The duty to observe good faith applies not only to the members of a going concern, but also to persons who have been partners and whose partnership affairs have not been completely wound up. 406. Duty to exercise care and skill.-A partner is bound to exercise reasonable care and skill in the management of the firm business. He is not liable, however, to his co-partner for losses arising from such lack of discretion or judgment, as falls short of negligence or the exercise of bad faith. 407. Duty to conform to partnership articles.-Each partner is under obligation to conform to all the stipulations in the articles of partnership. A breach of duty in this respect, resulting in a loss to his co-partner, must be made good by him. 408. Partnership accounts.-Each partner has the right to have kept true accounts of all the firm transactions. He also has the right, at all reasonable times, to inspect the books of the firm. When the firm has a bookkeeper, it is the duty of each partner to furnish him all necessary information concerning firm transactions. In the absence of a bookkeeper it is the duty of each partner to keep correct accounts of his transactions that relate to the firm business; and when he fails to do this all reasonable presumptions will be made against him. 409. Right to contribution and indemnity.-Each partner is entitled to be indemnified for payments made by him on behalf of the firm and growing out of the proper conduct of the firm's business. This is due to the fact that each partner is an agent of the firm. Where a partner is compelled to pay more than his share of the firm debts he is entitled to contribution from his co-partners for their due proportion. A partner may be entitled to contribution even when the partnership transaction is tainted with illegality. When, however, the partnership itself is an illegal partnership, or the partner seeking contribution has knowledge of the illegality of the transaction the right of contribution does not exist. This may be seen by a quotation from Mr. Justice Lindley: 1 The claim of a partner to contribution from his co-partners in respect to the partnership transaction cannot be defeated on the ground of illegality unless the partnership is itself an illegal partnership; or unless the act relied on as the basis of the claim is not only illegal, but has been committed by the partner seeking contribution when he knew or ought to have known of its illegality. In any of these cases he can obtain no assistance against his co-partners, and must abide the consequences of his own willful breach of the law. But if the partnership is not itself illegal, and if the partner claiming contribution has not himself been personally guilty of a breach of the law, his claim will prevail, although the loss in respect of which it is made may have arisen from an unlawful act. 410. Right to compensation.-In the absence of an express agreement a partner is not entitled to compensation for services rendered; and this applies even to a managing partner. It also applies where extra services are rendered by a partner owing to the sickness of his co-partner, and when services are rendered by a surviving partner in winding up the business of the firm. It has been held, however, that under special circumstances a surviving partner may be entitled to extra compensation for his services. It has also been held that a partner is entitled to compensation when extra services on his part have been made necessary by wilful neglect of duty of his co-partner. 3 1 Lindley on Partnership (Ewell's 2nd ed.), 378. 411. Right to interest on balances.-In the absence of an express or implied contract to pay interest on balances it should not be allowed, except on unpaid subscriptions to capital. There is much conflict, however, among the authorities upon this question. 412. Private benefits: carrying on a separate business.-A partner is not permitted to obtain private benefits from a firm transaction. This was said by Mr. Justice Jackson, speaking for the court, in a federal It is well settled that one partner cannot, directly or indirectly, use partnership assets for personal benefit; that he cannot, in conducting the business of a partnership, take any profit clandestinely for himself; that he cannot carry on the business of the partnership for his private advantage; that he cannot carry on another business in competition or rivalry with that of the firm, thereby depriving it of the benefit of his time, skill, and fidelity, without being accountable to his co-partners for any profit that may accrue to him therefrom; that he cannot be permitted to secure for himself that which it is his duty to obtain, if at all, for the firm of which he is a member; nor can he avail himself of knowledge or information which may be properly regarded as the property of the partnership, in the sense that it is available or useful to the firm for any purpose within the scope of the partnership business. 413. Power of majority.-In the absence of an agreement, matters which come within the scope of the partnership business are within the powers of the majority of the partners. It is essential, however, that the majority of the partners act in good faith. This doctrine was announced in a Pennsylvania case: 1 Kimberly v. Arms, 129 U. S. 512. 2 Markle v. Wilbur, 200 Pa. St. 457, 50 Atl. Rep. 204. 2 The majority of the members of the partnership may, in case of diversity of opinion, manage the business as they see fit, acting in good faith, and within the powers necessary to the management, and not withheld by the articles of partnership, without being liable for losses which could not be fore seen. The majority, however, have no implied authority to engage the firm in a different business, or make other radical changes not authorized by the articles of partnership; nor has a majority of the partners implied power to expel a member of the firm. 414. Partner's lien.-A partner has an equitable lien upon the firm property to the extent that he has a right to have it applied in the payment of the firm debts, and to have the surplus applied in payment of debts due to the partners, less what may be due from them to the firm. This lien exists during the time the firm is a going concern, but it does not become available until a partner's share is sought to be ascertained or until dissolution of the firm. In the case of an illegal partnership it does not exist; and when the firm property is converted in good faith into the separate property of a partner, or a valid sale of it is made to a third party, the lien is lost. 415. Implied powers of partners.—The implied powers of the members of a trading firm are much greater than those of the members of a non-trading firm. In a trading firm each partner has implied power to perform acts which are reasonably necessary to carry on the business of the firm. He has no implied power, however, to bind the firm in matters outside the ostensible scope of the business. The original scope of the business may be extended, however, by subsequent acts of the partners. This was decided in an Iowa Where a partnership firm, embarked in a particular business to which their engagements are confined, and to which alone their partnership contracts extend, by mutual agreement enlarge the sphere of their operations and include another branch of business, the power of each partner to bind the firm by his contracts, is co-extensive with the whole business of the partnership; and the acts of each member are as binding on the firm in the new branch of business in which they are engaged as they are in the former regular and ordinary business. 416. Incidental implied powers.—In a trading firm each partner has implied power to buy goods for use and sale; to sell firm property which is for sale; to borrow money for the use of the firm and to execute therefor negotiable paper in the firm name; to receive payment of debts due the firm and give receipts therefor; to compromise debts owing to the firm, within reasonable limitations; to hire property for the use of the firm; to pledge or mortgage firm personalty to secure payment of money borrowed, for use of the firm; to pay firm debts; to make contracts of suretyship and guaranty in the firm name, within the scope of the partnership business; and to employ agents and servants whose services are reasonably necessary for the proper transaction of the business. He also has implied power to sue or to defend, in behalf of the firm. In either case, however, if he does so against the consent of his co-partners he renders himself liable to indemnify them for the costs. Admissions by a partner, within the scope of the partnership business, are binding on the firm. 1 Boardman v. Andrews, 5 La. 224. |