Story Case

Ten corporations, each conducting a different line of business and operating about New York, entered into a contract for maintaining a common office in New York, where each could transact its business through one organization. Each company agreed to pay its pro rata share of the expenses of this central office. The organization, operating under the name The General Sales Copartnership, was unincorporated. After it was in operation, a large sale of woolens was made through it to Harold McKee for one of the members, A. & 0. Woolen Company. This sale, the A. & 0. Woolen Company did not fulfill, in accordance with the contract with Harold McKee. The latter brought suit against all members of the General Sales organization, on the ground that they were liable as partners. Can this contention be maintained?

Ruling Court Case. Wehrman Vs. The Merchants' National Bank, Volume 60 Ohio State Reports, Page 160

The Merchants' National Bank is a corporation organized under the national banking laws of the United States. In this action, it is sought to charge the bank as a partner in the Elsmere syndicate. This organization is a partnership having forty shares which were transferable, much like the shares of stock of an ordinary corporation. The bank became owner, by transfer, of nine of these shares of this partnership, taken as security for certain indebtedness of one of its customers. But it so dealt with the shares originally held as security that the Court was of opinion that it became outright owner. The syndicate was unable to meet all its obligations, and Wehrman, one of its creditors, brought this action against the bank, seeking to hold it, as a partner in the syndicate, for the debts of the latter.

Decision

A corporation is an artificial creation of the legislature, and has no greater powers than those expressly conferred upon it by statute, and those powers necessarily and fairly incidental to its express powers. The bank in this case, has no power, express or implied, to become a partner in the business and incur partnership liability. Mr. Justice Burket said in part: "To become a member of a partnership in any manner or for any purpose, is not incidental to carrying on the business for which national banks are established, and is certainly not expressly granted. The power therefore does not exist. * * * The officers of a bank cannot delegate their power to others. It is therefore clear that a national bank cannot be a partner in a copartnership, and cannot incur partnership liability." Accordingly, it was held that the Merchants' National Bank was not liable for the debts of the partnership.

Ruling Law. Story Case Answer

In general, any person who can enter into any kind of contract may become a partner. At common law, a married woman could not make any contract except as to her separate property; consequently, she was not competent to enter into a partnership, except as to her separate property. But, under modern statutes she is given the capacity to contract and she may become a partner with another business; however, it may be said that, even under modern statutes, she is seldom permitted to become a partner with her husband.

Most contracts of infants are only voidable; it therefore follows, that he may contract to become a partner, but it, like any other contract, may be avoided by an act of disaffirmance. But if he has contributed property or capital to the firm, he cannot withdraw it as against partnership debts. Nor can he recover money which he has paid for being admitted to a partnership, in the absence of any fraud.

A corporation has no implied power to enter into a partnership; such power must be expressly conferred upon it by the legislature. In the Story Case, the corporations that were members of the General Sales Copartnership could not be held as partners, even though the organization was called a co-partnership, because no such power has been conferred upon corporations by the New York law.