Story Case

Truman Hobbs said to Earl Reynolds, "I know where there is a splendid teaming and transfer business for sale, and I want you to join with me as partner, provided I can buy it." Reynolds answered, "Very well, I'll accept your offer and enter into a partnership with you on a basis of fifty per cent each, if you get the business on proper terms." A few days later, Hobbs purchased the teaming business, and wrote Reynolds this letter: "I have bought the business; come to my house as soon as you can to talk over matters." Reynolds made no effort to see Hobbs for two weeks. During this time Hobbs worked diligently and the teaming business became so attractive to him that he wrote Reynolds the following letter: "I have decided to continue with my business alone, and, as you have shown no intention to join with me, we will consider negotiations at an end." Reynolds then appeared and demanded to be considered as a partner, offering at the same time to pay for one-half of the business. When Hobbs refused to consider him, Reynolds brought a partnership suit for an accounting. What should the Court do?

Ruling Court Case. Nixon-Jones Printing Company Vs. Sailors Et Al., Volume 20 Illinois Appellate Reports, Page 509

The defendant, Sailors, Woodward and Guibout, jointly owned the business of a commercial agency. They agreed to unite their interests and conduct the business as a partnership under the firm name of the Union Mercantile Agency. When this arrangement was made, however, it was agreed that for the first two years, Sailors was to be relieved from any participation in the business, was not to be liable for any of the losses, nor entitled to any of the profits. At the expiration of this time, he was to take an active part in the business and to share in its profits and losses. During the two years referred to, Guibout ordered certain printing to be done by Nixon-Jones Printing Co. for the Union Mercantile Agency. In this action brought to recover the charges for the printing, the plaintiff seeks to recover from Sailors as a partner in the business.

Decision

In order to charge a person as a partner in a given business, in the absence of any estopping conduct on his part, it must appear, not only that there was a contract to form a partnership, but that that contract was executed. In this case, there was only an agreement to become partners at the expiration of a stated time. During this time the defendant was not liable as a partner by virtue of that executory agreement.

Mr. Justice Moran said in part: "The contract between Woodward and Guibout and appellant - Sailors - did not constitute appellant a partner in the business which "Woodward and Guibout were to conduct in St. Louis. True, the word 'partnership' is used to designate the relation of the parties, but the whole agreement shows plainly that Sailors was a joint owner merely, and that the business was to be conducted wholly by the others, and they were to have the entire profits accruing, and bear all losses that might happen in running the business, till, at the end of two years, Sailors was to come into a participation of the business, and thereafter share the profits and losses of the business that should be done. It was a contract which bound Sailors to become a partner at the end of two years, but such contract would not make him liable for the debts contracted before his relation as partner commenced." The Court was, therefore, of the opinion that Sailors was not liable as a partner for the debts in question.

Ruling Law. Story Case Answer

The existence of the relation of partnership depends upon a contract, express or implied, between the parties to the relation. To constitute the relation it must appear, not only that there is a binding contract between, but that the contract is executed and not executory. That is to say, the agreement must show that they are in fact, partners at the present time; and not that they shall become partners at some future date. One who agrees to go into a business with another at a future time as a partner is neither entitled to any of the profits which accrue in the meantime nor liable for the debts incurred before, by his agreement, he is to become a partner. In the Story Case, a partnership never existed because the agreement was only executory. Reynolds, therefore, could not recover.