Question Three: On the Contract of Partnership

558. Partnership (maatschap, vennootschap) is a contract by which two or more agree concerning a thing to be placed in common for gain or common use, for example, of books, horses, grain, a machine for cultivating fields, etc. In present-day law, however, it is usually restricted to a merely economic or gainful end,¹ and therefore it is defined: an agreement by which two or more contribute something in common for receiving profit therefrom and dividing it among themselves in an equitable proportion (a. 1832). It is said:

¹ In German and Swiss law the definition is broader, and includes any common end.

1. An agreement, because if someone without agreement contributed something, say labor, he would not have the right of participating in the profit, but at most a stipend of labor would be owed to him;

2. By which two or more contribute something in common which is estimable by price, and which can be diverse and unequal: either money, or a movable or immovable good, or instruments, or work or industry, or even commercial credit, whether individuals contribute something from all of these, or some contribute one thing and others another, and indeed equally or unequally (a. 1833);

3. For receiving profit therefrom and dividing it among themselves in an equitable proportion. Community in profit is an essential element; for if it is established that a determined sum is to be paid to someone, this person is not a partner, but one lending or letting his work, as administrators with a stipend are. For the intended end is that the gain be received in common and be divided proportionately among the partners; this can be either industry, or money, or the use of some thing, or credit, or an intellectual or moral benefit, for example, the name itself. Nor is it required that some profit in fact be received, but it suffices that it can be received with probable hope; but if there are losses, they likewise must equally be distributed proportionately among the partners (cf. a. 1855).

Partnership is a consensual, non-solemn contract, not requiring writing except for proof (a. 1834),² with the exception, however, of certain commercial partnerships which are solemn, for example, anonymous companies.³

² In Belgian law writing is required for proof if the object exceeds the value of 1,500 francs.

³ Cf. Belgian law of 18 March 1873, a. 4, and 9 July 1935, a. 1.

This contract is licit and just, provided that 1. it has a licit object; 2. individuals contribute something estimable by price, which nevertheless can be diverse and unequal, as we have said; 3. profit and consequently loss are common; this is so essential that otherwise it would not be a contract of partnership but another contract; 4. profit and loss are divided proportionately to the part which each one contributed: for this is required by the equality of justice to be observed.

559. Diverse species of partnership. A. Partnership, by reason of extension, can be a) universal, whether of all present goods or of all gains afterward to be made (a. 1835 and following); or b) particular, for determined things or a determined undertaking of a work (a. 1841-1842).

B. By reason of end, partnerships are distinguished into a) civil partnerships, or partnerships of acquisition (burgerlijke maatschap of tot burgerlijke aanroerving), which indeed are constituted for making profit but in another way than by trading; for example, for buying and cultivating estates, building houses, instituting and administering colleges, etc. In our law these are not distinct juridical persons, so that the partnership itself could possess; but the partners possess the goods in common, and therefore of themselves they are not solidary. And b) commercial or mercantile partnerships, which are occupied in trading (C. Com., tit. 9, a. 2 and 3): these in our law are distinct juridical persons, so that the partnership itself, or moral person before the law, possesses the goods placed in common or acquired from them; hence in them solidarity has force of itself.

C. By reason of diverse constitution and obligation, commercial partnerships in present-day law are distinguished as five diverse kinds.⁴ For there can be constituted:

⁴ Cf. Belgian Commercial Code, book 1, title IX.

a) A partnership of persons:

1. Either so that all are held personally and in solidum for all debts of the partnership, and then there is had a partnership by collective name, which is designated under a social name (societe en nom collectif, sous raison sociale; onder gemeenschappelijken naam of onder firma), for example, Desclee De Brouwer and partners;⁵

⁵ In England partners are not accustomed to be obligated infinitely; nevertheless, in partnerships, general partners are obligated infinitely, limited partners according to their contribution.

2. Or so that some undertake the obligation in solidum, and others supply determined monies to the partnership and thus limit their obligations; and then it is a commandite partnership, which is also entered into under a social name (societe en commandite - ou en delegation - simple; stille gezelschap bij wijze van enkele geldschieting of handelsvereeniging);

b) Also a partnership of monies, so:

3. That the partners (at least 7) oblige themselves to contribute a determined sum, and are not held for debts beyond this sum, but nevertheless in solidum: this is an anonymous company, which is constituted by anonymous portions of capital, customarily called shares, and does not have a social name (societe anonyme, par actions; naamlooze vennootschap, op aandeelen), for example, Banque de France, Brouwerij de Palmboom;

4. Or also the partners, whether in solidum or separately, whether indefinitely or obligated to a certain sum, cannot cede to third parties their parts, which can vary: this is a cooperative society, whose capital is not anonymous but visible (societe cooperative; samenwerkende maatschappij), to which credit unions approach;

c) Or a mixed partnership, namely:

5. Partly of persons who oblige themselves in solidum, and partly of monies which are limited: this is a commandite partnership by shares (societe en commandite par actions; bij wijze van geldschieting met aandeelen).

To the contract of partnership as it has been defined, and to the partnerships described above, do not pertain other associations (C. Com., a. 3) for a useful end which is not profit, for example, professional unions, or associations without a lucrative end, or congregations which are constituted for games.

560. Obligations of partners toward the partnership and among themselves. Obligations generally must be defined from civil law and from the special statutes of each partnership; especially in a commercial matter one must attend 1. to the agreement of the parties and to the laws of commerce, 2. to commercial usages, constant and public, 3. in defect of these, to civil laws.⁶ But that obligations can be present, the end of the partnership must be licit not only in conscience but also in the civil forum (a. 1833), unless civil law is opposed to natural, divine, or ecclesiastical law. If the end is illicit, for example, to sell depraved newspapers, no obligation exists from the contract; but those who fulfill the contract must be paid. If the end is unjust, the partners are held to repair the damage inflicted, and often in solidum.

⁶ Cf. Belgian law of 18 May 1873, a. 1; which law was modified on 22 May 1886, 22 July 1913, and 30 Oct. 1919, and inserted into the Commercial Code.

But when a licit and just contract has been entered into, there arise:

A. Obligations of partners toward the partnership (a. 1845 and following):

1. Partners must honestly and integrally bring to the partnership all things which they have promised, whether it is money, or things, or industry or work; otherwise they commit injustice and must repair the damage inflicted from this. But if someone, having promised money, is in delay in paying, a legal increase is owed besides.

2. Partners cannot act in the name of the partnership itself and obligate it, except under the conditions determined by law, statute, or custom; nor can they use things proper to the partnership except in the predefined way (a. 1859). But if against the laws and statutes they involve themselves in the administration of the partnership, they act in their own name and obligate themselves, not the partnership.

3. Administrators must manage the affairs of the partnership as their own, with at least common diligence; hence they are held to compensate damage arising from culpable carelessness.

B. Obligations of partners among themselves:

1. Partners must establish the division of profits according to the laws of equity, that is, in geometric proportion to those things which each one contributed to the partnership, attention being paid, namely, both a) to monies and things contributed, b) to industry and works furnished, and c) to dangers to which one exposes oneself (a. 1853 and following).

Let it be noted a) that the proportion according to which the division is to be established generally is determined by law and particular statutes; this must be adhered to in conscience, unless it is manifestly unjust (a. 1854);

b) that profits are to be computed after expenses have been deducted; wherefore there must also be made among the partners a proportionate division of losses, even if these exceed profits. But in several partnerships, losses are limited to the part which has been contributed or promised in common, as in anonymous companies;

c) that a partnership is inequitable by which one of the partners is altogether excluded from profit, or also from loss. Nevertheless, with exclusion of loss, another contract of letting could be entered into, even tempered with a certain aleatory part in profit (a. 1855).

2. Partners cannot convert common money to their own uses: for this pertains to the partnership itself or to all together, but not to individuals before division (a. 1859 and 1860).

Therefore a) profit taken from the common fund must be restored without delay with legal increase (a. 1846);

b) besides, damages inflicted from this upon the partnership or upon other fellow partners must be compensated (a. 1850).

561. Modes by which injustice is committed in partnerships. Today the contract of partnership is most frequent. Moreover, multiform injustice can be committed in it:

A. In instituting a partnership: 1. by not bringing the thing promised; 2. by exaggerating the part had in the foundation and thus attributing to oneself excessive profit, for example, by reserving to oneself titles, as they say, of founder beyond merit; 3. by constituting a partnership with capital insufficient for prosperous management; 4. by issuing and selling titles above real value, and cooperating in such an issue, whether by giving one's name, or by furnishing counsel or work, or by deceptive announcements.

B. In managing a partnership: 1. by obligating the partnership contrary to the mode determined in the statutes; 2. by managing the affairs of the partnership without diligence or by undertaking management with lack of skill; 3. by dividing profits and losses in a proportion not equitable; 4. by converting the thing or money of the partnership to private use; 5. by increasing capital so that they reserve to themselves part of the increase, or when the benefits cannot be increased proportionately;⁷ 6. while they administer several partnerships, by unjustly favoring one partnership before others; 7. by a fictitious exposition of affairs conducted, diminishing the profit which is owed to partners, or unduly increasing it so that the partnership soon perishes.

⁷ This in America is usually called: watering the stock, mettre de l'eau dans le capital, as if to dilute the capital.

C. In dissolving a partnership: 1. by dissolving the partnership without sufficient reason, with damage to the partners; 2. by selling titles in a greater number for a cheaper price, so that a new partnership constituted by oneself can buy them and thence gain prosperously, with the ruin of the prior partnership and the detriment of those who contributed monies to it.