59 courts have taken the same view; and some have made distinctions in this respect between professional, and mercantile or - trading, partnerships.5 § 132. Where the sale of good-will is not a voluntary one but is forced by legal process or the necessity of winding up, as, for example, a sale by an assignee in bankruptcy, a receiver, a surviving partner, or the partners themselves at the ordinary termination of the partnership, a different rule applies. England permits personal solicitation where the sale was forced,60 and the Massachusetts rule permits him to start a new business though it may incidentally encroach upon the business sold.61 IV. OF THE CAPITAL OF THE FIRM. § 133. What constitutes capital.-The capital of the firm, strictly speaking, is the aggregate of the sums which the partners have agreed to contribute for the transaction of the partnership business. It differs from the property of the firm, inasmuch as the capital is a fixed sum, while the amount of property possessed by the firm may vary from time to time, and be more or less than the capital. It differs also from advances made by the partners to the firm, for the latter are ordinarily in the nature of loans to the firm, and not contributions to its fixed capital.62 In a loose or popular sense, the term capital is often used to indicate the aggregate of property or assets which the firm Foss v. Roby (1907), 195 Mass. 292, 81 N. E. 199, 10 L. R. A. (N. S.) 1200, 11 Ann. Cas. 571; Old Corner Bookstore v. Upham (1907), 194 Mass. 101, 80 N. E. 228, 120 Am. St. R. 532; Gordon v. Knott (1908), 199 Mass. 173, 85 N. E. 184, 19 L. R. A. (N. S.) 762. Compare Bassett v. Percival (1862), 5 Allen (87 Mass.) 345. 59 See Brown V. Benzinger (1912), 118 Md. 29, 84 Atl. 79, Ann. Cas. 1914 B, 582. 60 See Walker v. Mottram (1881), 19 Ch. Div. 355; Trego v. Hunt, supra. 61 See Hutchinson v. Nay (187 Mass. 262), supra; Batchelder & Co. v. Batchelder (1914), 220 Mass. 42, 107 N. E. 455; Von Bremen v. MacMonnies, supra. 621 Lindley on Partnership (Ewell's 2d ed.), 320. #472 may have, in the same way that we sometimes speak of the capital of a single individual. Undivided profits which are allowed to accumulate do not thereby become capital, though they are, of course, part of the firm assets.63 Some agreement on the part of the persons interested to capitalize them, would be necessary in order to have that effect. § 134. Fixing amount and interests. In the final distribution of assets upon the winding up of the partnership business, capital is usually to be distributed among the partners in proportion to the capital contributed, and it is therefore desirable to have the amount of the capital and the shares of each partner definitely fixed, though, where nothing appears to the contrary, it will be presumed that their shares are equal. The amount of the capital as originally determined cannot subsequently be increased or diminished without the consent of all of the partners.64 § 135. Certificates or other evidence of interest.-It is not the common practice, in ordinary partnerships, to issue certificates of "stock" or other similar evidence of a partner's interest; though there is no legal objection to it and it is occasionally done.65 Such interests are, of course, in their nature not transferable like shares of stock in a corporation. In the case of the large partnerships with transferable shares, usually called joint-stock companies, such certificates of ownership are more common. 63 See Dean v. Dean (1882), 54 Wis. 23, 11 N. W. 239, Gilm. Cas. 164. The partnership agreement may, of course, provide that undivided profits shall, or may at the option of the partner, become part of the capital. Molineaux V. Raynolds (1896), 54 N. J. Eq. 559, 35 Atl. 536, Gilm. Cas. 215. 64 Natusch v. Irving (1824), Gow on Partn. 398. 65 See e. g. Harper v. Raymond (1858), 3 Bosw. (16 N. Y. Super.) 29, 7 Abbott Pr. 142. In Power Grocery Co. v. Hinton (1920), Ky., 218 S. W. 1013, certificates of stock issued by a cor poration to which the partnership succeeded were, by agreement, treated and transferred as certificates of interest in the partnership. § 136. What may be received as contributions to capital. The contributions to the capital need not be in money, but may be made in real or personal property, labor, skill, or whatever the parties may agree to receive as such. Neither is it necessary that each partner shall contribute the same kind of thing, for one may contribute money and another property and another skill, and the like. The use only of property may also be contributed, the partner retaining to himself as an individual the title to it.66 It is not necessary that the several contributions shall be equal in amount or value; for one may contribute much while another contributes little.67 It does not follow, however, where one contributes money, and the other skill, experience or labor, that upon a termination of the partnership they will share it in common; for, as will be seen, upon such a termination each partner is to be repaid his contributions to capital before the profits are divided.68 § 137. Enforcing contribution of capital.-The firm not being generally regarded as a legal entity, separate and distinct from the partners, no action at law can be maintained by the firm to compel a partner to pay in his agreed contribution to capital. 66 See Heran v. Hall (1840), 1 B. Mon. (Ky.) 159, 35 Am. Dec. 178; Meadows v. Mocquot (1901), 110 Ky. 220, 61 S. W. 28, 22 Ky. L. R. 1646; Nichols v. Murphy (1891), 136 Ill. 380, 26 N. E. 509; Humes v. Higman (1906), 145 Ala. 215, 40 So. 128; Gordon v. Gordon (1882), 49 Mich. 501, 13 N. W. 834; Davis v. Davis [1894], 1 Ch. 393; Murphy v. Warren (1885), 55 Neb. 215, 75 N. W. 573; Stumph V. Bauer (1881), 76 Ind. 157, Gilm. Cas. 175. 67 Where the contract contemplates equal contributions to capital, to be made in instalments as the business may require, and one partner in fact has chief charge of the business which proves to be very profitable, he will not be permitted, by making further contributions without calling upon his copartner for equal ones or giving him an opportunity to make them, to swell his own share of the capital and profits at the expense of his copartner. The court will permit the other partner to fill up his capital and share in the profits accordingly. Fulmer's Appeal (1879), 90 Pa. St. 143. 68 See Shea v. Donahue (1885), 15 Lea (Tenn.) 160, 54 Am. Rep. 407, Mechem's Cas. 692, Gilm. Cas. 168; Whitcomb v. Converse (1875), 119 Mass. 38, 20 Am. Rep. 311, Mechem's Cas. 695, Burd. Cas. 575, Gilm. 488; Hayes v. Hayes (1889), 66 N. H. 134, 19 Atl. 571. Compare Meadows v. Mocquot, supra. Such an action would require the partner in question to be at the same time one of the plaintiffs as well as the defendant.69 Where, however, one person agrees with another to become a partner and contribute a certain amount of capital, and then refuses to perform the contract, the other may maintain an action at law against him to recover damages for the breach of the agreement.70 Payment of promised contributions to capital could, indeed, be enforced for the benefit of creditors, as in the case of subscriptions to the capital of a corporation, but since normally each partner is individually liable to creditors for all of the partnership debts, there would ordinarily be no reason for their attempt to enforce a more limited liability. In adjusting the relations of the partners among themselves, however, such agreements would be important. V. OF THE PROPERTY OF THE FIRM. 1. Of Firm Property in General. § 138. What may be partnership property.-The property of the firm may be that originally contributed by the partners to form the partnership capital, or it may be that subsequently acquired in partnership dealings. It may be either real or personal. Unless provided otherwise by the articles or by statute, there is no limit to the kind or amount of the property which the firm may possess. Somewhat different rules apply when the property is real estate, and these will be made the subject of separate mention. § 139. What constitutes partnership property.—What property is partnership property, or when it becomes such, is not always easy to determine. "Not only all the goods and merchandise properly so called," says Mr. Parsons,71 "but all chattels bought by the partnership, or otherwise coming to them, 69 See post, § 201, et seq. 70 See Hill v. Palmer (1882), 56 Wis. 123, 14 N. W. 20, 43 Am. Rep. 703, Mechem's Cas. 303; Treat v. Hiles (1887), 68 Wis. 344, 32 N. W. 517, 60 Am. R. 858; Bagley v. Smith (1853), 10 N. Y. 489, 19 How. Prac. 1, 61 Am. Dec. 756. 71 Parsons on Partnership, § 177. as their furniture, books, etc., are partnership property; and so also all bills of exchange and notes, or other evidence of debts, and all debts or accounts or balances, or other claims; and all shares in companies, or scrip bought with partnership funds, or otherwise assigned to the partnership and not transferred to the individual partners and charged in their accounts, would be regarded as partnership property." The Uniform Partnership Act in general terms declares: "(1) All property originally brought into the partnership stock or subsequently acquired by purchase or otherwise on account of the partnership, is partnership property. "(2) Unless the contrary intention appears, property acquired with partnership funds is partnership property." 72 § 140. Same subject-Property bought by partner in his own name.—Whether property bought by one partner in his own name is partnership property depends upon the circumstances and the intention. One partner may, of course, buy property for himself; but where he takes title in his own name to property bought with partnership funds, there is a strong presumption that it is partnership property, though he may show that, by arrangement with his partners, it was really to be his own; as, for example, that the funds were loaned to him with which to buy the property on his own account. If, however, he takes title in himself when it was his duty to take it for the firm, the other partners may require him to secure to them their interests in it; and, though he buys in his own name, if he was really buying for the firm, the firm is liable to the seller. It is simply the application of the rules of agency, the partners collectively being the principal, and the partner the agent.73 72 Sec. 8. 73 See Traphagen v. Burt (1876), 67 N. Y. 30; Davis v. Davis (1882), 60 Miss. 615; Kruschke v. Stefan (1892), 83 Wis. 373, 53 N. W. 679. Where two partners in the grocery business contributed outside funds to buy railroad stock but took a certificate in the firm name, but it was not a partnership transaction, the stock is not partnership property: Morse v. Pacific Ry. Co. (1901), 191 Ill. 356, 61 N. E. 104. |