§ 71. II. Of agreements held to create partnership inter sese when that was not intended. The question whether a partnership has in fact been created between two or more persons, part or all of whom deny it, may arise in a great variety of cases. It is constantly arising as between the alleged partners and third persons who are seeking to hold them liable as such, and this phase of the question presents the most difficulty and gives rise to the greatest amount of litigation.

The question, however, may and often does arise as between the alleged partners themselves. As between these parties, the question usually arises in one of two classes of cases: 1. Where an affair in which they have been in some way concerned has proven to be profitable, and one or more, alleging partnership, seek to compel an accounting, as partners, from the others, who deny it; and 2. Where such an enterprise has proved disastrous, and one or more alleging partnership seek to enforce contribution as partners from the others, who deny that any such relation existed.3 Other cases may, of course, arise where one or more claim other rights or powers as partners against the others, but the two classes of cases stated are the most common.

§ 72. Legal intention of parties controls.-Partnership, as has been seen, is the result of the express or implied agreement of the parties, and there can be no partnership-either as between the parties themselves or as to third persons-where the parties have not by their acts or contracts created one. When, therefore, the parties themselves, or some of them, deny that they intended to form a partnership, it becomes necessary to determine what is the legal effect of their acts and contracts. In dealing with this question, it must be borne in mind that it is the legal intention of the parties rather than their expressed or declared intention which controls. The law, it is said, presumes that the parties intend the legal consequences of their voluntary acts and contracts. If, therefore, they intend the acts or contracts, they intend also, in contemplation of law, the legal effect of those acts and contracts.

3 See McDonald V. Fleming (1913), 178 Mich. 206, 144 N. W. 519.

Whether, then, the

4 Thus in Duryea v. Whitcomb (1858), 31 Vt. 393, Mechem's Cas. 89, Gilm. Cas. 13, the court says:

question arises between the parties themselves, or between the parties and third persons, if the legal effect of their acts and contracts is the creation of a partnership, the parties will be deemed partners, notwithstanding their denial of an intention to become such. The law gathers their intention from their acts and contracts at the time, rather than from their contemporaneous or subsequent assertions. Greater effect may, however, be given to the expressed intentions of the parties when the question arises between themselves only, than where third persons are concerned.5 The latter cannot be presumed to know of the declared intention, and must therefore be left to judge by the legal intention which the outward acts and contracts of the parties manifest. In doubtful cases, however, of either sort, the expressed intention may be of consequence, and may even turn the scale in accordance with it.

§ 73. Same subject.-Keeping these distinctions in view, it is then true, as the rule is frequently declared, that whether a partnership has been created depends upon the real intention of the parties. If their agreement is in writing, its true construction must be ascertained. If it is not in writing, then the

"If their contract was for a part-
nership by necessary legal construc-
tion (which we have found that
it was), and they intended to make
the contract (and this appears from
the report), the legal effect of their
contract could not be varied by
their not supposing it to be what
it was.
The further statement in
the report that they did not intend
to form a partnership seems incon-
sistent with the other facts.
Probably the fair construction of
the report is that the parties were
not aware of the "legal extent and
obligation of the contract into
which they entered. As the con-
tract imports a partnership, we
must hold, in the absence of any
express stipulation and of
any
Mech. Part.-5

*

*

other circumstances to show the contrary, that they intended to create the relation which the contract expresses.'' See, also, Chapman v. Hughes (1894), 104 Cal. 302, 37 Pac. 1048; Spaulding v. Stubbings (1893), 86 Wis. 255, 56 N. W. 469, 39 Am. St. R. 888, Mechem's Cas. 149; Magovern v. Robertson (1889), 116 N. Y. 61, 22 N. E. 398, 5 L. R. A. 589, Mechem's Cas. 154; Bradley v. Ely (1900), 24 Ind. App. 2, 56 N. E. 44, 79 Am. St. R. 251, Gilm. Cas. 10; Wade v. Hornaday (1914), 92 Kan. 293, 140 Pac. 870; Illinois Malleable Iron Co. v. Reed (1897), 102 Iowa 538, 71 N. W. 423.

5 See McDonald v. Fleming, supra; Fechteler V. Palm Bros. 65

intention of the parties must be gathered from their words and conduct. What the parties have called themselves is not conclusive, for if they have stipulated for what is a partnership in fact, then even their express agreement that they should not be partners would not prevent the legal operation of their stipulations. If, on the other hand, their acts and contracts do not in law create a partnership, the fact that they have expressly called it such will not make it one."

§74. Tests of intention to form partnership.-While the intention of the parties is thus, in general, the controlling inquiry, there are a number of methods by which the courts have endeavored to ascertain what that intention was. Keeping in mind the definition that the partnership relation is based upon the agreement of the parties to unite their property, labor, capital or skill in carrying on business as co-owners or principals for their joint profit, each being at the same time both principal of and agent for the other, several of the tests which are com

monly applied to aid in determining when such an agreement exists may be noticed. Among these are

§ 75. I. Agreements to share both profits and losses.-An agreement between two or more persons to unite their property, labor, skill, or capital to establish and carry on a business, in which business they are to have a community of interest—which they are to own in common, in which each is to be a principal owner or proprietor as distinguished from a mere agent, clerk or creditor and the profits and losses of which they are to share because they are such owners, principals or proprietors, is the typical form of partnership. Such an agreement creates a partnership between the parties as a matter of law.

§ 76. Same subject.-Agreements, however, which present all of these characteristics occasion no difficulty, and the question of partnership is easily and certainly solved. The difficulty arises in those cases-which unfortunately but naturally constitute the great majority of those submitted to lawyers or courts for determination-in which some of these elements only are discernible, while others are not apparent at all or are to be extracted from a mass of more or less conflicting facts and circumstances. In such cases, the elements which do appear are not necessarily conclusive, and it is both unwise and dangerous to seize upon them as sufficient; they are evidence merely, and, as such, are more or less convincing according as they fit in with the remaining elements discovered.

Of this nature is the mere element of sharing profits and

tention of the parties, and this intention must be ascertained from the evidence and all the circumstances of the case. If the evidence shows that the parties intended to combine their property, labor and skill as principals for the purpose of enjoying the profits, it establishes a partnership. The question always is, was there a joint business, or were the parties carrying on the

business as principals and agents? If there is a joint business, it naturally follows that the parties were to share the profits in some proportion, and hence an agreement to share profit is strong evidence that the enterprise was to be conducted as a joint undertaking." McAlpine v. Millen (1908), 104 Minn. 289, 116 N. W. 583.

losses. It certainly furnishes strong evidence that the parties have united as principals for their joint profit, if any, and in the absence of anything to show that the profits and losses were to be shared on some other basis than that of principals in the business, it would usually be deemed conclusive. But it may still be shown that they were to share the profits and losses in some other capacity, and the evidence of partnership is thereby weakened if not dispelled. Where both parties contribute goods, or money to buy goods, for a common stock, in which they thus acquire a joint interest, then an agreement for a division of the profit and loss furnishes the strongest evidence of a partnership; and the same is true where each is to contribute services.

§ 77. Same subject. The evidence is also strong where one furnishes money or property and the other furnishes services, though it is less strong in this case than in the others, because the parties have not necessarily a joint interest in the property, and the sharing in profits and loss may be but one means of compensating the second party for his services. Still less strong is the evidence where, though the parties are to share profits and losses in the sale of goods, each one retains the individual title or control of his contribution.

To constitute a partnership, therefore, there must be added to the evidence of this one element of sharing profits and losses, the further evidence that the parties who so shared in such profits and losses were also principal proprietors in the business from which such profits or losses ensued, and that such sharing was because they stood in the relation of such principal proprietors and not in some other relation.10

9 Such an arrangement, it is frequently said, raises a prima facie case of partnership. See, e. g., Torbert v. Jeffrey (1901), 161 Mo. 645, 61 S. W. 823; Illinois Malleable Iron Co. v. Reed (1897), 102 Iowa 538, 71 N. W. 423.

10 See Canton Bridge Co. v. City of Eaton Rapids (1895), 107 Mich. 613, 65 N. W. 761, Mechem's Cas. 758, Burd. Cas. 90; Fechteler v.

1

Palm (1904), 66 C. C. A. 336, 133 Fed. 462, Gilm. Cas. 76; Spaulding v. Stubbings (1893), 86 Wis. 255, 56 N. W. 469, 39 Am. St. R. 888, Mechem's Cas. 149; Culley v. Edwards (1884), 44 Ark. 423, 51 Am. Rep. 614; Boston Smelting Co. v. Smith (1880), 13 R. I. 27, 43 Am. Rep. 3; Clifton v. Howard (1886), 89 Mo. 192, 1 S. W. 26, 58 Am. Rep. 97, Burd. Cas. 88; Torbert v. Jeffrey