Contracts with Partners. affect such persons with notice, if they continue to give credit CH. IX. s. 2. on the footing of the continuance of the partnership (u). And if a partner retire without notice being given in the Gazette, and the name of the firm be still preserved, a person who deals with the firm after the dissolution, may still call upon all the original parties, unless he had notice, or knew that one of them had retired (x). But the retiring partner is not jointly liable with the continuing Liability of retiring partners, as appears from the decision of the House of Lords in partner. Scarf v. Jardine (y). A public notice, however, will be sufficient to exonerate a What notice retiring partner from responsibility on contracts entered into necessary. by the firm after the dissolution, with persons who were not previously actual customers of the firm (z); even although the remaining partners carry on the concern under the style of the old firm, provided this be done without the consent of the retiring partner (a); for the mere fact that the retiring partner allows the continuing partner to carry on business in the old firm's name is not such a "holding out" of the retiring partner as will render him liable for a debt of the firm contracted after the dissolution with a person who had not dealt with the old Notice of dissolution. firm, and who had no knowledge of the dissolution (b). And a dormant, or secret partner, need give no notice whatever of his retirement, in order to discharge himself from liability to persons who did not know of his being a partner, and who subsequently contract with the firm (c). But where the fact of a man being a dormant partner has become known to any person or persons, he will be in the same situation in this respect as to all such persons, as if the existence of the partnership had been notorious (d). So it is clear that an express notice of the dissolution, or actual knowledge thereof, must be proved, in order to discharge a retiring partner from responsibility on the subsequent dealings of the firm with persons who, before the dissolution, trusted and dealt with the firm (e); for a mere publication of dissolution in the Gazette does not affect them with notice (f). C. A. (c) Per Cresswell, J., Farrar v. DeAlinne (1843), 1 C. & K. 580; Carter v. Walley (1830), B. & Ad. 11. (d) Per Cresswell, J., Farrar v. DeAlinne (1843), 1 C. & K. 580. (e) See Hart v. Alexander (1837), 7 C. & P. 746, 753; Kirwan v. Kirwan (1834), 2 C. & M. 617; Graham v. Hope (1793), Peake, 208; 3 R. R. 671. (f) Beckett v. Ramsdale (1885), 31 Ch. D. 177, C. A. CH. IX. s. 2. Effect of Dissolution of Partnership). Effect of death of one partner. Continuing authority of partners for purpose of winding-up. Restriction on numbers by Companies Act. So, if a person has notice that it is the intention of the partners to dissolve partnership, and that such intention is in the course of execution; he cannot, in any subsequent transaction, treat the partnership as continuing, unless he prove that such intention has been abandoned. After the death of one partner a personal contract with partners cannot be enforced against the survivors (g); but if the contract be not personal, the law is otherwise (h). As to the continuing authority of partners for purpose of winding-up, it is provided by the 38th section of the Partnership Act, 1890, 53 & 54 Vict. c. 39, that 38. After the dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners continue notwithstanding the dissolution so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise. Provided, that the firm is in no case bound by the acts of a partner who has become bankrupt; but this proviso does not affect the liability of any person who has after the bankruptcy represented himself or knowingly suffered himself to be represented as a partner of the bankrupt. (d) Illegal Partnerships. The Companies Act, 1862, s. 4, forbids the formation after the Act of any association of more than ten persons for banking, or more than twenty persons for any other business having for its object the acquisition of gain by the association of members, unless it is registered under that Act, or some other Act, or letters patent. But this does not apply to associations formed before the Act, although new members have been from time to time joined subsequently (i); but if formed after the Act, although at its inception it has less than twenty members, yet after by new members joining it becomes more than twenty, it will become illegal (k). There must be a carrying on a "business" for gain; so that an investment trust whereby a number of hazardous securities were vested in trustees with powers of disposing, changing, and reinvesting the securities to benefit the cestuis que trusts by the doctrine of averages was held to be no illegal partnership (1), and a "land society" is not illegal (m). (g) Tasker v. Shepherd (1861), 30 L. J., Ex. 207. (h) Phillips v. Hull Alhambra Palace Co., [1901] 1 K. B. 59. (i) Shaw v. Simmons (1883), 12 Q. B. D. 117. (k) Ex parte Poppleton (1884), 14 Q. B.D. 379. (1) Smith v. Anderson (1880), 15 Ch. D. 247, C. A., disapproving Sykes v. Beudon (1879), 11 Ch. D. 170. (m) Crowther v. Thorley (1884), 32 W. R. 330; In re Siddall (1885), 29 Ch. D. 1, C. A. But a “mutual marine assurance association" was held illegal CH. IX. s. 2. because gain was acquired by the individual members (n); likewise Contracts loan societies and money clubs are illegal (0). with Partners (Megal And various other statutes make partnerships for particular Partnerships). objects illegal; these are given in Lindley on Partnership, 5th ed., pp. 91 et seq.; and so partnerships for objects contrary to the common law, such as for robbery, or selling indecent books, are illegal. The effect of the illegality is that such an illegal association Effect of cannot sue on its contract (p), although as between the society illegality. and a member the member may be bound by acquiescence (q); but other parties can sue on the contract, and the members of the association will be liable as partners without limitation (1), for it cannot be wound up (8). SECT. 3.-Joint Stock Companies (t). and charac Companies may be defined as large (u) partnerships, whose Definition numerous members are constituted into one legal person by teristics. registration (x) under the general "Companies Acts," or by some special Act of Parliament under the "Companies Clauses Consolidation Act, 1845," 8 & 9 Vict. c. 16, or by charter granted by the Crown; so that the management of the business is vested in the directors of the company controlled by a majority of the shareholders; and any such act of management, if legal and intra vires, will bind the minority. Further characteristics are that interest in the company is usually transferable at will by assigning the shares according to the regulations of the company; that there is no personal liability on the members except in the winding up; and that even then in the majority of cases their liability is "limited" to the nominal value of their shares. under By the Companies Act, 1862, 25 & 26 Vict. c. 89, s. 4, more Companies than ten persons may not carry on banking, and more than Companies twenty persons may not carry on any other business for gain (n) In re Padstow Total Loss Association (1882), 20 Ch. D. 137, C. A.; Ex parte Hargrove (1875), L. R., 10 Ch. 542. (0) Jennings v. Hammond (1882), 9 Q. B. D. 225; Shaw v. Benson (1883), 11 Q. B. D. 563, C. A.; Ex parte Poppleton (1884), 14 Q. B. D. 379. (p) Jennings v. Hammond (1882), Q. B. D. 225; Shaw v. Benson (1883), 11 Q. B. D. 563, C. A. (q) Ex parte Poppleton (1884), 14 Q. B. D. 379. (r) Norwich Fire (1887), 58 L. T. 95. Assurance Co. (s) Padstow Total Loss Association (1882), 20 Ch. D. 137, C. A. (t) See Lindley on Companies (1889), 5th ed.; Buckley on Companies (1891), 5th ed.; Palmer's Company Precedents (1895), 6th ed.; Healey's Joint Stock Companies (1894), 3rd ed.; Chit. Stat. (1895), 5th ed., tits. "Companies," and "Companies Clauses." (u) See, too, the definition of joint stock company in sect. 181 of the Companies Act, 1862. (a) As to the effect of registration, see sect. 18 of the Companies Act, 1862. Acts. Number of members. Contracts Joint Stock Number of Saloman v. CH. IX. s. 3. together unless their partnership be registered as a company under the Act, or be formed under some other Act, or by letters patent, or be a mining company within the stannaries; and by sect. 6 of the same Act, seven or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association, and otherwise complying with the requisites of that Act in respect of registration, form an incorporated company, with or without limited liability. It has been held by the House of Lords in Saloman v. Saloman (y), not to be contrary to the Act for a trader, in order to limit his liability and obtain the preference of a debenture-holder over other creditors, to sell his business to a limited company consisting only of himself and six members of his own family, the business being then solvent, all the terms of sale being known to and approved by the shareholders, and all the requirements of the Act being complied with. The great majority of existing companies have been registered as "limited," either under this Act or the amending Companies Act, 1879, 42 & 43 Vict. c. 76, under which companies heretofore registered as unlimited were empowered to re-register as limited. Promoters' contracts. Empress Obligation to state contracts in prospectus. The repealed Contracts entered into before the company is formed, as an ordinary rule, binds only the promoters (2), and not the company, even if mentioned in the articles of association (a), although, if such contract is intra vires, the company after incorporation may enter into a new contract upon terms of the old one; or, although it cannot by ratification obtain the benefit of a contract made before it came into existence (b), which is a mere nullity, it may be bound by the creation of an equitable liability, depending upon equitable grounds (c), or by part performance (d). The Companies Act, 1867, 30 & 31 Vict. c. 131, provided by sect. 38 (repealed by sect. 33 of the Companies Act, 1900, 63 & 64 Vict. c. 48) that- 66 Every prospectus of a company, and every notice inviting persons to subscribe for shares in any joint stock company, shall specify the dates and names of the parties to any contract entered into by the company, or the promoters, (y) Saloman v. Saloman, [1897] A. C. 22, reversing decisions of Williams, J., and of the Court of Appeal, [1895] 2 Ch. 323. (z) Kelner v. Baxter (1866), L. R., 2 C. P. 174; Scott v. Lord Ebury (1867), id. p. 255. As to recovery of costs of a special Act, see sect. 65 of the Companies Clauses Act, 1845, 8 & 9 Vict. c. 16, and Skegness and St. Leonards Tramways Co., In re, Hanly, Ex parte (1889), 41 Ch. D. 215, C. A., in which particular case a parliamentary agent was held not entitled to recover. (a) In re Northumberland Avenue Hotel Co. (1886), 33 Ch. D. 16, C. A. ; Eley v. Positive Assurance Co. (1876), 1 Ex. D. 88, C. A.; Browne v. La Trinidad (1887), 37 Ch. D. 1, C. A. (b) Natal Land and Colonisation Co. v. Pauline Colliery Syndicate, [1904] A. C. 120, approving Kelner v. Baxter, supra (z); In re Empress Engineering Co. (1880), 16 Ch. D. 125, C. A. (c) Touche v. Metropolitan Railway Warehousing Co. (1871), L. R., 6 Ch. 671. (d) Howard v. Patent Ivory Co. (1888), 38 Ch. D. 156. directors, or trustees thereof, before the issue of such prospectus or notice, CH. IX, s. 3. whether subject to adoption by the directors or the company or otherwise; and any prospectus or notice not specifying the same shall be deemed fraudulent on the part of the promoters, directors, and officers of the company knowingly issuing the same, as regards any person taking shares in the company on the faith of such prospectus, unless he shall have had notice of such contract.” Contracts with Joint Stock Companies. The remedy of the shareholder under this section was not Remedy for rescission and removal from register, but personally against the breach, directors (e). against directors Clause." The comprehensive words "any contract" were held to include personally. not only any contract putting an obligation on the company, but any contract which might, if known, have deterred a shareholder from applying for shares (ƒ), whether in writing or not (g); and the section led to so much practical difficulty, that it became usual, and almost universal, for companies to insert in their prospectuses a clause termed the "waiver clause," whereby appli- " Waiver cants for shares waived the benefit of the section; and also common to require each applicant expressly to waive the benefit of the section upon the face of his application for shares. The validity of these devices, which were occasioned if not necessitated by the absurdly wide terms of the Act of 1867, was not judicially tested until December, 1899, when the Court of Appeal, in Greenwood v. Leather Shod Wheel Co., Limited (h), condemned both waiver clause and waiver contract, when viewed in connection with the contracts of the company which they were framed to escape disclosure of, and held a shareholder suing for rescission to be entitled to compensation from directors and a promoter under sect. 3 (1) of the Directors' Liability Act, 1890, 53 & 54 Vict. c. 64; but Lindley, L.J., expressed the opinion that an honest waiver clause would, if necessary, be upheld. Not long afterwards was passed the Companies Act of 1900, 63 & 64 Vict. c. 48, the 10th Act of 1900. section of which, after enumerating with very great fulness the particulars, including "the dates of and parties to every material contract, and a reasonable time and place at which any material contract"-not being a contract entered into in the ordinary course of business, or more than 3 years before the publication of the prospectus-" may be inspected," which every prospectus must state, enacts by sub-sect. 5 that "Any condition requiring or binding any applicant for shares or debentures to waive compliance with any requirement of this section, or purporting to affect him with notice of any contract, document, or matter not specifically referred to in the prospectus, shall be void.” (e) Twycross v. Grant (1877), 2 C. P. D. 469, C. A.; Derry v. Peek (1889), 14 App. Cas. 337. (f) Twycross v. Grant (1877), 2 C. P. D. 469, C. A.; Sullivan v. Mitcalfe, 5 C. P. D. 455, C. A. (g) Arkwright v. Newbold, 17 Ch. D. 301. (h) Greenwood v. Leather Shod Wheel Co., [1900] 1 Ch. 421, C. A. |