Profit and loss : caput 3

• Pages: 63-97
• DOI: 10.10520/EJC74123
• Published date: 01 January 2010
• Date: 01 January 2010

63

CAPuT 3

PROFIT AND LOSS

3.1 Limits of non-participation: societas leonina

3.1.1 Introduction

A student of South African entrepreneurial law usually encounters

the expression “leonine partnership” or societas leonina at quite an

early stage of his studies. He will quickly realise that he is not dealing

with a distinctive common law form of enterprise, and that, despite

the term “societas” in the name, it is not a partnership.

In South African textbooks1 discussing the law of partnership, refer-

ences to the leonine partnership appears almost without exception,

usually under discussions of Pothier’s2 third essentiale, namely that

the object should be to make a prof‌it for division between the part-

ners. Since a leonine partnership entails an agreement in which only

one or some of the parties will be entitled to the prof‌it, it does not

constitute a partnership. Such an agreement does not create a valid

partnership since one of the essential requirements for partnership

is absent.3 The kind of contract which may be at hand, is usually not

analysed.4 On the contrary, the impression created is that the agree-

ment itself is null and void.5

1 De Wet and Yeats Die SA Kontraktereg en Handelsreg 4th ed (1978)

387; Nathan The SA Law of Partnership and Private Companies 2

nd

ed (1938) 8; Lee and Honore The SA Law of Obligations 2nd ed (1978)

134; Bamford The Law of Partnership and Voluntary Associations 2nd

ed (1971) 6; De Villiers “Partnership” SA Encyclopedia of Forms and

Precedents vol. 13, 142; Gibson SA Mercantile and Company Law 4th

ed (1977) 269; Wille Principles of SA Law 8th ed (1977) 473; Wille and

Millin Mercantile Law of SA 17th ed (1975) 413; Halhlo and Kahn South

Africa: The Development of its Laws and its Constitution (1960) 702;

Maasdorp Institutes of SA Law, Vol. 2 Law of Contracts 8th ed (1970)

278; Van Jaarsveld et al SA Handelsreg (1978) 627 n 37 (hereafter

referred to as Van Jaarsveld); Hosten et al Introduction to SA Law and

Legal Theory (1977) 524 n 124 (hereafter referred to as Hosten).

2 Pothier Oeuvres contenant les traités du droit Francais: traité du con-

tract de société (1768-78) 1.12; cf. Joubert v Tarry & Co 1915 TPD

277, 280-1; Rhodesia Railways v Co T 1925 AD 438, 464-5; Bester v

Van Niekerk 1960 2 SA 779 (A) 783-4; Novick v Benjamin 1972 2 SA

842 (A) 851; Purdon v Muller 1961 2 SA 211 (A) 218.

3 Ibid.

4 Bamford 6 creates the impression that it could be seen as a joint ven-

ture (sic!).

5 E.g. De Wet and Yeats 387; Gibson 269; Van Jaarsveld 524.

64

Where the keyword societas leonina appears in South African text-

books, the central Digesta text6 is infrequently referred to.7 Most text-

books are content to refer to one or more Roman-Dutch authorities8 or

merely to other South African handbooks.9 Some refer to no sources

whatsoever.10 A few attempt to satisfy the curiosity of young enquir-

ing minds by explaining that the term societas leonina alludes to an

ancient fable in which the lion and two other animals agreed to go

hunting and the former took all the spoils.11 Here the discussions

usually end.

The impression is often left in textbooks that reference has been

made to the leonine partnership as a rather peculiar common law

agreement with an undisputed content, simply to illustrate a generally

accepted requirement, namely that all the partners should always

share in all the prof‌its of the partnership. It has even been brushed

aside with the rather peculiar remark that “… it seems incredible

that such a contract should ever have been formed between serious

persons.”!12

The Digesta text13 in which the societas leonina appears, together with

the immediately preceding14 and subsequent statements15 on wheth-

er, and to what extent, participation in prof‌it and loss may be at vari-

ance, has left a distinct impression on the law of partnership and has

given rise to divergent opinions, statutory arrangements, discussions

and viewpoints16 which have received scant attention in South African

legal literature and has evidently been appreciated even less.

The approach of the Supreme Court of Court of Appeal in a range of

decisions on the law of partnership17 leaves a strong impression that

statements to the effect that the principles of our law of partnership

6 D 17 2 29 2.

7 De Wet and Yeats 387; Wille 473.

8 Lee and Honore 134; Bamford 6; De Villiers 142; Gibson 269; Wille

and Millin 413.

9 Hosten 524.

10 Van Jaarsveld 627; Halhlo and Kahn 702.

11 De Wet and Yeats 387; Nathan 8; Bamford 6 n 6; Wille and Millin 473.

12 Wille and Millin 473.

13 D17 2 29 2.

14 D 17 2 29 1.

15 D 17 2 30.

16 Müller-Gugenberger “Bemerkungen zur ‘societas leonina’ Fabelhaftes

im Gesellschaftsrecht” Gesetzgebungstheorie, Juristische Logik, Zivil-

und Prozessrecht (1978) 274; Heenen “Partnership and Other Personal

Associations for Prof‌it” Encyclopedia of Comparative Law vol. XIII 29-32.

17 Lee v Maraisdrif (Edms) Bpk 1976 2 SA 536 (A); Robson v Theron 1978

1 SA 841 (A). See Van Zyl Geskiedenis van die Romeins-Hollandse R eg

(1979) 486; Henning Enkele tendense in ’n aantal uitsprake van die SA

Appèlhof (1973) 16-18, 52-59 and case law referred to.

65

are for the most part identical to those found in English law reports

and leading English textbooks,18 should be approached with caution.

Nevertheless, even if modern English textbooks ignore the leonine

partnership, it should not be assumed that English and South Afri-

can law of partnership have nothing in common or that Roman law

exercised no inf‌luence on the English law of partnership at all.19 The

English law of partnership is derived from three sources, namely

common law, the lex Mercatoria as well as Roman law.20 Story21

stressed these the last root very elegantly:

The Roman Law is an inexhaustive treasure of various and

valuable learning; and the principles applicable to the Law of

Partnership are stated with uncommon clearness and force

in the leading title of the Institutes … and those of the Digest

and Code … A slight glance at them will at once show the

true origin and basis of many of the general doctrines incor-

porated into the Common Law.”

Although the tracks of the Roman lion and his two companions are

no longer clearly discernable in modern English treatises on the law

of partnership, it may be worthwhile to give brief consideration to those

few which can, in fact, be traced.22

18 E.g. “… the Roman Dutch law and English law of partnership are con-

sistent with each other if not identical …” Wille and Millin Mercantile law

of SA 16th ed (1967) 377 — a statement not repeated in the 1975-edition;

“… the principles of our law of partnership are identical with those of

English law …” Dickenson & Brown v Fisher’s Executors 1916 AD 374, 395.

19 See Bester v Van Niekerk 1960 2 SA 779 (A) 784; De Villiers 136; Hahlo

and Kahn 699. Nevertheless, there are obvious differences, e.g. the test

for a partnership in our law is Pothier’s four essentialia and not the rules

set out in section 2 of the Partnership Act 1890 (53 & 54 Vict c 39); the

partnership en commandite was received here and not the Limited Part-

nership Act 1907 (7 Edw 7 c 24); the silent partner is not liable to third par-

ties, but a “dormant partner” is; it never became necessary to introduce

legislation similar to the Partnership ( “Bovill’s”) Act 1865 (28 & 29 Vict c 86).

20 Scrutton “Roman law inf‌luence in Chancery, Church Courts, Admiralty

and Law Merchant” 1 Select Essays in Anglo-American Legal Histor y

(1907) 208; 220; Mitchell “Early forms of partnership” 3 Select Essays

in Anglo-American Legal History (1909) 183; Corbett “Partnership in

Roman and English Law” 1887 Law Magazine and Review 219; Holds-

worth “Early History of Commercial Societies” 1916 Juridical Review 305.

21 Story Commentar ies on the Law of Partnership 6th ed (1868) ix.

22 Corbett 227: “English law … does not admit of a leonina societas.”