A partner, even in a trading firm, has no implied power to make a general assignment for the benefit of creditors or to submit controverted firm matters to arbitration; nor has he implied power to confess judgment against the firm nor to give a power of attorney to do so. As a rule, he has no implied power to make an instrument under seal which will bind the firm. He has, however, implied power to bind the firm by a release under seal of a firm obligation.

417. Liability of a partner.—Firm obligations are of two classes those which arise from contract, either express or implied, and those which arise from tort. The liability of the partners in the former case is joint, and not joint and several. Each partner is liable to firm creditors for the full amount of their just claims. This was held by Justice Field:1

It is true that each co-partner is bound for the entire amount due on co-partnership contracts; and that this obligation is so far several that if he is sued alone, and does not plead the non-joinder of his co-partners, a recovery may be had against him for the whole amount due upon the contract, and a joint judgment against the co-partners may be enforced against the property of each. But this is a different thing from the liability which arises from a joint and several contract. There the contract contains distinct engagements-that of each contractor individually, and that of all jointly-and different remedies may be pursued upon each. The contractors may be sued separately on their several engagements or together on their joint undertaking. But in co-partnerships there is no such several liability of the co-partners. The co-partnerships are formed for joint purposes. The members undertake joint enterprises, they assume joint risks, and they incur in all cases joint liabilities. In all co-partnership transactions this common risk and liability exist. Therefore it is that in 1 Mason v. Eldred, 6 Wall. (U. S.) 231.

suits upon these transactions all the co-partners must be brought in, except where there is some ground of personal release from liability, as infancy, or a discharge in bankruptcy; and if not brought in, the omission may be pleaded in abatement. The plea in abatement avers that the alleged promises, upon which the action is brought, were made jointly with another and not with the defendant alone-a plea which would be without meaning if the co-partnership contract was the several contract of each partner.

The liability of the partners for firm obligations growing out of tort is joint and several; the party injured may sue any number of the partners.

1

418. Partnership liability by estoppel. A person may render himself liable as a partner by holding himself out as such. Lord Ellenborough decides this point as follows: "A person may make himself liable as a partner with others in two ways: either by a participation in the loss or profits, or in respect of his holding himself out to the world as such, so as to induce others to give a credit on that assurance." To render a person liable as a partner on the ground of estoppel two things must concur: (1) the holding out must be done by him or his authorized agent; (2) it must be known. and acted upon by the party who seeks to avail himself of it.

419. Partner's right to contribution.-It has heretofore been stated, that each partner is liable in solido for the firm obligations. After a judgment has been obtained against the ostensible partners, execution may be levied upon the individual property of any of the partners for the full amount of the judgment. But when a partner has been compelled to pay a firm debt he is entitled to contribution from his co-partners for

1 McIver v. K. B. (1812).

their pro rata shares. This right is enforcible by a court of equity upon filing a bill for an accounting.

420. Statutory exemptions.-By the weight of authority, statutory exemptions from execution do not apply to firm property. In some states, however, including New York and Michigan, the rule is otherwise.

421. Incoming and out-going partners.-When a person becomes a partner of a previously existing firm he does not thereby become liable for the existing firm debts. Theoretically, the old firm is dissolved, and a new one created. Likewise, when a partner withdraws from the firm, the old firm, theoretically, is dissolved; the retiring partner in such case is still liable for the debts of the old firm. He is not liable, however, for the debts of the new firm, provided proper notice of his retirement has been given.

422. Notice required.-Those who have had dealings with the old firm are entitled to actual notice of the withdrawal of the retiring partner. Mere publication of a notice in a newspaper is not sufficient. The mere mailing of a notice is not sufficient, it must be actually received. The mailing of a notice, properly addressed, raises a presumption of its due receipt, but the presumption may be overthrown.

As regards those who knew of the existence of the old firm, but who had no dealings with it, a general notice published for a reasonable period in a newspaper of general circulation where the firm business has been carried on, is sufficient.

CHAPTER XXVI

CORPORATIONS

423. Nature of corporations.-A corporation is a legal unit composed of one or more persons who act as a single unit by virtue of a grant from a state legislature or from the Federal Congress. At one time in the history of English law each corporation received a separate grant from the king or from parliament, and in our own country, the early corporations were formed by a special enactment of a state legislature for each corporation. At about 1840 general corporation laws were passed by some of the states,' providing that a number of individuals, by complying with the provisions of the general statute, might form a corporation without resorting to the legislature for a separate charter except in certain cases. At the present time the vast majority of corporations are formed under these general acts, but there are a few recent instances of corporations formed by special enactment where the objects of the proposed corporation could not be accomplished by complying with the provisions of the general statutes.

There are to-day three important differences between a corporation and a partnership, besides the fundamental distinction that the former cannot be formed without the consent of the state while the latter may be formed by mere agreement.

1. A partnership is dissolved if a partner retires;

1 Following the lead of New York which passed the first general corporation act in 1811.

while the shareholders of a corporation may transfer their rights and holdings without destroying the life of the corporation.

2. Each partner is an agent for the firm, while in a corporation the only agents are those appointed by the directors who in turn receive their authority from the stockholders. The stockholders as such cannot act for the corporation.

3. Each partner is liable out of his own personal estate for all the debts of the firm, while shareholders have no liability beyond that of paying in full for their shares of stock. This rule, however, has been changed in certain instances by state legislatures, as for example, where stockholders in banks and trust companies are liable to creditors for an amount equal to the par value of their holdings, or where stockholders are personally liable for debts due employés of the corporation for labor done.

It must be remembered that the law of corporations is almost entirely statutory and that different rules obtain in the different jurisdictions of the United States. For that reason whatever is said in the following sections about the rights and liabilities of corporations, their stockholders, directors and creditors may not apply to the corporations formed under the laws of any given jurisdiction. What is aimed at is an exposition of general principles to which the average corporation statutes conform.

424. Definitions and classifications.-As will be explained later, the individuals who apply to the state for a charter are called incorporators. They usually agree to take a certain interest in the corporation after it is formed, in which event they become shareholders or stockholders. They may then transfer their interests to other persons who in turn become the stockholders