Central City Savings Bank v. . Walker , 1876 N.Y. LEXIS 247 ( 1876 )

The defendants are sought to be charged as makers of a promissory note, under the name of "The Utica Steam Woolen Company," a corporation whose charter had expired by its own limitation, and of which the defendants were stockholders. The corporation became such by filing a certificate pursuant to the act of 1811 relative to incorporations for manufacturing purposes, and the acts amendatory thereof, by the terms of which the corporate existence was limited to twenty years from the day of filing the certificate. (3 R.S. [Edmonds' ed.], 726.) The defendants served with process, became stockholders after the organization of the corporation, and were ignorant, in fact, of the day of filing the certificate and of the expiring of the charter. The plaintiff dealt with the corporation as such and not with the individual stockholders as copartners or associates in a joint stock association.

The defendants did not hold themselves out as copartners, neither did they by word or act assent to the making of the note in suit, or to the transaction of any business in the name of the corporation in their behalf or with knowledge that its legal existence had terminated. Some six months after the expiration of the charter a dividend was paid to the defendants, as from the earnings of the corporation, by the check of the treasurer, as annual dividends had been paid in former years, but without notice to them that it was not paid from the earnings of the corporation, or that the corporation had ceased to exist; and there was no proof that it was paid from the earnings of the business transacted in the name of the company after the lapse of the twenty years from its organization. The claim to recover is based solely on the fact that the agent of the corporation, without any authority other than that conferred by resolution of the trustees and under an appointment by them during the existence of the corporation, continued to carry on the business and contract debts, including that in controversy, in the name of the corporation, after the term for which it was created had expired.

The contention is that there was "an implied contract of copartnership" between the stockholders, by which they became liable as copartners to third persons. The property and property rights of the corporation were not owned by the individual stockholders, either during the existence of the corporation or after its dissolution. During the life of the corporation the body corporate was the legal owner, and upon the expiration of the charter the legal title vested in the trustees in office, at the time, in trust, for the creditors and stockholders. (1 R.S., 600, § 1; Mickles v. The Rochester City Bank, 11 Paige, 118.) The stockholders were merely cestuis que trust, entitled to share ratably in the property after the payment of debts. They did not assume to exercise any rights of ownership in the property. It is true that individuals may quoad third persons be charged as partners when they are not in fact partners intersese, by voluntarily and knowingly sharing in the profits of the business or by holding themselves out as partners and thus inducing a credit on the faith of a partnership. (Story on Part., §§ 63, 64.) A liability may be created by an equitable estoppel, but when it is sought to be established upon the footing of a contract of partnership between the parties an agreement must be shown; and it will not be implied from the joint ownership of property, nor will the relation arise by operation of law. (Story on Part., §§ 2, 3, 32.) A partnership does not result from a joint ownership of property, but there must be an agreement, express or implied, to participate in the profits or losses of the business. (Chase v. Barrett, 4 Paige, 148; Porter v.McClune, 15 W.R., 187; Livingston v. Lynch, 4 J.C.R., 573.) The stockholders, who were but cestuis que trust, cannot, without other evidence than the proof of their interest, be held to have authorized each other as partners, to pledge the credit of the whole and to have empowered any one of the number to bind all in any matter within the ordinary course of the business of the defunct corporation. As cestuis que trust having a common interest, each had dominion over his own share, but had no power over that of the others.

There was an entire absence of any intent of the parties to subject themselves to the risks and to the powers which are vested in each member of a partnership. By the Law Merchant, if the individual shareholders have received any part of the earnings of the business carried on by the trustees after the corporation ceased to exist, or have shared in the property of the corporation, they may, perhaps, be held to account in equity, to the extent they have profited; but this does not make them liable in an action at law upon the contracts of the trustees or of the corporation. (Clavering v. Westley, 3 P. Wms., 402.) Neither is there any evidence that the defendants ever constituted Clogher their agent to contract in their name or incur obligations in their behalf, or that they ever received the benefit of his acts so as to charge them with his obligations within the maxim, qui sentit commodum sentire debet et onus. The only act that is relied upon as an adoption of his acts is the receipt of the dividend in August, 1866. But this wants the essential fact that it was paid or received as the profits of a partnership business, as well as the element of knowledge of the acts now claimed to have been ratified, or that the dividend was not, in fact, from the earnings of the corporation, for and as which it was paid and received. A ratification can only be implied after knowledge of all the material facts is brought home to the party. A receipt of money as a part of the earnings of a corporation is no ratification of acts of business carried on outside of the corporation without knowledge of him who is sought to be charged with them that the moneys came from such business. (Baldwin v. Burrows, 47 N.Y., 199; Dounce v. Myrick, 45 id., 180; Rowan v. Hyatt, id., 138.) The case of TheNational Bank of Watertown v. Landon (45 N.Y., 410), is distinguishable from this by the fact that in the case quoted there was a special agreement between the stockholders under which the business was continued after the legal expiration of the charter, by which they made themselves partners in fact as well as in law; and they were held liable as bound by the acts of one as a partner having power to bind all, and not by reason of any special agency in the individual by whom the debt was incurred.Fuller v. Rowe (57 N.Y., 23), relied upon by the plaintiff's counsel, is fatal to the plaintiffs, the court there expressly adjudging, that to make parties assuming to act in a corporate capacity, without a legal organization as a corporate body, liable as partners, it must be shown that the individuals sought to be charged were so acting at the time the contract sued upon was made, or that upon some consideration they agreed to become liable with the others as partners.

To constitute a partnership there must be the assent of the individuals to the creation of that relation between them; and in the cases relied upon by the counsel for the plaintiff there has been a partnership by express agreement, or an authorization in advance and a consent to be bound by the acts of others as partners, or by the particular act in question, or a ratification of the acts after they were performed with full knowledge of all the circumstances necessary to an intelligent avowal or disavowal of them, or some acts by which an equitable estoppel has been created — none of which circumstances exist in this case. (Thicknesse v. Bromilow, 2 C. J., 425; Anthony v.Butler, 13 Peters, 423; Eastman v. Clark, 53 N.H., 276;Vassar v. Camp, 14 Barb., 341.)

The plaintiff failed to make a case against the defendants, and the questions of evidence made upon the trial are, therefore, immaterial. The liability of the two defendants served with process depends upon the same evidence; and there is no evidence against McQuade to distinguish his case from that of his codefendant; and it was not claimed upon the trial that either was liable if both were not.

The judgment must be affirmed.

All concur; ANDREWS, J., not sitting.

Judgment affirmed.