Legal Definitions - contributio lucri et damni

The Latin phrase contributio lucri et damni refers to the principle of sharing in both the profits and losses of a venture.

Historically, in Scots law, this concept was a significant test used to determine whether a legal partnership existed between individuals. If people agreed to share both the potential gains and the potential financial risks of an enterprise, it strongly indicated that they had formed a partnership.

Here are some examples illustrating this concept:

• Scenario: A Joint Venture for a Pop-Up Shop

  Two friends, Sarah and Tom, decide to open a temporary pop-up shop selling artisanal crafts during a local festival. They both invest an equal amount of money to cover initial costs like booth rental, materials, and marketing. They agree that all revenue generated from sales will first be used to repay their initial investment and cover any additional expenses. Any remaining money (profit) will be split equally between them. Crucially, they also agree that if the shop doesn't make enough money to cover its costs, they will equally share the burden of those financial losses.

  This illustrates contributio lucri et damni because Sarah and Tom are explicitly sharing both the potential profits (lucri) from successful sales and the potential losses (damni) if the venture underperforms. This agreement to share both outcomes would be a strong indicator that they have formed a partnership for the pop-up shop.

• Scenario: Collaborative Software Development

  A software engineer, a user interface designer, and a marketing specialist decide to collaborate on developing a new mobile application. Instead of working as independent contractors for a client, they agree to pool their time and resources to build the app, launch it, and then share any revenue generated from subscriptions or in-app purchases. They also agree that any development costs, server fees, or marketing expenses that aren't immediately covered by revenue will be split among them.

  Here, the individuals are engaging in contributio lucri et damni by jointly undertaking the financial risks (damni) of development and operational costs, while also agreeing to share in the financial rewards (lucri) if the app becomes successful. This shared exposure to both gains and losses points towards a partnership arrangement.