Austin, Nichols & Co. v. Neil ( 1898 )

The opinion of the court was delivered by As the certificate from the Circuit Court does not show that Mrs. Lucas actually engaged in the business of carrying on the hotel or held herself out as a partner, the sole question is whether the contract set forth in the certificate, proprio vigore, created the relation of partnership between her and Mr. Neil, who alone purchased goods from the plaintiffs.

The contract was in terms a lease, by which Mrs. Lucas let to Neil the hotel, furniture and appointments for the period of four months from June 1st, 1895, at a rent of indefinite amount, to be paid by Neil out of the receipts taken by him at the hotel, after paying the current running expenses, which rent was to comprise a certain proportion of those surplus receipts.

If this case were to be decided on the doctrine announced inSheridan v. Medara, 2 Stock. 469, that participation in the profits of a business constitutes a partnership as to third persons, even though such participation is based on a transaction which would not of itself create a partnership (e.g., a loan of money), we would be constrained to hold Mrs. Lucas as a partner. But in the later case of Wild v.Davenport, 19 Vroom 129, the Court of Errors discredited this doctrine and decided that where a partnership contract provided that on the death of one of the partners his share of the capital should remain in the business, there, although his executors would be entitled to a share of the profits earned after the testator's death, they were not thereby made partners and as such chargeable with debts. In delivering the opinion of the court Mr. Justice Depue said: "Nor is it every contract for a share of the profits of a business that will create a partnership either inter sese or as to creditors. * * * To subject a person not ostensibly a partner to liability for partnership debts, there must be some contract to which he is a party with respect to a communion of profits, which gives him control as principal over the conduct of the business, or creates, as between him and the ostensible partner, the relation of principal and agent. * * * A person not actually engaged in the business as a principal and not holding himself out as a partner, cannot be held for debts contracted in the business as a dormant partner, unless in virtue of some contract, express or implied, on his part, in legal effect creating, as between him and the persons actually carrying on the business, the relation of principal and agent."

We must therefore examine the other provisions of this contract to see whether, by their fair import, they create between Mrs. Lucas and Neil this mutual relation of principal and agent in the conduct of the business.

The general declaration of the contract is: "It is hereby expressly agreed and understood that the said M. Elizabeth Lucas has no share or part in the operation of the hotel (except as hereinafter provided for), and is not responsible for any debts or obligations of the said hotel or of the said William Neil in the conduct thereof."

Evidently, unless the exceptions referred to have a contrary effect, this clause precludes the idea of mutual agency.

The excepted provisions are that Mrs. Lucas is to beconsulted in the employment and discharge and the wages of servants; that she may select a cashier, who is to keep the books, employ the bartender, take charge of the bar receipts, and jointly with Neil control the bank account, and that she, jointly with Neil, shall fix the price for rooms and board.

Regarding these provisions in conjunction with the leading feature of the contract as a lease at a rent payable out of and dependent upon the surplus receipts of the hotel, their design seems to be to secure for Mrs. Lucas an adequate rent for the demised property. None of them displays a purpose that, in carrying them out, either of these persons shall act as the agent of the other; each is to act for self alone. The most important power given to Mrs. Lucas, that of selecting the cashier, somewhat resembles but is not so large as that exercised by certain creditors in Brundred v. Muzzy, 1 Dutcher 268; on error, Id. 674, where the creditors, by virtue of a contract with their debtors, designated a person who, in their behalf, took charge, jointly with the debtors, of the business of the debtors, in order to obtain from the business payment of the debt; yet this court and the Court of Errors held that those creditors were not thereby made partners of the debtors in the business thus jointly conducted. In view of that decision, this right of Mrs. Lucas to appoint a representative to protect her interest as lessor should not be deemed to change her status from that of lessor to that of partner with Neil, either inter sese or as to creditors who have no other basis for their claim against her than the contract itself.

The contract before us is very like that in Holmes v. Old ColonyRailroad Co., 5 Gray 58, where the railroad company had leased a hotel and furniture to Parker and Tribon at the yearly rent of $500 for the use of the furniture "and one-half the net proceeds arising from keeping the said house as a hotel," with certain stipulations designed to insure to the company its share of the proceeds; the company also agreed to furnish free passage over its railroad for the lessees and their employes in carrying on the house and for all articles for the use of the house. In an action against Parker, Tribon and the railroad company to recover for supplies furnished by the plaintiffs to the hotel, the court said: "It is no longer true that receiving one-half the profits, or one-half the net profits, arising from articles manufactured and sold, or resulting from business in which one furnishes the stock in trade and another performs the labor, necessarily creates a partnership. It is always competent to look at the particular circumstances of the case, and ascertain thereby whether it may not be merely a compensation to a party for his labor and services, or for furnishing the raw materials, or a mill privilege, or a factory, from which the other is to earn profits." On the construction of the lease, the court held that the railroad company was not a partner in the business of the hotel and was not responsible to creditors of that business.

So, in the present case, we think the object of this written instrument, viewed in its entirety, was not to make Mrs. Lucas and Mr. Neil partners in carrying on the business of the hotel, not to make Mrs. Lucas a principal or Mr. Neil an agent in that business, but to create between those persons the relation of lessor and lessee, and to secure to Mrs. Lucas her stipulated share of the net receipts of the business which Mr. Neil was to carry on in the hotel, not as profits due to a partner, but as rent due to a lessor.

Our advice to the Circuit Court, therefore, is that the plaintiffs cannot recover against Mrs. Lucas.