This section is from the book "The Law Of Contracts", by Theophilus Parsons. Also available from Amazon: The law of contracts.
A secret partner is one not openly and generally declared to be a partner, (w) and a dormant partner is strictly one who takes no share in the transaction or control of the partnership business; but it is often held to mean one whose name is not publicly mentioned; and the phrases secret partner and dormant partner
(v) See Gilpin v. Enderbey, 5 B. & Ald. 954; Bond v. Pittard, 3 M. & W. 357. In this case, A and B carried on business together as solicitors in partnership, and held themselves out as such; and the defendant employed them in that capacity. By the agreement under which A and B entered into business together, B was to receive annually out the profits the sum of .£300, but he was not to be in any manner liable for the losses of the business, and was to have a lieu on the profits for any losses he might sustain by reason of his liability as a partner: Held, that A and B were properly joined as plaintiffs in an action for work and labor, as the money, when recovered, would he the joint property of both until the accounts were ascertained and the division took place. See
Perry v. Randolph, 6 Sm. & M. 385; Hazard v. Hazard. 1 Story, 374; Barrett v. Swann, 17 Me. 180; Pollard v. Stanton, 7 Ala. 761; Alderson v. Pope, 1 Camp. 404, n.; Minnit v. Whinery, 5 Bro. P. C. 489. See also Brown v. Leonard, 2 Chitt. 120.
(w) In United States Bank v. Binney, 5 Mason, 186, the following definition of a secret partnership is given: " I understand the common meaning of secret partnership to be a partnership where the existence of certain persons as partners is not avowed or made known to the public by any of the partners. Where all the partners are publicly made known, whether it be by one or all the partners, it is no longer a secret partnership." See 8. 0. 5 Pet. 529, are sometimes, but inaccurately, used as synonymous. (x) A dormant partner is liable when discovered. (y) But not for a debt contracted after he has retired, provided the creditor never knew that he was a partner, or did know that he had retired before credit was given to the partnership. (z)
If there be a dormant and unknown partner, and credit is given to the ostensible partner in the business of the firm and for their benefit, all the partners whether known or unknown, are liable. (zz) It is said that a dormant partner cannot join as plaintiff in an action, because there is no sufficient privity of contract between him and the party who contracted with the firm. (a) 1 But he may be sued and joined as defendant. (b)
(x) In Mitchell v. Dall, 2 Harr. & G. 159, it is said that in the legal acceptation of the term dormant, as applied to partners in trade, every partner is considered dormant unless his name is mentioned in the firm, or embraced under general terms in the name of the firm or company. See to the same effect Kelley v Hurlburt, 5 Cowen, 534; Desha v. Holland, 12 Ala. 513; Hill v. Voorhies, 22 Penn. St. 68. - The law relative to dormant partners seems to be confined to trade and commerce, and does not extend to speculations in the sale and purchase of land. Pitts v. Waugh, 4 Mass. 424; Smith v. Buruham, 3 Sumner, 470. But see Brooke v. Washington, 8 Gratt. 248, contra.
(y) Robinson v. Wilkinson, 3 Price, 538; Winship v. Bank of U. S., 5 Pet. 529; Parker v. Canfield, 37 Conn. 250; Holland v. Long, 57 Ga. 36; Gilmore v. Merritt, 62 Ind. 525; Lindsey v. Edmis-ton, 25 Ill. 359; Richardson v. Farmer, 36 Mo. 35; Bromley v. Elliot, 38 N. H. 287; Griffith v. Buffum, 22 Vt. 181. See also Lea v. Guire, 13 Sm. & M. 656; Bigelow v. Elliott, 1 Clifford, 28. - The liability of a dormant partner to creditors may be avoided, however, by proof of fraud in the formation of the partnership, if such dormant partner has received no share of the funds. Mason v. Connell, 1 Whart. 381.
(z) Grosvenor v. Lloyd, 1 Met. 19. In this case, Shaw, C. J, observed, "A dormant partner is liable for debts contracted while he is a partner, not because credit is given to him, but because he is in fact a contracting party, taking part of the profits of such contracts. But when he ceases to be in fact a partner, the reason ceases and he is no longer liable. He is not liable as a contracting party, because the partnership name, under which the remaining partners continue to transact business, no longer includes him, though that name may remain the same; and he is not liable as holding out a false credit for the firm, because the case supposes that he is not known as a partner, and therefore the firm derives no credit whilst he remains a secret or a dormant partner. No customer, therefore, or other person dealing with the firm can be disappointed in any just expectations, if he silently withdraws from the firm. A very different rule would apply where one had been a known or ostensible partner, and held himself out as such." See also Kelley v. Hurlburt, 5 Cowen, 534; Evans v. Drum-mond, 4 Esp. 89; Armstrong v. Hussey, 12 S. & R. 315; Scott v. Colmesnil, 7 J. J. Marsh. 416; Benton v. Chamberlain, 23 Vt. 711; Edwards v. McFall, 5 La. An. 167; Brooke v. Enderby, 2 Br. & B. 71; Carter v. Whalley, 1 B. & Ad. 11.- It is a question for the jury whether a person was a dormant partner, and his interest not in fact generally known, so as to excuse notice of his retirement from the firm. Shaw, C. J., in Goddard v. Pratt, 16 Pick. 429. See as to dormant partners Deford v. Reynolds, 36 Penn. St. 325, where also the doctrine is laid down that one who is a member of a firm known as R. M. & Co. does not become a dormant partner by reason of the creditor's ignorance of the name of R. M.'s co-partner.
(zz) Richardson v. Farmer, 36 Mo. 35.
(a) Wood v. O'Kelley, 8 Cush. 406, Jackson v. Alexander, 8 Tex. 109.
(b) Boardman v. Keeler, 2 Vt. 65; Lloyd v. Archbowle, 2 Taunt. 324.
1 A dormant partner may be joined as plaintiff but he need not be. Bank of St. Mary's v. St. John, 25 Ala. 566; Wright v. Herrick, 125 Mass. 154; Leslie v. Wiley, 47 N. Y. 648; Garrett v. Mailer, 37 Tex. 589; Waite v. Dodge, 34 Vt. 181.
A secret partner, who conceals his interest in the firm to protect it from attachment, may have his bill in equity for an account against partners privy to the concealment. (bb)
 
Continue to: