34 



H O li T I r U L T U R E 



January 12, 1918 



SOME TIMELY LEGAL ADVICE 



A PARTNERSHIP EXPERIENCE 

 AND ITS TWO MORALS. 

 About two years uro. In a certain 

 purt of Iniliiinn. two men formed a 

 partnership for the purpose of (lolng 

 a wholesale business. One was an in- 

 side man, the other an outside, and 

 both had a wide acquaintance among 

 the firms they must look to for busi- 

 ness. It looked like an Ideal team. 

 Each man had saved money and both 

 contributed an equal amount to the 

 firm's capital. 



The new firm did business from the 

 start, and in six months was making 

 a little money. In a year it was doing 

 exceedingly well, and gave every pros- 

 pect of doing better as time went on. 

 When the business was eighteen 

 months old, the partners had their 

 first serious disagreement. It was 

 not about anything connected with the 

 business, but about a girl stenographer 

 in the firm's employ. Both men were 

 married. They fell out very deeply 

 over the thing, and after several 

 weeks of bitter wrangling, during 

 which the business, of course, suffered, 

 each man made the other a proposition 

 to sell his interest, but neither of the 

 propositions was accepted, and a dead- 

 lock resulted. 



The business was going from bad to 

 worse, when one of the partners went 

 off one day and sold his interest in the 

 firm to another salesman in the same 

 line. The deal involved several thou- 

 sand dollars, yet both parties decided 

 that they could put it through without 

 counsel — "it was just an ordinary 

 sale" — and they got together in a hotel 

 room and signed the papers which to- 

 gether they had drawn up. The buyer 

 paid halt of the purchase price in cash 

 and gave a note for the balance. The 

 seller in this case was the partner, who 

 had been at fault regarding the sten- 

 ographer. 



Following the deal, the buyer of 

 the half interest took his papers to tne 

 store of the firm and announced to the 

 remaining member of the partnership 

 that he was his partner. How was 

 that? Why, he had just bought out the 

 other man's share. And he showed the 

 paper in corroboration. 



The remaining partner did not take 

 kindly to the sale and at once consult- 

 ed the firm's lawyer as to his rights. 

 He was advised that despite the sale, 

 he was not obliged to accept the new 

 man as partner, that he need not work 

 with him or accept him in any way. 



Just here let mc explain this most 

 important drawback of partnership. It 

 is well si'tlli'd that a partner can not 

 sell his iiitorest In the partnership to 

 a I bird party unless the remaining 

 member consents. He can sell some- 

 thing, but it Is merely a half interest 

 (if the seller held a half interest) in 

 the firm's assets which remain after 

 the business is settled up. This is 

 from a leading case. 



The legal power of a partner to 

 make a transfer of his interest to a 

 third party is unquestioned. The 

 transferee, however, does not become 

 a tenant in common witli the other 

 partner in any specific goods, but ac- 

 quires only the interest his vender 

 had, which is his share of the residue 

 after the affairs of the firm are settled 

 and the debts paid, including debts 

 due from the firm to a partner. Such 

 a purchase does not make the buyer 

 a partner in tlie firm without the con- 

 currence of all the partners, either 

 given expressly or implied from con- 

 duct. 



To illustrate, A and B are partners. 

 They fall out and B sells his share to 

 C. The business cannot go forward 

 with C in it unless A consents. All 

 that C can legally demand, after buy- 

 ing B's share, is that the business be 

 wound up, debts paid, and he be given 

 half the balance. In other words, sell- 

 ing one's share to an outsider without 

 his partner's consent, usually means 

 the destruction of the business. It 

 cannot possibly mean anything else 

 unless the remaining partner agrees. 

 Now to get back to the Indiana case. 

 The remaining partner served notice 

 on the buyer of the half interest refus- 

 ing to accept him, and the latter then 

 consulted his own lawyer, who told 

 him the same thing that the other 

 lawyer told his client. He then tried 

 to find the man he had bought from 

 to rescind the deal, but found he had 

 gone to New York with the idea of 

 going to France. He finally found 

 him, but he had spent some of the 

 money and refused to give back the 

 balance on the ground that the deal 

 was bona fide as far as he was con- 

 cerned. 



The buyer then went back to In- 

 diana to see about getting the only 

 thing he could — one-half the assets 

 after the business was wound up. He 

 took proceedings to that end, the 

 business was wound up and its assets 

 sold, as the remaining partner had lost 

 the chance he had had before of rais- 

 ing the money to take the other half 

 interest over. As would be the case 



with many busincHses were thoir asseta 

 forced to sale, it brouubt enough to 

 pay back the buyer of the half interest 

 about one fourth of his money. I can 

 scarcely understand why the remain- 

 ing partner here could not have gotten 

 money enough from his bank, or 

 somewhere, to buy the half Interest 

 and thus prevent the sale, but' he 

 seems for some reason not to have 

 been able to. 



This little deal had the following 

 evil results: — 



It cost the buyer of the half Interest 

 several thousand dollars in cold cash. 



It put the remaining partner to 

 much expense, inconvenience and loss. 



It practically destroyed a going, 

 profitable business. 



The two morals are plain: 1. never 

 go through with a deal Involving any 

 substantial sum without counsel; 2, 

 do not enter into a partnership with- 

 out realizing that you cannot sell your 

 interest as a share in a going business, 

 without your partner's consent, which 

 consent will very often be refused. 

 There is only one way to get around 

 this and that is a way I should never 

 advise a client to take, viz.: put in 

 the partnership agreement a clause 

 binding each to accept as partner any- 

 body to whom the other may sell his 

 share. A man would be exceedingly 

 foolish to agree in advance to some- 

 thing that might cause him the deep- 

 est embarrassment and regret. 



WHEN YOU BUY OUT A BUSINESS. 



In the same State, at about the 

 same time, two men sold their busi- 

 nesses. One was a retail coal dealer, 

 the other a manufacturer of a wrap- 

 ping device. In both cases the buyers 

 set out to protect themselves by in- 

 serting in the agreement of sale a 

 clause binding the seller not to re- 

 engage in the same business for a cer- 

 tain time. These clauses are always 

 inserted in an agreement to sell a 

 business, if the buyer knows his busi- 

 ness. Otherwise, a man may sell his 

 store one day and immediately open 

 another one the next day. of course 

 taking all the trade he had just sold. 



In both of these two cases I have 

 referred to, the sellers, after getting 

 the buyers' money, attempted to get 

 out of their agreements not to re-en- 

 gage in the same business. In both 

 cases the buyers appealed to the courts 

 for an injunction. One got it and the 

 other did not. The difference between 

 the two cases shows so clearly how to 

 make and how not to make agree- 

 ments restricting the seller of a busi- 

 ness from going into the same business 

 again, that I shall devote this article 

 to pointing that difference out. 



In the coal man's case, the seller 

 sold his trade name, trademark, good 

 will, fixtures, stock in trade — every- 

 thing connected with the business — 

 and agreed not to re-engage in the coal 

 business in the same city for two 

 years, and not within two miles from 

 his former place of business for five 

 years. Three years afterward he 

 opened up another coal yard a little 



