Story Case

Howard Watson, a private banker, agreed to lend money to James Libby for use in his brokerage business, provided Libby should give Watson fifty per cent of the profits. After the parties had been under this contract for some time, Libby deceived certain persons into believing that he and Watson were partners. Watson was aware that these representations were being made but remained silent about the matter. Roscoe Beach became a creditor of Libby, under these circumstances, and later, when his account was not paid, brought suit against Watson alleging that the latter became liable as a partner, although a partnership did not actually exist. What should be the holding of the Court.

Ruling Court Case No. 1. De Berhon Vs. Smith And Lewis, Volume 1 Esping-Ham Reports, Page 29

The plaintiff, De Berkon, living in Flanders, was a dealer in laces. The defendants, Smith and Lewis, applied to him for a consignment of goods on credit. The plaintiff, not knowing anything of them, applied to his correspondent in London for information concerning them. The correspondent had discounted some bills for Smith and, on one occasion, Lewis had been introduced to him as a partner. This information was communicated to the plaintiff. He, thereupon, furnished the goods applied for.

This action was brought by the plaintiff against the defendants, jointly charging them, as partners, for the goods which were consigned to them by the plaintiff.

Chief Justice Kenyon gave the opinion: It was said that persons might be special partners in a particular concern or business, but that notwithstanding, if they did not appear to the world as partners, that it should not be sufficient to constitute a general partnership and make them liable in other cases not connected with actual partnership business. The evidence showed that Lewis, in fact, had represented himself to the plaintiff as partner, in trade with Smith. Under such circumstances, Chief Justice Kenyon said that if a person represents himself to be a partner of another, and by that means gets credit, both would be liable, even though no partnership in fact existed as between the parties sought to be charged. Accordingly, it was held that the plaintiff could recover for his goods from the defendants as partners.

Ruling Court Case No. 2. Pullen Vs. Fletcher, Volume 70 Maryland Reports, Page 205; Same Case, Volume 14 American State Reports, Page 355

Pullen, who was a nursery man in Newford, Delaware, sued Bramble and Fletcher as partners in the same business in Cambridge, Massachusetts, for fruit trees which were sold and delivered to them. Bramble died before the action came on for trial, and Fletcher defended, upon the ground that he was not a partner. It developed in the evidence, that Bramble leased land from Fletcher upon which he conducted his business. He had repeatedly written to the plaintiff, stating that he and Fletcher were partners; all these letters and communications were signed in the name of "Bramble and Fletcher". Bramble, in the same name, ordered a consignment of fruit trees from the plaintiff; the plaintiff knew nothing about the firm, and, accordingly, wrote to a reference which had been sent to him by Bramble; from this reference, he received the information that Fletcher was financially able to meet such obligations, but that Bramble was worth nothing. Under these circumstances, the plaintiff, relying solely upon the credit of Fletcher, furnished the trees as ordered.

It was also shown that Bramble had caused advertisements of his business to be inserted in two newspapers, in which it was asserted that he and Fletcher were partners in the nursery business; it was shown that Fletcher was a subscriber and reader of both papers; it did not appear that Fletcher ever made any effort to correct the belief that he was a partner engaged in business with Bramble.

Decision

"The ground of liability of a person as partner who is not so in fact, is, that he has held himself out to the world as such, or has permitted others to do so, and, by reason thereof, is estopped, from denying that he is one, as against those who have in good faith dealt with the firm, or with him as a member of it. But it must appear that the person dealing with the firm believed, and had a reasonable right to believe that the party he seeks to hold as a partner was a member of the firm, and that the credit was to some extent induced by this belief. It must also appear that the holding out was by the party sought to be charged, or by his authority, or with his knowledge and assent. This, where it is not the direct act of the party, may be inferred from circumstances, such as advertisements, shop bills, signs or cards, and from various other acts from which it is reasonable to infer that the holding out was with his authority, knowledge or assent; and whether a defendant has so held himself out, or permitted it to be done, is in every case a question of fact and not of law." Accordingly, the Court held that the foregoing evidence, recounted in the statement of facts, should have been submitted to the jury, from which they might have made such deductions as they chose.

Mr. Justice Miller, in reply to the inquiry as to what the defendant might have done to rectify the mistaken belief, said in part: "We do not say he was under a legal obligation to publish a repudiation of the partnership in the same newspapers or in any other, though this would seem to be a very obvious and a most efficient mode of proclaiming such a denial, and the fact that he failed so to do was a circumstance to go to the jury. But we take it that the rule upon the subject stated by a very eminent jurist is reasonable and just: 'If one is held out as a partner, and he knows it, he is chargeable as one, unless he does all that a reasonable and honest man should do, under similar circumstances, to assert and manifest his refusal and thereby prevent innocent parties from being misled.' " It was held that the case should be sent back to the trial court to be retried in accordance with the foregoing principles.

Ruling Law. Story Case Answer

If a person holds himself out or permits others to hold him out, as a partner in a given business, whereby third persons are misled, he may be held as a partner, even though, in fact, he has no connection with the business. Under these circumstances he is sometimes referred to as a "partner by estoppel". This means that the law will not permit a man to deny that he is a partner, when he has influenced others to believe that he is one, or has permitted the belief to exist without any attempt to rectify the mistake.

It is unnecessary to state that this does not imply a continuous supervision of the representations of a man's business associates. But, in a case where an unwary person might reasonably believe a misrepresentation, and act upon this belief, precaution should be taken by making a statement of facts.

In the Story Case, Watson is liable as a partner, for not having acted when the misrepresentation was made.