Though in applying the analogy of the law of partnership to joint adventurers the courts are careful not to say that a joint ad venture is a partnership, nevertheless, the seeker finds upon a search through the cases that the precise differences from a partnership are somewhat elusive.
The essential partnership nature of joint adventure is dwelt upon because of its bear ing on the matter of liability. Members of a joint account have, as to third parties, that is, as to those with whom the account deals, — the general liability of partners. A stipulation in the agreement for the account that they are not acting as partners has sim ply the effect of calling attention to the fact that the transaction is a joint account, with whatever limitations on the general law of partnership such fact may imply.
The most important difference in the legal aspects of a joint adventure and a partner ship seems to lie in a limitation, in the case of the joint adventure, of the doctrine of agency as applied to partnership. Speaking broadly, a person dealing with any member of a part nership may consider that member the agent of the partnership for all purposes of the part nership business. Any partner can bind his copartners in any transaction within the scope of the partnership. Obviously the scope of a joint account is limited to the specific pur poses of the account. Apparently any one dealing with the syndicate — that is to say, with a party to the joint account purporting to act on behalf of the joint-account syndi cate — is bound to know the specific purposes of the syndicate transaction and cannot hold the syndicate liable on an undertaking out side the scope of those specific purposes. This doctrine is carried far enough to involve, per haps, a real distinction between a joint ad venture and an ordinary partnership formed to carry on a business of a specific and limited kind.
Suppose our corporation, instead of having $5,000,000 of bonds to sell, must, in order to meet its capital requirements, dispose of $25,000,000. Our syndicate of Brown & Com pany, Smith & Company, Jones & Company, and Robinson & Company may be in a posi tion successfully to negotiate the purchase of the issue, but may not want to undertake to sell so large an amount. Distributing such an issue, to its ultimate lodgment in the hands of permanent investors, involves a really tre mendous effort. Because one can say "a mil lion dollars" as readily as saying "a hundred dollars," any sense of the real magnitude of the sum involved in the larger figure easily eludes one. If the permanent investors should each take $5000 of the bonds, on the average, the bankers would have to find 5000 investors who may be induced to prefer this particular investment rather than one of a hundred of others equally available at the same time.
The number of people who are in a position to invest $5000 at one time is very limited. So, though a few financial institutions may buy the bonds in larger blocks, probably the $5000 average is too high rather than too low.
Our syndicate, however, does not want to lose the opportunity to do business. In or der to undertake this particular piece of busi ness it must secure cooperation on a much larger scale than is afforded by these four houses working together. They must get the full advantage of the clienteles of numerous houses.
In order to get this larger cooperation more houses must be taken into the syndicate. But Brown & Company and their associates feel that they can get some return and are en titled to it for their business advantage in being in a position to buy the bonds and for their work in organizing a syndicate of the size necessary to handle so large a transaction. So they first decide to form a syndicate com posed of the four houses in order to purchase the bonds from the corporation and to sell them to another syndicate which they will organize. Of course, too, if they actually effect the purchase before they complete the organization of the second syndicate, they are assuming a risk for which they are entitled to compensation.
To distinguish the general nature of the two syndicates, we call the first a "joint account" and will call this second syndicate an "underwriting syndicate." It would be in the interests of clear expression not to use the term "syndicate" in connection with joint accounts, but to confine its use to the underwriting. As a matter of fact, on the street these terms are used interchangeably, with a tendency, however, to make the dis crimination we have indicated between the terms "joint account" and "underwriting." On this matter of nomenclature I have re marked The term "joint account" implies, in securities transactions, an undertaking entered into by the parties for the purchase and sale of securities, in which the rights and liabilities of all the parties are essentially the same in proportion to their inter est. This is in distinction from an "underwriting syndicate" in which the parties are not on the same basis, or rather, in which, strictly speaking, there are two accounts. It seems desirable to reserve the terms "syndicate" and "underwriting agreement" for this form of undertaking and use only the words "account" or "joint account" for undertakings of the kind discussed here. It seems also desirable to keep the terms " sub scribers," "subscriptions," and "underwriting" for the syndicate agreement and use the terms and "participations" for the joint account.