Brief Fact Summary. Kelley and Galloway (D), partners in an accounting firm hired Smith (P). Smith (P) later claims to be a partner, with a right to share in the firm’s profits.
Synopsis of Rule of Law. Partnerships cannot exist without the intention to create them, the exception is if the rights of third parties become involved.
Issue. If there was no intention to create a partnership arrangement, may one still be established later?
Held. (Clay, Comm.) No, a partnership cannot exist if the was no intention for one, unless the rights of third parties dispute it. Partnerships are a contractual relationship. The chancellor, after reviewing witness testimony, found that no agreement of partnership existed. A suit by an outsider might remove the parties ability to deny Smith (P) as a partner, because conduct treated him like one. An action for an accounting however, requires actual intent for partnership. The evidence presented justified the Chancellor’s conclusion that Smith (P) was not intented to be a partner. Affirmed.
Discussion. There are exceptions to the rule applied in Smith v. Kelley. Certain factors can be deemed sufficient to establish partnership even without the intention for one. For example, in common law, agreement to share profits was often considered sufficient evidence. This arrangement is deemed Prima Facie evidence under the Uniform Partnership Act. As acknowledged in Smith v. Kelley, third parties may find it easier to establish a partnership relationship than might would-be partners.