Branscome v. Schoneweis.
In Branscome v. Schoneweis, Schoneweis and Woodrum, brothers-in-law, were associated in the operation of a livestockyard called Tallula Cattle Company (“Tallula”).[1] Schoneweis was the owner (providing the initial working capital) and Woodrum was the manager (entitled to an equal share of commissions on the sale of all cattle) of the livestockyard (market agency business), while at the same time, both men continued as individuals in the business of buying and selling livestock in commerce (dealer business).[2] After Branscome began doing business with Woodrum, Branscome asked Schoneweis what his operation was, and Branscome said, “Well, [Woodrum] has got the barn there and we own and operate [Tallulla]” and “Woodrum does all the work. . . . I am the bookkeeper . . . and we own [Tallulla].”[3] When Woodrum placed orders, however, some invoices were to himself, though most of the times they were to Tallulla, and most of the payments were by checks drawn on Woodrum’s personal account, though a number of them were on the account of Tallulla and signed by Schoneweis.[4] Branscome then asked Tallulla for a statement as to its owners and received a letter from Woodrum that said “Mr. Schoneweis & Myself are [Tallulla].”[5] When Branscome advised Woodrum that the letter was insufficient, he received a document that said “[t]his is to certify that we are the sole owners and operators of [Tallulla],” signed by both Woodrum and Schoneweis.[6]
The district court found that Branscome’s belief that he was dealing with partners operating under the name of Tallula was reasonable and that Branscome exercised due diligence and relied in good faith on Schoneweis’ representation that he was a partner with Woodrum.[7] Accordingly, the district court held that there was a partnership by estoppel and that Schoneweis was liable on dishonored checks written by his apparent partner Woodrum.[8] In doing so, the district court relied on the Illinois Uniform Partnership Act then in effect, which, similar to the current statute,[9] provided that one who negligently holds himself out or permits himself to be held out as a member of a partnership is estopped to deny such partnership relation as against third persons who in good faith relied on the existence of such apparent partnership and extended credit thereon.[10] The Court of Appeals for the Seventh Circuit agreed and affirmed the judgement of the district court.[11]
The takeaway here is that words thrown around carelessly may give rise to a partnership by estoppel in law, resulting in liability that you never thought of (if you want to learn more about the consequences, read our previous blog series on general partnership here). Think twice next time you introduce your business associate to someone else as a partner.
This post was a part of a multi-post blog series on partnership by estoppel. You can find the other posts by searching our blogs at www.mcbrideattorneys.com. If you have any questions about the content of this blog series or other issues not discussed here, please contact us.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064; [email protected], or <a ” ” target=”_blank” href=”http://www.rshawnmcbridelaw.com”>www.mcbrideattorneys.com.
[1] Branscome v. Schoneweis, 361 F.2d 717 (7th Cir. 1966).
[2] Id. at 719.
[3] Id. at 720.
[4] Id.
[5] Id. at 721.
[6] Id.
[7] Id. at 720.
[8] Id.
[9] 805 ILCS 206/308 (“Liability of purported partner. (a) If a person, by words or conduct, purports to be a partner, or consents to being represented by another as a partner, in a partnership or with one or more persons not partners, the purported partner is liable to a person to whom the representation is made, if that person, relying on the representation, enters into a transaction with the actual or purported partnership. . . . “).
[10] Id.
[11] Id.