Opinion of the Court.

...

263 U.S.

they were authorized to take steps to dissolve the firm, if the business was not conducted conservatively or was neglected or mismanaged. It was provided that the certificate holders should "have no right, title or interest, directory, proprietary or otherwise, in the said copartnership or in or to the property or assets of said copartnership...", and that "the interest of each . . . holder of trust certificates shall consist solely of the right to receive his proportionate share of the net part or parts of the trust fund from time to time payable to the trust company hereunder, This agreement was signed by Hecht and Finn; there was attached to it an agreement signed by Marcuse, Morris, Hecht and Finn to do all things necessary to carry out the trust, and the trust company accepted the duties imposed upon it.

On the same day-June 30, 1917-Hecht delivered his check to Marcuse & Company for $25,000 and Finn his check for $31,500. And checks were delivered to Hecht and Finn by Vette for $30,000, by Zuncker for $25,000, by Regensteiner for $28,500, and by Hoffman (for the Studebaker interest) for $50,000. These checks were handed over to Marcuse & Company, making up a total of $190,000.

On Monday, July 2, the certificate of limited partnership was filed in the office of the county clerk. The new firm commenced business on that day. All the letterheads and other papers of the firm indicated that Marcuse and Morris were general partners and that Hecht and Finn were limited partners. Hecht and Finn took no part in the control of the business. Marcuse and Morris exercised exclusive control and carried on the business. The Hecht-Finn trust agreement was unknown to persons dealing with the firm. It does not appear that any of the creditors understood or had any reason to believe that the arrangement was other than as shown by the partnership agreement.

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Opinion of the Court.

From time to time, while it was a going concern, the firm paid dividends on the capital contributed. After bankruptcy proceedings had been commenced against Marcuse & Company, Hecht and Finn, in accordance with § 11 of the Uniform Limited Partnership Act, hereafter quoted, renounced their interest in the profits of the business or other compensation by way of income. They also paid $46,000 into court for the benefit of the alleged bankrupt estate. This amount was sufficient to cover all dividends paid on the $190,000, so contributed to the capital of the business, with interest on such dividends from the times of payment.

Are Hecht and Finn liable as general partners?

No limited partnership was formed. On July 1, 1917,` the Illinois Limited Partnership Act of 1874 was repealed, and there was substituted for it the Uniform Limited Partnership Act (Hurd's Revised Statutes, 1919, c. 106a, §§ 45-75). The Uniform (General) Partnership Act 88 (id. §§ 1-45) became effective on the same day. The Act of 1874 provided that no limited partnership should be deemed to have been formed until the certificate should be filed in the office of the county clerk. The first effort tɔ form a limited partnership was given up. The final effort failed because the certificate was not filed until after the repeal of the Act of 1874. Limited partnerships organized under the Act of 1917 are not authorized to do a brokerage business, and no attempt was made. to organize under it.

Hecht and Finn were not partners as to Marcuse and Morris. It is well settled in Illinois that, as between the parties, the question of partnership is one of intertion' to be gathered from the facts and circumstances. Goacher v. Bates, 280 Ill. 372, 376; National Surety Co.. v. Townsend Brick Co., 176 Ill. 156, 161; Grinton v. Strong, 148 Ill. 587, 596; Lycoming Insurance Co. v. Barringer, 73 Ill. 230, 233, 234; Smith v. Knight, 71 Ill.

148, 150. See also London Assurance Co. v. Drennen, 116 U. S. 461, 472. The Uniform (General) Partnership Act provides: "A partnership is an association of two or more persons to carry on as co-owners a business for profit." Section 6 (1). ". persons who are not partners as to each other are not partners as to third persons." Section 7 (1). ". common property or part ownership does not of itself establish a partnership, whether such co-owners do or do not share any profits made by the use of the property." Section 7 (2). "The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the busi"Section 7 (4). ness ..

Hecht and Finn did not carry on the business of the firm as co-owners or otherwise. They had no authority, actual or apparent, to act for or bind the copartnership. The agreements of the parties, their subsequent conduct, the repayment of dividends received with interest, together with the other facts and circumstances above alluded to, are more than sufficient to rebut and overcome any inference legitimately resulting from the receipt of a share of the profits. The provisions of the agreement giving respondents right to have access to the books of the firm, to have statements, to appoint auditors and, in the event specified, to call for a dissolution, were appropriate in a limited partnership. See § 19, Act of 1874; § 10, Uniform Limited Partnership Act. Under the circumstances, these provisions do not indicate any intent on the part of Hecht and Finn to become general partners or support petitioners' contention that they are liable as partners.

As to third parties, they cannot be held liable as general partners.

Section 16 of the Uniform (General) Partnership Act provides that: "When a person . . . represents himself, or consents to another representing him to any one,

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Opinion of the Court.

as a partner in an existing partnership he is liable to any such person . . . who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable..." There was no such representation of Hecht or Finn to any person or to the public. On the contrary, they were published to the world as limited partners. It is true that they were not. But no person could have been misled to his disadvantage by the statement that they were. Representation on mistaken belief that they were limited partners was not a holding out as general partners. The lack of power of a limited partnership created under the later act to carry on a brokerage business gives no additional significance to the representations. The firm was not held out as having been organized under that act. The failure to complete the organization did not injure any persons dealing with the firm. Creditors are as well off as if the limited partnership had been perfected. The $190,000 handed over by Hecht and Finn was not withdrawn. Hecht and Finn did not intend or agree to become general partners.' The things intended and done do not constitute a partnership. They did nothing to estop them from denying liability as such. The case is not doubtful. But if it were, their intent should be followed. Beecher v. Bush, 45 Mich. 188, 193. See also Post v. Kimberly, 9 Johns. 470, 502, et seq. To hold them liable as general partners would give creditors what they are not entitled to have, and would impose on Hecht and Finn burdens that are not theirs to bear. .

Moreover, we think that § 11 of the Uniform Limited Partnership Act was applicable and was properly invoked by Hecht and Finn. It provides:

"A person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights

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of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership; provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income."

Prior to the taking effect of that act, the courts of Illinois held that at common law all partners were liable without limitation for the debts of the firm, and that, in order to limit such liability, the statute authorizing limited partnerships must be complied with, or all those who associated under it would be liable as general partners. Henkel v. Heyman, 91 Ili. 96, 101; Manhattan Brass Co. v. Allin, 35 Ill. App. 336, 341; Walker v. Wood, 69 Ill. App. 542, 549, affirmed 170 Ill. 463; Cummings v. Hayes, 100 Ill. App. 347, 353. And this is in harmony with decisions elsewhere under statutes similar to the Illinois Act of 1874. These cases illustrate how strictly the common law rule against limitation of liability was applied, and how far the doctrine of constructive partnership was carried. It was thought that the strictness of the old act and decisions under it impaired the usefulness of limited partnerships as business organizations because of the risk that one contributing capital as a limited partner might be held liable without limitation. The Uniform Limited

'Pierce v. Bryant, 5 Allen, 91, 94; Haggerty v. Foster, 103 Mass. 17; Argall v. Smith, 3 Denio, 435, affirming 6 Hill, 479, 481; Durant v. Abendroth, 69 N. Y. 148, 152; In re Merrill, 12 Blatchf. (U. S.) 221, 223; Richurdson v. Hogg, 38 Pa. St. 153; Vanhorn v. Corcoran, 127 Pa. St. 255, 268; In re Allen, 41 Minn. 430; Lineweaver v. Slagle, 64 Md. 465, 483; Holliday v. Union Bag and Paper Co., 3 Colo. 342,. 344; Oglesby Co. v. Lindsey, 112 Va. 767, 776.

'See explanatory note as to the Uniform Limited Partnership Act, submitted with the act to the Illinois legislature.

The Uniform Limited Partnership Act has been adopted by Alaska, Illinois, Maryland, Pennsylvania, Tennessee, Virginia, Idaho, Iowa, Minnesota, New Jersey, Utah and Wisconsin. See Terry, Uniform State Laws, Annotated.