse to the shareholders individually. When, therefore, an application is made for leave to issue a soi. fa. or execution against a shareholder in a company governed by the act in ques- tion, evidence must be adduced to satisfy the Court that pay- ment cannot be obtained from the company itself as a body (7i). The and show that Creditor need not show that there is no possibility of the tain payment Company ever paying him ; all that the Court requires irom It. jg ^^ ]^g satisfied that the creditor applying for leave to proceed against the shareholders has no means of obtaining *537 '^fresent payment except from them individually. In order to satisfy the court upon this head, the.credi tor must prove that he has made reasonable attempts to obtain payment from the company, and to discover assets presently available for his satis- faction, and that such attempts have -been unsuccessful. A mere [g) lb. §6, et. seq. the company. Hitchins v. The Kil- {h) The same rule applied to com- kenny EaU.. Co. 15 C. B. 459, but if it panies governed by the repealed acts of does, the averment may be traversed. 7 & 8 Vict. CO. 110 and 113. It seems Marson v. Lund, 16 Q. B. 344. See that the sci.fa. need not contain any Nixon v. Brownlow, IE. &. N. 405. averment that nothing can be got from 738 CHAP. III.J SCIKB FACIAS UNDEE 8 & 9 VICT. 16. *538 genei-al assertion by an attorne3''s clerk that writs of fi. fa. have been issued against the company and returned nulla l)ona, is not sufficient ; for it is consistent with such an assertion that no at- tempt has been made to ascertain whether the company has any assets or not. {i) But if attempts have been made to discover assets, and those attempts have been fruitless, ^and a writ of _^. fa. has issued against the company and been returned nulla hona, that will be sufficient until it is shown affirmatively that the company has assets ih) ; and even if the company has assets which have not been taken in execution, still, if the court is satisfied that they are in- sufficient to satisfy the plaintiff, the sci.fa. will go. (/) By the Companies clauses consolidation act, a judgment recov- ered against a company to which such act applies, may, -^^^-^q^^ ^f if necessary, be executed against any of the share- ^miCTS&^g'^ holders. But no shareholder is liable to a greater ex- "Vict. c. le. tent than the amount unpaid up of his shares in the company, (m) The expression, " any of the shareholders," has been decided to mean any of the shareholders at the time execu- ..j^nyoftte tion against the company is found to be ineffect- shareholders." nal, i. e., in ordinary cases, at the time of the sheriff's re- turn of nulla lona. (n) *Consequently, not only all persons *538 who have ceased to be shareholders before judgment against the company has been recovered, but also ail who have ceased to be so after that time, but before it has been ascertained that execution against the company on such judgment will prove ineffectual, are wholly exempt from liability to the judgment creditor, (o) Sci.fa. is the proper mode of proceeding against a shareholder under this act, and every shareholder intended to be ggifa. neces- proceeded against, is to have sufficient notice in writ- ^^'^• (t) See Hitcliins v. The Kilkenny Rail. C. P. 15; and see infra, notes («) and {p). Co. 10 C. B. 160, and 15 ib. 459; King v. (?) nfracombe Rail. Co. v. Lord Polti- TheParentalEndowmentCo.il Ex.443. more, L. R. 3 C. P. 288; Rigby v. Dub- (/t) Rastrick v. The Derbyshire Rail. US' Trunk Rail. Co. L. R. 2 C. P. 686. Co. 9 Ex. 149; Nixon v. The Kilkenny (m) 8 & 9 Vict. c. 16, § 36. See Burke RaU. Co. 1 H. & N. 47; Hitchins v. The v. Dublin Tnmk Rail. Co. L. R. 3 Q. B. Kilkenny Rail. Co. 15 C. B. 459; Wyall 47; Guest v. Worcester RaH. Co. L. R. ».'The Darenth RaU. Co. 2 C. B. N. S. 4 C. P. 9, in the last case the shares 110; Ridgway v. The Security, &c. Ass. were not in fact paid up. Soc. 18 C. B. 686. The return by the («) Nixon v. Green, 11 Ex. 550, and sheriff need not be filed when the sci/a. 3 H. & N. 686; Nixon c. Brownlow, 3 is moved for; Ilfracombe RaU. Co. v. H. & N. 686. Devon and Somerset Rail. Co. L. R. 2 (o) Ibid. 739 *539 EXECUTION AGAINST SIIAEEIIOLDEES. [bOOK II. ing before application for leave to issue a sci.fa. against liini is made. (_p) Leave to issne a sci.fa. will be refused if the Court is of opinion that there is a clear defense to it. {q)' On the other hand a soi. fa. may be dispensed with if the shareholder does not desire to con- test his liability, (r) The meaning of the word shareholder in this act of Parlia- Evidenceof nient has been already examined (s); and it is only membership, ncccssary here to observe that the company's register of shareholders, which a creditor who has obtained judgment against the company has a right to inspect {t), is, in the absence of evidence to the contrary, sufficient proof that a person whose name is on it is a shareholder. («) But the register js not conclusive evidence, and leave to issue a soi. fa. against a person who is on it will not be given if he can show that he is not a sharehold- *539 er. (x) Neither is the register the only*evidence that a person is a shareholder; and a sci.fa. lies against a person made a member of the company by its special act, although no shares have been issued (y); and in a case where a creditor was prevented from seeing the register, a sci.fa. was allowed to issue against a person sworn to be a shareholder to the belief of the de- ponent, and which belief was founded on information from officials connected with the company, (s) (p) 8 & 9 Vict. 0.16, § 36. See Hitch- to go, although the case was clear, ins V. Kilkenny Rail. Co. 10 C. B. 160; (r) Burke v. Dubhn Trunk, &c. Rail. Devereux v. Kilkenny Rail. Co. 5 Ex. Co. L. R. 3 Q. B. 47. 834. See Ilfracomhe Rail. Co. ■». Devon (s) Ante, p. 156. and Somerset Ran. Co. L. R. 2 C. P. 15, (<) 8 & 9 Vict. c. 16, § 86. R. v. The and Edwards ». Kilkenny Rail. Co. 1 C. Derbyshire, &c. Rail. Co. 8 E. & B. 784; B. N. S. 409, as to serving the notice Meader v. Isle of Wight Ferry Co. 9 W. and rule nisi on the shareholder. See, R. 750, which shows that a mandamus as to enforcing decrees in equity without is not necessary. a sci. fa. , Healey v. Chichester and (m) See 8 & 9 Vict. c. 16, § § 8 and 29. Midhurst Rail. Co. 9 Eq. 148. [x) Edwards v. Kilkenny Rail. Co. 14 {g) See, as to the discretion of the C. B. N. S. 526; Mather v. Nat. Assoc, court, Shrimpton v. Sidmouth Rail. Co. Investment Soo. ib. 676. L. R. 3 C. P. 80; Lee «. Bude, &c. Rail. {y) Portal v. Emmens, 1 C. P. D. Co. L. R. 6 C. P. 576; Burke v. Dublin 201, ante, p. 157. Trunk Rail. Co. L. R. 8 Q. B. 47. How- [z) Rastrick v. The Derbyshire, &c. ever, in Guest v. Worcester Rail. Co. L. Rail. Co. 9 Ex. 149. See ante, p. 156, R. 4 C. P. 9, the court allowed a sci. fa. et seq. 740 CHAP. III.j EXECUTION AGAINST SHAEEHOLDEES. *539 Execution agaiiist memhers of other companies. Companies empowered by special acts to sue and be sued, and the shareholders in which are liable for the debts of Ljabiuty of the companies, will generally be found to resemble in^hCT^com- compauies governed by 7 Geo. 4, c. 46. {a) panies. Unregistered cost-book mining companies are partnerships, and shareholders in them may be proceeded against accord- ingly, {h) panies. Shareholders in companies governed by the Companies act, 1862, are not liable to execution on judgments against the companies gov- company, but must be proceeded against under the ofi862. winding-up clauses, which will be examined hereafter, (c) The law respecting execution against members of companies gov- erned by the repealed acts of 7 & 8 Yict. cc. 110 and 113, is now obsolete, and is therefore omitted, {d) («) See Clowes v. BretteU, 10 M. & 26 ; Pee] v. Thomas, 15 C. B. 714 ; Toll W. 506 ; Wing-field v. Barton, 7 Jur. v. Lee, 4 Ex. 230 ; EUis v. Sclimoeok, 258 ; Wingfield v. Peel, 13 L. J. N. S. 5 Bing. 521, are instances of success- Q. B. 102 ; and as to friendly societies, ful actions ag-ainst individual share- Myers V. Rawson, 5. H. & N. 99. The holders in cost-book mining companies. ' 17 & 18 Vict. c. 25, on which the last (c) 25 & 26 Vict. c. 89, §§ 180 and case turned, is repealed by 25 & 26 Vict. 195. 87. (d) It win be found in the first edi- (&) Lanyon v. Smith, 3 Best & Sm. tion of the present treatise, vol. i. pp. 989; Tredwen », Bourne, 6 M. W. 458-462. 461 ; Newton v. Daly, 1 Fos. & Fin. 741 MO EIGHTS OF PAKTUEES INTEE SE. [BOOK III. *5*o *BOOK III. OP THE RIGHTS AND OBLIGATIONS OF MEMBERS OF PARTNERSHIPS AND COMPANIES BETWEEN THEMSELVES. CHAPTER I. OF THE RIGHT TO TAKE PART IN THE MANAGEMENT OP THE AF- FAIRS OF A PARTNERSHIP OR COMPANY. SECTION I.— OP ORDINARY PARTNERSHIPS. In ordinary partnerships, the good faith of the partners is Each memter Pledged mutually to each other that the business shall plrtaCTship en- be Conducted with their actual personal interposition, parun°itsmau- SO that each may see that the other is, carrying it on agement. ^^^ ^j^^-j. m„tual advantage, {a) In the absence of an express agreement to the contrary, the pow- ers of the members of an ordinary partnership are in all respects equal, even although their shares may be unequal ; and there is no right on the part of one or more to exclude another from an equal management in the concern. (5) ' Moreover, if two persons are in partnership, and one of them mortgages all his share and interest therein to the other, the latter will not be permitted during the (o) Per Lord Eldon in Peacock v. ular partner, and he faila to perform Peacock, 16 Ves. 51. them, it is a breach of contract; yet the (6) Rowe V. Wood, 2 Jac. & W. 558; damages for such breach will be but see, too, Lloyd v. Loaring, 6 Ves. 777. nominal, if another party shall perform ' In law partnerships, either partner the duty with due professional skill, and may attend to business intrusted to the without injury to the client. Smith v. firm. But if a firm contract with a cU- HiL, 13 Ark. 173. ent for the personal^ services of a partic- 742 CHAP. I.j DIEECTOES. *54:1 continuance of the partnership, to avail himself of his rights as a mortgagee and to exclude his co-partner from interference in the partnership, (c) Indeed, speaking generally, it may be said that nothing is considered as so loudly calling for the interfer- ence *of the Court between partners, as the improper ex- *541 elusion of one of them by the others from taking part in the management of the partnership business, (d) It need, however, hardly be observed that it is perfectly compe- tent for partners to agree that the management of the Unless other- partnership affairs shall be confided to one or more of "^^'^ agreed, their number exclusively of the others; and that where such an agreement is entered into, it is not competent for those who have agreed to take no p;art in the management, to transact the partner- ship business without the consent of all the other partners.' But, as was seen in an earlier part of tlie treatise, every member of an ordinary firm is prir/id faoie its agent for carrying on its business in the usual way; and persons dealing with a partner within the limits of his apparent authority, are entitled to hold the firm an- swerable for his conduct, unless such persons had distinct notice that his real authority was less extensive than they had a right to assume it to be. (c) Rowe V. Wood, 2 Jao. & W. 558. tial, is admissible to prove that tlie sole (f?) See, in addition to the cases last power of conducting the business of a cited, Goodman v. Whitoomb, 1 Jao. & firm has been given to one partner. W. 589; Marshall v. Colman, 2 ib. 266. Such power may be inferred from the ' If any one of the partners of a co- conduct of the partners for a series of partnership give his assent to the acts years, as that one has exclusively con- of their agent, such ass.;nt would be ducted the business of the firm, and the good evidence affecting the rest, unless, other partner has never questioned his by the articles or constitution of the acts, or assumed to conduct the business company, the whole concern and man- himself.^ It is proper to show any rea- agement should be intrusted to a com- son existing, or expressed by the part- mi ttee or board of managers; in which ners, why it was not desirable or desired case the assent must be proved to have that the other should conduct the busi- been given by them, or some of them, ness, as that he had little interest in the pursuant to the authority delegated to concern, while the interest of the mau- them bv the company. Odiorne v. aging partner was large. Anthony v. Maxoy i;-! Mass. 178; S. C, 15 id. 39. Wheatons, 7 R. I. 49. Ev»^'-'--ce, both direct and ciroumiitan- 743 *542 MANAGEMENT OF COMPANIES. [bOOK III. SECTION II.— OF COMPANIES. One of the great peculiarities of companies, as distinguished from Rule otherwise partnerships, is that the management of a company's iiie^ business is entrusted to a few chosen individuals, and that the shareholders are deprived of that right of personal interference which is enjoyed by the members of ordinary firms, {e)' ■ The members of companies form two bodies, whose interests are or should be the same, but whose powers and functions are diifer- ent; the one body consists of the directors, in whom the general powers of management are vested; and the other body consists of the shareholders, to whom the directors are accountable, and by whom they are generally appointed. Each of these bodies has its own sphere of action, and its own rights and duties, as will be seen more particularly hereafter. Where there is no statutory or other provis- Managing body. * 642 ion regulating *the constitution and powers of the managing body, the majority of the share- holders of the company must determine how its affairs are to be conducted, and to whom, and under what restrictions, the manage- ment of those affairs shall be entrusted. {fY This is the rule which prevails in cost-book mining companies [g), and it is not easy to conceive what, except the will of the majority, can deter- mine a matter of this description under the circumstances now supposed. The number of persons composing the managing body of a com- Numberof V^^J ^^ generally fixed by the company's special act, directors. charter, deed of settlement, or regulations, and the number making a quorum is also usually thereby fixed." As a general rule, there is no. doubt that a power entrusted to a given number of individuals cannot be propei-ly exercised by any less number; 'and there are several cases in which the principle has been applied to companies, and in which the acts of directors have (e) See Bumes v. Pennell, 2 H. L. C. ' See generally as to tlie power of ma- 520 and 521. jorities, Ang. & Amea on Corp. §§ 221, 2 See Ang. & Ames on Corp. § 221. 499. (/) Agreements by directors depriv- {g) See Tapping on the Cost-Book,, iug the shareholders of this power are p. 64. invalid, James v. Eve, L. R. 6 H. L. '^ See generally as to what constitutes 385. The powers of majorities will be a qucn'um, Ang. & Ames on Corp. § 501 examuied hereafter. et seq. 744 CHAP. I.J DIEECTOES. *54:3 been held invalid on the ground that they were not done by the requisite number of directors. (A) But it does not .^^ j^ ^^^ therefore follow that the number of directors, as oriari- "iimi'er. nally fixed, cannot be altered by the majority of a meeting of the shareholders; and where the number is not fixed by the legislature or the Crown, it seems that the shareholders may alter it. (i) Even where the number is fixed hj an act of Parliament or a charter, the act or charter may be so worded as to be in this respect directory only. {Jc) It is to be observed that thedirectors of a company are not those only who choose to act, but all those persons who are -^yjjoare constituted directors by a company's act, charter, or •ii^otors. deed of settlement; and whether a person once a director has or has not ceased so to be, depends (except in the case of his death) upon the rules of the company. {V) A director who becomes * bankrupt, or ceases to attend to his duties, does not there- *543 by necessarily vacate his ofnce. (m) Generally speaking, the members of the managing body are required to possess certain qualifications, and to be Q^,aiifl cations appointed in some prescribed manner, (n) But it by of tween directors made between a director and the company, unless such and company. («/) See 8 & 9 Vict. c. 16, §§ 81 to 100. (c) lb. § 84. {z) lb. §§ 81, 82. See on tte con- {d) lb. § 85. sfcruction of such acts, Portal v. Emmens, (e) lb. § 86. 1 C. P. D. 201 and cases there cited. (/) lb. § 87. (a) 8 & 9 Vict. c. 16, §§88, 83, 84. {g) See 7 & Vicb. c. 110, §29. The (&) lb. § 89. following decisions upon that section 755 ■■■55i MANAGEMENT OF COJirANIES. [bOOK III. contract is confirmed by the sharciiolders ; and it was held in Fos- ter V. The Oxford Eailway Company (A), that under tlie act Foster u Ox- 8 & 9 Vict. c. 16, sucli a contract was not void, comp'iny™^ *5ji But it *must not be forgotten that, although the act does not expressly invalidate contracts of this description, there is a vrell-established equitable ]>rinciple which precludes aiiy jjerson whose duty it is to take care of others, from binding them by any bargain entered into on their behalf with himself, unless all the circumstances relating to such bargain are fully and clearly explained to them, (i) With respect to the nature of the contracts which disqualify a Nature of dis- person interested in them from being a director, it has qualifying con- , , , , , , i . i i trai^t. been held, tliat they must be contracts made with the company in the prosecution of its undertaking; and that there is nothing to prevent a banker of a company from being one of its directors. (A') To return to the act. The directors have the management of Power of ^^^® affairs of the company, with the exception of such directors. a,g ^re required to be transacted by a general meet- ing. (I) They are subject to the control of a general meeting specially convened for the purpose, but no resolution of any such meeting renders invalid what may have been done before the reso- lution passed, [m) The directors are required to hold meetings at such times as they shall appoint, and they are empowered to ad- may be usefully referred to. Ernest v. 147; Paul and Beresford's case, 33Beav. Nicholls, 6 H. L. C. 401; Cnrteis v. An- 204. chor. Insur. Co. 2 H. & N. 537; Poole (7i) 13 C. B. 200. It is submitted that r. National, &c. Assur. Society, ib. this case can no longer be relied upon. 687; Stear's case, Johns. 480; Stears v. See infra, Ch. 2, §22, duties of di- South Essex ttas Co. 9 C. B. N. S. 180. rectors. See as to the purchase of shares by di- ()') See infra, Ch. 2, § 2, duties of di- rectors. Hodgkinsoni'. Nat. Live Stock rectors. Insur. Co; 26 Beav. 473, and 4 DeG. & (7c) Sheffield and Ma,nchester Rail. J. 422; Lane's case, 1 DeG. J. & S. 504; Co. v. Woodcock, 7 M. & W. 574. The and as to loans, Teversham v. Cam- cases referred to above, in note (g), eron's, &c. Rail. Co. 3 DeG. & S. 296; may be usefully consulted on this head. Murray's executors' case, 5 DeG. M. & See, also, Lewis v. Carr, 1 Ex. D. 484. G. 746; Baker's case, 1 Dr. & Sm. 55; (?) 8 & 9 Vict. c. 16, § 90. See, as to Bluck V. Mallalue, 27 Beav. 398; British this, § 91, and infra, p. 557. Prov. Ass. Society v. Norton, 3 N. R. (m) 8 & 9 Vict. c. 16, § 90. 756 CHAP. I.j COMPANIES GOVEENED BY 8 & 9 VICT. C. 16. *555 joiirn sucli meetings as they may think proper, (n) Any two di- rectors may require a meeting of directors to be called, (n) One- third of the whole number of directors constitutes a quorum, unless some otlier quorum is prescribed by the comjjany's special act. (») All questions at any meeting are determined by a majority of votes of the directors present, and, in case of an equality of votes, the chairman has a casting vote, {n) A chairman is required to be elected, and the elected chairman continues in office for a year. ( <-ti T-M 1 Open renewal. recent and very important case ot Clegg v. Jidmond- son (a?), the partnership was at will; the managing ciecrg^. partners gave notice of dissolution, and of their iuten- ^'^'^'^'i'^^™- tion to renew the old lease for their own benefit. They afterwards did so, the other partners protesting, and there was evidence to show that the landlord objected to renew to any persons except the anything: Held, that the title taken the creditors their claims, together with by A was taken for the partnersliip; their rights to certain pledged assets of and that B's refusal to pay a part of the firm: Held, that the purchase did the purchase-money did not deprive iniire to the benefit of the firm, and him of the right of having the benefit that the transaction did not come with- of the purchase, nor was it evidence of in the operation of the general rule of a dissolution of the partnership. Eakin equity, that a trustee cannot buy trust V. Shumaker, 12 Tex. 51. property for himself, or act as agent in A member of an insolvent firm, while buying it for another person. Westcofct acting as agent for the creditors, in the v. Tyson, 38 Pa. St. 389. settlement of the partnership affairs, [x) 8 DeG. Mc. & G. 787. assisted another party to pm'chase from 783 *576 DUTY TO OBSERVE GOOD FAITH. [bOOK III. managing partners, (y) It was held, however, that it was not competent for the managing partners thus to acquire for themselves alone the benefit of the renewed lease, (s) The principle, however, which precludes a partner from re- taining for himself benefits which he ought to share with his co- partners, is applied to cases in which unfairness and misconduct Benefits de- ^'"® ^J ^'^ means SO apparent as in those just of^'artneSiiir *5T6 cited. *A high standard of honor requires that properly. ^^ partner shall derive any exclusive advantage by the employment of the partnership property, or by engaging in transactions in rivalry with the firm. Thus, in Burton v. Wookey {a), the plaintiff and the defendant Burton v Were partners as dealers in lajyis calam.inaris. The de- wookey, fendant, who was a shopkeeper, lived near the mines Profits of tally ii^ whicli the ore was got, and he purchased it of the ^•^"P- miners. Instead, however, of paying them with money, he paid them with shop goods, and in his account with the plain- tiff charged him as for cash paid to the amount of the selling price of the goods. The plaintiff contended that the price of the ore ought, as between himself and the defendant, to be considered as being the cost price of the goods given in exchange for it, and that the profit made by the exchange ought to be accounted for to the partnership. The Court adopted this view; holding that it was the duty of the defendant to buy the ore at the lowest possible price, and to charge the partnership with no more than he actually gave for the goods bartered for the ore. An account of the profit made by the defendant in his barter of the goods was decreed accordingly. Again, in Gardner v. McCutcheon (5), a ship, of which the plain- ^ ^ tiffs and the defendant were part-owners and the de- Garduer v. ^ iMcCutciieoii. fendant was master, was employed for the common „ , benefit of all in trading and carrying under charter. Part-owners a ^ j tr< of siiips. TJig defendant, during the time the ship was thus em- ployed, traded on his own account and made considerable profit. {y) See, as to this, Fitzgibbon v. Scan- («) 6 Madd. 367. Ian, 1 Dow. 269. (6) 4 Beav. 534. See, too, Benson ». {z) At the same time relief against Hathorn, 1 T. & C. C. C. 826, and 2 them was refused on the ground of Coll. 309; Miller v. Maokay, 81 Beav. laches and delay on the part of the 77; Shallcross v. Oldham, 2 J. & H. plaintiifs. On this point the case will 609; and as to commissions, Holden v. be noticed hereafter. See book iii. c. Webber, 29 Beav. 117. Compare Miller 10, § 3. V. Mackay, 34 Beav. 295, where the 784 CHAP. II.J PAETNEE CANJ^fOT EBTAIN SEPAEATE BENEFIT. *577 It wiis held that he was bound to account for the profits thus ob- tained. He was bound to trade to the best of his ability for the joint interest of himself and co-owners; he had no right to employ the partnership property in a private speculation for his own benefit; and ^although he alleged that the profits were made *577 solely by the employment of his own private capital, and that by custom masters of ships were allowed to trade for their own benefit, the Court declined to recognize any such custom, and con- sidered that the profits had been made by the employment of what was not the defendant's exclusively, and that the plaintifi^s had therefore a right to share them. A partner, moreover, is not allowed in transacting the partner- ship affairs, to carry on for his own sole benefit aiiy Benefits result- separate trade or business which, were it not for his n"?.uon wia" connection with the partnership, he would not have ^^^ *^'™' been in position to carry on. Bound to do his best for the firm, he is not at liberty to labor for himself to their detriment; and if liis connection with the firm enables him to acquire gain, he cannot appropriate that gain to himself on the pretense that it arose from a separate transaction with which the firm had nothing to do. This is well exemplified by the cases as to renewed leases which have been already referred to (c), and by Russell v. Austwick, which also shows that the same principles apply wherever there is an agreement to share profits. In Russell v. Austwick {d) several persons agreed to carry on business as carriers between London and Falmouth; carriers not but they expressly stipulated that no partnership fnter'se? should suisist between them, and that each should EusseiiD. have a certain portion of the road over which he was to carry. Business was commenced and carried on by the parties to this agreement under the name of Messi^s. Russell & Co., and they were employed to carry bullion from Falmouth and Blymouth to London. On the issue of a new silver coinage by the Bank of England, Austwick, who appears to have been the London agent profits were held to belong to him who edition. made them. In MofFatt v. Farquhar- (c) Ante, p. 574. son, 2 Bro. C. C. 338, a part-owner of a (rf) 1 Sim. 52. See, also, as to bene- ship was held to be exclusively entitled fits derived by one co-owner of a mine to money paid him for his vote in the from the use of a shaft situate in his appointment of a master. But see, on own land, but used for the mine, Clegg that case, the note to it in Mr. Belt's v. Clegg, 3 Giflf. 322. =» 785 "'oTS DUTY TO OBSERVE GOOD FAJTH. [bOOK III. of the carriers, entered into a contract with the Master of the Mint for the carriage of tlie new coin to towns on the road between London and Falmouth. Shortly afterwards lie entered into aiiotlicr con- tract with the Master of the Mint for the conveyance of more new coin to towns in Middlesex, and the adjoining counties. *578 None of these last towns lay on the road *leading from Lon- ' don to Falmouth, and many of them were only accessible by cross country roads, and in consequence of the increased risk of carriage along these roads, the Mint authorities agreed to pay 7s. Gd. per cent. /or all the coin sent from the Mint., instead of 5s. per cent., which was the remuneration agreed on in the first contract. Austwick contended that he was entitled to the whole benefit of this second contract, because (except as to the extra 2s. Gc?.) it had nothing to do with the carrying business between London and Fal- mouth; and because, as to the 2s. Cii., that sum, although calcu- lated on all the coin carried, whether under the iirst or the second agreement, was in fact paid by the Mint in consideration only of the extra risk attending the carriage to the towns specified in the second contract. On the other hand it was contended and held, that the second agreement ought to be considered as made on account of all the persons interested in the first agreement; because, although the common concern had no connection with the provin- cial roads which were the occasion of the second agreement, yet this agreement was entered into by the officers of the Mint as con- nected with, and a continuation of, the first agreement, and in confidence of the responsibility of the parties to it. This case of Eussell v. Austwick shows how difficult it is for a partner to benefit himself exclusively, by dealings which in honor he ought not to have engaged in except for the common benefit of the firm. Lock 1). Lynam, which came before the Court of Chancery in Distinct Ireland, affords another instructive example of the businesses. application of the same wholesome doctrine. In this ynam. ^^^^ ^^ ^j^^ plaintiff and the defendant had agreed to share the profit and loss arising from contracts taken by the defend- ant for the supply of meat and bread to Her Majesty's forces in Ireland. Whilst this agreement was in force, the defendant (e) Lock V. Lynam, 4 Ir. Cli. 188. ; compare this and the last case with Miller 'v Mackay, 34 Beav. 295. 7^G CHAP. II. J PAETNEE CANNOT COMPETE WITH THE FIEM. *5T9 entered into secret agreements with otlier persons to share witli them the profit and loss accrninir in respect of similar contracts en- tered into and taken by them. The plaintiff claimed a sliare in the profits made by the defendant under these secret agreements; * whilst the defendant contended that he was entitled to retain *579 them for his own exclusive benefit. The Lord Chancellor observed, that in all cases of this kind the real question was, whether, from the nature of the transaction between the partners, there was any express or implied contract against other dealings of a like character; and that, although there was no engagement not ta enter into any other partnership of the same kind, still, it never could have been in the contemplation of either of the parties that one partner should, in his own name or in that of a,nj other person, adopt contracts to the prejudice of the other's interest. A decree was accordingly made directing an inquiry whether, during the period for which any partnership between the plaintifi" and the defendant existed, the defendant, either alone, or jointly with any other person or persons, separately from the plaintiff, entered into, or was beneficially interested in, any other contract or dealing of the like nature with those in which the plaintiff and the defendant were engaged as partners. After the decisions to which attention has now been drawn, there can be little doubt that a partner cannot, either openly One partner ^ , ^ competing or secretly, lawfully carry on for his own benefit any with arm. business in rivalry with the firm to which he belongs. (/")' But it (/) See Glassington v. Thwaites, 1 and the other should keep the books Sim. & Stu. 124 ; England v. Curling, 8 and devote himself, his time and tal- Beav. 129, in which, however, there ents to the business. Buildings weire was something more than mere rivalry. furnished and the business prosecuted ' Equity will enjoin one of several until these were fuUy occupied with cot- partners in a business enterprise, who, ton stored; and the partner who en- by the partnership contract, has under- gag^d for the buildings declined to sup- taken to superintend and manage the plyany more, foranincrease of business, business, from carrying on the same The other partner then put up buildings business, at the same place, in a se pa- at his own expense, and received cotton rate estabhsliment, for his sole benefit, in store in them, upon his individual even though there be no express cove- account; he did not, however, at all nant restraining hun from so doing, neglect the partnership stores a,nd busi- Marshall «. Johnson, 33 Ga. 500. ness: Held, that this was no breach A partnership was formed for a com- of good faith, nor was his co-partner mission and warehouse business, the entitledHo share in the profits of the in- agreement being that one partner dividual store. ParneE v. Robinson, 58 should furnish buildings and fiitures^ Ga. 26. 787 '■■'580 DUTY TO OBSERVE GOOD FAITH. [bOOK III. ■would neither be convenient, nor logically correct, to apply tliis doctrine to cases ■where private interest and duty to others are not brought into conflict; as for example, to the case of a person hold- ing shares in rival companies. No standard of honor, ho'wever high, requires the extension of the doctrine to such a case as this, and no decision can be found to warrant such an extension, {g) The same obligation to act ■with good faith exists between per- sons who have agreed to become partners;^ and if one of them, in negotiating for the acquisition of property for the intended Partnership not firm, receives a bonus or commission, he must yeta,nm-d. *ggQ * account for it to the firm when formed, (h) Fawr-ett v. ^ ' whitchouse. Jje Cannot retain for himself onthe ground that it was paid him for personal services rendered to the vendor be- fore any partnership existed. Having obtained the benefit, whilst negotiating for himself and his ftiture partners, he must share such benefit with them, (i) 2. As regards companies. [a] In process of formation. Duties of promoters. The principles stated and illustrated in the foregoing pages are Prniectorsof peculiarly applicable to transactions which precede the i^n°^aprofltout" formation of a company. Nothing is more common °'''- than for persons to acquire property, to form a com- pany on purpose to buy it, and to conceal their own true position from the company they so form. Such a transaction can never stand. There is nothing to prevent a person from buying property' for himself at one price, and afterwards selling the same property to a company or any one else at a higher price; nor in a case of this simple description is the vendor bound to disclose the fact that he is selling at a profit, (b) Moreover, there may be a valid sale to ((?) As to interfering ■with persons -who' ■{Ti) Pa'wcett v. 'WTiitehouse, 1 R. & are directors of two rival companies, M. 132. and •who promote the interests of one of [i) Ibid., and see the cases as to pro- them to the prejudice of the other, see moters of companies, infra. Orr V. Glasgow, &c., Kail. Co. 3 Mac- (6) See Cover's case, 1 Ch. D. 182, and Qa. 799. per James, L. J., in 5 Ch. D. 118. ^ See ante, 569, and note. 788 CHAP. n.J PEOMOTEES MUST ACCOUNT FOE BENEFITS EECEIVED. *5S1 a company by a person engaged in getting it up (c); and tliere often is great difficulty in determining the true nature of any given transaction ((^); but once let it be shown that the alleged vendor obtained the property when it was his duty to obtain it for the company, or that he has formed a company to buy property which lie desires to sell, and it immediately follows that he cannot, with- out the fullest disclosure on his part, hold the company to its bar- gain, or charge the company more than he actually gave.' The cases illustrating this principle are numerous and important, and their details are iisually complicated; and the following have been selected for abridgment for the guidance of the reader. *In Hichens v. Oongreve {e), a company was formed to work *581 a mine, and was principally got up by three of the defend- ants ; it was proposed that a lease of the mine should be purchased by the company, and a lease to the company was exe- compnny en- cuted by the owner of the property for 26,000?. Tliis reserved by°^ sum was accordingly charged to tlie company, but it "^ ■' =' f .n Hickens v. afterwards turned out, that 10,0001 only had been, in congreTe. fact, paid to the owner for the lease, and that the remaining 15,000?. had been distributed amongst the directors. The three principal pro- moters of the company alleged that the property had been sold to them, on their private account, before the company had come into existence, that 25,000? was a fair price for the company to pay for the lease, and that the 15,000?. was only a fair profit on a re-sale, the original purchase being entirely at the personal risk of the three. They said that the lease was taken directly to the company, (c) As in Paul and Beresford's case, But where persons have formed an 33 Beav. 204. See, too, the observa- association, or are deaJing in. contempla- tions of V.-C. Wigram, in Poss v. Har- tion of one, then they stand in a confl- b'ottle, 2 Ha. 489. dential relation to each other and to all (rf) As in Beck «). Kantorowioz, 3 K. & who may subsequently become niem- J. 323, noticed »«/)-«, p. 581. bers; and they cannot purchase any 'The owner of any property may form property and sell it to the company at an association or partnership with oth- an advance, without a full disclosure of ers and may sell the property to the all the facts. If they do so, the com- company at any price agreed on, pro- pany may compel them to account for vided there be no fraudulent representa- the profit. Densmore Oil Co. v. Dens- tions made by them, and no such confi- more, supra. See, also, Short v. Ste- dsntial relation arises, as to make them venson, 63 Penn. St. 95; Doris v. hable to account for any profits reahzed French, 4 Hun, 292; S. C. 6 Thomp. on such sale. Densmore Oil Co. v. & C. 581. Densmore, 64 Penn. St. 43; S. C. 9Am. See Swell's Evans on Agency, *283. Law Reg. (N. S.) 96. (e) 1. R. & M. 150. See, also, Paw- 789 *582 DUTY TO OBSEEVE GOOD FAITH. [bOOK III. and tliat tlie amount of tlie consideration money was stated to be 25,000/., with the knowledge of the lessor, and merely for the pur- pose of simplifying the title. But it was admitted that only 10,000/. reached the lessor's liands, and that the 15,000/. had been di\'ided amongst the defendants. A motion was made that tlie three prin- cipal defendants might be ordered to pay into courtsuch sums, part of the 15,000/., as appeared by their answers to be then in their hands, and an order to that effect was made. Another and very instructive case is Beck «. Kantorowicz (/), Alleged open ^^ which One projector sought to obtain a benefit ors tocompany. ^^ ^^^ expeiise of tlie othcrs, and they all sought to Beck ?;. Kantr make a profit out of the company. In tliis case five persons proposed to purchase a mine, and to get up a company to work it. One of them, Kantorowicz, negotiated on behalf of himself and co-adventurers with the owners of the mine, and agreed with the owners for a purchase from them, at a sum of 85,000/., and he represented to his co-adventurers that this sum was the least which the owners would take for the mine. In point of fact, however, there was an agreement between Kantorowicz *582 and the owners, that if the mine -was purchased *at that price he was to have 20,000/. for his trouble; but this was un- known to the other adventurers and to the company which was af- terwards formed. Upon the supposition that 85,000/. was the price of the mine, a contract for the sale of it at that price was entered into between the owners of the one part, and Kantoro- wicz and his four co-adventurers of the other. Part of the purchase money was to be paid in shares in the comjDany proposed to be formed. Shortly afterwards a prospectus was issued, with a view to the formation of the company ; and in the prospectus it was stated that a contract liad been entered into for the purchase by the company of the entire property for 126,000/., including all preliminary expenses, and a premium to the parties who had in- curred the risk and the responsibility of the original purchase. The company was formed. The agreement between Kontorowicz and the owners was afterwards discovered, and a bill was filed by three of the committee of management of the company, on behalf of them- selves and other shareholders, for the purpose of compelling Kantoro- , C8tt V. Whitehouse, ib. 132, a somewliat (/) 3 K. & J. 230. See, too, Ex parte similar case. Perrier, 7 Ir. Ch. Rep. 256. 790 CUAP. II.J PEOMOTEES MUST ACCOUNT FOE BENEFITS KECEIYED. *583 vvicz to account to tlie company for the 20,U00Z. premium wliieh he Lad received in shares from the venders of the mine. On the part of Kantorowicz it was insisted, first, that he had an interest in the mine, and was a selling party, and that, therefore he practiced no fraud on the four original adventurers; and secondlj^, that even if the transaction could not be upheld as between him and them, the company could not complain, as he and the other promoters avowedly sold the property to the company for 126,000/1., and the company had got all they ever expected or had con- tracted to have. But it was held upon the evidence that Kantorowicz had no interest in the mine, and that, as be- tween him and the other promoters, the transaction could not for one moment stand. With respect to the more difficult ques- tion vFhich arose between Kantorowicz on the one side, and the company on the other, it appeared in the first place, that two of the original promoters were members of the com- mittee of management. In this latter capacity they became, as it were, agents tor the company, and were, as such, bound to buy for the company at as reasonable a price as pos- sible, although in their character of grantees they were enti- tled to sell at any price they liked. *It also appeared that *583 the 125,000?, at which the company was to buy was fixed by the committee of management, upon the assumption that 85,000?. was, in fact, to be paid to the vendors of the mine and that the difference between 85,000?. and 125,000?. -would cover the preliminary expenses, and what was considered to be a fair premium to the promoters. This premium was alluded to in the prospectus, and was a premium of 30,000?., to be paid out of the difference between the 85,000?. and the 125,000?. Another pre- mium, payable out of the 85,000?. to one of the promoters alone, was never contemplated in drawing up the prospectus. Upon these grounds it was held not to be competent to Kantorowicz to get a bonus of 20,000?., in addition to his share of the 30,000?., and that having kept back the transaction as to the 20,000?., he ought to be considered as having joined the other four promoters in stipu- lating for payment by the company of a premium of 30,000?., and no more. He in fact allowed them in the exercise of their judg- ment as to what was a right premium to demand of the company, to contract with the company for the 30,000?., and that was the con- 791 *5S4 DUTY TO OBSEEVE GOOD FAITH. [BOOK III. tract which the Coiirt held ouf^ht to be performed as between the company and the promoters (g.) Again in The New Sombrero Phosphate Co. v. Erlanger (A), a New Pombrcro, lease of some property was sold to an agent for a syndi- <^c., Co, v.Ev- . „ , ^ _P 1 langer. cate, t. e., a group of speculators. One ot these specu- lators on behalf of himself and the others, got up a company to buy the property from them. An agent of theirs entered into a provis- ional contract with a nominee of their own for the sale of the prop- erty to him, as trustee for the intended company, at the advanced price, to be paid for in cash and shares. The company's memoran- dum and articles of association were prepared nnder the direction of the chief promoter. There were five directors. Of these two were abroad, and the others were all in fact nominees, and more or less under the control of the chief promoter ; one of themwas *684 the person who originally *purchased as agent for him and the other speculators. The agreement between this agent and the trustee for the company was alluded to in the arti- cles of association, and also in a prospectus published by the direct- ors. This prospectus was in fact prepared under the instructions of the cliief promoter. The solicitor of the company was the solic- itor of the promoters. The prospectus stated that the provisional contract with the trustee for the company had been approved by the directors, and in fact the directors in this country had adopted it ; but they had in truth no discretion in the matter ; they had no in- dependent advice, and one of them was the trustee for the promot- ers. Their approval was therefore a mere sham. Upon tJie true facts becoming known, the company repudiated the contract, and filed a bill to set it aside. The Y.-C. Malins dismissed the bill, be- ing of opinion that the promoters of the company were not in such a fiduciary position towards it as to render it obligatory upon them to disclose that they were themselves selling their own property to the company. But the Court of Appeal reversed this decision, upon the ground that the promoters stood in a fiduciary relation to the company, which was their creature; and were bound to disclose the fact that they were selling their own property to the company. [g) The result, it is apprehended, between him and themselves. As it was, would not have been different if the four they abandoned any interest they might promoters had insisted on keeping the have in the 20,000?. to tlie company, company to the bargain for 125,000?., (A) 5 Ch. D. 73. See, also, Bag- and had claimed to have the 20,000?. nail «. Carlton, 6 Ch. D. 371. In this stipulated for by Kantorowicz divided case a fiduciary relation was held to 792 CHAP. II.j COMMENCEMENT OF THE PIDUOIAET EELATION. *685 In the Pliosphate Sewage Co. v. Ilartmont {i) the promoters had no title to the propertj' they sold. The trustees of the Phosphate company to whom they sold it were their own finan- Hartmont.' cial agents, and were paid a large commission by them out of tlie purchase money obtained from the company. The solicitors to the company were the solicitors to the promoters, and neglected their duty. The contract was set aside; the so-called trustees had to re- pay the commission they received; and all the defendants, include ing the solicitors, were ordered to pay the costs of the suit. The general principle illustrated by the foregoing decisions is too well established to be now disputed; but in apply- commence- ing that prmciple there is otten a diiBculty m deter- uoiary relation. mining when a promoter of a projected company begins to be in such a position as to be unable to make a secret profit by a sale to it, or to persons acting on its behalf. On the one hand it is quite *plain that a fiduciary relation between a promoter and *5S5 a company may exist long before tlie actual formation of a company by registration or otherwise, (k) On the other hand, it is obvious that something must be done beyond a purchase and re- sale, to constitute such a relation: something must, it is submitted, be done by the promoter to impose upon hiin the duty of protect- ing the interests of those who ultimately form the company. lie assumes this duty if he assumes to act for them, or if he induces them to trust him, or to trust persons who are under his control, and who are jiractically himsel/ in disguise; he also assumes such duty if lie calls the company into existence in order that it may buy what he has to sell ; but he does not assume such duty by negotiating with persons who have themselves assumed that duty and who are in no way under his iniluence. A fraud by him on them will of course vitiate any agreement based on the fraud, whether there is any fiduciary relation between him and them or not; but the principles now being investigated presuppose the existence of that relation, and a breach of the obligations inci- dental to it, and no fraud other than that involved in their breach. have existed between the promoters of a forming- the company. Erlang-er's case company and the company before it was is under appeal to the House of Lords, formed ; the promoters were compelled (i) Phosphate Sewage Co. v. Hart- to account to the company for the profits mont, 5 Ch. D. 395. made by them under a concealed agree- (7i;) See the cases, ante, -p. 581, and ment they being allowed to deduct such Bank of London v. Tyrrell, 10 H. L. C. allowances for expenses incurred in 26. 793 '"oSQ DUTY TO OBSERVE GOOD FAITH. [p.OOK III. The Albion Steel and Wire Co. v. Martin (Z) illustrates the above Albion steel remarks. There two persons carried on a business and Wire Co. «. , -t Martin. whicli was atterwai'd sold to a company formed in order to bny it. The defendant had long supplied the vendors with goods for their business, and at their request he agreed to become a director of the company. After he had so agreed, and before the company was formed, he contracted to supply goods to the vendors, and these contracts were not completed when the company took over the business. The business was taken over with all contracts pend- ing at the time of its transfer, and the defendant completed the contracts into which he had entered, and was paid by the company of which he had become a director. An attempt was made by the company to compel him to account for the profit made by him, at the expense of the company, from these contracts. Bat it was held that he was not bound to do so. There was no fraud whatever in the transaction; the defendant hai dealt with the vendors; *586 they *had' dealt with the company; the company had trusted them, and he was not concerned directly or indirectly in the purchase by the company of their business, and was not directly or indirectly in the double position of buyer an.d seller; and in his own contracts with the vendors they were the guardiansi of the interests of the company. In this same case, however, the defendant had, after he had become a director, entered into similar contracts with the company itself, but he did not attempt to retain the profits on them, and it is plain that he could not have done so. The principles illustrated by the foregoing decisions apply, if soiieitorsto possible, morc strongly to the solicitors of proiected projeeted com- ^ . " '' mi panics. companies than to other persons. The relation ot solicitor and client in cases of this sort is considered as commenc- ing from the time when the solicitor first acts in any matter relat- ing to the company; and if he afterwards acquires property for himself and sells it at a profit to the company, without the fullest disclosure, the company can retain the property and compel him to refund the profit, (m) Moreover, if the solicitor to the com- pany is, as he frequently is, the solicitor to the promoters, and he {I) 1 Ch. T>. 580. part of what its solicitor had purchased, (m) Bank of London v. Tyrrell, 10 H. and the House of Lords held that the L. C. 26, aiBrming mainly, but in some company had nothing to do with the respects varying the decree below, in 27 profit made by re-seHing the rest of the Beav. 273. The company bought only property. 794 CHAP. II. J COMPANY MAT KESOIND OK ADOPT CONTEAOT. *587 neglects his dntj to the company when lie knows that the pro- moters are acting improperly towards it, he runs the serious risk of being held liable to the costs of proceedings against them, (n) Such being the principbs which the Court enforces, it need liardly be added, that contracts of this class will not be no specme per- decreed to be performed by the company ; even contracts tamt- 1,1 1 ^1 , . , ^ . . ., ed with want although the company's articles 01 association provide of good faith, that they shall, (o) Any concealed agreement, moreover, between a vendor to a company and its directors, to the effect that they shall profit by *the purchase by the company will entitle *587 ihe company to repudiate its agreement with the vendor, (p) The right of the com^^any in these cases is to rescind the con- tract, or at its option to hold the property it has pur- option of com- chased, and to pay no more for it than its agent or cases. trustee himself paid, (q) This, of course, the company must do; and if it has not done so, and cannot do so, it cannot obtain this relief against him. (r) Further, if the agent sells to the company property which is his own, but for which he has paid nothing, the company can only retain the property upon the terms of paying its proper value, (s) The liability of promoters and others who issue prospectuses and fail to comply with the provisions of § 38 of the Companies Act, 1867, has been already noticed, (t) (6). Companies formed. Duties of directors and their position as trustees. The duties of directors begin from the moment they become directors; but persons who are directors may have come under («) Phosphate Sewage Co. v. Hart- the contract in toto, or rescind it in toto, mont, 5 Ch. D. 394. must be taken with reference to the facts (o) Maxwell v. Port Tennant, &c., of the case before him. The company Co. 24 Beav. 495. See, too, Ellis v. Col- there sought to repudiate the whole man, 25 Beav. 662 ; Flanagan v. Gt. transaction after it had rendered itself Western Rail. Co. 7 Eq. 116, a case of unable to restore what it had got by an agreement with a director. means thereof. See, as to this, New (p) Ex parte Williams, 2 Eq. 216. Sombrero Phosphate Co. v. Erlanger, 5 (q) See Bank of London «). Tyrrell, 10 Ch. D. 73; Phosphate Sewage Co. v. H. L. C. 26. Plartmont, ib. 394. ()•) See Great Luxembourg Rail. Co. (s) See ^er Lord RomiUy, in 25 Beav. V. Jiagnay, 25 Beav. 586. The obser^- 595, 596. ations of the M. R. in this case, to the (t) Ante, book i. ch. 5, § 1, p. 115. eHect that the company could only adopt *5S8 DUTY TO OBSEEVE GOOD FAITU. [bOOK III. obligations to the company Jong before tliey became directors of it. Commence- Y/betlicr tbey bave done so or not depends upon the meut of duties ■• i •"■,•. i • .1 .• • / \ t of directors. prmcipies investigated in the loregoing pages, (u) In the ensuing pages it is proposed to examine the duties of direct- ors aitcr tbey bave become such. Directors of a company are, to a certain extent, trustees for tbe shareholders. The property of tbe company to?ri"cos.'"^ *588 may not be * legally vested in tbe directors, but it is practically under their control; and tiiey are bound to employ it for tbe purposes for which it is entrusted to them. So tbe powers which tbe directors have, e. g., of calling meetings, electing members of their own board, making calls, for- feiting sbares, &c., &c., are reposed in them in order that such powers may be iond fide exercised for tbe benefit of tbe company as a whole; and any exercise of such powers for other purposes is a breach of trust, and will be treated accordingly, (-y) It follows as a necessary consequence that directoi'S of a company Directors must ^^'® tiound to accouut to tbe compauy for all profits profit made by i^if^de by tbemselves, by tbe employment of tbe assets the'company's^ 0^ '^^ Company, and for all profits made by them at assets. ^Q expense of tlie company, unless tbey can sliow that tbe company, witb a full knowledge of all the facts, have agreed to allow them to retain such profits for their own benefit. All the authorities referred to in the preceding pages, showing the duties of partners and promoters, are relevant to tbe present inquiry, and may be referred to in support of the foregoing general statement.' In addition to them the following may be also use- fully alluded to. In the celebrated case of The York and North Midland Railway Profits made ty Company i>. Hudson (a?), a quantity of shares in a rail- assefs'ofcom"* ^^^ Company were placed at the disposal of its direct- pany. Qj.g^ amongst whom tbe defendant was tbe most influen- (j{) They had, for example, in Hich- rule against not interfering in matters ens V. Congreve, 1 R. & M. 150; Faw- of internal management, see ««/ra, book cett u. Whitehouse, lb. 132; but not in iii. c. 10, § 3. Albion Steel Wire Co. v. Martin, 1 Ch. ' See ante, 572, notes; 1 Story's Eq. D. 580. Jur. § 323. (u) See generally as to the duties of (a:-) 16 Beav. 485. The judgment in directors, York and North Midland Rail. this case is particularly valuable with Co. V. Hudson, 16 Beav. 485. As to the reference to the position of directors. 796 C;iAP. II.J DIEECTOES TAKING UP UN-ISSTJED SHAKES. *589 tial. Tlie defeiidaiit disposed of these shares by issuing some 5000 of tjiein to nominees of his own, causina; them to be Directors seu- iji'i-i /■ 1 ■ nni i"S shares for sola lor nis benefit and putting the proceeds of the sale tiieirown ■ , 1 . 1 . , , tieneflt. into nis own pocket, accounting, however, to the com- yorkana pany for the money due on them in respect of deposits Kau.'^'oa™'""^ and calls. The defendant contended that the shares in ^'^'^°'^- question were in fact a preseiit to himself, in consideration of his great services to the company; but the Court thought otherwise, and having come to the conclusion that the shares were to be at the disposal of the * directors as trustees for the com- *589 pany, compelled the defendant to account for the moneys derived by him from their sale. The Court also held, that the de- fendant was not entitled to be allowed any part of such moneys by- way of remunei'ation for his services, or on account of money dis- bursed by him for the company in a manner which he either could not or would not explain, {y) In Parker v. McKenna (s), a banking company resolved to issue 20,000 new shares, and those not taken up by the old profits made on shareholders were to be disposed of by the directors at '^^™"ss ares. ^ "^ Parker u. a certain price. The old shareholders only took up McKenna. about one-half of the shares ; and the directors made an arrange- ment with one Stock that he should take all the rest at the price fixed, and pay for them as he found purchasers for them. He was unable to pay for them all, and he applied to the directors to take a large part of them off his hands. Some of them agreed to do so ; and each of the defendants took a certain number, sold what he took at a price considerably higher than that at which the directors liad been authorized to sell them, but only accounted to the com- pany for that price. When, however, the shareholders discovered what had been done, they claimed to be entitled to share all the profits thus made by the defendants, and their claim was upheld by the Court. It was conceded in this case, that if the directors had actually sold the shares to Stock, and he had iond fide paid for them and completed his title to them, the directors (or any one else) might have bought them from him and resold them at a'profit; but the arrangement with him was such that the shares had never (y) In Dunston v. Imperial Gas Co. 3 presents to directors, Rosmore v. Mow- B. & Ad. 125, it was held that dnect- att, 15 Jur. 238, V.-C. K. B. ors are not imphedly entitled to any pay {«) 10 Ch. 96. for their services ; and see astomakmg ,797 *.j:)0 duty to observe good faith. [book m. become his ; tlie dnty of the directors to the shareholders with re- spect to the disposal of the shares had not been performed when they were taken off his hands, and the shares were in effect under the control of the directors as unissued shares when the defendants themselves sold them at a profit. Again, the directors of a company are not entitled to retain for Bonuses, &o., their own benefit any advantages they may re- onsaLs, 'c. *59o ceive by wav *of bonus, commission, or other- Chambers. wise on the Sale 01 the company's busmess, or on tlie amalgamation of the company with some other (a). In Gaskell v. Chambers {b), the directors of a company, which amal- gamnted with another company, received from the latter a consid- erable sum, the particulars of which they kept secret. In a suit instituted on belialf of the shareholders in the first company, this money was held prima facie to belong to them, audit was ordered to be paid into Court. (5) So, if on the formation of a company, its directors receive bonuses or other advantages from the, promoters on a sale to the company, or on the adoption or ratification of a contract by the company, they can be compelled to account for what they so receive, (c) Another illustration of the same general principle is afibrded by Directors quau- thosc cases in whicli a director has had shares allotted fltd out of assets ^ , . ,.,.,. , , -,-,■, . -, Ola company, to him as a qualification, and lias Jiad them paid up out of money belonging to the company, and been compelled to refund the money so paid, {d) Indeed, it is not going too far to say that every director of acom- contractsbe- P^"/ ^^ bouud, wheu his personal interest conflicts and'^Sieir^'^*"'^^ with his duty to the shareholders, to perform his duty companies. towards them at the sacrifice of his own interest; and a transaction in which a director, on behalf of the company, has in fact, been dealing with himself as an individual, cannot stand.' This wa.s solemnly decided in the House of Lords, where it was unanimously held, that a contract entered into between a firm of ironfounders for the supply of railway chairs to a company, one of the directors of which was a member of the firm, clearly could not be (a) General Exchange Bank v. Hor- (d) Hay's case, 10 Ch. 593. See, also, ner, 9 Eq. 480. Carling's case, 1 Ch. D. 115. These (Z)) 26 Beav. 360. cases -will be noticed hereafter under the [c] See Madrid Bank v. Pelly, 7 Eq. head Contributories. 442, and the last two notes, and the cases ^ See, generally, 1 Story's Eq. Jur. ante. § 323, and notes. 798 CHAP. II.J DIEECTOES,CANNOTMAKEPKOFITODTOFTIIE COMPAHY. *5!}1 enforced against the company, {e) This decision did not turn upon any act of Parliament, bnt was based npon the general principles applied by courts of equity to trustees and agents in their dealings with those whose interests are *committed to their *591 charge. The same principles unfortunately were not for- merly recognized at law to the same extent as in equity; and it was therefore to be regretted that the Companies act, 1862, contained no provisions similar to those in the repealed act 7 & 8 Yict.'c. 110, making void contracts between companies and their own directors unless sanctioned by the shareholders, {f) But since the Judica- ture act this has probably ceased to be of any consequence. "Whether, however, this be so or not it is clearly settled that the directors of a company cannot, without its consent. Profits made by ^ "^ transacting make a profit at its expense in the course of business business. transactions with it or for it. This is shown by Albion Steel and Iron "Works Co. v. Martin {g), already alluded to, and by Imperial Mercantile Credit Association v. Coleman. (A) In that case a director of a financial company was authorized to do some business for it at a certain commission to be paid to the company. He in fact got a lai'ger commission, and it was held the company was en- titled to it, although he had told the other directors that he had an interest in the transaction. He never, however, told them what his interest was; and it was held that in order to entitle hiinself to the commission he. was bound to make a full disclosure of his in- terest, {i) But directors may issue debentures of a company at a discount if they cannot issue them at par; and it has been held Taking deben- that if a director takes some of them himself at the discount. same price as they are issued to other people, he cannot be com- pelled to pay their full value. (Jc) The principles illustrated and enforced in the preceding pages (e) Aberdeen Rail. Co. v. Blaikie. 1 [g) 1 Ch. D. S80, ante, p. 585. MacQ. 461. See, also, Flanagan v. Gt. {h) L. R. 6 H. L. 189, reversing S. Western Rail. Co., 7 Eq. 116; Murphy «. C. 6 Ch. 558. O'Shea, 2 Jo. & Lat. 422. See Fosters. (i) See, also, Dunne v. English, 18 The Oxford Rail. Co. 13 C. B. 200, Eq. 524. ante, p. 553. {k) Campbell's case, 4 Ch. D. 470. (/) See ante, p. 553. 799 *592 DUTT TO OBSEEVE GOOD FAITH. [BOOK III. are moreover applied wliere all the persons interested in the com- (■a«e where .ill P'"'",)'' couiniit that whicli IS a fraud on those only wlio ag? "citodT^de subsequently join it. Thus, in The Society of Practical them tJ' the "^^ Knowledge v. Abbott (f), a corporation was created by compZ?'""''^ charter with a capital of 20,OOOZ. in four hundred 50/. shares. At the time of tlie granting of the charter, four *592 persons only held shares, *and they appropriated the -whole of the shares equally amongst tliemselves, and debited themselves in the books of the company with the 20,000?. This Society of Prac- sum they did not pay, but after spending, as they al- edge t.. Abbott, leged, 16.000i. m taking and nttmg np the Adelaide Gallery, they paid 4000Z. into a bank to the credit of the company. They then sold shares; each for his own benefit, and for what he could get. It was afterwards alleged that 8000?. only, and not 16,- 000^., had been expended for the purposes mentioned, and that in point of fact, the four original members of the society had bene- fited themselves at the expense of tlie society to the extent of 8000?. A bill was filed by the company against them for an account, in order to compel them to pay this amount; and a demurer to the bill was overruled, although it was strongly urged on behalf of tlie defendants, that they were the company at the time when the acts complained of were done, and that they therefore had a right to do as they liked with the shares. The duties of the directors as trustees are by no means confined to an obligation to account to the company in respect of gains made by themselves at its expense. Directors are responsible for the loss of the company's assets if Liability for ^^^^^ "^^^^ ^® attributable to the employment of the assets assets lost. ^^ ^ manner and for purposes not warranted by the constitution of the company, (m) Thus, in the Land Credit Co. of Ireland v. Lord Fermoy (n), the directors of a company who had {T) 2 Beav. 559. See, also, the ob- where they act bona fide and with the serrations of Jessel, M. R., in 5 Ch, D. sanction of a majority of shareholders. 118, as to duties to future share- {n) 8 Eq. 7, and 5 Ch. 763. See, holders. 'also, Joint Stock Discount Co. v. Brown, {m) But see Pickering v. Stephenson, 8 Eq. 381. Compare Turquand v. Mar- 14 Eq. 342, as to their non-Hability shall, 4 Ch. 376. 800 CHAP. II.] DIEECTOitS LIABLE FOE NEGLIGENCE. *593 improperly employed its funds in buying up its own shares were held liable to replace the funds so spent. So in Grimes v. Harri- son {(T) the directors of a building society were held liable to make good money of the society improperly expended in the pur- chase of land. So if directors are parties *to a fraudulent *593 transaction by which their company suffers loss, they can be compelled to indemnify it against such loss, {p) The property of a company is so far regarded as in the nature of trust property that it can be recovered by the compa- Actions to re- ,. , , ■,.-,.„ 11. cover property ny trom any person who has obtained it Irom the di- of a company. Sectors with notice that they are acting beyond their powers {q.) Although, generally speaking, directors have a wide discretion, and in the absence of proof of TOfflZw /?cZ(3S, it may be cuipaMe negii- T m 1 1 T 1 !• Ill 1 • gence and wil- ditncult to establish a case oi culpable negligence or tui default. willful default, yet if such a case be proved, and loss by the compa- ny attributable thereto be also, proved, the directors will be liable to make good such loss (r.) Thus in Evans v. Coventry, it was sought to make the directors of a company responsible jje^H'^ence in for monies of the company embezzled by its secretary, taking security. on the ground that the directors had neglected to obtain security for his good conduct, as they were required to do by the company's deed of settlement. The deed only required the directors to take such security as they thought proper, and no collusion or dishonesty was imputed to them, and under these circumstances the V.-C. Kin- dersley held that they were not liable to make good the monies in question {s.) But on appeal, an inquiry on the subject was direct- (o) 26 Beav. 435. ny. Ita title was based on a sham and (p) See Parker v. Lewis, 8 Cli. 1035, fraudulent transaction. In Grimes v. where the court held there was no loss Harrison, 26 Beav. 435, the purchaser caused by the fraudulent transaction. of the company's property was held to iq) Bryson v. Warwick and Birming- have had no notice of the directors' ham Rail. Co. 4 DeG. M. & G. 711, want of authority to sell it. As to or- and Ernest v. Croysdill, 2 DeG. F. & J, dering defendants in such cases not to 175, which require to be studied togetli- part with the property pending litiga- er. See, also. Hardy v. Metropolitan tion, see Bank of Turkey v. Ottoman Land, &c., Co., 7 Ch. 427, reversing 12 Co. 2 Eq. 366 ; Hagell v. Currie, 2 Ch. Eq. 386. Gray v. Lewis, SEq. 526, was 449. decided on this prmciple, and, although (r) See Charitable Corp. v. Sutton, 2 reversed, 8 Ch. 1035, may be usefuUy re- Atk. 400, and Overend, Gumey, & Co. ferred to as illustrating the principle. v. Gibb. L. R. 5 H. L. 480. Themoney there sought to be recovered (s) Evans «. Coventry, 2 Jur. N. S. never, in fact, belonged to the compa- 557. . =1 801 *59i CULPABLE NEGLIGENCE AND WILFUL DEFAULT. [bOOK III. ed, with a view, it is conceived, to make the directors responsihle, if the result of the inquiry should prove adverse to them (t.) *594: Although the *directors had a discretion as to what security they should require, tliey wore culpably negligent in taking none at alL Again, in Western Bank of Scotland v. Cairds (•?/.), directors were Not stopping held liable for losses sustained by reason of their neg- company. \eQ,t, in not causing the business of the company to be stopped pursuant to a provision to that eflect in its articles ; and although in a subsequent English case of a similar nature the de- cision vi-as different, that case was decided on the ground that the shareholders had sanctioned the continuance of the business, (x) It is clearly established that directors who keep within the limits No liabilities of their authority, and act hond fide to the best of for errors of ' judgment. their judgment, are not liable to make good to the company the losses which may result from their acts. Thus it has been held, that directors acting hona fide, and within their powers, are not liable for a loss arising from a loan to a co-director who had died insolvent {y), nor for losses oc- casioned by purchasing a business which they knew to be insolv- ent at the time of purchase (2); nor for omitting to take mort- gage securities to cover the amount of the insolvency, (a) Nor- are directors acting iona fide and within their powers liable to re- lund to the company sums paid by way of commission and promo- tion money, to persons other than themselves, although such pay- ments may have been made for very inadequate considerations. (J) Moreover, if judgment has been obtained against a company for In compromis- ^ large sum of mouey, and the directors, instead of ap- angciamis. pealing, Sow^ _^£Z(? compromise the matter by paying less than the sum recovered, they caanot be compelled to refund to (t) S. C. 8 DeG. M. & 0. 835. See [ij) Turquanclw. MarshaU, 4 Cli. 376, clause 6 of the decree on appeal. Com- see p. SS6. pare Overend, Gurney & Co. v. Gurney, {z) Overend, Gumey & Co. v. Gibb, L. 4Ch. 701, and Overend, Gumey & Co. E. 5H. L. 4S0, affirming Overend, Gur- V. Gibb, L. R, 5 H. L. 480, where there ney & Co. i>. Gumey, 4 Ch. 701. was no obligation to take any security. (a) lb. Compare Evans v. Coventry, (m) Cited in 4 Ch. 381. 8 DeG. M. and G. 835, cl. 6 of the de- (x) Turquand v. MarshaU, 4 Ch. 876, cree on appeal, reversing 6 Eq. 112. See also, Leth- (6) General Exchange Bank v. Hor bridge v. Adams, 13 Eq. 547. ner, 9 Eq. 480. CHAP. II.J LIABILITY OF DIRECTORS AS TRUSTEES. *696 the company what tliey so pay, although the judgment against the company may have been erroneous (c.) *Tiie most difficult question which arises with reference *595 to the liability of directors is the extent to which each is liable for the acts of the other. The following appear Liability of to be the principles applicable to this subject : — fetrofeacif 1. All those directors who are actually implicated in °''^®'^- a breach of trust by misapplying the company's money (even althongh they only sign cheques prepared by others), are jointly and severally liable for the losses arising therefrom, {d) 2. Directors who know of and sanction such a breach of trust are implicated in it within the meaning of this rule, althongh they do not actively take part in it. (e) 3. So are directors who know of the breach of trust, but take no steps to prevent it beyond writing a letter of disap- proval. (_/) i. Where their liability is to account for profits improperly received by them, thej^ are only severally liable for their own receipts, and are not jointly and severally liable for each other's receipts, (g) But it is submitted that their liability is joint and several if there has been a'joint receipt by them all, and then a division amongst themselves of what they have all received; or 'if they have all been implicated in some joint breach of trust result- ing in profit to them all. 5. It has been decided that a director who is not cognizant of a breach of trust committed by his co-directors, and who takes no part in it, is not liable for it. (A) This point, however, involves the question, whether a director is not bound to make himself acquainted with what his co-directors are doing, and to take such steps as may be in his power to prevent them from doing wrong. On this question opinions differ, and it can scarcely be con- sidered as settled, {i) If, *indeed (as often happens), the *596 (e) See Parker v. Lewis 8 Ch. 1035. Brown, 8 Eq. 381. (f?) Joint Stock Discount Co. «). Browii, {g) Parker v. MoKenna, 10 Ch. 96; 8 Eq. 381 ; Land Credit Co. v. Lord General Exchange Bank v. Homer, 9 Fei-moy, 8 Eq. 7, 5 Ch. 763. Eq. 480. (c) Land Credit Co. v. Lord Fennoy, (7j) Joint Stock Discount Co. ■». Brown, S Eq. 7, and 5 Ch. 763, where the sub- 8 Eq. 381 ; Ashurst v. Mason, 20 Eq. committee were the persons more inime- 22-5. diately to blame. (i) Compare the judgment of the M. {/) Joint Stock Discount Co. v. R. in the Land Credit Co. v. Lord Fer- 803 '■'■3')7 DIEECTOES' rOWEES TEEATED AS TEUSTS. [BOOK III. constitution of tlie company is such as to justify a director in leaving certain matters to his co-directors, or some of them, he is justified in trusting them with such matters, and is not responsi- ble for breaches of trust committed by them and concealed from him. (k) But in other cases his irresponsibility is by no mean so clear. 6. Nor, it seems, is a director liable for breaches of trust com- mitted by his co-directors before he became a director but after- wards discovered by him. (I) In this case the new director's lia- bility, if any, can only be for the loss sustained by the company by reason of his omission to make known what he has discovered, and to compel the real delinquents to make good their breach of trust; and it is very questionable whether an incoming director is liable in point of law for such omissions. That powers reposed in directors are regarded as being in the Powers of di- nature of trusts, is clearly shown by Gilbert's case (?n), rGctors trGflptfid \ /' as trusts. in which it was held that a director could not ex- ercise his power of making calls for his own benefit and without regard to the interests of the company: and in that case a call was postponed in order to enable a director to transfer his shares, and a transfer by him in the interval was held invalid. There are other cases which show that directors have no right to favor ona set of shareholders more than another (w); and that powers of ac- cepting surrenders of siiares and of forfeiting them, must be exer- cised bond fide for the purposes for which they are conferred, io") Before leaving the subject of the liability of directors to make Effect of good assets of the company improperly lost or parted acquiescence. ^\'Ca_^ or to account for profits made by them at the expense of the company, it is material to consider whether the shareholders have acquiesced in what has been done or not. Cases indeed may occur where their acquiescence is immaterial, *597 but *tliis is only where the company is incorporated and its moy, 8 Eq. 7, with the last oases, and contra there cited. see Turquand v. Marshall, 4 Ch. 385. {m) 5 Ch. 569. See, also, Sykes' (fc) Land Credit Co. v. Lord Fermoy, case, 13 Bq. 2.5-5, as to paying calls in 5 Ch. 763, reversing on this point, S. C. advance, and then taking them back for 8 Eq. 7. fees. (?) See Ashurst v. Mason, 20 Eq. 236; (m) Richardson v. Larpent, 2 Y. & C- Turquand v. Marshall, 4Ch. 383 ; Evans C. C. 507 ; Harris v. The North Devon V. Coventry, 8 DeG. M. & G. 835, de- Rail. Co. 20 Beav. 384. cree cl. 2 ; but observe the Scotch cases (o) Infra, c. 5, §§ 7 & 8. 804 CHAP. 11.] LIABILITY OF DIEECTOES AS TEUSTEES. *o98 funds have been applied in a manner which the shareliolders could not in point of law sanction or ratifv. {p) In otlier cases the acquiescence of the shareholders affords a complete dei'ense to the directors: e. g., where it is attempted to make them refund divi- dends improperly paid to the shareholders (§'); or to make good losses sustained by the company after its business ought by the articles to have been stopped, but which the shareholders, knowing the facts, allowed to be continued. (?■) Again, where a director has made a profit at the expense of the company, and this ganctio„bv circumstance is known to the other directors, and they, otter directors, acting bona fide, h&'aQ.tioTi it, having power so to do, the shareholders and tlie company will be bound by their sanction, (s) The right of directors as trustees to be indemnified by the com- pany against expenses and liabilities incurred by them ■ 1 . \. , . .,1 1 n 1 I 1 Indemnity. m tlie exercise ot tlieir powei's, will be alluded to here- after, {i) But it may be properly observed here that directors may be entitled to contribution and indemnity amongst themselves in respect of a demand against them on the part of the company, {u) TIius, where shares in a company were purchased and transferred into the name of a director as trustee for the company, pursuant to a resolution of the board which was not binding on the com- pany, it was held that he was entitled to be indemnified by the other members of the board who had concurred in the transaction against the claims made on hitn by the company. (») ♦SECTION III.— OF THE POWERS OF MAJORITIES.' *598 In the event of a difference arising between partners, it becomes necessary to consider whether there is any method of Disputes 1 1 f 1 ■ • 11 between determining which of them is to give way to the other, partners. It is not uncommonly supposed by the public, that the minority of {p) As in Society of Practical Knowl- informed of the facts, edge V. Abbott, 2 Beav. 659, ante, pp. {t) Infra, book iii. c. 6, § 1. 591, 592 ; and see p. 258, et seq. (u) See Afihurst v. Mason, 20 Eq. 225, (q) Turquand v. Marshall, 4 Ch. 376. and Ashurst v. Fowler, ib. (r) Ibid. See, also, ajite, p. 594. {x) See the cases in the last note. A (s) Imperial Mercantile Credit Assoc. director who was only present when the V. Coleman, 6 Ch. 558, reversed, L. R. 6 transfer was formally approved was held H. L. 189, but only on the ground that not liable, the other directors were not sufficiently ' See post, 899, et seq. 805 "'■5!)8 POWEE OF MAJORITY. [bOOK III. the partners, if tliey are unequally divided, must submit to the major- ity. But this is by no means the case; for, as will be seen presently, the majority cannot oblige the minority except within certain limits. The first point to determine is, whether the partnership articles. How to be ^^ '^^ '''•'® case of a company tlie act, charter, or deed settled. Q^' settlement, or regulations by which it is governed, do or do not contain any express provision applicable to the matter in question ; for if they do, such provision ought to be obeyed, (y)' If they do not, then the nature of the question at issue must be examined ; for there is an important distinction between differ- ences which relate to matters incidental to carrying on the legiti- mate business of a partnership or company, and differences wJiicli relate to matters with which it was never intended that the part- nership or company should concern itself. With respect to the first class of differences, regard must be had 1. Disputes on to the State of things actually existinic ; for, as a rule, matters arising n i i t i inordinary if the partners are equally divided, those who forbid a course of ^ . . business. change must have their way : tn re com,rmmi potior est conditio prohibentls. {z) Upon this principle it is that one partner cannot either engage a new or dismiss an old servant Power of against the will of his co-partner, (a) If, howevei', in majority in " j> ,1 • i • ^- -j i i- i such eases. a case ol this description, unprovided for by previous agreement, the partners are unequally divided, the minority must give way to the majority, (bj This doctrine has been held («/) The distinction between clauses Robinson v. Thompson, 1 Vem. 465 ; that are directory and those that are im- as to opening accounts, Morgan's case, perative will be adverted to hereafter. 1 M. & G. 235. The general obligation to observe the - In directing the business of a part- provisions of companies' deeds of set- nersliip, a majority shall govern, not- tlement ■will be found well put in withstanding the dissent of the minor- Brown's case, 19 Beav. 97, and Lawes' ity. Peacock v. Cummings, 5 Phila. case, 1 DeG. M. & G. 421. 253; 46 Pa. St. 434; Kirk v. Hodgson, '^See Waterbury v. Express Co. 50 .3 John. Ch. 400; Waterbury t). Express Barb. 157; 3 Abb. Pr. (N. S.) 163. Co. 50 Barb. 157; S. C. 8 Abb. Pr. (N. (z) But see as to the employment of a S.) 163; Peacock v. Cummings, 46 Penn. ship, Abbott on Shipping, p. 82, ed. 9 ; St. 434; Johnston v. Button, 27 Ala. and as to completing contracts already 245; Campbell v. Bowen, 49 Ga. 417. entered into, Butohart v. Dresser, 4 DeG. See, also, Livingston v. Lynch, 4 John. M. & G. 546. Ch. 573; Western Stage Co. v. Walker, (a) See Donaldson v. Williamson, 1' 2 Iowa, 504; Irvine «. Forbes, 11 Barb. Cr. & M. 345. 587. See, however, Yeager v. Wallace, (&) See Gregory v. Patchett, 33 B.'av. 57 Penn. St. 365. 595; Const v. Harris, T. & R. 518; 806 CHAP. II.J MATTEES WITHIN SCOPE OF BUSINESS. *o99 to apply where the *uiajority wished to make a division of *599 ]u-otits, without first paying an outstanding debt (c); where ihe majority wislied to borrow moneyed); where tlie majority resolved to assign all the joint property to trustees, upon trust for sale and distribution amongst the joint creditors (e); where the majority resolved on leasing a part of the property of the company for a temporary purpose (/"); where the majority of the subscribers to an abortive company resolved that the subscriptions should be returned [g); and where the majority approved and adopted ac- counts fairly laid before them. (A) But it seems that a majority The members of a private association, as a telegraph company, are not part- ners. They are tenants in common of the property and franchise belonging to the company, and the majority cannot bind the minority, unless by special agree- ment. Irvine v. Forbes, 11 Barb. 587. Three persons, actuig together, bor- rowed a sum of money from a bans, and shipped a lot of cattle to market consigned to another person to sell, who, after making sale and paying expenses and charges and a mortgage on the cattle, held about half of the proceeds in his hands. One of the partners di- rected him to pay this balance to the bank, and he agreed to hold it subject to the order of the partners, and he paid it to one of the partners by his and > the direction of another, they two con- stituting a majority: Held, that the direction of one partner to pay to the bank, and what he said, gave the bank no hen on the fund. The agent was authorized to pay it, as he did, under the direction of the other two partners; and as he paid the money before the bank filed their bill to enforce, payment out of the fund, there was nothing up- on which an equitable lien could atiach. Steele v. First Nat. Bank, 60 111. 23. ' A co-partnership had been established to purchase Cherokee lands, and to work them for mining, etc., as partners. One of the specifications in the agreement of co-partnership was to be that such disposition was " made of their property as a majority should deem advisable, " two of the partners having become in- solvent, and a third neaiiy so, and all having abandoned the work and neg- lected payment of the installments for the purchase money, leaving the whole burden upon the fourch partner; neither of these three partners has a right to complain in equity that the fourth part- ner in order to relieve his sureties, has disposed of the land without the concur- rence of a majority, especially is this true as to a purchaser hondfide, and without notice, for value, from such fourth partner, all they can ask is an ac- count from the fourth partner. Rhea v . Vannoy,! Jones' Eq. 283; ib. 290. (c) Stevens v. The South Devon Rail. Co., 9 Ha. 326. and see Gregory v. Patchett, 33 Beav. 595. {d) See Byron v. The Metropolitan Saloon Omnibus Co. 3 De G. & J. 123, affirming S. C. 4 Jur. N. S. 680 ; Aus- tralian Auxiliary Steam Clipper Co. v. Mounsey, 4 K. & J. 733. (e) Lord v. Governor and Co. of Cop- per Miners, 2 Ph. 740. (/) Simpson v. Westminster Palace Hotel Co. 2 De G. F. & J. 141. See, also, Forest v. Manchester and Sheffield Rail. Co. 30 Beav. 40, and on appeal, 4 De G. F. & J. 126. (g) Kent v. Jackson, 14 Beav. 367, and 2 De G. M. & G. 49. {h) Kent v. Jackson, 2 De G. M. & 807 *600 POWEE OF MAJOKITT. [bOOK III. cannot against the will of the minority delegate to a manager the right to sign the partnership name, [i) Moreover, the legitimate business of a partnership or company Matters in eiud- iicludes whatevei' may be necessary for carrying on its nary c°durse of business in the way in which it is ordinarily carried on business. ^^ other people, (k) Hence, wliere the directors of a fire insurance company, the policies of which did not cover losses occasioned by explosions of gunpowder, paid claims made in con- sequence of losses so occasioned, and it was proved that other com- panies generally did the same thing, although not bound to do so, it was held that such payments could not be restrained. (/) So a railway and ferry company may use its ferryboats for excursion trips when not wanted for the ferry, {m) In questions of the class now tinder consider- wibii"f ' ™ *600 ation, the views *of the majority may vary from time to time, and elfect must, it is conceived, be given to them as tliey change, (n) A very important rule respecting tlie powers and votes of major- Aii partners itics is, that a maiorltv, to have any weiirht, must act entitled to be ;' " i j^ •", _p heard. and be constituted with perfect good laith ; for every partner has a right to be consulted, to express his own views, and to have those views considered by his co-partners. In the language of Lord Eldon, " that is the act of all wliich is the act of the majority, provided all are consulted, and the majority are acting bond Jide, ineeting not for the purpose of negativing what any one may have to offer, biit for the purpose of negativing what, when they are met together, they may afternlue consideration think proper to nega- tive. For a majority of partners to say, "We do not care what one partner may say ; we, being the majority, will do what we please, is, I apprehend, what a court of equity will not allow." (p) G. 49, and 14 Beav. 367 ; Stuparfc v. field Rail. Co. 30 Beav. 40, and 4 De Arrowsmith, 3 Sm. & G. 176. G. F. & J. 126. (i) See Beveridge v. Beveridge, L. R. (m) See Exeter Rail. Co. v. Buller, 5 2 So. App. 188. Ra. Ca. 211, and A.-G. v. Gould, 28 (Je) See ante, p. 236, et seq. Beav. 485. (Q Taunton v. Royal Insur. Co. 2 (o) Const v. Harris, Turn. & R. 525, Hem. & M. 135. See on this case, and and see ib. 518, and Blissett v. Daniel, and those cited in note (/), Joint Stock 10 Ha. 493 ; Great Western Rail. Co. tj. Discount Company v. Brown, 3 Eq. Rushout, 5 DeG. & Sm. 310, and fur- 139. ther as to agreements precluding im- (m) Forrest v. Manchester ;jid Shef- partial voting, ante, p. 548. 808 CHAP. II.] MATTEES BEYOND SCOPE OF BUSINESS. *601 Moreover, where powers are conferred on a majority present at a meeting of not less than a certain number of persons, Majorities at unless such meeting be duly convened and the requisite ™'^*^""e'^- number be present at the meeting the powers in question cannot be exercised ; and although it may be true that the required number of persons was summoned, and that the absentees could not iiave turned the scale, this will not render valid the acts of the majority of those actually present, for that is not such a majority as was originally contemplated. (^) Passing now to a second class of differences, viz., those which relate to matters with which the partnership was never 2. Disputes on intended to concern itself, it has been over and over sng a change - . , -, . . T , T in the nature of again decided that no majority, however lai-ge, can law- the businfes, fully engage the partnei-ship in snch matters against canit^bid'^™' the will of even one dissentient partner.' Each part- change. ner is entitled to say to the others, "I became a partner in a con- cern formed for a definite purpose, and upon terms which were agreed upon by all of us, *and you have no right, *601 without my consent, to engage me in any other concern, or to hold me to any other terms, or to get rid of me, if I decline to assent to a variation in the agreement by which you are bound to me and I to you." Nor is it at all material that the new business is extremely profitable, [g) This princijple is applicable to all part- nerships and companies, whether threat or small, and is in companies '- ' . ■- as well as in evidently one which requires only to be stated to be at partnerships. once assented to as being just.' No cases upon this subject can be referred to with greater advantage than Natusch v. Irving and Const V. Harris, both of which were decided by Lord Eldon. {r) In Natusch v. Irving (s), a company was formed in the early part of the year 1824 for granting fire and life assur- fnsufam'e^''^^ ances. The capital was 5,00.0,000^., divided into fifty l°^^^il Sri thousand 100^ shares. The plaintift' was one of the in^^cJmpany {p) See Howbeaoh Coal Co. v. 536 et seq. Teague, 5 H. & N. 151 ; Ex parte Mor- (r) See, too, Davies v. Hawkins, 3 M. rison, DeG. 639. See, too, the cases & S. 488; Fennings v. Grenville, 1 cited ante, p. 244, et seq. Taunt. 241; Glassington v. Thwaites, 1 1 See Abbstt v. Johnson, 32 N. H. 9 ; Sim. & Stu. 131. Livingston v. Lyoh, 4 John. ch. 573. (s) Gow on Partnership, App. 398, {q) A.-G. V. Great Northern Rail. eel. 3. See, also. The Phoenix Life Co. 1 Dr. & Sm. 154. Insur. Co. 2 J. & H. 441. ' See Ang. & Ames on Corp. §§ 391, 809 ■•■602 POWEE OF MAJORITY. [cOOK III. original subscribers, and held fifteen shares, in respect of which Natusch* ^'^ ^^^^ P^^^ ^^^^ required deposit, but he had not exe- irving. cuted the company's deed of settlement. In conform- ity with the rules of the company he had effected a policy with it on his life for 1,500^. In the summer of 182-i, the act of 6 Geo. 1, prohibiting companies from carrying on the business of marine insurance, was repealed, and shortly afterwards advertisements appeared in the newspapers, stating- that the company would commence the business of marine insurance. The plaintiif, in answer to an inquiry whether this ,announcement was authorized by the directors, was, informed that it was, and that if he objected to the course about to be pursued he might receive back his deposit with interest, and have his policy cancelled and the premium re- turned. In reply to this, the plaintiff stated tliat he was ready to execute any deed which was in conformity with the prospectus; that he conceived it competent for him to insist that the business in which he was a partner should be carried on according to the agreement winch united the partners together; that he could *602 not think his doing so would entitle *the managers of that partnership to pay him out his capital, and deprive him of a share in a concern of which be had the highest opinion; that he therefore required the directors to abstain from any contracts or enffafferaents relatino; to marine insurance, as not beina; contem- plated by himself and those who joined the company upon the terms of the prospectus, and that he required an undivided at- tention on the part of the directors to the objects defined therein. The plaintiff afterwards attended at the office of the companv, to execute its deed of settlement, but finding that it contained provisions enabling the company to carry on the business of marine insurance, he refused to execute it, as not being conformable to the terms on which the company was formed. In pursuance of the advertisements, the company had commenced, and it was carrying on, the business of marine insurance; but there was no evidence to show acquiescence on the part of the plaintiff, and there was evidence to sliow continued opposition by him to the carrying on of such business. The plaintiff applied for an injunction to restrain the directors from effecting marine insurances, and an in- junction was granted, (t) The judgment of Lord Eldon, as far as (<) The bill was filed by the plaintiff shareholders of the company, against on behalf of himself and all others the the directors, and prayed a dissolution, 810 CHAP. II.J POWEE OF MAJOEITY. ' *603 it relates to tlie power of a majority, is particularlj valuable, and the following extracts from it are constantly referred to: With respect to the liberty g'.ven to the plaintiff to retire, his lordship said: " An offer is made to the plaintiff that he may receive back his Answer to ob- deposit, with interest from the date of the payment, and he iissi^jenfcan is desired to consider himself as having received notice thereof, letiie. But it is not, I apprehend, competent to any number of persons in a partner- ship ( unless they show a contract rendering it competent ts them ) formed for specified purposes, if they propose to form a partnership for very differ- ent purposes, to effect that formation by calling upon some of their partners to receive their subscribed capital and interest and quit the concern; and in ef- fect, merely by compelling them to retire upon such terms, so as to form a new company. This would, as to partnerships, be a most dangerous doctrine. *Where a partnership is dissolved (even where it can be in a sense dis- *603 solved the instant after notice to dissolve is given, if there be no contract to the contrary), it must still continue for the purpose of winding up its affairs, of taking and settling all its accounts, and converting all the property, means, and assets of the partnership, existing at the time of the dissolution, as bene- ficially as may be, for the benefit of all who were partners, according to then- respective shares and interests; and the other partners cannot say to him to whom they have given an offer of his deposit and interest. Take ■' " 1 ■ n rr , Dissentient that, and we are a new company, keeping the effects, means, need not accept assets, and property of the old, as the property of the new partner- indemulty. ship. The company wiU indemnify the plaintiff against loss by its transactions already had, or hereafter to be had, not for the specified purposes of the institntion. But the right of a partner is to hold to the specified pur- poses his partners whilst the partnership continues, and not to rest upon indemni- ties with respect to what he has not contracted to engage in. A dissatisfied part- ner may sell his shares, for double what he originally gave for them. But he cannot be compelled to part with them for that reason ; it may be his principal reason for keeping them, having the partnership concern can-ied on according to the contract. The original contract and the loss which his partners would suffer by a dissolution, is his security that it shall be so carried on for him and them beneficially, and with augmented improvement in the value of his shares and their shares." With respect to the alteration of the law enabling companies to carry on the business proposed, his lordship observed: " The repeal of the act. Answer to 6 Geo. 1, which merely made it lawful for societies or partnerships, argument that however numerous their members might be, to insure against ^arrantel.Vy^'^ marine risks could not make it lawful for companies or societies statute. which were formed for specified purposes of insurances upon lives and against fire, to insure against marine risks, unless the contracts by which such companies were formed, either expressly or impliedly (where individual partners did not consent to embarking in new projects, either originally, or subsequently to the formation of and, if necessary, a receiver, and an in- from usmg the name, and from apply- junction to restrain the defendants from ing the capital of the company for such effecting marine insurances in the«iame parposes. and on account of the company, and 811 *60i POAVEE OF MAJORITY. [bOOK III. the companies), created an authority in some part of the body to bir*l all the body to the adoption of such new undertakings." With respect to the power of a majority, his lordship laid it down that, "If six persons joined in a partnership of life assurance, it seems clear that on powers of neither the majority nor any select part of them, nor five out of the majorities. ^-^^ could engage that partnership in marine insurances, unless the contract of partnership expressly, or impliedly gave that , power : because if this was otherwise, an individual or individuals, by engaging in one specified concern, might be miplicated in any other concern whatever, however different in its nature, against his consent. But if a part of the six openly and publicly professed their intention to engage the partnership in another concern, and clearly and distinctly brought this to the knowledge of one or more of the other partners, and such one or more of the other partners could be clearly shown to have acquiesced in such intention, and to hate permitted the other partners to have entered upon, and to have engaged themselves and the body in such new projects, and thereby to have placed their partners so engaged in difficulties and embarrassments unless they were permitted to proceed in the farther execution of such projects, if a comt of *604: equity would not go the length of holding that such conduct was *consent, it would scarcely think parties so conducting themselves entitled to the fesfinum reined'nim oi mjunction." * * * * " Courts must struggle to pre- vent particular members of those bodies from engaging other members in projects in which they have not consented to be engaged, or the engaging in which they have not encouraged, assented to, or empowered, or acquiesced in, expressly or tacitly, so as to make it not equitable that they should seek to restrain them. The principles which a Court would act upon in case of a partnership of six, must, as far as the nature of things will admit, be applied to a partnership of 600." * * ' ' They who seek to embark a partner in a busmess not originally part of the part- nership concern, must make out clearly that he did expressly or tacitly acquiesce." In Const V. Harris (u), the proprietors of Coveut Const V Sfirris ^ / ' i i- Garden Theatre agreed that the profits should be ex- clusively ajjpropriated to certain definite purposes. Afterwards, Aiteringprin- ^^® proprietors of scveii out of eight shares, entered cii ■ • • ■ ■ - - - - proflteshraid'^ ^^^'^ ^^ agreement to apply the profits in a diff'erent be dealt witJa. manner, but they had n"ot consulted the owner of the other eighth share, and he disapproved of the alteration. It was held by Lord Eldon, that the majority had no power to depart from the terms of the original agreement ; and upon a bill filed by the one dissentient partner for a specific performance of that agree- ment, a receiver of the profits was appointed. In a long and elab- orate judgment. Lord Eldon distinctly recognized the principle, that articles which had been agreed on to regulate a partnership, cannot be altered without the consent of all the partners, (x) (m) Tm-n. & R. 496. whole judgment is well worthy of at- (x) See Turn. & R. 517,523. The tentive perusal ; but being much to the 812 CHAP. II.J POWEE OF MAJOEITY. *605 In niudern cases the same principle has been constantly recog- nized and followed, (y) Indeed it may be said ne\rer ,, ^ ^•'' •' «. ^ 1.^ wi Modern cases now to be disputed; the contest always turnin* on illustrative of ^ ' ■ " .i.niii.i_, 'jii. these priiici- the question, whether the acts of the majority do or p^*^^- do not belong to the class under consideration, ratlier than to the question whether, if they do, the minority is or is not bound by them. With reference to the former question, it lias been held not competent for a majority of shareholders in a company formed for the purpose of making a railway between two jjlaces, to make *a railway between two other places (e); nor for the *605 majority of the members of a tire and life insurance company to convert the company into a marine insurance company (a); nor for a majority of the members of a railway company to engage it in the business of coal sellers (5); nor for a majority of the mem- bers of any company to employ the property or funds of the com- pany otherwise than as contemplated by themselves and the other members ; e.g., by dividing the capital amongst themselves (c), or even amongst all the shareholders whether they approve ornot((^); by making presents to the directors (^); by paying the costs of actions, &c., instituted by or against the directors as individuals, and not as trustees or agents of the company {f)\ by paying divi- dends out of capital {g) ; by applying the funds of the company in de- fraying the expenses of an application to Parliament to alter the con- stitution or objects of the company (A); or in the purchase of shares same effect as that in NatusdiJJ. Ii'ving', 9 Ch. 350; GriiEth. v. Paget, 5 Ch. D. the writer has not felt it necessary to 894. make extracts from it. {d) Holmes v. Newcastle, frc, Abat- (?y) See Morgan's case, 1 Mao. & Gr. toir Co. 1 Ch. D. 682. 225 ; Davidson's case, 4 K. & J. 688 ; (e) York and North Mid. Rail. v. Smith V. Goldsworthy, 4 Q. B. 430 ; Da- Hudson, 16 Beav. 485. See, too, Ross- vies V. Hawkins, 3 M. & S. 488. more ». Mowatt, 15 Jur. 238, V.-C. [z) Bagshaw v. The Eastern Union K. B. Rail. Co. 7 Ha. 114, and 2 Mac. & G. (/) See Pickering v. Stephenson, 14 389; Simpson v. Denison, 10 Ha. 61. Eq. 322 ; Kernaghan v. Williams, 6 Eq. (a) Natnsch v. Irving, ante, p. 601 ; 228. Phoenix Life Insur. Co. 2 J. & H. 441. [g) McDoughall v. Jersey Hotel Co. In Rogers v. Oxford, &c., Rail. Co. 2 2 Hem. & M. 528. DeG. & J. 662, the railway company {h) Lyde v. Eastern Bengal Rail. Co. had express power to become a canal 36 Beav. 10 ; Munt v. The Shrewsbui-y company also. and Chester Rail. Co. 13 Beav. 1 ; Simp- (6) A.-G. V. Great Northern Rail. Co. son v. Denison, 10 Ha. 51 ; Vance v. 1 Dr. & Sm. 154. The East Lancas. RaH, Co. 3 K. & J. (c) Menier v. Hoopar's Telegraph Go. 50, and thj cares there cited. ■ 813 *606 POWEE OF MAJORITY. [BOOK III. of retiring shareholders, (i) Upon the same principle by-laws which are not warranted by the terms of the instrnment which confers the power of making them, are altogether invalid (/ii) ; and a ma- jority cannot, unless empowered so to do by the company's *606 act, charter, deed of settlement, or *regnlations, or by some statute, forfeit shares (I) or reduce the capital of the com- pany [m), or issue preference shares, [n) A compan}' incorporated by charter or special act of Parliament Transfer of Cannot delegate its powers, and cannot therefore trans- business. fgj, j|.g ij^igjness even for a time to another company (o); nor can the majority of the shareliolders of any company bind the minority by an agreement to transfer its property' and business, unless such power is conferred by the original constitution of the company, (p) ISTor is it competent for tlie majority of one com- pany to purchase the assets and liabilities of anotlier without sim- Amai'ama- ^^^^ powcrs. (q) "Whence it follows that two companies *'™- cannot amalgamate with each other, unless such a transaction is authorized by the constitutions of both companies, or unless all the shareholders in both consent to the amalgama- tion, (r) And where tliere is power to amalgamate, that power must be strictly pursued, or at least there must be no substantial departure from it. (s) (i) Hope V. International Financial 881 ; Charlton v. Newcastle and Carlisle See. 4 Ch. D. 327 ; Hodgldnson v. Na- Rail. Co. 5 Jur. N. S. 1096; Winch t-. tional Live Stock Insur. Co. 26 Beav. Birkenhead, &c., Rail. Co. 5 DeG. & S. 478, and 4 DeG. & J. 422 ; Gregory v. 662 ; Beman v. RufFord, 1 Sim. N. S. Patchett, 33 Beav. 595. 550 ; Salomons v. Laing, 12 Beav. 877. {k) Calder, &c., Nav. Co. v. Pffling, Compare Clay v. Rufford, 5 DeG. & S. 14 M. & W. 76 ; Adley v. Whitstaple 768. Co. 17 Ves. 815 ; 19 ib. 304 ; 1 Mer. {p) See Ernest v. Nicholls, 6 H. L. 107. C. 401 ; Era Assur. Co.'s case, 2 J. & H. (Z) Barton's case, 4 Brew. 585, and 4 400, and 1 H. & M. 672 ; and, further, DeG. & J. 46. as to amalgamating, Ex parte Bag- (m) Smith v. Goldsworfchy, 4 Q. B. shaw, 4 Eq. 341 ; Stace and Worth's 430 ; Hope V. International Financial case, 4 Ch. 682 ; Gilbert v. Cooper, 10 Soc. 4 Ch. D. 327. Jur. 580, V.-C. E., and Shrewsbury and [n) Hutton v. Scarborough Cliff Co. 2 Birm. Canal Co. v. Stour Valley Rail. Dr. & Sm. 514 and 521 ; and on appeal, Co. 2 DeG. M. & G. 866. 6 N. R. 10. Although this was a limit- {q) Ibid, ed company, the principles on which it [r) Ibid. was decided appear to apply to all com- (s) Clay v. Rufford, 5 DeG. & Sm. panies. 768 (o) Hattersley v. Shelbume, 10 W. R. 814 CHAP. II.J POWEE OF MAJOEITT. *607 Tlie right of a majority of partners or shareholders to apply to tlie Legislature or the Crown for an act of Parliament Right of ma- or charter for the purpose of chanofins: the constitution lorpow.-rto , . 1 »"^i^ nature ot the partnerslnp or company, has occasioned much of company. discussion and no little difference of opinion. The right of every person to apply to Parliament or the Crown on any subject he pleases is founded upon principles of constitutional law, which are paramount to all others; and although there is an instance in which *a minority of a chartered *607 S^Attorneys! ^ society obtained an injunction, restraining the majority from surrendering the existing charter with a view to pro- cure a new one materially differing from it (t), the authority of this case is questionable. The Court will, even at the in- g^^^ appiica- stance of one dissentient shareholder, grant an injunc- made^^ut not tion restraining the application of the funds of an ofthecIS™^^ incorporated company in defraying the expenses of ^'^"^' obtaining an act of Parliament altering the constitution of that company (m); but upon constitutional princiy)les the Court declines to go further, and will not restrain shareholders in a company from applying at their own expense for an act which, if passed, will affect the whole company and change its constitution ; those shareholders who object to the application must oppose it in Par- liament, (x) With respect to the effect of an unanimous agreement to depart from the original basis of the partnership or company, Effect of unani- • TTiv. 1 . 1. ' ^ mous resolve to there is a material ditterence between partnerships and ciiangethe . ' nature of the companies incorporated by charter, or act oi Parha- company, ment. A partnership, whether large or small, is an association based and depending entirely upon the agreement of its members, {t) Ward V. Society of Attorneys, 1 2 R. & M. 470; and as to injunctions Coll. 370. restraining applications to Parliament, (m) Muntf. The Shrewsbury and Ches- Steele v. The Metropohtan Rail'. Co. 2 ter Rail. Co. 13 Beav. 1; Simpson v. Ch. 237; Telford v. Metropolitan Board Denison, 10 Ha. 51; Vance v. East Lane, of Works, 13 Eq. 574; The Lancashire Rail. Co. 3 K. & J. 50; and the case and Carlisle Railway Co. v. The North- there cited. As to the costs of such ac- Western Rail. Co. 2 K. & J. 293; Heath- tions, where individual members are cote v. The North Staffordshire Rail. Co. made defendants, see Solicitor-General 2 Mac. & G. 100. See, al'so, BiU v. Sier- V. Lord Mayor of Dublin, L. R. Ir. 1 C. ra Nevada, &o., Co. 1 DiG. P. & J. 177, D. 166. in which an injunction to restrain an (a;) Seethe last cited cases, and Ware application to a foreign government «. The Grand Junction Waterworks Co. was also refused. 815 *608 POWEK OF MAJOEITY. [bOOK III. and consequently it is perfectly competent for all those members at any time to annul or vary the agreement into which they have entered, and, by making a new agreement, entirely' to change the objects of the partnership, and to embark in any speculations of which they all approve. The same observation applies to those companies which resemble partnerships by being based upon a mere agreement, (y) But with respect to companies which *608 are created by a special act of Parliament, or *by charter, or by letters patent, or by registration, the case is very differ- ent; for every company so established is governed by a law defining its objects and limiting its powers, and such law cannot be abrogated by an}' agreement between the members of the company however unanimous they may be. A registered company cannot alter the nature of its business as defined in its memorandum of associa- tion {z); nor can even all the members of a chartei'ed company do what they like with its property, e. g., divide it amongst themselves without accounting for its value to the company (a)\ nor can even all the members of a railway company apply the funds of a com- pany to a purpose which is not authorized by the act of Parliament by which the company is governed, {b) On the other hand, it is to be observed, that a corporation acts Powers of ^.7 ^ majority; the will of the majority is the will of Se eases 0™ the corporation; and whatever it is competent for the corporations. corporation to do can be done by a majority of its members against the will of the minority, (c)' It follows from this, that the power of a raajoritj' of the shareholders of a company incorporated by charter or act of Parliament, is limited only by that charter or act, unless those wlio compose the majority have restricted their powers by some special agreement. («/) Keene's Executors' case, 3 DeG. Co. 1 Dr. & Sm. 154; East Anglian M. & G. 272. Rail Co. v. Eastern Counties RaU. Co. {z) See ante, pp. 558, 659. 11 C. B. 775. (a) Society of Practical Knowledge v. (c) See Grant on Corporations, p. 68, Abbott, 2 Beav. 559; anie, p. 591. et seq.; Australian Aux. St. Clipper Co. (6) Bagshaw v. The Eastern Union v. Mounsey, 4 K. & J. 733; Exeter Rail. Rail. Co. 7 Ha. 114, and 2 Mac. & G. Co. v. Buller, 5 Ra. Ca. 211. See also 389; Winch v. The Bii-kenhead, Lan- the statute 38 Hen. 8, c. 27. cashire, and Cheshire Rail. Co. 5 DeG. ' See Ang. & Ames on Corp. §§ 221, & S. 562; Beman v. Rufford, 1 Sim. N. 499. S. 550; A.-G. V. Great Northern Rail 816 CHAP. 11. j POWEE OF MAJORITY. *609 Recapitulating the results now arrived at, it appears— 1. That within the limits set by the original consti- ^ ._ ^. Y Eecapitulation. tution of a partnership or company, the voice of a ma- jority must prevail. 2. That it is not competent for any number of partners or shareholders, less than all, to pass beyond those limits. 3. That it is competent for all to do so, unless they are bound together not only by agreement amongst themselves, but by some charter, letters patent, or act of Parliament. ^Before quitting the subject which has been *609 Distinction be- . „ . . tween impera- discussed in the loregomg pages, it may be tive and airec- , , , . ° . ^ p , . tory regula- observed, that the various provisions lound in partner- tions. ship articles and companies' deeds of settlement are not all of equal importance, and, that whilst it is not competent for any num- ber of partners, less than all, to disregard those provisions which form essential parts of the partnership contract, the non-observ- ance of others is comparatively of little consequence. This matter will be adverted to hereafter in the chapter on partnership articles, and on companies' deeds of settlement {d) ; and in applying the principle to registered companies, the express power given by statute to alter the articles of association as distinguished from the mem- orandum of association must be kept in mind, {e) (d) See Re The Norwich Tarn Co. Bough, 3 Q. B. 845. 22 Beav. 143 ; Thames Haven Dock Co. (e) See ShefSeld Nickel Co. v. Unwin, V. Rose, 4 Man. & Gr. 552 ; Miles v. 2 Q. B. D. 214. 62 gl7 *610' CAPITAL OF PAETNEESHIPS. [bOOK III. *610 *CHAPTER III. OF THE .CAPITAL OF PARTNERSHIPS AND COMPANIES, AND OF ITS PAYMENT BY CALLS. SECTION I.— GENERAL OBSERVATIONS ON THE CAPITAL OF PART- NERSHIPS AND COMPANIES. 1. Capital of partnerships. By tlie capital of a partnership is meant tlie aggregate of Capital of the sums Contributed by its members for the purpose partnerships, ^f commencing or carrying on the partnership busi- ness, and intended to be risked by them in that business. The cap- ital of a partnership is not therefore the same as its property ; the capital is a sum fixed by the agreement of the partners ; whilst the actual assets of the firm vary from day to day, and include every- thing belonging to the firm and having any money value. More- over, the capital of each partner is not necessarily the amount due to him from the firm ; for not only may he owe the firm money, so that less than his capital is due to him ; biit the firm may owe him money in addition to his capital, e. g., for money advanced by him to the firm by way of loan, and not intended to be wholly risked in the business. The distinction between a partner's capital and what is due to him for advances by way of loan to the firm, is frequently very material ; e. g., with reference to interest; with reference to clauses in partnership articles fixing the amount of capital to be advanced and risked, and prohibiting the withdrawal of capital; and above all with reference to priority of payment in the event of dissolution and a deficiency of assets, {a) The amount of each (a) See on tliis subject, infra, book, iii. cb. 8, § 1, on partnersbip accounts. 818 CHAP. III.J CAPITAL OF PAETXEESIIIPS. *611 partner's capital ought, therefore, always to be accurately "•■'stated, in order to avoid disputes on a fiaal adjustment of account;' and this is more important where the capitals of *611 ' The amount of capital furnished by each partner in a firm, and the manner of paying it in, maybe proved by other evidence than the articles of co-partner- ship. Boyers v. Elliott, 7 Humph. 204. Where, in a suit for a dissolution of a partnership, it appeared that there was a mistake as to the amount of capi- tal put in by the complainants, and it appeared that more was put in than was t. ^■mally stated, but how much more was uncertain: Held, that the burden of proof was upon them, and that they should be restricted to the smallest amount proved, especially as one of the complainants was the book-keeper, and should have kept the books so as to show the true state of the affau-s. Moon V. Story, 8 Dana, 226. A partnership consisting of four part- ners was dissolved, two assignmg their shares to one of the others, and the re- maining two formed a new partnership. In their articles they agreed that, of the property on hand, a, sufficient amount should be set apart and appropriated to paying the debts of the old firm; and another amount for improvements made on real estate, and that the remainder should be deemed the capital stock of the fimi: Held, that the amount set apart for improvements made on real estate did not make a part of the capi- tal stock. Mathers v. Patterson, 33 Pa. St. 485. Where a former clerk is taken into co-partnership by a firm which was in- debted to him, and the amount of such indebtedness is placed to his credit upon the new books, to which, on dissolution of the firm, is added his share of the net profits, such indebtedness will not be regarded as capital put in by the new member, but rather as a loan to the firm to be repaid him, with his share of the profits. Topping v. Paddock, 92 111. 92. An incoming partner paid the two original members of the firm money as in- dicated in the receipt : ' ' Received of E. $2,000 for and in consideration of one- half interest in one safe, two desks, two pair of scales, one stove and pipe; also the undivided half of our trade and good wiU, and the benefit accruing therefrom; also one-half of the contract of pota- toes for future delivery, and the benefits of the sarne as per contract of co-part- nership made this date between H. E. and M.,: " Held, that the money so paid belonged to the two original part- ners, especially if it was credited on the books, in equal amounts to their stock account. Evans v. Hanson, 42 111. 234. Two persons agreed to form a plant- ing partnership with a thLrd, and, for that purpose, to sell him for his portion of the capital one-third of a plantation, the price to be paid out of his share of the profits : Held, that the joint owner- phip was not to be treated as if acquired from different vendors, but as a subsid- iary to a partnership to whose terms it was subject; and that as by those terms the vendee could not take his capital out of the partnership until payment of the price, neither he, hi? creditors, nor his representatives, could take his third interest, until the other partners were fully reimbursed. Thompson v. Mylne, 6 La. Ann. 80. Where, by the terms of the agree- ment, the defendant furnished the capi- tal stock, and the plaintiff contributed his skdl and service, and the profits of the co-partnership were to be equally di- vided, the plaintiff is not to be entitled to any part of the capital stock, on a 819 *G11 CAPITAL OF PAETNEESIIIPS. [boOK III. the partners are unequal, for if there is no evidence as to the amounts contributed by them, the share of the whole assets will be treated as equal, (b). When the agreed amount of capital of a partnership has been increaseand exhausted, and the business cannot be carried on to a diminution of ,. , i . i i . t -i capital. pront, the partnership may be dissolved, as iias been^ already pointed out. (o) A partner cannot be compelled to furnish more capital than he has agreed to bring in and risk; although he cannot, by limiting the amount of his capital, limit his liability for debts incurred by the firm, {d) On the other hand, a partner who has agreed to furnish a certain amount of capital, is bound not only to bring it into the firm, but also to leave it in the business until tlie firm is dissolved. It follows from these considerations that the capital of a partner- ship cannot be either increased or diminished except with the con- sent of all the members of the partnership; and this rule is pei-- fectiy consistent with the obvious fact, that the assets and liabili- ties of a partnership are necessarily liable to fluctuation, and that the value of each partner's share of such assets constantly fluctu- ates also. The difierence between borrowing money on the credit of a firm Borrowing ^^'^ increasing its capital, has been already adverted SeasHigcapS" ^^ W) ^^'^ ^^ '^^^ ^^^^" ^^^°' ^^^^^ although each member ^^^- of an ordinary trading partnership can pledge its credit for money borrowed in order to carry on its business, he cannot render it liable to repay money borrowed by him to enable him to furnish the amount of capital which he has agreed to bring in. (_/) settlement of the affairs of tlie partner- port it. Tlie rights and benefits result- ship. He has no interest in any part ing to partners constitute the oonsidera- of the capital, excepting so far as m tion he receives for the capital he may the progress of the business the same advance; he receives the consideration may have been converted into profits. for his capital by being admitted a part- Com:oy v. Campbell, 13 .Jones & Sp. 326. ner. Stafford v. Fargo, 35 111. 481. A note given by a partner to his co- (&) See, as to the equality of shares, partner, as collateral security for the infra, book ui. ch. 5, § 2. capital advanced by the latter, being (c) Ante, p. 222. intended simply as a receipt for the (d) Ante, p. 376. money, and to secure the return of the (e) Ante. pp. 273, 274. capital in the event that no loss oc- (/ ) lb. cuired, is without consideration to sup- 820 CUAP. III.J CAPITAL OF COMPANIES. *612 2. Capital of Companies. The foregoing observations apply as mnch to companies as to partnerships; but owing to the division of the capitals of com- panies into transferable shares, and to the circumstance *that *612 the capitals of companies are seldom raised all at once, some further observations respecting them are necessary. The capital of a company is one of the matters determined upon as soon as its formation is seriously undertaken. ^ HBXoi The sum fixed upon ought to be so large as to be suffi- companies, eient to enable the company to carry on its business with success; but it ought not to be larger than is necessary for this purpose; for the greater the capital sunk in any undertaking, the less will be each subscriber's share of profit, unless, indeed, the profits increase with the capital sunk, a result not so often obtained as anticipated. The probable success of any company depends very much upon the capital intended to be embarked in its projected business; if tliat capital is inadequate, it will probably be wholly lost; whilst if it is more than is required, the interest upon it may eat up all the profits. Hence the amount of a company's capital is varying the ^ . amount of one of those things which, when fixed, cannot be varied capital, withont the consent of all who join the company, unless there is some special provision to the contrary in the statute by which a company is governed, or in its charter or deed of settlement. This is well illustrated by Smitii u Goldsworthy {g\ where gj^uh,, it was held that notwithstanding the very large powers Gowsworthy. which by a company's deed were conferred upon a general meeting of shareholders, such a meeting was not authorized in so far alter- ing the constitution of the company as to convert its capital from 2,000,000Z. divided into 20,000 shares of 100?. each, into a capital of 1,000,000?. divided into 20,000 shares of 60Z. each. Upon the same principle, a person who agrees to take shares in a company with a given capital, is prima facie not bound to take shares in a company with a difierent capital (A); but persons not unfrequently agree to take shares in companies tlie capital of which is not defined; and {g) 4 Q. B. 430. Compare Amber- 632; Fox v. Clifton, 6 Bing. 776; Pitch- gate, &c.. Rail. Co. «. Mitchell, 4 Ex. ford v. Davies, 5 M. & W. 2, noticed 540, noticed i»/m, p. 613. ante, pp. 108, 109. {h) See Bourne v. Freeth, 9 B. & C. 821 *613 ALTEEING CAPITAL. [bOOK III. in such cases tliey are bound by their agreement, althougli the capi- tal ultimately iixed upon may differ materially from that originally pro]iosed. (i) *G13 *The capital of a company is usually divided into a defi- nite number of equal parts or shares ; and the value and amount of such parts are by no means matters of small impor- Divisionof tance to the subscribers or shareliolders : for not only capital into . •' shares. IS a Small siiare more marketable than a large one, but the extent to which a subscriber or shareholder is liable to con- tribute to the capital or debts of a company depends on the num- vai-ying the bcr and amount of his sha,res. When, therefore, the amount of n i i • i • i t shares. number and amount oi the shares into which the capital of a company is to be considered as divided are once fixed, no change in these respects ought to be valid unless made under some statutory or other special povcer, or unless assented to by all the shareholders; and tiiere are cases to tliis effect. .(^) Anibergate Ilowerer, in the Ambergate, etc., Kailway Company v. mny™^'^*'™' Mitchell (I), a company was incorpor.ited by a special Mitchell. ^g|-^ wliich enacted that the capital was to be divided into shares, and that for the purpose of voting, each sum of 251. of the capital should be considered as representing one s-hare. Tlie shares were at first 251. shares, but the company (i. e., apparently the directors) afterwards reduced them to 201. shares, and it was contended in an action for calls on a 201. share, that the alteration in the number and value of the shares was invalid, and that the call was not recoverable. But it was held that there was nothing in the company's special act which prevented the directors from making shares of less than 251. each ; that they were not bound to fix the amount of the shares once for all ; and that, as to the voting, the alteration could not deprive any one of his rights, inas- much as the only effect of it was, to give every holder of a 251. share, one share and a quarter, instead of one share as before. issuingtoo Persons who consjiire to issue as good, more shares many shares, than the authorized number, may be criminally prosecuted, (m) It is not usual for the Mdiole of the sum fixed upon as the capital (i) See, for example, Norman w. Mitoli- 714; Sewell's case, 3 ib. 131; Smith, u. ell, 5 DeG. M. & G. 648; Nixon v. Goldsworthy, 4 Q. B. 430. Brownlow, 2 H. & N. 455 and 3 ib. 686. {I) 4 Ex. 540. (k) See aoo. FeiUng's case and others; (m) SeeR. v. Mott, 2 Car. & P. In re the Financial Corporation, 2 Ch. OHAP. III.] CAPITAL OF COMPANIES. *614 of a company, to be paid up at once by the subscribers or share- holders. The capital, and the number and amount of *the shares into which it is to be *Qli S-m^ca^pua], divided, having been determined upon, and such shares having been subscribed for, an installment only of the money they represent is paid, and the rest of that money is left to be paid as occasion may require. Plence the distinction between paid-up and nominal capital. The former is the money which the company actually has or has had ; the latter is the sum to which it is entitled by virtue of the contract entered into by its subscribers and shareholders. A share, the whole nominal amount of which has been paid to the company is called a paid-up share ; whether a in, ii-i T ■ 1 . Paid-up shares. share can be ellectually paid up otherwise than in money has been much discussed. The result of the decisions seems to be that unless the contrary can be shown by reference to some statutory enactment, payment in money's worth e. g.. in services rendered or goods supplied to the company, is equivalent to payment in money {n) : whence it follows that paid-up shares can be issued in consideration of such services, etc. The abuse, however, of this rule led to the insertion in the Companies act, 1867, of a provision to the effect that shai'es in companies regis- tered under the Companies act, 1862, must be paid up in cash unless some agreement in writing for payment otherwise is entered into and registered before the issue of the shares, (p) The issue of paid-up shares otherwise than for value (^) is a breach of trust on the part of the directors ; and the company and its creditors are entitled to have such shares treated as not paid up {q)\ unless they are in the hands of bona fide holders for value without notice of the facts, {r) in) See Currie's case, 3 DeGr. J. & tories. Sm. 367; Pell's case, 5 Ch. 11; Schro- {p) As to inquiring into tlie value, der's case, 11 Eq. 131. But see the ob- see PelPs case, 5 Ch. 11, and the others seryations of V.-C. Stuart in Leeke's cited above, case, 11 Eq. 100. ( q) See Bunn's case, 2 DeG-. F. & J. (o) See 30 & 31 Vict. c. 31, § 25. 295, Wood's claim and Brown's claim, Spargo's case, 8Ch. 407, as to what is 9 W. E. 366; V.-C. K.; and the cases equivalent to cash. The articles of as- in the next note, sociation are not a sufficient agreement (r) See Guest v. Worcester Rail. Co. in writing, Pritohard's case, 8 Ch. 956. L. R. 4 C. P. 9; Waterhouse v. Jamie- See, further, in book iv. § 10, Contribu- son, L. R. 2 Sc. App. 29. British 823 *615 CAPITAL OF COMPANIES. [eOOK III. Where the liability of the members of a company is limited by charter, statute, or registration, it is, to say the least, questionable whether it can lawfully issue paid-up shares at Issue ata *615 a *discount, and exonerate the taker from lia- bilitj' to pay the difference between the price at which he takes them and their nominal value, (s) In the absence of any special provision to the contrary, after the Effect of ex- capital originally agreed upou has been raised and ex- haus-in"^ capi- o .y o l tai. ° pended, any shareholder in an unlimited company lias a right to say, I will subscribe no more, and if the company cannot now be carried on to a profit, I iTisist upon its being dissolved, {t) This right is the only security which a shareholder, whose liability is not limited, has against being made responsible for an unlimited amount of debts. It certainly sometimes happens that call after call is made long after the original capital has been paid up and ex- pended, but in order that the shareholders may be liable to pay such calls, they must either have agreed to submit to them, or must have allowed their directors to go on and contract debts which at last have to be met by a general contribution. A company has no power to increase its capital, unless such Increasing powcr is exprcssly conferred upon it, or unless all the capital. ■^, , , , ^ ■' ^ , ., ■ , , shareholders agree to subscribe or raise more than the sum originally determined upon (u); and if the capital of a com- pany is fixed by its charter, letters patent, or special act, sucli capi- tal cannot be increased, even by the consent of all the members of the company. The distinction, however, between borrowing money and increasing capital, which was adverted to on a former occasion must not be overlooked; for it does not follow that because a major- ity of the shareholders of a company cannot increase the capital of the company, they cannot lawfully, and against the will of the mi- nority, borrow money on the credit of the company, (v) To the rule that, in the absence of special powers, the capital Farmers' Linseed Cake Co. 7 Ch. D. nies, 32 & 33 Vict. c. 19, §12. See, 633. Compare with case last cited, Pot- also, infra, p. 619. ter & Brown's Appeal (V.-C. Hall), W. {t) See Electric Telegraph Co. of Ire- TSf. 1878, p. 81, affirmed by the Court land, 22 Beav. 471; Jennings «. Bad- of Appeal May 15, 1878. dely, 3 K. & J. 78; ante. p. 222. (s) See Hoole v. Gt. Western Rail. {u) See the cases in the last note, and Co. H Ch. 262; West Cornwall Bail. Co. Fisher v. Taylor, 2 Ha. 218. r. Mowatfc, 12 .Jur. 407; 30 & 31 Vict. (r) See Bryon v. M'etropolitan Saloon c. 131, §2-3, and as to cost-book compa- Omnibus Co. 3 DeG. & J. 123; and b2t CHAP. III. ] CAPITAL OF COMPANIES. *616 of a company cannot be increased ag-ainst the ^ •^ I J tnpreasing cap- will of a *sino'le dissentient shareholder, there *616 {t.?ii"^™^^„ ^j ' DOOK ininiiig is, apparently, an exception in the case of cost- compimies. book mining companies. It is stated by Mr. Tapping, in his nse- ful essay on the cost-book, that tlie capital of a cost-book mining company may be increased in pursuance of a resolution of a special general meeting, (x) No authority is cited for this statement, but it certainly is the constant practice of cost-book companies, which have spent all their capital, to make further calls on their share- holders, and to proceed against them in the Stannary court in case of non-payment. But it must not be overlooked that the capital of a true cost-book dompany is seldom if ever fixed beforehand (y), and that shareholders in cost-book mining companies have the power of relinquishing their shares if all calls upon them have been paid up; and that if they do not choose to avail themselves of this power, they may with propriety be treated as agreeing to go on, and to furnish more capital, should it be found necessary, for the purposes of the mine. Passing now to the various statutory enactments bearing upon the capital of companies, it may be observed, that there gtatutoir is no statutory provision relating to the capital of f"ttii^'"to"capi- banking companies governed by 7 Geo. i, c. 46, nor to ^^^' ^''■ that of companies governed by the Letters Patent act of 7 Wm. 4 & 1 Vict. c. 73. Companies governed hi/ the Companies clauses consolidation act. The capital of companies incorporated by special act of Par- liament is determined by such act, and is divided capital of into shares of the number and amoUnt thereby pre- govemedbys scribed, (s) And by the Companies clauses consoli- &9Vict.o.i6, dation act it is enacted, that the subscribers shall pay the suras sub- scribed by them respectively, or such portions thereof as shall from time to time be called for by the company (a); and the company is empowered to make calls on the shareholders (5), and so enforce Auxiliary Steam Clipper Co. v. Moun- Mitchell, 4 Ex. 540, noticed ante, p. sey, 4 K. &• J. 733, noticed ante, p. 274. 613. {x) Tapping on the Cost-Book, p. 22. (a) 8 & 9 Vict. c. 16, § 21, ly) See ante, pp. 146, 147. (&) lb. § 22. {z) See Ambergate, &c., Rail. Co. v. 825 *617 GOYEENED BY 8 & 9 VICT. 0. 16. [bOOK III. payment by action (c), and to forfeit the shares of defaulters, {d) *617 *Subject to certain restrictions, new shares in these compa- nies may be issued at a discount, [e) The act in question does not itself confer any power to borrow, but it contains import- ant provisions relating to the borrowing of money by companies em- powered to borrow by their special acts (/"), and enacts that money authorized to be borrowed may, unless it be otherwise provided by the special act, be raised by the creation of new shares [g], which, with reference to the payment of calls, are to be on the same foot- ing as original shares (A), and are to be offered to the existing shareholders if the old shares are at a premium. (^) It is also de- clared, that it shall be lawful for the company to convert or consol- idate shares wholly paid up into capital stock, to be divided amongst the shareholders accoi'ding to their respective interests therein (/i)) ; and provision is made for registering the owners for the time being of such stock and for the transfer thereof, and for securing to the holders such rights as they would have enjoyed if their shares had not been converted into capital stock of the com- pany, il) The act authorizes the directors to receive payment fi'om any shareholder of the wliole amount of his shares, and to pay him interest on the difference between such amount and the amount of calls actually made in respect of the same shares. (■?») The company's moneys are to be applied first in payment of the expenses incurred in obtaining the special act, and secondly in car- rying out the objects of the company, [n) The Companies clauses act, 1863 (o), contains some further im- J portant provisions relative to additional capital andde- c. 118. benture stock of companies governed by special acts of Parliament. The act in question does not confer any power to in- crease capital, or to issue preference shares, or to create deben- [e) lb. § 23. shareholder must accept the offer. {d) lb. § 29. (fc) 8 & 9 Vict. c. 16, § 61. (e) See 26 & 27 Vict. c. 118, § 21, as (0 lb- §§ 62-64. Stock will pass un- amended by 30 & 31 Vict. c. 127, § 27, der a bequest of shares. See Morrice v. and by 32 & 33 Vict. c. 48, §§ 5-7. Ayimer, 10 Ch. 148. (/) 8 & 9 Vict. 0. 16. § 38, et seq. («i) lb. § 24. (g) lb. § 56. (") lb- § 65. See, also, 27 & 28 Vict. (/i)]:b. §57. c. 121. §§3e«. seg-. (0 8 & 9 Vict. c. 16, § 58. See Pear- (o) 26 & 27 Vict. c. 118 ; amended by son V. London and Croydon Rail. Co. 14 30 & 31 Vict. c. 127, and 32 & 33 Vict. Sim. 541, as to the time within which a c. 48. 826 CHAP. III.J GOVEENED BY THE COMPANIES AOT, 1862. *619 ture *bat only regulates the mode of exercising such pow- *618 ers where they are conferrerl by the company's special act. There is one provision, however, relating to the rights of prefer- ence shareholders which requires special notice. Tlie preference provision in question (§ 14) is to the effect that prefer- shareholders. ence shares or stock shall be entitled to the' preferential dividend or interest assigned thereto out of the profits of each year in priority to the ordinary shares and stock of the company ; but if in any year there are not profits available for the payment of the full amount of preferential dividend or interest for that year, no part of the deficiency shall be -made good out of the profits of any subse- quent year, or out of any other funds of the company. Prior to the passing of this act, it had been held that preference shareholdei's were entitled to have any deficiency of profit in one year made good out of the profits of a subsequent year, even although nothing might be left for the ordinary shareholders, {p) The enactment al- tering this rule only extends, it is conceived,^ to preference shares issned under some special act passed after July, 1863. V Companies governed btjthe Companies act, 1862. The capital of a company formed under the act of 1863, and lim- ited by shares, must be specified in the memorandum capital of com- of association (§ 8), and the capital of other companies ^a"ii?25°& I™" formed nnder the act, and having a captal divided into "^ict. c, 89. shares, must be specified in the registered articles (§ 14). The number and amount of the shares into which the capital is divided must also appear in the memorandum or articles, as the case ma}' be (§§ 8 and 14) ; and the shares must be numbered (§ 22) ; but the omission to number them *will not prevent their *619 holder from being a contributory in respect of them {q). {p) See as to preference shares, Webb 263; Smith «. Cork and BandonEail. V. Earle, 20 Eq. 556; Bangor and Port Co. Ir. L. R. 3 Eq. 356, and 5 ib. 65, Madoc Slate Co. ib. 59; Henrj' «. Great where the preference shareholders es- Rail. Co. 1 DeG. & J. C06, and 4 K. & tablished their right to many years, ar- J. 1; Sturge v. Eastern Union Rail. Co. rears. In Griffith v. Paget, 6 ch. D. 7 DeG. M. & G. 158; Crawford v. North 511, preferred and deferred shareholders Eastern Rail. Co. 3 K. & J. 723; Ste- were held entitled to share the capital of vens & South Devon Rail. Co. 9 Ha. a company being wound up in propor- 313; Matthews v. Great Northern Rail. tion to their respective shares. Co. 5 Jur. N. S. 284 ; Coates v. Not- {q) See Ind's case, 7 Ch. 485. See tinghamW.W. Co. 30Beav.86; Corryi!. ante, p. 132, as to numbering shares. London Si EnniskUlen Rail. Co. 29 Bear. 827 *620 CAPITAL OF COMPANIES. FbOOK III Whether fully paid-up shares in limited companies formed under Issue at a this act can' be issued at a discount has not been de- discount. cided. (r) The original capital may be increased bj' the issue of new shares Increase of (§§ 12 and 50) (s); but notice of the increase must be capital. given to the registrar of joint-stock companies. (§34) The capital of a company not limited by shares, may appa- Eeductionof r^ntly be reduced (see §§ 14 and 50); bnt to reduce the capital. capital of a company limited by shares was impossible as the act originally stood, {t) This, however, may now be done under the provisions of the Companies acts, 1867 and 1877 {u), and with the sanction of the Court (x); but not otherwise, e.g., by buy- ing up and cancelling shares, (y) But, as will be seen hereafter, inability to reduce capital docs not prevent shares from being for- feited or surrendered in the usual way. (s) These acts and the orders of Court relating to the reduction of capital will be found in the appendix to the present treatise. .By reference to them it will be seen that— 1. Shares never taken up or agreed to be taken up by any person may be cancelled by a special i-esohition of the shareholders, and without any application to the Court, (a) 2. In all other cases an order of the Court having jurisdiction to wind up the company {i.e., in England the Chancery *620 *Division of the High Court of Justice) is necessary in order to effect a reduction of capital. (5) 3. With such sanction and the approval of a special resolution (r) See ante, p. 614 ; 30 & 31 Vict. c. Droitwich Patent Salt Co. v. Curzon, L. 131, § 25, does not apparently author- R. 3 Ex. 35. ize an issue of paid-up shares for less (;«) 80 & 31 Vict. c. 131, %9 et seq. ; money than their nominal amount. De- 40 & 41 Vict. c. 26. bentures may be issued at a discount, {x) §11. For the practice of the Regent's Canal Ironworks Co. 3 Ch. D. Court in these matters, see the cases 43; Anglo-Danubian Steam, &c., Co. cited in the next note but one, and The 20 Eq. 339; Campbell's case, 4 Ch. D. General Mining Co. Ir. L. R. 6 Eq. 470. 213. (s) See Campbell's case, 9 Ch. 1, as [y) Hope v. International Financial to the necessary meetings. Soc. 4 Ch. D. 327. (0 See § 12, and the cases 'of Feiling (z) Teasdale's case, 9 Ch. 54. Com- and others, 2 Ch. 714 ; Sewell's case, 3 pare the last case. Ch. 131. Even a company which had [a) 40 & 41 Vict. c. 26, § 5. power to reduce its capital lost it by be- ih) 30 & 31 Vict. c. 131, § 11. ing registered as a limited company, R98 CHAP. III.] GOTEENED BY THE COMPANIES ACT, 1862. *621 of the shareholders, the capital may be reduced whether fully paid up or not, and whether lost or not. {d) 4. "Where the reduction of the capital involves either the dimi- nution 6f a shareholder's liability or the payment to any share- ■ holder of any paid-up capital (e), notice of an intended ajjplication to the Court must be given to the creditors (/'); and security must be given to those creditors who will not assent, {g) 5. The words "and reduced " must be temporarily added to the name of the company in all cases where the sanction of the Court to a reduction of capital is required, unless the Court dispenses with such addition (A); and the Court has only power to dispense with it where the reduction does not involve either the dimrnution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. (*) 6. The special resolution confirmed by the order must be regis- tered. {Jc) 7. All copies of the memorandum of association issued after the reduction must be in accordance with it. (I) Where the" liability to calls is to be diminished or a division of paid-up capital is to be made (m), a time is fixed for creditors to come in and object, and if they do not come in within the time fixed for the purpose, they cannot afterwards effectually dissent, {n) But creditors who receive no notice of the intended reduc- tion are entitled to be paid their debts not only *by the *621 company, but if necessary, by compelling the then mem- bers of it to contribute to their payment, {f) Provision is also made by the Companies act, 1867, for subdivid- ing a company's shares. This may be done by special sutidivision of resolution, without the sanction of any court {■p) ; bait ^'^^''**^- the proportion between the amount paid and unpaid on the exist- {d) lb. § 9, and 40 & 41 Viot. c. 26, § Eq. 155; but see Credit Fonoier of En- 3. Prior to this act the law was other- gland, 11 Eq. 356, where fourteen days wise. See Ebbw Vale Steel, &c., Co. 4 were fixed. Ch. D. 827; KirkstaU Brewery Co., 5 ib. (i) See 40 & 41 Vict. c. 26, § 4. 535, and compare Credit Foncier of En- (k) 30 & 31 Vict. c. 131, §§ 15, 16, and gland, 11 Eq. 356. see 40 & 41 Vict. c. 26, § 4. (e) See 40 & 41 Vict. c. 26, § 4. ' (I) 30 & 31 Viot. c. 131, § 10. (/) 30 & 31 Vict. c. 131, §§ ll.and 17. (m) 40 & 41 Vict. c. 26, § 4. iff) Ib. §§ 11, 13, and 14. («) Credit Foncier of England, 11 Eq. (h) lb. § 10. The Court usually di- 356, foot-note, reots this addition to be used for three (o) 30 & 31 Vict. c. 131, § 17. months, Sharp v. Stewart and Co. 5 {p} lb. § 21. 829 ■■'022 CAPITAL OF COMPANIES. [bOOK III. ing shares must be preserved [q) ; and all copies of tlie inemoi'- audum of association issued alter the subdivision must be in accord- ance with it. (r) Notwithstanding the large powers given by the Companies act, Preference 1862, to shareholders, and enabling them to modify shares. their articles of association by special resolution (s), it has been held- not competent for them to issue preference shares unless the articles as originally framed autlioi-ize such issue, {t) But it is otherwise if they do, although the memorandum of asso- ciation is silent on the subject, (w) By the act of 1867, special res- olutions may be passed authorizing arrangements on the issue of shares for a diiference between their holders in the amount of calls to be paid, and the time of payment of such calls, (x) The capital of companies governed by the Companies act, 1862, Conversion may be consolidated and divided into shai-es of larger into stock. amount, and may be converted into stock (§§ 12 and 50); but notice of any such clianire must be given to the Registrar (§28). The amount of a company's capital or stock, the shares into Eeturnshow- which the former is divided, and in which the latter is ing capital, &c. ];ield, the pcrsoiis to whom the shares or stock belong, the dates of transfers, and the amounts of calls paid and unpaid, must appear with other matters in the returns required to be made annually to the registi-ar (§§ 26 and 29). By the regulations in Table A., the directors may, with the sanc- tion of a special resolution of the members, increase the capital of Companies the Company by issuing new shares (No. 26). act, 18G2. *g22 -jjje ^amount of the increase and the amounts of TH,bl6 A. ProTisions as ^^^^ shares into which the increased capital is to to capital. ijg divided, rest with the members; but if they give no directions upon the subject, then with the directors (ib.). Unless the meeting anthoi-izing the increase, give directions to the con- trary, all new shares are to be offered to the members in proportion to the existing shares held by them (JSTo. 27). Shares not accepted (q) lb. Co., 2 Dr. & Sm. 514 and 521, and 9 (r) § 22. As to tte illegality of sub- Jur. N. S. 551. See as to tbe construc- dividing otherwise than under the act, tion of articles on this point, Melhadoi). see the cases of Feiling and others, 2 Hamilton, 21 W. R. 874. Ch. 714. (m) Harrison v. Mexican Rafl. Co. 19 (s) 25 & 26 Vict. c. 89, § 50. Eq. 858. it) Hutton V. Scarboro' Cliif Hotel {x) 30 & 31 Vict. c. 131, § 24. 830 CHAP. III.J CALLS. *623 by the meiribers may be disposed of by the directors as they think most beneficial to the company (ib.). Any capital raised by the creation of new shares is to be considered as part of the original capi- tal, and is subject to the same provisions as regards calls and for- feiture of shares (No. 28). (y) By the same regulations, the directors may, with the sanction of the members, convert any paid-u]) shares into stock (No. 23, §§ 12, 28 and 34 of the act). The transfer of stock is, as far as practicable, subject to the same regulations as the transfer of shares (No. 24), and the rights of stockholders are assimilated, as nearly as circum- stances will permit, to the rights of shareholders (Nos. 24 and 25 ; and see § 29 of the Act). With respect to existing companies i-egistered under the Act, the amount of their capital and the namber of their shares, capital of exist- and the persons to whom they belong, and the amounts "'s companies. paid on them must all be stated in the documents sent to the Reg- istrar (§ 183); and if the capital has been converted into stock, the amount of such stock, and the persons entitled to it, must be simi- larly stated (§ 185). Shares in these companies need not be num- bered if they were not numbered before registration (§ 196, cl. 2). Subject, however, to the provisions of any special act of Parliament, or letters patent, the foregoing remarks concerning the capital and shares of new companies appear to be applicable to existing compa- nies after their registration (see § 196 ; and as to companies regis- tered under the acts of 1856-1858, see §§ 176-178). ♦SECTION II.— OP CALLS. *623 Capitals of companies are usually raised by installments or calls. " A call," is an expression used to denote both a demand for money, and also the sum demanded; and in this last Different kinds sense it signifies either the whole sum required to be °^caiis. (y) Clauses similar to these were con- Steam Clipper Co. v. Moimsey, 4 K. & tained in Table B. to the act of 1856. J. 733; and with reference to the issue They were discussed with reference to of preference shares, m Hutton v. Scar- borrowing money, in Bryon v. Metropol- boro' CKft' Hotel Co. 2 Dr. & Sm. 514 itan Saloon Omnibus Co. 4 Jur. N. S. and 521, and Harrison v. Mexican Rail. 680, and 8 DeG. & J. 123; AuxHiaiy Co. 19 Eq. 358. 831 "024 CALLS. [book III. raised atone time from the members of a couipany by a contribu- tion amongst themselves, or that proportion of this entire sum wiiich is payable in respect of each share. There are two kinds of calls. First, there are those calls which are nothing more than the un])aid-up portions of the nominal cap- ital of a company (s); and, secondly, there are those calls which are contributions required after that capital has been raised and ex- hausted. Calls of the first kind are payable by virtue of the agreement entered into by the subscribers and shareholders to contribute the sums fixed upon as the capital; but calls of the last kind are payable in consequence of the liability of shareholders to discharge their debts, (a) If this liability is unlimited, the amount of calls (of the second kind) which a shareholder may be compelled to pay, depends entirely on the amount of the debts to be liquidated, and upon the number of the solvent co-shareholders. But no shareholder can be required to pay calls of the first kind beyond his unpaid proportion of the capital of tlie company. In the ensuing pages it is proposed to examine the law respecting calls of the first kind, so far as it relates to the persons empowered to make them, the purposes for, and the manner in which they may be made, and the persons liable to pay them. The right to forfeit sliares for the non-payment of calls, and the law relating to actions for their recovery, will be noticed in subsequent parts of the work. *624 *1. Of the persons hy whom calls may Tie made. The terms of the instrument which regulates the internal afi"air3 „ , ,, of each company must be ascertained before the per- By wliom calls r ./ j. may be made. gQjjg empowered to make calls on its shareholders can be known. Generally speaking, this power is naturally vested in In companies the directors of the company. There is no statutable 7 °Ge™4, c. 46, provision upon this subject applicable to banking com- vicrc. 73. panies governed by 7 Geo. 4, c. 46; nor to companies governed by the Letters Patent act of 7 Wm. 4 & 1 Yict. c. 73. In ordinary cost-book companies calls are made by the shareholders. (5) (s) Payments on allotment are not ley, 6 H. & N. 38, in wliicli it was held calls. See Croskey v. Bank of Wales, 4 that calls made hy liquidators might be GifF. 314. recovered, although the notices required (a) The difference here alluded to is for other calls had not been given, illustrated by Hull Flax Co. v. Welles- (Z>) See 32 & 33 Vict. c. 19, § 10. 832 CHAP. III.] BEFOKB WHOLE CAPITAL SUBSOEIBED. *625 By the Companies clauses consolidation act the power to make calls is given to the company where its special act is in companies . g vevned bj' 8 silent on the subject (o); and it has been held, that this & 9 vict. o. is. power is one which may he exercised by the directors, and that con- sequently a general meeting of the shareholders need not be held for the purpose of making a call. {(T) By the schedule to the Companies act, 1862, the power of mak- calls is exercisable by the directors (e) ; and this rule companies go- applies to all companies limited by shares and formed compauies'aot under that act, and having no articles of association of ■'^''-■ their own. The act itself, however, is silent upon the subject, and leaves the authority to make calls to be settled by the regulations of each company. "Where the power to make calls resides in the directors, a call made by those directors who are so de jure is valid, caiismadeby ~ 1 ' directors although an attempt may have been made to remove dejm-e. them, and other directors may have been (improperly) elected to take their place, (y ) It need hardly be observed, that a call, made by persons who have not the right to make it, is altogether in- caiismadoby '^ ° improper valid, {g) ' persons. Where the power to make a call is exercisable by a certain *nuraber of persons collectively, a valid call cannot be *625 made at a meeting at which less than the requisite number is present. The authorities on this^jjoint are numerous f^aiismustbe and conclusive, {h) However, in the Southampton requfsulnum- Dock Company «. Eichards {i\ power to make calls t" of persons, was given by a special act of Parliament to the directors sonthampton , Till n 11 Dock Company of a company, and it was held that a call made by a «/. Eichards. court of directors {i. «., by three of them) was valid, inasmuch as in the act the expressions " the directors " and " a codrt of direct- ors " were used indiscriminately. (c) 8 & 9 Vict. c. 16, § 22. Eastern Rail. Co. v. Hebblewhite, 12 A. (fZ) lb. §90. See Ambergate, &c., & E. 497. Eail. Co. V. Mitchell, 4 Ex. 540. (%) See Kirk v. Bell, 16 Q. B. 290, (e) Table A., No. 4. and similar cases cited ante, p. 244, and (/) Swansea Dock Co. v. Levein, 20 compare Thames Haven Dock Co. v. L. J. Ex. 447. Rose, 4 Man. & Gr. 552. (g) See Howbeach Coal Co. v. Teague, (i) 1 Man. & Gr. 448. Southampton 5 H. & N. 151. The general issue Dock Co. v. Arnett, ib. raised the question of validity. 'South- »3 833 *626 CALLS. [book iil 2. TJoe piirposes for which calls may le made. First, as to starting the company. It lins been seen already that a person who agrees to take shares Calls made to ill a Company formed for a given purpose, and with a start a com- . . , . i i • pany. given Capital, IS not bound to accept shares m a com- pany formed for another purpose, or with a different capital; and it follows from this that a vnriation in the original scheme, if un- assented to by a subscriber to it, affords an answer to any applica- caiis on allot- tioii for calls wliich may be made upon him. Uc). And tees of scrip, ii t-i-j &c. ]f no concluded agreement has been entered into, bind- ing an allottee of shares to accept them, and to become a share- holder, he cannot be liable to calls, (l) But if a subscriber to a company binds himself to take shares in a company which may differ, more or less, from that originally proposed to be formed, he cannot set up a variation in the original scheme as an answer to a demand for payment of the capital he has undertaken to contrib- Beforethe ^^^- ("'') -A-gain, although the whole of a company's hastee'nsub- intended capital has not been subscribed, it does not scribed. follow that thosc who have subscribed are not bound to furnish funds to enable it to commence operations. If *626 by a company's *special act or charter the subscription of the whole, or a definite part of the proposed capital is made a condition precedent to the right to require payment of anj'^thing from those who have subscribed, effect must be given to such a condition {n); but there is nothing in any general act now in force having any such effect {p); and consequently, where there is no special act or charter affecting the question, the liability of a sub- scriber to a company to contribute to its capital before the whole has been subscribed for, depends entirely upon the contract into which he may have entered; and there are several instances in {k) See Galvanized Iron Co. v. "West- Beav. 278. See, too, Kidwelly Canal oby, 8 Ex. 17. Co. v. Raby, 2 Price, 93. {V) Duke V. Andrews, 2 Ex. 290. (w) Norwich and Lowestoft Nav. Co. (m) Ante, pp. 109 et seq. and p. 159; v. Theobald, 1 Moo. & M. 151. Midland, &c. Rail. Co. v. Gordon, 16 M. (o) There was a clause to the effect & W. 804; Cork and Toughal Rail. Co. in question in the repealed act relating •1'. Paterson, 18 C. B. 414; Norman v. to banking companies formed after May, MitchJl, 5 DcG. M. & G. 648, and 19 1844. Bee 7 & 8 Vict. c. 113, § 5. 834 CHAP. III.] BEFORE WHOLE CAPITAL SUBSCEIBED. *627 wliich persons have been lield bound so to contribute, although the whole capital of the company which thej liad joined had not been subscribed for. Prima facie, however, they are not so bound (jp); and in all the cases in which they were held bound, the defendants had entered into a contract which precluded them from maintaining that the subscription of the whole of the originally proposed capi- tal was an express or implied condition to their becoming share- holders, (g') With respect to companies formed under the Companies act, 1862, and liaving no special articles of their own, it is conceived that the directors have power to commence business, and make calls before the whole capital is subscribed for. {f) Secondly, as to carrying on the husiness of tJie company. The nnpaid-up instalments of a capital, agreed to be subscribed for a given purpose, caniiot be lawfully required to be paid' up for any purpose other than that to which the capital caiismaaeto *itself is by agreement properly applicable. In *627 company'l'^'^ other words, a call cannot be lawfully made upon tusmess. the shareholders of a company for any purpose not warranted by the constitution of that company, (s) If it is made by the proper authority, in the proper form, and for a pnrpose which is not im- proper, then although some of the shareholders may disapprove of it, the call will be valid, and a court will not take upon itself to decide whether it ought or ought not to be made, but will leave that question to the decision of the shareholders themselves, {t) But {p) S^e Fox V. Clifton, 6 Bing. 776, North StaBFord Steel Co. v. Ward, L. R. and North Stafford Steel Co. v. Ward, 3 Ex. 172, -which, however, turned on L. K. 3 Ex. 172. the articles. {q) See Hutfc v. Griles, 12 M. & W. (s) In an action for calls this defense 492; Waterford, Wexford, &c.. Rail. was open on a plea of never indebted. Co. V. Dalbiao, 6 Ex. 443; London and South-East Rail. Co. v. Hibblewhite, 12 Continental Ass. Co. v. Redgrave, 4 C. A. & E. 497. B. N. S. 524; Norman v. Mitchell, 5 (f) Yetts v. Norfolk Rail. Co. 3 DeG. DeG. M. & G. 648, and 19 Beav. 278. & S. 293; Cooper t\ Shropshire Union (r) Ornamental Pyrographic Co. v. Rail. & Can. Co. 6 Rail. Ca. 136. Brown, 2 H. & C. 63, and McDoughal v. and 13 Jur. 443. See, also, Orr v. Glas- Jersey Hotel Co. 2 Hem. & M. 528; Ly- gow Rail. Co. 3 MoQu. 799, where the on'scase, 35Beav. 646. HowbeachCoal money already obtained was applied to Co. V. Teague, 5 H. & N. 151, however, a purpose which was improper, unless contains dicta to the contrary; and see sanctionedbyamajority of shareholders. 835 ^628 CALLS. [book III. if a call is made for a purpose not warranted by the constitution of tlie company, sucli call will be invalid, and a court will interfere, even at the instance of one single dissentient shareholder, to pre- vent the making of such a call. The authorities bearing upon this subject will be adverted to hereafter, when the principles which guide the Court in interfering in matters connected with the in- ternal affairs of companies come to be discussed. There appears to be no objection in principle to making calls to meet prospective and estimated expenses; but it seems that in ordinary cost-book com- panies such calls were considered improper, [u) The power of making a call must be exercised as a trust (»), so as not to oppress or favor one shareholder, or set of share- mproperca s. j^y]jgj.g^ more than another; and if a call, which ought to be made on all the shareholders rateably, is made on some of them exclusively of the others, redress may be had. (y) So, if a call is made on one shareholder only, with a view to enable him to make default and have his shares forfeited, and thus get out of the *G28 company, the call, and all the proceedings *founded upon it, will be nugatory as against the other shareholders, (z) A creditor who has obtained judgment against a company and Mandamus to canuot obtain satisfaction by execution in the ordinary make a call. way, lias been held not entitled to a mandamus to com- pel the company to pay him by means of a call, (a) But as before Action to com- the Judicature acts a court of equity would, so now it ingofacaii". is Submitted any Division of the High Court will, if necessary, assist a person entitled to payment out of the funds of a company by making a call on the shareholders, and compelling them to furnish so much of the unpaid-up capital as may be re- quired to liquidate the demand upon them, (b) Whether they can (m) Such calls can, however, now be (») R. v. Victoria Park Co. 1 Q. B. made for the eatimated expenses of three 288. See, also, the York Building Co. months. See S2 & 83 Vict. c. 19, § 11. 2 Atk. 56. f.r) See Gilbert's case, 5 Oh. 559. (6) Law v. London Indisputable PoL {«/) Preston v. Grand CoU. Dock Co. Co. 1 K. & J. 223; Durham's case, 4 11 Sim. 827. Compare Mangles v. K. & J. 517; Talbot's case, 5 DeG. & S. Grand CoU. Dock Co. 10 ib. 519; Bailey 386. The 7 & 8 Vict. c. 113, § 81, provi- V. Birkenhead, &c., Rail. Co. 12 Beav. ded for making calls for theidemnity of 438. Tetts J). Norfolk Rail. Co. 3 DeG. a shareholder who had been compelled to & S. 293. These cases will be consid- pay a debt of the company. No act now ered hereafter. m force contains any such provision; but (z) Richmond's case and Painters' his right to idemnity in such a case is case, 4 K. & J. 305. clear. Whether his remedy would be 836 CHAP. III.j MANNEE OF MAKING THEII. *629 be compelled to furnish more than their respective unpaid-np in- stallnietits depends in each case upon the constitution of the com- pany, i. e., upon whether the liability of the shareholders is limited or unlimited. The amount of each call (meaning thereby an instalment of cap- ital) (c), is generally fixed by those to whom the power Amount of caii of making calls is entrusted. Wliere there is no special *°'^'^ ™^'^'^- provision in a company's act, charter, or regulations, limiting the amount of each call, that amount must be considered discretionary, subject only to the limits which are set, first, by the rule that no call can be made upon the shareholders of any company for any purpose not warranted by the constitution of that company ; and secondly, by the rule that the 'shareholders are not bound to contribute more than the capital which may Iiave been agreed upon. Statements are sometimes made in prospectuses that it is not intended to call up more than part of the capital; but such statements afford no defense to a call for more than the amount stated. A statement of a present intention does not preclude a subsequent change. *W]iether a call can be made on persons who have once *629 paid up their shares in full but to whom part of the paid-up capital has been returned, is a question which turns caus to compel on the true construction of the act, charter, or other remn?Sd."'°^ instrument, conferring the power to make calls. But <=ai.itai. unless there are words showing the contrary, the power to make calls in such a case would be considered as exhausted. It would not, however, follow that the returned capital could not be recovered back, {d) Calls not paid on the day fixed bear interest at rates varying in different companies; in the cases of companies gov- interest on erned by 8 & 9 Vict. c. 16, the rate is 4 per cent., see '^'^p'^''^ <=^^"«- §§23 and 25(e); and in companies governed by 25 & 26 Vict. c. 89, and Table A, the rate is 5 per cent., see Table A, No. 6. Calls made by cost-book companies may be made to bear interest at 5 by action or by a petition to wind-up ger's case, 4 Ch. 475; Ranee's case, 6 would deperid on circumstances. ib. 104. (c) Ante, p. 623. (e) The act says lawful interest. The {d) See the Companies clauses cons. interest should not be added to the prin- act, 1845, § 121, and as to registered cipal and be claimed with it as part of companies, compare the Cardiff Coal Co. the call. See Southampton Dock Co. o. 11 W. R. 1007. with Cardiff Coal Co. v. Richards, 1 Man. & Gr. 448. Norton, 2 Eq. 558 and 2 Ch. 405; Strin- 837 ^OSO CALLS. [book hi. per cent. (_/) Interest on calls made in winding-np proceedings will be alluded to hereafter. 3. Of tlie manner of making calls. In order that a call may impose any obligation on those on whom Modeof mak- '^^ ^® made, it must be made not only by the proper au- ing calls. tliority, bnt in the proper manner. (^) What is the proper manner varies in different companies, but there are a few rules applicable generally to making calls to which it will be con- venient at once to advert. Except so far as irregularities may have been waived (A), it seems Irregularities that an irregularity in making a call renders it invalid ; them. and an irregularity in giving notice of it precludes the company from enforcing its payment against a person who has not received a proper notice, [i) Eat after judgment has been *630 *recovered in an action for a call, such judgment will not be set aside on the ground that the call was improperly made; although the defendant may only have become acquainted with its invalidity since the judgment was obtained against him. Qc) The irregularities which are generally relied upon as exonerating a shareholder from the payment of a call, may be reduced to two kinds, viz. (1), those which aifect the resolution for the call, and (2), those which aifect the notice requiring payment of a call which has been made. It may be useful to refer to each of these in turn. 1. As to the resoUition malcing the call. It has been already Irregular reso- seen that the rcsolutiou to be valid must be made by lution making • i i i i i ii call. those persons with whom the power to make the call lies, and also by a competent number of such persons. (Z) It has also been seen, in an earlier part of the treatise, that what takes place at a meeting improperly convened is not legally valid, and is (/ ) 32 & 33 Vict. c. 19, § 12. J. 408. {(/) In an action for calls, never in- (i) See Miles v. Bough, 3 Q. B. 845, debted put in issue tlie propriety of the where the defendant had actually prom- manner in which they were made. ised to pay the call. South-Eastern Rail. Co. ■!). Hehblewhite, [h) Thames Haven Dock Co. v. Hall, 12 A. & E. 497; Shropshire Union Rail. 5 Man. & Gr. 274; and The same Co. v. Co. i). Anderson, 3 Ex. 401; Welland Rose, 4 ib. 552. Kail. Co. V. Blake, 6 H. & N. 410. (0 Ante, p. 625. (/() British Sugar Refining Co. 3 K. & 838 CHAP. III.J MANNEE OF MAKING THEM. *6 31 not binding upon those who have not, by their own acts, p rcclnded themselves from objecting thereto. If, therefore, a call can only be made at an extraordinary meeting, specially summoned for the purpose, a call made at a meeting not duly summoned for that pur- pose will be invalid. But if a call can be made at an ordinary meeting not specially convened, it may also be made at an ad- journed ordinary meeting, although such meeting may have been convened specially by a notice not stating the purposes for which it was to be held, and although the notice was not sent to everybody entitled to be present, (m) Although the persons making a call may also be required to de- termine when, where, and to whom the call is to be jjesoiution paid, it is not necessary that they should do this by the ^'if^n'^whcre* resolution [making the call. It is sufficient if these caiiytote * particulars are stated in the notices issued in pursuance ^^^'^' of such resolution, (n) A call may be made prospectively, i.e., it may be resolved to-day that a call be made a month lience, and be pay- p^^^ ^^^. able a *month after that, {o) So, a call may be *631 ''^^^■ made payable by instalments, (p) But a power to make calls, as from time to time may be thought necessary, does not authorize those entrusted with the power, in calling up the whole capital at once, and make the same payable by instalments, so as to save themselves the trouble of determining at future periods whether any call should be made or not. (q) It is frequently provided that no call shall be made at less thai] a certain interval of time since the making of the last intervals be- call ; and considerable difficulty has been felt in deter- sive calls. mining the exact time at which a call can be said to be made. After some hesitation, the courts have determined that a, call must considered as made when a resolution that it be made is duly (m) See Wills v. Murray, 4 Ex. 843 ; 5 M. & W. 855; Northwestern Rail, see ib. p. 862. Co. v. McMiohael, 6 Ex. 273; Birken- (n) Newry, &c., Rail. Co. v. Ed- head, &c. Rail. Co. w. Webster, ib. 277; mimds, 2 Ex. 118; Sheffield, &c., RaU. Ambergate, &o. Rail. Co. v. Coulthard, Co. V. Woodcock, 7 M. & W. 574; Great 5 Ex. 459. As to an action of debt for Northern Rail Co. v. Biddulph, ib. 243. the recovery of instalments before all (o) See Sheffield, &c. Rail. Co. v. are due, see the last three cases. Woodcock, 7 M. & W. 674. ( q) Stratford and Moreton Rail. Co. (p) Ambergate, &c. Rail. Co. v. Nor- v. Stratton, 2B. & Ad. 618. cliffe, 6 Ex. 629; Lawrence v. Wynn, 839 *G32 CALLS. [book in. passed (_?'); and this view lias been adopted by the legislature so far as recjards companies registei-ed under the Companies act, 18G2, and having no special regulations of their own. (s) Where, there- fore, a certain time is required to elapse between the making of two successive calls, that time must be reckoned from the daj on which the resolution for the first call is passed, up to the day on which the resolution for the second call is passed; and if this period is too short, the call will be invalid {t); and if the time required to elapse between the calls is so many days at least, neither of the days on which the calls are made ouglit to be included in the reckoning, {u) If a call is made too soon, and is then abandoned, in order *632 to *be replaced by another duly made, the irregular call should be declared void before the second is made, [x) A call will not be held invalid simply because the minutes of Minutes of the meeting making it were signed after the meeting mgcaifs. was ovcr. (^(/) In Cornwall Great Consolidated Min- ing Company v. Bennett (s), the question whether a call could be made by a resolution not reduced to writing and signed was raised, but not decided. The judges differed upon that point, but they agreed that there must be some better evidence of the making of a call than a minute neither signed nor confirmed until after the action was commenced. 3. As to the notice of the mahing of a call. — Inasmxich as a •> Irregular ^^^^ ^^ *° ^® Considered as made when a resolution that notice of call. ^^ ^g made is duly passed, and inasmuch as it would be very hard upon any person liable to pay a call to treat him as in de- fault unless he has had notice of the making of a call, it is held that such notice must be given to him before he can be dealt with as a defaulter; and this rule applies not only where notice is expressly required to be given by the company's act, charter, or deed of set- (r) See R. v. Londonderry Rail. Co. one, and Stratford and Moreton Rail. 13 Q. B. 998, and 6 Rail. 'Ca. 1, sub Co. v. Stratton, 2 B. & Ad. 518. nomine £'a; parte Tooke; Shaw u. Row- (") See Watsou v. Bales, 23 ]3eav. ley, 16 M. & W. 810; Great North of 294. England Rail. Co. v. Biddnlph, 7 M. & ix) Welland Rail. Co. v. Berrie, 6 W. 243. See, as to calls made pros- H. & N. 416. pectively, Sheffield, &o. Rail. Co. v. (y) Miles v. Bough, 3 Q. B. 845, and Woodcock, 7 M. & W. 574. see ante, p. 651. (s) 25 & 26 Vict. c. 89, Table A. No. 5. {e) 5 H. & N. 423. (t) See the. cases in the last note but 840 CUAP. III.J NOTICE OF MAKING THEM. *633 tlement, but also where tliei'e is no express provision npon the sub- ject, and tlie shareholder lias entered into an absobite covenant to pay such calls as may be made, [a) Indeed, in one case it was said, that the notice made the call (b); but this is not in conform- ity with the rule now establishd. (c) The notice, to be valid, must be in such forjn, if any, as may be required by the regulations of the company; and where a notice is required to be si,£jned by the directors, it will not be sufficient if their sio-natures are affixed by a clerk, {d) A notice requu-ing pa3'ment to the account of a person at a partic- ular bank, is equiva'lent to a notice to pay to that person, (e) *A list of persons prepared by a deceased clerk whose *63o business it was to send the notices, and ticked or marked by him 80 as to show that notices were sent to the persons Eviaenceof ^ notice haviug on the list, is admissible in evidence to prove that a been given. notice was sent to them. (/") The notice must be given in the manner required by the actor regulations applicable to each particular com- jioae of giving pany.(^) By the Companies clauses consolidation act it is provided (/t), 1, that twentv-one days' notice at the least shall be given incompnnies , ,, , n 11 , governed by 8 of each call; 2, that no call shall exceed the amount, 3i 9 vict. c. i6. if any, prescribed by the company's special act; 3, that successive calls shall not be made at less than the interval, if any, prescribed by the same act(*): 4, that the aggregate amount of calls made in any one year shall not exceed the amount, if any, prescribed by the same act; and 5, that all calls shall be paid to the persons, and at the times and places, from time to time appointed by the com- pany. Under this act, therefore, there must first of all be a call made, and then at least twenty-one days' notice of it must be given (A;), and the notice must state the person to whom, and the (a) Miles v. Bough, 3 Q. B. 845.. ing Co. 1 Ch. 150. See, too, Edinburgh, &c. Rail. Co. v. (/) Eastern Union Rail. Co.?'. Syin- Hebblewhite, 6 M. & W. 707 i Painter ends, 5 Ex. 237. V. Liverpool Gas Co. 3 A. &B. 483; and {g) See Watson v. Eales, 23 Beav. as to cosb-book companies, 32 & 33 Vict. 294. c. 19, § 10. {h) 8&9 Vict. c. 16, § 22. (6) Shaw V. Rowley, 16 M. & W. (i) See Ambergate Rail. Co. v. Mitoh- 810. ell, 4 Ex. 540. (c) Ante, p. 631, note (r). (7c) § 136 provides for giving notices Id) See Miles v. Bough, 3 Q. B. 845. by post. (e) Ibid. But see The Leeds Bank- ' 841 *C34: CALLS. [book IH. ])lace and time at which, the call is to be paid. The twenty-one days are reckoned from and exclusively of the day on which the notice is given, (l) If the notice states to whom, and when and where, the call is to be paid, it is immaterial whether the resolution for the call does the same or not. (m) By the Companies act, 1862, it is provided (in Table A.) that tlie In companies directors may, from time to time, make such calls upon Sieaetof ihC2 ^^^ members, in respect of all moneys unpaid on their Table A. shares, as they think fit (No. 4); but twenty-one days' notice, at least, must be given of each call (No. 4). (??-) The *634 notice may be sent '^'by post (No. 95). A call is mjide at the time when the resolution of the directors authorizing it is passed (No. 5). The act makes calls specialty debts (§ 16), and gives a short form of pleading in an action for their recovery (§ 70). 4. Of the persons liable to pay calls. In order that a person may be liable to pay a call, meaning Persons to thereby a portion of the unpaid-up capital of a coin- pay calls, pauy, he must either have agreed to subscribe to such capital, or he must have become a shareholder in the company, or, thirdl}', his liability must have devolved upon him as the repre- sentative of a subscriber or a shareholder. It will be convenient to allude — 1, to subscribers; 2, to shareholders; 3, to the repre- sentatives of subscribers and shareholders. 1. As to subscribers. — There is no principle of common law 1 Calls on which prevents a subscriber to an undertaking from subscribers. being liable to calls before he has become an actual sliareholder in the company he has agreed to join. His liability at common law depends entirely on the contract into which he has entered. But by several of the statutes relating to companies, a jjarticular mode of proceeding for the recoveiy of calls is pointed out; and if that mode of proceeding applies, as it frequently does, to shareholders only (or their representatives), a person who is a (Z) i?e Jenning-3, 1 Ir. Cli. 654, revers- (n) A notice by a company, wliich ing on tliis point, ib. 236. has changed its name since the call was (m) Newry, &o., Rail. Co. v. Ed- made, may be given in the new name, munds, 2 Ex. 118; Sheffield, &c. Rail. Shackleford, Ford & Co. v. Dangerfleld, Co. V. Woodcock, 7 M. & W. 574; Great L. R. 3 C. P. 407. Northern Rail. Co. v. Biddulph, ib. 243. 842 CHAP. III.J PEKSONS LIABLE TO PAT CALLS. *635 mere subscriber as distinguisbed from a shareholder, cannot be made to pay a call by that particular mode of proceeding (o), what- ever obligation he may have incurred by agreeing to ta]ve shares and to contribute his quota of capital. ( p) Hy the Companies clauses consolidation act, it is expressly de- clared that calls may be made on the subscribers as c. -u -v •' Subscribers to well as on the shareholders (g); and as was seen in an CT^db^'^sST earlier part of the work, subscribers may be registered viet. c. le. as shareholders without any express consent on their part, and when registered *they may be sued as shareholders for *635 calls, (r) But an allottee of shares who is not a subscriber, i.e., who has not executed any instrument binding himself to con- tribute towards the capital of the company (s), cannot be sued for calls under the act in question, (f) Under the Companies act, 1862, Table A., calls are suteoribers to only authorized to be made on the members, (u) erned byThl"^' 2. As to sliaTeholdeTS. — Who are sliareholders, the . ' 2. Calls on enect of being on or off the register of shareholders, shareholder, the effect of acting as a shareholder without being one, — are mat- ters which were discussed in Book I. Chap. 5. In the present place, therefore, it is proposed merely to recapitulate, as shortly as pos- sible, the lesults formerly arrived at, so far as they relate to the particular question of liability for calls. A person who has never become a shareholder in the proper sense of the word, and who is not estopped by his own con- person must be duct from denying that he is a shareholder, is not liable a shareholder, to calls as a shareholder, although he may have been registered as one. (a?) Where a trustee is the person registered and recognized (o) See Galvanized Iron Co. v. West- (s) Thames Tmmel Co. v. Sheldon 6 ohy, 8 Ex. 17; Thames Tunnel Co. v. B & C. 341. Sheldon, 6 B. & C. 841. (f) Carmarthen Railway Co. v. {p) For instances of successful actions Wright, 1 Fos. & Fin. 282; AVaterford, against allottees on the contracts en ber- Wexford, &o. Rail. Co. v. Pidcock, 8 ed into by them^ see Duke v. Forbes, 1 Ex. 279. Ex. 3.J6; Duke v. Dive, ib. 36; Aldham (m) 25 & 26 Vict. c. 89, Table A. No. v. Brown, 7 E. & B. 164, affirmed on 4 ; and as to who are members, see § 23 appeal,' 6 Jur. N. S. 41. of the act, and ante ■p. 170. (g) 8 and 9 Vict. c. 16, §§ 21, 22. {x) Galvanized Iron Co. w. Westoby, 8 (r) See, accordingly, Mid. Rail. Co. «>. Ex. 17; Waterford, Wexford, &c. Rail. Gordon, 16 M. & W. 804 ; Cork and Co. v. Pidcock, 8 Ex. 279; Carmarthen Youghal Rail. Co. v. Paterson, 18 C. B. Rail. Co. v. Wright, 1 Fos. & Fin. 282 ; 414, ante p. 110. New Brunswick, &c. Rail. Co. v. Mug. 843 "636 CALLS. [book III. as a sliarelioklor, liis cestui que trust is not liable to tlie company for calls (y); and as a general principle, there must be some special ground fur holding that a person who has no riglit as against a company to share profits, is compellable by the company to pay calls. (^) At the same time, whether a person is actually a shareholder in a company or not, if he is estopped b}' his own conduct from denying that he is a shareholder, he cannot es- from ck'iiyinj? *636 Cap c from *the payment of calls properly inade ; lliat he ia one i ,-, -i o . i i " i i_ and npon the ground oi estoppel by conduct, subscribers to companies have frequently been held liable to calls as shareholders, although they had not complied with all the for- malities necessary to render them shareholders in the strict sense of the word, {a) A person who is a shareholder within the meaning of an act of Persons who Parliament which authorizes calls to be made on share- ere liable to^*^" holders, is liable to calls made in pursuance of the act, ^^^^- although if his liability had not depended on statutory provisions, he miglit have been able to resist payment. Upon this o-ronnd it is that infant shareholders in railway companies are liable to calls ih), if they do not repudiate their shares, (c) So, a person geridge, 4 H. & N. 160, and 580. See, also, Bloxam v. Metropolitan Cab Co. 4 N. E. 51, where an injunotion was granted. (y) Not even in equity, see Newry Bail. Co. V. Moss, 14 Beav. 64. («) Shropshire Union Rail. Co. v. An- derson, 3 Ex. 401. (a) HuU Flax Co. v. Wellesley, 6 H. & N. 38, where the shares were issued irregularly; Cromford, &c. Rail. Co. v. Lacey, 3 Y. &. J. 80; Bumesn. Pennell, 2 H. L. C. 497; Sheffield, &c. Rail. Co. V. Woodcock, 7 M. & W. 574; Chelten- ham, &c. Rail. Co. 0. Daniel, 2 Q. B. 281; London and Grand Junction Rail. Co. V. Graham, 1 ib. 271; Birmingham, Bristol, &c. Rail. Co. v. Locke, ib. 256, in all of which the calls were recovered. Compare these with Irish Peat Co. v. PhiUips, 1 B. & Sm. 598, in which they were not, and Wolverhampton New Waterworks Co. v. Hawksford, 6 C. B. 844 N. S. 836; 7 ib. 795; and 11 ib. 456, where an action for calls was partly suc- cessful and partly not. The defendant was held liable for calls made on shares properly issued and held by him, al- though there was no properly sealed register of shareholders; but he was held not hable for calls on shares not numbered or distinguished from each other, and in respect of which there was in truth no register at all. See ante, p. 157; and quaere whether this case can be relied upon after Portal v. Emmens, IC. P.D. 201. (6) Cork and Bandon Rail Co. v. Cazenove, 10 Q. B. 935; Leeds and Thirsk Railway Co. v. Feamley, 4 Ex. 26; North- West. Rafl. Co. v. McMichael, 5 Ex. 114. Compare Birkenhead, &c. Rail. Co. V. Pncher, 5 Ex. 121. (c) Newry, &c. Rail. Co. v. Coombe, 5 Ex. 565; Dubhn and Wicklow Rail. Co. V. Black, 8 Ex. 181. CIIAr. III.] PEESONS LIABLE TO PAT CALLS. *637 who is a shaveli older, and is as snch under a statutory liability to pay calls, cannot escape from snch liability on the ground that he was induced to become a shareholder by the fraud of the company; he must go further and show a repudiation of his shares, and that he is not in truth a shareholder (rZ); fraud and timely repu- diation, however, afford a defense, (e) *xigain, in the case *637 of a registered joint-stock company, the company being ac-^ tually created by registration, and having, when created, all the powers conferred upon properly constituted companies, a call upon its shareholders will be valid, although the company ought not to have been registered; and a shareholder in such a company cannot escape from his liability t) pay tlie call, upon the ground that things required to be done before registration have never been done at all. (y) So, in the case of a company incorporated by a special act, it is no answer to a call that the act was obtained by fraud, {g) A person who, by being a shareholder, has once become liable to pay calls, continues to be so liable until he has ceased nj^jjt,-,,^^ ^f to be a shareholder, or until some valid agreement has u,'ibniJy^to''''^ been made between him and the company by virtue of '^^"^■ ■which the company is precluded from treating him any longer as liable to pay calls. (^) If any such agreement has been made, it will afford a defense (^), although all the formalities, required to be observed by out-going shareholders may not have been rigorously complied with, (k) In most companies, shares are not transferable, so long as the owner is indebted to the company for calls, (l) Where ^,^^^ ^^^^^^ this is the case, a person who has sold his shares, must have been soia. pay all the calls made whilst the shares are registered in his name; {d) Deposit Life Assur. Co. v. Shortridge, 4 Ex. 699; Shortridge v. Aysoough, 6 E. & B. 761. As to giving- Bosanquet, 16 Beav. 84; Bargate v. particulars of the fraud, see MoCreight Shortridge, 5 H. L. C. 297; Taylor «. V. Stevens, 1 H. & C. 4.54. Hughes, 2 Jo. & Lat. 24, noticed ante, (e) Bwlchy Plwm Jjead Mining Co. v. pp. 137, 138. Baynes, L. R. 2 Ex. 324. See infra, c. (») Plate Glass Co. r. Sunley, 8 E. & 10, § 3, as to rescinding .contracts for B. 47. The validity of the defendant's fraud. ' retirement in this case was admitted by (/) Ban wen Iron Co. v. Barnett 8 C. the demurrer. B. 406. See, too. Agricultural Cattle (k) See Bargate v. Shortridge, and Insur. Co. V. Fitzgerald, 16 Q. B. 432. Taylor v. Hughes, ante, pp. 137, 138. (g) See Waterford, &c. Rail. Co. ■». {1} The stbject of the transfer of Logan, 14 Q. B. 672. shares will be alluded to hereafter. {h) See the cases of Bosanquet v. 845 *633 CALLS. [book III. before be or tbe pnrcbaser can require tbe company to accept tbe latter as a sbareholder in respect of the shares lie has pur- chased {in); and so long as the purchaser is not a shareholder, the- vendor continues to be one, and to be liable to calls, (w) *638 *Share3 are not unfreqnently sold after a call has been made and before it has become payable; and if in such a Effect of sale case the purchaser is accepted as a shareholder by the alter call is '^ . „ , . . made, but be- company, it may possibly find itself unable to sue either lore It IS pay- l ./ 7 ./ i ,/ aWe. the vendor or the purchaser for the call after the time for its payment has elapsed. In The Aylesbury Kailway Company V. Mount (fl), which was a case of this sort, turning on the provis- ions of a special act of Parliament, the Court of Common Pleas held, that the call could not be recovered from the transferor, and the Court of Queen's Bench held that it could not be recovered from the transferee (^); for the transferor was not a shareholder when the call became payable, and the transferee was not a share- holder when it was made; and the act in question was so worded as to render those only liable to be sued for calls who were share- holders at both those times. The Courts will not, however, so con- strue an act as to deprive the company of all remedy for the recov- ery of a call, if they can possiblj' avoid it; and as the obligation to pay is created by the making of a call, the person who was the shareholder when a call was ma.de, is prima jfacie the person to pay it, whatever he may since have done with his shares. In The ISTorth American Colonial Association of Ireland w. Bent- NorthAmeri- ley (o), a Company was incorporated by a special act, can Col. Ass. J). •' ^y ' '' , ' •/ r ' Bentiey. wliich provided for making calls on shareholders, and enacted that if at the time appointed for payment of a call, the holder failed to pay it, the company might sue such shareholder, and that it should be sufficient in an action for calls, to prove that the defendant was a shareholder at the time the cill was made. The act also declared that shareholders who had sold their shares should remain liable for all future calls until, transfers had been delivered to the secretary, and that no shareholder should be enti- (ot) R. v. Londonderry, &o. Rail. Co. (0) 4 Man. & Gr. 651; reversed, but 1.3 Q. B. 998 ; R. v. Wing, 17 ib. on purely technical grounds, 7 Man. & 645. Gr. 898. (n) See London and Brighton Rail. {p) Aylesbury Rail. Co. v. Thompson, Co. V. Pairclough, 2 Man. & Gr. 674; 2 Ra. Ca. 668. Humble v. Langston, 7 M. & W. 517. (g) 15 Jur. 187, Q. B. 846 CHAP, lll.j PERSONS LIABLE TO PAT CALLS. *639 tied to transfer his share until he should have paid all calls due upon it. Upon these somewhat conflicting enactments, ■it was held, that a shareholder who had transferred *his *639 shares after a call had been made, but before it had become payable, was liable to be sued for the call; and it was considered clear that the transferee could not be sued for it, althongh the transfer had been delivered to the secretary of the company as con- templated by the act. Again, in "Watson v. Eales (r), wliich was the case of a cost-book raining company, one of the rules was, that no share -^yatsonu Eaies should be transferred until all calls upon it were paid; cost-book and it was held that a ti'ansferee of shares in respect ^°'^^'^'^^- of which calls were in arrear, was not liable for snch calls to the company, and that the company having recognized the transfer, could not forfeit the shares for non-payment of the calls. In the present state of the law, it cannot be said that there is any general rule determining whether the transferrer or the ,. ' n ^ ■ 1 • 1 , 1 ,. 11 Result ofthe transteree oi a share is liable to the company lor calls cases, made, but not paid before the transfer; for admitting the tendency to be in favor of holding the transferor liable, the statutory provis- ions generally applicable to the subject, are by no means uniform. Under the Companies clauses act, tho person liable is the share- holder at the time of making the call, (s) , , . T statutory en- This also appears to be the case with respect to com- actmentson ^ ^ . this subject. panics governed by the Companies act, 1862, Table A. {t) The right to forfeit shares for non-payment of calls, or for other reasons, will be examined hereafter; but it may be ob- forfeiture of served here, that both the Companies clauses consoli- n^nlayment dation act, and the Companies act, 1863, Table A., °''=^"^- provide that an action for calls may be maintained, although the shares in respect of which they became due, have been forfeited for their non-payment {u). Where this double remedy is not expressly given, it will not be presumed; and in such a case (r) 23 Beav. 294. who is a shareholder, see ante, p. 156. (s) 8 & 9 Vict. c. 16, §§ 26, 27, Bel- («) See 25 & 26 Vict. c. 89, § 70, and fast, &c. Rail. Co. v. Strange, 1 Ex. Table A. No. 4; but see, also, No. 6, 739; Birkenhead, &c. Rail. Co. v. which throws some doubt on the point Brownrigg, 4 Ex. 426; Wilson v. Birk- as to who is a member. See ante, ppi enhead, &c. Rail. Co. 6 Ex. 626; R. v. 170, 178. Londonderry, &c. RaU. Co. 13 Q. B. (m) 8 & 9 Vict. c. 16, § 29; 25 & 26 998; R. V. Wing, 17 ib. 645. As to Vict. c. 89, Table A. No. 21. See great 847 «-G40 CALLS. [iBOOIv III. *6-i0 forfeitni-e *will be an answer to an action («), provided the forfeiture was justifiable, and legally declared, but not otherwise, (y) 3. As to the representatives of subscribers and shareholders. — 3. caiisonthe ^"^ adverting to the liability of tlie executors of a de- oiTiiijs"n'i!ii'r ceased person to pay calls, it is necessary to distinguish iioidBrs!'^'^" calls made before, from those made after the testator's Executors. death. Calls made before his death are payable out of his estate (2); and as to Companies governed by the (Jompanies clauses consolidation act, or the Companies act, 1862, rank like or- dinary' specialty debts (a). Calls made after his death, are also payable out of his estate, if they are made whilst the shares are left in his name, and if he entered into any contract whereby he iindei'took to pay such calls as might be made upon his shares {h). In order that this liability may attach to the estate of a deceased shareholder, it is not necessary that his executors should become shareholders in respect of his shares, or that they should have been named in the contract sought to be enforced against them, (c) By the Companies clauses consolidation act it is expressly de- caisnotpay- clart'd, that the executors of subscribers and share- fuoSsperso^^ holders shall pay the calls payable in respect of their ""y- testators' shares («!); but this only means that the exec- utors are to pay out of their testators' assets; and unless they have actually become shareholders themselves, they must be sued as ex- ecutors, and not as shareliolders, for such calls as may be sought to be recovered Irom them (e). As a general rule it miay be taken, that executors are never liable otherwise than in their representa- tive capacity, unless they actually become shareholders. (/) Northern Rail. Co. v. Kennedy, 4 Ex. 417; Inglis «. Great Northern Rail. Co. 1 Macqueen, 112. (x) See Giles v. Hutt, 3 Ex. 18. {«/) See Edinburgh, &o. Rail Co. v. Hebblewhite, 6 M. & W. 707. {z) Eyler v. Fyler, 2 Ra. Ca. 813. (o) As to 8 & 9 Vict. c. 16, see Cork and Bandon Rail. Co. v. Goode, 13 C. B. 826; and as to 25 & 26 Vict. c. 89, see § 16. As to other companies, see Robinson's case, 6 DeG. M. & G. 572. Specialty deljts now rank with simple 848 contract debts, 32 & 33 Vict. c. 46. (6) Hewardt). Wheatley, 5 DeG. M. & G. 628; Fyler v. Fyler, 2 Ra. Ca. 813; WiUs V. Murray, 4 Ex. 843; Blount v. Hipkins, 7 Sim. 51. (c) Ibid, and see Baird's case, 5 Ch. 725. {d) 8 & 9 Vict. c. 16, § 21. (e) Birkenhead, &c. Rail. Co. v. Cotesworth, 5 Ex. 226. (/) Weald of Kent Canal Co. v. Robinson, 5 Taunt, 800. CHAP. III.J CALLS PE0VAJ3LE IN BANKEUPTCT. *641 But if tliey do become ehareholders they unV'-i t^iey are . ,,. . 1J,^J^ themselves become *sub]ect to the same obJigations as other *641 shareholders, shareholders, and as between themselves and the bankruptcy. company they are personally liable to calls, whatever the state of their testators' assets may be. {g) If a shareholder becomes bankrupt, calls made before his bank- ruptcy are, and always were, clearly provable against his estate ; and under the Bankruptcy act, 1869 (A), his liability to future calls is also provable. Therefore, his order of discharge is a bar to 'all calls; even although the trustee in bankruptcy may neither sell the shares nor disclaim them (^). Tlie Bankruptcy act, 1869, goes much further in this respect than the previous statutes. [g] See Armstrong v. Burnet, 20 {h) 32 & 33 Vict. c. 71, § 31. Beav. p. 435, Spence's case, 17 Beav. («') § 23. 203. M g49 *64:2 PAETNEESHIP PEOPEETY, [BOOK III. *642 *CHAPTEE IV. OF JOINT AND SEPARATE PROPERTY. The expressions partnership property, partnership stoct, joint Partnersilip stock, and joiut estate, are used indiscriminately to de- propeity. j^^^-g everytliing to which the firm, or in other words all the partners composing it, can be considered to be entitled as such, (ft) The qualification as such is important; for persons may be entitled jointly or in common to property, and the same persons may be partners, and yet that property may not be partnership property; e.g., if several persons are partners in trade, and land is devised or a legacy is bequeathed to them jointly or in common, it will not necessarily become partnership property and form part of the common stock in which they are interested as partners, (b) Whether it does so or does not, depends upon circumstances which will "be, examined hereafter. It is often a difficult matter to determine what is to be regarded Importance of as partnership property, and what is to be regarded as distinguishing i • /. mi ^ partnersilip the exclusivB property 01 each partner, ihe question, proper 'y from . n . n i i tbe separate however, IS of importance not only to the partners theni- property of the ' „ partners. selves, but also to their creditors; for, as will be seen hereafter, if a firm becomes bankrupt, the property of the firm and the separate property of each partner liave to be distinguished from each other, it being a rule to apply the property of the firm, in the first place in payment of the creditors of the firm, and to apply the separate properties of the partners in the first place to the payment of their respective separate creditors. (a) The expression joint estate some- (J) Morris v. Barrett, 3 T. & J. 884, times has a wider signification, includ- and see the judgment in Ex parte The ing all property which, on the bank- Fife Banking Co. 6 Ir. Eq. 197, S. C. on ruptoy of the firm, is distributable appeal under the name of Ee Littles, 10 amongst its creditors. See post, book ib. 275. iy. c. 2, Reputed Ownership. ■ 850 CHAP. IV.] JOINT PEOPEETT. *643 *It is proposed, therefore, to examine the rules by which *643 to determine wliat is, the property of the firm, and what the separate property of its members. It is for the partners to determine by agreement amongst them- selves what shall be the "nroperty of them all, and what Question acter- 11111 !• 'p f. mined bv shall be the exclusive property ot some one or more of agreement. them. Moreover, it is competent for them by agreement amongst themselves to convert what is the joint property of all into the sep- arate property of some one or more of them, and vice versa. The determination, therefore, of the question. What is, and what is not the property of the firm ? involves an inquiry into the three fol- lowing subjects, viz : — Joint estate. Separate estate. Conversion of one into the other. Each of these will be examined in order. SECTION I.— OF JOINT ESTATE. Whatever at the commencement of a partnership in thrown into the common stock, and whatever has from time to ^ property of time during the continuance of the partnei-ship been ti'e'Ji™. ^dded thereto and obtained by means thereof, whether directly by purchase or circuitously by employment in trade, belongs to the firm, unless the contrary can be shown, {cf (c) See Crawshay «. Collins, 2 Russ. actions. Newell v. Humphrey, 37 Vt. 339, as to the patents; Nerot v. Bum- 265. and, 4 Russ. 247, and 2 Bli. N. S. 415; A judgment in a suit by two for a Bone «. Pollard, 24 Beav. 283. See, trespass alleged to be on firm property, also, as to co-owners of mines not being is firm assets. Collins v. Butler, 14 Cal. co-partners; Clegg v. Clegg, 3 Gift'. 222. 223. ' A partner in a firm engaged in pur- On the termination of a partnership chasing live-stock on commission died formed to plant and seU oysters, plant- after certain commissions were partly ed oysters remaining in the beds after earned. The surviving partner com- payment of all partnership debts, are pleted the transactions and received the the common property of both partners, money : Held, that such commissions of which, as in case of any personal should be treated as partnership assets, property held in common, one tenant in but that the surviving partner was enti- common cannot dispose of the share of tied to have an allowance for his time the other without his authority. Ruck- and expenses in completing the trans- man v. Decker, 23 N. J. Eq. 283. 851 *643 JOINT PEOPEKTY. [b;)OK III. The mere tact that tlie property in question was pnrcliased by Property paid ^^^ partner in liis own name is immaterial, if it was for perty paid « - x " ' -■«".v^ --^ ^...i...,..^,,* .^., by the firm, pj^jj fuj. q^j ^^f |-])g partnership moneys: for in sucli a case he will be deemed to hold the property in trust for the firm, unless lie can show that he holds it for himself alone, {dy Upon If such tenant in common tm-n over such property to a firm of which he be- comes a memljer, such firm is account- able to the other tenant in common of the property, for the value of his share of the jjroperty so turned over and used by the new fii-m. Ruckman r. Decker, siijyra. Where G. and B. formed a partner- ship for the purpose of making, selling and letting chronometers, C. contrib- uting all the capital, and B. giving labor only, and receiving a sa'ary and a share of the profits, and C. agreed to put into the stock of such partnership certain chronometers which were his property, upon a sti,pulation "that they should be taken at a fair valuation, as a stock in trade, so that upon a sale of them at the usual market price, the profit usual in that branch of business might be made upon them," but this agreement never was reduced to writing as was intended, nor was a valuation ever fixed upon ; and after dissolution of the firm, both partners remained in the store they had occupied as partners, and C. let the chronometers in his own name and kept his own accounts of them, and there was some evidence that it was un- derstood between the parties that C. was to take the stock and pay the debts : Held, that after such dissolution the chronometers were the property of C, and that his lessee of one of them could recover it from B., who had taken it away from him. Upon such an agree- ment the chronometers did not become the property of the firm, but continued always the property of C, the firm hav- ing possession to use them. Penny v. Black, 9 Bosw. 310. One of two partners cannot commit larceny or burglary as to the property or house of the firm. Alfele v. Wright, 17 Ohio, 238. (c?) See per Lord Eldon in Smith v. Smith, 5 Ves. 193; Robley v. Brooke, 7 Bli. 90; Morris v. Barrett, 3 Y. & J. 384. ^ If a person buys goods for a firm of which he is a member, the goods bought become the property of the firm, though he does not at the time disclose tha name of his partner. Scott v. McKm- ney, 98 Mass. 344. Where two members of a fii-m en- gaged in building a miU, bought, with their own m%ins, lumber for that pur- pose, and delivered it on the ground where the mill was building, and the other partner, who had personal charge of the work, took possession of the lum- ber and applied it to the partnership uses as it was needed, with the knowl- edge of the two former, and vnthout ob- jection, these facts are enough to prove a conversion of aU the lumber so bought and delivered into partnership property. Person v. Wilson, 25 Minn. 189. A judgment upon a warrant of attor- ney given to one member of a partner- ship to secure a del t due the partnership, will be held by him, as trustee, for the benefit of the firm; and payment of the judgment will satisfy the partnership debt. Chapin v. Clemitson, 1 Barb. 311. Where one permits another to buy stock on their joint account, in antici- pation of forming a partnership, and immediately afterwards repudiates the agreement to become a partner, he is not entitled to any of the property bought, nor are his individual creditors. Rice V. Shuman, 43 Pa. St. 37. As to when real estate is partnership property, see post, 652, note. CHAP. IV.J PAETNEKSniP rEOPEETY. *6i4: tin's principle it is held tliat land purchased in the name of one partner, but paid for bj^ the firm, is the property of the iirin, ^although there may be no dechii-atioa or memorandum in *644: writing disclosing the trust, and signed by the partner to whom the land has been conveyed, (e)' So, if shares in a company are bought with p irtnership money, they will be partnership prop- erty, although they may be standing in the boohs of the company in the name of one partner only, and although it may be contrary to the company's deed of settlement for more than one person to hold shares in it. (y) As regards ships there was often a difficulty arising from the ship registration acts. For as it was clearly settled that a ship belonged, both at law and in equity, to the per- "'^^' son or persons who were registered as her owners, and to no one else, it followed that if a ship had been bought with partnership monej', had been used as partnership property, and had alwavs been treated as such by all the partners, yet if she was registered in the name of one partner only, ■there was no method by which that one could be pi-evented from effectually asserting an exclusive right to the ship, and depriving his co-partners of all their interest in her. (g) The provisions of the present Merchant shipping acts differ, however, in several material respects from the enactments previously in force ; and it is apprehended, that now, in the case (e) Forster v. Hale, 5 Ves. SOS, and 3 Ex parte Hinds, 3 DeG. & S. 613. ib. 696. ((/) See Slater v. Willis, 1 Beav. 354; 'Where it appeared that real estate Battersby u. Smyth, 3 Madd. 110; Cam- had been used by a partnershijp for a den v. Anderson, 5 T. R. 709; Curtis v. long series of years in the manufacture Perry, 6 Ves. 739; Ex parte Tallop, 15 of u'on, and that upon the death of any Ves. 60; Ex parte Houghton, 17 Ves. partner, his heirs at law, to whom the 251 ; and as to the old law relating to land descended, came into the partner- equitable interests in ships, see an arti- in his place, and there was no proof of cle by the author in the Law Magazine •any articles of partnership: f/eW, that for May, 1862 (vol. xiy. p. 70, N. S.). the whole partnership estate, -whether If a ship was registered in the name of consisting of real or personal property, two partners, the shares in which they was to be regarded in equity as a con- were interested might have been shown. Bohdated fund, to be appropriated pri- See Ex parte Jones, 4M. & S. 450. As marily and exclusively to the satisfac- to the right of one partner to sell or tion of partnership debts. Gooiburn u. mortgage a ship belonging to the firm, Stevens, 5 GUI, 1. see Ex parte Howden, 2 M. D. & D. (/) Ex parte Comiell, 3 Deac. 201; 574. 853 *645 JOINT PEOPEETT. [bOOK III. above supposed, the registered partner would be deemed a trustee for the firm. (A) 64:5* *Stroiig as is the presumption that what is bought with partnership) money is partnership property, tlie presumption Cases where ™f^y I'^^^J ^^ rebut od ; c. g., by showing that the mon- For'bytSe'^firm ey waslent by tlie firm to one partner, and so was not to°it.™ eong -jj^ facj;^ partnersliip money wlien invested (?'.) More- over, it is to be observed that property which has been used and treated as partnership property cannot be presumed to belong to one partner only, simply because he paid for it ; for the presump- tion in such a case is rather that the property in question was his contribution to the common stock (,/.) Tliis subject will be advert- ed to more at length in the next section. It has been already seen that one partner will not be allowed to Secret benefits retain for his own exclusive benefit any property obtained by one . . , . , i i> i i partner. wiiicli he may have acquired in breach oi that good faith which ougiit to regulate tlie conduct of partners inter se. AVhatever property has been so acquired, will be treated as obtained for the benefit of all the partners, and as being part of the assets of the firm ; and this rule applies to property obtained by a continu- ing or surviving partner in breach of the' good faith which he is bound to exercise towards a retired partner, and the representatives of a deceased partner so long as their interest in the partnership assets continues (Jv.) At the same time, if an advantage which has been obtained by a Money paid to P'^i'tiier IS wholly Unconnected with the partnership af- h?fexe"usive°'" ^'^^^^j Or being connected with them, has been conferred beneht. upou him with a view to his own personal benefit, he cannot be called upon to account for it to the partnership. For example, where a ship, belonging to a Frenchman and two Ameri- cans as partners, was captured by a British cruiser, and compensa- tion was made to the Americans, but to them only, the Frenchman being expressly excluded, it was held that, the sum awarded to the [K) 17 & 18 Vict. c. 104, §§87 and 43. 104, §18 ; and R. v. Amaud, 9 Q. B. and25&26Vict. c. 6.3, §3. Upon tlie 806. construction of the former act, see Liv- [i) As in Smith v. Smith, 5 Ves. 193. erpool Borough Bank v. Turner, 1 J. & See, also, Walton v. Butler, 29 Beav. H. 159, and 2 DeG. T. & J. 502. A 428 ; Ex parte Emly 1 Rose 64. ship may be registered in the name of a ij) See Ex parte Hare, 1 Deac. 25, company, though some of its members per Sir J. Cross, are foreigners. See 17 & 18 Vict. c. (k) See ante, p. 572 et seq. 854 CHAP. IV.J PABTNEESHIP PEOPEETT. *646 Americans belongea to tliem alone, and that the Frenchman liad no interest in it (I.) So, if one partner is *the lessee of 646* property to which the firm is only entitled so long as the partnership continues, and on the dissolution of the partnership the lease is sold or renewed, the price of the sold lease, or the renewed lease, as the case may be, will belong, not to the firm, but to that partner in whom the lease is by hypothesis exclusively vested (m.) As regards property acquired after a dissolution, but before the affairs of a dissolved iDartnership have been wonnd mj. Property ac- ^ .-, , -,-,'' quired after dis- such property is not necessarily to be considered as solution, partnership property, even though the partner acquiring it has continued to carry on the business of the dissolved firm without the consent of his late partners. This was decided in ISTerot v. Bur- nand (n.) In that case, in effect, an hotel-beeper be- jg-g^oj^ 3^,- queathed his business to his son and daugliter. After °™'^- the death of tlie testator, the daughter confined to carry on the business. She afterwards transferred it to a new house in Clifford street, and this house was conveyed to her in fee. She continued to carry on the business there for some time, and ultimately she married. During the greater part of the time which had elapsed since the death of the testator, his son had been abroad, and on his return he insisted that he ought to be considered as a partner witli his sister, and that as such he was entitled to have the new house taken by her, and all the stock in trade and effects purchased by her in order to carry on the businees, treated as partnership property. The Yice-Chancellor decided tliat the testator's son and daughter had become partners, but that the partnership between them had been dissolved on her marriage. He also held, that the new house and all the goods, furniture, plate, linen, china, wines, stock-in- trade, implements and other effects, being in and about the premis- es, formed a part of the pertnership property. Uj)oii appeal this decision was affirmed, so far as it related to the existence and sub- sequent dissolution of partnership ; but was varied so far as it re- lated to what ought to be considered as partnership property. Upou this head the Lord Chancellor's judgment was as follows: {I) Camphell v. Mullett, 2 Swanst. (m) See Burdon v. Barkus, 3 Giff. 551 ; See Thompson v. Eyan, 2 Swanst. 412, aff. on appeal, 4 De G, P. & J. 42. 565, n. ; Moffat v. Farquharson, 2 Bro. (») 4 Russ. 247, and 2 Bli. N. S, 215. C. G. 338. See the note on this case in See, too, Payne v. Hornby, 25 Beav. Belt's edition of Brown's Reports. 280. 855 *64:7 JOINT PEOPEETT. [bOOK III. 647 *" It appears to me satisfactorily made out from all the circJmstances, that the house in Clifford street was bought with the partnership property; bought, in the first instance, partly with the partnership property, partly wilh money borrowed by Miss Nerot and afterwards repaid out of the partnership effects, and partly upon the credit of the house that belonged to the partnership, and I think that part of the Vice-Chancellor's decree by which he dkects the house to be sold, must be affirmed. " There is a part of the decree, however, in which I cannot concur. The dissolu- tion of the partnership took place in September, 1819. The Vice-Chancellor has directed all the property to be sold which was in the house in Clifford Street at the time when the decree was pronounced, several years after the dissolution of the partnership, as if all the property which at the time of the decree existed in the house was, without enquiiy, to be considered as partnership property. Lord Eldon doubted greatly whether that pai-t of the decree could be sustained ; and in my opinion it must be varied by directing the Master to take an account of the particu- lars of the partnership property which were in the house in Clifford Street at the time of the dissolution, and of the value of the property at that time; and to en- quire whether any part of that property still remains in the house." (o) The good-will of a partnership, in so far as it has a pecuniary value, is now settled to be partnership property, un- Good-wiU. , ' ^ , ^ m, • 1 • 1 less the contrary can be shown. ihis subject, how- ever, will be more conveniently discussed hereafter, when treat- ing of partnership articles. {pY The question, What is property of a company, most as between the company and its members, be determined upon the company. principles above explained. It has already been seen that what directors may acquire in breach of good faith towards the shareholders must be accounted for to the company; and it has been decided that unissued shares in a company belong to the com- pany, and that, although they may be placed at the disposal of the directors, the directors must account to the company for whatever they may receive in respect of such shares, [q) On the other hand the shares held by a director are his separate property, and he is in no sense a trustee of them for the company, (r) (o) See, also. Ex parte Morley, 8 Ch. partnership property; and when one of 1026, where a surviving partner con- the partners die, it does not survive to tinned the business, sold the old stock the surviving partner, but belongs to, in trade and it was held that the new or is to be administered as part of, the stock in trade formed part of his sepa joint estate. Holden v. M'Makin, 1 rate estate. Pars. Sel. Cas. 270 [p) See infra, book hi. ch-. 9, § 3. (q) Ante, p. 588 et seq. ^The subscription list of a newspaper (r) Gilbert's case, 5 Ch. 559. when" published by more than one, ie 856 CHAP. IV.j PARTNEESHIP PKOPEETY. «648 *SECTION IL— SEPARATE ESTATE. "648 The preceding enquiry into what constitutes the property of the firm, has rendered it necessary to enquire at length into 2. Property of , , ^. , •^ „ . , the Individual wnat constitutes the separate property of its members, partners. A few additional observations, pointing out the danger of relying too much on circumstances ■which are often regarded as decisive, may, however, be usefully added. It by no means follows that persons who are partners by virtue of their participation in profits, are entitled as such to -rjiat which that which produces those profits. For example, coach }5e?sUp%?o"flts proprietors who horse a coach and divide the profits, JJJi^^pirtne? '° may each make use of horses wliich belong to himself °°'^' alone and not to the firm of proprietors (s). So, where a merchant employs a broker to buy goods for him and to sell them again on his account, although it ni^iy be agreed that the profits are to be divided, the goods themselves, and the money arising from their sale, are the property of the merchant, and not the joint property of himself and the broker (t); and it not unfrcquently happens that dormant partners have no interest in anything except the profits accruing to tlie firm to which they belong, (uy (s) As in Fromont v. Coupland, 2 Bing. 170; Barton v. Hanson, 2 Taunt. 49, and see Wilsons. AVMtehead, 10 M. & W. 503, as to an author's interest in paper supplied for his work to the publisher. {t) Smith V. Watson, 2 B. & C. 401; Meyer v. Sharp, 5 Taunt. 74; BumeR v. Hunt, 5 Jur. 650, Q. B. (m) See Ex parte Hamper, 17 Ves. 404, 405; Ex parte Chuck, Mont. 373. ' If partners, by s,rrangem5nt among themselves, own each a separate part of the stock in trade on which the partner- ship business is transacted, the stock will nevertheless be regarded as partner- ship property for the payment of part- nership debts, at least as to creditors who have no notice that the stock is owned in that way. ElKot v. Stevens, 38 N. H. 311. Articles of partnership for manufac- ture of carriages provided that the entire stock should be furnished by one part- ner; that the other was to hav? no inter- est or ownership in the capital stock, but should give his personal attention ex- clusively to the business ; and that the net profits and losses should be equally di- vided: Held, that stock and tools of the factory manufactured by the part- nership or purchased by it in the course of its business, was not the sole property of the partner furnishing the capital, but was joint property. Snyder v. Luns- ford, 9 W. Va. 223. Plaintiffs and defendant were en- gaged in carrying on business as part- ners, the articles of co-partnership pro- viding- that the capital contributed by the plam tiffs should belong to them respec- tively and exclusively. The plaintiffs purchased a lathe, and other machinery, 857 *649 SEPARATE PEOPEETT. [bOOK IV. Again, it by no means follows that property used by all the part- Propertyused ^ers for partnership purposes, is partnership prope^t3^ purpSsesliot* ^^°^' example, the house and land in and upon which partnereiup the partnership business is carried on, often belongs to property. ^^^ ^j.' ^j^g partners only, either subject to a lease to the firm, or withoutany lease at all {v). So it sometimes happens, *649 though less ^frequently, that office furniture {x), and even utensils in trade (y), are tlie separate property of one of the partners, subject to the right of the others, to use them as long as the partnership continues. If, however, a partner brings such property into the common stock as part of his capital it becomes partnership property, and any increase in its value will belong to the firm, (s) It does not even necessarily follow that property bought with the Property money of the firm is the property of the firm. For the'moneyof ^^ Sometimes happens that property, although paid for the firm. b> Jthe firm, has been, in fact, bought for one partner exclusively, and that he has become debtor to the firm for the pur- chase money. («) It is obvious, therefore, that the only true method of detcrmin- Agreementof ing as between the partners themselves what belongs tlie partners , r. i i ■ . , the true test. to the firm, and wliat not, is to ascertain what agree- which were put in the shop in the custody ton, 1 M. D. & D. 252; Bahnain jj. of the defendant, who was to carry on Shore, 9 Ves. 500; Rowley v. Adams, 7 the business, and one-half the cost of Beav, 548; Doe v. Miles, 1 Stark, 181, which machinery was, by one of the and 4 Camp. 373. If there is no lease plaintiffs, credited to each of them upon and the finn is dissolved, the owner can the books of the finn: Held, that, by eject his late partners without notice to the credit of the cost of the machinery quit. Doe ■«. Bluck, 8 C. & P. 464; to the plaintiffs, the machinery became Benhamt). Gray, 5 C. B. 138 (an action the property of the firm, and that, the of trespass). As to an injunction in such same having been removed by the de- cases, see Elliot v. Brown, 3 Swanst. fendant, the plaintiffs could not main- 489, n. ; Hawkins v. Hawlrins, 4 Jur. N. tain trover therefor. Robinson v. Gil- S. 1044, V. C. Stuart, fillian, 15 Hun, 267. [x) Ex parte Owen, 4 DeG. & Sm. An entiy in the partnership books by 351. See Ex parte Hare, 1 Deac. 16 ; one of the partners in the business of a Ex parte Murton, 1 M. D. & D. 252. saw- mill, charging himself with a boat {y) Ex piarte Smith, 3 Madd. 63, which he had buUt at the mUl, may be (2) Robinson u.'Ashton, 20 Eq. 25. introduced by him as evidence inter alia (a) See Smith v. Smith, 5 Ves. 193 ; to prove the boat to be his mdividual Walton v. Butler, 29 Beav. 428; Ex property. Reno i'. Crane, 2 Blackf. 217. parte Emly, 1 Rose, 64. Compare the (v) See Burdon v. Barkus, 3 Giff. 412, case of the Bank of England, 3 DeG. aff. on appeal, 4 DeG. F. & J. 42, as to F. & J. 645, noticed infra, p. 649. a lease of a coal mine; Ex par te Mur- 858 CHAP. IV.J PAETNERSHIP PKOPEETY. ''''GoO ment has been come to upon the subject. If there is no express agreeiiient, attention must be paid to the source whence the ])rop- erty was obtained, the purpose for which it was acquired, and tlie mode in which it has been dealt with. The following cases, in which there was very little evidence to show what agreement had been made, may be usefully referred to on this subject. In Ex parte Owen (6) one Bowers, who was a grocer, provision dealer, and wine mercliant, and who possessed stock in e^ parte Owen trade and household furniture at his place of business, gtock m trade took two partners, without any agreement except that audiurmture. they were to participate in the profits of the concern. They brought in no capital and paid no premium, and no deed or agree- ment was executed. Bowers bought with hi*s own money, but in the name of the firm, new stock required for the business. Upon the bankruptcy of the firm, the question arose to whona *the stock in trade and furniture belonged. The Court, *650 coming to the best conclusion it could from such materials as were before it, held that there was an agreement between the three, expressed or implied, that all the stock in trade should be- come the property of the three, subject to an account, in which the partnership would be debited in favor of Bowers for the value of the articles which belonged to him or for which he paid. But tlie Court thought there was not the same ground for such an inference as to the household furniture, -and that therefore was held to have continued and to remain the separate estate of Bowers. In Parker v. Hills (o), which went to the House of Lords, the question was, whether a lease of certain saltworks be- Parker t;. huis. longins to Parker had, on his entering into partnership Lease orisin- '^ " ' ^ '- '^ ally belonging with Hills, become partnership property or not. The to one partner, documentary and other evidence ^i as such as to render the question extremely difficult to determine, and there was considerable differ- ence of opinion upon it. Ultimately, hoM'ever, the House of Lords, agreeing with L. J. Turner, and disagreeing with Ij. J. Knight Brace, and Y.-C. Wood, decided that the lease had become part of the property of the firm. In re Streatfield, Lav.-rence & ComjDany (d), two partners bought * (&) 4 DeG. & Sm. 351. See, also, 7 ib. 833. Pilling V. PiUing, 3 DeG. J. & S. 162. [d) Bank of England case, 3 DeG. P. (c) 5 iax. N. S. 809, and on appeal, & J. 645. 859 *651 SEPAEATE PKOrEETT. [bOOK III. Rtvcatfloid ^^ estate with partnership Tnoney. The land was con- LfiwiLnce&co. yej'ed to them in nndi\ided moieties to uses to bar Houses built (Jower, and each pai-tner bnilt a house on the land with on partnersliip ' ^ property. monej of the firm, bat charged to him in his private account. An account was opened in the partnership books, and in this account the purchased estate was debited with all moneys of the partnership expended in the purchase. At tlie time of tlie purcliase the land was in lease, but the tenant surrendered to the partners those portions which they Vv'aiited, they reducing his rent. The rents, viz., both that paid by the tenant for what he held, and that paid to him for what he gave up, were treated in the books of the firm as paid to and by it. There was evidence to show that the partners intended to come to some ari'angement respecting the division of the estate, but they became bankrupt before *651 doing so. It was held that botli *the land and the houses on it were the joint property of the firm, and not the sep- arate properties of tiie partners. In Collins v. Jackson (e), two persons were in partnership as so- yackson"' licitors, and one of them held several appointments Appointments, frequently held by a gentleman of that profession ; he was clerk to poor law guardians, superiiitendant registrar of births, marriages, and deaths, treasurer of a turnpike trust, steward of a manor, treasurer of a charity, and receiver of tithes. The question arose whether the profits of these offices belonged to the partnership or not. There was no written agi-eement specifically applying to these offices, but there was a memorandum relating to some others re- served by the fatheix)f one of the partners when he retired from busi- ness, and the Master of the Kolls held that all the offices in question were to be treated as held on behalf of both partners, and jiot for the exclusive benefit of the partner who actually filled the offices, {ff (e) 31 Beav. 645. separate books were kept, the money (/) See, also, Smith v. Mules, 9 Ha. went into the partnership funds, and all 556 ; and Ambler v. Bolton, 14 Eq. 427, payments on account of the post-office as to the mode of dealing with such of- were made out of the funds of the firm: fices on a dissolution. Held, that the profits of the post office ' One of two partners entered into an belonged to the firm, especially as the agreement with a neighboring postmas- partners had made two settlements be- ter, by which the office was to be kept tween themselves, without any separate at the store of the firm, and the con- claim to those profits having been set tracting partner was appointed deputy; up by the partner who contracted for but the business was transacted My the the business. Caldwell ». Leiber, 7 clerks of the store indiscriminately, no Paige, 483. , 860 CUAP. IV.] PAETJSTEESrilP PEOPEETT. *652 TliG cases, however, which present most difficulty, are those in M'hich co-owners are partners in the profits derived Cases where oo- _ , * ^ owners share ironi their common jjroperty. [g] Suppose, for exam- profits. pie, that two or more joint tenants, or tenants in comnron, of a farm or a mine, work their common property together as partners, coutributing to tlie expenses and sharing all profits and losses equally, there will certainly be a partnership ; and yet, unless there is something more in the case, it seems tliat the land will not be partnership property, but will belong to the partners as co-owners, just as if they were not partners at all (A): and the result may even be the same if they purcliase out of their profits other lands for the purpose of more conveniently developing their busiuess. (i) In Morris v. Barrett (Ii) lands were devised to two persons as *joint tenants. They farmed *652 those lands together for twenty j-eara, and kept their money in one common stock to which each had access, l?ut they never came to any account with each other. Out of their common stock tlicy bought other lands, which were con- veyed to one of thera only, but were farmed by both, like the first lauds. It was held that the devised farms were not partnership property, but that the purchased farms were.' Land acquired hy devise fiirraed in common. Morris v. Barrett. (g) As to the distinction between co- ownership and partnership, see ante, p. 58 et seq. {h) See Crawshay v. Maule, 1 Swanst. 523 ; and Roberts v. Eberhardt. Kay, 159. See, also, WUliams v. Williams, 2 Ch. 294, where the partnership had expired, but an agreement to divide the property was held to have been come to. (0 Steward v. Blakeway, 4 Ch. 603, and 6 Eq. 479, a case of a farm and quarry. But compare Morris v. Bar- rett, Philhps V. Phillips, and Waterer V. Waterer, cited below. (&) 3 Y. & J. 384. Compare Water- er V. Waterer, infra, p. 653. ' Whether real estate shall be consid- ered as partnership property depends largely upon the intention of the part- ners; see Ludlow v. Cooper, 4 Ohio St. ] ; Smith V. Jackson, 2 Edw. 28; Wheat- ly 0. Calhoun, 12 Leigh, 264. Wliere real estate is conveyed to a firm or to the co-partners, in their indi- vidual names, for the use and benefit of the firm, or in payment of debts due to the firm, in the absence of any agree- ment or understanding to the contrary, the grantees become at law tenants in common of the land; and upon the death of either, the legal title to his undivided sliare descends to his heirs-at- law. Buchan v. Sumner, 2 Barb. Ch. 165; Caldwell v. Palmer, 56 Ala. 405; Wood V. Montgomery, 60 Ala. 500; An- derson V. Tompkins, 1 Brook. 456; Wil- ley V. Carter, 4 La. Ann. 56; Arnold v. Stevenson, 2 Nev. 234; Donaldson v. Bank of Cape Fear, 1 Dev. Eq. 103; Ensign v. Briggs, 6 Gray, 329; Gal- braithj). Gedge. 16 B. Mon. 631; De- vine V. Mitchum, 4 id. 488; Coles v. Coles, 15 John. 159. See, also, Thomp- son V. Bowman, 6 Wall. 316; Blake v. Nutler, 19 Me. 16. See post, 664, note. 861 *G52 PAETNEESHIP PKOPEETT. [book III. In Brown v. Oabshot (I) a brewer devised his real estates to trns- joint tenants tees for a term of 500 vears, upon trust, to pay certain by devise . . , , . . V ' "^ , ' , •' partnersin annuities, and to divide the surpluB rents between his profits. T 1 1 • T 1 „ sons, and he devised the same estates subiect to this Brown v. ' •> oaiisiiot. term to his sons as joint tenants. The sons carried ou So, -where land is purchased by part- ners with partnership funds, but not for the use and convenience of the partner- ship business, or in the legitimate line of theu- partnership business, they be- come invested with the title as tenants in common, and their respective inter- ests therein are several. Price v. Hicks, 14 Fla. 5G5 ; Russell v. Miller, 26 Mich. 1. But where land is purchased with partnership fmids and conveyed to the partners by name, although in law they are considered as tenants in com- mon, and no notice is taken of the equi- table relations arising out of the part- nership, yet in the absence of an ex- press agreement, or of circumstances showing an intent that such estate shall be held for their separate use, in equity the partnership property wiU be devoted to partnership purposes, and a trust is created for the security of the partner- ship debts. If the partnership becomes insolvent, the property is primarily lia- ble to the payment of the partnership debts, to the postponement of the cred- itors of the several partners. Ross v. Henderson, 77 N. C. 170; Robertson v. Baker, 11 Fla. 192. See, also, infra, in this note. But where a deed of lands was made to A, B and C, " doing business as A, B & Co., their heirs and assigns," it was held that the grantees took the legal estate in joint tenancy, and a judgment confessed by all of them in their individual names with the same words, "doing business, etc.," added thereto, is a lien upon the land, and wiU bind it in the hands of subsequent pur- chasers from the firm. Laufier v. Ca- vott, 87 Pa. St. 479. The appearance of real estate on part- nership books to the extent necessary to carry on the business of the firm, is not inconsistent with the partners' title to the real estate as tenants in common. Grobb's Appeal, 66 Pa. St. 117. Although the proposition that when a partnership ceases the partners be- come tenants in common of the partner- ship property then undisposed of, is generally true, yet it is not universally true. So long as partnership debts re- main unpaid, partnership property con- tinues such, for the purpose of being applied to the payment of such debts. Rice V. McMartin, 39 Conn. 573. Partners may by contract stipulate that the ownership of property may re- main in one, while the firm shall have only the use of the same, as between themselves, or any other regulation in regard to ownership of the property used, not prohibited by law. Taft v. Schwamb, 80 111. 289. While there may be partnerships in the business of milling, mining or farm- ing, unless the intent of the joint own- ers to throw their real estate into the fund as partnership stock is distinctly manifested, or unless the real property is bought out of the social funds for partnership purposes, it must stiU retain its character of realty. Wheatly v. Cal- houn, 12 Leigh, 264. Where land purchased with partner- ship funds is conveyed to the partners by a deed which would ordinarily make them tenants in common thereof, it wiU be deemed in equity converted into per- sonal property, and may be adminis- il) 24 Beav. 254. 862 PAKTJSTERSHIP PEOPEETT. '=■652 CHAP. IV.j their father's business in partnership together, and nsed the real estate devised to them for the purposes of the business; but it was tered upon as such, in -winding up the affairs of the concern, unless from the books, or other sources, it appears that business profits were thus invested to pay a dividend to the partners. The intention of the partners in making the purchase, as shown by the evidence in the case, should govern the consti'uction of the conveyance. Collumb v. Read, 24 N. Y. 505. A mere agreement to use real property for partnership pui-poses, or as partner- ship property, is not sufficient to convert it into partnership stock, in the absence of any evidence of such intention. The mere fact that property held by the firm as tenants in common, is used in and for the partnership business, or a mere agreement to use it for partnership pur- poses, is not of itself sufficient to convert it into partnership stock. There must be some evidence of further agreement to make it partnership property. Alexan- der V. Kimbro, 49 Miss. 529; Thenot v. ' Michel 28 La. Ann. 107. See, however, Osbom V. McBride, 16 Bank. Reg. 22, as to the presumption upon the question. Thus, the mere fact that partners carry on partnership business on a lot of land belonging to the members of the partnership, does not necessarily im- press it with the character of partner- ship property, unless they have by agreement, or otherwise, purposely im- pressed upon it that character. Ware V. Owens, 42 Ala. 212; Pecot v. Arme- liu, 21 La. Ann. 667. An oral agreement of two persons to sell lands of each, and employ the pro- ceeds as capital for going into business as partners is valid; and a ferry and franchise purchased by one, with the proceeds, is partnership property. Knott V. Knott, 6 Oreg. 142. Real estate acquired with patnership funds, for partnership purposes, must be considered as partnership property, and liable to all the uicidents attending that description of property. Sigoumey v. Munn, 7 Conn. 11; Matlock v. Matlock, 5 Ind. 403; Abbott's Appeal, 50 Penn. St. 234; Hoxie v. Carr, 1 Sumn. 173; Pugh V. Carrie, 5 Ala. 446; Lancaster Bankw. Myley, 13 Penn. St. 544; Brooke V. Washington, 8 Gratt. 248. See, how- ever, Smith v. Jackson, 2 Edw. 28. A partnership " for the purchase of lands" does not, however, necessarily contemplate sales of land so as to make the land stock in trade, but it passses to the heir as real estate, and not to the administrator. Dilworth v. Mayfield, 36 Miss. 40. Two persons took a lease of a coal mine as tenants in common. After- wards they associated themselves in the business of coal mining, shipping and selling, as partners, the business to be carried on from the proceeds of the de- mised premises, for the whole period of the lease: Held, that the leasehold be- came partnership property. Patterson V. Sillhnan, 23 Pa. St. 304. See, also, Morton v. Ostrom, 33 Barb. 256. Where partners purchased a leasehold estate with partnership property, gave a deed of trust upon it, and the trustee, after the death of one of the partners, sold the estate under the power in the deed, a surplus remaining: Held, that the surplus was to be considered as part- nership property, upon which the sur- riving partner was entitled to adminis- ter. Carlisle v. Mulhern, 19 Mo. 56. Real property, an undivided half in- terest which was bought and paid for by each of two partners, who with part- nership funds completed, repaired, im- proved and protected it, and who used it for partnership purposes, becomes thereby partnership property. Roberts V. McCarty, 9 Ind. 16. 863 %i>2 PAETNEESHIP PEOPEETT. [book III. nevertheless held that the reversion in fee con tinned to be vested in them jointly, and not in common, as would have been the ease had it become partnership property. Two persons who were partners in the business of fishing and selling fish, bargained for a block of land, gave their note to the defendant for the price, and took the defendant's bond for a deed in payment of the note, and paid one year's interest before the note fell due. One of the partners having died, the other, claiming to act as surviving partner, assigned the bond and the land to the plaintifl: two years after the note fell due, no administration being had, and it being a disputed question whether the land was purchased for partnership purposes. In a suit by the assignee for specific performance : Held, that the question of fact, whether the land was purchased for partnership pur- poses, could not be ultimately settled so as to bind the heirs of the deceased partner, in a suit where neither the heirs nor the representatives of the de- ceased partner were made parties; and that the defendant should not be re- quired to convey to the assignee of the survivor unless he has reasonable grounds of certainty on that question. Knott V. Stevens, 3 Oreg. 269. Real estate purchased for, and appro- priated to or intended to be used for partnership purposes, and paid for out of partnership funds, is partnership property, although the legal title is ta- ken in the individual names of the part- ners, or in the name of one of the part- ners, or in the name of a third person, equity will hold the party holding the legal title, or his heirs in case of his death, as trustee for the firm. Fair- child «. Pairchild, 64 N. Y. 471; S. 0. 5 Hun, 407; Taulds ». Yates, 57 111. 416; Little «). Snedcor, 52 Ala. 167; Hewitt Ranlrin, 41 Iowa, 35; Smith v. Tarle- ton, 2 Barb. Ch. 336; Drewry v. Mont- gomery, 28 Ark. 256; Johnson v. Clark, 864 18 Kan. 157; Hogle v. Lowe, 12 Nev. 286; Boyers v. EUiott, 7 Humph. 204; McGuire v. Ramsey, 9 Ark. 518; Indi- ana, etc. Co. V. Bates, 14 Ind. 8; Fowl- er V. BaiUey, 14 Wis. 125; Owens v. Colhns, 23 Ala. 837; Lacy v. Hall, 37 Penn. St. 360; Erwin's Appeal, 39 id. 535; Jands v. Brooks, 27 N. H. 37; Cil- ley V. Huse, 40 id. 358; Fall River Whaling Co. v. Borden, 10 Cush. 458; Dupuy V. Leavenworth, 17 Cal. 262; Price V. Hicks, 14 Pla. 565; Uhler v. Semple, 20 N. J. Eq. 288; Abbott's Ap- peal, 50 Penn. St. 234; Fowler v. Bail- ley, 14 Wis. 125; Lune Rock Bank «;. Phetteplace, 8 R. I. 56; Lancaster Bank V. Myerley, 13 Penn. St. 544; Hiscock v. Phelps, 49 N. Y. 97; King v. Weeks, 70 N. C. 372; Owens v. Collins, 23 Ala. 837; Dewey v. Dewey, 35 Vt. 555; Chamberlain v. Chamberlain, 44 N. Y. Sup'r Ct. 116; Matlack v. James, 13 N. J. Bq. 126; Smith v. Tarleton, 2 Barb. Ch. 336; Delmonioo v. GuDlaume, 2 Sandf. Ch. 366; Cox v. McBurney, 2 Sandf. 561; Buchan v. Sumner, 2 Barb. Ch. 165; Whitney v. Cotton, 53 Miss. 689; Bufifum v. Butfum, 49 Me. 108. See, also, Rommelsburg v. Mitchell, 29 Ohio St. 22; Holmes v. Moon, infra; Demmg v. Colt, 3 Sandf. 284; Bird v. Morrison, 12 Wis. 138; Devenney v. Mahoney, 23 N. J. Eq. 247; McGuire v. Ramsey, 9 Ark. 518. C. bargained for a grist-mill and ap- purtenances, paid 11,000 down, and took a bond for a deed; made a verbal con- tract to sell it to D. and received $1,300 of him in part payment; D. took the possession, laid out a considerable sum in repairs and improvements, and car- ried on the business a short time, when he and C. made a verbal contract of co- partnership in the grist-mill businesf and carried it on together at this giisl - CHAP. IV.] PAETNEESHIP PEOPEETT. *G52 In Phillips V. Pliillij^s (m) puLlic-lionses were devised to two persons who carried on a brewery in partnership, and it PuWio-iiouses 1111 11 Til ■ 1. dnyissd to part- WES held that sucli iiouses did not become partnership nersina .11 1 f 1 p 1 ' brewery. property, though nsed tor the purposes ot the partner- p^^.^j. ^^ sliip. In the same case some mortgage debts secured pmiups- mill for two years, neither of the parties claiming rent; the grist-mill was taxed to the company, and one year's taxes were paid out of the company's funds, and payments were made on C.'s notes named in the bond for a deed which he held, by giving- credit to the parties to whom payments were made on the com- pany's books. A dam tax of $75 was paid in the same manner. At the end of the two years, C. gave D. notice that he was going to dissolve the co-partner- ship; D. proposed that it should be mu- tual, and that they should bid for choice of the mill property. C. does not deny that he told D. that he would shoitly say what he would give or take, but j,he did not do this; yet a few days afterwards he took a deed of the mill property to him- self, discharged the bond, excluded his co-partner, mortgaged the mill property to secure some partnership debts, and some of his own, and the balance of the purchase money remaiiaing due, and brought this bill in equity to close the partnership affairs. The bill and answer both admit the existence of the partnership. It is satis- factorily proved that the verbal contract for the sale of the mOl from C. to D. was abandoned by mutual consent when they went into partnership, and that the un- derstanding between them was that the purchase of the mill property should be completed on partnership account, the sums previously paid and expended by the partners severally toward the pur- chase or iu the improvement of the mill property, to be regarded as so much contributed by them respectively to the partnership funds: Held, that there is nothing in the statute of frauds to pre- vent partnership equities from attaching to the grist-mill property, and that it should stand charged, as between these parties, for the payment of partnership debts, and any balance that may be found due to either of the partners upon the final adjustment of the partnership accounts; the legal title not to be dis- turbed except as may be necessary for these purposes. CoUins v. Decker, 70 Me. 23. Where real and personal property is held in trust by one partner for the ben- efit of the firm, and upon an agreement that he will not dispose of it without the consent of the others, he cannot be com- pelled to convey to one of the other partners his share in the property, until, such partner shall have first paid to him his share of indebtedness for advances made. Cheesemau v. Sturges, 6 Bosw. 520. Where partners own each in several- ty the real estate where the business is carried on, and buildings have been erected and improvements made thereon by the firm, the lands, on a dissolution- will be treated as partnership assets. Smith V. Danvers, 5 Sandf. 669. Where B. owning a saw-mUl proper- {m) As stated in Bisset on Partner- ship, p. 50. The report in 1 M. & K. 649, is silent as to the propert-/ devised. Mr. Bisset considers the decision as an authority on the point of conversion. But if, as he represents, the Court came to the conclusion that the devised prop- erty was not in fact partnership proper- ty, the question of conversion would not arise. Compare Waterer v. Waterer, 15 Eq. 402 infra. 865 *652 PAETNEESniP PEOPEETT. [book III. on pnblic-liouses were bequeathed to the two partners, and they af- ty, formed a partnership with F. in the lumber business, agreeing by parol that the mill estate should constitute part of the X ar. nership fund, and P. paid a part of the consideration in cash, the rest to be paid out of the profits of the business : Held, that the title of B. did not pass to the firm, although F. went into pos- session with B. and improvements were made upon the property out of the firm funds. MoCormiok's appeal, 57 Pa. St. 64. M. and C. entered into partnership, M. contributing real estat? at an estimated value, which was carried into the firm stock account to his credit, he reserving the right on dissolution not to be bomid by the estimated value and to withdraw the property. During the partnership the buildings were burned and rebuilt by the firm 'funds: Be W, that the real estate was, in equity, partnership prop- erty with the legal title in M. ; that his reservation was a provision to correct the valuation; that M. withdrawing it on dissolution, would take it at its then value ; and that the property with its accretions belonged to the firm, to be accounted for as firm assets. Clark's appeal, 72 Pa. St. 142. Where one of a firm of four brothers purchased, in his own name, a lot, and leased it to the firm, and the firm erect- ed its oil refinery thereon : Held, that his three brothers could not in an equi- ty proceeding, afterwards claun that the lot should be treated as firm property, although he had acted in bad faith in procuring the conveyance to himself rather than to the firm, — his act having been long acquiesced in by the three others without an investigation of the false and flimsy reason he had assigned therefor. Slemmer's appeal, 58 Pa. St. 168. There is, however, no presumption that a leasehold standing m the name of one of several co-partners, and used 866 by the firm ff^r their business, consti- tutes partnership assets. The pre- sumption is otherwise ; its mere use for partnership purposes does not operate to divest or affect the legal title. Chamberlain v. Chamberlain, 44 N. Y. Supr. Ct. (12 Jones& sp.) 116. Where, however, all the members of a partnership join in a deed of land, the presumption, is, in the absence of proof, that the consideration money goes to the use of the firm. Lincoln v. White, 30 Me. 291. A partnership, as such, cannot hold the legal title to real estate. But where a deed was made to Jarrett, Moon & Co., it not appearing whether the firm was composed of Jarrett & Moon and others, or Jarrett Moon (one person) and others: Held, that in the former case the legal title vested in Jarrett and Moon, and in the latter in Jarrett Moon, in trust, for the partnership ; the un- certainty ai-iting from the omission of the Christian names of grantees might be removed by parol proof. Holmes v. Moon, 7 Heisk. 506. See, also, Tidd v. Rives, 2 N. W. Rep. (N. S.) 497. A conveyance of real estate to "J. L. S. & Co." vests the legal title in J. L. S. individually, clothed, however, with a trust for the benefit of the partner- ship. Moreau v. Saffarans, 3 Sneed, 595. Where one partner invested a portion of the partnership funds in lands for his own use, it was held that this created a resulting trust, and that the other part- ners might follow it and claim their portion of the specific property. King V. Hamilton, 16 111. 190. See, also, Edgar V. Donnally, 2 Munf. 387. If one partner purchase land to his own use with money taken out of the joint fund, the lands have been held not to be joint stock. Goodwin v. Richard- son, 11 Mass. 469; Pitts v, Waugh, 4 id. 424. chap: IV.J PAETNEESHIP PEOPEETT. >^-652 terwarcls pnrcliiisecl the equities of redemption, and paid for tliem In Louisiana real estate owned by coipimercial partners does not enter into their commercial assets. As regards that species of property they are joint owners. Guilbeau v. Melancon, 28 La. Ann. 627. Under the laws of Louisiana prohib- iting a commercial partnership from owning immovable property, if immov- able property is purchased with partner- ship funds by one of the partners in his own name, and without the consent of his co-partners, the property itself be- longs to the partner purchasing, but its value at the time of the pmxhase be- longs to the partnership. No decree of a court could be rendered to vest the title of property so purchased in the partnership, for the partnership is in- capable of acquiring title. McKee v. Griffin, 23 La. Ann. 417. Where the title to land belonging to a partnership is vested in one of the partners, the fact that it is partnership property may be established by parol. Zook V. Clemens, 41 Iowa, 95; Sherwood V. St. Paul, &o. R. E. Co. 21 Mmn. 127; Burd v. jVIorrison, 12 Wis. 138; FairchUd v. Fairchild, 64 N. Y. 471; In re Farmer, 18 Bank Reg. 207 ; Block v. Seipt, 17 Weekly Notes of Cases, 565. Thompson I'. Egbert, 3 Thomp,&C.474; S. C. 1 Hun, 484. See, also, Little v. Snedcor, 52 Ala. 167; Hewitt v. Rankin, 41 Iowa, 35; Drewrey v. Montgomery, 28 Ark. 256; EaU River Whaling Co. v. Borden, 10 Gush. 458; Ra,uSv. Howard, 3 Jones' Eq. 440; Collins v. Decker, 70 Me. 23. As to strangers, however, it is held in Pennsylvania that partners' agreements to make real estate common stock must be in writing, and ought to be on rec- ord. It is not competent to show by parol that real estate conveyed to two as tenants in common, is partnership prop- erty. Lefevre's appeal, 69 Pa. St. 122. See, also, Ebbert's appeal, 70 Pa. St. 79; Jones' appeal, id. 169; and Hale v. Henric, 2 Watts, 143; Ridgway's ap- peal, 15 Penn. St. 177; Otis v. Sill, 8 Barb. 102. Where there is a conveyance to one partner by a deed absolute on its face, and it is attempted to be shown by parol that it was in fact a conveyance to him for the use of hunself and hia co-partner .as tenants in common, it is competent to rebut this evidence by showing by parol evidence that it was owned by them as partnership property. Black's appeal, 89 Pa. St. 201. Improvements upon land owned by one partner, or by several partners as tenants in common, made with partner- ship funds, ar^ partnership property. Lane v. Tyler, 49 Me. 252; Kendall v. Rider, 35 Barb. 100; Hiscock v. Phelps, 44 N. Y. 97. See, also, Deveney v. Mahoney, 23 N. J. Eq. 247. Where real estate is purchased by one of two partners, and paid for out of hip individual funds, and improvements are made thereon with the partnership funds, between the time of the giving of a judgment by one of the partners as a security for future responsibilities, and the incurring of such responsibili- ties by the judgment creditor, the equi- table interest of the other co-partner to be reimbursed his share of the partner- ship funds applied to the making of such improvements is prior, in point of time, to the lien of the judgment, upon the principle that an incumbrance which intervenes between a judgment and fur- ther advances takes priority over the latter. AveriU v. Loucks, 6 Barb. 19. Employing partnership funds in mak- ing permanent improvements upon real property owned by the partners, and appropriated to the partnership business, is not necessarily a fraud upon the cred- itors of the firm, if no intent to defraud is shown. Parker v. Bowles, 57 N. H 491. 86T •■■052 PAETNEKSHIP PROPEETT. [book III. out of the funds of the partnership, but it was held that the pro]Der- Where real estate is O'wned in undi- vided intei-ests by the individuals ■who compose a partnership ■which has only the use of it, trade fixtures set up by the partners do not become realty, and ■vrhen their occupation ceases they may remove them. They are not covered by mortgages on the premises, if their o^wnera do not plainly mean them to be so. Robertson v. Corsett, 89 Mich. 777. In equity partnership real estate is treated as mere personalty, and is gov- erned by the rules and general doctrines applicable to that species of property. See Arnold v. Wain'wright, 6 Minn. 358; Davis v. Christian, 15 Graft. 11; Mauck V. Mauck, 54 111. 381 ; Scruggs v. Blair, 44 Miss. 406; NicoU v. Ogden, 29 111. 323; Hill V. Beach, 12 N. J. Eq. 31; Ludlow V. Cooper, 4 Ohio St. 1 ; Moder- well». MuUison, 21 Penn. St. 257; Day )). Perkins, 2 Sandf. Ch. 359 (a lease- hold); Andre'ws v. Bro-wn, 21 Ala. 437; Black V. Black, 15 Geo. 445; Whitney V. Cotton, 53 Miss. 689; Galbraith v. Gedge, 16 B. Mon. 631; Divine v. Mit- chum, 4 id. 488; Coles v. Coles, 15 Johns. 159; Piatt v. Oliver, 3 McLean, 27. See, also, Morgan ». Olney, 53 Ind. 6; Rammelsberg v. Mitchell, 29 Ohio St. 22; Foster i. Barnes, 81 Penn. St. 377; West V. Hickory Mining Ass'n, 80 id. 38. See, ho-wever, Ferguson v. Hass, Phill. Eq. 113. But this rule gro^ws out of the peculiar nature of the partnership relation, and IS adopted for the purpose of doing jus- tice bet-ween partners, or bet-ween them and others having deaUngs ■with them, and for the purpose of properly adjust- ing the relations bet-ween them, or be- tween them and others having dealings ■with or relations to the partnership. It is not an arbitrary rule, by which a CO art of equity transmutes real estate into personal property ■when it is once O'wned and possessed by a partnership, 8G8 and causes it to take that character oat- side of and independent of the exigen- cies of the partnership. Black v. Black, 15 Ga. 445. Although a court of equity considers and treats real property, purchased ■with the partnership funds, ajid held for the purposes of the firm, as constituting part of the stock of the partnership, it leaves the legal title undisturbed, except so far as may be necessary to protect the equitable rig-hts of the respective partners. Lang v. Waring, 25 Ala. 625. The real estate of a partnership is held as personalty for the purposes of the partnership, but -where not needed for such purposes it descends as other real estate to the heir. Williamson v. Fontain, 7 J. Baxt. (Tenn.) 212. See, also, McGrath v. Sinclair, 55 Miss. 89 ; Yeatman v. "WooAs, 6 Yerg. 20; Gaines V. Catron, 1 Humph. 514; Piper v. Smith, 1 Head, 93; Summey v. Patton, 1 Wms. (N. C.) Eq. (No. II.) 52. See, ho-wever, McAllister v. Montgomery, 3 Hayw. (Tenn.) 94. The -widow of a deceased partner can- not, therefore, treat the partnership real estate as personal property, but it goes . to the heir. Williamson v. Fontain, supra. Where the legal title to lands pur- cha,sed and held for partnership uses is in the partners individually, they are nevertheless subject to an imphed trust that they, shall bs applied to the pay- ment of the partnership debts; and the ■wido-w of a deceased partner is not en- titled to do'wer therein until the trust is fully executed. Bopp v. Fox, 63 111. 540; Price v. Hicks, 14 Fla. 565; Uhler V. Semple, 20 N. J. Eq. 288; Campbell V. Campbell, 30 id. 415; Howard v. Priest, 5 Mete. 582 ; Simpson v. Leech, 86 111. 236 ; Stroud v. Stroud, Phill. L. 525; Eobertshaw v. Han-way, 52 Mass- 713. See, also, Hadson v. NeU, 41 Ind. CHAP. IT.J PAETNEESHIP PEOPEETY. *652 ty tlius acquired did not form part of the partnership property, the 505; Cook V. Watson, 30 N. J. Eq. 345. The right to a homestead exemption stands on ' no higher ground. Robert- shawp. Hanway, supra; Terry v. Berry, 13 Nev. 514; Commercial & S. Bank v, Corbett, 5 Sawy. 543. Partnership real estate can, moreover, only be conveyed as real estate by those holding the legal title. Davis v. Chris- tian, lb Gratt. 11. Neither partner can alone convey more than his undivided interest therein. Anderson v. Tomplrins, 1 Brock. 456; Willey V. Carter, 4 La. Ann. 56; Arnold V. Stevenson, 2 Nev. 234; Donaldson v. Bank of Cape Fear, 1 Dev. Eq. 103. See, also. Weld v. Peters, 1 La. Ann. 432. A mortgage executed by an individual member of a firm, upon land the legal title to which is vested in him, but which is in fact owned and used by the firm as partnership property, is " real estate securi'",y " within the clause in a will directing such security to be talren for money loaned. MiUer v. Procter, 20 Ohio St. 442. However, land purchased by several for the purpose of sale for profits only, and not for permanent use, will be re- garded in equity as personal property among the partners in the speculation, and one of them, it is held, may release his interest in the same orally. Morrill V. Colehour, 82 lU. 618. And where land is partnership stock, it never becomes personalty, even dur- ing the continuance of the firm, so as to give one partner power to dispose of the firm interest in it. Foster's appeal, 74 Pa. St. 391. Real property purchased with part- nership funds for partnership purposes, and which remains after paying the debts of the firm, and adjusting the equitable claims of the different mem- bers of the fii-m. as between themselves, is considared and treated as real estate. Buckley v. Buckley, 11 Barb. 43; Scruggs V. Blair, 44 Miss. 456. See, however, Thayer v. Lane, Walk. Ch. 200. And in the settlement of the estate of a deceased co-partner, any real estate of the partnership remaining after the ful- fillment of all partnership obligations, is to be treated as realty. Wilcox v. Wilcox. 13 Allen, 252. Real estate owned and used by a part- nership may be deemed personalty, not only for purposes of the partnership but for distribution also, when the inten- tion of the partners that it should be so treated appears. In the absence of their agreement, express or impKed to this effect, it should only be so regarded for the pm-poses of the partnership, and after these are answered, the surplus should be held to be real estate for all other purposes. Lowe v. Lowe, 13 Bush, 688. See also Scroggs v. Blair, 44 Miss. 406. Compare Bank of Louis- ville V. Hale, 8 Bush, 672 ; Cornwall v. Cornwall, 6 id. 369. When land, held as personalty stock, and therefore deemed personalty, is sold by the firm, the land becomes land again, in the hands of the purchaser, and the proceeds personalty, but only to the extent of accomplishing the purpos- es of the conversion, namely, the equity of th^ partners to have the joint debts and their own advances paid before any part goes to the other partners or their separate creditors. The time of re-con- version is the moment the partnership is wound up, either by decree, judg- ment or agreement, and it is determin- ed to be no longer partnership stock nor required for its purposes. Foster's ap- peal 74 Pa. St. 391. In a court of equity, real estate be- longing to a firm, purchased with the partnership funds and treated as part- nership property, is considered as per- sonal property to this extent at least, 869 -6: PAETNBESUIP PEOrEKTY. [book iir. equities of redemption following the mortgage debts. But in this that it is liable to pay the debts of the firm, and the surviving partner has a claim on it for that purpose, which is superior to the title of the widow and heirs-at-law of the deceased partner. Andrews v. Brown, 21 Ala. iS7. A surviving pa:rtner is entitled to use the real estate of the partnership as firm assets so far as it is needed to settle the af- fairs of the firm, and decedent's heirs hold the legal estate only as trustees for the equitable purposes of the firm. Merritt V. Dickey, 38 Mich. 41; Dupuy v. Leav- enworth, 17 Cal. 262. See, also, Mat- thews V. Hunter, 67 Mo. 293. As to what circumstances will justify the exercise of the power of a court of equity to authorize a surviving partner to sell at private sale realty owned by an insolvent firm, see Mauok v. Mauok, 54 111. 281. Where real estate is purchased with partnership funds, the title taken in the partnership name, and the property held for partnership purposes, and on the death of one of the partners, the firm being insolvent, the surviving partner conveys the lands, with all the other partnership property, to an assignee, in compromise and settlement of the claims of creditors, who assent to it, the assig^nee may maiutain a bill in equity against the heirs of the de- ceased pa,rtner, to compel a divestiture of the legal title, and have the lands applied to the payment of the partner- ship debts. Murphy v. Abrams, 50 Ala. 293. An administrator cannot be held liable for not receiving and accounting for funds arising from the sale of his intes- tate's partnership interest in real estate, when the whole property was needed to satisfy the debts of the firm, and the sale was made to the surviving partner in order to transfer to him the legal title, to be used in settling the business. Mer- ritt V. Dickey, 38 Mich. 41. 870 If rents and profits accrue from the real partnership assets while in the hands of a surviving member of a firm, such rents and profits are personal prop- erty, and any surplus would go to the personal representative of the deceased partner. The hoir would only be enti- tled to the realty or its surplus, if sold, as it stood at the death of his ancestor. Griffey v. Northcutt, 5 Heisk. 746. Where land is held by a firm by deed expressing that it is partnership stock, an incumbrance against a member of the firm is not a lien upon any interest in it, so as to prevent the firm convey- ing to a purchaser clear of the incum- brance, Meily v. Wood, 71 Pa. St. 488. In such case, the land is personal property to be applied according to the equities between the partners, in pay- ment of the partnership debts in t'le first instance ; so that an execution by a separate creditor would sell, not an in- terest in realty, but the balance due his debtor, with right by bill in equity to compel a settlement. Meily v. Wood, stipra. Partnership real estate must be first applied to the satisfaction of the part- nership debts. Matlock v. Matlock, 5 Ind. 403; Winslow v. Chiffelle, 1 Hiu-p. Ch. 25; Hunter V. Martin, 2 Rich. 541; Overholt's Appeal, 12 Penn. St. 222; Marvin v. TrumbuU, Wright, 386; Bry- ant.». Hunter, 6 Bush, 75; Cornwall v. Cornwall, id. 369; National Bank of Metropolis v. Sprague, 20 N. J. Eq. 13; Uhler V. Semple, id. 288. The rule is the same though the title stands in an individual partner or in several partners as tenants in common. Lime Rock Bank v. Phetteplace, 8 R. I. 56; Watlock v. James, 13 N. J. Eq. 126; Jarvis v. Brooks, 27 N. H. 37; Cilley v. Huse, 40 id. 858; Gordon v. Kennedy, * 36 Iowa, 167; Pall River Whahng Co. V. Borden, 10 Cush. 458. The rule is the same in the case of CHA1\ IV.J PAETNEESHIP PKOPEETT. *6o3 very case it was held that other public-houses purchasid by the improvements upon such realty. His- cock». Phelpf, 49 N. T. 97. See, also, Deveney v. Mahonoy, 23 N. J. Bq. 247. A partnership at its dissolution was much in debt, and the estate of a de- ceased partner was insolvent: Held, that the fact that a piece of land which was owned in common by the partners was presumptively a part of the firm as- sets, was sufficient ground to grant an injunction ia favor of the surviving partner, forbidding the administrator of the deceased partner from proceeding to sell such land to pay the separate debts of his intestate, under a license from the county court. WUliams v. Moore, Phill. Eq. 211. A, B and C were partners in the lumber business. A deed granting them a quarter section of land recited that an undivided half was granted to A, an undivided quarter to B, and an undivided quarter to C, adding, " this being the proportional undivided inter- est of each of the above partners in the lumber firm and land of Milo A. Skin- ner & Co." A mortgaged his interest to secure money loaned him personally : Held, that sach recital in the deed was not notice to the mortgagee that such land was, in fact, partnership property, and primarily liable for partnership debts. Van Slyck v. Skinner, 1 N. W. Ecp. N. S. 971. A and B were tenants in common of a saw-mill with the land and appurten- ances conveyed to them by separate deeds, each owning an undivided half, and each furnishing the purchase-money for the share conveyed to him. They subsequently formed a co-partnership, and entered into a parol agreement to consider the real estate partnership property, using it in their partnership business : Held, that it was not liable in equity to the payment of the partner- ship debts, as against the separate cred- itors qi the co-partners, who had given credit and taken security thereon from them upon the strength of their owning the property as tenants in common. Parker v. Bowles, 57 N. H. 491. Upon the sale of real estate of one of two partners, and the appropriation of the proceeds to the payment of a judg- ment against both, a subsequent judg- ment creditor of that partner whose separate estate was sold, is not entitled to be substituted as plaintiff in the judg- ment to which the money was appro- priated, so as to enable him to proceed against the other partner unless it shall be made to appear that he whose sepa- rate property was sold was, at the time, a creditor partner of the firm.' Sterling V. BrightbiU, 5 Watts, 229. No partner or proportion of partners can sell or transfer the real estate of the firm outright for money, or by way of mortgage, as to assignees in trust for debts, without the consent and authori- ty of the other partners. A conveyance made by one partner, pm-portingto con- vey lands belonging to the firm, passes only the grantor's undivided interest. Goddard v. Renner, 57 Ind. 532. See, also, Jackson v. Stanford, 19 Ga. 14 ; Layton v. Hastings, 2 Harr. 147; Jones V. Neale, 2 Patt. & H. 339. It has been held, however, that if one partner make an assignment of the real estate belonging to the firm, the legal title win be held by the firm m trust for the assignee. Baldwin v. Richardson, 33 Tex. 16. A surviving partner cannot alone con- vey real estate belonging to the firm. Galbraith v. Gedge, 16 B. Mon. 631. Where the surviving partner of a firm which had been engaged in gambling, and had purchased and used a house for gambling purposes, sought to impeach the title by which a grantee of his part- ner held it, on the ground that it was used for unlawful purposes he was held to be estopped by his privity to the 871 *652 PAETNEKSHIP PEOPEP.TY. [book III. partners out of the partnership funds, and used for the purposes of grantor. Watson v. Fletcher, 7 Gratt. 1. Two partners holding unequal inter- ests, having foreclosed a mortgage upon real estate taken to indemnify the part- nership against a certain seourityship, bid in the property, and the land was conveyed to them jointly, without desig- nating their respective interests: Held, that each took a moiety of the legal ti- tle, but that in equity they would hold according to their respective interests; and that a conveyance by the executor of the partner holding the greater inter- est "of all the right, title, and interest which the testator had at the time of his decease," would pass to the grantee the leg-al title to one-half the land, and the equitable title to the additional in- terest held by the testator; and that one holding under this grantee, without notice of the non-payment of the pur- chase-money of the equitable interest, would hold it discharged of the ven- dor's lien. Putnam v. Dobbins, 38 111. 394. A hond fide purchaser of real estate from a member of a oo-pamership, for a valuable consideration and without notice of the pai-tnership character of the property, purchasing only to the ex- tent of the grantor's legal title, will take the title freed from the equitable claims of others, partners or c);editors of the firm. Dupuy jo. Leavenworth, 17 Cal. 262. When, however, the legal title to real estate belonging to a partnership is vested in one of its members, the lien acquired by a judgment against him in- dividually, in favor of a creditor of the company, is subject to the equities al- ready existing over the property; and a judgment against the company itself would not operate as an efficient lien on the land. Coster o. Bank of Georgia, 24 Ala. 87. Where S., one of two partners, exe- cuted a release deed of land to himself, 872 and M., the other partner, for a nominal consideration, "received of S. and M., merchants in trade under the firm of S. & Go." "to be' held by them in such proportions as is agreed on between them; " it was held that the record of this deed, the singularities of which were calculated to awaken attention, conveyed constructive notice to an in- cumbrancer under M., that the land was partnership property. Sigoumey v. Munn, 7 Conn. 324. Where one partner holds the legal title to the undivided half of certain real estate the whole of which is, in equity, partnership property, the con- veyance by him of his undivided half to a creditor of the firm, in payment of a partnership debt, vests in the grantee a good title thereto, notwithstanding the firm is insolvent, and the other partner is ignorant of the conveyance. Van Bront V. Appiegate, 44 N. Y. 544. So, a conveyance by one partnei", of real estate owned by the partnership, in trust to secure a creditor of the partner- ship, passes a good title both at law and in equity, to an undivided moiety of such estate; and such creditor is en- titled to priority over all other creditors of the firm. But when such property is conveyed by one partner in trust to se- cure his individual creditors, the prop- erty remains subject to the payment of the partnership debts. ■ Jones v. Neale, 2 Patt. & H. 339. A person who loans the entire capital to an individual partner for the purpose of commencing business, acquires an equity equal to that of the creditoi-s of the partnership; and if the money is used in purchasing lands, which are afterwards mortgaged to the lender by the individual partner to secure the loan, the former will acquire an equity sup3- rior to that of the creditors of the part- nership, but subject to the Hen of' the other partner, if he purchases with no CHAP. IV.j PAKTNEESIIIP PEOPEETr. *053 its trade, did form partnersliip proiDerty to all intents and pur- poses, (n) tice of his equitable title to an undivided half. Reeves v. Ayers, 38 111. 418. In Snyder v. Lunsford, 9 W. Va. 223, however, it was held that a deed of lands owned and used by a partnership, made by one partner only, who, how- ever, was sole owner of the capital stock, to a person from whom he had borrow- ed the money which he had contributed as capital, wa.s null and void, as against creditors of the firm. Snyder v. Luns- ford, 9 W. Va. 223. A conveyance, by one member of a solvent firm, of his undivided interest in the real estate of the partnership, to a strang-er, whether made upon a sale, or by way of payment of his individual debt, is vahd as against the co-partners ; and they cannot maintain an action to have it set aside, on the ground that it was made without their consent, and impairs the credit of the firm. Tread- well V. Wilhams, 9 Bosw. 649. If creditors do not object, the pur- chaser takes a good title, and it does not lie with the other members of tiae firm to object; or, at least, to enable them to do so they must show that the partnership debts exceed the assets, and that there is need of the property in question to provide for the deficiency and equalize the interests of the part- ners. TreadweU v. Wilhams, supra. If land devoted to the uses of a part- nership business is owned by the part- ners, each holding the legal title to an undivided share, a mortgage, by one, of his interest is valid, and takes prece- dence over the title of a purchaser at a sale on an execution on behalf of part- nership creditors, unless the purchaser can show that the land had, in' fact, been made partnership property, and that the mortgagee had notice of this before lending. Johnson v. Clark, 18 Kan. 157. The patent for certain land was is- sued to S. & R., who composed a firm. S. executed a power of attorney to V. to sell and convey any property belonging to the firm. Within three months thereafter, V., as attorney for S. & R., personally executed a conveyance of the land as partnership property. Forty- five years elapsed without complaint on the part of S., or any one representing him. In an action of ejectment against a third party by one claiming under tli.'s conveyance, it was held that the ac- quiescence of S. in the treament of the land as partnership property would be presumed. WUkerson v. Allen, 67 Mo. 502. A lease by one partner of partnership real estate in his own name mm-es to the benefit of the firm. Moderwell v. MuUison, 21 Penn. St. 257. It is competent, however, for partners to agree among themselves that certain real estate owned by the partnership shall b3 leased, and that each shall be en- titled to his proportion of the rent, shall collect, and may discharge it. A party renting with knowledge of the agree- ment, contracts with each to pa-y him Ills proportion of the rent, and he may sue for it in his own name. And one partner may be a witness for another in such suit. McDougald v. Banks, 13 Ga. 451. If one partner occupy alone a house belonging to the co-partnership, he will be liable to the firm for rent on account of it, although there was no special agi-eement to that effect, and no charge was made against hhn on the books of the firm during his lifetime. Holden v. Peace, 4 Ired. Eq. 223. See, also, Stoughton V. Lynch, 2 John. Ch. 209. (») 1 M. & K. 649. 873 *(^53 SEPARATE PEOPEETT. [boOK III. Devises of a On the other hand, in Jackson v. Jackson (o), tvade and of ' ^ '' land for the *(353 a testator had *devised to his two sons iointlv, purpose of car- J <' ' ryint'iton. jjig trading business and lands used by him for Jackson."' the purpose of carrying it on. The sons toolv the busi- ness and -carried it on in partnership; and it was held that tlie lands formed part of the partnership property, and did not belong to the sons as mere joint tenants. In this case, not only was tliere some evidence to show that the sons considered tlie land as part of their property as partners, but there was also this peculiarity, that a trading business was left to them, and that the land was accessory to that trade; so that it was very difficult, as observed by the Lord Chancellor, to sever the profits from the land and to hold the de- visees to be partners as to the former, but not as to the latter. Upon this last ground it was held in Crawshay v. Maule (^), that Devisees of mines devised to several persons for the express purpose Crawshay « ^f being workcd by them in partnership, and which Maule. were worked accordingly, were partnership property. In Waterer «. "Waterer (§'), a nurseryman who carried on biisi- Deviseofnur- ness witli his SOUS, although not in partnership, left his ,,. ^ ' residuarv estate, including the good-will of his busi- >\ aterer v. ./ ' o & Waterer. ness, to his SOUS ill common; they, after his . death', carried on tlie business in partnership, and bought more land for the purposes of the business, and paid for it out of his estate; then one son died, and the others bought his share aud paid for it out of money raised by mortgage of the nursery ground, and out of their father's estate. On the death of one of the surviving sons intestate, it was held that all the land thus acquired had become partnership property, and that the sliare of such son was to be treated as personal and not as real estate. By a slight extension of the same principle, if several persons take a Land acquired lease of a colliery, in order to work the colliery as part- forthepur- ■" , ; , , .,-, , , poses of trade, nei's, and they do so work it, the lease will be partnership property, {f) So, if co-owners of land form a partnership, and the land is merely accessory to their trade, and is treated as part of the common stock of the firm, the land will be partnersliip property, (s) (o) 9 Ves. 591, and 7 ib. 535. Com- and >1 R. & M. 45. See Bentley ». pare this vrith Brown «.. Oakshot, 24 Bates, 4 Y. & C. Ex. 182. Beav. 254, noticed ante, p. 652. (s) Essex v. Essex, 20 Beav. 442. {p) 1 Swanst. 495. Compare Steward v. Blakeway, 4 Ch. (g) Waterer v. Waterer, 15 Eq. 402. 603, and 6 Eq. 479. (r) Faraday v. Wightwick, Taml. 250, 874 CHAP. rv.J PAETJSTEESHIP PEOPEETT. *654 * Upon the whole, therefore, it seems that land acquired, *654 whether gratuitously or not, for the purpose of carrying on a partnership business, and used for that purpose, is to Jesuit of fore- be considered as property of the partnership ; but that E°ing cases. land wliich is not so acquired, but which, belonging to several per- sons jointly or in common, is employed by them for their common profit, does not become partnership property unless there is some evidence to show that it has been treated by them as ancillary to the partnership business, and as part of the common stock of the firm, (t) SECTION III.— CONVERSION OP JOINT ESTATE INTO SEPARATE ESTATE, AND VICE VERSA. It is competent for partners by agreement amongst themselves to convert that whicli was partnership pi-operty into S- Agreement ., ^ . T .1 , . sufflfientto the separate property ot an individual partner, or vzoe alter the own- versd. {uf And the nature of the property may be property. {t) See Steward v. Blakeway, 4 Ch. 603, and 6 Eq. 479, and cases ante, p. 652. {u) Ex parte RufEn, 6 Ves. 119; Ex jxirte WiUiams, 11 ib. 3; Ex parte Pell, 10 ib. 348; Ex parte Rowlandson, 1 Rose, 416. 1 See Bullitt v.M.E. Church, 26 Penn. St. 108; Hickson v. McPaddin, 1 Swa,n, 258; Sage v. Chollar, ,21 Barb. 596; Di- mon V. Hazzard, 82 N. Y. 65; Crosby v. Nichols, 3 Bosw. 450; Evans v. Hawley, 35 Iowa, 83; City of Maquota v. Willey, 35 Iowa, 323; Whitworth v. Benbow, 66 Ind. 194; Upson v. Arnold, 19 Ga.- 190. Where partners have agreed to dis- solve their co-partnership, and have di- vided the partnership property accord- ing to their separate interests, the por- tion allotted to each becomes his separ- ate property, and neither of them, un- less he can establish that fraud was committed in procuring the division, has, by reason of his liability for the partnership debts, or his payment of them, any lien upon the others' por- tions. He has no remedy, therefore, in equity. Holmes v. Hawes, 8 Ired. Bq. 21; Whitworth?). Benbow, supra. Two partners, on settlement with a creditor of their firm, after dissolution, gave their separate bonds to the cred- itor, each for one-half the debt, and agreed that the amount which might be recovered on a certain chose in action m the hands of the creditor, which be- longed to the firm, should be applied to the payment of the bonds: Held, that the joint interest of the partners in the chose in action was severed by agree- ment, an_d that one partner afterwards had a right to direct his ^half to be ap- plied to the payment of his bond, and that the creditor had a right so to ap- ply it. Rowand v. Praser, 1 Rich. 325. Debts due to a firm may be assigned to either of the partners, and a note 875 *65i PAETNEHSHIP PEOPEETT. [book III. thus altered bv any agreement to that effect; for neither a deed nor even a writing is absolutely necessary (-y); but so long as the agroo- ment is dependent on an unperformed condition, so long will the ownership of the property remain unchanged, (x) given to the assignee for the amount due by a debtor to the firm, extmguishes the debt to the partnership. Laankin v. PhiDips, 9 Port. 98. A note in favor of a partner, but en- tered many months before his death on the partnership books to the credit of the maker, a debtor and customer of the firm, will be treated as a partnership asset. Gillisse v. Gibson, 6 La. Ann. 125. Where a note indorsed in blank by a co-partnership remains after dissolution of the same, in the hands of a partner, who transfers it in payment of his indi- vidual debt, in default of showing to the contrary it will be presumed to be his individual property. Pleloher v. An- derson, 11 Iowa, 228. Where a member of a partnership al- lows his private property to be mingled with that of the firm, and to be sold with their property as part thereof, the purchaser will be liable for the price only to the firm. White Mountain Bank «. West, 46 Me. 15. Where a co-partnership, to which a lien has accrued for work done and money expended upon machinery, is dissolved, and the interest in the lien assigned to one partner, the lien is not lost, but may be enforced by such pai-t- ner in the fiiin naine. Busfield v. Wheeler, 14 Allen, 139. Where one of the partners buys a horse with his private funds, under an agreement to allow his co-partner to elect to take him at the cost price, and for some days the horse is kep-i and used with the horses of the partnership, until the partner, in the exercise of his election, sells him, such sale is not a partnership transaction. Hatch v. i'os- 876 ter, 27 Vt. 515. In June, 1871, A, B and C bought in partnership and on speculation cer- tain realty ; A and B to furnish the capital needed ; C to manage the spec- ulation and to sell the land, receiving as his compensation one-third of the net profits and bearing one- third of the loss. The title to the land was taken by A and B. In June, 1872, C agreed to take a portion of the land as hia share of the profits, and gave to A and B his re- ceipt for such share, specifying the amount, and describing it as received by an agreement from A and B to convey such portion to him subject to the con- ditions of the contract of partnership. A and B gave to C an agreement to convey on demand to G or his legal representatives the portion of land fixed upon : Held, that by this agreement the portion of land specified was taken out of the partnersliip account ; and that A and B held the receipt of C as representing so much money subject to the partnership account and the equities of the co-partners. Beckwith v. Man- ton, 12 R. I. 442. [v] See paling ». PilKng, 3 DeG. J. & Sm. 162; Exparte Wniiams, 11 Ves. 3; Ex parte Clarkson, 4 D. & C. 56, per Sir G. Rose; Exparte Owen, 4 DeG. & Sm. 351. None of these cases, how- ever, turned on the effect of an unwrit- ten agreement relating to land. See, as to a transfer by a partner of his shares in the partnership property when it consists wholly or in part of land, post, ch. 5, § 5. {x) Ex parte Wheeler, Buck. 25; Ex parte Cooper, 1 M. D. & D. 358 ; Haw- kins V. Hawkins, 4 Jur. N. S. 1044. CHAP. IV.J CONVERSION OF JOINT INTO SEPAEATE PEOPEETV. *C55 JiToreover, as the ordinary creditors of an individual have no lien on his property, and cannot prevent him from disposing Creciitors not of it as he pleases, so the ordinary creditors of a firm consulted, have no lien on the property of the firm so as to be able to prevent it from parting with that property to wliomsoever it *chooses.' Accordingly it has frequently been held, that *655 agreements come to between partners converting the prop- erty of the firm into the separate estate of one or more of its mem- ' See "Wilcox v. Kellogg, 11 Ohio, 394; White V. Parish, 20 Tex. 6S8 ; Gwin v. Selby, 5 Ohio St. 96 ; Sigler v. Knox Co. Bank, 8 Ohio St. 511 ; Potts v. Black- well, 4 Jones Eq. 58; Field v. Chapman, 15 Abb. Pr. 434 ; Robb v. Muclge, 14 Gray, 534 ; Allen v. Centre Valley Co. 21 Conn. 180 ; Case v. Beauregard, 1 Woods, 127 ; Schmidlapp v. Cunie, 55 Miss. 597 ; Pfimnan v. Koch, 1 Cincin- nati, 460 ; Reeves v. Ayers, 38 111. 419 ; Reese v. Bradford, 13 Ala. 837 ; Mayer V. Clark, 40 id. 259 ; State v. Thomas, 7 Mo. App. 205 ; Shackleford v. Shackle- ford, 32 Gratt. 481. See, also, Rankin V. Jones, 2 Jones Bq. 169 ; Miller v. Price, 20 Wis. 117; Weaver i'. Ashcroft, 50 Tex. 428 ; Locke v. Lewis, 124 Mass. 1 ; Case V. Beauregard, 99 U. S. 119. A partner who has purchased and be- come sole owner of goods which were before partnership propsrty, is entitled to exemption in the goods though at the time the debt sued for was con- tracted they were partnership property. State V. Thomas, 7 Mo. App. 205. The rights of joint creditors and of those of an individual member, are very different as respects the partnership as- sets. The joint creditors have a primary claim to satisfaction out of the part- nership effects. The claim does not amount to a hen, but in a controversy between joint and separate creditors to satisfaction out of the co-partnership property, the former vrill be preferred. Williams v. Gage, 49 Miss. 777. See post, 1054, note. Creditors have, however, a quasi lien upon partnership effects, which may be enforced in a court of equity as a deriv- ative subordinate right through the lien and equity of the partners. Guyton v. Flack, 7 Md. '398; Black v. Bush, 7 B. Mon. 210; O'Bannon v. Miller, 4 Bush, 25; Bank of Kentucky v. Hemdon, 1 Bush, 359. See, also, Tillinghast v. Champlin, 4 R. I. 173; Shackleford v. Shackleford, 32 Gratt. 481. See post, 666, note; 1054, note. The rule that the creditors of a firm have no equitable lien upon the co-part- nersliip property, but can only work out such a hen through the equities of the co-partners, applicable whilst the co- partners are administering their own funds, has no application to the case of a co-partnership dissolved by the death of one of the co-partners, especially if the surviving partner be insolvent, or where, though living, one or both the co-partners have become insolvent or bankrupt, so that their property is in the hands of assignees for distribution. Tillmghast v. Champlin, 4 R. I. 173. Where one partner buys out the whole, agreeing to pay all the debts, the firm creditors have a lien on the property superior to any claims of that partner's private creditors. Conroy v. Woods, 13 Cal. 626. Where a partner gives a mortgage upon his separate property, to secure a partnership debt, he thereby becomes a surety for the firm, and is entitled to the rights and privileges of that char- acter; and his separate creditors succeed to his rights and privileges as such 877 ^OoS CONVEESION OF JOINT INTO SEPAEA.TE PEOrEETY. [bOOK III. bers, and vice versa, are, unless fraudulent, binding not only as be- tween the partners themselves, but also on their joint and on their surety, and have a right to insist that the partnership property be first applied towards the payment of the debt, se- cured by such partner, before resort is had, for that purpose, to the separate estate of the surety; and if the separate estate of the surety is first applied in payment of such debt, his separate cred- itors will be entitled to be subrogated to the rights of the creditor as against the partnership fund. Averill v. Loucks, 6 Barb. 470. One of three partners retired, sell- ing his interest to the others, taking their note in part payment, and they assmned the partnership debts. They continued the business , awhile as part- ners, and then failed, and made a gen- eral assignment in trust for their cred- itors, prefeiTuig this note, and providing for the payment, pro rata, of the debts of both the old and new firms: Held, that it being shown that the sale was in good faith, the creditors of the old firm had no equity against the partnership property of the old firm in the hands of the new firm or their assignee, superior to that of the creditors of the new firm. Smith V. Howard, 20 How. Pr. 121. Where, upon the dissolution of a part- nership, an agreement is made, within the knowledge of its creditors, that the acting partner shall take the effects and pay all the debts of the firm, a creditor cannot, with a good conscience, take a hen on the joint effects for new ad- vances made by him to the acting part- ner on the latter's individual account, so as thus to render the retiring partner liable, the joint effects having been ex- hausted, for the old joint debts. Mo- Clean V. Miller, 2 Cranch C. Ct. 620. To authorize ^any person to demand the aid of the Supreme Court in direct- ing the application of partnership prop- erty, he must have a lien, either legal or 878 equitable, upon it, or must be in a situ- ation to assert such a hen. Greenwood V. Brodhead, 8 Barb. 593. Partnership creditors merely as such, have no lien, on the partnership prop- erty before obtaining judgment and execution ; but can only be subrogated to the hen of the partners, and are therefore without remedy where such lien has been waived by them. Case v. Beauregard, 1 Woods, 127; McGregor V. EUis, 2 Disney (Ohio), 286. A. and B. dissolved partnership. A. took the stock of goods and agreed to pay their cost value to B. B. took the book accounts, notes, etc., and assumed to pay the debts of the firm. T. became the surety for B., whereupon the latter assigned him in trust the indebtedness for stock due from A. and other prop- erty. Joint judgments were recovered against all three of the parties by credi- tors of the firm. T. paid off the judg- ments, and the property assigned by B. failing to reimburse him, he filed a bill against A. and othei-s, praying to be subrogated to rights of the creditors of the firm, and to enforce his claim as- signed by B. : Held, 1. That the judg- ments having been rendered against T. as well as other parties, and the debts paid by him being firm debts, which he •became liable for as the surely nomi- nally of B., who represented the late firm, and which A. was also pre-emi- nently liable to pay, he ought to stand as surety to the firm and be entitled to be subrogated to all the rights of the creditors thereof. 2. That he was a creditor at large of A. by reason of the assignment, and as such was entitled to file a bill to impsach a fraudulent con- veyance of land in which A. was inter- ested. Highland v. Highland, 5 W. Va. 63. One who has purchased of one of a CHAP. IV.J CONVEESrON OF JOINT INTO SEPARATE PEOPEETT. *655 respective several creditors; and that, in tlie event of bankruptcy, the trustees must give effect to such agreements, (^y)^ firm property subject to partnership debts, and lias agreed in writing to as- sume and pay such debts, as part of the pm-chase price, thereby recognizes the equitable lien of the partnership credi- tors, and it is not necessary that such creditors should put their claims in judgment before iiling a bill to compel such payment. Olson v. Monison, 29 Mich. 395. Where one partner retires from a firm, selling out his interest in the as- sets to the remaining partners, who continue the business, and stipulate that they wUl pay the debts, having sufficient assets for that purpose, if they fail to do so, the firm creditors will have no lien on such property, as the retiring partner may have withdrawn from the assets at the time of his retirement. Holhs V. Staley, 59 Tenn. 167. Notes given by one member of a finn, who assumes the liabilities, and receives a transfer of the efi'ecfcs of the firm, to his co-partners, on a dissolution, cannot be subjected, in the hands of their as- signee, to the partnership debts. Bel- knap V. Cram, 11 Ohio, 411. A creditor of a partnership cannot, unless he has recovered judgment for his debt, file a bill to restrain the part- ners from applying the partnership property to their separate debts, and for the appointment of a receiver. Clement v. Foster, 3 Ired. L. 213. When, upon some disagreement be- tween partners, their differences were submitted to arbitrators, who awarded that all the goods and other assets of the firm should pass to one of the part- ners who should pay all the partnership debts, and thereupon such goods and assets were all attached by private cred- itors of such pai-tner, and subsequently by the creditors of the firm : Held, that the creditors of the firm were entitled to be preferred, even if the award had been executed by a transfer in accordance with it. Tenney v. Johnson. 43 N. H. ^144. ^ Upon the dissolution of a partner- ship, the firm property may, for a val- uable consideration, be sold and trans- ferred to one of the partners; and when thus disposed of it is not followed by nor subject to the claims of partnership credi- tors, as a fund out of which they are to be first satisfied. This rule prevails even though the partner so acquiring the property assumes to pay the partnership debts. City of Maquoketa v. Willey, 35 Iowa, 323. See, also, Baker's appeal, 21 Penn. St. 77. A and B being the only co-partners in one company, and being likewise part- ners with other persons in two other companies, A made a deed-poll to B of aU the grantor's interest in certain real es- tate and in the personal property of the three companies, the deed being nomi- nally for a pecuniary consideration, and containing a covenant that the grantee would idemnify the grantor against all the debts due from the three companies. The deed was accepted by the grantee, but was not executed by him : Held, that, as the grantee would be hable in assumpsit as upon an implied promise to pay the creditors and indemnify the grantor, this was a vahd consideration for the deed as against partnership creditors of A and B. Guild v. Leonard, 18 Pick, 511. A conveyance by one partner of his (2/) See Ex parte Ruffin, and the other cases cited in the last two notes, and Campbell v. MuUett, 2 Swanst. 575; Ex parte Clai'kson, 4 D & Ch. 56; Ex parte Peake, 1 Madd. 358. 879 CONVEESION OF JOINT INTO SEPARATE PEOPEETT. [bOOK III. A converaion of joint into separate property, or vice versd, most frequently takes place when a firm and one of its partners carry on distinct trades; or when a change occui's in a firm by the re- tirement of some or one of its members, or by the introduction of a new partner. interest in real estate belonging to the firm, to his co-partners, in consideration of moneys by them advanced beyond their share in payment of the firm debts, is valid against, and not liable to, the claims of individual creditors of the part- ner executing the conveyance. Evans v. Hawley, 35 Iowa, 83. A voluntary conveyance by a partner of his individual real estate at a time when the partnership property is sufii- cient to pay the partnership debts is valid. Hardy v. Mitchell, 67 Ind. 485. Where, upon dissolution, one of two partners takes the property and the right to use the firm name in continuing the business, and agrees to pay the debts, the facts of his continuing in the busi- ness under the same style and in the same manner as before, and employing the retiring partner as a salesman at a rate agreed upon, will not, of them- selves, warrant the inference that the transfer from the retiring partner was fraudulent as against his creditors, or subject the property to liability to levy by his individual creditor who became such after the dissolution Hamill v. Willett, 6 Bosw. 533. So, during the existence of a partner- ship, which is neither bankrupt nor contemplating bankraptcy, one of the members of the firm may with the con- sent of the other partner or partners, upon a hond fide consideration with no benefit reserved, assign and transfer the assets of the partnership in payment of his individual debt, if no lien has attached to such assets, and such trans- fer is good against the firm creditors. Schmidlapp v. Currie, 55 Miss. 597; Reeves v. Ayers, 38 lU. 418. 880 A transfer by one partner of an inter- est in, or a lien given by him upon the corpus of the partnership property to pay an individual debt, although made with the consent of the other partners, is fraudulent and void as to the creditors of the firm, unless the firm was at the time solvent and sufficient property re- mained to pay the partnership debts. Meuagh v. Whitwell, 52 N. Y. 146. Members of an insolvent partnership cannot by mutual consent, divide the partnership funds between themsslves, so as to enable each member to apply the part allotted to him, in a preferred payment of his separate debts, leaving the joint debts unsatisfied; and a trans, fer of such partnership property to an individual creditor, in payment of an antecedent debt, with a knowledge on the part of the creditor of such design, will not enable him to hold it discharged from the equitable hen of the partner- ship creditors. Burtus v. Tisdall, 4 Barb. 571. See, post, 1054, note. A distribution by partners among tlT>jnselves of part of their stock in trade, if made with the assent of creditors, is not fraudulent. Wilkinson v. Yale, 6 McLean, 16. Where a retiring partner hond fide assigns all his interest in the stock and effects to the remaining partner, whether the partnership be general or limited, the same thereby becomes separate prop- erty, and will be distributable accord- ingly, notwithstandmg the subsequent insolvency of the remaining partner. Upson a. Arnold, 19 Ga. 190. But where partners are in fact insol- vent, they should be considered in equity as holding the partnership effects, in CHAP. IV.] CONVEESION OF JOINT INTO SEPAEATE PEOVEETT. *655 When a firm and one of its meni'bers carry on distinct trades, property passing in tlie ordinary way of business from dealings te- the partner to the firm, ceases to be his and becomes partn"" and the property of the partnersliip, and vice versa, just ^^^ *''^™' as if he were a stranger to the firm. This was settled in the great trust, for the benefit of the firm credit- ors, and cannot, by a transfer of the in- terest of one to the other, defeat this trust. Be Cook, 3 Biss. 122. The division, by partners, of the part- nership assets between themselves, and the transfer of such assets by the indi- vidual pa.rtners, in payment of their pri- vate debts, vfhen the partnership is in- solvent, has been Jield, in point of lavr a fraud upon the partnership creditors. Ransom v. Van Deventer, 41 Barb. 307. R . , J . and (t . form a partnership for the manufacture of tobacco, and in their articles of co-partnership they say, it is understood that Gr. shall contribute for the purposes of the business such an amount of capital as he may be able to command, which, when contributed, is to be placed to his credit on the books of the concern, to be used only in con- ducting the business, and to bear inter- est at six per cent, per annum, * * * and in order to protect G. against any losses that may arise from the business hereby pledge and assign to him all the present and future interest in the stock, machinery and claims of the concern. G. put in $4,200, the others put in nothing. The business proved unprofit- able, the firm failed, and the partner- ship was dissolved. About the com- mencement of the partnership they bought machinery, etc., giving the notes of the firm, and a deed of trust upon the machinery, etc., to secure them, and on their failure the trustees sold, and after satisfying the trust there was a balance left. On a contest between the creditors of the partnership and G. : Held, 1, That the property never hav- ing passed to the separate poweaaion of G-., but remaining in the possession of the partnership, the unrecorded execu- tory agreement aforesaid was fravidulent as to creditors of the firm without no- tice. 2. About the time the firm- failed, to secure G. for his advances, they made a note payable to their own order for $4,500, secured by deed of trust on the machinery, etc., but the note was not indorsed or dehvered to G. The note not having been endorsed or delivered to him by the other, though he took possession of it after the dissolution, G. is not entitled to it. It creates no lia- bility without nc«gotiation, and neither G. nor any of liis partners could after- wards negotiate it, and consequently the deed m«ide to secure it is a nullity. Grasswett v. Connolly, 27 Grat. 19. In Atkins v. Saxton, 77 N. T. 195, it was held that a division of co-partner- ship property between the partners in proportion to their interests, for the purpose of protecting the property from seizure by the mdividual creditors of one of the partners, is not unlawful, and cannot be avoided as a fraud upon the individual creditors. By such a transac- tion the other partners do not ' acquu-e any of the property of the debtor, but only separate their ovni from his, so that then- portion shall not be interfered with for his debts. Where one of the partners, by a mort- gage deed, conveys to the other partner- ship effects, to secure debts alleged to be due from the one to the other, which deed and effects are assigned to bond fide creditors of the mortgagee, to se- cure debts due from him to such credit- ors, such conveyance was held to be valid against creditors of the firm who i 881 «-655 CONVEESION OF JOINT INTO SEPARATE PEOPERTT. [j300K III. case of Bolton v. Puller (s), in which there were two hanking firms, one carrying on business at Liverpool and one in London. Bolton u. All the partners in the latter firm were partners in the former. Some bills of exchange came in the ordinary conrse of business into the hands of the Liverpool firm, to be placed had no lien. Potts v. Blackwell, 3 Jones Eq. 449. After a levy of executionson partner- ship property to satisfy a separate debt of one partner, the partners cannot dis- solve the partnership, make a settlement of their joint etfects, in which the debtor partner is paid over, for his share, an amount in property (other than that levied on) greater than the amount of the executions, and thereby defeat the levies so made. Thompson v. Tinnin, 25 Tex. (Supp.) 56. See, also, Waxren V. WaUis, 42 Tex. 472. A release from one partner to another of his interest in the partnership effects, taken vs'ith full knowledge of, and sub- ject to all the equities between the par- ties, is not such a sale as would deprive the vendor of his right of action for goods which he alleged such partners as a firm had fraudulently obtained from him. Ward v. Woodburn, 27 Barb. 346. If either partner has contracted a debt in his own name, in which, as between themselves, the other partner should share, that hability is a sufiicient con- sideration as against joint creditors for a transfer of firm property, while free from the operation of insolvent laws, for the payment of that debt. Marks v. HUl, 15 Gratt. 400. A docket entrj' at the instance of a partner, assigning a firm claim without consideration, is void as against credi- tors of the firm. Updegraff v. Rowland 52 Pa. St. 317. An appropriation of partnership prop- erty for the benefit of private creditors of insolvents, makes void an assignment for creditors. Kanauth v. Bassett, 34, Barb. 31. In an assignment of all the debtor's goods, chatties, &c., executed by part- ners, a provision for the payment of the private and individual debts of the assignors out of the residue remaining after the payment of the partnership debts offers no evidence of an intention, to hinder, delay or defraud creditors. Turner v. Jaycox, 40 Barb. 164. "Where two partners in a firm purchase the interest of a third pai'tner, and form a new firm, and subsequently make an assignment for the benefit of credit- ors, providing for the payment of debts due from the new firm, or the old firm, " or either of the members" of the two firms, such assignment is invalid, as to creditors of the old firm. Lester v. Pol- lock, 3. Eobt. N. T. 691. A sale of partnership stock for the pur- pose of paying the individual debt of a partner, is void as agains' creditors of the firm, although the money for which such debt was contracted has been used as part of the capital of the firm. Person V. Monroe, 21 N. H. 462. One pai-tner may assign his interest in the partnership accounts and proper- ty to his separate creditor, and the as- signment will be good against the cred- itors of the firm afterwards attaching. Wilson i>. Bowden, 8 Rich. 9 ; Norris v. Vernon, id. 13. A creditor in embarrassed circum- stances, finding the firm of which he is a member about to fail, may at fair prices make a valid ti'ansfer of his private property to his private creditors in pay- ment of honest private debts, in prefer- (z) 1 Bos. & P. 539. 882 CHAP. IV.J CONVERSION OF JOINT INTO SEPARATE PROPERTY, *055 to the general account of its customers. These bills were remitted by the Liverpool firm to the London firm, to be placed to the credit of the former in the general account between the two houses. Both houses afterwards becoming 'bankrupt, it was held that the bills were the property of the London firm and not of the Liverpool firm, or of its customers. Lord C. J. Eyre, in delivering judgment, adverted to the question now under consideration in the following terms: — "Tliereoan be no doubt that as between themselves a partnership may have transactions with an individual partner or with two or more of the partners hav. ing their separate estate engagid in some joint concern in which the general pnoe to those of the firm; provided also there is nothing to impeach the good faith of the grantees. Auburn, etc- Bank v. Fitch, 48 Barb. 344. Where a partner gave a mortgage on his separate property, creating thereby a preference in favor of a partnersliip creditor : Meld, that the mo-iKage was not thereby void and fraudulent as against the separate creditors of the mortgagor; though, on complaint made in their behalf as a class, the mortgage might be declared void as to such credi- tors. Stewart v. Slater, 6 Duer, 83. Where goods have been purchased in the name and on the credit of one co- partnership firm, and tm-ned over to another co-partnership firm composed of some of the same individuals, with- out any bona fide or valuable considera- tion being paid therefor : Held, that a court of equity will aid the judgment creditors of the co-partners making such transfer, to follow the goods into the hands of the transfarees, and require them to account for such goods, or the proceeds of the sale thereof, and apply the same in satisfaction of their judg- ment. Dennis v. Ray, 9 Ga. 449. A transfer by a partnership, of the partnership property, to a corporation formed by the partners for the purpose, in payment for which the partners take the stock of the corporation in their in- dividual names, is not per se fraudulent as to the creditors of the partners-hip. Persse & Brooks Paper- works v. Willett, 19 Abb. Pr. 416. Where one of two partners, with the consent of the other, sells and conveys one half of the effects of the firm to a third person, and tlie other partner af- terwards sells and conveys the otlier half to the same person, such sales and conveyances are not prima facie void, as against the creditors of the firm, but are ^)W/n(^/rtc(e valid against all the world, and can be set aside only by the creditors of the firm, upon their proving the transactions to l*e fraudulent as against them. Kimball v. Thompson, 13 Mete. 283. Where one partner absconds, and the other disposes of a part, and is disposing of the whole partnersliip effects, it will be presumed that they intend to delay and hinder their creditors, so as to form good ground for attachment against the partnership property. Sellew v. Chris- field, 1 Handy, Ohio, 86. Though a creditor might object to a transfer of partnership choses in action from the debtor firm to their successors, yet a debtor to the firm cannot object that the old firm had no power to dis- pose of its property without first settling its affairs. Pease v. Rush, 2 Minn. 107 *656 PAETNEESHIP PEOPEETY. [bOOK m. *656 partnership is not interested; and that they may by *thpir acta con- vert the joint property of the general partnership into the separate prop- erty of an individual partner, or into the joint property of two or more partners, or i converso. And their transactions in this respect will, generally spealdng, bind third persons, and third persons may take advantage of them in the same manner as if the partnership were transacting business with strangers : for instance, sup- pose the general partnership to have sold a bale of goods to the particular partner- ship, a creditor of the particular partnership might take those goods in execution for the separate debt of that particular partnership." Where a change occurs in a firm by the retirement of one or changeofprop- more of its members, nothine: is more common than erty on change „ , , . , , - in firm. for the partners to agree that tliose who contmue tlie business shall take the property of the old firm and pay its debts, or that part of the property of the old firm shall become the prop- ,erty of those by whom its business is to be continued, whilst the rest of the property shall be otherwise dealt with. So, again, when a partnership is first formed, or when a new partner is taken into an existing firm, or when two firms amalgamate into one, some agreement is generally come to by which what was before the property of some one or more only of the members of the firm, be- comes the joint property of all such members. All such agree- ments, if iond fide,, and not fraudulent against creditors, are valid, and have the effect of altering the equitable ownership in the prop- erty affected by them.' In Ex parte Ruffia {a), which is the leading case on this sub- Ex arte j^*^*') Tliomas Cooper, a brewer, took James Cooper into Euffin. partnership. That partnership was afterwards dis- solved by articles, by which the buildings, premises, stock in trade, debts, and effects were assigned to James by Thomas, who retired. James afterwards became bankrupt, and some of the partnership debts being unpaid, an attempt was made to have what had been the property of the partnership applied in liquidation of those debts. But it was held that such property was no longer the joint property of the two partners, but had been converted into the sepa- rate property of James. ' See ante, 655, note (2). Clarkson, 4 D. & Ch. 56; Ex parte Gur- (fl) 6 Vea. 119. See, too. Ex parte ney, 2 DeG. M. & G. 541; Ex parte Walker, 4 DeG. P. & J. 509, Ex parte ^ Peake, 1 Madd. 346; Ex parte Fell, 10 Sprague, 4 DeG. M. & G. 866; Ex parte Ves. 348. 884 CHAP. IV.J CONVERSION OF JOINT INTO SEPARATE PEOPEETT. *657 *J^x parte Williams (h), was a similar case, only that on *657 the dissolution no assignment was made. There was j^^ ^^^^ not even any written agreement, showing the terms on wuiiama. which the dissolution took place. But it was sworn that the partner who continued the business was to take all tlie stock and effects of the old firm; and it was held that they had become his separate property, and could not be considered as the joint property of the dissolved partnership. These decisions have always been regarded as settling the law upon the subject of conversion of partnership property, and have been constantly followed. They were not, it will be observed, de- cided with reference to the doctrine of reputed ownership, but with reference onlj^ to the real agreement come to between the partners. They apply as much to cases of a change of interest on death as on retirement, (c) The case of ^x parte Owen {d), which has been already referred to (e), shows that similar principles must be applied ij^ r wg order to determine what, on the formation of a partner- owen. ship, has been converted from separate into joint estate, (y) In order, however, that an agreement may have tlie effect of con- verting joint into seiiarate estate, or vice versa, the Agreement " ■' , ' , , , must be agreement must be executed, and not be executory executed, merely.' In £'a; parte Wheeler {g), a retiring partner and a con- (6) 11 Ves. 3. Compare Ex -parte pare ^a; ^arte G-ibson, 2 Mont. & Ayr. Cooper, 1 M. D. & D. 358. 4; Ex parte Sprague, 4 DeG. M. & G. (c) See Re Simpson, 9 Ch. 572 ; and 866; Hawkins v. Hawkins, 4 Jar. N. S. compare Ex -parte Morley, 8 Ch. 1026. 1044. Both these turned on the construction of ' Under articles of partnership be- the partnership articles combined in the tween A and B, providing that either last case with the wiU of the deceased party could dissolve the partnership partner. The will and the articles to- upon sixty days' notice in writing, B gether prevented a convertion. gave notice, and after the time hmited, (A) 4 DeG. & Sm. 351. the parties agreed upon terms of disso- (e) Ante, p. 649. lution and a division of the property. (/) See, too, Ex parte Barrow, 2 By this agreement B was indebted to A, Rose, 2-52 ; and Belcher n. Sikes, 8 B. which indebtedness was to be secured to & C. 185, for a case where separate' es- A by mortgage. The agreement was tate was made joint by a deed of disso- to be reduced to writing and signed by lution not clearly expressed. both parties. B, however, refused to {g] Buck. 25. See, too. Ex parte sign the agreement when written, or to Cooper, 1 M. D. & D. 358; and the case give the mortgage. The property which of the Bank of England, 3 DeG. F. & was to belong to each was put in sepa- J. 645, noticed ante p. 650; and com- rate drawers in a safe, and each partner 885 *658 PAllTNEESIIIP pnOPEETT. [bOOK III. tinuing partner entered into an agreement in writing, bj vvliicli the retiring partner assigned tlie stock, good-will, lease, furniture, fixtures, books, and debts of the fii-nj, to the continuing partner, and the latter agreed to pay certain debts of the partnership for which his father, he said would be security. The father, *658 *however, refused to give any security, and this further act was necessary to be done in order to complete the transfer of the property. The continuing partner having become bankrupt, the court held that the property of the old firm had not been con- verted into the separate estate of the continuing partner, the agree- ment being still executory when the bankruptcy occurred. Moreover, an agreement which can be successfully impeached for Effect of fraud, will not affect the property to which it may re- fraud, late (h); and it must not be forgotten, that in the event of bankruptcy, the trustee, as representing the creditors, may be able to impeach as fraudulent against them, agreements by which the bankrupt himself would have been bound [i). In a case where both the partnership and the individual partners were insolvent, an agreement by one of them transferring his interest to the others, and thereby converting what was joint estate into the separate es- tate of the transferee, was held invalid; for, although no fraud may have been intended, the necessary effect of the arrangement was to delay and defeat the joint creditors (j). The firm became bankrupt shortly after the assignment was made. had a key of the drawer in which his the plaintiff a separate, exclusive prop- parb was put : Held, that the agree- erty in the subject of the suit. Kon- ment was not obligatory on A, and ingsburg v. Laumitz, 1 E. T>. Smith, 215. had no efficacy to divide the partnership Until a partnership concern is closed property. Fitzgerald v. Christt, 20 N. by a final account, the joint interest in J. Eq. 90. the whole property remains; and if one With a view to a dissolution, two partner takes out what he deems his partners agreed to divide their stock, share, and the residue is afterwards lost, and that the machinery which belonged he will be compelled to account with to them should be given to the party the other partners for their shares of who would give the most for it. They the amount drawn out by him. Allison accordingly separated the stock into v. Davidson, 2 Dev. Eq. 79. "two piles," but no delivery was made, {h) Ex parte Rowlandaon, 1 Rose, and before the arrangement was com- 416. pleted the parties quarreled, and the (t) See i?e Kemptner, 8 Eq. 286; An- settlement was interrupted. One of the derson ».Maltby, 2 Ves. J. 244; BiUiter parties caused a demand to be made for v. Young, 6 E. & B. 40. half of the property: Held, that {j) Ex parte Majoxi, 11 Jur. N. S. enough had not been done to vest in 433, L. C. Ex parte Walker, 4 DeG. e86 CHAP. IV.] COJiJVEESION OF JOINT INTO SEPAEATE PEOPEETT. *6S9 TTnsecnred creditors of companies, whether limited or un- limited, have no lien on their assets Qc); and cannot conversion by prevent a sale or other disposition thereof {T), and it '=o™p''°i'^^- is clearly competent for all companies to divide profits amongst their shareholders, and to that extent to convert what was joint es- tate into the separate estates of the members. But it must be borne in mind that an}' division of the property of a company amongst its members wliich is not warranted by the constitution of the company, can be impeached by the company itself (to); and *fnrther, that any division of the assets of a company which *659 would not leave enough to pay the creditors of the company, would prima faoie be a fraud upon tiiem ; and even if not a fraud upon them would probably be ultra vires, {n) F. &J. 509. See, also, Luff ». Homer, 691,592. 3 Fos. & Fin. 480, whioli seems to have (n) See, as to this. Stringer's case, 4 been a clear case of fraud upon a cred- Ch.. 475 ; Cardiff Coal Co. v. Norton, 2 itor. Eq. 558, afiErmed by Lord Chemlsford, (Zc) But see, as to cost-book compa- 2 Ch. 405. The decision in this case nies, 32 & 83 Vict. c. 19, §§ 24, 36. was probably right under the peculiar (Z) Mills V. Northern EaO.. of Buenos circumstances aft'ecting the real plain- Ayres Co. 5 Ch. 621. tiff, but some of the principles laid down (m) See Society of Practical Knowl- in the case deserve serious reconsidera- edge V. Abbott, 2 Beav. 559, ante, pp. tion. 887 ■•'■'CGO SHAEES. [book III. 660* CHAPTER Y. OF SHARES IN PARTNERSHIPS AND COMPANIES. In the present chapter it is proposed to determine the nature of Subject of pres- shares in general, to point out the respects in which ent chapter. shares in companies resemble and differ from shares in partnei'ships; and to investigate the doctrines relating to the sale, surrender and forfeiture of shares. The arrangement of the present chapter is as follows : — § 1. Of the nature of a share, and the rules which govern its dev- olution in case of death. § 2. Of the amount of each partner's share. § 3. Of the lien which each partner has on the joint proper- ty and ou the shares of his co-partners. § 4. Of the mode in which a share is taken in execution for the separate debts of its owner. § 5. Of the transfer of shares. § 6. Of sales of shares and questions arising thereon. § 7. Of the relinquishment of shares and the right to retire, § 8. Of the forfeiture of shares and the right to expel. SECTION I.— OP THE NATURE OP A SHARE, AND THE RULES "WHICH GOVERN ITS DEVOLUTION IN CASE OP DEATH. In the absence of a special agreement to that effect, all the mem- Natureofa bers of an Ordinary partnership are interested in the ehare In a firm, -^yjjole of the partnership property ; but it is not quite clear whether they are interested therein as tenants in common, or as joint tenants without benefit of survivorship, if indeed there is any difference between the two. It follows from this community of interest, that no partner has a right to take any portion of CHAP. V.J GENEKAL NATURE OF SHARES. *661 *the partnership property, and to say that it is his exclusive- *6Q1 ly. (a) No partjier has any such right, eitlier during tlie ex- istence of the partnersliip or after it has been dissolved.' What is meant by the share of a partner is his proportion of the partnership assets after they have been all realized and converted into money, and ail the debts and liabilities t°™on^y- have been paid and discharged, (ij This it is, and tliis only, vi^liich {a) Lingen v. Simpson, 1 Sim. & Stu. 600; Cockle v. Whiting, Taml. 55; and see the cases cited in the next note. ' Each partner has a joint interest, but not a separate iaterest, in any particular property of the partnership, and each has a moiety, or the same species of in- terest, in the stock-in-trade, whether each contributes exactly in the same proportion or not ; but their several de- grees of interest must be regulated ac- cording to the stipulated proportions and the different conditions of the part- nership. Neither partner has any ex- clusive right to any part of the joint ef- fects, for any sum due to him, until a balance of account be struck. Taft v. Schwamb, 80 111. 289. If one partner sells his interest in spe- cific property of the firm, the other may retain possession of it for the purpose of settHng the business of the partnership. Chase v. Scott, 33 Iowa, 309. Any appropriation of the partnership property by one partner in payment of his individual debts, without the con- sent of his co-partners, is a violation of his duty, and a fraud upon them. Pil- ley V. Phelps, 18 Conn. 294. See this subject considered ante. Whatever may be the condition of the partnership accounts or of the firm as to solvency, each partner has a property in the partnership assets co-equal to his share in the firm, and retains such ia- terest until it is divested, by due process of law, running against him, or by some voluntary act of his co-partners, done within scope of the partnership. Berry V. KeUy, 4 Robt. 106. iV) See Doddington v. Hallet, 1 Ves. 498-9; Croft V. Pike, 3 P. W. 180; West V. Skip, 1 Ves. S. 342; Taylor v. Fields, 4 Ves. 396; Crawshayt'. Collins, 15 Ves. 229; Peatherstonhaugh v. Penwick, 17 Ves. 298; Darby v. Darby, 3 Drew. 503. 2 Smith V. Evans, 87 Ind. 526; Carter V. Bradley, 58 111. 101; Hill v. Beach, 12 N. J. Eq. 31; Douglas v. Winslow, 20 Me. 80; Peny v. HoUoway, 6 La. Ann. 265; Schalck v. Harmon, 6 Minn. 265; Sunpson v. Leach, 86 111. 286; .Filley v. Phelps, 18 Conn. 294; Staats «. Bristow, 73 N. Y. 264; In re Corbstt, 5 Sawyer, 206; Hall V. Clagett, 48 Md. 225; Conk- Hng V. Washington University, 2 Md. Ch. 497; Matlock v. Ma.tlock, 15 Ind. 404; Menagh v. WhitweU, 52 N. Y. 146; Mayer v. Garber, 6 JST. W. Rep. 63. • Real estate forms no exception to the will stated in the text, but stands upon the same footing as personalty, no mat- ter in whom the legal title may be vested. Simpson v. Leech, 86 111. 286. See ante 652, note. Only the individual partner's share of the surplus remaining after the payment of claims against the partnership, is liable for his individual debts. FiUey v. Phelps, 18 Conn. 294. See, post, 689, note. As long as the debts of a partnership are outstanding, it is irregular to under- take to distribute any assets thereof amongst the partners. Hall v. Clagett, supra. Either partner may mortgage his in- terest in the partnership property, and the mortgagee may sell the same on foreclosure, aaid the other partners can. *G62 SHARES. [book III. on the deatli of a partner passes to his representatives, or to a lej^a- tee of his share (c); whicli under the old law was considered as hona notab'dia (ri); which on his haukruptey passes to his trustee (e); and which the sheriff can dispose of under &Ji.fa. issued at the suit of a separate creditor (/")/ or under an extent at the suit of the Crown, {g) It is, however, to be observed that the Crown never holds jointly or in common witli its subjects. (A) Consequently, if a partner is outlawed, whereby his interest in the partnership is forfeited, the other partners lose their interests also; the Crown first taking tlie share of the delinquent partner, and then by its prerogative excluding the other partners with whom it would other- wise be a tenant in common. It need hardly be said that this pre- rogative is not enforced in modern times, (-i) It has never been, and probably never will be, held that the forfeiture of a share in a com- pany entitles the Crown to the whole property of that company. Speaking generally, a share in a company signifies a definite Nature of a portion of its Capital. Wlien a company is share in a ' ' , i. i i company. *663 formed, a sum of '^money is fixed upon and is called its capital; this sum is divided into a number of equal portions; each of these portions is a share, and whether the. sum fixed upon is ever all subscribed or not, and whether what is subscribed is employed profitably, or the contrary, a share retains its original meaning. A sliare in a company, like not resist sucli sale on the ground that (d) EMns v. Brown, 1 Spinks, Eoc. the partnership debts exceed the part- & Adni. Rep. 400; A.-G. v. Higgins, 2 nership property. The mortgagee is en- H. & N. 339. titled to have the ultimate interest of (e) See the last note but two, and the mortgagor in the property sold, and Smith v. Stokes, 1 East, 363. the purchaser takes that interest. The (/) Skipp v. Harwood, 2 Swanst. sale does not affect the right of the other 586; Re Wait, 1 Jao. & W. 605; John- partners to insist upon the application son v. Evans, 7 Man. & Gr. 240. of the joint property to payment of the * See Menagh v. Whitwell, 52 N. Y. firm debts, and to the payment of any 146; and jjosi, 689, note, balance due them. Smith v. Evans, 37 {g) R. v. Sanderson, Wightw. 50; R. Ind. 526. V. Rook, 2 Price, 193; R. v. Hodge, 12 A partner has an insurable interest in ib. 537; Spears v. Att.-Gen. 6 01. & Fin. the property of the firm, and a sale of 180. insured property to a firm of which.the [h) 2 Bl. Com. 409; Hales v. Petit, vendor is a member, does not vitiate his Plow. 257. policy of insurance as to the extent of (i) See Collyer on Partn. 72. For- his interest in the property. Cowan v. feiture for felony and treason was abol- lowa State Ins. Co. 40 Iowa, 551. ished by 33 & 34 Vict. c. 23, § 1. See (c) Farquhar v. Hadden, 7 Ch. 1. ante, p. 80. 890 CHAP. V.J GENEEAL NATURE OF SHARES. *663 a sliare in a partnership, is, in truth, a deiinite proportion of the joint estate, after it has been turned into money and applied as far as may be necessary in payment of the joint debts. (JS) "VVliat are called preferential or guaranteed shares, are nothing more than shares the owners of which are entitled to „ „ . „„ share profits, to a certain extent, in preference to other shares. shareholders. The holders of preference or guaranteed shares, in a company, are not creditors of, but shareholders in that company; differing from the other sliareholders only in being entitled, as against them, to payment of dividends in priority to them. (Z) Shares in companies are nnfortnnately too often regarded by the pTiblic in the liglit of secnrities. To " invest money in investing in shares" is a common expression not a little calculated shares. to perpetnate this error. But it ouglit never to be overlooked that a shareholder is a partner in and not a creditor of the company to which he belongs; that if the company becomes insolvent, he can- not recover any part of his money invested until the company's debts are paid in fnll; that whether he is personally liable for the paj'ment of those debts, and whether the extent of his liability is unlimited or limited, depends upon the nature of the company. Shares, in short, are not securities; they have been held not to pass under a bequest of bonds, moneys, and securi- sjjare.snot ties (m); and no lawyer need be told that trustees who securities, invest trust moneys in shares do that which is extremely improper, unless such 'an investment is clearly authorized by tlie trust. (») *Directors who invest the money of their com- *663 pany in shares of other companies are prima facie guilty of a breach of trust, (o) A power to invest u.pon the security of the funds of any com- pany incorporated by act of Parliament, does not authorize an investment in preference railway shares, (p) A power to invest in the stocks, shares, or securities of an incor- porated company paying a dividend, authorizes an investment in (k) See Watson v. Spratley, 10 Ex. (w) Bank Stock and East India Stock 222; Sparling v. Parker, 9 Beav. 450; are an exception. See 23 & 24 Vict. c. Hunt V. Gunn, 13 C. B. N. S. 226. 38, § 11, and Cons. Ord. in Chancery of (l) See ante, p. 618. 1 Feb. 1861. (m) Ogle V. Knipe, 8 Eq. 434; Collins (o) Hope v. International Financial V. Collins, 12 Eq. 455; Huddlestone v. Soc. 4 Ch. D. 327; Joint Stock Discount Goldsbury, 10 Beav. 547. Comp. Knight Co. v. Brown, 3 Eq. 139. V. Knight, 2 Giff. 616. (^j) Harris v. Harris, 29 Beav. 107. 891 *664: SHAKES. [bOOK III. the stock or shares of an incorporated company paying a fixed rate of interest to its stock or shareliolders. But such a power does not justify a purchase or even the retention of stock or shares in the name of one trustee only, even althougli tlie regulations of the company do not allow shares to be held in the names of more than one person, [q) In a recent case, a testator bequeathed his residuary estate to liis widow for life, and after her death to his daughter and her chil- dren. The trustees were expressly authorized to invest in certain shares. An investment in them was made accordingly, but one of the trustees afterwards expressed his unwillingness to retain the investment. A suit having been instituted for the administration of the testator's estate, the Court, at the instance of the testator's grandchildren, ordered the shares to be sold, and tlie proceeds of the sale to be invested in consols, (r) Although shares are not securities on which trustees can invest Shares are without an express power so to do, shares in incorpo- stock within i i the meaning of rated Companies are stock within the meaning of the the 1 rustee ' " acts. Trustee act, 1850, and orders for their transfer under that act may accordingly be made, (s) Shares in companies governed by modern statutes are not, how- sharesnot ever, mere choses inaction; the les-al, as well as the mere choses in . . => / action. equitable, interest in them is capable of transfer; and where the legal ownership in them, or even only the legal riglit to be registered, is acquired by a honafide purchaser for vahie *& CHAP, v.] SHARES. *666 I'lnder z. fi. fa. issued on a judgment obtained against tlie exec- utors bv a separate creditor of tlie deceased partner, iq) mi " 1 ■ , 1 -11 . .,1, .1 Goodwill. i he extent to wiiich gooawili survives will be noticed hei'cafter. (A) Before quitting the present subject, it may be observed that tlie 15 id. 637; Adams v. Ward, 26 Ark. 135; Putnam v. Parker, 55 Me. 235; Wilson V. Soper, 113 B. Mon. 411. The surviving partner, though legally vested with the title to all firm assets, is also trustee to dispose .of them for the best interests of decedent's estate, and is bound to keep its representative fully informed of their condition. Heath v. Waters, 40 Mich. 457. See, also, Ogden V. Astor, 4 Sandf. 311; Justices v. Mc- Laren, 1 Ga. 289. A sole surviving partner may transfer the choses in action and other personal effects of the partnership, by way of pledge or mortgage, to secure a partner- ship debt, and when such transfer is made in good faith it is effectual against aU other creditors, as well as the repre- sentatives of the deceased partner. Bohler «. Tappan, 1 Fed. Rep. 469. The representatives of a deceased partner, before the partnership business has been settled and the debts paid, and while they have not yet been let into joint possession by the surviving part- ner, have but an equitable interest in the partnership property, and are not tenants in common at law; and the right of action at law for any trespass upon, or injury to the property, which in this case was a store leased by the firm, during this interval, is vested sole- ly in the surviving partner. Pfeffar v. Steiner, 27 Mich. 537. A surviving partiier has a right to the possession and control of the part- nership property for the purpose of set- tling and closing the business, and not for the purpose of carrying it on. Clme V. Wilson, 26 Ark. 154. See Adams v. Ward, id. 185. A surviving partner, though he leas a legal right to the partnership effects, yet, in equity, is considered merely as the trustee to pay the partnership debts, and to dispose of the effects of the con- cern for the benefit of himself and the estate of his deceased partner. If he coiitinues the partnership business with the partnership funds, he is, as a gen- eral rule, liable to account for all profits made thereby, and the losses, if any, must be borne by himself. Skidmore v. Collier, 15 N. Y. Supreme Ct. 50. See, also, Fon-ester v. Oliver, 1 Bradwell, 259. Upon the death of one member of the fh:m, the survivor is bound in equity to apply the joint estate to the payment of the joint debts; and the representa- tives of the deceased partner, and, in case of bankruptcy, the creditors of the firm, may enforce this equity. He Clap, 2 Low. 168. A partner, by his will, made liis (g) This case was certainly perplex- ing. It made a useless distinction be- tween land, debts, and ordinary chat- tels ; it logically involved the conse- quence that a surviving partner could only properly sell his share of a partner- ship chattel; and it was inconsistent with the principles which induced courts of .equity to decline (except under special circumstances) to grant a receiv- er at the instance of the executors of a deceased against a surviving partner. In Taylor v. Taylor, 7 Mar. 1873, Lord Justice James, sitting for V.-C. Wickens, expressed his disapproval of Buckley v. Barber. All this is, however, of little consequence now. (70 See book iii. ch. 9, § 3. 899 "G6Q SHAEES. [book iir. doctrine of non-snrvivorsliip amongst partners is not confined to mercliants nor even to traders, but extends to partners generally. (-/) The maxiin Jus accrescjndi inter mercafores locum non habet Application of applies to the property of nnincorporated companies to maxim to i i .y j r shares. the Same extent, and with the same qualifications, as to the property of ordinary partnerships. But the property of a brother, who was liis oo-partner, execu- tor, and devised to him the residue of his estate in trust for certain purposes, and authorized him to use in his busi- ness the property given him in trust, until it should be wanted for distribu- tion : Held, that the intent of the will was, that the residue only should be used in business, and that the surviving partner was bound to settle the aifairs and pay the debts of the firm in the usual way, notwithstanding this clause. Re Clap, supra. The surviving partner carried on the business as before, and notified credi- tors and others dealing with him that his brother's capital remained in the basiness; he paid the greater part of the joint debts, and contracted new debts; he converted a part of the joint property into money, but less in value than the sum of the joint debts, and became bankrupt, having in possession bank stock and other specific assets, standing in the name of the firm, with- out change since the death of his broth- er: Held, that a joint creditor of the old firm, who had not received the no- tice above mentioned, could require that joint property remaining in specie as it stood at the death of the deceased part- ner, should be applied to the payment of his debt in exclusion of the separate creditors of the banki-upt. It seems, that if the creditor had received the notice above mentioned, it would not have affected his lien, unless he had done some act amounting to an elec- tion, lie Clap, supra. The fact that the surviving partner was executor and trustee of the deceased partner does not affect the rights of joint creditors, for equitable rights are not lost by the merger or union of differ- ent titles in one person; and when bank- ruptcy occurs, the creditors may them- selves assert the lien, which, while the surviving partner is solvent, is vested in the executor of the deceased partner. Re Clap, sitpi-a. The rights and liabihties of a deceased partner under the partnership devolve upon the surviving partner. In the settle- ment with the representatives of the former, the latter would be entitled to credit for a judgment for a firm debt recovered against him without his col- lusion or neglect. Hanna v. Wray 77 Pa. St. 27. If representatives of a deceased part- ner undertake, without authority, to affect the rights of the partnership by agreement with a firm creditor, as to a matter over which the survivor had en- th-e control, and not in its nature sever- able, equity, in reheving him, must treat the agreement as wholly inoperative upon the firm. Lockwood v. Mitchell, 7 Ohio St. 387. The partnership funds in the hands of garnishees may be orderd to be paid over to separate creditors of the surviv- ing partner, on their giving bond and security to answer any claim which may (i) See Buckley v. Barber, 6 Ex. 164; Annand i\ Honiwood, 2 Ch. Ca. 129; Jefl'erys v. Small, 1 Vern. 217 ; Lake v. 900 Gibson, 1 Eq. Ca. Ab. 290; Lake v. Ci-addook, 3 P. W. 158. CHAP, v.] SHARES ARE PERSONAL ESTATE. *667 bodv corporate remains vested in the corporate bodjnotwitlistand- ing any tiuctnation amongst its members b}^ death or otherwise. Tlie shares of the individual members of an incorporated company de- volve on their respective deaths to their representatives, and not upon tlie surviving members: and tlie devolution of such shares as distinguished from the property of the body corporate is con- formable to the maxim in question. *When a sliare in a company is held by several *667 shares hew by . . 1 1 7i i' 1. IT T several persons persons jointly and one or them dies, the legal jomtiy. title to that share devolves, it is conceived, on the survivors, wliat- ever may be the case as to the equitable title. If the holders are partners, and the share is partnersliip property, tlie equitable inter- est of the deceased will not survive ; but if the holders are not partners, the question of survivorship or non-survivorship will de- pend upon those principles which would be applicable under simi- lar circumstances to other property; and the fact that the regula- afterwards be made on the funds. Knox V. Schepler, 2 Hill, (S. C.) 595. ■ In Bush »'. Clark, 127 Mass. Ill, how- ever, it was held that assets of a ■ part- nership in the hands of the surviving partner at hLs death are so far his per- sonal estate that the probate court may make an allowance J^ierefrom to his widow, although the assets are insuffi- cient to pay the partnership creditors in fuU. On the death of the surviving part- ner, his personal representative succeeds to his right to collect the outstanding accounts of the firm. Costley v. Wilk- erson, 49 Ala. 210. The administrator of a surviving part- ner stands in the same position as the surviving partner in his lifetime. Though he has the legal title to the partnership assets, yet they are assets of the firm, and not of his intestate, and should neither be inventoi-ied as proper- ty of his intestate, nor be accounted for as property of his intestate. The ad- ministrator is in fact a trustee, whose duty it is to collect the partnership property, and pay the debts of the firm; and after the surplus is ascertained, and the interests therein settled, to pay the share of the partner first deceased to his personal representatives, and bring the share of the partner last deceased into the account of his estate. Thomson v. Thomson, 1 Bradf 24. When a partnership agreement to take effect infuturo is dissolved by the death of one of the partners before the time fixed for commencing business, no estate intended to be contributed by either partner vests in the partnership, nor does the survivor take anything as such. Cline v. Wilson, 26 Ark. 154. In the articles of co-partnership it was agreed, that in the case of the death of one partner, the other should have the right to recover the fourth part of a certain chattel, and against that he should pay to the estate of the deceased the sum of one thousand dollars, after the estate of deceased should have paid all his debts which he owed to the part- nership up to the date : Held, that this clause gave the surviving partner an option of purchase, and did not import an absolute covenant or engagement. Scharringhausen v. Luebsen, 52 Mo. 337. 901 *6G3 SHARES. [book III. tions of tbe company contain a clause to tlie effect that no benefit of survis'Orsliip shall take place amongst the shareholders will be of little, if an}', consequence. For example: shares purchased by A., in the names of himself and H., prima facie belong in equity to A., but if A. dies before B., the legal interest in them devolves on B. ; and if the evidence rebuts the presumption which j>rimd facie exists in A's. favor, B. will be entitled to the shares both at law and in equity, althoagh the company's deed may contain such a clause as that just mentioned, {li) Of the doctrine tJiat shares are personal estate. From the principle that a share of a partner is nothing more tlian sharesper- ^^^ proportion of the partnership assets after they sonai estate. bave been turned into money and applied in liquida- tion of the partnership debts, it necessarily follows that, in equity, a share in a partnership, whether its property consists of land or not, must, as between the real and personal representatives of a de- ceased partner, be deemed to be personal and not real estate, unless indeed such conversion is inconsistent with the agreement between the parties. (Tf And although the decisions upon this point ai-e conflicting, the authorities which are in favor of the above conclu- sion certainly preponderate over the others. In Thornton v. Dixon {in), the Court recognized the rule that partnership property mast be considered as per- ThOTntoni;. ^ggg sonal estate; *but held that the lands which were there in question, could not be so consid- ered, as they had been conveyed to all the partners in common, and there was no agreement for a sale. In Bell 1). Phyn (n), partners in trade purchased with the fimds of the firm a share in a plantation, and kept the ac- counts relating to the estate in the partnership books ; and it was held upon the authority of the last case, that assuming the land to have become partnership property, it ought not to be regarded as personal estate. (fc) Garrick v. Taylor, 4 DeG. F. & and the cases collected, ante, 652, note J. 159, aflBrming S. C. 29 Beav. 79. in connection witli tlie subject of part- [l) See, as to this, Stewart v. Blake- nership real estate. T\ ay, 4 Ch. 603, and 6 Eq. 479. (m) 3 Bro. C. C. 199. 'This subject will be found considered (n) 7 Ves. 453. 902 CHAP. V.J SHAKES ARE PEESONAL ESTATE. *669 In Kandall v. Randall («), the partners were farmers, nialsters, and biscuit makers. They bought land lor the farm- jjandan^i; ing business, and it was held that as it was not acquii'ed ^'"•"idaii. for the purpose of any partnership in trade, the land could not be treated as personalty. In Cookson v. Cookson (p), a father who was seized in fee of land on which he carried on business as a bottle manufac- cook-sonj; turer, took his son into partnership, and conveyed a t:ookson. share in the land to him. The land was declared by the articles of partnership to be partnership property. But on the death of the father, it was held that his share in the land was to be treated as real estate, no sale being required for the payment of the partner- ship debts for any other purpose. These are the cases which militate against the rule under discus- sion. The following are those which support it : — In Ripley v. Waterworth (q), partnership laud was conveyed to trustees upon trust, upon a dissolution of the partner- jjjpjgy^ ship, to sell and pay the partnership debts, and divide waterworth. the residue of the money arising from the sale amongst the part- ners; and it was held upon the death of one of them, that his share in the land was personal estate, although the land was not in fact sold, and the deceased's share in it was purchased by the surviving partners under a clause enabling them so to do, and contained in the conveyance to the trustees. In Townsend v. Devaynes (r), two persons in partnership as paper makers, purchased paper mills for the use of the firm, and paid for them out of its funds. It was agreed that on the *death of either, the survivor should *669 DeVayuS'^ "' have the option of purchasing his share. One of the partners died, and his share was purchased by the survivor. It was held that the whole of the purchase-money formed part of the personal estate of the deceased, although most of the money was paid in respect of the interest of the deceased in the mills. In Phillips V. Phillips (s), two persons in partnership as brewers purchased public-houses for the purposes of their trade, phmips^. and had them conveyed to both in fee. On the death Philips. (o) 7 Sim. 271. (s) 1 M. & K. 649. See ante, p. 852, (p) 8 Sim. 529. note (to), as to the estates wliioh were {q) 7 Ves. 425. ' devised, and which were held not con- (r) 1 Mont. Part, note 2 A. Appx. p. verted into personalty. 3; see, too, 11 Sim. 498, note. 903 *070 SHAKES. [book III. of one of them, it was held that his share in the houses was to be treated as personal estate. Broonn;! Erooui V. Broom (t) is a decision to the same effect Broom. j^g (-j-,g jg^gj-^ ,^^^ decided on its authoi-itj. In Morris v. Iveursley {u), a partnership of brewers was pos- Morriso scssed of real estate conveyed partly to tl^e j)artners as Kearsiey. tenants in common, and partly to one or more of the partners in trust for the Mrm; and it was decided that the several lands, hereditaments, and premises belonging to the partnership, ought to be considered as personal estate. In Houghton v. Houghton (x), two brothers, A. and B., were part- Houffhtonj) "^''^ ^^ ®^*P boilers. They purchased land for the pur- Houghton.- purposes of their trade, took a conveyance to tliem- selves as tenants in common, and mortgaged the land for the purchase monej'". They then built on the land, insured the build- ings, and paid the expenses and the interest on the mortgage debt out of the partnership funds. A. died intestate, and B. took another brother, C, into partnership. B. and C. paid off the mortgage, and took a reconveyance to themselves as joint tenants in fee, and ex- pended money in building and insurance, defraying the expense, as well as providing the mortgage money, out of the funds of the partnership. On B.'s death it was held that tlie land and buildings had clearly become partnership property, and that it ought, there- fore, to be treated as personal estate. *670 *In Darby v. Darby (y), two brothers embarked in joint speculations in land. Tiieir scheme was to buy land, con- .■DarbTD ^^^^ ^^ ^^^^° building sites, and then sell it at a profit. Darby. ij^j^jg .^^g^g Jone on scveral occasions, the land being gen- erally conveyed to one of them only. On the death of that one it was held that his interest in all the land bought by both, and still unsold, was personal and not real estate. In Essex v. Essex (s), two brothers were, under the will of their Essex D father, seized of freehold lands. Tiiey agreed to be- Essex. come partners as curriers and tanners for fourteen years, and to carry on their business on those lands. It was stipu- lated that if either died during the co-partnership term, the other {{) 3 M. & K. 443. quired. (m) 2 T. & C Ex. 139. The report (x) 11 Sim. 491. does not state how, when, or for what (y) 3 Drew. 495. purpose, the property was originally ac- {z) 20 Beav. 442. 904 CHAP. V.J SHAKES. *G71 should take Lis share in the freehoMs, aud that the entirety thereo", including the plant and tan-pits, should be valued at 5000^. The fourteen years expired, but tlie partnership was continued as be- fore. Ou the death of one of the partners, it was held that his share in the freeholds was to be reo^arded as personal estate; they having been converted by the agreement for sale. In Waterer v. Waterer (a), the property of a nurseryman, devised by him, with the good will of his business, to his sous -^yaterertt as tenants in common, was on the death of one of '*^'^*'^'^'^'^- them treated as personal and not as real estate. There are also various dicta of Lord Eldon in favor of the broad principle that partnership property is to be regarded as personal and not as real estate, (b) Upon the whole, therefore, it is submitted, 1. That notwithstanding Thornton v. Dixon, Bell v. Phyn, and Randall w. Randall, the true rule is, as stated by the Vice- 'result of the Chancellor Kindersley, in Darby v. Darby (c), " that '''^^'^^■ whenever a partnership purchases real estate for the partnership purposes, and with the partnership funds, it is, as between the real and personal representatives of the partners, personal estate." [d) 2. That, notwithstanding Cookson v. Cookson, no satisi'ac- tory *distinction, with reference to the question of conver- *671 sion, can be drawn between land purchased with purtnersliip moneys and land acquired in any other way, provided such land is in the proper sense of the expression an asset of the partner- ship, {e)- 3. That the general rule may, nevertheless, be excluded by an agree- ' * ment, express or implied, to the effect that the land shall not be soli The reason of the rule excludes its application in such a case. (/" ) Upon this ground it was held in a recent and difficult case, that a farm and quarry worked by cd-owners in partner- p^g^.^a^. ship, and additional lands bought by them oat of their Biakeway. (o) 15Eq. 402, notice.d ante,^. 652, Jackson, 9 Yes. 593, "It is very diffi- note (jw). cult to make a distinction between a (6) See the judgment of V.-C-Kinders- joint tenancy by will, by a gratuitous ley, in Darby v. Darby, 3 Drew. 499, etc. deed, or a purchase. The law of mer- (c) 3 Drew. 506. chants, if it apphes to one, must apply {d) See, in addition to the cases re- to all." ferred to above, Holroyd «. Holroyd, 7 (/) Steward ?;. Blakeway, 4 Ch. 603, W. B. 426. and 6 Eq. 479. [e] See ;per Lord Eldon in Jackson v. 905 *672 SHAEES. [book III. profits for the purposes of their business, were not to be treated as converted into money. Tlie Court Iield that no partner could have enforced a sale, either of the original farm and quarry or of the subsequent additions to it. {g) It is well settled that the doctrine of conversion does not apply The rule only ^^ co-ownei's as distinguished from co-partners; nor to uereMpprott-''' pi'operty owned by persons, who, although they may *'^'5'- \)Q partners in profits are only co-owners of the land which yields them. Thus, where two out of three partners wei-e owners of land occupied by the firm, and for which the firm paid a rent, and the land was in fact kept distinct from the joint prop- erty of the three partners, it was properly held, on the death of one of the two partners to whom the rent was paid, that his interest in the land was not to be considered as personal, but as real estate. (A) So, if land belongs to all the partners as tenants in common, but not as partners, and that land is used by them for partnership pur- poses, but is nevertheless intended to remain vested in them as tenants in common, and not to form part of the assets of the firm, the share of each partner will be real, and not personal es- *672 tate. (i) *In the c-ise now supposed, co-owners of land are partners, but the co-ownership continues unaifected by the partnership. But it is not possible on this ground to uphold Thornton v. Dixon, Bell v. Phyn, Bandall v. Eandall, or Cookson V. Cookson. In each of these four cases the land had become part of the assets of the firm, or it had not; if it had, these four cases are in direct conflict with those which have been alluded to above; whilst, if it had not, they are in no less direct conflict with other cases which are authorities on the question what is and what is not* property of the firm. The doctrine of conversion which has just been considered, Doctrineof merely amounts to this, that on the death of a partner only a^'^restric^ ^^® share in the partnership is, as between liis real and ed appUoation. personal representatives, to be treated as money and not as land. In Custance v. Bradshaw (y) it was decided that pro- bate duty was not payable upon the share of a deceased partner in partnership real estate; but this case has been disapproved, and ig) Ibid. (i) Steward ». Blakeway, 4 Oh. 603, {h) Rowley v. Adams, 7 Beav. 648; and 6 Eq. 479. Balmain o. Shore, 9 Ves. 500; see, too, [j) Custance ». Bradshaw, 4 Ha. 315. Phillips V. Phillips, ante, p. 652. 906 CHAP. V.J SHAKES AEE PERSONAL ESTATE, *673 cannot be relied upon. (/^) Legacy duty is payable on a partner's share of the assets, part of whicli consist of real estate. (1) If the shares of the partners in partnership realty are of sufficient value, they are not prechided by the equitable doctrine of conver- sion from voting in respect of those shares at elections for mem- bers of Parliament, (to) ^ With respect to shares in companies, thev are ex- shares in rom- ^ i 7 „ panies usually pressly declared by statute to be personal estate in the {!ftg°"^^ ''^- following cases: — - 1. Shares in companies governed by the Companies clauses con- solidation act (8 & 9 Vict. c. 16, § 7). 2. Shares in companies governed by the Companies act, 1863 (25 & 26 Vict. c. 89, § 22). Shares in other companies are also, as a rule, personal and not real, estate, by virtue of the general principles which have been already discussed. But it cannot be affirmed that shares *in companies are universally j^ersonal estate, inasmuch as *673 there are undoubtedly exceptional cases which render it nec- essary to examine the constitution of every company bc^fore the character of its shares can be determined. The point to ascertain is whether the shareholders have individually any interest in land as land, or whether their interest is represented by mere money, (n) In conformity, liowever, with the general rule, it has been held that shares in a waterworks company will pass under an unattested will if made before the present Wills act (o) ; that shares in dock, canal, mining, or railway companies are not interests in land witli- (&) See A.-G. v. Brunning, 8 H. L. C. Mortmain act, althougli by tlie deed of 243, and the case cited in the next note. settlement of the company the shares {I) Forbes v. Steven, 10 Eq. 178. were declared to be personal estate. (m) Baxter v. Brown, 7 Man. & Gr. This case was, however, disapproved iu 199. See, too, Rogers v. Harvey, C. B. Entwistle v. Davis, 4 Eq. 272. By act N. S. 1. Compare Bennett v. Blain, 15 of Parliament New River shares are real C. B. N. S. 581, and Freeman v. Gains- estate. See Townsend v. Ash, 3 Atk. ford, 18 C. B. N. S. 185, where the 336. See as to debentures the conflict- partners had no interest in the land, but ing cases of Holdsworfh v. Davenport, only in the proceeds of its sale. See, 3 Ch. D. 185, and Chandler v. Howell, also, Wadmore v. Dear, L. R. 7 C. P. 212. 4ib. 651. In re Mitchell's estate, 6 Ch. (n) See Morris v. Glynn, 27 Beav. D. 655, a railway mortgage debenture 218, where shares in an unincorporated was held not to confer an interest in iron company, working iron got from its land within the Mortmain acts, own estates, and having estates for (o) Bligh v. Brent, 2 Y. & C. Ex. oLher purposes than those of iron manu- 263, and Weekley*. Weekley, ib. 281, w. facture, were held to be within the 907 *674: ■ SHARES. [book iix. in the meaning of tlie Mortmain act : nor witliin tlie fourth section of the Statute of Frauds; and do not give a riglit to vote for mem- bers of Parliament, (^j) And after some conflict of opinion, it seems at last settled that this is so, although the shares are not ex- pressly declared to be personalty in the act, charter, or deed of set- tlement constituting the company. The cases establishing these propositions are here collected for reference : — 1. Shares not interests in land within the Mortmain Mortmain acts. acts. Land companies Entwistle v. Davis, 4 Eq. 272.* Dock companies, Hilton v. Giiaud, 1 DeG. & Sm. 183; * Sparling v. Parker, 9 Beav. 450;* Walker v. Milne, 11 Beav. 507.* Q'J^* *Railway companies, Asliton v. Lord Lang-dale, 4 DeG. & Sm. 402* (shares and scrip); Linley v. Taylor, 1 Giff. 67, and 2 DeG. F. & J. 84. Canal companies, Ashton v. Lord Langdale, ubi sup.;* Edwards v. Hall, 6DtG. M. & G. 74 ; Walker v. Mibie, 11 Beav. 507.* Gas companies. Sparlings. Parker, 9 Beav. 450.* Waterwork companies, Ashton v. Lord Langdale, ubi sup. ;* Banking companies, Ashton v. Lord Langdale, ubi sup. (2);* Myers v. Perigall, 11 C. B. 90, and 2 DeG. M. & G. 599.* Cost-book mining companies, Hayter v. Tucker, 4 K. & J. 243. Foreign mining companies. Baker «. Sutton, 1 Keen, 234. Insurance companies, see March v. A.-G., 5 Beav. 433, vyhere the question arose on the bequest of a poKcy payable out of the funds of the company. Statute of 2. Shares not interests in lands within the meaning frauds, i i. ^y the fourth section of the Statute of Frauds. Waterwork'companies, BUgh v. Brent, 2 Y. & C. Ex. 268 ; Weekley v. Week- ley, ib. 281, n. Cost-book Mining companies, PovfeU v. Jessopp, 18 C. B. 336; Walker v. Bart- lett, 18 C. B. 845 ; Watson v. Spratley, 10 Ex. 222. (r) *In all the oases thus marked, the deed of settlement. In the other cases shares were declared to be personal es. nothing was declared as to this point, tate by the company's charter, act, or O) Bulmer v. Norris, 9 C. B. N. S. {q) Ware v. Cumberledge, 20 Beav. 19 ; Aoland v. Lewis, ib. 32; Tepper v. 503, contra, was overruled in Edwards Nichols, 18 ib. 121. See, also, Bennett v. Hall, 6 DeG. M. & G. 74. V. Blain, 15 ib. 581, and Freeman v. (r) Vice v. Anson, 7 B. & C. 409, in Gainsford, 18 ib. 185, which it was held that a share iu a mine 908 CHAP, v.] SHARES. *675 Banking companies, Humble ». Mitoliell, 11 A. & E. 205. Railway companies, Duncuft v. Albrecht, 12 Sim. 189 ; Bradley v. Holdsworth, 3 M. & W. 422. Altliongli, liowever, shares in companies or partnersliips holding land are not interests in land, it does not therefore fol- shares, how far , , n 1 .1 p T T 1 goods and ohat- Jow that they have all the attributes oi goods and chat- ties, tels. They are not goods, wares, or merchandise within tlie excep- tion in the Stamp acts, exeuipting agreements relating to tlie sale of goods, shares, and merchandise from stamp duty (s.) Nor are *they goods and chattels within the seventeenth section *6T5 of the Statute ofFrauds, which requires an agreement for the sale of goods and chattels for the price of 10^. and upwards, to be in writing, (t) But as will be seen hereafter, shares are goods and chattels within the meaning of the reputed ownership clauses in the Bankrupt acts; their price may be recovered in an action for " goods and chattels " sold and delivered (u); they were io?ia nota- h'dia in the diocese where the chief office of the company was situ- ate (x); they are legal and not equitable assets (j/); they pass under a bequest of jjersonal estate (z); and they have been decided to be property in respect of which bail may justify. («) Whether shares in a cost-book mine are goods and effects attachable in the Lord Mayor's court lias been discussed, but not decided, (h) was real estate, and could not be trans- [t] See Humble v. Mitchell, 11 A. & ferred except by deed is scarcely consis- E, 205, as to banldng companies; Tem- tent with the modern decisions. In pest v. Kilner, 3 C. B. 249, as to pro- Boyce v. Gr;en, Batty, 608, cited in jected railway companies ; Watson ». Sugd. V. & P. p. 101, ed. 13, a share in Spratley, 10 Ex. 222, as to cost-back a mining company was held to be an in- mining companies; Bowlby v. Bell, 3 C, terest in land within the meaning of the- B. 284, and Duncuft v. Albrecht, 12 4th section of the Statute of Frauds, Sim. 189, as to railway companies. See, the share having been regarded as a too, Colt v. NetterviU, 2 P. W. 304; share of the land as land, rather than as Pickering v. Appleby, Conn. 354. a share of a money capital. If this {«) Lawton u. Hickman, 9 Q. B. 563, really had been so, the case would have railway shares. been rightly decided (see Watson v. {x) See A.-G. v. Higgins, 2 H. & N. Spratley, 10 Ex. 222 ; Hayter v. Tucker, 839, railway shares. 4. K. & J. 243) ; but having regard to [y) Cook v. Gregson, 3 Drew. 547. the terms of the Company's act, it is {z) Cadman v. Cadman, 13 Eq. 470, difficult to arrive at the conclusion that shares in a canal company, the shareholders had more than a mon- (a) Pierpoint v. Brewer, 10 Jur. 79. ey interest. (6) Tredinnick v. Oliver, 5 H. & N. (s) Knight V. Barber, 16 M. & W. 66. 780. 909 *676 AMOUNT OF EACH PAETNEE S SHAEE. [book hi. An action may, it is apprehended, be sustained by a shareholder Slander of wliose title is slandered, and who can prove special damage, (c) title. SECTION II.— OF THE AMOUNT OP EACH PARTNER'S SHARE. The proportions in which the members of a firm are entitled to the property of the iirra, or in other words, the am.oant of each partner's share in a partnership, depends upon the agreement into ■which the partners have entered. In the event of a dispute between the partners as to the amount of their shares, such dispute, if it does not turn on ths con- struction of written documents, must be referred *6T6 to a *jury. {d) And if there is no evidence from which any satisfactory conclusion as to what was agreed can be drawn (e), the shares of all the partners will be ad- judged equal. (_/)' Shares are prima facie equal. (c) See Malaohyi). Soper, 3 Bing.-N. C. 371. {d) As it was in Peacock v. Peacock, 16 Ves. 49; McGregor v. Bainbridge, 7 Ha. 164; Binf'ord v. Dommett, 4 Ves. 756. («) Stuart V. Forbes, 1 Mac. & G. 137; Webster v. Bray, 7 Ha. 159; Copland v. Toulmin, 7 CI. & Fin. 349. (/) Robinson v. Anderson, 20 Beav. 98, and 7 DeG. M. & G. 239; Peacock v. Peacock, 16 Ves. 49; Webster t). Bray, 7 Ha. 159; Farrar v. Beswick, 1 M. Rob. 627. ' A business apparently carried on in partnership without specific terms, is presumed to be upon equal terms, both as to profit and loss, and the partners are presumed to be equally interested until the contrary is shown. Farr v. Johnson, 25 111. 522; Moore v. Bare,'ll Iowa, 198; Stein v. Robe-tson, 30 Ala. 286; Roach «. Perry, 16111. 37; Ratzer V. Eatzer, 28 N. J. Eq. 136; Wolfe v. GUmer, 7 La. Ann. 583; Quine v. Quine, 910 17 Miss. 155; Taylor?). Taylor, 2 Murph. 70; Jones v. Jones, 1 Ired. Eq. 332; Turnipseed v. Goodwin, 9 Ala. 372; Honore v. Colmesnil, 1 J. J. Marsh. 506; Rider v. Gilbert, 16 Hun, 163; Honore v. Colmesnil, 1 J. J. Marsh. 506. Articles of co-partnership provided that two partners whp were to put in $2,500, should pay the other interest on the excess of capital put in by him, such capital being a building and machinery valued at $9,615, and that the losses in business and profits should be di- vided, one-half to him, and the other half among the other two; and further provided, that the partnership might be renewed when the term expired, and in that event the partners should become equal owners in the capital stock. The partnership was renewed by indorse- ment on the original articles: Held, that each became an equal owner; and that the property put in by the first having been destroyed by fire, the loss CHAP. V.J AMOUNT OF EACH PAETKEe's SIIAEE. *C76 This rule no doubt occasionally leads to apparent injustice ; but it is not easy to lay down any other rule which, under o^,servations the circumstances supposed, could be fairly applied, "nttismie. It is sometimes suggested tliat the shares of partners ought to be proportionate to their contributions; but without in any way deny-, ing this, it may be asked, how is the value of each partner's con- tribution to be measured ? Certainly not merely by the capital he may have brought into the firm. His skill, his connection, his command of the confidence and respect of others, must all be taken into account; and if it is impossible to set a money value on each partner's contribution in this respect, it is obviously impos- sible to determine in the manner suggested, the shares of the part- ners in the partnership. Nor can it be said to be unreasonable to infer, in the absence of all evidence to the contrary, that the part- ners themselves have agreed to consider their contributions as of equal value, although they may have brought in unequal suras of money, or be themselves unequal as regards skill, connection, or char- acter. Whether therefore, partners have contributed money equally or rmequally, whether they are or are not on a par as regards skill, connection, or character, whether they have or have not labored equally for the benefit of the firm, their shares will be considered as equal, unless some agreement to the contrary can be shown to have been entered into, {g) should be borne equally by all. Taft v. has contributed equally with him her Schwamb, 80 111. 289. labor and capital in a universal partner- In case of an association for manufac- ship, she wiU be entitled to half the turing purposes, not inc«rporated, in profits and immovables acquired with the absence of an agreement to the con- the proceeds of their business, which, trary, each will be liable in equal pro- though registered in his own name, he portions for any loss that may be sus- has in repeated letters acknowledged to tained, but, if by the articles of associ- be their joint property. Delamour v. ation, they are to share ia the profits Roger, 7 La. Ann. 153. in proportion to the stock each puts in, As between the parties forming a then the loss must be shared in the partnership, the executive or managing same manner. Flagg v. Stowe, 85 111. partner may bind himself to repay to 164. the other partner, on dissolution, the Partners share equally in the profits capital advanced by him, whether prof- arad losses of a firm, in the absence of its are made or not. Ford v. McBride, any agreement to the contrary, notwibh- 45 Xex. 498. standing they may have put in unequal (^) See the last three notes. Peacock portions of capital. Griggs v. Clark, ^. Peacock, 2 Camp. 44, and Shai-pe v. 23CaL427. See ^osi, 807, and note. Cummings, 2 Dowl. & L. 504, which Where the concubine of defendant ^as apparently decided on its authority, 911 *677 AMOUNT OF EACH PAETNEb's SHAKE. [BOOK III. "When it is said that tlie sliares of partners are prima facie equal, althougli their capitals are unequal, what is meant is that losses of capital like other losses must be shared equaiuy!"^ *677 equally;" *bdt it is not meant that on a final set- tlement of accounts, capitals contributed un- equally are to he treated as one aggregate fund which ought to be divided between the partners in equal shares. (A) An agreement for inequality may be conclusively inferred from Evidence the modc in which the partners have dealt with each showing ine- quality. other, aud from the contents of the partnership books, (i) Moreover, if an agreement for inequality clearly at one time existed, no presumption of any alteration in this respect will arise from tlie mere fact, that some of the original members have re- tired. In the absence of evidence to the contrary, the inference is that the shares of the retiring members have been taken by the continuing parties in the proportions in which these last were originally interested in the concern, (h) The rule that the shares of partners are equal, unless they have Rule as to pre- agreed for inequality, applies as well to persons who sumptive equa- , ... . . ^ ^^ i lity applies to are partners in business generally, as to those who are stagfe'^trans- ^ partners as regards one single matter only. Thus in „ , . ■ Kobinson v. Anderson {l\ where two solicitors, not in Robison V. ^ ■'' ' , Anderson. partnership, were jointly retained to defend certain actions, and there was no satisfactory evidence to show in what proportions they were to divide their remuneration, it was held that they were entitled to share it equallj^, although they had been paid separately and had done unequal amounts of work. The Master of the Rolls, after observing on the importance in sucli cases of attending to the onus p7'oiandi, said: "Now I should entertain no doubt, even if I had not been confirmed by the two cases of Webster v. Bray, and McGregor v. Bainbridge, that where two sohcitors undertake a matter of business on behalf of a chent, the same rule would follow cannot be supported. See, as to Scotch (k) Robley v. Brooke, 7 Bli. N. S. law, Thompson v. Wflliamson, 7 Bli. 90 ; and see Copland v. Toulmin, 7 CI. N. S. 432; 3 Ross, L. C. on Com. Law, & Fin. 349. 381. (?) 20Beav. 98, and7DeG. M. & G. ' See post, 807 and note. 239. See, too, Webster v. Bray, 7 Ha. (A) See ipfra, ch. 8, § 1, on partner- 159, and McGregor v. Bainbridge, ib. ship accounts. 164, note ; Hanslip v. Eitton, 8 Jur. N. (J) As in Stewart v. Forbes, 1 Mao. S. 835, V.-C. S. & G. 137. 912 CHAP. V.j SHAKES. *678 in that, as in any other undertaking, where two persons carry on a business jointly on behalf of themselves or as ag-ents of other persons. It is, in pomt of fact, a limited partnership for a particular sort of business. Assuming nothing to have been said as to the manner in which the profits were to be divided, it appears to me follow as a necessary consec^uence of la^v, that they are to be divided equally between them. *And although one may do more business, and *678 have exerted himself more than the other, yet if nothing is said upon the subject of profit, the presumption is that they are to be equally divided between them. It appears to me, that if the clients had gone to Mr. Robinson and Mr. Anderson, and said — We wishiyou to undertake the business for us, and thereupon Mr. Robinson and Mr. Anderson had both said. We agree to do so, and noth- ing had taken place between them as to the manner in which they were to be paid, the necessary consequences would have been that after payment of the costs out of pocket, the net profits made by the business would have been divisible equally between them, and that neither of them could say to the other — I have done more business than you have, and am therefore entitled to a larger share of profits. It was the duty of the party who intended that this should not be a partnership transaction, and that he should be paid for the amount of business which he did without participating in that of the other, so to express himself." A question of soroe diflScnlty arises when a firm, say of two partners, engages in a partnership speculation with a Applications of third person not a member of that firm. Is the inter- S-m comprises est of such person in the speculation to be treated as one half, the other two persons being treated as one? or is the in- terest of each of the three to be treated as equal, each taking one- third? The answer to these questions must depend upon whether the two partners entered into the speculation as a firm or as two individuals. If the former, there will in substance be only two parties interested in the speculation, and the profits thereof must be divided into two equal parts; whilst if the latter is the case, there will be three parties interested, and the profits must be divided into three equal parts. (»i) With respect to shares in companies, it is to be observed, that thev are formed in the first instance by dividing the Application of •' 1 '''^''^ '° shares capital of the company into equal parts, and the only in companies, question which can arise is as to the number of parts or shares to which the members of the company are respectively entitled. This is a mere matter of evidence; but supposing that it should so hap- pen that there is no evidence to show the number of shares held by the members or any of them, it would be difficult to come to any other conclusion than that each member was entitled to an equal (m) See Warner v. Smith, 1 DeGr. J. to be divisible into two and not three & S. 337, where the profits were held parts. =8 913 *G79 EQUALITY OF SHAKES. [bOOK III. number of shares, to be ascertained by dividing the total nnm- *679 ber of shares by the total number of members. *Shares in companies, like shares in partnerships, must be taken to be equal, unless the contrary is proved. In point of fact, shares in a company always are equal, except when there have been successive issues of shares arising from suc- cessive increases of capital. But it sometimes happens that acapi- shares in com- tal of a Certain amount divided into a certain number paiiii;s some- ... /. n tiniL's unequal. 01 equal shares, is raised; and that tlien a lurtlier capi- tal is raised by the issue of a certain number of new shares, equal to each other, but not equal to the old shares. Moreover, it some- times also happens, that whilst the old shareliolders have paid up their shares in full, the new shareholders have paid in respect of theirs, less than the amount per share paid up by the old share- holders. In such a case there is not only inequality of shares, but inequality of money paid in respect of them; and questions then arise as to the relative rights of the holders of the diiferent kinds of shares, and especially with respect to the payment of dividends, and in case of dissolution, the apportionment of surplus assets. Generally speaking, such questions are determined by reference to the company's act, charter, or deed of settlement; but where they cannot be so determined, the rights of the shareholders to profits and surplus assets will be proportionate to the money paid to the company in respect of their respective shares, and not to the nomi- nal value of such shares. If one shareholder has paid 100/., and another only 501., it is clear that unless some reason to the con- trary can be shown, the first ought to receive for dividends,' and surplus assets, twice as much as the last, (n) SECTION III.— OF THE LIEN WHICH EACH PARTNER HAS ON THE PROPERTY OP THE FIRM, AND ON THE SHARES OP HIS CO- PARTNERS. In order to discharge himself from the liabilities to which a person may be subject as partner, every partner has a right to have the property of the partnership applied in payment of the debts and liabilities of the firm. And in order to secure a («) See Somes v. Currie, 1 K. & J. 605. 914 CHAP. L.] SHAKES. ''GSO *proper division of tile surplus assets, he has a right to have *680 whatever may be due to the firm from his co-partners, as members thereof, deducted from what would otherwise be payable to them in respect of their shares in the partnership. In other words, each partner may be said to have an equitable lien on the partnership property for the purpose of Foundation of having it applied in discharge of the debts of the firm; partner's iien. and to have a similar lien on the surplus assets for the purpose of having them applied in payment of what may be diie to the part- ners respectively, alter deducting what may be diie from them, as partners, to the firm, (o)' (o) West V. Skip, 1 Yes. S. 239; Skipp V. Harwood, 2 Swanst. 586; Doddiiigton V. HaJlet, 1 Ves. S. 498 and 499; Ex parte Ruifin, 6 Ves. 119; ExparteWil- liams, 11 ib. 3; Holdemess v. Shackels, 8 B. & C. 612. Smith v. DeSilva, Cowp. 469, can hardly be reconciled with the other cases, but see upon it the observations of Lord Tenterden, in 8 B. & C. 618. As to the right of a minority of partners to insist on the payment of a partnership debt out of the partner- sliip assets, see the observations of Tur- ner, V.-C, in Stevens v. The South Devon Rail. Co. 9 Ha. 826. Any mem- ber of an ordinary firm is at liberty to pay any debt of the firm, and to charge the firm with the amount paid. > See Matlock v. Matlock, 5 Ind. 404; Strange v. Graham, 56 Ala. 614; Wade it. Rusher, 4 Bosw. 537; Allen v. Haw- ley, 6 Fla. 142; Boyce v. Coster, 4 Strobh. Eq. 25; Hunt v. Benson, 2 Humph. 469; Sage V. ChoUar, 21 Barb. 598; Talbot V. Pierce, 14 B. Mon. 195; Saloy v. Al- brecht, 17 La. Ann. 75; Parish v.- Lewis, 1 Freem. (Miss.) Ch. 299; Don- elsoh V. Posey, 13 Ala. 752; Duryea v. Burt, 28 Cal. 569; Pearson v. Keedy, 6 B. Mon. 128; Black v. Bush, 7 id. 210; Crookert). Crooker, 46 Me. 250; Wil- liams V. Love, 2 Head, 80; Frith v. Lawrence, 1 Paige, 434; Con well v. Sandidge, 8 Dana, 273; Meador v. Hughes, 14 Bush, 652; Warren v. Tay- lor, 60 Ala. 218; Parker v. Parker, 65 Barb. 205 ; Meridau Nat. Bank v. Brandt, 51 Ind. 56; Pearl v. Pearl, 1 Tenn. Ch. 206; Nelson v. Hayner, 66 111. 487; McCauley J). Fulton, 44 Cal. 355; and cases there cited. See, also, Ex parte Shepherd, S Tenn. Ch. 189; Mil. ler V. Price, 20 Wis. 117; White v. Col- fax, 33 N. Y. Superior Ct. 297. An agreement between two firms to purchase hogs and pack pork, one season on joint account, constituted a partner- ship as to that adventure, and wheth- er regarded as a partnership or on joint account, the same equities exist be- tween the parties. The fact that one firm had control of the product, and could alone sell, did not destroy the right of the other to have the partner- ship assets applied to the payment of the partnership debts. Meador v. Hughes, 14 Bush, 652. The eifects of a partnership cannot be exempted from payment of the firm debts without the consent of all the partners; and if a mere dissolution takes place, it will be presumed that the one partner to whom the assets' are handed over, holds them in trust to pay the firm debts, etc. People v. Till, 3 Neb. 261. Where a partner sells his interest to a stranger, or it is sold upon execution against him, his right to have the part- nership debts paid, and his liability 915 "G80 SHARES. [book in. This ri,i(lit, lien, ^Masi-lien, or whatever else it may be calletl, does not exist for any practical purpose until the affairs Consequences ■' ' r i ofiheiien. ^f i]^q partnership have to be wound up, or the share of a partner lias to be ascertained; nor has any partner a right to insist as against a judgment creditor of the firm, tliat he shall have recourse to the assets of the firm before seeking to obtain payment from the partners individually, (p) But when partnersliip ac- counts have to be taken, and the shares of the partners have to be therefor discharged out of the property, is not divested by the sale. This right is not affected by the fact that the sep- arate interests of all the partners are thus disposed of. Menagh «. Whitwell, 62 N. Y. 147. If the assets of a firm composed of A, B and C are applied to pay the debts of a former firm of A and B, without C's consent, A and B are liable in solido to A, B and C, and A and B in equity are liable to C for his share if such debts. Raigul's Appeal, 80 Pa. St. 234. D. and P. shipped a cargo on a for- eign voyage on a joint account, in the name of D.; after the vessel sailed, D. assigned his undivided moiety for the benefit of creditors, and the return cargo came into the hands of his trustees. They refused to pay P. more than his undivided moiety of the proceeds of the return cargo, but it appearing that in fact he had paid more than his moiety on account of this partnership transac- tion, and with a view to it: Held, upon a biU filed against the trustees, of which he was one, that he had a hen on D.'s moiety of the proceeds for his reimburse- ment. Pierce v. Tieman, 10 Gill & J. 253. If, on the settlement of the fii-m af- fairs, one partner is found to be indebted to the other, the latter may retain enough of the firm assets to cancel the indebtedness, if they are in his hands, and the firm debts are all paid; but if he does not have such means in his hands, and cannot procure them, his only remedy is to collect the amount from his pirlner as a debtor. Mack v. Woodruff, 87 111. 570. That a partnership may happen to be in debt does not, however, give one partner the right to prevent the other from taking possession of the partner- ship property. Carithers v. Jarrell, 20 Ga. 842. A retiring partner who, upon dissolu- tion of a firm, has withdrawn part of the assets for his individual use, will not be sustained in holding such fund, unless there is clear proof that the fund left for creditors of the firm was ample for all demands. That he ha.s invested the fund withdrawn in a homestead gives it no protection, at least as against pro- ceedings in equity. Ee Sautholf, 16 Bankr. Reg. 181. Ordinary joint owners may at their pleasure sell their joint interest and then destroy their joint tenancy. A partner cannot sell his interest in the partner- ship property so as to deprive his co- tenants of their lien on the property for partnership debts or liabilities due from the party selling, nor can a mortgage executed by one partner have such effect. Whitmore v. Shiverick, 3 Nev. 288. .In a controversy between one partner and a purchaser from the other, after the dissolution of the partnership, it is competent to show that the partnership debts had all been paid prior to the sale. Hobendobler v. Lyon, 12 Kan. 276. [p) See ante, p. 516. 916 CIIAP. T.] PAETNEE S LIEN. *681 ascei'taineil, the lien of the partners on tlie assets of tlie partner- sliip, and on eacli other's shares, becomes of the greatest import- ance. Whilst the partnership lasts, the lien attaches to what prop- to everything that can be considered partnership prop- erty it attaches, erty, and is not therefore lost by the snbstitntion of new stock in trade for old. (q) Further, on the death or bafllcinptcy of a part- ner, his lien continnes in favor of his representatives or trus- tees, and does not terminate until his share *has been ascer- *681 tained and provided for by the other partners, (r) But af- ter a partnership has been dissolved, the lien is confined, to what was partnership property at the time of the dissolution, and does not extend to what may have been subsequently acquired by the persons wiio continue to carry on the business. In this respect the lien in question differs from the lien of a mortgagee on a vary- ing stock-in-trade assigned to him as a security for his loan, (s) It follows from the principle on which the lien of a partner is founded, that it only extends to the property of the Lien exists .. 11 • „ , . only on part- lirm, and to the separate interest ot each partner m nersMp assets, such property.' In those cases, therefore, where there is a partner- The lien of a partner on partnership effects arises on a balance clue him on the partnership accounts, occurrmg after as well as before a dissolution. Hodges V. Holeman, 1 Dana, 50. One part owner of merchandise, who has given bonds, as principal, to secure the payment of the duties thereon, and who afterwards pays the duties, acquires no lien upon the merchandise by vii-tue of any statute of the United States. Ladd V. Billings, 15 Mass. 15. Where one of the members of a part- nership put in, as part of his share of the capital, the land on which mills (the partnership property) were built, but did not make any conveyance to the others, and sold out, reservhig a lien on the land for the price, and on a settle- ment, was found indebted to another partner: Held, that it was erroneous, after decreeing against hun personally the amount of his deficiency, to decree him to convey the land to the firm for the benefit of purchasers, and thereby defeat his own hen. Savage v. Carter, 9 Dana, 408. •The lien which partners have upon the partnership property, to enforce its application to the payment of the part- nership debt, attaches to all their joint prop&ty, but relates no further. Part- ners, as such, have no other equities in relation to the separate property of each other, than separate creditors. Mann v. Higgins, 7 Gill, 265. See, (q) See West v. Skip, 1 Ves. S. 239; Skipp V. Harwood, 2 Swanst. 586; Stocken v. Dawson, 9 Beav. 239, and 17 L. J. (Ch.) 282. Compare the cases in the next note but one. (r) See Stocken v. Dawson, 9 Beav. 2G9, affirmed 17 L. J. (Ch.) 282, and the cases cited in note (g). (s) Payne v. Hornby, 25 Beav. 280. See, too, Nerot v. Burnand, 4 Russ. 247, and 2 Bli. N. S. 215, ante, p. 646. Ex parte Morley, 8 Ch. 1026. Compare the cases in the last note but Ome. 917 *682 SHAKES. [book III. ship in profits on]y, but that wliich produces those profits belongs exchisively to one of the partners, the lien of the others is confined to the profits, and does not extend to that which produces them, (ty Moreover, if two persons engage in a joint adventure, each con- signing goods for sale upon the terms that each is to have the produce of his own goods, neither of thein will have a lien on ti;e goods of the other, nor on the produce of such goods, although each may have raised the money to pay for his own goods by a bill drawn on himself by the the other, and ultimately dishonored, (u) The lien of each partner exists not only as against the otlier Lien exists as partners, but also against all persons claiminfr tlirou'>-h against all per- ' r. ^ i ■ i '' sonsciaiminga them or any of them: and it is therefore available share lu the / assets. against their executors, execntion creditors, and trus- tees in bankrnptcy. (w) To hold, however, that this lien could be enforced against persons purchasing partnership property, would be in effect to prevent any sale of that property without the con- sent of the whole firm, and would practically stop all partnership trade. Whilst, therefore, a person who purchases a share of a partner takes that share subject to the liens of the other *682 partners {x),' a *person who ho?id fide purchases from one also, Mack v. Woodruff, 87 lU. 570. Co-partners cannot claim an equitable lien in property purchased by one part- ner with money which he has dra\vn by their consent from the firm, though in excess of his share. MoCormick v. McCormick, 7 Neb. 440. Where a partner in a firm purchased a slave in his own name, but used the means of the firm for a small part of the purchase-money, and the slave was afterwards employed, in part, in the service and for the convenience of the firm, without compensation for such employment: Held, that the partner purchasing the slave was chargeable in an account between the partners, for money of the firm apphed to his own use, but that the firm had no lien on the slave for such money. Cabaniss v. Clark, 31 Miss. 423. ^ Where one partner simply puts mto the firm the use of his machinery or other personal property, and the other advances money and assumes habilities, the latter being in possession, vrill have the right to retain the property until he is reimbursed for any excess paid by hun, and for indemnity against out- standing liabilities. Flagg v. Stowe, 85 III. 165. "Boycet). Coster, 4 Strobh. Bq. 25; Glynn v. Phetteplaoe, 26 Mich. 383. Each member of a partnership has a lien on the shares of his co-partners, for extra advances made by him, enforce- (<) See infra, as to the Ken of co- cited, ante, note (g). owners. {x) Cavander v. Bulteel, 9 Ch. 79. See (m) Ex parte Gem m el, 3 M. D. & D. as to companies with transferable shares, 198. infra, {v) West V. Skip, and other cases 918 CHAP, v.] SHARES. *682 partner specific chattels belonging to the firm, acquires a good title to such chattels, whatever liens the other partners might have had on them prior to their sale, {yj In re Langmead's trusts a partnership between A. and B. was dissolved. A. retired, and by deed agreed to execute ^e Langmead's an assignment to 13. of the partnership assets (part of trusts. which consisted of a policy of which the partners were assignees), and B. agreed to covenant to pay the partnership debts, and indem- nify A. against tliem. 'So further instrument was executed. A. died, and B. afterwards assigned the policy by way of mortgage to a person who had notice of the deed. A.'s executors \i!QYe after- wards compelled to pay partnership debts, which ought to have been discharged by B., and B. became bankrupt. The policy being adversely claimed by the mortgagee, by A.'s executor, and by a purchaser from B.'s assignees, it was held that, even if A. and his executors had been entitled to pursue any portion of the partner- ship property in the hands of B., and to have it applied in pay- ment of the partnersliip debts, yet that they had no such right as against the purchaser from B., though with notice, for he was not bound to see to the application of the purchase money, (z) able on the dissolution of the partner- sliip; and where a new partner bought the interest of a retiring partner, who was indebted to the firm, agreeing to indemnify him against all the partner- ship debts: Held, that they must be considered as purchasers with notice, and that the lien of'the remaining part- ner must be satisfied, before a mort- gage given by the new pai'tners on the share bought by them, to the retired partner, could be paid out of the part- nership effects; that advances made subsequently to the date of the mort- gage must be postponed to it; and that on a bill to foreclose such mortgage, all the members of the partnership are necessary parties. Conwellt). Sandidge, 8 Dana, 273. (y) See Re Langmead's Trusts, 20 Beav. 20, and 7 DeG. M. & G-. 853. ' The pai'tner to whom a balance is due, has a lien upon the partnership property and upon other property into which it may have been converted by the debtor partner, not only as against him, but as against all assignees of it who are not hmia fide purchasers of it for value. Wade i. Rusher, 4 Bosw. 537; Meridan Nat. Bank v. Brandt, 51 Ind. 56; Williams v. Love, 2 Head, 80; Pierce v. Wilson, 2 Iowa, 20; Addison V. Burckmyer, 4 Sandf. Ch. 498. One partner cannot, by a conveyance in trust for the payment of his individ- ual and partnership debts, defeat the lien of the other partner on the partner- ship funds. Bank of Kentucky o. Hern- don, 1 Bush, 359. Parties, however, who have purchased, and in good faith paid for the stock of a partnership concern, are not liable for the debts of that concern, nor are the goods liable. Frank v. Peters, 9 Ind. 343. («) Ibid. 919 *(]S3 partnee's lien. [book III. Tlie lien of partners on the partnership property extends, as has Nn lien on a becn Stated, to whatever is due to or t'roni the firm, by partnur's share i i f t t i inr ordinary or to tlie meiubers thereof, as such, it does not, how- debts due Irom Til. him to firm. ever, extend to debts incurred between tlie firm and its members, otherwise tlian in their character of members." It has therefore been lield that where a partner borrowed money of the firra for some private purpose of his own, and then became banlt- rupt, his assignees were entitled to his share in tlie partnership, ascertained without taking into account the sum due from him to the firm in respect of this loan; and that the solvent partners were driven to prove against his estate in Order to obtain payment of Application of ^^i^ money lent, (a) This qnalifioation of the companies. *6S3 general rule *is peculiarly applicable to compa- nies, and to debts contracted between them and their members. And it has been held that if a sliareholder in a company borrows money of the company for purposes of his own, and the company deals with him as if he were a strangei-i it has no lien on liis shares in respect of the money so borrowed (5), unless there is some special agreement creating such a lien, (e) Further, a partner's lien on partnership property, is lost by the conversion of such propertv into the separate proper- Loss of lien. „ , ^ ^_^, •' „ .„ '■'. ^ "^ . . ty of another partner, inerefore, if on a dissolution it is agreed between the partners that the property of the firm shall be divided in specie among them, and that the debts shall be paid in some specified manner; and if the property is accordingly di- ^ Although one partner has alien upon advance, beyond his share, is only inter the partnership eflf'eots for moneys ad- se, and not a lien against creditors of vanoed by him to the partnership be- the firm. Ketchum v. Durkee, 1 Hoffm. yond his share of the capital, he has no 538. such lien for money advanced or lent to (a) See Ryall v. Bowles,.! Ves. S. an individual partner, though a mort- 348, and 1 Atk. 165; and Mehorucohi gage or judgment against such partner, v. The Royal Exchange Ass. Co. if properly executed or entered, will be 1 Eq. Ab. 8 ; and Croft v. Pike, a prior lien on such partner's share. 3. P. W. 180. Perhaps Smith v. Ds Uhler V. Sample, 20 N. J. Eq. 288. Sdva, Cowp. 469, was decided on this Money borrowed or goods bought by principle, as suggested by Lord Tenter- one partner on his own security only, dan, in 8 B. & C. 618. whether before or dming the existence of (6) See Pinkstt v. Wright, 2 Ha. 120 ; the partnership, although used for part- afErraed 12 CI. & Pin. 764. nership purposes, and with the knowl- (c) As there was in Hague v. Dande- edge of the other partner, is not suffi- son, 2 Ex. 741 ; Ex parte Plant, 4 Deao. cient to make the lender a creditor of & Ch. 160. See infra, p. 686. the firm; and the partner's lien for the 920 CHAP. V.J PAETNEE S LIEN. -X- ''' Q *■ vicled, but the debts remain mipnid, the lien wbicb eacb partner liad on the property before its division is gone: and consequently no partner has a right to have the specific things, allotted to any other partner, brought back into the common stock, and applied in liquidation of the partnership liabilities, (d) ' Upon the same {d) Lingen r. Simpson, 1 Sim. & Stu. 600; and see re LangmeacVs Trusts, 7 DeG. M. & G. 353; the judgment of L. J. Turner. 1 Robertson v. Baker, 11 Fla. 192; Giddings v. Palmer, 107 Mass. 2^9. The lien of partners upon the part- nership property may be lost, either by a sale in good faith to a third person, or by the retirement of one partner from the firm, disposing of his interest to the other partner, or to a third person, with his co-partner's consent, and taking the assumption of his co -partner or of a third person, to discharge all the firm debts. McGregor v. Ellis, 2 Disney (Ohio), 286; Croone v. Bivens, 2 Head, 339; West V. Chosten, 12 Fla. 315; Grif- fith V. Buck, 13 Md. 102, Andrews v. Mann, 31 Miss. 322; Miller v. Estill, 5 Ohio St. 508; Vosper v. Kramer, 31 N. J. Eq. 420; Ladd v. Griswold, 4 Gihn. 25; Parish «. Lewis, 1 Freem. (Miss.) Ch. 299; Hapgood v. Cornevell, 48 111. 64; Smith v. Edwards, 7 Humph. 106. See, however, Morss r. Gleason, 64 N. Y. 204, where it was held that where a member of a finn transfers his interest therein to a third person, who is received into the firm as a partner in his stead, he thereafter occupies the position simply of surety for the firm debts to the extent that the assets of the firm are sufficient for theii payment, and that such assets are held by the new firm, charged with a trust for the payment of the debts of the old firm. Morss v. Gleason, 64 N. Y. 204. See, also, Ketchum v. Durkee, 1 Hoff. 538. In Biddle v. Moore, 3 Penn. St. 161; A, by the articles for a dissolution of partnership with B, agreed to convey certain land to B in consideration ( f B's assuming and paying the debts of the concern, except certain ones speci- fied, which A agreed to pay, on being furnished with notes of thuxl persons to a certain amount. The land was sub- sequently sold by the sherift' as the prop- erty of B : Held, that it was compatent for A, by an equitable ejectment and conditional verdict, to enforce pay- ment of the purchase-money due him- self, the debts of the firm, and those debts which he had agreed to pay on conditions not performed by B. A promise, by a partner who has pur- chased his co-partner's entire interest in the firm, that he will pay the finn debts, creates only a personal obUgation, and not a lien on the partnership effects, which may still be used by him in pay- ment of his individual debts ; and when so applied, the individual creditor taking them without notice of any such prom- ise, stands in the position of a purchaser for a valuable consideration, and holds free of any firm creditor's hen. Hap- good V. Conievell, 48 111. 64. So, a mere covenant by a remaining partner to pay the partnership debts, and to indemnify the outgoing partner against them, raises in his favor no equity to have the firm property applied to the payment of firm debts. Upon such a covenant the outgoing partner can look only to the personal indemnity, and cannot require the application of the partnership property to the payment of the debts. Cory v. Long, 2 Sweeny, 491. When one partner sells out to another the former's interest in the partnership, the question whether the former has a 921 *GS3 PAETXER s Li:;x. [book in. ]3rinciple, if two partners consign goods for sale, and direct the con- signee to carry tlie proceeds of the sale equally to their separate ac- counts without any reserve, and this is done, neither partner has right after the sale to require the part- nership estate to be applied to the part- nership debts in his exoneration, depends upon the true meaning of the contract of sale in this respect. Under the con- tract in this case, the vendor has a right to have all the assets of the partnership so applied. ShacMefords. Shacldeford, 32 Grat. 4-81. But if one partner assign his interest to his co-partner, who binds hiitself to appropriate the partnership property to the payment of the debts of the firm, the assignee becomes a trustee for the creditors and for the assignor, and will be compelled by a court of equity to discharge his trust. Sedan v. Williams, 4 McLean, 51. Where two partners agreed with an ex-partner that certain notes should be applied to the payment of debts of the partnership of which the three were members, the ex-partner thereby ac- quires a mere equity to have this agree- ment performed, which can only be en- forced against those who have notice of it. Commercial Bank of Manchester v. Lewis, 21 Miss. 226. A, being a mere nominal partner m a firm, having, in fact, a salary, left it, taking a bond of indemnity against the partnership debts from the other part- ners, who formed a new partnership, and the new firm assigned a part of the partnership property 'to a creditor in payment of a debt. A, having paid debts of the old firm, filed his bill in e(^uity to have such assignment set aside as fraudulent as to him : Held, that A had no right of preference over any other creditor of the new firm, as he was a simple contract creditor of it, and had his remedy at law like other credit- ors. Stone V. Manning, 2 Scam. 530. If, on the formation of a new firm by 922 the addition of another partner, the original stock of goods is credited equal- ly to the two old partners, as their re- spective shares of the capital stock of the new company; and on the death of. one of the original partners, his admin- istrator obtains a decree iu chancery, on settlement of the partnership accounts, for the intestate's share of the partnei-- ship effects, the surviving original part- ner has no lien on this fund, for the pay- ment of the original partnership debts. Coffin V. McCullough, 30 Ala. 107. A sale by a commercial partner, on the eve of failing, of all his interest in the partnersliip to his co-partner, is void, and Will be set aside. The partnership property is the common pledge of the partnership creditoiri, who must be paid out of it before the individual creditors of the members ; and if not fully paid, they may pursue either partner, but with no higher rights upon his individual property than his individual creditors have. Saloy v. Albrecht, 17 La. Ann. 75. When a partner purchases his co- partner's entire interest in the firm, takes upon himself all the partnership debts, and afterwards absconds, leaving his individual and the partnership debts unpaid, a court of equity will reinvest the retiring partner with his original rights as partner, giving him a lien on the partnersliip assets for the pay- ment of partnersliip debts. McGrOwn v, Sprague, 23 Ala. 524. Where one partner sells out his inter- est in a firm to a third person and takes securities for the price, they form no part of the firm assets, but are his private property and upon or over which his former co-partner has no lien or con- trol. The latter may file a bill to wind up the concern and have its assets ap- plied to the payment of its debts ; but CUAP. V.J SHAEES. *684 any lien on the share of the otlier in those proceeds; although it would have been otherwise if they had remained part of the com- mon property of the two. (e) If a partnership is illegal its members have no lien upon 'their common ijroperty, or upon each other's shares therein No lien if part- r ^\ 1 • 1 1 • n n riersliip is ille- (/}; unless it be by virtue ot some agreement not at- gai. fected by the illegality. Mere co-owner have no such lien as is enjoyed by *co-partners. {g) But a part owner of a sliip *684: Lienofoo-own- has a right to have the gross freight applied in the fii'st place in payment of the expenses incurred in earning it. (A) in order to do so, he must bring in as defendants the persons owning the in- terest of the retiring partner, who hold their purchase subject to the partner- ship aooonntmg. Glynn v. Phette- pla,ce, 26 Mich. 883. A partnership lien is waived by a partner's purchase of his deceased part- ner's interest at administrator's sale. Hart V. Clark, 64 Ala. 490. The acceptance by one partner of a mortgage made by another partner to secure a balance due from him has been held to vacate and neutralize the part- nership lien to that extent. Robertson V. Baker, 11 Fla. 192. See, however, Hodges v. Hoceman, 1 Dana, 50, where it was held that the lien of a partner, for a balance on the partnership accounts, is not an incident of the legal title to the effects, but re- sults from the partnership, and is not affected by the mortgages of either part- ner on his share. So in Warren v. Taylor, 60 Ala. 218, it was held that where the partnership name is used, with the consent of both partners, in boiTO wing money for the in- dividual accommodation of one, who ex- ecutes to the other a mortgage on his in- terest in the partnership property as security, and the latter pays the debt, his Hen as a partner upon the partnership property, for the sum so p;dd, is not dependent on the mortgage or its registration, and is superior to the lien of a prior unrecorded mortgage, of which he had no notice, but which was recorded before his, and was given for the individual debt of his co-partner. See, also, Irwin v. Bidwell, 72 Penn. St. 244. Though real property, purchased with the effects and used for the purposes of a mercantile firm, may in equity be lia- ble to discharge the balance due from the company to any partner, in prefer- ence to the private creditor of any other partner, it is nevertheless competent to the members of such co-partnership to acquire such property jomtly as indivi- duals, or to lose the lien aforesaid by acts tending to mislead or deceive cred- itors or purchasers in this particular; as where the deed neither describes the parties purchasing as merchants and partners, nor states that the purchase was made for the use of the firm, but merely purports a conveyance to them as individuals. Forde v. Herron, 4 Munf. 316. (e) See Holroyd v. Griffiths, 3 Drew. 423. In Holderness v. Shakels, 8 B. & C. 612, the transfer to each partner was subject to the hen which was not there- fore lost. (/) See Ewing v. Osbaldiston, 2 M. & Cr. 88. {cj) Kay V. .lohnston, 21 Beav. 586. (li) See Green v. Briggs, 6 Ha. 395; 923 *6S5 company's libit. [book hi. By analogy to tlie doctrine that each memher of an ordinary Lien of compa- partnership has a lien on the shares of his co-partners ny on share of , / member. tor wliat IS due from them as partners to tlie nrm, every- company should have a lien on the shares of its members for what may be due from them to the company in respect of such shares. The writer is not aware of any case expressly establishing such a lien in favor of companies generally; but he conceives that its existence cannot be successfully disputed, except whete it is in- consistent with an express right of transfer; and he has not met with any decision or dictum inconsistent with this view. It must, however, be observed that the lien which each partner Lienor one has On the assets of the partnershii), and on the shares sliari'holdcr as - . i i i i . ■ i • against another, ot liis co-partiiers. Cannot be held to reside m every member of a company, without considerable modification; for its existence is to a great extent inconsistent with the principle that a company is distinct from the individuals composing it, and would destroy many of the advantages resulting from that principle. „, „ , Upon these grounds Lord Cottenham, in Kheara v. Smith. Smith {i), declined "to restrain a creditor of a company from proceeding at law against one of its members; although the creditor was himself a member of the company, and it was insisted that each member had aright to have the accounts of the company taken, and to have its assets applied in payment of its debts. Again, the ordinary partnCirship lien is inconsistent with an nn- Lienofcompa- restricted right of transfer. Hence it was held, in due'^to'u?'^ Pinkett v. Wright (/o), that an Irish banking company _. , ., had no lien on the shares of one of its shareliolders for PmKett V, Wrigiit. advances made to him by the bank. The Court was of opinion that with respect to the advances, the shareholder 685* was in the position of an *ordinary customer to whom the bank had advanced money, and that what was due from him as a customer did not give any right of lien upon his shares. The ques- tion arose between the bank and a transferee of the shares of the customer; and to have allowed the lien would have gone far to de- stroy the transferability of the shares. The inconsistency of the Alexander v. Simms, 18 Beav. 80, and Plumraer, 1 B. & A. 582. 5 Dea. M. & G. 57; Lindsay v. Gibbs, (») 2 Ph. 726. See, too, Hardinge v. 22 Beav. 522, and 3 DeG. & J. 690. See, "Webster, 1 Dr. & Sm. 101. as to the Hen of the master on freight, {k) 2 Ha. 120, and 12 Gl. & Fin. 764, Bristow V. Whitmore, 4 DeG. & J. 325, sub nomine Murray v. Pinkett. reversing S. C. Johns, 96; Smith ». 924 CUAP. V.J SHARES. *686 lien contended for witli the general objects of the company is well put by the Yice-Cliancellor Wigram in the case in question. " It was said that Wright, as a proprietor of shares in the bank, was a partner with the other proprietors of shares — that by the general rules of law which regu- late the rights of partners inter se, persons claiming an interest in Wright's shares could only claun such interest, subject to all the equities between Wright and his partners, and that, by such general law without any special contract, the money owing by Wright to the banli was a charge or lien upon his interest in the capital .of the concern, which would justify the bank in refusing to transfer his shaves un- til the debt was paid. This argument I have little hesitation in rejecting. In the case of ordinary partnerships a partner can retire and withdraw his capital from the concern only upon a dissolution of a partnership, and it is upon taking the gen- eral partnership account between the partners that the i-ight of setting off the debt of each partner in account with the pa.rtnership arises. The essential distinction between a partnership like that of the Provincial Bank of Ireland and an ordinary trading partnership, consists in the power and privilege which by the provisions of the deed of settlement are given to a proprietor to retire and withdraw his capital from the concern without the dissolution of the partnership, by transferring his shares to another. This power and privilege constitute very main inducements to the investment of capital in concerns like that of the Provincial Bank of Ireland, and thereby enable the society or partnership to raise a capital and carry on trans- actions, which it would be impracticable to raise or carry on upon the basis of an ordinary mercantile partnerfhip. The consequences, which, aa between a share- holder and the company arise by operation of law alone upon a transfer of shares, cannot therefore be inferred from those which attach upon the dissolution of an or- dinary partnership. There is an absence of that analogy between the cases which would support such an inference. The consequences arising upon a transfer of shares must be sought for in the provisions of the deed of settlement, or in some rule of law not repugnant to those provisions. Now, after a perusal of the deed of settlement constituting the Provincial Bank of Ireland, I have come to the conclu- sion that a right like that claimed by the bank in this case against the plaintiffs would be repugnant to the scope and provisions of the deed of settlement, and that such claim cannot be sustained except by special contract. In the absence of any special contract giving the bank a lien upon the shares of a proprietor in res- pect of money lent by the bank to such proprietor, I am satisfied the proprietor must be considered and treated by the Court as any stranger who might borrow money of the bank in the course of their ordmary dealings as a baiik with a cus- tomer." *It need scarcely be observed, that if it is expressly en- *686 acted or agreed by the members of a company that the com- pany shall have alien on their shares for all moneys which may be due from them to the company on any account what- Agreements ever, a lien will be created in cases where it would not otherwise have existed; and the lien so created is not a mere pas- sive right of retainer, but an equitable charge actively enforce- 925 *687 SALE OF SHAEE UNDER FIEEI FACIAS. [bOOK III. able (I); and so far as it gives a right to prevent a transfer, it is available against all persons claiming under a member indebted to the companj'. (m) "Whether it prevents a transfer if the member has given the company a bill for the amonnt due, and such bill is still running, depends upon the true construction of the enactment or agreement. The currency of the bill will usually be found to suspend the lien (n); but a case may arise where it does not pro- duce this effect, (o) The language of the clause confirming the lien will, moreover, usually be found to extend it not only to the shares, but to the dividends and other moneys payable in respect of them.(_p) As regards banking companies governed by 7 Geo. 4, c. 46, it is Lien of compa- expressly enacted tliat no claim which any member ijy%frtIc™M Kiay have in respect of his share sliall be set off either 6 atu es. ^^ jg^ or in equity against any demand which the com- pany may have against such member, on account of any other mat- ter or thing whatsoever, [q) Unpaid up shares in a company governed by the Companies clauses consolidation act, are not transferable so long as anything is due to the company from their holder for calls eitlier upon them or upon any other shares, (r) Cost-book mining companies ai-e not bound to recognize *687 *transfers, unless all calls on the shares transferred, with interest and expenses, have been paid, (s) As regards companies governed by tlie Companies act, 1862, Table A., it is provided that the comj)any may decline to register any transfer of shares made by a member who is indebted to them, (t) The act itself, however, contains nothing on the subject, neither does the Letters Patent act, 7 Wm. 4 & 1 Yict. c. 73. (?) iJe Lewis, 6 Ch. 818. advances made to him as a customer, (m) Ex parte Plant, 4 D. & C. 163. but see as to this, ante, p. 682. in] Stockton Malleable Iron Co. 2 Ch. (?) 1 & 2 Vict. c. 96, § 4. See Ex D. 101, which see as to the words "due" ^arfe Davidson, 1 Mon. M. D. & DeG. and " indebted." 648; Ex parte Caldecott, 2 ib. 368. (o) Lond. Birm. and S. Staff. Bank, (r) 8 & 9 Vict. c. 16, § 16; Hubbersty 34 Beav. 332 ; but see the case in the v. Manchester, Sheffield, etc. Rail. Co. preceding note. L. R. 2 Q. B. 59 and 471. [p] Re Lewis, 6 Ch. 818; Hague v. (s) 32 & 33 Vict. c. 96, § 14. Dandeson, 2 Ex. 741. It was assumed [t] 25 & 26 Vict. c. 89, Table A., cl. in thss case that a banking firm has a 10. This hardly confers a right to have hen on the share of each partner, for the shares sold for payment of the debt. 926 CHAP. V.J, SAiE OF SHARES IN PAETXEESIIIPS. *GS8 SECTION!! IV.— OF THE MODE IN WHICH A SHARE IS TAKEN IN EXECUTION FOR THE SEPARATE DEBTS OF ITS OWNER. 1. In the case of fartnersMps. The nature of a partner's share in partnership property, and the effect of the lien noticed in the preceding sections, are Execution well seen when a separate judgment creditor of a part- ner'foraFei>" ner seeks to levy execution upon that partner's share ^''*'® 'i'^'^'- in the partnership. Such a creditor has always been at liberty to execute his judgment, not only against his debtor's separate prop- erty, but also against the property of any firm in which the debtor may be a partner. This at fir.it sight seems extremely unjust; in- asmuch as it looks like taking one man's property for another man's debt; but in truth the creditor gets onlv what belongs to his debtor, although it must be confessed that executions of the nature in question put the debtor's partners to no small incon- venience. In order to explain the consequences of an execution against the partnersliip property for a separate debt of one of the partners, it will be convenient to examine the law as it stood before the Judi- cature acts with reference to 1. The duty of the slieriff". 2. The position of the purchaser from him. 3. The position of the execution debtor The position of the execution creditor and of his debtor's co- partner will appear in the course of this examination. The effect of the Judicature acts will then be noticed. *]. Of the duty of the sheAff. *688 There has been considerable doubt as to the proper mode of levying execution against tlie property of a firm upon a ^ of the duty judgment recovered against one of its members only, (m) °^ *^® ^-"^^"^ Before the time of Lord Mansfield it seems that the sheriff was in the habit of acting upon the supposition that each sheriffseizes . ^ "■ 1.11 r- *® partnership partner was entitled to an undivided share of every property. article belonging to the firm, without reference to the state of the («() Burton V. Green, 3 Car. & P. 306. 927 *689 TTNDEE FIERI FACIAS. [bOOK III. partnership accounts: and in executing a fi. fa. against a partner for his separate debt, the sheriff sez's^cZ the ivhole of the partnersliip effects (or of so. many of tlieni as wei'e requisite), and sold the undi- viclt'd share of the judgment debtor therein, (v) The slieiff seized the wliole of every chattel which he sold, be- cause he could not otlierwise seize the shure of the execution debtor. But he did not sell the whole of what he seized, because his au- tliority was limited by the writ to the goods and chattels of the debtor, and an undivided share can be sold, though it cannot alone be seized. As stated by Lord Holt in Heydon v. Ileydon [x) Heydone (whcrc there were two partners, against one of 'whom Heydon. ^ judgment had been obtained), " the sheriff must seize all because the moieties are undivded; for if he seize but a moiety and sell that, the other will have a right to a, moiety of that moiety : but he must seize the whole and sell a moiety thereof undivided, and the vendee will be tenant in common with the other partner, [y) Lord Mansfield endeavored to introduce what at first sight ap- LordMans- pears to be a more equitable practice In his time the field's innova- ,.„ , ., tion. sheriff seems to have seized and sold the whole of a sufficient portion of the partnership goods (instead of selling only an undivided share thereof), and then an aconint was directed to be taken of the judgment debtor's share of the proceeds of the *689 *sale, and that share, or a sufficient part of it, was handed over to the execution creditor, (z) This, however, M'as a very imperfect mode of proceeding ; for it was impossible to ascertain the share of the debtor partner in the goods seized, without taking all the partnership accounts, and this a court of law had no power to do. Lord Mansfield's innovation was therefore discontinued (a); and it was finally settled, in conformity with the older cases, that the sheriff's duty was, and it still is, to seize the whole of the partnership effects, or of so much of them as may (!)) SeeHeydon !>. Heydon, ISalk 392; Johnson v. Evans, 7 Man. & Gr. 249, Jackey v. Butler, 2 Ld. Kaymond, 871 ; 250. Backhurst v. Clinkard, 1 Show. (K. B.) {z) See Eddie v. Davidson, Dougl. 169; Pope V. Haman, Comb. 217; Ma- 650. riott V. Shaw, Comyn, 277; Button v. (a) See Parker i>. Pisior,-3 Bos. & P. Mon-ison, 17 Ves. 205; Re Wait, 1 .Jac. 288; Chapman v Koops, ib. 289; Mor- (fr W. 608. ley v. Strombom, 3 Bos. & P. 254. Lord {x) 1 Salk. 392. Eldon greatly disapproved of it, see (y) See, too, per Tindal, C. J. in Waters v. Taylor, 2 V. & B. 301. 928 CHAP. V.j tTNDEE FIERI FACIAS. *689 be requisite, and to sell the undivided share of the debtor partner therein,' without reference to the state of tlie accounts as between him and his co-partners, [hj 1 See PhiUips v. Cock, 24 Wend. 389; Lee i\ BuUard, 3 La. Ann. 462; United States V. WiEJams, 4McLean, 236. See, also, Nelson v. Conner, 3 La. Ann. 456; Thomas v. Lusk, 13 id. 277; Wiles v. Maddox, 26 Mo. 77; Morgan v. Wat- mough, 5 Whart. 125. See, however, Jarvis v. Hyer, 4 Dev. L. 367. The interest of one partner in the partnership property may be attached, or taken and sold on execution for his separate debt. See Sitler v. Walker, 1 Freem. Ch. (Miss.) 77; Place v. Sweet- zer, 16 Ohio, 142; James v. Stratton, 32 111. 202; NewhaR «. Buckingham, 14 id. 405; White v. Jones, 38 111. 159; Dowu. Sayward, 14 N. H. 9; S. C. 12 id. 271; Marston v. Dewberry, 21 La. Ann. 618; Nixon V. Nash, 12 Ohio St. 647; Chopin V. Wilson, 27 La. Ann. 444; Saunders r. Bartlett, 12 Heisk. 316; WUson v. Strobach, 59 Ala. 488; Weavers. Ash- croft, 50 Tex. 428: Peoples' Bank r. Shryock, 48 Md. 427; and the cases above cited. See, also, Meyberg v. Steagall, 51 Tex. 351. A creditor of an mdividual partner has a right to sell on execution only that partner's interest in the firm property, that is, what of the partnership pi-oper- ty belongs to the debtor partner, after paying the debts due by the firm, and his own debt to the firm. Merrill v. Rinker, 1 Baldw. 528; Lyndon v. Gor- ham, 1 Gall. 367; White v. Dougherty, Mart. & Y. 309; M'Carty v. Emlen, 2 Yeates, 190; Dower v. Stanlfer, 2 N. J. L. 193; Knox v. Schepler, 2 Hill, (S. C.) 595; Knox v. Summers, 4 Yeates, 477; Tappan r. BlaisdeU, 5 N. H. 189; Pierce V. Jackson, 6 Mass. 242; Pish v. Hev- rick, 6 id. 271; Place v. Sweetzer, 16 Ohio, 142; Witlert). Richards, 10 Conn. 37; Jones v. Thompson, 12 Cal. 191; Filley v. Phelps, 18 Conn. 294; Gibson V. Stevens, 7 N. H. 352; Brew.ster v. Hammett, 4 Conn. 540; Menagh v. WhitweU, 52 N. Y. 146; Wilhams v. Gage, 49 Miss. 777. See, also, Peck v. Schultze, 1 Hohnes, 28 and case there cited. And it makes no difi'erence, whether the company creditor, at the time of giving the credit, knefr of the existence of the partnership or not; for the effect of the credit given to increase the funds of the partnership is the same, whether it be a known or a dormant paitnership, Witler V. Richards, 10 Conn. 37. The limit of the assessment of value in a proceeding under the sheriff's act, where the property of a firm has been seized unde'r an execution against one of the partners, is the value of the debtor partner's interest. Ploss v. Thomas, 6 Mo. App. 157. In an action against the members of a firm, an attachment was issued against S., one of the partners, which was levied upon the firm property. The firm was at the time insolvent, and soon after made an assignment to defendant. Judgment was thereafter obtained and execution issued in the attachment suit. (6) Holmes v. Mentze, 4 A. & E. 127; S. C. 5 Nev. & Man. 563, and 4 Dowl. Pr. Ca. 300; Johnson v. Evans, 7 Man. & Gr. 240. In Holmes v. Mentze, it was held that a sheriff, who for tlie debt of one partner executed a fi,fa. against the property of the firm, was not enti- tled to make the execution creditor, and the co-partner of the debtor interplead ; but that if the execution creditor denied the partnership he was bound to in- demnify the sheriff. 2 See Bardwell v. Perry, 19 Vt. 292. ' 929 *689 UNDER FIEEI FACIAS. [book III. The slierlff, having seized tlie property of tlie firm, proceeds to saieofexecu- sell the interest of the •judiijnient debtor (c), and to as- tion debtor's . , , i '" rrn i mi i.- i -i. share. sign tlie Same to the pnrcliaser. ilie Dili oi sale recites that tlie sheriff has entered upon and taken possession of all the under which the sheriff sold, ' ' all the right, title and interest which " S. had in the property at tlie time of tlie levy of the attachment. Plaintiff was the purchaser. In an action brought to de- termine tlie title to the property, held, that as the firm assets were insuificient to pay its debts, the interest of S. there- in was nothing, and plaintiff took noth- ing by his purchase. (Van Brunt r. Ap- plegate, 44 N. Y. 544 distinguished.) Staats V. Bristow, 73 N. Y. 265. Equity will interfere to prevent a sep- arate creditor levying on firm effects from sta,nding in any better position than that of his debtor. Thompson v. Frist, 15 iVId. 24. Where an execution against one of two partners, for liis individual debt, was levied upon partnership goods, and the goods were sold at a constable's sale, and the other partner replevied the goods from the purchaser: Held that the measure of damages against the plaintiff in replevin was only the value of the interest of the debtor partner in the goods at the time of the sale ; that is, his share of the surplus after all de- mands against the fli-m should be paid. Sutcliffe V. Dohrman, 18 Ohio, 181. Where partnership property is sold under separate executions against the partners individually, the proceeds rep- resent the several interests of the part- ner.i and not that of the partnership, and the fund should be distributed ac- cordingly. Vandike's appeal, 57 Pa. St. 9. See, also, Cooper's appeals, 26 Penn. St. 262. The interest of a partner who contrib- utes only time, labor and skill, in the partnership property, may be levied on and sold by execution against him as an individual. Knight v. Ogden, 2 Tenn. Ch. 473. It is not an interest in any particular piece of property, but in the firm assets after the settlement of the firm accounts, that is liable for a partner's separate debts. Atwood r. Meredith, 37 Miss. 635. See, however, Carillon v. Thomas, 6 Mo. App. 574. The specific credits of a partnership cannot be seized under execution against one of the partners, or surviving part- ner. The entire interest of a partner may be seized and sold; but no specific asset, credit, or propt'rty of the partner- ship is liable to seizure under execution against one of the partners. Levy i\ Cowan, 27 La. Arm. 556; Marston v. Dewberry, 21 id. 518. A debt due to a partnership is not lia- ble to attachment at the suit of a cred- itor of one of the partners, where the partnership is a continuing one, and where there has been no adjustment of the partnership affairs. Peoples' Bank V. Shryook, 48 Md. 427; Lyndon v. Gor- ham, 1 Gall. 367; Bulflnch v. Winchen- bach, 3 Allen, 161; Sweet v. Reed, 12 R. L 121. A was garnisheed as a debtor of B, who was a member of a firm, and A confessed that he did owe B, but, in fact, the debt was due the firm: Held, in an action by the firm to recover this debt, that as the property of the firm could not be attached for the private debts of its members, A's confession and pay- (c) Formerly the sale must have been private contract, by auction, but now it may be made by 9 Ch. 432. ^ 930 ^ee Ex parte Villars, CHAP. V.J TJNDEE FIEEI FACIAS. "■GS9 sliare and interest of A. B. (the judgment debtor) as partner with one C. D., of and in all the book debts, materials, tools, imple- ments, goods, chattels, effects, and stock in trade used in the said ment of the debt was no discharge of the partnership debt. Cook v. Arthur, 11 Ired. L. 407. P. and L. made a contract by which L., who owned a patent right, author- ized P. to sell the same in certain states of the union, and it was agreed that P. was to sell the same; that out of all property and money received by P., by means of such sales, the expenses thereof should first be paid, and the remainder should be equally divided between P. & L., and that this division should be made as early as reasonably could be, and from time to time, whenever any such money or property should be re- ceived. The transaction of the busi- ness thus provided for necessitated the incurring of expenses which did not ap- ply solely to any particular sale, but to the whole business together : , Held, that under this contract the proceeds of the sales previous to a settlement of their expenses, belonged to P. and L. jointly, and no part thereof to either of them severally, and that individual creditors of neither party could by means of the trustee process, attach such party's interest in any of their joint property in the hands of a third person, wiiether such property was tangible, or was a debt due from such third person to P. & L. Towne v. Leach, 82 Vt. 747. In Maine, however, it is held that the debtor of a firm can be holden as trustee of one of the partners in an action in which that partner is principal defend- ant, if neither the creditor of the firm nor any other partner interpose. Thompson v. Lewis, 34 Me. 167. In Maine, also, it is held that a cred- itor of one of the partners of a firm may attach such partner's interest in a spe- cific portion of a stock of goods belong- ing to the firm, and is not required in order to render the attachment regular to take the partners interest in the en- tire stock of goods. Fogg v. Lawry, 68 Me. 78. See, also, Carillon v. Thomas, 6 Mo. App. 574. A valid lien as against a debtor who is a member of a partnership, may be acquired by attaching all his interest in the effects of the firm, and summoning the other partners as trustees; and such lien may be preserved by notice to the parties concerned, and such other acts designed to give notoriety to the attach- ment as the nature of the property will admit, although possession cannot be taken and the property removed, to the exclusion of the other partners. Tread- well V. Brown, 43 N. H. 290. A judgment lien against one of the partners of a firm individually, has been held to constitute a lien on the interest of that partner in the partnership prop- erty, which entitles the purchaser of it, when sold, to possession, divested of liens for firm debts not reduced to ju^lg- ments. Green v. Ross. 24 Ga. 613. Partnership property may be attach- ed for the individual debt of one of the partners, after the dissolution of the partnership, and after a receiver has been appointed by a decree of a court of ec^uity in a sister State, to get in and dispose of the assets. Schatzill v. Bol- ton, 2 McCord, 478. In Louisiana, however, a creditor of partners in a state of liquidation can- not, for a debt not due by the partner- ship, seize a partnership asset, nor ac- quire any rights by seizing the interest therein of the individual partners. Smith V. McMicken, 3 La. Ann. 319. Such a creditor must await the liqui- dation of the partnership; but he may meanwhile lay hold of his debtors' resid- uary interest in the paitnership gener- 931 *6S9 IJNDEE FIEEI FACIAS. [book III, business, which has been valued at £- ; and the slierifF tlien assigns all the share, right and interest of him, the said A. B., of and in all and every the debts, chattels, and effects so seized under ally, by levying a seizure in the hands of the partnership or its representative charged -with its liquidation. Smith v. McMioken, supra; Davis v. Carroll, 11 La. Ann. 70"i. It has been held that npon execution against one partner, the sheriff may levy on that partner's undivided interest in goods, and take the goods into his ex- clusive possession, and that though the firm debts exceed the firm effects. An- drews V. Keith, 34 Ala. 7'J2. See, hoiv- ever, ]]ost 690, 691 note. A sheriff who has levied upon the in- terest of one partner on the suit of his separate or individual creditor, may re- lease the levy when the partnership is insolvent, and the sale of the partner's interest would have been unproductive of anything to satisfy the execution. On a motion against the sheriff for his fail- ure to collect the money due on the judgment, it is competent for him to prove the insolvency of the partnership. Wilson »,'. Strobaoh, 59 Ala. 488. In Massachusetts, however, if an offi- cer attach and take possession of person- al property of a firm on a writ against one partner who has no equitable inter- est in such property, he is a trespasser. Cropper v. Cobum, 2 Curt. 465; and see post 691, note; Warren v. Wallis, 38 Tex. 225. To a bill brought under Mass. Gen. Stat. oh. 113, § 2, ol. 11, by a creditor of one member of a firm against all the partners, to reach and apply the amount found due, such member on hquidation, the debtors of the firm cannot be made parties. Tobey v. MoFarhn, 115 Mass. 98. A sheriff cannot, npon an execution issued in an attachment suit, brought against the members of a hmited part- nership, levy upon, and sell, the right, 9-32 title, and interest of a special partner, in the goods, chatties, assets, and ac- counts of the firm. Harris v. Murray, 28 N. Y. 574. Under Ga. Code, §1919, — ^making the firm property first hable to pay the firm debts — the undivided interest of a part- ner therein is not liable to levy and sale, even after dissolution,but must be reach- ed by process of garnishment. Ander- son V. Chenney, 51 Ga. 372. Money or property belonging to a partnership may be claimed by the part- ners individually, as exempt from levy and sale under legal process against them individually. Howard v. Jones, 50 Ala. 67. A partner's wrongful appropriation of the partnership property does not take the same out of the provisions of the Ga. Code, § 1919, exempting a part- ner's interest in the assets from levj' and sale. Holifield v. White, 52 Ga. 567. In Tennessee it is held that partner- ship property is not exempt in the hands of one member of the firm, who is the head of the family. Sph-o v. Paxton, 3 B. J. Lea, 75. The creditors of a firm have the right to follow the firm assets into land bought with the purchase money of other land in wliich the assets were first invested, and the partner making the investment cannot claim a homestead exemption in such land as against firm creditors. Chalfontu. Grant, 3 B. J. Lea, 118. A judgment against a partner indi- vidually is a lien upon real estate held by the firm; subject, however, to the payment of the firm debts, and the equities of his co-partners. Johnson v. Rogers, 15 Bankr. Reg. 1. Land was bought and held by a firm for partnership purposes ; and W. one of the partners, gave his individual CHAP. V.J UNDER FIEEI FACIAS. *GS9 and l)j virtue of the writ oi fi. fa.^ and held by the said A. B. in partnership or joint tenancy with the said C. D., to have and to hold, receive and take, the said share, furniture, debts, goods, chat- judgment to the vendors for his propor- tionate share of the purchase money. He afterwards sold and conveyed his inter- est to the other partners, and they sold and conveyed the whole to a third party. Subsequently, within five years from the date of its entry, a scire facias was issued to continue the lien of the judgment against W., and the purcliasers from the firm were summoned as terre ten- ants : Held, that the individual inter- est of W. was real estate, and hence bound in the hands of the terre tenants by the hen of the judgment against him, subject to the superior eqiiitable lien of the partnership debts. Mead v. With- erow, 8 PhO. 517. A joint-stock company, constituted for the purpose of trading in land, is a partnership; and land owned by the company is not subject to judgment and execution in behalf of a separate creditor of a member of the company. Kramer V. Arthurs, 7 Pa. St. 165. The levy of an execution against one partner on a piece of land belonging to the firm, gives the execution purchaser no title, legal or equitable, to the land; the levy should be on the partner's in- terest in the joint stock, and a sale thereof would give the purchaser aright to an account and division, Clagett v. Kilboume, 1 Black, 346. Where a partnership creditor obtains judgment against one of the firm, and partnership land is sold under execution on such judgment, though the sheriff's deed should cover the whole property, the purchaser acquires only the interest of the partner who was defendant in the execution. Price v. Hunt, 11 Ired. L. 42. A purchaser under an execution against one partner, in his separate capacity, becomes a tenant in common with the other partners, in an undivided share of the land which he purchases, and holds it subject to all the rights of the other partners, and can have no claim, but upon the separate interest of the individual partner in the residue which may remain after the partnership debts are paid. Gilmore v. North Ameri- can Land Co. Pet. C. Ct. 460. A partner who permits the separate creditors of his co-partner to set oif lands on execution to satisfy such co-partner's debt, and to recover judgment in eject- ment for his possession, without asking, before the levy, for an account of the partnership effects, cannot afterwards disturb the levy on the ground that the land was partnership property. Clark V. Lyman, 8 Vt. 290. The fact that the partnership real es- tate stands in the name of one of the partners, does not prevent a separate creditor of another partner from attach- ing his interest tlierein. Hill v. Beach, 12N. J. Eq. 31. Real estate purchased and used for partnership purposes, but held in the names of the partners individually, may be subjected in equity to the payment of partnership debts, but cannot be sold under execution at law against the sur- viving partner as such. The sheriff's deed to the purchaser, at execution sale againt such surviving partner, conveys only his undivided interest in the lands. Caldwell V. Parmer, 56 Ala. 405. Individual interests in real estate con- veyed to a firm are subjected by attach- ments to the payments of individual lia- bilities, although such real estate be con- veyed to and held in the firm name, if it is not made to appear that it was purchased for partnership purposes, and appropriated to those purposes, and paid for by partnership funds. Bank of Louisville v. Hall, 8 Bush, 672. 933 ''■690 SALE OF SHAKES IN PAETNEESHIPS. [book III. tels, and effects thereby bargained and sold, or intended so to be, unto the said E. F. (the purchaser), his heirs, executor?, *690 ^'administrators, and assigns, as liis and their own proper debts, goods, and chattels, {d) It is to be observed that the sheriff seizes, sells, and assigns; but T>- u* (■« he has no business to take the goods of the firm out of Rights of the o other partners, ^j^g possession of the solrent partners (e);' and if tlie sherijff sells not the share of the execution debtor, but the goods themselves, he is accountable to the solvent partners for so niucli Where real estate' was originally pur- chased by one of two partners, and paid for out of his individual funds, and the only interest of the partnership in the premises is on account of improvements made thereon with the funds of the partnership, the actual interest in the premises of the' partner advancing the purchase-money, at least his individual interest therein, is liable to be sold on an execution against him. Averill v. Louoks, 6 Barb. 19. [d) See Habershon v. Blurton, 1 DeG. & Sm. 121. (e) See per Patteson, J., in BumeU V. Hunt, 5 Jur. 650. 1 Garvin ». Paul, 47 N. H. 158; Gib- son V. Stevens, 7 N. H. 352; Morrison V. Blodgett, 8 N. H. 238; Newman v. Bean, 21 N. H. 93; Hill v. 'Wiggin, 31 N. H. 292. See, however, Andrews v. Keith, 34 Ala. 722. See, also, Phfllips V. Cook, 24 "Wend. 389, where it is said that the sheriff may deliver possession of the property sold to the purchaser. See, also. Carillon v. Thomas, 6 Mo. App. 574. After the levy and previous to the sale of the interest of a member of a firm in the co-partnership goods, the sheriff may hold joint possession with the other members of the firm. Burrall v. Acker, 23 Wend. 606; 21 Id. 605. The power of the sheriff for the pur- pose of rendering the levy upon the in- terest of one partner in the co-partner- ship property effectual to take possession 934 of the whole property, is merely inci- dental to the right to reach the debtor's interest, and is to be exercised as far as possible in harmony with, not ia hostil- ity to, the rights of the other partners. Atkins V. Saxton, 77 N. Y. 195. Complainant in an action against a sheriff alleged that plaintiff was the owner and entitled to the possession of a certain undivided interest in certain per- sonal property, possession of which had been unla\^'fully taken, and was un- lawfully detained by the defendant, etc. : Held snfficient, but that proof of seizure by the defendant of the undivided in- terest of plaintiff's co-owner would not sustain the action. Sohenck v. Long, 67 Ind. 579. A pui-chaser at the sale upon an exe- cution against one partner, levied upon his interest in partnership property, does not acquire any title to the prop- erty entitling him to delivery of it, nor, if it be a debt, entithng bim to collect it. The title to the property or the debt still remains in the partnership, and the purchaser acquu-es only a right to call the partnership to an a-ixounting. Bar- rett & McKenzie, 24 Minn. 20; Lothrop V. Wightman, 41 Pa. St. 297; Deal v. Bogue, 20 id. 228; Reinheuner v. Hem- ingway, 35 id. 432; Smith v. Emerson, 43 Id. 456; Wilson v. Strobach, 59 Ala. 488; note (1) supra. See, however, Phillips V. Cook, Carillon v. Thomas, sup. CHAP, v.] SALE OF SHARES IN PARTNERSHIPS. 1^690 of the proceeds of the sale as is proportional to their share in the partnership. (/■)" (/) Mayhew v. Herrick, 7 C. B. 229. ^ In Walsh ». Adams, 3 Den. 125, it was held that where a sheriff sells the property of a partnership, as the indi- •i-idual property of one partner, on an ex3cution against such partner indi- vidually, he is liable in trover to anotlier partner therefor; and the plaintiff is en- titled to recover his undivided share in the property so sold, without regai-d to the state of the partnership accounts. See, also, Atkins v. Saxton, infra. So, in Spalding v. Black, 22 Kan. 55, it was held that where an oflScer with an execution against one member of any partnership, general or limited, levies upon the partnership property, and sells the whole property instead of the exe- cution debtor's interest therein, the re- maining partners may treat him as a trespasser ah initio, and bring their ac- tion against him therefor, and to such action the execution debtor is not a nec- essary party. Spalding v. Black, 22 Kan. 65. See, however, WMte v. Woodward, 8 B. Mon. 484, where it is said that the only remedy for the other partner is in equity. Where a partnership had failed, and was in a condition necessarily to be im- mediately pound up, which the defend- ant must have known, but nevertheless attached the goods of the partnership, sold them, and applied them to his own debt against one of the partners indi- vidually : Held, that the defendant was bound, under the circumstances dis- closed, to take notice of the rights of a partner who was a creditor living in another town, and that he would be held to account for the value of the goods, notwithstanding the partner did not interfere and prevent the sale. Miner v. Pierce, 38 Vt. 610. It seems that a seizure and levy by a sheriff under an attachment or execution against one person upon the entire prop- erty of a firm, as the sole property of the debtor, is not justified by showing that the debtor has an interest in the property as a co-partner. Atkins v. Saxton, 77 N. Y. 195. In an action against a sheriff to re- cover the possession of certain property, defendant justified under two attach- ments against B. The property formerly belonged to a iirm composed of plaintiff and B. Plaintiff's evidence was to the effect that prior to the seizure the firm was dissolved and the personal property divided between the partners; that B. sold his portion to third persons, and all had been removed save a sniaU portion left by one of the purchaser's in plaia- tiff's care. Defendant seized all the goods of the late firm in plaintiff's pos- session as the sole property of B. De- fendant conceded the partnerslup, but controvei^ed the dissolution and divis- ion. The court charged that if the jury believed there was a nominal assign- ment by B. of his interest in the prop- erty seized to plaintiff, with intent to defraad B.'s creditors, and with knowl- edge on plaintiff's part, then the prop- erty was liable to the attachments: Held, error. Even if a fraud is perpre- trated, the whole property do s not b:^- come liable to seizure upon attachments at the suit of an individual creditor ; nothing more than the debtor's interest in the property can in any event be liable. When, therefore, the sheriff ex- ceeds this limit, and instead of levyina upon the debtor's interest, levies upor and seizes the property as the sole prop- erty of the debtor, he is a trespasser. At- Mns V. Saxton, stt_pra. 935 "■690 SALE OF SHAKES IN PAETNEESIIIPS. [book III. 2. Of the position of the purchaser from the sheriff. If tlie purchaser is a stranger unconnected with the firm, he ac- 2. Of the pur- quires for his own benefit all the iudirment debtor's in- cnJiser fr(i]u ^ the sheriff. tercst in the property comprised in the bill of sale, and becomes, as regards sucli property, tenant in common with the judgment debtor's co-partners/ The next step, therefore, is to adjust the conflicting rights of the purchaser, and these partners. ISTow it is clear from the nature of the lien which each partner has on the partnership property, that a partner holds a partnership chattel with his co-partner, subject to all the equities which that co-partner has upon it {g)^ and subject therefore to his right to have all the creditors of the firm paid out of tlie assets of the firm, and consequently, pro tanto, out of the chattels seized by the sheriff. (A) It is equally clear that in this respect the purchaser from the sheriff' is in no better position than the partner whose undivided share has been sold, {i^ Before the Judicature acts, therefore, a suit in equity became necessary, in order that the partnership accounts might be taken, and the partnership projjerty duly applied. (Jcf 'Latham v. Simmons, 3 Jones L. 27; United States v. Williams, 4 McLean, 236; Gilmore v. N. A. Land Co. Pet. C. C. 460, where the thingr sold was an un- divided share in Land ; Williams v. Gage, 49 Miss. 777; Knig-ht v. Ogden, 2 Tenh. Ch. 473. If such purchaser sells the goods en- tire; he is liable in assumpsit to a sub- sequent trustee of the firm for a moiety of the goods so sold. Latham v. Sim- mons, 3 Jones L. 27. [g) Barker v. Goodair, 11 Ves. 85. (h) See the next note. (i) Skipp V. Harwood, 2 Swanst. 586; Taylor v. Fields, 4 Ves. 396; Young v. Keighly, 15 Ves. 557; Button v. Morri- son, 17 Ves. 206-6 ; Ex parte Hamper, ib. 404-5; Re Wait, 1 J. & W. 608. *See Renton v. Chaplain, 9 N. J. Eq. 62; Tredwell v. Eosooe, 3 Dev. L. 50; Menagh v. Whitwell, 52 N. Y. 146; People's Bank v. Shryock, 48 Md. 427. {h) See Parker v. Pistor, 2 Bos. & Pul. 288. 936 ' Under the common law, a creditor may seize his debt&r's interest in the partnership property, subject to the prior rights of the other partners and part- nership creditors; and may, after the seizure and before the sale, sue the other partners to ascertain the amount of the interest seized; or may sell and leave it to the parchaserto ascertain it. Broad- nax V. Thomason, 1 La. Aim. .384. See, also, Knight v. Ogden, 2 Tenn. Ch. 473. The judgment debtor may elect to have an account taken before the sale, by applying to a court of equity there- for. Hacker v. Johnson, 66 Me. 21. If a' sale of partnership property, ■ under a separate execution against one partner, be fraudulent, and there be collusion between the purcha ser and the insolvent partner, in order to deprive the other partner of his rights under articles of co-partnership, the court will lend no aid to the purchaser. Renton v. Chap- lain, 9 N. J. Eq. 62. cnAP. V.J UNDER FIERI EACIAS. *C91 The right of the partners of the jadgment debtor being of*the nature described, and it *691 injunction, being incompatible with tliat riglit that the partnership property seized by the sheriff should be removed or sold by him, the Court of Chancery would, before the Judicature acts, on a bill filed by the judgment debtor's co-partners against the judgment debtor and his creditor and the sheriff, direct the partnership accounts to be taken, and restrain the sheriff from selling the property and appoint a receiver. (Z)" (l) See Bevan v. Lewis, 1 Sim. 376. As to an injunction against the sheriff, compare Newell v. Townsend, 6 Sim. '419, with Garstin v. Asplin, 1 Madd. 1-50, and Jackson v. Stanhope, 10 Jur. 676 ; and see Story on Partn. § 264 ; and as to making the sheriff a party, see Lord Eldon's obs. in Franklyn v. Thomas, 3 Mer. 235, and Hawkshaw v. Parkins, 2 Swanst. 549. iSeePlaoej). Sweetzer, 16 Ohio, 142. If one of several partners has an in- terest in the assets of the partnership over and above the claims of his co- partners and those of the creditors of the partnership, there is no reason for the court to interfere by injunction to restrain a sale of his interest in the partnership property, upon execution on a judgment against such partner individually. Mowbray v. Lawrence, 13 Abb. Pr. 317; 22 How. Pr. 107. See, also. Hardy v. Donellan, 33 Ind. 501. It has been . held that an action will lie by a partner to enjoin an individual judgment creditor of the co-partner of the plaintiff from selling upon execution the interest of the co-partner in the partnership assets, where it is made to appear by the complaint that the co- partner whose interest has been seized, has in fact no interest in the assets, and the plaintiff' offers to submit to an ac- counting to show this to be the case. Turner v. Smith, 1 Abb. Pr. N. S. 304. In Massachusetts, a court of equity will not, on a bill of the members of a pai-tnership, decree the return of part- nership property attached in a suit of a creditor of one of the partners against him, and enjoin the attaching offi- cer from further mterfering with the property, nrdess it appears that it is needed to satisfy the claims of the part- nership creditors, or that the partner sued has not an interest in the sm-plus which may remain after payment of the partnership debts. A bill which does not show this is bad upon demuixer. Peek V. Schultze, 1 Holmes, 28 It is held, however, in Minnesota, that where an execution in favor of an indi- vidual creditor of one of the members of any insolvent partnersliip is levied upon his interest in certain goods be- longing to the firm, by taking possession of such goods, and threatening to sell such interest, an action will not lie at the suit of the other partner or partners for a psrpetual injunction restraining any further proceedings under the levy, even though the officer making the levy and the creditor directing it have notice of such insolvency. Wickham v. Davis, 24 Minn. 167. In Brewster v. Hammett, 4 Conn. 540, A and B being partners, C brought an action against A for a debt due from him individually, and attached an un- divided moiety of the partnership stock, A having no interest therein except as a partner. At this time A was insolv- ent; the partnership also was insolvent. A and B claiining that the creditors of the partnership had a priority of right to the partnership funds, and that 937 *691 UNDEE FIEEI FACIAS, [book III. 3. Of the position of the execution debtor. With respect to the execution debtor, it is to be observed that, in 3. pftiieexe- the first place, the execution operates as a dissolution cu ion e tor. ^^ ^.j^^ partnership, {inf In the next place, the assign- ment by the sheriff to the purchaser transfers to the purchaser whatever the sheriff had power to assign, and did assign, but no more; and as, under a j?. ya. the sheriff may not have power to sell everything which, as between the partners, is to be considered partnership property, it by no means follows that the assignment has transferred to the creditor all the judgment debtor's share and interest in the partnership. In a case, therefore, where a stranger purchased from the sheriff the execution debtor's interest, and tb.en assigned it to the other partners, it was held that the execution debtor was still entitled to an account from them; the sale by the sheriff not having divested him of all his interest in the concern, {n) Upon a sale by the sheriff of the interest of one partner, there Purchase of is nothing to prevent a purchase of that interest by his his interest by ^ r^ ^ his co-partners co-partners. But the co-partners purchasing of the they ought not to be taken for the pay- ment of A's individual debt, then brought a bill in chancery to restrain proceedings in the action brought by G and for a restoration of the property at- tached: Held, ^;hat the plaintiffs were not entitled to the relief sought, as they were not invested with the rights of the partnership creditors; and as the effect of a decree in their favor would be to leave the partnership funds so protected from the cla.ims of the attaching credi- tors, subject to the disposition of the in- solvent partner — a result from which the creditors of the partnership would derive no benefit. And in Sitler ». Walker, 1 Freem. Ch. (Miss.) 77, it was held that equity would not restrain the sale of the inter- est of one partner on execution for his separate debt until the partnership ac- counts were taken. Partnership creditors, whose demands are not due, have no equity to enjoin 938 separate and individual creditors of a partner from attaching his individual property. Henderson v. Haddon, 12 Rich. Eq. 393. ()») AspinaU v. The Lond. and North-West. Rail. Co. 11 Ha. 325; Haberslion v. Blurton, 1 DeG. & Sm. 121 ; Skipp V. Harwood, 2 Swanst. 587. ^ A levy of an execution upon the inter- est of an insolvent partner and a sale thereunder operate as a dissolution. Renton v. Chapman, 9 N. J. Eq. 62. See Choppin v. Wilson, 27 La. Ann. 444; ante 230. A mere attachment or mesne process does not, however, dissolve the partner- ship. Arnold v. Brown, 24 Pick. 38. The mere levy of an execution neither dissolves the partnership nor authorizes the appointment of a receiver with pow- er to liquidate the partnership affairs. Choppin V. Wilson, 27 La. Ann. -^44. (m) Habershon v. Blurton, 1 DeG. & Sm. 121. CHAP. V.J SALE OF SHARES IN PAETNEESHIPS. *692 sheriff must act with perfect fairness. If they do anything to con- ceal tlie true value of the share, so as to enable themselves to buy it for less than it would otherwise have fetched, the sale *will not be allowed to stand. In Perens v. Johnson {o), *693 the share of a partner in a leasehold colliery was sold by the sheriff under 2,fi.fa. The sale was by auction. The pcrensv. other partners bought the share; the execution creditor "'''^°^°°- was paid off ; and a balance was handed over by the sheriff to the execution debtor. It appeared, however, that before the sale took place, it was expected that a valuable seam of coal would he reached ; that the solvent partners had removed the gear so as to prevent any one going down the mine; that they had also removed some ironstone recently raised, so as to lead persons visiting the mine to believe that coal was not so nearly witlnn reach as it? was; and that a few days after the sale, and after only one day's working, a rich seam of coal was actually discovered. The execution debtor thereupon filed a bill against his late co-partners, praying that the sale might be set aside, on the ground that the purchase from the sheriff was contrary to that good faith which should be observed by one partner towards another; and a decree was made in his favor setting the sale aside upon repayment of the purchase- money, with interest at 5^. per cent. The execution creditor has no title to goods seized under a fi. fa. issued by him, unless he purchases them from the sher- Eight of the TIT n r • • execution iff. Consequently where, under a ^^fj. jra. issned against creditor, one partner for a private debt, the sheriff seized the goods of the firm, which afterwards became bankrupt, and the assignees sold the goods seized, it was held that an action by the exeention credi- tor against the assignees for money had and received to his use, would not lie; first, becanse he had no title to the goods; and sec- ondly, because if he had, his interest in them could not be ascer- tained without taking the accounts of the partnership. (^) i. Modifications introduced ty the Judicature acts. The Judicature acts and rules promulgated under them do not unfortunately contain any directions applicable to the subject now {o) Perens v. Johnson, and Johnson C. W., where a sale by the sheriff was r. Perens, 3 Sm. & G. 419. See, also, also set aside. .Sjiiith V. Harrison, 26 L. J. Ch. 412. V.- {p) Garbett v. Veale, 5 Q. B. 408. 939 *694 CHAEGING ORDERS ON SHAKES IN COMPANIES. [bOOK III. *093 under consideration. Nor has the new practice under *tlieiu yet been reduced to shape. The writer can only, therefore, offer the following suggestions with reference to their combined effect. 1. The practice must be the same in all divisions of the High Court. 2. The old practice must be adhered to so far as it is consistent with the modern procedure. 3. Some form of procedure must be adopted which shall have the effect of a suit for an account, and an injunction, and a receiver. 4. There appeal's to be no reason why the sheriff should not proceed to seize and sell the execution debtor's share as before ; and there is in strictness no more necessity for him to interplead now than before {q); and yet as no order for his witlidrawiil can be made in his absence, a proceeding by him in the nature of an intei-pleader summons, bringing all parties interested before the Court, would probably be the most convenient course to adopt. 5. Upon a seizure by the sheriff the partners of the execution debtor should obtain au order dissolving the partnership, directing the sheriff to withdraw, and directing the accounts of the partner- ship to be taken, and the value of the execution debtor's interest in the property seized by the sheriff to be ascertained, and appointing a receiver. 6. After the accounts have been taken, and the above value as- certained, the receiver should be directed to pay the amount of such value to the purchaser from the sheriff, if any, and the rest of the share of the execution debtor in the assets of the partnership to him. If the share has not been sold the execution creditor must be paid out of, or to the extent of the above value. The receiver can then be discharged. 7. Whether all this can be done without a transfer to the Chan- cery Division is not clear; bat probably it very often may be done ; and practically a sale by the sheriff will probably be frequently dis- pensed with. A sale usually produces great hardship, as the value of the share sold is unknown; and its sale seldom answers any useful purpose except tliat of getting rid of the sheriff. aiie|ation *QQ4. *The truth, however, is that the whole of this ot the law. ' _ . branch of the law is in a most unsatisfactory condition, and requires to be put on an entirely new footing. The (2) See ace. W. N. 1875, p. 204. 940 CHAP, v.] CHARGING OEDEES. *695 statutory enactments relating to charging orders slionldlDe extended to all cases in which the share of a partner is sought to be taken in execution for a separate debt of his own. 2. In the case of companies. Shares in public companies are rendered available for the pay- ment of the separate debts of their holders by a very Execution for ' •' •' separate debt of different method irom that to which recourse miist be shareholder. had in the case of partnerships, as explained in the preceding pages. There is no interference with the company or its property by the sheriif ; but the judgment creditor applies to one of chargin" the judges of the superior courts for an order cliarging '^^^^''■ the shares of the judgment debtor with payment of the debt for which judgment has been recovered. Such an order has the effect of a charge made by the debtor himself in favor of the creditor (r), subject, liowever, to this qualification, that no proceedings can be taken to have the benefit of the charge created by the order until the expiration of six calendar months from its date (s). An order ««s* may be obtained eaj^flT'^e, and without notice to the debtor ; and it restrains the company from permitting a transfer of the shares held by the debtor, or by any person in trust for him, until the order is made absolute or discharged ; and if the company per- mits a transfer of the debtor's shares during the continuance of the order, the company becomes liable to the creditor to the extent of the value of the shares transferred. (#) *In form, an order ni»i is, that unless cause be shown to *695 the contrary by the judgment debtor within a given time, the shares in the company, standing in the name order nisi. of , shall be, and shall in the meantime stand, charged with the payment of the amount for which judgment has (r) Where shares are held by A. in hand, B.'s interest may be charged in an trust for B., an order charging them order in a proper form, Cragg u. Taylor, may be obtained by a creditor of A., No. 2, L. R. 2 Ex. 131; but not if his Cragg V. Taylor, L. R. 1. Ex. 148; but, interest is only in the produce of their as in the case supposed, A. has no in- sale. Dixon w. Wrench, L. R. 4 Ex. 154. terest in the shares, the creditor cannot [s] See, as to this, Bristedv. WUkins, maintain an action against the com- 3 Ha. 235; Reece v. Taylor, 5 DeG. & S. pany if it allows A. to transfer the 480. shares. Gill v. Contuiental Union Gas (<) 1 & 2 Vict. c. 110, §§ 14 to 16; 3 Co. L. R. 7 Ex. 332. On the other & 4 Vict. c. 82. 941 *696 OHAEGING OEDEES ON SHAKES IN COMPANIES. [bO(5K III. been recovered, and costs and interest thereon, pursuant to tlie statute 1 & 2 Yict. c. 110. (x) Tlie order nisi prevents the shares from being transferred or dealt with, but the charge created by the order dates from the time the order is made absolute, {y) For the purpose of obtaining the benefit of the order, application must be made to the court for a foreclosure or sale, (s) If the creditor causes the debtor to be arrested before the shares Kffect of arrest- ^^'^'^0 been applied in satisfaction of the debt, the benefit ing debtor. pf ^^g charging order is lost. («) The statute vs^hich enables shares to be charged in the manner Whatar h- above explained, applies only to " public companies;" lie companies, but thei'e is no Statutory or other authoritative defini- tion of this phrase; and questions of considerable difficulty may consequently arise with reference to many companies, as to whether they are "public" or not. In Macintyre v. Connell Qj), the only case in which the meaning Maint ^^ ^^^ expression ''public coinpanies" has been as yet conueii. much discusscd, the Court came to the conclusion, 1, that transferabiUty of shares was uot the test of publicitj'; 2, that the attribute of publicity could- not be denied in the case of a com- pany empowered to sue and be sued by a public officer, and re- quired to keep a register of its shareholders and to make official returns of their names and addresses. Taking this decision as a guide, and having regard to the law What shares rclatiug to Companies at the time of the passing of the charged under 1 & 2 Yict. c. 110, the foUowing Companies must be 1 & 2 Vict. c. . . , . 1 110. considered as public companies withm the meaning of that act. *696 *1. Joint-stock banking companies governed by the 7 Geo. 4, c. 46. (c) [x) See Fowler v. Churchill, 11 M. & (a) 1 & 2 Vict. c. 110, § 16. But ar-, W. 57; Robinson v. Burbridge, 9 C. B. rest for debt is now only possible in cases 289. excepted by 32 & 33 Vict. c. 62, § 4. [y) See Warburton v. Hill, Kay, 470; (6) 1 Sim. N. S. 225. Scott v. Lord Hastings, 4 K. & J. 633; (c) Macintyre v. Connell, 1 Sim. N. Watts V. Porter, 3 E. & B. 743, as to the S. 225, related to a joint-stock banking priorities of creditors. See, also, ante, company governed by 7 Geo. 4, o. 46, note (r). and 7 & 8 Vict. c. 113, and removes the {z) As in Bristed v. Wilkins, 3 Ha. doubts formerly entertained respecting 235, and Macintyre v. Connell, 1 Sim. such companies. See Graham v. Con- N. S. 225, 252. nell, 19 L. J. Ex. 361. 942 CHAP. V.J CHAEGING OEDEKS OK SEIATtES IN COMPANIES. *G07 2. Joint-stock companies governed by tlie Letters Patent act, 7 Wm. 4&iyict. c. T3. {d) 3. Incorporated joint-stock companies generally. Incorporatioii itself makes a company a public company; for its existence is au- thorized hj public authority, viz., the Crown or the legislature, and is required by the same authority to be publicly recop:nized. Unincorporated companies, not being banking companies, gov- erned by the 7 Geo. 4, c. 46, or companies governed by the Letters Patent act, a,v& prim.ci facie not public companies, (e) This last conclusion, if correct, is of great importance to mining companies formed on the cost-book principle; for if Asto cost-took these companies are not public companies within the comp"nii?s. meaning of 1 & 2 Vict. c. 110, it follows that their mines and plant may be seized under writs issued against individual shareholders for their separate debts. And this appears to be the case; for al- though the writer is not aware that the propriety of such a seizure has been actually decided (_/"), he is enabled to state of his own knowledge that if judgment is recovered against a shareholder in a Cornish cost-book mining company for a private debt owing by him, and •&fi.fa. upon such judgment is delivered for execution to the sheriff of Cornwall, he treats the company as a mere partner- ship, and seizes its property and sells the share and interest of the judgment debtor therein in the ordinary way. This is not so well known as it deserves to be. [cf] ^Whether shares can be attached in the Lord Mayor's 697* court appears doubtful. (A) In connection with the subject of execution, it sliould be observed that the Court has power, upon the application of any Attachment of party interested, by motion or petition, in a summary ^^i^res. way, to restrain any public company from permitting orders, the transfer of any stock or shares standing in the name of any per- son in the books of such companj?, or from paying any dividend (d) See Maointyre v. Connell, 1 Sim. {g) The writer is enabled, to make the N. S. 225. above statement as to the practice of («) See the judgment of Macintyre v. the sheriff of Cornwall, by having him- Connell, 1 Sim. N. S. 225. self (as trustee) issued execution against (/) In Nichols V. Rosewame, 7 W. a person who was a shareholder in sev- R. 612, the question whether shares in eral Cornish cost-book mines, cost-book mines can be charged under 1 iji) See Tredinniok r. Ohver, 5 H. & & 2 Vict. c. 110, was mooted but not N. 780. decided. 943 ^Q97 TEANSi''EE OF SHAKES. [BOOK III. thereon. ({) An application for such an order may be made ex parte, but must be supported hj an affidavit showing the title of the applicant, and the necessity for the interference of the Court (k)\ and unless an action is commenced within a reasonable time after the order is made it will be discharged (l); as it will, also, after action, if no sufficient grounds for the order are shown, (ot) SECTION v.— OF THE TRANSFER OF SHARES. 1. In ordinary partnerships. When persons enter into a contract of partnership, their intention Transfer of Ordinarily 1-^, tliat apartnership shall exist between them- nary'^partiKT-" sclves and themselves alone. The mutual confidence re- ships. posed by each in the other is one of the main elements in the contract, and it is obvious tliat persons may be willing enough to trust each other, and yet be unwilling to place the same trust in any one else. Hence it is one of the fundamental principles of partnership law that no person can be introduced as a partner without the consent of all those who for the time being are members of the firm.' Tf, therefore, a partner dies, his executors or devisees liave no right to in- sist on being admitted into partnership with the surviving partneis, unless some agreement to that effect has been entered into by them, (n) (J) 5 Vict. c. 5, § 4. a member of a new firm, but h^s express {k) Ee Field, 1 Y. & C. C. 1; East of assent need not be proved, to bind him ; England Bank, 6 N. R. 81. itissufficienttoshowthat heknewof such (Z) J?e Marquis of Hertford, 1 Ha. 584. new arrangement, and made no objec- (m) S. C. 1 Ph. 203. tion thereto. Tabb. v. Gist, 1 Brock.':-;:;. 'A partner cannot introduce a new Where one buys a stranded vessel, member into tbe firm without the con- and agrees to give another an interest sent of tbe otlier members, nor make therein, the latter has no interest he can them members of another firm. When transfer without the former's consent. made acquaninted with the facts, the It is an agreement to take in a partner, members should dissent, or they will be and gives the second party no right to bound. Mason v. Connell, 1 Whart. impose an unknown partner on the first. 381; Murray v. Bogert, 14 Johns. 818; Taylor v. Penny, 5 La. Ann. 7. Freligh v. Miller, 16 La. Ann. 418; (n) Pearce v. Chamberlain, 2 Ves. S. Channel v. Fassitt, 16 Ohio, 166; Free- 33; Crawford v. Hamilton, 3Madd. 254; man v. Bloomfield, 43 Mo. 891; Bennett Bray v. Fromont, 6 ib. 5; Crawshay r. V. Snyder, 76 N. T. 344. Maule, 1 Swanst. 495; Tatam v. Wil- The assent of each member of a co- Hams, 3 Ha. 847. partnership is necessary to bind him as 944 CHAP. V.J TKANSFBE OF SHAEES, *698 *Still less can a partner by assigning his share entitle his *698 assignee to take his place in the partnership against the will of the other members, (oy Theassignment, however, is by Effect of trans- no means inoperative; on the contrarv, it involves several *'^'^' Effect of as- important consequences, more especially as regards the signment- dissolution of the firm and the right of the assignee to an account. As regards dissolution, it is remarkable that there sliould be so little authority to be found. It is generally stated, that i. as regards if a member of an ordinary partnership transfers his 'i''^^"'"""'^- share, he thereby dissolves the partnership; but this proposition re- quires qualification. The true doctrine, it is submitted, is that if the partnership is at will, the assignment dissolves it {p);^ and if the partnership is not at will, the other members are entitled to treat the assignment as a cause of dissolution. It can hardly be that a partner, who has himself no right to dissolve or to introduce a new partner, can, b}' assigning his share, confer on the assignee a right to have the accounts of the firm taken, and the affairs thereof wound up, in order that he may obtain the benefit of his assignment. Although a partner cannot, by transferring liis share, force a new partner on the other members of the firm without their „ ,„ „ „ ^„ y 2. As regards consent, there is nothing to prevent a partner from as- account. signing or mortgaging his share without consulting his co-part- ners;' and if a partner does assign or mortgage his share, he there- (o) See Jefferys t?. Smith, 3 Russ. entitled to upon a settlement of the part- 158. nership account? ; and, until the affairs ' Merrick t'.' Brainard, 38 Barb. 574. of the partnership are thus wound up, See cases cited on the next page, ante. the partner who did not sell is entitled The purchaser of an interest of one to the possession of the property. Miller of several partners has no right to inter- v. Brigham, 60 Cal. 615. fere personally in the affairs of the part- (p) See Heath v. Sansom, 4 B. & Ad. nership, and a refusal of the remaining 172. partners to permit him to do so, will not ^ See ante, 230 and note, entitle him to the interference of a court ^ One partner may sell his interest in of equity by injunction, or the appjint- the partnership property to his co-part- mentof a receiver. McGlensey v. Cox, ner; and if the sale be fair, he will take 5 Pa. Law J. Rep. 203. the exclusive title thereto. Reese v. Where one of two partners sells to a Bradford, 13 Ala. 837. third person his interest in the goods One partner may purchase, on his own owned by the partnership, the purchaser account, at a public sale, the interest of cannot maintain an action to recover his co-partner in real estate, and will his interest in the goods, but must sue hold the purchased property as a for an accounting, and will recover ■ stranger might. Bradbury v. Barnes, whatever his assignor would have been 19 Cal. 120. 60 945 «-698 TEANSFEE OF SHAEES. [book ni. by confers upon the assignee or mortgagee a right to payment of M'hat, upon taking tlie accounts of the partnership, may be due to tlie assignor or mortgagor, {qf But the assignee or mortgagee ac- A hona fide mortgage, given by a member of a firm to the finn, is valid, and in no sense a mortgage to the grantor himself. Galway v. FuUerton, 17 N. J. Eq. 389. An assignment by a member of a firm of all his property to an assignee, for the benefit of his creditors, will convey not only all his individual propertj', but his interest in the company property. Fellows v. Greenleaf, 43 N. H. 421. iq) GljTi V. Hoo-d, 1 Giff. 328, and 1 DeG. F. & .J. 384. ''See Rodriguez v. Heifernan, 5 John. Ch. 417; NicoU V. Mumford, 4 id. 522; Miller v. Brigham, 50 Gal. 615; Menagh V. Whitwell, 52 N. T. 146. Four persons entered into co-parner- ship in 18-52, in the business of manfac- turing cotton cloths, for the term of five years, and, in 1838, the partnership was dissolved, and afterw,ards, by their deed they assigned to A " all their right and title to all and singular the rights, priv- ileges, and interest secured "to them by the articles of co-partnership. A part of the property taken was the prop- erty of the partners, and a part of the partnership stock when the partnership was formed, and the residue was after- wards purchased by the partners with the general partnership funds : Held, that all the property passed which, at the time of the transfer, was partner- ship property, to be held and used by A for the residue of the five years, and that the operation of the assignment was not effected by the dissolution, it being made by all. Caswell v. Howard, 16 Pick. 562. By the terms of a contract dissolving a partnership between A and B in a certain store, the former sold the latt?r " aU the right, title and interest of said A " in said store, with all the notes and 946 accounts due, the latter assuming the payment of all debts and claims against said firm : Held, th at the contract raised the presumption that the pai-ties intend- ed a complete settlament of all the part- nership atfairs; that a balance standing to the credit of the firm in a bank was embraced in the " accounts due the firm, "and that there was no latent am- biguity in the contract. Burress v. Blair, 61 Mo. 138. W. bought all the interest of M. in the property of the firm of E. & M., and then formed a partnership with R., agreeing to put in all the property he received from M. : Held, that a bank deposit in the name of R. & M., of which both parties were ignorant at the time, became the partnership property of the new firm, W. & R. Cram v. Union Bank, 1 Abb. App. Dec. 461. In an agreement bstwesn p.^rtners it was agreed that for the purpose of dis- posing of the joint stock of the firm, "as detailed in" a pr or inventory thereof, all the property of the firm ex- cepting certain specified items, and ex- cepting " the book accounts and receiv- ables," should be put up and bid upon by the partners; this was done, and plaintiff became the purchaser. In an action for an accountmg it appeared that after the inventory and prior to the bidding, certain chattels of the firm had been sold : Held, that the sale did not in- clude said chattels or the money or debts obtained therefor ; that the statement as to the inventory was simply by way of reference, and in the nature of a re- cital or matter of inducement. Deering V. Metcalf, 74 N. Y. 501. A sale by a partner to his co-partner of all his interest in the property, efl'ects, claims, assets and debts of a firm, does not pass to the purchaser an account CHAP. V.J TEANSFEK OF SHAKES. *698 quires no other right than this (r); and he takes subject to the standing upon the books of the firm against the paitner making the sale, nor, as it has been held, the seller's in- terest m the capital originally contri- ' buted by him to the firm. Coifing v. Taylor, 16 111. 457. See, also, Hasscl- man v. Douglass, 52 Ind. 262; Owen v. Hetherington, 66 Ind. 365. In Owen v. Hetherington, supra, in a suit upon a promissory note, the defend- ant a.nswered that himself, B and were partners; that B and defendant bought out C's interest in the concern, each to pay one-half of the amount agreed upon; that the note in suit was executed by defendant to C in discharge of his half; that when C retired from the firm he was indebted to it in a cer- tain sum, on his individ«al account, which indebtedness C had fmidulently concealed from the defendant; that de- fendant subsequently bought out B, and became thereby the owner of the entire claim against C, and asked that such' claim be allowed as a set-off against the note: Held, that such claim did not constitute a set-off. When a partner sells his "interest in the concern, "it must be presumed that he sells only his legal interest in the firm; and it cannot be assumed, in the absence of any stip- ulation to that effect, that such partner sold or intended to sell his indebtedness to the firm: Held, also, that it would be assumed that C's indebtedness to the firm appeared upon its books, and that such books were open to the examina- tion of the defendant, and liis alleged ignorance of the existence of such in- debtedness was the result of his own in- excusable negligence. * But where by the articles of partnT- ship it was provided that the accounts of each partner to the firm " shall stand due to the concern in the same manner as any other account due by a party un- connected mth the business." Upon the dissolution of the firm, under the written terms thereof, one of the partners " agreed to purchase all right and inter- est of the other partner in the stock, cash, notes, book-accounts, and every- thing connected with the firm : " Held, that the account of the firm against the partner selling out was caficelled and extinguished in the agreement of disso- lution and purchase. Murdock v. Mehl- hop, 26 Iowa, 213. So, where one partner, having a large pecuniary interesb in the ilrm, but being individually a debtor thereto, for a cer- tain amount, as appeared by entries on their books, sold and conveyed to the other partner, " all his right, title, and interest in and to all the property and estate, real, personal, and mixed, be- longing to, or which of right ought to belong to, saidlu-m: " Held, that such- conveyance transferred to the other partner only his interest in the concern, which remained after deducting such mdebtedness, and that the amount so charged to him individually could not thereafter be collected of him. Beckley V. Munson, 22 Conn. 299 ; S. P. Finlay V. Fay, 17 Hun, 67. Where one of two partners sold out to the other, the purchaser taking all the assets, and assuming the payment of all the liabilities; and where in pro- ceedings between the two, under a sub- mission to arbitrators, the arbitrators found that in the keeping of the books of the firm there had been mistakes, and that the vendor had received credits and cash with which he was not charged, amounting to the sum of $1900 — among which was the following item: "For credits entered, which he is not entitled to, $1431.84," — which sum was award- ed to the vendee of the partnership in- terest; and where it was claimed that {r) Smith v. Parkes, 16 Beay. 115. 94T •••■698 TEANSFER OF SHARES. [book in ]'iglits of the otlier partners;' and will be affected bj equities aris- the vendee was entitled to recover for only one-half of the said sum of $1431.84: Hehl, that the vendee -w&i substituted to aU the rights of the part- nership, and ■whatever either was owing to the firm belonged to him. Tomliti- son V. Hammond, 8 Iowa, 40. A partnership was dissolved by arti- cles of diss&hition, dated 9th of Febru- ary, 1839, by which the complainants, were to become possessed of all the stock, debts and assets of the firm, and pay to defendant a certain sum, and these conditions being complied with, the parties were mutually to release all claims against each other. An ac- count was found on the books charg- ing defendant with $2100 for vari- ous items, balanced by an entry of credit for that sum "for expenses" dated the 1st of February, 1839, upon a bill -attacking this entry as unauthorized by the terms of the partnership, and fraudulently made pending the negotia- tion for a dissolution: Held, 1. If the defendant had stood charged on the books, with the 12100 at the time the terms of the dissolution were agreed upon, the settlement would have re- leased the indebtedness. 2. But if the terms of dissolution were settled on the supposition that defendant's account had been properly balanced when in •fact the credits had been improperly and fraudulently entered, the com- plainants were entitled 'to recover the amount of the debit in defendant's ac- count. 3. In the absence of all proof on the subject it must be assumed, that complainants dealt with defendant un- der the belief that the books had been fairly and correctly kept, and the credit being proved improper, they were enti- tled to relief against it. Trump v. Balt- zell, 3 Md. 295. Where a partner sells his interest in his firm, including the .stock and ex- cepting the accounts and indebtedness due it, to his co-partners, the sale cov- ers amounts which the vendees have failed to pay in as partners to make their respecti've shares of the capital stock equal to the capital paid in by him, as well as their liability for mon- eys withdrawn from the firm by them. Flynn v. Fish, 7 Lans. 117. Where certain persons by a writing signed by them, formed an association for publishing a daily and weekly news- paper and therein and thereby agreed that said newspaper, and the good will thereof, and all the other goods, etc, of ^ Where the interest of one partner in the partnership property passes to an- other person, it is immaterial whether that transfer be eflfected by a sale by the partner himself for a valuable consider- ation, by a sale of his interest on execu- tion, by his death and the succession of his executor or administrator, or by as- signment under the bankrupt or insolv- ent laws. In all these cases the party coming into the right of the partner, comes into nothing more than an in ter- est in the partnership which cannot be tangible, made available, or delivered, except under an account between the partner and the partnership; and it is 9^18 an item in the account that enough must be left for the partnership debts. Baker's Appeal, 21 Pa. St. 76: Fourth Nat'l Bank «. Carrolton Railroad, 11 Wall. 624; Mords v. Gleason, 64 N. Y. 204 I Miller v. Brigham, .50 Cal. 615. Where real estate held by the mem- bers of a partnership as a partnership property is mortgaged by one of the partners to secure his individual debt, the mortgagee only acquires a lien upon what may be the share of the mort- gagor after settlement of the partner- ship accounts and the payment of all partnership debts. Conant v. Frary, 49 Ind. 530. CHAP. V.J TEANSFEE OF SHAEES. *698 ing between the assignor and liis co-partners subseqnantly to the the association " as they shall from time to time exist, shall be divided into, and shall always consist of 100 equal shares to be called capital stock; " and in what proportions such stock should belong to them in severalty; and thereby by the 6th article thereof also agreed that each party should have the right to sell any of his said stock, but before doing so, should offer the same to the asscciation, and give it the refusal thereof for 10 days; and that no " purchaser shall acquire any interest whatever in the profits of said papers, till he shall receive a certificate or scrip for his said shares, signed by all the parties hereto, and duly registered in a book to be kept for that purpose," which scrip shall certify that the holder of it "is entitled to participate, in proportion to his shares, only in that portion of the profits which may be assigned to the party selling to such purchaser, and shall not be entitled to any voice or agency whatever in the conduct, control, management or affairs of said company, or of said newspapers:" Held, 1. That the plamtiff who pur- chased 30 shares of the stock from a prior and registered purchaser thereof, was, as between him and his vendor, the owner thereof, and as such equit- ably entitled to any dividends of profits ascertained and declared while he was such owner, and credited on the books of the association to such stock as its just proportion of such ascertained profits, although such stock was so pur- chased by the plaintiff without a pre- vious offer of it by his vendor to the asso- tion or to either of his associates. 2. A sale and assignment by the plaintiff after such a dividend of profits, of the said "30 shares of capital stock, " " and all future benefits and dividends thereof," with full authority, as the at- torney of the plaintiff and of his vendor, to sell for them " all or any part of said stock " did not pass to the plaintiff's vendee any right to the dividend so previously declared and credited to the said 30 shares. 3. A written notice signed by one of the associates and served (on all persons interested in the capital stock) after such a dividend of profits had been made, declaring the association dis- solved ; and the institution by him of a suit to obtain a judgment declaring it to be dissolved, & j., operated as a disso- lution of the association, and made plaintiii''s legal title to the profits so allotted and credited to his 30 shares perfect and absolute, and completed his right to sue the associates and recover from them such ascertained and de- clared profits, unembarrassed by any of the conditions and provisions contamed in the 6th article of association. 4. But there would be deducted from such declared profits 3-10 of a debt owing by the association when the divi- dend was declared and subsequently paid by it, but not then considered, be- cause its amount was not then known or capable of bemg ascertained. Harper V. Raymond, 3 Duer. 29. A and B, partners in trade, made a written agreement whereby the former, in consideration of a certain sum of money to be paid him, and of a certain amount of goods to be withdrawn by him from the stock of the firm, and of the assumption by the latter of all con ■ tracts and debts of the firm, sold and transferred to B all the interest of A in the assets of the firm, including money on hand, notes, accounts, stock, machinery and material; the instru- ment reciting that the object and ■pm-- port of the contract was the withdrawal of A from the firm, and the release of A by B " from any and all liabilities on account thereof," and that if B should fully perform the agreement, and re- lease A in accordance with the provi- sions of the contract, the sale should be 949 *698 TEANSFEE OF SHAEES. [book hi. assignment, (s) Even if the assignee gives notice of the assign- ment, he cannot (if the partnership is for a term) acquire a right valid in law, else void and of no eflfeot: Held, in an action by A against B on said contract, to recover said sum of money as stipulated therein, that A was re- leased from all liability on account of any claim against him or debt due from him in favor of said firm, as well as re- leased from, and secured against any liability of the firm to any other person. Headley v. Shelton, 51 Ind. 388. Where one partner purchases of his co- partner his interest in the partnership property, under a mistake as to the true condition of the partnership accounts, but without fraud in the partner selling, there is no legal consideration for a promise of the latter to make up the aiiount of the mistake. Eakin v. Fen- ton, 15 Ind. 59. One partner sold to his co-partner his interest in the partnership effects, and afterwards it was discovered that the inventory and estimate of the effects which the parties had before them at the time of the sale was erroneous, and that the effects were in fact less than ap- peared from the inventory. The sum paid for the selling partner's interest was, however, considerably less than his share of the amount of the inventory : Held, that, while the sale remained in force, an action could not be maintained to recover the difference between the ac- tual amount of the effects and the amount stated in the inventory. Wood V. Johnson, 13 Vt. 191. One of two co-partners, without the knowledge of the other, mortgaged an undivided half of partnership property to secure his private debt. A third party bought the property, promising to pay the mortgagee one-half its value ; but being garnished by a firm creditor, he was obliged to pay over the entire value : Held, that his promise to pay the mortgagee could not be enforced, the 950 consideration having failed. Sauntry V. Dunlap, 12 Wis. 364. A bond fide transfer of an interest in a partnership may be made without writings or vouchers. Be Great West- ern Tel. Co. 5 Biss. 363. A notice to one partner in possession of the partnership property, of the pur- chase of another partner's interest, is a sufficient delivery to constitute a valid sale. Whigham's Appeal, 63 Pa. St. 194. A partner sold his interest, which was one-half, in the business to his co-part- ners for a given sum; providhig further that when the indebtedness of the firm was ascertained, if it did not amount to over $9,000, they were to execute to him their note for $1,500; or if the debts of said firm should amount to over ^9,000, then the said note to be proportionately less according to the increase in the amount of said indebtedness. It being ascertained that the indebtedness was in excess of $9,000: Held, that the ex- cess should reduce the amount of the note in the one-half amount of such ex- cess. Murchison v. Warren, 50 Tex. 27. One of the partners in the business of brewers executed an agreement for the sale of "his whole interest in the brew- ery at,'' etc., "consisting of stock on hand, personal property, real estate," etc., describing certain town lots, ' for the sum of, " etc. : Held, that this agree- ment, taken according to its terms, did not dispose of moneys on hand or on de- posit belonging to the partnership, or of bills receivable or accounts in favor of the firm. Garnier v. Gebhard, 33 Ind. 225. (s) See Cavander v. Bulteel, 9 Ch. 78; Lindsay v. Gibbs, 3 DeG. & J. 690; Guion e. Trask, 1 DeG. P. & J. 379, per Turner, L. J. CHAP. V.J IN PAETNEESHIPS. '■699 ■ to the assignor's share as it stands *at the time of the ns- 699* signment or notice, discharged from subsequently arising claims of the other partners. (<)' The assignment cannot deprive them of their right to continue the partnership, and consequently to bring subsequent dealings and transactions into account- Whether an assignee of a share in a jDartnership can compel the other partners to come to an account with him is apparently open to some doubt, although there are instances in which suits with that object have been sustained (ti), yet the analog^'- furnished by sub-partnerships leads to the inference that the assignee must, to use Lord Eldon's language, be satisfied with the share of the profits arising and given to the assignor, (a?) If partners choose to agree that any of them shall be at liberty to Transfer aUow- introduce any other person into the partnership, there mew. ^^'*^" is no reason why they should not; nor why, having so agreed, they should not be bound by the agreement. {yY Persons [t) See Cavander v. Bulteel, 9 Ch. 78; Kelly v. Hutton, 3 Cli. 703; Red- mayne v. Forster, 2 Eq. 467. ^ See, however, Mosely v. Garrett, 1 J. J. Marsh. 212, where it was held that if _a partner mortgage his interest in partnership property, the other part- ner cannot apply it in discharge of the firm debts. Where the interest of one of the partners, in the property of a partner- ship, is assif.Tied by him as security for his individual debts, and such assignee permits the business to go on in its or- dinary course, such security becomes subject to the fluctuations of the busi- ness, and upon the subsequent dissolu- tion is only entitled to what remains to ^uch partner after the payment of the debts of the firm. Bank v. Fowle, 4 Jones Eq. 8. (u) See Glyn v. Hood and Kelly v. Hutton, ubi supra. But Kelley v. Hut- ton appears to have been a case of co- ownership in the newspaper and a part- nership in its profits. (x) See ante p. 54; and Brown v. De Tastet, Jac. 284, where the bill was dis missed against the other partners. (y) Lovegrove v. Nelson, 3 M. & K. 20. 2 It was agreed, by articles of co-part- nership, that any partner might transfer his share by a written certificate, which, when lodged with the clerk, should give the assignee all the privileges, and sub- ject him to aU the liabilities, of an orig- inal partner: Held, that such certifi- cate was not material to a sale. Alvord V. Smith, 5 Pick. 232. The members of a partnership received from their treasurer certificates of stock, containing the provision that no shares should be transferred without consent of the treasurer and directors. A share was assigned to the plaintiff without such consent, and he brought a bill to compel the company to account, alleg- ing himself to be a partner : Held, that he was not a partner, and that the bill must be dismissed. Kingman v. Spurr, 7 Pick. 235. Relief in equity may be had by A against B and C, for non-performance of an agreement in writing by which A, with B's consent, assigned to C all A's share in a partnership between A and B, and B and C covenanted to assume tha 951 *'''00 TEANSFEE OF SHAEES. [BOOK m. who enter into such an agreement consent prospectively and once for all to admit into partnership an}' person who is willing to take advantage of their agreement, and to observe those stipulations, if any, which may be made conditions of his admission. Such an agreement as this is the basis of every partnership the shares in which are transferable from one person to the other. Those who form such partnerships, and those who join them after they are formed, assent to become partners with anyone who is willing to comply with certain conditions. (2) As observed in Lovegrove v. Nelson {a) " to make a person a part- LovegroTes. "®^ ^M\\ two Others their consent mnst clearly be had. Nelson. j^^j. tj^gpe jg jjq particular mode or time required for giving that consent; and if three enter into partnership by a con- tract which provides that on one retiring, one of the remaining two, or even a fourth person who is no partner at all, shall name the successor to take the share of the one retiring, it is clear 700* *that this would be a valid contract which the Court must perform, and that the new partner would come in as entirely by the consent of the other two as if they had adopted him by name. Where a partner has an unconditional right to transfer his Effect of trans- ^^^1*6, he may transfer it to a pauper, and thus get rid isa^MiUo^as^ of all liability as between himself and his co-partners ^'8"- in respect of transactions subsequent to the ti'ansfer and notice thereof given to them. (5) But even in this case the debts of that firm, and A and B agreed by the other members, who ceased to re- with C that such debts should not ex- gard the assignors as partners. In an ceed a certain amount. ' Scovill v. Kins- action, more than fom- years later, to ley, 13 Gray, 5. compel the assignors to share a com- The articles of a joint-stock company pany loss: JifeW, that they were not provided that a partner wishing to dis- liable and that the stock was assigned pose of his interest should first offer his so as to discharge the assignors from stock to the company, and second, pay liability for the debts of the company, up so much of it as should have been although the mode prescribed by the called for, after which he might abso- articles was not pursued, the company lutely transfer the stock on the company having recognized the assignees as part- books and the company were bound to ners, and having ceased to regard the receive his assignee and look to him for assignors as such. Wells v. Wilson, '6 all subsequent liabilities. Certain part- Ohio, 425. ners assigned their stock but did not {z) See Fox v. Clifton, 9 Bing. 119. transfer it in the manner prescribed by (a) 3 M. & K. 1 the articles. Their assignees were, how- (6) Jeiferys v. Smith, BRuss. 158. ever, received and treated as partners CHAP.V.J IN COMPANIES. *701 transfer alone does not reader the transferee a member of the part- nersliip, and liable as between himself and the other members to any of the debts of the firm, (c) In order to render him a partner with the other members, they must acknowledge him to be a part- ner, or permit him to act as such, {d) As an ordinary partnership is not distinguishable from the per- sons composing it, and as every change amongst those Effect of con- persons creates a new partnership, it follows that every itauity of ton. time a partner transfer^ his sliare to a non-partner the continuity of the firm is broken.' In this respect such companies as are not mere partnerships on a large scale differ from ordinary firms, their continuance not being interrupted by changes amongst tlieir mem- bers, ie) Ap apparent exception to the rule that a share in a partnership cannot be transferred without the consent of all the ,,. . partners, exists in the case of mining partnerships, nerships. Mines are a peculiar species of propert}^, and are in some respects governed by the doctrines of real property law, and in others by the doctrines which regulate trading concerns. Regarding them as real property, and their owners as joint tenants or tenants in common, each partner is held to be at liberty to dispose of his interest in the land M'ithout consulting his co-owners; and a transfer of this interest confers upon the transferee all the rights of a part-owner, including a right to an account against the other owners. (_/) But even here if the persons originally interested in the mine are not only *part-owners but also partners, a transferee of the share of *701 one of them, although he would become a .part-owner with the others, would not become a partner with them in tJie proper sense of the word, unless by agreement express or tacit, {g) Similar observations apply to transfers of sliares in ships. Ships. (c) Jefferys v. Smith, 3 Russ. 158. proportions of their interests. Freder- {d) Ibid. ickv. Cooper, 3 Iowa, 171. ^Where one partner sells out to an- («) See Mayhew's case, 5 DeG. M. & other, and the remaining ones continue G. 837. the business, it wiU be presumed, in the [f) See Bentley v. Bates, 4 Y. & C. absence of proof to the contrary, that 182; Redmayne v. Forster, 2 Bq.467. as between themselves the partnership [g) Aa in Jeffreys v. Smith, 3 Russ. continues, with only a change in the 158; Crawshay v. Maule, 1 Swanst. 518. 953 TKANSFEE OF SHAKES. [eOOK III, 2. Transfer of shares in companies. One of the most important distinctions between partnersljips Ri'^htto ^'^'^ companies is the comparatively unlimited ri^ht of transfer. members of the latter to transfer their shares. (A) In what are called scrip companies this right is wholly unlimited; the right to the shares passing by the delivery of the scrip certificate, (i) In other companies, also, the right to transfer is frequently unfet- tered. Whether a share in a company is transferable at the will of its Consent to owuer for the time being, or whether its transfer re- transfer. quires the consent of the other shareholders, or of the directors of the company, depends upon the constitution of eacli company. Speaking generally, if shares are transferable, and no restriction No consent *^^ ^^^^ right to transfer them is imposed by the regu- requisite. lations of the Company, or by the statute or charter by which it is governed, the right to transfer is absolute, and the directors cannot lawfully prevent a transfer, even if they are hona fide of opinion that it is for the interest of the company that they should do so. (k) It follows from this, that where no restriction on the right to transfer exists, a transfer to a pauper, in order to escape from liability, is valid, and cannot be prevented. (Z) This is certainly going very far; and in cost-book mining companies the legislature has thought fit to interfere, by declaring such trans- fers fraudulent and void, (m) But notwithstanding the length to which the transfers. *702 courts have *gone in holding the right to trans- fer to be free from all implied restriction, a transfer which is fraudulent in the sense of not being a real transfer out and out, or a transfer made for a fraudulent pur- pose, can be lawfully objected to by the directors, (ji) But a {h) See ante, p. 5. [V) lb. and see Jefferys v. Smith, 3 («) See Ex parte Barclay, 26 Beav. Russ. 158, and infra, book iv. under the 177; Ex parte G:w&NOodL,z^di. Ex parte head Contributories. DePass, 4 DeG. & J. 544. [m) 32 & 33 Vict. c. 19, §35. {h) Stranton Iron, &c. Co. 16 Eq. 559; (n) This is admitted in Weston's case, Weston's case, 4 Ch. 20, reversing 6 Eq. 4 Ch. 20. See fm-ther under the head 246. Compare Ex parte Parker. 2 Ch. Contributories in book iv. 685; Moffatt v. Farquhar, 7 Ch. D. 591. 954 CHAP. V.J IN COMPANIES. *703 transfer to avoid liability or to multiply votes is held not to be fraudulent, (o) "Where, by the constitution of a company certain definite restric- tions are placed on the right to transfer its shares, the consent directors have no implied authority to impose any requisite, other restrictions on the exercise of that right {p), e.g., if the only restriction is that no calls shall be in arrear, the directors cannot refuse to permit a transfer, if all calls made have been paid. So, again, a right to object to a transferee does not entitle them to object to a transfer to an unobjectionable person, although made for a purpose the directors may disapprove, e.g., to multiply votes, [q) Moreover, where, as frequently happens, the restriction is that the directors shall consent to the transfer, their consent is regarded so much as a mere matter of form, that the necessity for it does not prac- tically affect the marketable value of the shares. Nor can directors withhold their consent to a transfer without good reason; for the power of assenting or dissenting to a transfer is reposed in them as trustees, and they must exercise that power accordingly, and not capriciously, (r) At the same time, if their consent to a transfer is necessary, and in refusing their consent to a transfer, they act lo7idJlde, with a view to the protection of the interests of the com- pany, the exercise of their discretion will not be interfered with (s); and, in such *a case, it is competent for them, if *703 the company is in embarrassed circumstances, to resolve not to allow any transfers at all. {t) A director may consent to a transfer of his own shares, (u) A consent to a transfer given and acted upon is not invalid on the (o) See the last four notes. 29 Beav. 646; Eobinson v. Chartered (p) This follows from "Weston's case, Bank, 1 Eq. 32; Pinkett v. Wright, 2 ubi supra. See, also, Chappell's case. Ha. 120. 6 Ch. 902; Gilbert's case, 5 Ch. 5.59, aiid (s) Taft v. Harrison, 10 Ha. 489; R. the next note. v. Liverpool and Manchester Rail. Co. (g) Pender v. Lushington, 6 Ch. D. 21 L. J. Q. B. 284; and see Berming- 70; Stranton Iron Co. 16 Eq. 559. ham v. Sheridan, 33 Beav. 660. But (r) In Ex parte Penney, 8 Ch. 446, compare Stranton Iron Co. 16 Eq. 559, it was held that they need give no rea- ante, note (q). sons for their refusal; but that whether (i) Shepherd's case, 2 Eq. 564, and 2 they give reasons or not, the Court will Ch. 16. interfere if it is proved that they are not (m) Bush's case, 6 Ch. 246, and see acting honestly in the discharge of their Gilbert's case, 5 Ch. 558. duty. See ib. and Poole v. Middleton, 955 *704: TEANSFEE OF SHAEES. [bOOK III. Informal con- gi'ound that it lias been given informally (a;)': but a ^^■^'^ consent fraudulently obtained can be treated by the company as invalid, {y) In most companies payment of calls is a condition precedent to the exercise of a right of transferring shares. {£) A call must be actually made before its non-payment can justify a refusal to per- mit a transfer, (a) If calls are due on some only of the shares held by a shareholder he cannot be prevented from transferi-ing other shares on which no arrears are due, unless the statutory or other regulations of the company clearly go to that extent. [Ji) The right, however, to prevent a transfer of shares on which calls are due may be waived, e.g., by registering the transfer (c); and ii waived a transfer of them cannot be afterwards impeached, [d) Whether upon the sale of shares it is the business of the buyer Procuring con- ov of the Seller to procui'e the consent of the directors sentto transfer. ^^ ^ transfer will be examined hereafter, {e) Shares in companies are not all legally transferable in the same Mode of trans- Way : some are transferable by deed only, some by writing errmgs ares. ^^^ imder Seal, some apparently' by parol. The mode in which the shares of a given company are transferable, depends on the constitutioji of the company, and on the statute, if any, by *704 which it is governed (/") ; but acceptance in some *manner of the transfer by the transferee is essential in all cases, {g) Shares in Companies governed by the Companies clauses consoli- in companies datiou act, are transferable by deed, only; aud a form govern(idbyS& „ . . ' , , ,is 9 Vict. c. 16. ot transfer is given by the act. (A) [x) Bargate v. Shortridge, 5 H. L. C. S. 615. 297; Taylors. Hughes, 2 Jo. & Lat. 24. (e) See Stray v. Russell, 1 B. & B. See on this subject, ante, pp. 137, 138. 888 ; and compare Wilkinson v. Lloyd, 1 See ante, 699, note (2). 7 Q. B. 27, post, p. 712. {y) See Payne's case, 9 Bq. 223; Kin- (/) In Ex parte Sargent, 17 Bq. 273, trea's case, 5 Ch. 95, and others of that a deed was held not necessary, al- class. though the practice was to have one. («) See ante, p. 686. The articles only required an instru- (a) R. v. Inns of Court Hotel Co. 2 ment in writing. N. R. 897. Compare Gilbert's case, 5 {g) See Cartmell's case, 9 Ch. 691. Ch. 559. (7j) 8 & 9 Vict. c. 16, § 14. Railway (&) Huhbersty v. Manchester Rail. stock belonging to a lunatic may be Co. L. R. 2 Q. B. 59 and 471, decided transferred without a deed, under an upon the 8 & 9 Vict. c. 16, § 16. order obtained in lunacy. See 16 & 17 (c) Ex parte Littledale, 9 Ch. 257, Vict. c. 70, §§ 141, 142, and Re Ives, 9 and the case in the next note. Jur. N. S. 611. 1(1) Ibid, and Orpen's case, 9 Jur. N. 956 CHAP, v.] IN COMPANIES. *705 The coinpanies act, 1862, declares tliat shares in companies formed and registered under that act shall be capable in companies of being transferred in manner provided bv the regula- the act or 1882. tions of the company (§ 22). {i) Table A. contains a form of trans- fer, and requires it to be executed both by the transferrer and the transferee (see Nos. 8 and 9). Whether executed means sealed and delivered is, however, left in obscurity, (k) Shares in these com- panies cannot, however, be made transferable by mere delivery (I), except under the provisions of the Companies act, 1867, which only applies to fully paid-up shares in limited companies, (m) Executors or administrators of members of companies governed by the act and table in question may, at their option, either register themselves as members (Table A., No. 13), or transfer the shares which have devolved upon them, without becoming members themselves (Nos. 11: to 16, and see § 24 of the act). The same ob- servation applies to trustees of bankrupt members, and to persons marrying female members (see Table A., Nos. 13 — 16.) The transfer of shares in other companies is not regulated by any general act of Parliament now in force, (w) Shares in other com- in cost-book mining companies, although usually p^"^*^^' transferred by some written document, appear to be trans- ferable by parol only, (n) *Shares in what are called scrip *705 companies are apparently transferable by the delivery of the scrip certiticate. (0) Companies formed under the repealed acts of 1856-8, may cause their shares to be tranferred in manner in use before ITovember, 1862, or in such otlier manner as such companies may direct, {p) The forms of transfer given by the various acts are short, and are framed with a view to convenient registration; and ^o^jngof although shares may be transferred by instruments in transfer. H) The repealed acts 7 & 8 Vict. c. (m) See 30 & 31 Vict. c. 131, § 27 et 110, § 54, and c. 113, § 23, both re- seq. quired transfers to be by deed. See as {n) Ante, p. 149. As to agreements to scrip, etc. transferable to bearer, for the transfer of shares in banking infra. companies, see 30 Vict. c. 29, noticed (k) Ex parte Sargent, 17 Eq. 273, infra. tends to show that a deed is not neces- (0) Ex "parte Barclay, 26 Beav. 177 ; sary. Grisewood, 7 DeG. & J. 544 ; DePass, (I) See General Co. for the Promotion ib. of Land Credit, 5 Ch. 363; Reuss v. ip) 25 & 26 Vict. c. 89, § 178. Bos, L. R. 5 H. L. 176. 957 *706 BLANK TKANSFEES. [bOOK III. other forms, still, if they are complicated, and differ substantially from those prescribed, the company need not register them, {q) Shares standing in the names of trustees or lunatics may be trans- shares of ferred in proper cases under an order of the Chancery trus.ees and . ' -^ -' lunatics. Division, or an order in lunacy as the case may be. {f) Shares are held not to be goods, wared, or merchandise within the clause in the Stamp act, exempting contracts for the sale stamp, , I ' L ^ ^ of goods from stamp dnty(s); and written agreements for tlieir sale must therefore be stamped, (t) Shares, moreover, are property within the meaning of the Stamp acts; and instruments of transfer must therefore have the true consideration for the transfer expressed upon them, ahd be stamped accordingly, (-w) Several shareholders, however, may join in one transfer, and if the stamp covers the total consideration money it is sufficient. (/) Wliere shares are themselves the consideration for a purchase, the stamp is regulated by their market value at the time of sale, (j/) Whatever may be the legal method of transferring shares, and Transfers in whether a formal deed is or is not requisite, it is a Waiii!;. common practice in the sliare market for a seller of shares to sign a deed or instrument of transfer with the *706 Bame of the *transferee in blank. The buyer then inserts his own name, or witliout doing so resells, and liands the. blank transfer to the new purchaser, who again either inserts his own name as the transferee, or i-esells and delivers the transfer, still in blank, to the purchaser from him, and so on. The effect of ex- ecuting transfers in blank, and handing them from one person to another, is very different with respect to different classes of shares. Blank deeds of ^ deed executed by A., and purport?ng to ti-ansfer transfer. property to , i.e., to nobody, is altogccher inopera- tive as a deed ; and consequently, if a shareholder m a company the shares in which are transferable by deed only, ciiecntes a trans- fer of his shares in blank, he still remains legal owner of the shares and the holders of the deed acquire no other title to the shares than [q) Copeland v. Nortli-Eaatem Rail. [t] lb. Co. 6 B. & B. 277; R. v. General Cem- («) See 33 & 34 Vict. c. 97, under tlie etery Co. ib. 415. bead conveyance. (r) See Re Angelo, 5 DeG. & Sm. (a;) Wills v. Bridge, 4 Ex. 193. 278; Me Ives, 9 Jur. N. S. 611; ante, p. [y) See 33 & 34 Vict. c. 97, tit. Con- 704, note [h). veyance; and Ulverstone Rail. Co. v. (s) Knight V. Barber, 16. M. & W. The Commissioners of Inland Revenue 66. 2 H. & C. 855. 958 CHAP. T.J TKANSFBE OF SHAKES. ^'lOT a right to have them properly transferred, or to have the transferrer declared a trustee for them, (s) But although a blank other blank deed is invalid as a deed, it by no means follows that t™°sfers. all transfers in blank are worthless. In the first place there are shares, e.g'., shares in cost-book mining companies, which are transferable without the intervention of any formal document; and a letter signed by a shareholder, and trans- ferring his shares to , amounts, if delivered to a purchaser, to a transfer to him, F.nd authorizes him to fill up the blank with any name he likes, (a) In the next place, the equitable ownership in shares agreed to be sold depends on the contract of sale and not on the Effect in equity n j?ij> 1.1 ■ 1 .. of transfers in lorm 01 transier; and as tliere is no law requiring a wank. contract for the sale of shares to be bydeed or even in writing, there is nothing to prevent a purchaser of shares from being held to his bargain, nor from being ordered to accept the shares he has agreed to buy, and with thera all the liabilities incident thereto. Consequently, where there is a binding agreement for the sale and transfer of shares, it is immaterial whether a transfer in blank has been executed or not. The purchaser can be compelled at the instance of the seller to take his place *as from the time of *707 the making of the contract; in other words, the purchaser will be compelled to accept a proper transfer of the shares, to pro- cure himself to be registered as a shareholder in respect of them, and to indemnify the seller from all liabilities accruing in respect of the same shares since the time .when they were agreed to be sold. (5)' So the purchaser can compel the seller to execute a proper transfer and to account for all dividends received by him since he ceased to be the equitable owner of the shares. "Where, however, there is no valid contract of sale, a blank trans- fer is as worthless in equity as at law. This is well porgg^ tpans- illustrated by the case of Tayler v. Great Indian Pen- fe^^s- (z) Hibblewhite v. McMorine, 6 M. & & J, 27; Wynne v. Price, 3, DeQ. & S. W. 200 ; Humble v. Langston, 7 M. & 310; Shaw v. Fisher, 5 DeG. M. & G. W. 517; Sayles v. Blane, 14 Q. B. 205, 596, affirming S. C. 1 Jur. N. 971, and 2 and 6 Ra. Ca. 79. See, too, Consols In- DeG. and Sm. 11. See, also, Contract sur. Assoc. V. Newall, 3 Fos. & Tin. Corporation, 3 Ch. 105. In Jackson v. 180, and Swan's case, infra, p. 707. Cocker, 4 Beav. 59, a purchaser of scrip (a) See Walker v. Bartlett, 18 C. B. was held to be under no such obhga- 845. tions; but see Beckitt v Bilbrough, 8 (b) Morris v. Cannan, 4 DeG. F. & J. Ha. 18S. 581. See Cheale v. Kenward, 3 DeG. 959 *708 FORGED TEANSFEES. [bOOK III. insula Eailway Company, (c) In that case the plaintiff, who was Tayierv. Oreat entitled to sonie 201. and some 21. shares in a company, Indian Railway i i • i i mi i i . Company. directed his broker to sell the latter, llie broker ob- tained forms of transfer, stamped sufficiently to pass the 201. shares; and the ])laintiff executed these forms, leaving the blanks to be filled in by the broker. The broker inserted the description of the 201. shares, but left the names of the transferees still in blank. The shares were then sold, and the names of the purchas- ers were ultimately filled in, they knowing that the transfers had been previously executed in blank. The plaintiff having discov- ered that the wrong shares had been sold, filed a bill to set aside tlie sale, and to have the transfers delivered up, and to restrain their registration. A decree was made in his favor by the Y.-C. Wood, and an appeal from this decision was dismissed. A somewhat similar case arose at law; but here the transfers had been actually registered, and the vendor sought to have Swan's rr'«e. • ■ n n mi n t ,■ the registration cancelled, ilie case came first before the Common Pleas (d), and then before the Exchequer (e), *708 and lastly before *tlie Exchequer Chamber. (,/) All the judges agreed that the transfers were wholly void, and con- ferred no title on the transferee, although he was a iond fide pur- chaser; and it was also held by the Exchequer Chamber that the vendor was not estopped, by his own negligence in signing the Wank transfers, from asserting his title to the shares. On this Doint the judges in the courts below had been equally divided, {g) A transferee of a share doea not become a shareholder, nor does When transfer ^ transferrer of a share cease to be a shareholder, until is complete. those forins and ceremonies which by the constitution of each company are necessary to be observed, have been either duly complied with or waived by competent authority. The decisions on this subject having been already examined, need not be again adverted to. (A) The transferrer must ascertain by inquiry whether his transfer has been accepted by the company or not; it is not the (c) 4 DeQ. & J. 559. See, also, Co. 7 H. & N. 603. Johnston v. Renton, 9 Eq. 181, and as (/) 2 H. & C. 175. to tlie liability of the company in re- ((/) See some obs. on this case in 11 spect of forged transfers, see that case, Eq. 319. and ante, p. 301. (Ji) Ante, p. 136 et seq., and se^post, (d) Ex parte Swan, 7 C. B. N. S. book iv. ch. 3, under the head Contribu- 400. tories. (e) Swan v. North British Austrahan 960 CHAP, v.] TRANSFER OF SHARES. *709 duty of the company to give him this information if he does not ask for it. (■/) The transferee of a share in a company acquires, as hetween him- self and the company, no greater rights than the trans- j^j^j^tgofthe ferrer; and this doctrine has been carried so far that it transferee, has been held that a transferee is precluded from objecting to con- duct which has been sanctioned or acquiesced in by his trans- ferrer, (k) The extent to which a transferee of shares takes upon himself the liabilities of tlie transferrer, is examined in other parts of the treatise (i); it may, however, be observed generally, that the transferee, as between himself and his transferrer, takes tlie place of the latter, not only as regards what is past, but also as regards what is to come, (m) With respect, however, to the title of a trans- feree, it must be remembered that a bondjide purchaser of shares for value without notice of any invalidity in the title of his trans- ferrer, acquires a title which cannot be impeached by persons claiming a. prior equitable ^interest (n); moreover, if tlie *709 company has actually registered such a purchaser, in igno- rance of material facts, the company cannot lawfully afterwards re- move his name from the register, [o) Moreover, it has recently been decided that scrip certificates may be shown to be transferable to bearer by general g^^,. ^^ usage, where there is no enactment or agreement to tJfblarer'^^^ the contrary; and where this is shown the title of a ^y ^^^age. hond fide purchaser for value of the scrip, without notice of any infirmity in the title of the seller, will be unimpeachable, even al- though the seller himself may have had no title. (^) There is as yet no decision to this effect with respect to shares, but if a similar usage as to them can be proved, such usage will probably be up- held. (2) (i) See Gustard's case, 8 Eq. 438. (n) Ante, pp. 663, 664. [K] Ffooks V. Southwestern Rail. Co. (0) Ward v. Soutli-Eastem Rail. Co. 1 Sm. & Gr. 168. See, also, Peek v. 2 E. & E. 812, where a fraud had been Gumey, 13 Eq. 79. committed on the company. (Z) See as to creditors, ante, p. 460, (^) Rumball v. Metropolitan Bank, and book ii. ch. 3, § 4 : as to calls, antei 2 Q. B. D. 194, a case of a limited p. 637, and post, book iv. ch. 8, under company, the head Contributoriea. (g) See the last case, and Goodwin v. (m) See Mayhew's case, 5 DeG. M & Roberts, 1 App. Ca. 476, and L. R. 10 G. 837. Ex. 337. " 961 *710 SALE OF SHAKES IN COMPANIES. [.BOOK in. "Where any cora]3any is being wound up by the Court, or sub- Transforswiien iect to the Supervision of the Court, all transfers of compaiivis be- "' ... ing wound up. sluires m it Subsequent to the presentation of the peti- tion, and prior to the winding-up order, are invalid unless other- wise ordered by the Court, (r) Transl'ers after the winding-up or- der are not expressly prohibited, but such a transfer does not dis- charge the transferrer from liability to be put on the list of con- tributories. (s) After a resolution to wind up voluntarily, transfers of shares, unless to, or with the sanction of, the liquidators, are also invalid, (t) The effect of these provisions upon the question whethea a buyer or seller ought to be put on the list of contribu- tories, will be examined hereafter (u). *710 *SECTION VI.— OF SALES OF SHARES AND QUESTION'S ARISING THEREON. There is nothing illegal at common law in the sale of shares or scrip, (x) At the same time, if a company or projected company is itself illegal, the sale of its shares or scrip is illegal also, (y) There is nothing illegal in the sale of shares in companies which are being wound up. (s) A hond fide contract by a person to deliver shares which he has Gaming and not got, is legal, (o) But a contract for their purchase wagering in " ... . , shares. and Sale, where neither party intends to accept or de- (r) 25 & 26 Vict. c. 89, § 15.3, not registered aa a shareholder, § 26; (s) See ib. §§ 38, 74, and 84. 'Ex parte Neflson, 8 DeG. M. & G. 556; [t) Ib. § 131. Morris v. Cannan, 4 DoG. F. & .r. 581. («) See infra, book iv. ch. 3, the sec- But the statute is now repealed; and the tion on Contributories. prohibitions in question never extended {x) See Ex -parte Barclay, 26 Beav. to companies the formation of which 177; Ex parte. Aston, 4 DeG. & J. 320, was commenced before the 1st Nov. 1844 and 27 Beav. 474 ; Ex parte Grise- (as to which see Baker v. Plaslitt, 5 C. wood, 4 DeG. & J. 544; Bagge's case, 13 B. 262; Aston's case, 27 Beav. 474, and Beav. 162. 4 DeG. & J. 320); nor to railway or other [y) Josephs v. Pebrer, 3 B. & C. 639; companies requiring the authority of Buck V. Buck, 1 Camp. 547. The stat- Parliament, Young v. Smith, 15 M. & ute of 7 & 8 Vict. c. 110, prohibited the W. 121; Bousfield v. Wilson, 15 ib. 185; sale of shares in a company governed Lawton v. Hickman, 9 Q. B. 563. by it, until after the company had ob- (z) See Rudge v. Bowman, L. R. 3 Q. tained a certificate of complete registra- B. 689. tion, and even then by any subscriber (a) Hibblewhite v. McMorine, 5 M. & 962 CHAP. V.J SALE OF SHAKES IN COMPANIES. *711 liver tliem, and they on]y intend to pay "differences," according to the rise or fall of the market, is void as a ffarains: or wafferins' contract witliin 8 & 9 Vict. c. 109, § 18. (5) Nevertlieless a broker who pays differences for his principal can recover them from him. (c) A conspiracy to obtain a settling day by fraudulent means in order to defraud buyers of shares or a conspiracy *by fraudnlent means to raise or lower the price of shares *711 with intent to defraud buyers or sellers is an indictable of- fense, [d) By 30 Vict. c. 29, §1, it is enacted that all contracts made after the 1st of Jnly, 1867, for the sale or transfer of any Banting shares, stock, or interest in any Joint stock Banking compame=i. Company in England or Ireland, constituted under or regulated by any act of Parliament, royal charter, or letters patent, issuing shares or stock transferable by any written instrument, shall be void unless such contract sets forth in writing the distinguishing numbers of such shares, stock, or interest on the register, or if there is no reg- ister, the person in whose name such shares, stock, or interest shall at the time of making such contract stand in the books of the com- pany. The object of this enactment is to prevent runs on banks which may be occasioned by a fall in the price of their shares re- sulting from gambling transactions, (e) Neither scrip nor shares are goods or chattels or interests in land within the Statute of Frauds ; and (snbiect to Agreements . ^ . "^ for sale of the qualification introduced by the act just noticed) a shares. contract for the sale of them is therefore valid, although not reduced into writing and signed by either buyer or seller or by any agent of either of them. (/") At the same time, if a contract for the sale of shares is reduced into writing, that writing is the proper W. 462 ; Barry v. Croskey, 2 J. & H. 1; 3 DeG. & J. 46, and the cases there Ex parte Phillips, and Ex parte Mam- cited. ham, 2 DeG-. F. & J. 634. (c) Rosewame v. Billing, 15 C. B. N. (6) Grisewood v. Blane, 11 C. B. 539; S. 316. Eees V. Pemie, 4 N. R. 539, and the {d) See R. v. Aspinall, 1 Q. B. D. cases in the last note. The old Stock- 730, and 2 ib. 48; R. v. Berenger, 3 M. jobbing SA^i (Sir John Barnard's act), 7 & S. 67; R. v. EsdaUe, 1 Pos. & Pin. Geo. 2, c. 8, was repealed by 23 & 24 213. Vict. c. 28. It did not apply to shares (e) See, as to numbering shares, ante, in companies. See Hewitt v. Price, 4 p. 132. Man. & Gr. 355 ; WiQiams v. Trye, 18 (/) Ante, pp. 674, 675. Beav. 366. See, too. Ex parte Turner, 963 ^TIS SALE OF SHARES IN COMPANIES. [cOOK III. evidence of tlie contract, and mnst therefore be produced projjerly stamped, {g) As regards delivery it is to be observed that shares and certifi- Deiivery of cates are different things; and an agreement to deliver the shares. shares is performed bj the. execution and delivery of a proper transfer. Actual delivery of the share certificates is not es- sential to the performance of the contract. (A) *'112 *1. Sales not on Stock Exchange. Sales of shares not on the Stock Ex- A contract for the sale of shares, although usnally made through members of the Stock Exchange, may be change. made without their intervention. A simple contract for the sale of shares imposes on the vendor Vendor's ohii- *^'® obligation of delivering to the purchaser on the day gations. fixed, or if no time be fixed within a reasonable time after the date of the contract, the number of shares agreed to be sold. But, except in cases to which 30 Vict. c. 29 is applicable {i), or unless there be some special stipulation to that efi^ect, the vendur is not bound to deliver any particular shares; nor is it important whether when he agreed to sell he actually had any shares or 'hot (Jc)\ it is suflBcient if he procures them in time. Neither is it necessary that the shares should be actually vested in him, or that he should be the actual transferrer; it being immaterial to the pur- chaser by whom the transfer to him is made, provided only the transferrer's title is good. (1) It has been said that it is the vendor's duty to procure the regis- _ ^ . tration of the shares in tiie name of the purchaser, (in) Duty to pro- r \ J cure transfer. ]3q(; ^ijig jg probably going too far; and it appears more correct to say that the purchaser takes the risk of any objection being made by the company to himself as the transferee; and also the risk of all other objections not based on the right of the trans- [g) Knight v. Barber, 16 M. & W. 66, (?) See the judgment of Lord Black- and ante, pp. 674, 705. 33 & 34 Vict. bum in Maxted v. Paine, No. 2, L. R. c.m,%%9etseq. , 6 Ex. 132. {K) Hunt 11. Gunn, 13 C. B. N. S. 26, (m) Wilkinson v. Lloyd, 7 Q. B. 27; and 3 Fos. & Fin. 223. Lloyd ». Crispe, 5 Taunt. 249. See, (i) Ante, p. 711. also, Benningham v. Sheridan, 33 Beav. (jfc) Ante, p. 710, note (a). 660. 964 CHAP, v.] SALES NOT ON STOCK EXCFANGB. *T1:! ferrer to transfer his shares, {n) The vendor, however, must do whatever is necessary to perfect his right to transfer, e. g., pay all calls which become due before the purchaser becomes in equity the owner of the shares. With respect to the title which a vendor of shares can be re- quired to show, the distinction between incoroorated J . , , . . „ , ' Vendor's title. and unincorporated companies is ot great importance. A vendor of a share in an incorporated company has only to' show a title *to the shares he proposes to transfer; and he *713 cannot be required to show any title in the company to its landed property or other assets, (o) But the title of a vendor of a share in an unincorporated company is not so clearly separable from the title of the company; and a vendor who sells a share in such a company without special conditions runs the serious risk of finding himself embarrassed by requisitions respecting the title of the comptany to its landed property, (p) The cases referred to below are quite sufficient to render it pru- dent for a vendor of shares in an unincorporated company to stipu- late that he shall not be required to adduce any evidence of the title of the company to any property whatever; and, for a vendor of shares in any company to stipulate that he shall not be required to adduce any evidence of his own title, except the registry of him- self as a shareholder in resjiect of the shares offered for sale, {q) The obligation of the purchaser is to pay the price agreed upon, and to accept a transfer of the shares, and to indemnify Purchaser's ob- the vendor from all liability in respect of them accru- i^sations. ing after the purchaser has become their equitable owner, (r) It has long been established that a contract for the sale and purchase of shares is one of which specific performance will be enforced (r): whence it follows that from the time when his contract ought to have been performed the purchaser becomes in equity the owner of (n) See Stray v. Russell, 1 E. & E. {p) See Curling v. Plight, 6 Ha. 41, 888, and Lord Blackburn's judgment and 2 Ph. 613; Stevens v. Guppy, 3 in Maxted v. Paine, No. 2, L. R. 6 Ex. Russ. 171; Morris v. Kearsley, 2 Y. & 132, and the cases Evans v. Wood, 5 C. Ex. 139. Eq. 9; Hodgkinson v. Kelly, 6 Eq. 496, (q) See Hare v. Waring, 3 M. & W. which, however, are all Stock Exchange 862; as to evidence of title by entries in cases. a company's books. (o) See Shaw v. Fisher, 2 DeG. & Sm. (r) Cheale v. Kenward, 3 DeG. & J. 11, and 5 DeG. M. & G. 596, as to the 27; Duncuft ?'. Albrecht, 12 Sim. 189; title which can be required in these Shaw v. Fisher, 2 DeG. & S. 11, and 5 ca.«es. DeG. M. & G. 569. 965 ■"714 SALE OF SHAKES IN COMPANIES. [eOOK HI. the shares; and all the rights and obligations incidental to such ownership attach to him. Moreover, this rehitionship of trustee and cestui que trust may be created, not only by a direct contract between the parties, but in other ways — e. g., if there is a series of assignments by equitable owners, the ultimate assignee will be the cestui que trust oi i\\& legal owner, and be bound to indemnify him accordingly. Ifumerous authorities illustrate these 714* principles; *but as they relate to purchases and sales through brokers they will be noticed hereafter, (s) The obligation of a purchaser to pay the j)rice, accept the shares, and indemnify the vendor against liability in respect of them, was recognized at law even before the Judicature acts; and for a breach of such an obligation an action will lie. (t) Moreover this obliga- tion exists and will be enforced notwithstanding the shares may have become valueless since the date of the contract by reason of the stoppage of the company or otherwise (li)^ and notwithstanding they cannot be registered in the name of the purchaser, (u) The risk is on the purchaser, and as he benefits by a rise in the value of the shares, so he suffers if they become worthless or worse. Further, a contract for the sale of shares in a company being Sales of shares wound up Under the act of 1862 is perfectly valid, al- jjeinT^vounl though made during the liquidation of the company. ^P- The provisions of the Companies act, 1862, §§ 131-1.53, declaring certain transfers made after the commencemeut of the winding up to be void, operate only to prevent the registry of shareholders or the list of contributories from being altered by rea- son of such transfer {v); and such a contract is binding upon a pur- (s) See inier oHa Shepherd D. Gilles- Hutchinson, 3 Eq. 257, and 3 Ch. 388; pie, 6 Eq. 293; Evans v. Wood, ib. 9; Evans v. Wood, 5 Eq. 9; Hodgkinson v. Paine v. Hutchinson, 3 Eq. 257, where Kelly, 6 Eq. 496; Hawkins v. Maltby, 6 forms of decree are given. Eq. 505, and 4 Ch. 200, which, how- (t) See Kellook v. Enthoven, L. R. 9 ever, were all cases in which the de- Q. B. 241; affirming S. C. 8 Q. B. 4.58, fendant had accepted the transfers, where the vendor was made a contribu- Compare Bermingham v. Sheridan, 33 tory as a past member; Walker v. Bart- Beav. 660, which, however^ cannot now lett, 18 C. B. 845, and Humble v. Lang- be relied on, as was admitted by the M. ston, 7 M. & W. 517. R. in Fenwick v. Wood, 6 June, 1870, (m) See, at law, infer alia. Chapman and see 3 Ch. 393. V. Shepherd, L. R. 2 C. P. 228; Bow- {v) Biedei-man v. Stone, L. R. 2 C. ring «. Shepherd, L. R. 6 Q. B. 309; P. 504; Rudge v. Bowman, L. R. 3 Q, and in equity, inter alia, Paine v, B. 689. 966 CHAP. V.J SALES NOT ON STOCK EXCHANGE. *715 chaser althoiigli he can show that he was ignorant of the fact of the company having gone into liquidation, (x) *0n the other hand, a contract for the sale *715 Position of par- ■■ , /. 1 T t^^'' where the and purchase oi shares does not bind the Dur- shares bought , -T and sold are chaser to accept what does not answer the description not identical. of the shares which he agreed to buy. If, therefore, such shares do not exist, he is not compellable to pay tlie price agreed upon; and if he has paid it in ignorance of the facts, he can recover it back as money paid for a consideration which has failed, (y) In Kempson v. Saunders (s) it was held that a purchaser of shares in a projected company which was never formed, was „ entitled to recover back his money from the vendor, Saunders. although the vendor was not an original subscriber, and had him- self purchased the shares from other persons. This case was de- cided upon the ground that the subject-matter of the contract had no existence, there being no company, and consequently no shares in it to buy or sell. Had the contract been for the sale and pur- chase of the right of the vendor to shares in the company when it should be formed, it could hardly have been held that there was nothing tc^ buy or sell, or that the purchaser could have recovered back his money, although he might not in fact have got anything of the slightest value for it. Again, where shares are apparently bought, and the certificates for them proved to be forged, tlie purchaser can recover their price from the vendor, (a) Strictly speaking, it is the purchaser's duty to prepare the trans- fer, and to tender it to the transferrer tor execution (b) ; pj-g' ration but the form of transfer is so simple that in practice of transfer. the vendor fills it up and sends it to the purchaser to'execute. The eftect of a transfer in blank has been already considered (c), as has the question whose duty it is to procure it to be registered, (d) An important question connected with the transfer is, whether {x) Rudg-e V. Bowman, L. B. 3 Q. B. is, 2 P. W. 217. 689, 697. See, as to enforcing such a (a) Royal Exchange Assur. Co. v. contract in equity, Emmerson's case, 1 Moore, 2 N. R. 63, Q. B., a case of Ch, 433, explained by Wood, L. J. in forged debentures. Paine v. Hutchinson, 3 Ch. 388, 391. (6) Humble v. Langston, 7 M. & W. (y) Watkins v. Huntley, 2 Car. & P. 517, and per Lord Blackburn, in Max- 410, note; Westropp v. Solomon, 8 C. ted v. Paine, No. 2, L. R. 6 Ex. 132. B. 345. (c) Ante, p. 705, p.tseq. {z) 4 Bing. 5. Compare Stent v. Bail- {d) Ante, p. 712. 967 *716 SALE OF SHAKES IN COMrA^'IES. [bOOK III. the vendor is bound to transfer to any person nominated by the Transfer to purchaser, or cau insist on transferring to the nominee.'^^ *716 purchaser *himself. As will be seen hereafter, a purchaser of shares sold on the Stock Ex- change is entitled to require a transfer to himself or his nomi- nee, (e) Lord Blackburn has stated his opinion to be that any other purchaser has the same right, {f) But it must be borne in mind that a transfer does not always relieve a transferrer from all liability {<)), and that it is ofen a matter of great importance to a transi'errer that his transferee shall be apei-son of substance. What- ever, therefore, the rule ma}^ be in eases where the transferor is un- der no liability, or where by liis transfer he frees himself from all liability, it is very questionable whether a vendor of shares who has not agreed expressly or impliedly (by selling on tlie Stock Ex- change) to transfer to the nominee of the person with whom he has contracted, is under any obligation to transfer to such nominee. (A) A vendor of a leasehold estate who has himself entered into oner- ous covenants, is surely not under imy obligation to assign to a pauper at the request of the purchaser, unless indeed the purchaser enters into a covenant for indemnity which would obviously re- move the vendor's objections. A partner who sells his share of partnersliip real estate is appar- Lien of vendor eutlv entitled to the ordinary lien of a vendor of reai for unpaid pur- ^ i . i i / ■\ t. i chase-money, estate lor the Unpaid purchase-money. (*) But there is no sufficient analogy between a sale of real property and a sale of a share in an incoporated company to warrant any such lien upon the sale of such a share. It is conceived, however, that an unpaid vendor of a share in a company has the same right of stop- ping the deliv'ery to an insolvent purchaser that a seller of ordinary goods has in similar cases. (e) Maxted v. Paine, No. 2, L. R. 6 452. In this case the lien contended for Ex. 132. was held to have been excluded by the (/) See his judgment in the case last vendor's agreement to let the purchase- cited, money, remain in the concern at a high {g) E. g., in companies formed and rate of interest. Moreover.evenifthelien registered under the Companies act, had ever existed, there was evidence to 1862, from liability as a past member. show that it had been discharged. Had (h) Coles v. Bristowe, 4 Ch. 3, is in it not been for these circumstances, the authority to the effect that he is not. existence of the lien contended for would (i) Stuart v. Ferguson, Hayes, Ir. Ex. apparently have been established. 968 CHAP. T.J FEAL'DULENT SALES. *717 A person who sells shares in a company wliioli he knows has no existence, is guilty of a fraud for which he is criminally *respon8ible. {j) But the rule *71Y fa™"^''^""' caveat emptor renders it lawful for a person holding shares in an insolvent company to sell them to any one willing to buy them; and in the absence of misrepresentation by the seller, the buyer is apparently without remedy against hi in. (Jv) A person who has been induced to purchase shares by fraud on the part of the seller, can, at his option, either keep -^^^^^ ^y ^^^ the shares and sue for the damage he has sustained by ■^'^'^'^''■ the faud, or repudiate the contract, and recover the money paid under it. But he cannot adopt the latter alternative nnless he can, when the action is brought, restore the shares in the 'same state in which he took them, and place the seller in the same position in which he stood before the sale.' (Z) The purchaser can also main- tain an action to rescind the contract, and to compel the vendor to indemnify him. And the fact that the plaintiff sold some of the fciiares before he knew of the fraud, will not disentitle him to re- lief, if the contract is severable; and this it has been held to be, where all the shares bought are shares in the same company. («<) JSTor will the forfeiture of tlie shares after the commencement of the action affect his rights. {ii) Unless, however, tiie company is implicated in the fraud, the jjurchaser, if he has become a share- holder, cannot, it is conceived, prevent calls being made upon him. ( SALES ON STOCK EXCHANGE. . BOOK III. all further liability, unless, as sometimes happens, he has expressly undertaken some further obligation, e.g.^ to guarantee registratiou of the transfer. In Grissell v. Bristowe (^), and Coles v. Bristowe (A), the seller Grisseiiw ^^*^ executed a transfer to the person whose name Bristowe. -^^.j^g jy|yeu as the ultimate purchaser, and he paid for Coles V. '^ I ' X Bristowe, the sharcs and kept the transfers, but did not execute them, and did not procure them to be registered in his name. The seller consequently remained liable to the company for calls, and he sought to compel the jobber who first bought the sliares to in- demnify him. But it was held both b}^ the Court of Excliequer Chamber and by the Court of Appeal in Chancery that the jobber had duly discharged his obligations, and had ceased to be liable. In these cases it did not appear that the transferee could have been reasonably objected to; but the decisions showed the true position of purchasing jobbers, and paved the way to those which follow. In Maxted v. Paine, No. 2 (»'), the name passed vfS^'f'^v'i o *725 was one *which could have been reasonably ob- jectedito, and was the name of a nominee of tlie true purchaser, who was paid by him for accepting the transfer. It was, nevertheless, held, that there being no fraud on the part of the defendant (the first purchasing jobber), he had discharged his obli- gation, by procuring the acceptance of a transfer by a person who could not hiraself repudiate it, and to whom the vendor had not objected in due time. This case shows conclusively that as between the vendor and purchasing jobber, and where they both act honu, fide^ it is the duty of the vendor to make inquiry'' respecting his proposed transferee. If, as sometimes happens, the purchasing broker or jobber has Registration expressly guaranteed the registration of the shares, he guaranteed. jg jjable to indemnify the seller against the conse- quences of their non-registration in the name of the transferee {IS); but he is not liable for the solvency of the transferee. ig) L. R. 4 C. P. 36, reversing S. C. bum, in this case, Merry v. Nickalls, 7 3 C. P. 112. Ch. 733. (h) 4 Ch. 3, reversing S. C. 6 Eq. 149. (fc) Cruse v. Paine, Eq. 641, and 4 (t) L. R. 6 Ex. 132, and 4 Ex. 203. Ch. 441. See as to the judgment of Lord Black- 976 CHAP. V.J SALE OF SHARES. *726 2. As to the position of the vendor and the ultimate purchaser. WJien the ticket containing the name of the ultimate purchaser issued by his brokers is delivered to the vendor, and contract be- he has executed a transfer of his shares, and that trans- andMJtrans^ fer has been accepted by the purcliaser, and he has *^^'^'^'^- paid the price, it is plain that the vendor has become a trustee for' the piircliaser, and that the purchaser is bound to indemnity the vendor against all liability in respect of the shares. {I) This lias been decided even where the purchaser has not executed the trans- fer (Z); and where the registration of the transfer cannot take place by reason of the stoppage of the company, {m) Even before the Judicature acts, where the vendor and ultimate purchaser had been thus brought into direct commnnica- tion with each other, the vendor could sue the purchaser *at *726 law for such indemnity (n): for then, at all events, there was clearly a contract between them, [o) The precise moment when the contract in these cases is first cre- ated, has given rise to some difference of opinion, but privity of the better opinion seems to be that a contract between ''™''^'""- the vendor and the ultimate purchaser exists, as soon as the ticket containing the purchaser's name has been handed, by his authority, to the vendor, and he has accepted the name, and indicated that ac- ceptance to the purchaser, {p) This opinion is based upon the (?) Paine v. Hutchinson, 3 Eq. 257, tion should be for not indemnifying the , and 3 Oh. 388 ; Hodgkinson v. Kelly, seller. See Sayles v. Blayne, 14 Q. B. 6 Eq. 496 ; Hawkins c. Maltby, 6 Eq. 205, and 6 Ra. Ca. 79, and the cases 505, and 4 Ch. 200 ; Shepherd v. Gil- above. lespie, 5 Eq. 293 ; Sheppard i'. Murphy (o) See, as to this, Hawkins «>. Malt- Ir. Rep. 2 Eq. 544, and 16 W. R. 948 ; by, 3 Ch. 188, where the contract was Wynne v. Price, 3 DeG-. & Sm. 310. held to be misstated. This, however, (ot) Evans v. "Wood, 5 Eq. 9 ; Hodg- was put right in the 2nd suit, 6 Eq. kinson v. Kelly, 6 Eq. 496 ; Holmes v. 505. Symons, 13 Eq. 66. Compare Benning- [p) See aoo. per Christian, L. J., ham V. Sheridan, 33 Beav. 660, which Sheppard v. Murphy, 16 W. R. 948, cannot now be relied upon. See, on it, 956 ; per Brett, J., in Bowringv. Shep- 3 Ch. 393. herd, L. R. 6 Q. B. 309, 328 ; per KeUy, («) Kellock V. Enthoven, L. R. 9 Q. C. B., in Davis v. Haycock, L. R. 4 Ex. B. 241; Bowring v. Shepherd, L. R. 6 373, 384-386. See, also, per Lord Q. B. 309 ; Davis v. Haycock, L. R. 4 Blackburn, in Maxted v. Paine, 2nd ac- Ex. 373 ; Walker v. Bartlett, 18 C. B. tion, L. R. 6 Ex. 132, 166. See, contra, 845, reversing S. C. ib. 446 ; Humble v. Mr. Justice Lush's judgment in the Langston, 7 M. &. W 61 7. The ac- same case. «2 977 . *727 SALES ON STOCK EXCHANGE. [bOOK III. ground that the ticket is drawn up and issued hy the ae;ent of the pnrcliasep, who is authorized to use the macliinery of the Stock Excliange, and to transmit the ticket to any person to wliom the operation of that machinery may bring it. When that person is ascertained, and the ticket is handed to him, an offer is made by the purchaser to buy of the vendor, upon tlie terms specified on the ticket : and if tlie vendor accepts that offer, and informs the purchaser that he has done so, it is difficult to see that anything further is i-equired to make a contract between the parties. This point, however, has ceased to be of tlie same importance as before the Judicature acts: for now, if the relation of trustee and cestzd qiie trust is shown to exist, it becomes unnecessary to consider whether there was a contract between the plaintiff and the defend- ant or not. It was settled in Stray v. Eussell (§'), that in sales on the Stock Exchange, it is not the datyof tlie seller of shares to Duty topro- procurc their transfer to the purchaser: and that curG trRnsfsr o. T, ,1 *727 a person *wlio buys shares through a broker inav stray v. Eussell. J J s J be compelled to pay for them, altliough the com- pany may decline to accept him as a shareliolder. The facts of this case were as follows: — Some shares in the Eoyal British Bank were sold by the defendant to the plaintiff through brokers, who were members of the Stock Exchange. Soon after the sale the bank stopped payment, and the directors refused to allow any transfers of shares. The plaintiff, tlie purchaser, repudiated the purchase, and directed his broker not to pay the purchase-money. The broker, however, did pay it, as he was bound to do \>j the rules of the Stock Exchange. By the same rules it was incumbent on the purchaser, and not on the seller, to obtain the consent of the direc- tors to the transfer. The plaintiff took no steps to procure such consent, and refused to repay his broker the money he had paid for the shares. This, however, the plaintiff was ultimately compelled to do by an action at law (t"), and he then brought an action to re- cover their price from, the seller. It was held that the action could not be sustained: 1. Because there had not been a total failure of consideration, inasmuch as the plaintiff had got the transfers and the certificates ; 2. Because, by the rules of the Stock Exchange, it was not the duty of the seller to procure the consent of the di- (g) 1 E. & E. 888. As to sales not (r) See Taylor v. Stray, 2 C. B. N. S. on the Stock Exchange, see p. 712. 175 and 197. 978 CHAP, v.] SALE OF SHARES. . *72S rectors to the transfers; and, 3. Because the plaintiff was not him- self ready and willing to perform the contract on his part. A reasonable time for the transfer of shares bought and sold is implied in the contract for sale; and where the sale is Time for com- made through brokers, the rules of the Stock Exchange ?ers."^^ fixing the time within which shares sold are to be delivered are ad- missible in evidence lapon the question M'hat is reasonable time, al- though the buying and selling brokers are not proved to be mem- bers of the Exchange, (s) *3. As to the position of the vendor and the imdisclosed and intermedi- *728 ate purchasers. If the first purchaser is a broker buying for a principal, the lia- bilities of such principal are the same as the liabilities undisclosed of a purchasing broker or jobber, {t.) These have P™oipais. been already examined. But in the course of a sale on the Stock Exchange, the only per- sons who are brought into contact with the vendor are intermediate the first and ultimate purchasers. "With the interme- p^™*'^^^'^^- diate purchasers he has ordinarily nothing to do, and unless under exceptional circumstances, he has no rights against them, (u) A vendor, for example, has ordinarily no remed3'' against an inter- mediate purchaser who passes the name of some one else as the ixltimate purchaser and transferee, (x) But an intermediate jobber may enter into a contract with the vendor through his broker, and in such a case the intermediate job- ber will be liable to the vendor for any breach of such contract, (y) Moreover, if the ultimate purchaser is a mere nominee of and trustee for an intermediate purchaser, or for any one cestui que trust else, and the transfer to the ultimate purchaser is never °^ transferee. (s) Stewart v. Cauty, 8 M. W. 160. (m) See, however, Lord Blackburn's See, also, Field v. Lelean, 6 H. & N. judgment in Maxted v. Paine, L. R. 6. 617, wliere evidence of a custom among Ex. 167-8. mining sharebrokers to pay on delivery (x) Torrington v. Lowe, L. R. 4 C. P. was held admissible upon the question 26. Compare Castellan v. Hobson, 10 of reasonable time. In this case both Eq. 47. the plaintiff and the defendant were («/) As in Allen v. Graves, L. R. 5 Q. mining sharebrokers. B. 478, where there was a special ar- {t) See Lord Blackburn's judgment rangement between the plaintiff's in Maxted v. Paine, No. 2, L. R. 6 Ex. broker and the defendant, an interme- 132. diate jobber. 979 ^■T29 _ SALES ON STOCK EXCHAJJ^GE. [bOOK III. registered, but the vendor continues the legal owner of the shares, and incurs liability in consequence, he is entitled to be indemnified against that loss by the person in whom tlie beneficial interest of the shares is really vested, (s) This liability arises not out of any contract between the legal and beneficial owners; but from the re- lation of trustee and cestui que trust which exists between them; and from the principle that the interposition of intermediate trus- tees does not affect the rights of the legal and true equitable owner. Upon this principle it was held in Brown v. Black (a), that a vendor of shares who had transferred them to an infont, Biac™"' *729 but whom he did not know to be *such, was en- titled to be indemnified by the real purcl lasers who had used the infant's name, although the infant had been regis- tered in respect of tiie shares for two years. Plis infancy was discov- ered on the winding up of the company; and, the transfer to him being invalid, the transferrer became a contributory in his place, and then successfully claimed indemnity from the real owners of the shares. (V) For convenience of reference, the following analysis of the decis- ions, referred to in the preceding pages upon the rights of vendors, is appended: — I. Vendor against jobber. 1. Successful actions and suits. (a) Actions at law. Maxted v. Paine, No. 1, L. R.4 Ex. 81. AHen «. Graves, L. R. 5 Q. B. 478. In both of these the transferee was objected to. (&) Suits in equity. Merry v. Nickalls, L. R. 7 H. L. 530; 7 Ch. 733. Transferee an infant. Cruse V. Paine, 6 Eq. 641, and 4 Ch. 441. Registration guaranteed. 2. Unsuccessful actions and suits. (o) Actions atlaw. GrisseU v. Bristowe, L. R. 4 C. P. 36. Maxted v. Paine, No. 2, L. R. 6 Ex. 132. In both of these the transferee had accepted the transfer. (I)) Suits in equity. Coles V. Bristowe, 4 Ch. 3. Transferee had accepted the transfer. («) Castellan v. Hobson, 10 Eq. 47. mise effected between the plaintiff and \a) 8 Ch. 989 and 15 Eq. 363. the infant was held fatal to the plain- (6) Compare Maynard v. Eaton, 9 Ch. tiff's claim. 414, a similar case, but where a compro- 980 CHAP. V.J SALE OF SHAKES. . *730 Eennie v. Morris, 13 Eq. 203. Transferee aii infant; overruled by Merry v. NickaUs, 7 Ch. 733, and L. R. 7 H. L. 530. II. Vendor against ultimate purchaser. 1. Sucoeseful actions and suits, (o) Actions at law. Bowring v. Shepherd, L. R. 6 Q. B. 309, Davis V. Haycock, L. R. 4 Ex. 373. Walker v. Bartlett, 18 C. B. 845. Humble V. Langston, 7 M. & W. 517. Kellock V. Enthoven, L. R. 8 Q. B. 458 and 9 Q. B. 241. Wbere the purchaser had himself transferred the shares. *(6) Suits in equity. *730 Wynne «. Price, 3 DeGl. & Sm. 310. Paine v. Hutchinson, 3 Eq. 257, and 3" Ch, 388. Shepherd v. Gillespie, 5 Eq. 293. Sheppard v. Murphy, Ir. Rep. 2 Eq. 544, and 16 W. R. 943. Hawkins v. Maltby, 6 Eq. 505, and 4 Ch. 200. Holmes e. Symons, 13 Eq. 66. In none of these cases was the transfer executed by the transferee Evans p. Wood. 6 E . 9. Hodgkinson v. Kelly, 6 Eq. 496. In both of which the company had stopped. 2. Unsueeessful suits. Hawkins v. Maltby, 3 Ch. 188, reversing S. C. 4 Eq. 572. The case on appeal turned on the pleadings, Bermingham v. Sheridan, 33 Beav. 660. Not now to be relied upon. See ante, p. 725, note {m). III. Vendor against cestui que trust of transferee. (a) Successful suits. Castellan v. Hobson, 10 Eq, 47. Nickalls v. Fumeaux, 4 W. N. 118. Brown V. Black, 15 Eq. 363 and 8 Ch, 939. Transfer to an infant. (6) Unsuccessful suit. Maynard v. Eaton, 9 Ch. 414. Compromise with transferee held to be a defense. 4. As to the position of the real vendor and purchaser as regards their respective brokers. The duty of a broker employed to sell is to sell according to his instructions if he can do so, and if he cannot, not to jj^^ ^^ seuin" sell at all. His duty is performed when he has enter- 'b™''™- ed into a binding contract for sale, and has given the name of the buyer to his employer. If the selling broker receives the price, it 981 *731 SALES ON STOCK EXCHANGE. [bOOK III. is his duty to hand it over to liis principal; but it is no part of a selling broker's legal duty to his employer to procnre payment of the price, nor to procure the execution by the purchaser of the transfer, nor to procure the registration thereof, (c) Nor has *731 it yet been decided that it is part of his duty to Inquire *into the solvency of the transferee, (d) As between the vendor and his own broker, the sale is effected by the contract to sell, although the vendor may refuse to carry it out. {e) Again, the duty of a broker employed to buy is to buy according Dutyofbuying ^^ ^^® instructions if he can ; and if he cannot, not to broker. ]j^y ^^ aj][_ jjg l-,g^g j^q implied authority to enlarge the time for completing the purchase when that time has once been fixed ; in other words, he has no implied authority to continue the account. (_/) A broker instructed to buy shares of a particular kind, fulfills his Broker buying instructions if hc buys what are commonly bought and iiot'directe^ sold as sucli shares in the share market. Thus, wliere to buy. a broker was instructed to buy "Kentish Coast Rail- way Scrip," and he bought what was known as such, and was paid for it, it was held, that he was not liable to refund the money he had received, although it turned out that what he had bought was scrip issued without due authority, and was in fact utterly worthless {g). Upon the same principle, if a broker is told to buy shares and he buys scrip ; if nothing but scrip has found its way into the market, and if such scrip has been usually bought and sold as shares, and if there is nothing to show that the broker was to wait until shares were issued, he will be held to have pursued his authority. (A) Until til e broker has acted upon his authority {o buy, it may be Revocation I'evoked ; and if any money has been given him in of broker's ' , , , . „ authority. order to enable him to pay for them, it may be de- manded back («'). But this cannot be done after he has entered into a contract for purchase, and become personally responsible for the due performance of that contract, (jk) (c) Booth V. Fielding, 1 W. N. 245, 81. and see Clark's Law of Joint Stock Com- {g) Lamert v. Heath, 15 M. & W. panies (Scotch), 145. 486. (tZ) See, on this suhject. Lord Black- (7s) Mitchell v. NewhaD, 15 M. & W. bum's judgment in Maxted v. Paine, 308. No. 2, L. R. 6 Ex. 132. (J) Fletcher v. Marshall, 15 M. & W. (e) Ross V. Moses, 1 C. B. 227. 755, ( f) See Maxted v. Paine, L. R. 4 Ex. [Jc) McEwen v. Woods, 11 Q. B. 13. 982 CHAP. V.J SALE OF SHAKES. *733 On tlie otlier hand, a person who employs a broker to bny or sell is bound to indemnify him against any losses which he may incur by reason of his having contracted in his own behalf, and of being after- wards, without any default of his own, unable *du]y to complete his contract. {L) The follow- *732 broker" to ing cases will serve to illustrate this doctrine. 1. Where a broker is employed to sell. In Sutton V. Tathain (m), a person ordered a broker to sell for him 250 shares. The broker entered into a contract saiRs through for their sale, and was afterwards informed that a mis- „ ,. ' • Sutton V. take had been made, and that fifty only were intended 'Latham. to be sold. The broker not being enabled to deliver the shares which he had agreed to sell, was compelled to make good to the purchaser the difference between the price agreed upon, and the price at which the purchaser had procured shares elsewhere. It was held, that the broker was entitled to recover this difference from his employer. In BaylifFe v. Butterworth {n), the defendant instructed the plaintiff, a broker, to sell shares for him, which the B^yUffei; plaintiff accordingly did. When the time came for the Butterworth. delivery of the shares to the purchaser, the defendant made default, aTid did not furnish them. The plaintiff having been compelled by the rules of the Stock Exchange to pay the difference between the price agreed to be paid by the purchaser, and that actually paid by him for other shares, was held entitled to recover such diffej-ence from the defendant. 2. Where a broker is employed to bny. In Bayley v. Wilhins (o), the defendant requested the plaintiff, a broker, to bay shares for him, which the plaintiff ac- purchases coi-dingly did. At the time of their purchase, a call ^'Jo^'Jf^ had been made, but such call liad not become payable. Bayieyo. . WiLkins. The plaintiff paid the amount of the call to the selling broker in pursuance of the rules of the Stock Exchange, and was [1] See, in addition to the cases cited, [in) 10 A. & E. 27. infra. Young v. Cole, 3 Bing. N. C. (w) 1 Ex. 425. Compare this with 724; Child v. Morley, 8 T. R. 610; Bowlby v. Bell, 3 C. B. 284. Bowlby V. Bell, 3 C. B. 284; Simpson v. (p) 7 C. B. 886. See, as to the evi- Rand, 1 Ex. 688. As to idemnifying' dence to be adduced by a broker who one's broker against the costs of an ac- seeks to recover a call paid by him, Mc tion brought against him, see Brown v. Ewen v. Woods, 2 Car. and K. 330. HaU, 7 C. B. N. S. 503. 983 *T33 SALES ON STOCK EXCHANGE. [bOOK III. held entitled to recover the money so paid from the defendant. In Taylor v. Stray (^), the defendant in- Tayk>r„. .jt-^gg structed the plaintiff, *a broker to buy some Koyal British Bank shares for him. The defend- ant accordingly bought the shares, which were to be paid for on a future day. Before that day arrived, the bank stopped payment, and the defendant refused to take or pay for the shares. The plaintiff thereupon paid for them in compliance with the rules of the Stock Exchange ; and he was held entitled to recover the money so paid from the defendant. . In Pollock V. Stables {q), the plaintiff, in pursuance of the de- PoDockB sta- fendant's instructions, bought shares for him, which the ^^^^- defendant neglected to take up. The broker who sold them, consequently re-sold them, and thereby a loss was sustained. The plaintiff, who was also a broker, made good this loss, as he was compellable to do by the rules of the Stock Exchange, and he was held entitled to recover the amount he had paid from the defendant. In L'acey v. Tlill (r), brokers bought stock for a customer, Avlio suddenly died insolvent; they havinsr paid for the stock Laceyi;. Hill. , ■' . , ,' ,, . -, ■ , . were held entitled to re-sell it and to prove against his estate for the loss they sustained. But a broker is not entitled to indemnity from liis employer in re- Broker not en- spcct of loss arising from his own default. Thus in Dun- nity'for Us '^™" Can V. Hill (s), the plaintiffs, who were brokers on the own default g^ock Exchange, were instructed by the defendant to buy shares for a certain account, and afterwards to continue it. This was done; but before the final settling day arrived the brokers were declared defaulters, and according to the rules of the Stock Exchange all their transactions were peremptorily closed. The brokers were held entitled to be repaid moneys paid by them in order to keep open the account at the defendant's request, but not those further sums which had become payable by reason of their own insolvency, {t) [p) 2 0. B. N. S. 175. See, too, inson, L. R. 7 H. L. 802; 7 C. P. 84, Stray v. Russell, 1 E. & E. 888 ; Chap- and 5 C. P. 646. man v. Shepherd, L. R. 2 C. P. 228; (g) 12 Q. B. 765. Biederman v. Stone, ib. 50-4. The last (r) Lacey v. Hill, Scrimgeour's claim two cases show that the broker's right 8Ch. 921. See ib. Crowley's claim, 18 is not affected by § 153 of the Compa- Bq. 182. nies act, 1862. See, further as to the (s) L. R. 8 Ex. 242, reversing S. C. 6 right of purchasing brokers to indemni- Ex. 255. ty from their employers, Molletfc «>. Rob- (i) Compare Lacey j). HiR, Crowley's 984 CHAP. V.J SALE OF SHAKES IN COMPANIES. *735 *The cases above referred to establish as a general doc- *731 trine that what a broker, eiiiploj'ed in buying and selling shares for another person, is compelled by the rules of Rules of stoct , . Exchange as the btock Jixchange to pay, m consequence of the non- distinguish eri ,,. T n 1 1 ■ ^"^o™ usage of periormance by his employer ot the contract entered into brokers. on his behalf, is recoverable from him by the broker. . The prin- ciple of the decisions in question does not however extend further than this, viz., that brokers are impliedly authorized by those who employ them, to do what is usual and customary amongst bro- kers in matters such as those they are employed about. The cases which have been noticed do not show that persons who employ members of the Stock Exchange are affected by the rules of the Exchange without reference to the question of what is customary amongst its members; and in truth, to non-members, such rules are only important so far as they evidence usage. This After-made is shown by the case of Westropp v. Solomon, (u) •' ^ '■ ^ Westropp i;. Sol- There, the defendant employed the plaintiff, a broker, omen. to sell ten scrip certificates, which the plaintiff did. It afterwards appeared that these certificates were forgeries, although neither the plaintiff nor the defendant had any suspicion that such was the case. The committee of the Stock Exchange made a rule to the effect that the purchasers of the spurious scrip should have a right to demand • from the sellers not onlj'- repayment of the purchase-money, but also payment of an additional fixed sum. In compliance with this rule, the plaintiff repaid to the purchaser the money received from liim, and also the additional sum fixed by the rule; but it was held that the plaintiff was only entitled to recover from the defendant the money which the purcliaser himself could have recovered at law; namely the amount paid by hira with interest; and it was held, that the rule, having been made after the sale, formed no part of that usage of brokers by which the defendant was bound. Accounts sent in by sharebrokers to their employers may be shown not to have included charges which ought to have been included ; and this is true even where the per- sonsto whom *such accounts are sent have dealt *735 charges. with other people upon the faith of the accounts being full and correct, {x) claim, 18 Eq. 182, where the brokers {w) 8 C. B. 345. See, also, Sweeting v. became defaiilters solely by reason of Pearce, 7 C. B. N. S. 449, and 9 ib. 534. the previous default of their piincipal. (x) Dails v. Lloyd, 12 Q. B. 531. 985 *736 EIGHT TO EETIEE. [bOOK III. A broker employed to buy or sell shares in an illegal company , Illegal pur- °^ ^^ ^ Company which by law is not in a position to SSy bro- issue shai'es, cannot recover from his employer either ''®''^- any commission on the purchase ur sale, or any money expended for him on account of such shares, (y) SECTION VIL— OP THE RELINQUISHMENT OF SHARES AND OP THE RIGHT TO RETIRE. Subject to a qualification which will be presently mentioned, a Eight of part- member of an ordinary firm can surrender his share ner to retire i n i from firm. and interest in the firm to his co-partners, or any of them, upon any terms to which he and tliey may agree. But there is only one method by which a partner can retire from a firm with- out the consent of his co-partners, and that is, by dissolving tiie firm. In order to avoid the necessity of a general dissolution when a partner may wish to retire, special provisions are frequently in- troduced into partnership articles; but it is not nnfrequently found that, owing to unforeseen circumstances, these j)rovisions cannot be carried into effect; and when tliat is the case, a dissolution, with its usual consequences, must take place if a partner is to retire • otherwise than by the consent of his co-partners, (s) The qualification above alluded to, has relation to a partner's re- Eight to retire tirement from an insolvent firm. A partner desirous from insolvent . . ,, . ^ ,. . ,. i.i firm. ot retiring irom an insolvent firm, is at perfect liberty to sell his interest in it for any sum the continuing partners think proper to give him; and a sale by him to them cannot be set *736 aside or *impeached as a fraud upon the creditors of the firm unless there be clear evidence aliunde of such fraud, {a) At the same time, the present share of a partner in an insolvent (y) Josephs v. Pebrer, 3 B. & Cr. 6S9; wick v. Wimble, 6 Beay. 495; Downs v. Ex parte Neilson, 3 DeG. M. & G. 556. Collins, 6 Ha. 418. Compare Simmons See, further, as to illegal sales through v. Leonard, 3 Ha. 581; Pettyt v. Jane- brokers, Buck V. Back, 1 Camp. 547; son, 6 Madd. 146. and Bousfield v. Wilson, 16 M & W. 185, (o) See Ex parte Peake, 1 Madd. 346 both of which hi.v J been noticed already. Parker «. Ramsbottom, 3 B. & C. 257 See ante, p. 198. Ex parte Bh-oh, 2 Ves. J. 260, note (z) See Cook v. Collingridge, Jac. 607; Ex parte Carpenter, Mont. & McAr. 1 Jiershawu. Matthews, 2 Russ. 62; Madg- 986 CHAP. V.J SUEEENDEK OF SHAEES. *737 firm (5) is obviously less than nothing, whatever may be the amount of the capital brought in by him. Consequently a partner who re- tires from an insolvent firm and withdraws from it a sum of money which he is pleased to call his share, is defrauding the creditors of the firm; and such a transactioTi cannot stand, and may be im- peached by the trustee in bankruptcy of the continuing firm, (c) To proceedings instituted by the trustee to impeach such a trans- action, it is no answer to say, that the bankrupts themselves were bound by it; for the trustee represents the creditors, and can im- peach any transaction which is a fraud as against them, although the bankrupts themselves might not be in a position to do so. (d) Upon similar grounds, if a partner relinquishes his share in a part- nership to his co-partners, upon such terms and under such circum- stances as to render that relinquishment a fraud upon his creditors, and he then becomes bankrupt, his trustee will be entitled to re- scind the transaction. Laying aside, however, all such considerations as ^^^^^^11?^''^^ these, it may be said — 1. That it is competent for a partner to retire with the consent of his co-partners at any time and upon any terms; 2. That it is competent for him to retii-e without their consent by dissolving the firm, if he is in a position to dissolve it. 3. That it is not competent for a partner to retire from a part- nership which he cannot dissolve, and from which his co-partners are not willing that he should retire. Similar principles apply to the retirement of shareholders from companies; except that retirement by a transfer Ketirement of shares *is always contemplated and provided *737 S'e™ ''"'''^°■"■ for when companies are formed. This mode of retiring has been already considered. "With respect to retirement ■ by a relinquishment and surrender of shares, if such a metliod of withdrawing from the company is authorized by its constitution, a surrender by a shareholder of his shares will of course be valid, if all the formalities which may be necessary are duly complied with; and where the power to surrender exists, the due observance of all (6) An insolvent firm is one in whicli (c) vSee Anderson v. MaJtby, 4 Bi'o. the joint assets are less than Ihe joint C. C. 428, and 2 Ves. J. 244; lie Kempt- liabilities. Such a firm is insolvent ner, 8 Eq. 286; and ani«, p. 658. whatever the wealth of the individual {d) lb. 2 Ves. J. 655, and see Billiter partners composing it may be, see Mont. v. Young, 6 B. & B. 40; Tyrrell v. Hope, & McAr. p. 5. 2 Atk. 562, 987 *738 EIGHT TO EETIEE. [bOOK III. necessary formalities will be presumed in favor of every honafide retiring shareholder, (e) The Companies clauses consolidation act, 1845, contains no pro- companies vision authorizing the surrender of shares. But by causes act. ^^ Companies clauses act, 1863 (/") (which applies to all companies which have a special act of Parliament incorporat- ing that act), it is enacted (§ 9) that " the company may from time to time accept, on such terms as they tiiink fit, surrenders of any shares which have not been fully paid up ; " and (§ 10) that " the com- ' pany shall not paj' or refund to any shareholder any sum of money for or in respect of the cancellation or surrender of any share." Neither the Companies act, 1862, nor the regulations in Table Companies act ^- ^° '^^'^ ^^'^i ^"thorize the retirement of a member 1862. j^y surrendering his shares to the company; and the effect of a surrender of shares, unless it be in -exchange for others, is to diminish the capital of the company. Nevertheless, it has been held that the holder of unpaid-up shares in a company regis- tered with limited liability, can surrender his shares without first paying them up in full if the articles as originally framed or as altered by special resolution (gr) authorize such a surrender. (A) The power to surrender has been regarded as open to no more objection on the ground that it reduces the capital than a power to forfeit, the legality of which is unquestioned. {%) A power to for- *738 feit, however, is only operative *where a shareholder cannot or will not pay up his calls, and is far less open to abuse in order to reduce capital than a power to surrender; and notwith- standing the decisions supporting the validity of a power to surren- der, it has been decided that a special resolution authorizing direc- tors to apply a company's money in buying up the shares of such shareholders a,s may choose to surrender them, is invalid. (^.) The riffht of a shareholder in a cost- book mining company to re- Cost-book *^^® from the company upon the relinquishment of his compaaies. shares, and payment of what may be due from him to (e) See Lane's case, 1 DeG. J. & Sm. Co. 7 Eq. 129; and see Wright's case, 604. 12 Eq. 336, note; SneU'a case, 5 Ch. 22. (/) 26 & 27 Vict. c. 118. (i) Table A. expressly allows this. See {g) Teasdale's case, 9 Ch. 54, where, the nsxt section, however, the eifect of all the resolutions (fc) Hope v. International Financial taken together was to increase the un- Society, 4 Ch. D. 327, which compare paid-up capital. with Teasdale's case, ante, note {^). (Ji) Ibid; Marshall v. Glamorgan Iron 988 CHAP. V.J SUEEENDEE OF SHAKES. *739 the company, is established by custom, and is therefore imported into the contract by which tlie members of such companies are mutually bound (^); and where it was proved to be the practice of a cost-book company to allow shareholders to retire upon any terms agreed upon at gjeneral meetings, it was held that a shareholder who had been allowed at a general meeting to surrender his shares without paying the arrears of calls upon them, had ceased to be a shareholder, (m) The surrender must be by notice in writing to the purser. (?i) The retirement of a shareholder by surrendering his shares, is, however, not one of those matters as to which a ma- po^^er of ma- jority of members binds a minority, or as to which Sraity with directors have any implied authority to represent the the'reiinqiwi- company; Both principle and authority are clearly ni™*"'' shares. opposed to any such doctrine, (o) Nor if directors have power to accept a surrender of shares can they delegate this power to a man- ager, {p) At the same time if shares have been surrendered with the knowledge of all the shareholders under circumstances fully disclosed to them all, and such surrender has not been questioned for a considerable period, the company will be precluded ■from *afterwards disputing the validity of the surrender. (§') *739 The following are the leading aiithorities upon this subject: — Morgan's case, (r) The companj-'s deed authorized the directors to buv up, out of certain specified funds of the coin- 1 1-1 -Til j^ ^ jy 1 A Morgan's case. pany, an}'- shares which migiit be ottered lor sale. An {I) See, as to this, Ex parte Palmer, (g') As in Brotherhood's case, 31 7 Ch. 286 ; Fenn's case, 4 DeG. M. & Beav. 365, and 4 DeG. P. & J. 566 ; no- G. 285, and 1 Sm. & Gr. 26; Bodmin ticed in/ra, p. 743, and Hunt's case, 32 United Mines, 23 Beav. 370 ; Birch's Beav. 387. Implied notice to the direc- case, 2 DeG. & J. 10; Lofthouse's case, tors of the company through the books ih. 69 ; Northey v. Johnson, 19 L. T. of the company is not enough. Carb- 104. melt's case, 9 Ch. 691, where the direc- (ni) Bodmia United Mines, 23 Beav. tors had power to accept surrenders. 370. See, as to estopped by conduct, ante, p. (w) 32 & 33 Vict. c. 19, §§ 21-23. • 128, et seq. (o) The Plate Glass, &c. Co. v. Sun- (r) 1 DeG. & S. 750, and 1 Mac. & ley, 8 E. & B. 47, is not inconsistent G. 225. Richmond's Executors' case, 3 with this nor with the cases referred to DeG. & Sm. 96, and Lawes' case, 1 in the text; in that case the demurrer DeG. M. & G. 421, where similar de- admitted that the company had accept- cisions with respect to other sharehold- ed the surrender of the shares then ia ers in the same company. Compare question. Kent v. Jackson, 14 Beav. 367, and 2 (p) Cartmell's case, 9 Ch. 691. DeG. M. & G. 49. 989 *740 EIGHT TO EETIEE. [bOOK III. extraordinary general meeting resolved tliat if any shareholder shonld be desirous of withdrawing from the company, the direc- tors should be at liberty to purcliase his shares upon certain speci- fied terms. A. shareholder acted upon this resolution, complied with tlie terms, and sold his shares to the company. But it was lield that the resolution was not binding on the company; and that the shareholder in question was properly made a contributory, although nearly live years had elapsed since his withdrawal. Staniiope's case, (s) The directors had power generally to act as might appear to them best for the interest of the com- stanhope s case. pa^y_ ^ dispute arose amongst them, and one of them retired, and his shares were surrendered and cancelled. It was held that his retirement was unauthorized, and he was put on the list of contributories ten years after his shares had been can- celled. Munt's case, (t) Tlie directors of a company, disagreeing as to the mode of managing its affairs, and being divided into two parties, it was resolved that one of the two parties should retire, and that the other should take the *74:0 management of the ^company and relieve the iirst from their liabilities. Tlie directors composing one of the two • j)arties did accordingly retire, and relinquish their shares in favor of the company; but it was held that their retirement was alto- gether unauthorized and invalid, and that they were contributories on tiie winding up of the comp-my. The principles laid down in these cases were very much consid- Agricuiturist ercd in tlie course of windino; un the Agriculturist Cattle Insur- ^ , t r^ r?, ance Company. Cattle Insurance Company. Ihe company was formed in 1845. In 1848 it had got into difficulties, and several share- holders wished to retire. Tliis they could not do consistently with the company's deed of settlement. An arrangement, however, was made in ITovember, 1848, under resolutions passed at a meeting of shareholders specially convened for the purpose, to the effect that a call of 4J,. per share should be made, and that those share- (s) 3 DeG. & S. 198. See, too, Dan- directors in the first, and the adoption iell's case, 22 Beav. 43, affirmed 3 Jur. of their acts in the last, of these two N. S. 803 ; Walter's case, 3 DeG. & S. cases. 244 ; Holt's case, 1 Sim. N. S. 389 ; [t) 22 Beav. 55. See, too, Bennett's and compare Cookhum's case, 4 DeG. case, 18 Beav. 339, and 5 DeG. M. & a case. publicitv and oo?id fides of the arrancreraent come to „ „ •* " -^ ° Smallcombes in JSovember, 1848, and to the time which had since case. elapsed, the validity of the retirement of those shareholders who withdrew in pursuance of that arrangement conld not be disputed, and that those persons therefore were not liable to be placed on the list of contributories (zi,); 2. That tliose persons Spactmau's who retired afterwards by arrangement with the direc- 1 1 1 T £■ 1 HoulcJsworth's tors, but without the knowledge oi the other share- case. holders, were to be treated as shareholders still, and were liable to be placed on the list, although twelve years had elapsed since their retirement and the winding-up order, (x) *Moreover, where persons have only agreed to take *741 shares, and have not become actual shareholders, the direc- tors have no implied power to release them from their agree- ment (y). Nevertheless, an express power to accept a surrender of shares, or to rescind and abandon contracts, has been held to apply to contracts to take shares and to authorize a release of a person from his agreement to become a member. (2) The foregoing decisions sufficiently establish the doctrine that in the absence of a special authority enabling them so to Direotorshave do, directors have no power to bind the company by bS/'ou?'^*° buying each other out; nor by buying out sharehold- shareholders, ers ; nor by accepting the surrender or relinquishment of shares to the company, (a) Moreover, if the directors of a company mis- (tt) Evans v. Smallcombe, L. R. 3 H. case, 13 Eq. 474. L. 249 ; Brotherhood's case, 31 Beav. («) Snell's case, 5 Ch. 22; Thomas 365, affirmed 4 DeG. P. & J. 566. case, 13 Eq. 437. (.r) Spackman v. Evans, L. R. 3 H. (a) See, further, London and Provin- L. 171 ; Houldsworth v. Evans, ib. cial Coal Co. 5 Ch. D. 525; Phosphate 263 ; Stanhope's case, 1 Ch. 161 ; Stew- of Lime Co. v. Green, L. R. 7 C. P. 43; art's case, ib. 511. See, on these cases, Harris v. North Devon Rail. Co. 20 the note infra, p. 743. Beav. 384; Walker's case, 2 Jur. N. S. {y) Hall's case, 5 Ch. 707; Adam's 1216, L. J.; Playfair v. Birmingham, 991 *7i2 EIGHT TO EETIEE. [bOOK OT. apply its funds by buying np shares in the company, they are com- pellable to make good to the company the money so expended, with interest, (b) It is necessary, however, to distinguish the retirement of a share- Retirement of holder from the refusal of a person to be a shareholder sliareholders . i»ii i,''/\ , •, compaiLd with in a concei'u which he never agreed to join (c); and it eept shares. has Very properly been held that the principle of the above decisions does not apply to the case of a person who, having taken shares in a company formed for given objects, relinquishes such shares and retires from the company, upon a change being Compromise made in those obiects without his consent, (d) So, if •with doubtful ..,,„,,, ■, , n , siiarehoider. it IS douotiui Whether a person ever was a shareliolder or not, an agreement releasing him from all liability, if any, may be validly made, so as to bind the company (e); and an allot- *742 ment of shares made ^pursuant to an invalid resolution may be properly cancelled at all events before the shares are registered in the name of tlie allottee. (/") But a gen- eral power to compromise does not authorize an agreement to allow a shareholder to retire when there is no dispute as to his membership, and where there is no power to buy or accept a sur- render of shares, {g) It is further necessary to distinguish the retirement of a share- surrender of holder by relinquishing his shares to the company, panjfcompared fi'om his retirement by transferring his shares to some of them' to'tifr or One of the directors of the company upon their own directors. individual account. For whilst, in the absence of Bristol, &c. Co. 1 Ra. Ca. 640; Hodg- Sm. 41; Dixon's case, L. R. 5 H. L. 606, kinsoni). Nartional Live Stock Insur. Co. reversing 5 Ch. 79. See, also, .Wright's 26 Beav. 473, tind 4 DeG. & J. 422; case, 7 Ch. 55, reversing S. C. 12 Eq. Burt V. British National Co. 4 DeG. 331 Pox's case, 5 Eq. 118. & J. 158; Paul and Beresford's qase, 10 (/) Bamett's case, 18 Eq. 507. Jur. N. S. 692, M. R. {{/) See, L. R. 3 H. L. 183, 231 ; (&) Evans V. Coventry, 8 DeG. M. & G. Adam's case, 13 Eq. 474; Phosphate 835. See decree, pax. 4, varying pars. 5 of Lime Co. v. Green, L. R. 7 C. and 6 of the decree in the court below. P. 43; Dixon's case, 5 Ch. 79, was (c) See Pim's case, 3 DeG. & S. 11, decided on the principle that there and 1 Mac. & G. 291 ; Henessy's case, 2 can be no compromise where there Mac. & G. 201, and 3 DeG. & S. 191, aa is no dispute, and although the House to placing shares in a person's name of Lords reversed the decision, see L. R. without authority. 5 H. L. 606, the principle of L. J. Gif- {d) Meyer's case, 16 Beav. 383. fard's decision is unquestionable. Comp. (e) Lord Belhaven's case, 3 DeG. J. & Wright's case, 7 Ch. 55. 992 CHAP. V.J SOKRENDEE OF SHAKES. *74:3 s])ecial autliority, it is not competent for directors to accept on be- half of a company the surrender of shares held in the company, it is as competent for the directors of a company, as for anybody else, to accept shares in the company from such shareholders as may be willing to transfer them in the ordinary way. Consequently, an agreement between the directors and some of the shareliolders of a company to the effect that the latter shall relinquish their sliares and transfer them to the directors, is not ultra -yw'cs, orin any way illegal, if the agreement is with the directors as individuals, and not with them as representing the company. (A) Upon the same princi- ple, if a shareholder transfers his shares to a director or to'an ordina- ry individual, and without notice that the director is acting on behalf of the company, the transferrer does eifectually retii-e from the com- jjany; although had he known that he was in fact surrendering his shares to the company, the surrender would have been invalid. {%) Moreover directors who individually agree to accept a *surrender of shares and to indemnify the surrenderer against *743 calls, are personally bound by their agreement, whether it is, as regards the company, ultra vires or not. (/o) NOTE ON SMALLCOMBE'S CASE, SPACEMAN'S CASE, AND HOULDS- WORTH'S CASE, REFERRED TO ABOVE, P. 740. Sma]lcombe retired in strict accordance with the arrangement come to in 1848. Houldsworth retired pursuant to the same arrangement, witli this exception, that he did not retire within the time fixed thereby, but shortly afterwards; the time having been extended by the directors. Spackman retired pursuant to another agreement altogether, come to between him and the directors for compromising litigation between him and the company. The House of Lords held, — 1. That the arrangement of 1848 was one by which a majority of shareholders could not bind a minority. 2. That, nevertheless, the minority might be precluded from disputing it. 3. That all the shareholders must be treated as having had notice of it, and that as they had allowed it to be carried out, and had not disputed its validity for many years, they were all precluded from disputing it. 4. That consequently Smallcombe was not a contributory, (Z) 5. That the agreement with Houldsworth differed in an essential particular from the {K) Haddon v. Ayres, 1 E. & E. 118. 777; Bagge's case, 13 Beav.- 162; Ex See, too, Jessopp's case, 2 DeG. & J. 'parte Nicol, 3 DeG. & J. 387. 638. In Cartmell's case, 9 Ch. 691, the (fc) Barkers. Allan, 5 H. & N. 61. directors never assented to the transfer (?) Brotherhood's case, 31 Beav. 365, made to them. affirmed 4 DeG. P. & J. 566, was like (i) See JbtoUwey's case, 1 DeG. & S. Smallcombe's. 63 993 *744: BIGHT TO EXPEL. [bOOK III. arrangement of 1848, and was one wMcli tlie directors had no power to enter into. 6. That all the shareholders could not be treated as having had sufficient notice of the agreement with him to preclude them from disputing it, even after the lapse of many years. 7. That consequently Houlds worth, or he being dead, his executors, were con- tributories. 8. That the agreement with Spackman was one which the directors had no pow- er to make. 9. That all the shareholders could not be treated as having had sufficient notice of it to preclude them from disputing it, even after the lapse of many years. 10. That he therefore was also a contributory, (to) The Lords were by no means unanimous in their decision, and Lord St. Leon- ards, in a judgment which the writer ventures to think ought to have prevailed with the House, gave his opinion, that in aU three cases the company ought to be held precluded from disputing transactions so long passed as those in question, and all of which were perfectly bond fide. The same view was taken by Lord Romilly when the cases were before him (see 1 Ch. 163). As the decisions stand, Y4:4* however, they are extremely difBcult to *reoonciIe on satisfactory grounds; for the notice which the shareholders had in Houldsworth's and Spack- man's cases was little if at all less full than the notice they had in Smallcombe's case. Some general principles of value, however, can be extracted from these three cases. They show— 1. That a company will be precluded from disputing the validity of transactions sanctioned by a general meeting, but not binding on absentees, if such transactions are iond fide, and such as all the shareholders, if sui juris, could sanction, and if it can be inferred that all the shareholders were informed of thsm, and if no steps have been taken for a considerable time to impeach them. 2. That information on the part of all the shareholders, sufficient for the purpose in question, must be inferred from notices sent to them all, in the usual way, telling them what has been done; but not from reports, &c. , not distinctly giving them this information. 3. That powers of compromise and powers of forfeiture must be liond fide exer- cised for the purposes for which they are conferred, and that attempts to make them available for other purposes will not succeed. This view of their joint effect is supported by Phosphate of Lime , Co. v. Green, L. R. 7 C. P. 43, where the Court of "Common Pleas held that a company had rati- fied a purchase of shares which the directors had no power to make. SECTION VIII.— OF THE FORFEITURE OP SHARES AND OF THE RIGHT TO EXPEL. In the absence of an express agreement to that effect, there is no richt on the part of any of the members of an ordinary Eight to expel o ^ '' i -nx • i a partner. partnership to expel any other member. JNor, m the (to) Stanhope's case, 1 Ch. 161, was like Spackman's. 994 CHAP. V.J FOEFEITUEE OF SHARES. ^745 absence of express agreement, can any of the members of an ordinary partnership forfeit tiie share of any other member, or compel him to q\iit the firm on taking what is due to him.' As there is no metliod except a dissohition, by whicii a partner can retire against the will of his co-partners, so there is no method except a dissolu- tion by which one partner can be got rid of against his own will, {n) The consequence of this is, that when partners disagree and can- not dissolve except with the concurrence of all, it is not Drmng a part- ner to a disso- nnusual tor some ot them so to conduct themselves lution. towards another, as, if possible, to drive him to agree to a dissohition. *But it need hardly be said that a scheme of *745 this kind will, if possible, be frustrated; and redress may be obtained in snch a case without dissolving the partnership, (o) With a view to facilitate the removal of a partner who miscon- ducts himself, it is not unfrequently agreed that a Exercise of . , , . . powers of power to expel shall be exercisible m certam events expulsion. and under certain restrictions. These expulsion clauses, as they are termed, will be alluded to hereafter in the chapter on the con- struction of partnership agreements; but it may be observed in ' The mere failure of one partner to pay his share of the debts or expenses does not forfeit his right to the com- mon property. Kimball v. Gearhart, 12 Cal. 27. A partner, by faih'ng to contribute his share of the partnership fund, does not, in ordinary cases, forfeit the interest which he already has in the firm, espe- cially where no extraordinary emergency exists requiring it. Piatt v. Oliver, 3 McLean, 27. An association or partnership cannot exclude or expel a member for refusing to do an act not required by the consti- tution or laws when he joined, and en- tirely foreign to the purposes of the asso- ciation. Gorman v. Russell, 14 Cal. 531. Where personal property belongs to the members of a voluntary unincorpor- ated association, especially for public, and not for private purposes, if a member abandon the association, he thereby abandons his interest in such property, and those who remain are entitled to such interest. Curtiss v. Hoyt, 19 Conn. 154. An agreement in co-partnership arti- cles provided that after each partner had provided the sums of money stipulated in the articles, any further sums re- quired should be raised by joint efibrts and on the partners' joint credit; and further, that the party violating the agreement should forfeit thereby his interest in the concern, at the option of the other party, and be ejected from the firm, the other partner refmiding to him the sum he advanced: Held, that the mere fact that the joint responsibility of the firm was insuflBcient to raise the requisite funds, gave one partner no right to declare the share of the other forfeited. Patterson v. Silliman, 28 Pa. St. 304. («) See Hart v. Clarke 6 DeG. M. & G. 232, and on appeal, Clarke v. Hart, 6 H. L. C. 633; Crawshay v. Collins, 15 Ves. 226; Peatherstonhaugh v. Fen- wick, 17 ib. 309. (o) See Pairthome v. Weston, 3 Ha. 387. 995 *7i6 FOEFEITUEE OF SHAKES. [bOOK III. passing, tliat sncli clauses are always construed strictly, and that no expulsion under them will be effectual unless the expelling part- ners have acted with perfect good faith. (_p) Companies have uo power to forfeit the shares of their members, Eight of com- or of Subscribers who have not yet become members, panies to for- . pi feit shares. unless such powcr IS specially conferred upon them, (q) A clause in a company's articles enabling the directors to forfeit the shares of any member who shall take any legal proceedings against the company is invalid. (?') The right to forfeit shares is frequently arrogated in cases where a shareholder will not pay to the company what'is due to it from him in respect of his shares; and it is not uncommonly assumed that a right to forfeit in such a case is possessed as a matter of course by directors. But this opinion is erroneous; for, as already stated, a right to forfeit exists only when specially conferred; and even a majority of shareholders cannot confer it unless empowered so to do by the company's act, charter, deed of settlement, or regu- lations, (s) But if there is power to forfeit for non-payment *746 of *balls, that power may be extended to non-payment of additional capital which may be autliorized to be raised, {t) Forfeiture of ^J *^® Stannaries act, 1869, shares in cost-book bookcompa-'' niii'ing Companies can be forfeited for non-payurent of '^i<=^- calls, {u) The only other general legislative enactment now in force («), =!tatutcsau- wliicli expressly confers on companies the power of feitures'o/"'^' forfeiting the shares of their members, is the Compa- sharea. jjjgg clauscs Consolidation act. The Companies act of ip) See Blisset v. Daniel, 10 Ha. 493; Society, 4 Ch. D. 327. Wood V. Woad, L. R. 9 Ex. 190. (s) Barton's case, 4 Drew. 535, af- (q) Hart v. Clarke, 6 DeG. M. & G-. firmed on appeal, 4 DeG. & J. 46. 232, and 6 H. L. C. 633; Nonnan v. [t) See Kelk's case, 9 Eq. 107. Mitcliell, 5 DeG. M. & G. 648; Barton's («) 32 & 33 Vict. c. 19, § 16. See, case, 4 Drew. 535. As to companies before this act, Hart v. Clarke, 6 DeG. partly English and partly foreign, see M. & 6. 232, and 6 H. L. C. 633. Ludlow V. Dutch Rhenish Rail. Co. 21 [v) The 7 & 8 Vict. c. 113, § 37, pro- Beav. 43. As to the right of corpora- vided for forfeiture, but the 7 & 8 Vict, tions to disenfranchise and expel mem- c. 110, did not. Companies governed bers for reasonable cause, see Grant on by this last act usually possessed the Corporations, 262-269. As to expulsion right of forfeiting shares under their from a club, see Hopkinson v. Marquis deed of settlement. A clause in the of Exeter, 5 Eq. 63. deed that the shares of subscribers who (r) Hope V. International Financial would not execute it might be forfeited, 996 CHAP, v.] TTNDEE THE COMPANIES ACT, 1862. *747 1862 does not itself contain any provisions on this subject, but tlie Table A. to that act does, as will be seen presently, (x) As to companies governed hy the Companies clauses consolida- tion act, it is provided by 8 & 9 Yiet. c. 16, §S 29-35, Forfeiture of •j> 1111 (• -1 11 ■ 1 1 shares in eom- that II any shareholder tail to pay any call payable by panies gov- ■^ ' „ ■^, ^ '^ •' ernedby8&9 lum, the directors, at any time after the expiration of Viot. c i6. two months from the day appointed for the payment of a call, may declare the share in respect of which such call was payable for- feited, whether the call has been sued for or not. But before de- claring any share forfeited, the directors must give notice of their intention to do so, twenty-one days at least before making a declar- ation of forfeiture. After a share has been declared forfeited, it may be sold for payment of the calls in arrear; but before it is so sold, the declaration of its forfeiture must be coniirmed, and its sale must be ordered at a general meeting held not sooner than two months after the day on which notice of inteiHion to forfeit was given. If the money arising from the sale of a forfeited share is more than sufficient to pay the arrears of calls with interest, and the expenses of sale, the surplus is to be paid to the de- faulting shareholder; and if before a share *is sold he pays *717 what is due upon it and also the expenses, if any, incurred for the purpose of selling it, then he is entitled to have the share restored to him. The act in question expressly de- forfeiting and elares that shares may be forfeited for non-payment of ^'^^s for caus calls, whether those calls have been sued for or not. The right to forfeit and the right to sue may consequently both be exercised together; the remedies are cumulative, not alternative, (y) If the company has a special act also incorporating the Compa- nies clauses act, 1863, the shares when forfeited may cancellation of be cancelled if they cannot be sold, (s) But this can forfeited shares. only be done by a general meeting, held at least two months after was valid; Stewart v. Anglo-Californian (y) Great ISTorthern Rail. Co. v. Ken- Co. 18 Q. B. 736; Beresford's case. 2 nedy, 4 Ex. 417; Inglis v. Great North- Mac. & G. 197, and 3 DeG. & S. 175; em Rail. Co. 1 Maoq. 112. In Edin- Baily's case, 15 Jur. 29; but if there was burgh, Leith, &c. Rail. Co. v. Hebble- no such clause, no forfeiture could be white, 6 M. & W. 707; Giles v. Hutt, 3 effected; Barton's case, 4 Drew. 535, Ex. 18; London & Brighton Rail. Co. v. and on appeal, 4 DeG. & J. 46. Fairclough, 2 Man. & Gr. 674, there [x) The acts of 1856-58 also left the was only an option to sue or to forfeit, subject of forfeiture to be dealt with by {z) 26 & 27 Vict. c. 118, § 4. the regulations of each company. 997 ''748 FOEFiaXUEE OF SHAEES. [bOOK III. notice of the forfeiture (a), and the shares may be redeemed by payment of what is due in respect of them before they have been cancelled. (L) Even such cancellation, howevei-, does not release the shareholder from his liability to pay what may be due from him at the time of cancellation (c); although if he is afterwards sued in respect of what is so due, he must be credited with the value of his shares at that time, [d) However, by the consent in writing of the shareholder and the sanction of a general meeting, shares which have been forfeited or on which money is due may be cancelled, so as to release the holder from all liabilities (e); but no money must be paid by the company for the cancellation of any share. (_/) New shares may be issued in lieu of cancelled shares, {g) As to companies governed hy the Companies act, 1862, it is pro- companies vidcd by Table A., that shares may be forfeited for the act of 1862. non-paymcnt of calls (No. 17). In order legally to for- feit a share, under the regulations of this table, it is necessary, first to serve the defaulting member, personally or by post (see *748 Nos. *95-97), with a notice (No. 17); and secondly, to pass a resolution of the directors forfeiting his shares (No. 19). The notice must 1. Require the defaulting member to pay the call in arrear, with interest and any expenses that may have accrued by reason of its non-payment (No. 17) (A); 2. Name a further day on or before which the unpaid calls, with the interest and expenses, are to be paid (No. 18); 3. State the place where the payment is to be made, such place being either the company's registered office or some other place at which the calls are usually made payable, e.g., at the company's bankers (No.) 18; 4. State that, in the event of non-payment at or before the time and at the place appointed, the shares in respect of which the call was made will be liable to be forfeited (No. 18). If the requisitions of this notice are not complied with, the shares in respect of which it was given, may be forfeited, by a resolution {a) Ibid. {g) lb. § 11. (6) lb. § 7. (h) Interest can only be claimed from (c) lb. § 6. tlie time when the call ought to be paid id) lb. § 7. not from the date of the call, Johnson (c) lb. § 8. ». Lyttle's Iron Agency, 5 Ch. D. 687. {/)Ib.§10. 998 CHAP, v.] UiTDEE THE COMPANIES ACT, 1862. *749 of the directors, at any time before payment of what is due in res- pect of such shares (No. 19). Any member whose shares have been forfeited is liable to pay all calls due upon them at the time of their forfeiture (No. 21). Forfeited shares are the property of the company, yo^fei^g^ and may be disposed of as the members at a general shares, meeting think lit (No. 20). In order to enable such shares to be reissued, and to protect a purchaser from the risk of having his title defeated by some ir- regularity in th?" forfeiture, it is provided th^t a statutory declara- tion in writing that the call in respect of a share was made and notice thereof given, and that default in payment of the call was made, and that the forfeiture of the share was made by a resolution of the directors to that eifect, shall be sufficient evidence of the facts therein stated as against all persons entitled to such share; and such declaration, and the receipt of the company for the price of such share, shall constitute a good title thereto (No. 22). *A right to forfeit shares must, in order to be effectually *74c9 exercised, be pursued with the greatest exactness [i); it must be exercised by the proper parties (k) in the proper manner and for proper cause; that is, it must be iondjide for Exercise of the purpose for which the right was conferred. The to forfeit, power to forfeit is a trust, the execution of which will be narrowly scanned by the court (l). It cannot, for example, be exercised sur- reptitiously, for the purpose of expelling a shareholder; nor by con- nivance, for the purpose of assisting him in getting rid of shares and retiring from the company, in fraud of the other shareholders. A court will not sanction or recognize as valid a forfeiture made maid fide for any such purpose. The case of Blisset v. Daniel (to), (i) See, as to the insufficiency of no- 1 App. Ca. 39, wliere the appointment tices, &c. Johnson v. Lyttle's Iron of the directors was iuvaUd. Agency, 5 Ch. D. 687 ; Watson c.Eales, (Z) Harris v. North Devon Rail. Co. 23 Beav. 294 ; Van Diemen's Land Co. 20 Beav. 384; Richmond's case, and V. Cockerel!, 1 C. B. N. S. 732, affirm- Painter's case, 4 K. & J. 305; Stubbs v. ing Cockerell v. Van Diemen's Land Lister, 1 Y. & C. C. C. 81. See, also, Co. 18 C. B. 454; Edinburgh, Leith, Stewart's case, 1 Ch. 611. &c. Rail. Co. V. Hebblewhite; 6 M. & (m) 10 Ha. 493. See, too. Wood v. W. 707; London and Brighton RaU. Co. Woad, L. R. 9 Ex. 190; Stubbs «. Lis- V. Fairclough, 2 Man. & Gr. 674. Com- ter, 1 Y. & C. C. C. 81; Sweny v. Smith, pare Graham v. Van Diemen's Land 7 Eq. 324, where the plaintiff had sent Co. 1 H. & N. 541. ' a cheque for his calls. (A;) Garden GuUy, &c. Co. x>. M 'Lister, 999 ■•'750 FOEFEITUEE OF SHAKES. [bOOK III. •which will he found referred to at some length in another i)ortion of the present treatise, is a strong illnstration of this doctrine, so far as regards the expulsion of a partner, and the invalidity of a forfeiture made for the purpose of enabling a shareholder to retire when he is not entitled so to do, is well shown by the decision in Forfeiture to Kichmond's case, and Painter's case (u). There a enable a share- , ^ holder to retire, director of a compaiiy proposed tliat he and his co- directors should take a number of shares as trustees for the com- pany, and he signed the deed for 2,000 shares, and he was regis- tered as the owner thereof. None of the other directors, however, followed his example. About two years afterwards he ceased *750 to be a director; and a *year after that, finding the company to be the reverse of prosperous, he desired to have his 2000 shares cancelled. To enable the directors to cancel them, he sug- gested that a call should be made on his shares, and that they should be forfeited under the powers contained in the company's deed. This suggestion was acted on ; a call was made, and his shares were forfeited for non-payment thereof. But it was held, that the directors had no power whatever to release a shareholder from his obligations by enabling him-to retire at the expense of the company; that the shares had not been bond fide forfeited for the benefit of the company, and that the forfeiture was thei-efore invalid. Clauses in deeds of settlement, &c., which declare that on non- what amounts pfijii^ent of calls, &c., shares shall become absolutely to a forfeiture, forfeited, do not enable shareholders to get rid of their shares by refusing to pay their calls. Such clauses are inserted for the benefit of the company, and there is no forfeiture until a for- feiture is declared, (o) Moreover, a declared intention to forfeit not carried into eifect ( J?), or not duly confirmed, is no forfeiture at all (§■). Still, if there is power to forfeit, and a declared intention to forfeit, and the (n) 4 K. & J. 305. See, also, HaU's S. 289. case, 5 Cli. 707; Gower's case, 6 Eq. 77; ( •p) Bigg's case, 1 Bq. 309. Spackman «. Evans, L. R. 3 H. L. 171; (g) See Birmingham, Bristol, &c. Stanhope's case, 1 Ch. 161; Phosphate Rail. Co. i). Locke, 1 Q. B. 256; Edin- of Lime Co. v. Green, L. R. 7 C. P. 43; burgh, Leith, &c. Rail. Co. v. Hebble- Harris v. North Devon Rail. Co. 20 white, 6 M. & W. 707; London and Beav. 384 ; Preston v. Grand Collier Brighton Rail. Co. v. Fairclough, 2 Man. Dock Co. 11 Sim. 327. & 6r. 674. (o) See Moore v. Ra-wlins, 6 C. B. N. 1000 CHAP. V.J INEFFECTCTAL FOEFEITUEES. *751 shares intended to be forfeited are treated by the company and tlie sliareholder as forfeited, tlie company will be precluded from after- wards insisting that no forfeiture ever took place {r). This doc- trine, however, cannot apply where the forfeiture is altogether ultra vires ; and there are cases in which, after the lapse of many years, persons whose shares had been forfeited in order to enable them to retire were nevertheless held to be contributories. (s) The eifect of the forfeiture of a share depends entirely upon whether the forfeiture is valid or not. If it is valid, the *shareholder ceases, by the forfeiture of *751 |fure°^ ^"" his shares, to be a member of the company; and although he may be liable to be sued for the calls (#) for the non-pay- ment of which his shares have been forfeited, he is not liable to subse- quent calls nor to be made a contributory as a present member on the winding up of the company. («■) ' But if a forfeiture is invalid and, if tlie company is not estopped from showing the invalidity (aj), then the shareholder does not cease to be a member of the company, and he still remains liable to calls (y), and to be made a contributory on the winding up of the company, {z) Whether the invalidity of a declaration of forfeiture atfords a defense to an action by the in- jured shareholder against the company for damages occasioned by its wrongful act, is a question on which decisions conflict, (a) But (r) 'Ex parte Woollaston, 4 DeG. & J. forfeit his stock: Held, that this was a 437; Knight's case, 2 Ch. 321, where a partnership, and that the stockholders resolution to forfeit was presamed; could not escape liability for debts con- Lystgr's case, 4 Eq. 233, where the for- tracted within the scope of the partner- feiture was by two directors out of six. ship business by a forfeiture of their See, under the head Contributories, in stock. Skinner v. Dayton, 19 Johns, bk. iy. 513. (s) See ante, p. 740. {x) See ante, p. 129. (i) Interest on such calls was held not (y) See Birmingham, Bristol, &c. recoverable in Stocken's case, 5 Eq. 6, Rail. Co. v. Locke, 1 Q. B. 256 ; Edin- and 8 Ch. 412. burgh, Leith, to.'. RaD. Co. u. Hebble- (m) See, infra, under the head Con- white, 6 M. & W. 707 ; London and tributories, in book iv. He may be a Brighton Rail. Co. ». Eairclough, 2 contributory as a past member, Bridger's Man. & Gr. 674. case, 4 Ch. 266; Creyke's case, 5 Ch. 63. (z) Barton's case, 4 Drew. 535, and 'A voluntary unincorporated associa- 4 DeG-. & J. 46 ; Richmond's case, and tion for manufacturing purposes, pro- Painter's case, 4 K. & J. 306, and the vided in their articles of agreement that cases cited, ante, p. 749, note (ra). each stockholder should pay a certain (a) See Catchpole v. Ambergate Rail . sum per share, at the time of subscrib- Co. 1 E. & B. Ill, and compare the ing, and all subsequent assessments, or cases in the next note. If a company 1001 *752 FOEFEITUEE OF SHARES. [bOOK IIL if a member has been in fact wron2;fnlly expelled, and been damni- fied, it is not eas_7 to see why an action should not lie. Be this, Relief in such however, as it may, the invalidity of a forfeiture affords '^''^''^' no reason why the court should not interfere to protect or restore a shareholder to that position from which he is in fact ex- cluded. In Hart v. Clarke (J), a sliareholder in a cost-book mining company, whose shares had been improperly forfeited, was, after the lapse of a considerable length of time, restored to his riijhts as a shareholder; in Norman v. Mitchell (c), and in Wat- *752 son V. Eales id), an injunction was granted to restrain *the carrying into effect of declarations of forfeiture recently made; and in Stubbs v. Lister (e), a forfeiture of shares was set aside on the ground that the directors who were bound to credit the share- holder with the utmost value of the shares, had credited him with a value set upon them, by themselves, and which value was less than the current market price of shares in the company at the time the forfeiture was declared. In this case the shares were a se- curity for money owing by their owner to the company, and were forfeited for non-paj'ment of that money. It may further be observed, that although a court will not relieve a person whose shares have been duly forfeited {f), it will inter- fere to prevent a forfeiture pending a dispute between a company and a shareholder upon payment by him into court of what ma}^ be due from him in respect of the shares intended to be forfeited {g), and will take care that the shareholder has credit for whatever the shares may or, if properly sold, might have fetched. (A) has no power to forfeit, a forfeiture can- been noticed, not be imputed to it, and tlie action for (c) 5 DeG. M. & G-. 648. damages ought to be agamst its direc- {d) 23 Beav. 294. tors, if it can be sustained at all. (e) 1 Y. & C. C. C. 81. (6) 6 DeG. M. & G. 232, and 6 H. L. (/) Sparks v. Liverpool Water-works C. 633. See, also, Sweny v. Smith, 7 Co. 13 Ves. 428. Eq. 324 ; Garden Gully, &c. Co. v. {g) See Naylor v. South Devon Rail. M'Lister, 1 App. Ca. 39 ; where the de- Co. 1 DeG. & S. 32. fense failed, and Wood v. Woad, L. R. {h) See Stubbs v. Lister, 1 T. & C. C. 9 Ex. 190, where it succeeded. The C. 81. former case does not appear to have 1002 CHAP. VI.J CONTEIBDTION AND INDEMNITY. *753 *CHAPTEE VI. *763 OF CONTRIBUTION AND INDEMNITY WITH REFERENCE TO PART- NERSHIPS AND COMPANIES. In this chapter it is proposed to consider tlie nature of those ex- penses and losses which, as between the members of a firm or com- pany are chargeable to the aggregate body, and also the ^^^^^^ of pres- nature of those which are properly chargeable against ent chapter. some one or more of the members exclusively of the others. In other words, it is proposed to investigate the principles upon which, in taking the accounts of a firm or company, a given expense or loss is to be placed to the debit of the firm or company, or to the debit of one or more of its members separately. For this purpose it will be convenient in the first place to examine the general prin- ciples upon which a right to contribution and indemnity is founded. SECTION I.— GENERAL OBSERVATIONS. Foundation of' the right to contribution. Whether a person who has suffered loss is entitled to be indem- nified wholly or partly by others, is a question which The right of cannot be decided in the negative merely upon the contribution. ground that no agreement for contribution or indemnity has been entered into. An agreement may undoubtedly give rise to a right to indemnity or contribution; but the absence of an agreement giving rise to such a right, is by no means fatal to its existence. The general principle which prescribes equality of burden and of benefit, is amply sufficient to create a right of contribution in many cases in which it is impossible to found it upon any genuine contract, 1003 *T54 CONTEIBUTION AKD INDEMNITY. [bOOK III. express or tacit. The common featm-e of sncli eases is tliat 751* one person has sustained some *los3 which would have fallen upon otliers as well as upon himself, but whicli has been averted from them at his expense; for example, where one tenant in common rejiairs the common property, and so saves it from d6-', sti'uction (a); where one of several sureties pays a debt for which all are liable (5); where one person has his goods thrown overboard in order to save tlie ship and tiie rest of its cargo, (c) In all these cases a right of contribution arises; not by virtue of any contract, but because the safety of some cannot justly be purchased at the expense of others; and all must therefore contribute to the loss sus- tained, (d) Eut although a right to contribution may exist where there is no Exclusion of contract upon which it can be founded, it cannot exist meut. ° if excluded by agreement; aad it is so excluded wlien- ever those who would otherwise be contributories have en- tered into any contract, express or tacit, amongst themselves which is inconsistent with a right on the part of one to demand contribu- tions from the others, (e) This is too obvious to require comment, but it must be borne in mind as qualifying the common saying, that the right to contribution is independent of agreement. Again, a right to contribution may be excluded by fraud, as is Exclusion of the casc where a person induces another by false and right by fraud, fp^uduleut representations to join him in partnership. In such a case the person defrauded has a right to rescind the con- tract of partnership, and, as between himself and co-partner, to throw all the partnership losses upon the latter alone. (_/") The application of these princijjles to the winding up of compa- nies will be noticed in a subsequent part of the work. (a) p. N. B. 162, 6. (e) As in GiUan v. Morrison, 1 DeG-. (b) Dering v. Winclielsea, 1 Cox 318. & S. 421; Ee the Worcester Com Ex- (c) Abbott on Shipping, part iv. c. 10. change Co. 3 DeG. M. & G. 180, which {d) Lel'roy i>. Gore, 1 Jo. & Lat. 571; will be noticed hereafter. Spottiswoode's case, 6 DeG. M. & G. (/) See Pillans v. Harkness, Colles, 345; Ashurst v. Mason, 20 Eq. 225; a 442; Rawlins v. Wickham, 1 Gift'. 355, case of CO- directors noticed, ante, 597. and 3 DeG. & J. 304, noticed more fuUy See, too, the cases in 1 Eq. Ca. Ab. Con- hereafter under the head Rescission of tribution and Average, and in the note Contract. See, too, Carew's case, 7 to AveraU v. Wade, LI. & GouJd (temp. DeG. M. & G. 43. Sug.), 264. 1004 CHAP. VI.j CONTEIBUTION AND INDEMSTITT. *T55 *0f the right of agents and trustees to indemnity from *755 their pi'i7ioipals and cestuis gue trustent.^ In order to clear the way for tlie discussion of the riglit of a partner to be indemnified by his firm, and of the right j^^^en^g^i htto of directors to be indemnified by the company of wliich indemnity. they have the management, it is necessary to advert shortly to the right of agents and trustees to be indemnified by their piincipals and cestui que trustent. With respect to agents the following cases have to be con- sidered. 1. "When the agent having instructions executes them; 2. "When the agent having instructions does not follow them; 3. "When the agent having no instructions acts nevertheless for his principal. 1. With respect to the first of these three classes of cases, noth- ing is clearer than that an agent who has instructions i. when he . . ..,!,., obeys his to act m a certain manner, is entitled to be reimbursed instructions. by his principal for all outlays made in pursuance of these instruc- tions, and to be indemnified for any loss sustained by executing them, {g) Even if what the agent does is unlawful he is entitled to indemnity (A); unless, indeed, the ace be one which the agent must have known his principal could under no circumstances justify; for then the maxim in pari delicto melior est positio de- fendentis applies, and the agent can obtain no indemnity from a court of justice, (i) 2. It is equally clear that, speaking generally, an agent who acts contrary to his instructions is not entitled to any in- 2. whenhedis- •^ „ -, . obeys ids in- demnity or reimbursement for losses or expenses in- structions. curred whilst so acting. (Je) Even although the instructions may ' See this subject considered and the dal, C. J., in Collins v. Evans, 5 Q. B. cases collected in Ewell's Evans on 830. Agency *353 et seq., and notes. (1) See Merryweather v. Nixan, 2 Sm. ( " '"^■^j ""iv^'j cases with reconcilable with other cases, others. 1016 CHAP. VI.J CONTEIBPTION AND INDEMNin'. *T66 In the Worcester Corn Exchange Company's case (l), a company u-as formed for the purpose of building a corn exchange, ^g The wor- The deed of settlement of the company limited the cSngS"™^'" amount of each shareholder's 'subscription and author- '^"^P^'^y- ized the directors to create new shares and to raise money by borrowing, under certain restrictions. The capital of the com- pany being expended, and more money being required, the direct- ors advanced money themselves, and expended it in payment of debts of the company. They also, but in excess of their powers, borrowed money of a bank which had notice of the company's deed, and that money was similarly expended. It was held that the direc- tors were not entitled to charge the shareholders, either in respect of the adva.nces or in respect of the bank debt, beyond the amount of the capital which each shareholder had agreed to subscribe. Again, in Cropper's case (m), a committee of directors charged with the winding up of a company, was held not enti- 11, 1 ■t'i^i . 1- Cropper's case. tied to be repaid by the company, expenses incurred m endeavoring to obtain the passing of a public bill pending in Par- liament, for facilitating the winding up of the affairs of insolvent companies generally; for to support bills in Parliamant was not within the scope of the committee's authority. These decisions are strictly in conformity with the sensible rule that agents are not entitled to any indemnity from their principals in re- spect of unauthorized expenditure; and in the first edition of this work the writer ventured to express a hope, *that this 766* rule, so essential to the protection of shareholders against direc- tors, would not be frittered away; and that the principle of the Ger- man Mining Company's case Avould not receive further countenance. That hope has been partially realized, for all attempts to extend that principle have failed, and its practical application is now confined to cases where the money has been applied in discharging debts for which the company was liable, [n) Even when thus restricted, how- ever, it must be borne in mind that debts for which a company is liable may as between the directors and the shareholders have been improp- erly contracted by the directors; and in such a case the directors ought to indemnify the shareholders and not the shareholders the directoi's. (l) 3 DeG. M. & G. 180. 748; HiU's case, 9 Eq. 605; Davis' case, (m) 1 DeG. M. & G. 147. 12 Eq. 516; The Catholic Publishing Co. In) See Ex parte Wi\]ia,msoji, 5 Ch. 10 Jur. N. S. 193; and «»?«, p. 363. 309; Cork and Youghal Rail. Co. 4 Ch, 10j7 *TG7 ADVANCES BY DIKECTOES. [BOOK III. Notwitlistanding the lengths to whicli the courts liave gone in Limits of the the cases observed upon above, directors who borrow principle above ■ , . . . discussed. moncy Without authority, and apply it to purposes not eVTs'raise™?or facing within the scoi)e of the company's business, are ed purlws^""''' not entitled to be reimbursed by the shareholders. Kent Benefit This is wcU shown by the recent case of the Kent Ben- ty. efit Building Society, (o) There the managing com- mittee of a benefit building society exceeded their powers by pur- chasing land, and by borrowing the money to pay for it. Tlie re- payment of the money was secured by a mortgage of the land pur- chased. The society was ordered to be wound np. The mortgage securities were realized for less than the amount due upon them, and the members of the committee had to make good the difference. They sought to prove the amount paid by them as a debt against the society; but it was held that the society was not liable.' The fact of the borrowing appears to have been brouglit to the notice of the society at a general meeting; but there was nothing to show that the acts of the committee had been sanctioned by all the mem- bers of the society; and to buy land was not within the scope of the objects of the society, and was altogether ultra vires. 2. Where the Again, the right of directors to indemnity, nuy is°expveS- *767 if expressly *confined and limited, cannot be ex- yrestiice . tended beyond the limit tlius cxpressly set. The two following cases illustrate this. In Gillan v. Morrison (p), a company was formed for purchasing Giiian v. land in Segovia, and establishing a colony there. It Morrison. ^^^^ agreed at a meeting of the directors and proposed shareholders, that an expedition sliouM proceed to Segovia, to ex- amine and report upon the land which it was proposed the com- pany should purchase; that the expense of the expedition should not exceed 1200/.; that the expense to that amount should be defrayed out of the shareholders' deposits; and that if the expense should exceed 1200Z., the diiference sliould be raised by a new issue of shares. Certain persons were appointed trustees to direct the fitting out of the expedition, to nominate the persons who were to conduct it, and to manage the fund supplied for defraying the ex- penses. Tlie persons composing the expedition proceeded to Se- govia, and arrived at the place where the lands in question were situate: and were then arrested and imprisoned. The object of the (o) 1 Dr. & Sm .417. (p ) 1 DeG. & S. 421. 1018 CHAP. VI. J CONTEIBUTION AND INDEMNITY. *768 expedition was thus frustrated; the expenses incurred by- its mem- bers greatly exceeded the fixed sum of 1200Z. : and an attempt was made on behalf of the trustees to compel the shareholders to make good the excess. But it was Iield that, as between the trustees and the shareholders, the liability of the latter was limited to 1300Z., and that they were not bound to contribute more. Again, in the case of Selwyn v. Harrison (^q), the creditors of a firm executed a deed by which the business of the firm „ ,„ „ was placed in the hands of inspectors, and the credi- Harrison, ■tors severally convenanted to indemnify the inspectors to a limited extent against the liabilities which they might incur in carrying on the business. It was held lhit the creditors were not bound, otherwise than by their convenants, to contribute to the pajnuent of debts contracted by the inspectors in carrying on the business. The express covenant to indemnify the trustees to a definite amount, excluded any more extensive obligation to indemnify them which might otherwise have arisen. The reader, however, will not fail to observe tliat both in The German Mining Company's case and in The Norwich Yarn ^Company's case, the shareholders had taken care to stipu- *76S late that their liability should not be unlimited. It is scarcely necessary to remark that the shareholders in a lim- ited liability company cannot be compelled to contribute more than the amount of their shares, either for the purpose of indem- nifying directors or for any other purpose. Of some former differences hetween contribution at law and in equity. Before the passing of the Judicature acts, a right to contribu- tion or indemnity, arising otherwise than by special j Astom- agreement, was only enforceable at law by a person foThJl^befu™ who conld prove that he had already sxistained a ^"^ ^'"'^ ' loss, {r) But in equity it was very reasonably held, that even ia the absence of any special agreement, a person who was entitled to contribution or indemnity from another could enforce his right {q) 2 J. & H. 334. (r) See Maxwell v. Jameson, 2 B. . Carter, 9 Dana, 408. (o) Per Lord Hardwicke in West v. Tire defendant, while returning from Skip, 1 Ves; S. 242. California, was taken sick, and in con-. (p) Burden v. Burden, 1 V. & B. 172, sequence thereof was subjected to ex- where a surviving partner, who was also penses and loss of time after his return: executor, was allowed to charge ex- Held, that in accounting for the net penses actually incurred, but not time earnings he was entitled to an allowance and trouble. Compare Hutcheson v. for the expenses, but not for the lor.t Smith, 5 Ir. Eq. 117, ante, p. 774, time; Brighamv. Dana, 29 Vt. 1. note, (s) Where it was provided in articles of 1033 *777 OUTLAYS AND ADVANCES. [book iir. money for tlie purpose of enabling the business of the company to be carried on, he was held entitled to be reimbursed by the com- panj', there being no question as to his authority to carrj' on the business on credit, {q) So, where the directors of a mining com- pany advanced money to keep the mine at work, and it would co-partnersliip, between the plaintiffs and defendants, that the services of one member of the firm, should be rendered at a stipulated price, and such partner incmxed expenses in the appropriate business of the firm at Porto Rico ; it was held, that such expenses were a proper charge against the co-partner- ship, and that he had not forfeited his right to the same, by withholding from the other members of the firm the pro- ceeds of the partnership business, for the period of one month after his re- turn to this country, and until requested by his co-partners to make a settlement of said business. Pond v. Clark, 24 Conn. 370. A partner, though bound to transact the out-door business, and superin- tend the sale of all articles manufac- tured hy the partnershiij, is entitled to credit for such charges for commissions to others for sales, as have been regu- larly entered on the books as a charge against the firm daring its existence, miless the entries be made in error or fraud. It is the construction placed by the parties themselves on their contract. Pratt V. McHatton, 11 La. Ann. 260. In a proceeding between partners to settle their accounts, items for clearing and improvmg their joint land, and for receipt of rents, should not be consid- ered ; such items should be settled up- on a proceeding for partition. Jones v. ■Jones, 23 Ark. 212.- In such a proceeding the court re- fused to allow an individual demand of one partner against the other, any further than to extinguish a claim by the latter for partnership funds remain- ing in the former's hands. Jones v. 1034 Jones, 23 Ark. 212. Where a partner contracts in his in- dividual name, and makes disburse- ments on account of such contracts, in a contest with his co-partners in set- tling the affairs of the co-partnership, hewiUbe bound to prove that such con- tracts were made on account of, and for the benefit of the firm, in order to be allowed for his disbursements. Rodes V. Rodes, 6 B. Mon. 400. A partner who undertakes to wind up the fiiTu business, stands in the place of an executor, and can establish disburse- ments only by vouchers properly au- thenticated. Clements v. Mitchell, Phill. Eq. 3. K. bought of P., for the account of himself and W., certain property, pay- ing for it partly in cash, and partly by his notes, which were indorsed by W. The business of F. was continued by K. & W., and after'svTlrds M. purchased a one-third interest in the partnership, being admitted from the date of the purchase, and signing his name to the notes previously given to P. W. paid one-third of the whole purchase-money, including the amount of the notes, to F., and K. paid the balance. Subsequently K. sold to W. & M. aU his interest in the firm: HehJ, that if the excess paid by K. over his just proportion was an ad- vance to the finn, his claim therefor was extinguished by the sale of his interest in the iirm. If it was an advance to M., W. could not be liable in any way for it; consequently a suit against the firm to recover such excess must fail. Kiinball V. Walker, 30 111. 482. (?) Ex parte Sedgwick, 2 Jur. N. S. 949. CHAP. TI.] CONTEIBUTION AND INDEMNITY. *778 otherwise have been di'owiied, they were held entitled to be reim- bursed, although they had no power to borrow money on the credit of the company, (r) And in another case, the directors of a com- pany who borrowed money on their own responsibility, and bond fide applied it in keeping the company at work, were held to be creditors of the company for the amount expended, although the shareholders insisted that the directors had no power to bor- row except upon *mortgage, and under certain restrictions, to *778 which no attention had been paid, (s) So a partner is clearly entitled to charge the firm with whatever he may have been compelled to pay in resyject. of its Payments on 1 1 /i\ • /■ 1 1 • . . Til. aoeouut of debts (5); or in respect ot obligations incurred by hira debts. alone at the request of the firm, as where he is compelled to pay a bond given by himself alone, but for the benefit of the firm and as a trustee for it (m),' or where he sacrifices a debt due to himself in order to enable the firm to obtain a debt due to it. {v) It need hardly be observed, that an outlay made by one partner with the approbation of his co-partners and for the benefit of the firm, must be made good by tlie firm, how- ever useless the outlay may have been. For example, if a firm or company purchases a patent which is paid for by one member in- dividually, he is entitled to charge the purchase-mojiey to the firm or company, however worthless the patent may ultimately prove to be. (a?) On the other hand, if a partner or director makes an im- proper outlay or advance on behalf of a firm or company, he can- not charge it to the firm or company, unless his conduct is ratified {r) Hx parte Cliippendale, 4 DeG. M. to pay to a tliird person for indorsing & Gr. 19. See ay\te, p. 760. for the firm, the court refused to allow (s) 'Ex parte Bignold, 22 Beav. 143. it, no proof being given that it had been See ante, p. 761. actually paid. Hutchinson v. Onder- (<) Prole V. Masterman, 21 Beav. 61. donk, 6 N. J. Eq. 277. A partner who negligently pays a debt The items for which an allowance is claimed, but not due, cannot charge the claimed must be proved with reasonable payment to the firm. Re Webb, 2 B. certainty before any allowance can be Moore, 500; McUreath v. Margetson, 4 made therefor. Chandler v. Allen, 20 Doug. 278; noticed in the next section. Hun, 424. (m) Croxton's case, 5 DeG. & S. 432; [v] Lefroy v. Gore, 1 Jo. & Lat. 571, Sedgwick's case, 2 Jm-. N. S. 949. V.- where one partner released a witness C. W.; Gleadow «;. The Hull Glass Co. whose evidence was essential to the 18 Jur. 1020, V.-C. E. firm. ' Where, in the settlement of a part- (a;) Gleadow v. The Hull Glass Co. 13 nership account, one partner claimed to Jur. 1020. Ise allowed $500, which he had agreed 1035 *779 OUTLAYS AND ADVANCES. [bOOK III, bj it. This is well illustrated bj the cases of Gillan v. Morrison, He The Worcester Corn Exchanire Company, and lie Cropper, al- usefuibutun- ready noticed, (y) But in connection with this subiect authorized . ,. ,, outlays. the qnalincation rendered necessary by the principle established in th6 German Mining Company's case must not be lost sight of. (2) An outlay which may have been very proper and even neces- sary for the conduct of the partnership business, cannot be charged to the partnersliip account, if so to do would be incon- sistent with the agreement into which the partners have *779 *entered. In Thornton v. Procter (a), the plaintiff' and tlie defendant had become partners as wine merchants, and the Thortoni) plaintiff", who for some time had principally conducted Proctor. ^]^g business, had expended considerable sums of money in treating customers, and this was found to be necessary in that trade. The plaintiff' had for several years kept the accounts of the partnership, and in such accounts he never made any charge for entertaining customers, or demanded any allowance on that ac- count. He, nevertheless, afterwards contended that he ought to be allowed, in taking the accounts of the partnership, to debit the firm with 501. a year for entertainments, and this was proved to be a reasonable sum. But it was shown to be usual, in cases of this sort, to insert some special clause in the articles if an allowance was intended to be made, and the articles into whicli the partners had entered contained nothing more than a general stipulation, that all losses and expenses should be borne equally. It was ac- cordingly held that the plaintiff was not entitled to any allowance, for he could only claim it as being a gross article of expenditure, and he was precluded from charging it in that way by not having included it in the yearly accounts. A partner is not entitled to charge tlie firm with any moneys No allowance alleged bv him to have been laid out for the benefit of for expenses , "_£. fj. i it ■ i • i n t ■ unless proved the firm it he declines to give the particulars 01 his to have been P ^ incm-red. outlays ; he cannot charge tor secret service money(o) , (y) Ante, pp. 765, 767. ' Upon a bill in equity between part- (z) Ante. p. 760. ners to wind up the partnersliip, one of {a) 1 Anstr. 94. See, too, Hutcbeson tbem who neglects or refuses to account ti. Smith, 5 Ir. Eq. 117 ; East India fully for business of the firm, done by Co. V. Blake, Finch, 117. himself in a foreign jurisdiction, cannot (6) See the York and North-Midland as a penalty, be denied his reasonable Eail, Co. V. Hudson, 16 Beav. 485. expenses of doing it, or sums obherwise 1036 CilAP. VI.J CONTRIBUTION AND INDEMNITY. *780 nor for general expenses, (c) Nor can a partner charge the iinn with traveling expenaes unless they have been hond fide and prop- erly incurred by him when traveling for the purpose of transact- ing its business, {dy Again, a partner expending money for valuations to carry out a transaction between himself and co-partners, which ciiarsesfor they afterwards succeed in setting aside, cannot charge ^i"^'''™- them with any part of what he may have so expended, {e) With respect to advances by directors, it has been held that *if a loan ih-bowfide made by them to the com- pany and the money advanced has been bona *780 rectors. ^ fide applied to the purposes of the coiiipany, the company must repay it. {/) But the attention of the share- holders should be specially called to the fact of a loan being made by the directors. The duties of directors and the interest of cred- itors may very possibly conflict with each other; and it is always suspicious when a director claims to be a creditor of the company entrusted to his care, in respect of a matter of which the sharehold- ers know nothing, {g) Not only may one partner make outlays or advances for the ben- efit of the firm, but the firm may make advances and outlays to or for the benefit of one partner. Under ordinary circumstances such advances and outlays will be equivalent to a loan by the firm to him, owing to him from the firm, or be was not allowed to charge his expenses charged with interest, with annual rests to his co-partner, who had, in the mean- on actual or estimated balances in his time, conducted the partnership busi- handis; but in estimating the amount, ness. Mumford v. Murray, 5 Johns, expenses, and profits of such business, Ch 1. and computing interest on such bal- (e) Stocken v. Dawson, 6 Beav. 375. ances, if any interest thereon is charge- (/) See ante, p. 760. See, also, able, care should be taken, by making Mm-ray's Executors' case, 5 DeG. M. & presumptions in favor of his co-partners G. 760 ; Ex parte Sedgwick, 2 Jur. N. against him, to guard them from any S. 949. injurious consequences of his conceal- [g) As to loans by directors of com- ment of facts. Harvey v. Vamey, 104 panies governed by 7 & 8 Vict. c. 110, Mass. 436. see Baker's case, 1 Dr. & Sm. 65 ; Mur- (c) The East India Co. v. Blake, ray's Executors' case, 5 DeG. M. & G. Finch, 117. 750; Teversham jj. The Cameron's coal- (d) Stainton v. The Carron Co. 24 brook, &c. Co. 8 DeG. & S. 296, and Beav. 356. Bluck v. Mallalue, 27 Beav. 398, in '' A partner who, on going abroad on which last case there was an express business principally his own, received a authority to borrow from the directors, compensation of $5,000 for his services, 1037 *781 LIABILITIES AND LOSSES. [bOOK III. and must be treated accordingly in taking the partnership accounts. Outlays on But Occasionally considerable difficulty arises, e.g., where my 0*? "^on™^ there has been an outlay by the firm on property belong- partner. j^^ exclusively to one of the partners, but used by the Jfirm for partnership purposes. In the absence of all evidence of any agreement upon the subject, justice seems to require that in taking the partnership accounts the owner of the property in question should not be allowed exclusively to gain the beneiit of the outlay, but that the improved value of his property should be treated as a partnership asset, and be shared between him and his co-partners accordingly. In Burdon v. Barkus, a managing partner had, with the knowl- Burdon v edge of his co-partner, expended partnership monies Barkus. ^jj sinking a pit for partnership purposes on land which belonged exclusively to the latter partner; the managing partner had erroneously supposed that the partnership was for a term of years ; but the partnership was suddenly and unexpectedly dis- solved, and the pit thereby became the sole property of the *781 *partner in whose land it had been sunk; but an inquiry was directed whether any allowance should be made in respect of the outlay in sinking the pit. (A) SECTION IT,— OP DEBTS, LIABILITIES, AND LOSSES. In the absence of any agreement to the contrary, partners are Mutuality of liable to share losses in the same proportion as they profit and loss .711 r' a presumed. are entitled to share pronts. As a general rule, tliere- fore, if one partner has been compelled to pay more than his share of a partnership debt, or if, in properlj' conducting the affairs of the firm, he has personally incurred a liability, he is entitled to be in- demnified by his co-partners so far as may be necessary to place all on a footing of equality. (^) But it by no means follows, that a person liable to be sued as if Presumption he were a partner, is, as between himself and his co- evidence, partners, bound to share the losses of the firm; for his (A) Burdon v. Barkus, 3 Giff. 412, aff. M. & G. 572; Lefroy v. Gore, 1 Jo. & on appeal, 4 DeG. P. & .1. 42. Lat. 571, and Hamilton v. Smith, 7 W. (») Wrights. Hmiter, 5 Ves. 792; and R. 173, as to promoters of companies, see Robinson's Executors' case, 6 DeG. 1038 CHAP. TI.J CONTEIBUTION AND INDEMNITY. *782 co-partners may have agreed to indemnify liim altogether from losses, and if such is the case, they cannot require him to contrib- ute thereto with them, (k) So, where the, promoters of a company agree with the shareholders that certain preliminary' expenses to be incurred in obtaining survieys, reports, &c., shall not exceed a cer- tain sum, and the promoters spend more than that sum, they can- not require the shareholders to make good the difference; although the exti'a expenditure may have been caused by circumstances which were unforeseen, and over which the promoters had no control. (Z) The general principle, however, that partners must contribute rateably to their shares towards the losses and General owifa- debts *of the firm is not open to question. *782 tomntSbute"^ Their obligation to contribute is not necessarily to losses. founded upon, although it may be modified and even excluded al- together by, agreement, {nif For example, where there is no agree- ment to the contrary, it is clear that if execution for a partnership debt contracted by all the partners, or by some of them when act- ing within the limits of their authority, is levied on any one part- ner, who is compelled to pay the whole debt, he is entitled to con- tribution from his co-partners, {n) So, if one partner enters into a contract on behalf of the firm, but in such a manner as to render himself alone liable to be sued, he is entitled to be indemnified bv the firm, provided he has not, as between himself and his co-part- ners, exceeded his authority in entering into the contract (t>); and [h) See Geddes v. Wallace, 2 BH. N. for carrying on the partnership busi- S. 270. ness; that the latter should superintend {I) Gillan V. Morrison, 1 DeG. & S. the business, and that all losses should 421; i?e The "Worcester Com Ex. Co. 3 " be borne equally by them." A pur- DeG. M. & G. 180, noticed more fully, chased certain real estate, ta.king the ante, p. 765. See, too, Mowatt and El- title in himself, and erected thereon the liott's case, 3 DeG. M. & G. 254, and necessary buildings and machinery at Carew's case, 7 ib. 43. his own expense. The machinery was (m) Ante, p. 754. damaged by fire : Held, that this loss ' Losses sustained to stock in trade or was to be shared. Carlisle v. Tenbrook, partnership assets purchased with the 57 Ind. 529. money of the firm, must be borne by («) McOwen v. Hunter, 1 .Dr. & W. the firm. Savei-y«. Thurston, 4 Bradw. 347; Evans u. Teathard, 2 Bing. 132; (111.) 55. Robinson's Executor's case, 6 DeG. M. A and B entered into partnership & G. 572. See, too, Lefroy v. Gore, 1 for manufacturing purposes, under an Jo. &Lat. 571, as to provisional directors, agreement that the former should fur- (o) Gleadow v. The Hull Glass Co. 13 nish all capital necessary for the pur- Jur. 1020; Sedgwick's case, 2 Jur. N. S. chase of machinery and material, and 949. 1039 ^^783 LIABILITIES AND LOSSES. [bOOK III. if, in such a case, he with their knowledge and consent defend an action brought against him, he is entitled to be indemnified by the firm against the damages, costs, and expenses which he may be compelled to pa}', {pf The right of a public officer of a banhing company to be indem- Bight of share- nified by the members of the company against \udi>:- hoTders to be \ . -, . ,. ,„.r,, indemnified. ments obtamed agauist himself is recognized by stat- ute (§■); and the right of each individual shareholder, against whom execution may have issued for a debt of the company, to indemnity from the company, or to contribution from his co-shareholders, is also placed beyond a doubt by legislative enactment (r), except ia the case of companies governed by the Letters Patent act, 7 Wm. 4 & 1 Vict. c. 73, which is silent upon this point. This Act provides for limited liability, but does not enact that if one member of a company governed by it pays more than his share of a debt of the company, he is to be reimbursed by tlie company or the other *783 shareholders ; but his right to such *indemnity or contribution is nowhere taken away, and may therefore be assumed to exist by virtue of general principles not touched by the statute. Even if a loss sustained by a firm is imputable to the conduct of Losses attribu- one partner more than to that of another, still, if the table to one '■ 17-1^-7.1 partner more lormer acted oona -fide with a view to the benefat oi than to anoth- ,„ i.i er. the firm, and without culpable negligence, the loss must be borne equally by all.' Thus, where A. represented to his co- partner B. that shares in a certain company rendered the holders only liable to the engagements of the com- « ( J)) Browne v. Gibbins, 5 Bro. P. C. that tlie affairs shall be settled by one 491; Croxton's ease, 5 DeG. & S. 432. partner, another partner will not be ''■ See ante, 759, et seq. and notes chargeable with the value of property (q) 7 Geo. 4, c. 46, § 14. delivered by him to the acting partner. (r) 7 Geo. 4, c. 46, § 14; 8 & 9 Vict. Allison v. Davidson, 2 Dev. Eq. 79. c. 16, §37. See, also, the repealed acts, One partner, closing up the business 7 & 8 Vict. c. 110, § 67, and 7 & 8 Vict. of the concern, is a trustee for the oth- c. 113, § 14. ers, and wiU not be treated as a debtor ' Where a loss accrues to a partner- to his co-partners for the balance of ship while the business is under the sole funds in his hands, so as to throw upon management of one of the partners, him a loss by depreciation in the currency this fact alone is not suflBcient to charge at the time when he received the funds, him with the whole loss, but it must McNair v. Rayland, 1 Dev. Eq. 516. appear to have accrued by his fault The mere fact that one of the partners McCrae v. Robeson, 2 Murph. 127. acts as the cashier to the firm will not, ■WTiere it is the understanding be- as a general rule, charge him with the tween the partners, upon a dissolution, funds he might receive and disburse in 1040 CHAP. YI.J LIABILITIES AND LOSSES. *-783 pany to a limited extent, and B. thereupon, and at A.'s request, au- thorized him to take shares on the partnership account, and it ulti- the course of business; otherwise, when fraud is charged. Walpole v. Renfroe, 16 La. Ann. 92. A clerk of a partnership being an ac- credited agent of the firm, losses grow- ing out of his defalcation, negligence, etc., would fall on the firm, and not in- dividually on the active partner. Rob- erts V. Totten, 13 Ark. 609. Where a partner leaves the place of business of the firm to attend to private business of his own, and also to pur- chase merchandize for the finn, with money of the firm, which he takes with him, and neither he nor the money is heard of afterwards, the loss of the money, in the absence of evidence show- ing fraud, negligence, or misconduct, must fall upon the partnership. Jenkins V. Peckmpaugh, 40 Ind. 133. Where articles of a tannery co-part- nership provided that one partner sho Jd exclusively superintend the tanyard, and the other the books and financial af- fairs, and neither intermeddle with the proper business of the other, losses caused by a violation of such provision must be borne by the intermeddHng party; but where a loss arose from the employment, by the bookkeeping part- ner, of an inexpert artisan to build vats, on proof that the yard partner knew and assented to the act, equity will consider the provision waived. Haller v. Wil- liamovricz, 23 Ark. 566. Plaintiff agreed to furnish the entire capital of a partnership, out of which defendant was to manage the concern, and receive one-third of the profits, with a monthly sum for his personal ex- penses. From plaintiff's failure to ad- vance the entire capital, the partnership was dissolved, with a loss equal to the amount advanced : Held, that defend- ant was not bound for any part of the loss, nor the amounts withdrawn for his monthly expenses. Bonis v. Louv- rier, 8 La. Ann. 4. One partner is liable to his co-partner for any loss occasioned by his unauthor- ized indorsement of a note in the name of the partnership, although the note be afterwards paid by the firm. Smith v. Loring, 2 Ohio, 440. Where a party having the legal title agrees with another to convey him one- half of the title, in consideration of his completing a mill upon the property, and afterwards takes charge of and completes the work, if he rents the mill or could have done so, and refuses or neglects when good, responsible tenants can be had, he wUl be required to ac- count to the other party for half of a fair rent. Grove v. Miles, 85 111. 85. A partner who purchases for the firm a large lot of hogs at a price prohibited by the partnership agreement is liable to the other partners for the excess. Lovney v. Gilleuwaters, 11 Heisk. 133. A partner depositing or holding part- nership funds, to compel his co-partner to have an account taken, is not hable to make good to him a loss thereof, en- suing through no fault of his own. Mor- rison V. Smith, 81 111. 221. If one or more of the members of a firm divert the fands of the fii-m to other uses, such partner is liable, in making up the account, to be charged with all the detriment thus suffered by the firm. Pierce v. Daniels, 25 Vt. 624. Where, for the convenience and by the consent of the firm, one partner de- posits the funds of the firm in his own name and to his own account, and they are charged upon the firm books to such partner, in order to indicate in whose hands they are, but are not under the exclusive control of the partner in whose name they are deposited, the other part- ner procuiTug checks at all times when C6 1041 *783 LIABILITIES AND LOSSES. [book III. mately turned out that tlie liability of the. shareholders was not limited, and A. and B. were made contributories, it was held that, desired for use in the business of the firm, tlie firm, and not the partner holding the funds, must bear the loss re- sulting from the insolvency of the bank in which they were deposited. Campbell V. Stewart, 34 111. 151. Where, however, one partner mixes partnership funds with his own, makes deposits of them in bank in his own name, appropriates them to his own use, assuming the absolute and entire control, and the bank becoming insol- vent, receives its notes, and has them registered in his own name, without the consent or Imowledge of his co-partner, by reason whereof the partnership fmids are lost, such partner is responsible to the co-partner for his share of the fund, and must bear the loss alone. Lefever V. Underwood,. 41 Pa. St. 505. Where a partnership intrusts money to a member of the firm to be used in the partnership business, and such member, without the knowledge or consent of his co-partners, forms a new partnership relation with another per- son to engage in like business, and pays over the money to the new firm, whereby it is lost, he thereby becomes liable to account to the members of the old firm, as for money converted to his own use. Reis V. Hellman, 25 Ohio St. 180 ; S. C. 1 Cincm. 30. Where two members of a partnership, formed for the purpose of speculating in lands, loaned money of the firm, in good faith, to a manufacturer as an induce- ment to estabhsh mills on their lands, whereby the lands were expected to be enhanced in value, and afterwards the mills proved a bad enterprise and a part of the debt was lost, a court of chancery refused to reUeve a third partner, who did not assent to the loan, from bearing his share of the loss. Blair v. Johnston, 1 Head, 13. 1042 When a partner quits the partnership that he may buy for himself what the partnership has a right to pm'chase, or that he may make a profit for his own advantage, and to their prejudice, he is answerable to the community for the loss and damage; and so, if he quits at an unreasonable time, which occasioned a deprivation of profits to the commu- nity, he must repah- and make good such loss. Howell v. Harvey, 5 Ark. 270. A culpable neglect in one partner, in pursuing the claims of the concern, may render him liable to the other partner for the amount which has been lost by his neglect. Jessup v. Cook, 6 N. J. L. 434. Where it does not appear to have been more the duty of one partner than an- other to collect debts due to the partner- ship, and the partner who undertakes to collect them has placed them in the hands of a competent attorney, and has acted in good faith, he ought not to be held responsible, for the r egligent or ir- regular acts of such attorney (or other competent agent), although the suit was brought in the name of the individual partner instead of the names of the joint owners. Aiken v. Ogilvie, 12 La. Ann. 353. Where a partnership has been dis- solved, in making up the account, one partner cannot be charged with debts due to the concern, because he has not collected them, or because he refused to permit them to be set off against debts due from the other partner. HoUister V. Barkley, 11 N. H. 501. The fact that the books of a pai-tner- ship remain, after a dissolution, in the hands of one of the partners, does not, in the absence of a special undertaking to collect the debts, render him hable to his co-partner, for omitting to collect a CHAP. VI.] LIABILITIES AND LOSSES. ^783 Cragg V. Ford. as between themselves, B. conid not throw the loss on A. alone, (s) Again, in Cragg v. Ford {t), the plaintiff and the de- fendant were partners, and the defendant was the man- aging partner. The partnership was dissolved, and the winding up of its affairs devolved on the defendant. Part of the assets consisted of bales of cotton, and the plaintiff requested that these might be immediately sold. The defendant, however, delayed to sell them, and they were ultimately sold at a much lower price than they would have fetched if they had been sold when the plaintiff desired. The plaintiff contended that the loss sustained debt. McRae v. McKenzie, 2 Dev. & B. Eq. 232. The unsettled claims of a co-partner- ship, shortly after its dissolution, were, by the mutual consent of the partners, placed for collection iu the hands of G., who after collecting a part of them, paid over all the proceeds except f 100 to the defendant, and the court found that the plaintiff had received more than his share of the partnership property, and the defendant afterwards requested G. to suspend making further collections, that his account might be made up, and a settlement made by the auditors, who were then investigating the partnersh'p account ; and that in consequence of misunderstanding the object and pur- port of the request, G. ceased making further collections, and some of said claims became uncollectible : Held, that the directions given by the defendant to G. did not render him Hable for any loss which might result from suspending such collections, and that the defendant was not chargeable with the money and accounts in the hands of G. Day v. Lockwood, 24 Conn. 185. r. owed T., and gave him a note for $7,000. The firm of T. and W. made large advances to F. on his individual credit. Tor greater security a letter of credit to T. and W. was procured by F. from V. and 0., on which T. and W. made other advances to F., amounting to about £760. These they charged to F., V. and 0. jointly. V. delivered provisions, etc., sufficient to pay the debt charged jointly against V., 0. and P., and he expected they would be so ap- plied, but F. and W. credited them to F. individually, and certain other pay- ments made were so credited by T. and W., who found in July, 1799, that the sum credited F. individually exceeded his individual liability by some £1,200, an amount more than sufficient to dis- charge the joint debt due from F., V. and 0. Against the remonstrance of his partner (W.) T. applied £800 of this £1,200 on the |7,000 note due him personally from F., and suffered the joint debt against F., V. and 0. to be- come barred by the statute of limita- tions, and lost. In an action for an ac- count, etc., between the partners (W. V. T.) : Held, that because the de- fendant T. had misapplied the provisions delivered to the company to pay the joint debt, to the payment of a private debt due from F. to him personally, and had then suffered the joint debt to be- come barred by the statute of limita- tions, and lost, the amount of such joint debt remaining unpaid was a proper charge in favor of W. and against T. Tomlinson v. Ward, 2. Conn. 396. (s) Ex parte Letts and Steer, 26 L. J. Ch. 455. See, too, Lingard v. Brom- ley, 1 V. & B. 114. {t) 1 Y. & C. C. C. 280. 1043 *784 CONTEIBUTION AND INDEMNITY. [bOOK III. by the postponement of the sale ought to be borne by the defend- ant alone. But the Court held that the plaintiff, if he had chosen, might himself have sold the cotton; and that, as the defendant, in delaying the sale, had acted iond fide and in the exercise of his discretion, the loss ought not to be thrown on him alone, but ought to be shared by the plaintiff. But if a partner is guilty of a breach of his duty to the firm. Losses attribu- and loss results therefrom, such loss must fall on him table to one «» i ■, ■> r^ ■ -r> partner's mis- alone. As was Said by the Court in Bury v. Allen iu), conduct or *' ,y \ /' negligence. " Suppose the case of an act of fraud, or culpable neg- ligence, or wilful default by a partner during the partner- *784 ship to the damage of its *property or interests, in breach of his duty to the partnership: whether at law compellable, or not compellable, he is certainly in equity compellable to compen- sate or indemnify tlie partnership in this respect." In conformity with this rule, the justice of which cannot be disputed, it has been decided that if a claim is made against a firm for payment of a debt alleged to be due from it, but which is not so in point of fact, and one partner chooses to pay it, he cannot charge such payment to the account of the firm, (a?) So, if one partner does that which, though imputable to the firm on the principles of agency, is in truth his act alone, and a fraud upon his co-partners, they are en- titled, as between themselves and him, to throw the whole of the consequences upon him. (y) So, if one partner, without the au- thority of his co-partners, wilfully does that which is illegal, he must indemnify them from the consequences, (s) When it is said that losses incurred by the unauthorized, culpa- Adoptionby bly negligent, or fraudulent conduct of one partner noTchargeaMe must be borne by him alone, it is assumed that his con- *°''' duct has not been ratified by the firm, and that the loss 2 See Murphy t;. Crafts, 13 La. Ann. {x) i?« Webb, 2 B. Moore, 500; Mo- 519, and the cases cited in the next note Ilreath v. Marg-etson, 4 Doug. 278, above. where a payment was made hond fide The obligations of one partner to an- and on the faith of false and fraudulent other, in the management of the part- representations. Quwre if the same nership business, is the exercise of good rule would apply if the debt being due faith, and of ordinary care and pru- was barred by the statute of limitations, dence, and, if loss happens through the See Stahlschmidtw. Lett, 1 Sm. &G.415. ordinary negligence of a partner, he (y) See Robertson v. Southgate, 6 must bear the loss. Carhn v. Donegan, Ha. 540. 15 Kan. 495. (z) See Campbell v. Campbell, 7 CL (m) 1 Coll. 604. & Fin. 166, ante, p. 771. 1044 CHAP. VI.] LIABILITIES AND LOSSES. *785 has not been treated by tlie partners themselves as a partnersliip loss. A loss which is properly chargeable to the account of one partner only, becomes chargeable to the firm if the partners have knowingly allowed it to be so charged in their accounts, and have thus taken it upon themselves. A strong instance of this is af- forded by the case of Cragg v. Ford (a), already re- ferred to on another point. There the plaintiff and the defendant were partners; the defendant had engaged in adventures not authorized by the partnership articles. Tlie plaintiff protested against this, but although the adventures ended in loss, and that loss was charged against the firm in the partnership *books, the plaintiff did not at the time object, or insist *785 that the loss should be borne by the defendant. When, however, the partnership was dissolved, and its accounts were made up, the plaintiff refused to allow the losses in question to be charged against the firm. But the Court held that, under all the circumstances of the case, the Master who had charged the losses against the partnership had not done wrong; and exceptions which had been taken to his report by the plaintiff were overruled. It has been already pointed out that directors of a company are as between themselves and the company trustees with Application nf large discretionary powers (h) ; and that whilst on the ^^^i^°i^f^™a one hand they are liable for losses arising from acts '=°™p^'''«'*- which are not warranted by their trust, and for losses arising from their own culpable negligence (c), they are on tlie other hand not liable to indemnify the company from losses arising from acts done by them honci. fide, and within the scope of their authority {d) The decisions which tend to show that directors acting 5c>?ia^^rfe, but beyond their powers, are entitled to indemnity from tlie share- holders, have also been noticed, (e) It remains therefore merely to add in this place that if losses not properly chargeable to the com- pany or the shareholders, without their consent, are charged to them in the accounts and reports in such an open and fair wa,y as to enable them to see and understand what is done, and these accounts and reports are not objected to, but are, on the contrary, approved {a) 1 Y. & C. C. C. 285 ; but see as (&) Book iii. e. 2, § 3, ante, p. 587, et to losses arising from illegal acts, the seg^. observations of Lord Eldon on Watts v. (c) Ante, p. 592, 593. Brook, in Aubert v. Maze, 2 Bros. & P. {d) Ante, p. 760. 371. ' (e) Ante, p. 760. 1045 *786 CONTKIBUTION AND INDEIINITT. [cOOK III. and adopted by the shareholders, it will be too late for them afterr wards to dispute the propriety' of what they may thus have sanc- tioned, (y) Moreover, those shareholders who do not choose to at- tend meetings of which they have notice, cannot complain of tlieir ignorance of what they might have known had they attended, [g] *786 *SECTION v.— OF INTEREST. The principles upon which, in taking partnership accounts, in- interestin ac- terest is allowed or disallowed, do not appear to be counts between partners. well settled. The state of the authorities, is, in fact, not such as to justify the deduction from them of any general prin- ciple upon this important subject. By the common law, in the absence of a special custom or agree- „ , , ment, a loan does not bear interest (h) ; and, notwith- Goneral rule ' \ / ' ' ,, as to interest, standing many dicta to the contrary, the same rule ap- pears to have prevailed in equity. (*') This rule is, no douht, attribu- table to the old notions on the subject of usury ; but although the usury laws are abolished the rule remains, and the consequence is that inter- est is frequently not payable by law when in justice it oui,dit to be At the same time, by the custom of merchants interest has long been payable in cases where by the general law it was not ; and mercantile usage and the course of trade dealings are held to au- thorize a demand for interest in cases where it would not otherwise be payable. (Jc) In applying therefore the general rule against the allowance of interest to partnership accounts, attention must be paid not only to any express agreement which may have been en- tered into on the .subject, but also to the practice of each particular firm, and to the custom of the trade it carries on. As a general rule partners are not entitled to interest on their respective capitals unless there is some as-reement to Interest on '^ ^^ ° capital. that effect, or unless they have themselves been in the (/) Ex parte Chippendale, 4 DeG. Pioton, 4 ib. 723; Page v. Newman, 9 B. M. & G. 19, might perhaps have been & C. 738; Gwyn v. Godby, 4 Taunt. 346. properly decided on this ground- alone. («) See Tew i). The Earl ofWinterton, (g) See ante, p. 550, and Turquand«. 1 Ves. J. 451; Creuze v. Hunter, 2 ib. Marshall, 4 Ch. 376 ; Lane's case 1 De 157; Booth v. Leycesfcer, 1 Keen, 247, G. J. & Sm. 504. See, also, 22Beav. 165. and 3 M. & Cr. 459. (h) See Gallon ». Bragg, 15 East, 223; {k) See Ex parte Chippendale, 4 De' Higginsr. Sargent, 2B. &C. 349; Shaw». G. M. & G. 36. 1046 CHAP. VI. J INTEIiEST. *786 habit of charging such interest in their acconnts(Z);' and even where one partner has brought in his stipulated capital and the other (1) See Cooke v. Benbow, 3 DeG. J. & Sm. 1; Miller t). Craig, 6 Beav. 433, wliere interest was allowed, that having at one time been in accordance with the usage of those who carried on the busi- ness; and Pim v. Harris, Ir. Rep. 10 Eq. 442, where the decision was based on the terms of the contract. 'Tutt V. Land, 50 Geo. 350; Desha v. Smith, 20 Ala. 747; Day v. Lockwood, 24 Conn. 185 ; Tirrell v. Jones, 39 Cal. 655. See, also, Whitcomb v. Converse, 119 Mass. 38; Moss v. McCall, 75 111. 190; Brown's Appeal, 89 Perni. St. 139. A partner cannot claim, interest on his advances towards the capital stock, even though he took a note therefor, by its terms carrying interest. Jones v. Jones, 1 Ired. Eq. 332. The law wiLL not, iu the absence of an express stipulation between the pai-ties, compel one partner to pay interest to his co-partners on the amount by which their capital exceeds his. Desha v. Smith, supra. A and B were partners. A furnished more capital than B, and under an agreement with B received interest on the excess. A's health failing, B claimed to withhold further payment of the interest, in view of the diminished value of A's services. It was referred, and settled in favor of A. B was stiU unsatisfied, but continued to use the ex- cess of capital as before, and it did not appear that A's services were less valu- able than B's : Held, that B was bound by the decision of the referee, and A en- titled to the interest. Piper v. Smith, 1 Head, 93. Where the articles provided that "if the wants and necessities of said busi- ness demand an iucrease of capital, and the same be supplied by the said A (a partner) the firm stipulate to pay him interest therefor at the rates," etc.: Held, that the simple fact that said partner did not withdraw the whole of his share of the profits for the first year, without any agreement or notice to the co-partner that the capital was to be increased to that amount, did not give such partner a right of interest on such excess. Tutt v. Land, 50 Ga. 339. ! Where a partnership agreement pro- ! vided that the defendants should con- 1 tribute a certain amount of money as a " working capitol," and that such capi- tal should draw interest at seveti per cent., and during the continuance of the partnership business more capital was needed, and the defendants ad- vanced it on the promise of their co- partner, that whatever money they put in they should get back with interest: Held, that on an accounting at the suit of their co-partner's assignee, they should be allowed interest on the addi- tional money so advanced, as well as on the amount originally contributed. Gilhooly v. Hart, 8 Daly, 176. Where the original articles of a co- partnership contain no such provision, it is not proper, in taking an account, to charge each partner with interest on his individual account, and to credit each one with interest on moneys paid in, unless a subsequent agreement to that effect is clearly and satisfactorily proved. But an agreement between partners that interest shall be computed on each one's account, and on the money paid in by him, will not justify comput- ing interest on the individual accounts from the dates of the several charges up to the close of the business, inde- pendent of whether the amounts drawn out exceed the just share of the profits to the respective dates, due the several partners. Such an agreement, if proved , will be understood to mean that each partner wUl be charged with the in- 1047 *7S7 INTEREST. [book III. *787 *lias not, tlie former will not be entitled to interest on the ■winding up of the partnership if it has not been preyiously charged and allowed in the accounts of the firm (m)'; and where a person is paid for his services by a share of profits, interest on cap- ital cannot be charged against him, unless there is some agreement to that effect, (^n)' Moreover, where interest on capital is payable, the interest stops at the date of dissolution (. McKenna from him to the firm, though there 10 Ch. 123. had been no balance struck. Dimond {h) Boddam v. Ryley, 1 Bro. C. C. v. Henderson, 2 N. W. Eep. N.' S. 73. 239; 2 ib. 2; and 4 Bro. P. C. 561. 1052 CHAP. Vn.J DIVISION OF PEOFITS. *790 *CHAPTERYII. ^90 OF THE DIVISION OP PROFITS AND OF DIYIDEND3. The realization and division of profit is the ultimate obi'ect of every partnership; and the right of every partner to a p. ,.„; share of the profits made by the firm to which he be- p'o^'^- longs, is too obvious to require comment. Where there is no right to share profits, there can be no partnership, and almost all the other rights possessed by partners may be said to be incidental to the right in question. The times at which the profits are to be divided, the quantum to be divided at any one time, the sums, if any, which are rpj^^gg ^„ f to be placed to the debit of the firm in favor of any iiivision. particular partner for salary, interest on capital, &c., before anv profits are to be divided, these and all similar matters are usually made the subject of express agreement;' but where no such agree- ment has been made, and no tacit agreement relative to them can be inferred, the principles laid down in the preceding chapter must be applied, (a) With respect to the times of division and quantum ^ Wliere the defendants in 1850 entered sent the then two-thirds interest;'" it into a contract with a firm in Porto Hi- was held that the share of the plaintiffs CO, for the transacting of business be- in the profits of the entire business trans- tween Porto Rico and New York, by the acted under said contracts, was not — as terms of which it was provided that was claimed by the defendants — one- each of the defendants should be enti- third of three-fourths, but one-third, tied to one-third of the profits of such thereof. Pond v. Clark, 24 Conn. 370. business, and in 1851, they entered G. guaranteed his partner, B. $10,000 into articles of co-partnership with the profits the first year "notwithstanding plaintiffs, by which it was provided losses to any extent, " and at the end " that the plaintiffs should be interested ' of the year the partnership was dissolved in said business, and that all shipments, and no profits made : Held, that B. was made in pursuance of said contract, entitled to receive from Q. the $10,000. should be on joint account ; that the Grant v. Bryant, 101 Mass. 567. plaintiffs should be one-third interested (a) As to the mode of ascertaining and that the defendants should repre- profits where a person not a partner is 1053 *791 DIVISIOIT OF PEOFITS. [book III. to be divided at any given time it is conceived that the majority must govern the minority wliere no agreement upon the subject has been come to (b); for these are matters of purely internal regula- tion, and with respect to such matters a dissentient minority have only one alternative, viz., either to give way to the majority, or, if in a position so to do, to dissolve the partnership. *791 *Profit is the excess of receipts over expense; and in wind- ins: up a partnership or company, nothins: is properly What is divisi- ,. . .,S -^ r.^ 1- -u J ! \t ■ 1 •" bie as profit, divisible as protit which does not answer this descrip- tion.' But for the purposes of business, and of facilitating annual divisions of profits, a distinction is made between ordinary and extraordinary receipts and expenses; and whilst all extraordinary expenses are frequently defrayed out of capital, and out of money entitled to a sliare of them, see Rishton V. Grissell, 6 Eq. 326, and 10 Eq. 393 ; Geddea v. WaUaoe, 2 BH. 270. (6) See Stevens v. South. Devon Rail. Co. 9 Ha. 326, and Coiry v. London- derry, &c. Co. 29 Beav. 263, as to de- claring dividends before paying debts ; Browne v. Monmouthshire, &o. Co. 18 Beav. 32, as to paying dividends be- fore works are finished. ' ' Where parties purchase on joint ac- count and for speculation a lot of goods, with the understanding that they shall share equally the profits and losses which may result from the sale thereof, the advances and expenses are to be first paid before there can be any divi- sion of the profits. It partakes of the nature of a partnership. Doane v. Adams, 15 La. Ann. 350. Interest on the capital invested is not to be deducted in ascertaining the "net profits," but only losses and expenses of business. Tutt v. Land, 50 Gta. 339, 350. See mite, 786, note. The plaintiffs sub- let part of their store to the defendant to carry on a certain business. Afterwards an agree- ment was entered into whereby the plaintifia were to assist the defendant in his business, the latter to assume the whole rent, furnish the capital, defray 1054 the expenses, and pay the plaintiffs ono- fourth of the net profits : Held, that in ascertaining the profits, the defendant was entitled to a credit for loss of stock by fire (Meserve v. Andrews, 106 Mass. 419; Gill V. Geyer, 15 Ohio St. .■^'.99), but not for expenses mourred without the knowledge of the plaintiffs, in de- fending a criminal prosecution for car- rying on the business, which did not arise through any act directly or indi- rectly of the plaintiffs. Meserve v. An- drews, supra. A partner who has withdrawn assets and invested them in a new enterprise without his co-pai-tners' consent, is chargeable only with their proportion- ate share of the profits thereof. Brown V. Schackleford, 53 Mo. 122. Under articles of partnership which stipulated that the cash receipts, after deducting one-half the profits, are to be paid to one partner, and that the othei partners are, at the expiration of the partnership, to take their proportion of the outstanding claims as part of the profits, the latter are not required to take the whole of their profits out of the claims. The last clause of the stipula- tion relates to such part of the profits as are represented by the claims. Moore v. Thieber, 31 Ark. 113. CHAP. VII.] DIVISION OF PK0FIT8. *T92 raised by borrowing, the ordinary expenses are defrayed out of the returns of the business; and the profits divisible iu any year are ascertained by comparing the ordinary receipts with tlie ordinary expenses of that year. It is obvious that, unless some such prin- ciple as this were had recourse to, there could be no division ot profits, even of the most flourishing business, whilst any of its debts were unpaid, and any of its capital sunk. "What losses and expenses ought to be treated as ordinary, and therefore pay- able out of current receijjts, and what ought to be treated as extra- ordinary, and payable legitimately out of capital or njouey bor- rowed, is a question on which opinions may often honestly differ; and one which, when open to honest diversity of opinion, a majority of members can lawfully determine. The power of a majority, however, in such matters is limited by the principle that funds raised for one purpose cannot be applied to another without the consent of all the subscribers; and although in cases of honest doubt the power of a majority to decide how a particular expense^ or loss shall be borne can hardly be deuied (o), such power cannot be lawfully exercised for the dishonest purpose of making it appear that profits have been made, when in troth the current receipts have been less than the current expenses, {dy But if the current receipts exceed the current expenses, the writer apprehends that the difi'erence can be divided as profit, although the capital may be spent and not be represented by saleable assets. Under ordinary circumstances, and in the absence of any agree- ment to the contrary, moneys earned ought to be treated as profits of the year in which they are paid, and not as cases where profits *of the year in which they are earned (e); *792 ^i;*,?!,"?! no? and in ascertaining the profits of a company for improper, the purpose of making a dividend, debts incurred in the ordinary course of business ought to be deducted, but not debts incurred (c) See Gregory v. Patchett, 33 Beav. its, purchased real estate. On a bill by 595. a guarantor, who had paid the price of {d) See Bloxam v. Metropolitan Rail. the goods, the court ordered a resale of Co. 3 Cb. 337. the land purchased by the partner, to ^ Partners in a commercial adventure reimburse the guarantor. Greene v. made a statement of the supposed prof- Perrie, 1 Dessau. 164. its before the profits were ascertained, (c) Seeder Turner, L. J., in Maclaren and before payment for the goods pur- v. Stainton, 3 DeG. P. & J. 214. Com- chased for the adventure, and one of pare Browne v. Collins, 12 Eq. 586. the partners, with his share of the prof- 1055 *793 DIVIDENDS OUT OF CAPITAL. [bOOK III. by exercising special powers of borrowing, {f) Assets, more- over, may be estimated at a value wliich they may never realize, [g) It has also been held that dividends may be paid by a company before its works are finished (A), and although its debts may be unpaid. The creditors of a company may be willing to allow their principal moneys to continue unpaid, provided they are punctually paid the interest upon them; and if a company, after defraying all current expenses and the interest of its debts, has a surplus arising from its current receipts, there is no principle, either of law or morality which requires that such surplus shall be accu- mulated, or forbids its division as profit amongst the shareholders. Whether dividends shall be paid whilst debts remain unpaid, or whether the whole or any part of the surplus of receipts over ex- penditure shall be accumulated or divided, are questions which it is competent for the majority of shareholders to decide, {i) Expenses incidental to the formation of a company are frequently paid off by installments spread over a number of years, dividends being paid in the meanwhile (/<;); and if this is done openly, there seems to be nothing illegal in it. And it is conceived that divi- dends may be paid even by a limited company, if its income ex- ceeds its expenditure, although its whole capital may have been sunk in starting the company, and could not be recovered if the company were wound up. Payment of Expenses properly chargeable to capital, but paid out capftai."* "^ of income, may afterwards be charged to capital so as to increase a dividend. In other words, the income account *793 may, in such *a case be recouped by the capital account, and the two accounts be set right by paying a dividend out of capital. (V) But except in a case of this sort, payments out of capi- tal cannot be profit; and to pay what are called profits or dividends out of capital is, under whatever disguise, tantamount to returning so much capital to the partners or shareholders, to whom such pay- ments are made. In ordinary partnerships there is nothing to pre- (/) Corry v. Londonderry Co. 29 29 Beav. 263. Beav. 263. [h) See per Martin, B. in Bale v. Cle- (jf) Stringer's case, 4 Cli. 475; Ranee's land, 4 Fos. & Fin. 144. See, also, case, 6 Ch. 104. Bardwell v. Sheffield Waterworks Co. {h) Browne v. Monmoutlishire, &c. 14 Eq. 517. Rail. Co. 13 Beav 32. (Z) Mills v. North Rail, of Buenos (?) Stevens v. South Devon Rail. Co. Ayers Co. 5 Ch. 621. Compare Hoolo 9 Ha. 313: CoiTy v. Londonden-y Co. v. Great Western Rail. Co. 3 Ch. 262. 1056 CHAP. VII.J DmSION OP PROFITS. *794: vent the partners from withdrawing and diminishing their capitals wholly or in part if they all think proper to do so; nor is there an}' legal reason why partners should not, if they please, borrow money on the credit of the firm, and divide it wholly or in part among them- selves. But neither course could be pursued without the consent of all the partners. With respect to companies, however, there are reasons why capital and money borrowed should not be applied in making payments to shareholders, even although they may all con- sent. In the first place, such an application of the money is calcula- ted to deceive the public, and can hardly be made for any honest pur- pose; and in the next place, capital raised, or money borrowed, in order to carry on the business of the company, cannot be properly applied for such a wholly .different purpose as that of paying divi- dends to the shareholders, (m) Even if all the shareholders can ren- der such a course legal, a majority cannot; and the more diflicult theoretical question whether all can is of little practical conse- quence, (n) With respect, indeed, to "companies governed by the Companies clauses consolidation act {o), or by the Table A. to the Companies act, 1862 (p), payment of dividends otherwise than out of profits is expressly prohibited, and will be restrained by injunc- tion, {q) Independently of any statute, if a company I ./ Personal liabii- pledges its funds *for the payment of debts, and *794: ity of directors. the directors misapply those funds by knowingly paying dividends out of capital, they are compellable to replace not only the amount of dividends, which they themselves have actually received in' respect of their own shares, but also the whole amount of the dividends which they have caused to be paid to the other shareholders, and also interest thereon, (r) But neither directors nor shareholders are liable to refund dividends declared (m) See ante, p. 600, et seq. 1 Ch. D. 682. Compare -Bard well v. (m) See Maodoughall v. Jersey Impe- Sheffield Waterworks Co. 14 Eq. 517, rial Hotel Co. 2 Hem. & M. 528; Faw- as to payment of dividends before capi- cett V. Laurie, 1 Dr. & Sm. 192; James tal is productive. V. Eve, L. R. 6 H. L. .335. (r) Evans v. Coventry, 8 DeG. M. & (o) 8 & 9 Vict. c. 16, § 121. G. 835. See the decree, clause 4. The Ip) Table A., art. 73. decree was made -without prejudice to (g) See ante, note (w) and Bloxam v. the right of the directors to recover the Metropolitan Rail. Co. 3 Ch. 337; Hoole dividends back from those who had re- V. Great Western Rail. Co. ib. 262; ceived them. Compare Turquand v. Holmes v Newcastle, &c. Abattoir Co. Marshall, 4 Ch. 376. «7 1057 *795 ExoLusion FROM PROFITS. [book IH. • and paid on a lond fide valuation of assets although such assets may ultimately prove valueless, (s) Moreover, directors who for fraudulent purposes and in order to induce shareholders and the public to believe that the affairs of a company are in a favorable position, have recourse to the scanda- lous expedient of declaring dividends out of profits when there are no profits wherewith to pay them, and pay the dividends declared, either out of the capital of the company or out of money bor- rowed for the purpose, are guilty of a criminal offense, punishable both at common law (i) and by statute {u), and are liable to an action for damages at the instance of persons induced to take shares on the faith of such misrepresentation, (a?) Where there is no agreement, express or tacit, to the contrary, E iitv of ^^ profits realized by an ordinary partnership are shares. divisible amongst its members in equal shares, although their capitals may be unequal, (j/)' A resolution on the part of a majority of partners, or on the Exclusion of part of the directors or shareholders of a companv, to partner from -^ iiif. i.i^i share of profits, exclude a partner or shareholder trom his share ot the profits, can only be defended where the right to make such a reso- lution has been clearly conferred by the agreement of all the part- ners ; or, in the case of a company, by the act, charter, or deed *795 of *settlement. by which it is governed. A resolution to exclude a partner or shareholder from his share of profits is very like a resolution to forfeit his share, and is illegal unless spe- cially authorized, {zf {s) See Stringer's case, 4 Ch. 475; agreed to pay the residue at the end of Eance's case, 6 ib. 104. twelvemonths. The partners purchased (<) See per Lord Campbell, in Bumes real estate, machinery and materials, V. PenneU, 2 H. L. C. 497; R. v. Es- and engaged in business. The partner- daile, 1 Fos. & Fin. 213. ship debts and liabilities were paid out (m) See infra, p. 814, on fraudulent of the personal property belonging to accounts. the firm. The real estate was left unin- {x) Bale V. Cleland, 4 Fos. & Fin. cumbered of partnership debts. The 117, and other oases, ante, p. 324. ' partners sold the real estate belonging (y) See anie, p. 676. to the firm: -ffeM, that the partner who ' Three persons became partners. had paid only one-half of his stock was The capital stock agreed upon was nine not entitled to share equally with his thousand dollars. The partners were co-partners in the partnership assets, each to pay three thousand dollars. Smith v. Hazleton, 34 Ind. 481. Two of the partners paid in substan- («) See ante, p. 745; a»d Griffith v. tially their shares of capital stock. The Paget, 5 Ch. D. 894. other paid one-half of his stock, and ^ Several persons engaged in a part- 1058 CHAP. Vn.J ESCLTJSION FKOM PROFITS. *795 r A court will protect a partner or shareholder whose share of profits is wrongfully withheld, and compel his co-partners or co. shareholders to account to him for such share, (a) In Adley v. The Whitstable Company (5), an incorporated com- pany of oyster fishers and dredgers made a by-law to Adiey^. WhilstablB the effect, that if any member should sell oysters, ex- company. cept those taken from the company's grounds, he should forfeit IQl., and be excluded from all share in the profits which the company might make after the penalty was incurred and before it was paid. A member infringed the by-law and refused to pay the penalty, and M'as thereupon excluded from all share of the profits of the company. But on a bill filed by him against the company, it was held that the by-law was invalid (c); that the company had no right to exclude any of its members from their share of profits on any such ground as that in question; and that it was no defense that the profits of which the plaintiff sought a share were actually gone, having been divided amongst the other members. An objection that the par- ties, if any, accountable to the plaintifi^, were the ofiicers of the com- pany, who paid those profits, and not the company itself, was also overruled, and a decree was made in the plaintiff's favor. Prima facie all the shareholders in a company are entitled to share profits r)ari passu in proportion to the number of Dividends pay- , ■1111 1 1 • 1 ^""^^ rateably shares they respectively hold: and a resolution bv a according to ••'•'■'' " number of majority that dividends shall be paid to some of the shares, shareholders in preference to, or to the exclusion of the others, is clearly illegal unless it is warranted by something more than the will of those who make it. {d) nership for the purpose of buying lands ber of the firm, actively engaged in its from Indians, and reselling them, the business, be excluded from a participa- parties to be interested in the profits in tion in its benefits for want of funds, the proportion that they each invested without notice. Patterson v. Ware, 10 their money in the purchase of land: Ala. 444. Held, that funds arising from the resale {«) See post, c. 10, § 3, under the of land in the hands of any of the part- head Account. ners, being the profits of the land resold, (6) 17 Ves. 315; 19 ib. 804, and 1 Mer. was the money of the company, open to 107. re-investment; and whilst such a fund (c) An action was directed to be existed, adequate to the demand, no brought to try this question. partner could be considered in default (d) See Adley v. Whitstable Co. 17 if .his proportion of it was sufiicient to Ves. 315, and the cases in note [g). meet the exigency. Nor could a mem- 1059 *797 PEEFEEENCE SHAEES. [BOOK III. Maughanw. Cases. however, of an exceptional cliaracter Leamington „„„. ; . jt i i i ,. n . Gas Company. *JQQ niaj arise, as IS *snown by the lollowmg in- stance : In Manglian v. Leamington Gas Com- pany (e), certain shareholders in a gas company were entitled to divi- dends up to 10 per cent., and certain otlier shareholders were only en- titled to dividends up to 7 per cent. The surplus profits, if any, were to be applied first, in making up the dividends of past years to these amounts, and secondly, in reducing the charges for gas. Tlie profits not being sufficient to jpay a dividend of 10 f)er cent, on the one set of shares, and also a dividend of 7 per cent, on the other set, it was resolved to pay a dividend of 8 per cent, on the first, and 7 per cent, on the second. It was contended that this resolution was il- legal, and that the dividend ought to be declared in the proportion of 10 to 7; and a suit was instituted to enforce this view. But tlie Court declined to interfere; considering that, according to the true construction of the statutes relating to the company, the above pro- portions might be departed from when the profits were insufiicient to pay both classes of shareholders their maximum amounts of dividend. It is by no means unusual for companies who have expended Preference their original capital, to raise (under some power spe- shares. daily Conferred upon them for the purpose) further capital by the issue of " preference shares," i.e., of shares the hold- ers of which are to be entitled to share profits, up to a given amount, in preference to the other shareholders. The right to do this has been already examined. (_/) Where preference shares have been issued by competent authority, the terms upon which they have been issued must, of course, be adhered to; and it has been decided in several cases that, unless there is some agreement or enactment to the contrary, preference shareholders are entitled to be paid out of the profits of the com- pany their dividends to the amount guaranteed, before the other shareholders receive anything: so that if the profits divisible at a given time are not sufficient to pay the guaranteed dividends in full, the deficiency must be made good out of the next divisible profits; the ordinary shareholders taking no profits until all arrears of *797 guaranteed dividends have been paid to the preference *share- holders. (g) This rule, however, has been altered by statute, (e) 15 "W". R. 333. {g) See Webb v. Earle, 20 Eq. 556, (/) Ante, p. 621. and other cases cited ante, p. 618. In 1060 CHAP. VII.] DIVISION OF PROFITS. *798 SO far as concerns companies governed by the Companies clauses consolidation act. (Ti) No resolution of a company can possibly vary the rights of the holders of different classes of duly created shares. Rights of pre- No resolution can deprive preference shareholders of holders. their right to be paid the sums guaranteed out of the company's profits as soon as there are any. So long as there are no profits^ the preference shareholders get nothing, for they are not creditor* of the company (i) ; but as soon as there are any profits to divide, they must be applied in payment of whatever is required to make up to the preference shareholders the sums guaranteed to them, in- cluding all arrears, if that is the bargain with them. (^') Where funds were guaranteed to a company in order to enable it to pay dividends, and the company was ordered to be wound up, those funds were held to be general assets, and not to belong to the shareholders individually, (k) Where there are several classes of shares on which unequal sums have been paid up, the profits of the company ought pay^ientof prima facie to be divided amongst the shareholders in shlrelof u°if- proportion to the sums paid up on their respective equal amount, shares, and not in proportion to the nominal values of such shares. (Z) With respect to the payment of dividends, it may be useful to observe that — 1. Dividends must be paid in money; not in shares unless all the shareholders so agree, {m) 2. Where shares are charged by a judge's order under 1 & 2 Vict. c. 110, the dividends must nevertheless be paid to the judg- ment debtor, for he is the person entitled to them at *law {n\ and his receipt discharges the *798 charging , , ~" order. company even in equity, (p) The payment of Bangor e. Port Madoe Slate Co. 20 Eq. (fc) Re Stuart's Trusts, 4 Ch. D. 213. 59, tlie preference was held to extend to {I) See Somes v. Currie, 1 K. & J. capital also. 605; Ex parte Maude, 6 Ch. 51; see 8 Qi) 26 & 27 Vict. c. 118, § 14, noticed & 9 Vict. c. 16, § 120; 25 & 26 Vict. c. ante, p. 617. 89, Table A. No. 72. (i) Preference shareholders are not (m) See Hoole*;. Great Western Rail, entitled on a winding up to any prefer- Co. 3 Ch. 262. ence in the division of assets if there (w) See Fowler v. Churchill, 11 M. & are no profits; London India Rubber W. 57; Churchill v. Bank of England, Co. 5 Eq. 519. ib. 323. (j) See notes i^) and [i) ; ante, p. (o) See Bristed v. Wilbins, 3 Ha. 235. 618, note. 1061 *799 RECEIPTS FOE DIVIDENDS. [bOOK III. dividends to a particular shareholder may, however, be restrained under 5 Vict. c. 5, § 4. ( p) 3. Where a deed of transfer has been forged, and the company has Forged trans- registered it believing it to be genuine, the comiiany *'<=™- must nevertheless pay the dividends to the true owner, and is not entitled to make him and the transferee interplead, {q) i. "Where shares are registered in the name of a married woman^ Married *^® dividends ought to be paid to her and her husband, women. ^j. ^^ i-,jjjj . |j^^ ^q^ ^q ]jgj. ^it]iout him, unless the shares belong to her for her separate use. (r) Having made these general observations on the payment of divi- Dividends.of dends, it is proposed to notice shortly the legislative particular com- i n ■ panics. enactments bearing upon the same subject. No shareholder in a company governed by the Letters Patent 7Wm 4&1 ^^^ i^ entitled to any share of the profits of the coui- vict. c. 73. pany unless he is registered as a shareholder, (s) The Companies clauses consolidation act declares that a company 8 & 9 Vict, c governed by it shall not be bound to see to the execu- ^^- tion of any trust, and that the receipt of the psrson, or of any one of the persons in whose name a share may be regis- tered, shall be a discharge to the company for all moneys paid in respect of such share, notwithstanding any trusts to which it may be subject, {t) Interest upon all mortgage and bond debts must be paid in preference to any dividends (u), which are to be de- clared only at general meetings of the shareholders, (a?) It is the business of the directors, previously to every meeting at which it is proposed to declare a dividend, to prepare a scheme show- *799 ing the profits which have accrued *since the last meeting at which a dividend was declared, and apportioning such profit, or so much of it as they may consider applicable to the pur- poses of dividend, among the shareholders, {y) No dividend is to (p) See ante, p. 697. the non-joinder of her husband not ( q) Dalton v. Midland Rail. Co. 12 ha,ving been pleaded in abatement. C. B. 458, and 13 ib. 474. See, as to (s) 7 Wm. 4 & 1 Vict. c. 73, § 20. the remedy of the true owner in equity, (t) 8 & 9 Vict. o. 16, § 20. Cottam V. Eastern Counties Rail. Co. 1 (u) Ib. § 48. J. & H. 243; Johnston v. Renton, 9 Bq. {x) Ib. § 91. 181. (y) lb. § 120. As to withholding (r) See Dalton v. Midland Rail. Co. dividends from preference shareholders, 13 C. B. 474, where a married woman see ante, p. 797, notes {ff) and {h). sued alone for dividends and recovered, 1062 CHAP. VII.J EECEIPTS FOK DIVIDENDS. *799 be paid out of capital, (s) The directors are authorized to set apart out of the profits such sum as they may think proper to meet contingencies, or for repairs and improvements, {a) No share- holder is entitled to be paid any dividends unless he is registered, and has paid all calls due from him to the company. (6) The Companies act, 1862, is silent upon the subject of dividends. By Table A., however, it is provided that the directors companiea may, with the sanction of the members, declare a divi- *'*• ■'■^®^- dend to be paid to them in proportion to their shares * ® " (No. 72). But no dividend is payable except out of profits (No. 73); aiid, before recommending any dividend, the "directors may set aside out of the profits such a sum as they think proper as a re- serve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining the works connected with the business of the company (No. 74). Moneys due from any member, for calls or otherwise, may be deducted from the dividends payable to him (Table A., No. 75). Dividends unclaimed for three years may be forfeited for the benefit of the company (No. 76). No dividend bears interest (No. 77). If several persons are registered as joint holders of any share, the receipt of any one of them for the divi- dends payable in respect of such share is to be effectual (No. 1). (z) lb. § 121. (6) lb. §§ 8 and 123. (a) lb. § 122, 1063 *800 PAETNEKSHIP ACCOUNTS. [bOOK HI. *800 *CHAPTER VIII. ON THE ACCOUNTS OP PARTNERSHIPS AND COMPANIES. In the present Chapter it is proposed to consider, (1), the mode in which partnership accounts are kept; (2), the duty of keeping and the right of inspecting the accounts of partnerships and com- panies; and (3), the consequences of publishing false and fraudulent accounts. The subject of opening accounts will be referred to in a subsequent chapter. SECTION I.— OP THE MODE OF KEEPING PARTNERSHIP ACCOUNTS. It is usual among mercantile men to treat all the accounts of a PartnersMp partnership as accounts of the firm, and to deal with accounts. ^j^g accounts of individual partners as if they were simply debtors or creditors of the firm. The property brought into the concern is credited to the stock account of the firm, and is then distributed through the ledger accounts ; and in these ledger ac- counts the several articles and persons are made debtors to stock for the several items passed into those accounts. Each partner has his own separate account opened with the firm (usually in a pri- vate ledger), and is credited with everything he brings into it, and is debited with everything he draws out of it. Upon a rest, the net profits are determined, and are divided between the partners in the proper proportions, and the share of each partner is carried to the credit of his own separate account. The partners are creditors of the firm for all its stock, and they are debtors to it for all its de- ficiencies. When they first bring in their capital, the firm is in the private ledger made debtor to each of them for his proportion of capital. Whenever stock is taken, and a surplus appears, that surplus is divided according to the shares, and is carried to the 1064 CHAP. VIII.J PAETNEESHIP ACCOUNTS, *801 ^accounts of the respective partners. If, instead of a sur- *S01 plus, a deficiency appears, the loss is apportioned in the same way. {a) Each partner being thus treated like an ordinary creditor and debtor, in respect of what he brings in and what he'draws out; the balance standing to his credit or to his debit, as the case may be, in the private ledger, shows how his account with the Jl7'm stands. Upon payment of that balance by the firm to him, if the balance is in his favor, or by him to the firm, if the balance is against him, his account with the firm is closed and settled. Each partner's share of a profit to be divided, or of a loss to be made good, is ascertained by a simple rule of three Mode of ascer- calculation. If the partners have agreed to share profits ne™"fiareof and losses equally, the share of each, of any particular ^™ '""^ °^^' profit or any particular loss, is ascertained by dividing the whole profit or whole loss, as the case may be, by the number of partners. If, however, the partners share profits and losses in proportion to their respective capitals, then as the united capitals are to the whole profit or whole loss, so will each partner's share of capital be to his share of such profit or loss. In order to illustrate the principle upon which partnership ac- counts are kept let it be supposed that A., B., and C. • 1 • T ,> 1 1 .1 1 T Examples. are partners, with a capital oi 3000i. subscribed by them equally; that they share profits and losses in proportion to their respective capitals, and that A. has drawn out 500Z. and B. has advanced lOOZ. There are, then, three cases to be considered. Case 1. — Where there are no profits or losses. The accounts will then stand thus (h) : — 1. Partnership Account. Br. to stock. . . . 3000 Cr. by A..'s sum withdrawn . 500 to B. for advance . . 100 by balance . . . 2600 £3100 £3100 (o) See Cory on Accounts, ed. 2, p. 71 interest. In cases 2 and 3 interest is et seq. supposed to be calculated. (6) In this case no notice is taken of 1065 *802 Examples. *802 Dr. to sum withdrawn to balance . PAETNEESHIP ACCOUNTS. *2. A.'s Account. , 500 Cr. by capital . 500 £1000 [book m. . 1000 £1000 Dr. to balance 3. B.'s Account. Cr. by capital . 1100 by advance . £1100 . 1000 . 100 £1100 Dr. to balance . 4. C.'s Account. Cr. by capital . 1000 1000 £1000 £1000 5. Balance Sheet. Dr. to balance as above (from 1) . 2600 £2600 Cr. by balance due as above to A. . . B. . C. . . 500 . 1100 . 1000 £2600 Case 2. — Where there is a profit to ie divided. The accounts will then stand as under, if the profit is supposed to be lOOOZ., and interest at 5 per cent, is charged on all sums brought in and taken out by each partner, and on his capital. 1. Partnership Account. . 3000 Cr. by A.'s sum witbdrawn Dr. to stock to interest on ditto for one year . . . . 150 to B. for advance with in- terest for one year . . 105 to profit . . . 1000 by balance . with interest for one year . . , . 525 8780 £4255 £4255 1066 CHAP. vin.J PAKTNEESHIP ACCOUNTS. 5^803 *2. A^s Account. *803 Examples. Dr. to sum ■witladrawn with Cr. by capital. . . . 1000 interest for one year . , 525 by interest on ditto. . . 50 to balance. . . . 858 6 8 by Ji share of profit. .. 833 6 8 £1383 6 8 £1383 6 8 Dr. balance. 3. B's Account. Or. by capital. . . . 1000 by interest on ditto. . 50 by advance and interest 1488 6 8 thereon. . . . 105 by )^ share of profits. . 333 6 8 £1488 6 8 £1488 6 8 Dr. to balance , 4. C.'s Account. Cr. by capital. . . . 1000 by mterest on ditto . . . 50 1383 6 8 by >i share of profits. . 333 6 8 £1383 6 8 £1383 6 8 Dr. to balance as above (from 1}. . . 5. Balance Sheet. Cr. by balance due as above . 3730 to A 858 6 8 " B 1488 6 8 " C 1383 6 8 £3730 £3730 Case 3. — Where there is a loss to he viade good. Then if the loss is supposed to be 5000Z., and interest is calcula- ted as in the last example, the accounts will stand thus : — Dr. to stock. 1. Partnership Account. . 3000 Cr. by loss . .-5000 to interest on ditto for one year. . . . 160 to B. for advance with in- terest for one year. . 105 to balance. . . .2270 by A.'s sum withdrawn with interest for one year 525 £5525 £5525 1067 *805 PAETNEESHIP ACCOUNTS, [book III. Examples. *804 *2. A.'s Account. Dr. to sum withdrawn with interest for one year , 525 to }i share of loss . . 1666 13 4 Br. to yi share of loss Br. to J^ share of loss Cr. by capital . . by interest on ditto by balance £2191 18 4 1000 . 50 . 1141 13 4 £2191 13 4 3. B.'s Account. 1666 13 4 Cr. by capital . . . 1000 by interest on ditto . . 50 by advance with inter- est by balance £1666 13 4 4. C.'s Account. 1666 13 4 Cr. by capital . by interest on ditto by balance . . . 105 . 511 13 4 £1666 13 4 1000 0- 50 616 IB 4 Br. to balance due as above from A. . . . 1141 13 4 " B. . . . 511 13 4 " C. . . . 616 13 4 £1666 13 4 5. Balance Sheet. Cr. by balance as above (from 1) £1666 13 4 2270 £2270 £2270 The balances ultimately arrived at in the foregoing accounts are Effect of each th© sums payable — in the first two cases by the firm to disown CTcd? the individual partners, and in the last case to -the firm itor or debtor. ^^ them— in Order to wind up the aflrairs of the firm. But it must not be imagined that the balances in question are debts owing to each partner by his co-partners. The balances are owing by and to the firm, and each partner being included in the firm is, to the extent of his share, his own debtor and his own creditor. Accountants are quite right in debiting each partner in his ac- count with the firm with the whole of whatever he draws out, and in crediting him with the whole 805* of whatever he brings in.' *" Bilt," as observed In wbat sense a partner is debtor to or creditor of the .ii'.a ' Advances to the firm by one of its members do not constitute debts of the firm, but merely matters of account be- 1068' tween the partners to be settled in the final adjustment of the partnership. Wilson V. Soper, 13 B. Mon. 411. CHAP. VIII.J PAETNEESHIP ACCOUNTS. *806 by Lord (Jottenham, "thougji these terms 'debtor' and 'creditor' are so used, and sufficiently explain what is meant by the use of them, nothing can be more inconsistent with the known law of Partnership, than to consider the situation of either party as in ■any degree resembling the situation of those whose appellation has been so borrowed. The supposed creditor has no means of obtain- ing payment of his debt ; and the supposed debtor is liable to no proceedings either at law or in equitj' — assiiming always that no separate security has been takenor given, (c) The supposed credit- or's debt is due from the firm of which heis a partner; and the sup- posed debtor owes the money to himself in common with his part- ners." id) The final adjustment of a partnership account frequently gives rise to questions of some difficulty. One is, whether ultimate aa- the principles on which profits and losses have been counts. previously ascertained are to be adhered to, or wliether they are to be more or less departed from; another is, whether on a final ad- justment of accounts an^^thing can be regarded as profit or loss un- til the capitals of the partners have been repaid or exhausted as the case may be. In order to solve these and similar questions re- gard must always be had to the terms of the partnership ar- ticles; but an express agreement with *reference to the tak- *806 ing of accounts may be, and frequently is, only applicable (c) The remedies available by one precisely the same principle, if the partner against another will be exam- firm is indebted to A in a sum a', ined hereafter. See, also, ante, p. 206. A will owe himself in respect of this {d) Richardson v. The Bank of Eng- a' land, 4 M. & Cr. 171-2. Suppose that debt — X a; B wiH owe A a firm consists of three partners, A B ' ' and C; that their respective capitals j. ^^^ q ^-^ ^^^ are o, 6, c. and that they share profits (i_|_j-|_(; and losses in proportion to those capi- a' tals. Then a+b+c will be the joint A X c. So if B is in- capital of the three partners; and if M. a+b+c represents the amount of loss or gain ^ebted to the firm m a sum J' ; B. to be shared,. A 's share of such loss or ^^ °^^ ^i™^!^ "^ '«^Pe°* °f *^^s M *' gain will be X a; B's share y tl'^^^j upon the application of a certain number of Board oiTrade ; i\^q shareholders of any company registered under it, the Board of Trade may appoint inspectors to examine and report on the affairs of the company; and such inspectors are empowered to call for and examine all the company's documents and books, and to examine the officers and agents of the company upon oath. The expenses of the inspectors are to be defrayed by the shareholders upon whose application they were appointed. Instead of applying to the Board of Trade, the shareholders or by Inspect- tl^emselves raaj', \)j special resolution, appoint inspect- appranted by ^^^ ^°'' *^^ purposo of examining into the affairs of the tbe company, company, with the same powers as are conferred U])on inspectors appointed by the Board of Trade, (o) A copy of the re- port of the inspectors, authenticated by the seal of the company, is admissible in evidence in any legal proceeding. (^) Every limited banking company, and every insurance company, statements to and every deposit, provident, and benefit society gov- bankinK iusiir- erned by the Companies act, 1862, is bound, before it ance and otber "^ ' . . cnmpanks. begins business, and twice a year whilst it carries on business, to make a statement in a prescribed form, showing the state of its assets and liabilities; and a copy of such statement is to be kept in some conspicuous place in the registered office of the company, and in every branch office where its business is. carried (i) 25 & 26 Vict. c. 89, Table A. No. (w) 25 & 26 Vict. c. 89, No. 86. 91. (n) lb. §§56 and 59. {Jc) lb. No. 93. (o) lb. § 60. (0 lb. No. 94. (p) lb. § 61. 1080 CHAP. TIII.j FEATJDULENT ACCOUNTS. *81o on, and *every member and creditor of the company is en- *814 titled to a copy of such statement on- payment of sixpence» {q) As regards companies governed by the Life Assurance Companies Aef, 1870. By 33 & 3i Vict. c. 61 (?'), all life assurance companies, other than those registered under the acts relating to friendly societies, are required to make out annually statements of their revenue ac- counts and balance sheets, and to lay the same before the Board of Trade and to furnish printed copies to their shareholders and poli- cy-holders. SECTION III— OF FALSE AND ERAUDULENT ACCOUNTS. Before quitting the subject of accounts it is necessary to draw at- tention to certain important statutory enactments re- ^rauauient lating to false and fraudulent accounts. The act 24 & accounts. 25 Yict. c. 96, consolidating tlie statutes relating to larceny and other similar ofl'enses, declares amongst other things that — § 82. Whosoever, being a director, public officer or manager of any body corpo- rate or public company, shall as sucK receive or possess himself of 24 & 25 Vict. u. any of the property of such body corporate or public company other- 96- wise than in payment of a jast debt or demand, and shall, with in- mg fraudulent tent to defraud, omit to make, or to cause or to direct to be made, a a'^'^™'!'*'- full and true entry thereof in the books and accounts of such body corporate or public company, shall be gTiilty of a misdemeanor, and being convicted thereof shall be liable, at the discretion of the court, to any of the punishments which the court ma.y award as hereinbefore last mentioned, (s) § 83. Whosoever, being a director, manager, public officer, or member of any body corporate or public cojhpany, shall, with intent to defraud, de- Directors &e., stroy, alter, mutilate, or falsify any book, paper, writing, or valua- books, &e. ble security belonging to the body corporate or pubUc company, or make or concur in the making of any false entry, or omit, or concur in omitting any material par- ticular, in any book of account or other document, shall be guilty of a *misdemeanor, and being convicted thereof shall be Kable, at the discre- *815 tion of the court, to any of the punishments which the court may award as hereinbefore last mentioned. {q) 25 & 26 Vict. c. 89, §44, and not more than seven nor less than three Schedule 1, FonnD. (now five) years; or imprisonment for (r) Amended by 34 & 35 Vict. c. 58; not more than two years, with or with- 35 & 36 Vict. c. 41. out hard labor, and with or without sol (s) i. e., by § 75, penal servitude for itary confinement. 1081 *S16 FEAUDTJLEXT ACCOU^"TS. [bOOK III. § 84. Wliosoever, being a director, mana';r2r, or public olliosr of any body cor- Publisiiing . poi'^te or public company shall make, circulate, or publisb, or con- fraudulont cur in making, circulating, or publishing any written statement or account which he shall know to be false in any material particular, with intent to deceive or defraud any member, shareholder, or creditor of such body corporate or public company, or with intent to induce any person to become a share- holder or partner therein, or to intrust or advance any property to such body cor- porate or public company, or to enter into any security for the benefit thereof, shall be guilty of a misdemeanor, and being convicted thereof shall be liable, at the dis- cretion of the C0Lu:t, to any of the punishments which the court may award, as here- inbefore last mentioned. § 85. Nothing in any of the last ten preceding sections of this act contained shall Discovery in enable or entitle any person to refuse to make a full and complete sue cases. discovery by answer to any bill in equity, or to answer any question or interrogatory in any civil proceeding in any court, or upon the hearing of any matter in bankruptcy or insolvency; and no parson shall be liable to be convicted of any of the misdemeanors in any of the said sections mentioned by any evidence whatever in respect of any act done by him, if he shall, at any time previously to his being charged with such offense, have first disclosed such act on oath, in con- sequence of any compulsory process of any court of law or equity, in any action, suit, or proceedmg which shall have been hoiid fide instituted by any party ag- grieved, or if he shall have first disclosed the same in any compulsory examination or deposition before any court upon the hearing of any matter in bankruptcy or insolvency. The Companies act, 1S62, also declares, that if any director, of- Cnmpanies act ^^^^i ^r Contributor}' of any company wound up under ^'^-- that act, destroys, mutilates, alters, or falsifies any books, papers, writings or securities, or makes or is privy to the making of any false or fraudulent entry in any register, book of account or other document belonging to the company, with intent to defraud or deceive any person, every pei-son so offending shall be deemed to be guilty of a misdemeanor, and upon being con- victed shall be liable to imprisonment for any term not exceeding two years, with or without hard labor, [t) The same act also con- tains provisions by whicli directors and others may be ordered to be criminally prosecuted for oifenses relating to a company being wound up. {u) Independently of all statutory enactments, moreover, persons who conspire to defraud others by false repre- coiispiiaoy. °^ *816 scutations as *to the solvency of companies are indictable. In the notorious case of the Eoyal British Bank, the directors were indicted and convicted of the com- mon law offense of a conspiracy to induce persons to become share- (<) 25 & 26 Vict. c. 89, § 166. (m) lb. § 167, 8. 1082 CHAP. VIII.] FEAUDULENT ACCOUNTS. *816 holders in and customers of the bank b}' issuing false and fraudu- lent reports respecting its condition and solvency («); and in the equally notorious case of the Eupion Fuel and Gas Company, the directors were indicted and convicted of a conspiracy to defraud by fraudulently obtaining a settling day from the Stock Exchange Committee, with intent to induce persons to deal in shares of the company in the belief that it was duly formed and constituted, {y) It has already been seen that an action for damages will lie Action'for mis- f'g^i'^st directors and others who issue false reports, representation, g^^jj thereby induce persons to take shares in a com- pany (z); and it will be seen hereafter that an action may be .main- tained to rescind contracts entered into with a company on the faith of such reports, {a) ips) R. V. Esclaile, 1 Fos. & Fin. 213. Gurney Finlaison's Report, and for ob- See, also, per Lord Campbell in Bui-nes taining money under false pretenses. R. V. PenneU, 2 H. L. C. 497. v. Watson, 4 Jur. N. S. 14; 24 & 25 (y) R. v. AspinaU, 1 Q. B. D. 730, Vict. c. 96. and 2 Q. B. D. 48. See, also, R. v. (z) See ante, p. 324. Timothy, 1 Fos. & Fin. 39, and R. v. (a) Infra, book iii. c. 10, § 3. 1083 *817 PAETNEESHIP AETICLES, ETC. [book hi. *817 *CHAPTER IX. OF PARTNEUSHIP ARTICLES AND COMPANIES' REGULATIONS. SECTION I.— GENERAL OBSERVATIONS. The i-ights and obligations of partners inter se, are generally, to a certain extent, regulated by special agreement, the true mean- ing of which is to be ascertained by the ordinary rules of con- struction, {a) ' In considering the effect, however, of partnership articles, the following principles are to be borne in mind: — 1. In the first place, partnership articles are not intended to de- Partnership ar- fine, and are not construed as defining all the rights Intended to and obligations of the partners inter se. A great deal rights and is left to be Understood. ' The mjixim expressum /acit partners. cessare tacittim naturally applies to partnership articles [a] See Chapter X. of Story on Part. ; CoUyer on Part. 187, &c. See, also, the head Partnership in Jarman and Bythe- wood's Conveyancing and Davidson's Conveyancing. ' See Jackson v. Crapp, 82 Ind. 422; Bird V. Hamilton, Walk. Ch. 361. When the terms of a partnership have been reduced to writing, the written ai'ticles are presumed to contain all the conditions of the partnership. Board- man V. Close, 44 Iowa, 428. Where a written co-partnership agree- ment is doubtful, the subsequent con- duct of the partners under it is admis- sible in aid of the construction of the agreement on the question of intent. Beaoham v. Eckford, 2 Sandf. Ch. 116. An agreement to sell, only as an 1084 auxiliary to the higher object of fonn- ing a partnership, subjects the property to the terms of the partnership and the intention of the partners, as evidenced by the double contract of sale and part- nership. Thompson v. Mylne, 6 La. Ann. 80. 2 Mining partnerships, where there are no partnership articles, are governed by the law of ordinary partnerships except BO far as the general usage of persons engaged in similar pursuits, or the es- tablished practice the particular com- pany has established a different rule — the only difference generally existing being such as flow from the fact that in such partnerships there is no delectus personce. Jones v. Clark, 42 Gal. 180. CIIAl'. IX.J PAETNEKSIIIP ARTICLES, ETC. *818 as to other agreements; but the rights and obligations of partners,, so far as thej' are not expressly declared, are determined by general principles, which are always applicable where not clearly excluded. In the language of Lord Langdale in Smith v. Jeyes (i\ , „, . , ^ . , , , Smith V. Jeyes. " ilie transactions ot partners with each other cannot be considered merely with reference to the express contract between them. The duties and obligations arisinn: from the relation between- the parties are regulated by the express contract between them, so far as the express contract extends and continues in force; but if the express contract, or so much of it as continues in *force, does not reach to all those duties and obligations, *818 they are implied and enforced by the law; and it is often matter to be collected and inferred from the conduct and practice of the parties, whether they have held themselves, or ought or ought not to be held, bound by the particular provisions contained in their express agreement. When it is insisted that the conduct of one partner entitles the other to a dissolution, we must consider not merely the specific terras of the express contract, but also the duties and obligations which are implied in every partnership contract." (o) 2. The attainment of the objects which the partners have de- clared they had in view is always regarded as of the Articiestoije •' A 1 • • 1 • 1 construed with first importance. All the provisions ol the articles- are reference to J^ ' the objects of to be construed so as to advance and not to defeat those the partners, objects; and however general the language of partnership articles may be, tliey will be construed with reference to the end designed, and, if necessary, receive a restrictive interpretation accordingly, (d) This rule is of especial importance in considering the limits of general powers conferred on committees, directors, and others. For example, in Chappie v. Cadell {e) the proprietors of a chappiei;. newspaper entrusted the management of the paper to a cadeii. committee of five, and gave them power to call general meetings, and agreed that the resolutions of the majority present at such meetings should be binding on all the proprietors. A meeting was convened, and the majority present resolved that the paper and the (6) 4 Beav. 505. See, too, Nelson v. (c) See, too, Blisset v. Daniel, 10 Ha. Bealby, 30 Beav. 472, and Browning v. 522. Browning, 31 Beav. 316, as to the non- id) See Coll. on Part. 137. application of the maxim expressio (e) Jac. 537. uiiius est exclusio alterius. 1085 *819 GENERAL EULES OF CONSTEUCTION. [bOOK III. sliares of all the proprietors in it sliould be sold by auction. But it was held tliat the majority had no power to sell the shares of a dissentient and protesting minority. So, in The Official Manager of the Athenseum Life Assurance Athaenum Life Society V. Poolcy (_/"), a clause in the deed of settle- societyif^ mcnt of a life insurance society, declaring that the Pooiey. business of the society should be, amongst other things, to purchase, sell, and re-sell life, reversionary, and other personal estates and interests, was held not to authorize the purchase of Westminster Improvement Bonds. And accordingly, some deben- tures of the society which had been improperly given as the *819 *consideration for a sale of such bonds to the society, were held not to be binding on the society, even in the hands of a purchaser for value, without notixje of the circumstances under which the debentures were issued. Upon the same principle, general powers of management do not autiiorize directors toamalgamate-one company with another, either by selling the assets and liabilities of their own company, or by purchasing those of another company, (g) Other illustrations of the same principle will be found in that part of the work which treats of the powers of majoi-ities. Conformably with the same rule. 3. Any provision, however worded, will, if possible, be construed ArHciostobe ^*^ ^^ ^^ defeat any attempt by one partner to avail him- as to'defeat" ^^^^ *^^ ^^ ^'^^ ^^® purpose of defrauding his copartner.' fraud; Thus it is very common for partners to agree that half- yearly accounts shall be made out and signed, and not be afterwards disputed; but, notwithstanding such a clause, if one partner know- ingly makes out a false account, and his co-partners sign it upon the faith that it is correct, they will not be bound by it. (A) Again, (/) 1 Giff. 102, and 3 DeG. & J. 294. mate. ig) Ernest v. NichoUs, 6 H. L. C. 419; ' An agreement between partners, to Be The Era Assurance Co. 2 J. & H. keep their partnership a secret, and 400; Be The Saxon Life Assurance So- maintain a fictitious competition, for ciety, ib. 408, and 1 DeG. J. & Sm. 29; the pm-pose of deceiving the public, Gilbert v. Cooper, 10 Jur. 580; Beman would be illegal and void; but such a V. RufFord, 1 Sim. N. S. 550; Clay v. purpose will not be imputed, by con- Rufford, 5 DeG. & S. 768. Compare struction, to partnership articles, unless Anglo- Australian Assurance Co. ». Brit- clearly evinced. Fairbank v. Leary, 40 ish Prov. Society, 3 Giff. 521, and on Wis. 637. appeal, 4 DeG. F. & J. 841, where there [h) See Oldaker v. Lavender, 6 Sim. appears to have been power to amalga- 239. 1086 CHAP. IX.J PAETNEESHIP ARTICLES, ETC. *820 it is by no means unusual for partners to agree that yearl)' accounts slirtll be taken, and tliat, in the case of the death of a partner, his representatives shall be paid his share as arjpearing in the last account, with interest instead of subsequent profits ; but if the partners do not for several years make out any accounts, and then one of them dies, the survivors are not entitled to act on the letter of the agreement, and pay only the amount which in the last account was carried to the credit of the deceased, with interest on such amount, (i) 4. Every power conferred by the articles on any individual part- ner, or on anv number of partners, is deemed to be con- and the taking „ ,.,". , f ,< ^ in of unfair terred witli a view to the beneiit oi the whole concern; advantages, and an abuse of such power, by an exercise of it, warranted perhaps by *the words conferring it, but not by the truth *820 and honor of the articles, will not be countenanced. Thus, in a case which has been already frequently referred to {k), a power to expel any partner was vested in the holders of two-thirds of the shares in the firm; but it was held that, although this power was so framed that it might be exercised without any reason being as- signed, it could not be put in force for the unfair purpose of obtain- ing the share of the expelled partner at less than its value. 5. Any article, however express, is capable of being abandoned by the consent of all the partners ; and this consent provisions may may be evidenced, not only by express words, but by tacu^igree-^^ conduct, {ly ™«"'- The maxim modus et conventio vincunt legem is especially appli- cable to cases of this description. In the language of Lord Eldou, "Inordinary partnerships nothing is more clear than this, that, although partners enter into a written agreement, stating the terms tipon which the joint concern is to be carried on, yet if there be a long course of dealing, or a course of dealing not long, but still so long as to demonstrate that they have all agreed to change the terms of the original written agreement, they may be held to have changed those terms by conduct. For instance, if in a common partnership the parties agree that no one of them shall draw or ac- [i) Pettyt V. Janeson, 6 Madd. 146. Bam. 419. (fc) Blisset i;. Daniel, 10 Ha. 493. See, 'See Boisgerand «. Wall, 1 Sm. & also. Wood V. Woad, L. R. 9 Ex. i90. M. Ch. 404; Robbiiis v. Laswell, 27 111. (Z) This rule appears to be of compar- 365; McGraw v. PuUing, 1 Preem. Ch. atively modern date; it wag not acted 357; Boyd v. Mynatt, 4 Ala. 79. on in Smith v. The Duke of Chandos, 1087 *821 GENERAL RULES OF CONSTKTTCTION. [BOOK III. cept bills of exchange in liis own name, without theconcnrrence of all the otl'.ers, yet, if they afterwards slide into a habit of per- mitting one of them to draw or accept bills without the concurrence of the others, this Court will hold that they have varied the terms of the original agreement in that respect." (m) This principle was acted on by Lord Eldon in a case where the partners had agreed that annual accounts should be taken, and that in case of the death of a partner, his representatives should be paid an allowance instead of *821 profits; for it appeared *thatt'or some years no accounts had ' been taken, and that the partners had engaged in transac- tions of such a nature, that it would have been unfair to have ap- plied the original agreement, (n) . So a practice treating losses as bad when discovered so to be, was held to apply as between the ex- ecutors of a deceased partner and the surviving partners, although the effect was to give the executors much more than they wonld otherwise have been entitled to. (o) So, where articles contained a stipulation that the partners should contribute to losses and share profits in a certain proportion, and it appeared that a person who managed the afi^airs of the firm had always received a share of the profits, but had never been called upon to contribute to losses, it was held, that assuming him to be a partner in the proper sense of the term, and to have been originally bonnd by the articles to con- tribute to losses, the articles, so far as they obliged him so to con- , tribute, had been varied by the conduct of the parties, and were no longer binding on him. (j?) If it is proposed to make an alteration in the articles by an agree- -ins arti- '^''^^"^^ which shall be binding on all parties, notice of the <'i'^^- proposed change and of the time and place at which it is to be taken into consideration, ought to be given to all the part- ners, {q) For, even if the change is one which it is competent for a majoritj- to make against the assent of the minority, all are enti- tled to be heard upon the subject; and unless all have an opportu- (m) Const. V. Harris, T. & R. 523. («) See Jackson v. Sedgwick, 1 See, also, Coventry v. Barclay, 33 Beav. Swanst. 460; Pettyt v. Janeson, 6Madd. 1, and on app. 8 DeG. J. & Sm. 320; 146; Simmons v. Leonard, 3 Ha. 581. Pilling V. Pilling, 3 DeG. J. & Sm. 162; (o) Ex parte Barber, 5 Ch. 687. England v. Curling, 8 Beav. 133 and {p) Geddes v. Wallace, 2 Bli. 270. 137; Somes v. Cnn-ie, 1 K. & J. 605, and {q) See Const v. Harris, T. & R. 524. tlie cases in the next tlaree notes. 1088 CHAP. IX.] PAETNEESHIP ARTICLES, ETC. *822 nity of oi^posing the change, those who object to it will not be bonnd by the others, (r)' In large partnerships, and in companies, the original articles can seldom, if ever, be varied, unless therp is some power varying com- to vary them expressly conferred by the charter or stat- sittiemeut. nte by which the company is governed or by the articles themselves. Except where there is such a power no variation can be made by directors or by a majority of shareliolders; and it is scarcely possi- ble to obtain the consent of all the shareholders, or to bind *them all by acquiescence in a particular line of conduct dif- *822 ferent from that prescribed by tlie articles, (s) At the same time, if any individuals, be they shareholders or directors, choose to ignore the articles, and not to observe the provisions contained in them, those individuals cannot afterwards object to the validity of a course of conduct adopted or acquiesced in. by them on the ground that it is not warranted by the articles;' bat their adoption or ac- quiescence in no way affects the rights and obligations of the other shareholders, either inter se or as between them and the acquiescing parties. On this ground, the non-observance of prescribed formal- ities has over and over again been held to be of no consequence as between acquiescing shareholders, and j'et to be fatal as between them and other non-assenting shareholders, (t) But although it is difficult in the case of a company to obtain (r) lb. 525, see, also, ib. 518 Lea v. Guice, 21 Miss. 656. ' If several persons enter inl-o a writ- Usage may make an incidental busi- ten agreement of partnership, and the ness so far the regular business of a majority alter the agreement in a mate- partnership as to make all the partners rial point, those who do not assent may in a firm bound by the contract of one retire from the firm, provided they do it in such incidental business. As, for within a reasonable time, and under example, the usage among the boatmen reasonable circumstances. Abbot v. on a certa.in river to undertake to sell, Johnson, 32 N. H. 9. See, also, Liv- as well as to carry, cotton, may make a ingston v. Lynch, 4 John. Ch. 573. firm engaged in the carrying trade re- (s) See Ex parte Sargent, 17 Eq, 273; sponsible for the selling and bringing Keane's Executors' case, 3 DeGr. M. & back the proceeds, as well as carrying G. 272. cotton, upon a contract made between ^ In a secret partnership for carrying the owner of the cotton and one of the on the business of planting, it is com- firm of boatmen. Galloway v. Hughes, patent to prove the usages and customs 1 Bailey, 553. of that business for the purpose of show- [l] Compare, for example, Keene's ing that the contract on which the secret Executor's case, 3 DeG. M. & G. 272, partner is sought to be charged was and Straffon's Executors' case, 2 DeG. sanctioned by those usages and customs. M. & G. 576. «9 , 1089 *823 AETICLES APPLYING TO FEESH PAETNEESHIP. [bOOK III. Effect of prac- such Consent from its shareholders as will warrant the tice of compa- , , , . . . , , . , ny. conclusion that its original regulations are no longer to be considered binding, attention must, nevertheless be paid to the practice of the company with respect to all such matters as to which it is competent for the majority to bind the minority. In deciding upon the effect of a company's act, charter, or deed of set- tlement, the practice of the company will be taken into account, unless it has been clearly illegal {u); or, in a company governed by the Companies act, 1862, contrary to its articles of association, {v) It seems that a person who comes into a firm through another Eevertingto wlio has acquiesced in a variation of the terms of part- onginai rules, jjership articles, is bound by that acquiescence, and cannot revert to the original articles (w); and this principle has been applied to companies, [x) Original arti- 6. Tiie last general rule which it is neces- cles applv to ■ . partnership *823 sary to notice is *this: if a partnership, origi- continued un- '' , . der tiiem. nally entered into for a definite time, is con- tinued after the expiration of that time, without any new agree- ment, the articles under which the partnership was first carried on continue, so far as they are applicable to a partnership at will, to regulate the rights and obligations of the partners inter se. (y)' Kin V Thus in King v. Chuck (2), three partners, A., B., C, Chuck. agreed that if either of them should die, his capital as appearing by the last account, should be paid to his representatives by the surviving partners, on whom the trade was' then to devolve. A. died, and this agreement was acted on, and B. and C. continued in partnership without coming to any fresh agreement. Then B. (m) See Somes v. Currie, 1 K. & J. Robertson v. Miller, 1 Brock. 466. 605; Marino's case, ^ Ch. 496; Bush's A partnership having expired by the case, 6 Ch. 246. limitation in the articles. A, dne part- {v) See Ex parte Sargent, 17 Eq. 273. ner, transmitted the articles to B, the (ip) See Const v. Harris. T. & R. 524. other, with a renewal indorsed thereon, {x) Ffooks V. South- Western Rail. which B agreed to, provided he should Co. 1 Sm. & Gr. 142; Peek v. Gumey, be relieved from his difficulties by the 13 Eq. 79. arrival of a certain ship. The ship ar- (j/) See Crawshay v. Collins, 15 Ves. rived, and B resumed his duties as part- 228; Featherstonhaugh V. Fenwick, 17 ner: Held, that the partnership was Ves. 307; Booth v. Parkes, 1 Molloy renewed for the original term, though 465. there was no formal renewal. Dickin- 1 See Mifflin v. Smith, 17 Serg. & R. son v. Bold, 3 Dessau, 501. 165; Bradley v. Chamberlin, 16 Vt. 613; («) 17 Beav. 325. U. S. Bank v. Binney, 5 Mason, 185; 1090 CHAP. IX.] PARTNEKSHIP AETICLES, ETC. *824 died, and it was held that B. and C. had in fact continned in part- nership on the old terms, and that B.'s executors were tlierefore to be paid the amount appearing to be his capital in the last account come to between him and C. Even where a partnership is entered into for a term of years, and the articles provide for events happening during the provisions ap- term, the above rule is still applied. Thus, where two Ihe^tCTm'o™" persons agreed to become partners for fourteen years, partneisMp. and stipulated that if either died during this co-partnership term, his share should be taken by the other at a certain sum, and the fourteen years expired, and the two persons continued in partner- ship together, witliout coming to any fresh agreement, and tlien one _ of them died : it was held that the above stipulation was binding, and that the share of the deceased belonged to the survivor upon payment of the sum mentioned, (a) Tiie expression, " the partner- ship term," seems to be equivalent to the time during which the partners continue in partnership without coming to any fresh agree- ment. Clauses giving a right of pre-emption, {Ji) and a right of ex- pulsion, (c) liave been held not to apply to a partnership *continued after the expiration of the time for which it was *82-i orio-inally entered into. But an arbitration clause has been held to apply, {d) SECTION 11.— OP DIRECTORY AND IMPERATIVE CLAUSES Some clauses in partnership articles and companies' deeds of set- tlement are optional, some are directory only, and some Distinction be- -'^ j- 1 1 tween optional, are imfyerative. It is importaii t not to coniound these directorj', and -^ ^ Til imi^erative three different classes of clauses; and as the charactens- clauses. tics of each are not apparent from the words used to denote them, it is necessary to examine and define those characteristics as accurately as possible. The chief obscurity arises from the unfortunate use of (fl) Essex ». Essex, 20 Beav. 442. whether this is sufficient to exclude the (6) Cookson v. Cookson, 8 Sim. 529. rule in question. See Essex v. Essex, This case turned on the language of vbi supra. ^ the articles by which the right of pre- (c) Clark v. Leach, 32 Beav. 14, and 1 emption was to be exercised before the DeG. J. & Sm, 409. end of the namber of years for which the {d) GiUett v. Thornton, 19 Eq. 599. partnership was to last. But quasre 1091 ''■'325 DIEECTOET AND IMPEEATIVE CLAUSES. [bOOK III. tlie woi'ds directory and iinjperative. These words are employed not only when speaking of agreements, but also when speaking of acts of Parliament; and an examination into their meaning when so used, will greatly facilitate an inquiry into their meaning when applied to less authoritative rules. All laws arc in one sense necessarily imperative; for if no con- obscrvation3 scqueuces wliatcvcr result from the disobedience of a imperative. law that law is in fact no law at all. When, therefore, laws are divided into those which are imperative and those which are directory, the division must have reference to some particular kind of conseqiience resulting from their non-observance, (e) Kullity appears to be this consequence; and a law which directs a certain act to be done in a certain way, and declares that no other way shall for any purpose be equivalent to the way prescribed, is said to be imperative; whilst another law which also directs a cer- tain act to be done in a certain way, but does not render every other way of no avail, is said to be directory only; although the conse- quence of not complying with its directions may be in the highest degree penal. The following may be referred to as instances illus- trating this distinction: — *S25 *By the -i Geo. 4, c. 76, § 16, it was enacted that the father, if living, of any party under twenty-one years of age, should Examples of l^^.'^e authority to give consent to the marriage of such utS'^u'^if ^'^"^ party, and if the father was dead, then that other per- Birmmgham. g^j^g nientioned in the act should have such authority; and the act then went on thus : " And such consent is hereby re- quired for the marriage of such party so under age, unless there shall be no person authorized to give such consent." A person n-lio was under twenty-one, and whose father was living, married without his consent. It was held that the marriage was neverthe- less valid; for the legislature evidently did not intend to bastardize the issue of marriage solemnized without the consent required, (y) Again, it has been held that a covenant by a municipal corporation Payne!) ^^ repay money borrowed, is valid, although the money Brecon. jg jjq(; borrowed for any purpose to which the borough (e) It must be remembered that per- may be no specific penalty annexed to sons who willfully violate the provisions the violation. Seeder Lord Campbell, of an act of !^arliament are, in strict- in Longworth's case, 1 DeG. F. & J. ness, guilty of a misdemeanor, and in- 31. dictable accordingly, although, there (/) R. v. Birmingham, 8 B & C. 29. 1092 CHAP. I2.J PAETITEESHIP AETICLES, ETO. *826 fund is made applicable by the Municipal corporation act, and al- thuugli the deed containing the covenant has not been approved by the Lords of the Treasury as required by the same act. {g) So it was held, that a rate made under the Public Health act of 1848 was valid, although that statute requires all rates made or ^ ^ collected under it, to be published in the same manner filler. as poor-rates, and the rate in question had not been published in tlie manner required. (A) In each of these cases, the statute in question was said to be di- rectory onl}^; and to each of them the maxim Fieri non deh-uit sed factum valet, was held applicable. In each case something was to be done in a particular manner; but whatever may have been the consequences of doing it in some other manner, the, in validity of what was done was not one of those consequences; and this appears to be the test whereby to decide whether a law is directory or im- perative as those terms are customarily employed. (^) A law which is directory, is a law in the true observations sense of the *word, and imposes an obligation *826 direoto™'^ or duty; and in this respect it differs from the expression of a desire, which tliose to whom it is addressed may lawfully comply with or not at their pleasure. In other words, compliance with a law which is directory is not optional. Passing now to partnership articles and companies' regulations and deeds of settlement, it will be found that the words DircctoTy ana . . Imperative as directory and imperative are not always employed, applied to 1 . „ , . , . r ./ ; partnership when speaking or them, in the strict sense above ex- articies,&c. plained. There is a tendency to overlook the difference between an optional and a directory clause, and to use the word imperative in the sense of binding on the majority; and this tendency has led to no little confusion. If a clause is directory, in the sense of not rendering invalid that which is done otherwise than in the mode it prescribes; and if, as frequently happens, those who do not ob- serve its directions are in no worse position than those who do, it is clear that the clause is one, the observance of which is practi- cally optional. To call such a clause directory leads to nothing but {g) Payne v. Brecon, 3 H. & N. 572. N. 123; Brumflt v. Bremner, 9 C. B. N. [h] Le Feuvre W.Miller, 8 E.&B. 321. S. 1; R. v. Rochester, 7 E. & B. 910; (t) For other instances of directory Lancaster, &c. Rail. Co. v. Heaton, 8 statutory enactments, see R. v. Ingall, E, & B. 952; Caldow v. Pixell, 2 C. P. 2 Q. B. D. 199: Hunt v. Hibbs, 5 H. & D. 562. 1093 *S27 FUNDAMENTAL AND SUESIDIAEY CLAUSES. [bOOK III. confusion. A clause is optional, not directory, if no consequence results from its non-observance. A clause may be optional, although the presumption against its being so is strong; for when shareholders sign deeds containing clauses directing those entrusted with the managrement of their af- fairs to do certain things in a certain way, the inference is that those clauses were not inserted for nothing, and that the directions con- tained in them were intended to be obej-ed. If, however, a clause is optional, it is not directory in the sense above explained. On the other hand, a clause wiiich is not optional may be directory, or it may be imperative: but no clause can be either, if its observance or non-observance is a matter of perfect indifference; or, in other words, if the legal consequences of observance and non-observance are precisely the same. Again, the word directory is occasionally employed to denote „, clauses the non-observance of which is said to be of no Clauses non- "vhichls of no consequence under certain circumstances. If, under consequence, ^jjg circumstanccs supposed, observance or non-observ- ance is a matter of no consequence whatever, the term directory is evidently used in the sense of optional; but, if by no con- ■^'827 sequence is meant *no such consequence as that contended for (there being some other consequence), then the term di- rectory is not misapplied. The distinction between directory and imperative clauses turns. Misuse of the neither on the rig^ht to repeal them, nor on the rio;ht term impera- , . ^ . . tive. ol infringing them, but on the consequence of infring- ing them whilst they are in force; and whilst the consequence of infringing an imperative clause or regulation is the nullity of what is done, the consequence of infringing a directory clause or regula- tion is not nullity, but something different. It follows from the foregoing observations that the power of a Clauses option- majority to alter, suspend, or repeal any clause in a al with the , i • j.. , , i i . , i majority. Company's deed oi settlement, or an}'' regulation estab- lished for the conduct of the company's affairs, does not, properly speaking, depend upon whether the. clause or regulation whilst in force is directory or imperative; but upon whether it is, as regards the majority, optional or not. This turns, as has been already seen (k), on the question whether the clause is ^fundamental or subsidiary, i.e., upon whether it can or cannot be repealed or de- (fc) Ante, p. 598, et seq. 1094 CHAP. IX.] DIEECTOET AND IMPEEATIVB CLAITSES. *828 parted from consistently with the objects for, and terms on, which the company was formed. The division of clauses into funda- mental and sulsidiary, and into imperative and directory, are cross divisions, and are based on diiferent principles. The division into fundamental and subsidiary has reference to the power to repeal or alter; whilst the division into imperative and directory has reference to the consequence of non-observance whilst in force. The last division, moreover, applies as well to fundamental as to subsidiary clauses. A fundamental clause, however, cannot be optional. The cross divisions may be represented thus: — Jj. , , , ( imperative, funaamental , . i ,. ( directory. ' optional non-optional optional. imperative, directory. fundamental, subsidiary . ( imperative . , - \ subsidiary . ) ( fundamental, ( directory . . . \ *"What the precise consequence of not observing a direc- *828 tory clause may be, depends in each case upon the act, cher- ter, deed of settlement or regulations of the company, consequences If no particular consequence can be pointed out, that "n^^d'rectory" very circumstance might be supposed to confer upon ^'i^'^^'^^- the minority a right to judicial assistance for the purpose of having the affairs of the company properly carried on. For although a majority oannot be controlled in the exercise of powers which legitimately belong to them, they may properly be prevented from exercising powers which do not belong to them; and interference for the purpose of preventing them from infringing a non-optional but directory clause or regulation, is clearly warranted by this prin- ciple. Indeed, such interference would appear to be the more called for, as without it a confessedly non-optional clause becomes, in the case supposed, a mere dead letter. This, however, is not exactly the view taken by courts of justice. In determining whether they will or will not interfere with the management of the aff'airs of the company, Courts regard not so much the question whether what is being done is contrary to an imperative or direc- tory clause, but whether it is contrary to a fundamental or subsid- 1095 *829 DIEECTOEY AND IMPEEATIVE CLAUSES. [bOOK III. iary clause. If a subsidiary clause only is being infringed, the Court will not interfere except to protect a majority against a mi- nority; whilst if a fundamental clause is being infringed, the Court will interfere to protect a minority against a majority, (l) Having pointed out what the writer conceives to be the true meaning of the word directory, as distinguished from imperative on the one hand and optional on the other, it is pi'oposed to notice a few cases in which clauses certainly not intended to be optional with tlie directors have been held to be subsidiary, and not funda- mental, and to be dii-ectory, and not imperative, although the con- sequences of disregarding those clauses are by no means apparent. In Foss V. Harbottle («i), an act of Parliament incorporating the Examples of Yictoria Park Company, declared that it should be in so-called dlreo- . " , i- t t i ^ tory clauses. the powcr of a Certain number of shareholders, acting in a certain manner, and observing certain meetiufs?^ *829 forms, to require the directors *to convene ex- traordinary meetings, and in case of their de- fault, to convene such meetings themselves. A qnestion having arisen how far it was necessary to adhere strictly to the letter of the enactment, in order to give validity to the acts of a meeting convened under it, the Yice-Chancellor, Sir James Wigram, ex- pressed a strong opinion that the acts of a meeting convened in substantial compliance with the statute would be valid, althougli all the prescribed forms had not been observed. He considered the statute to be in this respect directory only. In The Thames Haven and Dock Kailway Company v. Pose {n), Quorum of ^ private act of Parliament directed that the business directors. pf .^ company should be carried on by twelve directors, of whom five should be a quorum; and the Court of Common Pleas was of opinion that the act was in this respect directory only, and that calls made by five out of seven directors, there being no more, were valid, (o) Again, it has more than once been held that when a companj' is Cases where a incorporated by charter, or act of Parliament, which document has (Jij-gcts the observance of certain forms before the cor- ly sealed, porate Seal is annexed to contracts purporting to bind the body corporate, a contract under the corporate seal, and of a {I) This subject mil be examined (») 4 Man. & Gr. 552. hereafter. See book iii. ch. 10, §3. (o) Compare Kirk v. Bell, 16 Q. B. {in) 2 Ha. 461. 290, and other cases cited ante, p. 244. 1096 CHAP. IX.] PAETNERSIIIP ARTICLES, ETC. *830 kind authorized by the charter or statute, is binding on the corpor- ation, although the seal may have been annexed without the observ- ance of the prescribed formalities, {p) So, in the case of any ordinary joint-stock company, the deed of settlement of which declared that all cheques on its si„,ature of bankers were to be signed by three directors, and the '^'^'-'^ii^^^- directors drew cheques signed by less than three of them, it was held that this irregularity did not aifect the right of the directors to be allowed as between themselves and the shareholders the sums drawn out, such sums having been hona fide applied for the pur- poses of the company, {q) *So, clauses relating to the mode of signing minutes of *830 meetings, keeping registers, and iriaking returns, so as to render them admissible in evidence without prelimi- gj-gnatureof nary proof, are considered as directory only, if) minutes. These cases are not to be confounded with those in which share- holders and companies have been held estopped from cases oi estop- . , , pel to be takintr advantao:e of the non-observance ol formalities, distinguished. Such cases do not turn upon whether the clauses prescribing the formalities are directory or imperative; but upon the very diiferent question whether, supposing them to be imperative, the invalidity of what has been done informally can be insisted on by those who have always treated it as valid, and induced others to do the same, (s) SECTION III.— ON THE USUAL CLAUSES IN ARTICLES OP PARTNERSHIP. Having now alluded to certain general rules which require to be borne in mind in considering the effect of special usual clauses ^ ^- ' , in partnership agreements between partners, it is proposed to notice articles. shortly the provisions usually met with in partnership articles, and the interpretation which has been put upon them by the courts. (p) See Fountaine v. Carmarfchen Compare Ex parte Agra and Master- RaiL Co. 5 Eq, 316; The Royal British man's Bank, 6 Ch. 206; Exparte Birm- Bank v. Turquand, 6 E. & B. 327, and ingham Bank, 3 Ch. 6-51. •5 E. & B. 248; Agar v. The Athenaeum (r) See, as to minutes of meetings. Life Assm'ance Society, 3 C. B. N. S. ante, p. 550, and as to registrars and 725. Compare D'Arcy v. Tamar, &c. returns, ante, pp. 139, 140. Rail. Co. L. R. 2 Ex. 158. (s) See ante, p. 128. ( q) Exparte Bignold, 22 Beav. 143. 1097 *831 USUAL CLAUSES. [bOOK IIL In framing articles of partnership, it should always be remem- bered that they are intended for the guidance of persons who are not lawyers; and that it is tlierefore unwise to insert only such provisions as are necessary to exclude the application of rules which apply where nothing to the contrary is said. The articles should be so drawn as to be a code of directions, to which the partners may refer as a guide in all theij' transactions, and upon which they may settle among themselves differences which may arise, without having recourse to coui'ts of justice. 1. The nature of the business. — This should always be stated. Upon it depends the extent to which each partner is to be rj- garded as the implied agent of the firm in his buSnessf°^ *831 dealings *with strangers; and npon it also in a great measure depends the power of a n}ajority of partners to act in opposition to the wishes of the minority, {t) 2. The time of the commencement of a faTtnership — FriinCt 2. Commence- fade, articlcs of partnership, like other instruments, mentofthe , nr, - , ■ i ^ -c ^ i partnership. take eitect trom their date; and it they are executed on the day of their date, and contain no expression indicating when the partnership is to begin, it must be taken to commence on the d ly of the date of the articles, and parol evidence to show that this was not intended is not admissible. («) It occasionally happens that it is expressly declared by the part- Eetrospective nei'slup articles that the partnership is to date from a and prospective . . . . , ^i i partnership. specihcd time, eitiier prior or subsequent to the day on which the articles are executed. The effects of such a declaration, as between the parties to the articles, and a's between them on the one hand, and third persons on the other, are by nO means the same. As between the parties themselves the time specified is that from which the accounts of profits and losses are to date: but as be- tween those parties and third persons the time in question is of lit- tle if any importance; for an agreement that a partnership shall date from a time past does not enure to the benefit of creditors (a;); and an agreement that it shall date from a time future does not prejudice them, if, in fact, the parties act as partners before such time arrives, (y) (i) See oMrovided that no share should be disposed of by any partner until one ^^^^ ^^^jj^^ month after notice in writing under his hand had been may be given. given to the other proprietors at a monthly meeting. A partner desirous of selling his share wrote a notice to tliat effect in a book which was produced at montlily meetings, and wliich all the part- ners had at all times power to insjject. It was held that tlie notice so given was sufficient, even altliougli the book was not seen by all the partners. As a general rule, however, notice should be given to each partner individually, (n) Where two persons became partners, and agreed that in the case of the death of either, the other should buy liis share, or if he declined so to do, then that the share of the saie if offer is deceased *should be sold to any person who *842 declined, might choose to buy it, one of the partners died, haughT*"''' and the survivor declined to buy his share, or to enter T"^™®"^- iuto partnership with any purchaser of it. Under these circum- stances, the Court, at the suit of tlie executor of the deceased part- ner, decreed a sale of his share, and directed that if no iondjlde sale could be effected, an account should be taken in order to ascertain tlie value of such share. No sale being effected, and the accounts having been taken, the surviving partner was decreed to pay the amount of the share of the deceased and the costs of the suit, [o) Articles of partnership frequently contain a clause to the effect that in case a partner is desirous of retiring, he shall Declaring 1 option to give SO many months' notice to his co-partner, who purchase. shall have the option of purchasing the share of the retiring p^art- ner. If such a clause is acted on, and a partner notifies his desire to retire to his co-partner, and the latter declares his option to pur- chase the share of the retiring partner, a contract is thereby con- cluded between them, from which neither can depart without the consent of the other, (p) Consequently, the retiring partner can- not withdraw his notice and dissolve the partnersliip under some other clause in the deed. ( p) Even if the co-partner who is to {m) Coop. temp. Brougham, 115. (y) See Warder v. Stilwell, 3 Jur. N, In) lb. . S. 9, V.-C. Stuart; Homfray v. Fother- (o) Featherstonhaugli v. Turner, 25 gill, ante, p. 841. Beav. 382. 1111 *8J:3 US0AL CLAUSES. [BOOK III. purchase the other's share infringes the partnership articles, tlie Court will not willingly interfere and dissolve tlie partnership; although, if the partner who is to retire conducts himself so as to prejudice the business and exclude the other, tlie Court will inter- pose for the protection of the latter; for otherwise the business to which he is shortly to be solely entitled may be entirely ruined, [q) "With respect to the exercise of a right of jjre-emption, it must Eniargine time ^® bome in mind that if the right is to be exercised forpurchiising. -vvitliin a given time it cannot be exercised afterwards, unless the time has been enlarged by the parties themselves. Courts will not extend the time on the ground that it was accidentally al- lowed to slip by. (r) *843 * Where an offer to sell was made to a person who became lunatic after it was made, but before the time for accepting it had expired; it was held that his committee was not entitled to an extension of such time, nor to a renewal of the offer, (s) 12. Dissolving the Jinn. — Where the articles expressly stipulate v> Dissolving ^^^^^ ^^ shall be lawful for either partner to dissolve the the firm. partnership upon the commission by the other of cer- tain specifically forbidden acts, the partnership may of course be determined if either partner does these acts. But this clause, like any other, may be waived by mutual consent; and even if not waived, advantage cannot be taken of it to dissolve the partnership on the ground of the commission of any forbidden act, after the lapse of any considerable time since such act came to the knowl- edge of the partner seeking to avail himself of it. (t) It is not unusual to provide for a dissolution or retirement in , . case a partner shall become insolvent. The word iji- In case of ^ Insolvency. solvent, unlcss Controlled by context, means unable to pay debts, in the ordinary acceptation of that phrase. A person may therefore be insolvent, although his assets, if all turned into money, might enable him to pay his debts in full (u); and although ( q) See Warder v. Stilwell, 3 Jur. ered as an authority for the doctrine N. S. 9. that the Court will not hold partners to (r) See, on this subject, Brooke v. their articles. The notice to dissolve in Garrod, 2 DeG. & J. 62; Lord Rane- that case was given six months after the lagh V. Melton, 2 Dr. & Sm. 278. commission of the act complained of, is) Rowlands v. Evans, and WUliams and not on account of such act, but in V. Rowlands, 30 Beav. 302. consequence of other disputes. (t) See Anderson v. Anderson, 25 (m) See per Le Blanc, J., in Bayly v. Beav. 190, which must not be consid- Schofield, 1 M. & S. 338. 1112 CHAP. IX.J PAETNEESHIP ARTICLES, ETC. *844 he has not been adjudicated bankrupt or compounded with his creditors. («) But a person is not deemed insolvent mei'ely be- cause lie keeps renewing a bill which he cannot conveniently meet, (a?) A clause enabling anj' partner to determine the partnership by giving notice to the others, may be acted on, although one of the firm has become insane; for the partner serving Giving notice the *notice is not bound to find understanding *84i p^rtner°'is^ for him who is served, {y) msane. A notice once given caimot be withdrawn except bv wwiarawai ^ J - of notice. consent, {z) A notice to dissolve on a given day of the week, and a given day of the month, is bad if there is any mistake in either j„foj,mai date; e.g., a notice to dissolve on Monday the 9th is "^o'^o®- bad, if the 9th falls on a Friday, {a) In a case where it was provided that the dissolution should be by deed, it was lield that a submission by deed of all mat- Dissolution to ters in dispute between the partners, and an award ^^ by deed. under seal made upon that submission dissolving the partnership, had the effect of dissolving it, although nothing was said about dis- Bolutioii in the submission, (h) When power is given to retire or dissolve the firm, or to expel a partner from it, power should also be given to any part- mining notices ner to sign, in the name of himself and co-partners, a «* dissolution. notice of dissolution for insertion in the " Gazette." (c) 13. Expelling. — In order that an objectionable jDartner may be summarily got rid of, clauses are sometimes inserted ^g powers of providing for expulsion in certain events. All such expulsion. clauses are construed strictly, on account of the abuse which may be made of them, and of the hardship of expulsion ; and the Court will never allow a partner to be expelled if he can show that his co-part- ners, though justified by the wording of the expulsion clause, have, in fact, taken advantage of it for base and unworthy purposes of their {v) See Parker v. Gossage, 2 0. M. & {y) Robertson v. Loclrie, 15 Sim. 285. R. 617, and Biddlecombe v. Bond, 4 A. (2) Jones v. Lloyd, 18 Eq. 265. & E. 332, in which it was held that " in- (a) Watson v. Eales, 23 Beav. 294. solvent" had not the technical meaning (6) Hutchinson v. Whitfield, Hayes of having' taken the benefit of the acts (Ir. Ex.), 78. for the relief of insolvent debtors. (c) See Troughton v. Hunter, 18 Beav. [x) Cutten-». Sanger, 2 Y. & J. 459; 470. and see Anon. 1 Camp. 492. 1113 *845 USUAL CLAUSES. [BOOK ih. own, and contrary to that truth and honor which every partner has a Biisset V. right to demand on the pait of liis co-partners. In Blis- setv. Daniel (d), the expulsion clause was as follows: — "That it shall be lawful for the holders of two-thirds or more of the shares for the time being, from time to time to expsl any partner, by giving to, or leaving for him, at his then last place of abode in England or Wales, a notice in writing under their hands of such expulsion, which, in such event, shall operate *8-i5 from and at the time of giving or leaving such notice, *and shall be in the following form, namely, ' We do hereby give you notice that you are hereby expelled from the partnership carried on under the firm of John Freeman and Copper Company. Witness our hands this day of .' " The power, therefore was in the most general terms; no reasons for its exercise were required to be given, no meetings or delibera- tions were declared to be necessary before serving the notice. The holders of two-thirds of the shares signed a notice in the form pre- scribed, and served it on the partner whom they desired to expel. They gave no reasons and relied upon the clause set out above. But it appeared that they desired to get rid of their co-partner, not be- cause so to do was in any sense for the benefit of the firm in a mercan- tile point of view, but beoauseheobjected to the appointment of one of his co-partner's sons as co-manager with his father. It further appeared that the offended father had complained to the other part- ners behind the back of the expelled partner, and had prevailed iipon them to sign the notice, intimating that either the expelled partner or himself must leave the firm. The expelling partners having re- solved to exercise the power, induced the expelled partner to sign certain accounts, in order that he might be bound by them wlien ex- pelled. Their intention to expel him was, however, concealed until after the accounts were signed; and the notice of expulsion, which gave him the first intimation of any design to get rid of him was not served until he had signed the accounts. Under these circum- stances the Court declared that the notice of expulsion was void, and restored the expelled partner to his rights as a member of the firm. Having regard to the principles acted upon in cases of this de- opportunity scription, it is conceived that a power to expel for mis- tiou. conduct cannot be safely acted upon until the delin- quent partner has had an opportunity of explaining his conduct, (e) (d) Bhsset v. Daniel, 10 Ha. 493. (e) See the judgment in Blissett n. See, also. Wood v. Woad, L. R. 9 Ex. Daniel, and Cooper v. Wandsworth, 190. Board of Works, 14 C. B. N. S. 180. 1114 CHAP. IX.J PAETNEESHIP AETICLES, ETC. *8i6 A power of expulsion cannot be exercised without the concur- rence of a^Z those whose concurrence may be required AUmustoon- cur by the articles. (/") *A notice of expulsion under one clause, can- *846 Notice of ex- .,..,. T pulsion not, II invalid, operate as a notice of dissolution under some otlier clause, (g) In Smith v. Mules it was. provided, in effect, that if a partner should do or omit to do certain things, the others I 111 1 . 1 1 . 1.1 . Smith V. Mules. snouid be at liberty to dissolve tJiepartiierslnp, by giv- ing notice to the partner who sliould offend ; and that upon giving such notice the partnership should cease and be dissolved in the same manner, and with the same consequences, as if it had been de- termined by the voluntary retirement of the oifending partner. The firm consisted of three partners, A., B., and C, whb was B.'s son. B. was guilty of conduct for which he might have been com- pelled to retire. A. gave B. and C. notice that he dissolved the partnership under the clause above referred to. C, however, had done nothing rendering it competent for A. to expel him. It was therefore decided: 1, that A. had no right to expel B. without C.'s concurrence; 2, that A, liad no right to dissolve the firm, so far as C. was concerned: 3, that 0. having adopted the notice after it was given, A. could not treat the partnership as continuing; and 4, that the dissolution actually brought about was not a dissolution provided for by the articles, and did not, therefore, entail the conse- quences of a dissolution ander them. (A) When a power of expulsion is given in the event of a partner omitting to do certain things, e. g., entering in the part- Power to expel h. \ I 11 1 • i. i^ iu case of omit- ip boolf all moneys he may receive on account of ting to do the partnership, the power will not, as a rule, be exer- ^°^ ' cisable, unless the omission was a studied omission, (i) As to power to expel in case a partner becomes insolvent, see ante, p. 843. A power to expel contained in articles for a partnership for a term of years is not exercisable after the term has expired, although the partnership may have been continued on the old footing, (k) (/) See Smith «. Mules, 9 Ha. 556. {1i) Smith v. Mules, 9 Ha. 25B. Ig) See Smith v. Mules, 9 Ha. 556; (i) See Smith v. Mules, 9 Ha. 556. Hart V. Clarke, 6 DeG. M. & G. 532, and (fc) Clark v. Leach, 32 Beav. 14 and Clarke V. Hart, 6 H. L. C. 633. 1 DeG. J. & Sm. 409. 1115 *847 USUAL CLAUSES. [bOOK III. 14. Yaluation of shares. — Having provided of'siiMS'"°" 847* for the events *upon wliicli a general partnership is to cease, the next point is to specify tlie method in wliich its affairs are to be wliollj or partially wound up. Where the articles have prescribed no method of winding np, or General rule where the method prescribed cannot, be carried into iVti'Scs'clmiot effect, then, unless the partners can come to some be acted on. agreement as to what is to be done, there must, as a general rule, be a conversion of all the partnership property into money; and this money, after payment of the partnership debts, must be divided amongst the partners in the shares in which they may be entitled to it. (Z) An agreement that on a dissolution the partnership property ATeements for ^ball be fairly and equally divided, after payment of its fair division. debts, has been held to mean that the property shall be sold, and that the money produced by the sale shall be divided after the debts have been paid, (m) In order to prevent the ruin consequent on a sale when a part- Methodsof Ticrship happens to be dissolved, several devices are had avoiding sale, rocourse to. The simplest is to specify in the articles a sum at which the share of an outgoing dr deceased partner may be taken by his co-partners, {n) But it is seldom possible to fix a sum beforehand, and consequently such a provision is not common. It is more usual to stipulate that the share shall be taken to be of tlie value appearing in the last-signed account, and be paid with the addition of subsequent profits, or with interest at a certain rate, in lieu of such profits. If a stipulation to this effect is made, and the accounts have been regularly taken and signed, or regularly taken but not signed (o), so that the shares of the partners appear from the accounts as intended, all parties must abide by the stipu- lation (^),' although difficulties may arise as to the true construc- {l) See Cook v. Collingridge, Jac. 607; sion in Essex v. Essex, 20 Beav. 442. Kershaw v. Mattliews, 2 Russ. 62 ; (o) As in Ex parte Barber, 5 Ch. Wilson V. Greenwood, 1 Swanst.- 482. 687 ; Coventry v. Barclay, 3 DeG. J. & That this rule is not to be rigorously ap- Sm. 320. plied, see Pettyt v. Janeson, 6 Madd. (p) King v. Chuck, 17 Beav. 325 ; 146, and Simmons v. Leonard, 3 Ha. Gainsborough v. Stork, Bam. 312 ; and 581, noticed infra. the cases in the last note. (ot) Rigden v. Pierce, 6 Madd. 353 ; ' By articles of partnersb'p, M. and Cook V. Collingridge, Jac. 607. A. stipulated that at the end of three {n Effect was given to such a provi- months after the death of either of 1116 CHAP. IX.J PAETNEIiSHIP AKTICLES, ETC. *84-S tion of * the articles, (q) But if, as frequently happens, the *84S accounts intended to be taken and signed have not been taken, or have been taken irregularly, so that the last-signed Effect of not account is not so late a one as is contemplated by the coimlsls'"'" articles, in such a case the account must be made up to ^sreed. the latest date at which it ought to have been made up, regard being had to the articles and the practice of the partners; and the share of the outgoing or deceased partner must be taken at its value, as the same appears by the account so taken. Thus in Pettyt v. Janeson (r), the articles provided that the part- nership accounts should be taken every 25th of March, Pettj'tv. and that if either partner died during the continuance of the partnership, his interest should be regulated by the last yearly settlement, and what should then appear to be due to him should be paid to his executors, with five per cent, interest, instead of subsequent profits. For some time the partnership accounts were regularly settled every 25th of March; but afterwards they were made up very irregularly, and often not for sixteen or eighteen months. A partner died in February, 1813. The last account prior to his death was settled on the 5th of ISTovember, 1811. The executors insisted that as there had been no annual settlement, as contemplated by the articles, they were entitled to a share of the profits calculated to the ti-me of their testator's death. The surviving partner, on the other hand, contended that all they were entitled to was the amount of their testator's share, as appearing by the account settled in November, 1811, with interest thereon. But the Yice-Chancellor observed, " that the articles had two plain intentions — that there should be an annual them, a valuation of all their partner- Eq. 181. ship assets and property should be made (g) A provision that a share shall be according to the amount of 'capital in- paid for as the same stood at the time vested ; and that the survivor should of the last account, means as it stood in have one year thereafter, to take and the partnership books. See Blisset v. pay the value of such share to the legal Daniel, 10 Ha. 493, p. 511; compare representatives of the decedent. One Stewart v. Gladstone, W. N. 1878, p. partner (A.) died intestate : Held, that 82. See, as to clauses of this descrip- M. was entitled to specific performance tion, Coventry v. Barclay, ante, p. 840; of the contract, which of itself constitu- Ex parte Barber, tihi supra; and Brown- ted an equitable conversion of the real ing v. Browning, 31 Beav. 316, as to estate, and that the proceeds must be interest and subsequent drawings out. divided among the intestate's next of (r) 6 Madd. 146. kin. Maddook v. Astbuiy, 32 N. J. 1117 *84:9 USUAL CLAUSES. [book iil settlement, and that the estate of a deceased partner should receive no profits for the fraction of the 3'ear since the last anniial settle- ment. Tliat the settlement of the 5th ISTovember, 1811, was to be considered as a settlement substituted by the agreement of the parties in the place of the settlement stipulated for in the *849 ^articles. That if the testator had died on the 1st October, 1812, it could not have been contended that his estate was to take profits subsequent to the 5th November, 1811, being the last settlement within a j-^ear of the death; and if this were to be treated in that case as a settlement, within the spirit of the articles, against the testator's estate, it must be equally considered as a settlement for the testator's estate as a settlement on tlie 5th November, 1811, which bound each party to come to the next annual settlement on the 5th November, 1812. That the Court must act upon that which ought to have been done as if it had been done, and must declare the testator's estate entitled to a sliare in the profits up to the 6th November, 1812, being the day which ought to have been the last annual settlement before the testator's death. " The same principle was acted upon by Y.-C. Wigram, in Simmons Simmons v '^- Leonard (s), although account having ever been Leonard. taken between the parties, and the day mentioned in the articles for taking the account not being apparently considered of much importance, the account directed to be taken did not stop at the day .at which the last account would have been taken if the articles had been acted on. In Simmons v. Leonard, the articles provided that a general account and rest should be taken every 31st of December, or on such other day as the partners should agree upon; and that if a partner died during the term his executors should receive payment of bis share a^ ascertained at the last an- nual rest, with interest thereon, in lieu of subsequent profits; and that his executors should have no right to look into the partner- ship books. The provision relative to the annual settlement of an account was never acted npon at all. One of the partners died, and the Yice-Chancellor held that the primary object of all parties was, that the death of one of them should not cause a general dis- solution and winding up; that this object might be attained, although no such account as was contemplated had been taken ; that it was absolutely necessary to take an account of some sort, and to let the executors, therefore, look into the partnership books; (s) 3 Ha. 581. 1118 CHAP. IX.J USUAL GLAUSES. *851 and that, having regard to the omission of *the partners to *850 settle any account at all, the only account which could be taken was a general account of what was dne to the testator at the time of his deatlj for his share of capital and profits. These cases not only afford good illustrations of the rule that in construing partnership articles regard must be had to the conduct of the partners, even where a circumstance has arisen of which the partners had no previous experience (t), but they also show that the rule that there must be a sale of the partnership property when- ever there is a dissolution, unless the articles provide for some other method of dealing with it, and the provisions in the articles are capable of being rigorously carried out, must be taken with con- siderable qualification, (u) It is not unusual to stipulate that the share of an outgoing or deceased partner shall be taken by the continuing or Taking share surviving partners at a valuation; and althougli as a at a "valuation. rule specific performance of an agreement for sale at a valuation will not be decreed nnless the valuation has been made {x); yet where persons enter into partnersliip upon certain terms, one of which is, that on a 'dissolution one partner shall take the share of another at a valuation, the Court will, on a dissolution under the articles, enforce such a stipulation, and if necessary itself ascerl'ain the value of the share, (y) It has, however, been held, that an agreement for a sale at a price to be fixed by valuers, one to be ap- pointed by the seller and the other by the purchaser, or in case the valuers differ, by an umpire, does not enable the Court to appoint an iimpire if the valuers will not do so, and are yet themselves unable to fix a price, (z) Moreover, "Wilson v. Greenwood (a), throws considerable doubt *on the validity, in the event of a bank- *851 ruptcy, bf an agreement that the share of a bankrupt part- ner shall be taken at a valuation by his co-partners. (f) See, too, Jackson v. Sedgwick, 1 Jackson v. Jackson, 1 Sm. & Gr. 184. Swanst. 460; Coventry v. Barclay and (. Ev- erett, ib. 446, and the next note. {y) Hoockham v. Pottage, 8 Gh. 91; Labouchere v. Dawson, IS Eq. ,"22, and see Cruttwell v. Lye, 17 Ves. 335. (^) Ib. ^ See, post, 857, note. (o) Churton v. Douglas, Johns. 174; Hookham «. Pottage, 8 Ch. 91, where the defendant described himself as P. from H. & P., the old firm, but in a way calculated to deceive. ^ On the retirement of a partner from a firm, his co-partners continued the business at the old place, and the retir- 112-1 ing partner embarked in the same line of business, and on the same side of the same street, and within about fifty feet from the old store, and put up a sign bearing in the first line his own name, in the second line the words, ' ' of the late firm of;" and in the third, the name of the old firm; the second line being in letters of good size, yet but little more than a third the height of the let- ters in the third line: Held, that an injunction should issue to restrain this use of the firm name. Smith v. Cooper, 6 Abb. New Cas. 274. Abiaham Bininger Clark, who had been a partner in the firm of A. Bin- inger & Co., usually writing his name as Abm. B. Clark, continued a sim- ilar business on his own account, af- ter the dissolution of that firm, and put up his name as A. Bininger Clark, successor to A. Bininger & Co. : Held, that he might be restrained by injunc- tion from the use of such a ^tyle. Bin- inger V. Clark, 10 Abb. Pr. N. S. 264. ib) See ib. (c) Johns. 174. CHAP. IX.J PAETNEKSIIIP AETICLK3, ETC. *85G Co., as sfnff niercliants at Bradford. The defendant retired from the firm; a new partner was taken in; and the defendant assigned to his old partners and their new partner (Leing the plaintiffs) all Ids, the defendant's, share, and interest in the old firm, and in the good-willthereof. The plaintiff's continued to carry on the old business under anew name, with the addition late John Douglas & Co. The defendant formed a new partnership with three persons who had been in the employ of the *old firm, and *856 whom he had enticed to leave the service of its successors and to join him; and he and his new partners cummenced business as stuff' merchants at Bradford, in a house adjoining the place of business of the old linn; and they did so in the name of John Douglas & Co. They further affixed that name to the house they liad taken, and sent circulars to the old customers of the old firm, so as to lead them to suppose that the business of that firm was being continued by defendant and his new partners. On a bill filed by the plaintiff's against the defendant it was held, (1), that he was entitled to carry on, by himself or in partnership with others, the kind of business previously carried on by him with his late part- ners; and, (2), that he was entitled so to do in the immediate neigh- borhood of the place where he and his late partners pi-eviously car- ried on tlieir business. But it was also held, (3), that the plaintiff's alone had the right to carry on the business previously carried on hj John Doiiglas (& Co.; (4), that the plaintiffs had the right to represent themselves as the successors of tliat firm ; (5), that the de- fendant had no right to represent himself as its successor; (6), that he could not acquire such a right by taking other persons into part- nership with him; and, (7), that although his name was John Doug- las, he had not, either alone or in partnership with others, the right to carry on the old kind of business, in the old place, under the old name of John Douglas <£ Co. An injunction was granted accord- ingly to restrain the defendant from carrying on the business of a stuff merchant, at or in the immediate neighborhood of Bradford, either alone or in partnership, under the style John Douglas (& Co., or in any other manner holding out that he was carrying on the business of a stuff merchant in continuation of, or in succession to, the business carried on by the late firm of John Douglas d: Co. An agreement by a partner that he will not cany implied agree- on business in opposition to his late co-partners, may ^ominuein be iniplied fioui some other agreement into which he '^^'"'^^^• 1125 ■■■S57 USUAL CLAUSES. [bOOK HI. and they have entered. Thus wliere two persons became partners as brewers for eleven years, and it was provided in the articles that either of the parties, on giving six months' notice to tl)e other, should be at liberty to quit^ the trade and mystery *857 of a hrewer, and that *the other should be at liberty to continue the trade on liis own account; it was held that one of the partners who had retired from the firm after giving notice to the [^other was Dot at liberty to continue in the trade at all. {d) Again, where on the retirement of a partner, it was left to an Award dispos- arbitrator to determine what the continuing partner ing of business, should pay for the good-will, and the arbitrator fixed a sum upon the understanding that the retiring partner would not commence a new business in the same street in which the old o le was carried on; an injunction was granted restraining the retiring partner from carrying on business in that street, although the award itself was silent upon the point, (e) So in Churton v. Douglas (_/), the sale of the good-will was saieofeood- alonc Sufficient to preclude the seller from setting up ^*'ii'- business in tlie name of the old firm, as if he, and not the purchasers, were continuing the business sold.' An agreement by a retiring partner not to commence business Agreement not ^"^ Opposition to his late partners, will, whether express busfness"" °^ implied, be upheld and enforced, if the restriction enforced. imposed upon him is not unreasonable, having regard {d) Cooper v. Watson, 3 Dougl. 413; personal property, but the same pertain S. C. sub nomine, Cooper?). Watlington, to, and could not be sold separately 2 Chitty, 451. from the lease. Mitchell v. Read, 19 (e) Harrison v. Gardner, 2 Madd. 198. Hun, 418. f-V >l^. i'lTtf (/) Johns. 174, ante, p. 855. One partner's share in the good will of ' But such sale is not sufficient to pre- the business of the firm is not a subject elude the seller from setting up business of separate sale. The good will of the in his own name. White v. Jones, 1 business is invisible, when one of sev- Robt. (N. T.) 321. eral partners retires from the firm, the A transfer, by a retiring partner to good will remains, as an entirety with the other, of "the business connections the continuing partners (subject to any and patronage belonging to the firm, " right of the retiring partner to be corn- may be deemed to include the good-will pensated). Hence a court of equity of the concern. Kellogg v. Totten 16 will not enforce, nor enjoin proceedings Abb. Pr. 35. at law upon, an agreement for a sale of The good will of a hotel is not trans- one-fourth part of a good will. Cassidy ferred by the sale of the furniture and v. Metcalf, 1 Mo. App. 593. 1126 CHAP. IX.J USUAL CLAUSES. to tlie nature of the partnership business. {gY Thus in Williams {g) See; generally, as to covenants not to carry on business, Mitchell v. Rey- nolds, 1 Smith's L. C; also the useful table appended to Avery v. Langford, Kay, 663; and Allsopp v. Wheatcroft, 15 Eq. 59. Distances are measured as the crow flies, Duignan v. Walker, Johns. 446; Mouflet v. Uole, L. R. 7 Ex. 70, and 8 Ex. 32, and the cases there cited. As to infringements by supply- ing goods within the distance, see Clark V. Watkins, 1 N. R. 342, L. J.; Turner V. Evans, 2 E. & B. 512, and Brampton V. Beddoes, 13 C. B. N. S. 538. As to the construction of covenants by agents not to carry on business to the detri- ment of their principals, compare King V. Hansen, 5 H. & N. 106, with Mum- ford 11. Gething, 7 C. B. N. S. 305; and see Turner v. Major, 3 Giff. 442. ^ See Angier v. Webber, 14 AUen, 211; Shearman v. Hart, 14 Abb. Pr. 358; Butler v. Barleson, 16 Vt. 176 ; Ropes V. Upton, lk.'5 Mass. 258. Partners dissolved their partnership, and the retning member agree not to be concerned in any way hi the kind of business carried on by the firm, for five years within the city where their busi- ness was established, nor interfere with any agency already established, nor es- tablish any similar agency, that might interfere with the business of the finn, as before carried on, whether in said city, or elsewhere: Held, that so far as this covenant restrained the retiring member from engaging, within said city, in the business carried on by the firm, for a limited tune, it was not in general restraint of trade, and therefore legal and proper, and that the remain- der was a general restraint of trade, and therefore void. Thomas v. Miles, 3 Ohio St. 274. Where partners, before dissolution, sold their stock of goods and the " good will " of their business, and stipulated in the contract of sale, that they, or either of 'them, would not again enter into the same business in that locality : Held, that either, or both of them, were hable for a breach thereof by either one of them after dissolution. Stark v. No- ble, 24 Iowa, 71. Upon the sale of a business and good- will, it was agreed that the purchaser ■ should be at liberty to use the name or style of the vendors for a period of two years. After the expiration of the two years the vendors recommenced busi- ness under a similar name or style to that under which they had carried on the business under which they had sold, and also solicited their former customers : Held, that they must be restrained from soliciting or in any way endeavoring to obtain the custom of ther former cus- tomers. Semhle, that they might also be restrained from deahng with their former customers. Genese v. Cooper, 22 Alb. Law Jour. 170. N. & C. purchased the grain elevator of H., with the good- will pertaining thereto, and H. at the same tune agreed not to engage in the grain business in the same place. Subsequently, N. & H. and another formed a co-partnership for the prosecution of the same business for one year: Held, that the formation of of partnership was inconsistent with the prior undertaking of H., and that, at the expiration of the partnership, he was absolved therefrom. Norris v. How- ard, 41 Iowa, 508. The plaintiff and defendant being co- partners, the latter on January 24, 1876, sold his interest to the former, taking his notes for $4,000, payable at various times through a period of more than three years, and transferred the goodr will of the business to the plaintiff, and agreed not to engage in it himself at B. for the term of 10 years from date. "This last agreement," (repeating it), 1127 '••S58 PAETNEESHIP AETICLi;S, ETC. [nOOK III. V. Williams (A), the defendant, who had been in partnership with the plaintiffs, in running coaches between Reading and London, sold his share in the business to them, and covenanted not to rnn any coach between lieading and London, or so as to injure the business of the plaintiffs; and this covenant was enforced in *858 *equity. So, in Tallis v. Tallis (i) the Court of Queen's Bench upheld a covenant entered into hy a retiring member of a firm of booksellers not to carry on the canvassing trade in Lon- don, nor witliin 150 miles of the General Post-Cffice, nor in nor within fifty miles of Dublin or Edinburgh, nor in any town in Great Britain or Ireland in whicli the continuing partner or his suc- cessors might at the time have an establishment. An agreement entered into when a partnership is formed, to the effect that a retiring partner shall not carry on the business carried on by the firm, cannot be invalid for Avant of consideration. (/<;) An agreement with a bankrupt to take his son into partnership, and to employ the bankrupt, is a sufficient considei-ation for an agreement by him not to carry on business in competition with the firm. (Z) In framing articles of partnership between solicitors, provision Solicitors' should always be made respecting the deeds and docu- papers, &o. ments in their possession, but belonging to their clients. It need hardly be observed that no agreement which the solici- tors may make between themselves, will piejudice their clients. Subject to any question of lien, the clients are entitled to have their deeds and documents, and all drafts and copies thereof, paid for by them, delivered up on request, {'in) They have, moreover, a right to the joint assistance of all the members of the firm em- ployed by them; and although, if the firm is dissolved, a client can- "tobe binding on me (defendant) only condition precedent to its maintenance, in case the $4,000, wMcli is the consid- Hunt v. Thibbetts, 70 Me. 221. eration hereof, is paid according to the {h) 2 Swanst. 253.- See, too, Hani- said H.'s agreement to pay the same son u. Gardner, 2 Ma.dd. 198; Whittaker and at the time agreed upon." Nearly t). Howe, 3 Beav. oS3. three years thereafter, the plaintiff hav- (?) 1 E. & B. 391. See, too, Atkj-ns ing paid at maturity all of his notes ex- v. Kinnear, 4 Ex. 776; Reynolds v. cept two, which had not matured. Bridge, 6 E. & B. 628. brought this action for the violation of (&) Per Lord Cranworth, in Austen r. the defendant's agreement not to en- Boys, 2 DoG. & J. 626. gage in the business: Held, that the (?) Clarkson v. Edge, 33 Beav. 227. payment of the whole $4,000 was not a (») Ex parte HorsfaU, 7 B. & C. 523. 1128 CIIAF. IX.] USUAL CLAUSES. *859 not ins^ist that tlie partners shall continue to act as his solicitors, it is clear that they cannot, without his consent, turn him over to one of themselves (n); nor act against him as if he had never been a client, (o) The dissolution operates as a discharge of the client b}^ the solicitors; and the client is thereupon entitled, subject to any question of lien, to have his deeds and papers delivered up to liim. (p) *But, as between the solicitors themselves, it is compe- 859* tent for them to agree that, if they dissolve partnership^, the clients of the old firm, and all their deeds and papers, shall be di- vided amongst the partners, or belong solely to the partner who continues to carry on the business of the firm; and such an agree- ment will be enforced. (^) If no such agreement is come to, each partner may, after dissolution, do his best to induce the old clients to continue him as their sole solicitor. 18. Good-will. — In connection with the subject considered under the hist head it is necessarv to allude to the good-will = 18. Good-will. of a trade or business. The term good-will can hardly be said to have any precise signi- fication. It is generally used to denote the benefit Mature of good- arising from connection and reputation; and its value ^^^^• is what can be got for the chance of being able to keep that connec- tion and improve it. Upon tiie sale of an established business its good-will has a marketable value, whether the business is that of a professional man or of any other person, (r) But it is plain that good-will has no meaning except in connection with a continuing -business (s); and the value of the good-will of any business to a purchaser depends, in some cases entirely, and in all very much, on the absence of competition on the part of those by whom the busi- ness has been previously carried on. When a partnership is dissolved, the question arises, What is to be done with its good-will? Now it has just been seen that there (») Cook V. Rhodes, 19 Ves. 272, See, however, Davidson v. Napier, 1 note. Sim. 297. (o) Cholmondeley v. Clinton, 19 Ves. (r) Good- will is property within the 261. meaning of the stamp acts, Potter v. {p) Gjriffiths V. Griffiths, 2 Ha. 687; The Commissioner of the Inland Reve- Colegrave v. Manley, T. & R. 400; and nue, 11 Ex. 147. see Vaughan v. Vanderstegen, 2 Drew. (s) See, as to a legacy of good- will, 409. apart from any share in a business, (g) Whittaker v. Howe, 3 Beav. 383. Robertsons. Qa^ddington, 28Beav. 529. 1129 ^60 PAETNEESEIIP ARTICLES, ETC. [book III, is no obligation on the part of any of the partners to retire fi-om business merely because the partnership between them is dissolved; and that even on the sale of good-will, the vendors are at liberty to continue to carry on business on their own account. It obviously follows, that the good-will of a valuable partnership bnsi- 860* ness may be practically worthless, at *least to any one ex- cept a former partner desiring to continue the business of the firm, (t) It is only so far as good-will has a saleable value tliat it can be regarded as an asset of any partnership; and the good- will of a business is frequently of no value at all, except in connec- tion with the place of business. This, however, is by no means always the case. The value of the good-will of a newspaper, for ex- ample, attaches to its name, and is scarcely, if at all, dependent on the place of publication. The saleable value of the good-will of a partnership business Good-wuias- whatever that value may be, must be considered as be- sets of the firm, longing to the firm, unless there is some agreement to the contrary, and it follows from this — - 1. That if a firm is dissolved, and there is no agreement to the contrary, the good-will must be sold for the benefit of all the part- ners, if any of them insist on such sale (m);' {t) See Davies v. Hodgson, 25 Beav. 177, where the good-will was treated as valueless on this very ground. (m) Bradbury v. Dickens, 27 Beav. 53, and the cases cited infra. ' The good- will of a partnership is an important and valuable interest, which the law recognizes and will protect. Williams v. Wilson, 4 Sandf. Ch. 405; Holden v. McMakin, 1 Pa. Sel. Cas. 270; Dougherty v. Van Nostrand, 1 HofF. Oh. 68. And it is regarded in equity as part of the assets of a firm. Bininger v. Clark, 10 Abb. Pr. N. S. 264. When a partnership is dissolved, the good-will is a part of the assets of the firm, and the court may order it sold or disposed of in such manner as may be deemed most advantageous to the part- ners, and the court may permit a pai-t- ner to retain it upon payment of the fuU value thereof to his co-partner. 1130 Shepherd v. Bogga, 2 N. W. Rep. H. S. 370; S. C. 9 Neb. 258. The good- will may be sold. Williams r. Wilson, 4 Sandf. Ch. 405; Holden v. McMakin, 1 Par. Sel. Cas. 270; and where, after dissolution, continuing part- ners refuse to take it at, a valuation, a court cannot compel them so to do, and it must be disposed of like other part- nership effects. Dougherty v. Van Nos- trand, 1 Hoff. Ch. 68. But the sale and assignment of a lease of a bakery, with the tools, fixtures, furniture, etc., etc., together with the good-wUll of the business of baking then or theretofore carried on by the vendor, with a covenant not to carry on the business in the same city himself, does not confer on the purchaser the right to use the name of the vendor in the conduct of the business at the same place, nor to designate or de- scribe the bakery (by signs placed there- CHA1-. VX.J USUAL CLAUSES. "861 2. Tliat, so far as is possible, having regard to tlie right of every partner to carry on business himself, the Court will, on a dissolution, interfere to ]irotect and preserve the good-will until it can be sold (x) ; 3. That if a partner has himself obtained the benefit of the good- will, he can be compelled to account for its value, i. e., for what it would have sold for, he being himself at liberty to compete in busi- ness with tlie purchaser, {y) ' In the event of dissolution hj death, it has been said that the good- will survives, and there is a clear decision to this effect, (s) „ , .,, ■ But this is not in accordance with modern authorities; cases of death, they are wholly opposed to the notion that the value of the good-will, as such, belongs to the survivor. («)* It *undoubt- *861 edly may happen that the sui'vivor may obtain the benefit of the good-will without pa^dng for it; for he is at liberty (unless re- strained by agreement) to carry on business on his own account (Z*), on or otherwise) by the name of such vendor. Howe u. Searing, 6 Bosw. 354. To preserve it, a receiver may be ap- pointed to carry on the Arm business until a sale can be eflfeoted. Marten v. VanShaack, 4 Paige, 479. And an injunction will lie to restrain one person from assuming the name of another's newspaper to impose upon the public and to supplant the latter person in the good-wiU. of his paper. Bell v. Locke, 8 Paige Ch. 75. And after dissolution a partner may be enjoined from appropriating the good will to the exclusion of the other partners. Bininger v. Clark, 10 Abb. Pr. N. S. 264; and even after a receiver has been appointed for the firm, or after it has made an assignment in bank- ruptcy, one partner may restrain an- other one from a wrongful attempt to appropriate the good-wiU and name of the former firm. Bininger v. Clark, 10 Abb. Pr. N. S. 264. A person, forming a co-partnsrship with another, having agreed to leave at the end of the term, cannot, on retiring claim an interest in the good- will of the business, and in accounting with his partner, who continues at the same place, have an allowance for such good will. Van Dyke v. Jackson, 1 E. D. Smith, 419. (x) See Turner 1>. Mayor, 3 Giff. 442, where, however, there was an express agreement for the sale of the good-will. In Lewis v. Langdon, 7 Sim. 425, the V.-C. Shadwell seemed to think that a surviving partner was under no obliga- tion to preserve the good-will. But his opinion was probably influenced by Hammond v. Douglas, 5 Ves. 539, which was not then overruled. {}/) Smith t'. Everett, 27 Beav. 446; Mellersh v. Keen, ib. 236, and 28 Beav. 453. " See post, p. 801, note. (s) Hammond v. Douglas, 5 Ves. 539. (a) Wedderbm-n v. Wedderbum, 22 Beav. 104; Smith v. Everett, 27 Beav. 446, and Mellersh v. Keen, ib. '236, and 28 Beav. 453. See, also, Giblett v. Read, 9 Mod. 459, a case of a newspa- per. ^ Dougherty v. VanNostrand, 1 Hoff. Ch. 68. Holden r. McMakin, 1 Par. Sel. Cas. 270. See 3 Kent Com. 64. (6) FaiT V. Pearce, 3 Madd: 74; Da- vies V. Hodgson, 25 Beav. 177. 1131 *8ai trSUAL CLAUSES. [book III. and possibly iu tlie name of the late firm, (c)' Under these circum- stances, if, on the death of a partner, the goud-will is put up for sale, it will produce nothing if it is known that the surviving partner will exercise his rights. He ■vvlll therefore acquire all the benefit of the good-will; but he does not acquire it by survivorship, as something belonging to him exclusively, and with which the executors of the deceased partner have no concern; for if he did, he might sell the good-will for his own benefit, and this he cannot do. (d) When, therefore, it is said that on the death of one partner, the good-will of the firm survives to the other, what is meant is, that the survivor is entitled to all the advantages incidental to his former connection with the firm, and that he is under no obligation, in order to render those advantages saleable, to retire from business himself, {e) (c) See, as to this, infra, note (j). ' A surviving partner is not entitled, without consent of the representatives of the deceased partner, to use the firm n am e in continuing the business. Either the partnership name perishes with the fii-m itself, and neither the representa- tive nor the survivor is entitled to use it; or it is an interest held in common after the death of one partner, possessed legally by the survivor, but held for mutual benefit. Fenn v. BoUes, 7 Abb. Pr. 202. See, however, contra, Staats V. Hewlett, 4 Den. 6-59. A continuing partner may be enjoined from using the old firm name, so as to give third persons good cause to believe that the retired partner was still in the finn; the latter, in selling out to the former, not having mentioned the good- will. MoGowan Bros. Pump & Ma- chine Co. V. McGowan, 22 Ohio St. 370. A receipt given by executors for money due and paid to the estate of a deceased person from former partners, in which the latter are mentioned by the name of the former pai-tnership, un- der which they continued to carry on business, will not be construed as a written consent to the continued use of the former partner's name in the new business and finn, if it was executed and delivered merely for the purpose of 1132 exhibiting the settlement of the claim. Bowman v. Ployd, 3 Allen, 76. Where one of two partners in a ferry, who were tenants in common of the land adjacent, died, and his moiety was sold by his administrator, and the pur- chaser offered to form a partnership with the other partner, and was refused, and afterwards set up an opposition ferry, a court of equity refused to enjoiu him. Spann v. Nance, 32 Ala. 527. In proceedings under the act of March 21, 1861, of Ohio, the good- will of the partnership, though not a distinct item of a.ssets, should be considered as an - element of value in the appraisemept of the tangible property. And if it has not been considered in the appraisement, and the surviving partner has appropri- ated it to his own benefit, he may be compelled to account. Rammelsberg v. Mitchell, 29 Ohio St. 22. (rf) See Smith v. Everett, 27 Beav. 446; Mellersh v. Keen, ib. 236, and 28 ib. 453; Wedderbnm v. Wedderbum, 22 Beav. 104. See, however, Farr v. Pearoe, 3 Madd. 74, and Hammond v. Douglas, 6 Ves. 539, contra. The last case cannot be regarded as now law. (e) See Farr v. Pearce, 3 Madd. 74; Davies v. Hodgson, 24 Beav. 177; Mel- lersh V. Keen, 27 Beav. 236, and 28 ib. 453. CUAr. IX.J PAETNEESIIIP ARTICLES, ETC. *S62 A2;ain, when a partner retires not only from the firm, bnt fi-oni the business carried on by it, the continuing partners Qooa-wniin will acquire the benefit arising out of the ffood-will for ^^""^ ."DVi!!'' ■i- no mciit 01 one nothing, unless it has been agreed that they sliall pay P»rtner. for it ; for they retain jDOssession of the old place of business, and they continue to carry on that business under the old name. This, in fact, secures the good-will to them, and they cannot be com- pelled to pay separately for it, unless some agreement to that effect has been entered into. (_/") The right to continue the use of a partnership name is frequently the most important element in the good-will, and is governed by principles similar to those applicable to it. The Gniia-wiu in *purchaser of the good-will of a business ac- *SG2 ™i'tii';','^^e'of quires the right not only to represent himself as nmne. the successor of those who formerly carried it on (g), but also to prevent other persons from doing the like. (A) If then the good- will of a partnership business has any saleable value at all, it seems impossible to hold that on a dissolution of a partnership, whether by death or otherwise, any partner can continue the old business in the old name for his own benefit, unless there is some agreement to that effect, or at least to the eft'ect that the assets are not to be sold. Such a right on his part is inconsistent with the right of the other partners to have the good-will sold for the common benefit of all. There are, however, authorities tending to show that, in the case of death, the surviving partners are entitled to continue to carry on business in the old name (i), and to restrain the executors of the deceased parcner from doing . the like. {7ii) But if these cases are carefully examined, tliey will be found scarcely to warrant so gen- eral a proposition. In Webster v. Webster (Z), the ex- -^yehster ?;. ecutors of a deceased partner sought to restrain the '"'ebster. surviving partners from carrying on business in the name of the old firm; but the application was based upon the untenable ground that by so doing the surviving partners exposed the estate of the deceased partner to continued liability. JSTo question -^^^^^^^^ of good-will appears to have been in dispute. In Lewis Langdon. {f) See infra. 490; Lewis v. Langdon, 7' Sim. 421; Ig) Churton v. Douglas, Jolins. 174, Eobertson v. Quiddington, 28 Beav. 536; ante, p. 855. Banks v. Gibson, 34 Beav. 666. (/;) lb. (Jc) Lewis v. Langdon, 7 Sim. 421. (i) Webster v. Webster, 3 Swanst. [l) 3 Swanst. 490. ^' 1133 *Sf)3 USUAL CLAUSES. [bOOK IlL V. Langdon (m), the Y.-C. Sbadwell certainly intimated his opinion to be, that surviving partners had a right to continue to carry on business in the old name(«-); but tjie real question there was, whetlier the executors of a deceased partner were entitled to con- tinue the use of that name; and it was held that they were not, which is quite consistent with the absence of the same right on the part of the surviving partner. There seems, moreover, to have been some agreement not set out in the report (o), which influenced the judge's decision; and at the time it was pronounced the *863 *doctrine that good-will is, if saleable, a partnership asset, was not so well established as it is at present. In considering this question, the right of a late partner not to be Continued use ©xposed to risk by having his name continued in a mnng^on'one busiuess must not be forgotten {p); and where his ofiwogrounds. -^j^^g jg pj^j.^ Qf ^}^g Y[avae of the firm, e. ^., if his name is A. B., and the name of the firm is A. B. & Co., so long as he lives he would, it is apprehended, in the absence of an agreement to the contrary, be entitled to restrain his late co-partners and their representatives from carrying on business under the old name, and so continually exposing him to risk. ' Neither his executors, however, nor his trustee in bankruptcy, would have the same right on the same ground; for they would not be exposed to risk. Their right, and indeed the right of any partner whose name does not ap- pear in the name of the firm, to prevent the continuance of the use of the name of the firm, can only be maintained upon the ground tliat such right is involved in the more general right of having the partnership assets, including the good-will, sold for the common benefit. And if upon a dissolution this right is waived, or if the terms of dissolution are such as to preclude its exercise, then each partner can npt only carry on business in competition with the others, but each can represent himself as late of, or as successor to, the old firm : and if he does not hold out the other partners as still in partnership with liimself, each may use the old name without qualification, (g) (m) 7 Sim. 421. borne in mind in Banks v. Gibson, 34 («) See, too, per Lord Eomilly, in 28 Beav. 566. Beav.'536. * 'See a«««, 861, note. (o) See the last line in 7 Sim. 425. (q) See Banks v. Gibson, 34 Beav. ip) See Routb v. Webster, 10 Beav. 566, and tie cases cited in the last four 561 ; Bullock v. Chapman, 2 DeG. & notes. See, as to describing' oneself as Sm.211; Troughton f. Hunter, 18 Beav. late with or from another, Glenny ». 470. Query if this was sufficiently Smith, 2 Dr. & Sm. 476. 1134 CHAP. IX.J PAETNERSHIP AETICLES, ETC. *8o4 The use of a partnership trade mark is another very important element in the good-will of its business; and it is Good-wuiin clearly settled by recent decisions that a partnership wUhtad" trade mark is an asset of the firm, saleable on a disso- ™"''^' lution like any other asset, (r) Good-will is generally valued at so many years' valuation of purchase on the amount of profits. good-wui. *In framing articles of partnership, too great *864: A^eementsas care cannot be taken to express as clearly as g°ood^vifl o" possible what is intended to be done with respect to retirement, &c. good will; and in order to avoid all ambii);uity, the word itself should be made use of. There are cases which show that an agree- ment to take a retiring partner's share in the pi'operty and effects of the partnership (s), or in the partnership premises (t), do not en- title him to anything in respect of good-will. But in another case a clause authorizing a surviving partner to take the stock of the partnership at a valuation was held to entitle the executors of a deceased partner to a share of the value of the good-will of the partnership, and of a trade mark belonging to it. (u) When an agreement is entered into, to the efifect that a retiring partner shall be entitled to be paid for his interest in the good-will of the firm, it is material to determine whether the firm is to be re- garded as of definite or of indefinite duration. For upon this will depend the amount to be paid to the retiring partner. In Austen v. Boys (x), a partnership was entered into for seven years, with power for any partner to retire. In case of Austen v retirement the retiring partner was to be paid by the ^°^'^' continuing partners the fair market value of his interest and share in the partnership business, and in the good-will thereof. Two days before the expiration of the seven years, one of the partners retired, and the question arose, whether in ascertaining the value of his interest in the good-will of the business, the partnership business was to be considered as continuing, or as ending at the expiration of the seven years. It was held that the good-will to be valued, was the good-will of a business ending with the seven {r) See Bury v. Bedford, 4 DeG. J. & (t) Burfleld v. Rouch, 31 Beav. 241. Sm. 352; Hall v. Barrows, 4 DeG. J. & {it) Hall v. Barrows, 4 DeG. J. & Sm. Sm. 150. 150. (s) See HaU v. Hall, 20 Beav. 139; {x) 24 Beav. 598, afBnned 2 DeG. & Kennedy v. Lee, 3 Mer. 452. J. 626. 1135 *SG5 USUAL CLAUSES. [bOOK IIL 3'ears, and that tlierefore the retiring partner's interest in it was nominal merely. In Wade v. Jenkins (j/), partnership articles stipnlated that the good-will should be deemed to be of the value of 60001. and should belong to the partners in the proportions Jenkins. *865 in wliicli *they were entitled to the capital, but that the value of the good- will should not be taken into account in any of the accounts between the partners- On the death of one of the partners it, was held that lie was entitled to a share of the good-will; and that the last-mentioned stipulation only applied to the accounts taken during the continuance of the partnership. In Turner v. Major (2), partners agreed to dissolve and to have the assets and good-will sold by two persons selected bv Turner v. *=> J i Major. them; an injunction was granted to restrain one of the partners from violating this agreement by carrying on business on his own account before the good- will of the partnership had been disposed of. 19. Getting in deJds. — "When a firm is dissolved, it is usual to 19. Getting in appoint One of the partners, or some third person, to debts on disso- . i i i ,. i r. , -i-. ■ i lution. collect and get m the debts 01 the farm. iiut notwith- standing any such arrangement and notice thereof, a debtor to the firm will be discharged if he pays to any one of the partners, {a) Effect, however, will be given by the court to an agreement of the nature in question, by appointing a receiver, and, if necessary, granting an injunction, ih) If the agreement is under seal and is broken, an action for damages may bo brought upon it. (c) But it has been held that an agreement not under seal entered into be- tween two members of a dissolved partnership, to the effect that {y) 2 Griff. 509. psnses, in so doing. lie employed an [z] 3 Giff. 442. agent, who was at tlie time engaged in • On a settlement of partnersMp affairs, other business for him, to collect the bills : if it is agreed that one of the partners Ihld, that the partner was entitled to be shall collect a note and accounts, for the allowed only for the amount paid the benefit of both, it will be presumed that agent, and not for the value of the lat- the money, as fast as received, should ter's services in the employment from be divided between the parties. Met- which he took him, which was much calf V. Fouts, 27 111. 110. greater. Porter?'. Wheeler, 37 Vt. 281. Upon the dissolution of a partnership {a) Ante, p. 275. it was agi-eed that one of the partners (6) Davis v. Amer, 3 Drew. 64. should collect the bills of the firm, and (c) As in Belcher v. Sikes, 8 B. & C. that he should be allowed for his ex- 185. .1136 CHAP. IX.] PAETNEESIIIP ARTICLES, ETC. *866 one of them shall get in the dehts of the -firiTi, and pay what he shall receive in respect thereof to his co-partner, is not an ao;ree- ment on which the latter can maintain any action for damages in case the debts are got in, and the money received on acconnt of them is not paid over; for it is said there is no consideration for such an agreement, (d) But it seems to have been admitted, in the case in which this was decided, that if the partner to whom the money when received is to be paid agrees that he will take no steps to collect the debts himself, that will be a sufficient consideration to support the promise to pay. *W]ien a partner retires, on the- terms that the continuing *866 partners are to get in the old debts, and that such debts, when got in, are to be taken into account, in ascertain- Qptti^, j^ ing the sliare of the retiring partner, the latter will flrmsiYcieeds"^ have a right to charge the continuing partners with mother. wliatever debts they may choose to take to themselves and not get in. As observed by Lord Eomilly: "If continuing partners who are bound to get in debts belonging to an old firm think fit to enter into a new agreement with the debtors of the old firm, by which those debtors become the debtors of the new firm, and the debts of the old firm become merged in that of the new firm by a security taken for the aggregate debt, such continuing partners are liable to the retiring partners for the amount of the old debt as one of the assets received by them." (e) 20. Assignment of share, c&c. — When a partner retires or dies, and he or his executors are paid what is due in respect ^o Assignment of his share, it is customary for him or them formally ^y rearing"' to assign and release his interest in the partnership, and p'^i'^'^''- tor the continuing or surviving partners to take upon themselves the payment of the outstanding debts of the firm, and to indem- nify their late partner or his estate from all such debts. An assignment of all the partnership stock, debts, sums of money, and all other the personal estate and effects of the as- j^sgig^jj^gm ^^ signors as partners, did not before the Judicature acts ^^'°^^- give the assignees a right to sue one of the assignors for a debt due from him to the partnership. (_/) But if one of the assignors after (d) See Lewis v. Edwards, 7 M. & W. (e) Lees v. Laforest, 14 Beav. 262. 300, where such an agreement was come (/) See Aulton t;. Atkins, 18 0. B. to between a solvent partner and the 249. assignees of a bankrupt partner. 1137 *867 USUAL CLAUSES. [book hi. signmcint by outgoiug part- ner. the execution of the deed releases a debt which has been assigned, or negotiates a bill held- by the firm, he becomes liable to an action, for he has no right to derogate from his own grant, (g) An assignment by a partner of his share and interest in the firm stamponas- ^° ^^^ co-partners, in consideration of the payment by them of what is due to him from the firm, is regarded as a sale of property within tlie meaning of the Stamp acts; and consequently the deed of assignment requires an ad valorem Btsimp. (h) But if ihe retiring partner, instead of *867 assigning *his interest, takes the amount due to him from the iirm, gives a receipt -for the money, and acknowledges that he has no more chiims on his co-partners, they will practically obtain all they want; and such a transaction, even if carried out by deed, could hardly be held to amount to a sale, and no ad valorem stamp, it is apprehended, would be payable, {i) 21. Indemnity to outgoing partner. — An indemnity is ordi- 21 Usual in- narily given by a bond or covenant entered into by the demmty. continuing or surviving partners, in consideration of the assiirnment to them of all the share and interest of the retiring: or deceased partner.' The bond or covenant should be joint and [g] Aulton v. Atkins, 18 C. B. 249. (/i) Christie v. Commissioners of In- land Revenue, L. R. 2 Ex. 46; Phillips V. Same, ib. 369; Potter v. The Com- missioners of Inland Revenue, 10 Ex. 147. These cases overrule Belcher «. Sikes, 6 B. & C. 234. ()■) In Steer v. Crowley, 14 C. B. N. S. 337, a release by the executors of a de- ceased partner did not state the consid- eration, and bore only a common deed stamp; and it was held that the deed was a good document of title, although some penalty might be payable by the parties to it, or their solicitors, for not stating the consideration. 'An agreement by one to "release" his retiring partner from the firm debts, amounts to a promise to pay them. Grilfith V. Buck, 13 Md. 102. An agreement for the dissolution of a partnership provided that the assets of the firm should remain in the hands of one of the partners, wlio agreed that he 1138 would therefrom pay the debts of the partnership as they matured, and should be charged interest on the stock and property purchased by him, and on all sums received by him, and credited with interest on all sums by him paid : Held, that he only agreed to apply the assets to the payment of debts, and did not absolutely assume the payment of them. Topliflf v. Jackson, 12 Gray, 565. The firm of A, B and C dissolved partnership, and the members signed an agreement by which all the property of the firm was assigned to A in trust to sell, and with the proceeds to pay the debts of the partnership. A agreed to pay B and C $100 each for their inter- est in the concern, to discharge all the finn debts,- and to save B and harmless therefrom. B and C indorsed on the instrument their receipt for the $100. In an action by B to recover froln A the amount of a debt of the firm that he CHAP. IX.] USUAL CLAUSES. *867 several, {h) The effect of such a bond or covenant is to render a retiring partner, as between liimself and liis late co-partners, a had paid, the agreement was construed to make A a purchaser, and not a mere gratuitous trustee, and the assignment of the partnership property was held to constitute a suificient consideration to support A's promise to paiy the debts of the firm, so that the plaintiff was en- titled to recover the actual damage sus- tained from the breach of the contract. Kose V. Roberts, 9 Minn. 119. , There is nothing in the relation of partners which makes a mortgage, given by one to the other on dissolu- tion of the partnership, to iudemnify him against the partnership debts, fraudulent. Whitmore v. Parks, 3 Humph. 95. If a partner after a dissolution of the partnership, assign all his interest in the partnership property for a valuable consideration, and take a covenant of indemnity against all liability for the debts of the partnership, the covenant does not cover a debt which does not appear upon the partnership books, and was not made known to the assignee at the time of the contract of indemnity. Case V. Cushman, 3 Watts & S. 544. Upon the dissolution of a co'partner- ship between D. and H., H. purchased the interest of D., andgave to him abond signed by himself and another, condi- tioned to indemnify and save D. hann- less from all, and singular the debts and liabilities of the finn, at the end of the formal part of the bond were added the words ' ' liabilities as per schedule of in- debtedness hereto annexed. " In an action upon the bond: Held, that the general terms of the condition were lim- ited and quahfied by the added clause; and that the obhgors were not liable for a firm debt not scheduled. Holmes V. Hubbard, 60 jST. Y. 183. Where one of two partners sells out his interest to the other, who agrees to pay all the firm debts and indemnify the selling partner, which agreement is guaranteed by a surety, such surety is not liable in an action brought against him by a creditor of the firm to recover one of the debts so guaranteed, as in such case there is no privity of contract between the parties to the suit. Camp- bell V. Lacock, 40 Pa. St. 448. See, also, Mackintosh v. Tatman, 38 How. Pr. 145. Where, however, on the dissolution of a partnership, one partner takes the partnership effects, and executes to the other a bond with surety, conditioned for the payment of all the partnership debts, such bond is in equity held to be a trust fund, in v/hich all the creditors have an interest, and which they (the partners being insolvent) can subject to the payment. Wilson v. Stillwell, 14 Ohio St. 464. See, also, Deval v. Mcintosh, 23 Ind. 529. In Hood V. Spencer, 4 McLean, 163, it was held that a bond to relieve a late co-partner from the debts of the fii-m and to pay the same, is not a contract of indemnity merely, but an action may be maintained upon it either by the obhgee, or by the creditors of the firm, for non-payment of such debts. Hood V. Spencer, 4 McLean, 168. If a partner has sold out to his co- partner, and has taken a bond of in- demnity as security that the latter will pay the debts of the fir-m, according to agreement, he cannot, it is held, be substituted, in the place of the creditors of the old firm, to enforce their claims against such co-partner, or enforce, against his co-partner, executions ob- {k) See, as to this, ante, p. 372. 1139 *SG7 TJSUAL CLASSES. [booe iir. surety only for the payment of the partnership debts (l);' and to render him their specialty ci'editor if, notwithstanding their indem- nity, he is compelled to pay those debts, (m) tained against himself by the creditor, or subject the partnership property, sold to the latter, to the payment of the debts. Griffin v. Orman, 9 Fla. 22. On the other hand, in Memll v. Green, 55 N. Y. 270, it was held that where one partner, after being bought out by his co-partners, under covenant that they will pay the iirm debts and iJidemnify him aga,in8t them, pays debts and becomes their surety, he is entitled to come in as a creditor and be subro- gated to the rights of the creditors whom he has paid. When, upon plaintiff's retiring from a firm, the other memb3rs thereof gave him a covenant of indemnity against any loss or damage on account of the firm debts: Held, that no cause of ac- tion accrued thereon to plaintiff un- til he was subjected to damage on ac- count of the partnership liabilities, and that the statute of limitations did not run until then. Carter v. Adamson, 21 Ark. 287. Where one purchases the interest of one of the partners in a partnership, and takes his place in the firm, not agreeing to pa.y at once all the debts of the firm, but only that he will " as- stime " the share of the liabilities of the firm which belong to the outgoing part- ner, the intent and meaning of such as- sumptions is to mdenuiify the outgoing partner. If the latter is obliged to pay any of the old debts, under such cir- cumstances, then, and then only, he is entitled to maintain his action. Cole- man V. Lansing, 65 Barb. 55. In Peacey v. Peacey, 27 Ala. 683, how- ever, it was held that on the dissolution of a partnership, if the remaining part ner, who takes all the goods and partner- ship effects, covenants to become solely responsible for the outstanding partner- ship debts, the covenant is not one of indemnity merely, but binds him to dis- charge the retiring pai-tuer, within a reasonable time, from all liability for the debts; and if he dies without com- plying with his engagement, and his estate is declared insolvent, the retiring partner has a claim against the estate to the amount of the outstanding debts. On the dissolution of the partnership of A and B, in June, which was then insolvent, A and C, with whom A formed a new partnership, contracted with B to pay all the debts due from the late firm of A & B, amounting to $1,735, and also to save B harmless from any cost, trouble or hability on account of such debts. These debts were all then due to the respective creditors of A and B; and A & C proceeded to pay them; but on the 24th of October following, there remained of such debts $635 un- paid. B, not having paid any i)art thereof, nor been subjected to any trouble on account of them, brought his action against A and C for a breach of the contract: Held, 1. That though where the contract was one of indemnity merely, no action thereon will lie, for the MabUity or ex- posure to loss, until actual damage, capable of appreciation, has been sus- tained by the plaintiff; yet where the contract is to perform some act for the plaintiff's benefit as well as to indemnify (I) Rodgers v. Maw, 4 Dowl. & L. 66; Oakley v. Pasheller, 4 01. & Fin. 207, ante, p. 447. = See Maier v. Canavan, 8 Daly, 272, 1140 ante, p. 440, note; Thurber v. Corbin, 51 Barb. 216; Thurber v. Jenkins, 36 How. Pr. 66. (m) Musson v. May, 8 V. & B. 194. c:iAP. IX.J USUAL CLAUSES. ''-867 It is to be observed, tliat in the absence of any a^^reement to that efi'ect, a retiring partner or the executor of a deceased Right to in- ]>artner has no right to an indemnity from the other ^'^^^'■^■ •partners, except so far as he may be entitled to have the assets of and save him harmless from the conse- quences of non-performance, the neg- lect to perform the act, being a breach of contract, will give an an immediate right of action; consequently, in this case, the action brought by B was sus- tainable. 2. That it was the duty of A and C, under the contract, to pay the debts of A & B, according to their tenor, which, a^ they were aU then due, was immedi- ately. 3. That if otherwise they should be paid in reasonable time, which had then elapsed. 4. That the rule of damages was, the amount of debts unpaid at the com- mencement of the action with interest. Lathrop v. Atwood, 21 Conn. 117. So, in Beny v. McLean, 11 Md. 92, it was held that under a written contract by the continumg partners in a firm to pay the debts of the firm and acquit a retiring partner, but not stating when they are to be paid, those which will not be due until after the execution of the contract, need not be paid until they fall due, and those which are then due are to be paid in a reasonable time. Beny v. McLean, 11 Md. 92. See, also, Dorsey v. Dashiel, 1 Md. 198; Faust v. Burgevin, 25 Ark. 170. A and B, being partners, dissolved their partnership, A giving his note to B for his interest in the partnership property and agreeing to pay all the partnership debts, except a note to one S., which B assumed and agreed to pay. In a suit by B against A on the note of the latter, A answered, by way of set- off, the agreement of B to pay the note held by S., averring that it was due and wholly unpaid, and that he. A, was per- sonally liable for the amount thereof: Held, that the answer was a good de- fence to an amount equal to the , note due to S. MuUendore v. Scott, 45 Ind. 113. Where, upon the dissolution of a firm, one partner covenants with his co-part- ner to hold him harmless from all lia- bility or obligation to pay the debts of the firm, the recovery of judgment on these debts, or any of them, is a breach of the covenant. Pope v. Hays, 19 Tex. 375. So, a judgment in a suit against B, one member of a dissolved firm, on a firm note, for want of an affidavit of merits. Held, to be prima fade evi- dence of his right to maintain an action against C, another member thereof, on C's covenant of indemnity to pay all the firm debts; notwithstanding a judgment had been recovered in another State on the same note against all the members except B, who had not then been served with process. In B's action against the validity of the judgment against B could not be inquired into. Bemiett v. Cadwell, 70 Pa. St. 253. The plaintiff, upon retiring from the firm of which he had been a member, conveyed to his co-partners his interest in the partnership, the latter agreeing to pay all the debts, and save him harm- less therefrom. Judgment was subse- quently recovered against the plaintiff and his former co-partners upon a firm , debt. The plaintiff paid a portion of the amount due to the judgment credi- tors, taking from them an agreement in consideration thereof not to molest him or take his property upon the judgment, but reserving all their rights against all the other judgment debtors: Held, that the plaintiff might recover the amount so paid in an action against his former 1141 *S67 TJSUAL CLAUSES. [book III. tlie firm applied in payment of its debts, and to enforce contribu- tion in case he lias to pay more than his share of those debts. But if all the assets of the firm are assi2;ned to the continuing; or the partners. Brewer v. Worlhington, 10 Allen, 329. A and B, who were partners under the firm of A & Co., contracted with C for the delivery of certain stock and ma- terials to them. After the delivery of a portion, B sold his interest in the busi- ness and firm to D, who continued the same business, under the same firm, with A, B taking from D a written agreement " to discharge him from all liabihties on account of purchases of stock and materials as one of the origi- nal firm of A & Co." The rest of the stock, and materials was thereafter de- livered by C, who did not know of the chang'e in the firm, and A afterwards gave to C a note signed A & Co. for a portion of the price, dated back to the time when A & B were in partner- ship : Held, that B upon paymg the note and balance of the account, might maintain an action upon the agreement against D to recover the same. Nichols V. Prince, 8 Allen, 404. Where, on the dissolution of a firm, one of the partners covenants to pay all the company debts, in an action against liim for a breach of that covenant by his paiiner, who has paid a debt of the firm, it is not necessary to aver notice to the defendant of the debt, nor of the suit, recovery and payment. Clough v, Hoffman 5 Wend. 499.- Two partners sold their partnership effects to a third person, and the part- nership was subsequently dissolved. One partner then assigned to the other all his interest in the partnership, the assignee taking all the partnership ef- fects into his own hands: Held, that this operated as a discharge, by the act of the parties, of a covenant of the as- signor, previously made with the as- signee, to pay the debts of the pai-tner- 1142 ship out of the partnership eifeets. Austin V. Cummings, 10 Vt. 26. D. and H. entered into a co-partner- ship in brick-making. D. gave his note for one-half the briclra on hand, and for one-half of the yard and the brick to be made for three years. At the end of 11 munths the partnership was dissolved. D. had in the meantime paid $200 on his $500 note. The written terms of dissolution specified what each of the partners was to do, but said nothing about the note : Held, that the pre- sumption was that it was not extin- guished, but was to be paid. Durham V. Hartlett, 32 Ga. 22. A bond given to one of a firm upon the sale of his partnership interest, con- ditioned for the payment of the partner- ship Uabilities, is satisfied by the pay- ment of the debts to the amount of the penalty, though made through the as- sistance of a succeeding firm. Perry v. Spencer, 23 Mich. 89. A guaranty that one partner in a dis- tillery shall pay a government tax, and thereby protect the interest of his co- partner in the firm, is not discharged by such partner's paying the tax out of the partnership property without the consent of the other, but if it is so paid with his consent, this will be a compli- ance with the contract. Smith v. Rid- dell, 87 lU. 165. P. and K. dissolved partnership, K. taking the partnership property and giving P. a note for $938, and agreeing to pay all partnership UabUities. K. subsequently failed, without having paid partnership debts to the amount of $1500, and informed P. that he could not pay them, and that P. must pay them. Finally, upon K.'s proposal, P. agreed to pay K. $700, upon being in- demnified, by certain persons named, CHAP. IS.J PAKTNEESIIIP AETICLES, ETC. *888 surviving partners, it is only fair that they should undertake to pay its debts; and if it appears that it was the intention of all parties that they should do so, effect will be given to such intentiuu, al- though the undertaking on their part is not explicit in its terms, {n) "When a retiring partner assigns his interest in the partnership assets, and obtains from the continuing partners ^„ , „ ' & -T Effect of ex- a ^covenant of indemnity, his lien on the part- *868 f fo^ Aen''"^"'' nership assets seems to be at an end. ' In He Langmead's trusts (o) the assignment was made expressly subject to the payment of the retiring partner's share of the ^lartnership debts. The continuing partner became bankrupt; and the retiring partner's executors were compelled to pay the unsatisiied partner- ship debts. It was nevertheless held that they had no lien on the specific assets of the old firm, but were confined to their remedy on covenant for indeninity. 22. Arbitration clauses. — With respect to these, it 22. Arbitration , I 1 T clauses. IS to be observed: — 1. That an agreement to refer to arbitration is one which a court will not decree to be specifically performed {p); and 2. That it is one which (independently of the Common law pro- cedure act of 1854) cannot be eff'eetually set up as a defense to any action relative to a matter agreed to be referred (q); unless, indeed the reference has been expressly made a condition precedent to the right to sue. (r) At the same time a court will sometimes decline to interfere between partners who have agreed that their disputes against all said partnership debts, wiiich 418; Street v. Rigby, 6 Ves. 818. An indemnity was given, whereupon P. sur" action will lie for not refeixing in pur- rendered said note, and K. paid P. the suanoe of an agreement so to do, LIt- balanoe, after deducting $700, and P. ingston v. RaUi, 5 E. & B. 132. discharged the mortgage given to secure (g) Dawson v. Fitzgerald, 1 Ex. D. the same: Held, that the indemnity 257; Edwards u. Abej^yron, &c. Soc. 1 was a sufficient consideration for the Q. B. D. 563; Cooke v. Cooke, 4 Eq. 77; compromise, and that P. was entitled to and the older cases referred to there, recover said |700 on said note, the (r) See Soott «. Avery, 5 H. L. C.811; transaction being free from fraud on the Half hide v. Penning, 2 Bro. C. C. 3:^6. part of K. Parmejiter v. Kingsley, 45 The last case is generally regarded as yt. 362. overruled, but qucere whether it is not (n) See Saltoun v. Houstoun, 1 Bing. capable of being supported on the prin- 433. ciple recognized in Scott V. Avery. > See ' See ante, 683, note. the observations of Lord St. Leonards in (0) 7 DeGr. M. & G. 353. See, too, Dimsdale v. Robertson, 2 Jo. & Lat. 91, Lingen v. Simpson, 1 Sim. & Stu. 600. and of V.-C. Wood in Cooke v. Cooke, (j>) Agar V. Maoklew, 2 Sim. & Stu. 4 Bq. 77. *SG9 USUAL CLAUSES. [bOOK III. should be referred to arbitration, and who have not attempted so to settle them, (s) By 17 & 18 Vict. c. 125, which contains several important pro- 17 & 18 Vict. visions respecting agreements to refer to arbitration, it c. 120, gii. -g amongst other things (by § 11) enacted that, — " Whenever the parties to any deed or instrument in writing, to be here. *869 after made or executed, or any of them, shall agree (i) that any then *ex- ifeting or future differences between them, or any of them, shall be referred to arbitration, and any one or more of the parties so agreeing, or any person or 17 & 18 Vict. persons claiming through or under him or them, shall nevertheless '^' "'' commence any action at law or suit in equity against the other party or parties, or any of them or any person or persons claiming through or under him or them, in respect of the matters so agreed to he referred, or any of them, it shall be lawful for the court in which action or suitis brought, or a judge thereof, on appli- cation by the defendant or defendants, or any of them, after appeavance, and before plea or answer, upon being satisfied that no sufficient reason exists why such matters cannot be or ought not to be referred to arbitration according to such agreement as aforesaid, and that the defendant was at the time of the bringing of such action or suit, and still is, ready and willing to join and concur in all acts necessary and proi^er for causing such matter so to be decided by arbitration, to make a> rule or order staying all proceedings in such action or suit, on such terms as to costs and otherwise, as to such court or judge may seem fit; provided always that any such rule or order may at any time afterwards be discharged or varied, as justice may requu-e. The section does not apply whei-e a subraission to refer has been revoked before action, u) Nor is the section imperative; and the courts in the exercise of their discretion have declined to interfere "where there were several matters in dispute, some only of wliich were within the agreement to refer (-y); where one of tiie parties had become bankrupt (aj) ; where there was a honafide suggestion of fraud (y); where there was really no question in dispute, and the defendant's only object was delay (s); where the object was to stop a suit, and not really to settle a dispute, which the defendant de- sired to refer before the suit was commenced, (a) (s) Waters ». Taylor, 15 Ves. 10. («) Wheatley v. Westminster, &c. (<) In Blytb v. Lafone, 1 E. & E. 435, Coal Co. 2 Dr. & Sm. 347. it was held that the agreement to refer (a;) Peinnell v. Walker, 18 0. B. 651. must be contained in the instrument on i (y) WalUs v. Hirsh, 1 C. B. N. S. ol6. which the dispute arises. But tliis has (z) Lury v. Pearson, ib. 639. The been overruled. See Randell, Saunders, true grounds of this decision appear to and Co. v. Thompson, 1 Q. B. D. 748, have been those stated above, but the and Mason w. Haddan, 6 C. B. N. S. 526. report is obscure. (m) RandeU, Saunders, and Co. v. (o) Corcoran v. Witt, 8 Ch. 476 «., Thompson, 1 Q. B. D. 748. explained in 16 Eq. 571. 1144 CHAP. IX.] PAKTNEESHIP ARTICLES, ETC. *870 Where, however, there is a iona fide dispute within the meaning of an agreement to refer, and there is no satisfactory reason why snch dispute should not be settled by arbitration, legal pro- ceedings will be staj-ed (5) ; even although the ^agreement *870 to refer is contained in articles of partnership for a term of years which has expired, (c) In one case the court refused to interefere where the plaintiff sought to' have a partnership dissolved on the ground of the defend- ant's misconduct, and to have a receiver appointed {d), but this case has not been followed (e); nor is there any reason why the court should not appoint a receiver, if necessary, pending the arbi- tration, (y) Under a general submission by partners of all matters in differ- ence between them, an arbitrator may dissolve the po^gj^f partnership (^); and may order one partner to payor '"'^1'™'°'^- give security for the payment of a certain sum to the other (A); and apportion the assets between them(t); and order conveyances to be made [k)\ and direct one partner to sue in the name of himself and otliers, and give them a bond of indemnity (I); and restrain one partner from carrying on business within certain limits (ni); and direct mutual releases to be executed, {n) It seems, Iiowever, that the arbitrator cannot appoint a receiver to collect and get in the partnership assets and credits (o); nor direct one of the partners to ("6) As in Plews v. Baker, 16 Eq. 564; sob v. Page, 1 Ha. 276. Wfllesfordi;. Watson, 8 Ch. 473, and 14 [h) Wood v. WUson, 2 Cr. M. & R. Eq. 572; Randeker v. Holmes, L. R. 1 241. C. P. 679; Seligmann v. LeBoutillier, (I) Burton v. Wigley, 1 Bing. N. C. ib. 681; Russell v. Pelligrini, 6 E. & B. 665; and .«ee Goddart t). Mansfield, 19 1020; Hirsch v. Thum, 4 C. B. N. S. 569. L. J. Q. B. 305 ; Philips v. Knightley, (c) Gillet V. Thornton, 19 Eq. 599. 2 Str. 903. \d) Cook V. Catchpole, 10 Jur. N. S. (m) Morley v. Newman, 5 D. & R. 1068. 317. In Burton v. Wigley, 1 Bing. N. (e) Plews V. Baker, 16Eq. 564; Gilletfc C. 665, the award permitted a partner V. Thornton, 19 Eq. 599. to carry on business, although the arti- (/) See as to this, infra, note (o). cles provided for his not doing so. \g) Green v. Waring, 1 W. Blacks. {)0 Lingood v. Bade, 2 Atk. 505, 475; Hutchinson v. Whitfield, Hayes, where the arbitrator directed such re- Ir. Ex. 78. Simmonds v. Swaine, 1 leases to be settled by a Master in Taunt. 548, shows that a dissolation Chancery, need not be awarded. (o) Lingood v. Bade, 2 Atk. 505; Re, (h) Simmonds v. Swaine, 1 Taunt. 548. Mackay, 2 A. & E. 356. But a receiver (i) Lingood tJ. Eade, 2 Atk. 505; Wood was appointed in Routh v. Peach, 2 V. Wilson, 2 Cr. M. & R. 241; Wilkin- Anstr. 519, and 3 ib. 637. 1145 *871 USCAL CLAUSES. [rOOK III. pay money to him (the arbitrator) in order that lie may apply it in payment of certain specified debts. (/^) It lias also been *8T1 held that an arbitrator *cannot enter into the question whether any part of a premium paid on entering into the partnership shall be refunded, unless the submission pointedly raises that question for determination, {q) 23. Penalties and liquidated damages. — The last clause in a 23 Penalties partnership deed is often one by which each partner ^'^- binds himself to pay, either by way of penalty or by way of liquidated damages, a certain sum in case of the infringe- ment by him of any agreement contained in the previous clauses. A stipulation that on the breach of any agreement in.tlie articles, a sum shall be paid by way of penalty is of little real use, and is sometimes worse than useless, for the sum mentioned will not be payable unless damage to its amount can be proved (r); and on the other hand the penalty generally limits the compensation which can be obtained, even although damage to a greater extent has been sustained, (s) Moreover, a stipulation that for any breach, however small, a large sum shall be paid by way of liquidated damages, is always construed by the courts as a stipulation for payment of that sum by wa}' of penalty, {t) An agreement to pay a definite sum as liquidated damages in one or two specified events, e. g., on car- rying on business within prescribed limits, may no doubt pros'e useful {u)\ but even in these cases it must not be overlooked, that if the stipulated sum is paid, a court will not interfere by injunc- tion, (x) The mere existence of an agreement for liquidated dam- ages does not, however, necessarily make a contract alternative, and preclude such interference, (y) {p) Re Mackay, 2 A. & E. 356.. be referred to as examples. See, too, (g) See Tattersall v. Groote, 2 Bos. & The East India Co. v. Blake, Finch. 117, r. 131. where it was held that though a court (r) See the note to Gaiasford v. Grif- of equity would relieve against a penal- fith, 1 Wms. Saund. 57. ty, it would not relieve against payment (s) See Clarke v. Ld. Abingdon, 17 of Kquidated damages. Ves. 106. [x) Saiuter v. Ferguson, 1 Mao. & G. {t) SeeKemble v. FaiTcn, 6 Bmg. 286; Woodward?;. Gyles, 2 Vem. 119. 141; Ranger v. The Great Western Rail. {y) French v. Maoale, 2 Dr. & War. Co. 5 H. L. C. 119. 269; Coles v. Sims, 5 DeG. M. & G. 1; («) Atkins V. Kinnear, 4 Ex. 776; and see Avery v. Langford, Kay, 663; Reynolds v. Bridge, 6 E. & B. 528, may Clarkson v. Edge, 33 Beav. 227. 1146 OlIAP. X.] ACTIONS BETWEEN PAETNEIiS, ETC. *S72 *OHAPTER X. *872 OP ACTIONS BETWEEN PARTNERSHIPS AND COMPANIES AND THEIR MEMBERS, AND BETWEEN THE MEMBERS THEMSELVES. SECTION I.— GENERAL OBSERVATIONS. 1. Law iefore the Judicature acts. The mutiial rights and obligations of partners, shareliolders, and directors, having been examined, it is proposed in the next place to consider the means by which those rights and obligations can be enforced. It has been already seen (Bk. ii., c. 3) that before the Jndicature acts there was no method by which an ordinary firm Legal proceed- ■' ■• iiigs between could sne or be sued by any of its members, either at partners. law or in equity; for the firm as distinguished from the persons composing it, had no juridical existence. All proceedings, there- fore, which had for their object the enforcement of the mutual rights and obligations of partners, had to be taken by some or one of the members of a firm individually against some others or other of them also individnally. The consequences of this rule were ira- jDortant, for it followed from it — 1. That no action at law could be brought by one partner against another for the recovery of money or property payable to the firm as distinguished from the partner suing; 2. That no suit in equity was maintaiuable by one partner against another with respect to a matter in which the firm was interested, without bringing all the members thereof before the court. This rule was subject to exceptions, as will be seen hereafter; but it was established as a rule, and flowed from the non-recognition of the firm. 114T *874: ACTIONS BETWEEN PAETNEES, ETO. [bOOK III. 87-]* *Moreover, until tlie law was altered by 31 & 32 Yict. c. 116, no ciiminal prosecution was sustainable by one partner against another for stealing the property of the firm, (a) Eut this in- convenience has been removed by the above mentioned statute, (b) These consequences, which were much more serious to large Effect of incor- pfn'tnerships than to small, were avoided by incorpo- poration. i-ating the firm; for a member of a body corporate might always sue or be sued by it just as if he were not a member; and whether the body corporate was a company having gain for its object or not, is and always was wholly immaterial with reference to its capacity of suing and being sued. The institution of a public officer to sue and be sued on behalf Effect of cna- of the members of an unincorporated company, is not bling company 02 ■ j.- xi it to sue and be nccessarily SO ethcacious lor the purposes now under dis- sucd by a pub- . , . . ,.1 ti 1 ucofficer. cussiou as the incorporation ot the company, i? or the public officer may be so constituted as to represent the members as individuals, and only to represent them all, and not all less some or one of them. If in such a case he sues one of the members of the company which he represents, he in fact either represents the mem- ber sued as well as all the other members, or nobody at all, and in either case his action will be improper, (o) In most modern *ST4: acts of Parliament, however, care *has been taken to avoid (a) In R. V. Warburton, L. R. 1 Or. ment; and in R. v. Burgess, 2 N. R. 85, Ca. Res. 274, it was held that a partner and in R. «. Webster, 7 Jur. N. S. 1208, might be convioted of conspiring with a member of a friendly society was con- others to defraud his co-partner by falsi- victed of larceny, and in R. v. Proud, fying the accounts of the firm, and 10 W. R: 62, of embezzlement. In the thereby, in effect, robbing his co-part- last three cases, however, there were ner. But in R. v. Evans, 9 Jur. N. S. special circumstances as rega.rds the 184, a partner who misrepresented the possession of the money and the trust partnership accounts, and thereby ob- reposed in the prisoner. A. shareholder tained more than his share of money, in a bankiug company governed by 7 was held not hable to conviction for ob- Geo. 4, c. 46, was convicted of embez- taining money under false pretences: zling money of the company in R. v. and m R. v. Loose, 29 L. J. M. C. 633, Atkinson, Car. & Marsh. 525. R. V. Marsh, 8 Pos. & Pin. 523, R. v. [b) See on it, R. v. Smith, L. R. 1 Cr. Bren, 3 N. R. 176, members of friendly Ca. R. 266. Booieties indicted for stealing the mon- (c) See Hichens v. Congreve, 4 Russ. eys of the societies were held not liable 562; McMahon w. Upton, 2 Sim. 473; to conviction. However, in R. v. Hughes i>. Thorpe, 5 M. & W. 656; McDonald, 7 Jur. N. S. 1127, a servant Seddon v. Connell, 10 Sim. 58. See, who was paid a salary and a percentage too, per Lord Eldon in Van Sandau v. of profits was convicted of embezzle- Moore, 1 Russ. 460 and 472. 1148 OHAP. X.J GENERAL OBSEEVATIONS. *8T5 this objection, and to render the public oflBcer the representative of the company as distinct from the individuals composino; it; and where this is done, legal proceedings between tlie public officer and those individuals or any of them, are theoretically as unobjection- able as are legal proceedings between incorporated companies and their shareholders. The tendency in modern times, moreover, is to regard companies empowered to sue and be sued more in the light of corporate bodies than formerly, and to treat public officers as the representatives of collective wholes rather than as the re^j- resentatives of the members individually^ (d) The inability oiaJlr?)i to sue one of its members, and vicever.a, arose from the circumstance that in an action by a 11 rm Legal proceed- against one or its members, or vice versa, the member unincorpoiiitcd .^ .. L ^ ^ ^ t • • r>n -i tmt ^^^^ unprivi- m question must be both a plamtiii and a defendant, legeacompa- _... ,, . nies and their r^ractically it is oiten extremely inconvenient to have re- members. course to the intervention of a trustee, and to procure agreements to be made with him so as to enable him to siie and be sued thereon. But, inconvenient as this was, it was only through the intervention of a trnstee that agreements between partners and the firms to which they belonged, could be so entered into as to be enforceable by action at law. [e) An agreement by each partner witli his co-partners might indeed be framed so as to enable one to be sued bj^ the others, if care was taken to exclude the partner sued from all share in what was sought to be recovered from him, and to exclude the partner suing from all obligation to contribute to his own payment if); but an agreement drawn so as to accomplish both these objects, was not generally convenient. It was not, however, coinpetent for partners to establish, even as amongst themselves, a rule that some officer, e. g, the treasurer or secretary of the firm for the time being, should, as it were, repre- sent the firm and sue and be sued on its behalf stipulation ^accordingly. Consistently with the established *875 fc, to unS^' law, effect could not be given to such a rule, and sue. ^ it was simply nugatory, {g) {d) See the next section, sub-divis- (/) Kadenhm-st «>. Bates, 3Bing. 463. ion, 3. {g) See Evans v. Hooper, L. E. I. Q. [e) See Bedford «. Brutton, 1 Bing. B. D. 45; Corners. Maxwell- Irwin, Ir. N. C. 399, as to an action by a partner Rep. 10 C. L. 854; Gray v. Pearson, L. against the trustees of himself and co- R. 6 C. P. 568, the case of a mutual partners. marine insurance society; Hybart v. 1149 *ST6 ACTIONS BETWEEN PAKTNEES, ETC. [bOOK III. Ill consequence of tins doctrine, companies which were neither Putting a cred- incorporated nor empowered to sue their own share- shareholder, holders by public officers, frequently found it ex- tremely difficult to compel the payment of money due to them from such shareholders by any direct proceeding against them. This difficulty led to the crooked expedient of " putting a creditor on a shareholder ;" that is to say, of compelling a shareholder to pay what he owed to the company by inducing some creditor of the company to single him out and sue him for the company's debt at the costs of the company. This expedient was usually found to answer the purpose, inasmuch as the shareholder could only resist tlie creditor's action by pleading the non-joinder of the other sliare- holders in abatement ; and this it was almost always impossible to do with effect. Rather therefore than allow the creditor to obtain judgment, the unfortunate sliareholder made terms with the direc- tors. It is obvious that the grossest oppression might be exercised in this manner, and whatever might be said in defense of putting a creditor on an obstinate shareholder who would not pay, and could not be otherwise made to pay, what he justly owed to the company, nothing could possibly be said in its favor in any other case. For- interferenoe of innately, courts of equity would always interfere in enuity'in ^iwh cases, and both restrain proceedings by the credi- Buch a case. ^qj. g^^^j compel those who "]nit him on," to deal fairly with the person sued. Whatever the rights of the creditor might have been, if he had been suin;j tona fid& {h), he was not regarded in cases of the present description as having any greater rights than those whose tool he was. (i) If the shareholder sued was *876 entitled to have the *accounts of the company taken, and to have its assets applied in payment of its debts, the court would make a decree accordingly (/i;), if the necessary parties wore before the court. {Pj But a court of equity would only interfere to protect the shareholder on the terms of his doing what was just Parker, 4 C. B. N. S. 209, the case of a 84, and Bargate v. Shortridge, 5 H. L. cost-book mining company. By 32 & S3 C. 297; Horn v. Kilkenny, &c. Rail. Co. Vict. c. 19, calls may now be sued for 1 K. & ,T. 399. See, also, Woodbams v. by the pursuer. Anglo-Australian Co. 2 DeG. J. & {h) If he was so suing the court Sm. 162. would not interfere. Green v. Nixon, 23 [k) Femihough v. Leader, 4 Ra. Ca. Beav. 530; Becku. Dean, 3 Jur. N. S. 14. 373, and Lewisw. Billing, ib. 414. («)See Taylor v. Hughes, 2 Jo. & Lat. [1) See Sibley v. Minton, 27 L. J. Ch. 24; Shortridge v. Bosanquet, 16 Beav. 63. 1150 CHAP. X.] ACTIONS BETWEEN PAETXEES, ETC. *S77 towards the comj^any; and would, if there was reason to believe that he ought to pay what the company sought to make him pay, require him to pay that sum into court, (to) The mere fact, moreover, that a shareholder in a company is being sued by a creditor at the instance of the com- ^i^g^^^ „ j^ pany, is not sufficient to induce a court to make an such a case. , order for winding up the company, (n) 2: Effect of Judicature acts. The general effect of the Judicature acts, so far as they relate Effect of the to legal proceedings by partnerships and companies. Judicature , , , ■, . • n /t-,, •• „s I- acts. has been already investigated (Jok. ii., c. 3); and it was then seen that a firm can now sue and be sued in its mercantile name; that where parties are numerous and have a common inter- est, some of them may sue and be sued on behalf of all in respect thereof. Further, there is now the same facility in arranging par- ties to actions in all divisions of the High Court as there was for- merly in arranging parties to suits in equity; and the fact that an account has to be taken in order to ascertain what is due from one partyto another is no longer any reason why an action by one against the other should fail; at most, such a circumstance may render it expedient to transfer the action from one division of the High Court to the other at some stage of the action. Nor is there any danger now of an action for an account being held unsustainable on the ground that an action for damages is the proper remedy, (o) *With respect to actions by the firm, it has been already *877 pointed out that the name of the firm is only a compen- -,. . ,. , . . , 1 . T . 1 " 1 Actions hy and dious expression, tor denoting the individuals compos- against the ing the firm when the name of the firm is used. It lias (m) See Cutts v. Riddell, 1 DeG. & S. Coui-t of Chancery to entertain a suit 226; Sibley v. Minton, 27 L. J. Ch. 53. for an account where there was no This last was the case of a cost-book partnership, tiiist, or fraud, Smith v. mining company, a shareholder in LeventTx, 2 DeG. J. & Sm. 1; Moxon which would not pay his calls. r. Bright, 4 Ch. 292; Hemings v. (m) See, infra, book ir. ch. 3, § 4, Pugh, 4 Giff. 456; Barry v. Stevens, 31 and Ex parte, "Wyld, 1 Mac. & G. 1 ; Beav. 258. See, also, as to claims for .Ba; ^arie Lawton, 1 K. & J. 204; Ex mere damages, Great Western Ins. Co. parte Watson, 3 De G. & S. 263; Ex v. Cunliffe, 9 Ch. 525; Duncan v. Lunt- parte Wise, 1 Drew. 465. ley, 2 Mc & G. 30; Clifford v. Brooks, 13 (o) See as to the jurisdiction of the Ves. 132. 1151 *S78 ACTIONS BETWEEN PAETXEES, ETC. [cOOK III. not yet been decided whether an action in the name of the firm be maintained by or against one of its own members; but the writer sees no difficulty in principle in supporting such a)i action; the firm being regarded for the purposes of the action as one collective whole, (^j) This, however, is comparatively an unimportant matter; for if an action in that form cannot be maintained, it is plain that one partner can sue another whenever he lias legal or equitable rights to be enforced or adjusted, {q) With respect to actions b}' or against some partners or members »„*■ -u „, of companies on behalf of themselves and others, it Actions Dy or J- . ' on''behaif'of must be borne in mind that suits in this form have others. ^pj^g been familiar in courts of equity, and certain rules respecting them have been settled which are not interfered with by the Judicature acts. These rules will be fully investigated presently. SECTION II.— PARTIES TO ACTIONS BETWEEN PARTNERS AND SHAREHOLDERS. 1. General rule as to partnership actions. In actions between partners not involving any partnership account or any interference with persons against whom no relief is sought, the general principles applicable to actions generally must *8Y8 be observed, (r) But partnership disputes *usually involve the taking of some account in which all the partners are interested, or the granting of an injunction or the appointment of a receiver, which materially affects them all. Hence, it has long been a rule in Chancery that where the number of partners i? not great they must all be parties to a suit for an account if within the juris- diction of the court (.v); and subject to the question how far the firm can be treated as representing them all, this rule is still in force {p) Such actions are common in Scot- aside a fraudulepfc transaction in which land. the two defendants had concurred; then [q) There may, however, still he diffl- A & B became bankrupt; it was held culties in framing an action properly, as that the joint assignees of A & B could in Robertson v. Southgate, 6 Ha. 536. not proceed with the suit against C. In that case there was a partnership of (r) Ante, book i. ch. 3. three persons, A, B and C; A retired, (s) See Hills v. Nash, 1 Ph. 594. B filed a bill against A and C, to set 1152 CHAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *8r8 Upon a similar principle, where a creditor of a firm sought pay- ment of his debt out of the estate of a deceased part- , ,. Jt Action against estate of de- ceased partner. ner, the surviving partners had to be made co-defend- estate of de- ants with the executors of the deceased, (t) ' Probably in this case the firm would now sufficiently represent the survivors. It follows from the same principle that to an action for a disso- lution and winding up of an ordinary partnership, all j^^tionsfor the partners within the jurisdiction must be parties {u) ;'' dissolution. {t) Wilkinson v. Henderson, 1 M. & K. 582. This subject will be examined hereafter. ' See ante, 485, note. A creditor of an insolvent partner- ship may properly bring a joint action against tlie firm's assignee for benefit of creditors, the representatives of a de- ceased partner, and the surviving part- ners, to compel the assignee to account and pay over to plaintiff his share of the proceeds of the partnership property and (it being alleged in the complaint that the surviving partners are insol- vent), to recover of the representatives the balance of plaintiff's claim. Haines V. HoUister, 64 N. Y. 1. In an action against a wife who is a member of a finn, to subject her interest therein to the payment of a debt of her husband, the other members of the firm are necessary parties. Westphal V. Henney, 49 Iowa, 542. Partnership creditors need not be made parties to an action of settlement between partners. Gridley v. Conner, 2 La. Ann. 87. (m) Evans v. Stokes, 1 Keen, 24; Rich- ardson V. Hastings, 7 Beav. 801; Har- vey V. Bignold, 8 ib. 343; Deeks v. Stanhope, 14 Sim. 57; Wheeler v. Van Wart, 9 ib. 193; Long v. Yonge, 2 ib. 369; Moffat v. Farquharsor, 2 Bro. C. C. 338; Ireton v. Lewis, Finch, 96. 2 Fuller V. Benjamm, 23 Me. 255 ; Waggoner v. Gray, 2 Hen & M. 603 ; Gray v. Larrimore, 2 Abb. U. S. 542 ; McKaig V. Hebb, 42 Md. 227 ; Franc's V. Lavine, 21 La. Ann. 205. See, also. Wells V. Strange, 5 Ga. 22. So, on a bill by the assignee of a share, for the settlement of a firm ac- counts, all the partners must be made parties defendant. Fourth Nat'] Bank v. Carrolton Railroad, 11 Wall. 624. Where A and B, partners, sold a stock of goods to C and D, partners, taking their notes for the amount, and D after- wards withdrew from the latter firm, and A became partner with C by pur- chase, paying for the interest by a re- ceipt against the notes originally given by C and D : Held, that B had no inter- est in this new partnership, and was not entitled to be made a party to a bill by A, for a settlement and account. How- ell V. Harvey, 5 Ark. 270. Where A, B and C are in partnership, and C sells aU his interest in the prop- erty, and credits to D, who takes his place in the firm, and a bill for settle- ment and account is subsequently filed by B against A and D, need not be made a party. Howell v. Harvey, 5 Ark. 270. A bUl, filed January, 1867, set out a co-partnership between two in the busi- ness of lumbering, farming, trade and navigation, from 1815 to 1846, when, one of the co-partners having died intes- tate, the plaintiffs, being the sole heirs of the deceased member, were admitted into the firm by the surviving partners, whereupon the partnership business continued until 1862 ; that in 1844, an- other person was admitted into a par- ticular branch of the partnership busi- ness, which continued until 1854, when 1153 *S78 ACTIONS BETWEEN PARTNERS, ETC. [book in. and that the representatives of deceased partners must be parties also if they have any interest in the partnership accounts, {v)' he sold out, received from the co-part- nersliip his share of the profits, and ac- counted for his share of the property, and at the same time the'plaintitfs purchased the other partner's interest in this branclr of the business ; that the gen- eral business of tlie co-partnership con- tinued until 1862, when the original surviving partner died testate, and the defendants were appointed executors of his will ; that the plaintiffs claimed an account of all partnership transactions from 1845 to 18G2, as well as those prior in 1845. On demurrer : Held, 1. That the bill was not multifarious. 2. That the new partner in the par- ticular branch of the partnership busi- ness need not be made a party. 3. That the bill was brought by the proper plaintiifs, they suing as partners and not simply as heirs. "Warren v. Warren, 56 Me. 360. Oiie of several partners filed a bill against the others to obtain a dissolu- tion, and damages against A, one of the defendants, for false representations, whereby a great loss had accrued to the partners. A decree was rendered against A, and the bill dismissed as to the others, on a suggestion that the matters of the suit had been adjusted by them: Held, that this was errone- ous, as one could not be permitted to sue separately, leaving grounds for suits among the rest; nor could he have a decree for damages which belonged to all the partners except A, a suggestion of adjustment being no evidence that the complainant had succeeded to the rights of the others; and as neitlier A nor any property of his was within the state, the mere joinder of some of the partners with him, as fictitious defend- ants, could not confer jurisdiction as to him. Maude v. Rodes, 4 Dana, 144. No hearing can be had upon a bill in 1154 equity, founded upon articles of co-part- nership, and naming all the partners as defendants, if the return upon the sub- poena does not show that all the de- fendants residing within the State have been duly summoned to answer the bill, although those defendants who have been summoned have appeared and de- murred thereto. Homer v. Abbe, 16 Gray, 543. See, also. Stout v. Fortner, 7 Iowa, 183. When a suit to dissolve a partnership involves the question whether certain property is the homestead of one part- ner or partnership property, because boug-ht with firm funds, the wife of such partner is a necessary party. Rhodes V. Williams, 12 Nev. 20. (f ) See Cox v. Stephens, 9 Jur. N. S. 1144, and 2 N. R. 506; Baboo Janokey Doss V. Bindabun Doss, 8 Moo. In App. 175, and Cawthom v. ChaUe, 2 Sim. & Stu. 127, where it appears, that a surviving partner will, if necessary, be constituted the legal personal repre- sentative of the deceased. ^ See Burchard v. Boyee, 21 Geo. 6. The surviving partner is a necessary party to a bill in equity brought by the administrator of a deceased partner praying that a previous decree, substan- tially releasing a partnership debt, may be set aside, and the unpaid balance of the debt decreed to him as administra- tor. Wickliflfe v. Eve, 17 How. 468. The surviving partner is a proper co- defendant to a bill in equity which seeks to enjoin the administrate! of a deceased partner from suing the complainant at law. upon notes given in unsettled deal- ings between complainant and the de- ceased partner, relating to partnership affairs, and to compel an accounting in respect to those dealings. Scott v. Scott, 33 6a. 102. A bill by a surviving partner for an CHAP. X.J PARTIES. *878 Bnt although in an action for obtaining payment of a proportion of an unascertained sum, all the persons interested in j^^gtio^for that sum must, as a general rule, be parties, yet, where tained'sum?^'^' the sum to be divided is ascertained, and the shares into which it is to be divided are also ascertained, an action for the pay- ment of one of those shares may be maintained without making the persons interested in the otlier shares parties, (a;)' So, where the account which is souglit is one in which gut-partner- the partnership is not concerned, it is not necessa.iy or ^^'p- proper to make all the partners parties. If, therefore, a partner has *agreed to share his profits with a stranger, and *879 the latter seeks an account of those profits, he should bring his action against that one partner alone, and not make the otliers parties, {y) Where, however, an [equitable mortgagee of a share in a mine which the mortgagor's co-partners had a right to buy brinos an action for ^foreclosure, all the jjartners ought to be par- ties, (s) account and to enforce his equities against land owned by tlie firm, by a sale thereof, and for payment of the balalice due him by the administrator, properly joins both the heir and the ad- ministrator as defendants. Dilworth v. Mayfield, 36 Miss. 40. See, also, Can- non V. Copeland, 43 Ala. 201. Whei-e a part of real estate, belong- ing to a partnership, was sold by the guardian of the heir of the partner in possession: Held, that the administra- tor of such heir, after his death, was a proper party to a suit in equity by the other partner to recover his share of the proceeds. MoGuire v. Ramsey, 9 Ark. 518. Where complainant in chancery, who sues as administrator of a deceased part- ner, praying an account of partnership concerns, alleges in his bill that he is the sole heir of the deceased partner, the fact that he is not does not make the bill abate for want of necessary parties, since a decree in his favor as adminis- trator would not interfere with the rights of others who might claim a dis- tribution, after the complainant receiv- ed the money decreed to him. Moore V. Huntington, 17 WaU. 417; Where a partner in a right of pre- emption to a lot of land neglects or re- fuses to join his co-partner in obtaining an allowance of their claim, his heirs cannot come into equity for a division of such lot a.fter such co-partner has se- cured it all to himself. Farber v. Levi, 1 Morr. (Iowa), 372. [x) See Weymouth v. Boyer, 1 Ves. J. 416; Smith v. Snow, 3 Madd. 10. Compare Hills v. Nash, 1 Ph. 594. *A bill in equity by one partner against one of his three co-partners to recover one-fourth of $3,211, alleged to have been gotten by the latter three by mistake in the dissolution settlement, is demurrable for non-joinder of the two other partners. Johnston v. Freer, 51 Ga. 313. («/) Brown v. Be Tastet, Jac. 284, Raymond's case, cited by Lord Eldon in Ex parte Barrow, 2 Rose, 255; Bray V. Promont, 6 Madd. 5, and see Killock V. Greg, 4 Russ. 285. {z) Redmayne v. Forster, 2 Eq. 467. 1155 *S79 PAETIES. [book III. Again, if a person has been induced by tbe fraud of the defend- sharescnr- ^^^ ^^ pui'chase shares from him, he is entitled to bring foith^of'faise^ ^^ action for a return of the pm'chase monej, and for statements. ^^ indemnity, and the only necessary party to such an action is the person who sold the shares, (a) Again, where persons have been induced by fraud to subscribe Bubble com- ^*-* ^ bubble Company, each one may institute an action panies. q^j ;[jjg q^^^ behalf against those who have frandulently obtained his money, for a return thereof; and in such a case it is not necessary that the other persons defrauded should be parties to the action, or be represented therein, (h) With reference to the question of parties to actions for the re- Fraud not on scission of contracts on the ground of fraud,' the case plaintiff alone, ^f Macbride V. Lindsay (c) is of considerable impor- tance. There the plaintiff had been induced by the fraudulent rep- resentations of the directors of a chartered company to become a member of the company, and he filed a bill against the company and its directors, praying for, amongst other things, a return of all moneys paid by him to the company, with interest, and for an in- junction to restrain the making of further calls upon him, and for an (a) See Stainbank v. Fernley, 9 Sim. 556; Mare v. Malachy, 1 M. & Cr. 559; Turner v. Hill, Turner v. Tyaoke, Tur- ner V. Borlase, 11 Sim. 1, 16, 17. (6) Colt V. Woollaston, 2 P. W. 154; Green v. Barrett, 1 Sim. 45; Blain v. Agar, 2 Sim. 289; Cridland v. De Mau- ley, 1 DeG. & S. 459. ' In an action by a partner against liis co-partner to obtain a dissolution of the partner.sliip, on the ground of a fraudu- lent sale of the property of the partner- ship by the latter, it is- proper to make the fraudulent vendee a party. Webb V. Helion, 3 Eobt. 625. Where suit is brought by one of two partners against the other, to obtain an accounting and payment of a balance justly due from the defendant to the plaintiff, and to set aside as fraudulent a release from liability as such partner, executed by the plaintiff to the defend- ant, a third person who has fraudulent- ly and without consideration obtained 1156 from the defendant portions of the part- nership property, may also be made a party, in order to subject the properly so held by him to the payment of any balance due from the defendant to the plaintiiF. Wade v. Rusher, 4 Bosw. 537 Upon a bill for an account alleging that complainant sold his interest in a firm to one of the members thereof for less than its value, through fraud of the vendee, and that the furm has been dis- solved, the third partner cannot be made a party defendant, as no decree can be rendered against him. Hirsch v. Adler, 21 Ark. 838. One partner who brings his bill for relief against a note fraudulently ob- tained, should join as defendant his co- partner who participated in the fraud on him. Williams v. Nicholson, 25 Ga. 560. _ (c) 9 Ha. 574. See, also, Seddon v. Gonnell, 10 Sim. 58. CHAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *880 indemnity against any liability' in respect of the en_^ageiiients of the company. A demurrer to this bill was allowed, on the ground that the fraud of which the plaintiff complained gave him no right to rescind his conti'aet, except *a right common to *880 himself and others who were not represented in the suit. This case appears to the writer extremely difficult to reconcile with others in which false prospectuses have been issued, but observations 1-1 II T 111, ,■ ,1 on JIacbride IJ. m which nevertheless one shareholder has successlulJy Lindsay. maintained a suit against a company and its directors for a rescis- sion of his contract to take sliares. (d) Whether in an action against the executor of a partner for an account :or profits made by M'rongfuUy employing the j^^i^^^^ assets of the deceased in the business of a firm of which tcfrs'for ac-^™" the executor is a member, it is necessary to maive tlie count of profits, other members of the firm parties, is not always easy to decide. The rule appears to be that they are necessary parties if the ac- count sought is an account of all tlie profits made by the use of tJie capital of the deceased; but not if the account is confined to so much of those profits as the executors have themselves received, [e) Although a person may have no interest in the account to bo taken, and would therefore be an improper party to an Effeetof pray- action confined to such account, yet if an injunction is ms injunction, sought to be obtained against him specially, he must be made a party. For this reason, the bank of England and Sheriff's are often made parties to actions in which they have no real interest. (/" ) 2. Where some partners may sue or he sued on hehalf of themselves and others. / It has been held in many cases, that to a bill praying for a dis- solution of a partnership, all the partners, however someonbehaw *• ^ ' ^ of themselv es numerous, are necessary parties,' and that consequently and otiKis. {d) See, for example, Kisch v. Cen- Wales, on the other, are certainly em- tral Railway of Venezuela, 3 DeG. ,T. & barrassing. Sm. 122, and Smith v. Reese River Co. (e) See Vyse v. Poster, 8 Ch. 309, 2 Eq. 264, noticed ira/ra, under the head and L. R. 7 H. L. 318; Simpson v. Rescission of Contract. As to actions Chapman, 4 DeGr. M. & Gr. 154. Com- insuoh cases by one shareholder on be- pare McDonald d. Richardson, 1 Giff. 81. half of himself and others, see Croskey (/) See, for example, VulKaray v. .V Bank of Wales, 4 Gift'. 314, noticed Noble, 3 Mer. 593; Sevan v. Lewis, 1 infra, p. 889. Macbride v. Lindsay, on Sim. 376. the one hand, and Croskey v. Bank of ' In an action for an injunction, and a 1157 *881 PAETIES— SOME ON UEIIALF, ETC. [bOOK III. a bill filed by some on behalf of themselves and others, and '•'881 praying for a dissolution, is bad on demurrer, {g) This rule is supposed to admit of no exception, and it has, though with expressions of regret, been held to apply to unincorporated companies as well as to ordinary partnerships. (A) The reason given for the rule is, that the affairs of a partnership cannot be finally wound up and settled without deciding all questions arising between all the partners, which cannot be done in the absence of any one of them, [i) Even if a partnership is empowered to sue and be sued by a public Presence of officer, liis presence is not, in an action for a dissolution, public officer , -, ^ p n i /? not sufficient, equivalent to the presence oi all the partners, [k) But notwithstanding these numerous authorities, it may be per- No Instance of mittod to doubt whether it can be considered as a rule soiuUon''where admitting of no exception whatsoever, that to every ac- werenom'fore tiou for a dissolutiou, all the partners must individually tiie court. i^g parties. All that can on principle be requisite, is that every conflicting interest shall be substantially represented by some person before the court. If, which is possible, the interest of each partner conflicts with that of all the others, then all must undoubt- edly be parties. But if the partners are numerous, and it can be shown that they are divisible into classes, and that all the individ- uals in each class have a common interest, then although the inter- est of each class conflicts with that of every other class, there seems to be no reason why, if each class is represented by one or two individuals composing it, a decree for a dissolution should not be receiver to close the business of a special v. Bignold, 8 ib. 343 ; Deeks v. Stan- partnership formed under the statute, hope, 14 Sim. 57; Wheeler w. VanW art, pn the ground of insolvency, it is neoes- 9 Sim. 193; Long v. Yonge, 2 Sim. 369; sary to bring before the court, as parties, Ireton v. Lewis, Finch, 96; Moffat v. all who have an interest to have the Farquharson, 2 Bro. C. C. 388. members of the firm retain control of {/() See cases in last note and Van- the assets. Where one of the special Sandau v. Moore, 1 Russ. 441 ; and partners, is deceased, his executors or ad- Davis v. Fish, in Farren on Life Assur- ministrator should be joined as defen- ances, and cited by counsel in Tounge's dants. Especially should they be Reports, p. 425. brought in where the decedenthad cove- (i) See Richardson v. Hastings, 7 nanted that the partnership should con- Beav. 807. tinue for a term of years. Walkenshaw {h) See Van Sandau v. Moore, 1 Russ. V. Perzel, 4Robt. (N. Y.) 426; 32 How. 441; Davis v. Fisk, cited in You. 425; Pr. 233. Abraham v. Hannay, 13 Sim. 581; Seld- (g) Evans v. Stokes, 1 Keen, 24; Rich- don v. Connell, 10 Sim. 58. ardson v. Hastings, 7 Beav. 801; Harvey 1158 CHAP. X.J ACTIONS BETWEEN PAKTNEESj ETC. *882 made. (T) There is not, *however, so far as the writer is awai-e, *882 any case in wliicli a decree for a dissolution has actually been made in the absence of any of tlie partners. In an action not claiming a dissolution, the question of parties turns entirely on tjie nature of the right sought to be Action not m Ti- • • 1 1 ■ • ■ terms seeking eniorced. it an account is required, and it is one in a dissolution. which the intereit of each partner is distinct from and iu conflict with that of all the others, then all tlie partners, however numer- ous, must be parties, and their representation by others, or by a public officer or secretary, will not be sufficient, (m) On the other hand, if there are no such conflicting interests as above supposed, it will be sufficient if each distinct interest is represented by a party to the record, (n) It was held in Walworth v. Holt (o), that where partners are too numerous to be brought' before the Court, and they are -,^^1^0^11 v. divisible into classes, and all the individuals in one ■^'*^*- class have a common interest, a suit instituted by a few individuals of that class on behalf of themselves and all the other individuals of the same class against the other members of the company, is sustainable. Since this decision, there have been many suits by some sharehold- ers on behalf of themselves and others, praying for very general accounts (but studiously avoiding a prayer for a dissolution), and such suits have been successful whenever the interest of the absent partners has been the same as that of the plaintiffs on the record. For example, it was held in Apperley v. Page (_p), that a bill might be tiled by some of the shareholders of a pro- ^pperieyt;. visionally registered railway, company on behalf of ^"s^- (Z) See Richardson v. Larpent, 2 Y. Abrahams. Hannay, 13 ib. 581; Mc- & C. C. 514, and the observations of Mahon v. Upton, 2 ib. 473; Sibley v. Lord Cottenham in Walworth 1;. Holt, 4 Minton, 27 L. J. Ch. 63. M. & Or. 635. As to Gockbum v. {«) Comp. Harrison v. Brown, 5 De- Thompson, 16 Ves. 321, see the obs. of (i. & Sm. 728. V.-C. Shadwell, 2 Sim. 380, and observe (0) 4 M. & Or. 619. Cockburn v. that the real object was to make the de- Thompson, 16 Ves. 321, is an earlier de- fendants account for the money they cision on this point. See, too, Good v. had received, and that the question Dlewitt, 13 Ves. 397. See, as to some as to want of parties was not raised on behalf, &c., iu cases of voluntary so- with reference to that part of the cieties assuming to be corporations, prayer of the bill which sought a disso- Lloyd v. Loaring, 6 Ves. 773. lution. , {p) ^ Pli- ''"^9- Compare Sibson !). (ot) See Van Sandau v. Moore, 1 Russ. Edgeworth, 2 DeG. & Sm. 73. 441; Selddon v. ConneU, 10 Sun. 58; 1159 *883 PAItTIES — SOME ON BEHALF, ETC. [bOOK III. themselves and all the other shareholders, except the defendants, against the directors; although the bill praj'ed not only for the col- lection of the joint property and its application in discharge *883 of the * joint liabilities, but also for the distribution of the surplus amongst the shareholders, (q) "When no dissolution is claimed, and no winding up of the part- Actions not nership is sought, an action may be properly instituted seeking divis- , o -, i- J f f J , , ,,. iou of asscjis. by some ot a number ot -numerous partners, on behali of themselves and all others whose interest is identical with their own; and this form of action is constantly adopted where numerous partners seek to make their managers account for secret benefits and advantages obtained by them in breach of the good faith owing to those whose affairs they conduct (r); or to rescind contracts into which the partnership has been induced to enter by false and fraudulent representations, (s) So in the case of mutual insurance societies and friendly societies, one member may sue the trustees or committee and one of each class of members as representing all the other members, where the object of the action is to obtain payment of what is due to the plaintiff, (t) Again, for the purpose of rescinding an agreement illegally en- Actionsto tered into by the directors of an unincorporated coni- torfivotnim-' P^^J' ^r for the purpose of restraining tliem from proper acts. doing that which is illegal, an action may be instituted by one shareholder on behalf of himself and all the others, except the defendants, against those directors. Thus in Gray v. Chap- lin (u), it was held that one of the shareholders of a company was entitled to file a bill on behalf of himself and other sharehold- ers, to set aside an agreement entered into by the managers, con- trary to the company's act of Parliament; because whatever bene- fits might be reserved to the shareholders by the agreement, they (?) See, for other instances, Cramer ». Hichens v. Congreve, 4 Russ. 562; Tay- Bird, 6 Eq. 143; Wilson v. Stanhope, 2 lor w." Salmon, 4 M. & Cr. 134; Beck v. Coll. 629; Harvey w. CoUett, 15 Sim. Kantorowicz, 3 K. & J. 237. 332; Cooper v. Webb, ib. 454; Clements (s) See Small v. Attwood, You. 407. V. Bowes, 17 Sim. 167, and 1 Drew, 684; (t) See Pare v. Clegg, 29 Beav. 589; Eichardson v. Hastings, 7 Beav. 323; Bromley v. Williams, 32 ib. 177; Har- Butt V. Monteaux, 1 K. & J. 98; Shep- vey v. Beckwith, 2 Hem. & M. 429. pard V. Oxenford, ib. 491; Sibson v. (m) 2 Sim. & Stu. 267, reversed on Edgeworth, 2 DeG. & S. 73. Compare appeal, on the ground of delay and ao- Wilhams v. Salmond, 2 K. & J. 463. * quiescence, 2 Russ. 126. (r) Chancey v. May, Free, in Ch. 592; 1160 OIIAP. X.] PAETIES — SOME ON BliUALF, ETC. *885 *were all to be considered as interested in havincr tlie direc- *884 tions of the act complied with. Where a company is incorporated, and its directors or some share- holders have done or are doing that which other share- where com- holders disapprove, and bring an action to redress or poratel"^'' ^ prevent, the following rules are to be observed: — ■ 1. If the matter complained of is one which gives a right of action to the company as a collective whole, the company ought to sue in its corporate name, and an action by one member on behalf of him- self and others is improper, (x) 2. Again, if the complaint relates to some matter of internal man- agement as to which a majority is competent to decide, the action should be brought by the majority in the name of the company, (y) 3. But if those who have the management of the affairs of the company will not bring an action in its name when the sharehold- ers require it, having a right so to do, or if directors or shareholders have done or are about to do that which is wrong, even if sanctioned by a majority, then an action by some of tlie members on belialf of themselves and others may be sustained; for otherwise the dissen- tients would be without redress, (s) In suits thus constituted, courts of equity have compelled directors to account for moneys improp- erly applied (a); have declared resolutions fraudulent and void (l); have restrained the carrying out of agreements under the seal of the company (c); restrained the application of the funds of a company to unauthorized purposes {d)^ e. ^., defraying the expense of applications to Parliament (e); restrained the ^construction *885 {x) Gray ■». Lewis, 8 Ch. 1035; Rus- (6) Preston v. Grand jollier Dock Co. sell V. Wakefield Waterworks Co. 20 11 Sim. 327. Eq. 474. (c) Maunsell v. Midland Great West- («/) McDoug-aU V. Gardiner, 1 Ch. D. em (Ireland) Rail. Co. 1 Hem. & M. 13; Mozley v. Alston, 1 Ph. 790; Foss v. 130. Harbottle, 2 Ha. 461. {d) Colman v. Eastern Counties Rail. («) See the last two notes and the Co. 10 Beav. 1; Salomons v. Laing, 12 cases infra. See Duokett v. Gover, 6 Beav. 339 and 377; Munt ». Shrewsbury Ch. D. 82, where the plaintiff was al- and Chester RaU. Co. 13 Beav. 1; Bag- lowed to amend by adding the company shaw v. Eastern Union Rail. Co. 7 Ha. as a plaintiff under Order xvi., Rule 2. 114, and 2 Mac. & G. 389; Simpson p. This case is important, as the plaintiff Denison, 10 Ha. 51; Vance v. East Lan- had ho authority from the company to cas. Rail. Co. 3 K. & J. 50. use its name. (e) See the last two cases, and Lyde v. (a) Bryson v. Warwick Canal Co. 4 East Bengal Rail. Co. 36 Beav. 10. DeG. M. & G. 711. 1161 *o83 ACTIONS BETWEEN PAETXEKS, ETO. [BOOK III. of part of a railway instead of the whole of it (,/); restrained the improper declaration of dividends {(j)\ set aside an improper for- feiture of shares (A); restrained the transfer of tlie business of one company to anotlier company [i) ; set aside agreements for such trans- fer (JS); set aside fraudulent purchases {l)\ restrained loans to di- rectors (m); restrained a division of assets amongst a majority of members to the exclusion of the rest.'^n) An action by one member on behalf of himself and others may even be maintainable, where an action with like objects would fail if instituted by the company in its corporate capacity; e. g., whei'e the complaint is of fraud imputable to the company as a body, but not imputable to the members individually, (o) In such eases as the foregoing, the company, as such, is a proper Company and party, because it is the company as such which is sought er' parties in°^" to be affected by the judgment of the Court {p); and cases. ^j,g directors individually are proper parties, because they are tlie persons to be affected in the first instance, and some judgment against them personally is also usually necessary. If, however, a judgment against the company is all that is required, there is no necessity to make the directors parties individually. Thus, where a suit was instituted for the purpose of prevent- *886 ing a *company from delegating its powers and, in fact, transferring its business to another company, a bill by one of the sliareholders in , the first company, on behalf of himself and all the other shareholders therein, against both companies, was held (f) Cohen V. Wilkinson, 12 Beav. Rail. Co. 5 Jur. N. S. 1098; Hare v. 125, and 1 Mao. & Gr. 481. Hodgson «. London and N.-W. Rail. Co. IJ. & H. Powis, 12 Beav. 392 and 529, and 1 252, whioli shows that the company DeG. M. & G. 6. which has agi-eed to take the business {g) Bloxam v. Metropolitan Rail. Co. ought to be a party. 3 Ch. 337; Hoolei). Great Western Rail. (/,;) Clinch «. Financial Corp. 5 Eq. Co. ib. 262; Dumville v. Burkenhead, 450, and 4 Ch. 117. &c., Rail. Co. 12 Beav. 444; Carlisle v. [l) Atwooi v. Merryweather, 5 Eq. South-Eastern RaU. Co. 1 Mac. & G. 464, note. 689; Hem-y v. Great Northern Rail. Co. (m) Bluck v. Mallalue, 27 Beav. 398. 4 K. & J. 1, and 1 DeG. & J. 606. As (h) Menier r. Hooper's Telegraph Co. to actions to restrain the payment of 9 Ch. 350. dividends actually declared, see infra, (o) See the observations of Lord Cot- p. 888. tenham in Vigers v. Pike, 8 CI. & Fin. (h) Sweny v. Smith, 7 Eq. 324. 647, 648. (i) Bemanw. Rufford, 1 Sim. IT. S. {p) See Bagshaw ». The Eastern 550; Charlton v. Newcastle and Carlisle Union Rail. Co. 7 Ha. 114. 1162 CHAP. X.J TAKTIES SOME ON BEHALF, ETC. *887 proper in point of form, althougli none of the directors of eitlier company were parties in person. (12) Tlie cases above referred to show that it is competent for one shareholder to institute an action on behalf of himself Actions by and co-shareholders, for tlie purpose of obtaining relief to'cnnTroia^^ in respect of illegal acts done or contemplated by di- ™^-'°"''- rectors; moreover, an action in tiiis form is sustainable to prevent or set aside a transaction which is a irand by a majority on a minority (r) ; but courts will not interfere in actions so constituted, if the relief sought is in respect of acts, the legality or illegality of wliicli de- pends on the voice of a majority of the shareliolders, wlio are not themselves chargeable witli fraud, (s) If such last-mentioned acts are sanctioned by tlie majority, the Court cannot interfere at all, and if they are not so sanctioned, the majority should themselves apply to the Conrt, and institute proceedings in the name of the com- pany, (t) If it is thought necessary to bring an action before tlie views of the majority are known, or if the majority are too indiffer- ent to take any proceedings to enforce obedience to their own resolu- tions, the proper course to be taken by those who determine to appeal to the Court is to take upon themselves the responsibility of bring- ing an action in the name of the company. Such an action will not be stayed unless it appears that the majority disapprove it. (u) *When an action is brought by some shareholders on be- *887 half of themselves and others, it should appear in the state- ment of claim, (1), that the plaintiffs are shareholders (x); Frame of ac- ^ ^ -'■ . , ' tii^i"^ tty some and, (2), that tbey are suing on behalf of themselves on beiiair, &o. {q) Winch v. The Birkenhead, Lane. wards v. The Shrewsbury asd Birm. and Chesh. Rail. Co. 5 DeG. & Sm. 562. Rail. Co. 2 DeG. & Sm. 537: Yetts v. (r) Atwool V. Merryweather, 6 Eq. The Norfolk Rail. Co. Sib. 293; Stevens 464; Menier v. Hooper's Telegraph Co. v. The South Devon Rail. Co. 9 Ha. 9 Ch. 350. 313. See infra, p. 895, ef. seq. (s) McDougaU v. Gardiner, 1 Ch, D. (t) McDongaU 0. Gardiner, 1 Ch. D. 13; Russell V. Wakefield Waterworks 13; Mozley v. Alston, 1 Ph. 790. Co. 20 Eq. 474; Foss v. Harbottle, 2 (ti) The Exeter and Crediton Rail. Ha. 461; Mozley v, Alston, 1 Ph. 790 ; Co. v. BuUer, 5 Ra. Ca. 211, where the Lord V. The Governor and Co. of Cop- bill was filed in the name of the compa- per Miners, 2 Ph. 740; Bailey v. The ny, although the defendants had posses- Birkenhead, Lancas., and Cheshire sionofthe seal. See, also. East Pant- Junction Rail. Co. 12Beav. 433; Browne du, &c., Mining Co. v. Men-yweather, 2 V. The Monmouthshire Rail, and Canal Hem. & M. 254; Atwool v. Merry- Co. 13 Beav. 32; Kent v. Jackson, 14 weather, 5 Eq. 464. Beav. 367, and 2 DeG. M. & G. 49; In- (x) Banks v. Parker, 16 Sim. 176; derwick v. Snell, 2 Mac. &G. 216; Ed- Walbum v. Ingilby, 1 M. &. K. 61. 1163 *8S8 ACTIONS BETWEEN PAKTNEES, ETC. [bOOK III. and others. If this last does not appear, tlie action will be treated as tliat of the ostensible plaintiffs alone, {y) But any one shareholder can, it is said, maintain an action against a company to restrain an illegal act(s); andif a plaintiff sues alone when heought to sue on be- half of himself and others, an amendment wonld probably be allowed. Moreover, if there are conflicting interests, care must be taken Conflicting ^0 have cach separate interest substantially represented luterost. i^y some person who is a party to the action, {z) Therefore, where there is a dispute about a call which some share- Actions to re- holders have paid and others have not, those who siamca s. jjave not paid cannot sustain an action on behalf of themselves and those wlio have paid, against tlie directors, trustees, and secretary of the company, for a general account of the part- nership debts and assets, and to have the property of the concern applied in discharge of its liabilities. To an action with such ob- jects, some at least of the class of shareholders who liave paid the call onght to be made parties, {a) Again, with respect to actions Actions to re- to restrain the improper payment of a dividend, it is strain payment , ' , "i i . n ,. . , , of dividends, to be remembered that tlie declaration ot a dividend confers on each shareholder a legal title to his share of it; and, con- sequently, even although the dividend may have been improperly de- clared, payment of it will not be restrained in an action by one *888 shareholder against the company and its directors *only. On these grounds, in Carlisle v. South-Eastern Railway Com- pany, an injunction to restrain the payment of a dividend already declared was refused, although an injunction to restrain the future declaration of dividends, except out of profits, was granted, {b) These" cases are sufScient to show that, in order that an action laen'ityof maybe sustainable by one or more persons on behalf interests. q^> themselves and others, it is essential that the inter- [y) Baldwin v. Lawrence, 2 Sim. & cases. If the plaintiff does not know Stu. 18; Cooper v. Powis, 3 DeG. & S. who they are, see Hodgkinson v. Na- 688. tional Live Stock Insurance Co. 26 [z) See Hoole v. Great Western Rail. Beav. 473, and 4 DeG. & J. 422. Co. 3 Ch. 262. (6) Carlisle v. South Eastern Rail. Co. (a) See Richardson v. Larpent, 2 Y. 1 Mac. & G. 689. See, also, Fawcett c. & C. C. 507; Lovell v. Andrew, 15 Sim. Laurie, 1 Dr. & Sm. 192. Compare 581; Sharpe v. Day, 1 Ph. 771; Lund v. Hoole v. Great Western RaU. Co. 3 Ch. Blanshard. 4 Ha. 9; and see Seddon v. 262, where one of the defendants was Connell, 10 Sim. 58, and Abraham «. held sufficiently to represent others in Hannay, 13 ib. 581, as to the insuffi- the same interest, ciency of the pubHu officer in such 1164 CHAP. X.J PAETIES — SOME ON BEHALF, ETC. *8S9 ests of the plaintiff's on the record, and of those others whom tliey assnme to represent, should be, in a judicial point of view, identical, and be proved to be so by the plaintiff's, (c) Consequently a share- holder in a company who has sold his shares, and has no longer any interest in the coru])any, cannot sustain an action on behalf of him- self and the other shareholders for an account of the dealings and transactions of the company or of its directors, and to have its assets applied in discharge of its liabilities. For, whether he is or is not still under liabilities from which he is entitled to be freed, he has no right, having sold all his interest in the company, to assume to represent those with whom he has no longer anything to do. [d) Upon the same principle it has been said, that a shareholder who is a mere trustee, having no beneficial interest in the company, is not a proper person to sue on behalf of himself and other share- holders, (e) Neither can an action by one shareholder on behalf of himself and others be maintained by a person who does not Plaintiff a ' 1 ■ />" 1 • 1 1 1 T nominee of a honestly represent the interests oi his co-shareholders, rival company, but who is tlie nominee of a rival company, {jf) A bill by such a *plaintiff' has even been taken off' the file, (g) But *889 the mere circumstance that the plaintiff' has bought a share recently to enable himself to bring an action, does not warrant the Court in dismissing it. Iji) It was at one time considered that a suit by one person on behalf of himself and others was not sustainable unless the in- jojnt ^gjit of jury of which he complained was such as to give him '"=tio°- and them a right to sue jointly, and that it was not sufficient that each should have a right to sue separately: and accordingly it was (c) See, further, Ward v. Sitting- (rf) Doyle v. Mrnitz, 5 Ha. 509. bourne and Sheerness Rail Co. 9 Ch. (e) Ibid, sed queers. 488; Clay I). Eufford, 8 Ha. 281; Wil- (/) Fon-est u. Manchester, &c. Rail, liamsw. Salmond, 2K. & J.463;Sibson Co. 4 DeG. F. & J. 126. See, also, ». Edgeworth, 2 DeG. & S. 73; inwhicli Hare v. London and North Western case the defendant pleaded that the in- Rail. Co. 1 J. & H. 2"i2, and Thomas v. terests of the plaintiff and those he as- Hobler, 4 DeG. F. & J. 199. sumed to represent, were not identical. (g) Robson v. Dodds, 8 Eq. 301. See, also, Thomas v. Hobler, 4 DeG. F. {h) Bloxam v. Metropolitan Rail. Co. & J. 199; which shows that if the 3 Ch. 337; Seaton v. Grant, 2 Ch. 459. plaintiff makes an alternative case, . See, further, on this subject, Orr v. neither alternative must be opposed to Glasgow, &c. Rail. Co. 3 McQu. 799; the interests of those whom he assumes Rogers v. Oxford, &c. Rail. Co. 2 DeG to represent. & J. 662. 1165 *800 ACTIONS BETWEEN PAETNEES, ETC. [bOOK III. held tliat ■\vliere persons having no previous connection witli each other had been induced to subscribe to a loan or for shares in a cora- Actions for panv bv fraud, a suit by one of them on behalf of him- recovervof in i i i . « ^ ■ i ■ ■ siibscrii.tinna sell and others to obtain a return of their subscriptions in cases of n f. i i i i -i fraud. could not be sustained ; for although each subscriber was entitled to have liis money back, the subscribers had no joint right of action, {i) But in another case the contrary was decided (lc)\ it being considered tlint the subscribers to a company had such a com- munity of interest in the funds subscribed as to entitle them to sue jointly for their return. [C) Practically tliis point is not now of much importance, owing to the modern rule as to mis-joinder of plaintiffs, (m) An action by one or more persons on behalf of themselves and Further obser- otliei's, may be instituted without the consent of sucli tionsby'some" Others («-) ; and even against their consent if the ob- ject of the action is to prevent or obtain redress in re- spect of an illegal act. (o) But an action by one or more on *890 behalf, etc., is the *action of those who are named on the record as plaintiffs, and whatever is a defense as against them is a defense to the action, wliatever miglit have been the case if other persons had been plaintiffs on the record, (jp) Where an action is instituted by one member of a company on behalf of himself and others for the protection of the funds of the company and the action is successful, the plaintiffs are only enti- tled to their costs as between party and party, although in one sense the funds out of which those costs are to be paid belong to the plaintiffs themselves. (§') (?) Jones V. Garcia del Rio, Turn. & (o) White v. Carmartlien Rail. Co. 1 Russ. 297; Croskey v. Bant of Wales, 4 Hem. & M. 786. See, also Bloxam v. Giff. 314. See, also, Hallows v. Fernie, Metropolitan Rail. Co. 3 Ch. 337. 3 Ch. 467. Compare Limd v. Blanshard, 4 Ha. 299.' [k) See Beecliing v. Lloyd, 3 Drew. (p) Burt u. British Nation Insur. Co., 314, where the demurrer was overruled. xibi supra, where the plaintiff was held This ease, although prior to Croskey v. barred by his own acquiescence in the Bank of Wales, was not cited in it. matters complained of. See, too, Scarth [1) See the last note. v. Chadwick, 14 Jur. 300, where the de- (m) See infra, p. 890. fendants got rid of the suit by paying (n) Burt V. British Nation Assur. Co. the plaintiff all that he was en- 5 Jur. N. S. 5.55, affirmed on appeal, 4 titled to. DeG. & J. 158; Williams v. Salmond, 2 {q) Morgan v. Great Eastern RaU. K. & J. 463. Co. 1 Hem. & M. 560. 1166 CIIAl'. X.J ACTIONS BT AND AGAINST PUBLIC OFFICEES. ^SOl Accounts taken in an action by one shareliolder on behalf of him- self and others bind all of them, (r) It seems that unless there are twenty persons at least Mdiose in- terests are the same, one or more of them will not be allowed to represent the others, (s) Before quitting this part of the subject, it is necessary to notice the important rule relating to the misjoinder of parties, jjisjomaer of Formerly, if a bill was liled by some on behalf of pi^™t'C-s. themselves and others, and it turned out that any of the persons thus included as plaintifi's had no right to sue, or had interests con- flicting with that of the plaintiffs on the record, the bill was dis- missed {t); but now the Court has power to grant relief and to modify its decree according to the special circumstance of the case, and for that purpose to direct amendments, and to treat any one or more of the plaiutiifs as if he or they was or were a defendant or defendants to the action, and the remaining plaintiff or plaintiffs was or were the only plaintiff or plaintiffs on the record, {ii). Ac- cordingly if an action is brouglit by one shareholder on be- half of himself and others, *and it appears that the interest *891 of some of the persons thus represented is different from - that of the plaintiff, the action may nevertheless be sustained, {x) 3. Of actions hy and against puWic officers. Upon the ground that the public officer of a company only rep- resents the shareholders as a collective whole, and not Eepresentation oi parties by any one or more of tliem as against the otliers (y), it puWic officers. was twice held by Lord Eldon, that a suit for tlie dissolution of a company empowered to sue and be sued by its secretary was defec- tive for want of parties, although the suit was instituted by one shareholder on behalf of himself and others, against the secretary and the directors of the company. (2) In tracing the history of (r) See Singleton v. Selwyn, 9 Jnr. N. Vict. c. 86, § 49. S. 1149. {oc) Hallows v. Femie, 3 Ch. 467; (s) See Harrison v. Stewarclson, 2 Jones v. Rose, 4 Ha. 52. See, too, Ha. 530; But see Fripp v. Chard Bail. Clements v. Bowes, 1 Drew, 684; Sturge Co. 11 Ha. 258. v. The Eastern Union Rail. Co. 7 DeG. {t) In Spittal V. Smith, Taml. 45; the M. & G. 180, 181. bill was dismissed as to some of the iv) See ante, p. 873. plaintiffs only. _ («) Davis v. Fisk, cited in Tou. 425; {u) See Ord. xvi. r. 13, and 15 and 16 and Van Sandau v. Moore, 1 Russ. 441. 1167 *S92 ACTIONS BETWEEN PAETNERS, ETC. [boOK III. joint-stoek companies in the celebrated case of Yan Sandau v. Moore, Lord Eldon prominently alluded to the inability of a pub- lic officer to represent the company in suits between its mem- bers [a), and this doctrine was carried out to its full extent by the late Yice-Chancellor Shadwell (h) who held (c) that neither the act of 7 Geo. 4, c. 46, nor the subsequent act of 1 & 2 Vict. c. 96, em- powered the public officer to represent all the members of the com- pany except one, in a suit between him and them as members. But notwithstanding these authorities an action may be instituted by the public officer of a company against some of its members, if tlie question in dispute is one between the company as a collective whole, on the one side, and those individual members on the other; and it has accordingly been held that, under the Joint-stock banking act, 7 Geo. 4, c. 46, it is competent for a public officer of a com- pany governed by that act, to sue the directors of the oom- *892 pany for the purpose of making them account for *breaches of trust and mismanagement; and in such an action none of the shareholders need be parties, although the company has ceased to carry on buiness, except for the purpose of winding up its affairs, [d) So the public officer is the proper person to sue a shareholder for calls made payable by him to the company, (e) 4. Actions hy and agaijist incorporated companies. An incorporated company can only sue and be sued in its cor- Actionsbe- porate name; and this rule applies as much to actions poratedcom- Dv and agamst its own members as to actions by and panies and . "^^ . their members, agamst Other persons. Accordingly it has been held that a registered joint-stock company can support an action against one of its own shareholders for damages for a libel on the company (a) See 1 Russ. 460 and 472, and expressed in Hughes v. Thorpe, 5 M. & Hicliens v. Congreve, 4 Russ. 562. W. 656. See, too, Ex ■parte Hall, 3 (6) In McMahon v. Upton, 2 Sim. Deac. 405. As to other companies, see 473; Seddon v. Connell; 10 Sim. 58; Lawrence u. Wynn, 5 M. & W. 355; Abraham ». Hannay, 13 Sim. 581. Skinner «. Lambert, 4 Man. & 6r. 477; (c) In Seddon v. ConneU, 10 Sim. 58. WiUs v. Sutherland, 4 Ex. 211, affirmed ((^) Harrison v. Brown, 5 DeG. & in error, 5 Ex. 715, in each of which an Sm. 728. action for caUs by a public officer was (e) See, as to banking companies gov- successful. See, too, Smitli v. Golds- emed by 7 Geo. 4, c. 46; Chapman v. worthy, 4 Q. B. 430; Reddish v. Pin- Milvain, 5 Ex. 61, removing the doubt nook, 10 Ex. 213. 1108 CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *893 published by him. (/") A shareholder of an incorporated com- pany may be a creditor of or debtor to the company, jnst as if he were not a member of it. It follows from this that he may not only sue it, but having obtained judgment against it, he may execute that judgment against liis co-shareholders, if they are liable to be proceeded against in that way by ordinary creditors. More- over, a court will not interfere at the instance of the shareholders proceeded against, and stay execution against them, either on the ground that the plaintiff is himself a member of the company, and bonnd therefore to contribiate to his own payment, or upon the ground that the rights of the parties cannot be ascertained without taking the accounts of the company. In the case supposed tlie plaintiff is a creditor of the company, and not the less so for being a shareholder in it; and to deprive him of his rights as a creditor would be to *defeat one of the objects for which the *893 company, as such, has any existence, {g) But one share- holder w^ll not be allowed to buy up and put in force against a co-shareholder a debt of the company, if the object of the execu- tion creditor is to obtain by means of that debt payment of other monies to which he is not justly entitled. (A) The cases in which some of the members of an incorporated company can sue or be sued on behalf of themselves and others have been already considered, {i) SECTION III.— CASES IN WHICH COURTS WILL NOT INTERFERE BE- TWEEN PARTNERS AND MEMBERS OP COMPANIES. There are three general rules by which courts of equity were influenced when their interference was sought by one q^^^^^i ^^^ partner against another, and to which it will be con- |^cei"euveeu venient at once to refer; for it is apprehended that the P^tners. same rules will be observed by all divisions of the High Court in all actions which before the Judicature acts would have been suits in equity; in other words, in all actions for specific performance, (/) Metropolitan Saloon Omnibus Co. {%) Woodhams v. Anglo- Australian, «. Hawkins, 4 H. & N. 87. &c. Co. 2 DeG. J. & Sm. 162, and (g) See Rheam v. Smith, 2 Ph. other cases referred to at the end of this 726; Hardinge v. Webster, 1 Dr. & Sm. section. 101 {i) Ante, p. 884. 1169 ^'SO-t ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. for an account, for a receiver, for an injunction, and in those ac- tions for fraud in which equitable relief as distinguished from tlie simple recovery of damages is sought. The rules in question, how- ever, have no application to cases in which prior to the Judicature Acts one partner could have sued another at law. The rules alluded to are, 1, not to interfere except with a view to dissolve the partner- ship; 2, not to interfere in matters of internal regulation; 3, not to interfere at the instance of persons who have been guilty of laches. *894 *1. Of the rule not to interfere except with a vieiu to a dissolution. Formerly courts of equity were averse to interfering at all be- Necessity of tween one partner and another, unless it was for the praying f r a ,,,.,. , . . ,. . dissolution. pnrpose ot dissolving the partnership ; or, it it was dissolved already, of finally winding up its affairs. Hence it will be found on reference to the older reported decisions, that if a dis- solution was not sought, the Court would not decree a partnership account,' nor restrain a partner from infringing the partnership ar- ticles, nor protect the partnership assets from destruction or waste. This rule, at no time perhaps very infle.^ible, has gradually been relaxed; it having been discovered to be more conducive to justice to interfere to prevent some definite wrong, or to redress some particular grievance, than to decline to interfere at all unless complete justice can be done by winding up the partnership, and in that manner settling all disputes. At the same time so diflicult is it to shake oif old associations, and to run counter to established rules, that traces of the aversion alluded to may yet be found in the decisions of the courts, and especially in those which relate to the specific performance of agreements to form partnerships, and in those which relate to the appointment of receivers and managers. Indeed, notwithstanding the extent to which the rule has been relajced in actions for an account, or for an injunction, one of the first points for consideration even now, when one partner sues another for equitable relief, is, can relief be had without dissolving the partnership? Undoubtedly it may, much more certainly than formerly, but not always when perhaps it ousrht. Whitliout stopping to inquire how the ques- Modernrule. .^ . , , f ^ ^ .^ , ,p , tion 18 to be answered m any particular case (tor that ' See, post, 947. 1170 CHAP. X.] MATTERS OF INTERNAL EEGTJLATION. *895 will be discussed hereafter), it may he stated as a general propo- sition, that courts will not, if they can avoid it, allow a partner to derive advantage from his own misconduct by compelling his co- partner to submit either to continued wrong, or to a dissolution (^'); and that rather than permit an improper advantage to be taken of a rule designed to operate for the benefit of all parties, courts will interfere in modern times where formerly they would have *declined to do so. At the same time courts will not take *895 the management of a going concern into their own hands, and, if they cannot usefully interfere in any other manner, they will not interfere at all unless for the purpose of winding up the partnership. 2. Of the rule not to interfere in onatters of internal regulation. A court of justice will not interefere between partners merely because they do not agree. It is no part of the duty Disinclination •' ^ T ■ 1 1 1 • *° interfere of the Court to settle all partnership squabbles: it ex- inmaiters pects from every partner a certain amount of forbear- regulation. ance and good feeling towards his co-partner; and it does not regard mere passing improprieties, arising from infirmities of temper, as suflicient to warrant a decree for dissolution,' or an order for an in- junction, or a receiver, {k) And when partners have themselves agreed that the management of their afftiirs shall be entrusted to one or more of them exclusively, the Court will not remove the managers, or interfere with them, unless they are clearly acting illegally or in breach of the trust reposed in them. {I) This principle has been extended to companies, and, as a general rule, it maybe stated that a Court will not interfere internal man- ' '' ^ !!• agement of between members of companies for the purpose of en- companies. forcing duties arising out of matters which are properly the subject of internal regulation. It will not interfere to control a majority, unless it sees that the majority has been or is doing, or is about to do, that which it is illegal even for a majority to do; and it follows [j] See Fairthome v. Weston, 3 Ha. v. Homor, 5 Price, 537; "Warder v. Stil- 392. well, 8 Jur. N. S. 9; Anderson v. An- • See ante, p. 227, and notes. derson, 25 Beav. 190. {h) See Marshall v. Colman, 2 J. & {I) See Lawson v. Morgan, 1 Price. W. 266; Smith v. Jeyes, 4 Beav. 503; 307; Waters v. Taylor, 16 Ves. 10. Lawson v. Morgan, 1 Price, 307; Gofton 1171 *S96 ACTIONS BETWEEN PAETNEES, ETC. [bOOK III. from this, that the Court will not interfere in matters properly the subject of internal management until all reasonable attempts have been made to take the sense of the general body of partners on the matters in question; nor even then unless it is called upon to in- terfere to give effect to the will of the majority against a factious minority. The leading decisions on this subject are Carlen v. Drury, Foss V. Harbottle, and Mozley v. Alston, which will serve to *896 *illustrate the application of the principle in question, as well to unincorporated as to incorporated companies. In Carlen v. Drury (m), a large number of persons were partners Complaints in a concem called The Bankside Brewery, and six of against remov- i i 1 1. r- i i ym i able directors, them on belialt 01 themselves ana co-partners, tiled a Drury!"' bill against the managers and others, alleging circum- stances of gross mismanagement and neglect on the part of the managers, and praying for an account, a dissolution, and a receiver. It appeared that by the company's deed of settlement, the man- agers might be removed at any general meeting; that general meet- ings were to be held at Lady-day and Michaelmas, or within a month after, at snch place as the managers should appoint; that a committee of twelve persons should be annually elected for audit- ing accounts, and advising the managers; that if the managers should misbehave themselves, this committee, or any seven of them, should have the power of calling a special general meeting of share- holders to report thereon; and that no dissolution should be made without the consent of a majority of three-fourths of the share- holders at a general meeting. A motion for an injunction and a receiver was refused with costs, the Court not being satisfied that the means of redress provided by the parties themselves in the ar- ticles were not effectual, and being of opinion that the plaintiffs had a remedy in their own hands to which they had not resorted. From the judgment of Lord Eldon, it appears that the Court would, if necessary, have compelled tlie managers to call meetings; that in a case of delinquency clearly made out, the Court would have acted without hesitation; but that there must have been a positive neces- sity for the interference of the Court arising from the refusal oi neglect of the committee to act; and that the Court would not in- (m) 1 V. & B. 154. See, also, Waters dith, 3 V. & B. 180; Miles v. Thomas, 9 Taylor, 15 Ves. 10; Ellison v. Bignold, Sim. 606. 2 Jac. & W. 503; Beaumont v. Mere- 1172 CHAP. X.j MATTERS OF INTERNAL REGULATION. *897 terfere before the parties had tried that jurisdiction which the arti- c!es had themselves provided. In Foss •«. Harbottle (»), two members of an .„ ,^ , ^ ■' Alleged fraud incorporated *comDany, called The Victoria 897* ^^ot™'^™'^" Park Company, filed a bill- against the directors and others, charging them with a variety of fraudulent and illegal acts, whereby the property of the company was misap- ^^^^^ ^^^_ plied, aliened and wasted, and praying that the de- '^°"<'- fendants might make good to the company the losses sustained by the acts complained of, and that a receiver might be appointed to apply the property of the company in discharge of its liabilities, and to secure the surplus. The general result of the act incorpora- ting the company was (in the opinion of the Court) to make the directors the governing body, subject to the superior control of the proprietors, who, when assembled in general meeting, had power to originate proceedings for any purpose within the scope of the com- pan_y's powers, as well as to control the directors in any acts which they might have originated. The Court was of opinion that the acts of the defendants complained of were of such a nature as to be capable of confirmation by a majority of the members of the com- pany; that it did not appear that any attempt had been made to brino- those acts before a general meeting of the shareholders; and that under those circumstances, the Court could not interfere at the suit of a minority, whatever it might have been induced to do if proper means had been resorted to and found inefi'ectnal to set the general body of shareholders in motibn. In Mozely v. Alston ( Copper niav be made to the case of Lord v. The Governor and Winers com- •' pany. Company of Copper Miners in England (?/), where a shareholder in an incorporated mining company filed a bill to re- strain the governing body from vesting the property of the com- pany' in trustees for the benefit of its creditors. Lord Cottenham (reversing the decision of V.-C. Kniglit Bruce) allowed a demurrer to the bill, on the ground that it was competent for a majority of shareholders to sanction such a jjroceeding, and that it appeared that in fact they had sanctioned it. The important principle that one out of any number of share- otherwise if holders or partners is entitled to the protection of the it isdoingwhat • 1 '77 7 /■ 1 1 is illegal. court against the Mte^/a// acts oi the others (s), although he stands alone, was emphatically declared and strictly carried out by Lord Eldon in Natusch v. Irving (a) and Const v. Harris (i), both of which have been referred to in a former part of this work at considerable length, (c) In those cases Lord Eldon was dealing with partnerships and unincorporated companies; but precisely the same principle applies to all com]3anies, whether incorporated by act of Parliament, charter, letters patent or registration. Thus, in Adley v. The Whitstable Company {cl), Lord Eldon Adioyu The restored a member of a company incorporated bv act Whitstable r. -r-, t . ■ ^ , c T-TiiTT Company. 01 Jrarliament, to rights from which he had been un- lawfully excluded under color of a by-law of the company. „ , In Preston v. The Grand Collier Dock Com- Preston v. 0711*1 Dock *^^'^ P^-^-y W the *v ice-Chancellor of England over- company, ruled a demurrer to a bill, the object of which was to set aside an arrangement on the ground of fraud, and to The contrary receives some countenance fully removed. from, but is not really warranted by (z) i-. e. illegal although sanctioned Edwards v. Shrewsbury, &c. RaU. Co. 2 by a majority. DeG. & S. 537. (o) Gow. on Partn. App. 398. (2/) 2 Ph. 740. See, too, Gregory v. (6) T, R. 518, 519. Patohett, 33 Beav. 595; Kent «. Jack- (c) Ante, p. 601, et seq. See, too, son, 14 Beav. 367, and 2 DeG. M. & G. Chappie v. Cadell, Jac." 587. 49; The Exeter and Crediton Rail. Co. {d) 17 Ves. 315, and 19 ib. 804, and V. Buller, 5 Rail. Ca. 219; Inderwiok v. 1 Mer. 107, where a decree for an ac- Snell, 2 Mac. & G. 216, where directors count of profits was made, complained that they had been wrong- [e) 11 Sim. 327. 1176 CHAP. X.J ACTIONS BETWEEN PARTNERS, ETC. *902 compel certain shareholders to pay calls, although it had been in eifect unanimously resolved at a special general meeting of the company that no calls should be made upon them. So ^^^^^^ ^ in Beman v. Eufford (/), the court, at the suit of a ^^^"^^ small minority of shareholders in a railway company, restrained what in effect would liave been a transfer of the business of the business of that company to another company, although the great majority of sliareholders in the former were desirous that such transfer should be made. So the court has interfered to prevent an improper payment of disn'dends {g); and to prevent a payment of dividends in shares {h); and to pi-otect the preference sliare- holders in a company against the directors and other shareholders, who intended to make an illegal ap[)ortionment of dividends, (i) Upon tlie same principle, the court has over and over again inter- fered, at the instance of a minority of shareholders, to prevent an application of the funds of companies, to purposes foreign to those, to attain which alone such companies were formed, (k) If a company incorporated for a special purpose is exceeding its powers to the detriment of the public, an action by the Action by ■•■ r J ./ Attorney- Attorney-General will lie; as an illustration of this, General, reference may be made to Attorney-General v. Great Northern Kailway Company (I), where a railway company was restrained from carrying on extensive dealings in coals. Where a fraud on a company is complained of bv a Erauas sanc- • 1 1 1 T.a? 'i tioned by a mmority only ot its shareholders, considerable ditiiculty majority, arises; for a transaction which is a fraud on the company may be repudiated or adopted by it at its option. *lrlence, if *902 a majority of the shareholders not implicated in the fraud, iotid fide, elect to ratify the transaction which they might, if they chose, repudiate, it seems that the court will not interfere at the instance of the minority (m); but if the fraud is a fraud by (/) 1 Sim. N. S. 550. See, too, too, Carlisle v. The Southeastern Rail. Winch V. Birkenhead, &o.. Rail. Co. 5 Co. 1 Mac. & G. 689, and on the rights DeG. & Sm. 562; Salomons v. Laing, of preference shareholders, ante, p. 797. 12Beav. 377; Clinch v. Financial Cor- (le) See i«/r«, under the head Injunc- poration, 5 Eq. 450 and 4 Ch. 117. tion, where the cases will be found col- {g) Bloxam v. Metropolitan Rail. Co. lected. 3 Ch. 337. (^) 1 Dr. & Sm. 154. {h) Hoole V. Great Western Rail. Co. (m) SeeFoss v.'Harbottle and Mozley 3 Ch. 262. •». Alston, libi supra, and jjer Wood, V. (?) Henry v. Great Northern Rail. Co. C, in Clinch v. Financial Corp. 5 Eq. 4 K & J. 1, and 1 DeG. & J. 606. See, 482. 1177 *902 ACTIONS BETWEEN PAETNEES, ETC. [bOOK III. the majorit}^ upoa tlie miuority the court will protect such minor- ity. (?i) After the foregoing remarks, it scarcely requires to be mentioned „ ,. that the court will interfere to control a factious minor- Factions minority jjy whicli impedes the execution of the lawful resolu- tions of the majority, (o) ISTor can Mozley v. Alston {p) be con- sidered as inconsistent with this proposition; for, although in that case tlie court certainly did refuse to interfere, it was not called upon to do so in a suit properly framed; and it is tolerably clear from the judgment, that if the majority had chosen to institute a suit in the name of the corporation, the court would have acted very differently, {q) 3. Of the rule not to interfere at the instance oj^ persons who have been guilty of laches. Independently of the Statutes of Limitations, a plaintiff may Laches a bar be precluded by his own laches from obtaining equit- equity^f '" able relief. Laches presupposes not only lapse of time, but also the existence of circumstances which render negligence imputable; and unless reasonable vigilance is shown in the prosecu- tion of a claim to equitable relief, the court, acting on the maxim, vlgilantibtts non dormientibus subveniunt leges, will decline to in- terfere. (■?') ' (n) See Atwool v. Merryweather, 5 the facts, but also as to the reasons for Eq. 464, n. ; and the oases of illegality the judgment, referred to above. (r) Laches may preclude relief, al- (o) See the Exeter and Crediton Rail. though actual n''-?ut or intelligent ac- Co. ». BuUer, 5 Rail. Ca. 211, in which quiescence on the part of the plaintiff the court did so interfere. See, too, may not be proved, see Evans v. Small- Praser v. Whalley, 2 Hem. & M 10. combe, L. R. 3 H. L. 256. (p) 1 Ph. 790, and ante, p. 897. i See Stout v. Seabrook, 30 N. J. Eq. Iq) See, also, McDougall v. Gardiner, 187, and Hall v. Clagett, 48 Md. 224 ; 1 Ch. D. 13. In Miles v. Thomas, 9 (laches a bar to a bill for an account.) Sim. 606, V.-G. Shadwell declined to Delay in demanding a partnership ac- restrain the sajling of a ship, although counting to constitute laches, must have it would seem that the majority of the occurred subsequent to the dissolution shareholders of the company to which of the co-partnership, and for so long a the ship belonged, were opposed to her period as to make the claim stale. Har- sailing on the voyage on which she was ris v. Hillegass, 5 Pacific Coast L. J. about to be sent. The report of this 240. case is, however, obscure, not only as to A decree requiring a co-partner to ao- 1178 CHAP. X.j EFFECT OF LACHES. *903 , *In the early case of Sherman v. Sherman (s), two per- *903 sous had dealings as merchants; one of them died; his widow filed a bill for an account, but, although the to a suit for Statute of Limitations did not apply, the bill was dis- gheTman^ missed, on the ground that many years had elapsed Sherman, since the dealings in question had taken place, and the deceased had allowed any claims he might have had to slumber, [t) Again, where an account has been rendered, and has been long j^^cquiescenoe acquiesced in, unless fraud be proved, a court will not m accounts. re-open it, although the account may be shown to be erroneous, and although no final settlement wa^ ever come to. {u)' The same principle is acted on in taking accounts; for charges long improp- erly made and acquiesced in, or long omitted to be made, and known so to be, are regarded, in the absence of fraud, as having been made or omitted by agreement, and the question of mistake will not be gone into, (x) In actions by shareholders against companies and their directors, the laches of the plaintiff frequently proves fatal to his Laches in pro- case. Thus, in Gray v. Chaplin (y), the directors of a againsTcompa-" canal company made an agreement for letting tolls for ^ ■' ^ .17 Setting aside ninety-nine years, which agreement was both ultra agreements. vwes and detrimental to the interests of the public. Gray^.cnapun After the agreement had been acted upon for foj-ty-seven years without any complaint being made, a bill was filed by two share- count, should be denied in every case 610. where it appears the party seeking the {n) Scott v. Milne, 5 Beav. 215, and account has by his laches, rendered it on appeal, 7 Jur. 709. See, too, Wil- impossible for the court to do full justice liams v. Page, 24 Beav. 654; Stupart v. to both pai-ties. Stout v. Seabrook, Arrowsmith, 3 S. M. & G-. 176 noticed supra. "l/''«. P- 904. In Poster v. Risen, 17 Gratt. 321, it ' See Heartt v. Coming, 3 Paige, 566. ■was held that if the cause of action in a A formal settlement will not, four suit by one partner against his co-part- years after it has been made between ner, for the settlement of the partner- partners who, having equally attended ship accounts, be one to which the stat- to, will be presumed equally cognizant ute of limitations appHes, but the lapse of, its affairs, be disturbed, on the evi- of time since such action accrued be not dence of several debtors who testify, in such as to bring the case within the general terms, to errors in the charges statute, laches and lapse of time cannot, against them on the partnership books, in themselves, constitute a bar to the Coleman v. Marble, 9 La. Ann. 476. suit. Foster v. Rison, 17 Gratt. 321. (a;) Thornton v. Proctor, 1 Anst. 94, (s) 2 Vem. 276. and see pp. 779, 784. (t) See, too, Stuai-t v. Melhsh, 2 Atk. (y) 2 Russ. 126. 1179 *004: ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. holders on behalf of themselves and the other shareholders to set aside the agreement and for an account. A great majority of the shareholders disavowed the suit, but the Yice-Chance!lor held that this was immaterial {z), and he made an order for a receiver- Upon appeal, however, from this order. Lord Eldon held, that the plaintiffs could not avail themselves of the interest which tlie public might have in the matters complained of; and that, what- ever relief might be obtained by the Attorney-General on *904 * behalf of the public (a), tlie plaintiffs were precluded by their own laches and acquiescence from disturbing the posses- sion of the lessee of the tolls, at all events before the hearing of the cause and in the absence of the At'orney-General to represent the public. The order for the receiver was accordingly discharged. What became of the suit afterwards does not ajjpear, but Lord El- don's judgment left the plaintiffs small hopes of obtaining a decree. In Graham v. The Birkenhead, &c., Eailway Company (b), a suit Compelling was instituted by a shareholder in a company to re- works.''"™ ° strain the completion of a part only of the company's kenhead''i{air '^^oi'^s. There had been several suits for the same pur- way Company, p^gg instituted by Other shareholders, but for reasons to which it is not material to advert, those suits were never effect- ually prosecuted. It had been known for a considerable time that it was not intended by the directors to complete the company's works as originally contemplated, and that in fact there were not sufficient funds for that purpose. It was also well known that the directors had for some time been completing part of the works. It was held that those who disapproved of the application of the com- pany's funds to that limited extent, ought to have taken proceed- ings to stop it at once; and that having regard to the laches of the plaintiff he was not entitled to relief. In Stupart v. Arrowsmith (c), a suit was instituted by a share- Makin. tiifs refused to contribute more, but the other partners Tm-ton., did contribute more, and ultimately, after a lapse of some years, succeeded in making the mine profitable, and then the plaintifls came forward claiming their shares in the concern, their bill was dismissed by the Yice-Ohancellor Knight Bruce, and his decision was affirmed on appeal. The same doctrine was applied in Clegg V. Edmonson («.), the facts of which were similar to cie«g?) those of Senhouse v. Christian,, already referred to. In Edmonson. two respects Clegg v. Edmonson goes further than the other cases; for first, the defendants had brought in no fresh capital, the mine having paid its own expenses; and secondly, although the plain- tiffs had not asserted their claims by legal' proceedings, they had constantly insisted on their right to participate in the profits ob- tained by the defendants under the renewed lease. Upon this point, however, it was observed by the Lord Justice Turner, that (j) See, in addition to the case cited thority in support of the doctrine acted below, Alloway v. Braine, 26 Beav. 575, on by Lord Rosslyn in Senhouse v. and Walker v. Jeffreys, 1 Ha. 341. Christian. {k) Cited 19 Ves. 157, and reported in {m) 1 Y. & C. C. 98, and on appeal, a note to 19 Beav. 356. 13 L. J. Ch. 238. (?) 19 Ves. 144. There were more {n) 8 DeG. M. & G. 787. The suit in grounds than one for this decision, but so far as it sought for an account up to the case is always regarded as an au- the time of dissolution was sustained. 11S3 *907 ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. he could not agree to a doctrine so dangerous as that a mere asser- tion of a claim, unaccompanied by any act to give eifect to *908 it, *can avail to keep alive a right which would otherwise be precluded, (o) In the cases already referred to it will be observed that there was Effect of evi- no positive evidence that the plaintiff had ever aban- dence of aban- ,,,..,,. i • /4. -m i donment. doned iiis rights (y); and in Olegg u. Jidmonson' there was evidence to show that no abandonment had ever been contem- plated. It need, however, scarcely to be observed that positive evidence of abandonment, in addition to the negative evidence de- rived from mere lapse of time, during which nothing has been done by the plaintiff, greatly improves the position of his oppo- nent. There are several cases illustrating this. In Jekyl v. Gilbert (§■), two artificers agreed to do work for their ioint benefit; Jekyl «. Gilbert. „ , , ° , , ,,'',. alter tlie work was done, the person tor whom it was done refused to pay; the defendant requested the plaintiff to join in legal proceedings to compel payment, but the plaintiff declined. Thereupon the defendant brought an action for paj'ment of the work done by him, and obtained a verdict. The plaintiff then claimed half the amount recovered, but the Court held that he was not entitled to any share of it. So if a part-owner of a ship disapproves of a proposed voyage, and arrests the ship until the other part-owners give him security for his share, he is not entitled to any portion of the profits arising from such voyage, (r) Again, where two persons agreed to take land on lease for a build- ing speculation, and one of them afterwards opposed the prosecu- tion of the speculation and died without ever having done anything to further it, it was held that the equitable estate and the legal (o) This general proposition must of {p) In Prendergast v. Turton, perhaps course be taken with reference to the there was, and it is on the ground that case before the Court. It cannot be laid there was, that Lord Chelmsford distin- down as universally true that protests guished that case from Hart v. Clarke, are useless. They exclude inferences which will be noticed hereafter. See 6 H. which, in their absence, might fairly be L. C. 657-9. See, also, Garden Gully, drawn from the conduct of the party etc. Co. v. McLister, 1 App. Ca. p. 57. protesting, and are conclusive to show {q) McNaghten's Select Cases in that no abandonment of right was in- Chancery, 29. tended. See in Hart v. Clarke, infra, [r) Davis v. Johnston, 4 Sim. 539. p. 911. 1184 CHAP. X.j ACTIONS BETWEEN PAETNEES, ETO. *91.0 estate were iu the same person, viz., tlie *snrvivor. and that *909 he was not a trustee as to any portion of the land for the executors of the deceased, (s) McLure v. Ripley (t) may also be referred to as illustrating the same principle. There the plaintiff and the defendant jj^Lure^ entered into an agreement for the joint purchase of i^-ipiey- goods to be sent to Chinafor sale, and for the investment of the pro- ceeds in the purchase of tea on the joint account. The money nec- essary for the purchase of the goods was to be supplied by the plaintiff and by the defendant jointly. It was, however, agreed that the defendant should in the first instance give bills for the whole amount of the purchase-money, and that when the bills fell due the plaintiff should provide his share of their amount for the purpose of enabling the defendant to pay them. In pursuance of this agree- ment goods were bought and sent to China, and bills were given by the defendant. Before any of the bills became paj'able it appeared likely that the adventure would result in a loss, and this was known to both parties. Shortly before the time when the first of the bills became due, the defendant applied to the plaintiff for his share of the amount of the bill. The plaintiff was not prepared to supply it, and the defendant thereupon gave the plaintiff the option of withdrawing from the speculation altogether. This offer was ac- cepted, and the plaintiff formally resigned all share in the adven- ture. Shortly afterwards a new agreement was come to for the pur- chase by the plaintiff of part of the return cargo, in which, by the preceding arrangement, the defendant alone had become interested. The cargo arrived, and it was then found that the original specula- tion resulted in considerable pi'oflt. The plaintiff sought to avoid his agreement to withdraw, and his subsequent agreement for pur- chase, on the ground that aftei' he had been applied to for money, and before he agreed to withdraw, the defendant had received two letters from his correspondents in China, which he had concealed from the plaintiff. These two letters, however, contained nothing calculated to lead to the supposition that the adventure would be more profitable "than was previously imagined, and it was clearly shown that the defendant had not been guilty of any misrep- resentation. It was accordingly held that the plaintiff *had *910 no right to be relieved from his contract merely because those letters had not been communicated to him. In delivering judg- (s) Reilly v. Walsh, 11 Ir. Eq. 22. [t) 2 Mac. & G. 275. 75 1185 *911 EFFECT OF LACHES. [bOOK III. ment, the Lord Chancellor proceeded upon the grounds that althougli Withholding ^* ^^®* ^^*'^^ parties were entitled to all the information information. relating to their joint adventure, the plaintiff, by not advancing his share of the funds when required, ceased any longer to have_the rights of a partner, and that, after having agi-eed to em- bai-k in the speculation for better and for worse, the plaintiff had no right whatever to say to the defendant, "Give me all your infor- mation, and I will decide whether I will be a partner or not." It is now necessary to advert to one or two cases apparently at Cases in which "^^iriance with the foi-egoing, and in which persons teen a barto" claiming the rights of partners have succeeded in obtain- reiief. ^j,g t[,g assistance of a court of equity, although .their demands have been stale, and although the success of the joint ad- venture has been due to the exertions of those against whom those demands were made. The case of Lake v. Craddock (u) is sometimes referred to as one Lake 71 ^^ *''® class uow in question. But this case, in truth, Craddock. Qjj|y (decided that if one of several partners chooses to claim thebenefit of partnership dealings, after having for sometime ceased to take any part in the affairs of the partnership, he must contribute his share of the outlays made by the other partners, with interest. It was not decided in I-ake v. Craddock that a partner could, on the above terms, claim the benefit of what had been done by the others; and although the decree gave a partner who had long abandoned the concern the option of either claiming a share on proper terms, or of being excluded altogether, the other partners do not appear to have raised any objection to this option being given. The cases which are most at variance with those referred to in the preceding pages, are the recent cases of Hart v. Clarke and Clements v. Hall. 911* *Iii Hart v. Clarke {x) the facts were shortly as follows, — a mining company was formed on the cost-book principle, (m) 3 P. W. 158. The bill in effect tlie terms imposed, ■was filed by the plaintiff against four (a;) Clarke v. Hart, 6 H. L. C. 633, af- persons, his co-partners for an account. firming Harte v. Clarke, 6 DeG. M. & One of the defendants had long ceased G. 232, and reversing S. C. 19 Beav. to take any part in the partnership af- 349. See, also. Garden GuUy, etc. Co. fairs. An account was decreed, and v. McLister, 1 App. Ca. 39, also a case liberty was given to this defendant to of forfeiture. Shares in cost- book com- come in on terms, or to be excluded. panies may now be forfeited, see 32 St lie appealed, being discontented with 33 Vict, o, 19 § 16, etc, 1186 OHAP. X.j ACTIONS BETWEEN PARTNERS, ETO. *912 and there was no express agreement authorizing the forfeiture of shares on the non-payment of calls. The ^'''* "• ^''''''^• plaintiff and the defendants were the lessees of the mine and the onty shareholders therein. Money being required for, carrying on the mine, arid the plaintiff not furnishing his proportion of the sum required, was, on more than one occasion, informed that on continued non-payment his shares would be forfeited, and ulti- mately they were declared forfeited. The plaintiff, who had all along denied the power of his co-adventurers to forfeit his shares, and had suggested modes of obtaining money which they had not approved, gave them notice that, in the event of the mine proving successful, he should expect his share of the profits, and should, if necessary, take legal proceeding to enforce his claim. A year and a half then elapsed, and at the end of that time he asserted his claim, and the defendants refusing to recognize it, a bill was filed for an account. The Master of the Rolls held it to be clear that no number of partners could exclude another partner and forfeit his share, but that the plaintiff was not entitled to be considered as still a partner; (1), because the notice to forfeit his share might be re- garded as a notice to dissolve the partnership; and (2), because for nearly two j'ears, he had taken no step whatever to assert his rights but had allowed other people to work the mine, and had only come forward when he found it had proved a profitable speculation. On appeal it was also held that the supposed right to forfeit had no ex- istence; but it was further held (1), that the notice of forfeiture could not operate as a dissolution, inasmuch as that was not the object with which the notice had been given ; and (2), that under the peculiar cir- cumstances of the case, the plaintiff could not be held to have shown any intention to abandon the undertaking, and that the nature of mining speculations was such as to render it inequitable to lay *down as a general rule that no adventurer should be entitled *912 to relief in equity when the adventure becomes productive, imless he has paid up his calls whilst it remained unproductive. The ground of the decision in the above case, and that which dis- tinguishes it from Senhouse v. Christian and other cases Ground of the 11 • 1 • • 1 • -ii? • TT i decision in the alluded to aboye, is tins, viz., that the plamtiii m Jlart v. last case. Clarke had, as one of the lessees of the mine, a legal interest therein, which nothing had displaced. Tiie Court, therefore, was in this position : it was compelled either to make a decree in favor of the plaintiff, or to declare him a trustee of his share in the mine for the 1187 *913 EFFECT OF LACHES. [bOOK III. defendants; and there not being sufficient grounds for jiistifying the latter alternative, the former was necessarily adopted. Upon no otlier ground can the case, it is submitted, be distinguished from Clegg V. Edmondson and the other c;S3s alluded to above; for, al- though reliance was placed in the judgment in Hart v. Clarke, on the distinct notice given by the plaintiff that he did not acquiesce in the defendant's conduct, and should insist on his riglits, it was decided in Clegg v. Edmonson that a protest did not enlarge tiie time within which redress must be sought in a court of equity, {y) Clements %i. Hall {z) is anotlier case in which, notwithstanding ciementst) the lapse of a considerable time, it was held that relief '^^^^ ought to be given to a person claiming an interest in a mine; but the facts in that case were very peculiar, and four judges were equally divided, Lord Cranworth and Lord Justice Turner holding that the plaintiff was entitled to relief, Avhilst Lord Justice Knight, Bruce and Lord Eomill}' were of a contrary opinion. The facts were in substance as follows: A. and B. were lessees of a mine which they worked as partners. The lease expired, but the lessees continued in possession as tenants from j-ear to year, and worked the mine as before. In 1847 A. died, leaving C. his executor, and be- queathing an interest in the mine to D. B., after the death of A. worked the mine alone, claiming it as his own entirely, and refusing to give any account to C, who however, constantly pressed *913 for one. In 1850 B. negotiated for and ^obtained from the landlord a new lease, but on more onerous terms than before. Of this C. had no notice. After the new lease, B., who since the death of A. had only kept the mine going, began to work it in earnest and at a profit; and in 1851 D. filed a bill against B. and C. to es- tablish his interest in the mine. C. admitted D.'s title, but B. put in no answer, and the suit was not prosecuted. In 1853 B. died and C. became his representative. In 1854 the plaintili', who was the assignee of D.'s interest, filed a bill in the nature of a supplemental bill to D.'s former bill, and sought to have D.'s interest in the mine secured for his, the plaintiff's benefit. C, who as the representative of A., had admitted D.'s right in his suit, now, as representative of B., opposed the plaintiff's claim, and insisted on lapse of time as a defense to the suit. But it was held (1), that on A.'s death, his inter- est in the mine did not determine; (2), that his estate was entitled to share the benefit of the renewed lease; (3), that A.'s representa- (i/) Ante, p. 907. («) 2 DeG. & J. 173, and 24 Beav. 333. 1188 CHAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *914 tive was not precluded in 1853 from asserting this right against B., inasmuch as B. had kept A.'s representative in ignorance of the real state of the concern; and (4), that there had been no laches on tlie part of the plaintiff or of D., through wliom he claimed, inasmuch as, since 1S51, there had been a bill on the file to secure their interest. Lastly, on the subject of laches it may be observed that, as posi- tive evidence of abandonment materially strengthens afreet of recog- the case of those resisting a stale demand, so, on the iition of title, other hand, positive evidence of recognition affords an answer to a defense grounded on laches and lapse of time. Thus, where a share- holder in a company became bankrupt, but his shares were carried in the books of the company to a separate account, and he was regularly credited with the dividends which became payable in re- spect of those shares, his assignees were held entitled to the shares and accumulated dividends, although twenty years had elapsed since any claim had been made to them (a). JSTotwithstanding Hart v. Clarke, and Clements v. Hall, it is sub- mitted that the doctrine laid down and acted upon in ^Norway v. E.owe, Senhouse v. Christ- *914 ^^^fe"'*"^*'^^ tian, Prendergast v. Turton, and Clegg v. Ed- niondson may still be safely relied on in all cases except those in which the court can be driven, as it was in Hart v. Clarke, to the alternative of holding either that the plaintiff is entitled to relief or that he has abandoned and lost his former legal status (J). Laches, as a defense to an action, cannot be taken advantage of by demurrer, if it can onlv be made out inferentially from Demurrer on . , " the ground of the statements in tne claim (o). laches. SECTION IV.— ACTIONS FOR SPECIFIC PERFORMANCE. If two persons have agreed to enter into partnership, and one of them refuses to abide by the agreement, the rem.edy for General rule ■ . i- X- 1 1 i i- against specific the other is an action tor damages, and not, excepting performance of in the cases to be presently noticed, for specific per- partnersiiip. (a) Penny v. Pickwick, 16 Beav. 246. something more than mere laches is ne" See, too, the renognition of title ia ■ cessary to deprive a plaintiff of rehef. Clements v. Hall, ante, p. 912. (c) See Deloraine v. Browne, 3 Bro. C. (6) See, also. Garden Gully, &c. Co. C. 633; Mitf. PI. 212; Turner v. Borlase, V. McLister, 1 App. Ca. 89, which shows 11- Sim. 17. that ia such a case as Hart v. 'Clarke, n89 *915 SPECIFIC rEEFOEMANCE. [bOOK in. formance. To compel an unwilling person to become a partner with another would not be conducive to the welfare of the latter any more than to compel a man to many a woman he did not like would be for the benefit of the lady. Moreover, to decree specific perfor- mance of an agreement for a partnership at will would be nugatory, inasmuch as it might be dissolved the moment after the decree was, made; and to decree specific performance of an agreement for a partnership for a term of years, would involve the court in the super- intendence of the partnership throughout the whole continuance of the term. As a rule, therefore, courts will not decree specific per- formance of an agreement for a partnership {(If. Nor will specific performance be decreed of an agreement to become a partner *915 and bring in a ^certain amount of capital, or in default to lend a sum of money to the plaintiff' (e). However, if the parties have agreed to execute some formal in- cases in wMcIl strument which would have the effect of conferriiiij a decree will ♦.,1.11 . - " bemade. rights which do not exist so long as tne agreement is not carried out, in such a case, and for the purpose of putting tiie parties into the position agreed upon, the execution of that formal instrument may be decreed, although the partnership thereby formed might be immediately dissolved. (_/)' The principle upon {d) Scott V. Rayment, 7 Eq. 112 ; premises on wliioli the mill was sitii- Hercy v. Birch, 9 Ves. 357 ; Sheffield ated; plaintiff and defendant then to Gas, etc., Co. v. Harrison, 17 BeaT. 294; form a partnership to work the mill for Downs V. Collins, 6 Ha. 418. See, also, one year, at the end of which time, if Maxwell v. The Port Tennant Co. 24 plaintiff chose to retire, defendant was Beav. 495, and Vivers v. Tuck, 1 Moore, to pay him for the premises a fixed sum; P. C. N. S. 516, where, however, there but if plaintiff did not choose to retire, was fraud. the partnership was to continue five ^ See Buck v. Smith, 29 Mich. 166; years: Held, not a contract enforceable Meason v. Kaine, 63 Pa. St. 335; Whit- specifically. Keid v. Vidal, 5 Rich. Eq. worth V. Harris, 40 Miss. 483. 289. An agreement to enter into apartner- (e) Sichel v. MosenthaT, 30 Beav. 371. ship, and as a member of a firm to use (/)Buxton v. Lister, 3 Atk. 885, and and exercise personal skill and judg- see 1 Swaust. 513, note, and Stocker v. ment in the control and management Wedderbum, 8 K. & J. 408. for the firm of the partnership business, ' Thus, where H. and W. formed a co- is not enforceable specifically. Buck v. partnership to erect coUege buildings Smith, supra. and to conduct an institution of leam- Defendant agreed iu writing to repair ing, H. stipulating to use his influence plaintiff's steam saw-miU, buildings, to secure donations to the institution, fences, etc., and plaintiff to sell to de- abandoning a similar enterprise to en- fendant as soon as the repairs were fin- ter into this partnership, ajid giving up ished one undivided moiety of the a pastoral charge at a pecuniaiy sacri- 1190 CHAP. X.j ACTIONS BETWEEN PAETNEES, ETC. *916 uliicli the Court proceeds in a case of this description, is the same as that which induces it to decree execution of a lease under seal, notwithstanding the term for which the lease was to continue has already expired, (g) In England v. Curling (A), the plaintiff and two of the defend- ants agreed to become partners as ship agents, for seven, fourteen,' or twenty-one years, and they signed with their initials England i;. an agreement to that effect. A deed was prepared to cnrimg. carry out the agreement; the deed, however, was never executed, and it differed somewhat from the agreement. The parties carried on business as partners under the agreement for eleven , years, and then they began to quarrel. The defendant Curling, who appears to have been in the wrong from the beginning, gave notice to dissolve in three months; he retired from the partnership, and entered into partnership with other persons, and carried on business with them on the premises and in the name of the old firm. The new firm opened the. letters addressed to the old one, and gave notice of its dissolu- tion to its correspondents. The plaintiff then filed a bill for specific performance and an injunction, and he obtained a decree, (i) *The only other class of cases in which anything like spe- *916 cific performance of an agreement for a partnership will be fice, and W. agreeing to convey to H. 30 Beav. 376. certain parcels of land upon which the (i) The following was the minute of college buildings were to be erected, the decree: — "The Court doth declare specific performance of the contract to that the agreement for a co-partnership, convey was directed. Whitworth v. dated, etc., is a binding, agreement be- Harris, 40 Miss. 483. tween the parties thereto, and ought to In Birchett v. Boiling, 5 Munf. 442, be speciiically performed and carried an agreement to build a tavern in part- into execution, and doth order and de- nership was decreed to be specifically cree the same accordingly. Refer it to performed at the instance of a partner the Master to inquu-e whether any and who furnished the ground for the pur- what variations have been made in the pose, and had fully performed the con- said agreement by and with the assent of tract on his part, notwithstanding many the several parties thereto since the date of the partners were unwilling to carry thereof. Let the Master settle and ap- it into effect, because in their opinion prove of a proper deed of co-partnership a change of circumstances had rendered between the said parties in pursuance the scheme unprofitable. of the said agreement, having regard {g) See Wilkinson v. Torkington, 2 to any variations which he may find to Y. & C. Ex. 726", and the cases there have been made in the said agreement cited. as hereinbefore directed, and let the (h) 8 Beav. 129. See the observa- parties execute it. Continue the injunc- tions of Lord Romflly on this case, in tion against the defendant Curling." 1191 ^■yiT SrECiriC rEEFOEMANCE. [book III. decreed, is where a person who has agreed with another to share Specific per- the profits of some I'oint adventure, seeks to obtain lormance ■ i i wiiere an ac- that share alter the adventure has come to an end. count only is wanted. Although the decree giving him tlie relief he asks may be prefaced by a declaration that the agreement relied upon ought to be specifically performed, this has not the effect of creating a part- nership to be carried on by the litigants, but merely serves as a foundation for the decree for an account, which is the substantial part of what is sought and given. A.n instance of this class of Daiei) cases is afibrdcd by Dale -y. Hamilton. (A;) There, in Hamilton. substancc, three persons had agreed to purchase land; to build on it and improve it; and then to sell it for their common benefit. Land was accordingly obtained, built upon and improved, and subsequently the right of one of the three persons to any share in the adventure was denied by the other two. He thereupon filed a bill for a sale of the land, for an account of the joint speculation, and for a proper distribution of the monies arising from the sale; and the Court held him entitled to this relief Another instance of the same kind is aff'orded by Webster v. Webster r Bray. (I) In that case the plain tifi" and the defendant Bray. jj^^ been jointly retained as solicitors to a company. They were not in partnership as solicitors generallj', but theplain- tift' insisted that they were partners as regarded tlie business done for the company, and that the payments made by the company to each ought to be shared by both. The defendant insisted that there was no partnership, and that each was to be paid for the vrork done by himself, and to retain for his own benefit all payments in respect of such work. The plaintiff having resigned, filed a bill for an account, and the Court made a decree in his favor, *917 declaring that the plaintiff and the *defendant were jointly and equally interested in the profits and loss of the business transacted by them, or either of them, as solicitors to the com- pany, {m) Kelief in the shape of specific performance may be required for other casesof Other purposcs bcsidos carrying into execution agree- formanc^'^he- i^fients to form partnerships. The assistance of a Court tween partners, jg Qftg^ requisite to compcl those engaged in a going (it) 5 Ha. 369, and 2 Pli. 266. 98, and 7 DeG. M. & G. 239, is a similar (T) 7 Ha. 159. case. {m) Robinson v. Anderson, 20 Beav. 1192 CHAP. X.J SPECIFIC PEEFOEMANCE. -''917 concern, to act conformably to the articles of partnership ;' and also to compel those who have dissolved partnership, to observe the stipulations into which they have entered. The principles on which the Courts act in granting or withholding assistance when sought for the former purpose, will be considered hereafter ; and with respect to the specific performance, after a dissolution of part- nership, of agreements entered into by the partners previously to, or at the time of dissolution, it need only be observed that relief will be granted or refused upon the principles by which the Court is ordinarily guided in questions of specific performance, and that nothing turns on the circumstance of the litigants having been partners. It would, therefore, be foreign to the objects of the pres- ent treatise to prosecute this subject further; but for the purposes of reference, it may be useful to mention that the Court has en- forced the following agreements entered into upon or with a view to a dissolution; namely — • Agreements not to carry on business within a certain distance or for a certain space of time (n); Agreements as to the custody of partnership books and the fur- nishing of copies thereof (o); ' A court of equity has power, at the suit of one partner, to compel another to contribute a sum stipulated as capi- tal, or to restore it to the commonfund, if he have withdrawn it before the debts are paid ; and when a special partner, un- der a limited partnership, does not pay in the amount of his capital specified in the certificate, and the firm, having be- come insolvent, assigns their property for the benefit of creditors, the trustee may compel the delinquent partner to pay in the deficiency of his capital. Robinson v. Davidson, 3 E. D. Smith, 221. The owner of a zinc mine agreed with certain other persons to fm-nish 2000 .tons of ore each year for three yean, on being paid $10 per ton there- for, the other persons agreeing to fur- nish suitable buildings for its conversion into paints, and to divide the profits with the miae owner after a cer- tain Lime. Under this agreement the mine owner furnished 746 tons of ore, received for it $5,860, leaving $1,600 still due when the other parties refused to receive any more or to appro- priate the buildings to the manufacture, aUegiug that the business could only prove ruinous to all concerned. The time specified for furnishing the ore had expired ; the business was proved to be hazardous, and the buildings and ma- chinery unfit for the manufacture : Held, specific performance would not be enforced, because an adequate rem- edy at law existed for the breach. Maiming v. Wadsworth, 4 Md. 60. (») Whittater v. Howe, 3 Beav. 383; Turner v. Major, 3 G-ilf. 442; and see Coates V. Coates, 6 Madd. 287, and Williams v. Williams, 1 Wils. Ch. 473, note. (o) Lingen v. Simpson, 1 Sim. & Stu. 600, and see Whittaker v. Howe, 3 Beav. 383. 1193 *918 ACTIONS BETWEEN PAETXEES, ETC. [bOOK III. Agreements that a third party, and he only, shall get iu debts (^); Agreements that the value of the share of an outgoing or a de- ceased partner, shall be ascertained in a specified way and taken accordingly (g'); *918 Agreements that an outgoing partner shall offer his share to his co-partners, before selling it to other persons (/*); Agreements to grant an annuity to a retiring partner and his widow (s) ; Agreements not to divulge or make use of a trade secret, {t) An agreement to form a company is one of the specific perform- specificper- ance of wliich can hardly ever be decreed. Such an agreementsto agreement miiy be perfectly valid and binding, but, form company, ^.j^jg jg ^^^ sufficient to entitle one of the parties to it to a decree for specific performance by the other; for this purpose the agreement must not only be valid, but must also be one which a Court can compel performance of in all essential points; if this is practically impossible, an action for damages, and not for specific Stacker D performance, is the proper remedy. In Stocker v. wedderburn. Wedderburn (u), the plaintiff had obtained a patent, and it was agreed between him and the defendants that a company should be formed by them for the purpose of working the patent; that the plaintiff should assign the patent to the company, give his whole services to it for two years, do his best to impro^^e his inven- tion, and give the company the full benefit of all improvements. Owing to a doubt respecting the validity of the patent, the defend- ant refused to abide by the agreement, and thereupon the plaintift" filed a bill for specific performance, praying, amongst other things, (p) Davis V. Amer, 3 Drew. 64; Tur- the agreement Gought to be enforced ner v. Major, 3 Giff. 442. was too vague in its terms. See, as to (g) Morris v. Kearsley, 2 T. & C. Ex. agreements for a valuation, ante, p. 850. 139; Essex v. Essex, 20 Beav. 442; King (?•) Homfray v. Pothergill, 1 Eq. 567. V. Cliuck, 17 Beav. 325; and see Featli- (s) Aubin v. Holt, 2 K. & J. 66; Page erstonhaugli v. Turner, 25 Beav. 382, v. Cox, 10 Ha. 163; and Bonville v. and Gibson v. Goldsmid, 6 DeG. M. & Bonville, 6 Jur. N. S. 414, M. R., where G. 757, reversing S. C. 18 Beav. 584. the agreement sued upon was decided Compare Downs v. CoUins, 6 Ha. 418, not to bear the construction contended - 'vhere to have enforced the agreement for by the plaintiff, would have been to decree specific per- (t) Morison v. Moat, 9 Ha. 241. formance of a contract for a partnership; (") 3 K. & J. 393. See, too, Max- and Cooper v. Hood, 7 W. R. 83, where well v. Port Tennant Co. 24 Beav. 495, a decree was refused on the ground that where, however, there was fraud. 1194 CriAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *920 that the defendants might be decreed to take such steps as might be necessary for the registration and incorporation of the com- pany. To this *bill the defendants demurred, and tlie demurrer *919 was allowed with costs, on the ground that the agreement was one and entire, and that if a decree were made in the plaintiff's favor, the Court could neither compel him to perform his part nor restore the defendants to their original position in case he did not. Where two companies, having power to amalgamate, have entered into a binding agi-eement so to do, specific performance gpgeiflgper. of the agreement will be decreed, if its terms are such agrcenient°to that a decree for specific performance can practically be amalgamate. enforced. In the Anglo-Australian Assurance Company v. British Provident Insurance Society (x), an agreement by the defendant company to take the assets and liabilities of the plaintiff company, and to indemnify it against its liabilities, was specifically enforced. The question whether a court will decree the specific perform- ance of an agreement to allot and accept shares in a geegjAg gj.. company, has given rise to some difl'erence of opinion, fgreements^to .An ordinary contract for the sale of shares is one which take shares. the Court will decree to be specifically performed (y) ; and it .is immaterial whether the vendor has or has not other shares which he does not sell, or, in other words, whether he and the purchaser will or will not become co-shareholders. But a contract for the sale of shares by one individual to another, is distinguishable in many respects from a contract for the allotment and acceptance of shares in a company to be formed, and authority is not wanting to show that specific performance of a contract of this last description will not be decreed, (s) There is, however, at least, equal authority the other way (a), and on principle, it is *conceived *920 that, assuming the existence of a valid agreement to take (x) 4 Giff. 621, and on appeal, 4 D. Nav. Co. v. Briggs, 4 DeGr. F. & J. 191. G. P. & J. 341. Although in both of these cases a de- («) Ante, p. 720. cree was refused, in the fbrst on the («) Shefiield Gas, &c. Co. v. Harrison, ground of fraud, and in the second on 17 Bear. 294; Bluck v. Mallalue, 27 the ground that there was no conchided Beav. 398; Columbiue v. Chichester, 2 agreement, yet the judgments delivered Ph. 27. In this last case there were iu them show that there is no rule circumstances to show that specific per- against decreeing specific performance formance was impossible. of such agreements as are alluded to (a) See New Brunswick and Canada above.' See, also, Ferguson v. Wilson, ■ Rail. Co. V. Muggeridge, 4, Drew. 686, 2 Ch. 77. and 1 Dr. & Sm. 363; Oriental Steam 1195 *921 SPECIFIC PEEFOEMANCE. [bOOIC III. shares, there is no adequate reason why such an agreement should not be decreed to be specifically performed. It is true that the applicant for sliares might sell and transfer his shares as soon as the decree was made, but the decree would nevertheless not be inoperative. If the applicant were the plaintiff, he could not be got rid of; whilst if he were the defendant, he could only retire from the company by trans- ferring liis shares to somebody else. The reason therefore which induces the Court to decline to decree specific performance of an agreenient for an ordinary partnership at will, is scarcely applica- ble to such an agreement as that now under consideration. More- over, nothing is more common than for thepromoters of a company to agree to sell property to the company in consideration of a cer- tain number of paid-up shares, and it is certainly diiBcult to see why such a contract should not be enforced; indeed, tliere is good authority for saying that a decree for its specific performance may be obtained, (b) Again, persons who have agreed to take shares in a company are every day made contributories for the purpose of winding up; and they are so upon the ground that, although they are not actually shareholders, they have entered into an agreement to .take shares which is binding upon them. Many of these cases are only intelligible upon the assumption that a contract for the allot- ment and acceptance of shares is one which a court ought to enforce. In order, however, that specific performance of , an agreement to Defenses to take Or deliver shares in a company may be decreed, it performance of is neccssary that the agreement should be concluded take shares. and binding (c), and be untainted by fraud (d) or unfairness (e), and be capable of being performed by the *921 defendant (/'), and not *involve any breach of trust (g), or performance by either party of obligations, the performance of which a court cannot practically enforce. (A) (6) See Fyfe v. Swabey, 16 Jur. 49, em Rail. Co. 7 Eq. 116. M. R. (/) Ferguson v. Wilson, 2 Ch. 77; (c) "WTiicli it was not in Oriental Columbine v. Chichester, 2 Ph. 27. As Steam Nav. Co. v. Briggs, 4 DeU. F. & to the impossibility of obtaining regis- J. 191. tration of transfers, ante, pp. 720, 727. [d) Which -was not the case in New {g) Fry on Spec. Perf. p. 11.3, and see Brunswick and Canada Rail. Co. v. Flanagan v. Great Western Rail. Co. 7 Muggeridge, 4 Drew. 686 and 1 Drew. & Eq. 116. Sm. 363; or inMaxweUv. PortTennant (A) Flanagan ». Great Western Rail. Co. 24 Beav. 495. Co. 7 Eq. 116; Stocker v. Wedderbum, (c) As to agreements between co- 3 K. & J. 393, ante, p. 918. directors, see Flanagan v Great West- 1196 CHAP. X.J ACTIOKS BETWEEN PAETNEES, ETC. *922 As regards impossibility of performance, it is to be observed that an agreement by A. that B. shall do something, can only be de- creed to be specifically performed if the agreement, although in form by A., is in truth an agreement by B. himself, or if B. is bound to do that which it has been agreed he shall do. If B. is not bound by the agreement or otherwise, to do what A. has agreed he, B., shall do, no decree for sjjecific performance can be made against either A. or B. These observations apply to a^-ree- Agreement 11 To'^1 With promoters ments made by promoters and others, to be performed ami directors. by a company; if the company is not bound by the agreement, a decree cannot be made either against the company or against the individuals who entered into the agreement, (i) So if directors agree to allot shares, and the agreement is in point of law the agreement of the company, the directors individually can neither be compelled to perforra it nor to compensate the plaintiif for its non-performance, (k) As a general rule, a person who is not a party to an agreement is not entitled to sue for its specific performance ; and Mixen cases of 1 T 1 ■ 1 T ■. 1 1 ' afe^eemo^t where a person has been induced to take shares on the and fraud, faith of an agreement by others that they will do the same, but which agreement was not made with him, his right against them must be based on their misrepresentation made to him, and not on their agreement between themselves, with which he had nothing to do. An instructive case on this head is Bell v. Lord ,,„„ Mexborough. (I) There an unsuccessful attempt was ^ie^i3o™"gii- made by the subscribers to an abortive railway company to compel two members of the provisional committee to perform an agree- ment to take shares, alleged to have been entered into between them and the managing committee, and to pay up the deposits on the shares so agreed to be taken. The bill alleged that the two members in question had, by appearing as provisional *committee men, induced the plaintiif to take shares ; that *922 the same two members had accepted shares in the company from the managing committee, but had never paid the deposits upon them, and that the managing committee refused to take pro- ceedings to compel payment of such deposits. The bill also com- plained of several acts of misconduct on the part of the managing committee, and stated that unless all the deposits on the shares (i) Ellis V. Colman, 25 Beav. 662. {1} 10 Jur. 893, and 12 Jur. 64 on ap- {k) Ferguson v. Wilson, 2 Ch. 77. peal; also, in 5 Ra. Ca. 149. 1197 *923 ACTIONS FOB MISEEPEESENTATION AND FEAUD. [bOOK III. taken were paid up, the company would be insolvent, and the plain- tiffs would be liable to be sued by its creditors. The bill then prayed for an account of the dealings and transactions of the com- pany and an account of its assets, including the amounts due from tlie two members in respect of the shares tiiey had agreed to take, and for the application of the assets in discharge of the liabilities of tlie company. A demurrer to this bill hj the two members com- plained of, was allowed, on the ground that tlie plaintiffs had not made out any case for relief against them, and that the plaintiff's remedy was against the committee of management only. The plaintiffs were, in fact, endeavoring to enforce a contract not made with themselves, and they did not seek on the ground of misrepre- sentation, any relief to which they would not have been entitled had no such misrepresentation been made. It moreover appeared, from the plaintiff's own showing, that the demurring defendants had never signed the subscribers' agreement or Parliamentary conh-act, or done more than express their willingness to take such sliares as might be allotted to them. Although a court will decree specific performance of an agree- ineompiete ment to Sell shares, it will not interfere to compel the graluitous . . . transfers. Completion 01 a gratuitous and intended,- but unper- fected transaction. Thus, if a person voluntarily settles shares on others, but does not transfer them, or actually constitute himself a trustee of them, the persons intended to be benefited by the settle- ment do not acquire any equitable title to the shares enforceable against the settler or his representatives, {m) 923* *SECTION V —ACTIONS FOR MISREPRESENTATION AND FRAUD. 1. General Observations. The proper remedy for a person who has been induced by fraud to become a partner with another, or to take shares in a company depends, in the first place on who the person is who committed the fraud. Speaking generally and subject to certain qualifications which will be noticed hereatter, if the fraud complained of has been committed by the other partner or the company, the person de- {m) MiUroy v. Lord, 8 Jur. N. S. 806, L. J. 1198 CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *924 frauded has tlie option of affirming or of rescinding the contract into which he has been induced to enter; and whether he affirms it or disaffirms it he is entitled to damages for any loss which he may have sustained by i-eason of the frand. {n) But if the fraud has been committed by some third person and is not in point of law imputable to the other partner or the company, then the person de- frauded has no such option: he cannot rescind the contract: he can only sue those who defrauded him for damages.' But it will be observed from this general statement that in cases of this class there is always a preliminary question to be considered, and which, if negatived, leaves the complainant without any redress at all: that question is, Has he in fact been induced by fraud to enter into the contract of which he complains? On this preliminary question a few observations may be useful. No attempt is ever made to give any precise definition of fraud, or to restrict by words the circumstances which may be re- ^ untruth garded as amounting to it in point of law. New cases necessary. of fraud must always be met by new decisions, (o) But by the law of this country a sharp line is drawn between a breach of a promise or the disappointment of hopes raised by the expression of inten- tions or expectations, on the one hand, and an untrue statement on the other (p); and speaking generally there is no fraud suf- ficient to support an action for damages *or to set aside a *924 (n) Small v. Attwood, Tou. 507; by one to srU out his interest to the Pulsford V. Richards, 17 Beav. 87; other, a third partner, having better op- Cruibshank v. McVicar, 8 Beav. 106. portunities than either of them to form And see Beck v. Kantorowicz, 3 K. & a correct opinion of the value of the in- J. 230, and cases of that class. terest in questions, voluntarily expresses 'When one of a number of persons a pretended opinion misrepresenting his who, each with the others, agrees to real behef, both of the others believing contribute money and form a partner- him sincere when he is not, neither of ship for a specified purpose, represents - these will be responsible for his want to another the existence of facts on of candor, and however much his pre- which the latter relies, but which do tended opinions (acquiesced in by both) not exist, the other parties are not may influence either in the final transac- bound by such representations, and the tion, the sale will not, on that account contract is not thereby invalidated, as be set aside. Dortie v. Duzas, 55 6a. between the party deceived and the oth- 484. ers. Kimmins v. Wilson, 8 W. Ya. (o) 2 Sch. & Lef. 266. 584. See, also, Geddes's Appeal, 80 Pa. (j>) See Jordan v. Money, 5 H. L. 0. gt. 442. 185; Harris v. Niokerson, L. K. 8 Q. B. Tf, in the course of negotiations be- 286. tween two partners, pending an ofier 1199 '■■925 ACTIONS FOR MISEEPEESENTATIOIT AND FEADD. [BOOK III contract in tlie absence of some untrue statement or of some con- cealment -which makes what is stated substantially untrue, (q) 2. Untruth In the next place the untrue statement must relate must bo mate- ' rial find iiave to some material matter, and have been made to the been relied . upon. complainant directly, or indirectly as one ot the public {r), and have been in fact relied upon by him. (s) Whether the untrue statement must have been untrue to the 8. -v^'hetiier the knowledge of the person making it is a point still hare been Scarcely Settled. If, indeed, he had no honest belief in atthetime. its truth liis ignorance of its untruth is immaterial. But if he honestly believed it to be true, courts of law and courts of equity have apparently taken diiferent views; for whilst courts of law have held that an action for damages will not lie in such cases, courts of equity have held the person making the statement answerable for the consequences of its untruth, provided he made it in order that it might be acted upon, and it has been acted upon as he intended it should be. {t) Assuming that on the principles above explained, a person has a T * • i.t* risht to rescind a contract on the ground of fraud, he Loss of right to & & ' rescind. Tiiay lose that right in one of two ways, viz., 1, by his own laches; and 2, by disabling himself from restoring what he may himself have received. A person entitled to rescind a contract for fraud loses his right if he does not repudiate the contract within a reasonable time after the discovery of the fraud (u); and a fortiori, if after *925 *such discovery he does anything to afHrm the contract, or anj'thing which is inconsistent with his right to rescind it; (g') See as to oonoealment, Ne^w Som- Rubber Co. 10 Ch. 515, it -was held that brero Phosphate Co. ;;. Erlanger, 5 Ch. a conh-aot might be rescinded for fraud D. 73; Peek v. Gumey, L. R. 6 H. L. subsequent to its date, but rendering its 377, and 13 Eq. 79; Central Rail, jf performance impossible. -Venzuela v. Kisch, L. R. 2 H. L. 99; {t) See Slim v. Croucher, 1 DeG. P. Oakes V. Turquand, ib. 825; Ne-w Bruns- -& J. 518. ■wick, &c., Rail. Co. v. Muggeridge, 1 (»() See, on this subject generally. Dr. & Sm. 381. See, also, Cover's case, Clough v. L. & N. W. Rail. Co. L. R. 1 Ch. D. 182. 7 Ex. 35, and as instances of repudia- (r) That this is sufficient see Clarke «. tion being too late, see Denton v. Mac- Diokson, 6 C. B. N. S. 453. neil, 2 Eq. 852; Ashley's case, 9 Eq. is) Illustrations of this will be given 263; Scholeyc. Central Rail. Co. of Vene- hereafter.. See Pulsford t'. Richards, 17 zuela, ib. 266 note. Compare Mac- Beav. 87, and others of that class. In niell's case, 10 Eq. 503. Campbell v. the remarkable case of the Panama and Flemings, 1 A. & E. 40. South Pacific Telegraph Co. v. India 1200 CHAP. X.] ACTIONS FOE MISEEl'EESENTATION AND EEAUD. *925 e.g., if, in the case of sliares frandnlently sold to him, he attempts to resell them (a;), or continues to act as a shareholder, (y) Further, a person induced by fraud to enter into a contract can- not rescind it unless he is himself able to rescind it „ . . Rescission in toto, and to restore the other party to his former ™ '"'''■ position, or unless his inability so to do is attributable to that party, (s) But if the the contract is severable, inability to rescind it as to part is not fatal to the right to rescind it as to another part, (a) In the simple case where two parties only are concerned, viz., the partner defrauded and the partner defrauding, the right casesof fraud of the former to rescind the contract of partnership, ceufpartVin""" cannot for a moment be doubted.' But where third t'^"'<='^'^^- persons ai-e concerned to whom no fraud is legally or morally im- putable, considerable difficulty is experienced in giving eifect to this right of the party defrauded, and to the conflicting rights of those who have acted on the faith of his being a partner, and who insist, therefore, that as between him and them he cannot be heard to s&y that he is not one. {b)' This difficulty is particularly felt when a creditor of a company seeks to levy execution against a person who is a shareholder therein, but who has been induced to become so by fraud; and when tlie [question arises whether such shareholder ought to be put on the list of contributories on the winding np of the company. As regards the creditors, howevei-, it is clear that their rights in no way depend upon whether a de facto shareholder has been induced to become a shareholder by fraud, or not (c); and those rights involve the necessity of putting {x) Briggs' 1 Eq. 483. en another, has has no effect upon (y) Sharpley v. Louth and East Coast their obligations to third persons who Rail. Co. 2 Ch. D. 663. are not privy to it. Seawell v. Payne, {z) See Phosphate Sewage Co. ■». 5 La. Ann. 255. Hartmont, 5 Ch. D. 394; Laing v. The habihty of a dormant partner, Campbell, 36 Beav. 3; Clarke v. Dick- however, may, it is held, be avoided by son, E. B. & E. 148; Maturin v. Tredin- proof of fraad in forming the partner- nick, 2 N. R. 514, and 4 ib. 15, noticed ship, if no pa,rt of the funds have more fully hereafter. ,been received by such dormant partner. (a) See last note. Mason v. Connell, 1 Whart. 381. 1 See ^os<, p. 927, and note. (c) Henderson ». The Royal British (6) Ex parte Broome, 1 Rose 69; Jef- Bank, 7 E. & B. 356; Daniel v. The freysB. Smith, 3 Russ. 158; Macbride u. Royal British Bank, 1 H. & N. 681; Lind.say, 9 Ha. 574. Powis v. Harding, 1 C. B. N. S. 533 ; 2 A deception practiced by one partner Howard v. Shaw, 9 Ir. Law Rep. 835. 7« 1201 *926 ACTIONS BETWEEN PARTNERS, ETC. [bOOK III. such a shareholder on the list of contributories as will be seen here- after when that subject is examined, {d) *926 *Having made these preliminary observations as to the rights of persons who have been induced to enter into con- tracts by fraud to rescind contracts for fraud generally, it is pro- posed to allude shortly to actions for damages, and then to exam- ine the cases which bear more particularly on the right to rescind — first, contracts between ordinary partners and their representa- tives; secondly, contracts to take shares in companies. 2. Actions /or damages. "VVliere a person has been induced by the false and fraudulent Actions for representations of another to enter into partnership misrepresenta- . , , . . . n i it i • i> t tions. witli him, an action will clearly he at the suit oi the first person against the second for the recovery of damages in re- spect of such fraud, (e) And if false representations are made by means of advertisements issued for the purpose of inducing per- 'sons to take shares in a company, any person who is ensnared by those advertisements, and take shares on the faith of them, may maintain an action against those persons who caused them to be published, knowing them to be false. (,/)' In order to maintain an action for misrepresentation, it is not necessary that there should have been any direct communic ition between the defendant and the plaintiff, (g) Actions against promoters and others based on the Companies act, 1867, §38, have been already alluded to (A); as have also ac- tions against promoters and others for the recovery of money ob- tained by them by frauds on companies, (i) (i^) See infra, book iv. ch. 3, under Denton v. The Great Noiili. Rail. Co. 5 the head Contributories. See, as to E. & B. 860; Watson i>. Charlemont, 12 fraud as a defense to an action for calls, Q. B. 856. infra. ' See Coo'ey on Torts, 494, 495. (e) See the cases in. the next two (g) See Clarke v. Dickson, 6 C. B. N. notes, and DobeU v. Stevens, 3 B. & C. S. 453; and see Bedford v. Bagshaw, 623. H. & N. 538. . (/) Davidson v. TuUock, 3 McQu. (A) Ante, vol. i. pp. 115, 323. 783; CuUen v. Thompson, 4 ib. 424; (?) Ante, vol. i. p. 580 et seq., and p. Bale V. Cleland, 4 Fos. & Fin. 117; Ger- 587 et seq. hard v. Bates, 2 E. & B. 476; and see 1202 CHAP. X.J EESCISSrON FOE FEAUD. "'927 *3. Actions for 7'escission of contract. (a) Contracts hetween ordinary partners and their representatives. «927 Where a person is inveigled by the false representations of others to become a partner with them, the Court will rescind Kescission of ,, i i x> i 1 • 1 . . 1 .n contractsof the contract ot partnership at his instance; and will partnership. compel those who inveigled him into joining them to repay him whatever he may have paid them, with interest, and to indemnify him against all claims and demands to which he may have become subject by reason of his having entered into partnership with them, he on the other hand accounting to them for what he may have re- ceived since his entry into the concern, [ky (7c) See Pillans v. Harkness, Colles Pari. Ca. 442; Ex parte Broorae, 1 Rose, 71, and 1 Coll. 598, note; Hamil v. Stokes, Dan. 20, and 4 Price, 161 ; Stain- bank V. Femley, 9 Sim. 556; Jauncey v. Knowles, 8 W. R. 69. Clilford v. Brooke, 13 Ves. 131, was not a case of this class; the plaintiff there sought to recover money which he had paid, not for the admissior of himself, but for the admission of his brother into partner- ship with the defendants. The plain- tiff's remedy under these circumstances was held to be by an action at law. An action may be sustained by the rescis- sion of a contract of partnership, on the ground of fraud, or in the alternative for its dissolution. Bagot ». Easton, 7 Ch. D. 1. ' Where one of the parties to an agreement of partnership has been in- duced to enter into it by the false and and fraudulent representations of the other, the partnership may be declared void, and -the articles? canceled. Hynes V. Stewart, 10 B. Mon! 429; Howell v. Harvey, 5 Ark. 270; Smith v. Everett, 126 Mass. 304. When declared void upon that ground, the injured party, except as regards cred- itors of the firm, should not be regarded as a partner, or subjected to any of the loss sustained by them, and is entitled to redress against the perpetrator of the fraud to the extent of his injury, unless he has continued the partnership after discovering the fraud. Hynes v. Stew- art, supra. A court of equity has jurisdiction in such case to restrain the fraudulent party from using the name of the other as a partner; and having obtained juris- diction for that purpose, may administer complete reUef in the same suit by or- dering the former to pay the sums ad- vanced or expended by the latter on ac- count of the partnership. Smith v. Ev- erett, 126 Mass. 304. If a court of equity finds a contract of partnership to be void in its incep- tion, on account of the fraud of one partner in. inducing the other to enter into the partnership, it may award as damages that the fraudulent partner shall repay to the other all sums of money the latter has paid into the firm as his portion of the capital stock; pay him a reasona.ble compensation for the time he has acted as co-partner, and indem- nify him for all liability arising out of the business in which they have been engaged. Richards v. Todd, 127 Mass. 167. The defendant, under an oral agree- 1203 *928 ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. The case of Pillans v. Harkness (I), affords a good example of Piiiansr t\n?>. In the spring of 1709, four persons, Pillans, Harkness. Harkness, Stewart, and Denn, agreed by deed to be- come partners in the fishing trade, and to sliare the profits and losses equally, confining their fishing to the west coasts of North Britain. It was subsequently agreed to extend the fishing opera- tions and to increase the capital, and another deed was executed which, it appears, stated that the cajjital originally agreed to be subscribed had been duly paid by all the partners. Harkness was to take no active part in the partnership business, but Pillans was to have the exclusive management of it in the north, at a salary, and Stewart and Denn were to have the e.xchisive management of it in London; all proper accounts were to be kept by Stewart and Denn ; and Plarkness was to have free access to tlie accounts of the concern. Harkness, from time to time, paid various sums *928 towards carrying on the business of the firm, *but it does not appear that anything was ever divided in the sliape of real or pretended profits. In the summer of 1711, Harkness dis- covered that Pillans, Stewart, and Denn, instead of being engaged in the fishing business for the benefit of the firm, were engaged in private speculations of their own in the wine trade. He also dis- covered, that Pillans and Stewart had not contributed their shares ment with the plaintiff, which was void as to the utility of certain machinery to under the statute of frauds, obtained be used by the firm, and as to his ability- possession, by purchase, of certain prop- to conduct it successfully and profitably, erty belonging to the plaintiif, as part The remedy is at law. Maude v. of the plaintitt' "s contribution to a busi- Rodes, 4 Dana, 144. ness, which such agreement provided Where one partner files a biU against that the defendant should prosecute for his several partners for a settlement of their common benefit: Held, that when the partnership accounts and his share the defendant refused to cany out the of the profits, a fraud perpetrated by agreement, but used the property so him on one of the defendants, in a for- purchased for his own exclusive profit, mer partnership between them individ- equity might compel the restoration ually, by means of which he procured thereof to the plaintiff on such terms as the funds contributed as his share should be just. Redfield v. Widdleton, of the capital of the new firm, is no 1 Robt. 79. , ground for annulling or rescinding the A court of equity, in a suit for a dis- contract of partnership. Ingraham v. solution of a partnership, cannot take Foster, 31 Ala. 123. cognizance of a claim of one of the {I) CoDes, 442 (called Harkness v. partners complainant against the part- Steward, and Steward v. Harkness, in ner defendant, for damages for alleged the table of oases to the Dublin edit, of fraud of such defendant partner, con- 1789). sisting of alleged false representations 1204 CHAP. S.J EESCISSION" FOE FEAUD. *929 of tlie capital of tlie firm, and that Pillans, who had been repre- sented as a person acquainted with, and skilled in fishing, was, in truth, wholly ignorant of fishing, and of everything relating to the fishing trade. Harkness alleged ' that he confided in the manage- ment of Pillans and Stewart without suspicion until July, 1711, when he pressed Stewart to let him see the partnership accounts; that after many frivolous excuses he was shown many fine books, neatly bound, which he was told were the partnership books; that not being versed in accounts he took an accountant with him to examine them; but that to his surprise the books, when opened, were found to consist entirely of blank paper, without a word or figure written in them. Harkness thereupon, finding that he had been fraudulently drawn in and imposed upon by Pillans and Stewart, filed a bill against Pillans, Stewart and Denn, for a dis- covery of their transactions under the partnership, and for the re- covery of his money, [in) The Chancellor decreed Stewart and Pillans to account for all moneys paid by the plaintiff to thera or either of them, and to pay what should appear due to him with interest, the plaintiff to be absolutely discharged from the articles, ag]-eements, and partnerships, Stewart and Pillans to indemnify him from all costs and damages whatsoever touching the articles, or any partnership in respect thereof, and to pay the costs of the suit. Tliis decree was affirmed on appeal to the House of Lords. *A more recent case of the same description is Rawlins v. *929 Wickham (n). There the plaintiff was induced by the mis- representations of two persons, A. and B., to enter into Aithon"-h,the l^artnership with them as bankers, and he and they, have^ascerlliu- after carrvincc oii their business for four years; trans- ferred it to other parties. Shortly after this transfer, wickham. the plaintiff for the first time became aware of the falsity of the statements by which he had been induced to become a partner. Pie brought an action against A. and B. for their misrepresentations; pending the procedings at law, A. died, but the action was continued (m) The defendants relied on the lapse tiff, and that such partnership had been of time and laches and acquiescence on entered into. The evidence, however, the part of the plaintiff; and particularly failed to show that the plaintiff had any on the fact that he had entered into an- knowledge of this alleged other part- other agreement with them to the effect nership, or that he was aware of what that the defendants should become part- had been going on, untfl. shortly before ners in another fishing concern and he filed his bill, share their profits in. that with the plain- («) 1 Giff. 355, and 3 De G. & J. 304. 1205 *930 ACTIONS BETWEEN PAETNEES, ETC. [nOOK III. against B., and a verdict against him for damages was obtained. After the verdict B. became insolvent, and tlierenpon the plaintiff filed a bill against B. and the executors of A., praying that the part- nership into which he liad entered miglit be declared void, that the partnership articles might be cancelled, that the defendants might be decreed to repay him the sum paid by him on entering into the partnership, with interest, and to execute a sufficient indemnity against the outstanding debts and liabilities which the plaintiff had or might become subject to in respect of the dealings and transac- tions of the partnership, and for an account of such debts and liabil- ities, and of the monies already paid by the plaintiff on account of the partnership debts and for repayment of such monies with inter- est. A decree was made in the plaintiff's favor, and an appeal by A.'s executors was dismissed. In this case the deceased pai'tner had clearly been a party to the misrepresentation; and although it was proved that he was ignorant of the real truth, and had not stated that to be true which he knew to be false, still it was held that lie ought not to have stated what he did not know to be true, and that he was answerable for the falsity of his own assertions. It was also held that the plaintiff was entitled to assume that the statements made to him were true until he liad reason to suppose that they were not; and that it was no answer to him that if he had examined the partnership books he would have discovered the true state of affairs (o). *930 *Besides being called upon to rescind agreements for the formation of a partnership, Courts are frequently applied to Rescission of by partners, or those claiming under them, to rescind contracls made ' i. x' j.i j * i.- i • -it on a a ssoiution agreements ot other descriptions, and especially agree- of partnership. . , o, t i ^• ments come to on or after a dissolution. Supposing every member of a firm to be sui juris, any one may retire upon any terms to which he and his co-partners thersfhas'been ^^^ choose to assent; and if there is no fraud or con- no fraud, cealment on either side, all will be bound by any agree- ment into which he and they may enter, although it may ultimately turn out that a bad bargain has been made.' (o) See, also, Jaunoey v. Knowles, 8 rely on the defendant's statements. W. R. 69, where there was also means 'A settlement of partnership accounts of knowledge. Compare Jennings v. and the sale by one partner to another Broughton, 17 Beav. 234, and 5 De G-. of his interest, fairly and dehberately M. & G. 126, where the plaintiff did not made, and evidenced by their written 1206 CHAP. X.J EESCISSION EOK FRAUD. *931 For example, in Knight v. Marjoribanks (p) certain persons were partners in a speculation in Australia. The speculation ^^^ ^^^ ^j^^_^_ was not at iirst successful, and it was necessary for the Jo^^anks. partners frequently to contribute large sums of money for the, pur- pose of carrying it on. The plaintiff, who was one of the partners, was greatly pressed for money, and was unable to contribute his pro- portion of the required capital. A sum of upwards of 6000Z. was alleged to be due from him to the concern; he never questioned the accuracy of this statement, but assented to its correctness, and he never examined or sought to examine any books or accounts; and in consideration of the sum so alleged to be due, and of 2501. cash, he assigned all his interest in the concern to his co-partners, and released them from all demands. The speculation afterwards proving proiit- able, he sought to set aside this transaction on the ground of fraud and inadequacy of consideration. But as no fraud was proved, as the plaintiff knew very well what he was about, as he was content that no accounts should be taken, and that no person should act as his ad- viser, and as, although he was undoubtedly in distress, and his co- partners knew it, yet they had taken no unfair advantage of that circumstance, it was held both by Lord Langdale, and by Lord Cot- tenham on appeal, that the transaction was binding and could not be impeached (q). *Any arrangement which, on the principle here adverted *931 to, is binding on the partners themselves, will also, as a gen- eral rule, be binding as between the trustee in bankruptcy or exe- cutors of the retiring partners on the one hand, and the continuing partners and their trustees or executors on the other, {r) But as regards trustees in bankruptcy', it must not be forgotten that they can set aside arrangements entered into in fraud of creditors, agreement, signed and sealed, will not ler's interest as being of less value than be set aside for slight and trivial rea- it was, a ground for relief. Gedde's sons. Gage v. Parmelee, 87 111. 329. Appeal, 80 Pa. St. 442. Where partners in an iron farnaoe, (p) 11 Beav. 322, and 2 Mao. & Q. 10. through a third person, bought the in- (q) See, also. Ex parte Peake, 1 Madd. terest of a fellow, concealing that the 346; Ramsbottom v. Parker, 6 Madd. 5; purchase was for them: Held, that M'Lure v. Ripley, 2 Mac. & G. 274; tliis was not^«r se fraudulent; nor was Cockle v. Whiting, Taml. 55. his allegation in a bill in equity brought {r) Ex parte Peake, 1 Madd. 346; six years afterwards, that a fellow, at Ramsbottom v. Parker, 6 Madd. 5; the time of the sale, represented the sel- Luckie v. Forsyth, 3 Jo. & Lat. 388. 120T *932 ACTIONS BETWEEN PARTNERS, ETC. [bOOK HI. althoiiii^-li such arrangements may be binding as between the parties to them and their respective executors, (s) ^Notwithstanding the inability of a retiring partner, and of those Agreements claiming Under 'liim, to avoid an agreement fairly come made ou a dis- 11. 1 i _f •' 1 ^ soiutionaiid to betwceu him and his co-partners, the good laith and tased on false account. open dealing which one partner has a right to expect from another never require to be more scrupulously observed than when one of them is retiring upon terms agreed to upon the strength of representations as to the state of the partnership ac- counts; and an agreement entered into on a dissolution will be set aside if it can be shown to have been based upon error or to have been tainted by fraud, whether in the shape of positive misrepre- sentation or of concealment of the truth. Thus, in Chandler v. chandiert). Dorsett (^), the , plain tiff and the defendant dissolved Dorsett. partnership; an account was drawn up by the defend- ant, who made it appear that there was a balance against the plain- tiif. The plaintiif gave his note for the amount of this balance, and afterwards liaring discovered mistakes in the account, filed a bill for a new account. The defendant pleaded an account stated: but the Court decreed that the defendant should come to a new ac- count, and that what should appear to be due on taking it should spittaii). ^^ P^i'-' "^vith interest. So, in Spittal v. Smith (ii), smitii. where the plaintiff was entitled to a share of the pro- duce of a whaling voyage, and the defendant paid him a sum of money as his share, for which the plaintiff gave a receipt; *932 it was held that as there had been concealment on *the part of the defendant, the plaintiff was entitled to an inquiry as to whether certain deductions which had been made were proper. ^ As has been more than once observed in the course of the pres- Arrangementa eut treatise, the principles illustrated by the forea'oins' with an ex- ,.. 1 t i ,. too peiied partner, dccisions apply most strougiy to the case oi a partner who is expelled by the others. Powers of expulsion are always construed strictly, and unless they are exercised with perfect good faith, the expulsion will be declared void, and the partner wrong- fully expelled will be restored to his position, and will not be held (s) See Anderson ». Maltby, 2 Ves. J. 6 C. P. 478. 255; Billiterw. Young, 6 E. & B. 40; (t) Finch. 431. See, too, Maddeford Wardens. Jones, 23 Beav. 497; Heil- v. Austwiok, 1 Sim. 89. but V. NeviU, L. R. 4 C. P. 354, affirmed {u) Taml. 45. 1208 CHAP. X.] EESCISSIOKT FOE FKAUD. *933 bound by accounts wliicli muj' have been signed by him in igno- rance of material facts, (x) Hitherto the arrangement entered into, and afterwards called in question, has been supposed to have been made be- Atrreements .1 . ,11 -!-> -,./-..-, made With the tween the partners themselves. But more diinculty representatives ^ "^ of a deceased arises where an arrangement is entered into between partner, the representatives of a deceased partner on the one hand, and the continuing partners on the other. Two cases have here to be con- sidei'ed, according as the representative of the deceased is or is not himself a partner in the firm. If an executor of a deceased partner is not a member of the firm, it is competent for him and the surviving part- ^ -where the ners to agree that the share of the deceased shall be isnotMmla.t ascertained in a particular way, or be taken at a certain " partner. value. And although it has been said that the creditors, or other persons interested in the estate of the deceased, may impeach sucli an agreement by instituting proceedings against the surviving partners and the executors of the deceased {y), still agreements of the kind in question cannot be successfully impeached, unless there lias been some fraud or collusion between them and the executors. In Daviesv. Davies (s) Lord Langdale observed: — "It has been said iti the course of the argument, that in a suit constituted as this is against the executor and surviving partner of the testator, D^yies v. for an account of the partnership transactions, it was not necessary Davies. to prove the fraud ajid collusion which are charged in the bill, and the case of *Bowsher v. Watkins was cited in support of that proposition. I *933 well recollect that there were special circumstances which induced Sir John Leach to come to the conclusion he did in that case, and that the decision was far from establishing the general proposition that in every case a bill might be filed against an executor and surviving partner of the testator without charging and proving fraud or collusion. In this case there are no special circumstances. It is a bfll filed by persons beneficially interested in the testator's estate against the executor and the surviving partner, and it seeks to have the partnership ac- counts now. The defendant, the surviving partner, by his plea avers that an ac- count was settled with the executor on the 31st of December, 1832, and that, if un- impeached, is a sufficient defense to the bill. " Later cases are in conformity with this decision, (a) (x) See Blisset v. Daniel, 10 Ha. 538; (») 2 Keen, 534. as to damages, see Wood v. Woad, L. [a) Chambers v. Howell, 11 Beav. 6; R. 9 Ex. 190, noticed ante, vol. i, p. 851. Staintoni). The Carron Co. 18 Beav. 146; (y) See Bowsher r. Watkins, 1 R. & and as to accounts settled by one of several M. 277; Gedge v. Traill, ib. 281. executors, Smith v. Everett, 27 Beav. 44^. 1209 ' *93J: ACTIONS BETWEEN PAKTNEKS, ETC. [bOOE III. If there has been fraud or ccilhision between the surviving part- ners and the executors of the deceased partner, the case naturally Effect of fraud ^ssumes a different aspect, and any arrangement he- aiid eoUusion. t^yeeu them will be liable to be set aside at the instance of the persons interested in the estate of the deceased. (6) And, even although there be no fraud or collusion, still, if the executor has obtained less than the true value of the deceased's share in the partnership estate, the executor may be liable as for a devastavit^ although the surviving partner may be protected against all demands. But if, in a case of difficulty, the executor has acted with a bona fide view to do his best for the estate he represents, the Court will not be willing to make him account for what, without his willful default, he might have received from the surviving partners, (c) If a partner dies and leaves his co-partner his executor, much 2 Where the greater difficulty is met with than in the case last sup- is iiimleifa^^ posed. By the present hypothesis the executor is in- paitner. vested with two characters, and his interest as surviv- ing partner is often in conflict with his duty as representative of the deceased. This conflict of duty and of interest renders it almost impossible for the executor to enter into anyarrange- *934 ment with respect *to the share of the deceased in the part- nership estate which those interested in that share may not afterwards succeed in setting aside, {d) In "Wedderburn v. Wedderburn (e), a leading case on this sub- w dderhurnt' j^*^*' *^ account of a deceased partner's estate was di- wedderbuni. rected after a lapse of thirty years, and repeated chang-es in the firm, and after several deeds and a release had been executed by the parties beneficially interested. The surviving partners were the executors of the deceased, and were guardians of the persons beneficially entitled to his share, and the settlements and releases ^&v& executed in ignorance of the true state of the partnership accounts. So in Millar v. Craig; { f) where MlUari;. Craig. ^ . a- A i • t ^ x? i one partner died, leaving tour executors, of whom two (&) As in Cook V. Collingridge, Jac. tered for payment of the share of the 607; Rice v. Gordon, 11 Beav. 265. Less deceased. than fraud or collusion will justify an (c) See Rowley u. Adams, 7 Beav. 395. action against am executor of a deceased (d) See Cook r. ColUngridge, Jac. 607. partner and the surviving partners, (e) 2 Keen, 722, and 4 M & Cr. 41. Travis t). Milne, 9 Ha. 141, but will not, (/) 6 Beav. 433; in this case no it is apprehended, invalidate arrange- question was raised as against the part- ments into which they may have en- ners who were not executors. 1210 CHAP. X.J EESCISSION FOE FEAUD. *935 were members of the firm;. an account was settled between the ex- ecutors and the residuary legatees, and releases were executed; but errors having been proved in the accounts, the releases were set aside, and the accounts were re opened. A^ain in „^ , , ' 1 ^ StocKton V. Stocken v. Dawson (g), a partner bj his will autlior- Dawson. ized a sale of his share to his co-partner, whom he appointed one of his executors. The surviving partner purchased the share of the deceased at a valuation, but the purchase was set aside at the suit of the son of the deceased, after a lapse of seven j-ears. So in Eice V. Gordon (h), where a partner died, some of his ,.,,... , . , Elcei;. Gordon. co-partners obtained administration to his estate, and sold part of the assets of the deceased to another of the partners, but at an under value; the sale was set aside at the suit of a creditor. In all these cases there was some ground for setting aside the ar- rangement made by the executoi's, in addition to the Difficult posi- ° . tion of repre- mere fact that they were also surviving partners. Jiut, sentative. as observed by Lord Eldon in Cook v. Collingridge (/), "one of the most firmly established rules is, that persons dealing as trustees and executors must put their own interest entirely out of the question; and this is so difficult to do in a transaction in which they are dealing with themselves that the Court will not '"'inquire *935 whether it has been done or not, but at once says such a transaction cannot stand." {k) However, a surviving partner who is the executor of his de- ceased co-partner, may retain out of his assets what is Eightof re- ^ , . tainer out of due from the deceased to himself on taking the part- assets. nership accounts. {I) (b.) Contracts to take shares in companies. The foregoing principles are as applicable to companies as part- nerships; but in applying them to companies care must be taken not to lose sight of the rights of creditors; and for this purpose, it is necessary to distinguish companies which are being wound up from companies which are not in that position. [g] 9 Beav. 239. length hereafter, and the subject above {h) 11 Beav. 265. noticed will be again adverted to on (j) Jac. 621. that occasion. [k) The position of the executors of [l) Morris v. Morris, 10 Ch. 68, where the deceased partner will be examined at the accounts were stiU unsettled. 1211 *936 ACTIONS BETWEEN PARTNERS,' ETC. [bOOK III. After the winding-up of a company has commenced, it is too 1. Companies late for a sliareholder to repudiate liis shares on the being wound i p ,. i t i , t pi up. ground ot iraud; even although that iraud may in point of law be imputable to the company, and may have been discovered since the winding-up commenced. This was decided in Oakes v. Turquand (771), and is settled law, and is based upon the eround that such fraud affords no answer to the claims of the cred- itors of the company. But where the company is not being wound up, the right of a 2. Companies person wlio lias been induced by the fraud of the com- notbeuig "■ wound up. j^any to take shares in it, to repudiate those shares and to be relieved from them is indisputable; provided 1, the fraud of which he complains is proved and is sufficiently material; and 2, he has not deprived himself of his right of repudiation by his own laches, or by conduct inconsistent with such right, {n) Thus in Kisch v. Central Kailway Company of Venezuela (0), Kisehf.cen- ^^^^ prospectus in effect stated, (1.) That the company Company™? ^^^'^ obtained a concession from a foreign government; Venezuela. ^g.) That the Contractor had guaranteed a dividend of *936 two-and-a-half per *cent. on the paid-up capital during the construction of the works, and (3.) That the foreign gov- ernment had guaranteed a dividend of nine per cent, on the paid- up capital for twenty years. The real facts were (1.) That the company had for a large sum bought a concession made to an- other company; (2.) The contractors' guarantee was limited to 20,000Z., the capital of the company being 500,000Z.; (3.) The gov- ernment guarantee only came into operation in the event of the company failing, without any default of its own, to I'ealize a profit' of nine per cent, "on its paid-up capital from its business. The memorandum of association empowered the company to purchase concessions, and the agreement for the purchase of the concession already obtained by others was referred to in the company's arti- cles, but was not disclosed in them. Tiie court held that the mis- representations in the prospectus were such as to entitle a person taking shares on the faith of it to rescind his contract, although he was not entitled to rely upon his own ignorance of the memoran- (m) L. R. 2 H. L. 325; Kent ». Free- (0) 3 DeG. J. & Sm. 122; aff. L. R. 2 hold Land Co. 3 Ch. 493, reversing S. H. L. 99, under the name Directors of C. 4 Eq. 588. Central Rail. Co. of Venezuela v. Kisoh. (re) As to which, see ante, p. 114. 1213 CHAP. X.J EESCISSION FOE FRAUD. *937 •dum and articles of association, and of what was there disclosed. In Smith v. Eeese Eiver Company {p), the prospectus described some silver mines abroad which the company had con- smith v. Reese tracted for, and proposed to wo2-k as extremely valuable, pa"y. °™ whereas in fact they were wholly worthless, and were afterwards given up by the company for others, which were more promising. The directors who issued the prospectus did not know that the mines referred to in the prospectus were worthless, they having themselves been duped; but the court held that a person -who had taken shares on the faith of the prospectus was entitled to rescind his coii tract, and to have the company restrained from suing him for calls, (q) In Koss V. Estates Investment Company (r), a prospectus was issued by the directors of a company after its formation, Ross ». Estates and the prospectus stated, falsely, that half the first company. issue of shares had been already subscribed for, and that the company had contracted for the purchase of two properties, on one of *which the vendor had already spent 70,000?. A person *937 who had been induced to take shares in the company on the faith of this prospectus, was held entitled to rescind his contract, to recover from the company the money he had paid to it for the shares, to have his name removed from the register of shareholders, and to have the company restrained from suing him for calls. In Henderson v. Lacon (s) the prospectus stated, falselj'-, that the directors and their friends had subscribed a large „ ^ o Henderson v. portion of tlie capital; and a shareholder who had ap- Lacon. plied for and obtained shares on the faith of this prospectus, was held entitled to repudiate his shares and to have his money back, and to have his name removed from the register of members, and to be indemnified by the directors. Moreover, in such cases as these, theplaintiff is entitled to relief, although a petition to wind up the company may be presented after action brought, (t) These cases may be conveniently contrasted with the following in which the misrepresentation relied upon was held pjandnot not to be suiSciently material, or not to have been re- "'''teriai. lied upon by the plaintiff so as to entitle him to relief. {p) L. R. 4 H. L. 64, and 2 Eq. 264. (r) L. R. 3 Eq. 122, aff. 3 Cli. 683. (q) See, as to the immateriality of (s) 5 Eq. 249. knowledge on the part of the directors {t) Smith v. Reese River Co. and that their statements were false, ante, Ilenderson v. Laoon, uU supra. pp. 319, 320. 1213 *933 ACTIONS BETWEEN PARTNERS, ETO. [bOOK III. In Pulsford v. Richards (m), the projectors of a Belgian railway Private ar- issued a prospectus for the formation of a company, promoters. Stating tliat they transterred to the company tlie con- Puisfordv cession obtained from the Belgian government, and all Richards. ^|;ig benefits arising from it, subject to certain specified reservations in favor of the promoters for reimbursement of pre- liminary expenses. The plaintiff, acting on the faith of this pros- pectus, applied for and accepted sliares in the company, but after- wards filed a bill against the projectors for a return of all moneys paid by him in respect of such shares, with interest, offering to return the shares and all dividends received on account of them. The grounds on which the plaintiff sought to rescind his contract were substantially: (1), that an arrangement had been made *938 by the promoters with an engineer highly *beneficial to hira and detrimental to the company, and that this arrangement was in no way alluded to in the prospectus; and (2), that the promo- ters had appropriated to themselves 20,000 shares in the company, in addition to the benefits expressly reserved to them in the prospec- tus. The Court, however, held that there was no such fraud as was sufficient to enable the plaintiff to rescind the contract into which he had entered, and his bill was dismissed with costs. As regards ■the shares, the Court was of opinion tliat the directors took the shares bondjide, and that the number of shares allotted by them to themselves and the engineer was not a fact so material that the knowledge of it was a matter which the directors were bound to com- municate to tlie public, in order to enable them to come to a sound conclusion as to the probable success of the undertaking in which they were invited to take a.pai't. As to the concealed arrangement with the engineer, the Court came to the conclusion that the services ]ierformed and to be performed by him must have been performed by some one; that he was peculiarly well fitted to perform them; that supposing the remuneration agreed upon to have been exces- sive, still that would only entitle the shareholders to have the amount of excess paid by the directors themselves, and tliat the non-disclosuie to the public of the agreement made with the engineer was not the suppression of a fact which affected the intrinsic value of the under- taking, or consequently afforded a sufiicient ground for a rescission by the plaintiff' of his contract to take shares in the company. (?() 17 Beav. 87. See, also, Heymann Kennedy v. Panama, &c. Mail Co. L. V. European Central Rail. Co. 7 Eq. 154; R. 2 Q. B. 680. 1214 CIIAr. X.] EESCISSION FOE FEATTD. *933 In Jennings v. Broughton (x), the plaintiif, wlio had taten shares in a mining company formed bv the defendants, sonsht statements not . 1 - r J „ •, , , , relied on by to rescind the contract on the ground that he had been plaintiff. induced so to do by their representations. The mis- Bl."mg"Mon! representations consisted of exaggerated statements as to the vahie and prospects of the mine, contained in the report of an engineer employed by the defendants, and which report was submitted by them to the plaintiif. The plaintiff, however, did not Altogether rely on this report, bat went and examined the *939 mine himself more tlian once, before he purchased the shares in it. The mine had undoubtedly been described in too glowing colors, and it by no means came up to the expectations formed of it; but the Court was of opinion, upon the evidence, that the plain- tiff had not relied on what was rejiresented to be actually existing, that he not only had had the same means as the defendants of ascer- taining the truth, but that he had availed himself of those means, and that his deception was as much owing to his own error of judgment as to anything else. His bill therefore was dismissed, and witli costs, and an appeal by him was also dismissed. In Eobson v. The Earl of Devon (y), the plaintiff, a stock-broker, was induced by the secretary of a company, first to Prospectus not '7 '1 *^* ^71 relied upon by advance him 5001. on the securit}'- oi 1000 it. shares, piaintifl. on each of which 1^. was certified to have been paid Devon""' up; and secondly, to purchase 1200 other shares. On the failure of the company, the plaintiff sought to liave both transactions de- clared void, and to obtain back from tlie company his 500^., and the money paid for the purchased shares. The plaintiff rested his case against the company upon the following, amongst other grounds, viz.: First, that the company's prospectus showed that no shares ought to have been issued before a certain amount of capital had been subscribed; and secondly, that nothing had ever been paid in respect of the shares on which the 500^. had been advanced. But it was held that the plaintiff was entitled to no relief on either of these grounds. For, first, it was by no means clear that the capital required by the prospectus to be subscribed, had not in fact been subscribed; secondly, the plaintiff had not parted with his money on the faith of the prospectus, so that it was immaterial to {x) 17 Beav. 234, and 5 DeG. M. & relied on his own judgment. G. 126. See, also, Small v. Attwcod, 6 (y) 3 Jur. N. S. 567, and 4 ib. 245. CI. & Fin. 232, where the plaintiff also 1215 *9iO ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. consider what was there stated; and thirdly, the shares on the secu- rity of which he lent his money, were, as between the holder and the company, to be taken as paid-up shares, and therefore it was of no consequence to the plaintiif, whether anything had actually been .paid upon them or not. IN or will the mere circumstance that the prospectus of a *9-i0 * company sets forth the value of the proposed undertaking Exaggerated ^^ ^°° glowing colors, enable a person to rescind a con- description. tract to take shares entered into on the faith of the statements contained in the prospectus. Contracts cannot be re- scinded simply on the ground that sanguine expectations have been expressed by one person, and raised in the mind of anotiier, and have not been ultimately realized. In a case in which a company was formed to work a patent, the value of which was grossly over- stated in the prospectus, it was held that a person taking shares on the faith of such prospectus could not afterwards repudiate them, (s) Again, the fraud relied upon as a ground for rescinding the con- Fraud must t>e t^^^^t must be clearly proved; and if there has been no clearly p^(J^•ed. positive misrepresentation and no intentional conceal- ment, the circumstance that the plaintiff was in fact misled by what he was told and by docainents furnished to him, will not entitle him to be relieved from his contract. This is well illustrated couYbearei- ^^ Conybeare v. New Brunswick and Canada Railway New Bruns- wick. &™com- Company. («) The material facts of this diiScult case pany. were shortly as follows: — The company was formed for the purpose of purchasing and carrying on a railway belonging to the St. Andrews and Quebec Railway Company, and of purchasing all the lands and property of that company, and all the rigrhts of the holders of a certain class of shares (called A. shares) in it. The plain- tiff applied for shares in the new company, and was informed by the Secretary that the A. shares were entitled to a preferential divi- dend of 61. per cent., and tliat the holder of every A. share was enti- tled to four acres of land. The secretary also stated that the new (z) Denton ». Maoneil, 2 Eq. 352; and 164. See, also, as to the necessity of as to prospective advantages set forth clearly proving the fraud relied upon, in a prospectus, see Hallows v. Fernie, Robson «. Earl of Devon, noticed above, 3 Ch. 467. and Kennedy v. Panama, &c. Mail Co. (a) 7 H. L. C. 711, reversing S. C. 1 L. R. 2 Q. B. 580; and as to giving par- DeG. F. & J. 578, and affirming the ticulars of fraud, McCreight v. Stevens, decision of V.-C. Stuai-t in 6 Jur. N. S. 1 Hurls. & Colt. 454. 1216 CHAP. X.] KESCISSION FOE FEAUD. *911 company had acquired some tlionsands of aci-es of land from the Colonial Government, and tliat all claims a,2,-ainst the company Avere regularly lirjnidated every six weeks; and he gave the plain- tiff reports from the * directors, in which these and other *94:1 matters, tending to show the prospei-ity of the company, were stated. The plaintiif was shown, and lie examined the statutes of the Colonial Legislature, hj which tlie lands were granted; and he took copies of all those statutes, except one, away with him. That one statute, which had been produced to the plaintiff, but which was not amongst those he took away, showed that the title of the com- pany to the lands depended on the completion of the railway by a certain time. The effect of this statute was correctly stated in the company's articles of association, and there was nothing to show that it had been intentionally concealed from the plaintiff. It ap- peared, however, that the directors had been advis(?d by counsel upon tlie effect of the statute upon the title of the company, and tiiat his opinion was not communicated to the plaintiff. Upon the faith of the above statements and reports, and of the stat- utes furnished to him, the plaintiff took shares in the new company; but before he had completed the purchase, he was informed that the manager abroad had exceeded his authority, and incurred debts to a considerable amount. The plaintiff, having afterwards discovered that the company was in fact greatly in debt, that its affairs were far from prosperous, and its title to the lands was not absolute but liable to forfeiture, insisted on rescinding his contract. This demand was not acceded to, and he consequently filed a bill to enforce it. The Vice-Chancellor Stuart and the House of Lords were of opin- ion that no positive misi-epresentation had been made, that no wil- ful concealment had been practiced with reference to the title to the land, and that the plaintiff had not been induced to take the shares upon the faith of that title being indefeasible. Great stress was deservedly laid upon the circumstance that the company's arti- cles correctly recited tjie statute alleged to have been suppressed. The Vice-Chancellor refused, however, to dismiss the bill with costs, but in this respect his decision was reversed. (5) (6) The Lords Justices held that the inquiry by the statements so made to plaintiff was entitled to relief upon the him, and that even if the acquisition of grounds that the title of the company land was not the main inducement of to the land had been represented to him the plaintiff in taking shares, it formed as indefeasible, that he had been put off a material ingredient in tha purchase. " 1217 *9-i3 ACTIONS BETWEEN PARTNEES, ETC. [bOOK III. 9^-2* *T"pon the subject of the right to rescind a severable con- tract in part where it cannot be rescinded in toto the case of s^e?e™f™if Maturin v. Ti-edinnick (c) is very important, tracts. There the plaintiff had been induced by the frand of Tredinnick. the defendant to purchase from him several shares in several mining companies. Eefore the plaintiff had discovered the frand he sold some of his shares in one of the companies. He afterwards filed a bill to rescind the contract as to all tlie remaining shares. Pending the suit one of the companies in which some of these shares were held, was ordered to be wound up; and the shares in one of the other companies were forfeited for non-payment of calls, but the defendant had full notice of the intended forfeiture. The Vice-Chancellor Wood held (1), that the sale of some of the shares before the bill was Hied did not disentitle the plaintiff to re- scind the contract as to the other shares; and (2), that neither the subsequent order to wind up one of the companies, nor the subse- quent forfeiture of shares, afforded any defense to the suit. Cases of repudiation on the ground of fraud must not be con- founded with those noticed in an earlier part of the work, in which persons have been held not bound to take shares, in consequence of a departure from the scheme as advertised, (d) If a director of a company is applied to for unallotted shares, and Director seu- ^'® transfers to the applicant sliares already allotted to shares^'s'uuai- himsclf, he thereb}'' commits a fraud which will enable loted shares. (-^^g transferee to set aside the transfer, and to recover back what he may have paid for the shares, (e) When a person has been induced by the fraud of some particular Fraud by seller shareholder to purchase shares of him, the right of the of shares. person defrauded is to rescind the contract of sale, and to throw the shares back on the person from whom he took them, and to be indemnified by him against all losses 943* ^sustained in consequence of having taken the shares. {/) (c) 2 New Rep. 514, and 4 ib. 15. In Eq. 455. this case tlie V.-C. is reported to have (d) Ante, p. 106, et seq. said that a sale of some shares in one of (e) Blake v. Mowatt, 21 Beav. 603. the companies would have afforded a (/) See Stainbank v. femley, 9 Sim. defense to the suit as to the shares in 556, and Seddon v. Connell, 10 Sim. 58 the other companies. But qacere how & 79, and Maturin v. Tredinnick, 2 this is consistent with the relief actually New Rep. 514, and 4 ib. 15, ante, p. given. See, further, Curtis's case, 6 942. . 1218 CHAP. X.] DISSOLUTION, ACCOUNT, ETC. *94;-± Tliis is apparently the limit of tlie right of the person defranded in suchacase. {g) If the shares have been actually transferred to him, he is not entitled to have the transfer treated as null and void as be- tween himself and the company; nor to restrain the company from making calls upon him whilst he is a shareholder. (Ji) He may be entitled to compel his vendor to accept a re-transfer of the shares, but even this right must, it is conceived, depend upon whether the company is being wound up or not, and upon the power of the di- rectors to refuse to register transfers. A charter which has been obtained from the (3rown by fraud may be repealed by scire facias / but so long as it remains ciiartered unrepealed its validity cannot be disputed. (^) companies. The right of a company to rescind a fraudulent contract entered into with its promoters has been already considered. (Ji) SECTION VI.— ACTIONS FOR DISSOLUTION, ACCOUNT, ETC. The remedy for a partner who insists on a dissolntion which is opposed by his co-partners was formerly by a suit in equity, and is now by an action which should be brought in the Chancer}^ Di- vision of the High Court. (Z) Actions involving the taking of partnership accounts should also be brought in the same division. In an action for dissolution the statement of claim should ■•'claim a dissolution and an account, and also an injunction *94:4: and a receiver to restrain the defendants from dealing with the partnership assets and from issuing bills or notes in the name of the firm. Such an action lies, although the partnership be a part- nership at will and can therefore be dissolved by the plaintiff him- self (to); but if the partnership has been dissolved before action, the plaintiff should claim a declaration to that effect. If the partner- {g) An action for damages will lie, himself no title. The transfer was tliere- see ante, p. 717, but this is not so com- fore wholly void, plete a remedy. (?) See Macbride v. Lindsay, 9 Ha. {h) Bloxam v. Metropolitan Cab Co. 574. 4 New Rep. 51, is not opposed to this. [k) See Phosphate Sewage Co. v. For although the company was re- Hartmont, 5 Ch. D. 894, and other cases strained from suing the plaintiff for of that class noticed ante, vol. i. p. calls, the plaintifiF had not acquired any 584. title to the shares, they having been [1] Jud. Act, 1873, § 34. transferred to him by a person who had {m) Master v. Kirton, 3 Ves. 74. 1219 *9i5 ACCOUNT. [book iir. ship is admitted and the right to dissolve is not contested, the Court will decree a dissolution on motion before the hearing or trial, (n) An action for the dissolution of an ordinary partnership may be maintained, altliough the partnership is one which maybe wound up under the statutory jurisdiction conferred by tlie Companies act, 1862 (o); but practically it is more convenient to have recourse to that act where it applies. The grounds on which tlie Court will dissolve a partnership have been already considered {p); and the mode of winding up the af- fairs of a partnership in the event of death or bankruptcy will be examined in Book lY.; in the present place it is proposed to deal with the subjects of Account and Discovery, Injunctions, Keceivers, Sale of Partnership Property. 1. Of account and discover]/. Under this head it is proposed to consider, with reference to part- ners and persons claiming under them— 1. The right to an account and discovery generally. 2. The defenses to an action for an account and discovery, 3. The decree for a partnership account. *945 *(o) Of the right to an account and discovery generally, as hettceen part- ners and those claiming under them. 1. As to Accoitnt. — The right of every partner to have an accoirnt 1 Action for f^om his co-partners of their dealings and transactions, an account. j^g ^q obvious to require comment. An action for an account may be maintained by partners although the partnership accounts are not complicated {q), and although an action for dam- ages may be sustainable (r).' Moreover, although formerly the (m) Thorp V. Holdsworth, 3 Ch. D. (r) Wright v. Hunter, 5 Ve?. 792, 637, where the terms of the partnership where the bill was for contribution, were in dispute. Blain v. Agar, 1 Sim. 37, and 2 ib. 289, (o) Jones V. Charlemont, 16 Sim. 271; where the bOl was for the recovery back Clements v. Bowes, 17 ib. 167. of deposits. See, too, Townsend v. Ash, {p) As to fraud, see ante, p. 927. As 3 Atk. 336, as to the profits of partner- to other grounds, see book i. ch. 3, § 2. ship real estate. {q) Cruikshank v. M'Vicar, 8 Beav. 'In matters of difficulty or contro- 106. See Frietas v. Dos Santos, 1 Y. & versy between partners, it -s most usual, J. 574. , and by far the most convenient to resort 1220 CUAP. X.] ACCOUNT. *945 Court of Chancery would not entertain a suit for damages merely, although the suit was in form a suit for an account (s); yet in a to a court of equity for their final adju- dication and settlement. Bracken v. Kennedy, 3 Scam. 558. To effect a complete adjustment of co- partnership concerns, the extraordinary powers of a court of chancery may be necessary; and when necessary for that purpose, it will entertain jurisdiction, whether an action of account would or would not lie b'etween the parties. Gil- lett V. Hall, 13 Conn. 426. The jurisdiction of courts of equity extends to the settlement of partnership accounts, however small may be the number of partners, where a court of law cannot m.ake a complete and final adjustment of the partnership concerns, by reason of its inability to furnish the peculiar rehef necessary for that pur- pose. Niles V. Williams, 24 Conn. 279. A court of equity wiU not compel an account of partnership deaUngs, when a suit at law is pending, in which the same should be adjusted and settled, unless the aid of the court is necessary to ascertain the particulars of the ac- count. Hunt V. Grookin, 6 Vt. 462. A bill by one of a former partnership, against another, for a debt due on ao- coimt stated, and not asking a settle- ment of partnership accounts, cannot be sustained until the plaintiff has ex- hausted his remedy at law. Bethell v. Wilson, 1 Dev. & B. Eq. 610. On a bill in equity for an account be- tween partners, the defendant's liabOity to account is a preliminary question in the cause, which should be decided by a decree for or against him, before refer- ence to a master, on the general questions connected with their partnership trans- actions. Collyer ». CoUycr, 38 Pa. St. 257. During the pendency of a biU in equity by two of four partners against the other two for ^n accounting, the sec- ond two cannot bring a bill aga,inst the first two for the same purpose. Wallace ». Robinson, 52 N. H. 286. A bill in equity, filed by one partner against his insolvent co-partner in the business of carrying on a farm for one year, asking a settlement of the part- nership accounts, and the foreclosure of a mortgage executed by the defendant partner on his share of the crop to be raised, to secure an individual liability to the oomplaina,nt, — is not obnoxious to the objection that there is an adequate remedy at law; nor is it demurrable for multifariousness, although several pur- chasers from the defendant partners, of different portions of the crop at different times, are united with him as defendants. Monroe v. Hamilton, 47 Ala. 217. 'A files a bill to enforce a vendor's lien against B, since deceased, and former partner of C and D, who, by cross-bill, set up a mechanic's lien for improve- ments made upon the land sold to B by A, while B was in possession, and a partner of C and D, in building and con- tracting: Held, that C and D cannot, as surviving partners of the old firm, settle in their cross-biU their partner- ship dealings with B's estate; but they can, with proper averments, put in issue and try such dealings for the purpose of showing how much they are entitled to receive of the debt due them as build- ers and material men. Stammers v. Mc- Naughten, 57 Ala. 278. See 2Mst, 961, note. See Palmer v. Tyler, 15 Minn. 106, as to when one partner will be entitled to an account, notwithstanding he has failed to pay in the whole sum agreed by him to be contributed. " («) Duncan v. Luntly, 2 Mac. & G. 80, where shares had been wrongfully sold by the secretary of a company. See, also, CUfford v. Brooke, 13 Ves. 132. 1221 *915 ACCOUNT. [book III. partnership suit involving a general account, claims were adjusted which in ordinary cases would have formed the subject of an action at law (t); and it is apprehended that now the Court will in taking such an account deal with every claim wliich it may be necessary to investigate in order to adjust and finally settle the account." But disputes not affecting the account will naturally be excluded from it. An account may be had by one partner' or his executors or ad- (0 See Bmy v. Allen, 1 Coll. 589; Mackenna v Parkes, ante, p. 74, note (n). Compare Great Western Ins. Co. V. Cunliffe, 9 Cli. 525. 2 Where an action is brought for the dissolution of a partnership, and an ac- counting, a court of equity having ob- tained jurisdiction of the cause may re- tain it for the pui-pose of doing complete justice between the partners, and to avoid a multiplicity of suits. Shepherd I. Boggs, 2 N. W. Rep. N. S. 3705 S. C. 9 Neb. 257. ^ A bill for accounting and a receiver, on dissolution, will be sustained, not- withstanding the partnership is a limit- ed one, and the complainant the special partner. The latter has the same right as a general partner, to insist that the assets be applied to pay the partnership debts; and 1 Rev. Stat. 766, §18, ex- pressly entitles him to an accounting. Hoggi). Ellis, 8 How. Pr. 473. See, also, Latting v. Passman, 29 La. Ann. 2S0. A party who is a silent partner in a firm, and whose interest was kept con- cealed in order that it might not be at- tached by his creditors, may maintain a bill in equity for an account and settle- ment against the other partners who participated in the concealment. Har- vey V. Varney, 98 Mass. 118. If either of the partners, being with- out fault, can show that his adversary has violated the terms of the partner- ship contract, and abused the trust with which, as a partner, he was clothed, and that he has partnership assets that he has not accounted for, that showing 1222 entitles such partner to an accounting. HoUaday v. EUiott, 8 Oreg. 340. Each partner is liable to account to every other for himself, and not for his co-partner ; and no two partners are re- sponsible to another jointly. Ports- mouth V. Donaldson, 32 Pa. St. 202. , Where a partnership is alleged in a bill, and admitted by the answer, an ac- count, as a general rule, is of course, un- less the party has slept upon his rights' Glenn v. Hebb, 12 Gill & J. 271. Although it is the general rule, where a partnership is alleged and admitted, to order an account of the partnership affairs, as a matter of course, unless the right of the complainant to relief is barred by the lapse of time, such ac- count should not be ordered where it manifestly appears, from the proof, that the party asking the interposition of the court has no real cause of complaint, and that no good purpose or end can be accomplished by directing an account to be taken. McKaig v. Hebb, 42 Ind. 227. Where the plaintiff files his complaint, alleging a partnership, and asking for an accounting by the defendant, if he does not estabhsh the existence of the partnership, he wiU not be entitled to the accounting. Salter v. Ham, 31 N. Y. 321; Arnold v. Angell, 62 N. Y. 508. See, also Adams v. Gaubert, 69 111. 585; MoflFatt V. Moflfatt, lOBosw. 468; White V. White, 4 Md. Ch. 418. Compare Perkins v. Perkins, 3 Gratt. 364. Under a bill, however, for an account and dissolution against thi-ee alleged partners, the complainant can have the CHAP. X.J ACCOUNT. *9i5 relief he is entitled to against the others though the proof sliows that one of the alleged partners defendant is not in fact a partner. Bass v. Tajdor, 34 Miss. 342. A, B and C formed a partnership in which A and B were each interested one-fourth part and C one-half. At the same time D, the father-in-law of C, gave a written guaranty to A and B that C should fiilfill all contracts the partnership should make in their busi- ness, to the extent of his interest in the partnership. The business was carried on under the management of C, as ac- tive iravtner for some years, when C re- moved to Canada and there died insol- vent and intestate, before any dissolu- tion of the partnership, leaving no prop- erty in this state, except such interest as he might have in the partnership con- cerns. There being no settlement of the partnership accounts, either be- tween the partners themselves, or be- tween • the partnership and other per- sons, A and B brought their action at law against D on the guaranty, and during the pendency of the suit sought the interposition of a court of chancery, by a bill against D, stating these facts and averring that in order to have com- plete justice done in said action it was desirable, if not necessa,ry, to have the accounts of the partnership fully set- tled, and praying for an adjustment of such accounts, and that such sum as should be found due from C to A and B, should be paid by D or be made the rule of damages in said action. On a demurrer to this bill, it was held, that such bill was not sustainable : 1. Be- cause it did not appear from the facts stated that the plaintiffs could not have adequate redress in said action. 2. Be- cause D was neither party nor privy to the partnership accounts. 3. Because, if the settlement sought were made it would not be conclusive upon D, nor equitable that it should be. 4. Because a court of equity will not extend the liabilities of a surety beyond tlioir legal limits. 5. Because no discovery was called for, no injunction sought, no mis- take, accident, fraud or other ground of equitable relief alleged. BisseU v. Ames, 17 Conn. 121. A complaint which sets forth a part- nership between the plaintiff and de- fendant, a dissolution, the existence of unsettled accounts, and a balance in fa- vor of the plaintiff, and demands an ac- counting, and judgment for the balance, shows a sufficient cause of action. Lud- ington V. Taft, 10 Barb. 447. A petition in an action by one partner against another, which alleges the part- nership, gives a copy of the written con- trEiot therefor, alleges that the plaintiff at the outset paid in a certain specified amount, that the partnership was ter- minated, and that during its existence plaintiff had paid on accormt of debts and expenses a large sum and that, upon a settlement of the partnership accounts which the plaintiff had vainly sought, a large sum would be found due the plaintiff, and which shows that the partnership owned a large number of chatties, and involved a series of trans- actions, states a cause of action, and is as good as against any objection that can be raised by demurrer, notwith- standing it does not in terms allege that defendant had possession of any of the partnership property, or that he had any accounts to render. Carling v. Donegan, 15 Kan. 495. In a proceeding for a settlement of partnership accounts, a bill which did not show the exietence of the partnership and did not contain any statement of the account by the plaintiff, nor ask for a statement by the defendant, was held defective. Pope v. Salsman, 35 Mo. 362. A bill for a dissolution of partnership and an account cannot be sustained in that form, if the evidence shows that the members have been incorporated. Benninger v. GaU, 1 Cincin. 331. 1223 •'■U45 ACCOUNT. [book III. A biE in equity, brought by a partner against his co-partner, for an account, etc., wherein it is averred that the de- fendant has all the partnership books and papers in his possession, or under his control, and refuses to permit the plaintiff to examine them, need not con- tiiin such certainty and particularity of statement as would be held necessary if the plaintiff had access to those books and papers. Towle v. Pierce, 12 Mete. 329. A complaint of one partner against another, asking for judgment of a par- ticular sum, forming a part of the part- nership profits and not praying for an ac- count of the partnership concerns, can- not be sustained. Russell v. Byron, 2 Cal. 86. If in a bill by one partner against a co-partber he prays that his co-partner may be decreed to pay over to him one- half of the net profits of the partnership, such prayer is equivalent to a prayer for an account. Bennett v. Woolfolk, 15 Ga. 213. A biU m equity by a partner for his balance in the co-partnership account, failing to allege that there are no liabil- ities, or that final settlement has been had; or, in case of dissolution, not ask- ing for a marshaUng of the assets, or for a final settlement, is, generally speaking, insufficient, and bad on de- murrer. WiUiamson v. Haycock, 11 Iowa, 40. Where, by agreement of the parties, one of the partners, on a dissolution of the partnership, is to make the collec- tion of debts due the conoern, a bill af- terwards filed by the other partner against him for his share of ■ the mon- eys collected, must allege when the colleotiou was made, or it wDl be bad on demurrer. McCament v. Gray, 6 Blackf. 233. In a bill by a co-partner to compel a settlement of the partnership accounts, the complainant, being administrator of 1224 a deceased co-partner, may join with his own the claims of such deceased partner. McLaughlin v. Simpson, 3 Stew. & P. 85. Where A and B entered into an agreement, by the terms of which B was to buy a tract of laud of C, on which was a mill-seat and miU, and they were to build the miU anew; A was to do the work and B to furnish the material and money; and, out of the profits, they were to pay for the land, and reimburse B tor his outlay, and pay the plaintiff for his work; and after- wards they were to share the profits or losses equally, as partners; and, in pur-- suance of the agreement, the land was bought, and the mill built, and became profitable, and B received the profits, reimbursed himself, and paid for the land: Held, that A was entitled to an account as a partner; and that it was not necessary that the contract should be in writing. Falkner v. Hunt, 73 N. C. 571. If partners agree upon terms of dis- solution, whereby one agrees to take the assets and pay the other a given sum and pay all the partnership debts, and the one so promising fails and re- fuses to perform his agreement to pay the other and the debts, that other, if subjected to loss by being compelled to pay debts, may repudiate the agree- ment and maintain a bill for an account according to his rights as they existed before the agreement. Bailey v. Moore, 25 111. 347. A and B carried on a trade as part- ners, with the funds of A, in the name of B, who, without any dissolution of the co-partnership, or rendering any ac- count to A, afterwards, without the consent of A, entered into partnership with C, and carried into the new con- cern all the funds of the former part- nership. A, on the death of B, filed a bill against his administrator and C, his surviving partner, for a discovery and CHAP. X.] ACCOUNT, *91c ministrators (w)* a2;ainst his co-partner or Iiis executors persons entitled or administrators' {v). So b/ the trustees of a bankrupt t° ''" account. auconnt: Held, that A was entitled to an account from C, of the transactions and profits of the partnership between him and B, and of the personal estate of the intestate, in his hands. Long v. Majestre, 1 Johns. Ch. 305. The agent of one partner, coming in- to possession of the effects, will be re- garded as a trustee, and accountable in equity to the creditors of the firm and the other partners, though his principal has deceased and no admin- istration has been granted. Peterson v. Poignard, 6 B. Mon. 570. One who has subscribed to the arti- cles of association of a land company, but has failed to pay in, on calls, the amount thereby required as a condition of membership is not as it seems, en- titled to main tarn a bill for account of profits, and for partition of lands un- sold. Stevenson v. Mathers. 67 111. 123. Where two persons made an agree- ment to form a partnership, but such partnership was never launched, and one of the parties proceeded to conduct the enterprise in his own name, at his own cost, and for his own exclusive ben- efit, excluding the other, and repudiat- ing the partnership agreement; the lat- ter's remedy is not for an accounting, but an action at law for breach of con- tract. Powell V. Maguire, 43 Cal. 11. A person having a contract on public works entered into an agreement with another to form a partnership in the business under such contract and in other contracts that they might obtain. They completed such contract and di- vided the profits. After which the first gave notice that he would continue the arrangement no longer, but would bid on his own account. A subsequent con- tract was awarded to him, from which he excluded the other: Held, that there warno partnership in the business under the last contract, and a bih for an ac- count, &c., would not lie; that the rem- edy of the other party was at law for a violation of the agreement. Doyle v. Bailey, 75 lU. 418. (if) Heyne v. Middlemore, 1 Rep. in Ch. 138; Hackwell v. Bustman, Cro. Jac. 410. *To the point that the surviving part- ner, to whom the settlement of the co- partnership affairs is left, can, upon the settlement of the co-partnership ac- counts, be compelled to account for the surplus or portion due the estate of the deceased, see Stewart v. Burkholter, 28 Miss. 396, and the cases hereinafter cited. See, also, Roberts v. Kelsey, 38 Mich. 602; Sewelli). Humphrey, 37 Vt. 265; Scott «. Searies, 13 Miss. 25. The surviving partner of a firm must account to the representatives of a de- ceased partner for the prop:rty of the firm as it was at the time of the deceased partner's death. The representatives are entitled to an accounting absolutely, and need not show that there would be something due to them from the fhin on settlement. Their right to an account results from their interest in the effects of the fimi, and the liability of the, estate to contribute to the payment of the firm debts. Cheesemanv.Wiggins, 1 Thomp. & C. 595. See, also, Denver v. Roane, 8 Reporter, 33; S. C. 99 U. S. 355. A complaint, however, by the admin- istrator of the estate of a deceased part- ner against the surviving partner, to re- cover the value of assets of the partner- ship, which the defendant has refused to account for, misapplied, and con- verted to his own use, it is held, should contain proper traversable averments {v) Beaumont v. Grover, 1 Eq. Ab. 8, pi. 7. 1225 'Oic ACCOUNT. [book III. partner' against the solvent partner {x) or liis executors (y). So a solvent partner may maintain an action for an account against the that the partnership debts have been paid; that the affairs of the partner- ship have been finajly settled; and that the shares of the partners have been as- certained; and should show a demand made, or a proper excuse for not mak- ing a demand, before the bringing of the action. Krutz!;. Craig, 53 Ind. 561. If surviving partners unreasonably delay in closing the partnership affairs or waste the property, the administrator of the deceased pai-tner should, if the partnersliip creditors neglect so to do, file a biU calling the survivors to ac- count, and praying for an adjustment of the partnership affairs. Miller v. Jones, 39 111. 54. Where a surviving partner used the partnership funds, after a dissolution by the death of his former partner, in the business of a new partnership which he entered into with another: Held, that an action would lie by the administra- tor of the deceased partner for an ac- counting, against the survivor, or his representatives after his decease, and his last partner, and that the adminis- trator could recover from the latter the amount found due from him to the first partnership. Castly v. Towles, 46 Ala. 660. A surviving partner by misrepresenta- tions . and fraudulent dealing procured from the decedent's administratrix, who was also, as he knew, trustee for dece- dent's children, a conveyance of part- nership intei'ests belonging to dece- dent's estate, for much less than their reasonable value : Held, that the use of the property thus wrongfully appro- priated must be regarded as a continued use of the partnership assets never ac- counted for, which the survivor might properly be decreed to make good to the administratrix on a bill brought by her for an accounting. Heath v. Waters, 40 jVIioh. 457. A, B and C, who were partners as attorneys and counsellors-at-law, agreed that the general partnership between them should terminate March 18, 1869; that therebifter no new business should be received by the firm, and that any coming to it through the mails should be equitably divided. It was also stip- ulated that the business then in hand should be closed up as rapidly as possi- ble by them " as partners under their original terms of association, and in the firm name." They agreed, Aug. 13, 1869, that in case of the death of either of them, his heirs or personal represen- tatives should receive one-third of the fees in cases nearly finished, and twenty. ' A partner may maintain a bill in equity against his co-partner and a third person, to recover his proportion of moneys paid to the defendant by the United States in accordance with a de- cision of the court of Commissioners of Alabama claims, under the U. S. Stat. of June 23, 1874, for property of the partnership destroyed by an insurgent ciTiiser, although after the destruction of the property and before the making of the treaty of Washington of 1871, the plaintiff was adjudged an insolvent 1226 debtor under the laws of this common- wealth, and all his property was duly assigned to his assignee, if all the debts proved against the plaintiff's estate in insolvency, or existing at the tune of the assignment have been paid, satisfied and discharged, and the assignee has signi- fied his assent in writing to the main- tenance of the bill in the name of the debtor. Jones v. Dexter, 125 Mass. 469. {x) As in Wilson v. Greenwood, 1 Swanst. 471. (y) As in Addis v. Knight, 2 Mer. 119. CHAP. X.J ACCOUNT. *915 trustees of his bankrupt co-partner; and, notwitlistandmg the rnle against making mere witnesses parties, the bankrupt himself maj, five per cent, in other partnership cases. A having died, his executor filed his bill against B and C for a discovery, and to recover A's share in the fees received by them out of the partnership busmess ■which remained unfinished when the firm was dissolved : Held, That a court of chancery had jurisdiction to entertain the bill and power to decree the relief asked so far as the fees had been col- lected. Denver ». Roane, 99 U. S. 355. A and B were partners, A carrying on the business of the firm in Boston, and B in New Orleans. A took in C as a partner in the busiaess carried on in Boston, and A and B agreed in writing that after a settlement with C all the business in Boston should be settled by the articles of agreement between A and B. Real estate was afterwards ac- quired by A and C in Massachusetts and other States with partnership funds, and was agreed to be treated as partnership property. A died : Held, that the ad- ministratrix of his estate could not maintain a biU in equity to compel C to sell said real estate as surviving part- ner, and to account to her dnectly for the proceeds; but that B, as surviving partner of the origuaal fii'm, had a right to insist on C's accounting with him therefor. Shearer v. Paine, 12 AUen, 289. The surviving partner of a commer- cial firm is not hable as liquidator to ac- count to the succession of his deceased partner for any single item of indebted- ness to the succession, but to pay over the entire sum found to be due on the succession on the settlement of the partnership. Walmsley v. Mendelsohn, 31 La. An. 152. Where a suit was brought by the heir of one of the members of a partnership against the heirs of the other member, claiming a certain sum, a,nd giving, in his petition, a detailed statement of the property belonging to the partnership, and of its annual revenues: Held, that if plaintiff had any right to the property described in his petition, and was, there- fore, entitled to an account from the heirs of the surviving partner, his right, and the rendition of an account of the partnership atfa.hs, could be determined in such a form of action as well as any other; and, that such a suit was in the nature of an action for the settlement of partnership affairs, and a partition and a division of the partnership effects. Atkinson v. Rogers, 14 La. Ann. 633. One who is next of kin, or a legatee or creditor, cannot file a bill against the surviving partner of a testator or intes- tate, for the sole purpose of compeUing him to account and settle the partner- ship accounts with the personal repre- sentative of the deceased partner. Har- rison V. Righter, 11 N. J. Eq. 389. Upon the death of a partner, one of the surviving partners was made ad- ministrator: Held, that next of kin could not tile a biU against the surviv- ing partners for an account, there being no charge of collusion between the ad- ministrator and the other partners. Hyer v. Bnrdett, 1 Edw. Ch. 325. The widow of a deceased member of a partnership is entitled to a discovery and account, from the surviving part- ner of aU moneys belonging to her separate estate, received by her husband as trustee for her under the Code, and and mingled by him with the partner- ship funds, and of all disbursements made by the partnership, and properly chargeable to her, and interest on the amount due her at the death of her hus- band. Dent V. Biough, 40 Ala. 518. 1227 *9J:6 ACTIONS BETWEEN PAETNERS, ETC. [bOOK III. « *946 it is said, be made a defendant for tlie purposes *of discov- ery (0). Again, if a partner's share is taken in execution, tlie purchaser from the sheriif is entitled to an account from, the solvent partners, as is, also, the execution debtor himself (a). An agreement to pay out of profits confers a right to an account; and servants entitled to a share of profits can maintain Servants, &c. an action for an account of them (5).' A sub-partner has no right to an account from the principal firm, Sub-partners *^'' ^^^J members of it, exce])t the one with whom he is *'^- a sub-partner; for there is no contract or privity save between those two (c). It has even been said that if a jjartner charges or mortgages his share in favor of a creditor, the latter has no right to an account from the other partners of the profits to which their co-partner may be entitled. This, however, is not quite correct (d); and as regards partners in mines, it has been decided that a mortgagee of one partner is entitled to an account against the other partner (e). If a partner, with the consent of his co- partners, assigns liis share in the partnership, the assignee will, by virtue of tliis assent, acquire the rights of the assignor, and be, therefore, entitled to an account from the other partners {/).' {z) Whitworth v. Davis, 1 V. & B. 545. See Mitford PI. 187, ed. 5. (a) See Habershon v. Blurton, 1 De G. & Sm. 121; Perens v. Jolmsoii, 3 Sm. & a. 419. (6) See Harrington v. Churchward, 6 Jur. N. S. 676; Rishton w.-Grissel, 5 Eq. 326; Tumey v. Bayley, 4 DeG. J. & Sm. 332. ^One who is to receive a share of the profits of a business may maintain a bill in equity for an account thereof. Bentley v. Harris, 10 R. I. 434 (distin- ^guishing Hazard v. Hazard, 1 Story, 371); Hallettu. Cumston, 110 Mass. 32, decided under Mass. Gen. Sfcat. ch. 118, §2: (c) Brown v. De Tastet, Jac. 284; Ray- mond's case, cited in Ex^ parte Barrow, 2 Rose, 225; Bray?;. Fromont, 6 Madd. 5, and see Killock v. Greg, 4 Russ. 285, as to agents. (d) See ante, p. 698. (e) Bentley v. Bates, 4 T. & C. Ex. 182. 1228 (/) See Fawcett v. Whitehouse, 1 R. & M. 132; Redmayne v. Forster, 2 Eq. 467. '' Where one partner assigns his inter- est iu the assets of an unsettled part- nership to a third person, and draws an order upon his co-partner, directing him to pay over to the assignee all moneys that may due him on final settlement of the partnership affairs, the assignee is entitled to all the remedies for pro- curing a settlement which the drawer would have had against the drawee, if there had been no assignment; and he may maintain a bill for account against the drawee without making the drawer a party. Fountaine v. Urquhart, 33 Ga. (Supp.) 184. See, also, Matthewson v. Clarke, 6 How. 122; Strong v. Clawson, 5 Gihn. 346. An assignee of an assignee of a co- partner in a joint purchase and sale of lands, may sustain a bill in equity against the other co-partners and the iHAP. X.J ACCOUNT. '947 If a partner dies, a question arises as to the right of his creditors and legatees to sue the other partners for an account of creditors, &c., the share of the deceased. The creditors of the late firm partner. can maintain an action against the executors of the deceased and the surviving partners, in order to ohtain payment of their debt out of the assets of the deceased {g). But the separate creditors, or the legatees, or next of kin of a deceased partner, stand in a very diilerent position. In the absence of special *circumstances, *947 they have no locus standi against the surviving partners, but only against the legal personal representative of the deceased part- ner (A); and it is only when there is collusion between these per- sons, or when circumstances have occurred which preclude the I'epresentative from himself obtaining a decree for an account of the share of the deceased, that his separate creditors, legatees, or next of kin, may themselves file a bill for that purpose against the sur- viving partners (^).' agent of the partnership, to compel a discovery of the quantity purchased and sold, and for an account and distribution of the proceeds. Pendleton v. Wam- bersie, 4 Cranch. 73. One partner assigned his interest in the concern as security for a debt, but continued to be treated as a partner by the other partner: Held, that the first-mentioned partner might iile a bill against tlie other partner and the as- signees of his own share for an account of the partnership. Buford v. Neely, 2 Dev. Bq. 481. A., and W. being partners, A,withthe consent of W., transfen-ed his interest to D., and D. and W. agreed to collect assets, and pay the debts of the old firm. Afterwards D. brought a suit against W. for a dissolution and an ac- count: Held, that A. could not, upon petition, become a party to the pro- ceedings for the purpose of securing his rights in the firm property. Dayton v. Wilkes, 5 Bosw. 655. If a partner has transferred his in- terest in the partnership to a third per- son, such third person is a necessary party to a bill filed to settle the part- nership concern. White v. White, 4 Md. Ch. 418. A bill was filed by one partner to set- tle the affairs of the partnership, which bill was supported by afiidavits The defendant appeared, and after appear- ance the complainant moved to amend the bill by making the assignee a party for the purpose of setting aside an as- signment made by the other partner, and for a temporary injunction against the assignee and for a receiver: Held, that the bill would not be multifarious as amended, and the amendments were allowed on the usual terms. Hayes v. Heyer, 4 Sandf. Ch. 485. ((/) Wdldnson u. Henderson, 1 M. & K. 582, and see post. (h) Davies v. Davies, 2 Keen, 534; Travis v. Milne, 9 Ha. 141; Langley v. The Earl of Oxford, 2 Amb. 798, Blunt's ed. ; Seeley v. Boehm, 2 Madd. 180. (i) See the cases last cited. This sub- ject will be again alluded to. ' A bill filed by a member of a partner- ship, which has been dissolved, prajTng that a receiver be appointed to collect and receive the debts due and coming to the firm, that an account be taken of aU 1229 *04:S ACTIONS BETWEEN PARTNEES, ETC. [bOOK III. The account which a partner may seek to have taken, may be General oriim- ^itlier a general account of the dealings and transactions ittd account, ^f ^],g fii'm, with a view to a winding up of the partner- ship; or a more limited account, directed to some particular trans- action as to which a dispute has risen. It was formerly considered that no account between partners Account with- could be taken in equity, save with a view to a dissolu- out a dissolu- . 1 .1, tion. tion (A), and a bill praying an account but not a disso- lution has been held bad on demurrer (I). The reason alleged for this doctrine was, the impossibility of doing complete justice with- out winding up the whole concern, and ascertaining the final balances due to or from the partners respectively. This reason however, is far from satisfactory, and it has been long felt that in their anxiety to do complete justice, courts of equity often refused relief in cases where their interference, to a limited extent only, would have been highly beneficial and was loudly called for. It has been felt, in short, that much more injustice frequently arose from their refusal to do less than complete justice, than could have arisen from their interfering to no greater extent than was desired by the suitor aggrieved. Accordingly, in Prole «. Masterman (im.), where the promoter of a company sought to terman.^^^^' *948 make his co-promoters contribute to a *debt paid by him, but for which they were liable as well as he, it was held that a decree might be made without directing a general account of what wns due from the plaintiff- in respect of other matters. Again, in the case of a mutual insurance society, where the funds of the society are answerable for the payment of the moneys due upon their policies, an assured member is entitled to an account of what is due to him upon his policy, and to a decree the partnership dealings and transac- a decree is entered the suit cannot be tions, and that the other co-partners be dismissed without their consent. Updike compelled to pay the complainant what v. Doyle, 7 JB. I. 446. should appear, upon the taking of the {k) Porman v. Homfray, 2 V. & B. accounts, to be due him from them, is a 329; Knebell v. White, 2 Y. & C. Ex. bill for the complete administration of 15; ante, p. 894. the partnership property, in which the (1) Loscombe v. Russell, 4 Sim. 8. creditors of the firm are interested; and ()».) 21 Beav. 61. Compare Munnings a decree granting relief is for their ben- v. Bury, Tam. 147. The circumstance efit as well as for the benefit of the par- that an action for contribution would ties to the suit, and they have a right to lie, did not oust the jurisdiction of a insist upon its execution, though not court of equity. Wright v. Hunter, 5 made parties in the bill, and after such Ves. 792. 1230 CiTAP. X.J ACTIONS BETWEEN PARTNERS, ETC. *9tl:S for the payment of what is so dne, without involving himself in any general account of the dealings and transactions of the society, or seeking for a dissolution thereof (to). The old rule, therefore, that a decree for an account between partners will not be made save with a view to the final cases in whicii determination of all questions and cross claims between tviifbede™eci thera, and to a dissolution of the partnership, must be dissokuioii°is regarded as considerably relaxed, although it is still P'^'^y^'^- applicable where tliere is no sufficient reason for departing from it.' There are three classes of cases in which actions for an account, withoiit a dissolution, are more particularly common, and to which it is necessary specially to refer. These are — ■ 1. Where one partner has sought to withhold from his co-partner the profit arising from some secret transaction. 2. Where the partnership is for a term of years still unexpired, and one partner has souglit to exclude or expel his co-partner or to drive liim to a dissolution. 3. Where the partnership has proved a failure, and the partners are too numerous to be made parties to the action, and a limited account will result in justice to them all. 1. Where one partner has obtained a secret benefit, from which he seeks to exclude his co-partners, but to which they i. Account ... , , „ where one part- are entitled, they can obtain their share ot such benefit ner withholds '' . . what the Arm is by an action for an account, and such action is sustain- entinedto. able, although no dissolution is sought. The cases illustrating this («) See Bromley v. Williams, 32 Beav. prayer are technically necessary. Fair- 177; Hutchinson v. Wright, 25 Beav. child v. Valentine, 7 Robt. 564. 444; Taylor v. Dean, 22 Beav. 429. See, Where one partner filed his bill for a too, Robson v. McCreight, 25 Beav. 272. dissolution of the' partnership, praying ^ See Hudson v. Barrett, 1 Pars. Sel. for an account, and showing that on a Cas. 414. particular day the partnership would ex- In a bill for an account, where both pire: //eM, that although the prayer parties agree that the business is at an for an account was premature, but be- end, an,d that the subject-matter of the came proper in a short time afterwards, agreement is extinguished, and both no additional statement was necessary ; seek an accounting, disputing only as to the defendant also praying that the bus- the principles on which it shall be taken, iness of the firm might be closed; and as the court, in disposing of the cause after the business was conducted by one alone, trial, may well disregard the want of an that it was his duty to keep an account; averment that the partnership has been and that he might be exa.mmed on oath dissolved, or of a prayer for a decree of as to all the partnership transactions, dissolution, even if such an averment and Funk i). Leachman, 4 Dana, 24. 12-31 *94:9 ACCOUNT. [book III. doctrine Lave been already noticed at length (SQ; White v. Barker, 5 DeG. & Sm. &c. are privileged, see Walsham v. 746; Seeley «. Boehm, 2 Madd. 176. A Stainton, 2 Hem. & M. 1; Wilsons, defendant is not entitled to set out the Northampton & Banbury, &c. RaO. accounts sought for in a book, and to Co. 14 Eq. 477. As to setting out a refer to the book instead of scheduling list of the debtors to the iirm, see Tel- the ticcounts to the answer. See Telford ford v. Ruskin, 1 Dr. & Sm. 148, where (■. Ruskin, 1 Dr. & Sm. 148. it was held that such a list must be (x) Drake v. Symes, Johns. 647. See, given. Compare the observation of V.- a.slo taking oppressive interrogatories C. Wood m Drake ». Symes, Johns. 551. off the file, S. C. 2 DeG. F. & J. 81, [e) 11 Sim. 391, and Cr. and Ph. 104. r.ml generally on this subject Wigram 1239 *958 ACTIONS BETWEEN PARTNERS, ETC. [bOOK III. *957 *answer, stating, by way of excuse for so doing, that certain accounts were in possession of the company's agent in Amer- ica; that the copies furnished by him were in the custody of the sec- retary of the company, that the defendants had no power to inspect the accounts except by an order of the Board, or, as shareholders, at certain short and specified times; and tliat tlie plaintiffs had, by means of an agent appointed for that very purpose, equal facilities and powers with the defendants to obtain the information desired. The answer was held insufficient, first by Vice-Chancellor Shadwell and afterwards by Lord Cottenham, on appeal; the former holding that the defendants ought to have stated that they had applied to the agent abroad; and the latter holding that it ought to have appeared in the answer that the Board of Directors had been applied to for leave to procure and give the information required, and that such leave had been refused. Lord Cottenham added, " If it is in your power to give the discovery, you must give it; if not, you nmst show that you have done your best to procure the means of giving it." («) In another suit between tlie same parties for similar objects, but Taylor r relating to another mine (h), the defendants again put RundeU(2). in an incomplete answer, excusing themselves on the ground that the books and documents containing the information, sought to be obtained were in the possession of the secretary as the agent of the company, and that the directors had ordered him not to allow the defendants to see the books; but this was held insuffi- cient by the Y.-C. Knight Bruce, and by Lord Cottenham, on the ground that the defendants had a r-ight to see the books, and that they were bound to exercise that right, and if necessary, to file a bill for the purpose of enforcing it. Lord Cottenham there said. "A party is boxmd to inspect and answer as to the contents *958 of all documents that are in his *possession or poioer; and all which he has a right to inspect, provided he can enfoivw that right, are in his -power." Books and papers which are in the possession of a company arr, tors den '^'^^ purposcs of discovery, in the possession or power ing possession, gf ^jjg directors, and they cannot avoid giving a list of (a) See, too, Stuart ». Lord Bute, 11 ing on business in a foreign country, Sim. 442, and 12 ib. 460; A.-G. v. Rees, was not bound to set out a list of docu- 12 Beav. 60; Earl of GlengaU v. Fraser, ments in the possession of the partner.". 2 Ha. 99, and compare Martineau v. abroad. Cox, 2 Y. & C. Ex. 638, where it was (6) Taylor v. Rundell, 1 Y. & C. C. held that a partner here in a firm carry- 128, and 1 Ph. 222. 1240 CHAP. X.] ACTIONS BETWEEN PARTNERS, ETC. •^958 the documents of the company by saying that they, the directors, have none, (c) In case it becomes necessary for a person interrogated to remove obstacles thrown iu his way, he should apply for further time to answer, and not put in an answer, which is insufficient, {d) In connection with this subject it may be useful to remind the reader of the rule, that a person cannot be compelled to „ ^ ,. ' ' 1 Productinn of produce books' which belong to himself and others documents, who are not before the Co art. Thus in Murray v. Walter (e), the defendant in his answer stated, that certain books relating to a con- cern in which the plaintiff claimed to be a partner with the defend- ant were in the possession of the treasurer of the concern on be- half of the several shareholders in it, many of whom were not parties to the suit; and it was held that the defendant could not be compelled to produce the books in question, although it was insist- ed on the authority of W alburn v. Ingilby {/), that the plaintiff (c) Clinch V. Financial Corporation, 2 Eq. 271. (d) Taylor v. Rundell, 1 Ph. 222; Pickering v. Rigby, 18 Ves. 484. ' In an action between partners for an accounting, either is entitled, at any stage of the action, to an order requiring the production of all partnership books, and the papers and accounts relating thereto, and their deposit with the clerk to be inspected and copied. Stebbins v. Harmon, 17 Hun, 445; Kelly v. Eck- ford, 5 Paige, 548. In the settlement of an account be- tween partners, the parties have the same rights before the circuit court as before a master, in regard to the pro- duction of books, examination upon interrogatories, etc. Montanye v. Hatch, 34 111. 394. Where partnership accounts are re- ferred to a commissioner for settlement, the court will rule the parties to produce before him such books and papers as - relate to the' partnership, and direct him to disregard any matter therein which relates to the private affairs of the parties. Calloway v. Tate, 1 Hen. & Munf. 9. A and B, being partners in trade, mutually agreed that A should devote his attention to one kind of business, and B to another, and that aU the prof- its and losses accruing from both kinds should be equally shared between them: Held, on a bill in chancery brought by A, after the death of B, against his ad- ministrators, for the account-books kept by B, that these facts alone evinced no title in A to the partnership effects, and the bin was dismissed: Canfield v. Hai-d, 6 Conn. 180. In an action by the executors of a partner who had conveyed all his inter- est in the firm to the other partner, to set aside the releases and conveyances, it was held that the plaintiffs were not entitled to a gener9,l inspection of the books of the firm before judgment, they being the exclusive property of the de- fendant as long as the sal^stood. Piatt V. Piatt, 61 Barb. 52; S. C. 11 Abb. Pr. N. S. 110. (e) Cr. & Ph. 114. The. interest of the absent parties must be stated, Bovill V. Cowan, 5 Ch. 495. (/) IM. &K. 79. 1241 *959 DISCOVEEY AND PEODUCTION OF DOCUMENTS. [nOOK III. had a right to have whatever access to the books the defendant himself was entitled to. There are several other decisions to the Murra v Same effect as Murray v. Walter {g), but the doctrine Walter. there laid down does not apply to cases in which the absent parties interested in the books are in fact represented by the de- fendants on the record, and have no interest in conflict with theirs; (A) nor it is said to an action by a cestui que trust against a *959 trustee who is charged with trading with trust *moneys in partnership with other persons not before the Court, (i) If the plaintiif has agreed to accept the defendant's statement Agreement pre- of profits, and not to investigate his books and accounts, eluding inspec- , t /. i .^^ inn i i tiou. the detendant will not be compelled to produce them before the hearing of the action. (Jc) A person who obtains an order for the production of documents Inspecting IS entitled not only to inspect them himself, but to have documeuts. ^j^^^^^ inspected by his solicitors and agents. (1) But neither he nor they are entitled to make public the information they obtain by means of such inspection. The order is made with a view to the administration of justice between the litigant parties; and an injunction will, if necessary, be granted to restrain the communication to strangers of what may be ascertained in the course of an examination of the books and documents produced under the order, (m) The common order does not entitle the person in whose favor it insrectioniDy ^® made to inspect by a professed accountant specially accountants appointed for the purpose; but if there is any neces- sity for so doing, a special order for inspection by such a person will be made, (n) Books in use for daily business are ordered to be produced at the (g) HacUey v. M'DougaU, 7 Ch. 312; (h) Tumey v. Bayley, 4 D. G. J. & S. Reid V. Langlojs, 1 Mao. & G. 627; 332. Burbidge v. Robinson, 2 Mac. & G. (l) WilKams v. Prince of Wales' Life, 243; Penney v. Goode, 1 Drew. 474; &c. Co. 23 Beav. 338. Stuart V. Lord Bute, 18 Sim. 453. Com- (m) Ibid, pare Vysec. Foster, 18 Eq. 602. («) Bonnardet v. Taylor, 1 J. & H. {h) Glyn V. Caulfeild, 3 Mac. & G. 383. In Draper v. Manchester and 463. Sheffield RaU. Co. 7 Jur. N. S. 86, L. J. (j) See Vyse v. Foster, 13 Eq. 602, an unsuccessful attempt was made to which, however, turned on the suifi- compel a company to submit t<5 an in- ciency of an affidavit of documents. spection of its books by an accountant See Freeman v. Fairlie, 3 Mer. 43. of a rival company. 1242 CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *960 place where they are iisaally kept; and they will not Booi-ginoon- be ordered to be deposited with the record and writ stautuse. clerks, unless there is some special reason for so doing, (o) When an order is made against a company for the inspection of its books, and the directors will not allow them to be inspection of produced, an order for their production will be made porauons. against the directors personally, {p ) *3. As to payment into court. — If, in an ac- *960 s. payment of tion by one partner against another for an ac- ?noneys*'iuto count, the defendant admits in his answer that he has °°'^'^'' in his hands money belonging to the firm, or that he had such money, and ought; to have it still, he can be compelled to pay such money into court before the hearing of the action, {q) As a gen- aerl rule, however, a partner having partnership moneys in his hands, cannot be made to pay those moneys into court if he insists that on taking the accounts a balance will be found due to him. (r) Nor will he be compelled bo to do unless the other partners will pay in what they may have in their hands, (s) Nor will a partner be ordered to pay into court the amount of a debt due from him to the firm, if the amount to which he is indebted is not admitted, and can only be ascertained by a complicated calculation, (j) But if a partner admits that he has partnership moneys in his hands, and it appears from his own statements that they came there improp- erly {u), or in violation of good faith, he will be compelled to pay them into court (x); so if he admits facts from which it appears (o) Mertens v. Haigli, Johns. 735. (s) Poster v. Donald, IJ. & W. 252. {p ) Lacharme v. Quartz Rock Min- it) See Mills v. Hanson, 8 Ves. 68. ing Go. 1 Hurls. &'Colt, 134. As to the [u] See Costeker v. Horrox, 3 Y. & C. form of an order for production by a Ex. 530, where a surviving partner, be- corporation, see Ranger v. Great West- ing also the executor of his deceased co- em Rail. Co. 4 DeGr. & J. 74. partner, was ordered to pay into court [q) In White v. Barton, 18 Beav. 7000L the amount of assets of the de- 192, an admission by one partner that ceased improperly apphed to partner- he and his co-partner who was not a ship purposes. See the next note, party had money in their hands was {x) Jervis v. White, 6 Ves. 738; Fos- held sufficient. ter v. Donald, 1 J. & W. 252; in the (r) Richardson v. The Bank of Eng- first of these cases the motion was land, 4 M & Cr. 165. But in Birley v. made before answer. In Hichens v. Kennedy, 6 N. R. 895, a partner who Congreve, 1 R. & M. 150, note, and admitted that he had drawn out more GaskeU v. Chambers, 26 Beav. 360, di- than he ought was ordered to pay the rectors obtaining secret benefits for excess into court. themselves were ordered to pay the 1243 *961 DEFENSES TO ACTIONS FOB AN ACCODNT, ETC. [BOOK III. that lie is iiidebted to the firm iu a certain sum, and he does not insist that on tlie whole the firm is indebted to him, the money ad- mittod bj him to be due will be ordered into court, {y) *961 *If the partnership debts are unpaid, and the defendant is liable to be sued for them, the order directing payment into court should reserve to him liberty to apply for payment out of court, of the amount of the debts he may be compelled or pressed to pay. (z) (6.) Of the defenses to an action for an account and discovery between partners and persons claiming under them. The defense on the ground of illegality, of fraud, of laches on the part of the plaintiff, and of want of proper parties to the suit, have ah'eady been examined, (a) In addition, however, to these grounds of defense, there are others which require notice,' and which cannot moneys received by them into court. Compare Hagell v. Currie, 2 Ch. 449, where the liability of the defendants did not sufBciently appear. (2/) Toulmin u. Copland, 3 T. & C. Ex. 643; Costeker v. Horrox, 3 T. & C. Ex. 530. In Domville v. Solly, 2 Russ. 372, an order was made though the de- fendants insisted that the plaintiff was entitled to nothing. (z) Toulmin v. Copland, 3 Y. & C. 643. In S. C. 6 Price, 405, it was held that a surviving partner was not entitled to have partnership funds, on which the plaintiffs had put a distringas, trans- ferred to him to enable him to pay out- standing debts. [a) See, as to illegality, ante, p. 201 et seq. ; as to fraud, ante, p. 923 et seq. ; as to laches, ante, p. 902 et seq. ; as to parties, ante, p. 877 et seq. ' A cross-bfll is not necessary in a suit between partners, wherein the com- plainant seeks a dissolution and an. [ac- count from the defendant, to enable the latter to get an account from the former, or to obtain relief against fraudulent practices of the complainant in giving the note of the firm without considera- tion, for his own benefit, and in buying 1244 up the paper of the concern at a diK- count, for his advantage with a view to obtaining the full amount thereof out of the assets of the firm. Such a bill will not be sustained on demurrer. Johnson v. Butler, 31 N. J. Eq. 35. See, ante, 945", note. In a suit for the settlement of part- nership accounts, the parties defendant are entitled to an investigation of all transactions claimed as partnership mat- ters, althoagh they be not set forth in the pleadings by way of counter-claim. Boyd V. Foot, 5 Bosw. 110. It is no defense to a bill for an account and settlement of a partnership that the defendant has been injured by the failure of complainant to perform his stipulations contained in the articles of partnership. The remedy of the de- fendant is at law, on the agreement. Boyd V. Mynatt, 4 Ala. 79. Where one partner sues the other for a liquidation and balance due on part- nership account, the defendant cannot set up in re-convention, damages to the business of the partnership caused by the bad habits of the plaintiff. Mills V. Fellows, 30 La Ann. 824. In an action to recover the balance of CHAP. X.J DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. *961 be more conveniently alluded to than in the present .place, and under the following heads. 1. Denial of partnership. 2. Statute of limitations. 3. Account stated. 4. Award. 5. Payment, and accord and satisfaction. 6. Release. 1. Denial of partner ship. — An action by one partner against 1 Den-ai by another for an account of the dealings and transactions fhe™neged°^ '^^ ^° alleged partnership may be met by the denial of partnership. ^]-^q existence of any such partnership. (5y This defense is relied upon as a reason for not answering interrogatories or mak- a partnership account, the accounts current rendered by each of the part- ners to the others are admissible in evi- dence to show, by the admissions of the parties, that the items of such accounts are not items of partnership account. Barry v. Barry, 3 Cranch C. Ct. 120. A assigned all his interest in the part- nership effects toliis co-partner B, who was to settle up the business, take a rea- sonable pay for his trouble in so doing, and divide any balance then remaining between them: Held, that in a suit by A against B, B should be allowed to show the value of his services in set- tling up the business. Pierce v. Cub- berly, 19 Ind. 157. (&) Drew V. Drew, 2 V. & B. 159; Hare v. London and North- Western Rail. Co. John. 722, is an instance in which a biU was successfully met by a plea denying that the plaintiff was a shareholder in the company. 2 In a suit for an account of an alleged partnership, a plea denying the part- nership must be supported by an answer and discovery as to every circumstance charged in the bill as evidence of the partnership, or the plea wiR be bad. Everitt v. Watts, 10 Paige, 82; S. C. 3 Edw. 486. In a suit for an account of an alleged partnership, it was referred to a master by consent, to state the accounts without prejudice: ffeW, that the existence of the partnership could not be questioned by an exception to the master's report finding a partnership, though that ques- tion was not expressly referred to him, and that the proper method of contest- ing the question would have been to bring the cause on for hearing. Jones V. Jones, 1 Ired. Eq. 332. Where a bill "set out a partnership, giving its duration and kind, and the answer denied generally, and then ad- mitted, a partnership of the kind de- scribed in the petition, but alleged a different time and duration, claiming that it was dissolved: Held, that there was no issue as to the existence of the partnership, and that an accounting might be taken by a special referee. Lannan v. Clavin, 3 Kan. 17. To a bin in equity for an account of sales of a book alleged to have been published by the defendant on the joint account of the plaintiff and himself, an answer which denies that any such book was published during the time alleged, and asserts that the book published by the defendant was a different one, need not render an account of sales. Arm- strong v. Crocker, 10 Gray, 269. 1245 *962 ACTIONS BETWEEN PAETNEES, ETC. [BOOK III. ing a discovery of documents must be accompanied by statements on oath denying those allegations which, if true, would establish the partnership, and denying the possession of documents relevant to the question of partnership or no partnership, (c) In *962 *Mansell v. Feeney {d) it was held that the plaintiff was entitled to an inspection of all documents admitted by the defendant to be in his possession and to be relevant to the matters in question in the suit, although the defendant denied- the partner- ship alleged by the bill, and also denied that the documc-its in question tended to prove its existence. The defendant, however, was allowed to seal up those parts of the books which he swore had no relation to the matters in question. Before the Judicature acts it was a rule in equity that except in one or two cases a defendant could not by answer (as distinguished from a plea), protect himself from giving discovery; if he answered at all he had to answer fully, (e) This rule, which no longer exists (_/), was often productive of great hardship; but in conform- ity with it, a person sued for a partnership account was not allowed by answer to deny the alleged partnership, and excuse himself on that ground from setting forth accounts, or producing documents which the plaintiff required to see. {g) However, notwithstanding this rule, the Court in more than one instance declined to enforce it; and ordered applications for discovery in such cases to be post- poned until after the necessity for making them appeared (A); and ■as now a court, or judge aft chambers, can order any question in dis- pute to be tried before any other {i) a person denying an alleged partnership can easily be protected against a vexatious or oppres- sive exorcise of a right to discovery. Whilst on the one hand he must give all such discovery as bears upon the question of partner- (c) Mansell v. Feeney, 2 J. & H. 813; 421; Blackley v. Rymer, 4 Drew. 248; Hams V. Harris, 3 Ha. 450; Sanders v. Mansell v. Feeney, ubi supra ; Thomp- King, 6 Madd. 61. son v. Dunn, 573; SauU v. Browne, 9 {d) 2 J. & H. 320. See, also, Saull v. Ch. 364. Browne, 9 Ch. 364. {h) Clegg v. Edmondson, 8 DeG. M. [e) See Elmer v. Creasy, 9 Ch. 69. & G. 787; De LaRue v. Dickinson, 3 K. (/) Ord. xxxi. r. 8. & J. 336; Lockett v. Lockett, 4 Ch. 336; Ig) HaU r. Noyes, 3 Bro. C. C. 483; Great Western Coll. Co. v. Tucker, 9 V. Harrison, 4 Madd. 252; Ch. 376; Carver v. Pinto Liete, 7 Ch. Shaw V. Ching, 11 Ves. 303; Somer- 90, Wier v. Tucker, 14 Eq. 25. ville V. Mackay, 16 Ves. 382; The Great (i) Ord. xxxvi. r. 3. See, also, order Luxembourg Bail Co. v. Magnay, 23 xxxi, r. 19, and Ee Leigh's estate, 6 Ch. Beav. 646; Eeade v. Woodroofie, 24 ib. D. 256. 1246 CHAP. X.] DEFENSES TO ACTIONS FOB AN ACCOUNT, ETC. *9G3 ship or no partnership, he would not, it is apprehended, be com- pelled to set out accounts or produce documents which he swears *throw no light on -that question and can only be *963 material after it has been decided in favor of the plaintiff. 2. The Statute of LimMations. — The Statute of Limitations, 21 Jac. 1, c. 16, § 3, enacts that all actions of account ^ gtatuteof (other than for such accounts as concern the trade of Limitationa. merchandise between merchant and merchant, their factors and servants (^)) shall be commenced and sued within six years next after the cause of such action or suit. A court of equity was as much bound by this statute as a court of law (Z),' and advantage {Ti) This exception no longer exists. See 19 & 20 Vict. c. 97, § 9. See, as to the exception, Robinson v. Alexander, 8 Bli. N. S. 352, and 2 CI. & Pin. 717, and the cases there referred to. (?) Knox V. Gye, L. R. 5 H. L. 656; Foley V. Hill, 1 Ph. 399; Hovenden w. Annesl6y, 2 Sch. & Lef. 607; and see Whitley v. Lowe, 25 Beav. 421, and 2 De&. & J. 704. ' See McKeown v. Guild, 12 Chicago Leg. News, 18; Stout v. Seabrook, 30 N. J. Eq. 187; McClungv. Copehart, 24 Minn. 17; McKelvey's Appeal, 72 Pa. St. 409. Though lapse of time is allowed to prevail sometimes in equity, it is (in those cases where the statute does not expressly or impliedly include courts of equity in its terms) only in analogy to the plea of the statute of limitations at law; and it cannot be allowed in favor of one partner in possession of real es- tate purchased with partnership funds, against the other, for the possession of one is the possession of both. M'Guire V. Ramsey, 9 Ark. 518. See, also, Hall V. Clagett, 48 Ind. 225. See ante. Laches, p. 902. Wbere a former partner and brother, having been a bookkeeper of the firm, had been in constant correspondence; with his brother since the dissolution, had received from him from time to time a settlement of the accounts be- tween them, had been perfectly satisfied with this settl?ment, and knew that the balance was against him; upon biU filed to open the accounts, more than twenty years having elapsed since the dissolu- tion of the firm, and nearly that period bafore fiKng thebiU, held, that the lapse of time would be almost conclusive evi- dence of satisfactory adjustment be- tween the parties. Farrar V. Shepherd, 60 Tenn. 190. To render the lapse of the statutory period a bar to an action for an account by one partner against another, it must appear that the account has been closed for six years. Stout v. Seabrook, 30 N. J. Eq. 187. Where the accounts between partners have been closed for six years, and there has been acquiescence for that period without fraud, the statute constitutes a bar: but the statute affords no defense in a case where there have been dealings within six years. Todd v. Rafferty, 30 N. J. Eq. 254. The statute does not begin to run against each item ofan account between partners, from the time it becomes , a part of the account, but if part be with- in six years it draws that which is be- fore after it. Todd t;., Rafferty, supra. When, after dissolution, the partners continue closing up the business, receiv- ing and paying out money, the cause of action is deemed to have accrued at the .1247 *-9G-J: ACTIONS BETWEEN PARTNERS, ETC, [book III. conld be taken of it by plea (ot), or by answer (n), or by demurrer if the facts sufficiently appeared on the face of the bill, (o) Thus, where an account had been stated between two partners, Cases in which and a balance was found due to one of them from the the statute has . _ ,. ^ i i .n m i been held abar other, and twentv-iour years aiterwards a Dili was nled. Bridges J ^J ^^^ former against the labter for discovery and an Mitchell. account, a plea that, according to the plaintiff 's, own showing, the balance was due twenty -four years before the filing of the bill, and that his remedy was barred by the statute, M'as al- lowed. [jpY In a subsequent case the defendant insisted in his answer that none of the transactions in respect of which the account was sought occurred within six years before the filing of the bill, and the bill was thereupon dismissed, {q) So, where a partner died, and seventeen years after- Tatam v. ii.hp ^t t a. • Williams. '*9Gi wards a bill tor an account was tiled *against his executors by the surviving partners, the bill was dismissed with costs. (■/■)' Again, in Foster v. Plodgson (s), the case was, in sub- stance, as follows: there was a running account be- Jlartin v. Heathcote. Foster v. Hodgson. date of the last item received or paid out. No demand is necessary before suit brought. MoClung v. Copeliart, 24 Minn. 17. (,n) See Welford v. Liddel, 2 Ves. S. 400; Beames' Pleas in Bq. 161. In Kobinson v. Field, 5 Sim. 14, and Jones t'. Pengree, 6 "Ves. 580, tlie plea was overruled as covering too much. (») As in Martin i\ Heathcote, 2 Eden, 169; Tatam v. Williams, 3 Ha. 347. (o) Foster v. Hodgson, 19 Ves. 180; Hoare v. Peck, 6 Sim. 51; Prance v. Sympson, Kay, 678. ip) Bridges v. Mitchell, Bunb. 217. See, too, Whitley v. Lowe, 25 Beav. 421, and 2 DeG. & J. 704. ^ A bill will not be entertained to es- tablish a partnership between two per- sons, settle its dealings, and declare one of them a trustee for the benefit of the other as to purchases of real estate, when more than twenty years have elapsed since the accrual of the right before suit brought, dui-ing all of which period the 1248 defendant denied and disregarded the rights of the other alleged partner; and the fact that the partners were brothers, complainant being averse to litigation, and on that account failing to sue in time, will not alter the case. PhUlipi v. Philhpi, 61 Ala. 41. (q) Martin v. Heathcote, 2 Eden, 169, and see Barber v. Barber, 18 Ves. 286. These cases were overruled by Robinson V. Alexander, 2 CI. & Fin. 717, on the ground that they came within the ex- ception relating to merchants' accounts, although there was no item on either side within six years. That exception, however, no longer exists. (r) Tatam v. Williams, 3 Ha. 347. ' See Ray v. Bogart, 2 John. Cas. 432. Where one partner dies, however, neither, the statute of limitations nor the equitable bar commence running in favor of the surviving partner until adminis- tration has been taken out on the estate of the deceased partner. Spann v. Fox, 1 Ga. Dec. 1. (s) 19 Ves. 180. CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. "mi tween a firm and its bankers; the head of the firm died, and the ac- count then stopped, but was not formally adjusted or settled; twelve years afterwards, a bill was filed against the bankers for an acconnt, on the ground that a considerable balance was, in fact, due from them to the firm. The defendants demurred, and the demurrer was allowed, on the ground tliat the case did not appear to be within the exception relating to merchants' accounts; that consequently the lapse of more than six years since the account stopped, was an answer to the suit; and that as this fact appeared 6n the face of the bill, the objection was properly taken by demurrer, {t) Lastly, in Knox v. Gye (w), it was held, that a suit by the exec- utors of a deceased partner against a surviving part- ner was barred by the lapse of six years where there was nothing to prevent the statute of limitations from running. But the statutes of limitations do not apply to cases of express trust^or of concealed fraud. Thei-efoi-e, if a partner „ ' t' Cases wliere has died, having by will disposed of his property on ^jj^^^g'^'cf trust for payment of his debts, this is sufficient to jus- . , . . i . i t f to partners and 1 years alter his retirement: but it does not, tneretore, liability to ■' . ' i. , .,. ., creditors. foUow that the duration of his liability to contribute with his late co-shareholders to debts for which he was liable with them, is also limited to the same three years, {a) With respect to accounts between partners, an important altera- , , tion of the law has been effected by the repeal of so Merchants ac- •' ^ counts. much of the old statutes as relates to merchants' ac- interest. He neither offered expressly ground, among others, -was held to have to set off the claim, nor prayed judg- been properly sustained. Crane v. Bar- ment therefor. The action and plea ry, 60 Ga. 362. remained pending until February, 1877, {x) Ault v. Goodrich, 4 Euss. 434. when the action was voluntarily dis- (y) 24 Beav. 346. missed by the plaintiff therein. The [z) See. too, Allfrey v. Allfrey, 1 Mac. administrator in July thereafter filed the & G. 87; Wedderbum v. Wedderburn, present bill to recover for his intestate's 2 Keen, 722, and 4 M. & Or. 41. interest in the stock. The bill was held (a) Gouthwaite's case, 3 Mac. & G. to be barred by the statute of lunita- 187. tions, and a demurrer containing that 1250 CHAP. X.J ACTIONS BETWEEN PARTNERS, ETC. *966 counts. The antliorities which have been already referred to as showing that the statutes of limitations are a bar to an action for an account did not apply to open unsettled accounts, extending ■ from a time more than six years before a bill was filed, down to a time within such six years. Formerly, by reason of the express exception in the statute of James, accounts which concerned the trade of merchandize between merchant and merchant might be taken, although more than six years had elapsed since the last trans- action forming an item in the account, and although tliere had been no acknowledgment, or part-payment, to take the case out of the statute, (b) And notwithstanding the words of the statute of James, "All actions of account shall be commenced and sued, " &c., it was held *that even as between ordinary per- 966* sons, the statute did not begin to run so long as the account was continued (c); and that the, statute did not, in any case, apply ■ to an unsettled, open, mutual account, with items on both sides representing cross demands, (d) The law in this respect was mod- ified bv Lord Tenterden's act (e), the effect of which is. Application of " . statute to cur- that, although there may be a mutual open running ac- rent accounts. count the mere existence of items not barred, is not sufficient, in actions of debt or assumpsit, to take earlier items out of the stat- ute of limitations, (f) Lord Tenterden's act, however, did not ap- pl}'^ to merchant's accounts as to which there was no statutory bar; but now merchants' accounts are on the same footing as other ac- counts. Consequently, partnership accounts, whether they are or are not merchants' accounts, are now within the statutes of limita- tions; and those statutes are a bar to an action for an account ex- tending to a period more remote than six years before the com- mencement of the action, unless there has been a breach of an ex- press trust, or fraud, or payment, or an acknowledgment, such as required by Lord Tenterden's act, or unless the partnership articles are under seal. So long, indeed, as a partnership is subsisting, and [h] Eobinson v. Alexander, 8 Eli. N. v. Skoulding, 6 T. E. 189. S. 352, aid 2 CI. & Fin. 717, settled this (e) 9 Geo. 4, c. 14. point, and finally overruled a number (/) Williams v. GriiBths, 2 Cr. M. & of earlier cases. R. 45; Cottam v. Partridge, 4 Man. & (c) See per Lord Eldon in Foster v. Gr. 271; Asliby v. James, 12 M. & W. Hodgson, 19 Ves. 185; Scndemore v.< 542; Clark i). Alexander, 8 Scott, K R. White, 1 Vern. 456. 147; Inglis v. Haigh, 8 M. & W. 780. {d) See the notes to Webber v. Tivill, See, too, Jackson v. Ogg, Johns. 397. 2 Wms. Saund. 126 etseq., and Cathng 1251 *967 DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. [bOOK III. each partner is exercising his rights and enjoying his own property, the statute lias, it is conceived, no application at ail; but as soon as a partnership is dissolved, or there is any exclusion of one partner by the others, the case is very different, and the statute begins to run. (ff) This has been decided by the House of Lords in Knox v. „j^ Q Gye (A), in which a surviving partner relied on the statute as a defense to a suit for an account instituted *967 by the executor of a deceased partner. *The deceased part- ner had died more than six years before the filing of the bill, and the right of his executor had never been recognized; the surviv- ing partner, however, had continued the partnership business, and had got in outstanding assets within six years. The Y.-C Wood held that the statute was not a bar to the suit; but the decision was reversed by Lord Chelmsford on app)eal, and the House of Lords affirmed Lord Chelmsford's decision. With reference to acknowledgments, it was lield in a partnersliip Effect of case, where no account had been come to for six years, acknowledg- • i i i i r> i i -i meut. that a Signed acknowledgment of a liability to account in respect of matters more than six years old, was sufficient to jus- tify a decree for an account in respect of them, although the ac- knowledgment did not contain an admission that anything was due nor any express promise to pay what might be found due on taking the account, (i) ' Where a partnership account is agreed to be taken, and a receiv- Payment ty re- er is appointed, a payment'' made by the receiver to one suit. ot the partners on account ot a debt owing to him by (g') See some remarks as to the effects of R.'s estate, agreed to two amicable ref- the statute between partners in Winter erences, etc. : Held, that this was a 1 . Innes, 4 M. & Or. Ill, and Way v. continuing admission of liability to ac- Bassett, 5 Ha. 68. count so as to suspend the running of (h) L. R. 5 H. L. 656. See 19 & 20 the statute of limitations. Shelmire's Vict. c. 97, § 9. Miller v. Miller, 8 Eq. Appeal, 70 Pa. St. 281. 499, is hardly consistent witli this, un- ^ As to a payment on account not con- less it .be upon the ground that there stituting a settlement of accounts, see -n-as no dissolution. McKelvy's Appeal, 72 Pa. St. 409. (/) See Prance v. Sympson, Kay, 678. Payment of the deceased partner's The expression was, '' you and I must share of damages recovered in a suit for go into it and settle the account.'' See, the destruction of the partnership prop- also, Skeet V. Lindsay, 2 Ex. D. 314. erty, is not such a payment upon the Compare Mitchell's claim, 6 Ch. 822. general account of the partnership busi- ' R. and J., 'brothers, were in partner- ness as will remove the bar of the stat- ship. R. having died, J. frequently ute of limitations. McKeown v. Gmld, acknowledged his hability to account to 12 Chicago Legal News, 18. 1252 CHAP. X.J DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. *967 another partner, is not sufficient to prevent the statute from being a bar to such debt. (Jc) 3. Account stated. — To an action for an account of partnership dealings and transactions, an account thereof already 3 Account stated between the parties (J) affords a good defense, {mf stated. [k) Whitley v. Lowe, 25 Beav. 421, and 2 DeGt. & J. 704. (I) Of course the maxim, Res inter alios, etc., applies to settled accounts, Carmichael v. Carmichael, 2 Ph. 101. {m) Taylor v. Shaw, 2 Sim. & Stu. 12; Endo V. Caleham, You. 306. An ac- count settled by a majority was held binding on the minority in Robinson v. Thompson, 1 Vern. 465. See, too, Stupart V. Arrowsmith, 3 Sm. & Gr. 176, and Kent v. Jackson, 2 DeG-. M. & G. 49. 3 Wells V. Erstein, 24 La Ann. 317; Kidder v. Mollhenny, 81 N. C. 123; Wagner v. Wagner, 50 Cal. 76; Cayton V. Walker, 10 id. 450; Silver ».' St. L. Iron Mt. & T. R'y. Co. 5 Mo. App. 381; Gage v. Parmalee, 87 111. 329; Hanks V. Baber, 53 id. 292. See, also. Wood V. Pox, 1 A. K. Marsh. 451, and the eases cited below. In a suit for a dissolution, however, an answer that on a day certain the partners accounted, and have made no new contracts since, does not make it improper for the court to order an ac- count, without first determining the truth of the answer. Kennedy v. Sliil- ton, 1 Hilt. 546. Where there has been a partial settle- ment of a partnership account, and there is no valid objection to the settle- ment, it is conclusive upon the parties to it as far as it goes, and leaves open only the unsettled portion of the account. Foster v. Rison, 17 Gratt. 321; Park- hurst V. Muir, 7 N. J. Eq. 555. Where the jmy find that a note in suit was given in settlement of the final balance due on partnership transactions, all inquiry into the articles of co-part- nership is immaterial. Kidder v. Mc- Ilhenuy, supra. ■ Where, however, there has been a dissolution and a final settlement, and a note given for the balance ascertained to be due, with the stipulation that the errors and omissions in the settlement may be deducted as payments on the note, a court of law, in an action on the note, may allow such errors and omis- sions as a defense to the action. Prink V. Ryan, 3 Scam. 322. So, a settlsm;nt between two part- ners, whereby one buys the other's in- terest in the partnership property, and gives his note for the amount found to be due the retiring partner, does not estop the maker of the note from plead- ing and showing, when sued on the note, that it was given for too much, by mistake arising out of an erroneous charge against the maker of the note in the settlement. The fact that the maker received the note after discovery of the mistake by him, and while it was a matter of dispute, still insisting that it existed, does not vary the rule . Hertz V. Clark, 46 Ga. 649. Two partners agreed that the part- nership should be dissolved, and the business closed, and that the partner- ship accounts should be considered and taken as if the partnership had never existed, and that the amount already received by one partner from the partnership should be his compen- sation paid by the other partner to him as an employe, and that the other partner should collect the debts due the firm, and pay the debts due by the firm; and the agreement was acted on: Held, that the partner who received the 1253 *0G7 DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. [bOOK III. ISTo precise form is necessary to constitute a stated and settled ac- count; but an account stated, unless it be in writing, is no defense cmnpeusation as aji employe had no further interest in the partnership ac- counts, and could not maintain a suit for an accounting. Wagner v. Wag- ner, supra. Where the petition in a suit between partners was for a balance stated upon an accounting, and the answer, after setting up the statute of limitations, admitted the partnership, its dissolu- tion, and a large partnership account, denyiug the striking of a balance by the parties, but claimed a balance iu the defendant's favor, and prayed for an accounting and judgment; and where both parties, in open court, as- sented to an order made for taking an account before a referee, which was taken: Held, that, by assenting to the taking of the account, plaintiff aban- doned his claim to recover as upon an account stated, and defendant waived any bar to the claim of plaintiff, and the action became an equitable one for a final accounting, between former partners. Auld v. Butcher, 2 Kan. 135. A and B formed a partnership, agree- ing, by an indenture, that A should put in $20,000, that B should transact the fii-m's business, that the profits should be divided in the proportion of 17 to 7, and that A might draw out $2500, and B $300 annually. The partnership was dissolved, and the goods divided; and it was then agreed that A should estijnate the profits, and B should elect whether to buy A's in- terest, or sell his own, according to that estimate. A estimated the profits at §25,500, and B elected to take the ef- fects, and pay A his share of the profits. A memorandum was also made by A and B of certain items which were to be left to arbitrators. A brought a bill to obtaiu aa account from B : Held, that the agreement, after dissolution, was 1254 not void for uncertainty, because of its silence as to interest on the amounts withdrawn by the partners, nor be- cause the disputed items were excluded from it. Miller v. Lord, 11 Pick. 11. Where several persons entered into a co-partnership to trade in plank and lumber, and some years after made a settlement, in which the parties mutu- ally signed a paper purporting to be ' 'a settlement of their plank and lumber account: " Held, that the presumption that such settlement was a dissolution of the partnership was not repelled by a recital in the memorandum that the parties were to be entitled to certain proportions of the profits, when ascer- tained; bat that it rather imported a final settlement of the business, and postponed a division of the profits until the uncollected balances were made available, and that a party pleading such settlement was estopped from opening it. Ferguson v. Hite, 9 Dana, 553. Where it appeared that, during a co- partnership of eight years duration, there had been occasional calculations of interest, and summing up of results, and a division of profits, but no sur- render of vouchers, or cancellation of books, nor release, nor receipt in full: Held, that the transactions were not of such a conclusive nature as to bar an account. Lynch v. Bitting, 6 Jones, Eq. 238. A settlement made by a surviving partner, under the provisions of the first article of the administration act of 1845 (Rev. Code 1845, 70,) is evidence in favor of the representative of the de- ceased partner against the survivor, as an admission. State v. Baldwin, 31 Mo. 561. In a settlement between two partners, it was agreed that " S. is due L. $295.86 CHAP. X.J DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. *967 to an action for a further account. It is not, however, necessary that the account should be signed by the parties,* if it can be to make him equal witli the said L. in the outlays: " Held, that the true con- struction is that S. owes to L. (not to the firm) the said sum. Little v. Stan- ton, 32 Pa. St. 299. On the dissolution of a partnership between A and B, B was to retain the goods of the iirm and A was to have all the lands and all the debts due the firm, and pay all the debts due from them, and by a clause added at the sug-gestion of A at the close of the ai-ticles of dis- solution, they were to operate as a re- ceipt for all demands then existing be- tween A and B, as exhibited by the books of the firm, with a few exceptions specified : Held, that A thereby approved and ratified a payment by B of an individ- ual debt, the entry of which was made up- on the books, and which entry the clerk testified he ,had shown to A, who said "that it was of no account arid would make no difference. ' ' Brewster v. Mott, 4 Scam. 378. On the dissolution of a firm, without taking an account, it was agreed be- tween them that one should take a cer- tain amount of the effects and the other the residue, and "pay aU the debts due from the firm." Tlie former had be- fore advanced to the firm, and taken his partner's memorandum for the same: Held, that by the settlement he was precluded from claiming such memoran- dum as a "debt due from the firm." Patterson v. Martia, 6 Ired. L. 111. Where an account of the mutual deal- ings of two firms, of both of which A was a member, had been stated, and all the partners of the creditor firm, save A, who refused to join as plaintiff and was made defendant, brought an action against the debtor firm : Held, that the plaintiffs were entitled to judgment for the balance on the account stated, and that, facts appearing that would render a recovery without adjusting the ac- counts of the, individual member inequi- table, such adjustment would be dh-ected by the court. Cole v. Reynolds, 18 N. Y. 74. On the dissolution of a co-partnership between S. and P., it was agreed that S. should settle the partnership concerns; and the agreement between them in writing contained the clause, " that the accounts of the partners shall be made equal by the said S., selecting and tak- ing to his own account, from the assets or effects of the firm, an amount suffi- cient to equalize the accounts of said partners with interest:" Held, that this clause did not release P. from lia- bility for loss to the partnership, nor from his liability to pay to S. the amount which might be due him after setthng the concern; and that it did not show an intention that S. should apply doubtr ful or uncolleotable debts due the firm in payment of the amount due him, at their nominal value. Sayre v. Peck, 1 Barb. 464. A sale by one partner of his interest in the business to a third party, followed by his purchase of his former partner's interest at a fixed price, is presumptive evidence that aU. the former accounts were settled, or at least merged in the new agreement. Norman v. Hudleston, 64111.11. * See Jessup «. Cook, 6 N. J. L. 434. Where, in an action for a partnership settlement, under the plea of a settle- ment made and release granted,' de- fendant produces and relies on a private instrument written and signed by plain- tiff alone, in which the letter, after mentioning various partnership trans- actions, declares that the partnership has been fully settled, and grants full acquittance thereof to defendant, but the document stands alone without ex- 1255 ■■0G8 ACTIONS BETWEEN PAETNEKS, ETC, [book m. *968 be shown to have been acquiesced in by them {n) ° and *an account may be stated snd settled, although a few doubtful items are omitted, {o) It is to be observed, that 'the fact that an account has already been rendered by the defendant to the plaintiff does not deprive -the latter of his right to have the same account taken under the direction of a court {p); to have that effect an ac- count must ijot only have been sent in to the plaintiff, but also have been acquiesced in by him. {q) It is further to be observed, that although the principle on which accounts have been kept may have been acquiesced in, the items may not. (r) Accounts of companies laid before the shareholders at a general Adopted ac- meeting, a,nd approved and adopted by them, cannot be panies. impeached by absent or dissentient shareholders, except upon the ground of proved error or of fraud, (s) A stated account may be impeached either wholly or in part on Impeaching an the ground of fraud or mistake.' If there be fraud, or account stated, ,,. ., ^ , ,, , on the ground it any mistake affects the whole account, the whole will of fraud and " •,,ii. mistake. be Opened, and a new account will be directed to be planation or corroboration, and the other evidence is conclusive that no set- tlement had been made, the instrument will have the same effect to estabhsh plaintiff's partnership interest as if written by defendant himself; and a verdict for plaintiff will be sustained. Denton v. Erwin, 6 La. Ann. 317. («) See Hunter v. Belcher, 2 DeG. J. & Sm. 194; Moms v. Harrison, CoUes, 157; Willis i>. Jemigan, 2 Atk. 252. See on this defense in general, Beames' Pleas in Equity, 222, and Mitford, 302, edit. 5. A verbal account and a receipt in full is not equivalent to a stated ac- count. Walker v. Consett, Forrest, 157. 'To constitute a settlement of ac- counts between partners, aU must con- sent and be bound by it, or none can be bound. Lamalere v. Gaze, 1 Wash. 435. Cooper v. Frederick, 4 G-. Greene, 403. (o) Sim V. Sim, 11 Ir. Ch. 310. (p) See Clements v. Bowes, 1 Drew. 692. (g) Irvine v. Young, 1 Sim. & Stu. 333. 1256 [r) See Mosse v. Salt, 32 Beav. 269; Claucarty v. La,touche, 1 Ball & Beatty, 420. Compare Hunter v. Belcher, 2 DeG. J. & Sm. 194. (s) See Holmes' case, 2 DeG. M. & G. 113; Stupart v. Arrowsmith, 3 Sm. & G. 176; Kent v. Jackson, 2 DeG. M. & G. 49; Ex parte Bignold, 22 Beav. 143. But as to reports without any accounts, see Portsmouth Banking Co. 2 Eq. 167. ' See Abrahams r. Hunt, 26 Pa. St. 49; Silver v. St. L. Iron Mt. & S. R'w'y. Co. 5 Mo. App. 381; Gage v. Parmalee, 87 111. 329. A deed of final settlement between partners will not, however, be disturbed, except for the most cogent reasons. Murray «. Elston, 24 N. J. Eq. 310. Although a partner at and before the time of making a settlement of the part- nership account, and selling his interest to his co-partner may have been under great financial embarrassment and under indictment as an officer for em- bezzlement, yet if he is a free agent and has ample time to deliberate, and pro- CHAP. X.J ACTIONS BETVi''EE]Sr PAETKEES, ETC. *968 taken, without reference to that which has been stated {t); but if there be no fraud, and if no mistake aifecting tlie whole account can cures a competent accountant to exam- ine the books of the firm, who makes a faithful examination, and submits the same, and the party objects as to certain matters, showing that he un- derstands the business ; and the proof also shows that he was familiar with it, and he finally makes a lumping trade, settling the business and disposing of his interest, and sometime after ratifies the act by asking tune to pay a balance, a court of equity will not set aside the transaction, even though the co-partner pressed him for a dissolution and settlement. Gagev. Parmalee, su- pra. Where the active and managing part- ner was by the articles of co-partnership allowed a salary of $1,000 a year for his services, and afterwards one partner sold out his interest and retired, and no new agreement was entered into, and, as the business increased, the active partner charged on the books from time to time an increase in his salary, to which no objection was made by the other partner, although he often exam- med the books and had montlily state- ments furnished him. It was held, that after dissolution and settlement, on the basis of the increased salary, this was no ground for setting the settlement aside. 87 111. 329, supra. See, also, Brewster v. Mott, 4 Scam. 378. A settlement of partnership accounts between parties, dealing with each other at arm's length, will not be opened in equity, merely on the ground of the impaired health and depression of spirits of one of the parties at the time, no un- soundness of mind being proved. BUl- ingslea v. Ware, 32 Ala. 416. One partner, when sued by the other, on a note e.vecuted by the fonner to the latter in settlement of a general balance on a dissolution of their partnership, may impeach its validity for fraud, with- out resorting to a direct action to annul the settlement. Powell v. Graves, 9 La. Ann. 435. Where a partner, by concealing the profitable results of his outside specula- tions and rendering a false balance sheet, obtained from his co-partner a bill of sale of all of the latter's interest in the firm: Held, that equity would apply the rule making partners each other's agent and trustees, and would grant appropriate relief, under a prayer for a re-opening of the settlement and for general relief. The complainant was only bound to ordinary vigilance to pre- vent the accomplishment of the fraud. Pomeroy v. Benton, 57 Mo. 531. In re-opening a settlement between partners alleged to have been procured by the fraud or mistake of the managing partner trusted as such, equity will allow more latitude than where no confidence is reposed. Merriwether v. Hardeman, 51 Tex. 436. Where a judgment is recovered at law by one partner against another in respect of the partnership dealings, the defendant may still file a bill for an ac- count, and if, upon a statement thereof' it appears that he owes the defendant nothing, the Court may properly enjoin the collection of so much of such judg- ment as is shown to be inequitable and unjust. Gregg v. Brower, 67 111. 526. In the case of a mistake in the settle- ment of a partnership account, where both parties had equal opportunities of {t) As in Clarke v. Tipping, 9 Beav. 599; Allfrey v. Allfrey, 1 Mac. & G. 87; 284; Wharton v. May, 5 Ves. 68; Beau- Coleman v. Mellersh, 2 ib. 309. mont V. Boultbee, ib. 485, and 7 Ves. 1257 •969 DEFENSES TO ACTIONS FOE AN ACCOUNT, ETC. [BOOK III. be shown, but the correctness of some of the items in it is, neverthe- less disputed, the account ah'eady stated will not be treated as non- existing, but will be acted upon as correct, save so far as the party dissatisfied with any item can show it to be erroneous (u). In a case of fraud, an account will be opened in toto, even after the *969 lapse of a considerable time (x); but if no *fraud be proved, an account whicli has been loug settled will not be re-opened in toto; the utmost which the Court will then do will be to give leave to surcharge and falsify (y); and there are cases in which, in consequence of lapse of time, the Court will do no more than itself rectify particular items, ^instead of giving leave to surcharge or knowing: the mistake, and there has been no fraud or concealment, equity will not correct the liiistake. Belt v. Mehen, 2 Cal. 159. See, however, Hertz V. Clark, ante, p. 967, note. A court of equity may correct errors in the settlement of partnership affairs when they arise from misrepresentations innocently made by one or more mem- bers of the firm. Stephens v. Orman, 10 Fla. 9. N. and J. entered into an agreement to dissolve partnership in December; 1861. By the terms, of the agreement, the books were to be balanced, exclud- ing all doubtul debts, and the amount due N. ascertaiaed, and J., with others, \7as to purchase his interest and con- tinue the business. The cash balance against N. was found to be $1,800, by one of the new firm who had charge of the books; the suspended debts amount- ing to a much larger sum than was ex- pected. This was not disclosed to the complainant, but he was allowed to ex- ecute the contract under the belief that there would be a balance in his favor. N. was to share in the suspended debts ■ as fast as they were collected. N. en- tered the service of the new firm, and continued till April, 1861. In October, 1862, he filed his bill to set aside his agreement and be reinstated in the ' firm: Held, this was not such a mis- take as would entitle the complainant to 1258 reUef in equity. Nicholson v. Janeway, 16 N. J. Eq. 285. Plaintiff proposed to purchase the in- terests of his co-partners in a firm busi- ness; the book-keeper made out a state- ment of accounts in which the private accounts of the partners were included as assets. The agent acting for the other partners refused to seU upon that basis, but made a statement in which the private accounts were set down as profits, and offered to sell with that statement as a basis. Plaintifi^, with full knowledge of the difference in the statements, accepted the proposition, and the sale was completed. Plaintiff ga.Ve notes which he subsequently paid as they beca.me due, and never offered to return the property. In an action for an accounting: Held, that these facts authorized a finding that there was no material mistake of fact, and that plaintiff was entitled to. no equitable re- lief. Stittheimer «. KiUip, 75 N. Y. 282. (u) Pitt V. Cholmondeley, 2 Ves. S. 565; Vernon v. Vawdry, 2 Atk. 119. (x) Allfrey v. AUfrey, 1 Mac. & G. 87; Stainton v. the Carron Co. 24 Beav. 346. See Vemon v. Vawdry, 2 Atk. 119; Beaumont v. Boultbee, 5 Ves. 485. {y) See Millar v. Craig, 6 Beav. 433; BrowneR v. BrowneU, 2 Bro. C. C. 61, and 1 Mac. & G. 94. CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *970 falsify generally, (zf Moreover, the mere fact tliat items are treated in an improper way, or are improperly omitted, is not of itself suf ficient to induce the Court to open a settled account; for if the items in question were known to the parties, and there be no fraud or undue influence proved, the Court will infer that the partners agreed to treat the items as they in fact did treat tliem. (a) But an item omitted by mutual mistake will be set right. (5) If a settled account is impeached for errors, particular errors must be stated and proved (c); and tlie same rule holds where the account is settled, "errors exi-epted." (d) In surcharging and falsifying, errors of law, as well as errors of fact, may be set right (e); and where leave is given to jj,gtaiies one party to surcharge and falsify, similar leave is "fi^w. thereby also accorded to his opponent. (_/) On the retirement or death of a partner, it is usual for an ac- count to be stated between jiim or his representatives Accounts stated , 1111 . • ■ 1 oil th® death of on the one hand, and the continuing partners on the a partner, other, and for mutual releases to be given. Afterwards attempts are occasionally made to open the accounts thus stated, and to set aside the releases, and to have a new account taken, and a fresh set- tlement of the partnership affairs. In such cases as these, before the settled accounts can be opened, the release *must *970 be set aside, {g) "Whether this can be done or not, depends upon circumstances which will be found discussed under the title rescission of contract. (A) In taking accounts under an ordinary decree, settled accounts are never disturbed unless specially directed so to be. (i) («) See Twogood v. Swanston, 6 Ves. Haylin, 2 Bro. C. C. 310; Kinsman v. 485; Matind v. Allies, 5 Jur. 860. Barker, 14 Ves. 579. 'A settlement between partners, {d) Johnston v. Cartis, 2 Bro. C. C. which does not appear to have been 311, note. unfair, will not be disturbed at the in- (e) Roberts v. CufRn, 2 Atk. 112. stance of one who has not within a rea- (/) 1 Madd. Ch. 144, where it is said sonable time repudiated its terms nor to have been so held by V.-C. Leach in taken any steps to rescind it. McGunn Anon, 6 March, 1821. V. Hamlin, 29 Mich. 476. {g) See Millar v. Craig, 6 Beav. 433; {a) See Maund v. Allies, 5 Jur. 860, Fowler v. "Wyatt, 24 Beav. 232, and see L. C. ; Laing v. Campbell, 36 Beav. 3, Parker v. Bloxham, 20 Beav. 295. where bad debts were treated as good. {k) Ante, p. 927 et seq. (6) Pritt V. Clay, 6 Beav. 503. {i) Newen v. Wetten, 31 Beav. 315. (c) Parkinson v. Hanbury L. R. 2 H. L. But see Milford v. Milford, MacCl. & Y. 1: Dawson w. Dawson, 1 Atk. 1; Taylors. 150. 1259 *971 DEFENSES TO ACTIONS FOE AN ACCOUXT, ETC. [bOOK III. 4. Award. — Another defense to an action for an account is, that the matters in difference between tlie partners 4. Award. ^ , , ^ have been disposed of by arbitration. A mere agreement that the matters in question should be re- Agreements to ferred, lias frequently been held to be no defense to an refer to arbitra- ^ ''^ tion. action in respect ot them. («)' But if those matters have actually been disposed of by the award of an arbitrator, tliey cannot .afterwards be made the foundation of any action between the parties on whom the award is binding. (I) But an award will not avail as a defense to the action if the account sought by it is different from that to whicli the award applies, (ot) So an award on a reference of all matters in differ- ence is no defense to an action for an account of moneys received after the making of the award, and not dealt with by it, owing to a mistake on the part of the arbitrator. Thus in Spencer v. Spen- cer (ft), the partners on a dissolution referred all matters in differ- ence to arbitration. The arbitrator awarded that one of the part- ners should get in the outstanding debts, which were estimated by the arbitrator at a certain amount. The award was acted on, but it appeared that the debts ultimately got in amounted to more than the sum at which they had been estimated. One of the partners claimed a share of the difference between the estimated and the actual amount of these debts, and as it was plain that the award had proceeded on a mistake, an account was directed, notwithstand- ing all matters in difference had been referred. *971 *With respect to agreements to refer, an important enact- ment is contained in the Common law procedure act, 1854, § 11, as has been already pointed out. (o) 5. Payment, and accord and satisfaction. — Payment, _^g?' se, is not a defense to an action for an account ; for the sub- 5. Payment . „ , . . . , ject 01 such an action is to ascertain how much is or was payable. But payment of a sum of money and acceptance of it in lieu of all demands, is equivalent to accord and satisfaction, (fc) Thompson v. Charnock, 8 T. R. v. Tarbell, 26 Vt. 416. 189; Michell V. Harris, 4 Bro. C. C. 312. (T) Tittenden v. Peat, 3 Atk. 529; See ante, p. 868. Routh v. Peach, 2 Anst. 519, and 3 ib.. > Page V. Marshall, 6 Phila. 264. 637. Partners are not precluded from mak- [m) As m Farrington v. Chute, 1 ing a partial settlement by arbitration, Vem. 72. because the partnership concerns are not (re) 2 Y. & J. 249. in a state to be finally settled. Kendrick (o) Ante, p. 868. 1260 CHAP. X.J ACTION'S BBT"VVEEN PAETXEES, ETC. *972 which is as much a defense to an action for an account as is a release. (^) With respect to accord and satisfaction, it is to be observed that tliere must be no uncertainty in the agreement relied Accord and on as an answer to the action for an account, and that s''*'=f^°t™^- it must be shown that such agreement has been performed; for in the performance lies the satisfaction, {q) On these grounds the late Yice-Chancellor Wigram, in a suit for an account 3^0^^^^ by the executors of a deceased partner against the sur- ^e'^'^i'is- viving partner, overruled a plea that it was agreed between the defendant and the deceased that all accounts between them, and all claims of the deceased in respect of the partnership, should be waived; and that in consideration thereof the deceased should be permitted to carry on the business alone, without any farther ques- tion or dispute by the defendant, which the deceased accordingly did. (r) However, if an agreement to waive all ac- Waiver. counts is entered into, and is founded on a sufficient consideration, and is free from all taint or fraud and undue influ- ence, the parties to it will be precluded from suing each other in respect of the accounts so agreed to be waived, (s) 6. Release. — A release is a good defense to an action for an ac- count, (t) But where the release has been executed on ^ Release the faith of the correctness of certain accounts, which are afterwards ascertained to be incorrect, the release will be set aside, and a fresh account will be decreed {u), unless thei parties clearly * intended to abide by the accounts, whether *972 correct or not. A release, moreover, can, of course, be set aside for fraud. A release, to be eftectual as such, must be under seal. A release not under seal is regarded as a, stated account, (x) {p) See Bac. Ab. Accompt E.; Vin. Eq. 361. Ab. Account N.; Brown v. Perkins, 1 (m) See, for example, Pritt v. Clay, 6 Ha. S64. But see Coju. Dig. Accompt Beav. 503; Wedderbum v. Wedderburn, E. 6, pi. 8. 2 Keen, 722, and 4 M. & Cr. 41; MiHar (q) Com. Dig. Accord (B. 3) and(B. 4). v. Craig, 6 Beav. 433, and see Phelps v. (r) Brown v. Perkins, 1 Ha. 564. Sproule, 1 M. & K. 231, and see ante, («) See Sewell v. Bridge, 1 Ves. Sen. account stated, p. 967. 297. Compare the last case. [x) Mitf. PL 307, ed. 5. See, as to (t) See Mitford, PL 304, ed. 5. As to agreements to waive accounts, ante, form of plea, see Brooks v. Sutton, 5 notes (r) and (s). 1261 '972 ACTIONS BETWEEN PAETNEES, ETC. [book iir. Decrees for account. (c.) Of the decree for a partnership account. A decree for a partnership account in its simplest form is to this effect: "Let an account be taken of the partnership dealings and transactions between the plaintiff and the defendant from . And let what upon taking the said account shall be certified to be due from either of the said parties to the other of them, be paid by the party from whom to the party to whom the same shall be certified to be due.' Liberty to apply.''' (y) ' A decree giving to an alleged part- ner a share in the avails of property purchased with parthership funds can- not be sustained, when there is no ac- count taken between the partners, nor any proof of the state of accounts be- tween them. Bowman v. O'Reilly, 31 Miss. 261. But payment of a dividend of profits may be decreed before the final distribu- tion of the assets, where such dividend was to be made at stated periods. O'Conner v. Stark, 2 Cal. 153. In a bin for an account filed by one partner against his co-partners, after the termination of the partnership, all the partners, as well defendant as complain- ant, are regarded as actors, and the ac- counts must be stated by the auditor, and the concerns of the partnership and rights of the several partners finally ad- judicated upon by the court, as if each partner was a complainant filing a bill against his co-partners. Grove v. Fresh, 9 Gill & J. 280 ; Raymond v. Caine, 45 N. H. 201; Pratt v. McHatton, 11 La. Ann. 260. In an action brought by one partner against his co-partner.for an accounting, in which the answer while admitting the partnership denies the terms as al- leged in the petition, and as a second defense claims damages for certain breaches by the plaintiff of the partner- ship contract, it is not error for the court to submit to one jury the question of the (»/) Seton on decrees, 548, ed. 3, where several other useful forms wiU be found given and referred to. The reports of the following cases also contain useful precedents : — Devaynes v. Noble, 1 Mer. 530, account where one firm succeeded another; Wedderburn v. Wedderburn, 2 Keen, 752, account where one firm succeeded another, and the capital of a deceased partner was continued in trade; Cook V. Collingridge, Jac. 623, and more fully in 27 Beav. 456, note, sale of a tes- tator's share set aside and account of subsequent profits and good- will; Craw- shay V. Collins, 15 Ves. 280, and 2 Russ. 347, account of subsequent profits; Mil- lar V. Craig, 6 Beav. 442, setting aside a 1262 release and opening accounts ; Fereday V. Wightwiok, Taml. 262, declaration that property acquired by one partner was partnership property, and an ac- count accordingly; Wilson v. Green- wood, 1 Swanst. 488, sale, receiver, and account; Blisset v. Daniel, 10 Ha. 538, decree restoring a partner wrongfully expelled; England v. Curling, 8 Beav. 140, specific performa,nce of agreement for a partnership; Pillans v. Harkness, CoUes, 442, decree relieving a person who had been induced to become a part- ner by fraudulent representations; Ev- ans ... Coventiy, 8 DeG. M. & G. 835, winding up insurance society, account against directors for breach of trust. CHAP. X.J ACTIONS BETWEEN PARTNERS, ETC. *9T2 In actions for an account of partnership dealings and transac- tions, tlie ordinary rule is to give no costs up to the decree directing the account; nor will this rule be de- terms and duration of the partnership, then to refer to a referee to state, and re- port the account between the partners, and finally to submit to a second jury the claims for damages. Carlin v. Don- egan, 15 Kan. 495. A decree in the settlement of a part- nership should settle the whole matter, and the report of a master is defective where it does not state the account be- tween each of the members of the firm, as well as between the pl9,intift' and the others. Eaton's Appeal, 66 Pa. St. 483. See, also. Felder v. Wall, 26 Miss. 595; Raymond v. Caine, supra; Griggs V. Clark, 23 Cal. 427; Warren v. Whee- lock, 21 Vt. 323; Scott w. Lalor, 18 N. J, Eq. 301; McRae v. McKenzie,2 Dev. & Bat. Eq. 232; Anderson v. Beebe, 22 Kan. 768. In a suit in equity between partners for a settlement, no final decree can be made while debts due from the fimi re- main unadjusted, unless the plaintiffs will deduct the amount of such debts fromfthe sum which they seek to recover. Tjngv. Thayer, 8 Allen, 891; Brinley«. Kupfer, 6 Pick. 179. Where, however, a court of equity has made a final decree, dissolving a partnership, and applying its effects to the payment of its debts, vrithout judi- cially ascertaining the joint liabilities which the receiver is directed to pay, proceedings may be taken with proper notice to the respondents, to ascertain the joint debts of the firm. Hubbard v. Curtis, 8 Iowa, 1. If on the dissolution of a partnership, certain partners receive more than their share of the assets, the exact amount so received by each pairtner should be as- certained, alM judgment entered ac- cordingly, in an action by a partner who has been wronged in the distribu- tion against his former co-partners. A joint judgment in such a case is erro- neous. Rhiner v. Sweet, 2 Lans. 386. In a suit against co-partners for a share of past profits, the verdict should be against those only who have received more than their proportion, unless some reason appears why the others should refund or contribute. Wadley v. Jones, 55 Ga. 329. In a suit by one partner against an- other for the settlement of a partneiship and partnership accounts, after dissolu- tion, where it appears that a large amount of the partnership debts and liabilities are unpaid, and for some of which there are judgments against the partners, and that one of the partners has collected more of the partnership funds than the other, ordinarily it is error for the Court to decree personally for the money so collected, or any part thereof, in favor of one partner against the other, until the payment of the part- nership debts are first provided for. Cai-per v. Hawldns, 8 W. Va. 291. The report of a referee, stating a part- nership account, showed that the inter- est of the plaintiff in the firm exceeded that of the defendant by a certain sum : Held, that it was eiTor to enter judg- ment for the plaintiff in that amount, but that a sale of the entire partnership property should have been ordered, with directions to pay the costs of court out of the proceeds ; then to pay to the plaintiff the amount due him ;', and, lastly, to divide the residue equally be- tween the parties. Lannan v. Clavin, 3 Kan. 17. Upon a bill by a partner against his partner's administrators and heirs, claiming a moiety of profits from the sale of certain lands, and an undivided half of lands unsold, a decree setting 1263 *9T2 ACTIONS BETWEEN PAETNEES, ETC. [book III. parted from except in cases of gross misconduct on the part of the apart to the complainant a certain por- tion of the land in severalty erroneous. St. Clair V. Smith, 3 Ohio, 355, see post. 1015. Where partiTBrship articles provide that one of the partners is to bear all losses arising from sales to irresponsible parties, it is improper, on a bill for an account, to render a decree against him personally for such sums as he has been restrained by injunction from collecting, and perhaps may never collect. But a colorable sale on credit in fraud of the other partners' rights should, in stating the account, be considered as a sale for cash. Maher v. Bull, 44 111. 97. Upon a bill by a partner for an ac- count of the partnership, if a balance is reported against him, the defendant may have a decree therefor upon the plaintiff's bdl. Scott v. Pinkerton, 3 Edw. Ch. 70. The decree of a court of equity, on a bill charging a violation of a partner- ship agreement, may fix upon a previous time, at which the partnership shall be considered as having determined as be- tween the parties. Durbiu v. Barber, 14 Ohio, 311. A decree recognizing plaintiffs' right to an interest in a partnership between their ancestor and defendant who was ordered to account, authorized the former to exercise all their rights as partners to protect and manage that in- terest, but, without passing upon, left the mode of exercising those rights to the necessity of the case and the inter- ipretation given the partnership contract: Held, that plaintiffs were not entitled to a writ giving them the unreserved pos- session and administration of the part- nership property. Junek v. Hezeau, 11 La. Ann. 731. An assignee of one co-partner's share in the property and assets of the firm is liable, even without notice, to all the 1264 equities of his assignor growing out of the co-partnership; but a decree against the assignee on account of such equities is a decree in rem, it operating upon the property assigned, and a Ji. fa. cannot be issued upon it against the assignee. Hunt V. Smith, 3 Rich. Eq. 465. A reference, upon agreement of par- ties, to a master to take an account of all the assets of a co-partnership except the W. oil works, " as the same stood on and up to " the day of the dissolution, ex- cludes the property appertaining to the W. oil works at the date of the dissolu- tion, and not that appertaining to them at the time of their conveyance to the partnership, as, for instance, two boats included in the deed thereof. BliSins V. Wilson, 113 Mass. 248. A bill by a partner filed before the end of the term the partnership was to run, alleged violations of the partner- ship contract, and asked for the disso- lution of the partnership, and that an account be taken. During the pendency of the suit the term of the partnership expired. A supplemental biU was filed by leave, stating this fact and charging a misappropriation of the partnership assets by the defendant, and asldng for an accounting between the partners. Answers to both bills and replications thereto were filed, and proofs were taken and the cause referred to a master, who made a report showing there was due to the complainant from one of the other partners several thousand dollars, and considerable amounts due the firm. The court, on a hearing, and without any objection to the report, dismissed the bills: Held, th&i complainant was entitled to a decree settling the accounts and providing for disposition of firm ef- fects, and that court erred in dismiss- ing the bills. Curyea i^ Beveridge, 94 111. 425. CHAP. X.] DECEEE FOE ACCOTJNT. *9T3 ^defendants, (z) But wliere the action is really instituted to *973 try some disputed right, the unsuccessful litigant will be or- dered to pay the costs up to the trial of the action, {a) ' The costs of taking the accounts directed at the hearing are usually defrayed out of the partnership assets, and, if necessary, by a contribution between the partners, {h) The method of taking a partnership account under such a decree is as follows :— Mode of taking 1. Ascertain how the firm stands as regards non- *^'^ accounts, partners. 2. Ascertain what each partner is entitled to charge in account with his co-partners; remembering, in the words of Lord Ilard- wicko, that "each is entitled to be allowed as against the other, everything he has advanced or brought in as a partnership trans- action, and to charge the other in the account with what that other has not brought in, or has taken out more than he ought, (c) 8. Apportion between the partners all promts to be divided or losses to be made good; and ascertain what, if anything, each part- ner must pay to the others, in order that all cross claims may be settled." [z) See Hawkins v. Parsons, 8 Jur. N. S. 452; Parsons v. Hayward, 4 D. G. P. & J. 474. (a) Warner v. Smith, 9 Jur. N. S. 169. See, also, Norton v. Russell, 19 Eq. 343, where a surviving partner refused an account to the executor of his deceased" co-partner. See, as to mutual compa- nies, Harvey v. Beckwith, 10 Jur. N. S. 577. ' The question as to which of the par- ties has, by his conduct, caused the dis- cord between them, is never considered, with a view to an adjustment of the coste of a settlement of their partnership affairs in court. Stevens v. Yeatman, 19 Md. 480. In an action to liquidate a partner- ship, aU are plaintififs, and all defend- ants; and where the decree distributes anything between the partners, the costs may be decreed against all, to be borne by them equally. Pratt v. McHatton, 11 La. Ann. 260. {h) This rule was followed as to the whole costs where the action was refer- red under § 11 of the Com. Law Proc. Act. 1854; Newton v. Taylor, 19 Bq. 14. (c) West V. Skip, 1 Ves. S. 242. The rule in Clayton's cas?, respecting the appropriation of payments appUes to partners inter se as well as to other per- sons. See Toulmia v. Copland, 3 T. & 0. Ex. 625, and 7 CI. & Fm. 350. ''The method of tak'ng partnership accounts, above stated, is substantially followed in whole or in part, in Neu- decker v. Kohlberg, 8 Daly, 407; Lusk V. Graham, 21 La. Ann. 159; Chambers V. Crook, 42 Ala. 171; Collins v. Owens, 34 Ala. 66; Gaines v. Coney, 51 Miss. 323; Moore v. Wheeler, 10 W. Va. 85; Stevens v. Yeatman, 19 Md. 480; Schulte ■V. Anderson, 13 Jones & Sp. 489. See, also, Prigerio v. Crottes, 20 La. Ann. 351; Phelan v. Hutchinson, PhUl. Eq. 116. An accounting between co-partners is ' 1265 *973 DECREE FOE ACCOUNT. [book in. In order, therefore, to take a partnership account, it is necessary- Matters invoiv- to distinguish ioiut estate from separate estate; ioint ed in taking , '^ ■' '^ . , the account. ■ debts from separate debts; and to determine what to be governed by the special provisions of the co-partnership agreement; Neu- decker v. Kohlberg, 3 Daly, 407; Pearce V. Pearce, 77 111. 284. And the right to return of capital invested by each part^ ner is only to be destroyed liy express stipulation to the contrary. Unless waived or extinguished by express agree- ment, the return of capital or of other means furnished by each party for use and employment in the business for their mutual advantages, although a debt of a secondary character, is, as between them, an obligation of the partnership which should be discharged before any final distribution of the profits. Neu- decker v. Kohlberg supra. Thus, where by a co-partnership agree- ment, R. was to furnish "capital , " and M. " skill and Imowledge of business, ' ' all gain and increase to be equally divided on the termination of the partnership; it was held that, on dissolution, R. was a creditor to the extent of his capital, and M. only entitled to half the gain, if any. Rowland i\ Miller, 7 Phil. 362. Partnership accounts should be so stated where one partner has had entire charge of the business, that he will be debited with the whole capital placed in his hands, as well as with the proceeds of sales realized by him. And where part of the capital was composed of stock, which has been used in the business or disposed of, and the proceeds charged against him he should be credited with Buch stock as a disbursement, to the amount at which it was originally charg- ed against him. Gunnell v. Bird, 10 Wall. 304. Where one partner puts into the firm simply the use of machinery, and an- other a patent right, and another ad- vances money to put the business in operation, and agrees to convey land, on bill for an accounting and for a sale of the property, each party should be al- lowed for all money advanced, a fair and reasonable rent for his property employed, up to the time of filing the bill, and for labor performed by each during that period and the balance struck accordingly. It is error to allow a certain per cent, for the use of ma- chinery. It should be the fair value of its use as situated, and not what it might have been worth if used at some other place. Plagg v. Stowe, 85 HI. 164. The plaintiff and defendant, being partners in the lumbering business, the former conveyed to the latter the un- divided 3^ of a lot of land which he had bought for a trifling sum, at a tax sale, upon an agreement that the de- fendant should let him have $800, for one year without interest, and furnish money to carry on the partnership busi- ness. From this land the parties as a firm took a large quantity of lumber. In an action for an accounting between the parties, the referee found that the land was, worth $1000, and he credited the plaintiff that amount: Held, that the referee erred in giving such credit; the proof showing that the land had cost the plaintiff only a trifle, and that he was willing to put it into the firm upon the terms stated: Held, also, that the amount reported by the referee as due from the defendant being $2023.- 22, there should be deducted from that ' On the filing of a bUl in chancery for the settlement of partnership accounts, the parties cannot introduce then- indi- 1266 vidua! accounts into the statement. Hanks v. Baber, 53 III. 292. CHAP. X.J DECEEE FOR ACCOUNT. ^975 gains and what losses are to bei^laced to the joint account of all the partners, or to the separate accounts of some or one of them exclu- sum the Y^ of $1000, the value of the whole land less the interest for one year on $800, viz: $56;, leaving a bal- ance of $1679.22, due the' plaintiff. Leonard v. Martin, 62 Barb. 113. Where in an action of account between co-partners, the auditors allowed to the defendant the sum of $2,2-36.42, which was the full amount of a note advanced by him as a part of the capital of the firm; it was held, that such report ought not to be set aside, because the defendant in an action of account pre- viously brought by him against the present plaintiff had alleged that he had advanced as capital to said co-partner- ship $2,000, and had not at any time before the hearing, claimed that he had advanced a greater sum. Day v. Lock- wood, 24 Conn. 185. A partner who has paid a firm debt is not entitled to subrogation against his co-partner until an account • has been settled between them. Fessler v. Hick- emeU, 82 Pa. St. 150. The complaint in an action to dissolve a partnership, and settle the accounts, averred a loss, borne exclusively by the plaintiff, and asked for judgment for defendant's proportion; and the evi- dence showed a profit realized by plain- tiff in one transaction, as well as a loss borne by him in another; Held, that the account taken should credit the de- fendant with his part of the profits realized, as well as charge him with his proportion of the loss sustained. Clark ■0. Gridley, 41 Cal. 119. If one J)artner being indebted to his co-partner, discharges the debt by pay- ing a debt of equal amount due from his co-partner to a third person, but makes the payment with money or property belonging to the partnership, he can only claim, on settlement of the partnership accounts, a credit for one- half of the amount paid. Wolff v. Shelton, 51 Ala. 426. A, a merchant, being largely indebt- ed took B in as a partner, who brought in no capital, but who succeeded in establishing the credit of the finn, and the partnership business produced im- mense profits. It was agreed that the debts of A should be undertaken by the firm. The firm failed, and A died. One of the debts of A was $300,000 to the United States, which was compro- mised on the payment of $200;000. The remaining debts of A were paid and compromised by the firm: Held, that A became a creditor to the firm to the amount of A's debts paid and compro- mised by the firm, but only to the amount at which they were compro- mised, and that as the partnership property, after the payment of the part- nership debts, belonged to the partners, B was to be credited with the amount of A's debts as they were compromised. Iddings V. Bruen, 4 Sandf Ch. 223. Where a retiring partner has sold his interest to the others, received payment for the greater part, and accepted the managing partner as his exclusive debtor for the balance, the latter is entitled to nothing more than such credit as would follow the payment of an ordinary debt of the new concern. One rule must govern the charging of each member's account with the firm, unless there is a special agreement to the contrary. Chan- dler V. Sherman, 16 Fla. 99. Where, in an accounting between partnei's, it appears that one of them, durmg the continuance of the partner- ship, had immediate charge and control of the firm's book of account, and the exclusive management of its finances, and the custody and control of its money, and the moneys received in the firm business exceed the moneys dis- 1267 ■■973 DECREE FOE ACCOUNT. [book III. sively. Tlie principles upon which this is to be done have been explained in previous chapters. Keferring the reader, tlierefore, Irarsed in such businoss, and it does not appear that the excess was applied to the use of the firm and for its benefit, such excess is presumed to remain in the hands of the partner so having the control and custody of the firm money, and he is properly chargeable there'with in the accounting. Johnson v. Garrett, 23 Minn. 565. A partner sued his t-wo co-partners for a final accounting and settlement of the co-partnership affairs, and it appeared that the t^wo partners sued had previ- ously received jointly $1,281 more than they "were entitled to, and the plaintiff 81,281 less than he was entitled to. While the action was pending, the plaintiff settled with and discharged from all further liabilty one of the de- fendants: fJe^o', that the judgment in favor of the plaintiff and against the other defendant should be for one- half of $1,281, to-wit: $640.50. Lord v. Anderson, 16 Kan. 185. Where cattle were bought by the complainant and defendant as partners or on joint account, with $1,100, fur- nished by the complainant, $1,000 of which was money belonging to a prior firm of complainant, defendant and a third person, and $100 of complainant's own money, and the third person dis- claimed being interested in the purchase or the money used, whose answer was found to be true, and it appeared that the cattle had been sold at a profit of of $120, a decree on bill for an ac- count against the defendant, who re- ceived the entire proceeds, gi^ving him one-third of the $1,000 capital, and giving the balance to the complainant, was held proper as adopting the correct basis for stating the account as to the sum invested. Bullock v. Ashley, 90 111. 102. If part of the members of a former 12CS co-partnership seU the part or share of another partner without his consent, they must account to him, not at the value fixed by themselv..'-, but at the real value. Phillips v. Ri^cder, 18 N. J. Eq. 95. When the partners invest unequal amounts in the capital stock of the firm, and one of their articles provides that all profits and losses shall be shared equally, and another provides that at the close of the partnership the assets and property shall be di-vided between them, in the proportion of their invest- ments, in such final distribution aU losses wiU be first considered and equal- ized, though no profits or losses have been adjusted or declared during the co- partnership. Rayi'uond v. Putnam, 44 N. H. 160. In making a final settlement and division of partnership property, the court wiU look into the peculiar circum- stances, and where there is real estate which has been improved by one part- ner individually, he will, if possible, be allowed for his im_provements, and on a partition of the real estate -will be al- lowed to retain the improved portion. Cooper v. Frederick, 4 &. Greene, 403. On a bin by the representatives of a deceased partner, against surviving partners, for an account, the survi'ving partners should not be charged with the value of the partnership assets at the exact date of the deceased partner's death, but only with such sum as, by the use of reasonable diligence, they might have obtained for them in closing the partnership business. Moore v. Huntington, 17 WaU. 417. Nor should they be charged with the value of real estate of the partnership, the title to which is left by the decree, in the heu-s of the deceased partner. Moore v. Huntington, 17 Wall. 417. CHAP. X.J ACTIOJfS BETWEEN PAETNERS, ETC. ^■974 to them, and reminding him that, in taking accounts between part- ners, attention must be paid, not only to tlie terms of the partnership articles, but also to the manner in *which they *97-l have 'been acted on by the partners {d), there remains but little to add on the present subject, except as regards just allowances, the period over which the account is to extend, and the evidence upon which it is to be taken. WitJi resiled to just allotoances. Just allowances are made, although the decree is silent as to them (e); and when a partnership account is decreed, justaiiow- it is not usual for the Court to determine beforehand ^^'''^' what are, and what are not, just allowances. That is determined on taking the account; and, if necessary, the decree will direct the chief clerk to state the facts and reasons upon which he shall ad- judge any allowances to be just allowances. (/") Wliat ought to be so allowed must be determined by the articles of partnership, and by the principles discussed in a preceding chapter. (^) In stating an account between an ex- ecutor and the surviving • partner of the testator, it is not error to charge the surviving partner with the vahie of a note due the testator of the plaiutiif individually, if such note arose from, or grew out of the business of the co-partnership. Royster v. Johnson, . 73N.C.474. A surviving partner can claim only one-half the balance due the firm by a deceased partner, as the remaining half was at his death due to himself. McCor- mick's appeal, 55 Pa. St. 252. Where a partner having charge of the business and keeping the books of the firm, refuses to account and show what the profits were, it is proper, in stating the account, to decree the payment of the capital advanced by his co-partner, with interest thereon, ■ the latter being willing to accept that. If the -profits were less than the interest the defendant should have rendered an account show- ing such fact. Pearce v. Pearce, 77 III. 284. {d) See ante, pp. 820, 850, and Wat- ney v. Wells, 2 Ch. 250. It is said a partner is not to be charged as such with what he might have received, without his willful default, Rowe v. Wood, 2 .1. & W. 556, but qucere whether a surviv- ing partner could not be made so to ac- count, as he alone can get in the assets of the firm. See, also. Bury v. Allen, 1 Coll. 604. (e) See Cons. Orders 26, rule 16. (/) See Crawshay ti. Collins, 2 Russ. 347; Brown v. DeTastet, Jac. 294, 293, and 299; Cook v. CoUingridge, Jac. 623, 625, Wedderburn v. Wedderbmui, 2 Keen, 753. ((7) Ante p. 774 et seq. 1269 *975 DECREE FOE ACCOTJNT. [bOOIC III. WifJi respect to the period over which an account is to extend. This can only be determined bj* ascertaining (1) the time ^froni which it is to begin, and (2) the time at which it is to cease. The time from whicli the account is to begin, will, in a general ac- 1. Time from count of partnership dealings and transactions, be the ■which the ac- t x' ii t 1 • i i countistobe Commencement 01 the partnership, unless some account has since that time been settled by the partners, in which case the last settled account will be the point of depar- *975 tare. (A) *If there has been an account settled so as to be binding on the parties, such account will not be re-opened, {j) This used to be provided for in the decree by the insertion of tlie clause, "And if, in taking the said account, it shall appear that any account has been settled and agreed upon between the parties up to any given time, the same is not to be disturbed. "(^)' It is not, how- ever, now usual to insert these words, it not being the practice to disturb settled accounts, unless there is some special direction to that effect. {V) Where partners have had dealings together preparatory to the , j^j commencement of their partnership, these dealings mencement of Cannot be excluded from consideration in taking the partnership. partnership accounts.. As observed by Lord Langdale in Cruikshank v. McVicar : (m) " Some things must be done by way of preparation for or introduction to the real transactions of the partnership business. Again, when the partnership busi- ness is, in one sense, at an end, still you have not therefore put an end to the joint transactions; they must necessarily be earned on for the purpose of winding up the concern and everything belonging to it. So that when you speak of partnership dealings and transactions, you a,re not to exclude from your consideration those transactions and matters which are necessary by way of introduction or prepara- tion for a partnership dealing, nor are you to exclude those which afterwards fol- low for the purpose of winding up the concerns of the partnership. ' ' (7i) See Cook v. Collingridge, Jao. 624; a land speculation and state the account, Beak v. Beak. Rep. Temp. Finch. 190. where the parties have had a previous An incoming partner has no right to settlement, the court wUl adopt such profits made before he became a part- settlement as the basis upon which to ner, unless there is an agreement to adjust the subsequent dealings. Colehour that effect. Gordon v. Rutherford, T. v. Coolbaugh, 81 111. 29. & R. 373. See, as to the statute of lim- {I) Newen v. Wetten, 31 Beav. 315. itations, ante, p. 963 . Mitchell, 2M. & K.672. GifF. 81; Bowes u. City of Toronto, 11 Whether the case would be different if Moore, P. C. 463. all the other partners were parties is (ci) See Vyse v. Foster, infra, p. doubtful. See Vyse «. Foster, «6j styjra. 989; Stroud v. Gwyer, 28 Beav. 130; (c) See Vyse v. Foster, infra, 989. Macdonald v. Richardson, 1 Giff. 88. \d) Ante, p. 311. But in Flockton v. Bunning, 8 Ch. 323, («) See, accordingly, Flocktoni). Bun- note, infra, p. 985, the. liability was ning, 8 Ch. 323, note, infra, 985. treated as perfectly clear. (/) See Vyse v. Foster, and Laird v. 1275 *990 ACTIOXS BETWEEN PAETNEKS, ETC. [BOOK III. It is very easy to say they can be calculated by tlie rule of *980 *three — as the whole capital is to the whole profits, so is the late partner's share in the capital to his share of the profits — but this assumes that the profits in question have been made by capital only.' Profits, and verj' large profits, may be made by skill, and ah extensive connection, with little or no capital ; and even if there be capital, the profits may be attributable less to it than to other matters, and it may be impossible to determine with any precision the extent to which the capital has contributed to the realization of the profits obtained. (A) Special inquiries on this subjct, therefore, are almost always necessary', and if it can be shown that, having regard to the nature of the business or other circumstances, the profits which have been made cannot be justly attributed to the use of the capital or assets of the late partner, his prima facie right to share such profits will be effectually rebutted. The extent of the liability to account for subsequent profits was WjUettu. elaborateh^ discussed by the late V.-C. Wigram in Bianford. WiUctt u Blanford (z), and the conclusion arrived at by him was, that no general rule could be laid down upon the sub- ject, and that every case must depend on its own circumstances. " The nature of the trade, the manner of carrying it on, the capi- tal employed, the state of the account between the late partnership and the deceased partner at the time of his death, and the conduct of the parties after his death, may materially affect the rights of the parties." This conclusion of the Vice-Chancellor was entirely in accordance with previous decisions (Ic), and has been approved by subsequent judges; and in conformity therewith several cases have since been decided, in wliich profits acquired after the death of a partner were held to belong wholly to those by whose labor they had been made. An element of uncertainty is thus intro- duced into an already difiicult and complicated branch of law, and Qi) This diificulty -was felt very shall be considered as having deter- strongly m Featherstonhaugh v. Turner, mined, and it appear that the capital of 25 Beav. 382, noticed infra, p. 991. one partner was subsequently employed (i) Ha. 253. by another, who continued to carry on (ifc) See in particular Lord Eldon's the business, the former is entitled to observations on Crawshay v. Collins, in such a proportion of the profits as his Jac. pp. 622 and 297, and 2 Russ. 330. capital thus retained bears to the whole ' If a court of equity fix upon an an- capital. Dm-bin v. Barber, 14 Ohio, 'tecedent time, at which a partnership 311. 1276 CHAP. X.j ACCOUNT PHOFITS SINCE DISSOLUTIOIT. "981 renders it extremely embarrassing; but it is hoped that the forego- ing attempt to explain its principles may tend to introduce more certainty in their future application. *Passing now to the decisions, to which the foregoing ob- *981 servations are intended to serve as an introduction, the right to an account of profits subsequent to a dissolution will be found distinctly laid down in the following cases. The first case of importance on the subject is Crawshay v. Col- lins. (I) There one partner had become bankrupt, and' Bankruptcy, the solvent partners had carried on the business with- crawshayu. out paying out the bankrupt's share of the assets, and an inquiry was directed with a view to ascertain whether profits made subsequently to the bankruptcy were made by the applica- tion of the funds which then constituted the capital of the con- cern (to), or by the application of any other, and what funds; and the master was directed to distinguish between capital and stock in trade, (n) The object of this inquiry was to ascertain whether tlie profits made after the dissolution were actually made by the application of the funds that belonged to the bankrupt as a mem- ber of the partnership, (o) And it appearing that such profits were made, it was held by Lord Eldon, and afterwards by Lord Lyndhurst (on a re- hearing), that the assignees had a right to a share of these profits, and that the account could not stop until the claims of the assignees were satisfied. The bankrupt was origin- ally entitled to three-eigliths of the partnership assets, and although he was indebted to tlie firm, so that the sum actually payable to him was less than three-eighths of the net assets of the firm, and although the continuing partners had brought in a large additional capital since the bankruptcy, still the assignees were held entitled to be credited throughout with three-eighths of the profits, being debited with what the bankrupt owed. The decree in this import- ant case declared tliat the three-eighth parts or shares of the bank- rupt in the partnership ought to be considered as continuing not- withstanding, and after, his bankruptcy; and that the assignees (1) 15 Ves. 218; IJ. & W. 267; and 2 case in point. See, too, Brown v. Lit- Russ. 325. 'Eie decision in 15 Ves. 218, ton, 1 P. W. 141, and 10 Mod. 20; Ham- was afterwards said by Lord Eldon not mond v. Douglas, 5 Ves. 539. to have gone to the extent ordinarily (in) 15 Ves. 218. supposed. See Jac. 296 and 622, and 2 (») IJ. & W. 267. Russ. 330. Brown v. Vidler, cited in 15 (o) 2 Russ. 337. Ves. 223, and 2 Russ. 340, is an earlier 1277 *9S3 ACCOUNT PEOFITS SINCE , DISSOLUTION. [bOOK III. *9S2 were entitled to three-eiglitli parts of the *profits which had been already reported to have been made; and three-eighth parts of such further profits as (on taking the further accounts thereby directed) should appear to have been made, {p) So, in Brown v. De Tastet (§■), where one partner died and the Death. survivor carried on the partnership business, without DeTastet. accounting for the share of the deceased to his admin- istratrix, an account was directed at the suit of the administratrix, not only of 'the dealings and transactions of the partners up to the death of the deceased partner, but also of the property of the de- ceased in the hands of the surviving partner, and of all profits and gains made by him by means of such property'. The rule established in these cases has been since applied in a other variety of instances; e.g., where ,a managing partner instances. ]j^(j Continued the business after the period fixed for the dissolution and winding up of the partnership (r); where a partner had becoma lunatic and the firm had been dissolved, but the business had been continued by the other partners, and tliey had not paid out the capital of the lunatic partner (s); where part- ners had agreed to dissolve and to have the partnership business wound up, and its assets got in 'and converted by a third person, and one of the partners nevertlieless carried on the business in the meantime, for his own benefit (iS); where a mining partnership had been dissolved, but one of the partners had obtained a renewed lease of the mine, and had continued to work it for his own benefit. (i«) In the foregoing cases it will be observed there was no relation- option to take ship of trustee and cestui que ^'r-ws^ (as distinguished Interest or pi pi ^ \ ,.., profits. from that of late partnership), subsisting between the persons who made the profits and those who were held entitled to share them. But even where there is no true relationship *983 of trustee *and cestui que trust, partners continuing to {p) 2 Russ. 847. It is said in 2 M. & Moll. 465, and Beatty, 444. K. 658, that tliis case was affirmed by (r) Parsons v. Hayward, .31 Beav. the House of Lords, and after all to 199, afflr-med on appeal, 4 DeGr. F. & J. have been abandoned by the plaintiff, 474. who found it impossible to work out the (s) Mellersh v. Keen, 27 Beav. 236. decree. [t) Turner v. Major, 3 GifF. 442. (g) Jao. 284. See, too, Peatherston- , (u) Featherstonhaugh v. Penwick, 17 haugh V. Turner, 25 Beav. 382; Smith Ves. 298. See, too, Clements v. Hall, V. fiveritt, 27 ib. 446; Booths. Parks, 1 2 DeG. & J. 173. 1278 CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *9S4 carry on business without coming to an account witli tlieir late partner, or those who I'epresent him, are liable to be charged either with the profits made by the use of his capital, or with interest on it at hi. per cent., at tlie option of those to whom such capital be- longs («); but in taking an account of subsequent profits, the part- ner by whose exertions they .have been' made is usually allowed compensation for his trouble (y), unless he is, in the proper sense of the word, a trustee, and guilty of a breach of trust, when no such compensation is allowed, {z) The rights of legatees and next of kin of a deceased Aceoimt of sub- partner against his executors where they are them- IliS^execu- selves surviving partners or have themselves become survivtag^art- partners since his death, are illustrated by the fol- ^^'^^' lowing decisions. In Cook V. Collingridge (a), the executors of a deceased partner sold their testator's share to the surviving partners, who re- cook v. sold it to one of the executors. The sale was set aside at coiimgnage.' the instance of a legatee, and an account of profits made subsequently to the death of the deceased partner was decreed, although the money paid for the testator's share was not continued in the business. In Townend v. Town end (J>\ three brothers. A., B., C, were in partnership under articles by which it was provided Townend ?;. that the capital of the partners should not be with- ^°*™™*^- drawn until the expiration of seven years from that date; that in case of the death of one of the partners within that term, a valua- tion of his share should be made, and that the surviving pai-tners should pay to his representatives the amount of such valuation within three years from the said terra of seven years, and in the meantime give sufficient security for the same by a *mortgage of a competent part of the partnership property. *984 It was also provided that it should not be lawful for the rep- resentatives to commence any action for recovering payment of the [x] Booth V. Parks, 1 Moll. 465, and and 9 ib. 247; Burden v. Burden, 1 V. Beatty 444. See also Clements v. Hall, & B. 170. See, however. Cook v. Col- 2 DeG. & J. 186; Toulmin v. Copland, lingi-idge, Jac. 622, 623. 2 Ph. 711, reversing S. C. 4 Ha. 41. (a) Jac. 607, See the decree in 27 {y) Brown v. DeTastet, Jac. 284. See Beav. 456. Stocken v. Dawson, 9Beav. also, ib. 623; Featherstonhangh v. 289, and on appeal 17 L. J. Ch. 282, Turner, 25 Beav. 882; Mellersh v. Keen, was a somewhat similar case. 27 ib. 242. (6) 1 Giff, 201. (z) Stocken v. Dawson, 6 Beav. 871, 1279 *985 ACCOUNT PEOFITS feNOE DISSOLUTION. [bOOK III. share of the deceased, until the end of three years after the expira- tion of tlie term of ten years, nor to claim any participation in tlie profits made after the day up to which the vahiation was made; the expressed intention being that the representatives of the partner dyino' sliould take 5Z. per cent, on the value of the share in lieu of profits. It was further provided that nothing should prejudice the right of the representatives within tlie term of seven years, to take any proceedings in order to obtain a fair valuation, or to obtain and enforce the mortgage security. In April, ISii, A. died, having by will devised his real and personal estate to B., C, and D. upon trust to raise the sum of 12,000Z. and invest tJie same in govern- ment or real security, and apply the proceeds towards the mainte- nance and education of the plaintiff, his then infant daughter, and accumulate the surplus at compound interest; and upon his dangli- ter attaining twenty-one, to pay the accumulations to her, and to stand possessed of the capital on trust to pay her the proceeds during her life. The testator's estate consisted almost entirely of liis share in the partnership. In December, 1844, a valuation was made, by which the testator's share was ascertained to be 2O,O00Z. and upwards. In June, 1853, being more than ten years from the date of the articles, certain hereditaments, consisting of freeholds, leaseholds, and machinery (part of the partnership assets), were mortgaged by B. to C. and D., as a security for the 12,000?. (c) The plaintiif came of age in 1857, and in 1858, B. and C. rendered to her an account of the trust funds, in which they debited her with various items for maintenance and education, with 51. per cent, interest thereon, and credited her with the sum of 12,000?. and in- terest at 51. per cent, with yearly rests, up to the 1st May, 1853, and thenceforth with interest at 4?. per cent, with yearly rests. The plaintiff, however, insisted that the 12,000?. had been continued in the partnership business, and she filed a bill against B., C, *985 and D. for an account of the '-profits made in the partner- ship business on the sum of 12,000?. from the testator's death, and for payment of what sliould be found due to the plain- tiff, alleging that the mortgage was an improper security. The Court held, 1, that the plaintiff was entitled to an account of the legacy of 12,000?., with interest at 5?. per cent, from one year after the testator's death up to the 1st January, 1849 (ten years from, the (c) The property, so far as it could be not an adequate security for 12,0002. regarded as an authorized security^ was 1280 CHAP. X.] ACTIONS BETWEEN PARTNERS, ETO. *986 date of the articles), and with compound interest on the surplus, after allowing for sums expended for her maintenance and educa- tion; 2, that the plaintiff was entitled to au account of the profits made by the partners from the 1st January, 1849, on the balance found due for the principal at that date, with interest at 51. per cent, and annual rests; 3, that she was entitled to a decree for pay- ment or what should be so found due; and, 4, that the entry of the sum of 12,000?. in the account furnished by B. and C. must be taken as conclusive against them that they had such a sum in their hands. It was considered that the mortgage had not the effect of withdrawing the 12,000?. from the business: it was part of a plan for keeping the money in the business; and the 12,000?. ought not to have been left on the security of property from which the trustees ought to have recovered it. • In Macdonald v. Richardson {d), a partner died, leaving his co-partner and another person his executors, and the jfacdonaid u co-partner executor afterwards took other persons into Rioiiardson. partnership, with him. The testator's assets having been kept in the business, the legatees filed a bill against the executors, and them only, claiming an account of profits since their testator's death, and a decree was made in their favor, (e) In Flockton v. Bunning (/"), a partner died, leaving his wife Iris executrix, and having directed her to get in his estate ^1051^0^1) and invest it for the benefit of herself and children. Banning. She wound up the partnership in which her husband was engaged, but continued to carry on the business with his capital, in partner- ship with other persons, who knew that in so doing she and *they were committing a breach of trust, {g) A bill was *986 filed by some of the children against her and her co-part- ners, seeking to make them jointly and severally liable for the trust estate employed in the business, and for the profits made by its use; and a decree to that effect was made, and was afliirmed on an appeal by the wife's partners. This case was decided on the prin- ciple that the wife's partners were clearly implicated in the breach (d) 1 Giff. 81. See, also. Docker v. counsel for the appellants, and this Somes, .2 M. & K. 655. « statement of the case was written from (e) It is not quite clear whether the the short-hand writer's notes of the executor, who was a partner, was or- judgment. dered to account for more pi'ofits than (gr) Id fact, she agreed to indemnify he received or not. them against the consequences. (/) 8 Ch. 323, note. The writer was 1281 *987 ACCOUNT — PEOFITS SINCE DISSOLUTION. [BOOK III. of trust committed by her, and were jointly and severally respon- sible with her for the trust estate and all the profits made thereby. The widow's capital was trust property; there was no loan, as in Stroud V. Gwyer (A), but the Avidow's capital became part of the capital of the firm; and she and her co-partners wrongfully traded with it. (^) Both L. J. Wood and the L. J. Selwyn agreed that a mere loan, although in breach of trust, wotild not involve liability to account for profits, but that trust property which was traded with by a trustee in partnership with others could not be regarded as a loan, (h) The right of the cestui que trust against his trustee in these cases Option in ^® ^° ^^ account of profits made by him by the use of these oases. ^},g trust property, or at the option of the cestui que trust to simple interest at 5Z. per cent. (J); or in special cases to compound interest, (m) The next class of cases which it is necessarj'' to notice is that in which surviving or continuing partners were held not liable to ac- count for profits made after dissolution. Simpson i; "^^'^ ^''®*' ^^ tliesc was Simpson V. Chapman, (n) There ciiapman. three persons were partners as bankers. The bank was in such good credit as to render no capital necessary for the *987 purpose *of carrying it on. One of the partners died, leav- ing his son, one of the surviving partners, and a third person, his executors. At the time of his death the assets of the bank ex- ceeded its liabilities. The estate of the deceased was a creditor of the bank to the extent of his share, viz., one-third of its net assets, but there was a mucli larger sum owing from his estate to the bank on his overdrawn private account. The son, being also an executor of the deceased, was admitted as a partner in the bank, and the business was carried on by the son and surviving partners, but the {h) 28 Beav. 130, ante, p. 977. terest; there may posSibly be other {i) Compare this case with Vyse v. grounds for so charging him. See Jones Foster, L. R. 7 H. L. 318, and 8 Ch. ». Foxall, 15 Beav. 388; WilUams v. 309, noticed infra, p. 989. Powell, ib. 461, and Lord Selborne's ob- (7c) See, also, as to this, Travis v. servations in Vyse v. Foster, L. R. 7 H. Milne, 9 Ha. 141, where, however, in- L. 346. terest only was ordered to be paid. « («) 4 DeG. M. & G-. 154. This case (I) Heathcote v. Hulme, 1 Jao. & W. is the more important as the non-lia- 122. bility to account for subsequent profits [m) If the trustee's duty is to call in was decided on the hearing of the the money and accumulate the income, cause, he will be charged with compound in- 1282 CHAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *938 amount of tlie deceased's sLare in the business was npver paid out, or separated from the moneys of the bank. Considerable profits were made by the new partnership, and of these the son, as partner, received his share. A suit was instituted for the administration of the estate of the deceased, but to such suit the executors alone were defendants, and a decree was made charging the son, and the sur- viving partner, who was an executor, in respect of the profits of the bank from the death of deceased, paid to the son, so far as such profits had accrued from the assets of the deceased employed in the partnership. This part of the decree was appealed from and re- versed, and one of the grounds for the reversal was, that the profits acquired after the death of the deceased could not be attributed to the use made of his capital. If the debt due from him to the bank were omitted from its assets, the bank was at his death insolvent The deceased had no capital in it in the ordinary sense of the word, and all the profits which had accrued were attributable to the con- nection and reputation of the bank. It was urged that the son, who had received one-third of the profits, and who could not distiur guish how much of them was attributable to his character of execu- tor, and how much belonged to him in his individual character as partner, ought to be charged with the whole. But it was held that this principle did not apply, inasmuch as he did not carry on the business as an executor, but in his own separate and individual right, conceiving that he was entitled so to carry it on. Anotlier case of the same class was "Wedderburu v. Wedderburn (o). There three persons were partners as mer- wedderburn v. ^ '^ . Wedderburn. chants; *one died, leaving the other two and his *988 widow his executors. The surviving partners alone proved the will, and they drew up an account of the partner- ship assets and credited tbe estate of the deceased with a certain sum as his share in the concern,, but this share was never separated from the assets of the continuing firm. Several changes afterwards took place in the new firm, and then a suit was instituted by per- sons interested in the estate of the deceased partner, against the executors and surviving partners of the deceased, praying for an account of his estate, and for an account of the gains and profits made by carrying on the partnership after his death. A decree was made directing an account of the personal estate of the deceased partner; and of the dealings and transactions of the firm up to his (o) 2 Keen, 722; 4 M. & Cr. 41; and 22 Beav. 84. ^' 1283 ■" JS9 account — PEOFITS SINCE DISSOLUTION. [bOOK III. death; and of what at that time was the value of his interest in the concern; and of the profits of the trade carried on by the succeeding firms; and of the n-ioneys which were from time to time taljen out of the concern, and applied on account of the estate of the deceased; and of the amount of capital from time to time employed in tlie said firms respectively {p). It appeared that at the death of the deceased the assets of the firm consisted almost entirely of debts due to it; that it was impossible, except at a great sacrifice, to get in these debts in a short time; tliat if an attempt had been made to wind up the affairs of the concern at the deatli of the deceased, the assets of the firm would not have sufficed to discharge its liabilities; and that the ultimate solvency of tiie firm was attributable to the cautious and prudent conduct of the surviving partners, and to their liaving, from time to time, provided large sums of money to meet pressing liabilities {q). It thus, in fact, appeared that the profits made since the death of the deceased were made by the credit and connection of the housed and by tlie reputation, skill, and abil- ity of the surviving and later partners, and were not attributable to the surplus assets of the firm in which the deceased had a share. It fuji-ther appeared that the share of the deceased had been preserved entirely by the prudent management of the executors, and would have been certainly reduced to nothing if they had. wound up *989 the afl'airs of the *house in the ordinary way, or had thrown the estate of the deceased into Chancery. Under all the cir- cumstances of the case it was therefore held that as by the partner- ship articles the plaintiffs had no interest in the good-will of the concern, they were not entitled to participate in tlie profits made bj' the successive firms, so far as those profits Avere attributable to the good- will and connection in trade of the old firm; and that their share in any profits attributable to any other source was covered by interest on the a^nount at which the share of the deceased had been valued. Lastly, in Yyse v. Foster, (r) the partnership articles provided vvseu. ^^^^^ '^^ ^^^^ death of a partner the amount of his share Fuster. : should be ascertained and be paid out with interest, by installments running over two years. A partner died leaving three (p) 2 Keen, 762. court as to tlie mode of ascertaining the (q) See 22 Beav. 84. amount due to the deceased, see 10 Ch. (r) 8 Ch. 309, and L. R. 7 H. L. Ca. 236. 318. The case came again before the 1-2S4: CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. *990 executors; one of wliom was a surviving partner. The share of the deceased was ascertained; it was not, however, paid out at the end of two years, but was kept in the business, wliich was carried on for many years, first by one and then b^' two of the executors, with other persons. The continuing firms paid interest on the capital of the deceased partner, and all the persons beneficially interested in his estate, except tlie plaintiff, acquiesced in this arrangement. The plaintiff, soon after coming of age, demanded her share of the estate of the deceased, and also the profits made by its employment in the business. The firm paid her the principal sum due to her, with compound interest at 5^. percent., but declined to account to her ibr any profits. She thereupon filed a bill against the executors, and them alone, for an account of the profits. * A decree was made in her favor, and the defendants were declared liable for all the profits made by tlie successive firms, by the use of her share of the deceased partner's estate. The court of appeal, however, reversed this decision, and held that although there had been technically a breach of trust in not paying out the cajiital of the deceased partner as provided by the partnership articles, still the plaintiff could not possibly be entitled to charge the defendants in the suit, as constituted, *with more profits than they had themselves *i}90 received; and as the evidence showed that they had acted throughout with perfect fairness, the court of appeal refused even an account of these profits, and held tliat under all the circum- stances of the case the plaintiff was only entitled to her share of the testator's estate, with the compound interest at 5^. per cent, which had been offered to her. The decision in this case is ex- tremely important, as it decided, 1, that the clause in the partner- ship articles was binding both on the executors of the deceased part- ner and on the surviving partners, although one of them was also an executor; 2, that the amount due to the estate of the deceased was in effect a loan to the survivors, and its non-payment at the time and in manner prescribed by the articles of partnership did not en- title the plaintiff to any profits, but only to interest; '3, that even if the plaintiff's claim to profits could have been sustained, the executor who was not a partner would not have been liable for such profits; and 4, that the executors who were partners would not have been liable for more profits than they respectively themselves received. («) (s) See as tothisPlooktonw. Bunning:, observations of Lord Cairns, in L. R. 7 8 Ch. 323, note, ante, p. 985, and the H. L. 833, 4. i28r> *991 ACCOUNT — EVIDENCE. [liJOK III. The law upon the subject under consideration is still in an un- observations Settled State. Undoubtedly a person ouirht not to be on the fore- . . „ , . . t i going cases. permitted to retain for his own use, gains acquired by the unlawful employment of another's property ; and it would cer- tainly not be conducive to justice if there were no'power to compel a discovery of the amount of the gains so made, and payment of that amount by the wrong-doer, (t) At the same time, owing to the extreme difficulty of taking an account of subsequent proiits, so far as they are attributable only to one particular source, the tendency of the courts in modern times appears to be rather in favor of not exercising than of exercising the power alluded to, except in cases of gross fraud or breach of trust. («) In such cases, however, the *991 Court will *exert itself to the utmost, and the efforts which it will make in order to prevent persons from deriving advantage from their own wrong, cannot be better illustrated than by the case Featherston- of Featherstouhaugh V. Turner, {x) The profits of the ^aug V. ur- partnership business there arose entirely from the skill and reputation of the partners, who were medical gentlemen. In order to ascertain the share of the deceased in the profits made after his death by the surviving partner, an inquiry was directed whether any and what profits made since the death of the deceased were attributable to or derived from persons who had become cus- tomers by reason of the deceased having been a partner, and it was considered that the surviving partner was liable to pay what might be found due on taking that account, after deducting a liberal allowance to him for his time, knowledge, and expenses in realiz- ing the profits in question. With respect to the evidence upon which the accounts are to he taken. As regards the partnership books. These being accessible to all Evidence on the partners, and being kept more or less under the Tretaken™"'''^ Surveillance of them all, are prima facie evidence against each of them, and, therefore, also for any of them ao-ainst (i) See the admirable judgment of any instance in which such a decree taa Lord Brougham in Docker v. Somes, 2 been worked out and has resulted ben- M. & K. 672. eficially to the person in whose favor it (\i) .Judgments for an account of was made, profits after dissolution are fearfully op- {x) 25 Beav. 382. pr;ssive; and the writer is not aware of 1286 CHAP. X.j ACCOUNT — EVIDENCE. *991 the others, [y) ^ But entries made by one partner without tlie knowledge of the other do not prejudice the latter as between him- {y) See Lodge v. Prichard, 3 DeG-. M. & G. 906, and Smith v. The Duke of Chandos, 2 Atk. 158, and Barn. 412. But see the observations of L. J. Turner, in Stewtirt's case, 1 Ch. 587. ^ Heartt v. Corning, 3 Paige 566; Fletcher v. Pollard, 2 Hen.&Munf. 544; Brickhouse v. Hunter, 4 id. -363; Richardson v. Wyatt, 2 Dessaus. 471; Dunnell v. Henderson 23 N. J. Eq. 174; Stewart v. McKichan, 74 lU. 122; Albe V. Wachter, id. 173; Boise v. McGinn, 8 Oreg. 466; Cheever v. Lamar, 19 Hun, 130; Piouten v. Bostwirk, 59 Ala. 360; Cunningham v. Smith, 11 B. Mon. 325; Myers v. Bennett, 3 Lea, 184. See, Ferguson v. Wright, 61 Penn. St. 258; Sutton v. Mandeville, 1 Cranch C. C. 2. The rule is the same, though the books are kept by a clerk. O'Brien v. Hanley, 86 111. 278; Allen v. Coit, 6 Hm, 318. One of the members of the firm kept the time of the men employed, in a pass or time book, and reported the time of each man, weekly to the book- keeper, who entered it on the books of the firm and when the men were paid, if they claimed more time than had been reported to the bookkeeper, the partner keepmg the time was called in and the books corrected in accordance with the facts. Sometimes the partner keeping time was sick or absent and then the book keeper got the men's time from other sources. On a settle- ment of the partnership affairs, the partner who had kept the time of the men claimed that the books of the firm were incorrect, because there was ^ore time shown by them than his time book showed: Held, that under the circum- stances, the books as kept by the clerk were binding on both partners. O'Brien V. Hanley, sup. The ordinary presumption is, that aU the partners have access to the partner- ship books, and know the entries therein; but this is a mere presumption from the ordinary course of business, and may be repelled by any circumstances which tend to a contrary presumption. United States Bank v. Binney, 6 Mason, 176; Shoemaker Piano Co. v. Bernard, 2 Lea, 359. Entries in partnership books are not evidence for one partner against another on an accounting between them, unless it appears, or may be presumed, ' that the latter not only had access to the books, but actually inspected them. . Taylor v. Herring, 10 Bosw. 447; Saun- ders «. Duval, 19 Tex. 467.' The rule that entries in the books of a firm are evidence against all of the parties, is true only of those made whilst the firm is doing business. En- tries so made by a partner who is wind- ing up the partnership under a transfer to him for that purpose, are not, per se, evidence for him against a co-partner. Clements v. Mitchell, Plull. Eq. 3. Entries, however, made after a disso- lution, by the partner who closes the concern, in the partnership books which are open to the examination of the other partner, and are in fact examined by him, and from which, by agreement of the partners, an accountant has made up an account between them, are competent evidence for or against either partner. Cameron v. Watson, 10 Rich. Eq. 64. Where a surviving partner and liqui- dator suffers several years to elapse be- fore rendering an account, and he has kept the books so carelessly' that it is impossible to determine from them with any certainty how the firm stood at its close, his account will be rejected, and he charged with all entries against him- 1287 *991 ACCOUNT — EVIDENCE. [book hi. self and his co-partner (s); and where a surviving partner drew up an account which he furnished to the executors of his late partner, self, and allowed credit only for such liabilities as he proves lie has paid. Leftwitoh V. Leftwitoh, La. Ann. 346. Partnership) books to which each party has had access s^re primd facie evidence as between the partners, but the part- ners cannot, in lieu of the statement re- quired, put in their general books of accounts, consisting often of immense folios, which neither the clerk nor the court can be required to examine. It is the duty of the parties to have them examined by experts, to ascertain what they • do show, and to extract from them in the form of balance-sheets and schedules, such general statements, and such specific facts as may tend to elucidate contested matters of charge and discharge. Meyers v. Bennet, 3 Lea, 184. Where a partnership account is or- dered, each partner is an actor, and, unless all the parties join in employing a competent accountant to make out a balance-sheet of the business with proper schedules, each should be required to fur- nish his own statement of the account. Meyers v. Bennet, 3 Lea, 184. The books of partnership are compe- tent evidence to show what are debts of the partnership as against the partner who, upon the dissolution of the partner- ship, has purchased the assets of the partnership, and has undertaken to pay its debts. Shackleford v. Shackleford, 32 Grat. 481. Books of firm are evidence that one of two partners, joint makers of a note, was surety for the other. Strong v. Baker, 25 Mmn. 442. Where a paitner was familiar with the books of the concern, he may testify from his own recollection, so invigorat- ed by the books, as to the amount of the advance of his co-partner ■^beyond himself in the payment of the debts of the firm, without producing the books. Bank v. Donaldson, 6 Pa. St. 179. In an action for the settlement of part- nership accounts, where it appears that the parties have kept books of their daily affairs, they should be shown to be clearly erroneous, before a party should be permitted to recover beyond the same, for a matter which ought to have been entered regularly every day. Parker v. Jontfi, 15 La. Ann. The best evidence and data of the losses and profits of the partnership are the books of the firm, and the opinions and experience of other merchants in the same town were not admissible to determine the amount of profits. Cun- ningham w. Smith, 11 B. Mon. 325. Where, however, the books of a part- nership fail to show the true state of its business, resort may be had to a calcu- lation of the profits from the amount of mei-chandize proved to have been sold by said firm, at the rate per cent, profit proved to have been made on said mer- chandize in that particular business, but not to expert testimony of "witnesses engaged in a similar business to prove that profit was made by this firm in their business, for the purpose of charg- ing one of the partners therewith. Boire V. McGuire, 8 Oreg. 466. On the trial of an action between partners in a mill and ferry, ia which (s) Hutcheson v. Sinith, 5 Ir. Eq. 117. See, also. Reeve v. Whitmore, 2 Dr. & Sm. 4i6, where it was held that' although books kept by a person may be used against him as showing what 1288 he has received, he is not entitled to use them in his own favor to show what he has paid. See, as to how far the books of companies are evidence against their shareholders, ante, p. 550. CHAP. X.] ACCOUNT EVIDENCE. *991' it was held that such account was admissible against the partner who furnished it, and that the executors were not bound, by usino- it against him, to admit its correctness throughout, (a) the issues are as to tlie state of accounts, and whether there have been any pro- fits, the testimony of a witness who had run the mill and ferry previously, in partnership with one of the parties, to the effect that the expenses at that time were greater than the receipts, is irrele- vant and inadmissible. Saunders v. Duval, 19 Tex. 467. Where a partner had collected ac- counts in favor of the firm, without making- any entry of the amounts so collected, it was held, that where the amount of such collections was ascer- tained he was properly chargeable there- with. Evans v. Montgomery, 50 Iowa, 325. While the failure to keep accounts by the partner in charge of the partnership concerns might render an adjustment difficult, yet it could not be taken ad- vantage of by a co-partner who had com- menced an action and asked an ac- counting. Evans v. Montgomery, supra. As to the effect of keeping no books or of destroying them, see ante, 808. As to the onus 2}rohatidi in suits for an account, a partner who, upon the settlement of a partnership account, claims a balance due him from the finn, which is denied by the other, has the burden of proof, in the absence of en- tries of account made at the time of the alleged transaction. McCabe v. Franks, 44 Iowa, 208; Camblat v. Tup- ery, 2 La. Ann. 10; Maupin v. Daniel, 3 Tenn. Ch. 223; McMichael v. Ravul, 14 La. Ann. 307. A partner who complains of error in the settlement of a partnership account, approved by the signature of the part- ners, should make it appear by proof. Bry V. Cook, 15 La. Ann. 493. In a suit by one partner aga,inst an- other to recover contribution to a loss in the concern, a statement in the de- fendant's handwriting of an account showing a balance due to the plaintiff from the firm, is evidence for the plain- tiff. Yohe V. Bamet, 3 Watts & S. 81. In an action of account between part- ners, in which the plaintiff claims that the defendant account for money re- ceived by him from the avails of the business during the partnership, an agreement, executed by the plaintiff and delivered to the defendant, previous to the commsnoement of the action, in which it is recited, that the defendant has relinquished to the plaintiff all claim to the demands due to the firm, and to the stock of the firm, in consideration of which the plaintiff promises to pay the debts due from the firm, and to indem- nify the defendant against them, has no legal tendency to sustain a plea by the defendant, that he has fully accounted for the money claimed in the declara- tion. Woodward v. Francis, 19 Vt. 434. In an action to wind up a partnership between A and B, evidence that A put into the concern money belonging to a third person which he held as agent, is irrelevant. Harper v. Lamping, 33 Cal. 641. A decree that one partner shall pay money to his co-partner without any proof of its actual or constructive re- ceipt by the former, or that it has been lost by his negligence or misconduct, is erroneous; and where the only evidence given was that the defendant had re- ceived "a certificate of debt from the Chesapeake &• Ohio Canal Company," in December, 1833, or January, 1834, (n) Morehouse v. Newton, 3 DeG. &Sm. 307. 1289 *992 ACTIONS BETWEEN PAETNEES, ETC. [bOOK III. *90'2 *AVliere, in consequence of tlie loss of books and documents, an account cannot be taken in the usual way, special direc- speeiai direc- tions will be given as to the mode in which the accounts subjlct*'"^ shall be taken and vouched. The power to give such a direction is expressly conferred by 15 & 16 Yict. c. 86, § 54, by which it is enacted that, — " It shall be lawful for the court, in any case where any account is required to be 15 & 16 Viet c taken, to give such special directions, if any, as it may think lit 86, i 54. with respect to the mode in which the account should be taken or vouched, and such special directions may be given, either by the decree or order directing such account, or by any subsequent order or orders, upon its appearing to tlie court that the circumstances of the case are such as to require such special du-ections; and particularly it shaU. be lawful for the court, in cases where it shall think fit so to do, to direct that in taking the account, the books of account in which the accounts required tp be taken have been kept, or any of them, shall be taken as prima facie evidence of the truth of the matters therein contained, with liberty to the parties interested to take such objections thereto as they maybe advised." Prior to the above enactment the court would, if necessary, direct the master to make a special report in case he Old practice. >■ -t^ should be unable to take an account by reason of the non-production of books, or other circumstances (5); and the court would, it seems, declare that, for certain purposes vouchers should not be required, (c) Since the enactment, it has been decided that no special directions will be given, except in cases of necessity, and where, unless such directions are given, the accounts required can- not be arrived at. {d) The judgment for an account usually directs that all parties shall , produce on oath all books and papers in their custody Productions of i ^ ^ books, &c. relating to the taking of the accounts. If any partner has kept accounts relating to the partnership in private books of his own, he must produce such books; for he should have kept his private accounts elsewhere, if he did not want them to after a settlement with the company, (6) SeeEowley f. Adams, 7Beav. 395; and the bill which assumed its payment Millar v. Craig, 6 ib. 444; Turner v. to him was filed in June, 1835: Held, Comey, 5 ib. 515. that it was too short a time to authorize (c) Adley v. The "Whitstable Co., 17 a presumption of payment sufficient to Ves. 327. See the decree in Stainton v. charge him. personally, where there was The Carron Co. 24 Beav. 363. nothing in the nature of the settlement [d) See Lodge v. Prichard, 3 DeG. to impose such responsibility. Grove ». Mao. & G. 906; Ewart v. Williams, 7 Fresh, 9 Gill & J. 280. ib. 68. 1290 OHAr. X.J INJUNCTION. *993 be seen, {e) After a dissolution new books are generally *opened; but if tbey relate to the accounts which have to *993 be taken, they must be produced ( /"); and even if a partner not before the court, objects to their production, it is by no means clear that his objection will prevail, {g) As between partners and their representatives, material documents must be produced, though they may be privileged as between them and other persons, (/i) If a partner has books or accounts in his possession, and he will not produce them, an account may, nevertheless, be consequence of arrived at by presuming everything against mm. tion. Thus in a case where an account was directed at the suit of the representatives of a deceased partner against the surviving part- ner, and the latter would not produce the books necessary to ena- ble the Master to take the accounts, the Master estimated the net profits at lOl. per cent, on the capital employed, and the Court, on exceptions to his report, confirmed it, adding that if he had set the net profits down at 20/. per cent, his report would have been equally confirmed, (i) The Court has power to employ professional account- ants to assist it in taking accounts, and the Court Qiay act on their report, {k) ' Accountants. (e) Toulmin v. Copland, 3 Y. & C. Ex. 655 ; Freeman ik Pairlie, 3 Mer. 43. Liberty -will be given to seal up those parts which, are sworn not to relate to matters in question in the suit, ante, p. 962. (/) Hue V. Richards, 2 Beav. 305. {g) See Freeman v. Fairlie, 8 Mer- 43. But see ante, p. 958. {h) See Brown v. Perkins, 2 Ha. 540, where the excuse of professional confi- dence was set up. ' See ante 808 and note. (i) Walmsey v. Walmsey, 3 Jo. & Lat. 556 ; and see Gray v. Haig, 20 Beav. 219. (&) See Jud. Act, 1873, § 56, 57, and Ord.xxxiii. and xl. r. 10, and 15 and 16 Vict. c. 80, § 42, and see pn it, Hill v. King, 1 N. K. 341, L. C. ; Ford v. Tynte, 2 DeG. J. & Sm. 127 ; London, Bir- mingham, and Buck's Rail. Co. 6 W. R. 141. ^ The Court has power to perform the duties ordinarily performed by its mas- ter, m stating a partnership account be tween the parties; and in such case, each party has the same rights before the Court in regard to the production of books, examination of interrogatories, etc., that he could have before the mas- ter. Montanye v. Hatch, 34 111. 394. A complex and intricate account is, however, an unfit subject for examina- tion in court, and ought always to be referred to a master to be examined by him, and reported, in order to a final decree. Patten v. Patten, 75 1]). 446 ; S. C. 14 Am. Law Reg. N. S. 733; Moss V. McCall, 75 111. 190; Steere v. Hoag- land, 39 111. 264; Bressler v. McCune, 56 111. 475; Riner v. Tousle, 62 111. 266; Grouch V. Stenger, 65 111.481; Dubourg V. United States, 7 Pet. 625. 1291 *991 INJUNCTION. [book III. 2 Of Injunctions. In order to prevent a partner from acting contrary to the agree- injunctions ™^'^* i^^^o wliicli he may have entered with his co- and receivers, partners, or contrary to the good faith which, inde- pendently of any agreement, is to be observed by one partner towards his co-partner, it is sometimes necessary for a Court to interfere either by granting an injunction against the partner com- plained of, or by taking the affairs of the partnership ont *994: of the hands *of all the partners, and entrusting them to a receiver or receiver and manager of its own appointment.' ' The general rule respecting the ex- ercise of thejurisdiction to issue iirjuno- tions in partnership matters, and in con- necticn with receivers, is thus stated by Mr. High (Vol. 2, §§ 1330, 1350, 1351), in his valuable work on injunctions: "Courts of equity will entertain jurisdiction to prevent by injunction members of a co- partnership from the commission of acts inconsistent with the terms of their agreement, and from violating the rights of their co-partners. The jurisdiction is founded upon well-established princi- ples of ' quity, and is exercised irrespec- tive of whether a dissolution of the part- nership is sought. Thus, where several partners are engaged in trade, one of their number may be injoined from using force to the obstruction or inter- ruption of the trade, and from removing or displacing servants employed by the other partners, and from removing the books and papers relating to the busi- ness. And where one of the members of a firm has been temporarily insane, and on his recovery his co-partners ex- clude him from the management of the firm business, an injunction will be al- lowed to restrain them from thus ex- cluding him from the business. So, where a partnership is formed for a torm of years, to be terminated on no- 1292 tice by either party for a given length of time, an injunction will be granted to prevent one partner from obstr acting the other in the enjoyment of his part- nership rights, and from any improper nse of the partnership funds or effects. And the use by one partner of firm prop- erty for purposes foreign to the partner- ship, and in violation of the articles and without the consent of his co-partner, affords sufficient ground for an injunc- tion. But mere temptation to dishon- esty and to the abuse or improper use of partnership property, will not of itself induce a court of equity to interfere. And where all the partners save one engaged in the publication of a news- paper are also partners in a rival publi- cation, an injunction vsdll not be granted to restrain one of the papers from using the material of the other under a con- tract which has been, long acted on. But an injunction is proper in such a case to prevent one of the papers from publishing any information obtained ex- clusively at the expense of the other, until published in the paper thus ob- taining it. "The extraordinary remedy of equity by injunction in partnership matters is frequently invoked in connection with the appointment of receivers, CHAP. X.J INJUHCTIOIT. *994 These two modes ofinterference require to be considered separately ; for tliey are not had recourse to indiscriminately. The appointment of a receiver, it is true, always operates as an injunction, for the Court will not suffer its officer to be interfered with by any one {I); but it by no means follows that because the Court will not take tlie aifairs of a partnership into its own hands, it will not restrain'some one or more of the partners from doing what may be complained of. (m) although the two remedies are not necessarily or always invoked or granted at the same time. In gen- eral it may be said that when upon the dissolution of a partnership the mem- bers of the firm are unable to agree up- on the manner of closing up its af- fairs, it is the usual practice of courts of equity, with a view to protect the rights of all parties in interest, to exclude al the partners from participating in the business of closing up the firm, and to appoint a receiver for that purpose, and in that event an injunction is proper to prevent one partner from participating in the winding up of the firm. But to warrant a reciever and an injunction in partnership cases sucli a state of facts must be shown by the plaintiff, as, if proved at the hearing, will entitle him to a decree for a dissolution of the firm. And in determining whether the con- duct of one partner has been such as to entitle the other to a dissoiutionj in passing upon an application for an in- junction and a receiver, the court will consider not merely the specific terms of the contract of partnership, but also the duties and obligations which are im- plied in every such undertaking, and if it is manifest that the conduct of the de- fendant partner has been so injurious to the firm and so inconsistent with his du- ties as _a partner as to entitle plaintiff to a dissolution, a receiver and an injunction will be allowed. But although an in- terlocutory injunction has been granted, ex j>m-te, upon a bill by one partner seeking a dissolution, it does not neces- sarily follow that a receiver will be appointed over the affairs of the firm, and if the court is satisfied that such a case is not presented as to entitle plaintiff to a final dissolution, it will refuse to ap- point a receiver, notwithstanding such injunction, leaving the injunction to be dissolved in due time and upon proper motion." " The fact that the conduct of the de- fendant partner has been such as to de- stroy the mutual confidence which ought to subsist between partners, is an important element influencing the court' ■ in granting relief by injunction and a receiver in partnership cases. ■ And when the pleadings disclose a serious and apparently irreconcilable disagree- ment between the partners, as to the control and disposition of their property and effects and as to their respective demands against each other, the ap- pointing of a receiver and allowing an injunction are regarded as a provident exercise of the powers of a court of equity, sanctioned alike by authority and by the exigencies of the case. So, when it is apparent that the defendant partner has deliberately resolved to break up and ruin the firm business, and the personal relations of the part- ners are such that they cannot carry on business with advantage to each other, sufficient cause is presented for an in- junction and a receiver." [l) Although the appointment of a a receiver operates as an injunction, the Court will often grant an injunction as well as a receiver, to mark its sense of the impropriety of the conduct of those it specially restrains : see per V. C. Kin- dersley, in Evans i). Coventry, 8 Drew, 82. {m) See Hall v. HaU, 3 Mac. & G. 85. 1293 *9di ACTIONS BETWEEN PAETNEKS, ETC. [book III. 1. — Against partners.^ Whatever doubt there may formerly have been upon the subject, it Injunction ^^ ^^^^^' ^^^^^ ^" injunction will not be refused simply be- no^Siu'tfoi?'' cause no dissolution of partnership is sought. Where a IS souBht. partner who had been suffering from temporary insan- ' See post, Receivers. An injunction at the suit of one part- ner will be refused where there is a mere apprehension of loss, and there does not appear any breach of contract or duty, nor any misconduct amounting to fraud, in the remaining partners. Walker v. Trott, 4 Edw. 38. Where the representatives of a de- ceased partner had enjoined the sur- viving partner from selling the joint ' property at public sale : Held, that it should be dissolved, there being no charge of fraud, insolvency, or miscon- duct against the survivor, but a mere allegation of a refusal to account, and no proof that the account had been" witheld an unreasonable time. Shad v. Fuller, R. M. Charlt. 501. An injunction will be retained against a partner defendant, where he may get possession of funds of the partnership before the settlement of his rights by the final decree. Randall v. Morrell, 17 N. J. Eq. 343. Where articles of partnership pro- vide that, in case of the dissolution of the partnership, by the death or with- drawal of any of the partners a general account shall be taken, and prescribe the manner in which the concern shall be settled and its assets be distributed, an injunction will not lie, at the in- stance of the outgoing partners, agamst the remaining partner, until the latter has had an opportunity of closing up the concern under the articles of partner- ship. Quinlivan v. English, 44 Mo. 46. Where one pavtner, holding notes for the benefit of the firm, attempts to pawn 1294 or pledge them for his own private debts, the court will interfere to re- strain it. Stockdale v. Ullery, 37 Pa. St. 486. A partner may by injunction hold his associates to the specified purposes of the partnership, while the partnership continues. Kean-«). Johnson, 9 N. J. Eq. 401. Equity will enjoin one of several partners, who, by the partnership con- tract, has undertaken to superintend and manage the business, from carrying on the same business, at the same place, in a separate estabhshment, for his sole benefit, even though there be no express covenant restraining him from so doing. Marshall v. Johnson, 33 Ga. 500. After dissolution of a firm equity will restrain one partner from publishing the letters of another concerning the business of the firm, \mless the purposes of justice, civil or criminal, require their piiblication. Roberts e. McKee, 29 Ga. 161. Where the conditions of dissolution of a partnership were such that the re- tiring partner had the right to open ar.d attend to, for his own benefit, letters thereafter addressed to the late firm, upon certain subjects of business : Held, that the mere fact that he opened, and answered, in his own name, and for his own benefit, two fictitious or "decoy" letters, addressed to the late firm at the instance of the plaintiff', their successor, and purporting to be upon business which the former had not the right to attend to, did not authorize the court to CHAP. X.] mjTJNCTIO:^ AGAINST PAETNEES. *995 ity had recovered, but was excluded by his co-partners from the 'management of the affairs of the partnership, the Restorine excluded Court restored him to his position in the firm by grant- partner. ing an injunction restraining the other partners from preventing him from transacting the business of the partnership, (n) Again, in England v. Curling (o), a partnership had been en- tered into, for a term of years which had not expired. Restraining One of the partners insisted on a dissolution and retired ™p™per acts. from the partnership, and entered into another partnership, which assumed the name of the old firm, opened the letters j;n„iandt) addressed to it, and circulated notices of its dissolution. Cuning. But on a bill filed by the continuing partners of the old firm against their co-partner and the other members of the new firm, the Court granted an injunction restraining the retired co-partner from carry- ing on business with his new partners or any other persons except his old co-partners, until the expiration of the *term; *995 and restraining his new partners from carrying on business with him, or otherwise, in the name of the old firm, and from re- ceiving or opening letters addressed to it,' and from interfering with its property; and restraining the retired partner from publishing or circulating any notice of the dissolution of the old firm, before the interfere by action and injunction. White tlie company, had recovered judgment V. Jones, 1 Abb. Pr. N. S. 328. in ejectment against the complainant. An injunction restraining interference both for the premises and for mesne with the complainant in the exercise of profits. Wells v. Strange, 5 Ga. 22. his rights as a partner of the defendants, In a suit seeking an equitable off-set will be dissolved on the clear averment upon an account between former part- in the answer that the partnership was ners, and an injuction to restrain a suit dissolved by mutual consent. VanKuren at law by the defendant against the v. Trenton, &c. Co. 13 N. J. Eq. 302. complainant upon notes given in course The principles that an injunction of partnership transactions, the mere should not be granted unless there is assertion of a counter-demand will not danger of irreparable loss, and that a warrant the retaining of the injunction prayer for equitable relief comes too late issued upon filing the bill. Some facts after a judgment at law, have no appli- must be alleged, or account given cation to a bill in equity for an account whence the court can judge whether the and settlement of a co-partnership, complainant would probably be able to brought by one of the partners, who al- estabUsh his claim. Hewitt v. Kuhl, 25 leges that he was the lessee of the part- N. J. Eq. 24. nership property, and had paid out more (w) Anon. Z. ■». Z. 2 K. & J. 441. than he had received; and that another (o) 8 Beav. 129. S?e, too, Warder partner, who held the legal title to the v. Stilwell, 3 Jur. N. S. 9. property, which equitably belonged to ' See atUe, 994, note. 1295 *996 ACTIONS BETWEEN PAETNEES, ETC. [llOOK III. expiration of the term for wliicli it had been entered into. So in the subsequent case of Hall v. Hall (p), a partnership for twenty-one years, determinable on twelve months' notice by either party (q), was entered into by the plaintiif and the defendant: disputes arose, and the defendant wholly excluded the plaintiff from the partnership business. The plaintiff filed a bill pray- ing that the articles might be performed, and, amongst other things, for an injunction, but not for a dissolution. An injunction was granted, restraining the defendant from applying any of the mone^-s and effects of the co-partnership, otherwise than in the ordinary course of business, and from obstructing or interfering with the plaintiff in the exercise or enjoyment of his rights under the partnership articles. These authorities show that where a partnership is not determin- where one able at wiU, tliosc partners who are desirous of carry- partner seeks . . . . to drive the mg On the Dusiness m the proper way will be protected others to a ° i c J i dissolution. • \)y the Court from the unwarranted acts of a co-part- ner, whose onlj' object may be, by grossly miscondncting himself, to force the others to agree to a dissolution, (r) "Where the partnership is determinable at will, there is, it is said, , Injunction niore difficulty in interferins: if a dissolution is not ■where the i r» partnership is souglit: for, Supposing the Court to interfere, the de- determinable n 7 > i. l !-< i y at WiU. fendant may immediately dissolve the partnership, (s) But supposing him to do so, an injunction will not necessarily be futile, inasmuch as so long as it continues in force, the defendant is rendered powerless for evil, and a notice by him to dissolve the partnership cannot, per se, operate as a dissolution of the injunc- tion. In Glassington -y. Thwaites(i(), the plain- ThwaSes?""' *996 tiff, who *was one of the proprietors of the Morning Herald, obtained an injunction re- straining his co-partners, who were also proprietors of the English Chronicle (in which, however, the plaintiflT had no interest), from publishing in the latter paper, any information obtained at the ex- Momsji. pense of the former, until it should liaive been first coiman. published in the Morning Herald. So in Morris v- Colman {u), one of the proprietors of the Haymarket Theater was ip) 12 Beav. 414, 20 ib. 139, and 3 Hare, 887. Mac. & Q. 79. See, also, Blisset v. (s) See Peacock v. Peacock, 16 Ves. Daniel, 10 Ha. 493. 49; MOes v. Thomas, 9 Sim. 606. (q) See 20 Beav. 139. [t) 1 Sim. & Stu. 124. ()•) See, too, Faii-tliome v. Weston, 3 (m) 18 Ves. 437. 1296 CHAP. X.] INJUNCTION AGAINST PARTNERS. *997 restrained from acting contrary to the articles of partnership, by writing plays forother theaters. Again, where a part- ^^^f.^^y ner had agreed not to sell his share without first offer- Fothergui. ing it to the other partners, an injunction to restrain a sale was granted, (a?) It does not appear 'from the reports of these cases wliether the partnei'ships were partnerships at will or not; but sup- posing them to have been merely partnerships at will, it is clear that the injunctions were far from valueless. In an action instituted for the purpose of having a partnership dissolved, or of having an account taken after a part- injunction in nership has been dissolved, it has never been doubted dissolution. that an injunction will be granted to restrain one of the partners from doing any act which will impede tlie winding up of the con- cern. For example,' one partner will be restrained from carrying on the concern for any other purpose than winding up(y); from darr aging the value of the good-will if it onght to be sold for the hr-^^fVit of all (z) ; from getting in the assets if he is likely to iHisapply them (a); a surviving partner will be restrained from improp- erly ejecting the representatives of his deceased co-j)artner (5) ; and they, on the other hand, will be restrained from making any improper use of partnership property, the legal estate of which may happen to be in them, (c) So a surviving partner will be restrained from disposing of or *getting in the partner- *997 ship assets, if he has already been guilty of breaches of trust with reference to them, (d) But a surviving partner will not be restrained from continuing to carry on business in the name of him- self and his deceased co-partner unless so to do is contrary to his own* agreement, or the good- will is a saleable asset of the firm, (e) Again, in an action for a dissolution, a partner will be restrained from improperly interfering with or obstructing the partnership business (/"); from drawing, accepting, or endorsing bills of ex- (x) Homfray v. Fothergill, 1 Eq. 567. ant against costs, etc. (y) See De Tastet v. Bordenave, Jac. (6) Elliot v. Brown, 3 Swanst. 489, 516. n.; Hawkins «. Hawkins, 4 Jur. N. S. (z) Tamer v. Major, 3 Giff. 442 ; Brad- 1045. bury V. Dickens, 27 Beav. 53. In the (c) Alder v. Pouracre, 3 Swanst. 489. last case the defendant was advertising (d) Hartz v. Sohrader, 8 Ves. 317. the discontinuance of a partnership pe- («) See on this subject, ante. pp. 854, riodical of which he was the editor. 865. (a) O'Brien v. Cooke, Ir. L. R. 6 Eq. (/) Smith v. Jeyes, 4 Beav. 503 ; 51 ; there the plaintiff was allowed to Charlton v. Poulter, 19 Ves. 148, n. get them in, indemnifying the defend- S2 1297 *998 ACTIONS BETWEEN PAETNEES, ETO. [bOOK III. change in tlie partnership name for other than partnership pur- poses {g)\ from getting in debts owing to the firm (A); from with- holding the partnership booivs {i), and generally on a dissolution one partner will be restrained from injuring the property of the firm, ijc) Injunction So the Court Will interfere by injunction to protect partifers from partners from the interference of persoiis claiming the the representa- , j?ii i. i ri'Jii tivesofaco- share 01 a late co-partner, by reason oi his death, or paruer. bankruptcy, or under an execution. (?) So after a dissolution the Court constantly interferes by injunc- injunction to tiou to restrain breaches of special agreements entered agreements into between the partners; such for example as agree- ments not to carry on business (ot), not to get in debts of the firm {n), not to divulge a trade secret, {o) So, if a partner *998 retires, and *assigns his interest in the partnership, 'and in the good-will thereof, to the continuing partners, he will be restrained from recommencing or carrying on business in such a way as to lead people to suppose that he is the successor of or still connected with the old firm, {p) Although injunctions to restrain actions are now abolished, it Injunction to mav be useful to observe that where surviving partners restrain actions " <> i • i i i /. i on the ground g-avc the exccutors 01 their late partner a bond lor the ot unsettled = "• , p i , i n , Accounts. amount of his share, the amount of which had not been ascertained, an action on the bond was stayed on its being shown that if the partnership accounts were taken it would appe&r that the surviving partners had already paid too much, {q) But se t., tion for the balance of a settled account would not be restrained ((/) Williams ». Bingley, 2 Vem. 278, Allen v. Kilbre, 4 Madd. 464; Fraser v. note, and Coll. Part. 233 ; Jervis v. Kersliaw, 2 K. &' J. 496; Davidson v. White, 7 Ves. 412; Hood v. Aston, 1 Napier, 1 Sim. 297; Preeland v. Stans- Euss. 412. In the two last cases, the feld, 2 Sm. & G. 479. As to sheriffs, injunction restrained maM/tZe indorsees Bevan ». Lewis, 1 Sim. 376; Newell*, for value from parting with or negotiat- Townsend, 6 ib. 419. As to executors, ing the securities. Phillips ». Atkinson, 2.Bro. C. C. 272. {h) Read v. Bowers, 4 Bro. C. C. 441. (m) Whittaker v. Howe, 3 Beav. 383. (i) Taylor v. Davis, 3 Beav. 388, note; (n) Davis v. Amer, 3 Drew, 64. Greatrex v. Greatrex, 1 DeG. & Sm. 692; (o) Morison v. Moat, 9 Ha. 241. Charlton V. Poulter, 19 Ves. 148, n. ' {p) Churton v. Douglas, Johns. 174, (fc) See Marshall v. Watson, 25 Beav. ante, p. 855. See, also, Hookham v. 501, where an injunction to restrain a Pottage, 8 Ch. 91. partner from publishing the accounts of (g) Jackson v. Sedgwick, 1 Swanst. the firm, was urder gpeoial circumstan- 460. See, also, Gold v. Canham, 1 Ch. ces refused. Ca. 311, and 2 Swanst. 325, note. {I) See as to assignees m oankruptcy, 1298 CHAP. X.J INJUNCTION AGAINST PAETNEES. *999 merely because there were otlier unsettled accounts between the parties (r); nor would a court of equity interfere to prevent a share- holder of a company who was a creditor of that company from exe- cuting a judgment obtained against it by him as creditor, (s) Before leaving this subject, it is necessary to make a few observa- tions on the kind of misconduct which will induce the injimction . . . . , in case of Court to grant an injunction against one partner at the misconduct. suit of another. Mere squabbles and improprieties, arising from inhrmities of temper, are not considered sufficient ground for an injunction (/); but if one partner excludes his co-partner from his rightful interference in the management of the partnership affairs, or if he persists in acting in violation of the partnership articles on any point of importance, or so grossly misconducts himself as to lender it impossible for the business to be carried on in a proper manner, the Court will interfere for the protection of the other partners. («) Where, however, *tlie partner com- *999 plained of has by agreement been constituted the active man- aging partner, the Court will not intei-fere with him unless a strong case be made out against him (x); nor will the Court restrain a part- ner from acting as such, merely because if he is known so to do, the confidence placed in the fi:rm by the public will be shaken, (y) It need scarcely be observed that a partner who seeks an injunc- tion ao'ainst his co-partner must himself be able and Partner appiy- o y ingformjunc- willing to perform his own part of any agreement tion must come which he seeks to restrain his co-partner from break- tands. ing (z); and the plaintiff's own misconduct may be a complete bar to his application, however wrong the defendant's conduct may have been, {a) As stated by Lord Eldon in Const v. Harris, a partner who complains that his co-partners do not do their duty to him, (r) See Preston v. Strutton, 1 Ans. 50, partners who horsed a mail coach, was and Rawson v. Samuel, Cr. & Ph. 172. restrained from horsing it on the ground (s) Rheam v. Smith, 2 Ph. 726; Hard- that he did it so badly as to imperil the inge V. "Webster, 1 Dr. & Sm. 101; and business of the concern, see Hammond v. Ward, 3 Drew, 103. [x) See Lawson v. Morgan, 1 Price, See, also, ante, p. 892. 303; Waters v. Taylor, 15 Ves. 10. {t) See Marshall v. Colman, 2 J. & W. {y) Anon. 2 K. & J. 441. 266; Smith v. Jeyes, 4 Beav. 503; Law- {z) Smith v. Fromont, 2 Swanst. 330. son V. Morgan, 1 Price, 307; Cofton v. (a) Littlewood v. Caldwell, 11 Price, Homer, 5 Price, 537; Warder v. Stil- 97, where an injunction was refused be- well, 3 Jur. N. S. 9. cause the plaintiff had taken away the (m) See ante, p. 227. In Anderson v. partnership books. Walla. e, 2 Moll. 540, one of several 1299 '^lOOO ACTIONS BETWEEN PAKTNEES, ETC. [bOOK III. must be ready at all times, and offer to do his duty to tliem. (5) In consequence of the liability which attaches to a person who Injunction holds himself out as a partner with others, and of the to restrain '■ holding out. danger run by a person who is held out as a partner with others, even altbougli it may not be witli his consent, a Court will, it seems, interfere and restrain a person from holding out another as partner with him, without the authority of that other, (c) And if a person is, without his authority, advertised by the promoters of a company as a trustee of the company, an injunction against them will be granted, (d) Upon the same principle if a person's name is wrongfully placed on a company's register of shareholders, he is entitled to an injunction to restrain its continuance there, (e) 1000 *2. Against directors, c&c. "With respect to injunctions against companies and their direc- T . ». tors, little remains to be added to what was said when Injunctions ' mesandtSFr' considering the principles by which Courts are guided dn-ectors. in interfering in matters of internal management (_/), and in controlling majorities, (g) In order, however, to facilitate reference, it will be convenient to collect those cases in which an injunction has been granted or refused, although they may have been noticed in previous pages. In relying upon the authorities here collected, it is to be borne Inunctions ^^ mind that, before the hearing or trial of a cause, the jiefore the Court will not restrain the exercise of a clear leo-al hearing oi o the cause. right, unless it is satisfied that it will be compelled to do so at the hearing or trial (A); nor will it interfere, if it is not in the possession of all the material facts, and convinced that an im- ■ mediate injunction is imperatively required, (i) (6) Const «. Harris, T. & R. 524. & Sm. 211, where however, no injunc- (c) See Routh v. Webster, 10 Beav. tion was granted. Under the Gornpa- 561; Bullock v. Chapman, 2 DeG. & nies Act, 1862, the remedy would be Sm. 211 ; Troughton v. Hunter, 18 Beav. under § 35. 470. Compare Banks «. Gibson, 34 Beav. {/) Ante, -p. 8%, et seq. 566. In Dixon v. Holden, 7 Eq. 488, an (g) Ante, p. 598 et seq. injunction was granted to restrain the (h) Playfair v. Birmingham, &c. Rail_ publication of a statement that the plain- Co. 1 Ra. Ca. 640. tiff was a member of a bankrupt fii-m. (ij Pielden v. Lancashire, etc. Rail. Co. (d) Routh V. Webster, 10 Beav. 561. 2 DeG. & S. 531. (e) See Bullock v. Chapman, 2 DeG. 1300 CHAP. X.] INJUNCTIONS AGAINST DIEEGTOKS, ETO. *1001 I. — All injimction has heen granted to restrain — Injunctions granted. 1. The improper insertion or continuance of a person's name on a company's prospectus (fc) or on tiie register of shareholders (Z); 2. The registry of an improper transfer of shares (?re); 3. The making of calls for illegal purposes (jj); 4. The making of calls on a shareholder induced .to become such by fraud (o); *5. The illegal issue of shares {p)\ e.g., preference shares issued pur- *1001 suant to a special resolution (q) ; 6. The illegal forfeiture of shares (r); 7. The unfair use by a company of a creditor's name in an action against a share- holder (s); 8. The illegal suspension of a shareholder from his rights {t) ; 9. The illegal payment of dividends not actually declared («), e.g., payment of dividends out of capital or borrowed money (x); 10. The payment of dividends in shares (y); 11. The making of loans to directors [z); 12. The departure by a company from the objects to attain which it was formed; viz. to restrain A fire and life insurance company from engaging in marine insurances {a); A railway company from dealing extensively in the purchase and sale of coals (6); (/(;) Kouth «. Webster, 10 Beav. 561. (?) Taylor v. Hughes, 2 Jo. & Lat. 24; Shortridge v. Bosanquet, 16 Beav. 84. Compare Bullock v. Chapman, 2 DeG. & S. 211, This is now usually done by an application to rectify the register, as to which see ante, p. 142. (m) Fife v. Swaby, 16 Jur. 49. («) See as to this, Preston v. Grand Colher Dock Co. 11 Sim. 327, and Hodgkinson v. National Live Stock In- sur. Co. 26 Beav. 473, and 4 DeG. & J. 422, both of which, however, were de- cided On demurrer. See further on this subject, Orr v. Glasgow Rail. Co. 3 MacQu. 799, and the other cases cited infra, under the next head, Nos. 2 to 6. (o) Smith V. Reese River Co. 2 Eq. 264, and L. R. 4 H. L. 64; Bloxam v. Metrop. Cab Co. 4 N. R. 51. (p) Fraser v: Whalley, 2 Hem. & M. 10. See infra, under second head, No. 8. (?) Hutton V. Scarboro' Cliff Co. 2 Dr. & Sm. 514 and 521. (r) Watson v. Bales, 23 Beav. 294; Norman e.- Mitchell, 5 DeG. M. & G. 648; Eaylor v. South Devon Rail. Co. 1 DeG. & Sm. 32. (s) Taylor v. Hughes, 2 Jo. & Lat. 24, and other cases cited ante, p. 875. (t) Adley v. Whitstable Co. 17 Ves. 315; 19 ib. 304; 1 Mer. 107. {it) Fawoett v. Laurie, 1 Dr. & Sm. 192; Carlisle v. South-Eastern Rail. Co. IMac. & G. 689; Henry v. Great Northern Rail. Co. 4 K. & J. 1, and 1 DeG. & J. 606, and .other cases cited ante, p. 797. {x) Bloxam v. Metrop. Rail. Co. 3 Ch. 337; McDougall v. Jersey Hotel Co. 2 Hem. & M. 528. {y) Hoole v. Great Western Rail. Co. 3 Ch. 262. {z) Bluck V. Mallalue, 27 Beav. 398. (a) Natusch v. Irving, ante, p. 601. (6) A.-G. V. Great Northern Rail. Go. 1 Dr. & Sm. 154. 1301 *1002 ACTIOKS BETWEEN PAETNEES, ETC. [book hi. A railway company from guaranteeing the payment of dividends by a steam packet company (c) ; From taking an unauthorized number of shares in another railway company (rf) ; From maldng a different railway from that which it was incorporated to make (e); Or part only of such railway (/); Or one only out of several railways which it had been formed to make (g); *1002 *13- The transfer, by one company, of its business to another com- pany {h) otherwise than under § 161 of the Companies Act, 1862 (j); 14. The amalgamation of two companies having similar objects (7c); 15. A company and its directors from applying to Parliament at the expense of the company, for power to do what it was not formed to do (I); 16. A chartered company from surrendering its charter {m); 17. The publication of the contents of books and documents inspected under an order (w); 18. The payment out of the funds of a company of money borrowed by its promoters, to enable them to comply with the standing orders of the House of Lords (o); 19. Proceeding to arbitration under an ultra vires agreement {p); 20. Prosecuting a suit instituted by a stranger, but alleged to be for the benefit of the company (g); 21. Prosecuting proceedings for a libel on the directors, (r) 22. The purchase by a company of its own shares, (s) (c) Colman V. Eastern Counties Bail. Co. 10 Beav. 1. ' {d) Salomons v. Laing, 12 Beav. .377. (e) Bagshaw v. Eastern Union Rail. Co. 7 Ha. 114, and 2 Mac. & G. 389; Simpson v. Denisou, 10 Ha. 51. (/) Cohen V. WUkiason, 12 Beav. 125, and 1 Mac. & G. 481; Logan ». Courtown, 13 Beav. 22. {g) Hodgson v. Powis, 12 Beav. 392 and 529, and 1 DeG. M. & G. 6. [h) Charlton v. Newcastle and Car- lisle Ran. Co. 5 Jur. N. S. 1096; Be- man v. RufFord, 1 Sim. N. S. 550; Winch V. Birkenlftad, &c. Rail. Co. 5 DeG. & S. 562. See, too, Salomons v. Laing, 12 Beav. 377; Hattersley v. Shel- burne, 10 W. R. SOlj where it was in- tended to obtain an act to legalize the transfer. (i) See, as to this, SouthaU v. British Mutual Life Ass. Soc. 11 Eq. 65, and 6 Ch. 614. (k) Keama o. Leaf, 1 Hem. & M. 681; Gilbert v. Cooper, 10 Jur. 580. 1302 See, also, the last note but one. (l) Lyde v. East Bengal Rail. Co. 36 Beav. 10 ; Munt v. Shrewsbury and Chester Rail. Co. 13 Beav. 1; Simpson V. Denison, 10 Ha. 51; Great Western Rail. Co. V. Rushout, 5 DeG. & Sm. 290; Vance «. East Lane. Rail. C. 3 K. & J. 50. See, also, A.-G. v. Norwich, 16 Sim. 225, and compare Bateman v. Mayor of Ashton-under-Lyne, 3 H. & N. 323. (to) Ward d. Society of Attornies, 1 Coll. 370, as to which, see ante, pp. 606, 607. (re) See Williams v. Prince of Wales Co. 23 Beav. 338. (o) Spackman v. Lattimore, 3 Giff. 16. {p) Maunsell !'. Midland Great West- ern Raa. Co. 1 Hem. & M.^30. iq) Kemaghan v. Williams, 6 Eq. 228. (r) Pickering v. Stephenson, 14 Eq. 322. (s) Hope v. International Financial Soc. 4 Ch. D. 327. CHAP. X.] INJUNCTIONS AGAINST DIEECTOES, ETC. *1003 II. — An injunction has heen refused to restrain — 1. A company from commencing business on a smaller scale than contemplated by the prospectus, or before its nomiual capital had been sub- injunctions scribed (t); refused. 2. The making of calls by a company commencing business -with less capital than that originally contemplated (h); *3. The making of necessary calls by directors who had been guilty of *1003 improper conduct (a;) ; 4. The making of calls on some only of the members of an amal- iniunctions gamated society (t/) ; refused. 5. The making of calls on all the members of two amalgamated companies, to pay the debts of one of such companies (») ; 6. Actions for calls on improperly relinquished or forfeited shares (a) ; 7. The borrowing of money by a limited company (6) ; 8. The issuing of preference shares (c) ; 9. The application of the money raised by the issue of preference shares to a purpose different from that for which it was raised {d) ; 10. The return of deposits to subscribers (e) ; 11. The payment of dividends actually declared (/) ; 12. The payment of dividends before payment of debts (ff) ; 13. The payment of dividends before the completion of the company's works (h) ; 14. The continuance in office of directors appointed in the place of others re- moved for alleged misconduct (i) ; 15. The management of a company's affairs by directors whose conduct was com- plained of; no sufficient attempt having been made to control them before apply- ing to the Court (k) ; it) McDougall V. Jersey Hotel Co. 2 {d) Yetts v. Norfolk Rail. Co. 3 DeG. Hem. & M. 528. & Sm. 293. See No. 15, infra. [u) Norman v. Mitchell, 19 Beav. (e) Kent v. Jackson, 14 Beav. 367, 278, and 5 DeGr. M. & G. 648. and 2 DeG. M. & G. 49. [x) Logan ». Courtown, 13. Beav. 22. {/) Fa,wcett v. Laurie, 1 Dr. & Sm. («/) Bailey v. Birkenhead, &c. Rail. 192; the suit, however, was defective, Co. 12 Beav. 433. Compare Preston v. for want of parties. See ante, p. 888. Grand CoUier Dock Co. 11 Sim. 327, (g) Stevens v. South Devon Rafl. Co. and see No. 15, infra. 9 Ha. 326. See No. 15. [z) Cooper v. Shropshire Union Rail. (h) Browne v. Monmouthshire, &c. Co. 6 Ra. Ca. 136; S. C. 13 Jur. 443. EaH. Co. 13 Beav. 32. See No. 15. (a) Harris v. North Devon Rail. Co. (i) Iderwickw. SneU, 2Mac. & G. 216. 20 Beav. 384; Playfair v. Bristol, &c. [k) McDougall v. Gardiner, 1 Ch. D. RaU. Co. 1 Ra. Ca. 640. 13, and 10 Ch. 607; Carlen v. Drury, 1 (6) Bryony. Metropolitan Saloon Om- V. & B. 154; Waters v. Taylor, 15 Ves. nibus Co. 4 Jur. N. S. 680, and on ap- 10; Poss v. Harbottle, 2 Ha. 461; Moz- peal, 3 DeG. & J. 123. See No. 15. ley v. Alston, 1 Ph. 790. This principle (c) Edwards v. Shrewsbury, &c. Rail, was acted on in the cases cited under Co. 2 DeG. & Sm. 537. See under first Nos. 4, 5, 7, 8, 9, 12, 13. head, No. 5. 1303 *100'i ACTIONS BETWEEN PARTNEKS, ETC. [bOOK III. 16. Directors improperly appointed, from acting {I) ; 17. Directors from putting their own names on negotiable instruments relating to the affairs of the company (>») ; 18. The sailing of a ship on a voyage disapproved of («) ; *100i *19- The assignment of a company's property to trustees, upon trust, o:j sell Luid pay the company's debts (o) ; 20. The total abandonment by a railway company of its works, it not having funds to complete them {p ) ; 21. The application to Parliament, otherwise than at the expense of the company for power to enable the company to do what it was never mtended it should do {q), though the application is in the name and under the seal of the company (r); 22. The sealing of an agreement to make such an application (s) ; 23. A company from applying to a foreign legislature for increased powers [t) ; 24. An application to Parliament to legalize an agreement for the transfer of the business of one company to another (w) ; 25. A railway company empowered to purchase a canal, from exercising the powers of a canal company (x) ; 26. A, railway company having steam ferry-boats from using them for other than ferry purposes when not wanted for those purposes («/) ; 27. A railway company from carrying out a traffic agreement entered into with another company {z) ; 28. An hotel company from temporarily letting out part of its hotel for other than hotel purposes (o.) ; 29. A fire insurance company from paying for losses usually paid for, but not covered by its policies (6) ; 30. The discharge of a servant whose engagement was provided for in the com- pany's articles of association (c) ; 31. The non-registry of a transfer oi shares {d) ; 32. The voluntary winding up of a company with a view to a transfer of its business under § 161 of the Companies Act, 1862 (e) ; (l) Hattersley v. Shelburne, 10 W. R. 10 W. R. 881. 881. (x) Rogers v. Oxford, &o. Rail. Co. 2 (m) Bluok V. Mallalue, 27 Beav. 398. DeQ. & J. 662. (n) Miles v. Thomas, 9 Sim. 606. (y) Forrest ®. Manchester, &c. Rail. (o) Lord V. Governor & Co. of Copper Co. 30 Beav. 40, affirmed on appeal, 4 Miners, 2 Ph. 740. DeG. P. & J. 126, but on a ditlerent ( p) Logan V. Courtown, 13 Beav. 22. ground. ( q ) Ware v. Grand June. AVatsr- {z) Hare v. London and Northwestern works Co. 2 R. & M. 470. Rail. Co. 2 J. & H. 80. (r) Ex parte Hartridge, 6 Ch. 671; (a) Smipson v. Westminster Palace Great Western Rail. Co. v. Rushout, 5 Hotel Co. 2 DeG. F. & J. 141, and 8 H. DeG. & Sm. 290. Compare Maunsell «. L. C. 712. Midland Great Western Rail Co. 1 Hen. (6) Taunton v. Royal Insur. Co. 2 & M. 130. Hem. & M. 135. (s) Winch V. Bkkenhead Rail. Co. 5 (c) Mair v. Himalaya Tea Co. 1 Eq. DeG. & Sm. 580. 411. (i) BiU V. Sierra Nevada Mining Co. (d) Taft v. Harrison, 10 Ha. 489. 1 DeG. F. & J. 177. (e) Southall v. British Mutual Life (m) Hattersley v. Earl of Shelburne, Ass. Soc. 11 Eq. 65, and 6 Ch. 6l4. 1304 OIIAP. X.j EEOEIVEE, *1005 *3. Of Eeceivers. *1005 The object of Laving a receiver appointed by the Court is to place the partnership assets under the protection of the obectofhav- Court, and to prevent everybody, except the officer of ingareceiver. the Court, from in any way intermeddling with them.' The object of having a manager is to have the partnership business carried on under the direction of the Court; a receiver, unless he also appoint- ed manager, has no power to carry on the business. Courts of Justice are by no means anxious to take npom them- selves the management of a partnership business, and Receivers in they will, it is said, never do- so, save with a view to a SdnffT'' dissolution or final winding up of the affairs of the con- 1 J? tween granting principles as when it grants or refuses an order tor an an injunction ; . . .,.-,. „. . and appointing injunction; it being one thing to manage the affairs a receiver. of a partnership oneself, and another to prevent a person who has already miscond acted himself from interfering further with the partnership coiicei'ns. (n) Another reason for drawing a distinc- tion between an injunction and a receiver is, that whilst an in- junction excludes" only the person against whom it is granted, the appointment of a receiver excludes all the partners from taking part in the management of the concern. It, therefore, does not fol- low that because the Court will grant an injunction, it will also ap- point a receiver; nor that becauses it refuses to appoint a receiver, it will also decline to interfere by injunction, (o) {T) A receiver and manager was ap- to do. The Vice-Chanoellor refused pointed in this country, and the defend- the motion merely upon the ground that ant, who had gone to the Brazils after he could not take upon himself the man- the hill had been filed, was appointed agementof sach societies, even until the receiver and manager out there. hearing of the cause. The Court of (to) 5 DeG. M. & G. 911, reversing S. Appeal did not allude to this. C. 3 Drew. 75. It does not appear very (») See Hall v. Hall, 3 Mac. & G-. 85. distinctly what the manager, as distin- (o) Although an injunction was guished from the receiver, was expeeted granted, a receiver was refused, in Read 1307 *1008 ACTIONS BETWEEN PAETNEKS, ETC. [bOOK III. In considering the right to the appointment of a receiver *1008 *in actions for a dissolution or, winding up, it is necessary to distinguish cases in which there is a contest between Eight to a ° . ,. ,.1.11 receiver. partners, or iate partners, irom those in which the con- test is between partners, or late partners on the one side, and non- partners on the other. Where one partner seeks to have a receiver appointed against his 1. As between co-partners, the first thing to ascertain is, whether the partners. j.j^g partnership between tiiern is still subsisting or has been already dissolved ; for if it is still subsisting no receiver will he appointed unless some special grounds for the appointment can le shown (p), or unless it is plain that a decree for a dissolution will After a be made (g'); whilst if the partnership is already dis- dissoiution. solved, the Court usually appoints a receiver, almost as a matter of course, (r)' In the case supposed, the common prop- erty has to be applied in paying the partnership debts, and lia= to be divided amongst the partners; and each partner has as much right as the others to wind up the partnership affairs. Their posi- tion is, therefore, essentially different from that of mere co-owners, between whom Courts decline to interfere by appointing a receiver, except under special circumstances, (s) ». Bowers, 4 Bro. C. C. 441 ; Hartz v. parties to a bill in equity were co-part- Schrader, 8 Ves. 317; Hall v. Hall, 12 ners equally intere.sted in the property Beav. 414, and 3 Mac. & G. 79. and business of the firm, and by the [p) See infra, p. 1010. articles no time was Kmited for the con- {q) Goodman v. Whitcomb, 1 Jac. & tinuauce of the partnership, and the bill W. 592. alleged that it was dissolved by consent (r) See the last note, and Thomson v. on Dec. 31, 1862, which was denied by Anderson, 9 Eq. 533; Sargant v. Read, 1 the answer; but it appeared that a dis- Ch. D. 600, where both plaintiff and solution was then contemplated and defendant applied for a receiver. But imminent, and that there was a serious see per Lord Eldon in Harding v. and irreconcilable disagreement between Glover, 18 Ves. 281, in which he dis- the parties both as to the control and avowed the principle that a dissolution disposition of their property and effects, was a BufBcient ground for a receiver. and their respective claims and demands 'When a partnership is dissolved by against each other: Held, that the ac- decree, the Court will appoint a receiver, tion of the circuit court in continuing an upon a disagreement between partners, injunction granted by it, and appoint- in the course of the winding up; and the ing receivers, was a provident exercise same rule must apply, when a dissolution of equity power, sanctioned by the au- has taken place by consent or otherwise, thorities, and demanded by the exigen- and a serious disagreement arises after- cies of thecase. Whitman «;. Robinson, wards, Richards v. Baurman, 65 N.C. 162. 21 Md. 30. Where the pleadings showed that the (s) See ante, p. 63 et seq. 1308 CHAP. X.j EECEIVEE. *1009 Wlren tlie contest as to a receiver arises between a partner on tlie one hand, and the executors, administrators, or assigns 2. As between partners and of a late co-partner on the other, the nrst thing to he con- non-partners, sidered is whether the person sought to be excluded from interference is a partner or not. For whilst the Court is reluctant to exclude a ijartner from the management of the partnership affairs, it will read- ily interfere to prevent other persons from intermeddling therewith. The reason given for this is, that each partner is at the outset trusted by his co-partners, and has confidence reposed by them in him; sind until it can be shown that he ought not to be allowed to take pai't any longer in the management of the partnership affairs, the *Court will not interfere with him. But this reasoning has *1009 no application to persons who acquire an interest in the partnership assets by events over which the partners have no con- trol, e. g., the death or bankruptcy of one of the members of the firm. Whilst, therefore, even in an action for a dissolution, or winding up, a receiver will not be granted against a member of the firm at the instance of the executors, administrators, or assigns of a late partnei', unless some special grounds for the interference of the Court can be established {t)\^ it is a matter of course to ap- point a receiver where all the partners are dead, and an action is pending between their representatives (t«); or where such appoint- ment is sought by a partner against the representatives of his late co-partner. («) Fraser w. Kershaw (y) is a good illus- j.jazer'B. tration of this doctrine. There one partner had be- Kershaw. come bankrupt; the share of the other partner had been taken in execution under &fi.fa. for a separate debt, and had been assigned to his creditor by the sheriff. The creditor, as the assignee from the sheriff of all the share and interest of the non-bankrupt part- ner, claimed the right of winding up the affairs of th^ partjiership, and to exclude the assignees of the bankrupt partner frora inter- fering. But on a bill filed by them against the judgment (jreditor, the Court granted an injunction, and appointed a receiver, holding [t) Collins V. Toimg, 1 Macqueen, 385, special circumstances. HorPiU v. Witts, and see Harding v. Glover, 18 Ves. 281; L. R. 1 Pr. & Div. 103. Kershaw v. Matthews, 2 Russ. 62; Ken- " ^ee post, 1011, note, nedy v. Lee, 3 Mer. 448; Lawson ». {u) Phillips v. Atkinson, 2 Bro. C. C. Morgan, 1 Price, 803. For similar rea- 272. sons the Court of Probate will not ap- [x) Freeland v. Stansfeld, 2 Sm. & G. point a receiver pendente lite against a 479. surviving partner unless under very {y) 2 K. & J. 496. 1309 *J010 ACTIONS BETWEEN PARTNERS, ETC. [BOOK III. that the right of the non-bankrupt partner to wind up the affairs of the partnership was personal to himself, and was incapable of transfer, and did not, therefore, pass with his share and interest in the partnership assets, {zf In those cases in which special grounds for the appointment of Influence of ^ receiver must be shown; it follows that in a firm of mrtnei"on °^ scvcral members there is more difficulty in ob- mcnt'ofa"'" *1010 taining a receiver *than in a firm of two. receiver. -p^j, ^j^^ appointment of a receiver, operating in fact as an injunction against all the members, there must be some ground for excluding all who oppose the application. If the object is to exclude some or one only from intermeddling, the ap- propriate remedy is rather by an injunction than by a receiver, {a) Before the Judicature acts it was not the practice to appoint a Defendant now receiver at the instance of a defendant before de- rcceiver. cree. (5) If he desired to apply for a receiver before decree, he had to file a cross-bill. But this is now unnecessary, (e) The grounds on which the Court is usually asked to appoint a receiver before dissolution, are either because, by the appoint- agreement th'e partners liave divested themselves more ceiver against or less of their riglit to wind up the affairs of the con- ^ ^ ^' cern; or because, by misconduct, the right of personal intervention has been forfeited, and the partnership funds are in danger of being lost. As an illustration of an appointment of a receiver, grounded on an express agreement, reference may be made to Davis Agreement ^_ ^^^^^^_ ^^^ rj,y^^^,^ ^j^^ plaintiff and the defendant, on dissolvmg partnersliip, appointed a stranger to get in the assets of the firm, and agreed not to interfere with him. After this agreement had been partially acted on, one (z) See, too, Candler v. Candler, Jao. not made the assignment. Van Rens- 225, where a receiver was granted selaer v. Emery, 9 How. Pr. 135. See, against the assignee of partnership debts. also, Kirby «. IngersoU, 1 Doug. 477. ^Where, by an agreement between the (r/) See Hall v. Hall, 3 Mao. & G. 79. partners and a third party, one of the (6) RSbinson v. Hadley, 11 Beav. 614. partners assigns his interest to the.third (c) See Ord. xix., i'. 8, and lii. r. 4. party, who by the agreement is to act Sargant v. Read, 1 Ch. D. 600. with the other partner in settKng the ( ) Again, in a case where the articles had provided that on a dissolution by the death of a partner Wilson V i/ i Greenwood. *1016 his share sliould be taken b}' the *survivors at a valuation,' and they had afterwards agreed that in the event of a dissolution by bankruptcy, the same course should be followed as in the event of a dissolution by death, it was held that this last agreement not being under the circumstances binding on the assignees, the partnership property and eflfects ought to be sold, (q) On the other hand, if the articles of partnership can be carried out in their spirit, and if a sale is inconsistent witli them, then the rule in question will not apply, as for example in those cases al- ready noticed (r), in which it has been agreed that a deceased part- ner's share shall be ascertained by valuation, or from the last signed account. '^ See Quinlivan v. Englisli, 42 Mo. 362. pay the plaintiff for his interest in the (o) Jao. 607, and see Rigden v. Pierce, good-wiU of the business, such sum as 6 Madd. 353. it should be decided to be reasonably {p ) See Downs v. Collins, 9 Ha. 418; worth, by arbitrators, to be appointed Kershaw «. Matthews, 2 Russ. 62; and by the parties. Under this agreement Madgwick v. Wimble, 6 Beav. 495. arbitrators were appointed, who were ' See Quinlivan v. English, 42 Mo. unable to come to any decision on the 862. question submitted to them: Held, Upon a dissolution, the court can- that plaintiff could not maintain an ac- not compel the continuirg partners to tion to have the value of hia interest take an unexpired lease arid good-will determined and paid to him, and that of the business at a valuation. If not in the absence of bad faith on the part disposed of by consent, they must be of defendants, the rendering of an sold, like other partnership effects. award by the arbitrators was a condition Dougherty w.Van Nostrand, 1 Hoffm. 68. precedent to the plaintiff's right of ac- Plaintiff and defendants haviug been tion. Altman v. Altman, 5 Daly, 436. partners in business, and having by (q) Wilson v. Greenwood, 1 Swanst. mutual agreement dissolved, the defend- 471 . ants, by a written stipulation, agreed to {r) See ante, p. 847 et seq. 1320 CHAP. X.J SALE OF PAKTNEESHIP PEOP]iETY. *1017 The mle as to selling partnership property is merely adopted in order that justice may be done to all parties, when no „ , , . '■ No sale wliere other course has been or can be agreed upon. It is not a^jJ^m-nt t an arbitrary rule, inflexibly applied in all cases whether *vhich"eaute it is necessary or not; and although, if one partner or '"'''"^ '"^■ his representatives insist on a sale, the Court may not be able to refuse to enforce that right (s), still the Court is always inclined to accede to any other mode of settlement which may be fair and just between the partners. In a casp where one partner had gaienot de- become lunatic, and a decree for a dissolution had one'^part'neT^'^ been obtained on that ground, and an offer was made was lunatic. by the other partners to pay a sum of money as the lunatic's share, the Court referred it to the Master to inquire whether it would be for the benefit of the lunatic that such offer should be accepted, and on the Master reporting in the affirmative, the Court ordered that the offer sliould be accepted, thereby dispensing with a sale and winding up in the ordinary way. (t) So, if one partner is an infant, and it appears that it will be for his benefit that the whole property shall be sold to one or more of the partners who are desirous of buying it, and the other partners consent, the Court will sanction a sale accordingly, (^u) But although it may be for the benefit of an infant or lunatic partner that his share *should be sold, yet if the other partners insist on the sale *1017 of the whole property, they are entitled to such a sale, (a?) Co-owners of land, whether mineral or not, are entitled to a par- tition and not a sale; and even although they may be Mining part- partners in the profits arising from the land, still if the °'=''**1"p- land itself is not partnership property, one co-owner is not entitled to have it sold against the wishes of the others, (y) But if land or a mine is partnership property, the right of each partner is to have it sold; and a partition can only be decreed by consent. (s)' (s) Wild V. MUne, 26 Beav. 504, and see Burdon v. Barkus, 4 DeGr. F. & J. Rowlands v. Evans, 30 Beav. 302. 42, and Rowlands v. Evans, 80 Beav. (t) Leaf V. Coles, 1 DeG. M. & G-. 302. As to mines not salable without 171. See, too, Prentice v. Prentice, 10 the consent of the landlord, see Lees v. Ha. App. 22. Jones, 3 Jur. N. S. 954; and as to un- (m) Crawshayt).Maule, ISwanst. 530. salable but valuable assets, infra, (x) Rowlands ■». Evans, and Williams note (g). V. Rowlands. 30 Beav. 302. ' Real estate of a partnership, after {}/) See ante, p. 63. its dissolution, is to be converted into {z) Wild V. Milne, 26 Beav. 504; and personalty by a com-t of equity only 1321 *1017 SALE OF PAETNEESHIP PKOPEETT. [book III. Mode of seUiug. The sale to wliicli each partner has a right is a sale to the liighest' bidder, (ffl) But with a view to do as little injustice as possible, wlien tlie Court decrees a sale it will, if neces- sary, direct an inquiry as to the proper mode of selling (5); and whether it will be for the benefit of all parties that there should be an immediate sale, or that the concern should be carried on for the purpose only of winding up its affairs: and if the latter is the case, the Court will. give any of the parties liberty to propose him- self as manager until a sale, (c) In Rowlands v. Evans {d), part- alleged that the real estate could not be divided without great prejudice to the owners, but there was no pretense that the sale was necessary for an equal dis- tribution of the assets : Held, that the Court erred in ordering Gr. to convey his undivided one-tliird of the real propprty to the receiver appointed in the action. Pierce v. Covert, supra. A partnership however, for buying and selling lands is governed by the same principles as ordinary partnerships; and, after the expu-ation of such part- nership, a court of equity will decree a sale of the land purchased, and a proper division of profit or loss, according to the terms of the partnership. Olcott v. Wing, 4 McLean, 15. One partner cannot maintain a bill for a partition of partnership land, after a suit for an account of the partnership is barred by the statute of limitations with- out offering to account with his co-part- ner. Baird v. Baird, 1 Dev. & B. Eq. 524. (a) No partner has a right to buy or to compel his co-partners to buy at a valuation unless there is some agree- ment to that effect, Burdon v. Barkus, 4 DeG. F. & J. 42, and other cases cited, ante, p. 1015, note (rn). (6) As in Wilson v. Greenwood, 1 Swanst. 484; Cook v. CoUingridge, Jac. 624. (c) Crawshay v. Maule, 1 Swanst. 529; Waters v. Taylor, 2 V. & B. 306. See, too, Wild v. Milne, 26 Beav. 504. (d) Rowlands v. Evans, and Williams V. Rowlands, 30 Beav. 302. when such conversion is required for the pajrment of claims against the part- nership which are in the nature of debt. Shearer v. Shearer, 98 Mass. 107. Although, as a general rule, so far as the partners and their creditors are con- cerned, real estate of the firm is re- garded in equity as personal property, and, in case of dissolution, is often de- creed to be sold, as a proper method of ascertaining its value and making an equal distribution of the partnership effects, yet where partners have taken title to real estate as tenants in com- mon, and aU the debts due to third per- sons and between themselves have been discharged, and an equal distribution of the assets can be made without a sale of the real estate, such a sale need not be ordered on a dissolution, unless it appears that such an order would be most beneficial to the partners. Pierce r. Covert, 39 Wis. 252. In this case, which was an action for the dissolution of a partnership, it appea,red that the assets in money, notes and accounts were much more than sufiicient to pay all debts, and that title to real estate of the firm had been taken by the partners in their individual names as tenants in coimnon; that one of the partners was dead, and his personal rep- resentatives, heirs, and widow were made parties to the action; and that another of the partners had conveyed his undivided third of the real property to one G., not a member of the firm, who was made defendant. The complaint 1322 CHAP. X.] ACTIONS BETWEEN PAETNEES, ETC. *1018 nership property was ordered to be sold, as a going concern, by a disinterested person, with liberty to all parties to bid; and an in- terim receiver and manager was appointed. The Court is extremely relnctant to give parties who have the conduct of a sale liberty to bid at it;^ and the conduct conductof „ , . . 1111 1 1 . ■ r>i ^^^'-' '^'"1 leave 01 a sale in an action usually belongs to the plamtifi ; to tid. if, therefore, he desires to bid, some arrangement has generally to be made respecting the conduct of the sale. Other parties *interested have seldom any difficulty in obtaining liberty *1018 to bid. (e) In selling the good-will of a going concern, the book debts and business ought to be sold in one lot, and the purchaser gaie of good- ought to be informed, if the facts be so, that the sellers '*^^^- are entitled to carry on business in competition with liim. (y) If one of the partners holds an appointment which is not sal- able, but the prolits of which are by agreement to be unsalable , ,. 1 , . 1 1° 1 ' but valuable accounted tor by him to the partnership, the partner assets. holding the appointment will be debited with its value; for that is the only mode in which, upon a dissolution, such a source of gain can be dealt with, {g) The same principle applies to other unsalable but valuable assets, to which one partner has no exclusive right. (A) But if the object of the partnership is to carry out a certain con- tract which is unfinished when the partnership is dis- pe„3,jj^ solved, the Court will not necessarily order the benefit contracts, of it to be sold; nor order the share of a partner in it at the time of dissolution to be ascertained by valuation; but will leave the partners to complete the contract, and will postpone the ultimate account until its completion, (i) Although it is not usual for the Court to direct a sale before the hearine: of the cause, ^till, if circumstances require it, saie before the ° ' . -^ hearing ol the an order for a sale will be made on motion, even al- cause. though the partnership has not been previously dissolved, (h) ^Wh^re partnership property is sold [g] See Smith v. Mules, 9 Ha. 572; under a decree of court for the payment Ambler v. Bolton, 14 Eq. 427. of the joint debts, and one of the part- [h) Ibid. See ante, note (»). ners becomes purchaser, the record (t) See McCiean v. Kennard, 9 Ch. should show payment before confirma- 336, where the surviving partners urged tion. Renfrew v. Pearce, 68 111. 125. that this would not be fair, as they (e) See, on this subject, 2 Seton on might have to find all the capital to corn- Decrees, 1184, ed. 3. plete the contract. (/) See Johnson v. Helleley, 34 Beav. ilc) Bailey v. Ford, 13 Sim. 495; Craw- 63, and 2 DeGr. J. & Sm. 446. shay i). Maule, 1 Swanst. 506, 523, 525, 1323 *1019 PEESONS WHO HAVE AGREED TO BECOME PAETNEES. [bOOK III. *1019 * SECTION VII.— OTHER MISCELLANEOUS ACTIONS. 1. Between persons who have agreed to hecome partners. If a person agrees to become a partner, and he breaks his agree- Actionon meut, an action for damages will lie against him; and agreements for . , , ■ partnerships, any premium he may have agreed to pay may be recov- ered (Z); and it is no defense that the dei'endant has discovered that the plaintiff is a person, with whom a partnership is undesirable, (to) So, if a member of a iirm agrees to introduce a stranger, an action lies at the suit of the latter against the former for a breach of this agreement,' although it may have been made without the knowl- edge of the other members of the firm, and they may decline to recognize it. (n) Upon the same principle, if a person has agreed to take shares Actions for de- in a proposed company, , and to pay a deposit in respect to be paid. of such sliares, an action for the recovery of the deposit he has agreed to pay will clearly lie. (o) The persons to bring such action are those with whom the agreement sued upon was made. If, therefore, the agreement was with the members of the provis- ional committee, those members, and not the managing section of them, are the proper parties to sue. {p) Again, where a person agrees to become a partner upon the per- Actions fortiie formauce of certain conditions precedent, which, with- of deposits. out any fault of his, are not performed, he is entitled to recover back any moneys he may have subscribed for the pur- poses of the partnership when formed. It is upon this principle that, as was seen in a previous chapter {g), subscribers to an and 529 ; Wilson v. Greenwood, 1 Bing. 68. Swajist. 483. See, also, Hargreaves v. (m) Andrewes v. Garstin, 10 C. B. N. Hall, 11 Bq. 415, the order of July 22, S. 444, where the defendant pleaded that 1869. since the agreement was entered into he [l) Walker v. Harris, 1 Anst. 245; had discovered that the plaintffif had Gale V. Leokie, 2 Stark. 107. In Figes been guilty of fraud and dishonesty V. Cutler, 3, Stark. N. P. C. 139, it was towards a former partner, held that an action for breach of an ' See Byrd v. Pox, 8 Mo. 574. agreement to become a partner, could (n) McNeill v. Reid, 9 Bing. 68. not be supported without proof of the (o) See, for instance, Duke v. Dive, 1 terms of the intended partnership. See, Ex. 86; Duke u. Porbes, ib. 356. also. Morrow v. Saunders, 1 Brod. & (p) Woolmer v. Toby, 10 Q. B. 691. Bing. 318. But see McNeill v. Reid, 9 (j) Ante, p. 117 et seq. 1324 CHAP. X.j ACTIONS BETWEEN PEOMOTEES. *1021 abortive *company are held entitled to recover back tlieir *1020 subscriptions, if tliej have not assented to the application of those subscriptions to anj other than the purposes of the com- pany when duly formed, {r) Thus it has been held that a subscri- ber to a scheme for a tontine which is never in fact fairly start- ed, is entitled to recover the whole amount of his subscription, although expenses have been incurred in attempting to start it(s); also, that a subscriber to a scheme for making a railway was enti- tled to recover his money back by an action at law if the scheme proved a failure (^); and that he was so entitled, although shares, might have been allotted to him {u), and although he might have signed an agreement authorizing the application of his deposits to preliminary expenses, if he had been induced to enter into that agreement by fraud (cc); or if, notwithstanding that agreement, the return of his deposit had been expresslj' guaranteed, (y) So it has been held that the subscriber to a cost-book raining company is entitled to recover his money back if it is clear that it cannot be formed as intended when he subscribed to it. (s) In the case in which this was decided the company had actually begun to work the mine, but the plaintiff had not sanctioned that proceeding, and it was no part of his bargain that he should be considered a part- ner in a concern, the capital of which was less than that fixed when he agreed to join it. The persons to be sued for the recovery back of deposits paid are those who received such deposits by themselves or their pefendants in agents, (a) such actions. In order that the plaintiff may prove that the consideration for which he paid his money has failed, he must show what that con- sideration was. (5) *In the class of cases to which reference has just been *1021 made, it is to be observed that, ex hypothest, no partner- ship has commenced between the ptlaintiff and the persons whom (r) See, as to this qualification, Gar- ' ante, p. 121. wood V. Ede, 1 Ex. 264, and cases of that {y) Mowatt v. Lord Londeshorough, class noticed, ante, p. 120 et seq. 3 E. & B. 307, and 4 ib. 1, ante, p. 122. (s) Nockels V. Crosby, 3 B. & C. 814, (») Johnson v. Goslett, 18 Q. B. 728; and ante, p. 118. 3 C. B. N. S. 569. [t) Walstab v. Spottiswoode, 15 M. & (a) See ante, p. 122; and see Wells v. W. 501 ; and ante, p. 118. Ross, 7 Taunt. 403, as to the receipt of (m) Walstab v. Spottiswoode, 15 M. & one pai-tner being the receipt of both. W. 501. (6) See ante, pp. 117, 118. (a;) Wontner v. Shairp, 4 C. B. 404, *1022 ACTIONS BETWEEN FAHTNEES, ETC. [bOOK III. ObserTOtions he sues for Ms money. The question, Can a subscriber on abortive , ^ ^ ' schemes. to an abortive scheme recover his mone}' baciv? is, therefore, totally different from that put by Holroyd, J"., in Nodd- ies V. Crosby (e), when he aslced whether, if five persons enter into partnership, and contribute 1000^. each, and they afterwards find the concern a losing one, and put an end to it, any one of them can maintain an action against the others for his share? Whilst this latter question may be answered in the negative {d), the for- mer may properly be answered in the afiirmative, as, in fact, it has been in the cases already referred to. Persons engaged in forming a company of which they are to be Actions be- niembers are not impliedly liable to make each other Sers^oT" compensation for their respective services in foyming companies. ^jjg company, for although such persons are not part- ners, they are all engaged in the prosecution of a common design; and each prima /aoie, is to be taken as looking for remuneration to what he will get if his eftbrts pi-ove .successful, (e) But a per- son who is retained by the proinoters to assist them, is entitled to be paid by them for his services, although he may afterwards him- self subscribe for shares in the company. (/") Plowever, in Gorgier v. Morris {g), an agreement between the Gorgier v promoters of a company and the plaintiff, to the effect Morris. ^j^g^j- ^}^q plaintiff should have a large sum in free shares of the company, in consideration of his past and anticipated future services in promoting the interests of the company, was held to amount merely to a promise to make the plaintiff a present, and to be invalid for want of a consideration. The company was never formed, and no shares were ever issued. Where a company is required by act of Parliament to apply its first funds in defraying the expenses of its formation, an action Com an re- ^^°® agaiust it by those who have expended their expelfsesof^ *1022 monoy, *time and trouble, in forming the formation. company. But a clause in a company's deed of settlement or articles of association to the like effect does not necessarily have the same operation. (A) (c) 3 B. & C. 819. (/) Lucas v. Beach, 1 Man. & Gr. (d) See per Pollock, C. B., in Gar- 417. See, too, Caldicott v. Griffiths, 8 wood V. Ede, 1 Ex. 267. Ex. 898; and Bartnetfc v. Lambert, 15 (e) See Holmes v. Higgins, 1 B. & C. M. .!^ W. 489. 74; Wilson V. Curzon, 15 M. & W. 532; {g) 7 C. B. N. S. 588. Milbm:!! v. Codd, 7 B. & C. 419. {h) See a7ite, book ii, § 3, vol. i. p. CHAP. X.J ACTIONS BETWEEN PARTNERS. *1023 Although the promoters of companies are not impliedly liable to each other for service rendered, nor for money ex- contribution pended by any of them in the prcjsecution of their I'stween tuem. common design; still, if they render themselves jointly liable to a third party, and, by virtue of that liability, some only of them are compelled to pay what ought, as between themselves and the oth- ers, to be paid by all, an action of contribution lies, at the snit of those who have been so compelled to pay, against the others; and even before the Judicature acts it was no objection to such an action that there were unsettled accounts which required to be taken, before what was due from each to the other could be prop- erly ascertained. (^) 2. — Actions iettveen partners. The Judicature acts and rules have materially altered the law re- lating to actions between partners. Formerly no action at law could be maintained by one partner against another if it in any way involved taking a partnei-ship account; for although the right to an account was a legal right, the old action of account, at least between partners, liad long become obsolete, and courts of law had no machinery enabling them to do justice in matters of account, {k) Hence it became settled *that actions involv- *1023 ing accounts between partners could not be sustained. The Judicature acts and rules have, however, abolished this rule; and the present state of the law on this subject appears to be as follows : — 396. See, also Wyatt v. Metrop. Board his bill, Re Stephen, 2P]i. 562. of Works. 11 C. B. N. S. 744, as to who (fc) No instance of an action of ac- can sue in such cases. count brought by one partner against (i) Boulter v. Peplow, 9 C. B. 493; another, is known to the writer. The Batardt). IJawes, 2 E. & B. 287; Bdger action of account is almost obsolete, V. Knapp, 7 Jur. 583, C. P. It may be although there have been a few in- observed here, that where the promoters stances of it in modern times between of a company retain a solicitor, they are tenants in common of real property. all liable to be sued by him for payment See Baxter v. Hozier, 5 Bing. N. C. 288; of his bill, and that a delivery by him Sturton v. Richardson, 13 M. & W. 17; of his bill, duly signed, to any one of Beer v. Beer, 12 C. B. 60; Henderson v. those liable, is a sufficient delivery to all, Eason, 17 Q. B. 701 ; reversing Eason v. Mant V. Smith, 4 H. & N. 324; and Henderson, 12 ib. 986 that any one of them is entitled to tax 1327 *102J: ACTIONS BETWEEN PAKTNEES, ETC. [bOOK rll. First as regards real property — The eqiiitable as well as tlie le- Actions reiat- gal ownersliip must be regarded; and no partner can property. eject or expel his co-partners from land in which he may have the legal estate, but of which he is a trustee for the firm, nor can he maintain an action against his co-partners for coming on such land. On the other hand, tliey can restrain him from ex- cluding them therefrom, (Z) Whetlier the relationsliip of trustee and cesttiis que ti'ust exists, depends upon whether the property is partnership property or not, npon whether the partnership is dis- solved or not, and upon whether, if dissolved, tlie property is a part- nership asset in which all the partners are still interested. Secondly as regards personal jprnperty. — Partners are tenants in Actions reiat-- common or joint tenants of the goods and chatties be- ing to goods, longing to the firm; but one partner has no I'ight to take possession of them and to exclude his co-partners from them; and he can, it is apprehended, be restrained from doing so. (m) Thirdly^ as regards actions for money demands or damages. — Actions for '^^^ three following rules may be taken as guides; — damages, &o. -^ ^^ action for damages may be maintained by one partner against another in all those cases in which such an action might have been maintained before the Judicature acts; . pi-ovided the action would not have been restrained by a court of equity. 2. Any action which would have been so restrained cannot be supported. 3. An action maybe maintained by one partner against another for any money demand which before the Judicature acts could have ' been made the subject of a suit for an account. («) ' 102i* ^Practically, the important qnestions which will arise under the new procedure are reduced to the following: — 1. When can an action be maintained between partners without taking a general account of all the partnership dealings and trans- actions ? 2. "When will such an account be ordered without a dissolution of the firm ? The second of these questious has been already considered.. (c) The first, which has also been alluded to (^), can only be answered (Q As to the old law, see infra, the («) A transfer to the Chancery Divis- note at the end of this section, and as to ion may become necessary in some of injunctions in such cases, o»f«, p. 996. these cases. See anie, p. 876. (to) As to the old law, see the note at (o) Ante, p. 947. the end of this section. {p) Ibid. 1328 CHAP. S.] WHEN MAINTAINABLE BEFORE THE JUDICATURE ACTS. *1025 generally by saying that each case must depend upon its own cir- cumstances, and upon whether justice can really be done without taking such an account, {q) But there appears to be no reason why an action should not be brought to have some disputed item in an account settled, and why a declaratory judgment should not be pronounced settling that dispute without going further, unless it should become necessary to do so. NOTE ON THE LAW AS IT STOOD BEFORE THE JUDICATURE ACTS. Although the law relating to actions at law between partners has been complete- ly altered, a summary of it may still be useful for reference, and is accordingly here appended. When an action would lie. First, as regards,real property. In an action of ejectment a plea on equitable grounds was not allowed, (r) ^ Hence, if a firm was in the occupa- ^ Eiectment tion of land, the legal estate in which was in one of the partners and trespass only, he could at law eject his co-partners (s); and if the firm had against anoth- been dissolved no notice to quit was necessary before ejectment (t), ^'^■ or trespass («), was brought against them. The equitable doctrine that a partner- ship although dissolved, subsists for the purpose of winding up its affairs afforded no defense at law to such an action, {x) If the legal estate was in all the *partners, and one partner actually excluded the others, from the land *1025 legally belonging to them all, ejectment would lie {)/); and if one utterly destroyed the common property, an action for damages might be sustained (0); but (q) On this head the old cases refer- property, and therefore that A need not red to infra, p. 1027, as illustrating the proceed in equity to have the firm af- 6th rule, will stUl be useful. See, also, fairs settled before asserting his title to ante, p. 947. his half of the land. Brush v. Maud- (r) Neave v. Avery, 16 C. B. 328. well, 14 Cal. 208. 'A and B owned real estate as partner- (s) Francis v. Doe, 4 M. & W. 331 ; ship property, the title standing in B's Smith v. Howth, 10 Ir, Com. Law Rep. name; upon dissolution B sold to A, 125. who agreed to pay the debts; after- (t) Doe v. Bluck, 8 C. & P. 464. wards this sale and agreement was can- («) Benham v. Gray, 6 C. B. 138. celled, and A reconveyed one-half to B, [x) See the last case, retaining the other half; afterwards B (y) See Peaceable v. Read, 1 East, sold the whole to M. with notice of A's 568; Doe v. Horn, 3 M. & W. 333, and rights: Held, that A could enforce his 5 ib. 564. title to the half, against M'. at law; that (z) See Cubitt v. Porter, 8 B. & C. the agreements between A and B di- 257; Stedman v. Smith, 8 E. & B. 1. vested it of its character as partnership «^ 1329 *1025 WHEN MAINTAINABLE BEFOEE THE JtJDICATUEE ACTS. [BOOK HI. for injuries not amounting' to the utter exclusion by one partner of the others, an action it seems did not lie. (o) SeconcUi/, as regards personal property. If one of several joint tenants, or ten- 2. Tiover [tres- ^^^^ ^ common, was in exclusive possession of the common prop- P"*'s.^"'^re- erty, he had a right so to continue if he could, and no action against partner against him would lie at the suit of his co-tenant. (6) But if one tenant in anot er. common or joint tenant destroyed (c), or as it seems sold (d) the common property, he might be sued at law by his co-tenant. In the case of a sale, however, the purchaser could not be made to restore the property, for he at all events acquired the interest of the vendor, and became therefore tenant in common with the other owners, and could not be sued by them at law. (e) If, on a dissolution of partnership, the partnership propertyy had been divided in specie amongst the partners, each might recover what hail been division of allotted to him, for as to that he had become sole owner {/)'; and if the dissolution and the divison of the property were made by deed, property. (o) But see Martyn v. Knowllys, 8 T. R. 146; Stedman v. Smith, 8 E. & B. 1. (6) See 2 Wms. Saund. 47, o.; Foster V. Crabbe, 12 C. B. 136: Holiday v. Carmsell, 1 Tr. 658; Fennings v. ttren- ville, 1 Taunt. 241. (c) Barnardiston v. Chapman, cited in 4 East, 121, and BuU N. P. -34-5; 2 Wms. Saund. 47, o. id) Mayhew v. Herrick, 7 C. B. 247; Barton v. Williams; 5 B. & A. .39-5; Williams v. Barton, 3 Bing. 139. (e) Fox V. Hanbury, Cowp. 445, and other cases of that class. (/) See Jackson v. Stopherd, 2 Or. & M. 361 ; and Wiles v. Woodward, 5 Ex. 557. ' When on the vrinding up of a part- nership business, the partnership effects are divided between the several partners by an actual separation thereof, so that certain specific articles are assigned to each as his individual share, either part- ner may maintain an action at law against the other in respect to such arti- cles. But a mere agreement to divide affords no foundation for such an action. Until the effects are actually separated they remain joint assets; and, as neith- er partner has in such a case a remedy at law to specifically enforce the agree- ment, equity has jurisdiction to grant relief. Hunt v. Morris, 44 Miss. 814. 1330 See, also, Jenkins v. Howard, 21 La. Ann. 597. Plaintiif and defendant being part- ners in business agreed that the plain- tiff should assign to the defendant an un- divided third of a patent, of which he and a third partner of them both were owners — and that the defendant should pay to the plaintiff a sum of money, furnish the means necessary to de- velop the invention, and carry on the business thereunder as long as they should agree, the defendant to have one- third of the profits. At the beginning of the partnership, plaintiff brought to the shop of the firm machinery and ma- terials which before belonged to him and were needed and used for the de- velopment of the invention. After some months the defendant put n end to the business and took possession of all the property on hand including what remained of the said machinery and materials. It was admitted that this property belonged to the partners in equal shares : Held, that the pla-'ntiff could not maintain an action against the defendant for its value. Reming- ton V. Allen, 109 Mass. 47. Partners agreed under seal to dissolve and that one should take all the assets, pay the debts and div-ide the surplus, each agreeing with the other to make CHAP. X.J WHEN MAINTAINABLE BEFOEE THE JUDICATUEB ACTS. *1025 each partner was precluded from denying that any division had in fact been made, or that the previously existing tenancy in common had not been determined, and each therefore was entitled to recover what the deed declared to be his. (g) Thirdly, an action for damages for the breach of an express agreement entered into by one partner with another would lie, if the damages when 3. Action for recovered' would have belonged to the plaintiff alone.' Thus where press'ooiftrart a partner retired, and he covenanted with his co- partners not to by one partner carry on business within certain limits, or they covenanted to indem- ofher." up any deficiency : Held, that trover would lie by the liquidating partner against the other for refusal to deliver the goods. Bartley v. Williams, 66 Pa. St. 329. That one partner fraudulently con- verts to his own use property supplied by another for the partnershiy use, dis- solves the partnership, or at least gives the injured party a legal right of action. Crosby v. McDermitt, 7 Ca,l. 116. Where A, one partner of a firm, sold all the goods in the store, against the will of his co-partner B, and A and the purchaser broke open the store, and the goods were delivered to the purchaser: Held, that B could not maintain tres- pass against A and the purchaser joint- ly, nor against A, except for the goods actually destroyed. Montjoys v. Holden, Litt. Bel. Cas. 447. See, also. Mason v. Tipton, 4 Cal. 276. A partner cannot maintain replevin against his co-partnes for any of the partnership property. Whitesides v.g Collier, 7 Dana, 283; Azel v. Betz, 2 E. D. Smith, 188. See, also, Buckley 0. Carlisle, 2 Cal. 420. A partner cannot arrest his co-partner upon affidavit of fraudulent removal of the partnership property. Gary v. Will- iams, 1 Duer, 667. Where one partner holds possession of the partnership property, and refuses to let his co-partner into possession, he will, in equity, be held to pay to such co-partner, or his vendee, the value of the use of the property so withheld. Adams v. Kable, 6 B. Mon. 384. ig) Ibid. 2 See Glover v. Tuck, 24 Wend. 153; Terry v. Cai-ter, 25 Miss. 168: Kinlockv. Hamlin, 2 Hill, (S. C.) Ch. 19; Fowlber V. Rhodes, 12 Mo. 225; Robinson v. Bullock, 58 Ala. 618; Whitehall v. Shickle, 43 Mo. 538; Wills v. Simmonds, 15 N. Y. Supreme Ct. 189; Morgan d. Nunes, 54 Miss. 308; Moritz v. Phelps, 4 E. D. Smith, 135; Hunt v. Reilly, 50 Tex. 99. A suit at law may always be main- tained for a breach of partnership arti- clfes, where the business of the partner- ship has not been commenced, and there are no accounts in dispute between the partners. And where some of the par- ties have sold out their interest before the matter in controversy arose, they need not be made parties. Vance v. Blair, 18 Ohio, 532. If a contract, though made concerning the partnership affairs, and in further- ance of the joint undertaking, is the in- dividual contract of the partners who are parties to it, and if it is made by them in their own names, and not in the name of the firm, an action may be maintained thereon by one against the others, dming the continuance of the partnership. Wright v. Michie, 6 Graft. 854. An action will lie for a breach of a covenant to continue a partnership for a fixed period, unless sooner dissolved in accordance with the terms of the articles of such partnership. Bagley v. Smith, 10 N. Y. 489; Addams v. Tutton, 39 Pa. St. 447. In a suit by one member of a partner- ship against another for a breach of a covenant to continue a partnership for a fixed term, the loss of prospective 1331 *1025 WHEN MAINTAINABLE BEFOEE THE jrDICATUEE ACTS. [bOOK III. nify him against the debts of the firm, actions for damages occasioned by breaches profits from the performance of the con- tract, is the true measm-e of damages, and in such ease, the plaintiff's claim for profits should not be limited to the interval between the dissolution of the partnership by the act of the defendant and his subsequent entry into business. Bagley v. Smith, 10 N. Y. 489. The measure of damages in an action for a breach of a partnership agreement is the value of the contract broken, according to its value, separate and in- dependent of any former contract. Ad- dams V. Tutton, 39 Pa. St. 447. Where one partner agrees with his co-partner, who has just acquired an in- terest in the property used by them as a distillery, to pay a certain tax due the United States, so as to save the property from seizure and sale, and gives persouEd security for such payment, and after- wards pays such tax out of the partner- ship funds, charging himself with the amount, the other cannot, in an action at law, recover more than nominal dam- ages until the partnership accounts are settled. Smith v. Eeddeil, 87 lU. 165. An express promise by one partner, out of his share of the income, to pay another partner for his personal atten- tion to the business of the concern, may be enforced in assumpsit, although » the articles of co-partnership are under seal and provide for such payment. Paine v. Thatcher, 25 Wend. 450. A stipulated compensation may be re- covered at law, though payable out of profits. Eobinson v. Green, 5 Harr. 115. Where a partnership covenant recites that A and B had entered into partner- ship; that A had purchased and put into the firm goods to the amount of $2696.26; that he had received of B a negro, at $600, in part payment of the goods; that they were to be at equal expense and profits in the goods; and that B was to account to A for one-half 1332 of said goods, except the said negro at $600; the agreement to account will be held to have arisen prior to the partner- ship transactions; and A may maintain an action of covenant against B for fail- ing to account for the balance of one- half of the price of the goods. Bailey V. Starke, 6 Ark. 191. Even where a party to a contract was held to be a partner by the terms of the contract, yet, if it contained an express covenant to pay him his losses, or the amount of his advances less his receipts, at the end of a specified time, an ac- tion at law upon the covenant may be resorted to, and- a bill in equity callmg for a settlement of the partnership ac- counts is unnecessary. Whitehill v. Shiclde, 43 Mo. 538. If three or more co-partners enter into mutual covenants, where they con- tribute severally and in different pro- portions to the joint stock, their cove- nants are several, and each partner has his several remedy for a breach. Dun- ham 0. Gillis, 8 Mass. 462. Where, by articles of association, each of the associates severally bound himself to pay a ratable proportion of all expenditm-es for improvements made or to be made : Held, that the undertaking was mutual; the covenants of the associates being made with each other, and that the liabiliUty arose on the promise by each party to the other, which could only be enforced by an ac- tion among themselves. Troy, etc. Factory v. Coming, 45 Barb. 231. A promise by a continuing partner to reimburse a retiring partner, for taking up, by his individual note, a partnership note on which the latter is still liable, but which the former has at the dissolu- tion promised to pay, will sustain an action, a demand, whether necessary or not, having been first made. Warbrit- ton V. Cameron, 10 Ind. 302. CHAP. X.j WHEN MAINTAINABLE BEFORE THE JDDICATUEE ACTS. *1025 of tliese covenants would clearly lie. {h) So, if a partnership was entered into for Two partners, A and B, on dissolu- tion of the paainership, entered into an agreement, the perfoi-manoe of which was secured by a penalty, .by which A conveyed and assigned to B all the busi- ness, effects, and debts of the firm, and B agreed to pay all the debts due by the firm. On a bill filed by B against A, alleging tliat A had failed to deliver to him all the notes, bonds, and effects of the concern, according to the agreement, and praying that A might be decreed to perform his part of the agreement, but not alleging fraud nor asking a re- scission of the agreement; Held, that the remedy of B was at law, and that chancery had no jurisdiction. Clark v. Clark, 4 Port. 9. Where one partner has made profits, by engaging in any other business in violation of his contract, his co-partner has his option to sue for damages for the breach of the contract, or to bring a bill in equity to compel an accounting. Moritz V. Perbles, 4 E. D. Smith, 185. An action may be maintained for the breach of a promise to admit the plain- tiff as a partner in an undertaking, ia which the plaintiff and defendant mutu- ally agreed to become partners, and share the profits and losses. Byrd v. Fox, 8 Mo. 574. See, also, Lane v. Eoohe, Riley Ch. 215. When a firm has been dissolved, and one partner has assumed the entire con- trol of the goods, an action may be brought by such a partner against an- other partner to whom he has sold a portion of the goods, at the other's re- quest, and on a promise to pay liim, and not the firm. Caswell v. Cooper, 18 111. 532. Upon a sale by one partner of his interest to the other, who agrees to paj him therefor the capital which tjje for- mer had put into the original business " as soon as he can do so without incon- venience," an action at. law, and not a bill in equity, is the proper remedy to recover the price; sach capital stock being ascertainable without any adjust- ment of the losses and profits. Wells V. Carpenter, 65 Til. 447. Where one of two partners, by agree- ment between them, takes certain speci- fic articles of partnership property, an/1 agrees to pay his co-partner, for his share thereof, a definite sum, at a specified time, the co-partner may, if he choses so to do, maintp,in an action to recover the amount so agreed to be paid, indepen- dent of the settlement of the partnership accounts. But this right of separate action may be waived, by consenting to a full account of the partnership matters, including the price so agreed to be paid for the goods. NeU v. Greenleaf, 26 Oliio St. 567. In an action on a note given by an outgoing partner for assets, he may set up in defense an understanding that for any notes and accounts which should prove worthless there should be a rebate from the amount pro tanto. In such case no resort to equity is necessary in the first instance. Bethel v. Franklin, 57 Mo. 466. Where one partner, not well acquain- ted with the affairs of the firm, pur- chased a portion of the partnership in- terest of the other partner, and gave his note therefore relying on the representa- tions of the latter as to its value, which he subsequently ascertained to be fraud- ulent, and the interest so purchased was in reality worth nothing at all, the (h) Leighton v. Wales, 3 M. & W. S45; White «. Ansdell, Tyr. & Gr. 785; Barker v. Allan, 5 H. & N. 61, is an in- stance of a successful action by a share- holder against directors who had agreed to indemnify him aga.inst cails. See, too, Haddon v. Ayres, 1 B. & E. 118. 1333 *^1026 ACTIONS BETWEEN PAETNEES, ETC. [book III. a definite time, and one partner was turned out by his co-partnevs before that tfine had expired, he could sue them for this breach by them of their *1026 ."agreement, and recover damages for the injury he had sustained (t) ; so an action might be maintained for not rendering accounts and dividing profits {k); for a penalty stipulated to be paid in case of a breach of agreement (0; for rent covenanted to be paid (m) ; for not indemnifying the plaintiff against a debt (»); .for not putting the plaintiff in funds to enable him to defray expenses as agreed, (o) firm being, in fact, insolvent at the tune: Held, that these facts constituted a good defense to an action against the jjurchaser upon the note, in favor of the vendor or his administrator, though the purchaser may have made no offer to rescind the contract. Smith o. Smith, 30 Vt. 139. On the dissolution of a partnership, one partner assigned to his co-partners all his interest in all the firm assets, and further covenanted not to interfere vidth the collection of debts owiig the firm. Afterwards he receipted for one of the debts so assigned, receiving a valuable consideration: Held, that his co-part- ners might maintain a suit against him for the amount of the debt. Ross v. West, 2 Bosw. 360. Where a deceased partner covenanted for a consideration, to pay the debts of the firm without unnecessary delay, and without recourse on his co-partner, a failure on his part to perform the act which he had covenanted to do, gives a right of action to his co-partner, and the latter may, in such case, file his claim against the estate of the deceased partner, before he has paid any part of the partnership debts. Hogan v. Cal- vert, 21 Ala. 194. A and B agreed in partnership arti- cles that, " at the expiration of the partnership, each party shaU draw from the establishment one thousand dollars, " etc. A brought an action of covenant on this agreement against B, assigning as a breach thereof that B did not pay over the |1000: Held, that the decla- ration was insufficient. Kidgway v. Grant, 17 111. 117. One of two partners cannot, at law, 1334 sue the other on his failure to perform a covenant to which they were both bound in liquidated damages by the ar- ticles of partnership; he must first ap- ply to equity for a dissolution of the partnership. Stone v. Fouse, 3 Cal. 292. One partner ca,nnot maintain an ac- tion at law on the covenants in the ar- ticles of co-parfnership to recover dam- ages of his co-partner for neglect of the partnership business, while there is a considerable amount due from him to his co-partner, and the debts due by and to the firm, the burden of which is to be borne, and the benefit enjoyed by the partners, in certain proportions, are not all settled. Capen v. Barrows, 1 Gray, 376. Where the owner of a hotel executes a lease thereof and thereafter enters into a contract of partnership in keeping the hotel with the lessee, with an agreement that the rent reserved shall be a charge upon the firm, if the latter contract is separate from the first, it does not work a surrender of the lease, but the lessor cannot sue at law to recover the rent, but must sue in equity for a partnership accounting, as the rent must be paid out of the net profits of the partnership. Pi Pie -u. Cuzas, 47 Cal. 174, id. 180. (») See Greenham v. Gray, 4 Ir. Com. Law Rep. 501. (k) Owston ». Ogle, 13 East, 538; and see Stavers v. Curling, 3 Bing. N. C. 355. (l) Radenhurst v. Bates, 3 Bing. 463. (m) Bedford Brutton, 1 Bmg. N. C. 399. (ra) Want v. Reece, 1 Bing. 18. (o) Brown v. Tapscott, 6 M. & W. 119. CHAP. X.J ACTIONS BETWEEN PAETNEES, ETC. n026 Fourthly, if a person agreed to become a partner with others and to furnish a certain amount of capital, and he made default, they could sue him . . I ,/ ^_ Aotinn for at law for damages, although he, as well as they were to have had not furnishing an interest in what he undertook to furnish. ( -pf cai.ital. It followed from the above that if A. and B. agreed to become partners, and each agreed to furnish a certain amount of capital, and A lent B the Loan by one amount B was to contribute, this loan constituted a debt for which t ner in a mercantile concern, became a member of it, undertook to pay ail the liabilities of B as such partner, and to occupy his situation in respect to the partnership. Afterwards A acquired a note made by the firm previous to his admission: Held, that it was compe- tent for A to maintain an action against any of the makers in virtue of the in- dorsement to him, except B. Penn. v. Stone, 10 Ala. §09. A member of a firm which consists of more than two persons, is liable to his partners jointly for a sum which, upon settlement, he is found to have with- drawn from the joint funds in excess of his share; and one of them cannot main- tain an action therefor in his own name alone, although he has an assignment of all the right and interest of his asso- ciates in the assets of the firm. Wig- gin V. Cuniings, 8 Allen, 353. The fact that a partner who has pur- chased a negotiable security against the firm cannot enforce the obligation at law, affects only the remedy, and not the right; and a third person, not a partner, to whom he indorses the same, may maintain an action thereon against the firm. Kipp v. McChesney, 66 [11. 460; Davis V. Briggs, 39 Me. 304; Hazle- hurst V. Pope, 2 Stew. & Port. 259; Pike V. Hart, 3 La. Ann. 868. See, also, RusseU e. Minnessota outfit, 1 Minn. 162. Roberts «. Ripley, 14 Conn. 643. The individual members of a com- mercial firm may execute a valid note, and a vahd mortgage securing said note on their individual property in fa- vor of the firm, and any third person, acquiring the note from the firm in good faith for value and before maturity may enforce its payment. Pike v. Hart, 30 La. An. 868. A note by a partnership to one of its members for money borrowed may be enforced at law in the name of an in- dorsee not a member of the partnership, although the payee be a party defend- ant, and the real owner of the note, ia case no reason appears why a judgment at law would not do legal justice be- tween the real parties. Walker v. Wait, 50 Vt. 668; Roberts v. Ripley, 14 Conn. 543. (o) See note (n) supra, and see the eases in the six following notes. This rule was held to prevent the cestui que trust of a partner from suing the other part- ners. See Goddart v. Hodges, 1 Cr. & M.33. Sedqua're. The same rule would probably have prevented a person en- titled to a share of profits from suing at law for them where they had not been ascertained. {p) Milburn v. Codd, 7 B. & C. 421; Bedford v. Brutton, 1 Bing. N. C. 405; Caldicott V. Griffiths, 8 Ex. 898. (g) Goddart v. Hodges, 1 Cr. & M.^ 33; Holmes v. Higgins, 1 B. & C. 74; Milburn ». Codd, 7 B. & C. 419; Lucas V. Beach, 1 Man. & Gr. 417. 'Canster v. Burke, 2 Harr. & G. 295; Taylor v. Smith, 3 Cranch C. Ct. 241. (r) Bovill V. Hammond, 6 B. & C. 149; Smith «. Barrow, 2 T. R. 476; Fro- mont V. Coupland, 2 Bing. 170. See, too, Lewis V. Edwards, 7 M. & W. 300; Thomas v. Thomas, 5 Ex. 28. 1.349 *1030 ACTIONS BETWEEN PAETNEES, ETC. [book hi. repay it or not turned on the state of the partnership accounts {«); nor for money lent to the firm of which the plaintiff was himself a member, for the advance only formed an item in the partnership account (<); ^ nor on a bUl or note drawn, accept- ed, or endorsed in such a manner as to bind the firm jointly and not its members severally also,, for in such a case not only must the plaintiff as one of the firm have contributed to payment of the instrument, but he ought also to have been a, de. fendant to the action, (m) For similar reasons, if partners became indebted to a third person who died, and appointed one of them his executor, this one could not even as executor sue his co-partners for the debt due to the deceased (x);^ and if there were two firms with a partner common to both, one firm could mot sue the other at law {y); neither was there any mode by which at law one partner could sue the ^r»n or be sued by it. (a) But upon a joint and several promissory note, a (s) Robson V. Curtis, 1 Start. 78. But see Townsend v. Crowdy, 8 C. B. N. S. 477, noticed ante, p. 1028. (t) Perring v. Hone, 4 Bing. 28; Colley i. Smith, 2 Moo. & Rob. 96. ^ One member of a firm cannot sue the others for advances made by him on ac- count of the firm; and, in such case, a bill in equity is as necessary to settle the fxcount, as in the case of any other part- nership account. Mickle v. Peet, 43 Conn. 65; Bracken v. Kennedy, 3 Scam. 558; Hennegin t!. WUcoxon, 13 La. Ann. 676; Crottes v. Frigerio, 18 id. 283; Gridley v. Dole, 4 N. Y. 486; Merre- wether v. Hardeman, 51 Tex. 436; Hal- derman v. Halderman, 1 Hempst. 569; Seighortner v. Weissenbom, 20 N. J. Eq. 172. An action will not lie upon a written instrument executed by the defendant acknowledging receipt from the plain- tiff of money "placed to the credit of our account," unless the plaintiff proves that no unsettled partnership existed at the time. Houston v. Brown, 23 Ark. 333. In case, however, of an express prom- ise by one partner to repay to the other his share of advances made by the latter on account of partnership business, the amount of such share becomes the debt of the promisor, recoverable by direct action therefor, without dissolution of the partnership or adjustment of the partnership accounts. Ganger v. Pantz, 45 Wis. 449; Sprouts. Crowley, 30 id. 187. 1350 (m) See Neale v. Turton, 4 Bing. 149; Mainwaring v. Newman, 2 Bos. & P. 120; Teague v. Hubbard, 8 B. & C. 345, and 2 Man. & Ry. 369; Tibaldi v. El- lerman, 6 Dowl. &L. 71. (x) Moffatt V. VanMUlingen, cited, 2 Bos. & P. 124. ^The executrix of a deceased member of a firm cannot recover the amount of a note given by the firm assigned to her, or foreclose a mortgage given by another member of the firm, as security for the note. Lindell^c. Lee, 34 Mo. 103. The relation of debtor and creditor between the surviving partner and the represenlfative of the deceased partner does not arise until the affairs of the partnership are wound up and a balance is struck. Such balance is to be struck after all the partnership affairs are set- tled. Gleason v. White, 34 Cal. 258; White V. Waide, 1 Miss. 263; Ozeas iv. Johnson, 4 Dall. 434; Smgiser's appeal, 28 Pa. St. 524; Howard v. Patrick, 38 Mich. 796. See Frederick v. Cooper, 3 Iowa, 171; Shields v. Fuller, 4 Wis. 102. (y) Perrmg v. Hone, 2 Car. & P. 401, and 4 Bing. 28; Mainwaring v. New- man, 2 Bos. & P. 120; Bosanquet v. Wray, 6 Taunt. 597; Jacaud v. French, 12 East, 317. {z) See, in addition to the cases cited in the last note, DeTastet v. Shaw, 1 B. & A. 664, and Richardson v. The Bank of England, 4 M. & Cr. 171,. 112, per Lord Cottenham. CHAP. X.J WHEN NOT MAINTAINABLE BEFOEE JUDIOATUKE ACTS. *1031 covery of part- nership goods, &c. Actions for improper sale. partner might be sued by his co-partners or by a firm of which they were mem- bers, (a) Again, as one tenant in common of personalty could not sue his co-tenant for the recovery of that property, it follows that one partner could not, Actions for re- by action at law, obtain from his co-partner property of the firm wrongfully detained by him. (6) It was not, however, so clear that if one partner wrong- fully sold propei-ty *of the firm, his co-partner could not *1031 sue him at law, either for the wrongful conversion or for a share of the produce of the sale. For although the older decisions were opposed to any such right (c), it was held in Mayhew v. Herrick {d), that a Mayhew v. sheriff who, under aj?. fa. against one partner, sold goods of the Herrick. firm, was answerable at law to the assignees of the other partner for one-talf of the proceeds of the sale; and it was previously held, in Barton v. Barton v Williams (e), that a sale by one tenant in common of the common Williams, property gave the other a right to sue him at law for a wrongful conversion. (/ ) The question, therefore, whether if one partner wrongfully sold the goods of the firm, he could or could not be sued at law by his co-partners, seems to have turned on whether a demand in respect of this wrongful sale could or could not be regard- ed as independent of any que.stion of account, so as to bring the case within the exception already noticed. Moreover, a partner could not maintain an action on a bill of exchange drawn by himself on a firm of which he was a member {g), and this rule applied to aU unincorporated companies. Nor could an action be brought by one firm against another firm where one or more persons were partners in both firms, {hy Even where the Actions be- common partner was dead, the one firm could not sue the other in tween two respect of contracts entered into between the two firms when he was common a partner in each of them; for no legal contract could subsist be- P^'^'^®''- {a) See Beecham v. Smith, E. B. & E. 442, and ante, p. 1028. (6) See Fox v. Hanbury, Cowp. 445. In Sharp v. Warren, 6 Price, 131, it was, however, held that the steward of a friendly society was entitled to recover, at law, a box of money belonging to the society, but run off with by one of its members. (c) Graves v. Sawcer, Sir T. Raym. 15- \d) 7 C. B. 229. See, too, Buckley 4). Barber, 6 Ex. 164; and compare Morgan V. Marquis, 9 Ex. 145. (e) B. & A. 395, affirmed on appeal, Williams v. Barton, 3 Biog. 189. See, too, Farrar v. Beswick, 1 M. & W. 682. (/) Agreed to by Maule, J., in May- hew V. Herrick, 7 C. B. 247; and by Wood, V.-C. in Frazer v. Kershaw, 2 K. & J. 500; but see per Coltman, J., 7 C. B. 246, and Jacobs v. Seward, L- R. 5 H. L. 464. [g) Neale v. Turton, 4 Bing. 149. See, too, Teague v. Hubbard, 8 B. & C. 345, and 2 Man. & Ry. 369. (h) See Moffat v. Van Millingen, 2 Bcs. & P. 124, note; Mainwaring v. Newman, ib. 120; Pering v. Hone, 2 C. & P. 401, and 4 Bing. 28; Jacaud v. French, 12 Bast, 317; DeTastet». Shaw, 1 B. & A. 664. • See Haven v. Wakefield, 39 ID. 609; Enghs V. Fumiss, 4 E. D. Smith, 587; Calvit V. Markham, 4 Miss. 343; Rogers V. Rogers, 5 Ired. Eq. 31. See, also, Penrock v. Swayne, 6 W. & S. 239; BlaisdeH v. Pray, 68 Me. 269. Where A & B are partners in one firm, and B & C are partners in another, and A & B execute a negotiable note to 1351 *1032 ACTIONS BETWEEN PAETNEES, ETC. [book III. tween a parson and those connected -with him on the one side, and himself and others connected with him on the other side, (if Fox V. Hanbury {k) was the leading authority for the rule that one partner could Fox V. "1°* ^^^ another at law on the ground that the other detained, and Hanbury. used for his own exclusive purposes, personal property belonging to Trover. the firm; and for the further rule that if one partner sold, such property, neither the other partners nor their assignees in bankrujjtcy could main- tain an action against the purchaser in respect of his detention of the goods pur- chased. (Z) *1032 *Where a partnership had been dissolved, and the winding" up of its affairs had been entrusted to one or two individuals, and they had taken Action for upon themselves the duty of getting in the assets, and paying the tSus on'd s-'"' debts, and dividing the surplus, they could not, under ordinary cir- Bolution. cumstances, be compelled by proceedings at law to pay over that surplus to those entitled to it. (m) If indeed, the accounts had all been taken, and the net balance payable to any particular partner had been ascertained, and if such balance clearly ought to be paid over at once, then an action for it might be brought (ii); but in other cases recourse must have been had to a court of equity. the firm of B & C, B & C cannot main- tain an action against A. Banks v. Mitchell, 8 Yerg. 111. See, also, Pen- rock V. Swayne, supra. Where, however, one who is a mem- ber of two firms makes a note in the name of one of the firms, payable to a member of the other firm, the payee may sue and recover upon it in his own name. Moore v. Gano, 12 Ohio, 300. The Pennsylvania act of April 14, 1838, which allows the sa.me person to be a plaintiff and defendant in a cause, is restricted to cases in which the same in- dividual is a member of two distinct co- partnerships. Hence, one partner can- not bring assumpsit against himself and his co-partners, instead of account ren- der a-gainst them. Miller v. Knauff, 2 Pa. Law Jour. Eep. 11; Hall v. Logan, 34 Pa. St. 331. See, also, Gibson v. Ohio Farina Co. 2 Disney, 499. If A be a partner in both the firms, A & B and A & C, and A & C be indebted to A & B, A & B cannot sue C alone for the partnership debt, under the Penn- sylvania act of 1838. Pennrock v. Swayne, 6 W. & S. 239. The Pennsylvania act of 1838, giving a remedy at law to parties who are part- 1352 ners of several firms against each other, did not take away the previously exist- ing remdy in equity. Wentworth v. Raigvel, 9 Phil. 275. (i) Bosanquet v. Wray, 6 Taunt. 597. ^Mmer V. Thorn, R. M. Charlt. 180. See, however. Lacy v. Le Bruce, 6 Ala. 904. {k) Cowp. 445. This case was always followed with approbation. See Smith V. Stokes, 1 East, 363; Smith v. OrieU, ib. 368; Harvey v. Crickett, 5 M. & S. 336; Buckley v. Barber, 6 Ex. 184; Harper v. Godsell, L. R. 5 Q. B. 422. {I) It seems from Morgan v. Marquis, 9 Ex. 145, that if a solvent partner sells goods of the firm, the purchaser, if he afterwards sells the goods, cannot be compelled to hand over any part of the proceeds to the trustee of the insolvent partners. Compare this with Mayhew V. Herrick, 7 C. B. 229, and Buckley v. Barber, 6 Ex. 164. (m) Lyon v. Haynes, 6 Man. & Gr, 504, and see Lewis v. Edwards, 7 M. & W. 300, as to a receiver suing for money withheld from him by those who agreed that he should receive and distribute it. (k) Ante, p. 1027. CHAP. X.J ACTIONS FOE CALLS. *1033 3. Actions ietween companies and their shareholders. "With respect to ordinary actions between companies and their shareholders, little remains to be added to what has Actions be- tween compa- nies and their been said in previous chapters. The following subjects have, in fact, been already considered, viz.: — members. 1. Actions between the promoters of companies and by and against persons who have subscribed for shares, {p) 2. Applications by shareholders to have a company's register rectified. (^) 3. Actions by shareholders whose shares have been illegally forfeited, {q) 4. Actions between the buyers and sellers of shares, and be- tween them and the brokers employed by them. (?■) There only remains for consideration in the present place a few rules relating to actions for calls and dividends, and the remedy by mandamus in tlie case of the non-performance by companies of their duties toward their shareholders. ''Actions for calls. 1033 An action for calls (s) mnst be brought in the name of the com- pany, if it is incorporated; and in the name of the xatia^iox public officer if the company is empowered to sue its '^'^^'^• shareholders in that manner, {t) In cost-book companies the pur- ser now can sue. {u) Several of the modern acts of Parliament relating to companies, contain provisions having for their object the siraplifica- gtatutorv en- tion of the pleading and proofs in actions for calls. (») a^tments. Their general effect is to render it necessary for a statement of claim in an action for calls to state merely that the defendant, as a shareholder, is indebted to the company in so much money for calls, (o) Ante, p. \Vlet seq. and p. 1019. 5 M. & W. 355; Smith v. Goldsworthy, \p) Ante, pp. 142, 171. 4 Q. B. 430. See a declaration in an (g) Ante, pp. 144, 751. action for calls, by a company incor- [r) Ante, p. 710 et seq. porated by the Canadian legislature, (s) As to which, see ante, p. 623 et seq. Wetland Rail. Co. v. Blake, 6 H. & N. (<) Chapman v. MUvain, 5 Ex. 61; 410. Wills V. Sutherland, 4 Ex. 211, affirmed (m) 32 & 88 Viot. c. 19, § 13. in error, 6 Ex. 715; Skinner «. Lambert, {x) See 8 & 9 Vict. c. 16, §§26-28, 4 Man. & Gr. 477; Lawrence v. Wynn, 25 & 26 Vict. c. 89, § 70. 1353 *'1034 ACTIONS BETWEEN COMPANIES AND TIIEIE MEMBERS. [bOOK HI. Defenses. omitting all statements respecting the making of the calls in que- stion, (y) As regards proof, the general effect of the provisions re- ferred to is to render it necessary to show merely three things; viz., first, that the calls sued for were made in point of fact; secondly, that the defendant is, or was, a shareholder when the call was ma.de{z); and, thirdly, that he has had proper notice of the making of the call. Time for Mug- ^^^^^ "^^*i® payable by statute (a), or by deed, are ing action. specialty dcbts ; and an action for their recovery is not, therefore, barred by the lapse of less than twenty years, {b) *1034 *The usual grounds of defense to an action for calls have all been considered in previous chapters. They may be reduced to: — 1. A denial that the defendant is a person liable to pay the call, (c) 2. A denial of the making of the call in point of fact. 3. A denial that the call, admitted to have been made in point of fact, was authorized (d), was made by competent persons (e), or in the proper manner (/), or for proper purposes, (g) i. A denial of any notice of the call. 6. A denial of such notice as the defendant was entitled to re- ceive. (A) 6. Set off. (i) 7. Infancy, {k) 8. Fraud. (I) {y) See, as to the necessity of adopt- ing the statutory forms, "Wolverhamp- ton, &c. Waterw. Co. v. Hawksford, 6 C. B. N. S. 336; 7 ib. 795, and 11 ib. 546; Dundalk, &c. Rail. Co. v. Tapster, 1 Q. B. 667; Newport, &c. Rail. Co. v. Hawes, 3 Ex. 476; Wilson v. Birken- head, &c. Rail. Co. 6 Ex. 626, and as to actions against executors, Birkenhead, &c. Rail. Co. V. Cotesworth, 5 Ex. 226. {z) See, as to this, ante, p. 138, etc. {a) Calls made under a colonial act are simple contract debts only. SeeWel- land Rail. Co. v. Blake, 6.H. & N. 415. (6) Cork and Bandon Rail. Co. ». Goode, 13 C. B. 826. Compare Robin- sou's case, 6 DeG. M. & G. 672. (c) See ante, p. 634 et seq., and as to estoppel by conduct, ante, p. 635. 1354 {d) Ante, p. 629. (e) Ante, p. 624. if) Ante, ^. 629. ((/) Ante, p. 625. {h) Ante, p. 632. In an action for calls against a contributory of a limited company being wound up voluntarily, it is no defense that the defendant had no notice that his name was placed upon the list of oontributones, see Brighton Arcade Co. v. Dowling, L. R. 3C. P. 175. (i) Ante, p. 511, and infra, under Winding-up. As to setting off calls not yet due where a shareholder sues a com. pany, Ryland v. Delisle, L. R. 3 P. C. 17. [k) Ante, pp. 81, 636. [l) Ante, p. 636, and Smith v. Reese River Co. 2 Eq. 264. CHAP. X.J ACTIONS FOE DIVIDENDS. *1036 It must be borne in mind, that if a shareholder does not avail himself of snch defense as he may have at the proper time, he will be precluded from afterwards disputing either the validity of the call, or his liability to pay it. (m) Evidence of tlie making of a call is usually given by proving the resolution by which it was made ; and this may be done either by the testimony of the company's secre- tary, or some other person having actual knowledge of the fact, or by the company's minute books, which, as was seen in a former chapter, are in many cases made admissible as evidence of the facts stated in them, (n) Evidence that the defendant is or was a shareholder is iisually *given by the production of the company's register, *1035 the effect of which has been considered already, (o) Evidence that the defendant received due notice of the making of the call must be given by showing that the requisite advertise- ments (if any) were published, and that such notice as he was enti- tled to receive either actually reached him, or was so sent to him as to have probably reached him. This will be sufficient, in default of evidence that what was so sent him did not reach him. (p) Actions for dividends. Dividends (q), which are actually declared and payable by an in- corporated company, are recoverable by action brought Actions for by the person having the legal title to receive them, 'ii'^i'iends. against the company. The plaintiff must prove that the dividend sought to be recovered has been declared, and has become payable, and that he has the legal title to the dividend payable in respect of the shares by virtue of which he claims it. The circumstance that he is not a registered shareholder will not prejudice him if he has been wrongfully removed by the company from the register (r); nor will the circumstance that the plaintiff is a married woman be fatal to her claim if she might have sued with her husband, (s) (m) See Thames Haven, &c. Co. v. onds 5 Ex. 237. Hall, 5 Man. & Gr. 274; Thames Haven, {q) As to which, see ante, p. 790 et seq. &o. Co. V. Rose, 4 ib. 652. (r) Dalton v. Midland Kail. Co. 12 0. (w) See ante, p. 550. B. 458, and 13 ib. 474. (o) See ante. p. 138. (s) Ibid. (p) Eastern Union Rail. Co. ■». Sym- 1355 Mandamus. *1036 ACTIONS BETWEEN COMPANIES AND THEIE MEMBEES. [bOOK III. As was seen in the chapter on dividends, the non-payment of calls is, in most companies, an answer to an action for dividends; and even where it is not so, calls and dividends may be set off against each other. Except where an action would lie hj one partner against anotlier Dividends of for money in the hands of the latter payable to the unincorporated .. ,■ r i • ■ i i i . i companies. lormcr, an action lor a dividend due to a member of an unincorporated company would not lie before the passing of the Judicature acts, (i) 1036 * Of the writ of mandamus. Prior to the Common law procedure act, 1854, which greatly enlarged the jurisdiction of the Courts with respect to the issuing of writs of mandamus, it was a rule not to allow a mandamus to go for the purpose of enforcing a mere pri- vate right. It was only issued to compel the specific observance of some public duty, for the n on -performance of which there was not at law any other adequate remedy. The older cases upon this subject are not, howevei", so uniform as might be desired; for whilst thei-e was authority for saying that a mandamus would go to an incorporated trading company to compel it to admit persons to offices to which they had been duly elected {u), a mandamus has been refused to compel a company to pay a shareholder dividends wrongfully withheld from him {x)\ to compel a company to regis- ter a transfer of its stock (y); to compel it to produce its books to the shareholders for the purpose of enabling them to consider whether a dividend should or should not be declared paid (s); to compel it to make calls for the payment of a debt, (a) The Common law procedure act 1854: (5), however, authorizes 17 & 18 Vict *^® issuing of a mandamus to enforce the fulfillment c. 125, §68. Q-f ^jjy duty the fulfillment of which the person apply- ing for the writ is personally interested; and although it has been wher th rit ^^^^ *^^* ^^^^ '^^^^ ought not to issue for the purpose of will go. compelling the specific performance of an ordinary (t) See Lyon v. Haynes, 5 Man. & Gx. 524; R. v. London Lis. Co. 5 B. & A. 504. 899. {u) Anon. 2 Str. 696; DaCosta v. Rus- {z) R. v. Bank of England, 2 B. & A. sia Co. ib. 783; Com. Dig. Mand. B. 2. 620. (x) R. V. Whitstable Co. 7 East, 353. (a) R. v. Victoria Park Co. 1 Q. B. 288. (y) R. V. Bank of England, 2 Doug. (6) 17 & 18 Vict. c. 125, § 68. 1356 CHAP. X.j MANDAMUS. *1037 agreement (c), it lias been allowed to go to compel a chartered com- pany to register as a shareholder, a person entitled to be so regis- tered by the provisions of the company's deed of settlement, {d) It may, therefore, it is conceived, be safely stated that wherever a company refuses to perform a duty imposed upon it by its *special act, charter, or deed of settlement, or by any general *1037 statute by which its proceedings are governed, a mandamus to compel it to perform such duty will be issued, whether the duty is public or pi-ivate. In support of this view it may be observed that, notwithstanding the cases above referred to, modei-n authorities show that even the prerogative writ of mandamus will go to compel — The production of a company's register to a creditor, (e) The entry on the register of the pi'obate of the will of a deceased shareholder. (_/) The registry of transfers of shares [g) ; The production to a shareholder, for a proper purpose and at a proper time, of such books as' he has a right to inspect (A); Tlie election of directors and officers required to be appointed ; {i) The appointment of a public officer by a company empowered to sue and be sued by one {Jc); The payment by such a company of a debt for which judgment has been obtained against its officer {I); The making of a call for the payment of a creditor having no other remedy (to); These cases clearly show a tendency in modern times to grant a mandamus where formerly it would have been re- discretion of fused, {m m) But the granting of a prerogative writ be- '^® '=°"'^'^- (c) Benson v. PauU, 6 B. & B. 273. was refused. (d) Norris v. Irish Land Co. 8 E. & B. (i) See per Tindal, C. -J., in Thames 512. Haven DockCcw. Rose, 4Man.& G-r. 559. (e) R. V, Derbyshire, &c. Rail. Co. {h) See per Parke, B., m Steward v. 3 E. & B. 784. Graves, 10 M. & W. 721. (/) R. V. Worcester Canal Co. 1 Man. (?) Corpe v. Glyn, 3 B. & C. 801; R. v. & Gr. 529. St. Katherme Dock Co. 4 B. & Ad. 360. (g) See R. v. Londonderry, &c. Rail. (w) See R. v. Victoria Park Co. 1 Q. B. Co. 13 Q. B." 998; R. v. Wing, 16 ib. 238, where the mandamus was refused, 645; R. V. General Cemetery Co. 6 E. the creditor being in a position to issue & B. 415, and see ante, p. 142. execution against the company, though (h) R. V. Saddlers' Co. 10 W. R. 87. not to get satisfaction by so doing. See, also, R. v. Wilts, &c. Canal Co. 3 {mm) Paris Skating Rink Co. 6 Ch. A. & E. 477, and R. v. Maraquita, &c. D. 731, shows that a mandamus may be Mining Co. 5 Jur. N. S. 725, Q. B. In granted by the Chancery Division of the the two last cases, however, the writ High Court. ±00 i *1038 ACTIONS BETWEEN COMPANIES AND THEIE MEMBERS. [BOOK III. mg within certain limits a matter of discretion with the Court, no mandamus is allowed to go unless the applicant has been *1038 denied the right *he seeks to enforce (n); nor unless he ap- plies for the writ within a reasonable time after such de- nial ((?); nor unless the Court is satisfied that its interference is sought for a proper purpose (p); nor unless the applicant having a legal right has no other adequate legal remedy, (q) The last rule is held to apply to actions for a mandamus under the Common law procedure act, 1854 (r); and probably the other rules are also ap- plicable to them. It is worthy of remark, that notwithstanding the ' tendency to extend the application of the prerogative writ it has very recently been held that such writ only goes to enforce the perform- ance of acts required to be done, and not the undoing of acts already done ; and that consequently, altliough a corpo- ration may be compelled by a mandamus to afHx its seal to a document (s), it cannot be thus compelled to remove its seal_/TOTO a document, (t) How far this distinction applies to actions under the statute remains to be seen; but it is submitted that the diifer- ence between doing and undoing, is, in such a case as that alluded to, a difference in words rather than in substance. Registers of shareholders may be rectified both by inserting names wrongfully omitted and by striking out names wrongfully inserted, as has been seen already. («) («) R. V. Wilts, &c. Canal Co. 3 A. v. Stafford, 3 ib. 646; R. v. Victoria & B. 477. Park Co. 1 Q. B. 288. (o) R. V. Cockermouth Inolosure Com- (r) Bush v. Beavan, 1 H. & C. 500. missioners, 1 B. & Ad. 378. (s) R. v. Windham, Cowp. 377; R. v. {p) R. V. Wilts, &c. Canal Co. 3 A. Cambridge, 3 Burr. 1647; R. v. York, 4' & E. 477; R. V. Liverpool, Manchester, T. R. C99. &o. Rail. Co. 21 L. J. Q. B. 284. (t) Ex parte Na^-h, 15 Q. B. 92. [q) See R. v. Chester, 1 T. R. 396; R. (m) Ante, p. 142. 1358 EOOK I\.J WINDING-UP OF PAETNEE3HIPS. *1039 *BOOK IV. *io39 ON THE WINDING-UP OF PARTNERSHIPS AND COMPANIES. GENERAL OBSERVATIONS. The duration of a contract of partnership, the events which give rise to a dissolution of snch contract, and those other events which, without dissolving the contract, confer a right to have it dissolved, were all considered in the eighth chapter of the first book. In order to wind up the affairs of a dissolved partnership, it is necessary first to pay its debts; secondly, to settle all ■vvindin<' np of questions of account between the partners; and, third- rart"ersiiips. ly, to divide the. unexhausted assets (if any) between the partners in proper proportions; or, if the assets are insufficient to pay the debts, then to make up tbe deficiency by a proper contribution be- tween the partners. This can be done by the partners themselves, or their representatives (a); but if disputes arise, then recourse must almost always be had to the Chancery Division of the High Court, for it is under its superintendence only that the assets of a partnership can be properly sold and applied, that the partnershp accounts can be satisfactorily taken, and that contribution can be enforced, (b) The consequences of a dissolution of partnership, both as regards creditors and as regards the partners themselves, have consequences been pointed out in earlier parts of the treatise, and of dissolution. only require to be shortly recapitulated. I. As reaards the creditors of the iirm, it has been i. As regards ^ «/ ^ ' creditors. seen — (a) See Lyon v. Haynea, 5 Man. & Gr. rily dissolved. 505, where a banking company govern- (6) See book iii. c. 10, § 6. ed by 7 Geo. 4, c. 46, had been volunta- 1359 *10il CONSEQUKNCES OF DISSOLUTION. [BOOK ir, 1. Tliat a dissolution of partnership, whether general or 1040* *partial does not discharge any of the partners from liabilities incurred by them previously to the time of dissolution (c); 2. That in order that a member of a firm, wholly or partially dis- solved, may be freed from his liability to a person who was a creditor of the firm at the time of its dissolution, such creditor must either have been paid, or satisfied, or must have accepted some fresh obliga- tion in lieu of that which existed when the firmwas dissolved, (d) 3. That (except in a few special cases) {e) notice of dissolution or retirement is requisite to determine the responsibility of each part- ner in respect of such future acts of his late co-partners, as would be imputable to the firm if no change in it had taken place {f)\ i. That notice of dissolution generally, as by advertisement, is not sufiicient to aflect an old customer, unless it can be brought to his knowledge {g); 5. That notice of dissolution, is notice that the former partners are no longer each other's agents as before (A); 6. That after dissolution and notice, partners cease to be respon- sible for the future acts of each other (i), unless they continue to hold themselves out as partners, in which case the notice is of no avail. {7c) II. As regards the partners themselves. Upon the dissolution of 2 Asr ards ^ partnership, and in the absence of any agreement to the partners. ^j^g contrary, it has been seen — 1. That each partner has a right to have the partnership assets applied in liquidation of the partnership debts, and to have the sur- plu"? assets divided. (T) 2. That the right of each partner is to insist on a sale of the partnership assets; there being, in the absence of special circum- stances, no right in any partner to have the value of his own or of any co-partners share determined by valuation, or to have the part- nership property, or any portion of it, divided in specie (m); *104:1 *3. That each partner has a right to iisiit that noth- ing further shall be done, save with a view to wind up the concern [p ) ; (c) Ante p. 417 et seq. {h) Ante, p, 409. {d) Ibid. [1) Ex parte Ruffin, 6 Ves. 127. (e) Ante, p. 403 etseq. (m) Ante, p. 1015. (/) Ibid. (p) 'Wilson v. Greenwood, 1 Swanst. (g) Ante, p. 415. 481; Cra.wsbay v. Maule, ib. 507; Ex {h) Ante, pp. 403, 406. parte Williams, 11 Ves. 3. (i) Ibid. 1360 BOOK IV. J "WINDING-UP OF PAETNEESHIPS. *10i2 4. Tliat, for the purposes of winding up, the partnership is deemed to continue (2'); the good faith and honorable conduct due from every partner to his co-partners during the continuance of tlie part- nership, being equally due so long as its affairs remain unsettled (r); and that which was partnership property before, continuing to be so for the purpose of dissolution, as the rights of the partners require (s); 5. That the right on a dissolution to wind up the partnership affairs, i.e., to get in its credits, convert its assets into money, pay its debts, and divide the residue, belongs as much to one of the late partners as to another; and if they cannot agree amongst them- selves, recourse must be had to the Court, which will, if necessary, appoint a receiver, direct a sale of the assets and payment of the partnership debts, and restrain a partner from interfering with the proper winding up of the partnership, (t) 6. That the right to wind up the affairs of a dissolved partner- ship is, however, personal to the members of the late firm; and that, therefore, on the death or bankruptcy of one of them, his ex- ecntors or trustee will not be permitted to take the management of the affairs of the partnership out of the hands of the other part- ners (u) ; 7. That if the partnership assets are insufficient to pay the part- nership debts, the deficiency must be made good by the partners in proportion to their respective shares (x) ; 8. That after a partnership has been dissolved, any one of the late partners has a right to have that dissolution duly notified, so that a stop may be put to the power of his *co-partners *104:2 to bind him. (y) It seems that he has also a right to restrain them from carrying on business under the old name, if such name is or includes his own; for although their continued use of the old name, even with his knowledge, is not sufficient to render him liable, by virtue of the doctrine of holding out (s), such use undoubtedly exposes him to the risk of having actions brought (g) See ante, p. 411. (t) See ante, book iii. ch. 10, § 6. (r) Ante, p. 669. («) Allen v. Kilbre, 4 Madd. 464; Ex {s) See Ex parte Williams, 11 Ves. 5 parte Pinch, 1 D. & Ch. 274; Praser v. and 6; Crawshayi;. Collins, 2 Russ. 342, Kershaw, 2 K. & J. 496. 343; Nerot v. Burnand, 4 Russ. 247; (a;) See oraie, p. 805. Payne v. Hornby, 25 Beav. 280. See, (y) Troughton v. Hunter, 18 Beav. too, Ex parte Trueman, 1 D. & Ch. 470. 464, as to partnership books. {z) Newsome v. Coles, 2 Camp. 617. s« 1361 *1043 CONSEQUENCES OF DISSOLUTION. [bOOK IV. against him if he still belonged to the firm, and his co-partners have no right to expose him to that risk, {a) 9. That each partner has a right to commence a new business in the old line, and in the old neighborhood; either alone, or in part- nership with other people, (h) Such, in general terms, are the consequences of dissolution. In Matters in- order, however, to obtain a complete view of these con- win(Ung"up^of sequenccs, it is necessary to attend to the principles a partacrship. -Qpon which partnership accounts are taken; to the dis- tinction between the joint estate of the firm, and the separate estates of the partners composing it; to the doctrines of contribu- tion and indemnity; to the rules which relate to appointing a re- ceiver and granting an injunction; and lastly, to the special agree- ments, if any, into which the partners may have entered. All these matters were discussed in the third book, and it is not nec- essary further to alliide to them. But the complicated questions which arise in the event of a dissolution by death or bankruptcy, have necessarily been reserved for separate examination, and they will form the subject of the first two chapters of the present book. The causes and consequences of the dissolution of companies, Winding up of ^^^ ^^^ mode of winding up their afi'airs, have also companies. been reserved for consideration in the present book. The law upon this subject may be properly said to have been de- veloped by legislative enactment from general principles of the law of partnership; and although it is true that many of the princi- ples which govern the dissolution and winding up of partnerships have no application to the dissolution and winding up of compa- nies, still it will be found that others of those principles 1043* *have carefully been preserved, and form the basis on which the statutory law of winding up may truly be said to rest, j^j ^^ Pursuing, therefore, with respect to the present branch entbook. of the law, the Same method which has been observed with respect to those branches which have already been disposed of, it is proposed first to examine the consequences of death and bank- ruptcy, both as regards partners and as regards shareholders ; and then to pass to the modern statutory enactments relating to the dis- solution and winding up of companies, under what are commonly called the "Winding-up acts. (a) See ante, p. 999. (6) See, as to tliis, ante, p. 854. 1362 OF DEATH AND ITS CONSEQUENCES. *104-i *OHAPTER I. *104Jf OF DEATH AND ITS CONSEQUENCES. The consequences of the death of a member of a partnership or company will be most conveniently pointed out in the course of an examination of the position of the surviving members, and of the executors of the deceased member — • 1. As between themselves; 2. As regards the creditors of the firm ; and 3. As regards the separate creditors and legatees of the deceased. SECTION I— CONSEQUENCES AS REGARDS THE SURVIVINa PART- NERS AND THE EXECUTORS OP THE DECEASED. 1. In the case of ordvnary partnerships. The death of any one member of a firm operates as a dissolution thereof as between all the members, unless there is some Death of a part- ner dissolves agreement to the contrary (a); and the mere tact that thefirm. the partnership was entered into for a definite term of years, which was unexpired when the death occurred, is not sufficient to prevent a dissolution fey such death. (5) Unless all the partners have agreed to the contrary, when one of them dies, "his executors have no right to become Executors of partners with the surviving partners (c); nor to in- no'i^become terfere with the partnership business; but the execu- partners. tors of the deceased represent him for all purposes of account," and, unless restrained by special agreement, they have the power, by (a) See ante, p. 231. (c) Pearce». Chamberlain, 2 Ves. S. (6) Crawford v. Hamilton, 3 Madd. 33. 251. * See ante, 945, note. 1363 *1045 DEATH AND ITS CONSEQUENCES AS BETWEEN [BOOK IV. *1045 *bringing au action to have the affairs of the partnership wound up in a manner which is generally ruinous to the other partners.' The maxim jus accrescendi inter mercatores locum non hahet, Jus accrescendi, has been already examined, and need not be again no- ^"^ ' ticed. id) On the death of a partner the surviving members of the firm Position of are the proper persons to get in and pay its debts, (ef sui'viving iii o i./ \/ piirtiiers. But the debts they get in must be placed to the debit ' A will provided that the balance of capital due the testator in a firm of which he was member might remain with the surviving partners for a certain time at interest: Held, tliat the execu- tors were barred during tlaat time from recovering the same, and that security could not be required by the court in a suit to which one of the surviving part- ners was not party. Vernon v. Vernon, 7 Lans. 493. [d) Ante, p. 664. (e) Ante, p. 490. ^ On a dissolution of a co-partnership by the death of one of the partners, the survivor has a right to take possession of the co-partnership assets, and settle up the affairs of the joint concern: Marlatt v. Scantland, 19 Ark. 443; Al- len V. Hill, 16 Cal. 113; Tillotson v. Til- lotson, 34 Conn. 335; Florida Territory ». Redding, 1 Fla. 242; Miller ». Jones, 39 111. 54; Murray v. Mumford, 6 Cow. 441; Walker i;. House, 4 Md. Ch. 39; Dwinal v. Stone, 30 Me. 384; Barry v. Briggs, 22 Mich. 201; Teigley ■«. Whit- aker, 22 Ohio St. 606; Price v. Hicks, 14 Fla. 565. See ante, 665, 666, notes. A surviving partner having the legal right to the possession of partnership property, the court will not deprive him of that right, unless upon proof of mis- management, or danger to the partner- ship effects. Connor v. AUen, Harr. . Oh. 371. A sole surviving partner has the entire legal title to all the partnership assets 1:364 (see, ante, pp. 665, 666, notes). He has a right, acting honestly and with rea- sonable discretion and diligence, to dis- pose of them as he pleases, to settle all debts against the concern, to make any compromise he may deem necessary, and to turn the assets into an available and distributable form. Bany v. Briggs, 22 Mich. 201. A sui-viving partner is entitled to the exclusive possession and control of all the partnership assets, including choses in action, and may assign the latter in the legitimate settlement of the partnership business, notwitlistanding such partner- ship and its individual members may be insolvent. AVillson v. Nicholson, 61 Ind. 241. See, also, Roys v. Villas, IS WLc. 169; Pinckney v. Wallace, 1 Abb. Pr. 82. See, however, HiU v. Treat, 67 Me. 501; Cook V. Lewis, 36 id. 340; Cavitt v. James, 39 Tex. 189; Mutual, &c.. Insti- tution V. Eushn, 37 Mo. 453. In an action by the assignee on a chose in action of an insolvent partnership, which has been assigned by a surviving partner, it is presumed, where the con- trary does not appear that such assign- ment was made in the iond fide settle- ment of the partnership business; and where in such action creditors of the insolvent partnership apply to be made parties to the action and file a counter- claim asking application of the proceeds of such chose in action to the payment of their debts, and the counter-claim CHAP. I.] THE DECEASED, AND THE SURVIVING PAKTNEKS. *10J:O of the Lite firm, and the debts tliey pay must be placed to its credit. Whilst, therefore, the executors of the deceased partner are entitled to have payments made to the survivors by a debtor to does not allege that such assignment was made in bad faith, in wliich the assignee participated, it is insuthcient and may be struck out on motion, Willson V. Nicholson, 61 Ind. 242. The sole survivor of a firm may assign a promissory note, payable to the late firm, by indorsement, so as to vest the legal title in the assignee, as effectually as if the note had been made payable to him. Johnson v. Berlizheimer, 84 111. 54. See Cavitt v. James, 39 Tex. 189. A surviving partner has the right to apply partnership funds to release real estate of the firm from incumbrance, and to fulfill contracts for the purchase of real estate. Shearer v. Shearer, 98 Mass. 107. A surviving partner cannot bind the firm, nor transfer the partnership effects to pay a debt of his own, nor pay the debt of one firm of which he is survivor with the debt of another firm of which he is survivor; but he may transfer the assets of a finn of which he is survivor to pay the debts of that firm. Scott v. Tupper, 16 Miss. 280. After the death of one partner, an as- signment of the partnership funds, by the surviving partner, for the payment of a separate debt of the deceased part- ner in preference to the partnership debts, is void. Hutchinson v. Smith, 7 P^ige, 26. See, ante, Assignments. The surviving member of a firm may give preferences among the partnership creditors, under his general authority to wind up the business of the firm. Loes- chigk V. Hatfield, 5 Eobt. 26; 4 Abb. Pr. N. S. 210. See, however, Barcroft e. Snodgrass, 1 Cold. 430. See, ante, The surviving partners have power to sell and convey the firm real estate, without regard to whether this be neces- sary to pay debts. Solomon v. Fitz- gerald, 7 Heisk. 552. A surviving partner cannot bind co- survivors by signing the firm name without their express authority or ratifi- cation. Jenness v. Carleton, 40 Mich. 343; Matteson v. Nathajison, 38 id. 377; Castle V. Reynolds, 10 Watts, 61 (a judgment note) ; Bank of Port Gibson v. Baugh, 17 Miss. 290. See, however, Dundass v. Gallagher, 4 Pa. St. 205. A surviving partner and liquidator cannot release the partnership's recourse for accommodation acceptances againtt a party, so as to make him a competent witness. Bookout ». Anderson, 2 La. Ann. 246. Delivery by the surviving partner of a note then assets of the fii-m, which had been indorsed in the name of the firm by the deceased partner in his life- time, is not sufficient to pass the legal title to the purchaser. Glasscock v. Smith, 25 Ala. 474. A surviving partner cannot bmd the estate of a deceased member of the firm for debts incurred by him subsequently to its dissolution by the death of such member. Cook v. Carson, 45 Tex. 429. Where a lease to a co-partnership gives a privilege to the lessees of con- tinuing the lease for an additional term, upon giving notice of their intention to continue, prior to the termination of the original term, in case of the death of one of the partners the survivor can, as such, give the required notice and en- force a fulfillment of the covenants of the lease for the extended term. Eetts V. June, 51 N. Y. 274. If goods shipped and consigned to a firm doing a commission business, to be sold on account of the shipper, are re- " ceived, but before they are sold one of the partners dies, the survivor may sell 1365 *1045 DEATH AJST) ITS CONSEQUENCES AS BETWEEN [bOOK IT. the old firm, applied in payment of his debt to it (/) the surviv- ors have a right, if they pay more than their sliare of the debts of the old firm, to be reimbursed out of the estate of their deceased co-partner, {g) They are creditors against that estate for what such goods, and in such case, the claim of the shipper on account of such sale is properly against the firm, and not against the survivor individually. Of- futt V. Scott, 47 Ala. 104. "Where there is an executory agree- ment between partners for the sale of the firm assets to one of them, unac- companied by any actual transfer, and the purchasing partner dies before the time fixed for the delivery, firm assets subsequently found in the hands of the surviving partner, who is also executor of the deceased, will be presumed to be held by him in his character of surviv- ing partner, and not as executor. Kreis V. Gortoo, 23 Ohio St. 468. A agreed with a surviving partner that if he would apply the firm property to the decedent's private debts, A would pay the firm debts. The agreement was held good in a suit thereon against A by the survivor, and the amount to have been paid by A was the measure of damages against him. Weddle v. Stone, 12 Ind. 625. A surviving partner, who administers upon the partnership affairs, may be allowed a credit on his inventory for a debt due by the deceased partner to the firm, and for a debt due by himself to the firm at the same time, both debtors appearing insolvent; and he is not re- quired to dass the partnership debts and pay them pro rata, but may pay them aU in full; as section 63 of article 1 of the administration act does not apply to him. Crow v. Weidner, 36 Mo. 412. In New York, under section 244 of the Code of Procedure, as amended in July, 1851, a partner, who by his answer ad- mits that he has in his hands partner- ship funds, which on his statement appear to belong to the administrators of his deceased partner, will be ordered to pay over such funds to them, although there are outstanding contested claims against the firm, and it has claims to enforce which will require time and dis- bursements. Roberts v. Law, 4 Sandf. 642. Where one partner dies insolvent, and is, at the time of his death, indebted, in- dividually, to the surviving partner, in- dividually, and the surviving partner afterwards collects funds of the partner- ship, he cannot apply the share of the deceased partner to the individual debt due to himself; such share must be paid to the representative of the deceased partner to • be applied to his debts. Moffat V. Thomson, 5 Rich. Eq. 155. Under the provisions of N. H. Gen. "itat. ch. 106, upon the death of either partner, the co-partnership affairs may be fully adjusted and settled in the pro- bate court, either by the surviving part- ner, or the representative of the deceased partner, or by arbitration. But if not thus settled, they may be adjusted in a court of equity the same as before such statute was enacted. Scott v. Buffom, 62 N. H. 345. ' A surviving partner has no right to use machinery upon his own personal account to the detriment of the estate of the deceased partner, and wiU be en- joined, whether the machinery is re- garded as realty or personalty. Stan- hope V. Suplee, 2 Brewst. 455. Where the surviving partner of a firm collected demands of the firm in Con- federate money, he was held liable to account to the representatives of the de- (/) Lees V. Laforest, 14 Beav. 250. 1SG6 {g) Musson v. May, 3 V. & B. 194. CHAP. I.J THE DECEASED AND THE SUEVIVING PAETNEES. *1046 may be diie to them from their deceased partner, on taking the partnership accounts, and they may as creditors bring an action for the administration of his estate. (A) If he has no legal per- sonal representative, the Probate division of the High Court will grant a limited administration to a nominee of the surviving part- ners, so as to enable them to institute proceedings to have the partnership accounts properly taken, (i) A surviving partner, if a creditor of tlie deceased, may sue either in that character for a common administration judgment, Actions by sur- er, in the character of a partner, for a judgment for a against the ex- ecutors of a d6- partnership account, and for payment of what is due on ceased partner, that account; and if assets are not admitted, then for a judgment for the administration of the estate of the deceased. An action in the alternative may, it is conceived, now be sustained. (J) The legal per- sonal representative of the deceased must be a party if an account of his estate is sought. If there is no such *repre- *1046 sentative, but the assets of the deceased or of the partner- ship are in danger, and the object of the plaintiff is to have them ceased partner in lawful money, it being his duty to have collected in lawful money. Succession of Wilder, 21 La. Ann. 371. Where one of two partners dies, th sm-vivor is entitled to the possession and disposition of all the partnership prop- erty, and in a suit by him instituted for the purpose of closing up the affairs of the co-partnership, and to recover from the estate of the deceased partner any amount due him from the deceased, it will be improper to include in a decree in favor of the survivor any amount in- vested by the partners in real or per- sonal property, unless such property had been disposed of by the deceased part- ner, or for his use, in his lifetime. The fact that the title to land purchased by partners with partnership funds, was taken in the name of the wife of one of the partners, since deceased, or that any of the property of the co-partners has been disposed of by the widow, or that she has collected money due on partner- ship accounts, affords no ground for charging the estate of the deceased partner at the suit of the survivor. A surviving partner cannot charge the es- tate of the deceased partner for a share of the earnings of the co-partnership which remain in open account against their customers, or which were not paid to or reahzed by the deceased in his life- time. Price V. Hicks, 14 Pla. 565. (h) See Robinson V. Alexander, 2 CI. & Fin. 717; Addis v. Knight, 2 Mer. 119. If the deceased has pledged his real estate to liis co-partners for a debt due from him to them, they cannot en- force their security in the absence of his legal personal representative. Schole- field V. Heafield, 7 Sun. 667. («) Cawthome v. Chalie, 2 Sim. & Stu . 127 . The Court of Chancery would not in such a case appoint a person to represent the estate of the deceased. Rowlands v. Evans, 33 Beav. 202. [j] Ord. xvi. r. 6. 1367 *10J:6 DEATH AND ITS CONSEQUENCES AS BETWEEN [bOOK IV. protected, he sliould confine his claim for relief accordingly, and not seek for an account, (k) In the absence of an express agreement to that effect, the surviving No right to partners have no right to talie the sliare of the deceased ofWils'Jd at partner at a valuation ;' nor to have it ascertained in any a valuation. other manner than by a conversion of the partnership assets into money hy a sale {l)\ nor have they any right of preemp- tion, {m) Even the good-will of tlie business, if saleable, must be sold for the benefit of the estate of the deceased; although the surviving partners are under no obligation to retire from business themselves, and cannot, it seems, be prevented from recommencing business to- gether in the name of the old firm unless the good- will has been so]d.(w) In ascertaining the share of the deceased, the surviving partners Accounting for must not Only bring into account the assets of thefirm profits. which actually existed at the time of his death, but also whatever has been obtained by the einployment of those assets up to the time of the closing of the account; for so long as pi'ofits are made by the employment of the capital of the deceased partner, so long must such profits be accounted for by the surviving part- ners. ((?) The executors of the deceased have, however, the option of taking interest at 5^. per cent, {^py On the other hand, the surviving partners are entitled, if they Allowance for carry on the business for the benefit of tlie estate of the carrying on , ' , ^, > i . « i business. deceased partner, to an allowance lor so domg; unless {h) Rawlings «. Lambert, IJ. & H. 458. est. If no profits were made or even if Under the new practice a claim for an a loss is incurred, they must be charged account would probably be harmless. with interest on the funds they use and ' See Ogden». Astor, 4 Sandf. 311. they must bear the whole loss. Brown's (l) Crawshay v. Collins, 15 Ves. 226, appeal, 89 Pa. St. 139; Goodbum v. 229 ; Featherstonhaugh v. Fenwick, 17 Stevens, 1 Md. Ch. 420; Millard v. Ves. 808. See, as to unsaleable assets Ramsdell, Harr. Ch. 373. See, also, and pending contracts, ante, p. 1018. Ogden v. Astor, 4 Sandf. 311. (m) Brown v. Gellatly, 31 Beav. 243. But profits cannot be claimed for one («) See ante, p. 854 et seq. period and interest for another. Good- (o) See ante, p. 976. burn v. Stevens, supra, (p) Ante, p. 983. Where the interest of the deceased ' If the survivors of a partnership oar- partner had become vested in one of the ry on the concern and enter into new surviving partners, who consented to the transactions with the partnership funds, continuance of the co-partnership, the they do so at their peril, and the rep- rule first above stated was held not to resentatives of a deceased partner may apply. Millard u. Ramsdell, sw^rn!. elect to call on them for the capital * Griggs ». Clark, 23 Cal. 427; Newell with a share of the profits or with inter- v. Humphrey, 87 Vt. 265. 1368 CUAP. I.J THE DECEASED AND THE SURVIVING PAETNEES. *10i7 they are also his executors, in which case they can make no charge for their trouble, {q) The right of the executors as against the surviving partners is, simply, to have the share of the deceased as- position of certainedand *paid; but this frequently cannot *1047 ofarcS*"^ be done without a general sale and winding up ceased. of the partnership. A hand fide sale, however, by the executors to the surviving partners can generally be made with safety if no surviving partner is an executor, (r) ' Where, however, a sale of the share of the Where the business of a trading part- nership is continued for a considerable time after the death of one of the part- ners, whose personal representative, in seeking a settlement of the partnership accounts in equity, elects to have a re- port and decree for the profits which ac- crued during that time, the surviving partner is entitled, at least, to an allow- ance and deduction for "tavern bills and other expenses incurred in the adjust- ment and settling up the affairs of the partnership. " OreiUy v. Brady, 28 Ala. 530. Where plaintiflf and decedent were parineis, and plaintiff paid debts and performed other services ia winding up the affairs of the firm, commissions were allowed on money collected and interest on the decedent's share of moneys advanced by the plaintiff, it having been agreed that he should col- lect " at the proper cost and charges of the two" individaaJly. Wood v. Wood, 26 Barb. 356. The natural tutor who supervises the interest of his minor child in the liqui- dation of a partnership of which the de- ceased mother of the minor was a part- ner, cannot claim for services rendered the partnership; he has only a claim against his ward in his account of tutor- ship. McMichael v. Raoul, 14 La. Ann. 807. (2) Ibid. (r) See infra, § 3. 'An administrator of a deceased partner has power to settle with the surviving partners on such terms as in the exercise of good faith and reason- able diligence he may choose to accept. He is the personal representative of the deceased partner, and has all his powers of settlement except that being trustee for the next of kin, he cannot give away anything. Hoyt v. Sprague, 12 Chicago Leg. News, 25; Sage v. Woodin, 66 N. Y. 578. Such settlement is conclusive upon the parties and upon all persons claim- ing through them, including the cred- itor of the deceased partner. Sage v. Woodin, Bupra. A hand fide agreement by the admin- istrators of a member of a partnership for buying and selling land, to relin- quish the deceased partner's right, in an executory contract to buy some land, to the surviving partner, rather than pay their share of the price then coming due, will be vahd, and will not be over- thrown after a lapse of time at the ap- plication of the heirs of the deceased partner. Ludlow v. Cooper, 4 Oliio St. 1. Money belonging to a firm, placed in bank in the name of the firm by a part- ner who is an executor of the deceased partner, and by him checked out in pay- ment of debts of the firm, with his co-executor's consent, will, as to the payees, be considered as firm assets, 1369 *104:S DEiTH AND ITS CONSEQUENCES AS BETWEEN [bOOK IV deceased cannot be effected by private arrangement, the executors must enforce a general sale and winding up for their own safety, unless the persons interested in the estate of the deceased assent to the adoption of some other course. And even if they do, it must not be forgotten that the executors may not be able, without risk to themselves, to continue the share of the deceased in the business, and take the profits accruing in respect of it; for by shar- ing profits made after the death of the deceased, the executors, al- though they are only trustees for others, may become liable as part- ners with the surviving partners; and may therefore become liable to be adjudicated bankrupt and to be compelled personally to pay debts contracted in carrying on the business, (s) The position of the executors of a deceased partner is, in fact, often one of consid- erable hardship and difficulty; if they insist on an immediate winding up of tlie firm, they may ruin tho^e whom the deceased may have been most anxious to benefit; whilst if for their advan- tage the partnership is allowed to go on, the executors may run the risk of being ruined themselves. Witli a view to obviate this, it Effect of mak- is not unusual for ouc partner to make his co-partner iieran"execu- his cxccutor; but the difBculty of the executor's posi- tion is thus rather increased than diminished; for his own personal interest as a surviving partner is bi'ought into direct conflict with his duty as an executor. Everything therefore which he does is liable to question and misconstruction on the part of the persons beneficially entitled to the estate of the deceased; and he is practically much more fettered in the discharge of his duties, and in the exercise of his rights, than if he had not to act in the *104:8 double character *imposed upon him. (t) This will a])pear in the section in which it is proposed to examine the rights of the separate creditors and legatees of the deceased against his executors and his surviving partners. Where a deceased partner's estate is administered under the de- Actionsfor crec of the Court, his executors, if they act properly, indemnifying \ . W n A executors. are personally protected trom all consequences, and no notwithstanding a private agreement 10 Ves. 119. But see now Holme v. between the executors that it belonged to Hammond, L. R. 7 Ex. 218, noticed the estate. Kreis v. Gorton, 55 Mo. 468. ante, p. 40. (s) Formerly they always did incur [t) See some general remarks on this this liability. See Ex parteHolds-worth., subject in Hutton v. Rossiter, 7 DeG. 1 M. D. & D. 475; Wightman v. Town- M. & G. 12. roe, 1 M. & S. 412; Ex parte Garland, 1370 CHAP. I.J A DECEASED SIIAEEHOLDEE AND THE COMPANY. *10tt9 action can be sustained against them in respect of wliicli tliey so do. (u) If tliere are liabilities wliich will have to be met, the Court will order part of the assets to be set aside to meet them when they arise, (x) But if the liabilities are remote aDd contingent, and may possibly never arise at all, the utmost that the executors can obtain in the shape of indemnity, in addition to that afforded by the orders of the Court itself, is a covenant from the testator's legatees or next of kin. (y) No succession duty is payable by surviving partners on the death of a member of the firm, even although they may „ ' o J •! Succession benefit thereby. (3) d^^iy- 2. In the case of companies. The position of the executors of a deceased shareholder relatively to the company will, after the foregoing observations, Executors of be readily understood. snarei^oiders. 1. The executors are entitled to be paid by the company whatever is payable by it in respect of the shares of the deceased at the time of his death; and also whatever becomes payable in respect of those shares whilst they form part of his estate. 2. The assets of the deceased are liable to make good whatever is at the time of his decease payable by him to the com- nabnityto pany, and also whatever afterwards becomes payable by caus^&c. his representatives by virtue of the contract into which he entered. *Consequently, if a person becomes a sliareholder *1049 in a company and then dies, and afterwards, and whilst his shares are part of his estate, a call is made by the company on its shareholders, his assets will be liable to the payment of such call, {a) Moreover, a call made by a comjmny in pursuance of its act, charter, or deed of settlement, constitutes a specialty debt (5); (m) Waller v. Barrett, 24 Beav. 413. Ea. Ca. 813; Blakeley's case, 13 Beav. [x] Fletcher v. Stevenson, 3 Ha. 360; 133, and 3 Mac. & G. 726; Heward v. Brewer v. Pooock, 23 Beav. 310. Wheatley, 3 DeG. M. & G. 628, and at [y) See Dean v. Allen, 20 Beav. 1; law, Wills v. Murray, 4 Ex. 843. Corn- Waller V. Barrett, 24 ib. 413; Addams pare Weald of Kent Canal Co. v. Puobin- V. Perick, 26 Beav. 384; Bennett v. Lyt- son, 6 Taunt. 801. ton, 2 J. & H. 165. (6) Cork and Bandon Rail. Co. «.Goode, (z) Oldfield V. Preston, 3 DeG. P. & 13 C. B. 826. In Morris v. Sadlier, Ir. L. J. 398. R. 6 Eq. 580, a covenant by a deceased (a) See, in equity, Fyler v. Pyler, 2 sliareliolder with an officer of the com- 1371 *iOoO DEATH AND ITS CONSEQUENCES. [BOOK IV. and all calls made under the winding np provisions of the Companies act, 1862, are also specialty debts, (c) But specialty debts are no longer entitled to priority of payment over simple contract debts {d) ; and even before the law was altered in this respect, executors who paid the simple contract debts of their testator 'before a call was made, were allowed those payments as against the company seeking to make them liable for a devastavit (e); and no part of the testa- tor's assets could, as against his simple contract creditors, be set ajjart for the payment of calls which had not been made. (_/) 3. It follows from the foregoing observations, that when a com- Liabiiitytobe pany is being wound up, the executors of a deceased made contribu- ■" •' i- , , , , ., tories. shareholder are liable to be made contribntories as ex- ecutors in respect of his shares so long as they remain untrans- ferred. From this again it follows, tliat the executors of a deceased shareholder are entitled to petition for an order to wind up the company, although they may not be themselves shareholders there- in. This subject will be alluded to hereafter, {g) 4. In most companies executors have, as between themselves Necessity for ^^^ ^^^^ Company in which their testator was a become sha?e- *1060 ^shareholder, a right to become shareholders in ^°^'^'^'^^- his stead. But if an executor does become a shareholder, his liability, as well to the company as to its creditors, is a personal liability; and such liability is in no way' qualified or limited by the circumstance that as between himself and those who are beneficially entitled to the testator's assets, the executor is not the owner of the shares standing in his name. (A) Executors, therefore, should not become shareholders if they can avoid doing so; and generally it will be found that they can transfer their tes- tator's shares without first becoming shareholders -themselves. Whether, however, this can or cannot be done, and the manner in which it is to be done, depend, in each case, upon the constitution of the company in which the shares are held. By the Companies pany to pay what should be demanded (e) Henderson?;. Gilchrist, 17 Jur. 570. of him, was held not to create a specialty (/) Wentworth v. Chevell, 8 Jur. N. debt in respect of moneys due from his S. 805. As to the legatees and next of estate, but not demanded in his lifetime. kin, see supra. (c) The Companies act, 1862, § 16. (g) See infra, the section on wind- It was not so under the older winding ing up. up acts. See Robinson's Executors' case, (h) See Spence's case, 17 Beav. 203; 6 DeG. M. & G. 572. Fenwick's case, 1 DeG. & S. 557; Arm- {d) 32 & 33 Vict. c. 46. strong v. Burnet, 20 Beav. 424. 1372 OHAP. I.J AS EEGAEDS JOINT CEEDITOES. *1051 act, 1862, provision is expressly made for transfers by executors, although they may not themselves be membei's. (i) The transfer by executors of shares in companies governed by the Companies Clauses consolidation act, is also specially provided for {h); but by this act the executors must apparently be themselves registered as shareholders before they can transfer. (T) SECTION II.— CONSEQUENCES AS REGARDS JOINT CREDITORS. 1. In the case of ordinary partnerships. a. With reference to what occurred before death. The position of the executors of a deceased partner, pog;t;o„ ^f g^. with reference to the creditors of the firm, has, to a ceased^partner considerable extent, been already ascertained. For it itOTs^c^f tue'^'^'^ has been seen : — ^™- 1. That, notwithstanding the death of a partner, his estate is liable to the creditors of the firm ; and not only in respect of debts contracted in his lifetime, in the ordinary way of *business, but also in respect of debts arising frou] breaches ^lOSl of trust committed in his lifetime by himself or his co- partners, and imputable to the firm (m); ' 2. That this liability cannot be got rid of by any arrangement between tne executors of the deceased and the surviving partners; and that, notwithstanding subsequent dealings between the cred- itors and the surviving partners, the liability of the executors con- tinues, until it can be shown that the creditors have abandoned their right to obtain payment fi'om the estate of the deceased, or that their demands have, in fact, been paid or discharged («-); 3. That this liability does not extend to ordinary torts, for as to them actio personalis moritiir cum persona, ip) (i) 25 & 26 Vict. c. 89, § 24, and see Wm. 4, c. 42, § 2, gives a remedy Table A, Nos. 12-16. The Table B. against the executors of a person who ja the Companies act, 1856, contained commits a tort within six months of his iimilar provisions. death, provided such tort affects the (fc) 8 & 9 Vict. c. 16, §§ IS, 19, 20. real or personal property of the person (Z) Compare §§ 3, 14, 18. injured. As to frauds, see New Som- (to) Ante, p. -369 et seq. brcro Phosphate Co. v. Erlanger, 5 Ch. 1 See post, 153, note. D. 73; Peek v. Gurney, 13 Eq. 79; Da- («) Ante, p. 435 et seq. vidson v. Tulloch, 3 McQu. 783. (o) Ante, p. 373 et seq. The 3 and 4 1373 *10o3 DEATH AND ITS CONSEQUENCES [BOOK IV. These propositions have been already so fully illustrated in various Summary of portions of the present treatise, that it is unnecessary cased. here to do more than collect the cases establishing them. Estate of 1. Cases in which hy death alone a partner's liaMl- <3.GCP9.SG(3, discharged ity has ieen extinguished: — Sumner v. Powell, 2 Mer. 30, and Turn. St R. 423 {ante, p. 372). Clarke v. Bickers, 14 Sim. 639 [ante, p. 872). Wilmer v. Currie, 2 DeG. & Sm. 347 {ante, p. 373). Hill's case, 20 Eq. 585. Joint holders of shares. Estate of 2. Cases in which the estate of a deceased partner clGCG3.SGd nofa discharged. has hcen held liable {p): — Liability in respect of contracts. Beresford v. Browning', 20 Eq. 564 {ante, p. 370). Lane v. Williams, 2 Vern. 292. Simpson v. Vaughan, 2 Atk. 31. Darwent v. Walton, ib. 570. Clavering v. Wesley, 8 P. W. 402. *105S *Bishop V. Church, 2 Ves. S. 100 and 371 {ante, p. 370). Jacomb v. Harwood, ib. 265. Bum V. Bum, 8 Ves. 573 {ante, p. 371). Thomas v. Prazer, 3 Ves. 899. Orr D.Chase, 1 Mer. 729. Harris v. Farwell, 13 Beav. 403. Devaynes v. Noble, 1 Mer. 539, and 2 R. & M. 495. Wilkinson v. Henderson, 2 M. & K. 583. Thorpe v. Jackson, 2 Y. & C. Ex. 553. Hills V. McRae, 9 Ha. 297. Brett V. Beckwith, 3 Jur. N. S. 31, M. R. {post, p. 1055). Cheetham v. Crook, McCl. & Y. 807. Liability in respect of 'frauds and, breaches of trust. New Sombrero Phosphate Co. v. Erlanger, 5 Ch. D. 73 {ante, p. 583). Blair v. Bromley, 2 Ph. 854 {ante, p. 305). Sadler v. Lee, 6 Beav. 324 {ante, p. 304). VuUiamy «. Noble, 3 Mer. 619. Devaynes v. Noble. Clayton's case, 1 Mer. 576 {ante, pp. 304, 431). Baring's case, ib. 612 {ante, p. 304). Ward's case, ib. 624. ( p) See the celebrated judgment in R. & M. 495. Devaynes v. Noble, 1 Mer. 589, and 2 1374 CHAP. I.J AS EEGAEDS JOIHT CEEDITOES. *1053 Estate of ^ deceased not discharged fey what has occurred since 3. Cases in which, the estate of a deceased partner has heen held Halle, notwithstanding dealings le- tween the creditors of the firm and the surviving partners: — his death. Devaynes v. Noble. Sleech's case, 1 Mer. 539. Clayton's case, ib. 679 [ante, pp. 304, 431). Palmer's case, ib. 623. Bradthwaite v. Britain, 1 Keen, 206. Winter v. Innes, 4 M. & Or. 101 (a very important case). Harris V. Farwell, 15 Beav. 31 [ante, p. 446). * Daniel v. Cross, 3 Ves. 277. Jacomb v. Harwood, 2 Ves. S. 2S5. 4. Cases in which the estate of a deceased partner ^^^^^^ ^^ ^ has heen held discharged hy what has taken place le- charidV^^ tween the creditor and the surviving partners: — ramd^Bhi^e' By general dealings. ^'^ ^tzx'a.. Oakley v. Pasheller, 10 Bli. 548, and 4 CI. & Fin. 207 [ante, p. 447). Browns. Gordon, 16 Beav. 302 [ante, p. 448). Wilson V. Lloyd, 16 Eq. 60 ; which cannot, however, be relied on, (see ante, pp. 435, 447). * By payment. *1053 Devaynes «. Noble. Clayton's case, 1 Mer. 572 [ante p. 422). Merriman ». Ward, 1 J. & H. 371. This case is important as showing that where a debt of a deceased partner has been discharged by the applicatio:a of the rule in Clayton's case, it is not competent for his executors to revive such a debt against his estate. The estate of a deceased partner may be discharged by the stat- ute of limitations; and now, by the Mercantile law gt^tuteof amendment act payments by the surviving partners limitations. will not keep alive the creditor's claim against the executors of the deceased, (g') The effect in equity of such payinents before the {q) 19 & 20 Vict. c. 97, § 14. See retrospective operation of the act (Jack- rhompson v. Waithman, 3 Drew. 628, son v. Woolley, 8 E. & B. 778), is in which, although wrong as regards the other respects correct, ante, p. 459. *1053 DEATH AND ITS CONSEQUENCES [book IV. passing of the act in question was by no means clearly settled (r); but whatever doubt there may formerly have been turof'flnntobe npon the subi'ect, it was clearly settled before the Judi- paid out of the ', ,. n t n i i i estate of a de- cature acts that a creditor oi the farm could proceed ceased partner. . , pi i . , ,. agamst the estate oi a deceased partner without farst having recourse to the surviving pattners, and without reference to the state of the accounts between them and the deceased, (s)' But (r) Compare Winter v. Innes, 4 M. & Cr. 101, and Braith waits v. Britain, 1 Keen, 206, with Way v. Bassett, 5 Ha. 55, and Brown v. Gordon, 16 Beav. 302. See, also, anh, p. 457. (s) Wilkinson v. Henderson, 1 M. & K. 582; Devaynes v. Noble, 2 R. & M. 495; Thorpe v. Jackson, 2 Y & C. Ex. 553. ' Except in case of death of a co-part- ner, creditors of a partnership can en- force their claims, which are purely legal, against the property of the part- nership, only at law. Parish v. Lewis, 1 Freem. (Miss.) Ch. 299. The death of one partner is not alone suiBcient to entitle a creditor of the partnership to go into chancery to en- force the collection of his deht. Pearson V. Keedy, 6 B. Mon. 128. The estate of a deceased partner caii- not be pursued, in law or equity, while the surviving partner is solvent. Alsop V. Mather, 8 Conn. 584; Troy Iron & Nail Factory v. Winslow, 11 Blatchf. 513. See, ante, 665, note. It is, however, in equity liable for partnership debts, if the surviving part- ner be insolvent. CaldweU v. Stileman, 1 Rawle, 212; Sale v. Dishman, 3 Leigh, 548; Storer v. Hinldey, Kirby, 147; Stahl V. Stahl, 2 Lans. 60; Philson v. Bampfield, 1 Brev. 202; Emanuel v. Bird, 19 Ala. 596. See, ante, 665, note. See Waldron v. Simmons, 28 Ala. 629; Freeman V. Stewart, 41 Miss. 188; Mc- Lain v. Carson, 4 Ark. 164. A partnership creditor recovered judg- ment on his claim against the surviving partner, who died, and his administra- 1376 tors exhausted his personal assets in paying other debts; whereupon he filed a bill against such administrators and the heirs of the surviving partner, and made the representatives of the deceased partner, parties, to subject the landpos- _ sessed at his decease by the surviving partner, some of which belonged to the firm, in the first instance, and then to charge the representatives of the partner ■who first deceased: Held, that equity had jurisdiction in the case, and that the representatives of the deceased partner were properly made parties. Jackson V. King, 8 Leigh, 689. Administrators of A brought a bill to foreclose a mortgage made by B, a late partner of A, to the administrators to secure an individual debt between them, and also to secure to A's estate the share of the property of the firm the business of vfhich B had undertaken to settle up: Held, that this mortgage belonged to A's estate, and that the firm creditors were not entitled to have the proceeds of it, while B was solvent. Wimpee v. Mitchell, 29 Ga. 276. A claim on a judgment recovered against a surviving partner can be en- forced against the estate of the deceased partner in equity only, and must, there- fore, be subject to such equitable rules as obtain in reference to the payment of partnership and individual debts. Weyer V. Thornburgh, 15 Ind. 124. M. and P. were in partnership as attor- neys at law. The firm received and re- ceipted for claims for collection by suit or otherwise. Suits were instituted and judgments recovered upon them in the CHAP. I.J AS EEGAEDS JOINT CREDITOES. *1053 it was necessary to make the surviving partners parties to the suit, for they were interested in the issues raised between him and the executors, (t) lifetime of M.; and after his death the money was collected by P., but was not paid to the claimants. P. subsequently died insolvent. There were no assets of the firm of M. and P. to be applied to the payment of the claims: Held, thut the separate estate of M. was liable for their payment. McGill v. McGill, 2 Mete. (Ky.) 258. See, also, Hebertson v. Jepherson, 10 Pa. St. 124. The creditor of a partnership cannot proceed in equity against the estate of a deceased partner without first exhaust- ing his remedy at law against the sur- viving partners, or showing that legal process against them would be unavail- ing. Slatter v. CarroU, 2 Sandf. Ch. 578; Lawrence v. Trustees, 2 Den. 577; Voorhis v. Child, 17 N. Y. 354; Copcutt V. Merchant, 4 Bradf. 18. See Nelson V. Hdl, 5 How. 127; Pillyall v. Laveiiy, 3 Fla. 72; Postlewait v. Howes, 3 Iowa, 365; CresweU v. Blank, 3 Grant Cas. 320; Moore's Appeal, 34 Pa. St. 411; Maxey v. AverUl, 2 B. Mon. 107. Wliere a surviving partner is insolv- ent, it is not necessary to obtain a judg- ment against him before proceeding against the equitable assets of a deceas- ed partner's estate. Vance v. Cowing, 13 Ind. 460. See, also. Horsey v. Heath, 5 Ohio, 353. Where one of two partners dies, and judgment.is recovered against the sur- viving partner for a partnership debt, and he becomes a bankrupt before the judgment is satisfied, the executors of the other may be compelled in chancery to make satisfaction. Storer v. Hihkley, Kirby, 147. Upon the dissolution of a partnership, the debts due the partnership were as- signed to one of the partners, who after- wards died, and the surviving partner removed out of the State, and his resid- ence was unlcnown to the representatives of the deceased partner: Held, that they might come into equity to recover the debts. Drake v. Blount, 2 Dev. Eq. 353. A sheriff's return on an execution against two surviving partners of nulla hotiA, that he could not find one either in his precinct or the State, and that the other was too sick to be committed to jail without danger of life, shows a suf- ficient compliance with the statute pre- scribing that surviving partners shall be pursued to final judgment and execu- tion, before a claim against the firm shall be valid against a representative of a deceased co-partner. Shaw v. Knowles, 3 R. I. 112. An accommodation indorser of the note of a firm, after the death of one of the partners, indorsed a new note in the same capacity, made by the surviving partner and the administratrix of the deceased partner, for the purpose of continuing the same indebtedness, the first note being taken up; the holder of the second note recovered judgment thereon against the indorser who satis- fied the same, and filed his bill to charge the estate of the deceased partner, upon the allegation that the makers of the note were insolvent: Held, that the estate of the deceased was relieved from the payment of the debt, and that the only equity of the comt)lainant in his estate was to subject the interest of the {t) See, in addition to the cases in the last note. Hills v. MoRae, 9 Ha. 297; Devaynes v. Noble, Sleeoh's case, 1 Mer. 539; Stephenson 17. Chiswell, 3 Ves. 566. As to the plaintiff availing himself of the equities subsisting between the de- fendants, see ante, note (r). 1377 *1054: DEATH AND ITS CONSEQUENCES [book IV. The right of a creditor of a firm to institute a suit for tlie admin- istration of the estate of a deceased member of the firm, and for pajnnent of his debts, joint as well as separate, was plain, (m) If Creditor's suit a sult had already been instistitnted for the trationotiie- *1054: *administration of the estate of the deceased, ner's estate. a creditor of the firm could go in and prove against the estate witliont being compelled to take anj' preliminary steps liiraself (x) If he had to institute a suit himself, he could surviving partner, and the administra- trix therein, to the payment of his debt. Bi-own V. Lang, 4 Ala. 50. The laches of a creditor of a partner- ship will bar his remedy against the estate of a deceased partner, but what shall amount to laches in prosecuting his claim will depend upon the cu-cum- stances of each particular case. Jackson i: King, 12Gratt. 499. A, B and C being partners in a man- ufacturing business, A made his will, by which he directed his interest in this establishment, viz: the buildings, ma- chinery, stock, privileges and profits thereof, to be continued therein, for the term of four years after his decease; and that at the exph-ation of that term, this property and the profits accruing thereon, together with all the testator's other estate, real and personal, should be divided and distributed to D and others. B, the executor of A, after A's death, carried on the business in the partnership name, for the term speci- fied. It proved to be a losing concern. A large sum was due from A's estate to the company beyond his share of the partnership property. A large sum was also due from the company to C, who had paid a part, and would be obhged to pay the residue, of the outstanding debts of the company, which were con- siderable in amount, B having failed and absconded. Previous to the expi- ration of the four years, the time limited by the court of probate for the exhibi- tion of claims against the estate of A, had expired, and the executor had pro- 1378 ceeded in the settlement of the estate without reference to the partnership fund, and had caused distribution to be made according to the provisions in the will. On a bill in chancery, brought by C against the executor and devisees of A, seeking satisfaction of his claims out of the general assets of A, it was 7ieM, 1, that the partnership creditors had no lien on the estate in the hands of the devisees, by reason of their right to participate, eventually, in the profits of the trade; 2, that the general assets were not liable to the plaintiff's claim, by virtue of the testator's last wiU; and 3, that the plaintiff's remedy was not in chancery, but by a demand on the exec- utor, to be pursued like other claims of a general nature against the testator's estate. Pitkin r. Pitkin, 7 Conn. 307. A bill in equity by a surviving part- ner, to administer lands bought with partnership funds should be framed on the theoiy of a settlement of the accounts between the complainant and the intes- tate, and between them and the credit- ors, so that all the creditors may have an opportunity to present their claims, and a proper distribution of the proceeds of the sale of the land can be made. Whitney v. Gotten, 53 Miss. 689. {?(.) In Rice v. Gordon, 11 Beav. 265^ one of the cases of this class, the debt due to the plaintiff arose out of a trans- action in which he had engaged as surety. {x) Cowell V. Sikes, 2 Russ. 191; Gray V. Chiswell, 9 Ves. 118. In the former there was a petition, but this is now un- necessary. CHAP. I.] AS EEGAEDS JOINT CEEDITOES. *10oJ: file a bill (y); or, if tlie case was very simple perhaps proceed by summons in chambers. Since the Judicature acts a creditor can, it is apprehended, sue both the surviving partners and the executors of the deceased part- ner, and obtain judgment against them all; the judgraent against the executors being, however, of course limited to the assets of the deceased. The right of creditors of the firm to obtain payment night of cred- ' of their debts out of the assets of a deceased partner comp°are™witii being thus established, their position, as regards the the separate other creditors of the deceased, has next to be deter- the deceased. mined. From the doctrine that partnership debts are several as well as joint, it would logically follow that the creditors of a partnership should be entitled to rank against the assets of the deceased ^a?'?^ passu with his separate creditors, {z) But as will be seen hereafter, it is a rule in bankruptcy that the debts of a firm shall be paid out of the assets of the firm, and the separate debts of each partner out of his separate estate: and in administering the insolvent estate of a deceased partner the same rules have now to be adopt- e1. [a) Accordingly the separate estate of a deceased partner must be ajjplied in payment of all principal and interest due to his sep- arate creditors before any part of such estate can be touched by the creditors of the firm (5);' and this rule applies even although the [y) Hills V. McRae, 9 Ha. 297, is a,n elusion of creditors of individual part- instanee of a elaim; but claims are now ners, until all the partnership debts are abolished. See Cons, order 8, rule 4. paidj and this rule excludes firm credi- («) See ace. Burn v. Bum, 3 Ves. 573, tors from participation in assets of indi- where a bond creditor of the firm ob- vidual partners until their individual tained a payment as if he had been a debts are paid. Union Natl. Bant v. separate specialty creditor of the de- Bank of Commerce,*94 111. 271; Black's ceased. Appeal, 44 Pa St. 503; Buchani). Sum- Co) Jud. Act, 1875, § 10. Even be- ner, 2 Barb. Ch. 165; Hardy v. Mitchell, fore they were adopted to some extent. 67 Ind. 485; Pilley v. Phelps, 18 Conn. See Lodge v. Prichard, 1 DeG. J. & Sm. 294; Conkling v. Washington Univers- 610. ity 2 Md. Ch. 497 ; Bond v. Nave, 62 Ind. (6) See Lodge v. Prichard, 1 DeG. J. 505; Conant v. Frary, 49 Ind. 530; & Sm. 610, and 4 Giff. 294; Whitting- Eainey v. Nance, 54 111. 29; Bass v. staU V. Grover, 10 W. R. 53; Gray v. Estill, 50 Miss. 300; Crocker ?'. Crooker, Chiswell, 9 Ves. 118; Addis v. Knight, 46 Me. 250; Sniffer v. Sass, 14 Rich. 20, 2 Mer. 117; Croft v. Pyke, 3 P. W. 182. n.; Houseal's Appeal, 45 Pa. St. 484; ' Partnership creditors have a primary Morrison v. Kurtz, 15 111. 193; Moline claim upon partnership assets to the ex- &c. Manufg. Co~. v. Webster, 26 lU. 233; 1379 *1054 DEATH AND ITS CONSEQUENCES [book IV. PaHmian v. Cranes, id. 405; Thornton r. Bussey, 28 Ga. 302; Toombs v. HiD, id. 371; Bevan v. AUee, B Harr. 80; Chase v. Steel, 9 Cal. 64; Collins k. But- ler, 14 Cal. 22;;!; Burpee e. Bunn, 22 Cal. 194; Wintersniith v. Pointer, 2 Mete. (Ky.) 457; North River Bank v. Stewart, 4 Bradf. 254; Gtanson v. Lathrop, 25 Barb. 455; Kirby v. Car- penter, 7 id. 373; Smith v. MaUory, 24 Ala. 628; Bridge v. McCuUough, 27 Ala. 661; Van Wagner v. Chapman, 29 Ala. 172; Lucas v. Atwood, 2 Stew. 378; McCuUoh V. Dashiell, 1 Har. & G. 96; Gleen ». Gill, 2 Md. 1 ; Foster v. Hall, 4 Humph. 346; Fleming v. Billings, 9 Rich. Eq. 149; Gadsden v. Carson, id. 252; Wilson v. McConnell, id. 500; Woddrop V. Ward, 3 Dessaus. 203; Christian v. Ellis, 1 Gratt. 396; Pierce V. Jackson, 6 Mass. 242; Fiskw. Herrick, 6 id. 271; Phillips v. Bridge, 11 id. 242; Goodwin v. Richardson, id. 469; Rice V. Austin, 17 id. 197; Adams v. Paige, 7 Pick. 542; Wilson v. Conine, 2 Johns. 280; Smith v. Baker, 10 Me. 458; Jarvis v. Brooks, 23 N. H. 136; Crockett v. Grain, 33 N. H. 542; Holton V. Holton, 40 N. H. 77; TreadweU v. Brown, 41 N. H. 12; Matleck v. James, 13 N. J. Eq. 126; Hill v. Beach, 12 id. 31; Wilder v. Keeler, 3 Paige, 167; Kicoll V. Mumford, 4 Johns. Ch. 522; Muir V. Leitch, 7 Barb. 341; Oakey v. V. Rabb, 1 Freem. (Miss.) Ch, 546; Ar- nold V. Hamer, id. 509; Terry w. Butler, 43 Barb. 395; Murrill v. Neill, 8 How. 414; Re Warren, Dav. 320; Hubble v. Perrin, 3 Ohio, 287; White v. Union Ins. Co. 1 N. & McC. 556; Washburn ?;. Bank of Bellows Falls, 19 Vt. 278; Willis V. Freeman, 35 Vt. 44; Converse V. McKee, 14 Tex. 20; Rider v. Gilbert, 16 Hun, 163; ante, 655, note. See Irley ». Graham, 46 Miss. 425; Whipple V. Hill, 14 La. Ann. 437; Bank of Kentucky v. Keizer, 2 Duv. 169; Whitehead ». Chadwell, id. 432; BeU V. Newman, 5 Serg. & R. 78; White v. 1380 Doughtery, 1 Mai-t. & Yerg. 309; Owens V. Davis, 15 La. Ann. 22; Gros- venor v. Austin, 6 Ohio, 103; Daniel v. To^vnsend, 21 6a. 155; Scott ». Duns- ley, 12 Ala, 714; Egery v. Howard, 64 Me. 68; Davis v. Grove, 2 Robt. 134, 635. In cases of co-partnership, the equity in favor of separate creditors will not be enforced to control or take away a right acquu-ed by legal execution on the part of joint creditors against the sep- arate estate. It is only when the legal recourse of joint creditors against the separate estate is terminated, and they have no claim against these assets ex- cept in equity, asm cases of bankruptcy, or death of a partner, that the joint creditors are postponed. Baker v. Wim- pee, 19 Ga. 87; Cleg-horn v. Ins. Bank, 9 Ga. 319. See Haskdl v. Johnson, 24 Ga. 625 ; Allen v. Wells, 22 Pick. 450; Kuhne v. Law, 14 Rich. 18; Wisliam V. Lippincott, 9 N. J. L. 353. However, where land of one partner is set off on execution for a debt of the firm, a.nd afterwards the same land is set off for a separate debt of the part- ner, the separate creditor will hold the land. It has been held that Jarvis v. Brooks, 23 N. H. 136; Crockett «>. Grain, 33 id. 542; -Holton v. Holton, 40 id. 77; TreadweU J). Brown, 41 Id. 12. As a general rule, a partnership cred- itor cannot be compelled in equity by one of the pai-tners, to whose separate estate he has resorted, to proceed against the joint estate instead. Wisham v. Lippincott, 9N. J. Eq. 853. The priority of lien of a judgment on a partnership debt, rendered after one partner had died, which lien attached to the real estate of the survivor, held in his individual right, will not be re- lieved against in equity, in favor of a subsequent judgment against the survi- vor for his individual debt, even though there be no assets to satisfy the latter judgment, and though' the deceased CHAP. I.J AS EEGAEDS JOINT CEEDITOES. *1054 partner has left sufficient assets to sat- isfy the partnership judgment. Meech V. Allen, 17 N. Y. 300. The doctrine that the separate debt of one partner should not be paid out of the partnership estate until all the debts of the firm are discharged, does not apply until the partners eease to have a legal right to dispose of their property as they please. It is applicable only when the principles of equity are brought to interfere in the distribution of the .partnership property among the credi- tors. McDonald c. Beach, 2Blackf. 55; SchaefTer v. fithian, 17 Ind. 463; Dun- ham p. Hanna, 18 Ind. 270. See Dean V. Phillips, 17 Ind. 406. The right of partnership creditors to claim a preference over the creditors of the individual members of the firm, in the distribution of the partnership prop- erty, is wholly dependent upon the right of the individual partners to enforce a lien upon the partnership funds for the payment of the partnership liabilities, before individual debts; and if the con- tract of co-partnership be of such a na- tm'e, that the co-partners can enforce no such right, as between themselves, the partnership creditors can claim no such preference. Rice ». Barnard, 20Vt. 479. See, also, Schmidlapp v. Currie, 55 Miss. 692; Waterman v. Hunt, 2 R. I. 298. Ordinarily a partnership estate is lia- ble to the payment of the debts of the firm in preference to the individual debts of the prrtners. This is the right of the partners Inter se. The creditors of the partnership have no such right of priority over the creditors of the part- ners individually; but only by substitu- tion to the rights of the partners inter se. The partners may release this right, and the creditors of the co-partnership cannot complain; for it is not their right, except subject to the disposition and control of the partners themselves, to whom it belongs. Shackleford v. Sliackleford, 32 Grat. 481; Schmidlapp V. Cume; Wateniian v. Hunt, supra. Where one partner, in good faith, as- signed all his interest to the other, who in turn made a hand fide assignment for the payment of debts, giving some of his separate debts a preference: Held, that the partnership creditors could not sustain a bill for satisfaction of their debts out of the assigned property, until executions at law for those debts had been issued and returned unsatisfied. Robb v.. Stevens, 1 Clark (N. Y.), 191. Partners have the power, while the partnership assets remain under their control, to appropriate any portion of them to pay or secure theh individual debts. A mortgage given by them to secure individual debts faii-ly due, is not rendered void by the mere fact that it operates to give individual debts a pref- erence over demands against the firm; nor will such mortgage be set aside for that reason by a court of equity, unless, perhaps, when created in contemplation of insolvency to give an unproper pre- ference. National Bank of Metropolis V. Sprague, 20 N. J. Bq. 13. See ante, 655, note. The partnership, while it is solvent, may sell its property or give its note secured by mortgage, to one of the part- ners, and if the sale be made or the note and mortgage given in good faith and for valuable consideration, they will be valid against the claims of the partner- ship creditors, and although, if such note and mortgage be retained by the partner until the bankruptcy of the firm, he will not be allowed to enforce them against the company assets to the ex- clusion of the partnership creditors, be- cause he is himself liable to these cred- itors, yet the assignee of such note and mortgage, who has received them in good faith and for valuable considera- tion during the solvency of the firm, holds them unaffected by the claims of the partnership creditors. Waterman v- Hunt, 2 R. I. 298. See ante, 655, note. 1381 *1051 DEATH AKD ITS CONSEQUENCES [book it. Wliere the trastee under a deed of trust made by the surviving partners after the dissolution of an insolvent firm by the death of a member, had appro- priated money of the firm realized by him before the service of an attachment in a suit in which the deed was declared unauthorized, to the payment of his own and other preferred debts, in violation of the right of partnership creditors to be paid before creditors of individual partners, and to share ratably: Held, that the payments could not be al- lowed to stand. Barcroft v. Snodgrass, 1 Coldw. 430. At a time when a debtor was allowed to give preferences, one who was a member of an insolvent partnership con- veyed his separate real property in satis- faction of his debt to a separate cred- itor. Its value exceeded the debt: Held, that the firm creditors had an interest in the excess, and that, in equity, the property conveyed would be held as a security, first for the debt due to the grantee, and, as to the excess of value, for other debts. But the real estate conveyed being the separate property of the co-partner, the excess of value was bound first, for his separate debts, and only after satisfying these was it applicable to the debts of the partner- ship. Bailey v. Kennedy, 2 Del. Ch. 12. An assignment by co-partners of their individual property, as well as their partnership property, to pay the joint debts of the firm, is not on that account void. VanRossum v. Walker, 11 Barb. 237. The members of an insolvent part- nership assigned their partnership prop- erty together with certain' real estate, which they owned as tenants in com- mon, in trust for the payment of their partnership debts, with a reservation to themselves of the surplus, if there should be any: " Held, that the assignment was void as to individual creditors of the assigTiors, on account of this reser- 1382 vation. Collomb v. Caldwell, 16 N. T. 484. See anfe, Assignments. Equity wDl not sustain an agreement made by partners for the purpose of giving the separate creditors of one partner a preference to the creditors of the firm, if the firm be, at the time of inaking such agreement, insolvent. Collins V. Hood, 4 McLean, 186. One partner has no right to assign to his separate creditors any portion of the effects of the partnership, to the pre- judice of the partnership creditors. , Black V. Bush, 7 B. Mon. 210. See ante. Assignment. A creditor of -one of several partners has no right, even under an express con- tract with such partner, to a.pply part- nership effects to the satisfaction of a debt against such partner, unless the other partner consents to the contract. Broaddus r. Evans, 63 N. C. 633. A partner sold his interest in the' firm to his co-partner, who agreed to pay the firm debts. The firm was at the time insolvent. After the sale, continuing partner gave a deed of trust on all the assets of the late firm, to secure the payment of an individual indebtedness of his own, which accrued prior to the dissolution. In a contest between a creditor of the firm and the individual creditor, — held, that the right of the former to be paid out of the firm assets in preference to the latter was not im- paired by the dissolution, and as aga-inst him the deed of trust was a nuUity. Phelps V. McNeely, 66 Mo. '554. In Jones v.^ Lusk, 2 Mete. (Ky.) 356, it was held that the only insolvency which will give the chancellor jurisdic- tion to decree priority of payment in fa- vor of partnership debts, is that which is ascertained and established by a judg- ment, execution, and return of "no property" against one or more of the partners. In Levy v. Ley, 6 Abb. Pr. 89; S. C. 15 How, Pr. 395, it was held that proof that the defendants have sus- CHAP. I. AS EEGAEDS JOINT CKEDITOES. *105i pended payment on their liabilities, and pay nothing in full except such small claims as would be pressed to judgment if .not settled, and which are paid to prevent the assets from being sacri- ficed, — ^is sufficient proof of msolvency to authorize an injunction and appoint- ment of a receiver, in an action by a creditor of a partnership on an indebt- edness of the firm. Where a partnership is insolvent, or where its solvency is doubtful, a court of equity will restrain a sale and the taking of possession of the partnership property under an execution against an individual member of the firm until the settlement of the partnership affairs, in order to ascertain whether the debtor- partner has a real and valuable interest over and above the liabiUties of the firm. Hubbard v. Curtis, S.Iowa, 1. Property attached in a suit against a partnership, prima facie, in the absence of contrary showing, will be presumed to be partnership property; and before individual property can be afterward taken, it behooves plaintiff to show that this first has been exhausted, or that, for some good reason, it was exempt. Lewis V. Conrad, 11 Iowa, 153. Where a firm has become insolvent and an application has been made for receivers, a special partner in the insol- vent firm is entitled to come in and claim as a creditor of the partnership, and to receive a dividend out of the as- sets pro rata with the other creditors. White V. Hackett, 24 Barb. 290. A partner mortgaged his private prop- ,erty for a firm debt, and on that mort- gage the property was sold and the debt satisfied, after the firm assets had gone into the hands of an assignee for credit- ors: Held, that the separate estate of the partner stood on the same footing as other general creditors of the firm. KendaU v. Rider, 35 Barb. 100. Where a surviving partner has paid the partnership debts of a losing con- cern, he is entitled to be substituted for the amount that the estate of the de- ceased partner is indebted to him on that account, to the rights of the credit- ors of the firm whose debts he has paid. Morris v. Morris, 4 Gratt. 293. Where a person becomes a member of a firm, purchasing an interest in a mill and the ground upon which it stands, and there is a prior encumbrance by mortgage upon the premises, which the former owners agreed to remove, and also a mechanic's hen, of which the purchasing partner had no notice, the real estate becomes partnership property, and upon an adjustment of the rights of the partners and partnership credi- tors, and creditors of individual part- ners, the purchasing partner, as against the separate creditors of the partners, will be considered a creditor of the firm, and as such, entitled to be reimbursed out of the joint fund, to the exclusion of such separate creditors, to the extent of those prior liens which had been sat- isfied on a sale of the firm property. Rainey v. Hance, 54 lU. 29. Where, in a suit against two pai-tners, for a partnership debt, one of them is discharged upon his plea of infancy, and judgment is taken against the adult partner, the judgment is still a partnership debt, to which the partner- ship funds must be applied in preference to debts of the individual partners. Gay V. Johnson, 82 N. H. 167. Sureties on a bond given to dissolve an attachment in a suit against part- ners, can recover from the firm the amount paid by them on such bond, although the judgment was recovered against one partner only, the suit hav- ing been discontinued against the others for want of jurisdiction. Inbusch v. Farwell, 1 Black, 566. In the United States courts, partner- ship property may be held for partner- ship debt, though judgment can be ob- tained only against one partner, by 1383 no5i DEATH AND ITS CONSEQUENCES [book IV. reason of tlie other's being out of the jurisdiccion. Inbusoh v. Farwell, 1 Black, 566. Where the same partners carry on the same business at diiferent places, under different partnership names, there are not two distinct fii-ms, and the assets of both nominal firms are equally applica- ble to the payment of all the creditors of both. In re Wilhams, 3 Wood, 493. B and C were partners under the firm name of B & C, and also co-part- ners with A, under the firm name of A, B & C. The demandant, a partnership creditor of the firm of A, B & C, having attached and levied on the real estate of B & C, purchased by them with part- nership funds and for heir partnership use, but held by them as tenants in common, the same was subsequently at- tached and levied on by the tenant, who was a creditor of the firm of B & C, as their partnership property, and the demandant brought his writ of entry to recover the same: Held, that the demandant by his previous attach- ment and levy acquired the better title at li w to the premises, and was entitled to judgment, but judgment was with- held to await the result of a suit in equity then pending to subject the land to the partnership debts of B & C. Peck V. Fisher, 7 Cush. S87. The legal priority obtained against a firm composed of two partners, by a partnership creditor of a firm consisting of the same individuals, joined with a third, will be postponed in equity to the claims of the partnership creditors of the former. Shedd v. Wilson, 27 Vt. 478. Where a person is a member of two partnerships, his separate creditors have a preference over his interest in the property of one of the firms as against creditors of the other firm. Weaver v. Weaver, 46 N. H. 188. Where a partnership is changed by the admission of a new partner, the 1384 creditors of both the old and new firms wiU in equity be allowed to share alike in the partnership property. Shedd v. Bank of Brattleboro', 32 Vt. 709. A and B, partners, gave a joint and several bond and warrant of attorney to T. for a partnersliip debt. Judgment was entered and execution issued Feb. 7, 1876. Feb. 20, A and B made an in- solvent assignment, B being also uidi- vidually insolvent. The judgment being only partly satisfied, and A having made an assignment, it was held that T might, under A's assignment, share equally the personal effects of A, and was not to be subordinated to his individual creditors. Howell V. Teel, 29 N. J. Eq. 490. On the 1st day of June, 1842, A, B and C entered into partnership in the busiuess of keeping a livery stable, and, as such partners, purchased of D, prop- erty necessary for conducting such busi- ness, to the amount of $8,200, for which they gave their joint and several prom- issory notes, payable on the 1st day of February, in the years 1843, 1844, 1845 and 1846, respectively. In August, 1842, C died; and the business of the business of the partnership was con- tinued by A and B, with the partnership capital, without any {adjustment of the partnership concerns until May, 1844; during which time they paid from the partnership funds two of the not(^s to D, amounting to $4,200, the other two being still unpaid. At the time of C's death, the partnership property was suf- ficient to pay the partnership debts, but the business was afterwards ruinous. A being appointed administi-ator of C, sold in May, 1844, by order of the court of probate, and with the consent of C's heirs, one undivided third part of the partnership property then remaining to E, for the use and benefit of A; and A thereupon assumed the payment of that portion of the notes to D, which it be- longed to C in his Hfe-time to pay. On the 19th of June following, A settled CHAP. I.j AS EEGAEDS JOINT CEEDITOES. *1054 his administration account, charging C's estate with $3,002, on account of the notes given to D, and crediting the es- tate with $2,094, for the avails of the partnership property belongmg to it, thus showing a loss resulting to it from the partnership concern of $908. After the death of C, new partnership debts were contracted, which are still unsatis- fied. Some of these creditors brought suits on their respective claims against A alone, attaching his interest in the partnership property, which suits are still pending. In April, 1844, A exe- cuted a mortgage of all his interest in the paiincrship property to certain other creditors, to secure debts against him individually. A is entirely insol- vent, and B has no estate, except his interest in the partnership property. On a bill in chanceiy brought by the heirs of C against A and B and the attachmg creditors and mortgagees of A, it was held, 1. That the notes given by A, B and C to D, notwithstanding their form, con- stituted a pa,rtnership debt. 2. That although the notes given to D were, in form, several as well as joint, so that D could sustain an action at law thereon against C's administrator, with- out resorting to A and B as surviving partners, yet this did not vary the equi- table rights of those interested in C's es- tate, nor prevent the interposition of a court of chancery, to apply the partner- ship effects in payment of the debt; 3. That the rights of those interested in C's estate were not impaired by delay in closing the partnership concerns; 4. That they were not impaired in consequence of the sale to A through the agency of E; for whether A could, under the circustances, be both seller and purchaser or not, yet he received the property subject to the incumbrance of the notes to D, and it was still liable for the payment of those notes; 5. That the creditors of the partner- ship whose debts were contracted after the death of C, were entitled to share in the partnership effects; 6. That those creditors who had brought suits against A alone and at- tached his interest in the partnership property, which suits were still pending, were also entitled to share in the part- nership effects; 7. That the mortgagees and other creditors of A individually could take nothing, except his share in the part- nership property remaining after pay- ment of the partnership debts. Filley V. Phelps, 18 Conn. 294. A person who has advanced money to one of several partners, upon his indorse- ment of a note made by another part- ner, cannot come into a court of chan- cery for payment of the note out of the partnership effects, though the proceeds of the note were applied to partnership purposes. Coster v. Clarke, 3 Edw. Ch. 411. The excess of one partner's advance over those of another, constitutes a pre- ferred claim upon the partnership prop- erty or its proceeds, against the individ- ual creditors of the bankrupt partner. ConHing v. "Washington University, 2 Md. Ch. 497. See, also, Buchan v. Sum- ner, 2 Barb. Ch. 165. A judgment confessed by one partner in favor of his co-partner, to secm-e him for capital advanced to the concern, is valid against the judgment of a private creditor of the partner who confessed the judgment. Purdy v. Lacock, 6 Pa. St. 490. A and B were partners. A owed the firm $17,600. He died. The surviving pai-tner assigned the firm assets to an assignee for the benefit of creditors.. The assignee claimed of A's adminis- trator that out of A's individual assets he should pay to the assignee the $17.- 600 which A owed the firm. The indi- vidual creditors of A resisted this claim, on the ground that it was substantially 1385 . nor>i DEATH AND ITS CONSEQUENCES [book it. a claim by tlie firm creditors to come in upon A's separate estate, notwithstand- ing the existence of a fund of their own; an objection which the trial court thought valid, and disallowed the claim. The appellate court reversed the decis- ion and allowed the claim, holding that "the debt of a partner to his firm for partnership effects withdrawn and ap- propriated to his separate use,'' was not ' ' a partnership debt, ' ' but an individual debt, and that he was "just as much a debtor severally for what the finn has advanced to him as he would be to an- other creditor," and this, notwithstand- ing "when his debt is paid, it will go into the firm and form a part of its as- sets, and the firm creditors will then come in npon it as part of their fund." A partnership debt is a debt which a partnership owes to its creditors, not that which another owes to it, whether its debtor is one of the partners themselves or some one else. McCor- mick's Appeal, 55 Pa. St. 252. See, also, Busby V. Chenault, 13 B. Mon. 554; Payne v. Matthews, 6 Paige, 19. A, B and C were partners. B sold the partnership property, took notes, and received some money thereon from the purchasers. He gave A and C his own notes for their shares, with the un- derstanding that a settlement should take place when all the other notes were collected, each partner bearing his pro- portion of the loss from bad debts, if any. On a bill by A against B's execu- tor, held, that A was entitled to his share of the money received or to be col- lected on the notes given for the partner- ship property by the purchasers, in preference to the private creditors of B. Ridgely v. Carey, 4 Har. & M. 167. See, also. Christian v. Ellis, 1 Gratt. 396. A held a contract, npon which certain money was to be received for the benefit of B and C, who were partners. B and C ordered the money, when i-eceived, to be paid over to D, to whom the partner- 1386 ship was indebted; and B, surviving partner, after the death of C, made a formal assifrnment of the money to D, to be appropriated to the payment of hia demand against the partnership. After this, A received the money, at different times, and paid it over to D. Mean- while, E summoned A and D. as trustees of B and C : Held, that D was entitled to so much of the money as would satis- fy his demands against the partnership, but that he was not entitled to retain for the private debt of B, the surviving partner, nor for the debts of other credit- ors of B and C, to whom, without any authority, he had said that, if there was any balance in his hands, he would pay the debts. French v. Lovejoy, 12 N. H. 458. Where an individual member of a firm deposits with a creditor of the firm a promissory note belonging to such partner, as collateral security for a par- ticular debt owing by the firm to such creditor and afterwards pays the debt, the party so depositing the collateral can recover the proceeds collected by the creditor, notwithstanding there may re- main other unadjusted claims due from the firm to such creditor, the firm being solvent at the time, on the ground of the separate property of one partner not being liable to be taken in the first in- stance, to satisfy partnership debts. Adams v. Sturges, 55 111. 468. A firm to secure creditors agreed to transfer certain coal barges, mules, etc., to them and execute a bill of sale, the creditors agreeing at the same time to take the real estate of one of the firm and pay the liens thereon, which were for his individual debts; deeds for the property were made, but the creditors did not pay the liens, and in an action in the name of the individual partner against the creditors on their agTeement to take his property and pay the liens, the defendants claimed that it and the bill of sale were one transaction, and cnAP. i-J AS EEGAEDS JOINT CEEDITOES. *105i that they were entitled to default against the amount to be recovered against them, damages for breach of the part- nership contract in not turning over to them the property sold, to which they covenanted that they had a good title : Held, defense not valid, its eft'ect being to divert to the creditors of the partner- ship a fund arising from private prop- erty specifically appropriated to private debts. Jackson v. Clymer, 43 Pa. St. 79. The ratification by the firm of the unauthorized act of one partner in sign- ing the firm name to a contract of sure- tyship is ineffectual as against existing partnership creditors, being in substance an adoption by the firm of the private debt of one partner. Kidder v. Page, 48 N. H. 380. Where one partner retires from a, firm and releases all his interest in the as- sets to the other partner, who agrees to pay all the company debts, the right of priority stiU continues in the partner- ship creditors in regpect to such assets. Caldwell v. Scott, 54 N. H. 414. Suc- cession of Beer, ,12 La. Ann. 698; Wil- son V. Soper, 13 B. Mon. 411. Upon the dissolution of a partnership between A and B, A assumed the pay- ment of the parlnarship debts: Held, that a pai-tnership creditor could not proceed for the appointment of a re- ceiver of B's property only, without showing some suflScient reason for not proceeding against the property of the partnership, and of A. Henry v. Henry, 10 Paige, 814. The property of the partnership re- mains subject to the preference of the partnership creditors, notwithstanding the survivor may have managed and treated it as his own, with the assent of the administrator of the deceased part- ner, and may have contracted debts upon the credit of the property. Benson v. Ela, 35 N. H.'402. See, however, Top- liff V. Vail, Harr. Ch. 340. Where laud was purchased by a part- nership, but not used by them in their business, and it afterwards was sold un- der execution against one of the part- ners, and it did not appear that the pur- chaser had notice that it was partner- ship property: Held, that the land so purchased was not to be made Uable in his hands for partnership debts. Buck V. Wmn, 11 B. Mon. 320. If two persons who are not in fact partners, hold themselves out to certain creditors as partners of a stock in trade, so as to become liable to them as such, although the stock belongs exclusively to one, the i-ights of these creditors would rest upon estoppel, which would be personal to the parties bound, or their privies, not upon a lien on or equity in the stock, to be worked out through the IDarties;' and therefore, in a controversy between such creditors and a purchaser .of the stock at execution sale under a judgment against the actual owner of the goods as the sole proprietor, " the purchaser would have the better right. Hillman v. Moore, 3 Tenn. Ch. 454. See, also, AUen v. Dunn, 15 Me. 292. A, with the consent of B, did business in his name and bought goods of C and also of D, who both gave credit to B. C brought an action against B and attach- ed goods as his property. Subsequently D brought an action against A, doing business under the name of B, and at- tached the same goods. C was then allow- ed, without notice to D, to amend his writ by adding the name of A as a defendanti and declaring against A and B as co- partners doing business under the name of B. Both C and I) recovered judg- ments. As between A and B the latter had no interest in the attached goods: Held, that the goods attached were first ■ to be applied in satisfaction of the exe- cution obtained by C on his judgment; and that the amendment was immate- rial. Wright V. Herrick, 125 Mass. 154. The creditors of a partnership consist- 1387 *105i DEATH A-ND ITS CONSEQUENCES [book IV. ing of A and B, who were mostly igno- rant of the partnership and dealt with A alone, after the partnership goods had been attached by C to secure a debt in his favor against A individually, with a view to save expenses, consoh- dated their debts and took a note to D for the amount, it being agreed, be- tween them and B, that he should not be called upon beyond the value of the partnership goods. D, in a suit on such note, afterwards attached the same goods. A and the partnership were insolvent and had no other property than the goods attached, which were of less value than the amount of the note to D. On a bill in chancery, brought by D against C, claiming priority of lien, it was held, 1, that the agreement be- tween the partnership creditors and B was a fair and proper one as between them, and that neither C nor A could complain of it; 2, that D was entitled to the priority claimed; 3, that the only adequate remedy was in chancery, where all the parties interested might be brought together and their several rights determined. Witter v. Richards, 10 Conn. 37. Where a debtor partner, by his will, has subjected his real estate to the pay- ment of his debts, his partnership cred- itors are entitled to share with the sep- arate creditors in that fund. Morris v. MoiTis, 4 Gratt. 293. Partnership property is first to be ap- plied to the payment of partnership debts, but a partnership creditor may, ' with the assent of the firm, waive this privilege and agree to share pro rata with the creditor of the individual part- ner. Linlbrd v. Linford, 29 N. J. L.113. The rule that the creditors of a part- nership will not be permitted to reach the individual estate of a deceased part- ner until all the separate creditors are satisfied, appHes only to cases founded on the relation of debtor and creditor, and cannot interfere with the remedy 1388 against an individual as a wrong-doer, or his estate. Morgan v. Skidmoie, 55 Barb. 263. The rule that partnership property must be first applied to the payment of partnership debts, does not apply in the case of a silent partner: in such case, the partnership property may be taken for the private debts of the ostensible part- ner, Eilthough there be partnership debts unpaid. Cammack v. Johnson, 2 N. J. Eq. 163. See, also, French v. Chase, 6 Me. 166. In the case of a dormant partner-ship, an attachment of the stock in trade in the hands of the ostensible partner, in a suit against him alone, has preference to a subsequent attachment of the same goods by another person in an action against the partners. Lord v. Baldwin, 6 Pick. 348. ' Where a surviving dormant partner was a creditor of the firm for advances and profits, and where the deceased partner had promised to pay the same : Held, that he might have a remedy by filing his claim with the commissioners of insolvency upon the estate of the de- ceased, and that they might allow it, postponing payment, until the creditors had been paid in full. Johnson v. Ames. 11 Pick. 173. The doctrine, that a separate debt of one partner shall not be paid out of the partnership property tfil all the partner- ship debts are paid, is, it is said, appli- cable only where the principles of equity are brought to interfere ia the distribu- tion of the partnership property among the creditors. Mittnight v. Smith, 17 N. J. Bq. 259. See, also, Gillaspy v. Peck, 46 Iowa, 461. The qitasi lien of the creditors of a partnership, on its property, as against creditors of individual members of the partnership, gives equity jurisdiction for the purpose of protecting the members of the partnership. BlackweU v. Ran- kin, 7 N. J. Eq. 152. CHAP. I.j AS EEQAEDS JOINT CEEDITOHS. *-1054 The preference which the law gives ths creditors of a pai-tnership to be first satisfied out of the firm property, will, however, be protected in proceedings of garnishment by firms and individual creditors. Switzer v. Smith, 35 Iowa, 269. Where one partner, without the knowledge or consent of his co-partner, pays his own note to a private creditor out of the funds of the insolvent firm, such creditor knowing that the money belonged to the firm, the funds so re- ceived will be regarded as held by the private creditor in trust for the benefit of the firm, and may be attached in his hands upon a trustee process instituted against the firm by one of its creditors. Johnson v. Hersey, 70 Me. 74; S. C. 8 Am. Law Record, 720. The rule applies where a court of equi- ty is asked to set aside a fraudulent con- veyance of real estate. Plardy v. Mitch- ell, 67 Ind. 485. See Loving v. Paird, 10 Iowa, 282. The fact that an individual creditor foregoes his right to have a, fraudulent conveyance of the real estate of such j-artner set aside, gives a partnership creditor no right to attack such convey- ance. Hardy v. Mitchell, 67 Ind. 485. The only interest of the partnership creditor in such case is in the residue of the individual property over individual debts. Hardy v. Mitchell, supra. In a complaint by a partnership cred- itor, attacking an alleged fraudulent conveyance of the individual real estate of the partner, it would be proper to aver that there were no individual debts. Hardy v. Mitchell, supra. An action attacking such conveyance might be brought jointly by partnership and individual creditors. Hardy v. Mitchell, supra. The administrator of a surviving part- ner represents the partnership assets, as well as the individual estate of his in- testate. Accordingly, it is held that a partnership creditor being in tune to re- cover against the estate of the surviving partner, in which event that estate would be entitled to proper reimburse- ment from the partnership fund, it is therefore proper to reach the same re- sult without circuity, by allowing the creditor to resort to the partnership fund directly. Brooks v. Brooks, 12 Heisk. 12. Where the partnership property is not sufficient to pay the debts of the firm, the priority of the United States does not reach the undivided interest of one of the paitners in the partnership effects, if he is indebted to the United States, but when it has become his sep- arate, individual property, the rule is different. The true test is, whether the property belongs to the partnership or to the individual. United States )'. Duncan, 12 111. 623. The creditors of a partnership applied to a State court by bill, to declare the partnership, and decree the payment of the partnership debts out of assets in the hands of the administrators of one of the partners who had died insolvent, indebted to the United States. The ad- ministrator denied the partnership, and took an objection based on the debts being due the United States and its priority. The United States were not parties, and did not appear in the State court. The State court decreed in ac- cordance with the prayer of the bill: Held, that the proceedings in the State court did not impair the rights of the United States, and that it was not bound by them; but that, notwithstand- ing the decree in the State court, the priority of the govei^ment attached, and that whenever the proceeds of any real estate or personal estate came into the hands of the administrator, he be- came a trustee for the United States, which must first be paid. United States V. Duncan, 12 111. 523. 1389 *1055 DEATH AND ITS CONSEQUENCES [book IV. surviving partners may be bankrupt, (c) If, indeed, there is *1055 not, *and never was, since the death of the deceased any joint estate whatever, and no .solvent partner, it seems that the joint creditors may rank pari passu with the separate creditors of the deceased, against his separate estate, {dj Again, the rule which in bankrnptcy precludes one partner from proving against the separate estate of his co-partner, whilst the joint debts are unpaid, also applies in administering the estate of a deceased partner, {e) The separate estate thus primarily liable to the separate credit- share in flrm ^^^ ^^ ^^^ deceased, docs not include his share in the ibi'sTparate^ partnership assets; for he has no share in those assets, j^o^fnt'creditora except subject to the payment of the debts of the firm, are paid. 'Whilst, therefore, the separate creditors of the de- ceased are entitled to be first paid out of his separate estate, the creditors of the firm are entitled to be first paid out of its assets, and, consequently, to be paid in full before the share of the de- ceased in those assets becomes available for the payment of his sep- arate creditors, (y)" (c) Lodge V. Prichard, and Whitting- Btall ». Grover, ubi sup. See, as to winding up the estate of a deceased part- ner in bankruptcy, where tlie sui-viving partners are bankrupt. Ex parte Gor- don, 8 Ch. 555; Morley u. White, ib. 214. {d) See CoweU V. Sikes, 2 Russ. 191; and Lodge v. Prichard, iihi sup. ' Tf there is no ioiut fund nor any solvent partner, joint creditors may participate equally witli a private cred- itor in the estate of a deceased partner. Pahlman v. Graves 26 lU. 405; Brocks). Bateman, 25 Ohio St. 609; Rogers w. Meranda, 7 id. 179. (e) Laoey ». Hill, 8 Ch. 441. Com- pare Ex parte Topping, 4 DeG. -I. & Sm. 551. ^ (/) SeeRidgway v. Clare, 19 Beav. Ill; HiUs V- McRae, 9 Ha. 297. ^ All the debts due from the joint fund must first be discharged, before any partner can appropriate any part of it to his own use, or pay any of his private 1390 dehts; and a creditor of one of the partners cannot claim any interest but what belongs to his debtor, whether his claim be founded on any contract made with his debtor or on a seizui-e of the goods on execution or attachment. Pierce v. Jackson, 6 Mass. 242; Fish v. Herrick, id. 271; Phillips v. Bridge, 11 id. 212; Godwin v. Richardson, id. 469; Rice v. Austin, 17 id. 197; Adams V. Paige, 7 Pick. 542; Wilson ». Conine, 2 John. 230; Smith v. Baker, 10 Me, 458; Mena^hw. WhitweU, 52 N. Y. .147; Cox !'. Russell, 44 Iowa, 556; Williams V. Gage 49 Miss, 777; Falers. Jordan, 44 id, 283; Irby v. Graham, 46 id, 425, See Fenton », Polger, 21 Wend. 676; Stevens v. Bank of Central N. Y. 31 Barb. '^90; Reed v. Shephardson, 2 Vt. 120; Gillaspy v. Peck, 46 Iowa, 461. The mere insolvency of a co-partner- ship is sufficient to defeat an attachment made by a creditor of one of the firm, although the partnership creditors have commenced no action for the recovery CHAP. I.J AS EEGAEDS JOIJST CEEDITOES. *1055 Actions by creditors of the firm to obtain payment ont of the assets of a deceased partner, are well illustrated by Action by joint Brett V. Beckwith. {g) In tliat case there had been two BrettTBeck- partners, Young and Beckwith. Beckwith was dead, '*""'• and Young was bankrupt. A bill was filed by a creditor of the of their debts. Therefore, where an officer had attached the partnership effects in a suit against one of the part- ners, and afterwards with the consent of the firm, which was insolvent,- suf- fered the effects to be applied to pay a partnership debt due to a stranger, it was held that he was not responsible to the first attaching creditor in an action for not having seized the goods in exe- cution. Bank v. Wilkins, 9 Me. 28. The joint sale of partnership property, on separate executions against the indi- vidual partners, leaves their interest as they were. Where one was more in advance of the other than the whole proceeds, partnership executions are to be first satisfied, and then the separate execution creditors of such partner, in exclusion of the other partner and his separate execution creditors. Cooper's Appeal, 26 Pa. St. 262. See, also, Van- dike's Appeal, 57Penn. St. 9. An individual creditor attached firm property; a firm creditor thereupon at- tached the same property: Held, that, in order to obtain the precedence to which the firm creditor had a right, and to oust the first attachment, it must ap- pear by a bill in equity, or in some way, that aU the firm property was needed to pay the firm debts. Scudder v. De- lashmut, 7 Iowa, 39. The court wiU not, by injunction, re- strain the sale of the interest of one partner in co-partnership property under a judgment and execution against such partner for a debt due from him indi- vidually, where there are no averments in the complaint- to show that the debtor in the execution has not some interest in the property levied on, after the satis- faction of the partnership debts, and after deducting the interest of the solv- ent partners from the partnership estate. Mowbray v. La-wrenoe, 13 Abb. Pr. 317; 22 How. Pr. 107. See, also. Moody V. Payne, 2 John. Ch. 548. One partner, who has sold out his in- terest to his co-partner, retaining by agreement a lien upon the property for his indemnity, may obtain an injunction to pi event a private creditor of the vendee-partner from selling on execu- tion before an account had been taken, and the interest of the vendee-partner m the property thereby ascertained. White V. Parish, 20 Tex. 688; Rogers v. Kichols, Id. 719. Certain creditors obtained judgments against an insolvent Im-iited partner- ship, upon failure to answer, and levied execution on the partnership effects; after which the partners made a general assignment for benefit of creditors, ■without preferences: Held, that, at suit of a creditor at large, those pro- ceedings would be enjoined and a re- ceiver appointed to take charge ,of all f;he assets of the firm, as they existed at the time of its insolvency, discharged of the liens of the executions, and to dis- tribute the same equally among all the creditors. Jackson v. Sheldon, 9 Abb. Pr. 127. Where there is Skjl.fa. against a finn, and an older,/?. /a. against one of the partners, the proceeds of a sale of part- nership property must be apphed fifst to the fi. fa. against the firm. Crawford V. Baum, 12 Rich. 75. Coover's Appeal, 29 Pa. St. 1. See, Miller v. Miller, 3 (g) 3 Jur. N. S. 31. 1391 *105o DEATH AND ITS CONSEQUENCES [book IV. late firm against the executors of Beckwitli and tlie assignees of Young, praying for a declaration tliat Beckwith's real and personal estate was liable in equity, after satisfying his separate debts, to the Pittsb. 540; Cope's AppeaJ, 39 Pa. St. 284. An action for a false return will not lie against a sheriff for returning an execution nulla bona, where the proper- ty of a firm is levied on under an execu- tion against one of its members, and previous to a sale, an execution against the finn comes to the hands of the sheriff, under which the property levied on by the first execution is exhausted. Dunham v. Murdock, 2 Wend. 553; Tappan v. Blaisd.-ll, 5 N. H. 189. Where more is levied on partnership property than is sufficient to pay part- nership executions, the balance may be applied to pay private executions in the hands of the officer. Roop v. Rogers, 3 Watts, 193. B. & L., as a firm, were members of two other partnerships, and all three firms failed. The creditors of the two other firms put attachments on property belonging to B. & L. before the creditors of that firm attached it: Held, that the creditors of B. & L. were entitled to the proceeds of a sheriff's sale of the prop- erty. Bullock V. Hubbard, 23 Cal. 495. Where the sheriff has in his hands at the time of the sale an execution against one partner, and also executions against the firm, and sells the goods absolutely and not in the interest of one partner therein, the presumption is that he sold under the executions against the firm. Rider v. Gflbert, 16 Hun, 163. A judgment recovered against all the partners of a firm, upon process served upon all, imports in itself the existence of a partnership debt. Jaques v. Green- wood, 12 Abb. Pr. 232. Where there is a judgment against a firm, and the creditor has a priority un- der an execution on the property of such a firm, he retains it, though he does not 1392 show that his claim was on a partner- ship transaction, the presumption being that it was. McDuffie v. Bartlett, 3 Pa. St. 317. In order however, to entitle a judg- ment creditor, on a bond, given in the partnership name to be satisfied out of the proceeds of a sale of partnership property, in preference to a prior execu- tion against one partner, levied on the same property, it is : held, that it must appear afErmatively that the bond was given to secure the payment of a part- nership debt. Snodgrass' Appeal, 13 Pa. St. 471. Firm property is not holden by an at- tachment in a suit based on the joint and several notes of the partners, and not being a partnership debt. Buffum v. Seavor, 16 N. H. 160. A and B partners, executed a bond as follows, to wit: "We, A and B now trading under the firm of A & Co., are held and bound, &o.; for payment whereof we bind ourselves, and each and every of our heirs, executors, and ad- ministrators, jointly and severally": Held, that, whether the bond was bind- ing on the partnership or not, it was the separate debt of each of the partners, and that the obligee was not bound to resort to the partnership in the first in- stance. Perman v. Tunno, Riley, Eq. 181. In this action, commenced by one partner against his co-partner to adjust the affairs of the partnership, which was insolvent, and to distribute its assets equally among its creditors, a recei'^er was by stipulation appointed. After the commencement of this action and the appointment of a receiver, and dur- ing the pendency of this action, other actions were brought against the firm by certain of their creditors and judg- CHAP. I.] AS EEGAEDS JOINT CEEDITOES. *1056 joint debts of tlie firm; for an account of such debts at Bectwitli's death; for an account of the joint assets received by his executors and Young's assignees; for an accountof Beckwith's separate debts; that his real and personal estate might be applied, first in payment of his separate debts, and then in payment of the joint debts; and "that a receiver might be appointed to get in the outstanding joint assets. The Court held that the plaintiff was clearly enti- tled, as a creditor of Beckwith, to have his *estate fully ad- *1056 ministered; and for that purpose to have an account taken of his separate estate; and to have the accounts between Beckwith's executors and Young's assignees also taken, in order to ascertain of what the joint estate consisted; and a decree was accordingly made for taking such accounts. When a creditor of the firm proceeds against the as- judgment in sets of a deceased partner, the form of the judgment ^o'reof'ffrS'^'^" which is given is in substance as follows (A) : eeutorVf^ade-" 1. It is declared that all persons who are creditors of ^'^^'^^ partner. the deceased, are entitled to the benefit of the judgment. . inents were recovered therein, upon v/hich supplementary proceedings were instituted, resulting in the same person being appointed receiver therein as in the first mentioned action. Subse- quently the plaintiffs in the creditor's actions applied to have the receiver directed to pay their debts out of the assets in his hands: Held, that the judgments recovered by the plaintiffs gave them no priority over the other firm creditors, and that the order was properly denied. Holmes v. McDowell, 15 Hun, 586. When there has been no transfer by the firm, and the property remains in fipeoie and capable of being levied upon, it may be followed in the hands of those claiming by virtue of such transfers or proceedings, and may be levied upon by a judgment creditor of the firm. Me- nagh V. Whitwell, 52 N. Y. 147. Accordingly, where two members of a firm of three mortgaged their interests to secure individual debts, and the third transferred his interest to a stranger, a levy under execution for a partnership debt upon the firm property, in the hands of a purchaser under the mort- gage is valid. Menagh v. Whitwell, 52 N. T. 147. Certain real estate being owned by a firm composed of two partners and used in the business of the partnership, one of them alone executed a mortgage on an undivided half of it, to secure the payment of his individual debt. After- wards said real estate was sold at sher- iff's sale under a judgment rendered af- ter the execution of said mortgage against the partners, for a debt of the firm contracted before the execution of the mortgage:- Held, that the mort- gagee was not entitled to foreclose his mortgage as against the' purchaser at the sheriff's sale, without first redeeming or offering to redeem from the sheriff's sale that part of the real estate covered by said mortgage. Kestner v. Sindlin- ger, 3.3 Ind. 114. (h) See Hills v. McRae, 9 Ha., 297; Harris v. Farwell, 13 Beav. 407; Rice v. Gordon, 11 Beav. 271. ' 139o *1057 DEATH AKD ITS CONSEQUENCES [BOOK IV. 2. It is declared that the surplus of the estate of the deceased, after, satisfying his funeral and testamentary expenses and separate debts, was liable at the time of his death to the joint debts of the firm, but without prejudice to the liability of the surviving partner, as between himself and the estate of the deceased. 3. An account is directed to be taken of the funeral and testamen- tary expenses and separate debts of the deceased, and of the debts of the firm. If the surviving partner is not a party to the action, liberty is given hitn to attend in the prosecution of this last inquiry. 4. An account is directed to be taken of the personal estate of the deceased. 5. It is ordered that his personal estate be applied, in the first in- stance in the payment of his separate debts and funeral expenses, in a due conrse of administration, and then in payment of the debts of tlie firm. 6. And if the personal estate of the deceased is insufficient for the purposes of the action, inqnirles are ordered to be made for the purpose of ascertaining the real estate to which the deceased was entitled. The judgment will, if necessary, direct inquiries whether the cred- itors of the firm continued to deal with the surviving partners, and what sums have been paid by them to such creditors, and whether the creditors have, by their dealings with the surviving partners, released the estate of the deceased from the payment of their res- pective debts, {i) *1057 *]^o directions are usually given for the purpose of keep- ing distinct the joint and the separate estates; but, if neces- sary, it is conceived that such directions would be given in order that the principles upon which the judgment is framed might be properly carried out. (k) In Kidgway v. Clai-e (I) two partners, A. and B., had died. A EidEway v ^^^^^ ^^^ instituted by a separate creditor of A. for the Clare. administration of his estate; a suit was also instituted by a separate creditor of B. for the administration of his estate; a third suit was instituted by a joint creditor of A. and B. for pay- (i) See the decree in Devaynes v. Ridgway i'. Clare, 19 BeaT. Ill; Wool- Noble, 1 Mer. 530, and in Fisher ?;. Far- ley V. Gordon, Taml. 11; Paynter v, rington, Seton on Decrees, 280, ed. 2. Houston, 3 Mer. 297. See ib. ed. 3. p. 550. (I) Ridgway v. Clare, 19 Beav. 111. (ifc) See Rice v. Gordon, 11 Beav. 271; 1394 CHAP. I.J AS REGARDS JOINT GEEDITOES. *1058 ment of a debt due from both out of both their estates; and a fourth suit was instituted by the representatives of A. against the reresentatives of B. for taking the accounts of the partnership. The plaintiff in the third suit was found to be a creditor of both A. and B., but he was held by the Master not to be entitled to rank as a separate creditor of A. On an appeal from the decision of the Master, the Court thought it desirable that the separate creditors should be ascertained, but reserved the question whether the joint creditor was or was not entitled to rank as one of A. 's separate creditors. The judgment, however, is^ instructive, as it states the manner in which the Court administers the assets of a deceased partner, and pays each class of creditors. It appears that when there are assets sufficient to pay all the creditors, the estate of the deceased forms one fund, out of which the joint and separate credit- ors are T^aid ■pari passu/ but that tliey, and the funds for their pay- ment, are distinguished when the assets are in any way deficient. It will be seen hereafter that in bankruptcy a creditor who holds a security cannot retain his security and prove for his gecurea whole debt, nor realize his security and prove for more <=reditors. than the balance then remaining due to him: but in administer- ing estates in Chancery, a creditor was entitled to prove for and receive dividends upon the full amount of his debt, and at the *same time realize his security; so that until his debt *1058 was satisfied his right of proof remained, (m)' This, how- ever, has been altered by the Judicature Act, 1875. («) A creditor is only entitled to be satisfied his debt, but until he is satisfied he (m) Bonserv. Cox, 6 Beav. 84; Mason for the payment of a debt of a partner- «). Bogg, 2 M. & Cr. 443; Kellock's case, ship' of which he was a member, and 3 Ch. 769. for which debt the creditor also held a 'Where partnership creditors have mortgage on lands belonging to the secured themselves by mortgage, they firm situated in Wisconsin, — held^ that must abide by their contract, and are W. was not m the situation of a surety not preferred to individual creditors. for his partner, so that he could compel January v. Poyntz, 2 B. Mon. 404. a resort to the Wisconsin mortgage be- A creditor of a partnership who has a fore the creditor could come upon him, mortgage on the separate property of because the mortgage was given to se- one of the partners to secure him, is not cure the note of the firm of which W required to resort to such property for was a member, and therefore he was pa^Tnent. Roberts v. Oldham, 63 N. personally liable therefor. Tiffany o. C. 297. Crawford, 14 N. J. Eq. 278. In a suit to foreclose a mortgage (n) § 10; the act only applies to the given by W. on his individual property estates of persons dying after its com- in this btate, as " additional security " mencement. 1395 ■ 1059 DEATH AND ITS CONSEQUENCES • [BOOK IV. has a riglit in equity to prove for his whole demand against the estates of all his debtors. The creditors of a partnership having, on the death of one of the Creditors' right partners, a right to obtain payment from the snrvivine to proceed both ' t r. i ^ agaiustthe partners, and out of the assets of the deceased partner, survivors and * , ■*■ against the the question arises whether the creditors can enforce f.-tate of the ^ deceased. both these rights, or whether they can only avail them- selves of one of them. Before the Judicature Act, if the creditors proceeded at law against the surviving partners, but did not obtain satisfaction, they could afterwards proceed in equity against the estate of the de- ceased partner, (o)^ So if the surviving partners became bankrupt, and the creditors of the firm proved against their estate and re- ceived a dividend, they raiglit nevertheless afterwards proceed against the estate of the deceased, {p) Again, as the creditors of the firm could not in equity obtain any decree for payment by the surviving partners, but only a decree for payment out of the assets of the deceased partner, there was no reason why, even after a decree for the administration of the estate of the deceased, the cred- itors in question should not also proceed at law against the surviving partners. If, however, it could be shown that injustice would be produced by allowing the creditor to pursue both his remedies at once, the Court would perhaps have compelled him to elect between them, or have restrained him from proceeding at law. {q) *1059 *The Judicature Acts have so far -altered the practice as to allow one action to be brought against the surviving partners and the legal personal representatives of the deceased; and the creditor will practically obtain payment from the survivors or the estate as may be most convenient; but if the estate of the de- ceased is not sufficient to pay his seperate creditors the creditors of the firm will not be able to compete with them, but will have to look to the surviving partners, (r) (o) Jacomb v. Harwood, 2 Ves. S. comes bankrupt, and a creditor of the 265; and tbe cases in the last note. firm proves against his -state, he cannot ^See ante, 1053, note. afterwards sue the bankrupt and his co- ip) Heath v. Percival, 1 P. W. 682; partners jointly. See Bradley v. Millar, Devaynes v. Noble (Sleech's case), 1 1 Rose, 273. The subject of election in Mer. 539. bankruptcy will be examined hereafter. {q) See, as to the considerations which (r) See ante, p. 1054, and Jud. Act, guided the Court, Ex parte Kendall, 17 1875, § 10. Yes. 525 and 526. If one partner be- 1396 CHAP. I.] AS EEGAEDS JOINT CEEDITOES. *1060 If more than one partner is dead, a creditor of the One action firm may, in one action, obtain a iudgment against the eeutoi-sof sev- ■y n ,. 1 1 ' 1 J ir. & eral deceased estates oi ali ot tne aeeeased partners. partners. In a case before the late Yice-Ohancellor Shadwell there was a partnership of seven persons. A., B., C, &c., and 3^^^!) anotlier partnership, A. and B., composed of two of Douglas, the members of the first. A. and C. were dead. The surviving partners were bankrupt. The plaintifii", who was a creditor of both firms, filed a bill on belialf of himself and all other the creditors of A., and on behalf of himself and all other the creditors of C. against the real and personal representatives of A., the personal representa- tives of C, and the assignees of the bankrupts. The bill prayed that an account might be taken of what was due from A. and C. re- spectively, to the plaintiff, and their other joint and separate cred- itors, and of the personal estates of A. and C. and of the real estate of A., and that the perboual estates of A. and 0. and the real estate of A. might be applied in payment of their respective debts, as well joint as separate. This bill was demurred to on the ground of multifariousness, but the Yice-Chancellor overruled the demurrer, and held the frame of the suit to be proper in point of form, (s) h. With reference to wJiat has occurred since death. Having now examined the position of the executors of a deceased partner, with reference to the creditors of the firm, and in respect of debts existing at the time of the death of *the *1060 deceased, it is proposed to consider the liability of the assets of the deceased, and of his executors, in respect of what may liave taken place since his death. With resj)eet to the executors themselves, it is clear that if the executor of a deceased partner carries on the partner- Personal ua- n 1- 1.1 tilJty of ship business, the executor becomes personally liable executors. to third parties as if he were a partner in his own right (t);'- and if (s) See Brown v. Douglas, 11 Sim. Moo. P. C. 198; Ex parte Garland 10 283: Brown v. Weatherby, 12 Sim, 6. Ves. 119; Ex parte Holdsworth, 1 M. Since the Judicature acts it is a mere D. & D. 475. As to his liablity to cred- question of convenience Vhether there itors by merely sharing profits with the shall be one action or more. surviving partners, see Holme v. Ham- {t) See Wightman v. Townroe, 1 M. mond, L. R. 7 Ex. 218, ante, p. 40. & S. 412; Labouchere v. Tupper, 11 » To make the executors of a deceased 1397 *10G0 DEATH AND ITS CONSEQUENCES [book IV. the executor accepts or indorses bills of exchange or promissory notes either in his own name as executor (u), or in the name in which the deceased carried on business (x), the executor will be per- sonally liable to be sued on such bills or notes. Whether in such cases the executor is entitled to be indemnified out of the assets of the deceased is altogether another question; and depends upon whether the executor has carried on the business pursuant to the partner liable personally as partners with tlie surviving partner for the firm debts, it must appear that they volunta- rily entered into such partnership and employed the testator's assets in the business ot the same. It is not suffi- cient to so charge them that the busi- ness is carried on by surviving partner wilh the assent of the executors, and that they allow the testator's share of the capital to remain in the business for the benefit of the cestuis que trust, when it is done in accordance with the in- structions of testator's will, or with the partnership agreement. Richter o. Toppenhusen, 39 How. Pr. 82. A partnership was formed between J. andE., and the business conducted for some time, when, in 1842, J. died, leav- ing a will by which he appointed his wife, E., his partner, and M. his executors, to whom he devised his entire estate in trust for certain purposes. He di- rected that the busines s should be con- ducted after his death by B., and that the trustees under the will should not withdraw from the business of the firm any part of the capital which he had mvested therein, unless it was neces- sary for them to do so in payment of his debts. The business was continued by E. according to the directions of the testator until 1857, when T. was taken into the firm, and an article of agree- ment entered into between E. acting in his own right, and jointly with the widow of J., and M., trustees under the will, and T., by which it was provided that the business should be carried on under the old name, and should con- tinue for a specified time— the net prof- its were to be divided into three equal parts, one of which was to go to E. in his own right, one to the trustees under the will of J., and the remaining part to T. It was also provided that in ca-ss of the death of E. his " executors or trustees, or both," should hold the same relations to the firm as he did in his life- time. This agreement was assented to by the heirs-at-law of J. Subsequently tlie widow of J. died, and in 1862, the article of agreement was continued for seven years, by B. acting for himself and jointly with M. as surviving exec- utors and trustees of J., and by T. This contract was also assented ,to by the children of J. E. died leaving a will by which he provided for the continu- ance of his interest in the business. He appointed 0. and D. his executors — the latter renounced, and the former became sole executor. The business was car- ried on in the same name and at the same place, until 1868, when the firm failed. An action was brought by a cred- itor of the firm against M., seeking to charge him as a partner for the debt. M. never participated in any way in the management of the business of the firm, nor exercised any control or supervision over the same, nor received any portion of the profits thereof directly or indi- rectly; and never gave any authority for the continuance of the firm after the death of E. : Held, that M. was not a (i() Liverpool Borough Bank v. Walk- er, 4 DeG. & J. 24. 1398 (x) Lucas V. WiUiams, 3 Giff. 150. CHAr. I.J AS EEGAEDS JOINT CREDITORS. *1060 will of the deceased, or the directions of those beneficially interest- ed in his estate. With respect to the direct liability of the assets of the deceased to creditors, it may be- taken as a general proposition, Liability of ^1 . xi_ ,. i i 1 1 . , . , , estate of de- tnat tne estate ot a deceased partner is not liable ceased partner ... '■ for what occurs to third parties tor what may be done after his decease after his death, by the surviving partners;^ and on that ground it has been held that they cannot be restrained at the suit of the executors of tiie deceased from continuing to carry on the business of the late firm in the old name, (y) partner in the firaa, and was not per- sonally liable, as a partner, to a creditor of the firm. Owens v. Maokall, 33 Md. 382. The legal representatives and widow of a deceased partner suffered his share to remain in the fiim, which was con- tinued for some years, when a new firm was formed between the surviving part- ner and the widow's second husband. She intervened in the contract, and con- sented that the balance due her as \vido w in community should remain with the new firm as a loan, on which she was to receive interest: Held, that she was a creditor of the new ih-m and not a partner. Brower o. Creditors, 11 La. Ann. 117. If the administrators of a deceased piirtner ignorantly take the partnership books and collect some of the debits, they do not thereby become responsible to the surviving partner for all the part- nership debts. Alexander v. Coulter, 2 S. & E. 494. « See post 1063, note. A clause in the partnership articles, that the partnership shall continue for a specified time notwithstanding the death of one or more of the partners, has not the effect, even in connection with the statute of Alabama of 1839, to render the administrator of the deceased partner liable at Ip-w upon a contract made by thesm-vivors. Edgar v. Cook, 4 Ala. 588. A stipulation in partnership articles, that, in case of the decease of either partner, the business may be carried on for one year by the survivor for the mu- tu;ii benefit of both parties, does not, in case of the death of one partner, justify the allowance against his insolvent es- tate of a debt contracted by the surviv- or within the year, with one who had notice of the death. Stan wood v. Owen, 14 Gra,y, 195. A company was formed to go to Cali- fornia. • Among other articles of agree- ment was one that in case of the death of a party his nearest relatives should receive half his share of the profits, so long lis the concern lasted: Held, not to be' a partnership, and that the court had no equity power over it as such. Knowlton ». Reed, 38 Me. 246. Where the mode of closing the busi- ness of a firm is by the creation of a new one, in accordance with the will of a deceased partner, composed of the surviving partner and the representa- tives of the deceased, the creditors of the new firm are clothed with the equi- ties of that firm against the estate of the decedent arising out of the payment by the new firm of the debts of the old. Laughlin v. Lorenz, 48 Pa. St. 275. (//) Webster v. Webster, 3 Swanst. 490, note. But see as to selling good will, afite, p. 860. 1399 *10G1 DEATH AND ITS CONSEQUENCES [BOOK IT. In the great case of Devaynes v. JSToLle (s), some bills deposited Devaynesu. '"''^''^ ^ ^''™ of bankers were, after the death of one of Noble. tjjg partners, misapplied by the surviving partners, and an attempt was made to obtain out of the estate of the deceased the value of the bills so misapplied. But the attempt was not suc- cessful; Sir Wui. Grant observing — *1061 * " [f there be no remedy at law against the executors of Mr. Devaynes, I am at a loss to understand the equity on which this Court is to interpose to make good the loss against Mr. Devaynes' estate. It has not been incurred by anything that he did or neglected to do. The bills were safely kept as long as he had anything to do with them. From the act of placing them in the custody of a partnership, it followed that upon the death of one of the partners they would fall into the possession of the surviving partners. Mr. Houlton himself, therefore, has virtually placed them there. Mr. Devaynes' executors could not take them away; Mr. Devaynes could not direct his executors to take them away; and though Mr. Devaynes had neither been personally instrumental iu the loss, nor personally benefited by it, nor could have prevented it, yet it is contended that it is upon his estate the loss ought to be thrown, and that by a court of equity. I apprehend, however, that it would be the reverse of equity to throw the loss on his estate in such a case as the present. It might be as well contended that if they had thrown the bills into the fire, or lost them by negUgeneje, Mr. Devaynes would be responsi- ble for such act or negligence. He had no more to do with the sale of the bills than he would have had to do with a loss occasioned by such means as these." Moreover, although an executor has power to dispose of the as- LiabUity of ^^^^ °^ *^® deceased, and to keep alive demands against the acts o/tbe them which would otherwise become barred by the executor. statute of limitations, still the acts of an executor, to whatever extent they may render him personally liable, do not im- pose liability on the assets of the deceased, unless those acts have been properly performed by the executor in the execution of the trusts reposed in him. At the same time, there are acts which, if done by an executor, impose liability on the assets of the de- ceased (a)\ and, therefore, if a partner appoints a co-partner his executor, and dies, and the executor continues to carry on the busi- ness, it is possible that his acts, attributed to him, not as partner but as executor, may render the assets of the deceased, liable for what may have occurred since his death. (5) {z) Houlton's case, Johne's case, and (6) See YulKaniy v. Noble, 3 Mer. Brice's case, 1 Mer. 616, etc. See, too, 614; but see Parhall v. Parhall, 7 Ch Vulhamy ?;. Noble, 3 Mer. 614. -123, and Owen v. Delamere, 15 Eq. 134, (a) See Williams on Executors, vol. and ante, p. 52. ii. p. 1636, etc., ed. 6, 1771, ed. 7. 1400 CHAP. I.] AS EEGAEDS JOINT CEBDITOES. *1062 If an executor of a deceased partner carries on the partnership business pursuant to directions contained in the will of Effect of em- his testator, the executor will, as already pointed out, assets in the tnjisinsss of render himself personally liable for debts contracted in the firm. so doing, but he will be entitled to indemnity in respect thereof out of the estate of the deceased; and consequently, if a de- ceased partner *has himself directed his assets or any part *1062 thereof to be emploj^ed in carrying on the partnership busi- ness, so much of them as are directed to be employed, are liable to make good the debts contracted during their employment. For these reasons, and to this extent, therefore, his estate will be ap- plicable to the liquidation of the demands of those who have be- come creditors of the partnership after his decease. In such a case, the creditors are better off than the creditors of ordinary partners, inasmuch as these last have nothing to look to except the property of the partners; whereas, in the case supposed, the creditors have not only the personal security of those who carry on the business, but also a right to be paid out of the assets of the deceased em- ployed therein, (c) The cases which have occurred upon this subject, have for the most part arisen where the executor, having continued proof by the the business with the surviving partner, and having t^|evg°nt'of become bankrupt with him, has endeavored to with- tiankmptcy. draw from the joint estate the assets of the deceased employed in the trade. In such cases, the executor has been held entitled to prove for the value of the assets which he embarked in the business without authority, such assets being in substance an unauthorized loan of trust money; but he has been held not entitled to prove as against joint creditors for tlie value of those assets which his testa- tor authorized to be so continued in the business. In Ex parte Garland (cZ), a miller and farmer made a will where- by he directed his wife to carry on his business, and ^x parte that for the purpose of enabling her to carry it on, any Garland, sum not exceeding 600Z. should be advanced to her by his trustees. He also directed his wife to give her notes of hand for what might be advanced, and for the value of the stock, crops, and effects, in r (c) See the cases in the next two of that class, noticed hereafter under notes. the head Bankruptcy; Hall v. Fennell, {&) 10 Ves. 110. See, also, T^x parte Ir. Rep. 9 Eq. 406, and on Appeal, 615. Butterfield, DeG. 570, and other cases 1401 *1063 DEATH AND ITS CONSEQrENCES [bOOK IV. liis business. He appointed his wife and tlie trustees before al- luded 'to his executors. After his death, his widow carried on the business, the stock, crops, and effects in which were valued at 1351?. 5s. 0^. She also received 600Z. from the trustees for *1063 the purpose of enabling her to carry on the * business, and for these two sums she gave them her promissory notes. She also became indebted to the estate of the testator in a further sum of 768?. 12s. id. She then became bankrupt, and an attempt was made to prove as debts due from her to the estate of the de- ceased, these three sums of 1351Z. 5s. Od., 6001., and 768Z. 12s. id. But it was held by Lord Eldon, that although the last sum might, the two first could not be proved against her estate; for they rep- resented property which the deceased had authorized to be embarked in trade, and which was therefore answerable to the creditors of the trade. The above decision has been followed by others, and its propri- ety has never been questioned, (e) The liability of the estate of a deceased partner to persons who Creditors be- who become Creditors after his decease is subject to its prefeiredto liability to those who were his creditors at his decease^ crediturs. These last must first be paid; and although, in such a case as £Jx pm'ie Garland, they might not be able to follow the assets of the deceased into the hands of the trustee in bankruptcy, yet, in administering the estate of a person whose assets have been employed in trade in pursuance of directions contained in his will, the creditors who have become such since his decease cannot com- pete with his other creditors. (_/) It has at various times been contended that when a testator Amount of directs a trade or business to be carried on after his estate liable _ ^^ , . wiiere assets decease, he thereby subiects aU his assets to the p9.y- are directed to ;, i . be continued mcnt of debts incurred in the course of carrying it on; m the busi- ./a j ness. and a decision by Lord Kenyon (g) has been supposed to warrant such contention. It is now, however, clearly settled, (e) See, in addition to the case last owing mainly to lapse of time and the cited, Ex parte Richardson, Buck. 202, impossibility of taking the necessary and 3 Mad. 138; Thompson w. Andrews, accounts. 1 M. & K. 116; Cutbush v. Cutbush, 1 (/) See Cutbush v. Cutbush, 1 Beav. Beav. 184; Scott v. Izon, 34 Beav. 434. 184. In this last case it was attempted to ((/) Hankey v. Hammock, Buck. 210, make an executor responsible for not and 3 Madd. 148. having proved, but the attempt failed, 1402 CIIAP. I.J AS EEGAEDS JOINT DIKECTOES. no8i that the extent of the liability of the testator's estate does not exceed the amount authorized by him to be emploj-ed in the trade or busi- ness directed by him to be carried on (A); ' and it is gener- ally admitted that *the decision of Lord Kenyou is not in- *106i consistent with this doctrine. (^) It becomes, therefore, a matter of considerable importance, not only to executors but to creditors, to ascertain what a Effect of "en- testator who directs his trade or business to be carried to™rJy'^on"°^ on has authorized to be employed in carrying it on. *'^^'^^- This must, of course, depend on the terms of his will; but it has been held that a general direction to carry on a business iu which the testator was eno-aeed at the time of his death does not authorize {h) See the cases in the last three notes, and McNeillie v. Acton, 4 DeG. M. & a. 744. '■ Cook V. Rogers, 8 Am. Law Record, 641. One partner may by will, provide for the continuance oi the partnership after his death, by the consent of the surviv- ing partner or partners, and may bind h's whole estate for debts to be incur- red by the partnership after his deatli, or only that portion of it invested in the parthership at the time of his death. Cook V. Rogers, supra. In order, however, to bind the estate of a deceased partner, either by a part- nership agreement or by will, for the payment of debts contracted by the part- nership after his death, it is necessary that the most clear and unambiguous language should be used, showiug clear- ly the intention to bind the general estate of the decedent, and not merely to bind his "share" or "interest" al- ready embarked in the partnership at the time of his death. Cook v. Rogers, supra. ■ R., by a single clause in his will di- rected his executor to continue, keep up, and represent his shares and interests in three several partnerships, of each of which he was a member, until such time after his death as said executor should think it most advantageous to his estate to sell out, or settle up and close the said shares and interests respectively, but did not use such language as to show that he inteded to bind his general estate for the debts of either of these partnerships that might be incurred after his death. The partnerships were carried on after his death as directed. Two of them made large profits, which came into the hands of the executor. The other be- came insolvent: Held, that the credit- ors of the insolvent firm whose claims accrued after testator's death, had no right to be paid out of the profits of the successful partners any morb than out of any other property of testator's estate not embarked in the insolveiit partner- ship. Cook V. Rog'ers, supra. A partner by his will, made his brother, who was his co-partner, executor, and devised to him the residue of his estate in trust for certain purposes, and autho- rized him to use in his business, the property given him in trust, until it should be wanted for distribution : Held, that the intent of the will was that the residue only should be used in business, and that the surviving partner was bound to settle the affairs, and pay the debts of the firm, in the usual way, not- wdthstanding this clause. R« Clap, 2 Lowell, 168. (J) See the observations of Turner, L. J., in 4 DeG. M. & G. 744. 1403 *106o DEATH AND ITS CONSEQUENCES [bOOK IV. the employment, for the purposes of that business, of more of his assets than are embarked therein when he dies, (k) It has also been held, that a bequest by a pei-son of money upon trust to allow it to remain in the concern of which he is a partner, does not neces- sarily empower the trustees to trade with that money; for the con- text may show that all the testator meant was that the sum in question should not be called in, but be allowed to remain outstand- ing as a loan to the surviving partners (Z) CONSEQUENCES OP DEATH AS REGARDS JOINT CREDITORS. ] {Continued.) 2. In the case of coinpanies. The position of the executors of a deceased member of a com- Liatiiity of panv is, as regards the creditors of the company, vr'und executors of ^_ ^ '^ i i ., . . n ^ shareholders facie the samc as the iegai position oi the executors oi to creditors of '' .1 companies. an Ordinary partner with respect to the creditors of the firm. Whether the company is incorporated or unincorporated, its creditors have, jpfima facie, no legal locus standi against execu- tors; and unless the deceased was under a several as well as a joint liability to the creditors of the company, the latter can only pro- ceed against the executors of the former in one of two cases: viz., first, where the creditors are specially empowered to do ?o *1065 by some statute; or, secondly, where the ^executors lu.ve themselves become shareholders, and liable as such to the debts of the company. Several cases have been decided in which executors, not being themselves shareholders, have been held not liable to creditors of companies. With respect to the right of a creditor of a company to proceed Equitable affaiust the executors of a deceased shareholder, a dis- liabilityof ° . , i , • 1 i estate of de- tiuction must 06 taken between unincorporated and holder. incorporated companies; for whilst the assets of a de- ceased shareholder in an unincorporated company are prima facie liable to the debts of the company contracted before his decease, the assets of a deceased member of a body corporate are, piinid {k) See MoNeillie v. Acton, 4 DeG-. required. M. & G-. 744, where further capital was [l] See Travis v. Milne, 9 Ha. 141. 1404 CHAP. I.J AS EEGAEDS JOINT CEEDITOES. *1066 facie, not liable to the payment of the debts thereof. But as re- gards both classes of companies, the position of executors in fact depends less on general pi'inciples than on particular statutes, the provisions of which must therefore not be overlooked. Thus, although banking companies governed by 7 Geo. 4, c. 46, are not corporate bodies, and although creditors of such companies are, it seems, entitled to obtain payment of their debts out of the assets of a deceased shareholder, still the creditors' riglits are so far mod- ified by the acts in question, that, whether they are creditors by specialty or by simple contract, the lapse, of tiiree years after the death of a shareholder bars their claims against his executors («i) ; and even within that period the executors are only liable to pay such debts as the surviving shareholders are unable to discharge, (n) Several cases are also to be found in which executors, not being themselves shareholders; have been held not liable to creditors, (o) Similar observations apply to actions for calls. The liabilities of executors as contributories under the "Winding- up acts, will be alluded to hereafter; it may, *however, be observed, that their liability to *1066 ^onteibmoSls. calls under those acts, is not governed by the principles applicable to ordinary partnerships, and is not confined to calls made for the paj'^ment of debts incurred by the company prior to their testator's decease. (^) SECTION III.— CONSEQUENCES AS REGARDS THE SEPARATE CREDIT ORS, LEGATEES, AND NEXT OP KIN OF THE DECEASED. In considering the consequences of the death of a partner or shareholder, as regards his separate creditors, and his legatees, or next of kin, it will be convenient, first of all, to examine their (to) See Barter v. Buttress, 7 Beav. where the deceased had died before the 134. creditor had obtained judgment against («) Heward v. Wheatley, ^x parte the company. The doubt expressed in Wilson, 5 DeG. & S. 552. Compare Re Ricketts v. Bowhay, 3 C. B. 889, is re- Walton, 23 Beav. 480. moved by the decision in Ness v. Arm- (o) Ness V. Armstrong, 4 Ex. 21, strong, 4 Ex. 21 ; and the case of Ness whei-e the executors had received divi- v. Bertram, 4 Ex. 191, turned entirely dends; Powis v. Butler, 3 C. B. N. S. on a point of pleading. 645, and 4 ib. 469, where the deceased's (p) See Baird's case, 5 Ch. 725; name was kept on the register of share- Blakeley's case, 13 Beav. 133, and 3 holders; Poole v. Knott, 7 W. R. 527, Mac. & G. 726. 1405 *1067 EIGHTS OF LEGATEES, ETC., OF THE DECEASED. [bOOK IV. rights under ordinary circumstances, and then to advert to the c implicated questions which arise when the assets of the deceased, instead of being realized, are allowed by his executors to be employed in the business carried on by the firm or company to which he be- longed, and when shares in companies are specifically bequeathed. Rights of separate creditors and legatees .generally. Under ordinary circumstances, the separate creditors, legatees. Legatees. &c., and next of kin of a deceased partner, must look for of deceased /. i ■ -, ^ partner must payment ot what IS due to them out of his assets, to look to his * " executor. his legal personal representative, and to him alone, [q) The executors are, under ordinary circumstances, the only persons who have a right to call upon the surviving partners for an ac- count;' and of this right they do not divest themselves by a sale and assignment of the share of the deceased; for the eflTect of such sale and assignment is only to make the executors trustees for the parcliaser. (r) A leading case illustrating the doctrine that the executors of a deceased partner are, under ordinary circum- The'carron *1067 stanccs, the *only pcrsons entitled to require an ompany. accoimt from the surviving partners, is Stainton V. The Oarron Company, (s) There a bill was filed by the residuary legatees of a person who had been the agent of and a shareholder in a company, against his executors and other persons interested in the will of the deceased, and against tlie company. The bill charged that one of the executors was an agent and manager of the business of the company, and that he and another executor were large shareholders therein, and that a third executor was also an agent and manager, and was entitled under the will of the testator to ten shares in the company, and that all three executors had interests conflicting with their duties as executors and trustees; and the bill prayed (amongst other things) that the company might transfer the testator's shares to his executors, and that an account might be taken of what was due from the company to his estate, and for paj'ment to the executors of {q) Alsager v. Rowley, 6 Ves. 748; son, 5 Jur. N. S. 1091. Saunders v. Druce, 3 Drew. 140. If ^ See ante, 945, and note, there is no person who in this country (r) Clegg v. Fishwick, 1 Mac. & G. represents the deceased, a representative 294. will be appointed. See Maclean v. Daw- (s) 18 Beav. 146, 1046 CHAP. I.J DEATH AITO ITS CONSEQUENCES. *1068 the amount to be found due. The company and one of the executors demurred, and their demurrers were allowed. In delivering judg- ment the Master of the Rolls thus summed up the efl'ect of the cases on this subject: — " The persons interested in the estate of the testator, not being the legal personal representatives, will not be allowed to sue persons possessed of assets belonging to the testator, unless it is satisfactorily made out that there exist assets which might be recovered, and which, but for such suit, would probably be lost to the estate." And again: "To support such a bill as this it is not sufficient to prove that it may be an unpleasant duty to the executors and trustees to take the necessary steps for protecting property entrusted to them. It is not sufficient to show that it will be for their interest not to take such steps; it is necessary to show that they prefer their iaterest to their duty, and that they intend to neglect the performance of the obhgation incidental to the office imposed upon them by the testator, and which they have undertaken to perform." The executors, it may be observed, have, in ordinary cases, a per- Willful default sonal interest in getting in the assets of the deceased; for, if they willfully neglect so to do, they will be made to account for the assets, although they may not actually have re- ceived them, {t) *It must not, however, be supposed that in *1068 Taking part- „ , ■, nership ae- an action against the executor oi a deceased count m action " , against execu- partner by a separate creditor, legatee, or next of kin, tor alone. no account of the deceased partner's share in the partnership can be decreed or taken; for it is the common course in such an action to direct an inquiry what is due to the estate of the deceased in respect of such share) {u) But before the Judicature acts in a suit of this description the surviving partners could only be treated as witnesses; no decree could be made against them for payment of what was due on the account, and the executors must, if necessary, have taken proceedings against them to obtain such payment. Now, however, all this can be done in one action, {x) It seems that, under an ordinary judgment for the administration of the estate of a deceased partner, the partnership accounts will not (t) See, .as to charging the executor of {u) As in McDonald v. Richardson, 1 . a partner with willful default, Graybum Giff. 81. See, also, Pointon v. Pointon, V. Clarkson, 3 Ch. 605; Sculthorp v. 12 Eq. 647, where the only surviving Tipper, 13 Eq. 232; Ward v. Ward, 2 partner was an executor and trustee. H. L. C. 777, and Rowley v. Adams, ib. {x) See Ord. xyi. r. 17, etc. and Ord. 726, and 7 Beav. 395; Kirkman v. Booth, xvii. 1 Beav. 273. 1407 *1069 EIGHTS OF LEGATEES, ETC., OF TfiE DECEASED. [bOOK IY. be gone into, unless the judgment specially directs some inquiry to be made with reference to the share of the deceased, {y) But it is difficult to see how any account of his personal estate can be taken without such an inquiry; and it has been decided more than once, that if the surviving partners seek to obtain payment of a balance from the estate of the deceased on the partnership accounts, these accounts must be taken, although no special direction as to them may be contained in the judgment. (2) Notwithstanding, however, the general rule that the separate Cases in which Creditors, legatees, or next of kin of a deceased partner &c ^of a'de^-' have no locus standi against his surviving partners, h!'rvl'i?fgin to ^^^ ^""^6 ^s by no means without its exceptions. Indeed from the'sur- there are cases to be met with, which apparently war- viviug partners, ^^-^i^ |-]^g inference, that surviving partners may alwaj's be sued along with the executor or administrator of the deceased, (a) But the authority of these cases has recently been called in *1069 question, and the better *opinion now is that some special circumstances are necessary to justify such a course. (5) The special circumstances which have been held sufficient are collu- sion between the executors and the surviving partners (c); refusal by the former to compel the latter to come to an account {d^\ deal- ings which may have precluded the executors from themselves ob- taining any account {fi)\ the fact that the executors are themselves partners and liable therefore to account as partners to themselves as executors (/); and generally, where the relation between the execu- tors and the surviving partners is such as to present a substantial impediment to the prosecution, by the executors, of the rights of the persons interested in the estate of the deceased, against the surviv- (y) See the next note. A-slager v. Rowley, 6 Ves. 748. (z) See Paynter V. Houston, .3 Mer. (d) Burroughs v. Elton, 11 Ves. 29; 297; Baker v. Martin, 5 Sim. 380; the prayer of the bill in this case may be WooUey v. Gordon, Taml. 11. usefully referred to. But see Yeatman (fl) See JTewland v. Champion, 1 Ves. v. Yeatman, 7 Ch. D. 210, where mere S. 106, and 2 Coll. 46; Bowsher v. Wat- refusal was held not to be enough. Kins, 1 R. & M. 277. (c) Law v. Law, 2 Coll. 41, and on (6) See Davies v. Davies, 2 Keen, 534; appeal, 11 Jur, 463; Braithwaite v. Law V. Law, 2 Coll. 41; Travis v. Milne, Britain, 2 Keen, 206. 9 Ha. 141; Stainton v. The Carron Co. (/) Cropper v. Knapman, 2 Y. & C. 18 Beav. 146; Yeatman v. Yeatman, 7 Ex. 338; Ti-avis «. Mflne, 9 Ha. 141; and Ch. D. 210. see as to continuing the deceased's as- (c) Doran v. Simpson, 4 Ves. 651 ; sets in the business, ipost, p. 1070. Gedge v. Ti-aiU, 1 R. & M. 281, note; 1408 CJTAP. I.J DEATH AND ITS CONSEQUENCES. *1070 ing partners, there it has been said, an action may be instituted by those persons against the executors and the surviving partners, {g) If the surviving partners and the executors are different persons, and they have hond fide come to an account respect- Accounts set- ing the partnership affairs, and have settled sucli ac- surviving part- „ - 1 1 IT. ^*^^s andtbe count as a nnal account, the account thus settled is executors of a . . deceased part binding, as between the surviving partners and the ner. persons interested in the estate of the deceased partner, and cannot be impeached, save on the ground of fraud. (A) And the power of the executors of a deceased partner to make binding arrangements with the surviving partners is considerably enlarged by 23 & 24 Vict. c. l-i.5, § 30, which enacts that, — ■ " It shall be lawful for any executors to pay any debts or claims upon any evidence they may think sufficient, and to accept any composition 23 & 24 Vic. i;. *or any security, real or personal, for any debts due to the 1070 145, g so. deceased, and to allow any time for payment for any such debts as they shall think fit, and also to compromise, compound, or submit to arbi- tration, all debts, accounts, claims and things whatsoever, relating to the estate of the deceased, and for any of the purposes aforesaid to enter into, give, and execute such agreements, instruments of composition, releases and other 'things, as they shall think expedient, without being responsible for any loss to be occasioned thereby.'' But arrangements made between executors and surviving part- ners for the benefit of the executors individually are where exeeut- . . 1 ■ r< 1 ors are person- always liable to suspicion; and it the executors are aiiy interested, themselves the surviving partners, or some of them, it becomes ex- ceedingly difficult to make any arrangement which will be binding on the persons interested in the estate of the deceased; for even if any arrangement is assented to by such persons, it will be liable to be successfully disputed, on any of those numerous grounds which are held to invalidate arrangements between trustees and their cestuis que trustent, and by which trustees do, or may, obtain a benefit at the expense of the trust estate. A remarkable instance of this is afforded by the case of "VVedderburn v. Wedderburn {i), where an account of a deceased partner's estate was directed, at the suit of the persons beneficially interested therein, although thirty {g) Travis v. Milne, 9 Ha. 150. As to Smith v. Everitt, 27 Beav. 446; Teat- discovery by the surviving partners, see man v. Yeatman, 7 Ch. D. 210. Leigh V. Birch, 32 Beav. 399, and Ord. (t) 2 Keen, 722, and 4 M. & Cr. 1 xxxi. r. 8. noticed ante, p. 987. (h) Davies v. Davies, 2 Keen, 534; «' 1409 *1C71 EIGHTS OF LEGATEES, ETC., OF THE DECEASED. [BOOK IV. years had elapsed since his death, and several changes had taken place in the firm, and releases had been given to the executors by their oestuis que trustent. Qc) nights of separate creditors and legatees when the share of the deceased is not got in. Executors, unless authorized by their testator so to do, ought not Eights of lega- to leave his assets outstanding in the trade or business the'asse't's of uie in which he was engased when he died. It has been ner are%n" " laid down as a rule without exception, that to authorize business. executors to carry on a trade, or to permit it be carried on -with the property of a testator held by them in trust, there ought to be the most distinct and positive authority and *1071 *direction given by the testator for that purpose. (Z)' A • bequest of his share and interest in the partnership to one person foj' life, and then to another, does not, without more, war- rant tlie trustees of his will in keeping such share and interest un- converted into money; and it is therefore their duty to realize it, and invest w^hat they receive for the benefit of the legatees, {m) If a testators capital is lei't in the business as a loan to the sur- Optionbe- viviug partners, they are only liable to pay interest on it, and profits. even although they do not pay it oif when they ought (w") ; but where an executor improperly employs the assets of the testator in a business carried on by himself, he is chargeable, at the option of the persons beneficially intei'ested in the estate of the deceased, either with the sum employed and interest thereon at &l. per cent., or with the sum employed and the profits made by its employ- ment, {o) And such persons are not deprived of this option by the circumstance that it will be difficult and expensive to ascertain what part of the profits has arisen from the employment of the {h) See the other cases as to profits [m) Kirkman v. Booth, 11 Beav. 273. accruing since death, ante, p. 982 et seq. See Skirving v. Williams, 24 ib. 275. [1) Kirkman v. Booth, 11 Beav. 273. («) See Vyse v. Foster, L. R. 7 H. L. A power to executors named in a will to 818, and 8 Ch. 300, noticed ante, p. 989, carry on a business does not justify an and see infra. administrator in so doing if all the ex- (o) See Docker v. Somes, 2 M. & K. ecntors renounce. Lambert v. Rendle, 655; Palmer v. Mitchell, ib. 672, note; 3 New B. 247. Heathcote v. Hulme. IJ. & W. 122. ' See, ante, 1063, note. 1410 CHAP. I.] DEATH AND ITS CONSEQUENCES. *1072, assets of tl.s deceased; for whatever difHcnlty may exist is attrib- utable to the conduct of tlie executor himself, and cannot thereforo be effectually urged by him as a reason why no account of profits should be taken, {p) The cestuis que trustent are moreover enti- tled to compound interest if the duty of the executors is to call in their testator's capital, and invest it and accumulate the income {q)\ but they are not entitled to profits for part of the time and to inter- est for the rest unless there has been some intervening settlement of account (r), or rather special circumstance, (s) *It follows from the doctrine above stated, and from the *1073 principles which were explained when treating of judg- ^^^f^^^ ^^ae ments for an account (#), that' if one of two partners since death, makes the other his executor, and dies, the surviving partner must, imder ordinary circumstances, not only account to the estate of the deceased for what may be due, in respect of the testator's share in the partnership at his death (w), but also for the profits made by hira since his death, by the employment of his capital in the busi- ness carried on by the late firm. (c») ■ Moreover, it is immaterial whether such business has been continued by the surviving partner alone, or by him and others in partnership with him, for the obli- gation of the executor thus to account, is founded on a breach of trust committed by hira, for which he is liable, at all events, to the extent to which he has benefited by it, whether other persons are also liable or not; and being founded on a breach of trust, an action in respect of it may be sustained against the executor alone, though he may only be one of several, by whom the profits have by whom the profits have been made, {y) The cases illustrating the right of legatees to an account of profits made since their testator's death where the executors have con- tinued his assets in the business in which he was a partner have been already adverted to at considerable length, {z) The following classified list of them is inserted here for reference: {p) Docker v. Somes, 2 M. & K. 655; 122. Townend v. Townend, 1 Giff. 201; Flock- (s) As in Townend v. Townend, 1 GifF. ton V. Bunning, 8 Ch. 323, note, ante, p. 201, noticed ante, 983. 985. if) Ante, p. 974 et seq. {q) See Jones v. Foxall, 15 Beav. 388; [u) See the cases cited, infra, pp. Williams v. Powell, ib. 461. Possibly, 1072, 1073. also, in some other cases. Seet eobserva- {x) Phillips v. Phillips, Pinch 410, tions in Vyse v. Foster, L. R. 7 H. L. 346. (y) See ante, p. 978. (r) Heathcote v. Hulme, 1 J. & W. («) Ante, p. 976, et seq. 1411 *1073 EIGHTS OF LEGATEES, ETC., OF THE DECEASED, [bOOK IT. 1. Account of subsequent profits decreed. A. Executors against surviving partners. Brown ». De Tastet, Jac. 284 [anU, p. 982). Booth ». Parks, 1 Moll. 465, and Beatty, 444. Featherstonhaugh v. Turner, 25 Beav. 382. Smith ». Everitt, 27 Beav. 446. B. Legatees against executors who were not partners, but who continued his assets in his businecs. Heathoote v. Hulme, IJ. & W. 122. Docker v. Somes, 2 M. & K. 654. Palmer v. Mitchell, 2 M. & K. 672, note. *1073 C. Legatees against executors wlio were surviving part- ners or who became partners. Cook V. CoUingridge, Jac. 607 {ante, p. 983). Stocken v. Dawson, 9 Beav. 239, and on appeal, 27 L. J. Ch. 282. Wedderbum v. Wedderbum, 2 Keen, 722, and 4 M. & Cr. 21 {ante, p. 987). Townend v. Townend, 1 Giff. 201 {ante, p. 983). Macdonald -o. Richardson, 1 GifF. 995 {ante, p. 985). Willett V. Blanford, 1 Ha. 253 {ante, p. 980). In this case accounts of subsequent profits were directed without prejudice to any question. Flockton V. Burming, 8 Ch. 823, note, and ante, p. 985. 2. Account of subsequent profits refused. A. Executor against surviving partner. Knox V. Gye, L. R. 5 H. L. 656, the statute of limitations being a bar. B. Legatee against executors, one of whom was a surviving partner, and the other of whom liad become a partner. Simpson v. Chapman, 4 De G. M. & G. 154 {ante, p. Vyse V. Foster, L. R. 7 H. L. 818, and 8 Ch. 300 {ante, p. 989). See, also, Wedderbum v. Wedderbum, 22 Beav. 84, and Willett v. Blan- ford, 1 Ha. 253 {ante, pp. 987 and 980. Upon the principle that every one concerned m a breach of Liability of sur- trust with noticc of the trust is answerable for such for assets im- breach, it follows that if a partner dies, and his suiviv- ued''tathe°busi- ino: partners allow his assets to remain in their busi- ness ness, with the knowledge that to suffer them so to re- 1412 CHAP. I.] DEATH AND ITS CONSEQUENCES, ^1074 main is a Dreach of trust on the part of the executors, tne surviv- ing partners will be themselves responsible to the separate credit- tors, legatees, or next of kin of the deceased, for any loss which may be tliereby sustained (a). And further, inasmuch as it is, prima- facie, a breach of trust for executors to allow the assets of the deceased to remain in the business carried on by him at his death, surviving partners who knowingly carry on the business witli assets of the deceased thus left in their hands will bo answerable for such assets, unless they can show that no breach of trust was in fact ^'committed. (5). Their liability to account for *107tl: profits has already been considered (c). Where, however, the surviving partners and the executors are different persons, and the executors distinctly lend part Loanst of their testator's assets to his surviving partners, the ecutors. latter are only liable to pay interest for it, at the rate agreed upon with the executors. In such a case the legatees are not entitled to a share of the profits made by means of the money lent, although in lending it the executors may have been guilty of a breach of trust, and the borrowers may have known that the money belonged to the deceased (d). A fortiori, if the executors are authorized to lend part of the assets of the deceased to his surviving partners, they will not be accountable for the profits they may make by the employment in their trade of money lent to them by the executors in pursuance of their authoi'ity (e) : nor, in such a case as is now supposed, will the executors be responsible for the money if lost, if they took such security for its repayment as having regard to the will of the testator, it was their duty to take (_/). It sometimes happens that the executor of a deceased part;ner is taken into partnership by the surviving partners, and Executor te- 1 .11 1 r- • 1 1 coming a a question then arises wliether the profits received by partner, the executor as partner belong to him personally, or to the estate which he represents. This must depend on the circumstances under which the executor became a partner. If he became a part- Co) See Wilson v. Moore, 1 M. & K. 145, § 30. 127 and 337; Booth v. Booth, 1 Beav. («) Parker v. Bloxam, 20 Beav. 294; 125, and compare Ex parte Barnewall, Vyse v. Foster L. R. 7 H. L. 318, and 6 De G-. M. & G. 801. 8 Ch. 300, ante, p. 989, where the tes- (6) Travis v. Milne, 9 Ha. 141. tator's capital was not got in at the time (c) Plockton V. Bunning, ante, p. 985. appointed, and one of the executors was (d) See Stroud v. Gwyer; 28 Beav. a surviving partner. 130; Flockton v. Bunning, 8 Ch. 823, (/) PadJon v. Richai-dson, 7 De G. note, and ante, p. 985; 23 & 24 Vict. c. M. & G. 563. 1413 *10To EIGHTS OF LEGATEES, ETC., OF THE DECEASED. [bOOK IT. ner in liis representative character, or, as in Cook v. Collingridge (g), under circumstances entitling the legatees to treat liim still as their trustee, he must account for any profits wliicli he may have obtained as a partner. On the other hand, if, as in Simpson V. Chapman (A), he became a partner, not in his repre- *1075 sentative *character, nor under such circumstances as those above mentioned, the profits accruing to him as a partner will be his own, and not form part of the assets for which he must account as executor. Specific lequests of shares. A specific bequest by a partner of his share in the partnership Legacy of a clearly does nol entitle the legatee to become a partner share in a i i p i • y rt> partnership. himscli unless there IS some agreement to that eiiect binding upon the surviving partners. The right of the legatee is simply to be paid the amount due to the testator at the time of his death in respect of his share (*); and also under the circumstances and subject to the qualifications already noticed (]£), to receive a proportion of the profits made since the testator's death. As be- tween the legatee, however, and the executor, the legatee is enti- tled to have the share kept in the business, subject only to the su- perior right of the executor to sell the testator's personal estate for the payment of debts. (Z) A bequest of a partner's capital has been held to include what was due to him. in respect of advances, (m) It has been held that the legatee of a deceased partner's share in ateeof *^^® good-will of the partnership business could not sue good-wni. i\^Q surviving partners for a sale of the good-will and payment of his share, although the bequest had been assented to by the executors, {n) This case was somewhat peculiar, as in truth the surviving partner was entitled to everything which gave a salea- ble value to the good-will, (o) {g) Jac. 607, ante, p. 983. (m) Beyan v. A.-G., 4 Giff. 361. A {h) 4 De G. M. & G. 154, ante, p. bequest of the use of capital employed 986. in trade gives an absolute interest in it. (i) Farquhar». Hadden, 7 Ob. 1. See Terry v. Terry, 33 Beav. 232. (/c) Ante, p. 1072. («) Robertson v. Quiddington, 29 [l] See Fi-yer v. "Ward, 31 Beav. 602, Beav. 529. wb.«:e tbe legatee had an option. (o) See on this subject, ante, p. 859. 1414 CHAP. I.J DEATH AND ITS OONSEQTTENCES. *1076 A specific bequest of a share in a partnership will be adeemed if the testator, after he has made his will, leaves the firm Ademption of and receives his share; but so long as he remains a shares. partner, there will be no ademption, although by some agreement subsequent *to the date of the will, the amount *1076 of his share may have been varied, (js) A legatee is not entitled to receive, out of the estate of his testa- tor, any part of the bounty intended for him by the Legacy to testator, until the legatee has paid all his own obliga- §|bted't™' tions in the shape of debts owing to the testator's es- t^sti**°r. tate. This principle is strongly illustrated by Smith v. Smith, {q) There a lather who had advanced money to a firm in f-^iths) which his son was a partner, died, having bequeathed Snuth. part of his residuary estate to the son. The father's executors wefe held entitled to retain the whole amount of the partnership debt out of the son's share of the residue, although the debt was barred by the statute of limitations when the father died. Shares in companies will not ordinarily pass under a bequest of monevs, bonds, or securities, (r) But under special Legacies of " ' 1 1 i> shares in com- circumstances they will pass even under a bequest of panies. money, as in Knight v. Knight (s), where share certificates were in an envelope endorsed " to be considered as money and given to A. B." A bequest of shares will ordinarily pass stock, (t) Where a person entitled to various kinds of shares in a company bequeaths some of them without saying which in particular, the legatee can select which he pleases, [u) A legacy of shares in a company'' is not adeemed by the conver- sion of such shares into stock (y); nor, necessarily, by the amalga- mation of that company with another, (x) A legatee of shares may, of course, decline to accept them, and he may do so although he accepts another legacy under the same will, {y) {p) Buckwell V. Child, Anst. 260; relied on on this point; Morrice v. Ayl- EUis V. Walker, ib. 309. mer, 10 Oh. 148, was affirmed on Ap- {q) 3 Giff. 263. peal. See L. R. 7 H. L. 717, and Oakes (r) Huddlestonv. Goldsbury, 10 Beav. v. Oakes, 9 Ha. 666, was overruled. 547; Ogle V. Knipe, 8 Eq. 434; Collins v. {u) Millard v. Bailey, 1 Eq. 378. Collins, 12 Eq. 454, {v) Oakes v. Oakes, 9 Ha. 666, and (s) 2 Giff. 616. the last note but one. ■ (t) Morrice v. Aylmer, 10 Ch. 148; [x) See Phillips v. Turner, 17 Beav. Trinder v. Trinder, 1 Eq. 695. Oakes 194. V. Oakes, 9 Ha. 666, contra cannot be («/) Long v. Kent, 6 N. R. 354. 1415 *iOT8 DEATH AND ITS CONSEQUENCES. [bOOK IV. Absolute Where a share in a company is bequeathed to a legacies. person absolutely, the executors should transfer it to the legatee as soon as possible, in order that the liability of *1077 the testator's estate in *respect of it may be put an end to. (s) If the legatee is not siiijv/ris, and the share cannot be transferred into his name, the position of the executors becomes embarrassing. If, however, they do notliing with the share, but simply take the dividends as executors, they will not render them- selves personally liable to creditors (a); nor will they be liable to be made contributories, otherwise than in their representative ca- pacity. (5) But it may happen that, unless the executors transfer the shares into the names of themselves or some other persons, the shares will become forfeitable; and in that case (the legatee of the share being still supposed to be not sui juris) the executors should, for their own protection, apply for the direction of the Court. Where shares are bequeathed to one person for life with remain- Legaciesfor ^^'' *'° another, they ought nevertheless to be sold, nn- ^^- less it is clearly the testator's intention that they shall be retained in specie, (c) If they are intended to be enjoyed in specie, the position of the executors again becomes embarrassing; for if they transfer the shares into the name of the tenant for life, there is nothing to prevent him from selling them for his own use; and in case of a sale of the shares by him, the remainderman would naturally seek to make the executors responsible for their loss. If, on the other hand, the executors procure the shares to be trans- ferred into their own names as trustees for the legatees, a personal liability in respect of the shares will be incurred by the executors, and that liability will not be limited by the amount of the assets of the testator. Unless, therefore, the executors can retain the shares without transferring them, they should, for their own safety, apply for the direction of the Court. Where shares are bequeathed to one person for life, with re- mainder to another, and are transferred into the name of the tenant for life, they will, on his death, be transferable Probate duty. *1078 into the *name of the remainderman without » {z) See Keene's Executors' case, 3 De- ries. G. M. & G. 272. (c) See Blann». Bell, 2 DeG. M. & G. (a) Ness !). Armstrong, 4 Ex. 21. 775; Thornton v. Ellis, 15 Beav. 193; (6) This svibjeot will be adverted to Crowe v. Crisford, 17 ib. 507; and see as hereafter when treatmg of Contributo- to shares in partnerships, ante, 1070. 1416 CHAP. I.] EIGHTS OF LEGATEES, ETC., OF THE DECEASED. *1079 being covered by the probate duty payable in respect of the tenant for life's estate, {d) Such shares, in fact, form no part of his estate, and are covered by the duty payable in respect of the estate of the original testator. "Where shares are bequeathed, not specifically, to one person for life, and after his death to another, tlie money yielded income before by them before sale will not necessarily belong to the ^'^^'^■ tenant for life; for, according' to the case of Dimes v. Scott {e), the tenant tor life is only entitled to the income which would have been obtained if the shares had been sold and the produce invested in consols, at the end of the year from the testator's death: the in- come thus ascertained being, however, paid from the date of the death. This rule applies where the testator's residuary estate con- sists of shares when he dies. But it has been held that the rule does not apply where the executors themselves make an unauthor- ized investment; and that in such a case the tenant for life is entitled to the income actually yielded by the investment, and the remainderman is not entitled to more than a restoration of the original capital. (_/") When the legacy is specific, the rule in Dimes v. Scott does not apply, the legatee taking whatever the shares may yield, {g) So where the shares, although not specifically bequeathed, are directed by the will not to be sold for a certain time, what they yield dur- ing that time will belong to the tenant for life, (h) It appears to be now settled, that when shares are specifically bequeathed, and the will contains no special directions -p^^^^^^^f to the contrary, all calls made upon the shares in the '^^'^'^^^ testator's lifetime must be borne by his general personal estate; whilst all those made after his death must be borne by tlie legatee taking the shares. (^) There are, indeed, cases which show that *calls made after the testator's death are payable out *1079 of his general estate, and not by the specific legatee (^); (d) Heimell v. Strong, 25 L. J. Ch. by the Court for the benefit of infanta, 407. see Lambert v. Rendle, 3 N. R. 247. (e) 4 Rnss. 195, and see Teams v. [i) See Be Box, 1 Hem. & M. 552, and Young', 9 Ves. 549. Day v. Day, 1 Dr. & Sm. 261, where all (/) See Stroud v. Gwyer, 28 Beav. the previous cases are reviewed. See, 130. also, Bevan v. Waterhouse, 3 Ch. D. ((/) Infra. 752, as to a direction to pay calls out of {k) See Green v. Britten, 1 DeG. J. & income and not out of capital. Sm. 649. Where the sale is postponed {k) Blount v. Hipkins, 7 Sim. 51; 1417 *1080 DEATH AND ITS CONSEQUENCES. [bOOK IV. but tliese cases are not to be relied upon, except where the pay ment of the calls would have been a condition precedent to the completion of the testator's own title to the shares if he himself had lived [I), and the calls are made- before the specific legatee is, by the terms of the will, to have the shares, (m) Where shares are specifically bequeathed, and calls upon them Indemnity are payable out of a testator's residuary estate, a fund fund to meet i i calls. ought to be set apart for the indemnity of the specific legatee {n); but, where the assets of the deceased are insufficient for the payment of his debts, no fund to meet future calls ought to be set apart to the prejudice of even simple contract creditors, (o) A specific legatee of a share in a partnership or company is entitled Eights to -a ^° ^^^ ordinary profits and dividends declared after the profits, &e. testator's death {p); unless although declared after his death they were earned and ought to have been declared before, (q) But profits or dividends declared before a testator's death (r), or declared afterwards when they were earned and ought to have been declared before (s), frima facie form part of his general estate, and do not pass to the specific legatee of the share; and the same rule applies to dividends declared before his death, but the actual *1080 payment of which is postponed until ^afterwards, {f) But there may be special circumstances excluding this rule, {u) A dividend declared before the death of a tenant for life, but not payable until afterwards, belongs to his estate, and not to the remainderman, (a?) Clive V. Clive, Kay, 600; Jacques v. 567, and compare Atkinson v. Grey, 1 Chambers, 4 Ra. Ca. 499, correcting S. Sim. & Gr. 577. See ante, p. 1049. C. 2 CoU. 435; Wright v. Warren, 4 (p) Jacques v. Chambers, 2 Coll. 435; DeG. & S. 867. ' Wright v. Warren, 4 DeG. & S. 367; (Z) As to this qualification, see Arm- Browne v. Colhns, 12 Eq. 586; Ibbotson strong -0. Burnet, 20 Beav. 424; Ad- v. Elam, 1 Eq. 188. dams V. Ferick, 26 ib. 384; and Day ■«. ( q) Browne v. Collins, 12 Eq. 586. Day, ubi supra. But see Ibbotson v. Elam, 1 Eq. 188. (m) Me Box, 1 Hem. & M. 522, where (r) See the next two notes, the testator's residuary estate, including (s) Browne v. Collins, 12 Eq. 586. the shares, was bequeathed to A for if) De Gendre v. Kent, 4 Eq. 283; life, and after his death the shares were Lock v. Venables, 27 Beav. 598; Wright specifically bequeathed to B, and the v. Tuckett, 1 J. & H. 266. calls were made in A's lifetime. («) As in Clive v. Clive, Kay, 600, (ra) Jacques v. Chambers, 4 Ea. Ca. which turned on the special wording of 499. the company's deed of settlement. (o) Wentworth v. Chevell, 3 Jur. N. {x) Wright ». Tuckett, 1 J. &H. 266. S. 805. See, too, Read ». Blunt, 5 Sim. 1418 CHAP. I.J EIGHTS OF LEGATEES, ETC., OF THE DECEASED. *10S1 In determining the relative rights of a tenant for life, and a re- mainderman of shares specifically bequeathed, a dis- Distinction be- tinction is taken between dividends and bonuses, i. dcndsand'' e., between payments in respect of profits recently ^°'™^^^- accrued and properly divisible as such, and payments in respect of accumulations of profits forming part of a company's capital. Payments of the first kind, whether called dividends or bonuses, or partly one and partly the other, are income, and belong to the tenant for life, if the sum payable is ascertained and -declared after the testator's death {y); whilst payments of the last kind are treated as capital, and ought to be invested, (s) But these rules are subject to exception; and a dividend declared after a testator's death in respect of pi-ofits recently accrued must be treated as cap- ital, if it has been lawfully capitalized by the company or the part- ners, (a) On the other hand, in Maclaren v. Stainton (5), a bonus arising from money paid to a company under a compromise with one of its own shareholders was held payable to the specific legatee of his shares, and not to his residuary legatee. *Where part of the profits accruing during *1081 j^ft'enlnfto " the life of the tenant for life are capitalized by ^^^'^• the company, he has no' right to have the loss of income, which he hereby sustains, made good by the remainderman, (c) Interest on a debt accrues de die in diem, and is apportionable at common law: and shares of profits and dividends are Apportionment ^ „. -r-r- of interest and now apportionable under the act 33 & 34: Vict. c. dividends. 35. If, therefore, a testator bequeaths debentures to one person for life, and aftei'wards to another, and dies shortly before the current interest on the debentures is payable, so much only of that interest as accrued after the death of the testator will belong to the tenant (y) Compare Hopkins' trust, 18 Eq. v. Boswell, 2 Jur. N. S. 1005, where the 696; Plumhe i>. Nield, 6 Jur. N. S. 529; House of Lords held, that upon the true Price V. Anderson, 15 Sim. 473; Preston construction of a Scotch deed, bonuses V. Melville, 16 ib. 163; and Barclay v. belonged to an infant's estate, and not "Wainwright, 14 Ves. 66 (in which the to the person who, on his death under payments were held to be income), with 21, became entitled to the stocks which the cases in the next note. yielded them. {z) Straker v. Wilson, 6 Ch. 503; (a) Barton's Trusts, 5 Eq. 238. See, Ward V. Comb, 7 Sim. 634; Witts v. also, Straker v. Wilson, 6 Ch. 503. Steere, 13 Ves. 363; Paris v. Paris, 10 (&) 3 DeO'. P. & J. 202, reversing 27 Ves. 185; and Brander v. Brander, 4 Beav. 460. Ves. 800, in which the payments were (c) See Stroud v. Gwyer, 28 Beav. held to be capital. See, also, Cuming 130. 1419 *10S2 DEATH AND ITS CONSEQUENCES. [BOOK IV. for life, (d) And it is apprehended that now if there is a specific bequest of sliares in a company, and the testator dies a few daj's before a dividend upon them is declared, there will bo a simi- lar apportionment of the dividend (e); but the same rule does not apparently apply to bequests of shares in partnerships. (/") Other circumstances being the same, the price of shares in divi- dend-paying companies naturally rises as a dividend day ap- proaches; in fact, the price includes a proportionate part of the ac- cruing dividend; nevertheless, as between a tenant for life and a remainderman the price realized by a sale of shares is all treated as corpus, without reference to the time when a sale is made (^); and it is conceived that the statute 33 & 34 Yict. c. 35 has not altered the law in this respect. Where shares are bequeathed to executors upon trust for sale as soon as conveniently may be after the testator's death, Liability of ex- tl^ev should Sell "them within a year after his ( cutors for not ^ ^ soiling shares. *1082 death: and in a *case where they were kept unsold for many years and the company was ultimately wound up, the estate of a deceased executor who sur- vived the testator only thirteen months was held liable for the loss sustained by not having sold them within the year (A). ' {d) See Rogers' Trusts, 1 Dr. & Sm. AUen, 4 Jur. N. S. 500. 338. (/) See Jones v. Ogle, 8 Ch. 192. («) Pollock V. Pollock, 18 Eq. 329, See, before the act, Ibbotson v. Elam, 1 correcting Whitehead «. Whitehead, 16 Eq. 188; Johnston v. Moore, 27 L. J. Eq. 529. IxL Jones v. Ogle, 14 Eq. 419, Ch. 453; Browne v. CoUins, 12 Eq. 5S6. affirmed on appeal, 8 Ch. 192, there [g) Soholefield v. Redfem 2 Dr. & was no apportionment, but there not Sm. 182. See, also, Freeman ». Wh.t- only the shares but the dividends on bread, 1 Eq. 266. them were specifically bequeathed. See, {h) Grayburn t;. Clarkson, 3 Ch. 605; before the act, Maxwell's trusts, 1 Hem- Soulthorpew. Tipper, 13 Eq. 232. Com- & M. 610; Bates v. Mackinley, 31 Beav. pare Marsden v. Kent, 5 Ch. D. 598. 280; Chve V. Chve, Kay, 600; Hartley v. 1420 CHAP. II.j AMEEICAN JOINT-STOCK COMPANIES. 10S3 CHAPTEK II. JOINT-STOCK COMPANIES IN ^HE UNITED STATES.' 1. Joint-Stock Companies Existing Indejgendent of Statutory Regulation. TJnincorporated joint-stock companies, as they exist in the United States, are, with the exception perhaps of those organized under the statutes of New York, merely co-partnerships; and, as a general thing, subject to all the rules governing that branch of the law." The shareholders are, therefore, each personally liable for all ' In this chapter it is not proposed to treat of English joint stock companies, that subject having been already suf- ficiently treated in professed works upon that subject, nor of joint stock corporations, that subject belonging more properly in a work upon corpora- tions, but of vmincorporated joint stock companies and of those companies organized under the New York statutes upon the subject, which, while possessing many, if not most, of the attributes of corporations, are not such to every intent and purpose. These companies, though organized in the State of New York, do business in many other States of the Union, so that the law concerning them has much more than a local importance. 2 Vigera v. Sainet, 13 La. 300; Tenney V. N. E. Protective Union, 37 Vt. 64; Manning v. Gasharie, 27 Ind. 399; Hedge's Appeal, 63 Penn. St. 273; Tap- pan V. Bailey, 4 Met. 535 ; Robbins v. Butler, 24 111. 387; Babb v. Reed, 5 Rawle, 151; Lafond ». Deems, 52 How. Pr. 41; S.C. 1 Abb. N. C. 318; Wells V. Gates, 18 Barb. 554; Dennis v. Ken- nedy, 19 Barb. 517; Townsend Goewey, 19 "Wend. 424, 428; Cross v. Jackson, 6 Hill, 478; WUhams v. Bank of Mich., 7 Wend. 539; in re Piy, TVeas., etc., 4 Phila. 129; Kramer t). Arthurs, 7 Penn. St. 165. ' 'Mere partnerships, as to every person except their own stockholders, they never having been legally incorporated. Whatever name such a company may assume and use in the transaction of its business, it is a partnership, and not a corporate designation." Williams v. Bank of Mich. 7 Wend. 539, 542, per Walworth, Chancellor. See, also. Skinner v. Dayton, 19 John, 537; Thom- as V. EUmaker, 1 Pars. Sel. Eq. Cas. 98; Butterfield ». Beardsley, 28 Mich. 412. See, however, Livingston v. Lynch, 4 John. Ch. 573, 592, where it was said by Chancellor Kent that the evident character of the members of the com- pany in that case was that of tenants in common, in which each had a dis- 1421 108i AMEEICAIf JOINT STOCK COMPANIES. [book IV. the debts of the company, no matter what the private arrange- ments among themselves may be;' and this notwithstanding they attempt to arrogate to themselves the attributes of corporations by doing business under a corporate name, and appointing certain of their members to act as directors.' The fact that tlie members call themselves stockholders and the firm an association, and that the number of members is considerable, makes not the slightest differ- ence as to the real nature of the association.' In all actions at law by and against such unincorporated associations, all the members must be made parties to the same, as in the case of an ordinary partnership. No action can be maintained by or against the association in the character of a society possessing corporate rights.'' Nor can such an association sue in the name of tinct thougli undivided interest in the establishment, and an entire dominion over his own share or proportion of the property, but without any right or power to bind the interest or regulate the enjoy- ment of the property of the other mem- bers. This position of Chancellor Kent was approved in 1S52, by Taggart, P. J., in Irvine v. Forbes, 11 Barb. 587. Persons associating themselves to- gether under articles to purchase prop- erty and to carry on a manufactm-ing business, if their organization be so de- fective as to come short of creating a corporation within the statute, become in legal effect partners. Whipple v. Parker, 29 Mich. 870. iRobbins v. Butler, 24 111. 387; Hess V. Werts, 4 S. & R. 356; Vigers v. Sainet, 13 La. 300; Tenney v. N. E. Protective Union, 37 Vt. 64; Manning V. Gasharie, 27 Ind. 399; Hedges' Ap- peal, 63 Pa. St. 273; Tappan v. Bailey, 4 Met. 535; Cutler v. Thomas, 25 Vt. 73. See, also, Skinner v. Dayton, 19 John. 537; Thomas v. Ellmaker, 1 Pars. Sel. Eq. Cas. 98. Where the articles of association provided that persons having dealings with the company should not have re- course for their debts against the sep- 1422 arate property of its members, but should be considered as Iiaving given credit to their joint funds solely ; and that the trustees or agents of the com- pany should have nO a,uthority to bind it by any contract, unless it contained a restriction to that eifect: Held, that plaintiff having done work for the com- pany under a contract by parol and at- tended with no sach restriction, might maintain an action, not upon the con- tract itself, but upon the quantum meriiH, either against the agents as having made themselves personally liable, or against the individuals com- posing the association, on the ground that they had received the benefit of the plaintiff's labor. Sullivan v. Campbell, 2 Hall, 271. 'Hess V. Werts, 4 S. & R. 356; Wil- liams V. Bank of Mich. 7 Wend. 539; 542, per Walworth, Chancellor (cited S!'^M'a in note); McGreary «. Chandler, 58 Me. 537. swells V. Gates, 18 Barb. 554; Den- nis I'. Kennedy, 19 Barb. 517. "Pipe V. Bateman, 1 Iowa, 369; Mc- Grearyi). Chandler, 58 Me. 537; Wil- liams V. Bank of Mich., 7 Wend. 542, per Walworth, Ch. CHAP. II.J AS UNAFFECTED BY STATUTE. 1085 any oiBcer of the association or in the name of tlieir trustees.' K"or can an action at law be maintained by one niember against an- other, which involves an examination of the partnership accounts.' The directors of such an unincorporated joint-stock company stand in the relation of trustees to the stockholders; and any gain they may reap in the discharge of their official duties, and while they continue to be invested with the fiduciary capacities, inures to the benefit of the cestuis que tnistent.' The principal difference between unincorporated joint-stock as- sociations and partnerships, relates to the effect of a transfer of a raember'sinterestin the association. In the case of a partnership such a transfer, in the absence of an agreement to the contrai-y, as we have already seen, works a dissolution, as does likewise the death of a partner. In the case of joint-stock associations there is usually no delectus personce, and a transfer by a member of his shares or the death of a member does not dissolve the association." 'Nivenc. Spickerman, 12 John. 401. See, also, McGreary v. Chandler, 58 Me. 537. 2Bullard v. Kinney, 10 Cal. 60. No action can be maintained by the treasurer of an association, not incor- porated, against one upon his promise in writing to pay money as a subscrip- tion, not to any person by name, but "to the treasurer" of the association alone. Ewing «. Medlock, 5 Port. 82. ^•Inre Fry, Treas., etc., 4 Pliila. 129. ''Tyrrell v. Washburn, 6 Allen, 466; Tenney v. N. E. Protective Union, 37 Vt. 64. See, also, Troy Iron & Nail Factory?;.. Coming, 45 Barb. 231. If by the articles of a trading associa- tion it is apparent that it was designed to consist of many members, who might from time to time cease to be interested in the concern, by voluntary withdrawal or death, and that the same business should be continued by those who should remain, and by such as might be added to their number under the terms of the articles, the death of one of them does not dissolve the association, and thus relieve others from liability to contribute for debta subsequently con- tracted without their knowledge or con- sent. Tyrrell v. Washburn, supra. In such an association as between re- tiring members and creditors of the com- pany, such retiring raembers remain ha- ble for all existing debts; and they may be liable for subsequent debts to credi- tors who had knowledge of their mem- bership, but had no notice of their with- drawal. As among themselves, how- ever, their rights and liabilities may be' modified by special aj. r 3ement. TyixeU V. Washburn, supra. The articles of an unincorporated joint stock company composed of three persons, provided in substance that eith- er of the associates might sell any of his shai-es of stock, but that before selling to any other person, he should offer them to the association, and that no sale should give the purchaser any control in the business nor any interest in the profits, until scrip should be issued to him by the other associates : Held, that a sale of shares without an offer to the as- sociation was vaM, but did not consti- tute the purchaser a partner, nor work a dissolution ; but that the purchaser, be- ing registered and getting his certificate, 1423 1086 AMERICAN JOINT STOCK COMPANIES. [chap. n. As respects the forfeiture by a member of his interest in the company, the provision in the articles of agreement of a private joint-stock compan}'^, that upon default by a stocldiolder iu pay- ment of assessments, all his shares, right and interest in the associ- could demand and receive dividends de- clared to his vendor, on a power of at- torney from him. Harper v. Raymond, 3 Bosw. 29 ; S. C. 7 Abb. Pr. 142. The implied promise of one holding moneys for a joint stock association in which the interests of the members are represented by certificates transferrable at will, must be understood to be,to make , payment to those who are associates when suit is brought, and where one of the plaintiffs, who is a member when suit is brought, holds by assignment from one of the original associates, it is not necessary that the declaration men- tion the assignment, but it may count as upon an original promise to all the plaintiffs. WUlson v. Owen, 30 Mich. 474. In mining partnerships, as they exist in California, there is usually no delectus personcB, and as a consequence such a partnership is not dissolved by the death of a partner, or a sale of an interest by a partner to a stranger. Taylor v. Cas- tle, 42 Cal^ 367 ; Jones v. Clark, 42 Cal. 180 ; Bainbridge on Mines, 425. A surviving partner has in such case no right to take control of the property as survivor, this right only applying where the delectus personce exists. Jones V. Clark, 42 Cal. 180. A stranger by his purchase of shares in such a parbiership presumptively be- comes a partner, though he takes no part in the management of the partner- ship affairs, and does not hold .himself out to the world as a partner. Taylor V. Castle, 42 Cal. 367. If a promissory note is binding on a mining partnership as a valid contract, such partnership continues Hable, at least to the extent of the partnership assets, though some members of the 1424 company have parted with their inter- ests — the new members having pur- chased with knowledge subject to the payment of partnership debts. Jones V. Clark. 42 Cal. 180. The recognized and established usage on the part of such a firm should be taken as a part of the contract of part- nership. Taylor v. Castle, 42 Cal. 367. See, also, Jones v. Clark, sup. So, unincorporated ditch companies organized for the sale of water to min- ers and others, the stock of which is bought and sold at the pleasure of the owners, without consulting the co-own- ers, differ from ordinary commercial partnerships. Some of the incidents of a partnership pertain to such com- panies, and some of mere tenancies in common likewise pertain to them. Mc- Connell -o. Denver, 85 Cal. 365. A member of such a company has no gen- eral authority by virtue of his membter- ghip to bind the company by his con- tracts. McConnell v. Denver, supra. Where, however, by the articles of agreement of an incorporated associa- tion for the regulation of their business affairs, it was stipulated that the capi- tal stock should be divided into shares; that the shares should be transferrable; and that trustees should be appointed to manage the affairs, in whom all the property should vest in trust; and in accordance with these regulations trus- tees were appointed, who made pur- chases of real and personal property, and proceeded to the transaction of bu- siness ; and shares were from time to time transferred, until 29-40ths of them were held by one person: Held, that a sale by him, not of his shares, but of 29-40ths of all the land and property which had belonged to the company, was a BOOK IV.j AS EEGULATED BY STATUTE. 1087 ation and its property shall be forfeited, does not authorize the truotees by a naked declaration to make a forfeiture against which a court of equity will not grant relief.' -Joint-stock companies organized under, or regulated hy, stat- utes.^ The principal legislation upon the subject of joint stock com- panies not possessing all the attributes of corporations, is to be found in the statute books of New York; and as the companies organized under the act of 1849, and the subsequent acts amenda- tory thereof, do business in many other States of the Union, these statutes have been thought of sufficient importance to warrant their being printed in a note.' dissolution of tiie association; and that the persons who owned the shares at the time of the dissolution, were entitled, according to the number of their shares, to all the avails and assets of the com- pany, and were liable to contribute in the same proportion to all the debts of the company. Smith v. Virgin, 33 Me. 148. 1 Walker i;. Ogden, 1 Biss. 287. An incorporated joint stock associa- tion was formed to operate by trade and labor in a distant State. Its constitu- tion divided the stock into shares of 1500, and provided that each member, by subscribing to render his personal la- bor, should be entitled to another share, but that desertion from the service should forfeit all his interest in the asso- ciation. C. became a stockholder, but did not subscribe for personal services. He, however, authorized W., as his sub- stitute, to labor and vote as represent- ing his share abroad, and W. was per- mitted to vote and act according-ly, though he had never subscribed for stock. W. afterwards deserted the em- ployment: Held, that the substitution conferred upon W. no share in the stock, and that C.'s interest in the association was not forfeited by the desertion, al- though such forfeiture had been declared by the unanimous vote of the company. Cox V. Bodfish, 35 Me. 802. ^ Not, however, including those pos- sessing all the attributes of corporations. See the introductory note at the begin- ning of this chapter. 3 The act of 1849 (Laws of New York, 1849, ch. 258, p. 389), ' ' in relation to suits by and against joint stock companies and associations," is as follows: "§ 1. Any joint stock company or association, consisting of seven or more shareholders, or associates, may sue and be sued, in the name of the presi- dent or treasurer, for the time being, of such joint stock company or association, and all suits and proceedings so prose- cuted by or against such joint stock company or association, and the service of all process or papers in such suit and proceedings on the president or treas- urer, for the time being, of such joint stock company or association, shall have the same force and effect as regards the joint rights, property and effects of such joint stock company or association, as if Such suits and proceedings were pros- 8" 142.5 1088 AMEEICAN JOIKT-STOCK COMI'ANIES. [book IV. With respect to tlie nature of the associations existing under these statutes, notwithstanding the fact that a considerable number ecuted in the names of all the share- holders or associates, in the manner now provided by law. "§ 2. No suit so commenced shall abate by reason of the death, removal or resignation of such president or treas- urer of such joint stock company or as- sociation, or the death or legal incapac- ity of any shareholder or associate dur- ing the pendency of such suit ; but the same may be continued by or against the successor of the officer in whose name such suit shall have been com- menced. "§ .3. The president or treasurer of any such joint stock company or associa- tion, shaU not be liable in his own person or property by reason of any suit prosecu- ted, as above provided, by or against him, as the nominal plaintiff ov defend- ant therein, provided that such presi- dent or treasurer shall not be exempted from any liability to which he may be otherwise legally subject as a stock- holder or shareholder in such joint stock company or association. "§ 4. Nothing herein contained shall be construed to deprive any plaintiff of the right, after judgment shall be ob- tained against any joint stock company or association, as above provided, from suing any or all of the shareholders or associates therein, individually, as now provided by law, or of the right to pro- ceed, in the first instance, against the persons constituting any such joint stock company or association, in the manner now provided by law; but if it shall appear to any court in which any suit shall be prosecuted otherwise than is provided in the first section of this act, that the same is so prose- cuted for the purpose of vexatiously and oppressively enhancing costs, such court shall not allow any more costs to be taxed and recovered in such suit than 1426 would be taxable and recoverable in case such suit was prosecuted in the manner provided in the first section of this act. "§ 5. Nothingherein contained shall be construed to confer on the joint stock companies or associations mentioned in the first section of this act, any of the rights or privileges of corporations, ex- cept as herein specially providsd." ■ In 1851 (Laws of 1851, ch. 455, p. 838), the act of 1849 was amended as follows: "§ 1. The act entitled," &c. * * * " is hereby extended to any company or association composed of not less than seven persons, who are owners of or have an interest in any property, right of action or demand, jointly or in common, or who may be hable to an action on account of such ownership or interest : and the suits and proceedings authorized by said act may be brought and maintained in the manner therein provided, as well for any cause of action heretofore existing as for any that may hereafter accrue." In 1853 (Laws of 1853, ch. 153, p. 283), the 4th section of the said act of 1849 was amended to read as follows: "§ 4. Suits against any such joint stock company or association, in the first in- stance, shall be prosecuted in the man- ner provided in the first section of the said act; but after judgment shall be ob- tained against any such joint stock com- pany or association, as above provided, and~execution thereon shall be returned unsatisfied in whole or in part, suits may be brought against any or all of the shareholders or associates, individu- ally, as now provided by law; but no more than one suit shall be brought and maintained against said shareholders at any one time, nor untU the same shall have been determined, and execution CHAP. II.J AS EEGULATED BY STATUTE. 1089 of cases seem to regar'd them as nothing more than partnerships, and governed by the same rules as partnerships, except so far as the statute has changed such rules/ as for example, respecting the method of suing and being sued, other and more anthoritative issued and returned, unsatisfied in whole or in part. No death removal, resigna- tion of officers or shareholders, or sale or transfer of stocfe, shall work a disso- lution of any such joint stock company or association aS against the parties suing or being sued by such company, as herein provided, or as against any creditor or person having any demand against such company at the time of any such death, removal, resignation, sale or transfer. ' ' In 1854 (Laws of 1854, ch. 245, p. 558), the previous acts upon the subject were amended and added to as follows : "§ 1. Whenever, in pursuance of its articles of association, the property of any joint stock association is represent- ed by shares of stock, it may be lawful for said association tc^ provide by their articles of association that the death of any stockholder, or the assignment of his stock, shall not work a dissolution of the association; but it shall continue as before, nor shall such company be dissolved, except by judgment of a court for fraud in its management or other good cause to such court shown, or in pursuance of its articles of association. "§ 2. Said association may also, by said articles of association, provide that the shareholders may devolve upon any three or more of the partners the sole management of their business. " § 3. This act shall in no way be construed to give said associations any rights and privileges as corporations." In 1867 (Laws of 1867, vol. 1, ch. 289, p. 576), an act was passed to au- thorize joint stock companies and asso- ciations to purchase, hold and convey real estate as follows : "Sbctioit 1. It shall be lawful for any joint stock company or associa- tion to purchase, hold and convey real estate for the following purposes : "1. Such as shall be necessary for its immediate accommodation in the con- venient transaction of its business; or "2. Such as shall be mortgaged to it iu good faith, by way of security for loans made by or moneys due to such joint stock company or association; or " 3. Such as it shall purchase at sales under judgments, decrees or mortgages held by such joint stock company or as- sociation. "The said joint stock company or as- sociation shall not purchase, hold or convey real estate in any other case or for any other purpose; and all convey- ances of such real estate shall be made to the president of such joint stock com- pany or association, as such president, and who, and his successors, from time to time, may sell, assign and convey the same, free from any claim thereon against any of the shareholders, or any person claiming under them, or any or either of them." The provisions of the constitution of New York touching the question are as follows : Art. 8, § 1. "Corporations maybe .formed under general laws." Id. § 3. "The term corporations, as used in this article, shall be construed to include all associations and joint stock companies having any of the pow- ers or privileges of corporations, not possessed by individuals or partner- ships." 1 See Lafond v. Deems, 52 How. Pr. 41; S. C. 1 Abb. N. C. 318; Wells v. Gates, 18 Barb. 554; Dennis v. Ken- nedy, 19 Barb. 517; Moore v. Brink, 4 Hun. 402; S. C. 6 N. Y. Supreme Ct. 22. 1427 1090 AMEEICAM' JOINT-STOCK COMPANIES. [bOOE IV. and well considered cases regard them substantially as corporations. "With respect to the nature of these associations, Barnard, J., speaking iii 1867, of joint-stock companies, organized under said statutes, said: "They are organized, not as simple partnerships, but with written articles of association framed under and with reference to the statute laws on the subject. The first act was passed in the year 1849. It was amended in the year 1851, and again in 1854:. A further act passed at the session of 1867, authorized these companies to hold real estate in perpetual succession. By an ex- amination of all these statutes, it will be found that joints-stock companies possess the following qualities or attributes of corpora- tions : 1. They can, like corporations, sue and be sued in a single or collective name, to-wit, the name of their president or treasurer. 2. Their property or capital is represented in shares and certificates of stock, differing in no respect from shares and stock certificates in corporations. 3. The death of a member, his insolvency, or the sale or transfer of his interest, is not a dissolution of the company. 4. They have perpetual succession, or what is sometimes called the immortality of corporations. 6. They can take and hold real and personal estate in a collective capacity and in perpetual succes- sion. These are all attributes of a corporation, and if we look into the books for elementary definitions, we shall find that corporations have no other attributes except the technical one of a common seal, to distinguish them from common-law partnership. On the other hand simple partnerships have none of the attributes or qualities here mentioned. Mere names are of but little importance. Looking at the substance and nature of things, it is plain that in respect to the absence of a common seal merely, the joint-stock associations are like partnerships. In the other and vastly more material respects mentioned, they are like corporations, although they are not declared to be such by the legislative acts referred to." * * * " As to personal and individual liability, that is an incident both of part- nerships and corporations, uniform and invariable in the one case, subject entirely to the legislative will in the other." ' So in Westcott v. Fargo," it was held that the president or treas- urer of a joint-stock company or association consisting of seven or more members, is, under the provisions of the act of 1849, amended by the act of 1853, ch. 153, and under the provisions of the consti- iWaterburyp. Merchants' Union Ex- Pr. N. S. 163. press Co. 50 Barb. 157; S. C. 3 Abb. ' 61 N. Y. 542. 1428 CHAP. II.] AS EEGULATED BY STATUTE. 1091 tution (Art. 8), relative to corporations, to be regarded for the pur- poses of an action against the company substantially as a corpora- tion sole. So in Sandford v. Supervisors of New York,* it was held that joint-stock associations organized under the laws of 1849, ch. 258, and of 1854, ch. 245, are corporations by virtue of the constitution, notwithstanding the proviso of the act of 1854, that said " act shall in no court be construed to give said associations any rights and privileges as corporations," and that they are therefore liable to taxation on their capital. The question has arisen and been decided in several cases, as to what is the status in other States of a joint-stock association organized under the statutes above referred to, and a diversity of opinion prevails upon the subject. In the recent case of Fargo, Pres't of the Am. Exp. Co. v. Louisville, N. A. & C. Ewy. Co.,' decided May 3, 1881, in the United States Circuit Court for the District of Indiana, it was held that a New York joint-stock com- pany, possessing the right by the law under which it was organized, to sue and be sued in the name of its president or treasurer, was a citizen of the State of New York in the same sense that corpora- tions are citizens of the States under whose laws they are organ- ized; and that such joint-stock company might by the comity of States, sue and be sued in the name of such officer in the Federal courts, as a citizen of New York, even though shareholders of such joint-stock company were citizens of the same State as the adverse party to the suit. The court considered that in determin- ing what such joint-stock companies are, regard was to be had to their essential attributes, rather than to any mere name by which they might be known; and that if the essential franchises of a corporation were conferred upon a joint-stock company, it was none the less a corporation, because the statute called it something else, or even designated it as an " unincorporated association." ' 15 How. Pr. 172. When an association of persons as- See, however, Bell v. Streeter, N. T. sumeaname, which implies a corporate Trans. 26 Jan. 1872, p. 6. See the body, and exercise corporate powers, constitutional provision above referred they will not be heard to deny that they to, quoted supra in the note containing are a corporation. United States Ex- the N. Y. statutes. press Co. v. Bedbury, 34 ID.. 459; Clark- ' 13 Chicago Legal News, 277. See, son v. E. & N. S. Dispatch, 6 Bradwell, also, Habicht v. Pemberton, 4 Sandf. 284. 658, per Duer, J. 1429 1092 AMEEICAN JOINT-STOCK COMPANIES. [bOOK I^'. In Cutler v. Thomas," it was said that the liability of individ- ual members of an unincorporated joint-stock company formed in Canada, growing out of the association, must be judged of by the law of Canada, where the association was formed, and where their place of business was, though a bill of exchange drawn by them might be governed by the laws of the place where it is made payable. On the other hand, in Massachusetts it is held that the statutes in question are local in their operation, as regards reme- dies for debt against the company; that in Massachusetts such a company is a mere partnership, and that the members may be sued in Massachusetts in the first instance as partners for such a debt, notwithstanding the provision of the New York statute that no suit shall be maintained on the demand against the individual members, until judgment has been rendered against the company in the name of the president or ti-easurer, and execution thereon re- turned unsatisfied." As to the method of organization, and the associations to which the statute applies, the act of 18i9 did not, it seems, until extend- ed by the act of 1851, apply to associations wherein the members were not shareholders or stockholders.' It is not, however, neces- sary to the existence of an association under the act of 1849, that there should be any subscription in writing by its members, and, although to endure longer than one year, it is not within the stat- ute of frauds. The statute requires no greater formalities in that respect for its formation, than for the formation of an ordinary part- nership." It is not necessary that certificates of stock or scrip should be issued, or that a person should be formally declared a stock- holder in order to entitle him to the rights and make him liable to the duties of membership; in order to become a proprietor it is only necessary that he should subscribe the articles of association.' A social club, though without formal constitution and by-laws, '25 Vt. 73. it was held that persons who subscribe ^Taft«. Ward, 106 Mass. 518; S. C. for shares in a joint stock company and lllid. 518; Gott u. Dinsmore, lllid.45. pay deposits, but do not comply with ^ Kingsland v. Braisted, 2 Lans. 17. the full conditions of the association, *Nat. Bank of Schuylerville i). Van and never become entitled to profits, are Derwerker, 74 N. Y. 234. not liable for debts unless they are ac- ' Dennis v. Kennedy, 19 Barb. 517. tive in contracting; them, or hold them- See, also, Wells v. Gates, 18 Barb. selves out as partners. West Point 554. Foundry Ass'n v. Brown, 3 Edw. Ch. Prior to the passage of the act of 1849 284. 1430 CHAP. II.j AS EEG0LATED BT STATUTE. 1093 and without purposes of profit or pecuniary advantage, may be heldliable, in an action under tlie statute, as a joint-stock association, or association of seven or more persons leaving a common interest.' The rights and capacities of joint-stock companies organized un- der said statutes, and the rights and liabilities of their members, have already been considered to some extent. As to the necessary parties to actions by and against such associations, it is not neces- sary under the statute that the individuals comprising the mem- bership of such a company consisting of more than seven asso- ciates, should be made parties to an action by or ao-ainst it. The action is well brouglit by or against the president or treasurer of the association, named as plaintiff or defendant." An action against the president, secretary and treasurer is im.prop- erly brought.' In a complaint in an action by an ofEcer of a joint- stock company, the allegation that the company is a joint-stock company or association consisting of more than seven shareholders ' Ebbinghonsen v. "Worth Club, 4 Abb. N. C. 300. Contra, Park, v. Simmons, 10 Hun. 128. 2 01ery v. Brown, 51 How. Pr. 92; National Bank of Scliuylerville v. Van Derwenter, 74 N. T. 234; Tibbetts v. Blood, 21 Barb. 650; DeWitt v. Chand- ler, 11 Abb. Pr. 459. : A member of a voluntary unincorpora- ted association for purposes of pleasure cannot maintain an action in his own name upon a contract made with the as- sociation, nor has he an interest therein which he can so transfer that his as- signee can maintain an action against the contractor with the association. Nor can one member maintain an action at law in behalf of the association against another member upon any agreeinent made with the association. McMahon V. Rauhr, 47 N. Y. 67. The statute of Conn. (Gen. Stat. tit. 1, § 65) provides that any number of persons associated as a voluntary as- - sociation, not having corporate powers, but having some distinguishing name, may be sued by the name by which the association is known: Held, that a military company formed by voluntary enhstment under the laws of the State, and known as "Co. G, Second Regi- ment, Conn. National Guard," was a voluntary association under the statute, and might be sued by that name. Pox V. Narramore, 86 Conn. 376. Where such a company had occupied certain leased premises as an armory, and the commanding officer had re- ceived from the State a sum of money for the pui-pose of paying the rent of such premises, which money had not been paid to the lessor, but had been ap- plied for the benefit of the company in another manner, it was 7ield that the company was liable to the lessor in an action for money had find received, for the money so received by the cominand- ing officer. Pox v. Narramore, 36 Conn. 376. By statute in Ohio, an action to en- force against a partnership a.hability of the firm, may be brought against the partnership either in the name of the firm or in the names of the partners who compose it, at the option of the plaintiff. See Whitman v. Keith, 18 Ohio St. 134. 3 Schmidts. Gunther, 5 Daly, 452. 1431 1094 AMEEIOAN JOINT -STOCK COMPANIES. [bOOK IV. or associates, is, under the act of 1849, a material and issuable al- legation.' The complaint in such action need not, ho^vever, state the names of seven of the associates. It is sufficient if it avers that the association consists of seven associates and upward." The provisions of the act of 1849 in relation to suits by and against joint stock companies and associations, have been held to refer only to unincorporated companies and associations.' But inasmuch as the later decisions already referred to regard joint-stock associations as quasi corporations, this decision must be regarded as qualified by them. The acts of 1849 and 1851 have been held not to em- brace the fire companies of New York.' The acts of 1S49 and 1851 conferred upon the officers tlierein authorized to sue and be sued, no riglit to sue except in cases where the shareholders or associates could before have prosecuted. The intent of the statutes was to obviate the inconvenience of joining all the shareholders or associ- ates as parties; to facilitate an existing right of action, and not to create a new one.° Said acts were intended to apply to suits hav- ing in view a remedy against the joint property and effects of such companies and associations. Where, therefore, an action merely seeks to restrain an unincorporated association bj' injunction from carrying into effect its resolution of suspension against a member of the association, it is not within the meaning of said acts, and is not well brought against the president merely." 1 Tiffany ». Williams, 10 Abb. Pr. ^Tftbetts p. Blood, 21 Barb. 650. 204. * New York Marbled Iron Works v. An action brought against "The City Smith, 4 Duer, 362. Club," of over seven persons, may be ^Masterson t>. Botts, 4 Abb. Pr. 130. sustained where the complaint express- ' Corning v. Greene, 23 Barb. 33; af- ly charges that the defendants were firmed, 26 N. Y. 472, note, members of and partners in an assooia- " Rorke v. Russell, 2 Lans. 244. tion or organization known as "The Persons who become members of a City Club," that existed on and prior to voluntary association which is neither a May, 1869, and up to Aug. 1, 1870 (dur- co-partnership nor a corporation, are ing which time the claim was created bound by its rules, not being in conflict by them), either as original debtors or with the law of the land; and the courts as assignees of a lease (a balance of rent can interfere no farther than to hold the being claimed) for the two years, which association to a fair and honest admin- is alleged to have been made to three of istration of those rules. White «. Brow- the defendants, by authority of the de- nell, 4 Abb. Pr. (N.'S.) 162; 2 Daly, fendants, and as agents, and for and in 329. See, also, Leech v. Harris, 2 behalf of all of them, and for their use, Brewst. 571; Lowry v. Stotzer, 7 Phila. and which they used and enjoyed. Wal- 397. ler V. Thomas, 42 How. Pr. 337. A member is not bound by an exer- 1432 CHAP. 11.] AS KEGULATED BY STATUTE. 1095 The judgment in an action against the president under the stat- ute, and execution- thereon, are properly against the president as such, and they bind only the joint property of the association, not the individual property of the president, nor the separate property of the individaal members.' Under the act of 1849, as amended by the act of 1853, actions against a partnership or association, consisting of seven or more per. sons, must be brought against the president or treasurer of such- association, and the remedy against their joint property exhausted before an action can be brought against one or more of the indi- vidual associates." When the judgment and execution against the company fail to secure satisfaction of the debt, then an action against the associates directly is proper.' Under said acts no action lies against the individual members upon the judgment obtained against the company." Tlie judgment against the president for a debt owed by the company does not preclude the individual mem- bers, when sued for the same debt, from contesting their liability for the debts of the company.^ At most, such judgment against the president can be no more than prima facie evidence in the plaintiff's favor, in a subsequent action against the associates. It will not maintain his right to recover, where the evidence shows that the judgment so recovered exceeds the amount for which the associa- tion or its members were liable in the action;" The liability of in- dividual members of a joint-stock company, alfter judgment and execution returned unsatisfied against the company, under the act cise of power on the part of his fellow partnership, equity will not interfere, members to which he has not assented, Olery v. Brown, 51 How. Pr. 92; White or which is not derived from the law of v. Brownell, 2 Daly, 329; 4 Abb. Pr. the land. Leech v. Harris, 2 Brewst. (¥. S.) 162. 571. See, also, Lowry v. Stotzer, 7 Phila. ^National Bank of Schuylerville v. 397. Van Derwerker, 74 N. Y. 234; Allen v. Equity will take cognizance of and Claxke, 65 Barb. 563. enforce the rules and regulations of so- ' Robbing v. Wells, 18 Abb. Pr. 191 ; cieties within the line of order, and to S. C. 26 How. Pr. 15; 1 Robt. 666; Al- correct abuses. Potter v. Search, 7 len v. Clark, 65 Barb. 663. Phila. 443. See, also, Lowry v. Stotzer, See, also, Kingsland v. Braisted, 2 7 Phila. 397. Lans. I'r' Where there is open to an expelled ^ Allen v. Clark, 65 Barb. 563. member of a voluntary assoc'ation a ^ Witherhead v. Allen, 3 Keyes, 562; remedy under its constitution and laws S. C. 4 Abb. App. Dec. 628. for a review of the proceedings for his 'Allen v. Clark, 65 Barb. 563. expulsion, and in case of error for his ' Allen v. Clark, sujp. restoration, and the association is not a 1433 1096 AMERICAN JOINT STOCK COMPANIES. [bOOK IV. of 1849, as amended by the act of 1853, is that of partners, and consists in the original demand against the company, not the judgment against it.' The complaint must therefore allege a sub- sisting cause of action against the company, on the originarl de- mand. Alleging that the company, became indebted to plaintiff for goods sold, without alleging a sum now due, or a breach in any form, is hot enough, even where judgment and execution unsatis- fied are alleged." A creditor of a joint-stock association must pro- ceed against the surviving shareholders before an action can be maintained against the representatives of a deceased shareholder." As to actions between a joint stock company and its members, it is not a valid objection to an action against a joint-stock companv in the manner prescribed by the statute, that the plaintiffs are members of the company.* And where the articles of association of an luiincorporated joint-stock company provide that the board of director'! thereof may prosecute and recover in an action at law any and every assessment upon the sJiares of stock, an action against one of the associates to recover an assessment upon his stock may, under the articles and . the act of 1849, be maintained in the name of the president of the association." As to actions between the members themselves, the rule does not ajjpear to be different from that which prevails between tlie members of an ordinary partnership," a subject which has already been considered in a preceding chapter. ' Witherhead v. Allen, 3 Eeyes, 562; ated) and indorsed by another for the S. C, 4 Abb. App. Dec. 628, reversing S. purpose of raising money for the use of C. 28 Barb. 661. Compare Miller v. the association, is paid and taken up by White 50, N. Y. 137, reversing S. C. 10 a third, the latter cannot maintain an Abb. Pr. N. S. 885; 59 Barb, 434. See, action against the mater and first in- also, Moore v. Brink, 4 Hun, 402 ; S. C. dors°r, to recover back the money ad- 6 N. Y. Supreme Court, 22 ; Kings- vam ed by him, until an account has land V. Braisted, 2 Lans. 17. been taken between the parties. Crater * Witherhead f. Allen, sty;ra. v. Bininger, 45 N. Y. 545; S. C. 54 5 Moore v. Brhik, 4 Hun, 402 ; S. C. 6 Barb. 155 (1865), foDowing Gridley o. N. Y. Supreme Court, 22. Dole, 4 N. Y. 486. * Westcott V. Fargo, 61 N. Y. 542 ; Plaintiff, defendant and others were S. C. 6 Lans. 319; Saltsman v. Shults, shareholders in a joint stock enterprise 14 Hun, 256. to purchase and improve lands contain- See, however, Schmidt v. Gunther, 5 ing a mineral spring, and hfld such Daly, 542. lands as tenants in common. Plaintiff ' Bray v. Farwell, 3 Lans. 495. made and paid for certain improve- " Where a note made by one member ments, and assessed the cost ratably of a joint stock association (uninoorpor- upon each shareholder. Plain tiif proved 1434 CHAP. II.] AS REGULATED BY STATUTE. 1097 Respecting real estate conveyed to a joint-stock association, iS was held in Howell v. Earjp^ that the right of such association to hold such real estate can only be questioned by the people. In the settlement of the affairs of an unincorporated joint- stock association it is of no consequence as aifecting the rights of the associates entitled to an interest tlierein, that the legal title to land belonging to the association has been taken in the name of one of the associates or in a third person* As respects the consolidation of joint-stock companies, where the articles of association of a company prohibit the union or consol- idation of the company with any other, without the consent of a majority of the stockholders, but contain a clause providing for an amendment of the articles by a concurrent vote of two-thirds of the executive committee, and a majority of the trustees, the authority to amend the articles of association gives no power to take away from the stockholders the power to prohibit the merging of the company with any other company, which they had expressly re- served for their own protection; and such authority to amend that he made a statement to defendant of the amount assessed upon him; that defendant took the figures on a. paper and said he " would pay him (plaintiff) the money ; " would "be over in a few da,ys and settle up— square up: " Held, that the admission of a liability, coupled with a promise to pay, was sufBcient to authorize a recovery by plaintiff against defendant. Wright v. Putnam, 2 Thomp. & Cook, 455. The charter of an incorporated com- pany, after declaring that the stock- holders should be jointly and severally personally Hable for the payment of all debts or demands contracted by the company, and that any person having a demand against the company might sue any stockholder, etc., and recover the sanle with costs, further provided that before such suit upon any demand, etc., judgment must be obtained there- on against the company, execution is- sued and returned unsatisfied, etc. : B.M, that the charter placed the stock- holders upon the same footing as if they had not been incorporated, making them answerable for demands against the company like partners; and conse- quently one stockholder, though a cred- itor of the company, could not maintain an action at law for his demand against the others or either of them: Bailey w. Bancker, 3 Hill, 188. One member of a voluntary, unin- corporated association for purposes of pleasure, cannot maintain an action at law in behalf of the association against another member upon any agreement made with the association : McMahon V. Rauhr, 47 N. Y. 67. As to the principles regulating con- tribution among the associates of a joint stock company, see Morrissey v. Weed, 12 Hun, 491. 121 Hun, 393. As to the wife's not being entitled to dower in real estate held in trust by one of several persons, partners in a specu- lation, see NiooU v. Ogden, 29 111. 323. 2 Barker v. White, 58 N. T. 204; But- terfield w. Beardsley, 28 Mich. 412. 1435 1098 AMERICAN JOINT STOCK COMPANIES. [bOOK IV. slionld be construed as intended for such amendments as are perti- nent to the business and objects for which the association was or- ganized.' In case of the consolidation of two joint-stock companies, al- tliough a dissenting shareholder, like a retiring partner in an ordi- nary partnership, is not obliged, in the absence of an express agree- ment to that effect, to surrender his interest in the property to his remaining associates at an estimated valuation, but has the right to have the valuation actually ascertained by a sale, in the ordinary manner of closing up partnerships where there is no express stipu- lation; yet, where the amount of dissentient stock is quite incon- siderable in comparison with the stock whose owners have ac- quiesced in the agreement of consolidation, the court will order the consolidated company to give bond with sureties, conditioned that, upon final judgment all the property transferred to it shall, if so required by the judgment, be delivered into the custody of the court, for the protection of all the shareholders. ' Dissenting stock- holders have no absolute right to have a sale at the commejicement of the litigation, as soon as the property has been handed over to a re- ceiver. If they are entitled to have the property sold, their right is to have it sold when they have recovered judgment. All they can claim is, that the propert}' shall be preserved until judgment, so that their rights, as then ascertained and declared, may be enforced.' The infidelity or misconduct of some or even all of the trustees or managers of a joint-stock association, affords no ground for taking away the rights of the shareholders who constitute the company, ' either by dissolving it or taking away its management and placing it in the hands of an officer of the court. In snch case, the principles of remedial or preventive justice go, no farther than to enjoin or forbid the miscondnct, or to remove the unfaithful oificer.* ' Blatchford v. Ross, 54 Barb. 42 ; S. contain a stipulation that the assooia- C. 37 How. Pr. 110. tion shall not be dissolved before the ex- ^McVioker v. Boss, 55 Barb. 247; S. piration of the term limited for its du- C. 37 How. Pr. 474. ration, without the unanimous consent ' MoVioker v. Ross, supra. of the shareholders, cannot be volunta- ^ Waterbury v. Merchants' Union Ex- rily dissolved, except by the unanimous press Co. 50 Barb. 157; S. C. 3 Abb. consent of all the shareholders ; if such Pr. N. S.163. consent cannot be had, then application A joint stock association, formed in must be made to a court to decree a dis- the State of New York for the purpose solution. Von Schmidt v. Huntington, of carrying on business in California for 1 Cal. 55. It being found impracticable, a definite period, the articles of which however, to keep the company together, 1436 CHAP. II.J AS REGULATED BT STATUTE. 1099 Upon the dissolution of a joint-stock association, it is tlie duty of the trustees to convert the assets into money, and distribute the proceeds among the stockholders. They have no right to exchange the' assets of the old association, or any portion thereof, for the stock of any corporation, without the consent of all the stock- holders. A stockholder not consenting to such exchange may re- cover the value of his stock so wrongfully disposed of.' or to prosecute sfuocessfiilly the contem- tlie company. Von Schmidt v. Hunting- plated enterprise, under the articles of ton, supra. association, the court decreed a dissolu- ' Frothingham v. Barney, 6 Hun, 366. tion and the distribution of the effects of 14-37 GENERAL INDEX. [The references are to the marginal pages.] ABANDONMENT of right, an answer to an action to enforce it, 908 ABATEMENT, plea in, abolished, 467 in action against unino6rporated companies, 501 to scire facias, 524, 525 ABORTIVE COMPANIES, expenses of forming, 118 calls on subscribers to, 120 recovery back of deposits by subscribers, 117-123, 953 recovery of subscriptions to, 120, 197, 953 ABSENTEES from meetings, how far bound by what takes place at, 550 ACCEPTANCE, of bills. See Bills of Exchange of shares, 100, et seq, See Shakes, Allotmenx ACCORD AND SATISFACTION, when a defense to an action for an account, 971 ACCOUNT, old action of, 1022, note {Tc) between co-owners, 65, 1022, note [h) between merchants, 454 action, before the Judicature Acts, by one partner against anothei for not rendering an, 1026 for balance of an, 1027 for matters involving the taking of an, 1029 for matters not involving any, 1026 persons entitled to an, 945 ' co-owners, 63-69 partners, 945 ' persons interested in the estate of a deceased partner, 945 trustee of bankrupt partner, 945 sub-partners, 946 servants sharing profits, 19, 20, 43, 946 ariion for. See action who may bring, 945, 946 against whom, 945 costs of, 973 not dismissed because plaintiff entitled to damages, 876 where no dissolution is sought, 947 (1439) 1102 GENEEAL INDEX. • ACCOV'NT— continued. Action for — contimied. where a limited as distinguished from a general account is desired, 947 in respect of illegal transactions, 198 where a company is abortive, 951 discovery, in, 955 in cases of exclusion, 949 secret benefit procured by one partner, 948 of the dealings of several connected firms, 954 of subscriptions to abortive companies, 953 of benefits obtained by one partner at the expense of the firm, 571, et seq. of profits derived from use of partnership property, 575 of profits derived by one partner by reason of his connection with the firm, 572 of profits made by the use of the ca,pital of a partner since a dissolu- tion, 976, et seq. See Profits, Account of of several partnerships, 954 for contribution between promoters of companies, 1022. See Contm- BTJTION" defenses to action for, 961. See Defense denial of partnership, 961 statute of limitations, 963 stated account, 967 award, 970 payment, 971 " parties to actions for between partners generally, 877, et seq. by sub-partner, 878 by defrauded purchaser of shares, 879 against executors of deceased partner, 878 surviving partners not necessary parties to action by legatees, 1066 some on behalf, etc., when sufficient, 886 misjoinder of plaintiffs, 890 period over which an account is to extend, 974 time from which the account is to be taken, 974 time up to which the accoilnt is to be taken, 975 of dealings prior to commencement of partnership, 975 of subsequent profits when a dead or retired partner's capital has been left in the concern, 976-991 decree for a partnership, 972 forms oC 972 just allowances, 974 mode of taking matters involved in, 973 decree for, on the administration of the estate of a deceased partner, 1030 ACCOUNT STATED, a defense to an action for an account, 967 by a majority binding minority, 987, note (m) impeachment of, for fraud, etc., 968 between the executors of a deceased partner and his surviving partners, effect of, 1069 action for balance of, not restrained because there are others unsettled, 998 ACCOUNTS,^ of partnership generally, 800 imputation of payments in cases of, 422 not to be taken backwards, 425 right to keep accounts of successive firms separate, 429 transfer of debt from one to another, 430 effect on incoming partner, 426 between merchant and merchant, time within which actions concerning must be brought, 453-459 1440 GENERAL INDEX. 1103 ACCOUNTS— cojjfNM/efJ. false rendered by one partner, 315 approved of by majority, when binding on minority, 599, 967, note («) conclusive for one purpose but not for another, 839 power of one partner as to, 264 fraudulent, 814, et seq. efi'ect of keeping erroneous on right to dissolve, 228 on dissolution, 838, 973 of dealings before commencement of partnership, 975 profits after dissolution, 976 effect of confusion of, on right to interest, 789 penalties for falsifying, destroying, &c., 808 effect of non-observance of agreement to take periodical, 840 reopening, 839 effect of acquiescence in, 902 adoption of, by shareholders, effect of, 968 misrepresentation as to state of, a gi-ound for rescinding contracts, 816, 931 when taken before the hearing, 955 surcharging and falsifying, 969 evidence on which partnership accounts are taken, 991 special directions as to taking of, 992 injunction to restrain publication of, 1002 audit of, 812 examination of, by board of trade, 813 by inspectors appointed by company, 813 by one executor, 933 note [a) mode of keeping partnership accounts, 80J, et seq. duty to keep and the right to inspect partnership accounts, 807, et seq. in ordinary partnerships, ib. in companies generally, 809 in banking and insurance companies, 818 in companies governed by the Companies act, 1862, 812 mandamus to permit inspection, 809 ACCOUNTANT, inspection of documents by, 959 employment of, by court, 993 ACKNOWLEDGMENT, effect of, as regards the statute of limitations, 456 when made by one partner, 456 See Ratification, 289; Laches, 902 ACQUIESCENCE, ,.,„„„ „„„ of plaintiff in what is complained of, when a bar to rehef, 603, 902 of subscriber of a company in change of scheme, effect of, 112 ACT OF PARLIAMENT, what companies liatDle for expense of special, 395 company required by statute to pay expenses of, 1021 See Statute ACTIONS, 1. Generally general remarks on, 466, 872 general principle as to parties, 467 efi'ect of Judicature acts, 467 no distinction between legal and equitable rules, 467 no action defeated by nonjoinder or misjoinder, 467 pleas in abatement abolished, 467 as to persons jointly entitled or liable, 467, 484 severally, 467, 484 _ joint and several claims may be joinedj 468 parties required by defendant may be joined, 468 91 1441 llOi GENERAL INDES. kCnO-RS—continved. 1. Generally — covtinned. effect of Judicature acts — continued. some or one may sue on behalf of all, 468 partners may sue or be sued in name of firm, 468, 476, 876 discovery of partners, 468 name of firm should not be used unless all can sue, 468 as to use of, where partners have changed, 468 as to service of writ where name of firm is used, 475 partners should be defendants who are debarred from suing, 469 who have released, 469 firm may sue a partner, 877 partner may sue his firm, 469 firms with common partner may sue each other, 469 as to defenses founded on conduct of one partner, 469, 470 on proceedings under Bills of Exchange act, 468, note [b) where conduct of one partner a defense, 472, 473 for an injunction. See Injunction a receiver. See Receiver rescission of contract. See Rescission of Contract specific performance. See Specipio Pbrpokmance making good breaches of trust, 904 setting aside agreement, 903 defenses to. See Defenses. laches, 902, ei seg. illegality, 198, et seg. See Im.egamty to obtain payment out of the funds of the company. 382 against directors improperly appointed, 897 to recover deposit, 117, et seq. where there has been fraud, 953 in respect of legal rights, 475, et seq. equitable rights, 485, et seq. in case of fraud, parties to, 486 for account not dismissed because plaintiff entitled to damages, 876 where a change has occurred in the firm since the right accrued, 486 where one partner exceeds his authority, 484 ex delicto, 480-482 non-joinder not pleadable in abatement, 467 one liable if others not disclosed, 483 statutory exceptions, 483 against corporations on instruments not under seal. See Contracts. may be brought by unknown principals, 478 on contract*! with A. & Co., 476 by and against firm, 211, 466, 475, 482, 872 2. by partners against non-partners, 475, et seq, implied powers of partner as to, 473 on contracts under seal, 475 on bills and notes, 476 in name of firm, 476 -accepted for honor, 476 on ordinary contracts, 477 for torts, 480, 485 for libel, 480 ejectment. 481 by incoming pai-tner, 487 — 489 by retired and continuing partners, 488, 489 by surviving partners, 470 — 471, 490 by trustees of bankrupt partners, 490, 491 by solvent partner, 491 by dormant partners, 478 by nominal partners, 478 1442 GENEEAL INDEX. 1105 ACTIONS— eon;m«e(7. 2. by partners against non-partners — continued. ■when to be brought by one partner only, 478, 479 rflay be brought in name of those not named, 477 non-joinder not pleadable in abatement, 467 when one partner colludes with defendant, 481 where contract not made with firm, 479 by one firm against a,nother whei-e one partner is common to both, 469, 1031 when a defense against one partner is a defense against all, 212, 469, 470 3. by non-partners against partners, 482, et seq. on contracts, 482 not binding firm, 484 for torts, 485 against incoming partners, 487 retired and continuing partners, 488 • surviving partners, 490 where the execators of the deceased are also being sued, 1055, et seq. effect of change in firm, 486 against solvent and bankrupt partners, 491 infant partners, 482 dormant partners, 483 for administration of estate of deceased partner by creditors of the firm, 1053 by separate creditors of deceased partner, 1070, et seq. legatees, 1070, et seq. next of km, 1070, et seq. i. between partners for dissolution, 220, 880, 943. See Dissolution should be in the Chancery Division, 943 parties to, 878, 880, et seq. next friend of lunatic may bring, 226 statement of claim in, 943 injunction in, 944 judgment for, given before the hearing, 944 may be brought, although the partnership could be wound up under the Companies act, 944 for an account, 943, 945, et seq. who entitled to bring, 945, 946. See Account may be ordered before the hearing, 955 defenses to, 961, et seq. See Account for discovery, 945, et seq. defenses to, 961, et seq. See Discovert general doctrines as to interference of the court between partners, 894 et seq. of rule not to interfere except to dissolve, 894 not to interfere in matters of internal regulation, 895 fraud and misconduct, 896, 897 controlling minority, 902 controlling majority, 900, et seq. effect of Judicature acts on, 467, et seq. 1023 as to actions relating to real property, 1023 goods, 1023 damages, 1023 parties to, 877, et seq. general rale that one partner could not sue another at law, 1029 when an action at law would lie, 1024 on agreements for partnership, 1019 account, 1022, and note [h) _ for money paid by mistake in accounts, 1028 on agreement to indemnify, 1028 ejectment, 481, 1024 trespass, 1024 1443 1106 GENERAL INDEX. ACTIONS— m»/;,!Mf (7. 4. between pai-tners — conUnued. trover, 1025 covenant, 1025 assumpsit or debt for breach of express agreement, 482, 1019, 1025 for not furnishing capital, &c., 1026 for not contributing to expenses, 1026 for not indemnifying co-partner, 1028 • for not accounting to co-partner for money received to his use, 1028 on an award, 1027 for balance of account, 1027 on bills and notes, 1027. See Bills for penalty on breach of agreement, 1025 for rent, 1028 for contribution, 1029. See Contkibution to particular loss, 1029 where one partner has paid more than his share, 1029 for amount of valuation, 1027 in respect of matters involving questions of account, 1029. See Account for money had and received for use of the firm, 1030 for improper sale, 1030 for the recovery of partnership property, 1030 of deposit agreed to be paid, 1019 back of deposit, 122, 1019 defendants in such actions, 1020 conduct of one partner a defense, 212, 468, 469 for share of the produce of sale, 1030, 1031 for share of surplus on dissolution, 1032 for matters unconnected with pai-tnership business, 1026 between two firms with a common partner, 469, 1031 between a partner and his own firm, 211, 469, 909, et seq. injunction to restrain by persons claiming share of bankrupt or dead part- ner, 997 between persons who have agreed to become partners, 1019 by and against trustee of bankrupt partner, 490, 491 by and against firms, 466 — 491 for account, 945, et seq. See Accottnt discovery, 955, et seq. See Discovert for administiation of estate of deceased partner. See Administration by surviving partners, 1045 5.- by and against companies generally, 492 incorporated companies, 492, et seq. 892 companies empowered to sue and be sued, 495 othe* unincorporated companies, 500 unincorporated companies and their members, 874 on general doctrines as to interference betweeiT members of companies, 894, et seq. of rule not to interfere except to dissolve, 894 nor in matters of internal regulation, 895 fraud and misconduct, 896, 897 controlling majority, 900, et seq. minority, 902 on bill accepted by company, of which plaintiff is a member, 1031 security for costs, 493 secretary for time being, 874 by and against public officers, 495, 881 of companies governed by 7 Geo. IV, c 46, 495 7 WiU. IV. & 1 Vict. c. 73, 500 foreign companies, 493 on instruments not under seal. See Contracts 1444 GENEEAL IHDEX. 1107 ACTIO'SS— continued. 5. by and against companies — continued. on contracts answerable out of funds of company, 382 6. between companies and their shareholders generally, 1032 promoters and subscribers, 1019, 1021 incorporated companies and their members, 1032 unincorporated companies and their members, 874 public officers and shareholdars, 873 officers for the time being and shareholders, 874 pursers of cost-book companies and members of company, 875, note ig) creditors (at the instigation of a company) and shareholders, 875 particularly for ' calls, 1033 evidence 1034 dividends, 1035 not registeriug a person as a shareholder, 114 wrongfully forfeiting shares, 761, note (a) 7. against promoters and directors. See also Promotebs for recovery back of deposits, 953, 1019 for misrepresentation, 926 for contribution, 1022 for not distributing surplus assets, 412, note (e) between promoters of companies, 1021 8. miscellaneous by Attorney-General, 493, 494, 901 against subscribers for the recovery of their subscriptions, 1019 against shareholders (by creditors), sci. fa. 517, 520. See Execution at the instigation of the company, 875 on sales of shares. See Sale op Shares by seller of shares against purchaser, 719 by purchaser of shares against seller, 718 by brokers a.gainst their employers, 731 against sheriff for share of produce of sale of partnership firm, 1031 damages recoverable for breach of contract for sale of shares, 719 specific performance, 720 for misrepresentation and fraud, 923, et seq. ACTORS. illegal partnerships between, 191 ADEMPTION of legacies of shares, 1075 ADJOURNED MEETINGS, 546, See Meetings ADMINISTRATION of estate of deceased partner, See Deceased Partner. Death partner cannot prove in competition with the creditors of the firm, 1055 action for, by surviving partners, 1045 creditors of the firm 1053 separate creditors, legatees, or next of kin of deceased, 1066 effect of, on rights of creditors, 1050, et seq. ADMINISTRATOR. See Executor ADMISSIONS may be shown to have been mistaken, 242, note iq) of person that he is a partner, not conclusive, 94, 95 of one partner ; when evidence against co-partner, 264 after dissolution, 413 1445 1108 GENEEAL INDEX, ADMISSIONS— co«/i)!iee(?. of one partner, etc. — conthmed, when binding on firm, 264 in name of firm after bankruptcy, 224. of one promoter, when evidence against another, 96, note (»») by directors of companies, 264, 265 by one partner, effect on Statute of Limitations, 456 ADVANCES to a firm by trustees after the partners are changed, 209 how distinguished from capital, 610 securities for, effect of change in firm on, 214 by partner, 777 by directors, 779, 800 right to reimbursement, 760, et seq. interest on, 786 effect of declining to make further, 223, 1011, note {h), See, also Loans ADVENTURE. See Pabtnership ADVERTISEMENTS evidence of partnership, 97 of dissolution of partnership, 415 effect of, 415, 416 not inserted in " Gazette," unless signed by all the partners, 408 partner ordered to sign, 408 when to be stamped, 416 See, also, Notice. AFFIDAVITS by public ofiicers, form of, 499 AGENCY, general doctrines of as regards partnerships, 236, et seq. effect of change or dissolution of finn, 209 when a partner's agency coounences, 385 when it ends, 403 as regards companies, 240, et seq. companies in process of formation, 240 formed, 255 as regards promoters of companies, 241 dormant partners, 237 directors, 244—246 subscribers, 241 servants of company, 246 — 248 termination of, by notice, 403 continuing for purposes of winding up, 411, 412 liability of persons sharing profits, depends on, 39 See, also, Agent; Authority;' Implied Powers; LiABiLiTy AGENT, appointment of agent for firm, 265 each partner agent for firm, 208, 236 promoters of companies not each other's agents, 241 shareholder not agent of company, 240, 243 acts not done by requisite number of, are invalid, 244 of company to act in judicial proceedings, how appointed, 494 of company, effect of informal appointment of, 247 being formed, 241 formed, 243 director of, whr.i, 244 other persons, 246 exceeding his authority, liability of, 366 1446 GENERAL INDEX. 1109 AGENT — continued. of firm, to whom to account, 490, note (n) right of, to indemnify from his piinoipal, 755 liability of, for acts done for non-existent principal, 368 liability of principal for torts and frauds of, 297 for for foreign principals usually contract as principals, 477 (o) See, also, A&enct; Authobity; Implied Powees; Liability AGREEMENT for partnership, see Contents, Book I., chap. 1 unconcluded, 26, 27 proof of, 87 action on, 1019 specific performance of, 914 laches a defense to an action to enforce, 906 rescission of, for fraud, 923, et seq. between partners determines what is partnership property, 643 may be evidence of a partnership, 97 how far it affects third parties, 325, et seq. construction of, see Articles of Paetnbeship to take shares, 100, et seq. need not be in writing, 711 completed by allotment, 102 action for breach of, 718, et seq. specific performance of, 720 directors cannot release from, 741 See, also, Conteacts ; Rescission of Conteact ; Specific Pbrfoem- ANCB ; CONSIDBEATION ALIEN partners, 78 ALLOTMENT invalid, when, 106, 107 with notice of change of scheme, 112 time for, 103 notice of, must be given, 102 what suiiicient, 102, 103 applicant may dispense with notice of, 103 revoking application for shares before, 101, 102 letter of, what, 102 requires a penny stamp, 102 production of, in actions for deposits, 117, note (e) cancellation of improper, 742 See, also, Scelp; Shaebs ALLOTTEES. f of scrip and shares registration of, without his knowledge does not bind him, 102 acting as shareholders, effect of, 103, note (s) payment by, when a condition precedent to becoming a shareholder, 125, note (i) See Allotment; Calls; Conteibutoeibs; 'Sceip; Shaebholdees; Shakes ALLOWANCES in respect of trouble, extra work, &c., 774 to executors and surviving partners, 1046 treating customers, 779 outlays generally, 777 ' money paid in discharge of debts, 778 useless expenses, 778 i ., , , _ 1447 1110 GENEEAL INDEX. ALLOWANCES— coH^inMei. Indian, 775 unauthorized outlays, 778 charges for valuation, 779 outlays on the property of one partner, 780 expenses incurred for firm, but not charged to it in previous account, 779 _ . unexplained expenses, 779 secret service money, 779 advances generally, 777. See Advances liabilities and losses, 781 losses attributable to one partner only, 783 misconduct or negUgenoe, 783 illegal acts, 771 loans by directors, 779, 780 interest, 786 agreements as to, 836 just, 774, et seq. See CoNTNiBUTioN; Indemnity amaloamatbd company, liability of, 402 on bills given for the debts of the constituent companies, 25J AMALGAMATION OF COMPANIES, meaning of, see Higg's case, 2 H. & M. 666 right to effect, 292, 606 general power of managing does not give, 819 injunction to restrain, 1002 effect of, on sureties, 214 on securities, 214 liabilities, 468, 465 on policy holders, 464 See Companies AMENDMENT where plaintiff should have sued on behalf of himself and others, 887 in the name of the company, see Addenda ANNUAL hst under Companies act 1862, 175 accounts, effect of not taking, 848, et seq. ANNUITY in lieu of profits, or out of profits, 36, 44 to widow, agreements as to, 853 ANSWER IN CHANCERY, evidence of partnership by, 97 denying partnership, 962 ^ discovery when partnership was denied in, 962 See Payment into Court APOTHECARIES, partnership between unqualified, 188 APPEAL, APPEARANCE, one partner can authorize entry of, on behalf of firm, 473, note [q) APPLICATION OP MONEY, firm not liable for money because it has had the benefit of it, 361 APPLICATION FOR SHARES. See Shakes; Allotment; Contribdtoby 1448 GENEEAL INDEX. 1111 APPOINTMENT held by firm, effect of change of partners on, 209 held by one partner official, 833 agreements as to, 833 valuation of, on dissolution, 1018 when assets, 651 of officers, mandamus to compel, 1037 APPORTIONMENT of premiums, 71-75 of mterest and dividends, 1081 of profits, 1080 APPRENTICES, discharge of, on change in firm to which they are bound, 213, note {k) APPROPRIATION OP PAYMENTS, generally, 419 — 432 discharge of retired partner by, 422, estate of deceased partner by, 422, et seq. dormant partner by, 423 surety by, 425 where one partner pays his own debt with moneys of firm, 419 where there is a single current account, 425 where there are several distinct accounts, 427 where dividend is paid on several debts, how applied, 422, 430, 431 cases in which rule applicable to single accounts does not apply, 427 against creditor as well as debtor, 425 effect on incoming partners, 426 where debts owing to firm and member of it, 432 m cases of fraud, 431, 432 ARBITRATION, staying actions, &c., after agreement to refer, 868 power of partner to bind firm by submission to, 265, 473, 474 effect of agreement for, on action for account, 970 dissolution of partnership by, 222, note [u) usual clauses relating to, 868 clause in articles as to, applies to partnership continued after expiration of term, 824 by companies, 265 See Award ARBITRATOR, power of, on general submission, 870 under Lands clauses act, 359 cannot appoint receiver, 870 ARREST for debt, effect of, 434 effect of, on charging order, 695 ARTICLES OF ASSOCIATION, 168. See Association; Deed of Settlement ARTICLES OF PARTNERSHIP, illegal clauses in, do not necessarily make the partnership illegal, 180 proof of, not essential to establish a partnership, 92, 94 to be drawn up, 30, 831 effect of retrospective, 96, 831 effect of deferring execution of, as regards creditors, 386 not dating, 831 actions for breaches of, 1019 specific performance of clauses in, 914, et seq. See Specific Pekporm- ANca 1449 1112 GENERAL INDEX. ARTICLES OP PARTNERSHIP— co»f/»»«?. general rules for construing, 817, ct seq. not intended to define all the rights and duties of partners, 817 to be constnied with reference to object of partners, 818 and so as to defeat fraud, 819 and the taking of unfair advantages, 819 provisions in, may be tacitly waived, 820 effect of practice of company, 822 extend to partnership continued after the time fixed for determination, 822, 823 of directory and imperative clauses in, 824 of fundamental and subsidiary clauses, 827 of optional clauses, 827 remarks on clauses in, 817 usual clauses, 830 nature of the business, 830 commencement of the partnership. 881 future formal articles, 8S1 name or style of firm, 882 duration of the partnership, 832 premiums, 832 property of the firm, 832 capital of firm, 832, et seq. appointments held by partners, 833 prohibitions against carrying on business, 854 after sale of the business, 854 deeds and papers in the custody of firm of solicitors, 858 good-will, 833, 859 et seq. bringing in debts as capital, 835 getting in debts on dissolution, 865 assignmeit of share of outgoing or deceased partner, &c., 866 indemnity to be given by continuing to outgoing partner, &c., 867 eft'ect on lien, 867 reference of disputes to arbitration, 868 penalties and liquidated damages, 871 trade secrets, &c., 833 patents, 883 inventions, 833 amount of debts, 835 allowances, 836 interest, 886 moneys to be drawn out, 836 conduct of partners, 837 effect of covenant to be true and just, &c., 837 servants, 837 attention to be given to business, 837 powers of majority, 838 powers of one partner by agreement, 838 partnership books, 888 solicitor's papers, 858 mode of taking accounts, 838 conclusiveness of settled accounts, 839 retiring from firm, 840 sale of share, 841 offer of share to co-pa.rtner, and pm-chase by bim, 841 et seg. dissolution, 843 insolvency of member, 843 insanity of member, 843 notices of dissolution, 841 expulsion, 844 et seq. valuation of share, 846 et seq. introduction of new partners, 851 et sea. 1450 GENEEAL INDES. 1113 ARTICLES OF PARTNEESHIP— corei/nwecZ. remarks on clauses in — continued. settled share, 8o2 transmission of share to noti-pai'tners, 852 annuities to widows, &c., 853 ASSETS of deceased partner, effect of continuing them in the partnership business, 1070 et seq. liability of directors for, if lost, 593 See, also. Administration; Decbasbd Partnek; Death. ASSIGNMENT of debt, by one partner, 266 effect of, as regards set-off, 510 how to be made since the Judicature act, 487 of share in partnership, 697 effect of, as regards dissolution, 229 jiosition of assignee, 697 et seq. right of assignee to an account, 698, 946 by outgoing to continuing partner, 866 of shares in companies. See SnAHES ; Transfer of Shares of partnership assets for benefit of creditors, 266 ASSOCIATION articles of, under act of 1862, 168 effect of provision in, for payment of antecedent debt, 396 effect of alteration of, on liability of subscriber of the memorandum, 170 on shareholder, 115, note (r) controlled by the memorandmn where they are inconsistent, 169, 559 m.emorandum of, under act of 1862, 168. See Memorandum of Associa- tion ASSUMING to act as corporation, 192 ATTACHMENT against corporations, 518 of shares, 697 ATTAINDER, eifect of, 230, note («) ATTORNEYS. See Solicitors warrant of, given by one partner, 474 partnerships between, 190, 216, 244, 299, 303, 328, 376, 392, 404, 417, 540, 775 ATTORNE Y-6ENER AL, action by, 493, 901 AUCTION, sale of shares by, 718 share of debtor under fi. fa., 689, note (c) AUDIT does not bind shareholders, 811, note (&) AUDITORS of accounts, 812 AUTHOR AND PUBLISHER, partners in profits only, 21 partnerships between, duration of, 219 Liability of, to creditors, 339, 387 1451 1114 GENEEAL INDEX. AUTHORITY, to hold out as partner, 49 et seq. of one partner to act for firm, 236 et seq. after dissolution, 408-412 of dormant partner, 237 in cases of extraordinary necessity, 238 of promoters of companies to act for each other, 241 to bind subscribers, 241 of shareholder to bind company, 243 of directors, 244 etseq. directors not liable for honest mistakes, as to extent of, 881 of one partner, liability of firm for untrue statements as to, 314; 315 excess of, effect of notice of, 825, 334 Uability of agent in cases of, 866 revocation of brokers', to buy shares, 731 See Agency; Agents; Implied Powehs. AWARD, money awarded to one partner, when it does not belong to firm, 645 dissolving partnership, authorized by general admission to arbitration, 844, 870 disposing of business, effect of, 857 a dgfense to an action for account, 970 mistakes in, when set right, 970 See Akbiteation. BAILIFF, to distrain, appointment of, by one partner, 279 BALANCE, of account, action by one pairtner against anothef for, 1027 in hands of partner, interest on, 788 sheet BANK NOTES, issue of 185 note, liability of limited company issuing, 384 BANK OF ENGLAND, . privileges of, 185 note BANKERS, illegal partnerships between, 184 et seq, retm-ns to be made by, 185 issue of notes by, 185 note number of persons who may be in partnership as, 187 receipt of deposits by, effect of proving in an action for their recovery, 122 liability of, for misapplication of money, 304, 309 account with assent to transfer of, 277 may pay cheques drawn by de facto directors, 275 BANKING ACCOUNT. directors having no power to borrow may overdraw, 273 BANKING COMPANIES shares in transfer of, 711 not within the Statute of Frauds, 674 nor within the Mortmain acts, 674 power of directors of, to borrow money, 270 issue of notes by, 185, note liable for securities carelessly lost, 300 See Companies Governed by 7 Geo. 4, c. 46, p. 165; Public Officers unincorporated associations for banking purposes, when partners, '' 1452 GENERAL INDES. 1115 BANKRUPT partners need not join in suing on joint contract, 491 court of bankruptcy may restrain action against, 491 public officer, 499 shareholder, liability of, to calls made before bankruptcy, 641 to future calls barred by the order of discharge, 641 See BANKEUPTcy BANKRUPTCY, consequences of dissolves firm, 224 assignee a tenant in common with the solvent partner, 224 as regards the banki-upts, and their power of dealing with the assets of the firm, 405 as regards the solvent partners, and their power of dealing with the assets of the firm, 405 _ as regards agreements between partners affecting their property, 655 actions by and against partners in cases of, 490, 491 return of premiums in event of, 72, 76 petition for, by creditor whose debt is merged, 452 BENEFIT of money, effect of having had, 361 et seq. of contract, 361 resulting from connection with firm, 575 BENEFIT BUILDING SOCIETY, company n),ay not hold shares in, 86 BEQUEST See Legacy BILL IN PARLIAMENT, agreement to withdraw opposition to, 401 BILL OP SALE, of partner's share under^?. /«,, 689 unregistered, not void against liquidator of company, see 4 Eq. 610 BILLS OP ACCOUNT, evidencing partnership, 97 BILLS OP EXCHANGE, proof of partnership by means of, 97 issue of, by bankers, 185, note do not merge debt to secure which they are given, 440 power of one partner to bind firm by, 266 when given for his own private debt, 829 when given after dissolution, 404-407, 440 power of directors to bind company by, 267 form of, under Companies act, 1862, 360 may be under seal, 360 power of public officer, 496 authority to transfer, 268 _ to indorse in name in which it is drawn, 267 one partner taking, in satisfaction of debt, 277 agent taking, drawn by him in satisfaction of debt, 277 drawn by one partner on firm, effect of, 212 firm on another where common partners, 21jn«(«(?. part owners sharing the produce of their property, 24, 25, 59, 671 co-ownership and co-partnership compared, 58 doctrine of conversion does not apply to, 671 ofknd, 65, 661, 652 of mines, 61 ♦ of patents, 68 of copyrights, 68 of race-horse, 61 of ships, 66. See Ships of newspaper, 699, note («) sharing profits, their property not necessarily partnership property, 650 hen of, 63, 66, 683, 684 remedies of, inter se, 59, 63 et seq. , CO-OWNERSHIP and co-partnership compared, 58 CO- PARTNERS AND CO-PARTNERSHIP. See Partners; Partnebship COPYRIGHT, registering in name of partners, 208, 211 rights of co-owners of, 68 indivisibihty of, 69 note CORPORATIONS, distinguished from partnerships and companies, 4 may be in partnership with individuals, 86 may be a shareholder, 86 provisionally registered companies have no right to act as, 178 presuming to act as, 192, 195 not estopped from showing act to be ultra vires, 250 effect of taking security not authorized by its constitution, 250 note (g) name of, may be a trade-mark, 210 dissolution of, 232 exist only for the purposes for which they are created, 251 public bound to notice regulations of, 252 liability of, on contracts not under seal, 352 when bound by contracts not under seal, 353, 354 by statutory enactments Metropolitan gas act, 357 Companies clauses act, 357 Lands clauses act, 359 Companies act 1862, 359 Companies' seals act 1864, 360 ratification of contracts by, 258 contracts by, to pay out of their funds, effect of, 377 actions by and against, 492 execution against, 517 limits of powers of the members of, 591, 592 members of, cannot change its constitution, 606, 607 power of majority of members of, 608 'jnincorporated associations, when partners, 499, 191 CORRECTION, of reg'ister of shareholders, 142, 171, 1038 of mistakes in accounts. See Accounts COST-BOOK MINING COMPANIES, nature of, 146 formation of, 146 cost-book, what, 147 rules of, must be filed in the Stannaries Court, 147, note (c) 1469 1132 GENEEAL INDEX. COST-BOOK MINING' OOMPAm^S— continued. customs relating to must be proved, 148 proof of membership in, 148 sbareholder in, need have no interest in the mine, as land, 149 signing and staanping the cost-book, 149 pursuer of, 147 • may sue by their pursuer, 495 right to retire from, 738 whether public companies, 696 power of majoirity in, 542 liability of shareholders in, to creditors, 147 for debts contracted before they joined the company, 394 for goods supplied to the mine, 273, 291 on credit, 273 for money borrowed, 273 _ of past shareholder, how limited, 147 actions by and against purser of, 495, 875 note {g) by purser against shareholders of, 148 note (g), 875 note {(/), 1033 by subscribers to, to recover their deposits, 1020 capital of, increasing, 615, 616 execution against members of, 539, 696 registration of, 149 Jails in, how made, 624 purser may sue for, 975 (g), 1033 oug-ht not to be made for prospective expenses, 627 shares in, not within the Statute of Frauds, 674 not within the Mortmain acts, 674 forfeiture of, 746 relief against, 910, 911 title to be shown by vendor of, 712, 713 transfer of, 149, 701 invalid if made to escape liability, 701 effect of, on calls, 637 as to interest on calls in, 629 C(/felS, of action for dissolution on ground of lunacy, 226 account, 972 of application to rectify the register, 174 one partner bound to indemnify firm against, if he sues in its name. 473 indemnifying- trustee against, when solvent partners sue, 491 security for, in action by companies; 493 bond for, not ultni vires, 494 of action by one member of a company on behalf of himself and others, 890 CO-SURETIES, See Sureties COUNTER-CLAIM. what' may be set off in, 503 COUNTY COURT, judgment of, against company execution of, 521, 522 COVENANTS not to sue, partner may join in suing notwithstanding, 472 when not equivalent to a release, 433 liability of partners on, 337 in the case of retired partners, 439 what are joint, and what are several, 482 with one partner on behalf of firm, 479 liability several as well as joint, when, 369 14T0 GENEEAL INDEX, 1133 COVENANTS— coMWwteec?. joint, when not treated as joint and several, 372 to pay out of funds, effect of, 377 actions by partners on, 475 when firm cannot sue on, 479 action by and against public officers on, 496 set-off in actions on, 503 et seq. not to carry on business, 855 action by one partner against another on, 1025 COVERTURE. See married women CREDIT of firm, destruction of, not per se a ground for dissolution, 227 See BoBKOWiNa Monet CREDITOR, meaning of the phrase a partner is a creditor of, or a debtor to, his own firm, 206 of firm or company, has no lien on its property, 654, 658 injunction against, when suing a shareholder at the instigation of directors, 875, 1001 See, also, Injunction inspection of list of shareholders by, 522. See, also. Inspection mandamus for payment of, 628 rights of against partners, dormant partners, 237, 336 note {d), 405. See Dobmant Partners the estate of a deceased partner, 1051 et seq. loss of, by dealings with the surviving partners, 422, 423 conflict of rights of diflierent classes of creditors, 1054 See, also. Deceased Paktneb; Executors; Liability of a bankrupt partner. See Bankruptcy rights of against partners, incoming partners, 389 et seq. quasi partners. See Quasi i'ABTNBBSHip; Holding out retired partners, 417 et seq. loss of, by dealings with the continuing partners, 438, 449 SeeRETiEED Partner; Liability surviving partners, 1044, 1052, 1058. See Subviying Partners effect of dissolution of partnership on, 275, 1039 not afi'ecled by agreements between partners, 435. See Notice against promoters of companies, 31 See Promoters op Companies against companies, when limited to funds of company, 376 for the acts of their promoters, 363, 395 for the acts of their directors, 244 where companies amalgamate, 464 injunction to restram conveyance in trust for, 1004 See, also. Companies; Dibeotoes See Sci. Fa. in companies governed by 7 Geo. 4, c. 46, p. 531 7 Wm. 4 & 1 Vict. c. 73, p. 535 8 & 9 Vict. c. 16, p. 536 Companies act 1862, 383 in other companies, 539 See Companies; Execution; Liability loss of rights of, by payment, 418 et seq. See Appropriation op Payments by merger of debt, 450 et seq. by lapse of time, 453 et seq. See Limitations, Statute of by release, 433 1471 1134 GENERAL INDEX. CREDITORS' DEED, trustees of, not partners, 38 assent of one partner to, 277 CRIME, partnership for sharing profits of, 182 CRIMINAL LAW. See Bueglaut; Larceny. remedy of one partner against another, 873 CRIMINAL PROSECUTION of partner, ground for dissolution, 229 of directors, etc., 814 CROSS-BILL, when unnecessary in a suit between partners, 961 CROWN, prerogative of, as regards shares, 661 power to grant charters, 150 applications to, for new charter, 606 See Companies CUSTODY OF FIRM, misapplication of money in, consequence of, 302, 313 CUSTOMERS, allowance for treating, 779 See Dissolution and Notice CUSTOMS, mining, not judicially noticed, 148 scrip may be transferable by delivery by, 124 See Excise Laws DAMAGE, to firm, when necessary to support action by it, 480 DAMAGES, as to actions between partners for, 1023 company liable for, if they issue an untrue certificate, 301 recoverable on contract for sale of shares, 714 what fraud sufficient to support an action for, 923, 924 for exclusion from register, 174 action for account not dismissed because plaintiff entitled to damages, 876 DATE of dissolution in cases of lunacy, 226 See Commencement DEALINGS, with one partner only. 339 by creditors with continuing partners, effect of, on rights against retired partners, 438 et sea. DEATH OF PARTNER, dissolution of partnership by 281, 1044. See the Analysis of Contents, Bk. IV. c. 1. and infra, Deceased Paktner, Exeoutoes, Surviving Part- ners, Dissolution on right to sue, 490 1. As between partners, 1044 works dissolution, 231, 1044 business continued by survivors and representatives, 86 letum of premium in case of, 71 et seq. 1472 GENERAL INDEX. 1135 DEATH OF FAWYKER— continued. position of executors of deceased partner, 1044, 1046 surviving partners, 1045 account of subsequent profits, 1046 making co-parfcner executor, 1047 succession, duty on, 1048 2. As regards joint creditors, 404 position of executors of deceased as regards creditors of firm, 404, 1050 tabular view of cases shovring where estate of deceased partner discharged, and where not 1051-1053 administration of deceased partner's estate by creditor, 1053 rights of joint and separate creditors contrasted, 1054 form of decree for administration by creditor, 1056 personal liability of executors, 1060 Kability of assets by acts of testator, 1060 direction by will to carry on trade, 1063 3. As regards separate creditors, legatees, &c. separate creditors, legatees, &c., must look to executors, 1066 surviving partners not necessary parties, 1066 et seq. account between executor and surviving partner, 1969 arbitration between executor and surviving partner, 1069, 1070 rights when share of deceased not got in, 1070 interest and profits, 1071 profits made since death, 1072 accounts of when decreed, 1072 executors continuing business, 1070 specific bequests of shares, 1075 tenant for life under, 1077, 1081 duty of executors to sell shares, 1081 DEATH OF SHAREHOLDER, effect of, 1048, 1065 liability of executors to calls, 1048 as contributories, 1065, 1066, 1364 to creditors, 1064 DEBENTURES, as to implied powers of directors to issue, 270 as to validity of, when given in renewal of others, 271 effect of, when they charge the undertaking, 270 note (r) may be issued at a discount, 271, 619 note (r) to directors when, 591 bind property of the company improperly issued, liability of company on, 254, 272 of a railway, not within the Mortmain acts, when DEBTOR, partner in what sense debtor to firm, 206, 805 DEBTS, . . ,„ of partnership, effect of, on its duration, 218 payment of, to one partner, 275 after dissolution, 275 of debt not due to firm, 276 taking biU in payment, 277 release of, by one partner, 276, 277 receipt for, by one partner, 276, 277 by surviving partner, 486 transfer of, assent of one partner to, 277 one partner taking bill for, 277 one partner tasting shares as security for, 287 one partner settling, 277 promise by one partner to pay, 278 tender of, to one partner, 278 9' 1473 1136 GENERAL INDEX. D'EBTS—contwned. liability of partners for. See Creditor; Liability liability of shareholders for. See Companies; Liability; Shareholders. extinction of, by doctrine of merger, 450 et seq. by payment, 418 et seq. See Appropriation of Payments by release, 433 et seq. See Release by substitution of debtors, 435 et seq. by lapse of time, 453. See Limitation, Statutes of by arrest, 434 of partnership when joint and several, 369 set-oft' of, 502. See Set-Opp paid by company in paid-up shares, 278 assignment of, effect of, as regards set-off, 505 to continuing partners, 866 may now be made, 487 right of partner to insist on payment of, 679, 680, and note (o) agreement by partner to bring in good debts, 835 guarantee against, given to incoming partner, 836 agreements'as to getting in, 865 in what cases new partner may join in action for, 487 assignee of, may tue, when, 487 company may mortgage future, 271 DECEASED PARTNER, admhiistration of estate of by the surviving partners, 1045 by creditors of the firm, 1053 by the separate creditors, legatees, or next-of kin, 1066 adjustment of the conflicting rights of creditors in action for, 1054 joint and separate creditors, 1054 secured creditors, 1057 form of decree for, 1056 effect of decree for, on right to sue surviving partners, 1050, 1068 set-off in, 503, et seq. account of assets of, where they have been improperly employed in trade, 1062 right to, by separate creditors and legatees, 946 where share of deceased not got in, 1070 appointment of a representative of, 1045 liability of estate of, to creditors of the firm, 371, 1050 in respect of what occurred before death, 1050 in respect of what occurred after death, 1059 may be enforced by action, 371 table of cases, 1051-1053 where assets have been continued in the partnership business, 1061, 1070, 1073 after judgment against the surviving partners, 453 notwithstanding the Statute of Limitations, 457 for torts, 1051 discharge of estate of, from debts of firm by appropriation of payments, 422. See Appropriation of Pay- ments discharge of estate of, from debts of firm — continued. by Statute of Limitations, 1053 hj dealings with the surviving^ partners, 445, 1052 none where dealings induced by fraud, 446 specific performance of agreements relative to share of, 850 executors of, may be joined as defendants with survivors, when, 490, 878, 1054, 1059 rescission of contracts relating to his share, 932, 983, and note (5) See Death; Executors; Surviving Partners 1474 GENEEAi INDEX. 1137 DECEASED SHAREHOLDER, position of executors of, 1048, 1065 liability of estate of to calls, 1048 to creditors of company, 1064 on winding up of company, 1065 See ExECUTOBs; Death DECLARATION, in actions for calls, 1033, note (t) DECLARATIONS of partners, effect of, as evidence, 264 DECREE for dissolution of jjartnership, See Account; Dissolution; Judgment in case of lunacy, 224 for the administration of the estate of a deceased partner, 1056 for partnership account, 972 enforcing, without a sci, fa., 521, note (l) 538, note {p) DEEDS, one partner has no authority to bind firm by, 278 necessity of a deed to dissolve a partnership created by deed, 221, 222 not necessary to prove partnership, 94 how to be executed by companies, 352 governed by 7 & 8 Vict. c. 110, p. 356 7 & 8 Vict. 0. 113, p. 356 8 & 9 Vict. c. 16, p. 357 19 & 20 Vict. c. 47, p. 259 23 & 24 Vict. c. 125, p. 357 under companies act, 1862, 359 how to be executed abroad, 360 effect of removing seal from, 434 blanks in, 705 when binding on companies, though improper, 279 execution of, when it estops, 135 transfer of shares must be made by, when, 703, note (/); 704, note (i) executed by agent or partner in his own name, liability on, 337 DEEDS OF SETTLEMENT (Companies) general rules for construing, 817, et seq. power to vary, 821 directory and imperative clauses in, 824 public bound to notice, 252 effect of not executing, 131, 132 as between company and shareholder, 126, 131 proof of, not necessary to show that a person is a member, 94, and note (/) See Companies DEFENSE to actions for calls, 1034 to actions by partners, founded on conduct of one partner, 212 alteration in the law as to, ,by the Judicature acts, 469, et seq. to actions for an account and discovery, 961 accord and satisfaction, 971 account stated, 967 award, 970 denial of partnership, 961 payment, 971 release, 971 Statute of Limitations, 963 illegality, 200, 201 where firm is sued jointly upon a contract, 482 . 1475 1138 GENERAL INDEX. DEFINITIONS of partnership, 2 DELAY of plaintiff, when a bar to relief, 902 in completing transfer of shares in repudiating shares effect on shareholder, 112, et seq. effect on liability as contributory, 113 DELEGATION OF AUTHORITY by directors, 245, 542, note [h) 738 under 8 & 9 Vict. o. 16, 555 Companies act, 1862, 562 of powers by company, 606 DELIVERY, to one partner, a delivery to the fii-m, 279 DENIAL OF PARTNERSHIP effect of, in action for account and discovery, 961 effect of, as regards the appointment of a receiver, 1012 DEPOSIT, PARLIAMENTARY, 154, 155 DEPOSITS ON SHARES, payment of, not necessary to constitute a subscriber, 117 actions to compel payment of, 1019 actions to recover back, 117' — 123, 1019 evidence in, 117, note («), 122 payment of, when not conclusive evidence of partnership, 98 when applicable to defray expenses of forming company, 120 returnable, though deed has been signed, 121 actions, for return of, where there has been fraud, 953 no fraud, 954 injunction to restrain return of, 1003 DESTRUCTION OP ACCOUNTS, penalties against fraudulent, 814, et sea. consequence of, in taking accounts, 808 DEVISEES, of land and trade carried on on it, how far partners, 652, 653 DIRECTORS. 1. Generally appointment of, 561 irregular, 543 consequences of, 244 number of, 542 varying, 542 qualifications of, 543 loss of, by holding other office, 543, note [n) who are, 542 de facto et dejure, 245, 253, 555 remuneration of, 544 not agents of each other, 246, 597, note {x) control of by shareholders, 544, 895, et seq. board of, validity of acts not done at, 245, 246 removal of, 544 disqualification of, by holding other ofEces, 543, note (m) examination of, 522, note (s) authority of, 244, et seq. effect of irregular appointment on, 244 1476 ftBNEKAL INDEX. 1139 DIRECTORS— coni!«i ^led. authority of — continued. effect of irregular exercise of, 367 liability for excess of, 367 notice of excess of authority, 334 not liable for honest mistakes, as to, 367 commencement of, 257, 403 delegation of, 245, 562, 738 less than a quorum, 244, 542, 829 as regards each other, 246 duration of, 459 to refuse assent to transfers, 701, et seq. to forfeit shares, 745, et seq. to accept surrender of shares, 741 to make calls. See Calls to consent to transfer of 'his own share, 703 ratification by, 258 See Implied Powbbs, 264, et seq. duties of, 671 under Companies act, 1862, 662 are trustees, 571, 687, et seq., 785 of their powers, 688, 696 must account for monies unfairly obtained at the expense of the company, 587, et seq. profits made by empiloyment of company's assets, 588 issuing shares, 588, 589 bonuses or commission on sales, 689, 590 share qualifications, 690 to observe companies' regulations, 571 to keep books, 555 to take security, 555 to register transfer of shares, 702 liable for assets lost, 592, 785 not if company have acquiesced, 596 where acquiescence immaterial, 596, 597 for frauds, 324 for negligence and willful default, 692, 785 for not stopping unsuccessful company, 594 not for errors of judgment, 594 in making compromise, 694 not for overdrawing banking' account, 275 not for honest mistakes, as to their authority, 367 as to liability of, for the acts of each other, 595 as regards misrepresentations in prospectus, frauds of, when imputable to company, 317, et seq. liability for, 324 statements of, when binding on company, 317, et seq. notice to, when it affects company, 290 through the books of the company not sufficient, 739, note {q) advances by, to company, 777 presents to, 689, note («/), 605 contracts with, must be referred to in prospectus, 115 tranfer of shares to, distinguished from a surrender of shares, 742 right of, to see accounts of the company, 809 to indemnity from shareholders, 759 when they have exceeded their authority, 760 to allowance for trouble, 776 selling shares for their own benefit, 588 taking up shares issued to some one else, 589 may issue debentures to themselves at a discount, when, 591 1477 1140 GENEEAL INDEX. DlRECTOnS— continued. ~" paying dividends out of capital, 794 cannot buy shares out of funds of the company, 260, 261 contribution inter se, 597, 760, 773 injunction against, 1000, et seq. See Injunction. actions against, on bills of exchange, 347, et seq. on promissory notes, 350 for misrepresentation, 324, 926 for not indemnifying person against calls, 1025, note (K) contracts between them and their companies, validity of, 553, 590 of illegal companies, actions against, 203 actions against, who ought to be parties to, 882. See Paeties when not necessary parties to actions against companies, 885 2. of companies governed by 8 & 9 Vict. c. 16, 552 contracts between them and their coinpanies, 553 powers of, 554 3. of companies governed by Companies act, 1862 not using word "limited," 384 appointment, 561 disqualifications, 562 removal of, 562 pay of, 552 meeting of, 562 delegation of power by, 245, 562 duties of, 562 liability of, in limited company maybe imlimited, 167 See Companies DIRECTORY CLAUSES, what are, 824—830 DISCOUNT, when shares maybe issued at 617, 619 debentures may beissusd at, 271, 619, note (r) DISCOVERT,- of partners where naine of firm is used, 468 of shareholders by creditors, 522 in actions for account, 808, 955 defenses to actions for, 961 accord and satisfaction, 971 account stated, 967 award, 970 defenses to actions for, denial of partnership, 961 release, 971 Statute of Limitations, 963 legality, 202 where right to depends upon a preliminary question, 962, 963 by unlicensed brokers, 187 DISCRETION, power of partner to act on his own, 239 of directors, as to allowing transfers, 702, 703 of court as to granting mandamus, 1037 as to interfering between partners and shareholders, 895, et seq See, also. Injunction; Specific Perfoemance DISPUTES between partners, etc., mode of settling, 598. See Majobitt where they relate to ordinary business, 598 1478 GENERAL IITDEX. 1141 DISFVT'ES— continued. where they relate to a change in the nature of the business, 600 all partners entitled to be heard, 600 DISQUALIFICATION of directors, 543 note (to) 56?. See Diebctoks of shareholders. See Shareholders. DISSENTIENTS, ' powers of, 600. See Majority retirement of, 602 offer of indemnity to, 603 DISSOLUTION, 1. of companies causes of 282—235 actions for, 947, 1039 sustainable notwithstanding the winding up acts, 1039, note 2. of partnerships causes of, 220 et seq. notice by any partner, 220 impossibility of going on, owing to the hopeless state of the partnership business, 222 the lunacy of one of the partners, 220, 224 misconduct, &c., 220, 227 death, 231, 1044, See Deceased Partner transfer of interest, 229, viz. by the assignment by one partner of his share in the partnership, 698 by the taking of a share in execution under a Ji. fa., 280, 691 by bankruptcy, 224, 230. See Bankruptcy x/ by marriage, 230 the occurrence of some event which renders the continuance of the partner- ship illegal, 232 war, 232 deed not necessary on, 221, 222 may be by parol, 222 award on submission of all matters in difference, 222, 844 agreements as to, 843. See Articles of Partnership construction of such agreements, 220 driving a partner to, 744, 950 provision for in case of insolvency, 843 notice of importance of giving, 406, 407, 408 each partner has a right to give, 408 how to be given, 415 what amounts to, 407, 408, 414 et seq. insuiEcient notice of, 844 effect of, 408 et seq. as regards future acts. 408 injunction against circalating, 995 consequence of, 1039 as regards return of premiam, 72 apportionment of premium, 71 et seq. on actions by and agaimst the firm, 186 as regards getting in debts, 865 conversion of joint into separate property, 656 as regards creditors, 417, 1039 when they agree to look for payment to contmmng part- ners only, 437 as regards partners, 1040 as regards right to carry on business, 854 1479 1142 GENERAL INDEX. BlSSOLmiOT!^— continued. consequence of — continued. as regards bills endorsed after, 407 as regards property of the partners, 646 as regards articles, 823 as regards pending contracts, 1018 how far a partnership continues after its dissolution, 411 actions for, 943, et seq. should be brought in Chancery Diyision, 945 how statement of claims should be framed, 945, 946 where partnership is at will, 946 which may be wound up under the company's act, 946 injunctions in actions for, 944, 994. See Injunction accounts on, 838, 978 et seq. account without, 947. See Account of profits since, 646 sale of partnership property on, 1015 action for, 220, 880 parties to, 878-880 next friend of lunatic may bring, for dissolution, 226 actions not seeking, rule as to granting relief in, 894 action for share of assets after a, 1032 valuation of share on, 846, 847 stamp on assignment by outgoing partner, 866 clauses in deeds as to dissolution, 843 , DISTANCES, measurement of, 857 note {g) DISTRESS in name of firm, 279 on partnership goods for rent due from partners separately; see ex parte Parke, 18 Eq. 381 DIVIDENDS, payment of, 791 et seq. out of capital, 605, 793 provisions of companies act, 1862, 793 apportionment of, 1081 as distinguished from bonuses, 1080 when creditors are unpaid, 792 payable rateably according to number of shares, 795 on shares of unequal amount, 797 to preference shareholders, 796 where share is subject to a charging order, 797, 798 where transfer of share has been forged, 798 to married women, 798 in particular companies, 798. See Companies provisions of table A., 799 right of legatee of shares to, 1081 shareholders not liable to refund, although based on erroneous valuation, .794 actions for, 1035 must be paid in money, 797, 901 mandamus to compel payment of, 1036 injunction to restrain payment of, 901, 887, 1001 on several debts, how appropriated, 422, 430, 431 guarantee fund to provide belongs to the company and not to the share- holders, 797 DIXON, his definition of partnership, 2 1480 GENEEAX INDEX. 1143 DOCK COMPANIES, see Companies governed by 8 & £ Vict. c. 16 shares in, not within Mortmain acts, 673 DOCUMENTS, proof of partnership by informal, 92 production and inspection of, in actions, 955. See Piioduction of Docu- ments DOMAT, his definition of partnership, 2 DOMICILE of partners, 78 of companies, 79 DOORS, names on, evidence of partnership, 97 DORMANT PARTNER, who is a, 23, 405 liabilities of, 23, 49, 237, 366, note {d) on written contract, 338 on contracts in which he is not named, 405, 406, 477, note (o) authority of, 237 position of, and that of mere lender compared, 23 ■who is not, 405, note (u) effect of retirement of, 405 notice of retirement of, when necessary, 406, 408 discharge of, by doctrine of appropriation of payments, 423 when to sue with others, 478 actions against, 483 set-off in actions' by and against, 508 DRAFT of agreement evidence of partnership, 97 DUE, meaning of the word, 686, note {n) DURATION of liability, 385 commencement of habiKty, 385 in ordinary partnerships, 385 firm not liable for what a partner does before he joins it, 386, 387 hability of incoming partner, 389, 391 in companies, 394 liabilities of companies for acts of their promoters, 890, 395 of shareholders, 394 as regards future acts, 460 past acts, 461 termination of liabihty, 403 in ordinary partnerships, 403 termination of liability as to future acts, 403 by death, 404 by bankruptcy, 405 of dormant partner, 405 by dissolution of partnership, 406. See Liability termination of liability as to past acts, 417 by payment, 418 release, 433 substitution of debtors and securities, 435 merger, 450 lapse of time, 453 in companies, 459, et sea. 1481 llii GENEEAL INDEX. DURATJOl^— continued. of partnership, 218, et sea. See Dissolution agreements as to, 832 after dissolution, 407 effect of, on partnership articles, 822, 823 effect of talring lease, 218 outstanding debts, 218 after term has expired, 219 of companies. See Dissolution; Winding up DUTIES of. partners and directors generally. See Analysis of Contents, Bk. III. of partners not all to be found in partnership articles, 817 See aJso Dirbctoks; Partnebs EAST INDIA COMPANY liable on its bills though not under seal, 354 EJECTMENT, by partners, 481 by one partner against another, 648,. note (v), 1023, 1024 by one co-owner against another, 65 ELEGIT. See Execution scire facias simTC, 525 EMBEZZLEMENT by servants sharii^g profits, 20, note [I) partner employed as collector after dissolution, 219 EQUALITY of shares in partnership, 676, 677 EQUITABLE MORTGAGES for advances, effect of change of firm on, 215 given by one partner on behalf of firm. 284 may be created or extended by parol, 215 EQUITY, differences between rules of law and equity as regards contribution and in- demnity, 768 difference between rules of equity and bankruptcy as regards secured cred- itors, 1057 ESTATE of deceased partner. See Death; Deceased Partner; Executors of bankrupts. ESTOPPEL by holding oneself out as partner, 47 shareholders,by, 128 effect of executing company's deed, 135 bemg on register, 142, 159 calls on, 635, 636 company, when affected by, 133, 250 in cases ultra vires, 250 application of doctrine of, to illegal issue of shares, 134 See Formalities; Register; Shareholders of persons dealing with a corporation as such to deny its incorporation, 4, note (») IDENGE, that a person is a partner or quasi partner, 87, et seq. Book I., cap. 4 what has to be proved, 90 usual means of proof, 91, 97, 98 1482 GENEEAL INDEX. 1145 EVIDENCE— co))nici. that a person is a partner or quasi partnev— continued, effect of the Statute of Frauds, 87 where there is no writing, 87, 92 acts of alleged co-partner, 93 admissions, 94 articles of partnership need not be proved, 94 of future partnership, 87, 88 retrospective articles, 96 that a person is a shareholder, 99, et seq. Book I., cap. 5 in a cost book mining company, 148 in companies governed by 7 Geo. 4, c. 46, pp. 161, 534 8 & 9 Vict. c. 16, p. 156 the Companies act, 1862, 170 by registers generally, 138 by rough snarebook, lv8 official returns, 139 of incorporation, 163 in criminal cases, 164 note (i) that a company is registered, 168 copies of certificates of registration, when evidence, 163 to correct register, 143 of lunacy, 225 in actions for caUs, 1034 deposits, 117 note (a) recovery back of deposits, 122 upon which partnership accounts are taken, 991 partnership books, 550 mmutes of meetings, 550, 551 See, also, Companies ; Liability ; Peoof of. Debts ; Notice : Rkgisteb ; Stamp EXAMINATION. of directors, 522 note (s) EXCISE LAWS, illegality of partnerships infringing, 184, 189, note (t) effect of breach of, by one partner, 299 contribution in case of breach of, 771 EXCLUSION of partnei from management of partnership business, 540, 745 injunction in case of, 998 receiver in case of, 1012 account in case of, 949 from share of profits, 794 of shareholder from register, damages for how recoverable, 174 EXECUTED and executory contracts of coi-porations, 353 EXECUTION against partners generally, 515 against a partner for a separate debt, 687 duty of the sheriff, 688 Bheriif seizes the partnership property, 688 sale of execution debtor's share, 689 ' may be by private contract, 689 note (c) rights of the other partners, 690 interpleader by sheriff, 689 note (6), 693 since the Judicature acts, 692 1483 1146 GENERAL INDEX. EXECUTION— coi! t inued. against a partner for a separate debt — continued. action against sheriff by solvent partner, 1031 position of the purdiaser from the sheriff, 690 position of the execution debtor, 691 < creditor, 692 purchase of interest by his oo- partners, 691 dissolution of partnership by, 230, 691 injunction in cases of, 690, 691 receiver in cases of, 691 agaiost partner, 515 against partners for their joint debt, 515 how it issues where judgment against the firm, 516 effect of arresting debtor, 695 against companies and their shareholders, 517, 694, et seg where funds only are hable, 519 mandamus in such case, 519 injunction to restrain, 523 against the company or person named in the judgment, 518 against corporations, 518 against public officers under 7 Geo. 4, c. 46, p. 521 against shareholders upon a judgment obtained against a company or its public officer, 517 soVe/acins against shareholders, 520, 523. See Sci. Fa. sharehcAder can only be proceeded against after judgment obtained agaiost the company, 521 registry of judgments against companies, 522 discovery of shareholders, 522 right of creditor to proceed against individual shareholders, 522, 523 in cases of fraud, 527 against shareholders in companies governed by 7 Geo. 4, c. 46, pp. 521, 531 the Letters patent act, 521, 535 7 & 8 Viot. c. 110, p. 521 7 & 8 Vict. c. 113, p. 521 8 & 9 Vict. c. 16, pp. 521, 536 other companies, 539, 394 against executors of a deceased shareholder, 1065 charging shares, 694 attaching shares, 697 for separate debt of shareholder, 14 note (c), 694, et sea. against rolling stock of railway companies, 518 note (g) EXECUTORS, 1. of a deceased partner do not become partners, 1044 liabilities of, 1044 to surviving partners, 1045 to creditors of the firm, 1050 as regards what occurred iji the lifetime of the testator, 1050, 1051, 1059 administration, actions by joint creditors, 1053 form of decree in such actions, 1056 as regards what has occurred since the testator's death, 1059 liability of assets for acts of the executors, 1061 by sharing profits with surviving partners, 1060, note (i) liability of executors who carry on business with the assets of their testator, 1059, et seq. effect of direction to carry on trade, 1063 liability to be made bankrupt, 1047 ■ to the separate creditors, legatees, and next of kin of the deceased, 1066 where partnership was illegal, 203 1484 (JENEEAL INDEX. 11 .7 KKSCVTOUS— continued. liabilities of — continued. where the assets of the deceased are not got in, 1070 ■where the executors are the surviving partners, 983, et seq., 1070 where they enter the firm, 1074 willful default, 1067 position of, when they are the surviving partners, 1047, 1070 actions for indemnifying, 1048 liability of testator's estate for acts of, 1061 duty of, to convert share into money, 1081 rescission of contracts between executors and surviving partners, 932, et seq. effect of part-payment by, as regards the Statute of Limitations, 457 injunction against, 997 account stated with, 1069 parties to actions against, 880 allowances to, in India, 775 illegality set up by, 203 actions by and against, 490 loans by, to surviving partners, 1071, 1074 receiver appointed against, 1009 rights of to become partners, 1044 to interfere with surviving partners, 1044 to account, 1044 to compel proper appropriation of payments, 1045 to have the assets sold, 1046, 1081 as regards good-will, 860, 1046 to account of profits made since their testator's death, 976, et seq., 1046, 1072, et seq. to compensation for trouble, 1046 to indemnity, 1048 to retain balance due on the partnership account, 935 2. of deceased shareholder rights of, 1048 to indemnify against calls, 1048, 1049 to petition to wind up company, 1049, 1236 liabilities of to calls, 640, 1048 to be made contributories, 1049, 1065 when they allow shares to be transferred into their own name, 1049 to creditors of the company, 640, 1048 for not selling shares, 1081 sci.fa. did not lie against, 521 transfer of shai-es by, 1060 actions against, for calls, 640, 1033, note (?/) agreement with, is with those who prove, 26, note (s) See Deceased Partnek; Death EXISTING COMPANIES registration of, under act of 1862. See Resistration EXPENSES of forming company, liability of company for, 1021, 1022 liability of subscribers for, 118 liability of promoters for, 1021 to be charged to the firm, agreements as to, 837 action between partners for not contributing to, 1025 See, also, Conthibtjtion EXPULSION of partner, 744 exercise of powers of, 820, 844 1485 1148 GENEEAL INDEX. EXPULSION— coMimwe!?. provisions in articles as to, 844 See FoKPEiTiiRB EXTENT, sale of share under, 661 EXTRAORDINARY NECESSITY, power of one partner to bind firm in cases of, 238 EXTRAORDINARY MEETING, 546. See Meeting FACTORS' ACTS, 285 FALSE PRETENSES, indictment for obtaining money under, 816, note {y) FALSE STATEMENTS, ensnaring public by, 194 rescission of contract for, &c., 923, 927. See Fraud by one partner, liability of firm for, 314, et seq. by directors, liability of company for, 317, et seq. actions for, 926 FARMERS accounts between, 66 when not partners in land though they share profits derived from it, 651, 652 one of a firm of, has no power to bind others by bills, 267 FELONS, partners who are, 80 FI. FA. sale of partner's share under, 661, 689 See Execution FIRM, mercantile and legal view of, 206 et seq. consequence of difference, 208 in r-hat sense a debtor to or creditor of its own members, 206, 805 n; m ! of, 208 action may be brought in, 207, 468. See Actiou partners may be registered as shareholders in, 208 as owners of copyright, 208 a trademark, 210 mistakes in, 211 how described in legal instruments, 208 each partner the agent of, 236. See Implied Powers actions by and against general remarks on, 211, 475 formerly could not sue or be sued by one of its ovra members, 211 at law by another firm, if one partner' was com- mon to both, 212 conduct of one partner when a defense to an action by him and his co- partners, 212 legacy to, 209 advances to, by trustees, 209 changes in, effect of, 208, 212. See Changes as regards set off, 510 sureties and securities, 213, 214 equitable mortgages, 215 solicitors' Hen, 215 actions, 486 1486 GENEEAl INDEX. Ili9 FIRM — continued. two firms witli common partners. See Connected Firm; Common Paetnbr actions between, 212 with same name, liabilities of on each other's bills, 343 See Partnership FOLLOWING trust money, 313, 976, et seq. FOREIGN COMPANY, may be registered, 167 FOREIGN CONTRACTS, remedy on, barred by the Statute of Limitations, 454, 455 FOREIGN PARTNERS, 78 payment of income tax by, see A.-G. v. Sulley, 5 H. & N. 711 FOREIGN PRINCIPALS, agent for contract as principals, 477, note (o) FOREIGNERS may register ctompany although the business is abroad, 167 FORFEITURE OF SHARES, 744 et seq. See Joint Stock Companies in thf U.S. right to forfeit shares, 745 where subscriber has not executed company's deed, 746, note (u) for non-payment of calls, 746 in cost-book mining companies, 746 in companies governed by 8 & 9 Vict. c. 16, p. 746 Companies act, 1862, p. 747 statutes authorizing, 746 when right to forfeit co-exists with right to sue for calls, 747 cancellation of forfeited shares, 747 what amounts to, 750 power to forfeit must be exercised hona fide, 749 to enable shareholder to retire, 749 effect of, 760 injunction to restrain, 751, 752, 885, 1001 relief from, 751 action for, 145 shareholder may be contributory notwithstanding, 751 to crown, 661 clause in articles exercisable if shareholder sued company, Ulegal, 745 FORGERY of scrip, 123, note (&) _ by one partner, liability of firm in case of, 306 of power of attorney to transfer shares, 301 of transfer of shares, effect of, 301, 707 FORM OF CONTRACT, effect of, on liability of partners, 336, et seq. of companies, 356, et seq. FORMS of decrees for account, 972 FORMALITIES, effect of not observing, 125 as regards creditors, 136 as regards shareholders, 124-130 in dealings between directors and third parties, 247, et seq. 1487 1150 GENERAL INDEX. FORMALITIES— coM^mMSfZ. waiver of observance of, 128, 136 in transferring shares, 703 clauses as to, when directory only, 824, et seg. See, also, Iekbgularities ' FORMATION OF COMPANIES, 99, et seq. See Contents, Bk. T. cap. 5 liability of company for expenses of its formation, 395 action for expenses of, 1021, 1022 of chartered companies, 150 by special act of Parliament, 154 of companies governed by Letters Patent act 152 See Companies; Pkomotees FORMER MEMBERS. See Past Members; Retired Shareholders sci. fa. against, under 7 G-eo. 4, c. 46, 532 FRAUDS, STATUTE OF, effect of, on contracts of partnership, 87 excluded by part performance, 88 shares of companies not within, 674 how affected by Companies clauses act, 358 FRAUD. See Good Faith right to rescind contracts on the ground of, 923 et seq. where a third party intervenes, 925 where fraud did not induce the contract, 924, 936 how lost, 924 . principal not bound by contract which is known to be a fraud, 298 concealment when a, 321, 324, 924 a defense to action for calls, 636 effect of, if sanctioned by majority of company, 901 effect of, on contract to take shares, 935 bad bargains upheld, there being no fraud, 930 effect of mis-statements in company's prospectus, 939 et seq. repeal of charters obtained by, 943 re-opening accounts for, 968 release set aside for, 283,^ 294 rescission of contracts of partnership on the ground of, 927 as to right to rescind severable contract, 942 recovery of money paid for shares on the ground of, 71, 121 bargains between outgoing and continuing partners set aside for, 932 bargains with the executors of a deceased partner set aside for, 932 bargains on faith of fraudulent accounts set aside, 931 effect of, on right to contribution, 754 on person holding himself out as partner, effect of, on his liability to cred- . itors, 49 on shareholder, effect of as regards liability to creditors, 528 as regards liability to be made a contributory, 925 See CoNTKiBUTOniES as regards liability to calls, 936 by mis-statements in prospectus, 935, 936 director who sells his own shares as unallotted shares commits a fraud, 942 in sale of shares, 716, 717, 942 on creditors, by retiring from insolvent firm, 735, 736 by converting joint into separate property, 658 appointment of receiver in cases of, 1011 actions for return of subscriptions to companies, on the ground of, 121, 953 recovery of premiums in cases of, 71 Statute of Limitations in cases of, 455 concealed, 455, 964 on part of creditor deprives him of his rights against retired partner, 445 1488 GENEEAi INDEX. 1151 FRAUD — contimted. estate of deceased partner not released by dealings with survivors where there has been, 448 of directors, liability of company for, 244, et seq., 317, et seq. ratification of, by company, 258 company not liable for prospectus fraudulent under § 38 of Companies act 1867, 823 of one partner, liability of firm for, 298, 301, 311 of agent, liability of principal for, 297 of infant, 81 of promoter, 937 prospectus when deemed to be, 115 liability of estate of deceased partner for, 1052 effect of, on agreements between partners changing joint into separate es- tate and vice versd, 658 by directors, no answer to demand by creditors, 528 by company on shareholder, does not protect him from scire facias, 528 of firm, liability of firm in case of, 301, 302 on incoming partners, 331 by creditor, when a defense to a scire facias, 527—529 effect of, on doctrine of appropriation of payments, 431, 432 discharge of the estate of a deceased partner, 446 partnership formed by, no defense to creditors, 199 on company by all members, 591 J on Stock Exchange, 323 in obtaining settling day indictable, 710, 711 i-aising or lowering the price of shares, 711 parties to actions relating to, 486, 879 FRAUDULENT ACCOUNTS, 814 penalties for making, 814 Act 24 & 25 Vict. c. 96, imposing, applies only to public companies, 14, note (c) re-opening, 933 bargains on the faith of, set aside, 931 FRAUDULENT CONVEYANCES, by partners, 655 FRAUDULENT PREFERENCE, _ trustee in bankruptcy may disaflBrm, 471 FRAUDULENT STATEMENTS of one partner, liability of firm for, 314 by directors, liability of company for, 244, et seq, 317, et seq, 936 actions for, 926 as to solvency of another do not bind partner unless written, 282, 315 See FBAtrD FREIGHT, lien on, 684 FRIENDLY SOCIETIES not partnerships, 67, note (o) criminal prosecution of members, 873, note (a) FUNDS OF COMPANY, injunction to restrain misapplication of, 1001 contracts to pay out of, 377, 378 effect of, as regards execution, 519 sci. fa. against shareholder, 580 liability of shareholders to make good, when they are pledged to creditors, 381 where company is incorporated, 381 governed by act of 1862, 382 not incorporated, 382 9' 1489 1152 GENERAL INDEX. FURNITURE, ofBoe, may belong to one partner only, 649 FUTURE ADVANCES, securities for, effect of doctrines of merger on, 452 See Capitai. GAIN, partnerships not having gain for their object, 2, 3, note (o), 56 mutual marine insurance companies are not, 166, note (x) GAMING and wagering in shares, 710 GARNISHEE ORDER, GAS COMPANY. See Companies governed by 8 & 9 Vict. c. 16 not bound by bills, &c., of its directors, 357 GAZETTE, partner ordered to sign advertisement of dissolutin for msertion in, 408J notice of dissolution in, effect of, 415 See Advertisements GENERAL and particular partnerships, 55 and special meetings, 546 powers restricted by object, 819 GIFTS, by one partner of partnership property, 281 GOODS, actions between partners relating to, 1023 liability of partners for goods supplied before commencement of partnership, 388 pledge of, by one partner, when binding on firm, 284 purchases of, by one partner on credit of firm, 290 return of, by one partner when binding on firm, 291 sale of, by one partner when binding on firm, 295 by solvent partner when binding on trustee of bankrupt partner, 1031 GOODS AND CHATTELS, how far shares are, 674 GOOD DEBTS agreement as to bringing in, 835 GOOD FAITH required from partners, 569, et seq. promoters, 580, et seq. directors and members of companies, 570, et seq. agreement to observe, 837 ' See DiEECTOBS ; Fraud ; Honor GOOD-WILL nature of, 859 sale of, effect of on right of vendor to carry on the business sold, 859, 1018 valuation of, 863 assets of the firm, 860 in case of death, 860 sale of, on on death of partner, 1017 in case of retirement of one partner, 861 m connection with use of name, -861 trade-mark, 863 1490 GENEEAL INDEX. 1153 GOOB-WlLlr-cortthmed. agreements as to paying for, 864 share of profits, as consideration for, 44 property within meaning of Stamp acts, 859, note (r) legatee of, 1075 ^ ' duty to preserve, 860 note {x) GROSS PROFITS and net profits, distinction between sharing, 15 GROSS RETURNS distinction between sharing profits and gross returns, 16 sharing does not constitute partnership, 16, 17, 24 persons who share, not jMasi-partners, 37 GROWING CROPS, partnership in, how formed and proved, 88 GUARANTEED SHARES, 662 GUARANTEE against debts given to incoming partner, 836 power of one partner to bind firm by, 281 company limited by. See Companies, as to solvency when required to be written, 282, 315 only binds partners who sign, 339 GUARDIANS, poor-law, not bound by unsealed agreement when, 354 HIGHER NATURE, extinction of debts by taking securities of, 450 HIGHWAYMEN. partnerships between, 188, note HISTORY of statute law relating to companies, 5 HOLDING OUT as partner, 47, et seq. _ See Quasi-Partnbeship what constitutes, 49 but not to plaintiff, 51 sufficient proof of quasi-partnership, 91 by not preventing use of name, 52 as partner, injunction to restrain, 999 after retirement or dissolution, 410, note {x) one partner holding himself out as solely concerned in a contract, effect of. 479 liability incurred by, when true state of facts is known, 48 doctrine of, does not render the estate of deceased partner liable to third par- ties, 1060 by infant, 81 after coming of age, 83 by surviving partner, 52 by promoters of company, 54 by married women, 84 by being on register of shareholders, 50 HONOR high standard of, requisite among partners, 569 and among those about to become partners, 569 and among those who have ceased to be partners, 569 and among directors and members of companies, 570, 580, et seq. and between promoters of companies and those companies, 580, et seq. See Fkaud; Good Faith 1491 1154 GENERAL INDEX. HUSBAND of partner, liability of, 84 of shareholder, liability of, 85, 136, 535 when not liable to creditors of company, 136, 535 as to right of, of shareholder to Vote, 549 See Married Woman IDIOCY, dissolution on, 224 IDIOTS, partners who are, 83 IGNORANCE of one partner, effect of, on nghts of firm, 288. See Notice ILLEGAL ACTS. injunction to restrain. See Injunction contribution in respect of, 770 ILLEGAL AGREEMENTS, clause of forfeiture in articles to prevent shareholder suing the company ille- gal, 745 ILLEGAL SALES of shares, 710, 735 ILLEGAL TRUSTS, 204 actions for execution of, 204 ILLEGAL PARTNERSHIPS AND COMPANIES, Book I., cap. 6 what partnerships are illegal, 180, et seq., 819 on general grounds, 180 — 183 by particular statutes, 183 — 191 attorneys and solicitors, 184, 190 bankers, 184, 186 brokers, 187 insurers, 187 medical practitioners, 188 patentees, 189 pawnbrokers, 189 theatre man'agers, 191 unincorporated companies with transferable shares, 191 assuming to act as a corporation, 192 scrip companies, 194 by reason of non-registration, 196 by non-compliance with Companies act, 1862, 196 consequences of illegahty, 197 as regards the right to recover back subscriptions, 197 actions for account, 198 sales of shares, 198 actions by and against, 199, et seq. contribution, 200, 770 ' waiter of illegality, 200 illegality a defense, 200, 201 illegality, when not a defense, 202 illegality set up by executors, 203 concealed illegality, 202 action against directors of, 203 members of, have no lien, 683 illegality of partnership business, a cause of dissolution of partnership, 232 appointment of receiver in case of, 1012 1492 GENERAL INDEX. 1155 ILLNESS of paxtner, not a ground for dissolution, 225 IMPERATIVE AND DIRECTORY CLAUSES, distinction between, 824 IMPLIED POWERS. Book II., cap. 1, sec. 3 ofpartners, 236— 240 as regards accounts, 264 actions, 473, 474 admissions, 264 agents, 265 amalgamation, 265 arbitration, 265, 473, 474 bills and notes, 266, et sea. bonds, 269, 278 borrowing money, 269 capital, increasing, 273 cheques, 274 post-dated, 274 compromise, 277 contracts, 275 creditors' deeds, 277 debentures, 270, 275 debts 275,287 deeds, 278 distress, 279 extension of business, 279 Factors' acts, 285 guarantees, &c., 281 insurances, 283 interest, 283 judicial proceedings, 283 leases, 283 mortgages, 284 payment, 275 pledges of chattels, 284, 285 notices, 287 penalties, 290 purchases, 290 purchase of business, 292 receipts, 293 releases and covenants not to sue, 293 representations and admissions, 294 sales, 295 taking security, 287 servants, 296 set-oif, 277 shares, 296 ships, 296 tenders, 278 varying contracts, 275 winding up, 411 of promoters of companies, 240, et seq. of directors, 244, 249—258, 264, et seq., 741 in particular cases. See above (Implied Powers of Partners) termination of by notice, 403 by death, 403 by bankruptcy, 405 See Bankbuptcy; Dissoltjtion 1493 1156 GENERAL INDEX. IMPLIED TERM for duration of partnership, 219 IMPOSSIBILITY of continuing partnership business cause of dissolution, 222 IMPUTATION OF PAYMENTS, 419, et seq. See Appsopeiation of Payments INCAPACITATED PARTNER, 77 INCHOATE COMPANIES, subscribers to, not partners, 31 application of doctrines as to holding out to, 52 See Abortive Companies: Pkomoters INCOME-TAX, payment of, by firm, where some of its members are abroad. A.-G. v. Sitl- letj, 5 H. & N. 711 INCOMING PARTNER, actions by and against, 435, et seq., 486, et seq. agreements for benefit of, 851 hability of, 389 under old articles, 852 for bUls accepted for precontracted debt, 393 for acts done before they join firm, 392 frauds on, 831 eiiect of appropriation of payments on, 426 INCORPORATED COMPANIES, are public companies, 696 causes of dissolution of, 234 actions by and against, 492 formation of chartered companies, 150. See Chartbbed Companies companies incorporated by special Act of Parliament, 154 registered companies, 163 See Companies; Coepokation INCORPORATION effect of, on sureties, 214 effect of as regards capacity to sue and be sued, 873 proof of, 164 in criminal cases, 164, note (t) INCREASING CAPITAL, difference between that and borrowing, 273, 274 See Capital INDEBTED, meaning of the word, 686 note (w) INDEMNITY, against losses, 22 agent's right to, 755 when he obeys his instructions, 755 when he disobeys his instructions, 755 when he acts after his authority is revoked, 756 when he acts without instructions, 756 right of partners and directors to, 759 et seq. directors acting bond fide, but beyond their authority, 760 right to indemnity where powers expressly restricted, 766, 767 right of broker to, 731 right of seller of shares to, from purchaser, 713, 730 from beneficial owner, 730 1494 GENEEAL INDEX. 1157 mDEMmTY— continued. right of public officer to, 782 right of shareholdei-s to, 782 right of trustees to, 758 right to, where a person has been induced to become a partner, or to take shares by fraud, 923 right of out-going partner to, from continuing partners, 867 usually given by continuing partners, 867 at law and in equity, difference between, 768 action for, by one partner against another, 1028 given by one partner, how iFar firm is bound by, 281 given by directors, company not bound by, 282 directors entitled to, 555 inter se, 560, 597, 773 dissentient need not accept, 603 effect of taking joint covenant for, 373 effect of, on lien, 867 agreement to indemnify shareholders, no answer to action against company, 433 See, also, Conteibotion IND^A, allowances to partners in, 775 INDICTMENT by surviving partners for stealing partnership goods, 490, note (o) for fi-audulenty inducing a person to take shares, 815, 816 for obtaining money under false pretenses, 816, note («/) for consphacy, 710, 711, 815, 816 for illegal partnership, 204 INFANT partners, 80 liability of infant for holding himself out as partner, 81, 83 to be made bankrupt, 81 sued with other partners, 483 shareholders liabilities of, 81 to calls, 81 to be made contributories, 82, note {g), 1356, 1406 transfer of shares to, 723, 729 avoidance of contracts by, 82 ratification of contract by, 82 liability of jobber who passes name of, 723 pm-chaser who passes name of, 728,729 company may reject infant as shareholder, 82 liability of, for fraud, 81 effect of infant's signature of memorandum of association, 82 Infant's Relief act, 1874, p. 82 effect of on infant partners, 83 shareholders, 83 INFORMALITY. See Ibkeguiarity in consenting to transfer of shares, 703. INFORMATION. See Action INJUNCTION generally 993 et seq. to restrain directors and companies generally, 895, 1000 ef seq, in particular cases, injunction granted, 1000 refused, 1002 before hearing of cause, 1000 necessity of, 993 1495 1158 GENERAL INDEZ. iiSJU'RCTIO^— continued. granted where a receiver would be refused, 1007 between co-owners, 66 aga nst partners, 994 where no dissolution is sought, 994 where partnership is at will, 995 in actions for dissolution, 996 against persons claiming under a late partner, 997 against directors, &c., 898, 1000 to restrain actions, 998 for balance of settled account because others are unsettled, 998 brought against shareholders at instigation of directors, 875, 1001 ejectment, 996 executions against iirm for separate debt of one partner, 690, 691 against one shareholder at the suit of another, 523 advertising dissolution, 994 holding out, 999 opening letters, 994 usmg names, 994 by continuing partners, 210, 410, note (a;), 1060 misapplying moneys of firm, 995 obstructing plaintiff in the exercise of his rights, 995 driving plaintiif to a dissolution by misconduct, 995 publishing news in a rival paper, 995, 996 writing plays for rival theatre, 996 getting in partnership assets, 996, 997 negotiating bills, &c., 997 withholding partnership books, 997 breaches of express agreements, 997 carrying on business, 996 save for winding up, 996 after a dissolution, 996 after sale of business, 862 by surviving partners in old name, 210, 410, note (x) 106O interfering with proper winding up of partnership, 1041 disclosm-e of information obtained under order to produce, 1002 against dissolution of partnership when granted, 221 divulging trade secrets, 997 publishing accounts, 1002 excluding co-partner, 995 though lately insane, 994 advertising plaintiff as a promoter, &c., of a company, 999 keeping plaintiff's name on register of shareholders, 142, 1000 managing partners, 895 majority, 900, 902 minority, 902 conveyance of property of company to trustees for sale, 900, 1004 illegal acts, 900, 994, 1000 et sea. the application of a company s funds to unauthorized purposes, 901, 1001 an application to Parliament to change constitution of company, 606, 607, 1002 foreign government, 607, note {x) surrender of charter, 1002 acceptance of charter, 150, note (a) the sailing of a ship, 902, note (q) foi-feiture of shares, 1001 making or enforcing calls, 898, 1000 renewal of lease, 574, note payment of dividend in shares, 1001 1496 GENERAL INDEX. 1159 mJUNCTTON— coniinwei. to restrain — continued. presentation of winding-up petition, 1245, note [g) prosecuting suit by stranger, 1002 proceedings for a libel on the directors, 1002 purchase by a company of its own shares, 1002 to correct register of shareholders, 142, 1000 sought by a nominee of a rival company, 888 against suhig plaintiffs, effect of, where suit is by some on behalf, 502, note (m) parties to actions for, 881 INJUIRIES directed in decree for administration of estate of deceased partner, 1056 INSANITY, a ground for dissolution, 224 et seq. See Lunacy and Lun^tio INSOLVENCY of partner, power to dissolve in case of, 843 test of, 843 of firm, meaning of, 736, note (6) See Bankkuptcy. INSPECTION. See Books of accounts, &c., of fum, 545, 809 agreement precluding, 959 by accountants, &c., 959 books in use, 959 of accounts, &c., of companies, 809, 959 governed by 8 & 9 Vict. c. 16, p. 558 governed by Companies act, 1862, p. 175 of accounts of corporations, 959 of register under Companies act, 1862, p. 175 by Board of Trade, 813 of names of shareholders, right of creditors to, 522 rules as to inspection of documents by shareholders, 545 in actions for account, 959 INSPECTORSHIP DEED, trustees of, not partners, 29 INSTALLMENTS, caUs payable by, 681 INSURANCE, power of one partner to bind firm by, 283 INSURANCE COMPANIES. See Life Insurance Companies maritime, formerly illegal, 187 shares in not within Mortmain acts, 674 policies under seal of, binding on, though issued irregularly, 255 fire and life not to be turned into a marine insurance company, 605 power to transfer assets, although policies payable out of them, 380, 881 INTEREST . ,, „oo admission by one partner, that interest is payable, 283 in accounts between partners, 786 on capital, 786 on imdrawn profits, 787 on advances, 787 on overdrawings, 787, 788 where accounts confused, 789 charged against partner who vnUl not produce books, 993 charged against directors, 789 on money wrongfully employed in partnership business, 976, et seq. when compound interest allowed, 986 1497 1160 GENERAL INDEX. mTEREfiT— continued. charging executors witli, for not converting testator's share into money, 1071 on calls, 629, 748 note, 751, note {t) paid by continuing partners after dissolution does not discharge retired part- ner, 439, 442, 446, 447 INTERNAL REGULATION, interference with respect to matters of, 895, et seq. See Majority INTERPLEADER, sheriff 's right to, 689, note (6) INTERPRETATION of partnership articles, 817 See Abticlbs of Paktnbeship INTERROGATORIES, t oppressive, 955 i public officers may be examined on, 500 INTRODUCTION of new partner, provision as to, 851 INVESTING in shares, 662 INVOICE evidencing partnership, 97 I U U, action by one partner against another on, 1028 IRREGULARITIES, ' effect of, on validity of acts of directors, 253 et seq. irregular acts distinguished from unauthorized acts, 253 liability of comparuy for, 253 et seq. effect of non-observance of formalities, 125 waiver of, 128 et seq. as between company and shareholder, 130 as betvfeen creditor and shareholder, 136 in appointment of- directors, 253, 543 in maldng caUs, 624, 627, 629 See, also, Fokmalities ISSUE to try partnership, formerly directed, 90, note (m) ISSUE OF SHARES, illegal effect of, 134 condition precedent to directors' powers, 257 JOBBERS, who are, 721, note (r) See Sale of Shares JOINDER OF PARTIES. See Abatement; Actions; Parties JOINT BOND, held joint and several, when, 369, et seq. JOINT COVENANTS, when not held joint and several, 371 1498 GENERAL INDEX. 1161 JOINT CREDITORS, rights of joint and several creditors compared, 655, 1053, 1054 when treated as joint and several, 369, et seq. rights of, against estate of deceased partner, 1054 See Bankruptcy; Deceased Paktner; Joint Debts JOINT DAMAGE, when necessary to support joint action, 480 JOINT DEBTS. See Bankruptcy cannot be set off against sepai-ate, 504, et seq. composition for, does not release separate liability when, 435 JOINT ESTATE, what is, 643 JOINT OBLIGATION, performance of, 417 extinction of, 417 by merger in security of higher nature, 450 effect of release on, 438 effect of covenant not to sue on, 433 JOINT PURCHASES, 58 JOINT AND SEVERAL partnership debts are, when, 369 rule applies between creditors, 371 contracts, who to be sued on, 483, 490 persons liable on, may be sued jointly, severally, or in the alternative, 467, 468, 484 executors of deceased partners may be joined, 490 debts, merger of, in higher securities, 450 liability on contracts, 369 for torts, 373 for breaches of trust, 374 extinction of, by merger, 451 promissory notes, liability on, 362 power of one partner to bind firm by, 266 receipt of composition on joint debt, effect of on separate liability, 435 JOINT SHAREHOLDERS, survivor a contributory, 375 JOINT STOCK not essential to partnership, 19, 20 JOINT STOCK COMPANY. See Companies history of law relating to, 5 JOINT STOCK COMPANIES IN THE UNITED STATES, as existing independent of statutory regulation, 5, 1083-1087 as organized under, or regulated by, statutes, 1087-1099 as existing independent of statutory regulation, are partnerships, 5, 1083 members personally liable, 1083 parties to actions by and against, 1084 dh-ectors of, are trustees, 1085 effect of death or transfer of interest, 1085 No delectus personce, 1085 forfeiture of interest, 1086 as regulated by statute. New York statutes concerning, 1087 nature of associations under N. Y. statutes, 1088 status of in other States, 1091 method of organization, 1092 1499 1162 GENEEAL INDEX. JOINT STOCK COMPANIES IN THE UNITED STATES-continued. associations coming within the statute, 1092 parties to actions by and against, 1093 complaint in action by, 1093 judgment and execution against, 1095 actions against individual members, 1095 actions between the company and its members, 1096 members, 1096 right to hold real estate, 1097 consolidation of different companies, 1097 misconduct of managers, 1098 distribution of assets, upon dissolution, 1099 JOINT TENANCY or tenancy in common, what creates, 58, note (s) JOINT TENANTS partners in profits only, 60 remedies between, 63, et seq. JUDGE interested in company as to which he adjudicates. Re Hopkins, 1 E. B. & E., 100 JQDGMBNT.^ See Merger extinguishes debt for which it is obfained, 451 not if it is a colonial judgment, 451, note {d) action on colonial judgment, 521, note (i) against one partner, when no discharge of others, 451, 452 against surviving partners, does not preclude creditor from having recourse to estate of deceased partner, 446 in action for caU, not set aside for irregularity ia making it, 630 cannot be impeached on scire facias, 526 except for fraud, 526 of county court against company, execution of, 521, 522 against company, registry of, 522 may be entered up against partners in name of firm, 515 how execution issues where, 516 on scire facias against one shareholder does not prevent creditor from samg another, 524 action by one partner who has been compelled to pay, against co-partner for contribution, 1029 power of one partner to consent to, 474 effect of judgment confessed by one partner, 474 execution of. See Execution; and Scire Facias JUDICIAL PROCEEDINGS, power of one partner to act for firm in, 473, 475 JURY, to try partnership, 90 JUST ALLOWANCES, 974 KENT, his definition of partnership, 2 LACHES of plaintiff when a bar to relief, 902 barring' right to account, 903 in settmg aside agreements, 903, 905 1500 GENEEAL INDEX. 1163 LACEES— continued. in winding up companies, 905 effect of recognition of title on, 913 LAND, there may be a partnership in buying and selling, 88 proof of a partnership in, 88 shares in companies, how far interest in, 667, 67.3 belonging to firm treated as personal estate, 667, et sea. when partnership property, 644, 651, 652 when not, 668 LAND COMPANIES, where shares within the Mortmain acts, 673 LANDS CLAUSES CONSOLIDATION ACT, appointment of arbitrator under, 359 LAPSE OP TIME. See Delai; Limitations, Statute of; Time LARCENY, one partner cannot commit as to the property of the firm, 643 LAW AND EQUITY, difference between as regards contribution and indemnity, 768. See Conteibutioit as regards joint and several liabilities, 369 LAW PARTNERSHIP. See Attorneys LEASE, specific performance of agreement for, after term is expired, 915 injunction against grant of renewed, to one partner, 949, note {q) power of one partner to take a lease for a firm, 283 liability of retired partners on covenants in, 436, note (o) of partnership property, effect of, on duration of partnership, 218 of partnership property, may belong to one partner only, 646, 648 renewal of, by one partner enures to benefit of firm, 574 notice to quit by partners, 481 forfeiture of, by assignment by one partner to another without license, Var- leij V. Coppard, L. R. 7 C. P. 505 LEDGER not a sufficient register, 140 LEGACY . .' of share in partnership rights of legatee, 1075 ademption of, 1075 what passes under, 661, 1075 duty of executors to realize, 1071 of shares in company, 1076 duty_ of executors to sell, when, 1077 if given to persons successively, 1077 no probate duty payable on death of tenant for life, 1078 liability of executors for not selling when bequeathed upon trust for sale, 1081 income of, before sale, as between tenant for life and remainderman, 1078 bequest of, will pass stock, 617, note {}), 1076 rights of specific legatee of, 1079 as to calls, 1078 as to profits, 1079 as to dividends and bonuses, 1080 to a firm, 209 of good will, 859, note (s), 1075 1501 1164 GENERAL INDEX. LEGACY DUTY, payable on partner's share of assets, 672 LEGALITY, See Illegality LEGAL PROCEEDINGS, firm, how described in, 211 et seq., 46S, 476 by and against firm, 211 et seq., 466 et neq. power of one partner to act for firm in, 473 See Actions; Bankruptcy; Winding up LEGATEE of a deceased partner, what passes to, 661, 1075 rights of, against his executors, 1068, 1072, 1075 the surviving partners, 1066 ■where thQ assets of the deceased are not got in, 1070 et seq. where the surviving partners are the executors of the deceased, 1070 of goodwiU, 1075 of shares, rights and liabihties of, 1076 et seq. for life, 1077 payment of calls by, 1078 right to bonuses, 1080 LENDER, distinction between and dormant partner, 23, 45 if with rights other than those of a creditor, may be a partner, 45 LETTERS, injunction to restrain opening, 994 evidence of partnership, 97 LETTERS OP ALLOTMENT, 102. See Allotment LETTERS PATENT ACT See Companies governed by 7 Wm. 4 V 1 Vict. c. 73, p. 152 LIABILITY 1. of partners to be determined by law of place where partnership is carried on, 369 inter se. See Account; Action; Contkibutton for the acts of each other, 264 et seq. See Implied Powers of individual partners on contract in excess of their powers, 366 of partners by holding out, 47 et seq. See Holding Out by sharing profits, 33-47. See Profits statute as to, 43 none till partnership is concluded, 26 et seq. in respect of unauthorized transactions, 249, 325 with notice, 325 torts and frauds, 298 et seq. misappUcation of money, 302-313 misrepresentations, 314 bills of exchange in various forms, 340 et seq. See Bills of Exchange promissory notes, 348 See Promissory Notes contracts under seal, 337 not under seal, 337 not binding on them, but of which they have had the benefit, 361 in which all the partners are not named, 406, 477 1502 GENERAL INDEX. 1165 LIABILITY— conftnuet?. when joint and when several, as regards contracts, 369 torts, 373 breaches of trust, 374 commencement of, 385, et seq. termination of, 403, 417 as to future acts, 403 as to j)ast acts, 417 by notice of dissolution, 408 by dissolution without notice, 406 effect of notice, 403, et seq. what amounts to notice, 414, et seq., 846 by payment, 418 See AppEOPJiiATiON of Payments by release, 483 by dissolution or retirement, 423» by dealings with contmuing partners, 422, 423, 446 by the merger of securities, 440 by lapse of time, 453. See Limitations; Statute of by death, 404 by bankruptcy, 405 by lunacy, 406 attempts to limit, 376 effect of notice of agreement limiting, 375, 377 partners may stipulate as between themselves that one shall not be liable for losses or firm debts, 22 creditors not affected by agreements between the partners, 435, et seq. of dormant partner, 237, 405. See Dormant Partner of incoming partner, 389. See Incoming Partner of nominal partner. See Holding out; Nominal Partner; Quasi Partnership of retired partner, dormant, 405, 407, 423 not dormant, 406 as regards future acts, 408 as regards past acts, 417, et seq. of estate of deceased partner, 1050. See Deceased Partner; Exe- cutors . of members of unincorporated associations, 4 2. of companies summary of law as to, 264, 352 for the acts of their promoters, 395 for the acts of their directors, 244 imauthorized acts, 315 ultra vires, 249, 401 intra vires, but irregular, 253 frauds, 317 when irregularly appointed, 247 of companies for negligence of servants, 299 for torts and frauds, 299 et seq. on contracts not entered into on their behalf, 336 et seq. , 352, 361 on ground of ratification, 258, 355 ' part performance, 354 by estoppel, 355 on judgment, 355 under particular statutes, 356. See Contract ; Companies on promissory notes, 360 on amalgamation, 402, 463 on contracts of which company has had benefit, 361 on contracts not under seal, 352, 356 3. of shareholders, 375 1502 1166 GENERAL INDEX. LIABILITY— cnntimied. to calls. See Calls to creditors in cost-book mines, 147. See Cost-book Mining Companies in companies governed by 7 Geo. 4, c- 46, p. 531 7 Wm. 4 & 1 Vict. c. 73, p. 535 8 & 9 Vict. c. 16, p. 536 by Companies act, 1882, p. 382 of past members, 460, 461 ■where limited to the funds of the company, 377 commencement of liability, 365, 394 duration of liability, 459 after the company is dissolved where company is not incorporated, 382 after surrender of shares, 738, et seq. where shareholders hav» been deceived by directors, 528. See Fhaud where shareholder has been induced to become such by the creditor su- mg him, 529 attempts to limit liability of, 376 limited by statute, 382 4. miscellaneous ex contractu, 365 ex delicto, 373 of directors. See Directohs on prommissory notes in various forms, 348, et seq. in limited company may be unlimited, 167 of promoters of companies, 390, 395, 580 et seq. See Promoters liability to contribute, not to be confounded with hability to creditors, 462 liability of agent who exceeds his authority, 366 liability of principal for torts and frauds of his agent, 297 liability of subscribers to companies, 240 et seq. retired shareholders, 460, 461 liability of shipowners in respect of each other's acts, 296, note {d) HabiUty for breach of trust in employing assets in the business of a partner- ship', 1060, 1062 liability of members of a corporation for debts contracted before incorpora- tion, 4 n. ■ continuing business after dissolution, 4 n. See, also. Limited Liability LIBEL on company by member, action lies for, 892 action by public officer for, 497 actions by partners tor, 480 on directors proceedings by company for, restrained, 1002 reports of directors to shareholders when privileged, 300, note (/) LICENSES, form of, when no evidence of partnership, 93 not taking out. See Excise Laws LIEN, of partners nature of, 679 et seq. consequences of, 680 to what property it attaches, 680 exists only on partnership assets, 681 exists as against all persons claiming a share in the assets, 681, 698, 699 prevails as against assignee or mortgagee, 698, 699 no lien on a partner's share for ordinary debts due from him to firm, 682 application of this last rule to companies, 682, 683 loss of lien, 683 1504 GENEEAL INDEX. 1167 LIEN — continued. of partners — continued. no lien of partnership is illegal, 683 of a firm, effect on, wliere a change occurs in the firm, 215 of co-owners, 683, 684 of company on share of member, 684 under particular statutes, 686 of banking firm on share of partner, 686, note (p) of one shareholder as against another, 684 for impaid purchase-money, on sale of shares, 716 on freight, 684, note [h) creditors of a firm or company have no Uen on its property, 654, 658 agreements for lien, 686 LIFE ASSURANCE COMPANIES, accounts to be laid before the Board of Trade, 813 LIMITATIONS, STATUTE OP, between partners, 963 as regards creditors, 965 estate of deceased partner, when discharged by, 1053 when a bar to an action for account between partners, &c., 963 time within which actions must be brought, 453 summary of rules relating to, 454 provisions of Mercantile law, amendment act as to, 458 merchants' accounts, 965 current accounts, 966 acknowledgment, 967 payment by receiver in an action, 967 cases of fraud, 455, 964 trust, 455, 964 act of one partner, effect of, 456 LIMITED COMPANIES, sorts of, 12, 382 security for costs by, 493 effect of omitting the word "limited," 384 See Companies LIMITED LIABILITY by statute, 382 introduction of, 8 unknown at common law, 376 attempts to introduce, 376 by stipulating that funds only shall be liable, 376 alluring statements as to, 194 exceptional liability, 384 right against funds, 380 members, 381 registering existiug companies with, 165 et seq., 177 LIMITED PARTNERSHIPS, 4, 383 etseq. LIQUIDATED DAMAGES, agreements for payment of, 871 LIS PENDENS, — ' plea of, 451, note {g) LIST OP SHAREHOLDERS See Register LLOYD'S BONDS, power of directors to issue, 271 "» 1505 1168 GENEEAL INDEX. LOANS by directora to companies, 777, 779, 780 by companies to directors, 553, 590 to one partner, of which firm has had the benefit, 361 to one partner, firm is bound, when, 269 by partner to fii-m, 779 contracts of loan compared with contracts of partnership, 22, 23, 45 et s q. at interest varying with profits, 37, 43 for share of profits, if fraudulent may constitute a partnership, 45 or if lender is not merely a creditor, 45 by executors of deceased partner to iirm, gives the estate no right to profits, 1071 And see Advances LOAN NOTES, 270, note (?) LOOKING ON, eifeot of, as a bar to relief, 902 et seq. LOSS OF CAPITAL, effect of, 223, 615, 807 a cause of dissolution, 223 how shared, 677, 807 LOSSES, stipulation against, 22 effect of notice of, by creditors, 376,377, 781 as to payment of, 38 — 54 attributable to one partner, 785, 784 adopted by firm, 784 how to be borne, 806, 807 See CoNTEiBUTiON; Paktneeship; Pbofits LUNACY of partner, effect of, as regards liability of himself and co-partners, 406 a cause of dissolution, 224 does not prevent a dissolution by notice, 226, 843 evidence of, 225 partner recovering from, entitled to take part in business of the firm, 994 LUNACY REGULATION ACT, 226 LUNATIC may be a partner, 88 service of notice of dissolution on, 226, 843 shares of, 663, note (s) transfer of shares of, 704, note {h), 705 entitled to sue for dissolution, 226 MAJORITY, powers of, 598 et seq. matters of ordinary business, 598 instances of what it cannot lawfully do, 604, 605 of members of corporate bodies. 608 as regards directory clauses, 827 agreements as to, 598, 838 to bind minority, 603 duty of, to hear minority, 600 to depart from regulations of a company, 600, 604 to accept a sm-render of share, 738, 739 to divide the company's assets among themselves, 885 to exclude minority from share of profits, 794 to adopt a fraud, 901, 902 1506 GENEBAL INDES. 1169 MAJORITY— continued. powers of to transfer business, 606 to apply for power to alter nature of company, 606, 607 to borrow money, 599 to take bill off file when filed by minority in name of company, 89&, note («) to sell shares of minority, 818 to forfeit shares, 745. See Fohfeiturb after a dissolution, 412 resolution of the majority present at a meeting is a resolution of the meet- ing, 548. See Meetings control of, 895 et seq. not interfered with if they are not doing what is illegal, 900 actions to control, 900 parties to, 883 et seq. actions by, to control minority, 902 parties to, 883 et seq. MALA PBOHIBITA and maid in se, 183 MALICE imputable to companies, 800 MALICIOUS INJURY, Liability for, 300 MANAGEMENT, interference as regards matters of internal, 895 et seq. of companies generally, 541 etseq. See, also. Companies ; Dikectoes; Injunction ; Majokity ; Meetings ; Shaebholdees of affairs of partnership, right to take part in, 540 companies, 541: MANAGER of company, effect of informal appointment of, 255 and receiver, appointment of, 1005, 1017. See Receiveb contract with, when binding, 248 MANAGING COMMITTEE, liability of members offer each other's acts, 56 See, DiEECTOEs ; Peomotbes * MANAGING PARTNER, interference with, by the court, 895 et seq., 993 MANDAMUS generally, 1036 to fiUup an office, 1087 to pay share of dividends, 1086 to register a transfer of shares, 1036, 1037 to produce books, &c., 1036 to make a caU, 628, 1036, 1037 to produce register, 1037 to appoint a public oflScer, 1037 to pay a debt, 1037 out of the funds of the company, 519, 520 MANDAMUS to afSx corporate seal, 1038 to remove corporate seal, 1038 to allow inspection of accounts, 1037 • to compel production of list of shareholders to creditors, 522, note (s) to correct register of shareholders, 142 • 1507 1170 GENERAL INDEX. MA.'NDkM.US— continued. to inspect register of shareholders, 522 note (s) court lias a discretion to grant or refuse, 1037 against Registrar of Joint Stock Companies, 163 may be granted by the Chancery Division. MANIFEST ERRORS, clause as to, So9 MARINE INSURANCE, partnerships and companies for, formerly illegal, 187, 188 agreements for, must be in writing, 87, note [a), 188 may be stamped after execution, 87, note (a) 188, and (m) MARRIAGE of female partner, dissolution of partnership by, 230 MARRIED WOMAN, capacity of, to be a partner, 84 may by a shareholder, 85 entitled to paid up shares may compel registration, 85 paj^ment of dividends to, 798 action by, for dividends, 1035 • under 7 Geo. 4, c. 46, p. 534, 535 as to right of, to vote, 549 married woman's property act, 85 when a partner under articles signed by her and her husband, 34 See, also, Husband MAXIMS, Accessorium seqiiitiir stinm principale, 977 Actio personalis moritur, cum persona, 1051 Culpa est immiscere se, rei ad se nonpertinenti, 757 Ex turpi causa non orititr actio, 203 Expressiim facit cessare taciturn, 817 Fieri non dehuitsed factum valet, 825 ' In pari delicto melior est positio defenclentis, 755 In re communi potior est conditio proMhentis, 598 In Socletatis coniractibiis; fidus exuberet, 569 Jiis accresceiuli inter mercatores locum non habet, 664 Nemo debet bis texari pro eadem causd, 451 Nemo potest mutare consilium suiim in alteriiis injuriam, 756 Modus et*conventio vincunt legem, 820 Omnia prcesumuntur rite esse acta, 254, 551 Protesiatio facto contraria non valet, 49 Qui sentit commodum setire debet et onus, 82 Respondeat superior, 298 Semper enimnon id quod privatim interest unius ex sociis servari solet, sed quod societati expedit, 572 Si quid universitati debetur singulis non debetur, nee quod debet universi- tas singuli debent, 4 Socius mei socii, socius meus non est, 54 Vigilantibus non dormientihus subveniunt leges, 902 MEDICAL PRACTITIONERS, partnership between, unqualified, 188 MEETINGS, attendance at, evidence of partnership, 97 of directors and shareholders, 545 under Compaaies clauses act, 556 under Companies act, 1862, p. 564 resolution of,' 545 stamp on, 552 making calls, 630 1608 GENEKAl INDEX. 1171 M-EmmGS— continued. notices of, 545 ordiriaary and extraordinary, 546 voting at, 548 by proxies, 549 minutes of, 550. See Minutes general and special, 546 irregularly convened may be valid, 829 adjourned, 546 majorities at, 548. See Majority absentees from, 550 first general, when to be beld, 560, 564 See, also, Companies; Directors; Shareholders MEMBERS of companies. See Conteibutoribs; Shareholders not its agents, 243 definition of, 170 '; for time being," 531, 532 list of, see Register of Shareholders of partnerships. See Firm; Partners MEMORANDA evidence of partnersbip, 97 MEMORANDUM of association, 168 effect of signature of by an infant, 82 when not members, 170 allottee of shares should ascertain contents of, 112 governs the articles if inconsistent with it, 169 MERCANTILE LAW AMENDMENT ACT, as to sureties, 214j as regards Statutes of Limitation, 458, 459 MERCHANTS' ACCOUNTS, provisions of Statutes of Limitation as to, 454, et seq. See also, Accounts MERGER of legal and equitable estates, 450 i of debts and securities, 450, et seq. by judgment, 451, 452 bills of exchange create no, 450 of joint and several obligations, 451 effect of, on securities for further advances, 452 as to joint bonds given for joint and several debts, 452 eiiect of, on creditor petitioning for an adjudication of bankruptcy, 452 MILITARY OFFICERS, liability of, 57 MINES, partnership in mining adventure, 88 mining partnerships in California, 1086 verbal agreements as to, 89 devisees of, how far partners, 652, 653 appointment of receiver and manager of, 62, 1013 as against mortgagee, 1013 account of profits of, 951 by assignee or mortgagee of share, 946 without dissolution, 951 laches a bar to relief concerning, 906 1509 1172 GENERAL INDEX. MlIiES— continued. part owners of, not partners, 61 transfer of shares in, 62 actions for supplies to, 147, note (/) shares in, wlien real estate, 674 sale of, on dissolution, 1015, 1017 cost-book, 146 See Cost-Book Miuma Company MINING COMPANY, not bound by bills of its directors, 267 shares in, not within Mortmain acts, 674 not within Statute of Frauds, 674 See Mines; Cost-Book Mining Company; Joint Stock Companies in THE U. S. MINING CUSTOMS not judicially noticed, 148 See Cost-Book Mining Company MINORITY, effect on, by majority adopting a fraud, 901, 902 always entitled to be heard, 600 action in name of company by, 899 when bound by majority, 603, 895 et seq. when not, 600 actions by, and against, 895, et seq. See, also. Majority MINUTES of meetings, effect of, as evidence, 550 under companies act, 1862 p. 567 proper mode of signing, 551 right to inspect books does not extend to" directors' minutes, 809 MISAPPLICATION OF MONEY, injunction to restrain, 901, 1001. See Injunction by one partner, liability of firm for, 302, et seq. MISCHIEF illegality of companies tending to, 193 MISCONDUCT, loss of right to contribution by, 755, 756, 770 a bar to injunction at the instance of the guilty party, 998 of partner, a ground for dissolution, 227 not at his instance, 229 degree of, 228 with a view to compel co-partners to dissolve, 229, 744, 950 injunction in cases of, 998 receiver in cases of, 1010 apportionment of premium in cases of, 74, 75 See, also, Directors; Injunction; Receiver MISJOINDER OP PARTIES. See Action; Parties MISNOMER. See Mistake MISREPRESENTATIONS, actions for, 923 et seq., 926 what will support, 924 must be material, 924 have been relied on, 924 known to party making it, 924 liability of company for, 317 et seq. partners for, 314 1510 GENEKAL INDEX. 1173 MISREPRESENTATIONS— coMfJ«MC(?. actions against directors for, 324 rescission of contract for, 923, 927 as to nature of business, 316 See, also, Pkaud ; Liability; Rescission op Conteaot MISTAKE, re-opening accounts for, 968 in registers. See Registers in nanie of firm, consequences of, as regards bills of exchange, &o. , 345 of directors as to their authority, 867 See, also, Foemalities ; Ieeegulaeitiks MONET, had and received, action for, would not he by one co-owner against anoth- er, 65, note (k) against corporation for, 352, note (/) lent, action by one partner against another for, 1030. ~ See Actioit power to borrow, 269 effect of having had the benefit of, 272, 329, note (z), 361 et sea. misapplication of, by one partner, liability of firm for, 302 "" injunction to restrain, 901, 1001. See Injunction trust, following, 313 employment of, in partnership business. See Breach of Trust; Liability MONSTER, partnership for exhibiting, 181 MORTGAGE, by one partner of his interest not ppr se a dissolution, 230 equitable, may be created or extended by parol, 215 by one partner on behalf of firm, 284 effect of change of firm, 214 by companies, 286. See Dbbbntuees of future debts, 271 uncalled capital, 271 of share, eifect of, on qualification of mortgagor, 544 MORTGAGEE, of partner, right of to account, 946 partner's lien prevails against, 698, 699 of mine, appointment of receiver against jjartner who is, 1013 of company governed by 7 Geo. 4, c. 64, rights of, against shareholders, 533 of share, position of, 664 liability of, to be made a contributory, 287 right to account, 946 MORTMAIN ACTS, _ shares not within, 673 railway debenture not within MULTIFARIOUS, one action for the administration of the estates of several partners, not necessarily, 1059 MUTUAL CREDIT, 503 See Sbt-opf MUTUAL INSURANCE COMPANIES when not partnerships, 57 not associations for purpose of gain, 166, note (x\ manager of, cannot sue on behalf of, 500, note (*), 875, note {g) pohcies must be in writing, 87, note (a), 188 may be stamped after execution, 87, note (a), 188 1511 1174: GENEEAL INDEX. NAME on doors, bills, &c., evidence of partnership, 97 of registered company, changing, 164, 177 incorporated company must sue and be sued in its, 492 of corporation, assuming, 192, note (Z) "limited," when to be added to, 384 carrying on business under name not one's own not illegal, 181 effect of not preventing use of, 410 of firm, 208 adoption of an express firm name, unnecessary, 208 use of an assumed corporate name, 208 may be used in actions, 207, 468, 876. See Actions against companies where no public officer, 498 judgment may be entered up in, 515 how execution issues, where, 516 a trade-mark, 210, and note (m) part of good-will, 861 right to use after sale of business, fee, 862 right to use after dissolution, 859 agreements as to, 832 contracts in, who should sue on, 475 et seq. what names may be used prior to the adoption of a firm name, 266 several firms with same, 341 bills of exchange in, liability of firm on, 340 et seq. effect of mistake in, 345 when unimportant, 346 of changing, 345 ' effect of use of wrong name, 345 liability of person using wrong name, 345 same as that of individual, consequence of, 342, 855 partner has no authority to bind the firm by a name not its own, 344 injunction to restrain use of, granted, 410, note {x) refused, 210 NAMES Copyright acts do not apply to, 211, note (a) NAVIGATION LAWS, breach of, when no defense to action for account, 203 NECESSITY, the limit of «ach partner's implied authority to act for firm, 238 extraordinary, power of partner in case of, 238 tested by nature of partnership business, 239 NEGLIGENCE, loss of right to contribution by, 783 of servants, liability for, 299 NEGOTIABLE INSTRUMENTS, See Bills of Exchange; Pkomissoby Notes NEGOTIOEUM GESTOR, 757, note {r) NET PROFITS and gross profits, distinction between, 16 See Profits NEW PARTNER, agreement as to introduction of, 851 effect of introduction of, on retired partner's liability, 444 See Incoming Partner NEW RIVER SHARES are real estate, 673 note («) 1512 GENEEAL INDEX. 1175 NEW SECURITY taken by creditor from continuing partners, when it affects his rights against retired partner, 440, 442, 449 NEWSPAPERS. See Adveetisembnt assignment of share by co-owner of, 699, note (m) injunction against publishing news m, 995, 996 effect of advertisements of dissolution in, 415 NEW YORK, civil code of definition of partnership in, 2 NEXT OF KIN. See Death; Deceased Paktner; Executors; Legatee NOMINAL CAPITAL of companies, 613 See, also. Capital NOMINAL PARTNER not Hable to creditors to whom he has not held himself out, 51 when to sue with others, 478 See, also. Holding-out; Ostensible Paetnek; Quasi-Pabtnbeship NOMINEE of rival company, actions by, 888 NON-JOINDER, of parties. See Action; Paetjies NOTES, issue of, by bankers, 185, iiote loan, 270, note (l) promissory. See Peomissoey Notes NOTICE of assignment of debts, shares, etc., necessary to take them out of the order and disposition of their assignor, 289 to one partner, when notice to the firm, 287 to companies, what is, 290 to director, when not notice to company, 290 when unplied through the company's books, 739, note {q) to shareholders, 290 to solicitor, 290 to clerks of fraud of partner, not notice to the firm, 289 of meetings, 545 under 8 & 9 Vict. c. 16, p. 656. See Meetings under Companies act, 1862, p. 565 that a person who holds himself out as a partner is not a partner, effect of, 48 of calls, how to be given, 632 to quit, may be given by one partner on behalf of firm, 481 of breach of ti-ust, effect of, 312 of want of authority, effect of, 325, 327, 334 of partners, 325, 327, 376 of directors, 334 of fraud on firm, effect of, 327 that one partner will not be bound by acts of co-partner, effect of, 325, 334, 376 of provisions of companies' deed, &c., public held to have, 252, 253 by applicants for shares of memorandum of association, &c., 112 of private stipulations of partners, effect of having, 331, 376 of stipulations of partners Umitiiig their liability, 376 determining- partner's agency by, 403 to dissolve partnership, 220, 842, 843 partnersnip at will, 220 1513 1176 GENEEAL INDEX. liiOTlC'E— continued. to dissolve — continued. under articles, 842, 843 when one partner is lunatic, 225, 843 withdrawal of, 222, 844 of dissolution or retirement necessity of, 406, 408, 415 when not necessary, 408 in case of death, 404 in case of bankruptcy, 405 in case of the retirement of a dormant partner, 405 stipulations as to, 844 right to give, 408 effect of, 408 where there is a continued holding out, 409 as regards acts necessary to wind up the partnership, 411 et seq. what amounts to, 220, 414 et seq., 844 how to be given, 414, 415 of forfeiture of share, 749, note {i) NOVATION, 485, 463 et seq. See Substitution of Debtors NUDUM PACTUM, sharing profits, not losses, not, 70 abandoning right to look to outgoing partner for payment of a debt of the firm, 438 NUISANCES, companies regarded as, 6 NULLA BONA, return of, to writ against company, where not sufficient to enable creditor to proceed against shareholder, 637 NUMBER_ of directors, invalidity of acts of an insufficient, 244 rules relating to, 542 of persons who may be in partnership, 76 NUESEET GROUNDS, conversion of, by being used as partnership property, 653, 670 OFFICIAL APPOINTMENTS held by a firm, 209 held by one partner, when partnership assets, 651 agreements as to, 833 OFFICIAL EETUENS, evidence of membership, 140 OLD CUSTOMERS, notice of dissolution, how to be given to, 415 OPPOSITION to bill in Parliament, agreements to withdraw, 898 et seq. OPTION to become a partner, 27 position of person who has, 851 as regards creditors, 27 to pm-chase share of partner, 841 when to be declared, 842 in case of lunacy, 225 note U) provision in articles as to, 842 1514 GENERAL INDEX. 1177 OITIONAL CLAUSES distinguislied from imperative and directory clauses, 824 et seq. ORDER. See Chaeging Order. ORDER OP DISCHARGE bars all calls, 641 ORDINARY AND EXTRAORDINARY MEETINGS, 546. See Meetings OSTENSIBLE PARTNER, notice of retirement of, how to be given, 415 liabOity of, to person who knows he has no interest in firm, 331, 333 See Holding out ; Nominal Partnek ; Quasi-Partnbbship OUTGOING PARTNER, agreements as to purchase of his share, &o., 841, 842 right of partner to retire from firm, 735 See, also. Retired Partner OUTLAWRY of partner, effect of, 80, 230 OUTLAYS AND ADVANCES, allowances for, 777. See, also. Advances ; Allowances ; Contribution useless, 765, 778 useful but unauthorized, 778 by partner on account of debts not due, 778, note {t) on separate property of one partner, 780 no allowance for expenses unless proved to have been incurred, 779 loans by directors, 777, 779, 780 lien for. See Lien of part owners for, 63, 67, 683—684 PAID-UP capital of companies, 614. See Capital conversion of into stock, 621 shares, what are, 614 when unpaid have been issued for paid, register corrected, 116 can be paid up not in cash when, 614 married woman entitled to registration, 85 issue of, when a breach of trust, 614 companies may agree to pay their debts in, 278, injunctions to restrain applications to, 606, 607, 884, 1002 application to, for extended powers, 280 to alter constitution of company, 606, 607 voting for members of, in respect of shares, 673 standing orders of, 154 opposition to biU in, 398 et seq. PARLIAMENTARY' CONTRACT, 155 effect of undertaking to sign, 119 PARLIAMENTARY DEPOSIT, when necessary, 155 PARSONS, . , ^ ^. „ his definition of partnership, 2. PARTICULAR PARTNERSHIPS distinguished from general, 55 shares in, presumptively equal, 675 et seq. See Partnership - r < r 1515 1178 GENEEAL INDEX. PARTIES to actions. See Abatement; Actions between partners, 877, et seq. for an account, 878 plaintifT in actions by partners, 467 defendant in actions against partners, 482, 483 to actions by and against the executors of a deceased partner, 878, 880 in chancery division, 485 necessity of making surviving partners parties, 878, 1068 by sub-partner, 878 for a dissolution, 878, et seq. actions by some on behalf, &c., 468, 880 representation by public officer, 881, 891 actions not seeking dissolution, 882 nor division of assets, 883 for an injunction, 880 to restrain payment of dividends, 887 of calls, 887 between partners and third persons, 466, et seq. to actions against partners for fraud, 486 between directors and shareholders, 882, et seq. to rescind contracts tainted with fraud, 879, 927, 935 any shareholder may sue to restrain an illegal act, 887 to restrain directors, &c., from improper acts, 883, et seq, by some on behalf of themselves and others when allowable, 468, 877, 880, 885, 889 to control majorities or factious minorities, 886, 901, 902 identity of interest requisite in, 887 plaintiffs on the record only regarded, 890 misjoinder of plaintiffs in, 890 company to be a defendant in, 885 frame of bills by, 887 where plaintiff has bought a share on purpose to bring an action, 889 between public officers and shareholders, 881, 891 to action to rescind contracts for the sale and purchase of shares, 879, 927 et seq. plaintiff nommee of rival company, 888 when trustee in bankruptcy of one partner a necessary party, 491 no action defeated for misjoinder or non-joinder, 467 PARTITION, not decreed instead of sale, 1015 agreement for, on dissolution, meaning of, 847 PARTNERS, who may be. See Capacity op Partners by holding out, 47 et seq. promoters of companies not, 31 who are and who are not. See Analysis of Contents, Bk. I., and infra, Paetnekship liabilities of, to creditors. See Analysis of Contents, Bk. II. and Bk. Bk. IV., c. 1, and Liabilities mutual rights and duties of. See Analysis of Contents, Bk. Ill, and IV., c. 1 rights and liabilities of, in the event of a dissolution. Ses Analysis of Contents, Bk. IV., c. 1, andBk. II., c. 2, § 3 bankruptcy of. See Bankruptcy deceased. See Deceased Partners dormant. See Dormant Partners incoming. See Incoming Partners infant. See Infant Partner lunatic. See Lunatic and Lunacy nominal. See Nominal Partners 1516 GENEEAL INDEX. 117-9 V A.RTNERS— co««mMe(?. ostensible. See Ostensib-lb Partners outgoing. See Outgoino and Ebtired Partner retired. See Retired Partner special agreements between. See Articles of Partnership; Implied Powers duties of, towards each other, not to be all found in partnership articles, 817 high standard of honor to be observed bj", 569. See Fraud; Good Paitit; Honor * actions between, 1024. See Actions execution against for debt of firm, 515 for separate debts, 687 See Execution property of, 642, et seq. See Bk. Ill, c. 4, and Property right of, to dissolve partnership. See Bk. I. c. 8; and see Dissolution lien of, 680. See Lien shares of. See Bk. III. c. 5, and Shares option to become, 29. See Option power to nominate, 28 number of, limits to, 76 may be registered as shareholders in the name of, 208 See, also, Partnership. PARTNERSHIP. See Quasi Partnerships; Sub-Partnbrships; General Partnerships; Co-owners; Illegal Partnerships. meaning of the term, 1 definitions of, 2 distinguished from corporations and companies, 4 distinguished from contracts of loan, 22, 23, 45 et seq. different sorts of, 12 et seq. what constitutes, 15, 17 et seq. not having gain for their object, 2, 3, note (o), 56 contemplated partnerships, 27 history of law of, et seq. contemplated, 26 et seq. as regards third persons, 83 et seq. See Bk. I. c. 1, § 2, and Quasi-Part- nership in profits not necessarily a partnership in the assets by which they are made, 20, notes what constitutes a, 15 etseq., 45 et seq. See Bk. I. c. 1 in profits only, 19-24 evidence of. See Bk. I. c. 4, 87 et seq. who may enter into, 76. See Capacity consideration for, 70. See Consideration general nature of, 206 et seq. See Bk. I. c. 7 prospective, 26 et seq. principles of agency as applied to, 236. See Implied Powers capitals of, 610. See Capital commencement of, 29 duration of, 218. Bee Bk. I. c. S. See Duartion of Partnership dissolution of. See Bk. I. c. 8, and Dissolution transfer of share in, 697. See Transfer of Shares retirement of partners from, 785 expulsion of partner from, 744 at will and for a tenn, 218 articles, 817 et seq. See Articles ov Partnership property of, 642 et seq. See Bk. III. c. 4, and Property nature of parkiers' interest in, 660. See Share general and particular, 55 _ _ in particnlar transactions, presumption of equality of shares in, 675 et seq. management of affairs of, 540. ' accounts, 800 et seq. See Accounts. 1517 1180 GENEEAL INDEX. PARTNERSHIP -continued. contracts of. See Contracts rescission of, 879, 927 et sea. _ speoiflc performance of, 914. See Specific Pbrformaitcb actions on. See Actions agreements for deed of, 830. See Ageeement illegal, 180—205. See Bk. I. c. 6 partnerships with common partners. See Connected Firms sub-partner,ship, 54 compared with co-ownership, 58 ' premiums paid for, 71. See Pebmiums books of. See Books induced by fraud, 927. See Peaud PART OWNERS, not partners, 58 et seq. lien of, 63, 66, 683 not each other's agents, 236, note (a) PART PAYMENT, effect of, as regards Statute of Limitations, 456 PART PERFORMANCE of contracts not under seal, 354 excludes operation of the Statute of Frauds on partnership contract, 87, PAST MEMBERS. See Rbtirtsd Shaeeholdes liability of, to creditors, 461 on winding up of cost-book mine, 147 persons whose shares have been forfeited liable as, 751 note (u) PATENT, agreements as to, 833 liability of company for infringement of, by its servants, 300 illegal partnerships in, 189 co-owners of, 68 PAUPER, transfer to, when valid, 701 PAWNBROKERS, illegal partnerships between, 189 PAYMENT See Appropkiation op Payments into Court, when ordered, 960 into Court, evidence of partnership, 98 when a defense to an action for an account, 971 mandamus to compel, 1037 by one partner when not allowed as against the firm, 783 effect of, as regards the Statute of Limitations, 456, 457 of his private debt with partnership funds, 277, 295 to one partner, 275 of debt not due to firm, 276 to surviving partner discharges payer, 665 note (e) receipt for, not conclusive evidence of, 276 by taking bill, 277 to agent by bill drawn in his name, 277 termination of habiUty by, 418 imputation of, 418 et seq. See Appropriation op Payments of dividends, 790 et seq. See Dividends by Paymaster-General to one partner, 276, note {g) in paid-up shares by company, 278 to one of several trustees no discharge, 411 note (c) by receiver, 967 . 1518 GENERAL INDEX. 1181 PENALTIES. reservation of, in partnersMp articles, 871 action between partners for recovery of, 1026 power of one partner to bind firm in, 290 prohibitions under, 184 PERSONAL ESTATE, partnership realty when treated as personalty, 667 when not, 672 shares are, 667, 673 PERSONAL SERVICES, partner cannot charge for, 774 PERSONS capable of, being partners, 76 their number, 76 their capacity, 77 PETITION to reduce capital, 619 PHYSICIANS, partnership between unqualified, 188 PLEADINGS. See Actions; Pabtibs in actions for calls, 1033 how partnership should be alleged, 26 PLEDGE of partnership goods for private debt, 330 power of one partner to bind firm by, 284 after dissolution, 412, 413 redemption of, 285 POLICIES OF INSURANCE, payable out of funds of company, 381 issued irregularly, company when bound by, 255 in mutual societies, 188, note (m) married woman may effect, for her separate use, 84 action on policy payable out of funds of unincorporated company, 382 Sep, also. Marine Insurance POLICY-HOLDER, position of, where companies amalgamate, 381, 463 cases where the company was discharged by, 463 where not, 464 not a creditor, 463 action on policy payable out of funds of company, 382 rights of, gone after valid transfer, 465 power of, to prevent transfer of company's assets, 380, 381 POLL, right of shareholder to demand, 549 POOR LAW GUARDIANS not bound by unsealed agreement, 354 POTHIER, his definitions of partnership, 3 POWERS conferred by articles of partnership, must be construed with reference to ob- ject of firm,- 818 of directors, 244. See Directors 1519 1182 GENERAL INDES. POWERS— confinued. of majorities, 598. See Majoeities of partners, 236. See Implied Powers of expulsion, 744 exercise of, 820, 846 to nominate partner, 28, 862 to forfeit shares, 745. See Forfeiture of attorney construction of, 266, and see Harper v. Godsell, L. R. 5 Q. B. 422 to tranfer shares, effect of forgery of, 301 directors are trustees of their, 587 et seq. PRACTICE. See Judicial Proceedings of partners, importance of, 822| of company, importance of, 822 PRECEDENTS ' of decrees for account, 972 PRE-EMPTION, clauses giving rights of, 842 when the partnership is continued after expiration of the term, 823 note (&) PREFERENCE SHARES, nature of, 662, 796^ injunction to restrain issue of, 1001 rights of holders of, 796 entitled to priority in payment of capital when, 797 note (fir) injunction for protection of holders of, 901 in companies governed by 8 & 9 Vict. c. 16, p. 618 when companies can issue, 621 PRELIMINARY EXPENSES of forming companies, 118 liability of companies for, 395 where company abortive, 118 return of deposits paid for, 120 PREMIUMS payment of bonus not a bar to a dissolution, 221 apportionment of, 71, 75 obtained by directors at the expense of companies, 587 et seq, recovery back of, 71 et seq., 221 in cases of fraud, 71 where consideration has failed, 72 where partnership ceases sooner than was expected, 72 in event of bankruptcy, 74 lunacy, 74 disagreements, 74 misconduct, 75 what sufficient, 75 where neither partner is to blame, 72 where no time for continuance of partnership was fixed, 73 where for a term, 73 amount to be returned, 75 PREROGATIVE of crown as regards forfeited shares, 661 PRESENTS to directors, 588 PRESUMPTION of equality of shares, 781, 794 that formalities have been observed, 247, 254, 551 1520 GENERAL INDEX. 1183 PRICE to be charged by one partner in account with, firm, 576 PRINCIPAL, one partner holding himself out as, 479, 483 not bound by a contract known to be fraudulent, 298 See A&ENCY and Agent PRIVATE STIPULATIONS of partners, eifect of having notice of, 331, 332, 333 PRIVITY OP CONTRACT between vendor and purchaser of shares on the Stock Exchange, 726 See Sale ov Shares PROBATE DUTY payable iu respect of shares, 1077 when bequeathed for hfe, 1077, 1078 PROCESS, service of, upon partners, 473 PRODUCTION OP BOOKS AND DOCUMENTS. See Books; iKSPECTioit rules as to, 958 . mandamus to compel, 1037 of books of account, 809, 810 directors denying possession, 958 to professional accountants, 959 in constant use, 959 of rival company, 959 note (n) of corporations, 959 PROFITS, agreement to share, see Book I., c. 1 the basis of a partnership, 18 without sharing losses, 19 et seq. iu Keu of salary, 19, 20, 787 specific performance of, 916 annuities payable out of, 853 when no profits are made, 853 annuities in lieu of, 36 salary varying with, 19, 29, 39, 787 community of, a test of partnership, 19 ef seq. liability incurred by sharing, 83 et seq., 1060 note [ij origin of rule that those who share profits are liable to losses, 34 modem alterations in the above rule, by the judgment in Cox v. Hickman, 38 more recent decisions, 39 et seq. act of 28 and 29 Vict. c. 86, p. 43 distinction between sharing, net and gross profits, 15 profits and gross returns, 16, 36, 37 profits and payments varying with them, 37 partnerships in profits, 19, 20, 21 ,,,.,„ , not necessarily a partnership m the assets by which they are made, 20 note {n) division of, 790 whilst debts are unpaid, 598, 599 pajTuent of, out of capital, 792 what divisible as, 791 altering principles of division of, 604 exclusion of partner from shares of, 794 derived by use of partnership property belonging to firm, must be accounted for to the firm, 571 et seq. 96 1521 1184 GENERAL INDEX. VROYITS— continued. derived by directors by usp of companies' assets must be accounted for, 538 of sale or issue of shares when, 588, 589 of bonuses and commissions on sales, 589, 590 by transacting business, 591 directors' liability for, when joint and several, and when several, 595 partner not entitled to derive profit at expense of firm, 571 et seq, account of, 805. See Account since dissolution, 853, 976, 1070 et seq. where the capital is lent at interest, 976 where the traders are not trustees, 977 where they are trustees, 978 where some of the traders are trustees, 978 liabUity of trastee sharing profits, 978 not sharing profits, 979 liability of partners, not trustees, 979 rights of legatee against executors who are surviving partners, 983, 985, 989 may take interest at 5 per cent or profits, 986 when share of deceased partner is not got in, 976 co-owners sharing. 24, 25 servant paid by share of rights of, 787 if not drawn do not necessarily bear interest, 787 See also. Dividends; Losses PROHIBITORY CLAUSES in articles of partnership, 837, 838 PROJECTORS of company making profit out of it, 580 ei seq. See Pkomotbrs PROMISE by one partner to pay debt, 278, 456 effect of, as regards the Statute of Limitations, 456, 457 to one partner to pay debt, 278 note {x} by creditor to discharge retired partner, 488 to pay out of certain funds only, effect of, 377 by one partner to provide for bill of exchajige, 282 PROMISSORY NOTES, liability of partners on, 340, 348 when given after dissolution, 408, 440, 441 effect of form of, 331, 336 et seq., 348. power of one partner to bind firm by, 266. See Implied Powebs power of directors to bind company by, 350 authority to transfer, 268 joint and several liability, on, 348 action on by one partner against another, 1027 by partners, 476 injunction to restrain negotiation of, 997 note (g) issue of, by bankers, 186 instruments held to be, 348 et seq. how to be made by companies, 360 given by continuing partner, when binding on retired partner, 407 do not merge debt, 450 See Bills op Exchange PROMOTERS OF COMPANY actions between, 1021 against for recovery of deposits, 120, 953, 1019 1522 GENERAL INDEX. 1185 PROMOTERS OF COMPANY not partners, 31 not impliedly liable to each other for services, 32 note (k) observations on liabilities of, 54 liability of, for acts done before they become promoters^ 390 personally hable on contracts entered into for companies not formed, 368 liability of companies for acts of, 368, 394, 895 subscribers for acts of, 241 specific performance of agreements between them and companies not de- creed if tainted vyith want of good faith, 586 liability of, for each others' acts, 54 not each other's agents, 241 effect of admission by one as against the others, 96 note (m) not entitled to profit at the expense of the company, 580 et seq. sales by, to companies, when not valid, 581 et seq. contribution between, 1022 contracts with, must be referred to in prospectus, 115 who are, within § 38 of the Companies' Act, 1867, p. 116 PROOF. See Evidence of partnership, 87 et seq. PROOF OF DEBTS against bankrupt partner, does not preclude creditor from havmg recourse to the estate of deceased partner, 446, 1058 on administration of estate of deceased partner, 1053, 1055 by secured creditors, 1057 PROPERTY of partners, 642 joint estate, 643 property paid for by the firm, 643 where, not, 645 secret benefits obtained by one partner, 645 ships, 644 good will, 647 money paid to one partner for his exclusive benefit, 645 property acquired after dissolution, 646 nature of partners' interest in, 660. See Shakes devolution of, in case of death of partner, 664. See Death to what extent personal estate, 667 separate estate, 648 , , . i that which produces partnership profits may belong to one partner only, 648 . -i ^ i.- property used for partnership purposes not necessarily partnership property, 648 property bought with the money of the firm, 643, 649 agreement of partners the true test, 649 appointments, 661 stock in trade, 649 furniture, 649 lease, 650 houses buUt on pai-tnership property, 650 lands farmed in common, 652 joint-tenants partners in profits, 652 devisees of a trade and of land for the purpose of carrying it on, 653 devisees of mines, 653 land acquired for the purposes of trade, 653 conversion of joint estate into separate estate, and mce versa, 654 et SCO • agreement of partners sufficient, 654 dealings between one partner and the firm, 655 ^^ -„„ 1523 1186 GENERAL INDEX. VROFEKTY— continued. of partners — continued. change of property on change in firm, 656 agreement for, must be executed, 657 effeot.of fraud, 658 belonging to firm, profits derived by use of, must be accounted for to the firm, 576 sharing produce of, 36, 37 sale of, on dissolution, 847 actions between partners relative to. See Actions of the firm, agreements as to. 832 lien on. See Lien use of, evidence of partnership, 98 of company, what is, 643, 647 fund to guarantee dividends is, 797 PROSPECTIVE calls, 630 _ partnerships, 831 PROSPECTUS of companies, nature and effect of, 100 basis of agreement to take shares, 100, 106 et seq., 938 et seq. mis-statements in, effect of, 935 et seq. See Fraud exaggerated statements in, 939, 940 fraud must be clearly proved, 940 ■waiver of right to rescind, 924 ^vhere plaintiff might have learned truth, 929 fraudulent, 115, 935 when to be deemed to be under Companies' Act, 1867, p. 115 company not liable for, 323 what contracts must be noticed in, 115 not adhered to, 106 notice of departure from, 112 effect of changing scheme as set out in, 106 et seq. departure from, sanctioned, 109 PROTEST, effect of, as regards laches, 907 PROVIDENT SOCIETY, 1489 how sued, 495 note (6) PROVISIONAL COMMITTEE MEN. See Peomoteks liability of, for each other's acts, 241 for acts done before they became such, 390 PROVISIONAL REGISTRATION, 178 PROXY, voting by, 549 under Companies act, 1862, 566 an act of membership, 131 PRUSSIAN CODE, definition of partnership in, 3 PUBLIC, mode of giving notice of dissolution to, 408, 414, 415 bound to take notice of the powers of directors, 252 memorandum of articles of association, 112 See Notice PUBLIC COMPANIES, what are, 14, 695 1524 GBNEEAi INDEX. 1187 PUBLIC OFFICERS, 495 et seq. appointment of, under 7 Geo. 4, c. 46, pp. 499, 874, 891 under 7 WiU. 4 & 1 Vict. c. 73, p. 500 actions by and agaiast, 495 et seq., 891 when they must sue and be sued, 495 et seq. on bills and notes, 496 foiflibel, 497 by person assuming to be, 498 when empowered to sue by colonial legislature, 154 note (a), 495, note (c) ^ cannot petition for bankruptcy, 496 actions by, against shareholders, 873, 874 for calls, 892 note (e) affidavits by form of, 499 actions by and against, 495 et seq., 881, 891 against by shareholders, 891 for dissolution, 881, 891 of banking companies, actions by and against, 495 et seq., 873 powers of, 497 of .industrial and provident societies, 495 note (6) execution against, 531 entitled to indemnity from shareholders, 782 mandamus to compel appointment of, 1037 change of, effect of on pending action, 498 bankruptcy of, effect of, 499 may be inten-ogated, 500 where none, company may be sued by its name, 498 PUBLIC POLICY, partnerships opposed to, 181 PUBLISHER AND AUTHOR, 21. See Author and Publisheb PUFFENDORP, his definition of partnership, 3 PURCASER of shares in companies, when a shareholder, 126 must indemnify seller, 713, 725 et seq action by, against seller, 718 seller against, 719 damages recoverable against, 719 in company being wound up, 709 effect of fraud on, 716 position of, when transfer is in blank, 705, 706, 719 when transfer is forged, 707 when transfer is complete, 708 through broker, bound to indemnify him, 731 duty of, to seller, 713 rights of, against company, 708 against seller, 726, 727 liability of, to be made a contributory, 709 of share of partner sold under a,fi. fa., 661, 690. See Exbcutioit of business of companies, 295 See, also, Sale of Shares PURCHASES OF GOODS by one partner for firm, 290 for re-sale and division of produce, 60 1525 1188 GENEEAL INDEX. PURSER in cost-book companies, 147 can sue for calls, 148 note (g) actions by and against, 495 See Cost-Book Mining Companies QUALIFICATIONS of dii-ectors, 543 liability to account for, 590 QUARRELS, dissolution in case of, 228 inferred from, 222 injunction in cases of, 998 QUARRIES, •who are partners in, 61 QUARRY WORKERS, one of a firm of, has no power to bind others by bills, 267 QUASI-PARTNERSHIPS, 33, 54 meaning of, 17 evidence of, 91 et seq. by sharing profits, 33 distinction between sharing profits and gross returns, 36, 37 distinction between sharing profits and payments varying with them, 37 recent alterations in law as to, 38 et seq. by holding oneself out as a partner, 47 et seq. , eft'eot of doctrine on deceased partners, 1060 effect of knowledge that a person who holds himself out as a partner is not a partner, 48 effect of fraud, 49 what constitutes a holding out, 49 where name is concealed, 49 holding out must be to the plaintiff, 50, 51 authority to hold out, 50, 52 holding out by survivmg partner, 52 application of doctrine to inchoate partnerships, 52 holding-out, a question of fact, 52 See, also, Holding-odt QUIT, notice to, given by one partner, 1024 on behalf of firm, 48l QUORUM, vaUdity of acts not done by a, 246, 829 of directors, 542 RACE-HORSE, co-owners of, not partners, 25 RAILWAY, injunction to restrain making part of, 1001 injunction to restrain making of unauthorized, 604, 605, 1001 RAILWAY COMPANIES, Habilities of, for acts of promoters, 890, 395 rolling stock of, protected from execution, 518, note (q) embarkmg in coal trade, 605 1526 GENEEAL INDEX. 1189 RAILWAY COM-PAmES— continued. shai-es in, not within Mortmain acts, 674 Statute of Frauds. 674 See Companies Govbknbd by 8 & 9 Vict. o. 16 RATIFICATION, by a firm of the act of a partner, what amounts to, 259, 262 knowledge essential to, 260, 289 of change of scheme of company, 109, et seq. by companies of acts of directors, 258 when valid, though not under seal, 262, 263 of contract not under seal, 355 by directors, 261 when a ratification by company, 259, 260 when not, 261 in cases of fraud, 261 by firm, of guarantee, 281 by partners, effect of in settling accounts, 784 by infant, 82, 1356, et seq. • of past acts not equivalent to authority for future, 261 READINESS AND WILLINGNESS to transfer shares sold, 718 REAL ESTATE, actions between partners relating to, 1023 of firm, devolution of, in case of death of partner, 664 treated as personalty, 667 shares not, 673, 674 * when partnership property, 644, 651, 652 RECEIPTS of one partner, when binding on firm, 276, 303, 472 >not conclusive evidence of payment, 276 by surviving partner discharges debtor to firm, 665, note (e) RECEIVER, object of having a, 1005 cannot carry on business unless appointed manager, 1005 when appointed, 1005 in actions not seeking a dissolution, 1005 receiver and manager, 1005, 1006, note (1) defendant entitled to, before decree, 1010 not refused because no dissolution is prayed, 1006 difference between granting an injunction and appointing a receiver, 1007 appointment of, operates as an injunction, 994 effect of payment by, on Statute of Limitations, 967 delivery of partnership books to, 1014 refused, though an injunction is granted, 1007, note (o), 1010 on ground of laches, 907 against creditor of solvent partner at suit of trustee in bankruptcy, 1009 executors, 1009 partners, 1008 non-partners, 1008 surviving partner, 1009 note {t), 1010 a mortgagee, 1013 influence of the number of partners on the appointment of, 1009 grounds for the appointment of, against a partner, 1010 agreement, 1010 misconduct, 1010 fraud, 1011 exclusion of co-partner, 1012 where partner excluded is also a mortgagee, 101 8 1527 1190 OENEEAL INDEX. 'RECEl'VE'R— continued. grounds for the appointmevt of, against a partner — continued. > denial of partnership, 1012 relying on illegality of partnership, 1012 compensation of, 1013 of mines, 62, 1013 in case of lunacy, 1013 appointment of partner to be receiver, 1013 order appointing receiver, 1014 interfenng with, 994, 1014 right of arbitrator to appoint, 870 appointment of, on breach of agreement as to getting in debts, 865 action by, for Escovery of money to be distributed by him, 1032, note {m) RECITALS in releases, importance of, 434 evidence of partnership, 98 RECORD, suggestion on.. See Scibb Farias RECTIFYING register of shareholders. See Register of Shaebholdeks REDEMPTION, implied power of partner to redeem, 285 REDUCTION OP CAPITAL, 558, note (o), 567, 619 cannot be made except under the acts 1867 and 1877, pp. 559, 619 REFERENCE to arbitration, agreements for, 868. See Akbitration ' action on, 868, note ( j?] REGISTER OP SHAREHOLDERS, general remarks on, 138, et seq. evidence of claims to be on, 139 correction of, 142, 171. 1038 in case of cost-book companies, 174, 175 damages for exclusion from, 174 mandamus to compel company to remove seal from , 143 produce, 522 note (s), 1036, 1037 COTrect, 142, 1037 injunction against continuing names in, 142 action for improper exclusion from, or insertion in, 144, 145 effect of sealing, 158 eilect of having name in estoppel by, 141 as evidence of membership, 139 — 142 as regards liability to creditors, 50 share ledger is not, 140 right of company to put person on, 127, 131, 145 to alter, 144 right of married woman to be on, 85 in several volumes, 158 of companies governed by 8 & 9 Vict. c. 16, pp. 155, 156 eifect of, 156, 160 mistakes in, 157 irregularities in, 157 not conclusive, 158 improper entries in, 159 correcting, 160 does not estop company, 160 1528 GENEEAL INDEX. 1191 REGISTER OP SHAREHOLDERS-conimwecZ. of companies governed by Companies act, 1862 form of, 171 correction of, 171 et seq. without an order 173, note (ji), 175 mspection of, 175 of cost-book mines, 148 REGISTERS, if used as evidence by a company must be properly kept, 140 what inaccuracies in, unimportant, 140, 157, 158 entries in, when evidence of partnership, 93, 98 of transfer of shares. See TnANSPEK of Shakes effect of omitting numbers of shares from, 140, 158 share ledger is not, 140 REGISTERED COMPANIES, formation of, 163 change of name of, 164 See Companies Governed by the Companies Act, 1862 REGISTRAR of joint stock companies, 163 certificate of, 163 mandamus to, 163 REGISTRATION of companies generally, 163 et seq. effect of, 163, 164 certificate of, 163, 164, 169 under same names, 164 when necessary with reference to number of members, 163 cancellation of, 163, 164 under 7 & 8 Vict. c. 110, p. 178 under 19 & 20 Vict. o. 47, p. 179 under Companies act, 1862, p. 163 ef seq. when compulsory, 165 impossible, 166 optional, 167 ' with hmited liability, 167, '169 of companies formed under the act, 167 of memorandum and articles of association, 168 company may be registered although members are foreigners and the business abroad, 167 of companies not fonned under act, 177 of existing companies as " limited,'' 384 consequence of non-registration, 196 ^ of cost-book companies, 149, 160 ~ of shares, 138, et seq. See Register of Shareholders of mortgages by companies, 286, note [k) of firm as shareholders, 208 as owners of comply right, 208 guaranteed effect of^ m. jobbers' ag^ brokers' liability, 725. See Sale of Shares of judgment against companies, 522 REGULATIONS OP COMPANY, departure from, extent to which creditors are affected by, 136 effect ofnot4oinplyingwith, 124 «< seq. waiver of compliance with, 136 et seq. public bound to notice, 252 distinction between imperative and directory, 824r-830 1529 1192 GENERAL INDEX. RELEASE, setting aside, 293 must be set aside before account stated is re-opened, 969, 970 a defense to action for account, 971 by one partner, 293 of one partner, effect of, 433, 437 effect of recitals in, 434 by removing seal, 434 by arrest, 434 by merger of securities, 450 by substitution of debtors, 435 of drawer of biU, does not discharge the acceptor, 434 in form, held to be only a covenant not to sue, 433 evidence of partnersliip by a, 98 RELIGIOUS SOCIETIES, unincorporated, liability of, 57 REMOVAL of directors, 544 of seal, release by, 434 REMUNERATION, for services, 774 alter dissolution, 775 RENEWAL OP LEASE by one partner, inures to benefit of firm, 574 RENT, action for, by one partner against another, 1028 power of one partner to distrain for, 279 REPORTS, liability of /company for fraudulent, 317 et seq. when not imputable to company, 319 et seq. See Praud ; Peospectus when not libelous, 300 REPRESENTATIONS of directors, liability of company for, 294, 317. See Fraud of one partner, when binding on firm, 314 et seq. by partner that debt is due, effect of, on liability of firm, 456 by one partner that he is acting for himself alone, effect of, 483 by one partner as to the extent of his authority, 315, 326 by creditor to shareholder that he would incur no responsibility, effect of, 530 as to nature of business, 316 REPUDIATION of partnership induced by fraud, 923 et seq. of shares, where scheme has been changed. 111 et seq. when in time, 113 when too late, 104, note (e). 111 et seq,., 114, 924 et seq, by infant, 81 REPUTED OWNERSHIP, 289 RESCISSION OP CONTRACT of agreement for a partnership, how proved, 92 on the ground of fraud, generally, 923 et seq. in toto or not at all, when, 587, note (r), 925, 942 where a third party intervenes, 925 not for every fraud, 923, 924 exaggerated description, 939, 940 fraud must be on some material point, 924, 937 1530 GENERAL INDEX. 1193, RESCISSION OF COliiTRkCT— continued not for every fraud — continued. and be clearly proved, 940 and liaveH)een relied on by the plaintiff, 924, 938 et seq. not because prospectus fraudulent within § 38 of Companies act, 1867, p. 116 prospectus departed from, 106 et seq. prospectus not relied on, 939 loss of right to rescind. 111, 905, 924 'bad bargains not set aside except for fraud, 930 of contracts of partnership on the ground of fraud general right to, 927 et seq. instances of plaintiff suing for dissolution in the ilternative in the case of ordinary partners, 927 subscribers to bubble companies, &c,, 935 etseq. though plaintiff might have ascertained the truth, 929 of contracts for the sale of shares, 942. See Sale of Shares of severable contract, 942 of bargains between outgoing and continuing partners, 931 of bargains between surviving partners and the executors of a deceased partner, 932 on failure of consideration. See Consideration company abortive, 118 by infant, 81 And see Fraud ; Contract; Prospectus; Repudiation RESOLUTIONS of meetings, 545 special, 567 making calls, 630 of corporation not equivalent to sealed contract, 352, 358 RESTRAINING ORDER under 5 Vict. cap. 5, p. 697 RESTRAINT of trade, 857 RETAINER of solicitors, as evidence of partnership, 92 note [p) by surviving partner executor of deceased, of balance due on the partner- ship account, 935 RETIRE, right of partner to, 935 shareholder to, 736 under Companies act, 1862, p. 737 when power to, is no answer to dissentient shareholders, 602 RETIRED PARTNER, actions by and against, 488 liability of, to creditors, 438 et seq. not discharged by creditor continuing to deal v?ith remaining partners, 438 where new partner introduced, 441 when discharged by creditor continuing to deal with remaining part- ners, 4.36, 443 by fraud, 445 by payments made by the continuing partners, 423, 446 consideration for discharge, 438 as to past acts, .417 for acts done since his retirement, 408 by holding out, 409 when no affected by notice given to others, 289 right of, to indemnify from the continuing paitnras. 867 See, also, Articles of Partnership 1531 1194 GENEEAl INDEZ. RETIRED SHAREHOLDER. See Past Members calls on, 667 duration of liability of, to creditors, 461 when retirement is informal, 136 dm:ation of liability to contribute to debts, 460 under act of 1862, p. 737 ■when liable as a contributory although his shares have been forfeited, 751 See Fokfeituek: Past Membbes; Surebndbe of Shares; Teanspek oe Shaebs RETIREMENT of partner, agreements as to, 840 effect of, on liability, 405 See Retiebd Partner dissentient partner not bound to retire, 602 right of, from partnership, 735 from company, 736 , of shareholder compared with refusal to accept shares, 741 See Aeticles op Partnbeship; Rescission op Contract; Specific Performance RETROSPECTIVE, articles, effect of, 96 partnership, 831 RETURN of premium, 71 et seq. of subscription to company, 117 et seq., 953 RETURNS, OFFICIAL, to be made under the Letters Patent act, 153 under the Life Assurance Companies act 1870, p. 814 by banking companies governed by 7 Geo. 4, c. 46, p. 161 by companies governed by act of 1862, p. 175 by bankers, 185 of names of shareholders considered as evidence, 138 et seq. REVENUE LAWS, breach of, by one partner, effect of, 299 illegality of partnership infringing, 184, 189, note {t) contribution in cases of breach of, 771 REVOCATION of broker's authority to buy shares, 731 of agent's authority, effect of, on his right to indemnity, 756 of paj-tner's authority, 327 of application for shares, 101, 102 after acceptance posted, too late, 102 , of submission to refer, effect of, 869 RIFLE CORPS, liability of officers of, for clothing of, &o., 57, note (p) RIVAL COMPANIES, interference between, 888 action, by nominees of, 888 use of same name by, 210 actions between, 888 RIVALRY between partner and firm, 576 et seq. 1532 GENEEAIi INDEX. 1195 ROLLmG STOCK of railway companies protected from execution, 518, note (q) ROUGH SHARE BOOK no evidence, 158 RUTHERFORD, his definition of partnership, 3 SALARY varying with profits, 19, 20, 43. See Wages; Peofits share of profits in lieu of, 19, 20 partner's right to, for extra work, 774 director's right to, for extra work, 776 SALE by one partner, when binding on firm, 295 when actionable by co-partner, 1030 by solvent partner, 1031 ■when made after dissolution, 411 by partner to firm, 572 et seq. by promoters to companies, 581 creditors of companies cannot prevent sale of its assets, 658 action between partners for share of produce of, 1031 of business, effect of, on vendor's right to carry on the business sold, 860, 1018 of company, 295 on dissolution partner's right to, 1015 decree for, 1015 when dispensed with, 1016 agreement as to, 1016 mode of selling, 1017 valuation of unsaleable appointments, 1018 directed before hearing of the cause, 1018 of shares of partners what passes by sale, 698 rights of purchaser, 698 causes a dissolution, 229, 698 under fl.fa., 687 may be by private contract, 689, note (c) since the Judicature acts, 692 duty of sheriff, 638 right of purchaser, 690 position of execution debtor, 691 of shares in companies in banking companies, 711 in liquidation not illegal, 714 agreements for, 720 — 735 where company illegal, 198 stamp on, 705 vendor's obligations, 712, 725, et seq. duty to procure transfer, 712, 726 title to be shown by, 712 whether to transfer to purchaser's nominee, 715 purchaser's obligations, 713, 725, et seq. to prepare transfer, 715 lien of vendor for unpaid purchase money, 716 tender of transfer, 718 transfers in blank, 719 fraudulent sales, 716, 942 fraud by the seller, effect of, 717 on the seller, 717 1533 1196 GENERAL INDEX. SALE — continued of shares in compames — continued. sale by auction, 718 actions by vendor, 719 actions by purchaser, 718 damages recoverable when contract broken, 719 specific performance of contract, 720 > relief where directors wUl not sanction transfer, 720 rescission of, 942 time for completing transfer, 727 right to indemnity, 720 effect of, on liability to pay calls, 637. See Calls effect of, on liability to be made contributory illegal sales, 198, 710, 735 gambling sales, 710 on the Stock Exchange, 721 et seq. rules and customs regulating, 721 et seq. nature of contract between the vendor and purchasing broker or jobber, 723, 729 et seq. jobber's liability, 723, 729 et seq. for passing name of an infant, 723, 729 where name is not objected to, 724, 729 where transferee does not get registered, 724 where registration is guaranteed, 725, 729 broker's liability, 723 et seq. contract between vendor and his transferee, 725 et seq. privity between when it arises, 726 position of vendor and undisclosed and intermediate purchasers, 728 et seq. liabihty of beneficial owner to vendor, 728, 730 broker's liability, 730 et seq. duty of selling broker, 730 buying broker, 731 for buying what he is not directed to buy, 731 revocation of broker's authority, 731 broker's right to indemnity, 731 not if in default, 732 broker's charges, 734 illegal purchases and sales by brokers, 735 director sellmg his own shares as unallotted shares commits a fraud, 942 See, also, Puechaseb; Skllek of Shakes; Tkansfbr of Shares SALT AND ALKALI COMPANY , , not bound by bills, etc., of its directors, 268 SALVAGE COMPANY not bound by bills, etc., of its directors, 267 SCIRE FACIAS, nature of, 520, 523 irregular, 524 concurrent against several shareholders, 524 against shareholders when necessary, 520, et seq. judgment on which it is founded, cannot be impeached, 526 except for fraud, 527 where recourse must be had to the company before issuing execution against shareholder, 536 applications for rule for, 525 after elegit, 525 by creditor whose right is limited to company's funds, 530 fraud by creditor a defense to, 529, 530 fraud by director no defense to, 528 1534 GENEEAL INDEX. 1197 SCIRE FACIAS— continued. against shareholders in companies governed by 7 Geo. 4 c. 46 pp. 521, 531 7 Wm. 4 & 1 Vict. c. 73 pp. 521, 535 7 & 8 Vict. 0. 110 p. 521 7 & 8 Vict. c. 118, p. 521 8 & 9 Vict. c. 16, pp. 521, 536 et seq. Companies act 1862, p. 521 in other companies, .539 against shareholders who have not complied with formalities, 534 plea in abatement, 524 to repeal charter, 151 note [d) SCRIP, nature of, 123 calling in of, 124 calls on allottees of, 625 specific performance of agreement for sale of, 720 purchaser of, liability of, to seller, 707, note (6) certificate, 128, 124 what is, 123 stamp on, 128 may become transferable by delivery by usuage, 124, 709 companies, 128 legality of, ly4 under Companies act, 1862, p. 196 mode of transferring shares in, 704 holders caUs on, 625 converted into shareholders, 124 registry of, as shareholders, 124, 159 rights of, 123, 124 transfer of, 123 SCRIVENER solicitor not, 307 SEAL OP COMPANY, necessity of, to contracts by companies, 352 ez seq. persons conducting company's business, have authority to use, 356 when not necessary to bind company, at common law, 352 et seq. by statute, 856 et seq. 8 & 9 Vict. c. 16. p. 357 Companies act 1862, p. 859 contract under, binds company, though entered into irregularly, 249 et seq., 258, 829 removingfrom deed, effect of, 434 any, affixed by proper authority is sufficient, 352, note (e) mandamus to remove, 142, 148, 1038 to affix, 1038 See Companies Seals Act, 1864. to register, 157 improperly afiixed, 356 SECRETARY for time being, actions by, 498, 874 contract with, when binding, 248 See Companies ; Notice SECRETS. trade, provisions in articles as to, 833 1535 1198 GENERAL INDEX. SECRET BENEFITS obtained by one partner must be accounted for to firm, 571 directors must be accounted for to company, 571 et seg., 587 promoters, 580 actions for account of, 848 et seq, SECRET PARTNER what constitutes, 23, 34 et seq. liability of, 23. See Dormant Paetneb SECRET RESTRICTION OF AUTHORITY, 325 SECRET- SERVICE MONEY, no allowance to partners or directors for, 779 SECURED CREDITORS, proof debts by, m administration by the High Court, 1057 SECURITIES effect of corporation taking unauthorized, 250, note {g) of firm, effect of change of partners on, 214 merger of debt by taking, 370, 450 company hable for if carelessly lost, 300 discharge of retiring partner by taking, from continuing, 449 position of secured creditors in bankruptcy, 1057 in administration in the High Court, 1057 consequence of not taking, from officers of company, 555, 593 shares not, 662 28 & 29 Vict. c. 86, does not deprive a lender of his, 45 SECURITY FOR COSTS when company sues, 493 SELLER OP SHARES, rights of, against purchaser, 714, 718 when entitled to indemnity, 720 liability of to purchaser, 717 to calls. See Calls title to be shown by, 712 See, too, Sale of Shakes ; Tkanspbk. op Shaees SEPARATE BUSINESS, profits derived from, 571 et seq., 576 etseq. SEPARATE CREDITORS, rights of joint and separate creditors compared, 655, 1053, 1054 SEPARATE DEBTS, bills given for, 829. See Bills of Exchange execution against partners for, 687. See Execution charging orders for, 694 effect of partner paying with money of the firm, 329 cannot be set off against joint debts, 504 et seq. SEPARATE ESTATE, what is, 642, 648 property used for partnership purposes may be, 648 property bought with money of fiim, 649 stock in trade, 649 houses built on partnership property, 650 appointments, 651 land, 661, 652 conversion of, into joint, 654 by companies, 658 by partner in administration action, 1055 of married women partners, liability of, 84, 85 1536 GENERAL INDEX. 1199 SERVANTS, power of one partner to liire and dismiss, 296 liability of firm for negligence of, 299 liability of company for negligence of. 246 et seq. right of, to account, 946 payment of, by share of profits, 19, 20, 787 sharing profits and interested in the capital, 20- SERVICE OF WRITS, &c. on one partner when sufficient, 474 if firm sued, service on one partner sufficient, 475 on companies, 494, note (s) on late chairman and secretary of a defunct company, Gaskell v. Chambers, 26 Beav., 252 SERVICES, right of partners and directors to compensation for, 774 SET-OFF by and against partnerships, 502, 505 combined effect of rules at law and in equity, 504 effect of changes in firm and assignment of debt on right of set-off, 505 agreed to be allowed by one partner, 277, 507 ■where there is a dormant partner, 508 cases where one partner only has been dealt witih, 508 attempt to avoid by suing one partner, 509 against assignee of debt after notice, 510 note (6) by way of counter-claim what may be, 503 where there has been an assignment, 510 legacy to partner indebted to testator, 1076 by and against companies, 611 et seq. when a company sues a member, 511 where one member sues another for a debt owing by the company, 512 of calls against dividends, 1035 of calls not due, 1034, note (i) against holders of securities, 514 joint demands cannot be set off against separate demands, or vice versa, 471, 604—507, 612 agreement to set off joint debt against separate, 471, 507 by and against surviving partners, 504 SETTING ASIDE judgment, 630 releases given by one partner, 293 See, also. Rescission of Contbact SETTLED ACCOUNT. See Account Stated SETTLEMENT of shares in partnerships, 852 companies, deed of. See Deeds of Settlement (CoMFAinss). SETTLING DAY obtaining by fraud indictable, 710, 711, 816 SHARE IN PARTNERSHIPS, nature of a share, 660 et seq. share a right to money, 661 transfer of, consent of all parties requisite to. 697 legacies of, 1068, 1075 slander of title to, 675 mortgage of, 664 jus accreseendi inter mercatores locum non hcibet, 664 o ^ 1537 1200 GENEEAi INDEX. SHARE IN PARTNERSHIP -co« VOET, ... his definition of partnership, 3 VOTING at meetings, rules as to, 548. 'See Meetings by proxy, 549. See Proxy illegal agreements as to, 648 as to interested votes, 548 transfer to multiply votes not illegal, 548 cannot be objected to by directors, 702 under Companies act 1862, p. 566 under 8 & 9 Vict. c. 16, p. 557 as to voting by husband of shareholder, 549 by married women, 549 ■ WAGES, effect of paying, by a proportion of gross returns, 25 See Pbofits; Salary WAIVER of clauses in partnership articles, &c., 820 of clauses in companies' deeds, 821 of illegality, 200 of right to rescind for fraud, &c., 924 of formalities, 128 as between companies and shareholders, 130 as between shareholders and creditors, 136 See Formalities; Irregularities WAR, effects of, on the rights of partners, 78 a cause of dissolution of partnership, 232 WARRANT OF ATTORNEY, given by one partner, 474 WASHING COMPANY, not bound by bills, &c., of its directors, 268 WATERWORK COMPANIES, shares in, not within Mortmain acts, 673 not within Statute of Frauds, 674 See Companies governed by 8 & 9 Vict. o. 16 WATSON, his definition of partnership, 3 WHALING VOYAGES, contracts between persons engaged in, 25 WIDOWS, agreements as to annuities to, 853 WILLFUL DEFAULT against executors of partners, 1067 against partners, 974, note (d) WILLFUL TORTS, liability of partners for, 299 WILL, , partnerships at, what are. 218 1551 121-i GENERAL INDEX. WILL — continued. partnership at — continued. by continuance after expiration of articles, 832 actions for dissolution of, 1039 et seq. injunction in oases of, 996 directing assets to be employed in business, efiect of, 1061 WINDING UP, of partnersbips, 1039. See Dissolution now far a dissolved partnership continues for purposes of winding up, 411 correction of register on winding up company, 171 WITNESS, proof of partnership by, 98 by solicitors of the partners, 92, note {p) WORK AND LABOR, action by one partner against another for, 1030 WRITS, service of, 474. See Service WRITTEN CONTRACT. See Conthacts when binding on partners not named in, 338 not necessary to form a jiartnership, 87, 88 not necessary to convert joint property into separate, or vice versd, 643, 644 WRONG DOERS, contribution amongst, 770 "552 THE END.