Leeds v. Townsend , 89 Ill. App. 646 ( 1900 )

Me. Justice Freeman

delivered the opinion of the. court.

It is contended by appellant Leeds that no case is made out for the exercise of equitable jurisdiction, first, because there was no partnership.

The Superior Court found that the original agreement between the parties did not constitute them copartners, but was an agreement only for a joint enterprise. Upon this holding Townsend has assigned cross-errors.

The case was here before upon an appeal from an interlocutory order appointing a receiver. In the opinion then filed (74 Ill. App. 444) it was said:

“The letters show very conclusively that there was such a joint interest as at the beginning of the undertaking and during its continuance while this correspondence was carried on, constituted the parties copartners.”

It is now argued that it developed upon the hearing, as the decree found, that there was no partnership. Counsel for Leeds urges that the agreement was for the promotion only of the construction of a railroad in the usual manner, by organizing a railroad corporation to own and operate the road; and a construction company to build it, for stock and bonds of the railroad company; that the only profits of the promotion were to be stock in the construction company to be divided equally between the two parties; that the agreement only contemplated a joint undertaking to secure the promotion or launching of the enterprise.

Townsend testifies that he had spent months investigating the subject of an electric road from the western limits of Chicago through Eiverside and other towns to Hinsdale, and ultimately to Aurora; that he had accumulated and prepared the data consisting of the estimates of cost of construction and profits, and being unable to give the necessarytime himself, laid the project before Leeds, and proposed to take the latter into the enterprise and give him a half interest if he would devote all his time and obtain the preliminary funds. Townsend was to furnish prospectus and any data required, and devote such time as he could outside of his then regular employment, but was not to be openly -connected with the project for business reasons. Townsend says that Leeds looked into the matter, accepted the proposal and started vigorously to interest capital. Each party states that the profits were expected to be derived from the stock knd bonds of the enterprise, and Townsend says:

“We agreed that whatever came to us in any way as a result of the promotion, we would share equally. The profits would be made through the construction company, which would obtain the contract for building the road for all the stock and bonds. We expected to control the construction company.”

Appellant was to find parties willing to put up the money in rettirn for an interest in the scheme. He was not to borrow it himself, but was to pay his own expenses while endeavoring to interest capital in the enterprise.

A careful reading of the correspondence between the parties shows, we think, an understanding on their part during the period covered by it, that is, from January 8, 1894, to May 1Y, 1895, that they were partners in the project. Leeds writes Townsend January 8th, expressing a “ doubt if we can keep the interest we want.” “As this is your idea I hardly feel at liberty to depart from the lines laid down for the distribution of profit without your consent.” Again he writes: “We are working for ourselves; ” “I wish you were here to post me on electrical points as they come up.” He writes of “ the large interest you were to have; ” of a possible “ big change in the distribution of profits leaving us a small share; ” and asks, “ will you be satisfied with $25,000 each, stock and bonds, for your idea % ” “ This enterprise is going through. Our personal interest is shaky.” The whole tenor of the correspondence indicates that the men were engaged together in an enterprise of common" and apparently equal interest.

Leeds’ testimony is that Townsend’s particular part of the enterprise was to obtain the franchises, and each was to have a proportion of the profits; but that “ nothing was fixed as to what the proportion was to be.” The presumption, therefore, will be that they were to share equally, in the absence of evidence to the contrary. Leeds also testifies that he and Townsend were to become stockholders in the construction company. Indeed, there is not any material controversy as to what the original arrangement was.

It is urged by counsel for appellant that the agreement did not constitute a partnership because no provision was made that pecuniary losses were to be shared. It seems to be true that the agreement did not contemplate losses, except possible loss of time and labor given to the project by both parties, and of the traveling and incidental expenses of appellant which he was to advance as his contribution to the capital of the concern, to offset appellee’s ideas and data. There were apparently no other partnership risks, but there were contingent profits in contemplation, in which it was agreed to share, and this amounts prima faeie to an agreement to share losses. Lindley on Part. p. 12. As between themselves, whether two or more persons associating in business are partners, depends upon their intentions. Lindley on Partnership, p..lO, et seq. In Nat. Surety Co. v. Townsend Brick Co., 176 Ill. 156 (161), where an agreement was made to share one half the profits and losses, yet where the parties did not intend a partnership, it was held that as between the parties, the question of a partnership is one of intention to be gathered from the facts. In Fougner v. First Nat. Bank, 141 Ill. 124 (128), where the question is discussed, the court says:

“ It is generally said that to constitute persons partners they must share in the profits and losses. It is, however, well settled that it is not now necessary to show that there is an agreement to bear losses in order to make one liable as a partner. Sharing in the profits is the test.”

Such sharing must, however, be as a principal and not merely as employe, nor as a measure of compensation for services, nor for use of money or property in the business, nor as interest on a loan. If the agreement is not in writing, the intention of the parties must be ascertained from their words and conduct. Bindley on Part, p. 10; State Nat. Bank v. Butler, 149 Ill. 575 (582).

It is urged, and the decree finds, that the transaction in this case was only a joint venture covering one transaction instead of a partnership. While it is true that the purpose was to attain a definite object—the construction and operation of the railroad, yet it did involve more than a single transaction. It required a plan of operations, data showing probable cost and probabilities of profitable operation, obtaining charters, franchises, right of way, interesting capitalists, the receipt and expenditure of considerable mone)T—all this and more, before the anticipated profits could be realized. The profits were wholly contingent, depending upon the nature of the arrangement with others. The project was not a single enterprise, as where two parties agreed to divide the sum realized from the sale of a piece of real estate, over and above the owner’s price, or where the owner of a farm agreed with another, that the owner should furnish the farm and the other party the labor, the crop to be divided in a definite proportion. (See Blue v. Leathers, 15 Ill. 31; G-ottschalk v. Smith, 156 Ill. 378.) It involved a series of transactions extending over a considerable period of time.

It follows from the conclusion that a partnership existed, that a court of equity has jurisdiction of the controversy and we need not inquire as to the existence of other grounds therefor.

It is urged, however, that whatever the original understanding and agreement of the parties may have been, it was subsequently changed, and the court erred in not so finding. We do not regard the evidence to this effect as sufficient to justify such conclusion. There is testimony tending to show that it was agreed upon between the parties for reasons satisfactory to both, and apparently as part of the plan, that Townsend should not be known in the enterprise, but pose as a disinterested expert adviser. If there was impropriety in this, Leeds can not complain, and is entitled to no advantage thereby. It is certainly not proven in view of his express denial, that Townsend agreed to give up his partnership interest and accept such small compensation as Leeds might choose to bestow.

It remains to consider the scope of the partnership. Leeds’ counsel insists that it included only the “ promotion” of the enterprise, and that “promotion generally ends before construction begins.” Townsend states that the plan as proposed by him and accepted by Leeds was to build an electric road from the western limits of Chicago, • etc., and Leeds also says that Townsend “ had a scheme to build a road from Chicago to Hinsdale.” Townsend says:

“We did not contemplate the construction of the railroad, but only the formation of the construction company, and making of a contract for the construction of the road to be paid in all the railroad company’s stock and bonds,” and that “ Whatever we made in the enterprise or as a result thereof, was to be divided evenly.”

Leeds testifies:

“We were to have an interest in the profits; as to the amounts nothing was said. We were to interest people in the construction company, which should build the road. We were to get the profits in stocks and bonds of the railroad company.”

And he says again:

“ The profits of the enterprise were to consist of stocks and bonds of the railroad company through the construction company.”

They expected, therefore, to make their profits out of such part of the stocks and bonds of the railroad and construction companies issued to raise money for the enterprise as they might be able to retain, after satisfying the demands of those from whom they hoped to obtain the necessary capital. But a construction company would be useless which did not construct; and stock and bonds would be valueless in a railroad which was not built and operated. The scope of the agreement must be considered as including whatever was necessary to put the enterprise on its feet so as to give its stock and bonds a value. The evidence fairly sustains the conclusion, in our judgment, that the scope of the partnership was not limited by the agreement to the “ promotion ” only, of the construction company; that the character of the profits as well as the amount, were to be determined by developments; and that whatever their nature or amount, they were to be equally shared.

It follows from these conclusions that whatever was received by either party over and above his actual outlay for expenses incurred bj^ and for the copartnership, was partnership assets and to be divided equally. This must include the five thousand dollars received by Leeds for his services, as he says, prior to November. It is doubtless true that he received less stock than he would otherwise have had, because of the payment of this five thousand dollars. If paid in stock instead of cash it Avould have been under the agreement, partnership stock. It is no less partnership property because paid in money. Taking his own view of it, Leeds received this money for services in promoting the enterprise—just Avhat he says he undertook to do. The railroad company had been incorporated, and he had obtained a contract from it for the construction of the road. He had borrowed money from Stump on the security of that contract. The contract he subsequently assigned to the" construction company, receiving in return the stock in controversy. We can not avoid the conclusion that whatever Leeds so received as so-called salary Avas partnership property, and must be accounted for.

The salary received after the formation of the construction company for services as president stands on a different basis. The company had a right to employ him, and he was entitled to be paid for services, without accounting therefor to Townsend.

The same is true, also, as to what salary he received or was allowed, when the contract was turned over to the construction company, for his services rendered as trustee in the work of actual construction. This was in reality not different from the salary paid him by the construction company. It was earned in the same way, and was likewise paid by the company. It was not partnership property.

We have examined the testimom'- carefully with reference to what is spoken of as the “ Starr stock,” now in possession of Leeds and held in his wife’s name. It is not clear that Starr was not acting as Leeds’ representative in that transaction, nor that the money which is said to have been paid by Leeds for the stock in question did not come through the construction company in such a way as to constitute partnership assets. There were five thousand five hundred dollars paid to Leeds through Haugle, Holcomb & Co., which it is claimed was a repayment of money advanced by him. With this it is said Leeds repaid a loan he had made in Indiana of the money with which he bought the Starr stock. But it is also said to have been part of the money referred to in the so-called “ quadruplicate agreement ” as money due Starr. “ There is no evidence,” says Leeds’ counsel, “to show where appellant got this money loaned to the enterprise.” Hor does it appear satisfactorily how or when or for what purpose or by whom it was so loaned, if at all. Appellee is entitled to an accounting as to this stock, and if it shall appear to be partnership assets, it must be so treated.

For the reasons indicated the decree of the Superior Court will be reversed and the cause remanded to that court for further proceedings not inconsistent with this opinion. Reversed and remanded.