Gilhooly v. Hart ( 1878 )

Van Hoesen, J.

The defendants, who are the appellants, found their application for the reversal of the judgment upon two alleged errors of the referee—the first being his refusal to allow the defendants interest; and the second, his refusal to allow them commissions in the adjustment of the accounts in a business adventure, in which they, the plaintiff’s assignor, De Metz, and one Hill was the parties concerned. It appeared that in March, 1875, the defendants, who comprised the firm of Lucius Hart & Company, engaged with one De Metz and one Hill in the manufacture of spelter under De Metz’s patent. They were to furnish $4500 cash, as working capital, to pay De Metz a salary of $1000 per year, and to employ Aaron Hill at a salary of $1000 per year. Hill agreed to invest $1500 in the working capital, and to devote his whole time to the business, and was to receive one-fifth the net profits. De Metz agreed to give his whole time to the business, to give to Lucius Hart & Co. the exclusive use of his patent, and to assign to them the patent as a security for the performance by him of his contract. De Metz was to have furthermore, as a consideration for the use of his patent, one-fifth of the net profits of the business. It was agreed that the working capital invested should draw interest at seven per cent. On the 5th day of September following the factory was destroyed, and the business was abandoned by common consent. Lucius Hart & Company rendered to De Metz an account, in which were charged the two items objected to, one for interest and the other for commissions. It appeared upon the trial that Hart & Company had advanced for use in the business more than $28,000, upon which they claimed to be allowed interest, and that they had sold the spelter refined at the factory to the amount of more than $31,000, for which they claimed a commission of 3 per cent. The referee disallowed both items.

The appellants found their claim to interest first, upon the ground that there was an express agreement to- pay interest, and, secondly, on the ground that under the circumstances such an agreement will be implied by law. Whilst there are cases in which a partner may be permitted to charge interest upon his advances for the business of the firm, the general rule does not allow interest to a partner upon his loans to the partnership. There is nothing in this case to take it out of the ordinary rule. The advances were not contributions to the common stock, but loans. If the money had been borrowed from a stranger, interest would, of course, be payable, but where a partner makes the advances the courts have said that he was no more entitled to interest than a partner who excels his associates in industry and judgment is entitled to compensation for his labor. If he seeks an allowance for his superior abilities, or for the use of his money, he must bargain for it. (Lee v. Lashbrooke, 8 Dana, [Ky.] 214.)

Johnson v. Hartshorne (52 N. Y. 178), though not in point, does not, as I understand it, lay down a different doctrine, for that case merely determined the right to interest where a surviving partner had tortiously converted to his own use the propert)'- of his late firm. Whilst I see no reason, therefore, for saying that the law implies an agreement for the payment to the defendants of interest upon their advances, I think there was evidence upon which the referee should have found that De Metz expressly agreed to pay such interest. Though De Metz, in one part of his testimony, swears that he never knew that the capital of $4500 had been exhausted, yet, he swears in another part that the works were stopped for want of money, and that he had several conversations with Fanning, one of the defendants, upon the necessity of having more money, and was told by Fanning that Lucius Hart & Co. would advance more. De Metz further swears that when the defendants presented to him their account, in which the interest item was charged, he made no objection to that, but did object to the item for commissions, and that in a written communication he singled out the latter item as the only one in the account which he would not allow. On the other hand, Fanning, one of the defendants, swears that when told by him that Lucius Hart & Co. would advance money in excess of their contribution of $4500, De Metz said: “ Whatever money you put in you will get back with interest.” This statement of Fanning was nowhere expressly contradicted, though De Metz said, in answer to a general question, that he made no agreement except the written one. The question and the answer, taken together, cannot be considered a satisfactory-denial of Fanning’s clear and positive statement of De Metz’s promise. The works were stopped for want of money ; the defendants had furnished all they agreed to contribute, and ivere under no obligation to make any further advances, and under these circumstances De Metz promised to allow them interest if they would supply the needed funds. They acted on that assurance, and De Metz, when the account is presented to him, found no fault with the charge of interest. It seems to me this is a stronger case than that of Lloyd v. Carrier (2 Lans. 364), in which the court allowed interest to a partner. In that case, the partnership agreement made no provision for the supply of capital by either partner, but one of the firm made advances for the purpose of the business. The books contained charges for interest. Carrier examined the accounts for the purpose of settling them, and made no objection to the items charged for interest. It was held that the accounts, including the interest items, were accounts stated. I think the referee should have allowed the items for interest. The items for commissions were properly disalloived. The proof utterly failed to show any agreement for the payment of commissions to the defendant. De Metz’s conversation with Hill and with Fanning fell far short of proving any understanding that the defendants should have three per cent., or any other rate, for making sales. The claim for commissions is unreasonable and unfair, and was stoutly disputed by De Metz as soon as he discovered it.

For the error of the referee in disallowing the item of interest the judgment should be reversed and a new trial ordered, with costs to the defendants to abide the event (8 Hun, 524).

Chables P. Daly, Ch. J., concurred.

Judgment reversed and new trial ordered, costs to abide event.