This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Although no partnership in fact exists, or although its powers have been exceeded, third persons who have been misled as to the existence or powers of the partnership and have acted in reliance on such belief, may enforce partnership liability against those persons who have so misled them and held themselves out as members of the partnership in question or have held out the person with whom such third person dealt as a. member thereof.1 A partnership is liable for the transactions of one whom they allow to act as a partner.2 So where creditors trust persons as partners, and property as firm property, they may subject such property to their debts as against individual partners or their creditors.3 So secret limitations on the apparent power of a partner are ineffectual as to one dealing -with him in ignorance thereof,4 as where a partner had been for years accustomed to sign his firm's name to accommodation paper and they had acquiesced therein.5 So introducing one as a partner, putting his name on letter heads and signing a letter announcing that he is a member of the firm is admissible to prove liability as a partner.6 So a contract with a firm whereby the firm is to furnish goods as a set-off against a debt incurred against the firm is binding upon a subsequent secret partner, so that after such goods are furnished the new firm cannot recover from the party to whom they are furnished.7
6 At least such attorney may represent the firm in court. Clark v. By., 136 Pa. St. 408; 10 L. R. A. 238; 20 Atl. 562. So the majority if acting in good faith cannot be charged with losses caused by events that could not be foreseen, as long as they act within the scope of the partnership business, even though the minority object. Markle v. Wilbur, 200 Pa. St. 457; 50 Atl. 204.
7 Wood v. Martin, 115 Ga. 147; 41 S. E. 490; Rothrock Construction Co. v. Mfg. Co., 80 Miss. 517; 32 So. 484.
1 McGowan v. Tan Bark Co., 121 U. S. 575; Tillis v. McKinna, 114 Ala. 311; 21 So. 465; Carlton v. Grissom, 98 Ga. 118; 26 S. E. 77; Gray v. Blasingame, 110 Ga. 343; 35 S. E. 653; Daugherty v. Heckard, 189 111. 239; 59 N. E. 569; Janes v. Gilbert. 168 111. 627; 48 N. E. 177; affirming, 68 111. App. 611; Dooley v. Vance, 97 111. App. 42; Janes v. Bergevin, 83 111. App. 607; Wilson v. Roelofs, 88 111. App. 480; Waller-ich v. Smith, 97 Ia. 308; 66 N. W. 184; Ridep v. Hammell, 63 Kan. 733; 66 Pac. 1026; Green v. Taylor, 98 Ky. 330; 56 Am. St. Rep. 375; 32 S. W. 945; Safety, etc., Association v. O'Meara (Ky.), 58 S. W. 775; Johnson v. Marx, 109 La. 1036; 34 So. 68; Houston River Canal Co. v. Kopke, 106 La. 609; 31 So. 156; Stimson v. Whitney, 130 Mass. 591; Princeton, etc., Co. v. Gulick, 16 N. J. L. 161; Fowler v. Bank (Tenn. Ch. App.), 57 S. W. 209; Bartlett v. Clough, 94 Wis. 196; 68 N. W. 875.
2 Chicago, etc., Bank v. Kinnare, 174 111. 358; 51 N. E. 607; reversing, 67 111. App. 186; Tyler v. Omeis, 76 Minn. 537; 79 N. W. 528.
3 Thayer v. Humphrey, 91 Wis. 276; 51 Am. St. Rep. 887; 30 L. R. A. 549; 64 N. W. 1007.
The reason for this general rule is that third persons are not bound to know of the existence, scope or powers of a partnership, and under principles of estoppel may rely upon representations made to them, believed by them and acted on by them, so as to preclude those making such representations from afterwards denying them.8 Estoppel may operate conversely to prevent proof of an existing partnership. Thus, if A has by his conduct induced X to believe that B is the sole party in interest and to deal with him accordingly, A is estopped from proving that he was in fact B's partner.9 This last principle is not, however, acquiesced in by all the courts. One who purchases goods as an individual is not estopped to show that he is acting for a firm of "which he is a member, when the vendor undertakes to apply a payment made for such goods to an individual debt due from such individual.10
4 Irwin v. Williar, 110 U. S. 499; Bass Dry-Goods Co. v. Mfg. Co., 113 Ga. 1142; 39 S. E. 471; McDonald v. Fairbanks, 161 111. 124; 43 N. E. 783; affirming, 58 111. App. 384; Crane Co. v. Tierney, 175 111. 79; 51 N. E. 715; reversing, 75 111. App. 354; Rice v. Jackson, 171 Pa. St. 89; 32 Atl. 1036.
5 Bank, etc., v. Weston, 159 1ST. Y. 201; 45 L. R. A. 547; 54 N. E. 40; Second National Bank v. Weston, 161 N. Y. 520; 76 Am. St. Rep. 283; 55 N. E. 1080.
6 Peninsular Savings Bank v. Cur-rie, 123 Mich. 666; 82 N. W. 511.
7 Neeley v. Flummerfelt, 116 Mich. 344; 74 N. W. 1118, and see Rogers v. Batchelor, 12 Pet. (U. S.)
221; Locke v. Lewis, 124 Mass. 1; 26 Am. Rep. 631. Though such prior debt was not of itself binding on the incoming partner.
See Sec. 955.
8 An interesting example arising occasionally under estoppel, of those cases where a person cannot lie though he tries strenuously to do so, exists where a retiring partner allows a third person to deal with the firm after dissolution under the belief that he is still a member. As he is thus estopped to deny the partnership, he is not guilty of fraud. Wilson v. Roelofs, 88 111. App. 480.
9 Willard v. Bullen, 41 Or. 25; 67 Pac. 924; 68 Pac. 422.