the profits indefinitely shall, by operation of law, be made liable to losses, if losses arise, upon the principle that, by taking a part of the profits, he takes from the créditors a part of that fund which is the proper security to them for the payment of their debts. That was the foundation of the decision in Grace v. Smith, and I think it stands upon the fair ground of reason." The Carvers were therefore held liable.

§ 87. Same subject.-It does not seem to have occurred to the court that the profits are not the fund, that is, the only or chief fund to which the creditors may resort, because, as will be seen, whether there are profits or not, the creditors may resort to all of the assets of the firm for payment, as well as to the individual responsibility of the partners. Neither was it observed that the very statement of the rule involved an inconsistency. Profits are what is left after the creditors are paid and not before; and therefore to take account of profits as such while the creditors yet remain unpaid was an inconsistency. Neither was it observed that the rule often resulted in compelling one creditor, though for a small amount, to stand liable as a partner to the other creditors, even in an indefinite amount. Whatever were the inconsistencies, however, as they have often since been pointed out, this was declared to be the rule, and it remained the rule in England for many years, and was adopted

I think the true criterion is to inquire whether Smith agreed to share the profits of the trade with Robinson, or whether he only relied on those profits as a fund of payment; a distinction not more nice than usually occurs in questions of trade or usury. The jury have said that this is not payable out of the profits, and I think there is no foundation for granting a new trial." Gould, J., of same opinion. Blackstone, J.: "Same opinion. I think the true criterion (when money is advanced to a trader) is

to consider whether the profit or premium is certain and defined, or casual, indefinite, and depending on the accidents of trade. In the former case it is a loan (whether usurious or not is not material to the present question), in the latter a partnership. The hazard of loss and profit is not equal and reciprocal, if the lender can receive only a limited sum for the profits of his loan, and yet is made liable to all the losses, all the debts contracted in the trade, to any amount." Nares, J., of same opinion.

thence into the United States, and has been reiterated and affirmed in many American cases.23

Under this rule it mattered little what was the name or nature of the arrangement under which the parties were related, or however strongly they asserted their intention not to be partners, or to what devices they had recourse to avoid such a conclusion; if they shared profits as profits, as the expression was, they were declared to be partners as to third persons and liable as such.

§ 88. Of the case of Cox v. Hickman.-In 1860 a case arose in the English courts which required a re-examination of the ground of liability by sharing profits. This was the case of Cox v. Hickman,24 decided in the English House of Lords. The parties sought to be charged as partners were not partners inter sese and never intended to be, but they were entitled to share in the net income of a business as creditors until their claims were paid.

The facts were that the firm of Smith & Son, becoming financially embarrassed, turned their property over to trustees appointed by their creditors. The trustees were to carry on the business under the name of "The Stanton Iron Company," and divide the net income, which was always to be considered the property of Smith & Son, among the creditors until their claims. were paid, and then the property was to be restored to Smith & Son. Hickman sold goods to the trustees in the name adopted by them for the business, and drew bills on them which were accepted in that name by one of the managing trustees. These bills not being paid, the action was brought to charge the creditors as partners.

23 See Dob v. Halsey (1819), 16 Johns. (N. Y.) 34, 8 Am. Dec. 293; Bromley v. Elliot (1859), 38 N. H. 287, 75 Am. Dec. 182; Miller v. Hughes (1818), 1 A. K. Marsh. (Ky.) 181, 10 Am. Dec. 719; Simpson v. Feltz (1826), 1 McCord Ch. (S. C.) 213, 16 Am. Dec. 602; Sheridan V. Medara (1855), 2

Stockt. Ch. (N. J.) 469, 64 Am. Dec. 464; Pratt v. Langdon (1867), 97 Mass. 97, 93 Am. Dec. 61; Polk V. Buchanan (1857), 5 Sneed (Tenn.) 721, Burd. Cas. 62.

24 Cox V. Hickman (1860), 8 House of Lords Cases 268, Mechem's Cas. 102, Ames Cas. 47, Burd. Cas. 65, Gilm. Cas. 31.

The case went through all of the courts to the House of Lords. It was urged that as they were to share the profits of a business which was being carried on under their control, the creditors thereby became liable as partners, and half of the judges were of this opinion; but the Lords united in repudiating the old and arbitrary rule, and placed the liability upon the ground which has since been maintained in England-that of mutual agency.

§ 89. Same subject. In the leading opinion of Lord Cranworth it was said: "It was argued that as they would be interested in the profits, therefore they would be partners. But this is a fallacy. It is often said that the test, or one of the tests, whether a person not ostensibly a partner is nevertheless in contemplation of law a partner, is whether he is entitled to participate in the profits. This no doubt is in general a sufficiently accurate test; for a right to participate in profits affords cogent, often conclusive, evidence that the trade in which the profits have been made was carried on in part for or on behalf of the person setting up such a claim. But the real ground of the liability is that the trade had been carried on by persons acting on his behalf. When that is the case, he is liable to the trade obligations, and entitled to its profits, or to a share of them. It is not strictly correct to say that his right to share in the profits makes him liable to the debts of the trade. The correct mode of stating the proposition is to say that the same thing which entitles him to the one makes him liable to the other, namely, the fact that the trade has been carried on on his behalf, i. e., that he stood in the relation of principal towards the persons acting ostensibly as the traders, by whom the liabilities have been incurred, and under whose management the profits have been made."

§ 90. Same subject. "Taking this to be the ground of liability as a partner," continued Lord Cranworth, "it seems to me to follow that the mere concurrence of creditors in an arrangement under which they permit their debtor, or trustees for their debtor, to continue his trade, applying the profits in discharge of their demands, does not make them partners with

their debtor or the trustees. The debtor is still the person solely interested in the profits, save only that he has mortgaged them to his creditors. He receives the benefit of the profits as they accrue, though he has precluded himself from applying them to any other purpose than the discharge of his debts. The trade is not carried on by or on account of the creditors, though their consent is necessary in such a case, for without it all the property might be seized by them in execution. But the trade still remains the trade of the debtor or his trustees; the debtor or the trustees are the persons by or on behalf of whom it is carried on. The defendants were therefore held not liable.

891. Effect of Cox v. Hickman on English law. In a case arising not long afterwards it became essential to determine, in the language of Blackburn, J., "what really was the effect of the decision of the House of Lords in Cox v. Hickman," and he said: "Prior to that decision, the dictum of De Grey, C. J., in Grace v. Smith, 'that every man who has a share of the profits of a trade ought also to bear a share of the loss,' had been adopted as the ground of judgment in Waugh v. Carver, where it was laid down 'that he who takes a moiety of all profits indefinitely shall, by operation of law, be made liable to losses if losses arise, upon the principle that, by taking a part of the profits, he takes from the creditors a part of that fund which is the proper security to them for the payment of their debts.' This decision has never been overruled. The reasoning on which it proceeds seems to have been generally acquiesced in at the time; and when, more recently, it was disputed, it was a common opinion (in which I for one participated) that the doctrine had become so inveterately part of the law of England that it would require legislation to reverse it. In Cox v. Hickman the creditors of a trade had agreed that their debtor's trade should be carried on for the purpose of paying them their debts out of the profits, and the composition deed to which they were parties secured to them a property in the profits. The rule laid down in Waugh v. Carver, if logically followed out, led to the conclusion that all the creditors who assented to this deed, and by so doing agreed to take the profits, were individually liable as partners; but when it was sought to apply the rule to such an

extreme case, it was questioned whether the rule itself was really established. There was a very great difference of opinion amongst the judges who decided the case in its various stages below, and also amongst those consulted in the House of Lords. In the result, the House of Lords-consisting of Lord Campbell, C., and Lords Brougham, Cranworth, Wensleydale and Chelmsford-unanimously decided that the creditors were not partners. The judgments of Lord Cranworth and of Lord Wensleydale bear internal evidence of having been written. Lord Campbell, C., and Lords Brougham and Chelmsford said a few words expressing their concurrence. It is therefore in the written judgments, and more especially in the elaborate judgment of Lord Cranworth, that we must look for the ratio decidendi. "I think that the ratio decidendi is, that the proposition laid down in Waugh v. Carver-viz., that a participation in the profits of a business does of itself, by operation of law, constitute a partnership-is not a correct statement of the law of England; but that the true question is, as stated by Lord Cranworth, whether the trade is carried on on behalf of the person sought to be charged as a partner, the participation in the profits being a most important element in determining that question, but not being in itself decisive; the test being, in the language of Lord Wensleydale, whether it is such a participation of profits as to constitute the relation of principal and agent between the person taking the profits and those actually carrying on the business."' 25

§ 92. Effect of Cox v. Hickman in the United States. In the United States the case of Cox v. Hickman has been quite generally followed.26 In many of the states earlier decisions fol

25 Bullen v. Sharp (1865), L. R. 1 Com. Pl. 86, Ames' Cas. 67, Burd. Cas. 71, Gilm. Cas. 36. See, also, Mollwo v. Court of Wards (1872), L. R. 4 Pr. Coun. App. 419, Ames' Cases 79; Pooley v. Driver (1876), 5 Ch. Div. 458, Ames' Cases 87. See, also, now the English Partnership Act, 82, Appendix, post; Gos

ling v. Gaskill [1897], App. Cas. 575.

26 See, for example, Beecher v. Bush (1881), 45 Mich. 188, 7 N. W. 785, 40 Am. Rep. 465, Mechem's Cas. 118, Gilm. Cas. 49; Dutcher v. Buck (1893), 96 Mich. 160, 55 N. W. 676, 20 L. R. A. 776, Mechem's Cas. 749; McDonald v. Campbell