Societas (Partnership)

One usually meets socius first in warlike contexts. There it means �ally’. But here �partner’. The words �society’ and �association’, and the family of adjectives and verbs which go with them, come from this Latin.

The action’s name is pro socio. Actio pro socio just means �action for a partner’. Under the formulary system the pleading was on these lines:

Whereas Aulus Agerius entered into a partnership with Numerius Negidius in respect of all their property (omnium bonorum), which matter is the subject of this action,

whatever on that account Numerius Negidius ought to give to or do for Aulus Agerius in good faith,

for the value of that, not exceeding the capacity of Numerius Negidius to pay (dumtaxat quod Numerius Negidius facere potest), let the judge condemn Numerius Negidius to Aulus Agerius; if it does not appear let him absolve.^[30]

i. The demonstratio

What facts would substantiate the allegation that a partnership had been entered? The specimen formula in the edict used the example reproduced here, the partnership of all goods. This betrays origins other than in the field of commerce. But in practice most partnerships would ordinarily be much more limited and would be commercially motiv­ated. The content of the partnership could be some line of business, narrowly or widely defined: importing wine, manufacture of pottery, retailing food, and so on. Or it could embrace all the commercial activities of the partners: a partnership in commerce generally. Or, at the other extreme, it could focus on just a single operation: selling one house, or buying a piece of land.

Whatever the scope, the making of the partnership consists in an agreement to join together so as to contribute resources to the venture. There is no reason why the contributions should be equal or all of the same kind.

Partnerships hope to prosper but risk losses and lean times. If the agreement is that one party shall bear the risk of loss but be excluded from the hope of profit, the contract is void (societas leonina: partnership with a lion). Apart from that, shares can be fixed by the agreement and deal differently with profit and loss. It is possible for one partner to have two thirds of lucrum (profit) and one third of damnum (loss) while the other is entitled to one third of the lucrum but risks having to bear two thirds of any damnum. It is even possible for a partner to be exempted entirely from the risk of damnum. It is only where a partner is excluded from the hope of gain that the lion mischief comes in.

An arrangement by which one is to take a fixed sum first and then the other is to take all the rest of the profit, if any, is accepted as valid. Thus D.17.2.52.7 (Ulpian, 31 On the Edict):

Papinian in book 3 of his Responsa reports this answer which he gave when consulted on a case: There was an agreement between Flavius Victor and Bellicus Asianus that premises would be bought with Victor’s money for the manufacture of monuments through the skill and labour of Asianus; further that from the sale of the monuments Victor would receive money up to a fixed sum and Asianus, contributor of labour to the partnership, would have the rest. On these facts the actio pro socio will lie.

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If the parties do not quantify their shares the contract does not fail for uncertainty. Presumptions come into play. If they say nothing they are presumed to have intended equality. If they fix only the shares in profit they are presumed to have intended the same shares in loss. And vice versa.

The flexibility in departing from equivalence in gain and loss was not arrived at without hesitation. Another sign of origins outside the cut-throat world of commerce.

There was a great debate as to the validity of a partnership in which a party takes a larger share in profit and a smaller share in loss. Quintus Mucius [consul in 95 bc] thought that contrary to the nature of partnership. But Servius Sulpicius [praetor in 65 bc, murdered in 43 bc], whose opinion has prevailed, was so firmly of the view that there could be such a partnership that he even held that one partner could be validly exempted from loss but allowed a share of profit if only (si modo) his contribution seems so valuable as to make it fair to make him a partner on that basis.

It is impossible for a partnership to be enlarged except with the agreement of all partners. If ten people are partners and seven admit an eleventh they only succeed in making him a member of a new or sub-partnership between themselves and him. D.17.2.19 (Ulpian, 30 On Sabinus):

Someone admitted as partner is only partner to the person admitting him. And that is good law, since partnership is created by agreement and nobody can become my partner whom I do not want. What then if my partner has admitted him? He is just his partner.

This is then summed up in D.17.2.20 (Ulpian, 31 On the Edict) which serves to show that Ulpian and the compilers liked tongue-twisters: �nam socii mei socius meus socius non est: my partner’s partner’s not my partner.’

Sometimes partnership intent is all that distinguishes another trans­action from societas. D.17.2.44 (Ulpian, 31 On the Edict), for example, looks to offer a choice between emptio-venditio and aestimatum (sale or return) which is covered by one of those supplementary actions prae­scriptis verbis:

I give you a pearl to be sold. The agreement is that if you sell it for ten I shall receive ten but if you sell it for more you keep the rest. It seems to me that if this was done with partnership intent (animo contrahendae societatis) the action pro socio lies. If not, then the actio praescriptis verbis.

A similar example is provided by locatio-conductio of, say, a field for cultivation. At least in the case of locatio partiaria where the merces is paid in the form of a share in the yield (a transaction which in appropriate economic conditions can reduce the share-cropper to near slavery) an intention to treat the transaction as a joint venture between equals will turn into partnership what otherwise seems to belong clearly with hire.

ii. The intentio

What obligations flow from partnership? This question is best addressed by asking first what the general function of the action is.

It has nothing to do with relations between the partnership and the outside world. The intentio directs the judge's attention to the obliga­tion owed, internally, by one party to another. There are indeed no relations between the partnership and the world outside. Suppose my partner in buying pictures goes off to an auction. As between the auctioneer and my partner the partnership is irrelevant. We can refer to the partnership as though it were an entity different from its members, much as we refer to a club or society or a flock or a herd as a distinct collectivity. But the law does not follow the ordinary usage of the language. It does not endow every collectivity with legal personality so as to enable it to own, owe and sue. If we say that the Butterfly Society owns premises and equipment we probably mean its members do, unless the Society has done what is necessary to turn itself into a body corporate. So with a Roman societas. It had no legal identity. Rights and duties vested in its individual members, the part­ners themselves. Hence, as a matter of logic, there could be no relations, externally, between partnership and persons dealing with one or other partner.

But this goes one stage further. Not only was the partnership not a legal person in itself but, further, the transaction of one partner did not vest rights in or impose duties on another partner. Selling a picture to my partner you could not later sue me or be sued by me.

So this is the first point. The actio pro socio is concerned with the internal regulation of the partnership. The second is that joinder of issue terminates the contract: the partnership is finished. The need for litigation shows that the mutual trust and commitment (the fraternitas, �brotherhood’) between the parties has broken down. So the action's role is to wind up the partnership. If things are going well then the settling up which the action brings about should proceed amicably from accounting period to accounting period. The action comes in at the breakdown. The analogy of divorce is not far-fetched.

The fundamental principle is one with which the other bonae fidei contracts have now made us familiar. Good faith is the basis of the partners’ mutual obligations. D. 17.2.52.1,2 (Ulpian, 31 On the Edict):

1. What is taken into consideration in this trial for a partner is good faith (Venit autem in hoc iudicium pro socio bona fides). 2. The question arises therefore whether a partner must answer only for fraud or also for fault (ultrum... tantum dolum an etiam culpam praestare socium oporteat). And in book seven of his Digesta Celsus writes: partners must in their relations answer for both fraud and fault (socios inter se dolum et culpam praestare oportet).

What are the central concerns? What does a partner chiefly have to worry about? In the action, and for that matter in every accounting period, his overall aim is to have a true account of the partnership’s finances. These anxieties arise from routine human temptations. Dis­loyalty and laziness. The law makes partnership viable by imposing legal obligations in respect of these worries, where reliance might otherwise be withheld. So the general obligation to abstain from fraud, and fault here bites in practice chiefly on secret profits and improper expenses (disloyalty) and opportunities missed or botched (laziness).

People who join together to gain are nevertheless tempted to try to keep opportunities to themselves and so to prevent this or more profit from showing up in the partnership account.

Sometimes the partner just tries to keep the matter quiet. Another manifestation of the same disloyalty is the tactical renunciation of the partnership. Withdrawal is permitted: no partner is obliged to maintain the relationship when the will and wish to has gone. But tactical withdrawal to take a profit leaves you still under an obligation to bring the gain into the account. G.3.151:

... Clearly, however, if someone gives up a partnership in order to take for himself the opportunity of a gain which is coming his way, he will be compelled to share that gain. As, for example, where I have a partner totorum bonorum (of all goods) and he withdraws with a view to keeping to his own profit an inheritance which he has been left.

D.17.2.52 pr. (Ulpian, 31 On the Edict) is another example. The text has been managed to some extent in the Digest, probably just abbreviated. One sign is that the parties seem to change over in the middle. In this translation I have smoothed that out:

A piece of land is for sale. It adjoins that of two neighbours, A + B. A asks B to buy it on the basis that the part next to A’s land will then be conveyed over to him. Then, without B’s knowledge, A buys the plot himself. Question: Does B have any action against A? Julian writes that it depends on the facts: If what was intended was only that B should buy and then share with A then B has no action against A who did the buying; but if what was intended was that the deal should be a joint venture (ut quasi commune negotium gereretur), then A will be liable to B in the trial on partnership to make over all the land less that part he commissioned to be reserved for himself.

First you have to decide that you are looking at a partnership. Once you are, then no partner can be allowed to go it alone, even if on second thoughts or perhaps because of a new source of finance he suddenly sees that he can do better without co-operation. This same temptation is encountered outside partnership whenever one is placed in a position to perceive opportunities which are not entirely one’s own, as for instance as agent for a principal, trustee for a beneficiary or in any other case in which one is managing the affairs wholly or partly of another.

Another form of disloyalty is fiddling expenses. That is, attributing to the partnership account an outgoing which is not properly incurred in the pursuit of partnership business. No partner may do that. The same goes for losses incurred outside the scope of the partnership. He must not impute these private minus quantities to the partnership account. If he has he must make good the sum. This involves an exercise of definition to establish a line between what is inputable and what not. Thus D.17.2.52.4,15 (Ulpian, 31 On the Edict):

4. Some people made a partnership dealing in clothes. One partner travelled to buy in. Bandits (latrones) attacked him. He lost his money, his slaves were wounded, and he lost his personal effects. Julian says the loss is to be shared and in the actio pro socio the other partner must acknowledge a half share of it in respect of the money and the other things which he would not have had with him unless he had set out on a journey to buy supplies on the partnership’s account. And Julian quite rightly approves of the proposition that the partner must also acknowledge a share of anything spent on doctor’s bills. It is the same if something goes down in a shipwreck when it is not usual to have the goods carried otherwise than by ship. There both must bear the loss. For just as profit, so such loss must be shared as does not arise from a partner’s fault (culpa)... 15. If one partner sets off on partnership business, as to buy supplies, he will impute to the account only those expenses which he lays out on that business. [The text then lists travel, hotel, stable and storage expenses for himself, his men and the goods].

The next text, D.17.2.60 pr.-i (Pomponius, 13 On Sabinus), combines reference to the duty to bring in partnership profits and the duty not to impute extra-partnership losses. It is Pomponius, citing Labeo. And the tone and substance is strict.

A partner makes a profit from the partnership. He delays repaying it and uses the money himself. Labeo says he must pay interest too. But not really as interest but to make good what the partnership loses by his delay. But if he does not use the money or if he does not delay the opposite conclusion applies [i.e. no interest]. Also, after the death of a partner no such calculation is to be made on the basis of his heir’s conduct, because partnership is dissolved by the death of a partner. i. Partnership slaves were up for sale. They made a break for freedom. One partner resisted and was wounded. Labeo says he cannot obtain his medical expenses in an actio pro socio because that expense was incurred not in but only on account of the partnership, just as if a partner on account of his partnership was cut out of a will, lost a legacy or was inattentive to the management of his own affairs. For it is the same with an advantage which comes to him because of his partnership. He does not have to bring in an inheritance or gift which comes to him merely because of the partnership.

We have been considering disloyalty, the temptation to keep a profit to oneself or to impute a loss to the partnership account which ought to be borne by oneself. To handle the obligation ofloyalty the law has to draw a line round the partnership, to define its scope.

Now laziness or other forms of inattention and carelessness. An event may be prima facie within the scope of the partnership but still a partner may wish to and be able to complain. Suppose I am to buy land for grazing and I make no inquiries about the behaviour of a river running nearby. It turns out that for much of the year the land is under water. I have paid far too much and, besides, I have failed to meet our needs for pasture which means we must hire a field from someone else. All because I did not look before my leap. Or suppose we were selling and I wanted to get the business done quickly. I was to sell our wheat at the local market and settled for the first offer without ever discovering the strength of the day's demand. It cost the business hundreds of pounds.

In such cases the partner responsible for the loss or the failure to profit is obliged to make good the consequences of his own culpa. The question is, What standard applies to determine blame in a partner? Justinian says that it has to be remembered that people choose who to team up with and should therefore not expect more than their partner is normally capable of in relation to his own affairs. This makes the standard �the care shown in his own affairs' (quam in suis rebus). The kind of fault for which a partner must answer is �concrete fault' (culpa levis in concrete) as opposed to �abstract fault' (culpa levis in abstracto) measured by the standard of a hypothetical reasonable man, the bonus paterfamilias.

The text in the Institutes largely reproduces D.17.2.72 (Gaius, 2 Nuggets); it can be found at J.3.25.9:

There has been a question about this: are partners liable to each other in the actio pro socio only for what they do fraudulently (dolo), as in the case with a man who allows a deposit to be made with him? Or are they also liable on the ground of culpa, that is, for their laziness or inattention? The view which has prevailed is that they are liable even for culpa. But the blame is not to be measured by the very most demanding standard of care (non ad exactissimam diligentiam dirigenda est). For it is enough that the partner shows on the partnership affairs (in communibus rebus) such attention (diligentia) as he usually shows on his own. In fact someone who takes on a partner who is not careful enough ought to hold himself to blame. That is, he should put it down to his own account.

iii. The condemnatio

Hitherto the difficult questions about the actual measure of the con­demnation directed by the formula have been omitted. This third section is added here only to take note of one special feature. The formula limits the condemnatio by a taxatio, a claim which sets a max­imum. The maximum is expressed as �what he can meet'.

This is the beneficium competentiae. It prevents the condemnation running higher than the sum of the defendant’s worldly wealth at the time of the judgement and thus saves him from processes by way of personal execution. He does not escape liability for the balance, for the judge compels him to enter into a stipulatio to pay the rest later.

This beneficium (privilege, indulgence) is a further indication of the non-commercial character of the contract. That is, on the assumption that commerce is supposed to be naturally cut-throat. Just possibly the restriction was in classical law confined to the very un-commercial, more commune-like, partnership of all worldly wealth (societas omnium bonorum). Contrary to one’s first thoughts this seems to have been the original case, modelled directly on the relationship arising by operation of law between co-heirs or, more accurately, on the artificial creation of that relationship by a formal act (certa legis actio) before the praetor (as to which, see G.3.i54-I54b).