The Accidental Agent

When parties agree to share profits and control of a business venture, they are deemed under law to have formed a partnership even if the par-ties have never expressly provided for such a result. As a consequence, the accidental partners are subject to the default rules of partnership law, including the sharing of partnership losses and liability to third parties. While a case can be made that the sharing of losses may be intended by parties who have agreed to share profits, this is not certain. In any case, the extension of loss sharing beyond indemnification between the parties to liability owed a third-party consensual lender cannot be justified by the intent of the parties, at least where the partner sought by the lender was hidden from the lender at the time it extended credit. It is an open question whether other considerations, such as the minimization of transaction costs, justify a hidden partner’s liability, but it is a question that judges and legislators should carefully consider.

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