The Contract of Partnership

614. Notions. 1. Partnership is a contract by which two or several persons obligate themselves to bring some thing into common, so that the profit received from it may be divided among them.

a. Profit received from goods brought into common immediately pertains to the partnership, if it is itself a juridic person; but individual partners have a right to a part of the common profit which corresponds to the good brought into common by them; but at the same time they must also bear part of the common damage.

b. The contract of partnership is a consensual contract, which is perfected by agreement alone before the handing over of the good to be brought into common. Yet by positive law the agreement ordinarily must be confirmed in writing in order that it receive force.

c. The thing to be brought into common is either money or another good or one's own work. But partnerships can be entered in such a way that individual partners bring into common either all their goods or only part of their goods, or in such a way that some bring money, but others only their work.

2. Partnerships are divided by reason of end into civil partnerships (Erwerbsgesellschaften), which are entered for receiving profit not by trade, but by any other mode whatsoever, as if two agree between themselves concerning a farm to be bought and administered from money brought into common and concerning dividing the profit received from it; and into commercial partnerships (Handelsgesellschaften), which are entered for receiving profit from trade.¹

Note. Partnerships are governed either by the peculiar agreements of those contributing, or, when these are lacking, by the laws of the civil or commercial code and received customs. For those who enter an onerous contract are considered to enter it according to civil laws and received customs, unless they have expressly declared the contrary.

¹ C.A. treats civil partnerships in the civil code, Section 1175 ss., and commercial partnerships in the commercial code, n. 85 s.

615. Principles. Among the diverse industrial and commercial partnerships, special attention is merited by share companies (Aktiengesellschaften) and limited partnerships (Kommanditgesellschaften), whose constitution social economics explains. It suffices to note these two principles.

1. The end of the partnership must be licit. If the end is illicit, for example, to publish depraved newspapers, the members of the partnership by force of the contract are not bound to place any action in the future, because there is no obligation to the illicit; but they are bound to pay those who from the fulfilled contract acquired some right, as is clear from the things said above concerning a base contract. If the end of the partnership is unjust, for example, to sell adulterated merchandise, the partners are also bound to repair the damage inflicted, and generally indeed in solidum.¹

2. Equality must be observed among the members of the partnership, both as to gains and as to damages. Therefore profit arisen from the partnership must be divided among the partners pro rata of the part which they brought into common, and likewise individual partners must pay debts contracted by the partnership according to the quantity of their part, unless because of peculiar circumstances some partners ought to accept a greater part of the profit or bear a lesser part of the damage.

¹ Genicot I, n. 652.

What is the contract of partnership? Partnership is a contract by which two or more contribute something in common, for the sake of receiving profit in common, C. I. 1697; C. G. 1833; C. A. 1175; C. H. 1665; C. L. 1240. Partnership: here the discussion concerns partnership so called civil. For there are also commercial partnerships, anonymous companies, etc., which are governed by their proper statutes, approved by the authority of the Prince. Two or more: who namely are able to dispose of things, and who are not prohibited from acquiring reciprocal utility for themselves because of violation of the rights of other persons; for this reason, e.g., this partnership cannot be entered into between a mother and her natural son. C. I. 1704; C. G. 1840. - Something, that is, money, or other goods, or even one's own industry. Except goods which the partners will acquire either by donation, or by legacy, or by succession, unless according to C. G. the matter concerns spouses, which can be contributed in such a way that only their enjoyment, not their ownership, becomes common. C. I. 1433, 1698, 1701;

C. G. 1526, 1833, 1837. In common: something can be contributed in common in two ways: 1. So that not only the use and fruits, but the ownership of the thing contributed is common, so that each becomes owner of the whole capital by partial ownership. 2. So that, while ownership of the thing remains with the contributor, the use and fruits are common. L. 1 § 1; L. 2, L. 7, etc., Dig. Pro socio. Moreover, by law itself there pass into the ownership of the partnership those things which are consumed by use, or become worse; those which are contributed so that they may be sold; those which are given after an estimation of them has been made and consigned in an inventory. C. I. 1715; C. G. 1851; C. H. 1687. Cf. C. A. 1181, 1182. - Contribute; for if they do not contribute, but, e.g., two by legacy or by purchase fall upon one and the same thing, bequeathed to them or bought by them, there is not partnership, but common ownership. Profit in common; if there is no common profit, even though some utility is not lacking, as e.g., a common doorway, there is not partnership, but common ownership. Profit; if not profit as such, but a part of the profit as though a stipend and remuneration is given to him who furnishes the service, not partnership, but a hiring of service is understood. - C. B. 705; Lugo d. 30, n. 1, 4; Molina d. 411, n. 7; Less. l. 2, c. 25, n. 1; L. 904. A partnership is not a moral person or moral body, but is only a collection of persons. Hence those things which are communicated by the partners, and those things which are acquired by the partners, indeed become the property of all the partners, but not of the partnership. And if it is necessary to go to trial, not the partnership, but the individual partners must sue or be sued. C. I. Proc. 137. If someone lends money to a partnership, he claims it back from the individual partners man by man, or in equal parts, even if not all are partners in equal parts, C. I. 1727; C. G. 1863. Namely he lends not to the partnership, but to the partners, that is, to the individuals. Since partnership is a matter transacted among others, a partner can associate with himself some third person as regards his own portion in the partnership, but the creditor of the partners cannot use the right of the partners, nor involve himself in the affairs of the partners, C. I. 1725; C. G. 1861. Likewise, as regards third parties, those things which have been done by the mandatary of the partnership within the limits of the mandate are the same as if they had been done with the individual partners; but those things which have been done beyond the limits of the mandate are imputed to the mandatary himself. C. I. 1727, 1728; C. G. 1862, 1863, 1864.

Partnerships: some are Moral Bodies, others are not Moral Bodies. Both the latter and the former can acquire and possess, but with this difference: that a partnership which has been erected into a Moral Body has juridical patrimonial unity, distinct from the patrimony of any individual associate; but that which is not a Moral Body does not have the patrimony of a Moral entity, but has only co-ownership, by which the patrimony exists undivided in the individual associates. Therefore a moral body is like a private person, and has nothing in common with those of whom it consists. Wherefore what is owed to the body is not owed to the individuals; nor do the individuals owe what the body owes. And when a moral person which had been instituted for the cause of public utility has been extinguished, its goods go to the church, if it was ecclesiastical; to the treasury, if lay. But those of one which was for private utility, as commercial and industrial partnerships, pertain to the partners or colleagues and their heirs. Besides civil partnership there is also commercial partnership, so called from Commercial acts, which are enumerated at the beginning of the Commercial Code, title 2. Wherefore the definition of civil partnership is valid also for commercial partnership, whether mercantile or industrial. But according to the same Code a threefold commercial partnership is distinguished: Partnership under a collective name; partnership in commendam; anonymous company. In a collective partnership, all the partners are obliged without limit and in solidum as regards the obligations of the partnership. In a partnership in commendam, one or more commendatary partners are obliged without limit and in solidum; but the other investing partners, one or more, answer limitedly up to a determined sum, which can also be represented by shares. In an anonymous company, social obligations are secured only limitedly to a determined capital, and each partner is obliged only by his own quota or by his own share. Art. 76.

Whether the contract of partnership is licit? - Resp. Affirmatively. For it contains nothing which is opposed to justice. Nevertheless it requires the following conditions. 1. That the partnership be made in honest business. C. I. 1698; C. G. 1833; C. H. 1666. Certainly no one can licitly be obliged in a base thing. - 2. That loss of the capital pertain only to its owner, if only the usufruct of the thing is contributed into the partnership; but that it pertain to the partnership itself, if the capital itself is contributed into the partnership. For the thing perishes to the owner. C. I. 1715; C. G. 1851; C. H. 1687. Cf. C. A. 1183. 3. That due equality be preserved between profits and losses and expenses to be divided among the partners. Losses here are understood as those which come to the partners from the aspect of the partnership alone. Expenses are the costs of journeys, payments of tolls, etc. C. I. 1716, 1717; C. G. 1852, 1853; C. H.

1689; C. A. 1192-1197. 4. A partnership of immovable things, or of the use of them, indeterminate as to duration or beyond nine years, needs writing, and, as regards third parties, transcription. C. I. 1314, 1932, 1942. Cf. C.

A. 1178; C. H. 1667, 1668; L. 904-907; St. Thomas, 2. 2, q. 78, a. 2.

Resolutions: Wherefore it is necessary that for each one there be established a part of the profit in proportion to the thing which he contributed, and a part of the loss in proportion to the profit. But if something else has been spontaneously agreed, the pact is valid, provided the profit be established at least equal to the just wage of the thing or service which someone contributes, as though leased; and provided it is not established that one should feel no part of the profit, or no part of the loss, C. I. 1719; C. G. 1855; C. H. 1689, 1691; C. A. 1193, 1196; C. B. 722; C. L. 1242. The proportion of him who contributed service alone will be the part of him who contributed least. C. I. 1717; C. G. 1853; C. H. 1689. Yet, with attention to natural law, if the industry of the merchant were notably worth more than the capital of the co-partner, certainly an agreement could be made concerning a greater profit to be received proportionately, which indeed is approved by positive Law itself. Inst. l. 3, t. 26, §§ 1, 2.

Cf. C. A. 1183, 1187, 1193; C. B. 706, 707. "It seems to me that it must altogether be said," says St. Alphonsus, 907, "that, while the capital remains safe for the owner, the profit is to be divided proportionally, account being taken of the value of the industry on one side, and on the other side of the convenience furnished from the money, according to the common estimation of the profit which is commonly accustomed to be had from money applied to business. Hence it must be well noted that sometimes the industry of the merchant will be worth more than the use of the money, and then the profit must be distributed proportionally, so that sometimes a pact could be licit, that at the end even the capital be divided, while the profit meanwhile has been distributed equally, as is done by custom in many places in the partnership of animals. In addition it must be noted that sometimes the value of industry decreases because of the multitude of workers seeking partnership; for this reason perhaps several contracts can be excused which at first sight seem unjust, because the industry of the workers contributed into the partnership according to the custom of the place is commonly not estimated there as worth more."

Resolutions: The pact is altogether unjust by force of which, once the merchandise has been bought, before all else and while the partnership lasts, the capital is restored to the owner; and then what remains is divided equally, because for the one placing that capital the danger of his capital is diminished, but the merchant, if afterward the merchandise perishes, is subject without compensation to the danger of capital and profit. L. 907.

Whether the pact is licit that, if some sheep from a flock perish, they must be supplied from the offspring which are born, and meanwhile the other offspring, wool, and cheese are divided equally? The first opinion affirms, "because such substitution of sheep results as much in favor of the shepherd as of the one buying the sheep." The second opinion denies, and this seems altogether true to St. Alphonsus, 909, "because although the profit is diminished first for both, and afterward is compensated for both, nevertheless the offspring which are substituted ought to have been divided equally between the shepherd and the owner.

But when they are substituted, this certainly yields more to the utility of the owner than of the shepherd, since the owner then already compensates for himself the loss of profit, just as the shepherd does; but meanwhile the owner always preserves the capital safe for himself, which ought to be diminished for him, and therefore equality is not preserved in the contract." Partnership of animals is simple if the lessor furnishes the animals and the lessee furnishes labor for their care, custody, and feeding. It is in equal parts if each furnishes animals, and one of them also furnishes labor. In a simple partnership, the lessee has half of the increase, which consists in the offspring that come, and in the greater value of the animals. Milk and dung and the labor of the animals yield to the lessee.

Wool and what accrues to the animals are divided between the lessee and the lessor. C. I. 1669, 1676, 1684. In a partnership by equal portions, the animals become common for profit and for loss. Milk, dung, and the work which the animals furnish yield to the lessee; the lessor has right to half the wool and increase. C. I. 1684. Besides these two species of partnership as regards animals, there are two other species, namely partnership with a tenant farmer, and partnership with a sharecropping tenant farmer. In the former partnership with a tenant farmer, animals of the same value must be left at the end of the lease. Meanwhile the profits belong to the lessee. But the dung must be applied to the cultivation of the land.

C. I. 1687 ff. In the latter partnership, which is entered into with a sharecropping tenant farmer, it can be agreed that the tenant farmer yield his part of the wool, at its time, to the lessor for less, and that the latter share in half of the milk and take the greater part of the profit. C. I. 1693. In a simple partnership of animals or one by equal parts, according to law, according to C. I. 1675, the animals which perish by chance perish to the owner alone, or to the lessor. According to C. G. 1810, unless all perish, but only a part, the loss is common to the lessor and the lessee. But according to both Codes, it cannot be agreed that the lessee participate more in loss than in profit. C. I. 1677; C. G. 1811.

Whether the contract of partnership called "with capital safe" is licit, namely when animals are handed over to a shepherd with the pact of rendering them safe in the same number at the end of the partnership, and of dividing the profit? "Speaking of itself this contract is illicit, because the capital must stand at the danger of the one contributing it; for the thing perishes to its owner.

Nevertheless it can probably become licit if another contract of insurance is added, by compensating the shepherd, through a greater part of the fruits, for the burden of such danger of the capital taken upon himself.... Certainly the contract is unjust by which the owner gives oxen estimated according to their present value, with the pact that if they decrease, at the end of the partnership the same value must be restored, because deterioration of the thing pertains to the owner, unless this damage is otherwise compensated. But if nevertheless there were a pact that at the end of the partnership not only the profit, but also the capital of the animals, is to be divided with the partner, then the pact will not indeed be unjust, that if meanwhile the capital perishes, the shepherd is bound to restore to the owner half of the capital." L. 907, 909, q. 4.

According to C. I. 1683, 1686, 1692, 1695; C. G. 1817, 1820, 1830, the animals must be estimated at the very beginning of the partnership; when the partnership has ended, they are estimated again, and the lessor takes beforehand as many heads as equal the price of those contributed. But the profit is to be divided in various ways according to the various species of lease and agreements. In a simple partnership or one by equal parts, it cannot be agreed that the lessee bear the danger of the capital beyond half according to C. I. 1677, or the whole according to C. G. 1811, nor that he participate more in loss than in profit. C. I. ib.; C. G. ib.

Whether a partner who ought to have contributed a sum of money into the partnership and did not contribute it, also owes interest? Resp. Affirmatively, C.

I. 1710; C. G. 1846; C. H. 1682. And the same is established there if a partner has taken some sum of money from the partnership chest for his particular utility.

To whom does administration of the partnership pertain? - Administration of the partnership pertains to him to whom it was committed. C. A. 1190, 1198; C. B. 710. But from him to whom administration was given in the very contract of partnership, it cannot afterward be taken away except for a legitimate cause. But if it was given afterward, it can be revoked as a simple mandate. C. I. 1720; C. G. 1856; C. H. 1692; C. B. 712. If it has been committed to no one, it is judged to have been tacitly permitted to all. C. I. 1723; C. G. 1859; C. H. 1695; C. B. 709. But each one must employ such diligence in common things as he employs in his own things. C. B. 708. Cf. C. A. 1185, 1186. Therefore, if he has done some things negligently and injured the partnership, but has done other things diligently and increased the partnership, the negligence is not compensated, unless this latter was altogether extraordinary. C. I. 1714; C. G. 1850; C. H. 1686; C. A. 1191. If one of the partners has exacted something from a debtor of the partnership, who is at the same time his own debtor, he must impute the payment to each debt proportionally; but if he has ascribed the whole to the partnership, it is valid. C. I. 1712, 1713; C. G. 1848, 1849; C. H. 1684. Cf. C. A. 1202, 1203; Inst. l. 3, t. 26, § 9; C. B. 718-721.

In what ways is partnership ended? Partnership, if nothing has been specially agreed, is ended: 1. When the time for which it had been entered into has been completed. 2. When the common thing has been totally extinguished, or the business has been ended. 3. By the natural or civil death, interdiction, or publication of goods of one of the partners. 4. By the express will of one or more partners, when the duration of the partnership is unlimited; but if the partnership is for a determined time, its dissolution cannot be demanded unless some grave reason is present, e.g., the infidelity of the co-partner, or the continual infirmity of a partner by which he can no longer conduct the business of the partnership. C. I. 1729, 1731-1735; C. G. 1865, 1867, 1869-1871; C. A. 1189, 1205, 1207, 1210-1212; C. H. 1680, 1700 ff.; C. B. 723, 724, 726, 727, 728; Inst. l. 3, t. 24, §§ 4-8; L. 907.

Note: When the partnership has ended, he who administered it must render an account of the administration. If by his fault the partnership has suffered damage, that damage will be imputed to his part, and if he himself is not solvent, it will be common to all the partners. - If, on the contrary, the administrator of the partnership has incurred damage, namely from the cause of the partnership, this damage also will be common to all the partners. - When a partnership of profits has been dissolved, the capital must first be restored to the owner, even if in fact no profit remains. Sixtus V, Bull Detestabilis § 2; L. 907; St. Thomas, 2. 2, q. 78, a. 2, ad 5. Similarly, if the capital perishes at the beginning, it perishes to the owner, since in a partnership of profits the capital, or sum of money, is not contributed, but only the convenience of the money. L. 907. When the partnership has ended, first the debts of the partnership are paid; then the received profits which remain are to be distributed proportionately among the partners. C. B. 731 ff.

Whether an agreement can be made that, when a partner has died, the partnership be continued with his heir? Resp. Affirmatively. This certainly was prohibited by Roman Law, L. 35, 59, C. h.t. But it is admitted by Italian, French, Austrian, and Spanish Law. Nor indeed does it seem illicit by Natural Law. C. I. 1729; C. G. 1868; C. A. 1206-1209. C. H. 1704: the partnership remains if it was agreed that it should remain with the survivor or with the heir. But although the partnership does not remain with the heir, nevertheless he is bound to complete those things which were begun by the deceased. L. 40, C. h.t.; C. I. 4732; C. G. 1868; C. A. 1206, 1209; C. B. 727.

Whether any loss of a thing dissolves the partnership? - Resp. Affirmatively, if one of the partners promised to contribute the ownership of the thing, or only its use and fruit, in common, and the thing perishes before it is contributed. Negatively, if the ownership of the thing had already been contributed in common. C. I. 1731; C. G. 1867. Yet he is bound to furnish warranty for the eviction of those things which the partner contributed for the sake of use alone. C. I. 1709; C. G. 1845.

Whether, when a partnership has been contracted without limit as to duration, someone can withdraw from it at will? Resp. Affirmatively, provided nevertheless that his renunciation be in good faith and not made at an inopportune time. In good faith: not with evil fraud, for instance so that he alone may seize the whole profit, e.g., from inheritance, legacy, purchase. Inopportunely, that is, at that time when it was of interest to the partners that the partnership not be dissolved. C. I. 1733, 1734; C. G. 1869, 1870; C. A. 1212; C. H. 1705; C. B. 723, 738 ff.; Inst. l. 3, t. 24, § 4.

917. • A contract of society is an agreement concerning some thing to be possessed in common for a common good, or for profit to be received according to a proportional share.

I say I. Every society must be made concerning a lawful and honorable thing, and also for the common good of the contracting parties. Moreover, individual partners ought to bring into the society money, or goods, or industry, or work. - Thus from every law.

I say II. A contract of society is a legitimate mode of doing business. It is clear 1. from the civil laws of all nations; 2. from the universal usage of all peoples; 3. from natural right: for it is no less lawful for many jointly than for individuals to make profit from their own things, provided due equality is preserved.

I say III. The required conditions are 1. that there be equality, that is, a division of profit according to the proportion of the thing contributed; 2. that the society be entered upon for a certain time, and before that it is not lawful to reclaim one's own; 3. that the risk of the capital pertain to the owner, unless another pact has been entered into; 4. that each undergo the burden of damages and expenses which arrive by reason of the society; 5. that each apply the same diligence in the society as in private business. - St. Lig. n. 905.

918. Questions. - Q. 1. How is a society dissolved?

Resp. A contract of society is dissolved 1. by lapse of the time for which it was made; 2. by the destruction of the thing, or by the end of the business; 3. by the natural or civil death of one of the partners; 4. by interdiction of either partner, or by bankruptcy or subversion of goods; 5. by impossibility of furnishing the promised thing ¹.

¹ Through these things the Author does not wish to exclude that the society can also be dissolved legitimately by the mutual consent of the partners.

Q. 2. What if someone, while his partner is unwilling, withdraws from the society before the time?

Resp. He is bound to compensate the damage, namely to pay the profit ceasing from the money to be furnished by him, or to render the profits of his own industry. - See Cases, n. 981 and following.

907. I. Notion and species. 1. The contract of partnership is that by which two or more bind themselves to contribute some thing in common, so that the gain which can arise from it may be divided among them in equal proportion.

² Lugo, disp. XXX; Billuart, diss. V, art. 3; St. Alphons., n. 904-910; Carriere, II, 851-900; Marc, lib. IV, n. 401-426; Ball. P., n. 884-891; Genicot, n. 651-652.

Therefore two elements are found in it: (a) some thing placed in common, which can be either money or some movable or immovable good, or also some work, industry, some commercial credit. A partnership can be entered in such a way that both together contribute money and work, - or one work and the other money; and indeed equally or unequally.

(b) Some gain to be divided among the partners (societaires); this is the intended end, namely that some advantage be received and divided: this can be either money, or the use of some thing, or an intellectual or moral benefit. It is not necessary that in fact some gain be received, but it suffices that it can probably be received. But if there are losses, the partners equally and likewise ought to undergo them.

908. 2. Today partnerships are countless, and are ruled by various rules among diverse nations.¹ - We shall set forth those which are more received.

¹ For France, cf. Cod. commerc., a. 18-64; Boeuf, Resume de Droit Commercial, Paris, 1903, p. 26-108; Baudry-Lacantinerie et Wahl, De la societe, du pret, du depot, Paris, 1898.

(A) Partnership can be universal or particular: the former contributes in common all present goods and all profits, or only all profits afterward to be made; but the latter contributes certain determined things, or their use, or the fruits to be received from them, or a determined trading. This is much more frequent than universal partnership.

(B) But particular partnerships are some civil and others commercial: the former are indeed entered for making gain, but in another way than by trading; e.g., for buying and cultivating estates, for building houses, for instituting and administering colleges, etc.; but those are called commercial which give themselves to trading.

(C) Under another respect, partnerships are: (a) designated by a collective name,² when two or more partners act under a common personal name (raison sociale), so that each one is held personally and in solidum for all the debts of the partnership; thus, e.g., Desclee, Lefebvre and associates; (b) anonymous, when the partners do not act in their own collective name, but in the name of the partnership (Banque de France, Credit Lyonnais), so that they are not held for debts beyond the portion of capital which they contributed or ought to have contributed.³

² For France, Cod. Commerc., a. 19-28; Boeuf, p. 37-70.

³ For France, see law of July 24, 1867, and Aug. 1, 1893; Boeuf, op. cit., p. 70-80; Houpin, Traite general theorique et pratique des societes civiles et commerciales, 3rd ed., Paris, 1901.

909. II. Principles. The offices of partners, whether among themselves or toward others, must be defined both from civil law, and from the special statutes of each partnership. Wherefore we can hand down only general principles.

1. On the obligations of partners toward the partnership. (A) Any partner ought honestly and integrally to transfer to the partnership all those things which he promised to contribute (apports), whether the matter concerns money or things, or industry and work; otherwise, he commits injustice and is held to restore the damage inflicted. If money was promised, and was not handed over, legal increase is owed.

(B) Partners cannot act in the name of the partnership itself, and bind it, except under the conditions determined by law, statute, or custom; likewise they cannot use things proper to the partnership except in the predefined way. If, contrary to laws and statutes, they involve themselves in the administration of the partnership, they act in their own name and bind themselves, but not the partnership.

(C) Administrators must manage the affairs of the partnership as their own, with at least common diligence, and therefore adequately compensate damage arising from culpable neglect.

910. 2. On the obligations of partners among themselves. (A) The partition of gains must be made according to the laws of equity, that is, proportionately to those things which any partner has contributed to the partnership, with attention not only to money and things, but also to industry and work furnished. But gains are computed after expenses have been deducted; wherefore there is also made a partition of losses proportionately among the partners, if these surpass the gains. Yet in many partnerships, losses are limited to the part which has been contributed in common: thus especially in anonymous partnerships.

Generally this proportion is determined by law and particular statutes, and one must stand by it in conscience, unless it is manifestly unjust. Thus a convention would be unfair by which one of the partners is altogether excluded from gain; but if someone is altogether exempted from loss, although he has a part in gain, there is not a partnership properly so called, but another contract, by force of which he who furnishes work will obtain an aleatory part in the gain.

(B) No partner can convert common money to his own uses: for this pertains to the partnership itself, but not to the individual partners, before partition. Wherefore, if any gain has been taken from the common fund, it must be restored without delay, with legal increase; besides, the damages inflicted on the partnership on this head must be compensated, as was said concerning the unjust damager and possessor in bad faith.

911. III. The principal ways by which injustice is committed in partnerships, especially anonymous ones.¹ Today frequent injustices are committed in the institution and management of partnerships, especially anonymous ones, which it is expedient briefly to enumerate, not only so that confessors may bring a fair judgment concerning them, but also so that those who transact business with these partnerships may be more cautious.

¹ Cf. Cl. Jannet, Le Capital, la Speculation et la Finance, Paris, 1892, p. 167-188.

1. In the institution itself of partnerships, (a) not rarely the founders attribute to themselves a part of the gains which greatly surpasses those things which they contributed to the partnership, namely by greatly exaggerating the value either of the things which they placed in common, or of the industry and work which they furnish or promise to furnish; it is certainly fair that those who have devised some undertaking and by their industry have formed the partnership receive some recompense, either in numbered money, or by the concession of rights which are called founder's shares;¹ but in all these things it is not permitted to exceed that which, all things considered, is held by honest men as a fair retribution.

¹ To the point Jannet, op. cit., p. 167: "Founder's shares (deferred shares, as they are called in England), are in themselves very legitimate, and, under this form, there is nothing to object to the levies of founders: they represent the legitimate remuneration of the conception of an affair. But these levies are effected most of the time under the form of increasing contributions in kind, such as immovables, patents of invention, clienteles." In the same place he brings examples, and adds: "In ten commercial or industrial affairs put into shares, the public lost more than 84 million!"

(b) When the capital of these partnerships is increased, often administrators retain for themselves a part of the money subscribed by private persons, and apply only half the part for increasing the resources of the partnership (which is called watering the stock, mettre de l'eau dans le capital):² from this it happens that the revenues of the partners are unjustly greatly diminished. - This also frequently occurs when two or more partnerships are joined together at the same time to constitute a new one, or to form what they call a trust.

² "Other times an already existing company increases its capital, under the pretext of extending its affairs, without a proportional increase of profits being the consequence; this is called, in America, putting water into the capital." Cf. Nettleton, Trusts or Competition, p. 54-56; Martin Saint-Leon, Cartells et Trusts, p. 119, 124-129.

912. (c) Sometimes also a partnership is instituted with capital plainly insufficient for managing the matter prosperously; a little afterward, when the partnership is now tending toward ruin, the founders, either through themselves or through others, institute another partnership, which at a cheap price procures all the resources of the prior partnership, to the great detriment of those who had contributed monies to it.³

³ Cl. Jannet, op. cit., p. 168.

(d) Bankers (banquiers) are likewise guilty of injustice, who cooperate in instituting these partnerships, by issuing and selling shares and obligations at a price which they know to be greater than fair;⁴ directors of newspapers,⁵ who receive money for extolling the value of these partnerships, when they foresee that readers, deceived by these writings, will suffer damage from this.

⁴ Ibid., p. 168-170; cf. Cauwes, Econ. Politique, t. II, n. 651-655.

⁵ "When in March 1888, L'Assurance financiere put up for subscription, at the price of 250 fr. each, 100,000 savings bonds, the treaty passed between M. Boulan and M. Xau, publicist, fixed at 2,850,000 fr., that is, 28 fr. 50 per title or 11 fr. 40 per 100, the expenses of publicity." (Jannet, op. cit., p. 171.)

913. 2. In the management of partnerships not a few frauds likewise are committed: -

(a) To capture the confidence of the people, political men or nobles are put in charge of these partnerships, who cannot or do not wish to give time and work to the business of the partnership, whether because of inexperience, or because they are already preoccupied with other business:¹ deceived by the authority of these names, not a few adhere to the partnership and not rarely lose part of the money committed.

¹ "Senators and deputies of the right, of the left, of the center throw themselves upon financial companies as upon prey: the title of former minister is worth a place as president of an administrative council: the common run of deputies and senators simply becomes administrator. There are indeed two or three hundred in this case, seeking to cut out for themselves some sinecure rather thin by the direct profits it gives, but which one hopes ought to be more productive by indirect profits, premium issues, participations in syndicates." (P. Leroy-Beaulieu, in Jannet, op. cit., p. 176.)

(b) Sometimes also the same men apply themselves to the management of various partnerships, and unjustly favor one before another.

(c) Frequently also the partners are deceived by a fraudulent exposition of affairs: in the earlier years gains are distributed which in reality have not been made (dividendes fictifs), so that thus new partners may be drawn to procure shares or actions at a greater price; this being done, a little afterward, the partnership suffers bankruptcy.

By these and other frauds of this sort, injustice is committed, and damages unjustly inflicted must be fairly compensated. - Therefore let priests act cautiously in judging concerning these matters, and not imprudently induce their parishioners to adhere to such or such a partnership, on the pretext that the president has merited well of the Catholic religion: for experience establishes that certain persons have been deceived by the shadow of a great name. Let them warn the same persons besides not to contribute money to those partnerships which are opposed to religion or good morals: for then they are made cooperators in the evil performed by those partnerships.

1. A partnership (societas sive contractus societatis) is a relation based upon a contract by which two or more persons agree to carry on a business, trade, occupation or profession in common with a view to profit. The partners collectively are called a firm and carry on business under the firm name.¹

¹ Slater, A Manual of Moral Theology, Vol. I, p. 548.

a) For a partnership contract to be licit and valid, it is necessary, first of all, that the object or purpose for which it is entered into be lawful; second, that each partner should contribute his share to the capital invested; third, that, if actively engaged in the business, he should do his part in making it successful and, fourth, that he receive his part of the profits, or bear his share of the losses, according as the venture proves prosperous or the reverse.²

² St. Thomas, Summa Theol., 2a 2ae, qu. 78, art. 2, ad 5.—Cfr. P. J. Gury, S. J., Comp. Theol. Mor., Vol. I, n. 860: “Every partnership ought to be formed concerning a lawful and honorable matter and also for the common good of the contracting parties. Each partner ought to contribute to the partnership money or merchandise or industry or work. Thus it is according to every law. A partnership contract is a legitimate mode of conducting business. This is evident from the civil laws of all nations, from the universal usage of all peoples, and from natural law; for it is no less lawful for several persons jointly than for individuals to make profit from their own property, provided due equality is observed. The required conditions are: 1. That there be equality, that is, a division of profit in proportion to the property invested; 2. That the partnership be entered into for a definite time and that before then it not be lawful to reclaim one’s own; 3. That the risk to the principal belong to the owner, unless an agreement to the contrary has been made; 4. That each person bear the burden of losses and expenses which arise on account of the partnership; 5. That each person employ the same diligence in the partnership as in private business.”

Any losses caused to the firm by negligence or fraud on the part of any one of the partners, must be borne by the latter.

An illegal contract made by one partner will not bind the others, for all parties are supposed to know and obey the law, and an illegal bargain cannot be enforced.

A partnership contract expires at the end of the period stipulated therein, or by the destruction of the object for which it was made, or by the mutual consent of the partners, or by a unilateral declaration of one or more of them, or by the attainment of the purpose for which it was established, or when it is ascertained that its objects are impossible, or, finally, by the natural or civil death of one of the partners. The cessation of a partnership does not, however, end its outstanding obligations, which, on the contrary, must be fully satisfied if possible.

The death of a partner causes a dissolution of the partnership. Nor can executors or administrators succeed to his place; if they do so, they assume an unpleasant personal responsibility. To relieve them from this, some States have passed statutes permitting surviving partners to act together under the direction of the court having charge of the estate.³

³ Gury, op. cit., I, n. 861.—Bolles, Putnam’s Handy Law Book, pp. 198 sqq.

1157. DEFINITION. The contract of society is an agreement of two or more by which they contribute some thing, whether movable or immovable, or work, that is, labor or industry, for pursuing a common gain (or other intended thing) (H. Ap., X, 222).

Associates can contribute a thing and work together, or either one only. Anyone can, without the consent of the others, join another to himself as regards his own portion, but not admit him into the society. Hence that saying: "The associate of my associate is not my associate" (l. XX, ff., Pro socio).

DIVISION. Society is called: 1. universal, if it embraces all present goods, or future goods to be acquired from industry; 2. particular, if it embraces only determined things or works. This is civil or commercial, according as it regards the civil acts of private persons, or acts of commerce.

1158. PRINCIPLE. The contract of society, if the required conditions are present, is a legitimate mode of carrying on negotiation. It is established: 1. from the natural Law; for it is not less licit for several together than for individuals separately to make gain from their own things, provided due equality is observed; 2. from the civil laws of all nations; 3. from universal use.

The conditions of a licit society are the following:

1. The matter must be honorable; for that is not licit to a society which is prohibited to a private person.

If the society has an illicit end, for example for publishing a bad newspaper, the rules about cooperation and about a base contract must be observed (n. 517 and 1036); but if it has an unjust end, the rules about restitution in solidum toward those damaged must be applied (n. 991 ff.). See Ami du Cl., 1911, p. 462.

2. The capital, or thing contributed, remains in the ownership of him who contributed it, and is conceded to the society only as regards use and convenience. Wherefore the peril of the capital belongs to the owner alone.

Nor is it licit to add a pact about securing the capital in the case of fortuitous chance: for thus gain only, and not damage, would be common, and there would be had a leonine contract, which is also called ad caput salvum, if it is a question of a society in cattle.

When the society is finished, the capital must before all things be restored to the owner.

3. Gain, or that which, after damages and expenses have been deducted, remains beyond the capital, must be divided among the individual associates, in proportion to the capital contributed or the work furnished.

4. Damage which occurs by the sole view of the society (for example if wares are snatched away) must be borne by the individual associates in the same proportion in which, in the contrary case, the gain would have been divided (III, 905).

If one contributes money, but another labor, "it can sometimes happen that the value of the industry so exceeds the value of the use of the money that a pact is rendered just (which of itself would be unjust), namely that even the capital be divided. And conversely, in some places the value of the industry is so slight, on account of the custom of the place or on account of the frequency of workers, that the worker is rightly subjected also, as regards a part, to the peril of the capital, although the whole peril ought per se to belong to the owner alone" (III, 907; H. Ap., X, 224).

Hence associates are held to restitution: a) Using common things for private use, when the others are unwilling. b) Pursuing private gain, while they ought to be occupied with the common one. c) Squandering common things. d) Not contributing into the common treasury whatever they have acquired by negotiation. e) Neglecting to fulfill their parts. f) Rashly implicating themselves in businesses which scarcely are going to have a happy outcome, with the associates ignorant or unwilling (Konings, n. 1014).

1159. IT IS ASKED. In what way is a society ENDED?

Resp. It is ended: 1. by the completion of the time constituted for the society, or by the negotiation being finished; 2. through the consent of the associates, even tacit consent, namely if one of the associates begins to negotiate separately. For the rest, neither of the associates can withdraw from the contract, unless this is necessary for the public good, or unless the other would be a damage to the society, or would not stand by the pacts. But one withdrawing unjustly is held concerning the damage toward the associate; 3. through the death of either associate, because the society does not pass to heirs, except as regards businesses already begun (or unless there were present a pact confirmed by oath with the deceased associate); 4. through exile or the religious profession of either associate (likewise from the new Law through interdiction or bankruptcy, that is, the overthrow of his goods); 5. through impossibility of satisfying his part, for example on account of sickness; 6. through the destruction of the money contributed; 7. through such a change of things that the society becomes inept for the end (III, 907, q. 6; H. Ap., X, 230).

Note. Concerning the contract of society which they call threefold, we shall say a few things; for today it has gone into disuse. It is licit, according to grave Authors (cf. III, 908).

The threefold contract is entered in the following way: Lucius contributes a thousand gold pieces into society with Titius, so that they may be expended in negotiation: behold the first contract of society, from which gain is hoped, for example fifteen for each hundred. But since hope of gain is not without peril of the capital, Lucius yields to Titius five from the fifteen hoped for, so that he may secure the capital for him: behold the second contract, by which the capital is secured. Moreover, having judged that a small certain thing is better than a greater uncertain thing, again from the ten hoped for he yields five to the same Titius, so that Titius, whatever may happen, may certainly pay five to him: behold the third contract, by which the gain is secured.

1013. • Definition. It is the agreement of two or several persons to contribute something for profit to be received from it, with profit and loss communicated pro rata. - Something, as money, merchandise, industry, labor. - To contribute, and not to transfer into the associate; for society is not converted with co-ownership (joint property). Wherefore between brothers and sisters society does not exist for this reason (i.e. by a precise pact), because they have an undivided patrimony and live from a common table. - With profit and loss, etc. Hence of himself he is not an associate for whom, as minister or broker, a certain quota of profit is constituted in compensation for labor, nor he who gives money by loan to a merchant, so that he may receive a fixed part from the commercial profit.

Conditions: 1. that there be equality, i.e. a right to profit pro rata of the thing contributed; 2. that, unless from a pact the loss and the principal are common, the peril of the principal regard the owner of the principal; 3. that each one undergo the burden of losses and expenses which come on account of the society; yet he who has been made liable to creditors by the fault of the associate is not held in conscience to pay before sentence. - But he who has a small portion, for example a sixteenth, although in most States he is held for the whole debt of the society, satisfies in conscience if he pays according to the pro rata part of his portion. - Whenever a society is entered by the sanction of a public charter (incorporated), the goods of the individual associates, unless the contrary is established in the Charter, are not liable to creditors, but only those things which are of the group (i.e. the capital stock);² 4. that each one apply the same diligence in the society as in private negotiation.³ It is clear that, by defect of the conditions under 1. and 3, the Leonine society is unjust (so called from the fable of the lion sharing in the hunting of the other beasts without danger to himself), by which one communicates profit without contributing anything, or one feels only profit, the other loss.

1014. You will resolve: - Associates sin and are held to restitution: 1° By using common things for their own private advantage, with the others unwilling. 2° By attending to private profit, while they ought to devote themselves to the common profit. 3° By wasting common things. 4° By not contributing into the common treasury whatever they have acquired by negotiation. 5° By neglecting to fulfill their parts. 6° By rashly entangling themselves in business which will scarcely have a happy outcome,¹ the associates being unaware or unwilling. 7° By withdrawing from the society before the time, with the associate unwilling and without a cause certainly excusing.

Note. - That faithful persons proposing cases concerning the contract of society may be rightly understood, I have judged it not useless to explain certain terms of law pertaining to the matter. - 1. Limited partnerships consist of one or more persons jointly (in solidum) and severally (pro rata) responsible, who are called general partners, and one or more, whose liability extends no farther than the fund furnished, and who are called special partners. 2. A dormant partner is one who participates in the profits, but does not appear to the world as a partner. When discovered; he is responsible for the engagements of the firm as if his name had appeared therein. 3. A nominal partner is one who has no actual interest in the trade or its profits, but lends his name and credit to a firm, or in any manner holds himself out as a partner therein. He incurs the liabilities of a partner, not as between himself and the firm, but as between himself and third persons dealing with the firm, if such holding out has come to the knowledge of such third persons. A nominal partner, however, is to be distinguished from a person receiving by way of annuity or otherwise a portion of the profits of any business, in consideration of the sale by him of the good-will of such business, i. e. of the sale of the right to use the name of the firm. Such seller is not deemed to be a partner, nor to be subjected to any liabilities incurred by the buyer. 4. Articles of association are the rules by which the partnership is to be governed. 5. Joint-stock company. This name usually designates a partnership in which the capital is distributed by shares among a large number of partners. Legally they possess none of the peculiar attributes or powers of corporations, except as conferred by statute.¹

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.

ALTHOUGH there are various kinds of Societies — for Societies are entered into in taking up Tax-farms, in executing offices, and in dispensing other goods — yet that is called Society simply which is occupied with lucrative, and profitable return from letting, selling, and the like: Wherefore, although such a contract concerns all goods, nevertheless Society is not understood to be entered into simply of them; but of the foregoing lucrative one, as Bonacina rightly admonishes disp. 3. de contract. quaest. 6. unless the wills of the contracting parties have otherwise declared themselves, leg. quaestus, ff. pro socio, to be cited below.

THE RATIO of this contract consists in this, that some, having made a pact among themselves, and joined their goods fit for gaining — money, industry, or labor — wish by some trading, or even by a craft, or agriculture to make some common gain among themselves to be divided, prepared likewise to divide among themselves a common loss, if perchance they incur one.

THAT this contract is licit is plain ex Cod. et ff. pro socio, et cap. per vestras extra de donat. inter virum, et uxorem, and from the Doctors of both laws in the same places, and from D. Thom. quaest. 78. art. 2. ad 5. and commonly from other Theologians with Valentia disput. 5. quaest. 24. puncto 1.

IT IS PROVED by D. Bonavent. in the Bibliis pauperum, cap. 119. because holy Jacob had a contract of Society with Laban, and was enriched, Genes. 30.

IT IS PROVED secondly by D. Bonavent. ad cap. 4. Ecclesiastae, where he weighs those words: Melius est duos esse simul: habent enim emolumentum Societatis mutuae; The holy Doctor says moreover that this Society is conformable to the virtue of CHARITY, since the avaricious man hates Society in its gains, that he alone may profit.

HENCE I argue by reason: that which is licit to do alone, much more is it licit to communicate a good with one's neighbor; but it is licit for one alone to exercise contracts: Therefore.

¶ BUT that this contract be licit, three conditions are to be observed.

THE FIRST is required on the part of the trading, that it be just.

THE SECOND on the part of the gain to be divided, that it be justly divided among the Partners: as, if each contribute an equal amount, let it be divided equally; if unequal, let it be divided according to that inequality; and if that be doubtful, let it be defined by the judgment of a prudent man.

THE THIRD is, that the loss also be divided by the same reason. So commonly, with Valentia quaest. 24. puncto 1. Toletum lib. 5. cap. 41. Tannerum disput. 4. quaest. 7. dubio 8.

FIRST, it is certain that in a partnership all contracts that are just can come together.

SECOND, it is held to be certain, says Valentia, that by the law of nature one may enter with another partner into that other contract of assurance of a certain lesser gain for a share of the greater gain hoped for, provided, however, that he takes the risk upon himself and retains it. The same is the judgment of Conradus q. 96., although he concludes that it involves risk.

FOR MY PART, I do not approve of this contract, even if the usurious intention of lending be absent, and the dominion of the thing indeed retained, and the risk too (as the Saintly Doctor requires as necessary, cap. 2. speculi animae;) for thus, according to the probability of the hoped-for gain, to impose upon the other partner the burden of assuring the other part of the gain for a share of that gain (even with his consent) is a hardship, not sufficiently well divided by equity among the shares; Nevertheless I do not entirely condemn this manner of contracting.

THE CONTROVERSY, however, is: whether besides the contract of partnership and the contract of assurance of the lesser gain that is hoped for, Peter, for example, who puts one hundred into the partnership, can also at the same time conclude with Paul his partner a contract of assurance of the capital, for a share of the hoped-for gain as well; We speak, however, according to the law of nature.

IT WAS the opinion of Accursius leg. si non fuerint, ff. pro socio, of Panormitanus in cap. Per vestras de donat. inter virum, et uxorem, whom Sotus follows lib. 6. de Iustitia, quaest. 6. art. 2., denying that this can be done.

THE OPPOSED opinion is that of Ioannes Maioris in 4. dist. 15. quaest. 49., who testifies that this opinion was defended by the most learned Ioannes Echius at Bologna; Gabriel ea dist. quaest. 11. dist. 10. Conradus quaest. 97. Sylvester ver. Societas, quaest. 2. Couarruvias lib. 3. var. cap. 2. Nauarrus in manuali, cap. 17. num. 254. Angles in 4. quaest. de Societate, Caietanus opusc. 17. responsionum, resp. 11. Valentia disp. 5. quaest. 24. puncto 3. These, besides the two alleged above, say that this third contract also can be joined in a partnership. Tanner subscribes with others, disp. 4. quaest. 7. dub. 8. He concludes that this opinion is approved everywhere by most learned men, at number 211. So also Bassaeus.

IT IS PROVED from cap. Per vestras, extra, de donat. inter virum, et uxorem. If with a husband verging on poverty, and not having sufficient security for preserving his wife's dowry, the dowry is exposed to peril, such a dowry is commanded to be given to some merchant for trading, that it may of course be safe with him, and from it, intact, the burdens of matrimony may be sustained. This cannot be done except by those three contracts made with the merchant, as Nauarrus noted above, and Ioannes Andreas on the said chapter Per vestras. Likewise by leg. si non fuerent. ff. pro socio, and by the opinion of Cassius it is said that a partnership can be so entered into that neither party feels any part of the loss; but the gain is common. See Valentia, who says this opinion was approved at Rome by many most learned Theologians.

Therefore this contract can be so made that Peter gives the merchant a large sum of money with the pact that the merchant receive at the end of the year, for example, five or six per cent, assuring the Capital for a share of the hoped-for gain. Nor indeed is this a loan, or usurious gain from a loan, as Caspensis notes sect. 10. and Valentia in the place cited.

You will object the Bull of Sixtus V, which begins: Detestabilis avaritia, and prohibits a partnership made with an assurance of the capital.

Caspensis answers it is to be understood of an assurance made without the burden being compensated at a just price, or of a partnership in which no other just contract is mixed in, as Reginaldus notes l. 25. num. 490. Bassaeus v. Societas, num. 4.

You will ask, what is given to the merchant for that assurance of the capital,

Filliucius answers, num. 55. tract. 38. cap. 3. that a part of the uncertain gain is given, which in the judgment of a prudent man seems just to all who hope for it, or that something is remitted from the certain gain which he would have; otherwise he would not thereby enter into a contract of assurance, but only of sale of an uncertain gain for a certain one, which would certainly be greater than if, besides, the contract of assurance were also concluded,

Doctors who undertake this contract enumerate many titles, both just and unjust,

THE FIRST is just by reason of lucrum cessans.

THE SECOND is, if a partnership is entered into with the pact of assurance of the capital, and of sale, for example, of the gain of five per cent for the greater gain hoped for, which is left to the partner in compensation for burdens of this kind, whether those pacts are made with an explicit intention, or implicit, as I said in question 2.

THE THIRD is, if a real census is bought with the pact of redemption and assurance on both sides.

THE FOURTH, if, without an express determination of a contract of partnership, or purchase of a census, or of interest of lucrum cessans, or damnum emergens, with a certain general intention, having made a choice of the person with whom he contracts, his partner also consenting, he wishes to gain those five per cent in some manner at last, which, the circumstances of the persons and of the fact having been considered, by the judgment of experts could justly be done.

LEDESMA adds a fifth just title, p. 2. tract. 8. cap. 35., because he who gives money for that time deprives himself of his liberty, and takes upon himself the burden of not reclaiming that money for that time, which indeed is estimable at a price, and consequently some gain can be taken from it for that without the vice of usury; which opinion Diana seems to approve, p. 1. tract. 8. resol. 48., against Molina T. 1. tract. 2. disput. 308. Laymann l. 3. sect. 5. tract. 4. cap. 16. Turrianus 2. 2. q. 2. disp. 61. dub 3. Salas de Usura, disp. 9. Lessius lib. 26. cap. 20. dub. 14.

Yet to these last the Saintly Bonaventure seems to nod assent, in speculo animae, cap. 2. at the end; For, not to reclaim a loan for so long a time does not detract from the nature of a loan, and is a condition common to all loans, and consequently, since from a loan no gain can be given without usury, it follows, etc. Hence in §. tertius fructus principalis; he condemns such a loan. Bassaeus approves, v. Societas, num. 4., and others cited by him. Hence such gain was condemned by Alexander VII, as we saw, while treating of the Acts of Man, disp. 17. quaest. 10. sect. 40.

But suppose we were to admit such a deprivation as estimable at a price; nevertheless to demand for it annually seven, or even nine per cent (as very many do), exceeds measure. The reason of this is, because if real exchangers are granted alone that they may demand so much, nine per cent, and this by reason of lucrum cessans, and those who enter with the same men a contract of partnership, seven, provided the conditions assigned above are present, and to both is common the lack of money, the deprivation of liberty, and the obligation of not reclaiming the principal within a year; how can these men demand a like gain, not by reason of lucrum cessans, for there is none, nor by reason of the partner's risk, which is also absent, because they not only give money, but moreover receive a mortgage, or pledge equivalent, for security.

THERE are therefore many unjust titles assigned by Valentia disp. 5. quaest. 15. p. 1. et 2. and Caspensis sect. 11.

THE FIRST is, if anyone gives a sum of one hundred, and from him to whom he gives it, for that reason receives five beyond the hundred; because that man uses the money for his own advantage. For this is usury, nor is it sufficiently covered by the cloak of piety by saying that it is given to the wretched to relieve necessity, as D. Bonaventure says, loc. cit.; but who is there in our age affected with so great a piety?

THE SECOND unjust title is, if, although there be not present the mind of receiving that gain on account of the use of the money lent, and without any other probable title, he nevertheless takes that gain, as Caspensis notes with D. Bonaventure, loc. cit., who gravely admonishes all these men to remember that God is the searcher of the innermost heart.

THE THIRD is, when under the pretext of applying the rules of justice, which are the touchstone (lapis Lydius), falsities appear; and in this what is intended must be examined.

I DISPOSE of the matter here most briefly, since I have seen nothing more in the Seraphic Doctor on this subject,

Caius, an English nobleman and a Catholic, is asked by Julius, a promoter of commercial and industrial companies, to give his name as a director to a certain new company being promoted by him. Since Caius knows absolutely nothing concerning the affairs of that company, and does not intend to learn, he discloses his ignorance to Julius, who nevertheless denies that ignorance in any way prevents him from becoming a director, since very many persons, led by the noble name of a director, are accustomed to contribute money to companies; indeed, he offers Caius five thousand pounds if he consents to give his name. Caius asks for time to deliberate, and meanwhile consults a confessor concerning the lawfulness of the business. Hence it is asked:

1. What is a contract of partnership?

2. What are the obligations of directors of companies?

3. What is to be said of the case?

1. What is the contract of Partnership?

Partnership is the relation which exists between persons who carry on business in common with a view to profit. By English law any persons may enter into such a partnership, provided they do not exceed twenty in number, or ten in the case of a banking business. The partners retain their individuality, and each partner is an agent for the rest in the matters relating to the partnership. If seven or more people wish to form a company, they subscribe their names to a Memorandum of Association and procure registration by the Registrar of Joint Stock Companies. Thereupon the members become a body corporate, a legal personality, which has rights and obligations distinct from those of the members. Modern companies are usually formed with limited liability, so that the individual members are liable for the company's debts only to the extent of their shares in its capital.

2. What are the obligations of company directors?

Directors are those appointed to manage the affairs of a company. They are the company's agents for the transaction of its business, and they should have the knowledge, capacity, integrity, and diligence required for such a position. Those who subscribe to the capital of the company are frequently led to do so by seeing the names of capable and honest men among the directors. Hence the liability of directors both in the forum of conscience and of law. English law makes directors in general liable for false statements in the company's prospectus, for violation of duty, and for gross negligence of duty.

3. The case. From what has been said it is obvious that Caius can not allow himself to be made a director of the future company without knowing more about it. The promoter wishes to use him as a decoy, and if he allows him to do so, he will be responsible for the loss inflicted on shareholders if the company turn out to be unsound. Caius must therefore either satisfy himself that the proposed company is a sound and honest enterprise, or he must refuse to allow himself to be made a director.