McKallip v. Geese , 30 Okla. 33 ( 1911 )

The first question to consider is whether or not the contract which has been set out created a partnership between McKallip Bros., the lessors, and Wiley, the lessee.

Comp. Laws 1909, sec. 4959, defines partnership as follows:

"Partnership is the association of two or more persons for the purpose of carrying on business together, and dividing its profits between them."

In Bates on Partnership, par. 1, it is said:

"A partnership is the contract relation subsisting between persons who have combined their property, labor, or skill in an enterprise or business as principals for the purpose of joint profit."

In Citizens' Nat. Bank, of Chickasha v. Mitchell,24 Okla. 488, 501, 103 P. 720, 726, the court said:

"A partnership exists as a result of a voluntary contract between the parties, and never solely by operation of law.Causler v. Wharton, 62 Ala. 358; Cowles v. Garrett, 30 Ala. 341;Haycock v. Williams, 54 Ark. 384, 16 S.W. 3; Einstein v.Gourdin, 4 Woods, 415, 8 Fed. Cas. No. 4,320; 22 Am. Eng. Ency. of Law (2d Ed.) p. 14, footnote 3. It is a relation arising out of a contract to do certain things and exists only where the parties intend to enter into a contract of partnership and, unless they have estopped themselves by holding themselves out to the world as partners, their intention as derived from the contract is decisive of the question."

We do not undertake the difficult task of giving any general definition of a partnership, but content ourselves with determining whether under the facts of this case the contract created one.

By this contract, Wiley purports to rent the machinery of McKallip Bros., and as security for the payment of the rent he gives them an order upon Reese for all moneys coming to him. McKallip Bros. are to receive 90 per cent. of the net profits, and Wiley, for his services as a driller, is to draw wages. The contract with Reese is made by Wiley, and McKallip Bros. are not parties to it. It is recited in the contract that it will take about 30 days to drill the well. Profit sharing is usually one element entering into a partnership, but another element, as expressed in our statutes, is "carrying on business together," or, as expressed in Bates' definition, it is the "relation subsisting between persons who have combined their property, labor, or skill in an enterprise or business as principals." As the relation is one of contract, and the contract is in writing, it becomes a matter of law for the court to determine whether this contract created a partnership, and we do not find in it any element of joint ownership, of carrying on business together, or of a combination of capital, labor, or skill as principals.

In Rider v. Hammell, 63 Kan. 733, 66 P. 1026, 1027, a somewhat similar contract was involved, although in that case the lessor of the drilling outfit was to receive 25 cents per foot, instead of a percentage of the net profits, and the court in holding that this contract did not create a partnership said:

"Rider was the owner of a machine and appliances used for boring for oil, coal, gas, etc. He agreed with McCarty to rent it to him, together with the tools, ropes, and other appliances then used in operating said machine. He also agreed to furnish new cables when needed, and pay one-half of the costs of certain tools, which in the operation of boring wells were liable to be lost in a well. McCarty was to operate the machine at his own expense, and pay Rider 25 cents per foot for all wells completed. It was also provided that if, in drilling a well, tools should get lost in the well, and by reason thereof the well could not be completed, Rider was to receive only his proportion of what should be collected at the rate of 25 cents per foot. It was also agreed that Rider should share equally in any right of development of wells drilled by McCarty, in case any should be worth operating. This contract was to terminate on 30 days' notice. Does this agreement constitute a partnership between these parties as to themselves? We do not think it does. In the first place, it does not provide that they shall have a joint interest in the business or the profits. Rider was not to receive any of the profits. He was to get 25 cents per foot for all wells completed, regardless of profit. It did not make any difference to Rider what McCarty's profits were, or if he actually sustained a loss. In either event, he was to receive the same pay for the use of the machine. It was of no consequence to Rider whether McCarty's expenses were much or little. It neither increased nor diminished the rental value of the machine. This agreement was not a combination of property, labor, and skill in an enterprise or business as principals. The existence of a partnership implies the relation of principal and agent. This is the real test. Seabury v. Bolles, 51 N.J. Law, 103, 16 A. 51, 11 L. R. A. 136. Rider was not a principal. He had no control or supervision over the contracts made, or of the work to be performed thereunder. McCarty might regulate his own charges and negotiate for his pay at any time and in any manner he desired, without consulting Rider; nor was Rider to receive his pay out of the money collected for boring wells. For anything due him, he became a general creditor of McCarty. The law is now well settled that where a person loans or advances money or goods to another, to be invested in some business or enterprise, the lender to share in the profits as or in lieu of interest on, or in repayment of, such loans or advances, it does not constitute a partnership. Neither will it constitute a partnership as to third persons, unless the acts of the parties in furtherance of the agreement between themselves amount to such a holding of themselves out as partners as that third persons are misled into a reasonable belief that a partnership exists in fact."

In Nofsinger v. Goldman, 122 Cal. 609, 55 P. 425, the first paragraph of the syllabus is as follows:

"Merchants who owned a threshing outfit let it in consideration of half of the net profits of its operation, but the lessees were to have the exclusive management of it. In accordance with their custom, they furnished supplies on credit for operating the machine and money to pay the help to be repaid them after the close of the threshing season. The lessees were operating another outfit, which they owned, and for which they purchased supplies on credit from the lessors; and to distinguish the two accounts, and without the lessors' knowledge, the bookkeeper charged the advancements for the leased outfit to a firm name composed of the names of lessees and one of the lessors. One of the lessors stated to third persons that they were running a threshing outfit, and the bills for the threshing done with such outfit were settled at their store. Held, that there was no actual partnership."

The whole subject and the effect of profit sharing upon the creation of a partnership is reviewed in an elaborate note in 18 L. R. A. (N. S.), extending from page 963 to 1106, and, after reviewing all the decisions on the subject, the author of the note states his conclusions at page 1105, as follows:

"In spite of all the discordant decisions, it is reasonably safe, whenever the profit-sharing element is involved in a legal controversy relating to partnership or partnership liability, to accept as sound law certain propositions, which may be grouped in two classes according as the litigation is between or among the profit sharers alone, or between them and third persons. In the first class are the following statements: (1) Whether profit sharers between or among themselves are or are not partners is to be determined by their intention to form or not to form a partnership. (2) That intention is determined by their contract, if it is in writing. (3) The ordinary legal rules for the construction and interpretation of written instruments apply to partnership and profit-sharing contracts. (4) If the profit-sharing contract is unwritten and oral, the speech and conduct of the parties in relation to its subject-matter prove their intention to be or not be partners."

We concur in these conclusions, and the application of them to the contract in question makes it clear that the written instrument was not intended to and did not create a partnership.

The next question which arises is whether, under the facts of this case, the defendants composing the firm of McKallip Bros. are estopped by their conduct from denying that they were partners of Wiley. The petition alleges that the defendants were partners, doing business under the firm name of McKallip Bros. Wiley. The answer denies this under oath. There is no plea of estoppel, and under the decisions of this court, in order to avail oneself of estoppel, it must be pleaded.Holt v. Holt, 23 Okla. 639, 102 P. 187; Cooper v. Flesner,24 Okla. 47, 103 P. 1016, 23 L. R. A. (N. S.) 1180.

Notwithstanding this condition of the pleadings, however, we have examined the evidence with care, and do not believe it is sufficient on which to base an estoppel. The general principles governing on this point are stated in the same note previously referred to (18 L. R. A. [N. S.] 1105), as follows:

"In the second class — when there is a controversy between profit sharers and third persons — the following statements: (1) That actual partners, whatever their private agreements and however secret they have kept their relation, are liable for partnership debts. (2) That a profit sharer who is not a real partner is liable for partnership debts, if he has held himself out, or knowingly permitted others to hold him out, as a partner to creditors who have given credit to the partnership in ignorance of his actual relation to it. (3) That profit sharing is evidence of the partnership relation; but that it is not conclusive evidence of it, but at most prima facie or presumptive evidence of the partnership relation. (4) That this presumption of partnership may be overcome by countervailing proof. (5) That, when the profit sharer is simply an agent or servant, one who furnishes property, a lender of money, or a mere creditor, who receives the profits as compensation for his services, or the use of his property or money, or in order to collect his debt, without more, he is not liable as a partner, and the presumption is overthrown."

At the conclusion of plaintiff's evidence, members of the firm of McKallip Bros. interposed a demurrer to the evidence, which the court overruled, and thereafter further evidence was offered. Considering the evidence of the plaintiff only, as well as all the evidence offered, we are of the opinion that there was error in overruling the demurrer to the evidence, and that judgment should have been rendered in the lower court for all the defendants, except Wiley.

We therefore believe the judgment of the trial court should be reversed, and the cause remanded.

By the Court: It is so ordered.

All the Justices concur.