Story Case

George Reynolds and Dorr Henshaw were partners, dealing in real estate, under the firm name of "George Reynolds & Company." Reynolds made a contract with Hibert Bartlett to sell his certain firm real estate. Bartlett agreed to pay $2,000 for the property in two installments and Reynolds agreed that the firm would make a deed of the property when the second installment was paid. Two days later, Bartlett visited the firm office and paid Henshaw $1,000, the first installment on the contract. He took a receipt from Henshaw signed, "George Reynolds & Company." A week later, Bartlett returned to the office with the last payment and demanded his deed. In the meantime, Henshaw had fled with the money. Reynolds was not aware that any amount had been paid and refused to convey the land upon the offer of the payment of the balance by Bartlett. Reynolds contended that Henshaw was not authorized to receive the money, or to 'give a receipt, signing the firm name. Bartlett brought an action for specific performance of the contract to compel Reynolds to convey the land. What will the Court do?

Ruling Court Case. Bosquit Vs. Lauman, Volume 63 Illinois Appellate Reports, Page 132

Bosquit and Clark were engaged in the building of a house for Lauman. In this transaction, they were acting as special partners for this purpose alone. Bos-quit was really the principal man of the firm. He furnished the capital and managed its affairs. Clark was merely a journeyman carpenter. They entered into an agreement that money due the firm by way of compensation for the building under construction could be collected by neither, but appointed an agent whose duty it was to receive payment. A copy of this agreement was given to the defendant Lauman prior to the time when the building was finished.

This action was brought by the plaintiff against the defendant for an alleged balance of about $700 due upon the contract between them. The defendant proved that he had made a settlement with Clark, by which the latter had accepted $75 in full payment for the balance due on the contract. He contended that the plaintiff was entitled to no more, because of the rule that one partner has implied power to collect money which is due a firm.

Decision

The general rule is that one partner has implied power to collect money due the firm, but the partners may agree that neither has the power to collect, and if notice of such agreement is brought to third persons, who owe money to the firm, payment otherwise than the way in which the partners have agreed upon, does not relieve the third persons from full liability, in case one partner collects and does not account for the money. In this case, Clark appropriated the money received, to his own use; and the Court held that the plaintiff was entitled to recover the full amount alleged and proved to be due.

Ruling Law. Story Case Answer

In any kind of partnership, whether trading or non-trading, each partner has implied power to collect, or receive payment of, outstanding debts or obligations. As between themselves, the partners may agree that one alone, or that some third person as agent, shall collect and receive payment of debts and obligations due the firm, and this agreement will be binding as between themselves; but payment by a third person to either partner, is a discharge of the debt or obligation if the third person was not informed of the agreement between them. In the Story Case, Bartlett can compel Reynolds to convey the property, because Hen-shaw had the implied authority to accept the money and to give a receipt, signing the firm name, and Bart-let was ignorant of any limitations imposed upon Hen-shaw.