Story Case

Arthur McGill and Homer Shull were partners, dealing in real estate as Arthur McGill & Company. All of the contracts made by the firm were in the firm name, but the deeds to property were held in the names of the partners jointly. It was agreed between them that all contracts for the purchase of real estate should be signed by McGill personally. Nevertheless, Shull executed a contract with James Laflin for the purchase of certain property and signed the firm name, "Arthur McGill & Company." Later, McGill refused to take the property, saying that Shull had no authority to sign the firm name to such a contract, and that a partner is not bound to the sale of real estate unless he consents to it. What can Laflin do?

Ruling Court Case. Rovelsky Vs. Brown, Volume 92 Alabama Reports, Page 522; Same Case, Volume 25 American State Reports, Page 83

B. S. Brown and A. J. Smith were partners, doing business in Osark, Alabama, under the firm name of Brown and Smith. Their business consisted in buying and selling real estate for speculation and profit. In the course of the business, Brown, in the name of the firm sold a house and lot in Osark to Rovelsky, for the sum of $700. He received $500 in cash and signed the firm name to a bond for title, purporting to bind the partners, under the firm name of Brown and Smith. Rovelsky was put in possession of the property by Brown, and thereafter tendered the balance due on his purchase, and demanded of the partners a conveyance of title to the property. Smith, when informed of the sale, refused to join in the conveyance or to recognize the sale. Thereupon, Rovelsky filed this bill against Brown and Smith, asking that they be compelled to convey him a title to the property in question. To this demand, the defendant, Brown, replied that he was not bound upon the contract of sale, because it was made without his consent or authority.

Decision

As a general rule, one partner has no implied power to sell realty belonging to the firm, but in cases where the partnership deals in realty as a business and where its stock in trade consists of realty, for the purpose of partnership business, such realty in equity is considered as personalty, and either partner may dispose of it, provided such partner does not exceed his authority, or apparent authority.

Mr. Justice Walker, who delivered the opinion of the Court, said: "Our conclusion is that partnership real estate is, in equity, and for partnership purposes, to be treated as personalty, and, that one member of a partnership engaged in the business of buying and selling real estate can bind the firm by contract in the firm name for the sale of partnership realty, and that such contract should be specifically performed against all the partners." It was therefore held, that the plaintiff was entitled to specific performance of his contract. The Court ordered that both partners sign a deed in favor of Rovelsky.

Ruling Law. Story Case Answer

It has been seen heretofore, that real estate cannot be owned by the partnership as a firm. Title to real estate must be held in the name or names of a member or members of the firm. But, otherwise, substantially the same rules govern the purchase and sale of realty by a partner as govern the purchase and sale of personal property. Where partners are engaged in the business of buying and selling real estate, as is often the case, each partner has implied power to buy real estate on credit of the firm, and though he may take title to it in his own name, the other partner may be compelled to pay for it as firm property.

Thus, too, in such a partnership, each partner has implied power to sell or mortgage partnership realty and such act will bind the firm. Here, it must be noted that, for partnership purposes, realty is treated in equity courts as personalty, with this exception, that all the members in whose name the title stands, must join in a conveyance of the property. However, if one partner in the usual course of business has sold realty belonging to the partnership, equity courts, as a matter of form, will compel the remaining partners to join the conveyance.

Where title to partnership realty is held by one partner alone, he may sell and pass good title thereto to a purchaser who does not know that it is partnership property and pays value for it. If such purchaser is aware that it is partnership property, he will be protected in the purchase, only in case he can show that the partner, with whom he dealt, acted within the scope of his authority in making the sale. Laflin can compel the firm to receive the real estate in the Story Case, because the business of the firm was dealing in real estate, and therefore, each partner had the apparent power to make such contracts in the name of the firm.