Story Case

Robert Smiley and Richard Yates were partners in the law practice, conducting business as Smiley & Yates. Yates purchased an automobile in the name of the firm, without the authority or consent of Smiley, who later refused to pay any part of the purchase price. The automobile dealer, therefore, brought suit against both members of the firm. Smiley maintained that since this was not a trading partnership, Yates had no implied or apparent authority to make purchases in the name of the firm, and therefore he - Smiley - was not liable for the purchase of the automobile. Is this a good defense?

Ruling Court Case. Pease Vs. Cole, Volume 53 Connecticut Reports, Page 53; Same Case, Volume 55 American Reports, Page 53

Cole and McCarthy, partners, conducted a theatre in the City of Hartford. McCarthy executed, in the name of the firm, a note to his father. The execution of the note was unauthorized, and so far as could be determined, did not purport to be for the benefit of the partnership. The note was endorsed by the father to the plaintiff, who brought this action against Cole. No other note had ever been executed in the name of the firm; thus, no implied power on the part of the partner to bind the firm could be implied from customary course of dealings. Therefore, the only question was whether a member of this kind of partnership had power to bind the firm and the other partner on this kind of contract.

Mr. Justice Loomis said: "In a commercial partnership, each acting partner is its general agent, with implied authority to act for the firm in all matters within the scope of its business; and the presumption of law is that all commercial paper which bears the signature of the firm, executed by one of the partners, is the paper of the partnership, for the reason that the giving of such notes would be within the usual course of mercantile transactions. But when we pass to non-trading partnerships, the doctrine of general agency does not apply, and there is no presumption of authority to support the act of one partner. Hence, in order to subject the firm upon a bill or note executed by one partner in its name, a course of conduct, or usage, or other facts sufficient to warrant the conclusion that the acting partner had been invested by his partner with the requisite authority, must appear, or that the firm has ratified the act by receiving the benefit of it. That the partnership in question belonged to the non-trading class seems so obvious as to need no discussion."' Therefore, it was decided that Cole was not liable upon the note in question.

Ruling Law. Story Case Answer

A non-trading partnership is one in which buying and selling is not the principal part of the partnership business. In case of a non-trading partnership, the transactions, but such are only an incident to the main business. In case of a non-trading partnership the doctrine of general agency does not apply. One partner has no implied power to bind the firm by general contracts; and, in order to charge his co-partners, it must be shown that he had authority, or that it was customary in the particular business for one partner to exercise such power.

A law partnership is not a trading partnership, because it is not engaged in buying and selling, therefore, in the Story Case, Yates had no implied or apparent authority to purchase the automobile, and Smiley is not liable.