Story Case

Alexander Ely and Francis Shimers were partners in brick manufacturing, transacting business as the Red Clay Brick Company. A contract was made with The Ohio Machinery Company for the purchase of a brick mill; the contract was signed by the partnership name only, Red Clay Brick Company. Later, the Ohio Machinery Company refused to fulfill its contract and gave as one defense the fact that the Red Clay Brick Company was not a corporation, and, therefore, could not hold property in its own name. Is this a good defense?

Ruling Court Case. Hendren Vs. Wing, Volume 60 Arkansas Reports, Page 561; Same Case, Volume 46 American State Reports, Page 218

"Wing, Stephens and Eggleston were partners, doing business under the firm name of Arkansas Machinery and Supply Company. In the course of their business they sold certain machinery to one Miller, and to secure the payment of the purchase price and other indebtedness, Miller executed a mortgage, running to the Arkansas Machinery and Supply Company, upon the machinery thus purchased.

Miller was also indebted to Hendren. To secure this debt, he had executed a mortgage upon other machinery, not purchased from the Arkansas Company. Without the consent of Hendren, Miller sold this machinery, and purchased other in its place. Hendren obtained possession of the machinery which Miller had bought from the Arkansas Machinery and Supply Company and claimed the right to hold it in place of the machinery wrongfully disposed of by Miller. The Arkansas Machinery and Supply Company brought this action to recover possession of its machinery; it based its claim upon its mortgage; it was contended by Hendren that the mortgage was void, because it contained neither the name of a natural person nor the name of an artificial person.

Decision

It is well settled that personal property may be held in the firm name of a partnership, even though the name of no natural person appears in it. A mortgage is only a conveyance of the legal title by way of security. The title to the machinery in this case was in the Arkansas Machinery and Supply Company; the mortgage was valid, and Hendren had no right to possession. Accordingly, it was held that the Arkansas Machinery and Supply Company was entitled to recover possession of the machinery, by virtue of the mortgage which it had upon the property in question.

Ruling Law. Story Case Answer

The relation of partnership is recognized as a legal entity, in respect to the ownership of personal property. This means that all personal property which becomes partnership property, may be held by the partnership as a firm; it is not owned by the partners individually, nor is it held by them as owners in common. Thereafter, the only interest which each partner has in the property is the right to share in its distribution, after the relation is dissolved and all other partnership obligations are met. This is true whether the name of the firm is the name of one partner alone, the name of some or all, or whether it is a purely fictitious name which has been adopted. The plea of the Ohio Machinery Company, in the Story Case, is not good, for the Red Clay Brick Company could contract for and hold personal property in its firm name.