National Biscuit Co. v. Stroud

Brief Fact Summary. Defendant partner, C.N. Stroud, refused to pay Plaintiff, National Biscuit Co., for bread deliveries that the second Defendant-partner, Earl Freeman, authorized while Stroud specifically attempted to disclaim responsibility.

Synopsis of Rule of Law. Each partner has an equal right to the management of the business and any business performed under the scope of the partnership can only be contravened by a majority of the partners.

Facts. Stroud and Freeman decided to dissolve their business February 25, 1956. Several months prior to February 25, Stroud informed Plaintiff that he was not going to be held liable for any deliveries made by Plaintiff. Plaintiff still made deliveries to the business through Freeman’s consent. After the business dissolved, Stroud agreed to liquidate the business’ assets and discharge the debts, and Stroud ended up losing his own personal money in the process. Stroud disputed the money owed to Plaintiff because he specifically requested that Plaintiff not make any deliveries or else he would not be liable.

Issue. The issue is whether Stroud can be held liable for the deliveries that Freeman consented to but Stroud declined.

Held. Stroud can be held liable for the deliveries. Partners are jointly and severally liable for the actions of the partnership. Freeman’s conduct in allowing the deliveries was within the scope of the business and he has a right to make these decisions unless a majority of the partners vote to deny him of these rights. Since Stroud is only one half of the partnership, and not a majority, he is unable to prevent Freeman from exercising his rights.

Discussion. Stroud could have avoided the charge by dissolving the partnership earlier or by amending the partnership agreement when he believed Freeman’s management should be restricted. The business also received a benefit from the delivery, and therefore it was not a complete loss for Stroud. But couldn’t the court view Stroud’s refusal of the deliveries as a decision within the scope of the business that can not be overruled by Freeman’s consent?.