the agreement, borrowed $10,000.00 to be used in the partnership business. The firm is liable on the note. 365. Debts. Rule: One partner may receive money or other property for debts due the firm, and such payment will extinguish the debt, even though the partner had no right, because of an agreement with his co-partners, to receive money and other property due the firm. A partner may also compromise with the debtors and creditors of the firm. But a partner cannot use partnership funds or property to pay his own personal debts without the consent of his co-partners. If property be thus used it may be recovered by the firm. Thus, A, B and C are partners. B gives to D the firm's note in settlement of a personal debt. The firm is not liable on the note. D's only recourse is to B, and not to A, B and C. 366. Declaration or admissions of a partner. Rule: In general the declarations or admissions of a partner in regard to matter within the scope of the partnership business bind the firm. For instance, if a debt be barred by statute of limitation, and a member of the firm should make a part payment of the debt, or promise to pay it, it would renew the debt, and the firm would be bound. Notice by one or to one partner is equivalent to notice by or to all. Thus, the firm of A, B & C endorse a note to D. At maturity D notifies C of the dishonor of the note. The notice to C is sufficient to bind the firm of A, B & C, because notice to one is deemed notice to all. The 367. Trading and non-trading partnerships. Partnerships may be divided into two classes, trading and non-trading. powers of the partners in these two classes of partnerships differ very materially, and hence it is important to clearly distinguish between them. A trading partnership is one in which the main business is buying and selling. A non-trading partnership is one in which the main business is not buying and selling, yet it must be a combination for profit. Examples of non-trading partnerships are: partnerships to practice law, to practice medicine, to farm, to conduct a laundry, to engage in the practice of dentistry. In trading partnerships one partner has the right to borrow money on the credit of the firm, to issue negotiable paper in the firm name, and pledge the property of the firm for the payment of the firm debts. A member of a non-trading firm has no such rights, and if a partner in a non-trading firm should do any of the things specified above he would only bind himself and the firm would not be liable unless such acts were in the usual course of business. 368. Use of seal. A seal is a common law instrument, and was not known to the law merchant; therefore, one partner cannot bind the firm by a contract under seal without express authority from the other members of the firm. In such a case the partner who makes such a contract would bind only himself. QUESTIONS 1. When does the act of one partner bind the firm? 2. What is meant by "within the scope of the partnership business?" 3. What authority has one partnership to draw, accept, or endorse commercial paper for the firm? 4. How should a partner sign a commercial paper in order to bind the firm and not himself? 5. Where partners agree that the individual members of the firm shall not have the power to issue commercial paper, what is the effect of such agreement on third parties? 6. What authority has a partner to endorse commercial paper for accommodation? 7. What authority has one partner to borrow money on the credit of the firm? 8. What is the authority of a partner in respect to collecting and compromising the debts due to the firm? 9. How should a notice be given to a partnership? 10. What is a trading partnership? 11. What is a non-trading partnership? 12. How do the rights of a partner differ in a trading and a non-trading partnership? 13. Can one partner bind the firm by contract under seal? CASES (GIVE REASONS FOR YOUR ANSWERS) 1. A, B and C are grain merchants, they agree not to sell any more wheat for less than $1.25 per bushel. C, contrary to the agreement, sold ali the wheat they had for $1.15 per bushel. Is the firm liable on the contract? 2. A, B and C are in a grocery business. Without consulting A and B, C decided to establish a boot and shoe department in connection with the grocery. C bought a stock of boots and shoes. Can the firm be held liable for the payment of the boots and shoes? 3. W and S were partners in the business of buying and selling cattle. Wand S had an agreement between themselves that neither of them should execute any promissory note in connection with the business. S in purchasing executed a promissory note in the name of the firm in payment. Can the firm be held liable on this note? 4. A and B were partners. One of the provisions of the articles of partnership prohibited the borrowing of money on firm paper. A in violation of this provision borrowed $5,000.00 to be used in the firm's business. Is the firm liable on the note? 5. A and B were partners in the grain business. On selling a lot of grain B used a portion of the money to pay a personal debt. Can the firm recover the money so paid? 6. A and B were conducting a laundry. B purchased some laundry machinery for which he gave a promissory note to which he signed the firm's name. Is the firm liable on the note? CHAPTER XXXIII LIABILITIES OF PARTNERS TO THIRD PARTIES [1. General rule. 2 Regulating and restricting duties and liabuities of partners. Liability to third parties.... 3. Liability of incoming and retiring part ners. 4. Fraud. 5. Two-fold responsibility. 369. General rule. The general rule which makes a principal liable for the acts of his agent applies with equal force to the liability of a partnership for the acts of a partner. In agency the rule is, so long as an agent keeps within the scope of his authority and the powers exercised by agents of his class he binds his principal, and not himself. Rule: In partnership, so long as a partner keeps within the scope of the partnership business he binds the firm, and not himself. The distinction is that in agency it is within the scope of authority; in partnership it is within the scope of the partnership business. ners. 370. Regulating and restricting duties and liabilities of partPartners may, by the contract creating the partnership, make any provision they choose as to the duties to be performed by each partner, as to who shall bear the losses, and how the debts of the firm are to be paid. The partnership agreement may provide that in case of losses it is to be borne by certain members of the firm thus releasing others from liability. Rule: While such an agreement is binding and enforceable between the partners themselves, yet it is of no effect whatsoever as to third persons, who are or who may become creditors of the firm. Partners cannot, by agreement between themselves, abridge or limit their liability to third persons. Each partner is liable to pay the whole of the partnership debts. But if third persons know that the partner's authority is limited, and that it does not extend to the particular contract in question the firm will not be liable. Rule: The only way by which a partner can limit his liability to third persons is by an express agreement to that effect with such third person or by forming a limited partnership. 371. Liability of incoming and retiring partners. Rule: An incoming partner is not liable for the debts of the firm incurred before he became a member unless he assumes them by agreement. But a retiring partner remains liable for the outstanding debts of the firm. Illustration: A, B and C are partners. Their liabilities amount to $40,000.00. Centers into an agreement with A and B whereby they agree to free C from all responsibility for the payment of the liabilities, and he withdraws from the firm, and the firm's name is changed to A & B. The creditors, notwithstanding this agreement, can hold C responsible. C's agreement with A and B does not affect in any way whatsoever the rights of their creditors to look to all who were partners at the time the debts were created for a full satisfaction of their claims. 372. Fraud. Rule: One partner will be bound by the fraud of his co-partner in contracts relating to the affairs of the partnership made with innocent third persons. This doctrine proceeds upon the ground that where one of two innocent persons must suffer by the act of a third person, he shall suffer who has been the cause of the confidence and credit reposed in such third person. Thus, the firm is liable whether it be on a loan obtained by a partner for his expenses while engaged in the partnership business, or a purchase of goods such as the firm dealt in, although the partner after the purchase appropriated the goods to his own personal use. 373. Selling and pledging firm's goods. Rule: A partner may, in the absence of fraud, sell or pledge the entire personal assets of the partnership, but he cannot sell to himself. But it must be remembered that he who seeks to hold the firm for the fraud of a partner must not be connected in any way with the fraud himself. If he were, or if circumstances were such as to induce a man of moderate discernment to |